 We learn none of this in school. We don't learn anything about debt. We don't learn anything about savings. We don't learn anything about how to build wealth. We learn how to become employees and that's it. We go out into the world totally financially illiterate completely not knowing how any of this stuff works. So I think those two things are why people are screwed. Oh man, because we get out of school not knowing these things, but it was done to us. It wasn't just happenstance. When you go back to when the government was curating the program of education that we currently have in place to this day as sad as that is, they went to these wealthy families, the Vanderbilt, the Rothschilds families and they said, hey, you guys are the largest corporations in America. What do you need from your employees? Yeah, what do you want? What do you want? Yeah. I want somebody who's going to sit in the chair, raise their hand, answer questions, and I want somebody who's going to want to work their way off the corporate ladder, who wants a steady pay. The entire educational system was built to give them what they wanted. The more and more I look at the financial system and the way it's structured, we are putting kids in the worst position possible. And then when are you going to teach your kid about how to make money? You're trying to survive. So so much of the system is built against our children. All right, today you're going to hear us talking to Chris Nahibi. He is the executive vice president and chief operating officer of First Foundation Bank. So we asked him all about the banking crisis, the economy, what's going on, what to expect. He's the expert. By the way, he's also a podcast host. He has a great podcast, if you like, learning about the stuff called the Higher Standard Podcast. He's one of us. You'll love the way he communicates the stuff and the guy is no holds barred. Today's giveaway, the brand new program Maps Bands. This is an advanced band related or band based, I should say, workout program. Because it's a launch, it's on sale, but one of you will get it for free. Here's how you can win. Leave a comment below this video in the first 24 hours that we drop it. Subscribe to this channel and turn on notifications. If you win, you'll get the brand new program for free. Maps Bands. Now everybody else, because it's a brand new launch, it's on sale. So it's going to be $30 off. So the price will be $67. Plus we're going to throw in two free ebooks. The first one is the ultimate body weight training guide. And the second one is the first cookbook Mind Pump has ever put out. This is Quick Meals. It's called Quick Meals. It's an ebook. Again, you get it for free if you sign up during the launch period. So once again, get the brand new program Maps Bands. Get $30 off, plus two free ebooks. If you're interested, click on the link at the top of the description below. All right, back to the show. First off, Adam speaks so highly of you. Before we knew who you were, we looked at your stuff. I mean, you have the gift of communicating complicated, I say complicated to the layman, right? To the average person, complicated topics and issues in ways that people can understand, which I think is a gift for someone who's, well versus you are in your space. But for our listeners, you might not know who you are. Well, he has the resume too, right? So you went to school, lawyer, banker, real estate broker. Yeah, what do you do now? Resident and asshole. I mean, you kind of have a resident and asshole. Mostly that. That's for you, Said. It's a new title. I was actually really terrible in school and I didn't think I'd be any of those things. Really? Yeah, I was terrible. You went to Yale, didn't you? Yeah, the last stop was at Yale, but I actually applied sarcastically to Yale. I didn't think I'd actually get it. It was a joke. It was like an executive education program thing. And I was like, okay, well, if I get in this, maybe I can segue to like a master's or something later on. And I'll just apply and see if I get it. And they literally got back to me like, you're in and I'm like, what? I was like, uh-oh. And I told my wife, I'm like, do I go now? And she's like, you kind of have to go now. I'm like, okay, I guess I'm going. This is like five or six years ago. So I was a little older, but it was definitely a different visual going when you're older to school and choosing to do it and it really being your money, as opposed to like college, where you have a totally different relationship. So tell me, I actually don't know in detail your educational journey. So it sounds like you went to school, got probably your bachelor's early in life then later on. So what would that look like? Yeah, there's gonna be several jokes you're gonna make along the way. Okay, let's hear it. I'll give you full disclosure. Not the best journey. Let's see, I went to, after high school, I didn't know what I wanted to do. My dad is typical Middle Eastern parent, right? Gotta be doctor or lawyer. And I'm like, I suck at both. So this is not a good trajectory. My dad would have been a mortgage broker his entire life. And I'd always worked for him on the weekends and at nights and everything else. And he always told me he'd pay me, he never paid me. So I don't know, he's gonna keep working. So, you know, love my dad. And we still work together this day. He actually is, he runs my pro bono law firm and we do some stuff together. But I graduated and I went to junior college. I thought I was gonna play basketball. And I was, you know, I was moderately athletic looking back on it. I probably had the ego of somebody who was very athletic, but I thought I could do a lot better than I did. I played in some pro stuff here and there, but I really let sports kind of get in the way of where I wanted to go. And looking back on it, I think it was actually a good thing because it gave me the time to kind of figure out mature what I didn't like. Yeah, mature. Cause we all feel mature as hell when we're 18 or 19. And you look back on it when you're in your 40s and going like, oh yeah, I was lucky I didn't die. So I had two choices after junior college which was not mapped out was I could go to another six months of junior college or I can go to USC. Well, at the time, six months seems like an eternity. So I chose to go to USC and take on a ton of student debt. I got a bachelor's in science so I thought I was gonna be a doctor, right? Well, I took organic chemistry and knew immediately this was not for me. Like it's like the level of complexity. I was like, why am I doing this to myself? And then my friends around me like, you're an idiot. Why are you doing this? I'm like, I don't know. I came home and told my dad, like I'm not gonna be a doctor. I'm gonna go figure something out. Maybe I'll work in finance. And the whole time I'm working full time at this point in finance and mortgage making. But I only knew the single family side. I wanted to know like the commercial side and I wanted to know how like how big conduit deals were sold in the secondary market and how all these complicated things happened. And honestly, nobody could tell me. Not even my dad had been in the business for 30 years. People get really siloed. They love what they do and they kind of make money doing it. And they're like, why do I need to know about all this other stuff? Sure. So I wanted to know more. My dad tells me one morning, he wakes me up super early, hey, you're gonna take the LSAT, you're going to law school. And I'm like, no. A couple of weeks go by, he wakes me up with McDonald's, which I knew was a problem. Gives me McDonald's as you're gonna run an errand. He drops me off at a junior college and gives me a pencil and says you're taking the LSAT, it's over there, bye. Closes the door, it drives off. There's no cell phone or nothing at this time. I walk in and take the LSAT and I know nothing about it. And now I know there's several sections and they're all timed. I'm on the first question, the first section. They're telling me there's like 10 minutes left. They're right on the board. And I freak out and I take it. I got my results back and they were very good. Really? But I didn't know what my results were good. I didn't know the scoring spectrum and none of that. I hadn't really thought about it ever. I was admitted to law school within the week. Wait, okay, wait a second. How did you have that happen? Yeah, wait a second, so okay. Does your dad kind of know then that you're actually just maybe a really smart kid doesn't apply himself? He's not motivating that direction. Is that really? I think he thought I was a lazy moron, to be honest with you. But I think you had to be a doctor or a lawyer in his culture and I just happened to have the aptitude for this. Now how did you know the stuff that would be on that test just through the work that you did? That's the fallacy. I think a lot of the standardized testing for the LSAT, it's not about material that you know, it's just about logic. So if you can use logic and reason to get through things, that's pretty much the test. Now a lot of people study for it because they're trying to improve their score incrementally to get a tiny bit better to get into a better school. My dad was actually on the board of a really small, not high-end school called Trinity Law School, which is where I went to law school. I still didn't want to go. My dad actually went to law school the same time I did. Oh wow. So that was weird. My dad's like five, four, tells everybody he's five, it looks like Danny DeVito, but look at you. Really? Oh yeah. I'll show you the photos afterward. So it was your mom's seven foot? Wow, what a contrast. How'd that happen? Yeah, and here's the joke that I was looting to earlier, mom's six, four. No shit, your mom's six, four, and your dad's like Danny DeVito. Oh dude, I walked in on the other ones. It was the most messed up visual you'll ever see. You did not. What, bro? This is amazing. I want a picture for the YouTube channel. We're gonna get a picture of mom and dad. It's etched into my brain. I've seen it. Wow. Six, four. There's like a foot difference. Yeah. 27 years, they're not divorced and they've moved on and everything else. But yeah, that was my life growing up where people would be like, that's not your dad. And they go, oh, oh yeah. Okay, I get it now. Wow. I'm gonna walk in the reverse. That's wild, that's wild. So you guys go to law school together and you like studying together and stuff with your dad? God, it was so awful. You throw spit wands at your dad so that you're not. Every possible bad thing you think could happen about going to school, your dad happened to me. I would show up to class late or I'd be hungover and my dad would be in there all preppy in a tie because he went to work that day. We were both working in finance for the day and going to law school at night. And he's like, yeah, my son's an idiot and let me do that. And we answer that for you. Like in the middle of class. No. No way. Did he really do that? Yeah, and then everywhere you walk in the school, they're like, oh, there's those two, like the cute father and son. And my son, the moron, it doesn't belong here. Like it's a whole thing. You would answer questions for him. That's like a sitcom waiting to happen right now. Oh yeah, it's funny until it's in your actual life. That is a sitcom waiting to happen, right? Imagine your dad getting a better grade than you going, I work full-time. I pay all the bills and this is the things I get. And you're just like, I was drunk. I don't know. Oh yeah. Oh my God. That's great. So you did that and then you graduate and take the bar. So I took the bar the first time I failed. I failed by like seven points. And if you don't know, when you take the bar, someone actually physiologically sits down and when you get that close to passing and they go, okay, is this person an attorney or not? So someone makes a decision discretionary if you should be an attorney or not. And someone decided that I wasn't there. Looking back on it, I was really pissed off, but they were probably right. Well, explain how that works. So if you're that close, they can decide to let you pass. Yeah. So back then it was a three-day exam. I think now it's two days, but back then it was a three-day exam. And you sit down, you do the whole blue book thing and there'd be a lot of like written material. So it took a lot of time to go through it. And because some of it is subjective based on somebody reviewing your written essay as opposed to like the multiple choice question. That's why, okay. Somebody would go, okay, in the cumulative numbers here, this person is just, you know, within like 10 points of passing, should this person be an attorney, yes or no? And then it would be like a no. And then you get your blue books back later on if you failed and if you passed, you never saw it. So I imagine that's only if you're within a range, right? If you like failed miserably. Yeah, but like 10 points, I think it's one point. Okay, so there's like a little buffer there because some of it's subjective. Yeah, so I actually never intended on being an attorney after that. And I actually, at the time I was clerking for a law firm at night. I was working in finance for the day, clerking for a law firm at night. At this point, I've now moved on to commercial real estate and I'm trying to figure out as much as I can about, you know, retail and office buildings and all this stuff. And the attorney that I'm working for says, hey, you're doing such a great job clerking for us. We're gonna hire you as an attorney when you pass the bar. We know you're gonna pass the bar. Well, oops, he was wrong there. But he had this whole salary negotiation thing. So I come in one day in the middle of the day at lunch and leave my other job and I go there and he offers me $55,000 a year as a starting salary. And how long goes this? I was, let's see, I graduated law school at 23. I think this was around 24. So... It's a decent money at that time. Yeah, I mean, it's not terrible money at the time. But I was making three times that in commercials. I was just gonna say that's not much if you did, especially after going to law school and all that. Yeah, so that was actually, believe it or not, the hardest part about me getting hired in commercial real estate is that people saw me having a lot of agree on my resume and they're like, oh, he's just gonna pass the bar one day and he's gonna leave. So nobody would ever hire me. Oh, I see. It was a huge... I had actually took that off my resume. Because they thought you were just gonna balance this. Yeah, I thought you were gonna be gone. Oh, interesting. So the only reason I actually got hired, true story, was because when I took it off my resume, I went in for this interview and the girl who interviewed me, who's still a great mentor to this day, she could tell something was off and what she knew and I didn't tell her, but until afterward, when she asked what was going on, I didn't know anything about commercial real estate but I really wanted the job. So I went out and found a book at the local Barnes and Noble it was an MBA book on commercial real estate, read the thing cover to cover the night before, didn't sleep, went in for the interview and lied my ass off the entire time. I was like, oh yeah, I know how to do that. Yeah, that's the problem, I can do that all. I can do all that. I go, yeah, sure, death service, sure. Buying properties, rent roll, yeah, I got that. And she closed the door and she asked me, and she said, that was a really good attempt and all of that was bullshit. You're lying. And I go, yeah. Oh, you gave it up. Her daughter had gotten a law degree and had to move to Australia to get a job because she had the exact same pressures that I had. And that was the only reason that she hired. Oh, so she empathized with you? She empathized with me because of her daughter. But I mean, how small and weird of a world that that would have worked out. Right. But at the time I was making three times as much there than I was an attorney and at that point I decided, you know what, I'm just never gonna do this again. So I just went full into commercial real estate and that was my focus for years. Years. And then you decided to go back to or go to Yale at some point? So I got really, really, working in corporate America become very easy to get complacent, right? You do your thing, you go home and like you live your life. Yeah, you pay check and stuff. Yeah. For a while I was very much addicted to the gym. Like go to the gym after work and I would, I would, I'd live like a bodybuilder every single night and like that was my thing. But I wanted more. This is mid 20s we're talking about right now. Like mid late 20s. Okay. Like probably closer to late 20s. Okay. I wanted a little bit more, right? So at about 26, yeah, 26 October, no, 27. So October, 2007, we started the bank. So the company that was that that I was working as an underwriter, they had closer doors. You're the height of the great recession in 2007. And we worked for a company that was a commercial arm of a single family resident shop and they were very much impacted. They went from trading publicly down to the pink sheets and then eventually delisted. And as a result of that, they gave everybody in our group a division of 60 day war notice. In 60 days, nothing changes, you're unemployed. So for 60 days, we went over like resume building workshops and trying to network and get everybody jobs. You're not gonna change. This is a huge recession. Yeah. It's not going to change. But the writing was on the wall. We kind of knew, which is ironically very similar and scary to what's going on today in the economy. But we'll get there. Yeah, we'll get there. But so 2007, we start the bank and I've been working 16 hours a day. I want to do something different. I decided at some point that I want to go back and take the bar again. But I'm working full time and this is a startup institution. So I decided that I'm gonna study for six months and I was getting to the office two hours before we opened the doors and I was staying till 11 p.m. until I fell asleep in my desk and studying and then every weekend for six months straight with no breaks. Like I didn't do anything else. That was all I did. Took the bar, passed the bar. Only because I wanted to have it on my resume and I knew that my wife and I were probably gonna have kids at some point. So I figured if I got out of the way my son can never look at me and say, dad, you didn't finish that. And it really came down to something as stupid and trivial as that. And then I thought, okay, well, I passed. I'm gonna use it for something. So my father and I decided we would start a pro bono law firm where we do most of, most of what we do is freeze. We do some stuff to cover the bills that might have some, you know, small financial benefit for the company but it's usually just to pay for other people's freely. What's the, what was the motivation to do pro bono? Just, is it just to help others? Was there a voluntary aspect? Like, what's the... In the beginning, I thought it wasn't talented enough to represent people. Oh, so you thought it was a good practice? It was a good practice. It was just simple. Like I'm just gonna practice for other people. It was a lot more fulfilling than I thought it was gonna be. I was like, you know what? If I can help people and it feels this good, like why not just keep doing it? So I said I wouldn't do family law. I wouldn't do bankruptcy and I wouldn't do criminal law. Other than those three, I'll do anything that if it helps people. But now I'm at the point in my career where I needed more. But I didn't wanna have an income thing on the side, income money making thing on the side because seven or eight years after we started the bank, we took a public. Now I'm an executive at a publicly traded company. Now there's scrutiny on everything that I do. And now my outside endeavors could be looked to be a conflict of interest. So I look at it as- Now to get into that for someone listening right now because we have listeners who aren't familiar with that space because you work currently in one of the most regulated scrutinized spaces that basically that exists. So you're an executive at a bank. You're doing pro bono work. You could potentially do pro bono work for someone as a favor who may do a favor for you. So this is the whole thing, right? They're like watching everything. So you have to be very, very, I have family that lives in finance. It's like I bought, I bought them a gift card from a stockpile for their kids. They couldn't even use it because they can't use the stockpile because they have to get approval from this and that. And I'm like, my God, you guys- Really? Yeah. So heavily regulated. It's super heavily regulated. It's a problem. So that's why for someone listening right now, it's like- And it goes beyond that. So like let's think about it in the context of if someone comes into my office and they say, hey Chris, you're my friend. Can you represent me? And they happen to be an employee at the bank. If I don't take your money, I don't think anyone has a problem. They look at it and they go, okay, you know what? He just did this out of the goodness of his heart and he took his time and did it. It's all good. The second I take your money, it now becomes, is this a conflict? Did you disclose it? Is it on the public filings, the proxies? You know, should the shareholders be aware? Because my main fiduciary responsibility is to protect the shareholder, right? And that are people who buy and sell the stock who I never may have met. So I need to do the right thing for the company as a fiduciary at all times, which can be a lot more complicated than it sounds. You really have to be vigilant over the types of relationships that you currently- If it wasn't for you guys truthfully, I probably wouldn't even be here today because of what's going on in the banking sector. But you know, I love you guys and I'm a huge fan of the show. So I'm not really worried about the scrutiny, but right now everything that a banker does is, okay, is their stock gonna go down? Is it not? There's a lot of regulatory concerns that are going on. And it's been, the business has been that way for as far back as I can remember, it's only gotten worse. I would imagine that you've probably gone through some shit trying to start a podcast. Oh yeah. I would just got through depositions on a separate matter where during discovery, me having a podcast came out and the number one question right out the gate is, is it monetized? Yeah. And I was like, no, it's not. Oh, well, what is it about? Well, it's about financial literacy. Now I didn't mention the phallic jokes and the fat jokes and all this that we make on the podcast, but they had transcripts of the show ready to use against me to say that I was unfit to do the job. Yup. Wow. Yeah, it's not easy to do. What's your position now at the bank? What do you do there? I'm currently executive vice president, chief operating officer. I recently changed from what was the chief credit officer before. So typically speaking, the chief credit officer is responsible for the deploying of capital and the rules and regulations around doing so in the form of loans. So if you go in and you get a loan, all the guidance on stuff that's determined that would usually be under me and my job is to manage kind of the macro risk of the portfolio. Got it. To make sure that our assets don't go bad because prior to this particular time in the economy, the only thing that really took banks down was bad credit. Now that we've had a pivot, we've seen that deposits leaving an institution fast can bring a bank down. And I thought that kind of with the management changes we were making anyway, that that seemed like a good pivot for me given that I've had such a strong track record on the risk side. So we're gonna get there, but there's always, I've always wanted to ask someone in your position in this particular question, do lizard people run the banking industry? Just kidding. Or aliens of some type, I'm sure, yeah. So, okay, so all right. All joking aside, how big of an issue are the rules and regulations or should I say what role do they play in some of these economic crises that we happen? Because I know it gets put on the banking industry quite a bit. I remember in 2008 how they put it on, you're giving out these loans, you're not supposed to give, you're packaging together and these type of assets, people are buying or whatever. But I remember, and I learned basic economics just through fun because I enjoy it. And I remember looking at what was happening. I'm like, you're actually creating massive incentives for banks to do this. And then you're telling them you're gonna cover them if they don't, if something happens anyway. It's like giving someone 10 grand, saying go to Vegas, if you lose it all, we'll give you the 10 grand back. And here's the games you could play, play the riskiest games type of deal, we'll give you more money. And it's like, well, yeah, that's kind of what's gonna happen. Am I kind of hitting the nail on that? 100%, yeah, the system is built that way. I think people demonize bankers. And again, I have a bias because I am a banker, so I'll full disclosure there. But if I recall, you're a fan of Milton Friedman, right? Yeah, huge. So, Milton Friedman had two kind of core concepts to his monetary policy theory, which ultimately one of the Nobel, I think in like 76, right? One that businesses and consumers left on their own should really do the right thing for the economy if given enough time. Government intervention is not always necessary, and it's usually not the best thing. And the second part of that is really, if the government's acting, they should really look at the data of what's happening versus the intention. That was kind of the second part of his monetary policy. And I'm doing a terrible job phrasing it, but essentially that's what it is. I think that's why you hear people like Jerome Powell on the media right now saying, we're gonna be extremely data dependent, we're gonna be extremely data dependent because he's a big fan of Volcker and Volcker was also a big fan of Friedman and they had a lot of ties there. The banking system has been set up for such a long period of time with protocols and regulation in place to stop banks from failing. But the problem is, is that's a perfect storm meant for each recessionary economy, but every single recessionary economy is like a snowflake. They've all had a different impetus that started it, right? Milton Friedman's classic example of the Great Depression was that the government had really did that. They overspent, they created the inflation that brought down the economy and they're the ones who drove us into a depression. And he wasn't like anti-government. He was very much a capitalist, but the argument can be made that the regulations put in place are always reactive to the economy that preceded it, but recessions are never the same. And yet we expect these rules and regulations to stop what happened before to have what could happen next. And that's exactly why we're seeing this not work right now. Yeah, so like just to put it in plain, and again, I love that you're here because I'd love you to correct me, but if like a bank's job, like any business is to make money, and part of the way that they make money is they assess risk. If I'm gonna loan you money, I have to assess the risk of you potentially not paying me back. And then that's gonna determine the fees and the rates that I'm gonna charge you. If you're higher risk, I'm gonna charge you more. If you're lower risk, I'll charge you less. And that's just the way it works. But if government comes in and says, hey, all these people owning a house is like, that's the American dream. We need to guarantee everybody owns a house. So you, Mr. Banker, you're required to give these people loans. And here's the rates that you have to give them at and you can't necessarily adjust them too much because it's not fair. And oh, by the way, because then you come back and be like, well, what happens if they don't pay back? And then the government's like, well, if they don't pay back, then we'll cover that. Yeah. Like that sounds to me like a terrible, like a perfect storm. It is. And so let's break it down rule basic. Cause I think a lot of people think they understand banking until they start getting the nuances of it and it gets a little bit more complex as you layer in the challenges, right? So banks primarily make money on net interest margin. The difference is one between what they're making on the loans that they put out versus what they're giving you on your deposit rate. So if they're giving you 5% of your deposit rates, but they're making 7% on average in their loans, that 2% difference is their profit margin. Wouldn't you multiply that by nine? Cause they can go nine times the money that's in there though. Right. We're gonna start layering the idiosyncrasies. That's absolutely what happens. And a great example of that is, let's say I've got a loan to you on your home and it's a million dollar loan. I could then turn around and take that loan, that promissory note and pledge it to the federal home loan bank of San Francisco for here. And they would give me call it 50% of that value to now use and redeploy as capital. So now I've got 500,000 on that million dollar note that I can now redeploy as additional money and make more interest on that loan, which is already making interest. And then it goes again. And it can go again and it can go again and go again. Now there are regulations and limits to how many times you should be doing that. They're usually done by leverage ratios and capital ratios that banks have to stay in compliance with. But it gets very, very murky. At its core though, the difference between those two though, deposit, weighted average coupon, the rate and loan weighted average coupon, the rate is how banks make money. There's all other things like fee-based money or like Silicon Valley Bank that we saw. They had venture capital stuff, stuff they were putting in that's really kind of hybridized stuff or even private equity which you guys know really well. They were putting money into those things because they were hoping to get big, big returns. Well, when the tech sector takes a dive and they don't get those big, big returns and their primary income stream is now strained, things can change pretty quickly. So yeah, the sector can be very, very complex and things can get very, very out of hand very quickly because of the leverage that's allowed. But that's how capitalism works, right? The banking structure is built so that banks put out money so people have more access to cash just to run their businesses, to leverage up, to have working capital for lines of credit, to buy homes. And now when you start doing things like quantitative tightening and pulling that out of the markets, people are calling this a credit tightening cycle, it's not though, not yet. Right now, we're just seeing banks say, okay, if I put out money today and the Fed is in an interest rate increasing cycle, I'm gonna lose money because that rate could be 25 basis points or 50 basis points higher if I just wait. Right. Right? At the same time, they're saying, okay, and we also don't know what's happening in the economy as a recession looming or these credits we're making now, these loans going to go bad, do we wait? So banks right now are just holding back. A lot of uncertainty. A lot of uncertainty. So it's not a credit tightening cycle. Yet what you're seeing in the news, what you're seeing is banks are pulling back saying, I'm gonna wait to put this money out because every dollar I put out when the Fed's done raising rates is gonna be worth more than a dollar I put out now. So what's the different, what will a tightening cycle look like and that what will be different about that than what we're experiencing right now? Well, as a consumer, what will I see different? Yeah, access to money in the markets will become very difficult to come by. So the first part of it we're already seeing, right? Businesses that have run for the last 14 years in a very artificially low and straight environment now have index plus margin pricing. So their loans are based on an index plus a margin and that changes as interest rates rise. And the Fed has increased rates at an unprecedented cadence. They've never done it at this cadence, at least not that I can recall. And certainly we haven't- What about during Reagan's, they raised rates quite a bit there to crush inflation. They did, but I don't think it was in a year though. I think it was a little bit longer period of time. Not this many in a row. Not this many in a row. And that's actually the biggest problem that we're seeing now. So the Fed, going back to regulation, right? They have a severe adverse case scenario of how banks are supposed to stress test their balance sheets, right? And basically what it says is if rates go up and I think their Fed severe adverse case scenario is 4%. If interest rates rise 4% in any given year will your bank still be quote, well-capitalized? Okay. Except the Fed increased rates in a single year, 5%. Oh, so beyond the stress test that they even used? Beyond their own severe adverse case scenario. And even in their own baseline scenario and some of the things that they thought were gonna happen, they were way off. And okay, we were all way off on our predictions, Moody's, everybody who's predicting numbers. I mean, economists all over the country were wrong. That's fine. I mean, nobody plans for recession, nobody plans for big changes. But the fact of the matter is the Fed didn't have to increase rates at the cadence they did. They could have done it over a year and a half like in Reagan's generation. Wow. They chose to do it in this truncated period. And I think there's a little bit of stigma and pressure on them because the general consensus is the Fed acted a year too late. Let me ask you questions. Not super off topic, but if this was completely market-based, interest rates, banks and consumers deciding through working with each other in trade, what rates should be, do you think that we would be in an issue like this? Or do you think it would have reflected kind of more accurately what's happening in the market and where rates need to be? I think it would have reflected more accurately. I think we're- Because you said artificially low interest rates for a long time. That's because it was stuck there and controlled. So I have this conversation with a lot of, so on our show, we talk a lot in as most colloquial language as we can because I want to break it down, but sometimes people will ask us questions coming from a place of arrogance without realizing it. A lot of younger entrepreneurs will say, I am successful, I ran a business for 10 years. I can do this. And you're like, okay, you are successful. Congratulations, you've done well for yourself, but you weren't tested. And that part really bothers us. You did it when most people were winning. Access to capital, access to money for the last 14 years has been in an unprecedented availability. 14 years of artificially low interest rates meant that there was tons of free cash flow. We had quantitative easing versus quantitative tightening and the Fed was just pumping money into the system. This reminds me of pre-2008. I had family members, blue-collar workers in the Bay Area where it's expensive. We own like four houses because you go get a loan and they were like, how much money do you make? This much, here's your loan. So everyone's like, I own houses. Yeah, you do because at the time, anybody could get a loan for whatever and they do the adjustable rate and they think they have their house and prices were going up every single year. So 100% and we saw the fallout of that is it winds up becoming a house of cards that gets pretty easily knocked down. Right now we're at the highest non-household debt that we've seen ever in history. So your credit card, your auto loans, all that cumulative debt outside of your home is the highest level in aggregate we've ever seen. And now we have scarier things that are on the horizon. We have buy now, pay later. One in five Americans have used buy now and pay later services. They're even using it for food and groceries. Oh, wow. Said, my cohost and I on the show have talked about how their stories, where people are using it to bridge the gap of their credit cards being maxed out and buying groceries for their family. And it's terribly sad and tragic, but this only prolongates the problem. It doesn't allow us as a society to pull back from consumer discretionary spending. Do you think that's because we're also at a time, I think at record highs of equity too. I think more people have more equity or quote unquote savings. They feel richer than they are maybe. Right, so because they feel richer, they feel like, oh, I can go ahead and run this credit card debt. I could do this stuff. I'm sitting on $300,000 worth of equity in my home. Yeah, that's the number one source of most people's net worth still to this day. And over the course of effectively, prior to this year, 2023, the last two years, home prices went up across the country and average about 42% in some areas. 42% in two years. So I was getting a lot of pushback from people saying, so I still believe we've been in a recession since January 1 of 2022. The traditional definition of recession has been two successive quarters of negative GDP growth, right? So June 30th, 2022, if you recall, was when the White House started putting out statements saying two successive quarters of negative GDP growth is not a recession. Well, that's been a recession for the last 10 recessionary economies, but I started saying then that I think we're gonna see a home value correction of somewhere between 15 to 25% across the country. And we've gone back and forth on it, but we've always thought that July of this year would be the inflection point where you really start to see it more and more. The data is already pointing that some areas are already moving and pivoting from that. But even then, if it goes down, let's say 25%, compared to the last three years, that's not even taking away half in some areas of your value. Yeah, so this is all very interesting. And a lot of people don't understand the ramifications or implications of kind of what we're talking about. When you have money that doesn't reflect real services or products or innovation, it's artificially interest rates are low. They're giving it out very easily. You get misallocation of resources. So money, people think money's money. Money represents something. And as a species, we have to be able to allocate it effectively and efficiently. Otherwise, we create bubbles and weird shit happens like, I don't know, people buying baseball cards during the pandemic and we're making money hand over fist. Pokemon cards. Right, and you get this misallocation of resources. It's basically us wasting our productivity on stuff that we shouldn't be wasting it on because the market is so skewed. And this is a problem because you can only skew a market for so long before the shit hits the fan and the longer you skew it, the more shit that hits the fan. So we saw that in 2008. I feel like what they did after 2008 was, it's like cocaine party, uh-oh, hangover, more cocaine, and now we're here. Am I, I mean, do you think that there's some truth to that? Oh, 100% there's some truth to that. And so in cocaine party is actually a solid reference because the Wolf of Wall Street and Jordan Belfort and that whole story was the East Coast version we saw on the West Coast, which was mortgage guys doing what the traders were doing on the East Coast. And it was very much the same lifestyle. It ultimately led to what we now know as the Great Recession. And then in 2008, Senator Dodd, Senator Frank sat together for the Dodd-Frank Reform Act. That was implemented in 2013, but then scaled back during the Trump administration in 2018 to where it only affected larger banks over, I want to say, 250 billion and above, which is why Silicon Valley Bank, even though they had creeped up above 200 billion, weren't actually applying Fed stress test yet. But we said all these things in place and all these stress tests in place, but they weren't really applied. Meanwhile, the economy's gotten super frothy. And sure, we're not making stated income loans that the extreme cadence or at least the type that we were back in the day. We're not doing no income, no verification loans. Everybody was getting homes back then, but this is also not a credit crunch cycle. What happened now, which has never happened really that I can recall, is that you have outside factors saying, hey, you should pull your money out of that bank because of X, Y, and Z. And usually the X, Y, and Z has nothing to do with how stable or strong the bank is. A great example is Peter Thiel told everybody, including Y Combinator, who were the largest depositors at Silicon Valley Bank to pull their money out because he had fears the bank was gonna fail. So let's talk about that for a second. What is a run on the bank and why is it so dangerous for a bank? Like people have their money in there, why can't they just get it out? Right, yeah. So going back to the net interest margin example, right? So your money comes in in the form of deposits. Banks have a primary responsibility to bring in deposits in their primary lending area. Every place they have a physical branch or they take in money and to deploy that capital back out in the form of loans in that area. And the reason why is you don't want people taking it from a less high net worth area and putting in a more high net worth area because they perceive the risk to be less there. So they're gonna constantly put out that money. So the banks, their source of money to make loans are your deposits. They're taking your deposits and they're lending it out. And the reason why that makes sense for them is that arbitrage, that net interest margin is how they make their money. Now they're only required to hold certain amounts of your deposits in the form of cash on their balance sheet or they buy securities with them. In the case of Silicon Valley Bank, they bought securities that went way, way down in value as the Fed took an unprecedented step in increasing interest rates so fast. So not only do you have a percentage of what people give you but now it's even worth less because the securities went down. How did we come up with that percentage, that number that we have to keep in? Was it just something that they just did the math over? Is this fractional reserve banking? Is that what we're talking about? It is fractional reserve banking and it does vary based on regulator, the types of... So the FDIC is one regulator, the OCC is one regulator and the Fed are another regulator. Even though Secretary Powell comes out and he speaks about Fed monetary policy and unemployment and jobs, the other responsibilities they have are several. One of his data aggregation, another one is bank regulation. So they're also a bank primary regulator as well. And there's several different variables in how you're regulated at different sizes of institutions. Why was fractional reserve banking even created? Was this during the creation of the Federal Reserve or did this exist before that? I think in a lot of ways, it's always kind of existed to be honest with you but I think the Federal Reserve really played a key role in that creation of it. But truly, I think we kind of sensationalize the big words. The fact of the matter is, is banking exist in this form today because it's the only way to really deploy a capital out at the cadence that we need is decided to use. Yeah, I'm glad you said that because fractional reserve banking gets demonized. It does. But if we don't have that, then basically there's no loans. And the only way you could build a business is earning money and saving it and that would crush growth. That would crush growth. And most people don't understand that part is scalability for companies and for banks alike are all the same. In order to grow and scale, you need access to capital. And the problem that you see most companies fail when they scale too fast is they've deployed too much capital and can't get more because now they're not making enough money to pay down their debt. So scale and growth all have this natural symbiotic relationship and banks play a huge key role in that. Again, I have my bias as a banker, but you're right. The system is designed to work this way. And if you take out the fractional banking concept, it doesn't work anymore. Take every business in America and eliminate all the ones that required getting capital through a loan. You're gonna cut out probably a majority of companies and businesses right now, right? They'll be gone. And a lot of younger kids will tell me, well, let's just get rid of banks. We'll go to the FinTech route. And then I go, okay, where are they getting their money from? They start talking about companies like the Robin Hoods of the world or even Apple. They're all using banks as the backbone of their infrastructure. And you don't have to take my word for it. You can go to their public filings which are available on the SEC's website or you can go to Yahoo Finance and you can pull them down to get the income statement in balance sheet for any company you want that's publicly traded in the world. So in a nutshell, a run on the bank is when too many people show up wanting all their money, the bank doesn't have the money, they have to shut their doors. Well, ultimately that's what would happen is they would in theory shut their doors but typically speaking, the FDIC will step in and seize the bank to protect depositors. The FDIC is the Federal Deposit Insurance Corporation. Their primary job is to insure and protect the depositors. And the limit's up to $250,000 per vesting on the accounts, which we can get into later if you want. But the fact of the matter is is they don't just fail and shut their doors. What happens is they usually get taken over typically on a Friday and by Monday, the FDIC is operating them or they've arranged a sale. Kind of what would happen with the First Republic Bank where they were closed on effectively a Friday that the FDIC stepped in. It was not transparent to the public and by Sunday they had announced that JPMorgan had bought that. Now often, is this true that often historically run on the banks were because of fear not because of actual. I was just gonna ask that is it normally because something breaks down systematically or is it normally from nowadays, social media, fear of. Oh, get your money out. You're not gonna be able to get it type of deal. So this is my main beef of what's happening now and then in the news. I watch CNBC all day long and I watch the ticker primarily on the television on mute and then I'll look at Adam's photo three, four times a day. But in between what I'll do is I'll look at the prices and valuations and some of the rhetoric that's going on and it's so fear driven. It's a very parasitic cycle and it's the news will say, hey, this bank's in trouble or Peter Thiel made this comment and report on his fears, which is them kind of casually suggesting that you should be afraid too. Yeah, my proxy, right. Then you get Reddit, you get Twitter, you get all social media that goes ablaze with this and then the retail traders come in and kick in. I think people take retail traders and demonize them. I'm not mad at retail traders for trying to make money with short selling values down by betting that stock prices will go down. Yeah, but that just is a confirmation bias to a depositor because now I'm seeing your stock drop also and I'm like, oh, it's true. I better go get my money out. And then the parasitic cycle kicks off all over again because now the news is gonna report on your stock being down a great degree in a single day in the trading volume. And then guess what? Back on social media, back to the short sellers and it just goes over and over again in this path. That recently happened to Pac West and it crushed their stock. And you can see it in after hours trading where they traded below almost 60% down the day that some press came out. Now that press has turned out to be false and they've come out since challenged it but the retail traders don't care. It doesn't matter, damn it, it doesn't care. And I think that's where we're at a really dangerous inflection point with the banking sector and a lot of people that are with the SEC for example are suggesting should you stop short selling on banks because of banks, unlike a company where your capital may be based off your stock, banks are based off their income statement and their balance sheet, but that's your deposits. You trading the value of the stock doesn't change the deposit situation. That sounds like a logical idea. Why would that be a bad idea to do that? To just say you can't short sell banks anymore. That way the retail trader cannot affect the stock price. Then if the stock price, because the stock price is normally gonna be based off of cash flow and how profitable, how good the bank is doing. Yeah, I would imagine there's downstream potential effects of that, right? Cause it could, you could reduce, I guess investments, money, flow, like that might also cause other negatives, right? It certainly could. And I've got very mixed emotions about it. What I would say is I'm always one to, I'm more of the Milton Friedman type, let businesses and consumers determine the market, let's not limit their ability. If you want to short sell somebody, short sell somebody. But I draw a line when I say, okay, let's look at GameStop. Let's look at some of the Bed Bath and Beyond stock where retail traders have jumped on. I think we can all healthily say those companies were troubled for years. And on the fringes of bankruptcy, if not already filed bankruptcy and came out of it, right? These banks were otherwise healthy. I know people want to demonize Silicon Valley Bank and First Republic Bank. I'll use First Republic as an example. They were a very good bank. I don't care what anyone says. They just ran a very low profit margin business, meaning that their loans were not at super high rates. They gave their clients, which are high net worth individuals, relatively low loans compared to the market pricing. And they gave out pretty healthy deposit rates. So they only had a small one to 2% margin of profitability. But they worked with super low risk depositors. Correct. But the Fed destroyed their profitability. And yet, here's what happens. During the last earnings call, they actually beat earnings expectations for the street. They did better than the street thought they were going to do, but it didn't matter. Their stock was going to get traded down because of the impacts of retail traders. You want to take the game stop down. You want to take Bed Bath and Beyond down a troubled company, fine. But what people don't realize is there are employees there who are scared for their job. I don't care if you wipe out the executives, you wipe out the compensation, but you shouldn't be wiping out the stockholders. Yeah, you know what the argument is. The argument is that these kids are getting together, organizing their power on Reddit. And they're like, now we have power like the big traders. And so this is just equalizing things. And we're making money the same way they do. They do. Yeah, so that's the whole argument, right? And I don't begrudge them that. That is what the system allows them to do. A long time ago, I had a conversation with Vlad at Robinhood. And this was kind of in the pivotal period where they were very sensitized and they were all over the media. And he had an interesting take on democratizing the space, right? Breaking something down and making it available to everybody. I think whatever you think or feel about that model, they accomplished that goal. I think more younger people and more retail traders are now involved in trading and can do these things. And you know what, more power to them. My question is more on the macro is, do you want someone to have a million followers on Twitter be able to single-handedly take a bank down by creating a false narrative of contagion? No, but that's, see now, that's already regulated but not in that space. That's regulated for other, they would call insider trading or pump and dump. So they just haven't regulated people with this kind of power because it's kind of outside the original regulation. It depends if you trade it though. So for example, if I say on Twitter, hey, that price, that banks are gonna fail, you should get your money out of there. But I don't own any stock and I haven't had any stock price manipulation benefit from it, you really probably can't sue me for that. I get it, okay. But if I'm doing it to directly buy and trade that stock, then that would be illegal. But legality becomes a very murky thing here. I guess my question to the kind of the macro system is do we want to build in safeguards to prevent stuff like this from happening? Or do we want to let the free market determine that and expect that this is a natural logical consequence of things happening? And I will say, look, as much as I want to blame retail traders, it's not them. They took advantage of the Fed taking the unprecedented step, which they probably did at way too fast of a pace. The question we'll never have the answer to is why. So if we leave it up to the free market, then how do the banks in the future potentially protect themselves from a contagion like that? Well, I think we're gonna probably see some regulatory changes as a result of this, which will require banks to keep more capital. So typically speaking as a bank, you want to keep as little money on your actual balance sheet cash, on your balance sheet as you can, because you want to put it to work, right? Every dollar is on your balance sheet, not earning interest, you're losing money on. Yeah, let me answer that. And again, as someone on the outside, and again, I would love your opinion, you're the expert on this. But I think that if they did that, what would happen is banks would look at the risk and they'd say, okay, we need to keep more money on deposit, we still need to make money. So now we're gonna charge higher fees. Right, right. And so that's the new model, that's what the model's gonna end up looking like. Which isn't necessarily bad, is it? I mean, we're coming out of an era. That's a market response. We gotta do this to protect ourselves and prevent what's happening, we still gotta make money. So now you wanna have a savings account, it's $200 a month, you want this, it's $100 a month, but we have to keep more money on our balance sheet. So the problem is not necessarily in the analysis, it's in the market. And the reason why is if you wanna have a small community regional bank, you can't compete on fees and build a business like JPMorgan Chase. You can't grow and scale that business. The same way small, middle-sized businesses need to have cash and capital to grow and scale, banks need to too. So typically speaking, these banks have filled the space of commercial real estate. 80% of commercial real estate is made at the community bank level. So the larger conduit, bigger structure stuff is usually done by insurance companies, but most of that is that banking space. So what you typically get is you get, call it your small, medium-sized businesses that go to community banks, they want customer service. There is nothing proprietary about banking anymore. Everybody's doing the exact same thing. The only difference is your value proposition of service. How good do you treat your client at the end of the day? Those junk fees, that's a big service negative for most people. They're like, wait a minute, I'm getting like a $3 fee on this first statement. Like why do I have that? So if you're a small community bank, you do have to make loans at a lower rate and you do have to give higher deposit rates and you do have to have less fees in order to compete with JPMorgan Chase. Because here's exactly what JPMorgan Chase is gonna do and this is not a knock on them, just one of the globally systematic important banks. You know what? We're not gonna give you this high interest rate, but we're JPMorgan Chase, we're never gonna fail, you don't have to worry about us being the news. Your interest rate's 3%, not 5%. Take it or leave it. And most people are gonna leave it. Yeah, yeah, yeah, interesting. Okay, so let's talk about, I love the analogy you gave by the way of, or how you explain banks, seeing that these interest rates that are going up don't wanna loan out money because they're losing money. This is kind of how, I guess it is how runaway inflation can happen where me as a consumer, when inflation starts to get really crazy, I'm gonna go out and buy as much stuff as I can because I know that that refrigerator next week is gonna be 13% or 10% or 50% more expensive when things get crazy. So I'm gonna buy more stuff which just drives inflation up even more. So right now we're seeing inflation, they're trying to lower it, doesn't seem to be working. What do you think's going on? Or do you think that they haven't waited long enough or do you think they need to keep raising rates or is that just gonna cause more problems? So this is an interesting question and I believe it or not, my best analogy for this is body fat, right? When you start losing fat, it's really easy in the beginning. If you keep the work in and you start doing it, but the leaner and leaner you get, the more difficult it is to see a difference and the more critical you get, right? It becomes almost exponentially harder the leaner you get as you get down. Very true. So the inflation moving down from 9% down to what we're at currently, in my mind is not the hard work. And I've said this over and over again on our show that the pain for the consumer is not gonna be in the raising rates, it's gonna be the holding rates. It was both Freeman and Volcker who had the underlying supposition that in order to bring inflation down to the two to 3% target, which has only been an official target since been Bernanke. So it was Bernanke Yellen and then I believe Powell, correct? So Bernanke was the one who made it official but it had always been approximately two to 3% before then. In order to get it down to where the target rate where you want to get it to, you typically had to raise your Fed funds rate above your inflation rate, yeah. So we have to be like 9%, 10% right now? Yeah, you'd have to be, well actually right now you'd probably have to be closer to call it five and a half, five, six percent is probably what they're pushing to. But we just had a bad jobs print. Jobs actually went back down to 3.4% from 3.5%. And I know every time somebody hears a low number of unemployment, they go, okay, well that's a good thing. And it's not. Milton Friedman talks a lot about this as well. A healthy unemployment number is somewhere around 5%. And the reason why is you want transitory migration, people hopping from job to job because they can get more money or they got a better opportunity here or there. Having a super low unemployment rate is actually not good for the economy and it's not good long-term. I mean, people are afraid to do anything, they just stay. People are afraid to do anything, they're staying in their jobs for too long or there's too many jobs in the market and not enough workers. And what you're gonna see now, and it's a byproduct, it's not directly the intention of the Fed as they increase their Fed funds borrowing rate and hold rates, unemployment numbers are gonna rise and wages will come down. That is just a natural byproduct of what's happening. You've seen it all over the rhetoric. Did they say that that's part of their goal? It is part of their goal. They explicitly said we want this to happen. They're trying to set expectations is what they're trying to do. Oh, okay. It's a natural byproduct. They're not saying we want this to happen but they're saying they know it's going to happen. And I think that's probably a healthy thing. But now what's crazy to me to think is you've had the tech sector hit, you've had the banking sector hit massive layoffs in both of them. In the lending sector, a single family residence lenders across the country, non-bank lenders. And people are going, okay, well, you know what? I'm in this industry, that industry, I'm okay. The tidal wave hasn't come. We're seeing the tsunami kind of pull out right now. And the tidal wave is what comes next after they're done with their interest rate increasing cycle. And I think where this is gonna become most visible to the consumer is July. So January, February, March, you report earnings for Q1 in April. April, May, June, you report earnings for Q2 in July. These Q2 earnings will be reported by companies in July. And I think you're gonna hear more about layoffs as those July reporting comes up. You're gonna hear more about less profits. There's really only two things a company can do to make more money as it, the expectation is for all publicly traded companies to make more and more money over time. You either increase the money you're making, top line revenue, or you can manage your expenses. And right now we're entering an economy where the only way to do it is you're not gonna increase your revenue because people are gonna stop being able to spend as much as they start losing their jobs and make less money. They're gonna have to manage expenses. And the primary way to do that is human capital, unfortunately, it's reductions in force. So all these things will kind of coalesce into what I think I told you Adam a long time ago was, I think you see July being that pivotal moment for like housing prices and for the market because the consumer is gonna have to sell their home to tap into the one thing they have that still has money in it. Do you think that that's because, and this is more of a political question, but do you think that what they're gonna do is just say, hey, acceptable inflation is now 4%, this is what we want. We want 4 or 5% because trying to get it down to the old number 2% too painful, maybe not politically expedient, people are gonna get mad at it or whatever. Do you think they might change that? Oh man. So the National Bureau of Economic Research is primarily the one who has the obligation to declare a recession. The White House may say whatever they want and everybody else may have their commentary, but it's the National Bureau of Economic Research whose job it is to come out and say, hey guys, this whole thing we've been living through, that's a recession. And they typically do that a year, year and a half afterward. Well, if we believe that a recession started in January 1, 2022 and that we've been living through it since then, you've not heard a single word from the National Bureau of Economics since January 1 of 2022, nothing. Like there's been other sounds. Why? I think if I were to guess, they're looking to look at this holistically and say, okay, did we have a double dip recession of sorts? What is the characteristics of the recession? A typical recessionary economy lasts seven to 10 years from peak to peak or trough to trough, right? That's kind of like the window of the sign wave, if you will. We just lived through 14 years of one of the most prosperous economies in modern history. Why do we expect a normal length or a normal recession to happen after that? It should be more pronounced, right? Yeah. So I think what they're doing is they're gonna look at things and say, okay, let's look at things on a macro and take a little more time to be thoughtful and pragmatic about it. But we have a looming November 24 election cycle. You've got a very interesting political climate now where bankers themselves are politicians. Jamie Dimon's a great example of that. But in order to win, you have to be an extremist. You have to be an extreme left or extreme right in order to win now. And there's really no in between. And if you're in between, you're just not gonna have the base. So I think you're gonna see a lot of this as fodder for the news. And perhaps that's what Jamie Dimon and the FOMC and the seven voting members and the 12 members in total are considering when they're trying to do this in an expedited fashion. Maybe they're saying, let's try to get this handled as quickly as we can before the election because we don't want the election pressures to stop us from going to two to three percent. And that could very well be true. But what I'll say is the president and, well, the Senate names I believe, and I think the president confirms the FOMC, don't quote me there, it's been a while since I've looked at how they get named, but there is some political allegiances there because the political party that's in power will put them in the place. So you have to wonder if the Fed presidents have some of that in the back of their mind is let's handle this now because obviously the year before, which is now we're already starting to see people say, hey, I'm running for president again by the included. And I think you're gonna start to see some of that rhetoric pick up because now once one of these people decides what does the American people, what are they afraid of? They're worried about their job, they're worried about money. How do we get more press coverage? Well, we're gonna talk about stopping the Fed from doing this so that we're looked at as a good guy and we're in favor of the people and it winds up becoming this vicious cycle of putting pressure on the Fed. And I think that's why you've seen Jerome Powell come out so stoic. We're looking at data, I'm not promising anything and this is what we're doing. Yeah, there's obviously some influence there. Let's go back to your July predictions and your theory on why we'll see that with, so based off of your theory, should we not see a significant influx of homes going up for sale? That remains to be seen, although there has been some really interesting indicators come up in the last couple of days. So institutional buying was widely criticized in the last couple of years as being what propped the market up and drove value so high. I saw that graph, in fact, I think I saw that graph. Yeah, fortune, baby. Yeah, we were actually at the record low right now. Yeah, institutional buying has now hit an inflection point where they're a net seller, not a net buyer. These are companies that buy properties and make money off of them. So mass, that single person. And historically are always net positive and for the first time, net negative. Net seller. So to give everybody kind of a better background is typically speaking, larger companies that wanna put money into real estate and invest wanna go into multifamily apartment complexes, right? Well, recently cap rates, capitalization rates, which is a method to compare one investment to another investment in different sectors to figure out how they pay versus one another have gotten very, very low. And to give you an idea of what this means is if you were a buyer of a multifamily apartment complex and the cap rate was 2%, you were gonna make about 2% in profit on that property. But if your rate on the property, even a low rate was 3.5%, that meant the bank made 1.5% more on that property that you own with you paying them that than you did own in the property. So it got to this really, really interesting place where properties were still trading the last couple of years. People were like, you know what? I can buy this property and it'll go up in value. Values were going up, right? Well, some companies got smart and said, you know what? We're not gonna play this game. We're gonna buy single family residences, but we're gonna buy them in massive quantities. So it's like owning an apartment complex just spread out over land. Got it. And they went to the Sunshine State. So think California all the way down to Texas, all the way to Florida, kind of the Sun Belt region, if you will. And they weren't building up, they were building out. Most people in those areas, and that's why I like for my investment properties, Oklahoma and Adam and I talk all the time about investment properties in Midwest. Homes are really, really valuable there because people want a front yard. They want a place for their dogs. They want room for their kids. And that's their priority. Whereas in major metropolitan areas, I just need a place to live. You can put me in a box in a sky and it's fine. And because of that, they started driving prices up in some of the non-traditional major metropolitan areas. I think Oklahoma, I think Arizona got bumped up pretty high. Las Vegas, again, started to rise pretty significantly. Florida's seen an unbelievable growth. Yeah, boys, you've seen a great one. Michigan, Cleveland, there's great areas, right? But all these institutional companies started buying in mass quantity from them. At the same time, you have companies like Open Door who are eye buyers. They're buying sight unseen. You just go online, you want to sell them your house, they send out a real estate agent, they buy your house and they turn around and flip it. That model works great when values are going up. Model doesn't work so well when values are going down. Yeah, and what happens when the market drops with someone like that, you're not just losing one buyer, like, I'm going to buy a house. Oh, I'm not gonna buy anymore. They were buying a lot. So now it's a huge, it's like a negative feedback loop, right? You get just huge declines in purchases. So, and that's exactly what's happening now, but you have a bit of a stalemate and how this ends, nobody really knows. So now if you're somebody who owns a home and you've got a super low interest rate, do you refinance your property? You don't want to do that. Do you want to sell it? Where are you going to go buy? Your interest is going to be twice as much. So it was a bit of a consumer stalemate, but now that institutional money has said, you know what, we see a recession coming. That's effectively what the graph that I showed you shows. It basically says, based on their behavior and their own kind of economic activity, they're sensing a recession on the horizon, which I think at this point, whether you believe we've been in recession for a year or not, you have to look at the next couple of months and say whatever comes next ain't good, right? And they're saying that based on their buying activity, they're gonna wait. They're gonna wait and see what happens. So they've always sold some properties back into the market, but now they're selling a lot more than they're buying. And that has been a huge pivot. And I think the transactional volume will be impacted. And I guarantee there's somebody listening right here saying, you know what Chris? In my area, home values have gone up. Yes. The average across the country, believe it or not, is going down though and has started to go down at least for the last two or three months. And we'll see home price in home sales, it's an interesting thing, but I always put in perspective for people like this. About 34% of inflation is rent or rent equivalent, right? So unless rent or your mortgage payment vis-a-vis your home price, your purchase goes down, you're never gonna get inflation to the two to 3% target rate because 34% of that is rent or rent equivalent. Oh, I see. Because it's a huge part of what we spent. Explain that to me. You lost me there a little bit. So inflation is made up of several different factors. It's basically an average of the rising cost of all the things across the economy. Like one of the largest rising ones recently had been travel. So like airline had gone up like 26% for airline fees in a recent year. So the biggest chunk of inflation, however, is 34% of that is made up of rent or rent equivalent. And the reason why is most consumers spend the most of their money on rent or their housing. Right. So unless that goes down. Unless that goes down. It's gonna be hard to get inflation. And that's why it gets stickier as you go down. Like your body fat as you go down, it gets harder and harder to lose. So we're at this point where everyone's like, oh, inflation's been going down pretty steadily from 9% to where we're at today. Well, here's a problem, okay? It's gonna get harder and harder and stickier and stickier as we go down. And that's why the Fed is so hesitant to say we're done raising rates because they know it's gonna be more difficult. And we just had that bad unemployment unemployment print. So they go on, okay, we haven't seen enough action even though it's gone down, we're not making a big enough dent. So, and everybody's like, you know, the realtors that are out there, they're listening to the show and all the people that are in the space, it's very easy for them to say, hey, look, in my area, values haven't gone down. And that's true in some areas across country. Florida is a great example of that. There's some areas that are booming. Orange County, where I'm from, booming in some areas, they're not going down. But in other areas, they are. The average across the country is coming down. You're gonna see the impacts and you have to see them. And if you don't, I worry greatly for the economy. Let me ask a selfish question because I just had this conversation yesterday with Justin's wife, Courtney, who kind of manages and oversees a lot of our tenants and properties that we have. They will always loop me in when we're getting ready to re-sign a lease. And they'll ask me, Adam, where do you wanna go with price? Do you wanna bump them 3%? Do we wanna keep them the same? Do we wanna encourage them to lease for two years and give them a deal? And historically, over the last, you know, five years or what like that, we, you know, 3% or so, we kind of move everybody up as time goes on. But I've been worried about, you know, this influx of potential houses being sold and not able to rent, that it's eventually gonna drive rents down. And so I would prefer that we lock in for a longer period of time at the current rate that we have than trying to make an extra 25 or 50 bucks on a rent for maybe a one year lease. What is your philosophy on that? And if you were in my position where you've got leases coming up every other month that I have an opportunity to sign them for a year, two years or more, what would be a smart strategy knowing what you know with the landscape? So I obviously own a lot of single-family residences myself, I own some commercial but largely single-family residences. And that's just because when I started buying that's all I can afford. And it wound up being a good strategy for myself and my sister property managed everything for me there. I've always kind of leaned into the two year longest term possible just because it's less of a headache. And the way I look at it is for guys like you, you got a primary business, you got other things you got to do, you got families. You want those things to be your priority. You don't want this passive income to be less passive than it should be, right? Oh, I see. So I've always looked at keeping long-term leases in place. Yeah, you're gonna have some maintenance but you should be paying a property manager, have somebody to do that for you. So it shouldn't be your headache. It should be, I'll come down to contractual arrangements. Spend up to 250 or anything. I hired that, you call me. I have great fears over short-term rentals and I know you guys are in that space but I'll give you some data and you can do with it what you will. This year, more than any other year in history, we're gonna have more luxury multifamily apartment units coming online. So we came out of, call it 2020, the pandemic era and all the home builders had all this pent up money to spend and they were freaked out a little bit during the pandemic. They couldn't build, building costs went up, lumber got really expensive and they couldn't find labor because nobody wanted to work with COVID out there. So what happens? They decide, well, you know what? Values are going up crazy, like crazy, 2020. Rents are going up like crazy. Let's build, banks gave them loans. The typical life cycle is somewhere between call 18 and 24 months for these bigger complexes and now they're all coming online. So they're all gonna hit the market. So I think the apartments, the high-end luxury apartment community, that's where you're gonna see a lot of rental pressures down. Oh, interesting. I don't think you're gonna see it in the areas that you guys are at. If you're in a good vacation destination, I think those are still there. Consumer discretionary spending will pull back for sure. So people who bought Airbnb's in places that are not exactly what I would call desirable locations, they're gonna see some pain, especially in very dense areas. But as far as I'm concerned, when it comes to your longer-term rentals, always go as long as you can, even if it's a sacrifice of 2,500 bucks. You know what you sound like? You sound like us when we talk about health and fitness because people will ask us, what's the most effective way to burn body fat? And we always go back to the lifestyle. This is the one that you can maintain. That's essentially what you're saying. You can make a little more money if you do it this way. This is a much better way to maintain it and not give yourself a headache. I love what you said, make your passive income more passive. I mean, it's what it's supposed to be, right? There's so many people who love fitness, myself included, who's wind up obsessively, compulsively doing everything they can. And it becomes work and not their passion anymore. And it's like once you cross that bridge, it's not as fun. So then what are your concerns then with the short-term renting strats? In terms of like, if you said that the vacation spots are still gonna have somewhat of relevance, you think people are gonna start tightening up and not venturing out and go on vacation? I think consumer discretionary spending will pull back. Well, it's already in that space, it's already been hit. Well, I forgot the last article I read on how much the vacancy rate on short-term like significantly went up in the last 12 months. Yeah, and I'll say it's again, it's not your variant of doing it. The number one problem that I have in the space is something that's been thrown around a lot, Airbnb arbitrage, it's the new sexy term where they're taking a normal piece of English and throwing it together and making it something new and sexy, but it's not new and sexy. Everybody's been selling on social media lately where you effectively rent a property and then you sublet it out as an Airbnb which in many leases is illegal. But nonetheless, you can get a corporate lease if you want to and if the landlord lets you do that in a smaller building, you can do that. I think those are gonna be very much impacted because you're not gonna be able to get the same daily rent that you once did and you have a little bit less there. And keep in mind too, you guys are probably a more sophisticated buyer in that space than I think most people are. Some people are getting in with FHA loans saying I'm gonna live in this property, I put 3% down, their mortgage payment's higher and then what do they do? They try to rent it out while they live in an apartment still and then try to cash flow it to make incrementally more money. I would say if that's what you're planning to do, then let's get out of the logical fallacy, go buy in the Midwest, go put 10 or 15% down, save a little bit more and make $400 a month and a guaranteed two year lease. You sure you'll have some R&M and maintenance and repair and everything else, but if you buy a property built after 2003, you shouldn't have a whole lot there. So I think people, they're looking for short-term gains and the people that did that and jumped in really quickly and leveraged because they wanted to scale and they didn't have access to stuff like bank loans because they didn't have a history of doing it, they're gonna get crushed in that short-term rental space and they're flooded with that. Yeah, I agree with that. I think that we're gonna see, I think actually short-term rentals and then the car leasing space, like the Turo type game. Oh my God, yeah. I think those two are, I think are gonna be two of the first big fallouts that we're gonna see. I think so many people I know that don't even have that much capital of now have two or three Airbnbs or don't even make that much money and they've got four or five high-end luxury cars that they're doing this whole Turo game. I don't see that lasting through this. Because they've leveraged themselves and that's why I say like the last 14 years, if you had a model of the last 14 years, you made money, fine. But now is where you really start to see the stress of that impact you and there's that right there, the Turo stuff, the exotic car rental stuff that's really leveraged on leverage. If you have equity, skin in the game and your payments are low, you can survive in almost any business. But most people who are young and ambitious wanna scale fast. And trust me, I wanna be rich overnight too, I get that. But that's just not the way you have longevity. Yeah, they push the limits. So how at risk is the banking industry at large with these rate increases? And if not now, how many rate increases do you think would make it like, uh-oh, this is not looking good? Well, I don't really think that the banking sector is at risk for that at all, frankly, but it's self-serving of me to say that. So I'll explain. All banks across the country are now making less money than they were making before. And the reason why is, let's say I made $10 billion in loans in the last 14 years at an average interest rate of 3.5%, right? And let's say the Fed has now moved rates up to 5%. And you say, well, Chris, now you can go make higher rate loans. Yes, but to move that weighted average of 10 billion up that I made over 14 years would take another 14 years just to get to a blended rate that's higher. So I could sell off some of those assets, but those assets that I would sell off, those loans, if I wanted to sell them to somebody in the market who wanted yield or some return, they wouldn't pay me a dollar for dollar if the loans are because they would say, hey, Chris, I can go get higher rate loans today myself. If I originated them, I'm gonna buy your loans that are paying less than market rate. I'm gonna give you 95% of what that course, that dollar balance is. So all banks are dealing with that kind of juxtaposition, if you will. Does that mean that they're weak? No, the only risk for banks that I've seen so far is deposit outflows and the unrealized losses like people like Silicon Valley had. They had moved all their cash into securities to make more money, which was a prudent strategy in banking until the Fed took this move. And they had about a billion dollars, well, actually the more than that, in unrealized losses. So when they sold their securities because they had to give the depositors their money back, they had to take the loss because those had gone down in value. They sold them underwater. Loans and securities are no different. We've spent all this time in the media focusing on, oh, these unrealized losses and securities that portfolios, they put their money in the treasuries and treasuries values went down. Even JPMorgan Chase has billions of dollars of loans that are less than today's market rate. Those loans are not worth one-to-one, the dollar that are into them anymore. You couldn't sell them, yeah. You couldn't sell them for that. But the JPMorgan Chase, they don't need to sell them. I don't think the stress for the banks is gonna be really this contagion fear that's out there. I think if anything, it's controlling the rhetoric and the narrative and making sure the depositors know that so far, the FDIC has propped up and worked out every single depositor. And from my understanding, Silicon Valley Bank, Signature Bank, First Republic Bank, everybody had access to their money on Monday morning. So it might have been some temporary inconvenience and some uncertainty, but everybody was well taken care of. Now the Fed hasn't come out and said we're gonna backstop every bank because the Fed can't do that. The Fed and the FDIC are not the same company. They're different regulators with different purposes. That's why you saw Jerome Powell when he was asked this question about, do you feel bad about selling First Republic to the largest bank in the country, JPMorgan Chase. He said, that's not my job. The FDIC arranges a sale and their job is to do the best they can for the depositors, right? Because the taxpayers pay for it. So JPMorgan Chase had the highest offer. That's how they sold it. That's the best deal. That is what it is. What he really suggested was in the interview was that if you wanted this to change, you need an act of Congress. And I do think there'll probably be some rhetoric around that as we approach election time. Everybody has a political agenda. I wanna be the party that offered up this bill or possibly a bipartisan one where we say we can bail out banks to some form of action. So let me ask you this on the political side. There's a lot of confusion around this. And even I have a tough time understanding this. We hear a lot about our national debt and how much money the government spends. Oh my God, the debt is too high. The debt is too high. Who the hell do we owe money to? Like it's a government. What happens if we don't pay it? Like what's going on here? Explain it so that the average person can understand. So the running, I think synopsis is somewhere between June and August, the government will run out of money to pay its debt obligations. We have borrowed money as a country that we have to repay. And- Who are we borrowing it from? Well, I think at this point in time, it's largely China, right? I mean, I remember the... Actually, I don't know the entire makeup of the national debt. We've borrowed money from other countries during times of necessity. China is the number one. I think it is the number one. It's been a while. Actually, Simon and I were having this conversation on our show last night that we wanna do more of an international look at the economics and implications. And my reason was why do it? We got a bit of this back and forth debate where I said it doesn't really matter. And I'll give you the same answer. It doesn't matter because here's what happens and most people don't realize. As the Fed increases interest rates, it increases the payments on our national debt. So we're increasing payments on the government. So the Fed, believe it or not, is working against the government in increasing its cost of its payments because index plus margin price the same way any other small business would be, right? Which is why the president of the United States is really like a business operator. So everyone's freaking out and it's all over the news and it's getting sensationalized and it's like, well, why don't you care? And my answer is simple. It's because the last 78 times we've hit this juxtaposition, this problem, we just raise the limit and allows us to continue to take on more debt as a country. So for us to sit here and think that anything we do from a political standpoint is gonna shut down the government, no. Now you'll hear some theories thrown out by the government saying option one will be the government can pay some bills, but not all. Option two is a government will just not pay anybody until they have all the money to pay all their payments for that month. But the reality is we're gonna raise the debts even well before then. It's political chicken is what they do. And you wanna hear the sad part is the real pressure on the government is right now is that the house and the Senate both have vacation periods coming up towards the end of June in succession. So they have to hurry up and figure it out. So they have to hurry up and figure it out. So okay, but back to like, if we don't pay back our debt, let's say what if the government was like, you know what, we can't afford to pay this interest. We're just not gonna pay the debt back. What happens? Is this being that like, we're not paying China back, now it's causing like crazy political, like international pressure could cause, you know, sever our ties with other countries or is it like, you know, just we're making up numbers. So we'll pay back. There's an argument that we've already severed our ties with those other countries and the national debt is being weaponized against us as a form of controlling the United States. That's a bit of an extreme kind of conspiracy theorist statement, but China right now is working with Russia, especially with oil, right? I was gonna ask you about this to explain to a dummy what's happening with these connections between Putin and Mao and all. We're effectively de-pegging the dollar as being the main currency across the world. And I think we've been the, since the 1920s, I think we've been like the number one currency and we've used this as a weird way to have a bravado. And again, on the argument we had on the show last night was, okay, let's just say the US dollar is dethroned as the main currency. Wouldn't that be like the worst fucking thing that could possibly happen to us? Would it really though? I feel like the only thing that saves our ass of being able to run over a ridiculous debt like this all the time is the fact that everybody bases their economies off of ours. So if we go down, everybody goes down. It would be a problem for our national debt. And at some point in time, we'd have to figure out a way to repay our debt obligations. Yeah, but the world is so interconnected. So it turns into the peso or what? It's gonna be pay of God, something. Exactly. So let's go back here. I've been to France many times. I've been to Europe, other countries, assuming you guys have all traveled, right? Like we don't use the Euro as a primary currency and now you got London doing what they're doing. It seemed like a pretty cool country to me. It didn't seem like they were crumbling. It didn't seem like they were like a third world country. I've been to Japan. I've been to the Philippines. Like I mean, granted, some of these countries are not as nice, but so what are the US dollars in the main currency anymore? Well, here, let me throw a wrench at this. I don't think that's the risk. I think the risk is that, and I don't think that this risk is gone because we have the reserve currency. The risk is that we're gonna devalue money to the point where it's almost worthless and then we're gonna have to figure something else out. I mean, these currencies, our currencies aren't really tied to anything, right? They could just, they're fiat. They could just- They used to be, but not anymore. What are they connected to now? They're connected to nothing. We can print as much dollars as we want to. They used to be printed. It used to be tied to gold, but we went off the gold standard and I think a lot of what we dealt with is the outcome. But look at NFTs in cryptocurrency as a proxy for an unregulated market trying to usurp the US dollar. The US dollar still remained there. The currencies are effectively digital now. So I look at, again, let's say that the dollar goes down and it's, did you travel in like the 80s to overseas? I was so young. I mean, I gave, I don't know. Everything there costs so much more money. Everything was way more expensive, right? Like it was just ridiculous. The US dollar did nothing in Europe. It was just like, oh, you have a dollar. It's cute. You know, it was a joke. So for us being worried to devalue the dollar, I mean, I guess I understand that there's some ramifications and that us as a country would look weaker possibly, but do I think it's as bad as we've manifested? No. It's an untested monetary policy theory and I'm sure there's plenty of economists out there who would disagree with me, but I'll give you a great example of how the best laid plans of mice and men are different. It was Milton Friedman who helped structure income taxes, we know it today during World War II. He regretted that decision deeply and said it was one of the worst things he ever did because now everybody in the country pays income taxes all the time. It was supposed to be a war time only thing to raise. Pay back the war and then take it off. Pay back the war and take it off. They never do that. And yet, yeah, they never did that. They're just like, oh, you know what? We like this. This is good, let's keep this. So I look at stuff like this and think to myself, okay, we have demonized the idea of not being like the number one currency in the world. I think capitalism will find a way. Okay, well here, let's put our tinfo hats on because when I look at the whole thing, so I'm gonna, here we go, let's put them on right now. I look at the whole thing and I go, man, if they really wanted to control where every dollar went, how it was spent and controlled, how you spent every dollar, wouldn't it be great if we just got rid of all like physical currency and just made it all digital and it was all managed and controlled? And God, it seems like they're trying to destroy the currency so they can replace it with digital currency. That might sound crazy right now. Well, yeah, and one quick anecdote, I was just in Arizona and they didn't accept cash anywhere. I had to pay credit card and I'm like, is this just a new COVID policy that they enacted that they just never got rid? Like why would they not accept cash? And then this just gave me kind of like that foresight into like, everything is just digital and then, you know, and I'm only allowed to just spend it in certain places. So let's go down the rabbit hole. Oh man, this is gonna get interesting. So largely companies started doing that because they're worried about theft, right? Like you have employees, you're not there, you're an absentee owner. Easier to do. You can control, yeah, you can control theft that way. That's anything. You can't control like stealing your products but at the end of the day, it's a lot better than stealing your cash. But the NFT crypto thing, I went down the rabbit hole on Web 3 a long time ago and I deeply regret spending so much time on it but I wanted to know more about it. I bought NFTs, all the stupid rabbits off and pictures of stuff and all the stuff that had alleged utility. And I went down that path for a long period of time. No board apes though, right? I said no board apes though, right? Well, yeah, no. I mean, if I did, I probably would have sold it all and moved to Puerto Rico like everybody else did but I do have some interesting nodes from some project that I can't remember, but whatever. But, you know, so I look at this and I think to myself, okay, well, we're assuming that the currency isn't primarily digital now. How often do you really use cash now and how often do you really fly under the radar with how much money do you make? How much money do you make? Think about it. You put your money, generally speaking, in your bank, right? Yeah. It's effectively digital. When you log into your app, it's ones and zeroes. That's not the issue though. I get what you're saying. Yeah, yeah. I get that, like none of us really, you know. They're tracking it now. We don't sell drugs or buy drugs or anything or at least I'm not gonna make a big difference. But that's not my issue. My issue is this. My issue is the ability because they've already kind of flirted this. They flirted this with COVID and you saw a little bit of this kind of control and then they're talking about these climate emergencies or whatever where they might be like, hey, you've used up your carbon credits. You're not allowed to buy gas for the next week or you're not allowed to buy red meat. That's where I get my worry. Not that I'm not paying taxes on cash I'm collecting. All of our, everything we sell is digital so I don't make cash and not that I'm buying things in the black market. I could care less. It's really the like, then they have their hands on everything and where it's moving and they can stop you from spending or stop you from spending here or control you there. That's why I said, put your tin foil out. The Inflation Reduction Act, brother. We're giving billions of dollars, the IRS, to hire thousands of employees to audit more people. I thought they pulled that. Did they stick to that? I thought they were still doing it. Oh, they are? Oh, I thought they pulled back on it. You gotta get all those PayPal people, man. Yeah, they're still doing it. You gotta get all those Venmo, you know? Some of the stuff they pulled back on, but certainly not the hiring people to audit you and me and everybody else. Yeah, so that's still gonna happen. But look, you're gonna, okay, so this is gonna go left, but bear with me. Quantum computing is a thing now, right? And because of quantum computing is a real thing and we can do it on an atomic level. All the security protocols that we have in place on your phone, your encryption, they mean nothing. We are going to get to a point in society and I'm not saying like now, but maybe a hundred or 200 years from now where your life is just out there. Your spending, your habits. No matter what. No matter what. We can fight that or we can accept the fact that as time goes by, the idea of you having a password will be laughable. What security are you gonna have with your password and your text message when a quantum computer can crack that in seconds? And I know this sounds dark and weird, but. No, that's real. Six, five years from now. No, that's true. Michio Kaku was just on. Yeah, he did a great breakdown of that and he talked about, I went down the rabbit hole and something else he said about more of a, even better computing than that and how far down the rabbit hole you can go. But yeah, he's a great example of how scary this could ultimately be for everybody else. So Google built, I think the first one that was privatized that was publicly known. It was the size of a refrigerator and the actual cooling thing was this huge piece that I'll tell the building. And they were able to break their own encryption in seconds. Can you imagine if you were to like, so your point basically is like, it doesn't matter. It's gonna happen anyway. It's a zero sum game trying to fight it, right? The only way to win is not to play. So we have to. That's why we're moving with the Amish. Yeah, I'm pretty sure the Amish are gonna be monitored too. They can see you in space, man. I mean, crazy digital footage. So, but it comes down to the fact that you can only play the game with the rules that we have in place now in this hypothetical of let's say the government does default in the debt. Let's say something like that happens. Our only choice as entrepreneurs is to deal with it and continue to try to find ways to make money. Protect your family. Outside of that, I really don't care whether it happens or it doesn't happen. The only thing I care about is that I know I'm making decisions based on what's real versus what I'm being told, right? And it's as simple as that. So I don't really look at stuff like this and think to myself like, okay, what if the US dollar is devalued overnight? We'll find a way to deal with it. Yeah, that's a great answer. I appreciate it. Very, very level headed. You actually calm me down a little bit because you're right and this can't control it. It's gonna happen no matter what. All right, so let's, more fun questions. We talked about Robinhood. We got retail traders coming in influencing the market, not because they have a lot of money, but because there's a lot of them who have a little bit of money. Do we actually have an idea? I've heard numbers thrown around. I've actually heard a huge range. Do we actually even have an idea of how much those retail traders are affecting the market? Well, not directly. So on the Thursday that PacWest dropped 60% in value, that single day retail traders made about $380 million in puts just on that day alone. Yeah, it's really their ability to organize. Their ability to organize, yeah. They can operate like larger institutional investors who had computers buying in massive scale with just humans doing it at the same time. The reason why I asked this is because one of the theories I have on why we've seen the stock market run like we've seen in the last, you know, nine, 10 years, of course, interest rates and all that stuff affects everybody has more money or whatever like that is winning all the time. But I think because of things like Robinhood and this ability for these retail traders to come in, I think there's a way more of them influencing the market than I think we realize. Well, yeah, and Wall Street doesn't want to acknowledge that. Right. They're used to being, you know, king of the street. Yes. And now you've literally democratized the space, you've dispersed the power amongst all these people. They have free trading on almost every platform now which Robinhood really pioneered. They have changed the landscape dramatically. And anybody at any point in time, not just in front of a computer, on their cell phone can go, oh, you know what? I like that company. I'm going to buy an app. Ron Reddit and they're getting a bunch of, and everybody's organizing. Don't you guys think that like Tesla is a perfect example of this? Like logically, their numbers don't make sense on what the stock trades at. It's purely off, like those aren't, those weren't big. People are betting on Elon. Yeah, those aren't big institutions. Have I ever told you my theory on Elon and that whole like Tesla stock price manipulation? No, no, tell me. Okay, so remember when he bought like a bunch of Doge or something like that, whatever he put on his balance sheet? So I think he was getting criticism from the SEC for stock price manipulation. And he's a smart bastard. So what did he do? He said, okay, I can't manipulate the stock price. Okay, screw you. I'm going to buy a bunch of this cryptocurrency. Put it on my balance sheet. I'm going to manipulate that price and that's going to change my balance sheet value and I'm going to sell it. So he still got to manipulate his balance sheet and manipulate his stock price by the holdings that his company had. So he basically showed the SEC, oh, you're so mighty and powerful. Well, guess what? Now I'm going to go manipulate this, which is on my balance sheet, it's unregulated and it's going to change my price and you can't do anything about it. Wow. I think that's what he was really doing. So the question I was going to have is on, and I know that computers do trading for people now. And I know that that's been scrutinized. How good is that trading? Yeah, that could cause, because they'll react so fast, it can cause the market to move in crazy directions. What about AI? What about AI and its ability to read the market or potential to read the market trade for people and people giving AI machines money and saying, make it happen and it can read the market faster than any human could and just trade and sell at lightning speed. What do you think about that? These are there. They're going to prevent that? That's already happening. Bridgewater Ray Dalio pioneered a lot of that by hiring engineers really, really early on and he kind of geeked out on the technology well before everybody else was. That's already happening on some level. Now I don't think it's, it's not like chat GPT where, you know, you're typing in queries and letting it run. It's not retail. It's not retail. But it's an algorithm and an algorithm with AI learning. Yeah, it's a hundred percent happening. Now is it happening to small bank regional stocks? No, these aren't, there's not enough trading volume there for a lot of these companies that make sense of it. But is it happening on a large scale at larger companies? Yeah, all the time. And that's why controlling the narrative of the media is so important for some of these companies. That's why you see Jamie Dimon looking more like a politician or you see, you know, Tim Cook out there being very measured in his responses because they know some of these things can automatically impact something because as soon as the news cycle picks it up, AI will pick this up but the retail traders appointed at it and now you're getting people making bets on your stock. So that's already happening. And it's only gonna get worse as AI gets better and better. Well, do you think that the way out, because I look at all this, I'm not even close to as well versus you are, but I look at everything and I look at, okay, debt, inflation, there's a lot of malinvestment, governments can have to raise taxes like crazy to cover certain things or we're gonna see, and we saw this with the internet where a lot of what saved us, what has saved us in the past is innovation. We're just massive improvements in efficiency. So even though shit was like whatever, because we became so much more efficient because of technology, it just, it took care of those problems and then some, do you see that as like a silver lining? Like maybe we're just gonna innovate our way out of all this craziness. Yeah, but you ever see the movie Prometheus? Yeah. In order to create, you must first destroy. That's a lot of what we're going through in the life cycle right now. And I think that a lot of the way we think about banking is gonna change and a lot of the way we think about jobs is gonna change too. You've seen the rhetoric on social media, oh my God, chat, GPT can pass the bar. Well, good for you, I'm glad you can because I sucked at it. Trust me, I took it a couple of times. Like that's good, but is it gonna destroy jobs? Certainly, yeah. But when the internet destroyed jobs, it also created other jobs, right? So we have this, as humans, we have this natural survivor mentality where we look at things as a threat. We don't look at it with this rosy sense of optimism just going in and hope I don't die. You go in trying to protect your life, right? And that instinct applies everything that we do. We're afraid of losing our market. We're afraid of our family not having money. We're afraid of losing these jobs. All this stuff I look at it and I think to myself, okay, the fears that are there, like the devaluing of the currency or changing the job market, stuff like that, these things are gonna happen. I think the problem that we're seeing now is that we haven't accounted for these changes and they're impacting us in a way we never really thought through. And as a result, things like social media having a platform and retail traders and AI and all these things that are out there are really impacting us in a tangible financial way. And they're scaring people like what if my job's gone away? Instead of them going, okay, let's innovate through this and try to find the next thing to do. So let me support you but then I'm also gonna- It's not really clear where they're going. Yeah, and I'm also gonna counter you. So I'm gonna support you because this has always been the criticism of capitalism. Marx, this was like his big thing, right? But you know, the father of communism, he said, eventually everything's gonna get so cheap and workers are gonna be like slaves and the only people making money will be at the top and all that stuff. And that's never happened. Like wagon wheel makers went out of business but now they make car tires and so on and more jobs get created. We're obviously better off than we were a hundred years ago even though a hundred years ago those jobs, almost all of them don't exist anymore, right? Now here's where I'll counter you. I don't think we've ever been in a position where there's been a technology that potentially could do everything. Like everything and not only everything but innovate and create. So I don't think we're gonna be in this jobless future. I think we're gonna be in this future that's jobless but we have money. So people are just wandering around not having any purpose and getting whatever they want. And that is my, that's my fear. So well, I would say Marx wasn't wrong. If you go to a lithium mine somewhere overseas and you'll find all these workers that are working for lithium which is toxic to their health that go into our battery. So in some ways he wasn't wrong. I would say the problem with all of the early economist perspective on this was they ruled out the evolution of humanity. I think you're right that there will be a different way of managing wealth or looking at wealth and maybe it'll be something like that where people don't work in the same capacity but we're eventually to a point where we're truly a type one civilization. We have the power to destroy ourselves and we also have a united culture across the world. It makes no sense when you think about it from a logistics perspective that we speak more than one language. But we as humans are tribal and we wanna stick to our tribes but look at my son. My son is like 15,000 different cultures and ethnicities he's gonna be very confused kid growing up, right? But he's a child of the world at this point and I love him for everything that he is but he certainly doesn't look like every kid who walks on the street and that's fine. But we need to get to a point where like the idea of racism is so funny because we're one culture and I know it sounds like all high and mighty but as you get to a type one civilization we work collaboratively it becomes less about classes and more about how can we get to the next life? Because at some point this planet away from the star will die. Yeah and this is already there's already evidence of that like if you go like my family's from Italy it's very old culture. There used to be lots of different versions of Italian throughout Italy, dialects, right? But now there's one Italian, same thing with France same thing with other old countries. Eventually they all start to speak the same language I think that's gonna start happening worldwide especially with AI translation. I think that's not gonna be an issue anymore. You know, your comment about the lithium miners eventually what happens and you'll notice this with outsourcing used to be here. Yeah, so there's just something in the desert in Palm Springs. Right, but really the question isn't necessarily to compare those people to our standard it's like why are they working in those lithium mines it's better than the other options that they have and eventually they're gonna be where we are and they're gonna have to outsource and maybe there's not gonna be any places to outsource that kind of labor anymore because the whole world has come up and that's just progress that's just how we progress so I agree with you on that sense. So it comes down to this I think all the economists were thinking about the world through their opus at their time, right? Marx, Friedman, all these people were living through different types of economies and different types of recessionary periods and I think that the problem for a lot of them was that they never took humanity up a notch and I think we're on the inflection point, frankly and I know it sounds very Star Trek like but ironically Star Trek was the type two civilization and then Star Wars is your type three civilization where you can use wormholes and everything else but the civilizations I think are really important because what we're going as humanity as an inflection point is moving so fast. We look at things like currency we say, ooh, digital currency bad. Well, we're really a worldwide digital currency now. We have some bump stops in the way of how the symmetry works but we've also proven that unregulated or deregulated and uncentralized things don't work. We wouldn't even work together. At some point in time, there will be a worldwide way to do this with much more symmetry than we have now and possibly what I'm through will be the way but humanity will get to a point where the capitalism that we experience will be a very different concept than we know now. So for us to look at AI and be scared of it, I think is again, in the making world, I keep telling people, stop worrying about what the Fed's going to do. I can't control what decisions are going to make in the room when those seven people meet. I can only respond to it and do the prudent thing for the shareholder now. And I think that's the same thing when it comes to a lot of these fears, right? I'm not going to worry about what AI is going to do. I'm just going to be prepared to adjust and pivot because it's going to happen. There's no stopping that train. And there's no stopping a lot of these things that are going to happen. Do you think that the, because the reason why markets and capitalism has always been so dominant is because the price system, it reflects, you know, supply and demand more accurately than any bureau ever could before. But do you think that AI will replace that pricing system because it's going to have its, you know, for lack of a better term, tentacles into everything. I don't mean to make it sound evil, but it's going to have its pulse on everything, be able to read everything in like real, real time, faster than prices could even reflect. And then it's going to change the price every minute or whatever to reflect supply and demand. Do you think it might be something like that? It could very possibly be, but there will always be desires. Humans have desires to have more of something or less of something. And that's really what things trade off of and a machine will never get that. If I need steel for my steel business and I have a desire for that more than you, I'm just going to bid it up. And I don't know that AI will ever be able to compensate for that other than they might go out to market and bid the best price for, you know, for item that you're looking for. But at its very core, no, I don't think that's what AI will be used to impact. I think what it'll do is it'll displace a lot of the logic and thinking that we have. Like a lot of analysts will be moved around, like I'll use a great example and don't use this against me, but I had to write an email the other day and I had a bit of writer's block. And I was like, you know what? I'm just stuff going on with my wife. I want to get to my son's swimming lesson. When it's chat GBT, write an email that says this, came out brilliant. Really? It's like, this is great. I put it in my own language and I send it out company-wide. I don't know that sounds terrible to say, but in actuality, what's the difference? If a PR department drafted it for me and I send it out based on there, or my comms department did it. You're still responsible for it? I'm still responsible for it. I'm still curating the message on some degree. That's how AI will roll out to the masses now. But in like 50 years, will there be jobs completely wiped out because of it? 100%. You can go to legal zoom right now and replace half of the task of a typical attorney did. Is that a bad thing? No. I think the most interesting that we'll see and we'll see it in the near future is the first company that's ran by AI. Yeah. We'll think about what the job of an executive as a CEO of a company is to be able to forecast things, make decisions based off of what's going on in the current in the markets, foresee what other things that are competing with it. An AI tool that actually makes a lot of those decisions for the company is actually a CEO of a company. I think we will see that. I think finance department for sure too. We'll see finance departments that are run that way. Hey, I need my public filings instead of waiting for all these groups to work together to get the analysts and talk to your treasurer and get together. I think it'll just be, here you go. Done. All right, so knowing what you know and obviously with your expertise, where does the smart money go now? Somebody wants to invest or should they save? Should they hold tight or should they invest in property or in, you know, in securities? Like where does smart money go? Crypto. Yeah, crypto bro. Get an NFT as long as it's shaped like a rabbit. The unorthodox advice we've been giving people for the last call at four or five months is cash traditionally is not something you want to hold, right? Don't hold cash because you're losing money and not investing it. Actually, last year, cash holding cash was one of the best investments you could have made. Just holding your cash and keeping it into this high yield savings account was probably the best investment you could have made last year. So we're still sticking by that. And what we're saying is, try to keep as much, save as much money as you can and I know saving versus investing is never, it's got a bad connotation. Save as much as you can right now. Go into a high yield savings account somewhere between four and 5% in this current market, right? Maybe if you get a little better than that in some places, Adam. I knew it was coming. I knew the job, I knew the job was coming sooner or later. But if you can get a little better. When somebody asked me that question when I had a live play, I was like, fuck him out the post, I know Krispy watching my shit right now. Oh, I save it, screenshot it, zoomed in on your physique body, showed my wife while we were at Disneyland this summer. Oh my God. Yes, put it in the account. He at least sent you a text message. He's buying baseball cards, everybody. That's okay. I bought him a pair of ugly shoes he's gonna wear, that's fine. But yeah, hold cash, at least until call it July or August and see what the market gives you. I think the easy thing to do is to fall into the temptation. I've got to put that money into work now. No, you've got time. Right now, savings are high. I mean, if you went into the treasuries right now, treasuries are paying you almost the same thing as how your savings accounts are. So like, just put your money into something that you don't have to worry about pulling out, put it with a bank that you feel comfortable with. Do you think? Do you think that, because this, that we're talking to this bank we're talking about right now actually increased me another half percent just like three days ago. Are we going to see that? Are we gonna see the banks incentivizing, especially with all this news going on, the potential run of banks, I would think that a lot of banks would start putting out some which, what was the last time, like the early 80s, maybe your 70s when you used to see like these great interest rates in banks. We haven't seen that in a very long time, right? When were we seeing five, six, seven percent interest on savings accounts? It's been probably 30, 40 years since we've seen rates like that, but you're gonna start, there's a dual edged sword for banks to do it though. So grain is solved here. If you're a bank and you come out with a high rate right now, the market goes, ooh, they need deposits. Ooh, they're having trouble. Oh, I see. Yeah, should we trade them down? Ooh, yeah, ooh. But if you come out with like a great example, Apple has their now savings account. You have to have an Apple card to get their savings account. And it's brilliant UI. You literally log on if you have an Apple card, it's like three button clicks, two minutes, you got a high yield savings accounts, 4.15%. But they're Apple. They're like, we're 4.15%. Do you want it from Apple or not? Right, and you open it up and you do it. So I think that's probably the range, four to 5% is probably where most people will wind up. And then every time there's a Fed interest rate increase, banks don't necessarily just bump you up. They're gonna incrementally go up depending on what their costs are. I'm gonna give you an idea of a proxy. I'm giving away inside secrets now, so don't use this against me. And I know you of all people will, which messed up. Okay, if you go to the federal home loan bank and borrow right now, the cost to borrow at the federal home loan bank is about 5.25%. So if I wanted to use that fractionalized banking system, I wanted to lever up and get money from them as opposed to getting it from you a depositor, I'm gonna pay 5.25% or I can get it from you and pay you 4.5% or 5% and I'm still making more money than I would have made if I went into a higher interest rate environment. And that's really all banking is about. Where can you put your money and earn the most and spend the less, the least? That's really what it's about. What do you think about, I don't know if this has actually happened or if this is proposed, where if you have like a credit score above 7.80, you're gonna pay fees to get a loan to subsidize loans for people with shitty credit. It's 7.40 and that has started, hasn't it? It started as a May 1st, but it was over stigmatized, myself included. I had a full, expedited field rage on social media and I think it popped the vessel, but the truth is that's an FHFA product, right? And FHA, which is not the same thing, is still better rates even with 3% down. So for most people, like 98% of people, that's not even gonna be an impact. And I think the way it was worded was wrong per se. It was not you're gonna subsidize directly, there was gonna be added fees for somebody who was a little higher than that. So it was way over stigmatized, but yeah, that's the thing. I could go off on a narrative, which is probably not ideal for your fan base about how extremism in this country has gotten really weird and woke culture is part of extremism. And that is a perfect example of, we're now trying to find ways to give people opportunities they didn't earn. If your credit score is bad, I feel for you. I had bad credit one point in time. I made some bad decisions. That's part of the reason I ultimately became a Chief Credit Officer. I wanted to learn how to make bad decisions, right? And I had to work my way through it. It took me years to fix things to get above my current scores of 800 and to get to where I'm at, but you earn that over time. And that is a reasonable approximation for the relative credit risk for you. It's not based on race. It's not based on opportunity or ethnicity. It's just based on your track record. And if you have bad circumstances, improve your circumstances. Also, I'm gonna add to that, there's two things. One, a good credit score doesn't mean you have a lot of money. So a lot of people think, oh, we're gonna have rich people pay more of these fees. No, those people, my parents had great credit. They were poor immigrants. They just paid their debt. They just paid things on time. The second part of that is you actually screw people who with low credit scores because you give them money that they are at high risk of paying back and you get high percentages of default. So for example, during the home crisis of 2008, who got hammered the most? People in these communities that they were out saying we're supposed to help. It's not great. It would be like taking me and be like, we gotta give you an opportunity to play in the NFL Sal. Here you go. You go out there and get killed, literally die. I feel like you could do okay. Yeah, exactly. Oh, great. Thanks for the opportunity. I'm paralyzed now, right? So I don't think it helps anybody. That's just my strong opinion. And it doesn't. And that's where a lot of the politics get in the way of I think what would otherwise be a good capitalism driven system. There's nothing wrong with saying, hey, your FICO scores 800 to get a little better pricing because you're considered less of a relative risk. Or hey, you have more money to put down so you're considered less of a risk because you have more skin in the game. Sure. But we've now taken the system and we've spun the narrative like, okay, now we're saying these people don't have, you know what, if you want to classify people as having an extra need, there's tons of programs out there to do that. Like a great example. We work a lot with Habitat for Humanity. We treat Habitat for Humanity buyers like we would anybody else who walks in the door with good credit. We give them the same rate, the same treatment, everything else. Because I get it, you come from a different background, you went through a program with them and you've earned a house. It's the same thing. It's not a FICO score, but it's the same thing. So we don't care what your FICO score is and we don't care what your down payment is. It's about getting you the opportunity. There are programs out there that serve that type of community very, very, very well. But to try to rob and hoot it, if you will, take from the rich and give to the poor is not a good lesson for anybody. No, you end up hurting people in the long run, hurting the very people that you think you're helping. Just like, I mean, you look at the dropout rate when they try to create programs to let certain people into colleges that they maybe shouldn't have, and they drop out at high rates because now they shouldn't have gotten in there in the first place and they missed other opportunities because they were trying to get into this other college type of deal. You end up hurting the people you're trying to help. And there's no perfect system. But I will say that story doesn't have anywhere near the impact as people thought I did, including myself. When I first read it, I was really pissed off. And then I started to kind of like logically go through it. It really doesn't impact that big of a cross section of the country at all. Okay. It's so small. In 08, we learned from the old, you know, subprime loans, Nagam loans, stuff like that. Banks decide we're never gonna go back that way, going forward 20% down, good credit also with that. So we learned from that big mistake in what happened in the Great Recession. Now we're starting to pay for this artificially low interest rate for a decade. Do you think that we are never gonna see sub four or 5% loans ever again? Wow. I mean, it's a big hypothetical based on a lot of the actions of people that are somewhat irrational at times, politicians, fed secretaries. I think it's unlikely that we will see it during our lifetime, frankly, but you never know what might happen. I would say given the trajectory historically of what happens after recessionary economies, at least, for whenever this recession is done or starts to when it's finished, it'll be, I call it seven to 10 years at a minimum, somewhere in there, right? It'll be a low economy. Then you'll have seven to 10 years of a prosperous economy. But being as how this was the catalyst for the most recent prosperous economy and what we've seen with recessionary economies is that they fixed what caused the previous one. I don't think you're gonna get the overinflation that you saw like this during our lifetimes. It'll take several decades, probably 40 or 50, before you see the openness of monetary policy like that again, that got us to where we're at. Keep in mind, there's also a pandemic there with unprecedented fiscal stimulus to people that really, really took this up a notch and also delayed the FOMC coming in and handling it. Now, you are speaking logically, but politicians often don't act logically. So recession, oh, it's real tough. New person gets elected. Hey, everybody, free money again. We're gonna give you free money to help you out. Like that is a ranch that could potentially blow up another bubble and cause things to happen again. 100%. And I'll tell you that that's where I think you're seeing this stoic Jerome Powell come out is I think he's trying to get in front of exactly that, right? He's gonna come in like, I'm, this is gonna sound terrible, but I said he was emotionless in the way that he didn't care about the consumer. I don't know if that's a true characterization of him, but what I will say is he's trying to present, I don't care about politics, the banking stress, the system is fine, I am focused on just getting these numbers to where they need to be to have a healthy monetary system. It's poker, it's like playing poker. Like everybody is, they're listening to his words, but they're watching him as well. But can they influence him? That's the real question. In theory, no. In theory, he should be truly independent. He also idolizes Paul Volcker who caused a double dip recession during his era where he raised rates and then raised him even more causing the recession to become even worse. It would not surprise me in the slightest if what we ultimately classify this period is as a small dip and then a massive dip if what happened, because there's a whole awakening in commercial real estate that's on the horizon as well. Yeah, I really, I mean, I was wrong on my predictions. I would have thought that we would have seen a much bigger dip in real estate. Granted, considering how much it got inflated and where everything is at, I thought for sure we would see the housing market take a bigger hit than what it's taken already. We still might. And I think you still will see that in time, but not to degree that we saw in 08. Yeah, I think where the biggest opportunities for investors like you will be will probably be in the multifamily real estate side on the other side of what happens. So typically speaking in commercial real estate, they don't get 30 year, 15 year fixed property loans. They get three, five or seven, in some cases 10 year loans. And a lot of them are interest only. And the reason why is they're interested in maximizing their cash flow. How can I keep my payment the lowest and then refinance every three, five, seven years, pull out any equity that I may have gotten and then go buy another property. It was you who totally shifted our idea on that. I mean, when we- Oh, I love you too. Yeah, I mean, I was really interested. I know Doug was too. I remember him and I talking a lot about, oh, we want to get this complex, you know, 10 unit. And then when we had a great conversation one time and you really broke down to me how those loans are structured, how most of the investors are using it to leverage, to buy more. It's a great way to rapidly grow your portfolio or your net worth, but for somebody like us with that's not our main thing. And it's like a, we much rather take something that's lower risk, slower, makes a little less money and it's more conservative. It really changed my idea on investing for us. I completely went away from that after. It's certainly this phase in your life cycle. Commercial real estate is interesting right now because there's vacancies like never before. Like San Francisco, I think is like 30%. For office space. Office space. People are not going back to work like they thought. Is that going to continue to change? It looks like there's more remote forever. That is very interesting. I feel like that market is dropped and it's just going to keep going. Yeah. And I think that that's going to be impacted for a long period of time to come. Well, are they independent of each other? Or would you still, cause that's still commercial real estate also would fall into the category of 10, 15 units also. Yeah. So that all falls in the same bucket. So would you, I mean, are they going to affect each other? Or do you look at them independently even though they do fall in the same bucket? The question I find myself answering for even the most sophisticated investors the most consistently. And this is widely misunderstood. So let's start with the basics. Okay. So anything is in a multifamily or an apartment complex is typically defined in the lending world as anything above five units and above. Even though one to four units is still financed like single family and it does have multiple units truly five units and above for the purposes of regulatory definitions is considered a multifamily apartment building. Yes. Multifamily apartment buildings, office buildings, industrial space, warehouse space special use, think of like movie theaters or any kind of special use property. Those are all broadly defined as commercial real estate regulations. So they all carry very different risk profiles. If I said I had a big box bed, bath and beyond right now you'd be like, yeah, why? If I said I had office building in San Francisco you'd be like, how's it working out for you chief? Yeah. But if I told you I had an apartment complex in Los Angeles next to UCLA, you'd be like, oh, nice. So there's very different risk profiles. I don't think they're going to affect one another quite the same way. But I do think the work from home thing might have parallels. So I do think it'll prop up multifamily in some ways because people are working from home. They want more space. They're willing to pay a little more for rent because they're not commuting as much, right? Because they're going to be at home more, working from home more. They want more space. So I think that's where that high in luxury thought process really came in. You're going to see that flood the market but office is going to be forever changed. There's a my own team sent around a message where I said work from home on one of my social media posts was going to be forever as part of the environment. Meanwhile, we're bringing all the employees back. Said sitting behind me right now is very grumpy about it. But that being said, I do think there is a hybrid world that makes a ton of sense but we're losing productiveness with people working from home. They showed that. Yeah. It's absolutely real. I've seen it. People don't produce. They're not working well at home. Even considering how much has come back, we're still at 50% of what it was pre-pandemic. I think that's crazy to me. Considering all the stuff that's came out that said it's, we're less than. Keep in mind the growth in some of those sectors was so like just massive that they had too many employees. Right now, even with what's going on, if they had brought everybody back, they still have to do that expense management we talked about. And that would still be- That's an interesting point. So that's factored into that number also. So if Twitter has 2,000 extra employees and they're half, okay, that makes- And they've wiped out some of those employees. So now they have employees working from home. They have way less employees. It's super impactful. And in San Francisco, I don't know if you guys have been there recently, but it's not the glory days of what it once was. Just from a walking around. I'm afraid to take my son there. One of my wife and I's first getaways was to San Francisco. We loved it. We used to spend all the time and we'd fly up and do our thing, right? It's great. I'm afraid to take my son to the city to see what's going on because the home situation is so bad. Yeah, it's terrible. And it's not really a knock on anybody in the city. It's just, it is what it is. And then you layer in the mass exodus of tech from the space. And it's gonna be, it'll be a great market still in the years to come, but it'll take several years to rehabilitate. It's just- So I have family that lives there. And so I get like, I have a finger on the pulse and I tell them, if they're not careful, they're gonna become Detroit. Detroit at one point was like the shining beacon of American cities. Motor city, man. And then all of a sudden they just went down, down, down. And I told them, I said, it looked like San Francisco needs to change some of the strategies and policies because it could potentially become Detroit. And it's starting to really creep down to Los Angeles too in a way where I've had friends move from Santa Monica to Texas and Florida now because they'll wake up in Santa Monica and a multimillion dollar home and they'll be like a homeless person in their front yard and they'll be like, okay, well, how did you get here? And they'll have these conversations and they're just dropped off there. Someone said, oh, we just dropped them off. Or like the police will bust them someplace else and they'll get bused back around but they just, there's really not a solution for it but it is becoming significant in the state. And with the people leaving the state of California in addition to that, to better tax havens, it's becoming a situation where, okay, now you've got wealth leaving the city because of the tax implications. You've got businesses that are downsizing because of their sector implications. What's left in that space? What's left in San Francisco and what does it look like? It'll have to be the rise and prominence of another sector at some point in time to really pick up the slack but it remains to be seen what that will be. So the life of a banker sounds like mostly boring and then super stressful. Is that accurate? I don't know that it's boring. I think- You know what I mean? Like calm, cool, that's all good. And then, oh, shit. No, I have expedited field rages all day long. Oh, you do? Oh yeah, all day long. Like I am a true story. I used to be, I'm 42. For what I do, I'm pretty young. But I started off immature as shit, it bad. I once drove a woman to chain smoking because I was so happy about something that happened in the day that I stood up on a cubicle next to hers, put my arms out and screamed that I was Jesus. Wow. And I didn't know that she was devoutly Catholic and it stopped smoking. She started chain smoking again afterward. I'm, she a poor woman but I've learned to keep my emotions in check. I can see why you and Adam are such good friends. Yeah. You're like the finance, Adam, pretty much, you know. Yeah. Bad and we hold hands, you know, it's fine. But so yeah, it can be kind of boring at times but I like the people that we work with. I like the family. It's a big, big family now, you know, probably a little under 700 employees at this point but I also keep myself busy with other things too. So I think if you're in banking and you're trying to be creative, it's hard. That's what all the other outlets are for. What's the most rewarding thing for you about banking then? He's in the back counting as gold coin. Yes. I get very rich. No, a little screwed up. You sweep in all the deposits? Yeah. I would say it has taught me so much about money and to think about it so differently than I've ever been raised. I can see that being a really cool person. And the reason why I got into it, ironically, and I was really kind of drawn to it wasn't because I liked this career. I would have never guessed in a million years I'd be doing this. I'd be like, me, I'm a moron. Why would you put me in that position? But I'm here, sad to say. I think what drew me to it was I got an opportunity to look at tax returns. I would start it off as an underwriter. So I would look at people's tax returns of financial information and figure out how they got wealthy. And you start seeing the same pattern and practice over and over again. And it wasn't me on social media going, ooh, tell me how to Airbnb arbitrage. Yeah, yeah, yeah. It was me actually looking at wealthy people and figuring out like, this is how they did it. This is what I need to do in order for me to make money. Share that, share that with the audience. Like, what are the things that you learned in your journey of looking at so many of these things that you're underwriting? Like, what are the most common things amongst the wealthy? Man, okay. So I'm gonna say this is general advice. Do with it what you will. As much as taking a company public sounds sexy and sensational and it's a great liquidity event. That is not the path to longterm wealth for your family. And if you're interested in just an exit for money and then you're gonna deploy that money somewhere else and do something with it to continue to build wealth then fine. But for most people, you're generally gonna have more legacy wealth for your family over time. If you build a business and keep that business private, not public and continue to pass it on through generations. Now, typically speaking, the second and third generation will not manage it as well. And that's why you see a pivot from generally some money-making business to real estate. It's very rare that that really- It's like make the money, keep the money and have the money make the money for you. Right, and I think we look at some of these wealthy families, the Vanderbills, the Rothschilds over time as, oh, they did all these things and they took advantage of people. No, they made a ton of money, right? The second and third generations were not the ones that were gonna go into the company business and sometimes they were. They ultimately pivoted into other assets, largely real estate. And there's a lot of benefits to real estate that I think most consumers don't recognize. You get the depreciation and amortization right-downs. You can effectively take your LLC which owns your piece of real estate if it's a commercial piece of real estate or not your home. And then you can write down your expenses before you pay taxes as opposed to you get your taxes taken out when you get your paycheck from a W-2 employer. And you start to look at the relative taxes that wealthy people are paying and you start to say, okay, this is not fair. Once you get past the fair, not fair, it's legal. And you start saying, I can't challenge the system. I can only adapt how I do things that I fit in the system. You start to accept that you need to have a healthy world where you're making money in something that you're doing. In my case, it's the banking industry and some of the other things that I'm doing on the side, the law firm and everything else is fun, but it's this, right? And then you take that money and you live on a lower amount and deploy that money into something that you can invest in. And you do it over time. People who say, I own 30 or 40 units. This only happens one or two ways. You got a ton of money from somebody, right? Or you made a ton of money somewhere and you deployed that capital or you've been in this business for a long time buying over time. So that's why you see these guys on social media saying, oh, I own 240 units. Oh, I own 45 units. What they own is they own syndications. They bought into somebody's portion of somebody's real estate and they're saying they own all the units. It's very much a discipline and a skill similar to fitness. Like if you ask me, how does someone get in shapes? Like they work out consistently, they eat healthy consistently. Now the nitty gritty is what works for you, what helps you stay consistent, what do you enjoy, what is your tolerance for? Just like- Delayed gratification? Yeah, just like investment. Like, okay, like a good investment advisor, when you ask them, where should I put my money? They're gonna ask you questions like, well, are you risk averse? What do you want this money to do for you? Or is it okay for risky with it? How much do you need to live off of? Yeah, so that's where you get to the nitty gritty. But what you're saying is like 100% basic like, and people think, and I think it's because we hear, there's two reasons. One, and you're a dad, so I'd love your opinion on this. One is you hear the occasional story of the person that made millions of dollars. Oh, that's how you get rich. Two, we learn none of this in school. We don't learn anything about debt. We don't learn anything about savings. We don't learn anything about how to build wealth. We learn how to become employees, and that's it. And that, we end up, we go out into the world totally financially illiterate completely, not knowing how any of this stuff works. So I think those two things are why people are screwed. Oh man, I think we just became best friends. So I started a book a while ago, and I finished it. And then a little bit of the last couple of years happened and I started to pause. And the book was all about financial literacy. And because we get out of school not knowing these things, but it was done to us, it wasn't just happenstance. When you go back to when the government was curating the program of education that we currently have in place, to this day, as sad as that is, they went to these wealthy families, the Vanderbilt, the Rothschilds families, and they said, hey, you guys are the largest corporations in America. What do you need from your employees? What do you want? I want somebody who's gonna sit in the chair, raise their hand, answer questions, and I want somebody who's gonna wanna work their way off the corporate ladder, who wants a steady pay. The entire educational system was built to give them what they wanted. And so that's how we actually started the podcast. We were joking that we wanted to be like you guys in the finance world and teach people that education doesn't matter. I did not get to the position I'm in today because I'm educated. That had nothing to do with my financial position. And anybody who went to a great school, that's not true. It might be the network that they met while they were there, the connections that they might have had that have gotten them to that school, but education means absolutely nothing. And anybody who tells you otherwise is living in some kind of fallacy. It really comes down to what you can do with your skill set and apply it. And the more and more I look at the financial system and the way it's structured, we are putting kids in the worst position possible. Totally. In today's culture, as a dad, my wife doesn't work and I'm blessed and I recognize that I'm blessed that she doesn't work. She's a nurse and I loved it when she worked because it gave her a sense of fulfillment and it was a very tough decision for us for her not to work. But we also knew these were times we would never get back with our son. And it goes, you really only get 18 summers with your kids and after that, if you did a good job, they may want to stay with you and you're lucky if you get 18. Right. And we wanted to spend our time focusing on that. But for most families, they don't get that luxury because they've got expenses to pay, their mom has to work, the dad has to work. And then when are you gonna teach your kid about how to make money? You're trying to survive. So much of the system is built against our children. Yeah. I'll give you a personal example. So my parents are immigrants, uneducated. So my mom came in when she was four, high school education, went back to Sicily, met my dad, stopped going to school in fourth grade because he was super poor, had to work, came here and I learned my initial financial literacy from them, which was very minimal. What did I learn? Save your money, make money, don't spend it on stuff that you can't afford. That's all I learned, okay? Now I was 19 years old making six figures back in 1998 running gyms. What did I do? I saved it and I spent very little of it. I drove a Volkswagen Golf. I was making six figures, 19 years old. Back in 90 years, a shit ton of money. Over a hundred grand in the count. Yeah, and I saved my money. Now I wish I had better financial literacy because I had my parents known more, aside from saving, I might have invested because I was in a great position to do so. I could live with mom and dad, I could have bought properties, I could have bought this, and I would have been better off. But I just learned the absolute basic basics. People didn't even learn that. None at all, no. And the sad part is that's true. But I would say that the best lesson you could have gotten wasn't the financial literacy, it was the adversity that builds character that you got from your parents. You saw the adversity that they overcame to get here, the character that they instilled on you is what gives you that perspective. And there's a lot of people who grew up with a lot of money, and I've seen this too, and I look at people's underwriting, I look at people's financials, and you can tell who inherited money almost instantly. Really? Oh my God, when you meet people, you can tell. And there is- Like he earned it, or he got his hands. There's a clear dichotomy of people who've earned it, and people who've been giving it. Is it the way they talk to you, or the way they talk about their money? It's the way they talk about their money, it's the way they carry themselves, and it's absolutely just their overall demeanor. Like the conversation that you and I have, as two guys who didn't know each other, we're so friendly. You could tell the adversity was there. Whereas there's conversations I've tried to reach out to people who I know have been given money, and I know I'm worth more than them. And I'm having conversations with them, and they will big league me all day long because I don't wear a Rolex. Or because I dress like a hobo half the time. Like, I get it. But your perspective of me being part of your echelon doesn't necessarily mean that it's true. And you can absolutely tell. The sad part about the system that we're in right now and the impacts to the families is that these kids aren't given an opportunity to create legacy wealth for their families. And so few of us are blessed to do things that we've been able to do to be able to pass that on. I spent more, when I was a kid, I dreamed about exotic cars. I wanted a Ferrari or Lamborghini. Now that I can afford one, I would never in a million years. What I want is the opportunity to give my son a better start than I had. And that's the hope that everybody can give their kids is that if we do our jobs right in our lifetime, our legacy in law really meant family. Our legacy will be giving our family a way better start. And imagine all the stuff you could teach your kids about financial literacy, about starting a business, about all the things you did to overcome adversity to get to where you are today. Yeah, yeah, my oldest is about to go to college. And I could afford to pay for it and all that stuff. But we sat down and I said, look, you're lucky that your dad can afford to pay for your college, but I'm not gonna pay for a degree that has no market value. There you go. So let's talk about what you wanna learn. If you wanna learn art history, no problem. You're gonna go learn on YouTube. You wanna get a degree in engineering? Okay, maybe I'll pay for that depending on where you go to school and what type of engineering. So we had this conversation because I felt like, rather than go get whatever degree you want, they're all, that's not the case in the real world. Some degrees have market value, some don't. 100%. And I'm not gonna pay money for one that's worth nothing in comparison to the amount I spent. So we had that conversation and that's what we decided. We picked a one that has market value that's valued more potentially than the money that I'm gonna invest. What'd you pick? And he's gonna be computer science. Oh, yeah. Okay, yeah. If you go back and do it all over again, if you had to pick a degree, what would you get? Oh, if I had to pick a degree. Yeah, if you had to go back and get a degree and you had to pick one now. Based off of fun or market value? Just, what would you get? Whatever you want. Oh, gosh. I think writing code is gonna be extremely, like that'll stay. Okay. Yeah, yeah. I can't see you writing code. Oh, I would never. Yeah, you're not, you're not. If I could go back and do it all over again, I wouldn't do any of that shit. I wouldn't waste my time going to school at all. I mean, if you made me go to school and I had to go pick a degree. I'm making you go to school, you have to get a degree, you're my sons, all three of you handsome fellows. Yeah, code. Yeah, I think writing code. What would you get a degree in? If I had to and it wasn't worried too much about money or whatever, psychology or history, both interesting quite a bit, yeah. Both not very likely. History arguably useless. I wouldn't pay for that. That's true. I'd probably pay for psychology. I like psychology. Let me back you up on, I like psychology. And I like psychology. I actually probably would have went to those classes. And we're getting so fucked up as a society that I think we're gonna need more and more therapists and psychologists out there to navigate this weird AI world world too. So that'd be a viable career like that. Or some science or maybe neuroscience or even medicine. Justin, where you at? It was either science or I was gonna go the opposite direction and go in trade school like more industrial arts. Just because of the skill, I feel like it's a dying need that amongst all of our innovation there's still gonna be people that need to fix it. No, there's a theory out there that those will be the last jobs to go from AI. Yeah, tradesmen and will potentially be some of the highest paid people in the next two decades. But he actually has it. So he did go to school. Last two were the guys that did it. Doug, what would you go back for? Architecture. Wow, did not see that one coming. Yeah, did not see that coming. Yeah, that'll be a waste. Yeah, I'm not sure. Well, I mean, I got a business degree. I was through the 3D printers already. Yeah. Hey, I replaced you already, man. Designed me a house that looks like this. Yeah, true. I think I would go back for accounting. Really? Of all the things that I do on a daily basis that could be applied to work or my personal life. I think the thing that had the most universal appeal was if you understood it, something as boring and as painful as accounting, you could run your personal finances, you could run your family's finances, and you could run your business. That's what I scuddyed. Yeah, that's real. Is it real? I knew you were sexy for a reason. Yeah. And it very much so has served us in this business for sure, Doug have done that. Now, don't you think that'll be one that'll be put into place by AI though? Maybe, but you need to understand what AI is doing. You have to know enough, right? You have to know enough to be able to weaponize again. And to this day, I'm still on some calls while an investor will call me up and they'll ask me a really technical accounting question and I'll go, yeah, yeah. And I won't have like an, I have to think it through because I'm like, that doesn't make a whole lot of sense. And I wish I knew more about this topic, but you can't say that. What's been your, for you personally, I don't know if you can answer this or not, but what's been your biggest money maker for you? With your investments and what you've done? Well, so there's a couple of different paths to becoming a millionaire, right? Like saving, right? Starting a company and being an executive at a publicly traded company. I can do that for you. And I've, I made good money there. So I made a really dumb decision that turned out to be a really good decision. So again, there's a common thing of me being a moron that you guys will run through this whole story. I- You play that by the way very well. The being moron? No, like I am a moron, but you're not. No, I am. I am not that smart of a person is. Smart enough for a little bit. Yeah, I've added a hair transplant makes you look smarter than you normally would be. So I- Science. Yeah, science, right? Elon Musk. He's set it up for everybody. Everybody's got a hair transplant now and I can say I'm a transplant survivor. So I took stock out of the company and I sold my stock thinking that I was gonna leave banking. Like about probably five years ago. And I thought, okay, I'm gonna leave banking and I would, at the time I had gotten to this point where my first property that I bought was a single family home and I bought it for, I was like a hundred and, God, I wanna spend so long now. I wanna see maybe it was 140, $150,000. I put about 25, 30% down somewhere in there and it cashed about 400 bucks a month after taxes insurance. I impound for everything. So I pay principal interest taxes and insurance and then after the rent, I made about $400 a month. At the time I was like, that's great. I don't need to live off of this awesome money. It went from buying one property a year to buying two properties a year. And I was like, this is good. Like I'm making like an extra $800 every single year by doing this. And then I was like, okay, well, I don't know that I wanna be in banking for much longer. And I thought, okay, you know what? Maybe I'm gonna leave. Maybe I'll leave the company. And I sold a bunch of stock over the period of call it a year and a half, two years and started buying a ton of real estate. And I actually sold and the stock price was high without knowing where it was gonna be today and the period of life that I was gonna go through. And I wound up buying real estate at a relative low and kind of building out something that I didn't think was gonna be there. And I would say that real estate and my investments out of the company have really made me the most amount of money as far as a net worth goes. Now I don't look at myself in the perspective of like a net worth and say, oh, I'm worth this. And think that's anything that's sexy. I look at myself solely from cash flow. I don't care what I'm worth. It goes up, it goes down. It doesn't matter to me. My cash flow is really what drives my world and my wife's American Express spending. But which has been highlighted. But we talk about this a lot on our show too where people put this emphasis on what's made you the most. Do not confuse net worth with success. There's a lot of people who have high net worth that don't make a lot of money because they have like private planes and they spend all this money on everything. It really comes down to how much do you make every single month and how much do you free cash flow after your expenses? That's true freedom. That is the only thing that matters. Everything else makes your ego feel good about yourself. So I would say that most of my cash flow now comes from the rental properties by sheer happenstance and luck of decision making and timing, but it worked out really well. Now I live off my salary predominantly from the bank and for those of you who don't know, the way banking and executives at public trade companies work, you see these big salaries for executives like, oh God, that guy made a lot of money. Well, typically speaking, there's a much smaller cash component which you get in the form of a W2 paycheck. Then you get a bonus, which is usually some type of percentage off of your salary, usually like 150% or whatever it might be. In some cases, Jamie Diamond, it's like 10 billion percent bastard. But it's paid usually out over stock, not in cash. And you get it paid out over the course of three years. You get one third up front and then a third and a third. But you still gotta pay taxes on all that. That's why you see these guys selling off their stock is not because they want to take all this money and go live like lies and livens. You still have to pay taxes on the stock that you received that year even if you don't cash it out? You have to pay taxes on the, well, no. So you'll pay taxes on the relative stock that vests plus your cash component. So keep in mind the way it comes through is my bonus is effective. So this is messed up part two. My W2 is taxed like anybody else's W2. But because my compensation is in the highest bracket and this is not me complaining, but this is me going through logistics, my bonus, let's say it's $400,000. I'm taxed 58% in California off the top. I will take home about 42% of that. So that big number is more than half gone right off the top. So that's the taxes there. But then anytime you sell stock, you're paying a pretty significant tax there. Well, no, of course I know that. But I thought maybe you were saying that when you would- Like you get the stock, you have to pay the tax. No, no, I don't. Oh, okay, okay, that was confusing. But typically speaking, I'll pay, I'll sell down some stock throughout the year leading up to tax season and pay down my taxes for the rest of the year. But most of my tax position is pretty well insulated because mostly real estate now. Right, right, smart. So I want to go back to it because we're all fathers and you did say something that I think about a lot, right? Which is this, a lot of what motivates me too is like making sure that my son could have a better start than where I was at, right? And hopefully he can compound on my knowledge, experience and then take our family further, right? How do you wrestle with giving him a better start, but not so much of a good start that he's a lazy fuck or he's entitled or like, I mean, I wrestle with this all the time on what that's gonna look like when that time comes. Like in a reading a really good book, just recently called Die Was Zero and it has an interesting philosophy even on like how your kid inherits money. Like the average person inherits money at like 65 when like 90% of the people say that when they got that money it was, they didn't need it. And the average age when people need it is between 26 and 35. So if you were thinking about giving your kid money and you're working towards to put them at a better start then wouldn't it be smarter to help them out in that age time? And so like, even that's got me thinking different about how he'll inherit what I have created or like that. Like how do you reconcile that and what are your thoughts on how to help him but not help him too much? So a big fan of that book, number one, largely because that's exactly how I live my life right now but I've seen, so we have a several billion dollars of wealth assets under management from a wealth advisory firm side of our institution. And I've seen legacy wealth and it builds up and builds up and builds up. One of my friends growing up and we're not very close anymore but he inherited a pretty significant amount of money when he turned 3035. And when I asked his father who was a very well-known attorney and sports agent and tried the case about athletes go from college straight to the pros and he was very, very big. I actually studied his cases in law school and I could go home and talk to him which is very weird. I asked him why one day and he was very forthcoming. He's a New York, like tough nose Jewish guy came up in the prison system while he was going to law school. I mean, the guy is brilliant. He's a stud by all traditional measures. He said, look, I don't wanna be dead when my kids endure the money. I didn't work this hard to not see them thrive. But I also wanted them to get far enough in their life to where they knew what it was like to go out there and get a job and learn on their own and have to plan. So I didn't tell them this. I gave it to them on their birthday when they hit an age and when they were all the same age and some obviously had siblings that were older. It was interesting and the more I thought about it the more I was like, okay, this is different because everybody I see on the wealth advisory side they get to a certain age their kids are living a lifestyle underneath their arm and they're kind of always underneath mom and dad's arm they're never really learning to be independent on their own. When it came time for our son instead of starting a 529 college plan which a lot of parents do is they put together this college plan if your kid used it for college get some tax benefits. I thought, what if my kid doesn't go to college? I gotta be honest with you. I truly don't feel like my education got me where I'm at and I truly don't know that if my son came to me when his college age and said, hey dad I wanna go into this business I feel really comfortable with it. I'm good at it. Here's my plan. Here's what I wanna do. That I would say no. I might say, hey look son I believe in you here's the money, it's yours to lose but go take a risk that no one ever gave me the opportunity to take. So instead of doing that we put his money into a traditional investing account and it's traditional stock in investing and we continue to invest that and the idea is when he becomes college age that'll be his decision not mine. It's his money to lose. But my wife and I struggle with this a lot so I do travel well. I travel a lot and when I do travel I usually travel first class not uncommon for us to travel private we do all those things, right? My wife and I and I told my wife the other day we were just flown to Hawaii and then to Disney World and we spent a lot of time at Disney which is like hell on earth in moments and great in other moments but my son has been on more first class flights at the age of four than I had been in my entire life before I made money. Like how messed up is this kid's perspective gonna be when he gets to school? Right? Like he's even good I mean he's four so he's not gonna know but then at the same time we were like okay but we're so happy we live in an 1180 square foot three story attached town home. It's not like super over the top luxurious. My wife drives a 2018 Tesla I drive a 2015 Jeep I do have some project cars those are not in the house you didn't see those. It's a subtle balance and I don't know that there's an answer for it but the intention is my wife and I are gonna live the luxuries on things like vacations because it's not everyday reality and we're gonna spend the money there but we're not gonna upgrade our life to a lifestyle until he's old enough to see us do it and remember it. Yeah so I've talked to a few people about this the best answer that I because I grew up very different from my kids are gonna be growing up. 100% right. I like what Steve Harvey says I was a Steve Harvey where his kids are like are we rich dad? And he's like I'm rich you're not you know. Shaq says that too. Oh Shaq yeah. He's killing us. Steve Harvey's got a famous me one. Yeah no I the best answer I got was have your kids volunteer a lot. That's one of the best ways to teach them perspective to give to others to you know and in other places so you could pay for them to hey do a year over here go volunteer and go see what it's like and that was the best answer What do you mean by volunteer? Like walk me through it. Like volunteer like go build houses. Like missionary or yeah volunteer work for you know Peace Corps or something like that right? I'm giving you just general but volunteer work. Volunteer work where you're serving others. You could see some perspective and what things are like because to be in a position of wealth you have and I heard this is how it was explained to me you also have you're also in a potential position of responsibility where you can actually you know help people. Oh yeah. So that would that was the best the best answer that I got. I think what you said is actually the first time I heard someone say that I think that's a really interesting like your kids won't know right. Yeah well I mean I like this idea of because you're right and I had I think the same thing and I have the exact same story with the whole first class thing with my son like 100% that didn't happen for me until I was an adult. That's all he's flown like so I definitely have that same feeling but that doesn't happen every day like it's you know happened a handful of times in the last year or two so his memory of that will probably be vague in comparison to his house, his toys, his room the things that he's got every single day and so trying to you know live a more minimalist life day to day in front of him until he's an old enough age to see like maybe the more lavish things is not a bad strategy. I've never thought of that like that. I think that's kind of a cool perspective. And when you think about it as much as it sounds like self sacrifice it's really not. It allows my wife and I to invest for longer so my mortgage payment right now at our house is $1,700 a month before our HOA which I think could be at LA it's crazy. It's like $2,200 a month. It's nothing compared to like what it could be right? So it allows my wife and I to have really strong cash flow for a prolonged period of time. It also is small enough house to where we have a fight, we're there together. We're not getting away from me like I'm like you can't go to the West Wing and go yeah I mean when she had postpartum depression and she would get upstairs and she would go away like I'm always in close proximity it actually worked out really well for us to work through that together as a family because we were always there. And I know it sounds like sometimes people need space and I understand everybody's different but there's something to be said for maintaining humility as your family and earning it together. And unfortunately or fortunately depending on how you look at it, we have a four year old and he needs to learn that humility and earn it with us over time which means delayed gratification for all of us. But that gives us so much more time for investments or activities. My dad by the way said that. So my dad grew up very poor and he says I don't like big houses. And I said well why? What do you mean? And he goes because my kids I'll go to the room I'm over here, I don't get to see my kids. He goes I grew up in a house so small we're always together all the time. He used to say it to me all the time when I was a kid and I didn't really understand it until I had my own family and it makes sense to me. So I have two step sisters and a step brother, right? And they are my brother and sister, I love them to death and I have a full sister who lives in Oklahoma. She's one management property management company and it's a real estate out there. The three of them that are here they grew up in a much bigger house and lifestyle. There was a five bedroom, four and a half bath that my dad still lives in today with my step mother and I think one of the kids, the youngest one lives there. They are very different than my sister and I who grew up in a much smaller house in a much different environment. And the relationship between my dad and my step mom is not the same as the relationship between like my wife and I. We're much close, like she is my best friend. Like we are that core unit. And it's, I think it has something to do with proximity. I think it has something to do with being when we were kids, it's the way we grew up. Now I saw my dad make a ton of money and lose a ton of money which is part of the reason why I knew I wanted to know so much more about like other businesses growing up. Like I wanted to know more about commercial real estate. I wanted to know how much more but it was, I learned so much through adversities and watching my dad's like over leveraging real estate going into the Great Recession where he lost all of his investment property. I learned so much from that that I began to shift my value. Like my value shifted from I want to make money and would be rich to I don't ever want to be poor again. And I know how gentle that balance can be between good investment and bad investment when the market changes. Look at first your public bank. They were a well run bank. And they went from a well run bank to, oh my God, get your money out of there. The sky's gonna explode above them and it's gonna go to hell on earth. Well, that's how subtle wealth is. And you have to be pragmatic and thoughtful and think the longterm. So I look at our family and I look at the things that we're in now and I'm thankful for all the adversity I had growing up because I can now feel comfortable just being me being in a t-shirt and shoes and I have subtle things that I like that are little luxuries and not have to worry about impressing anybody. Because I know when I go home, I got my best friend at home with me. I got a son who I'm trying to build the best life for and everything else winds up being secondary. Excellent. That's a great place to end right there. Chris, thanks for coming on the show, man. This is what happens. Before I say goodbye, man, you guys are such a huge impact on my life. I listened to Mind Pump early, early, early on. And the three of you actually, four of you, sorry, Doug. We're so huge in shaping the way like I learned to do things and our podcast wouldn't even be here if it wasn't for you and especially Adam, man, you've been amazing. So thank you guys. Yeah, yeah, yeah. And your podcast will make sure we mentioned in the intro so people can come listen. Yeah. Good advice. Thank you. Right on, man. Today we're gonna teach you everything you need to know to build a strong, well-developed chest. When I think of weak points and areas that I struggled with developing for a really long time, chest was up there with the world. Yeah, it was for me. It was for me for sure. I got more caught up in the weight I could lift versus how I was developing my body. I think it's one of the most challenging muscles to develop for most people because the form and technique.