“Policy-by-drunk-uncle”. April 4, 2025

28:14Yeah, I mean, that's why I'm saying there's so many layers to all this. I've got to be really... I hope that people There are all of those other dimensions, sort of there's the environmental dimension to it. There's all of this kind of stuff. There's getting the proper value for our own resources, you know, all of that, you know, and opportunity costs. What's the best way to get the stuff that we want? So that is all true.

28:39There's also a strategic dimension to it in a world where the geopolitics is heading in a scary direction. like you know it's it's not that you want you can get very dooming gloomish and you know climb down into the bomb shelter unnecessarily or preemptively and that won't do you any favors but at the same time it's kind of like there is this wonderful chart that you'll find online which which talks about national wealth versus energy consumption okay and it's correlated almost one for one as As you would imagine when you think about it. It's like if you're in a really rich country, and we are, we're easily one of the richest countries in the world, we use a bucket ton of energy per person.

29:22Now, again, two things can be true at once. So I'm handily putting the environmental issue aside here. And again, I will make the – you used the word fungible before. Electrons are fungible, right? So I don't really care how it's generated. But I do – I actually want to live in a country, in a society, which uses a huge amount of energy per person. And I say that because that's what you kind of need if you want a very prosperous, wealthy lifestyle. That doesn't mean I'm saying pump sludge into the rivers, put a ton of carbon in. I'm not, I'm not. But if we want to grow as a civilization, if we're going to be a multi-planetary species, as Musk likes to say, if we are going to, if our great, great grandkids are going to have lives that we can only dream of.

30:12We're just going to have to use a lot of extra energy. So you've got to be careful what you wish for here. I mean, there is no point, I don't know, what am I, I'm going to tie myself in knots trying to sort of be careful not to offend too many people. But I think that's a very important point. Anyway, back to the original one being that there is, the strategic dimension to it is if things, if sea lanes block up or tensions get high or other governments start imposing trade restrictions. So to your point, it's absolutely perfect. Hypothetically, let's say, it turns out that for whatever reason, we can actually get the equivalent gas much, much cheaper by importing it from country X.

30:51It's like, okay, we should probably do that until that country X elects a new leader or the world dynamics change. And they go, actually, we're not giving it to you anymore. We go, oh crap, we don't have any. And again, we can't just go, oh, it's okay, we've got some on the ground. Because again, that's true. But$30 billion, probably$100 billion later and 30 years later, okay, then we've got it. You must have it in place. So I do think on the energy angle, there is a strategic dimension to all of that. So it's just like, I would prefer to have it here if we can. And I would prefer to maximize the value creation from an Australian citizen standpoint if we can.

31:31All of that is good stuff. And I would like to do it in a framework that is clear and consistent so that we become a very attractive destination for offshore capital. Because if this stuff has to be built, I mean, think about it the other way. We often talk about these multinationals strip mining the country and taking all the values. Wouldn't it be cool if we could actually do that in reverse? Wouldn't that be awesome if we could get foreign capital to develop local assets for our benefit? It's not magic. You can do that. Smart countries do do that, right? Australia's always been an importer of capital.

32:04That's part of how the country's growing. We've literally said, can you please come and help us? We need the investment to help us become more prosperous. It works beautifully. It's not a bug. It's a feature. And it's not a zero-sum game. So it's like the company or the foreign interest that does that will do it because we can get a decent return on our investment. We will do it because we will have more money, returns, assets, resources than we would otherwise have. It is the pie gets bigger. We all benefit as a consequence of that kind of stuff. So, yeah, you can be too jingoistic with all of this stuff.

32:41And speaking of jingoistic, that's a perfect segue for me, because we have, as of this morning, again, recording time Thursday morning, had what I'm now calling policy by drunk uncle. It's my official term for Trump's tariffs. And to the Trump fans out there, sorry, not sorry. I get you like Trump. That's all fine. This is just rubbish economics. It is rubbish policy. there's not a single reasonable credible economist who thinks this is a good idea the only people who i can find who think there's the things are good ideas are rusted on trump's or a fringe group of economists who somehow want to go back to the 1950s and there were some good things about the 1950s but trust me you don't want to go back there um maybe i ship your house prices but short of that there's not much there's not much reason to go back to the 1950s um so we heard this morning ram trump's unveiled general tariffs on almost every country because why not just line up the dartboard and throw darts at it.

33:32And Australia has been allegedly fortunate to be on the lowest level, the base level of tariffs that Trump's imposing at 10 % for all of our exports to the United States. And I did tweet this morning that someone should look up the word reciprocal and send Donald Trump a copy of the definition because if these are reciprocal tariffs but everyone's getting the same base rate, what are the odds that that base rate is exactly 10 % for everybody? or maybe just maybe stick with me here maybe they're actually not reciprocal maybe this is just terrible economics and base retail politics i i'm gonna just put it out there mate maybe maybe this is a bit of a smokescreen oh we like australia so they get the base rate they're only getting 10 because you know it's reciprocal tariffs i will so we're 10 the uk 10 yeah would we both have exactly the same tariff regime on the u.s no do we have any tariffs in the u.s no so then what you're telling me is this was a complete smokescreen you're making stuff up so you can justify tariffs to make yourself look good and to do this thing called Liberation Day, which I think is a...

34:32Liberation Day. Mate, it's a Cuffs and whatever game. It's not Liberation Day. It's a... What do you call it? I don't know. It's... The opposite of emancipation. Thank you. Liberation. I don't even know. We've talked about tariffs a bit. I don't even know there's much more I can and want to say other than it's still stupid. There is no justification for it. and i'm not even talking about moral justification there isn't any moral justification anyway but put that aside there's no economic justification australia doesn't have tariffs in the u.s in the first instance secondly putting tariffs on australia products just makes things more expensive for the yanks there's and thirdly it harms global trade and harms the benefits harms the benefits of comparative advantage where we do more stuff we're good at they do more stuff they're good at and we swap i mentioned whiskey before australian whiskeys are very good but we still buy a truckload more bourbon that we send them right the the idea that somehow there is some benefit to anybody uh the bourbon makers don't need any help right and they're buying our beef uh already uh then if americans can't buy less but they may buy more chicken maybe more lamb and some will if you want to buy beef just cost americans more 10 more to buy beef there is i i am and god love the people on twitter who try and defend it you know someone told me luxury car tax was a tariff and so therefore it was okay because we have we have a luxury car tariff so us tariffs are okay um or you know well i suppose you think the tariffs are this are okay then scott no it's not about anti-trump it's about any bad policy so let me be very very clear i don't care who's doing the tariffs tariffs are crap policy with the exception you've you've disagreed this in the past mate so i'll i'll say it and feel for disagree again but just for the sake of rounding out my thoughts tariffs are terrible awful inexcusable policy with the exception of genuine dumping in my mind and doesn't know who does it whether it's Trump or Biden or Harris whether it's Alba or Dutton whether it's I don't know in the UK this is not a partisan view it is a it is a view that stupid economics should be called out yeah yeah I've got not much to add it's one of those things when like so much today is um at least presented in a very binary way and one side will say one thing, the other side will say the opposite.

36:42But this seems to be really across the board, to your point, aside from a few sort of fringe economists, like everyone thinks it's a bad idea. So look, and to be fair, as I've said before, I don't agree with this, but the theory would at least be is that it would be short term paying for long term gain, because while prices are going to go up and everyone's poorer as a result of it, it will at least stimulate a huge amount of investment in local manufacturing, which have strategic advantages, job creation advantages, and all of that kind of stuff. But it does assume that all of that manufacturing stands up in a reasonably quick amount of time.

37:20And it stands up in a fashion that is competitive with what is currently sourced from overseas, which might not be the case. I mean, you can imagine if Australia decided that we're going to start building, I don't know, computer chips. like i'm not having a go at my i love the country we're very smart resourceful people but it is the amount of ip and know-how like to build yeah to build a fabrication facility for modern computer chips you have no idea like there's a reason that the taiwanese do it all right because they've just specialized in it for decades and they've just become some insanely good at it.

37:58Does that mean that we can't do it? No, but it'll probably take 30 years to stand up just to get back to square one in terms of what we were getting. And then presumably at a higher price as well. So there is the theory, you can prosecute that, but even if that is your view that it has these benefits, you've got to fold into the timeline there. It's like, well, how long before that is replaced locally? And is it replaced in kind in terms of both quality and price? There's no point replacing it if it's twice as expensive and half as good. Right? That's going to happen. And here's the thing, mate.

38:38If it wasn't, if it was cheaper or, if it wasn't as good or as cheap, it'd already be done. Yeah. Let's go to America for a second. If America could do the things that they're putting tariffs on now there, you'd have shorter supply chains. So it's already going to be beneficial. So if you could produce it at the same price and quality, just the freight saving alone would make it beneficial. So why don't Americans do it? Because if you need a tariff to support it, then that's the point. You obviously can't do it either as well or as cheaply as somebody else. And it's like a bloody elbow doing this future made Australia solar panels debacle.

39:13We can buy cheap solar panels from China or we can make more expensive ones here.

39:20So hang on. You want to spend taxpayer money to make something that's as good but more expensive, which is why the subsidy is needed, as when we get directly from China without the subsidy. So Australians can either pay more tax and pay for the solar panels or just pay for the solar panels. Yeah. And so, again, I'll just try and balance it out. The view there would be is like, yeah, again, though, we don't want to be reliant on an adversary. And, again, there's some sense to that. However, think it through, right? We often talk about second order thinking. It's like generally countries that benefit each other in a mutual way don't often go to war.

40:04Yeah. So what we're doing is we're saying, don't forget trade is win-win. Trade is always win-win unless it's done at the end of a barrel of a gun, right? It's just like it's a voluntary thing between two parties. It is all because otherwise the trade doesn't happen. Correct. Scott, I'll buy your car for a dollar. No. Okay. The trade doesn't happen. We'll reach a point where you'll go, you know what, I'm happy and I'm happy. And it's only then and only then that a trade kind of occurs, right? So assuming that that's the kind of scenario, which it largely is, it's sort of like, so China's happy because they're selling a bunch of exports to Australia.

40:35We're happy because we get a bunch of stuff that we wouldn't otherwise easily get at the same quality or price that we could do ourselves. and from the strategic end point, we're less likely to point missiles at each other because there'll be vested interests domestically in both countries. Like, can you not blow up this major source of revenue for us or this major source of produced goods for us? Like, in either case, it's like, we're going to be worse off after this as well. So trade is good for the economics of getting more, but it's also really great if you're anti-war because trade diminishes war.

41:13Totally. Motley Fool Money. For more, subscribe to the free newsletter at fool.com.au forward slash listener.

41:24Can I just talk to the national security bit for a sec, mate? Because I get that we don't buy it for our adversary. I was like, that's a reasonable point to make. So the good news is we now like our own solar panels. Unfortunately, our computers, our iPhones, our electronics all now just all come from China. So we've got our own solar panels, but nothing to charge with them. The national security thing only works if you're going to say, we want to produce everything here because we think it's a national security risk. Fine, do everything here. As soon as you say, well, these five things we're going to produce here, are those five things enough?

41:54No. So then what's the point? It's a fig leaf in my view. I think it's a well-meaning fig leaf. I understand people saying, well, if China chose to stop selling it to us or if they put the price up, we'd be at a disadvantage. So we should, for national security reasons or sovereignty reasons, we should produce our own. that's fine as an idea but as soon as you say that's not the entire supply chain for whatever we're making then it's useless being able to get one thing out of time not the other 15 things we're genuinely no better off and we paid more to pretend we have a better national security position it's just not true can I even go a little bit deeper down the rabbit hole here the scenario and this is always true the economic disasters we face are always own goals We created, when I say we, I mean the West, we created this.

42:42We exported all the manufacturing to China. It wasn't always done that way. You know, so we, it's called Triffin's Dilemma, if you want to look, Google that up. You know, it's just sort of like, it's sort of a consequence of the US being the reserve global currency and the petrodollar system and the Middle East forcing oil to be purchased in US dollars. that has to be recycled, that helps fund the debt, that tends to gut manufacturing. It's this big sort of long sort of process. But it's got downsides and it's got upsides as well, right? So it's sort of like we're now going, oh, China, everything's made in China.

43:21It's like, yeah. Like that didn't just happen, right? Like there's, you know, so I just think you've got to be careful. Again, I remember that being made in China is actually cheaper still. Like that's no tragedy, right? We get cheaper solar panels because China makes lots of cheap solar panels. That is not a bad thing. People buy our wheat. The best example for me, I've used this before, but imagine you put a massive big fence around your local suburb. So we're going to make everything here. There's no one here who can make shoes. I don't care, make shoes. Okay, but they're going to be bad and expensive.

43:55I don't care, make shoes. Okay, but the guy over there wants to sell shoes for$5 because they've got a lot of cobblers in that suburb and they've got lots of shoes. I don't want their shoes, but they can't have our... We have a mechanic in our side, their cars are breaking down and we're paying too much for shoes. I don't care. Make them train their own mechanics. We've got to build our own shoes. It's just, it's honestly. We had that society. We had that forever up until very recently in the historical context. We were self-sufficient hunter-gatherer kind of people. We did everything ourselves.

44:27And you know what? Life was brutally hard. And even in the agrarian sort of past, it was sort of like where every, you only have to go back a hundred years or something and everyone was a farmer. Like when you said you, you did a pie chart of the population. It's like, everyone's a farmer. Like we all made our own jam. We stitched our own clothes. We, you know, we educated the kid. We did it. We did it all ourselves. And that's, that's exactly the point that you're making is like, and it sucked. It sucked. No one in that world, having a glimpse at our world would go, Oh yeah, you guys should come back and do everything yourself because you know, If you love getting up at 4 a.m.

45:03and collapsing in exhaustion at 10 o 'clock and scraping an existence out of the dirt, you know, like it's just like, no. And here's the thing. People who hear that then think, well, no, but you put the stuff in a silo. Well, who's building the silo? Yeah. Well, you are, but I don't have the wood or the metal or the – well, if we had some people who could actually specialize in metal work, that would help. All right, let's have a blacksmith. Good idea. So the blacksmith doesn't farm his own food anymore. So we're not talking about – some people say, oh, 1930s, if we had less pollution, less speed, and more living on the land.

45:38I get the nostalgic appeal for that, right? I'm making my own beer. I've got a beehive in the backyard. I get some of that stuff, right? But I'm not giving up my job and just doing that and trying to grow all my own food with my own cow I'm going to slaughter and my own wheat in the veggie patch. And there's part of that stuff which is romantically lovely and nostalgic and worth doing, right, just for its own satisfaction. Sure. But the second you say, I want to store that wheat, it's like, well, I hope you've got the trees and the skills and the metalwork and the foundry. No, I don't have any of that stuff.

46:03Well, then you want specialization. Yeah, I do. By the way, your beehive. Did you make your beehives? No. By the way, the brewing equipment. Did you source the yeast and the malt? No, you didn't make it. It's in a plastic fermented vessel with a plastic airlock that I couldn't make. Exactly. So I just wanted to – there were people who just heard you and thought, well, the past wasn't so bad. going back to a more relaxed agricultural sort of based society with everyone was nice to each other with fresh air and less pollution. There's benefits to some of those things, but right, exactly. You lose the rest.

46:34Again, I will reference Back to the Future, specifically Back to the Future Part 3. He goes back, right, and he's eating a rabbit at his great-grandfather's table. The water is brown, like it's brackish and disgusting and probably full of pathogens and all kinds of stuff. Eating a rabbit that's got BBs in it from where it was shot. You know, again, it was not a comfortable lifestyle. And it feels like, you know, you're pushing it to some logical extreme here, which is not relevant, but it kind of is, right? The story of human flourishing and civilization is really a story of specialization. And whether that's at a village level.

47:13Go on, go on. Yeah, well, whether it's a village level, you know, a town, a country or globally, that is still true, right? And so. 100%. And can I go down one other sort of, as I said, go down a bit further down the rabbit hole? Because this stuff is super complicated. And I don't want to pretend that, and I hope we don't do this, like pretend that it's actually really easy and obvious. The other dimension to all of this is that we're looking at Trump going, that is so dumb. Now, China has forever been manipulating trade markets. Oh, yeah, totally. Not with, well, actually with some tariffs, absolutely with some tariffs.

47:50I forget off the top of my head, there's a whole bunch of stuff they restrict from import. I think it's cars from elsewhere. Wouldn't be surprised. But what China does is they artificially suppress the yuan. And when I say artificially suppress the yuan, they create money out of thin air to sell it on the market to add supply and dump. And again, the monetary mechanics, as you know, just fascinate me lately. But it is the same thing by a different means. When we say China is cheap, we say it's cheap because we have such favorable exchange rates. Yes. And the exchange rates are so favorable because they are manipulated.

48:32Now, it's not a tariff, but it is a manipulation of it is a distortion of the free market. If Xi Jinping was all of a sudden embraced free market capital, it's hard to say that with a straight face, was to embrace free market capitalism and just say, let's let the dollar float as Keating allowed our dollar to float. And as I think, I don't think I'm out and I'm here to say most right-thinking economists think it's probably a good idea. Yeah, very good idea. What would happen is all of that demand for the stuff of China would actually push the exchange rate up, which would mean that China wouldn't actually be as cheap anymore, which, and again, not in a bad way, but it would, you're disrupting the pricing.

49:14However you do it, if it's tariff, if it's exchange rate manipulation, if it's policy, there's a thousand different ways. Whenever you manipulate the price signal, you distort things, you interrupt the proper functioning of our economic coordination, and we end up poorer. That's the TLDR on all of this kind of stuff. So, again, I'm not trying – let me be abundantly clear. I am in no way trying to defend what Trump is doing. Tariffs are dumb. They're stupid. it's not making it worse but there is a there is a point to sort of say well yeah but china has been has been manipulating things for forever and then there's another we won't go down this rabbit hole but just to say like people might be going but you can't do that forever no you can't you absolutely can't do that forever but you can do it for you can do it for a long time that's the thing right you can do it for a long time and china is in no great they they're having a deflationary bust as we speak their property market is collapsed those whole bunch of like Like the idea was always, and again, economists saw this coming yonks ago.

50:18And I was like, don't worry. They will switch to a services-based economy. That's the trying to do it right. Exactly. The internal domestic demand will grow. The economy will lift itself up by its jockstraps through exporting. And then it will switch over to a more like our economy. Ours is 70 % services-based. you know we're all we're all trying to just trying to speed the process up they're trying to do 200 years development in 50 years and that's that's where that's the the risk and and the and the kind of the gamble they're taking is yeah we are going to try and replicate that and get there as quickly as we can because we started 150 years later than everybody else absolutely and it might work but but not yet and and they have not been able to that the the the chinese central bank has not been able to take their foot off.

51:09History, I love history. History is such a great teacher, right? And I will go back to the future. Isn't this a happenstance? It's a lovely happenstance. I've got to go back to the future again. In Back to the Future 1, I think it was, Marty McFly goes back to the 50s and he shows a component to the dock, the younger version of the dock. He goes, ah, no wonder it broke. It's made in Japan. and Marty goes, Doc, now all the best stuff's made in Japan. Yes, yes, yes. And the angle there is that what happened in Japan post-World War II was very, there's a lot of parallels between that and the rise of sort of China.

51:50Yeah, yeah. You know, and that's why all the best cars are now made in Japan. All the best electronics, you know, were made in Japan for a time. But my point is, with all of that, is that Japan was doing some of these funny bugger stuff as well. And so, again, look up the Chinese property bubble first. Like that was like, at one point, there was like the Imperial Palace was worth more than California. You mean the Japanese property bubble, right? Yes. Sorry. Yes. That's right. We have to distinguish because there's too many property bubbles. Which is a good point, right? But yeah, not our property bubble.

52:30That's a whole other ticking time bomb. No, their property bubble was legion. It was absolutely massive. And then - A stock market bubble came with it too, by the way. And then a stock market, of course it did. And then when it crashed, it was bad. And then they have been dealing with long periods. And then they've got demographic issues as well. And a lot of that has tried to be quote unquote fixed by the central bank policy of Japan, who has been trying to suppress borrowing rates. It's called the carry trade. It's a whole other rabbit hole. We could spend six weeks talking about the Japanese carry trade and how it was engineered and all came out.

53:06And it all comes, this is the hill that I am going to die on. This is my favorite talking point these days. Whether it's beef, whether it's whiskey, or whether it's money, whenever you manipulate the free market exchange of these goods and commodities, it almost always ends badly. And it's always done for the good intentions and it ends badly. And that's the situation in Japan right now. You know, zero interest rates, or now they're slowly sort of coming up. Right, that's right, yeah. And, you know, the central bank there owns something like, you know, I forget what it is, some ungodly percentage of the total debt.

53:44And it's all, it cannot go on forever. And for the longest time, it did. And it's like, well, Japan's just this weird outlier until now it's sort of starting to really kind of unwind. And that's going to be the future that China will ultimately face too, if they don't, if they try and steer into the wind too much, you cannot defy economic gravity forever. I don't know what my point is here. I just think the problems are so fundamental and deeply embedded that it's hard to sort of see the only way out of it is a fourth turning kind of massive crisis that just makes us go, right, we're tearing it all down and we're starting again.

54:25Because I don't know, things are so entrenched and embedded that I don't know how else you sort of undertake the radical kind of reform that is kind of needed with an incredibly painful transition. So we either engineer and bring that on ourselves in the best way that we can, or we just let it happen. And I'm talking things that might be decades away, but maths is maths, dude. It's coming, right? Unless we switch course, it's coming. Yeah. Hey, let's go to a couple, we spent a bit of time on the geopolitics and macroeconomics as we have done recently, because again, to use your point earlier, you know, decades in a week.

55:00So hopefully it's been useful as a bit of a... Well, I think about for the election, frankly, I'm not going to tell you who to vote for, but I'm going to say ask your pollers to be better. And when it comes to the US, just hope that things don't get any worse. Australia will be hit by this, by the way. It will reduce the demand for Australian products. We're apparently not going to respond with more tariffs of our own, which is, by the way, the right thing to do because making our lives more expensive just because theirs are more expensive would be stupid. but the Yanks are going to pay more for stuff they will buy less Australian beef because they will buy more beef from Americans if there is any there or they'll change to other proteins and some beef they buy will just be more expensive for them and that's just terrible in every possible way for the Americans because think about that, you don't get the beef you want you've got to choose something else you would rather not eat well that's bad and you've got to pay more for the stuff you do want to get well that's also bad and that's helping protect US beef makers well no it's not because there's only so many cows in America, it's not like there's a limited number Or what are they going to subsume, you know, suburban California to start putting more farms back in?

55:59I mean, maybe, but good luck with that. So, you know, it's stupid for the Americans, but it's going to hurt us. Our farmers will sell less beef to America as a result. Not because they can find better substitutes, just because they'll substitute beef, I should say, because they'll substitute away from that to some other protein source, just have less of it, and they'll pay more for what they're getting. So bad for our exporters across the board, just without question. Stupid policy, damaging for them, damaging for us. Mate, let's go to a couple of quick things. We all try to keep it quick-ish.

56:28I'm trying to get through a couple of topics. ANZ, you told me this morning, I hadn't read yet, and I then saw, they are being hit with the regulators. I'm laughing because you said we'd be quick. I know, I did that on purpose, so you couldn't cook forever. ANZ is being hit with new capital requirements. And this sounds satirical, and it kind of is. The prudential regulator, APRA, has the responsibility of telling banks how much money they must hold in reserve, effectively. I won't go into more detail on it. It doesn't matter for our purposes. So this is one of those things where, you know, if you can't get someone for, it's like Al Capone, if you can't get him for racketeering, get him for tax evasion, right?

57:05Right. So in this case, APRA's gone. AINS are doing the wrong thing. We try and take him to court, and we can try and prosecute this stuff. Or we just say, you've been very, very bad boys. We can unilaterally increase your capital requirements because we can without having to prove it to anybody, so we're going to. Now, if you're an AINS is a shareholder, you can say that doesn't feel like natural justice and you're probably right frankly um but if you're someone else you might say it looks like a duck it walks like a duck it quacks like a duck the capital requirements are appropriate either way this is this effectively what's being done so that's the first thing the opera is basically you're bad boys and girls uh here's the penalty and that that effectively reduces the ability to earn profit because i have to keep more cash rather lending it out it's it's more complex than that but close enough for our purposes uh What is possibly even funnier than that and funnier in a, not funny-ha, but funny-strange, is that APRA has said the ANZ risk culture is a problem.

57:57Quote, weaknesses in culture, leadership and infrastructure could lead to material issues in the future, end quote. Now, I've got, I'm on both sides of the fence on this one, Ram. We try and be, you know, we have a view, we try and present both. if there is genuine, if you're a regulator and you're like, I can't prove it to a court, I can't say you've broken this law to the satisfaction of a court. But if you are speaking of walking and cracking like a duck, if you're a regulator, like you guys are taking some big risks here and I can see how this could end and I can't say this decision was wrong or that person has done anything illegal.

58:31What I can say is if this keeps playing out, we've talked about bank collapses before, if this keeps playing out, things are probably not great. There are more risks coming in the system than I'm happy with. And I'm going to just kind of preemptively say, I'm going to make it hard for you to take those risks by increasing the amount of capital. That's on one hand, super logical, super rational. And frankly, if more people have done that for the GFC, rather than saying, well, if you mix two bad bonds together, the two diversified, differentiated bonds, therefore together, they're good. But rather said, that still feels pretty risky.

59:01I'm not going to let this happen. Then we might've been in a better place. So from a regulated perspective i'm not overly unhappy on the other side other side when you say it's culture that kind of gets close to the castles it's maba it's the vibe it's it's the constitution type stuff and at that point i'm kind of like you've got it it's not much just you're the trust app or you don't at this level right because it's there's nothing they haven't said these five things are wrong or these five it's just i don't said that but it's just it's a funny one when you say it's the vibe yeah that's right it's just the vibe here's a new capital requirement what do you think, mate?

59:31I think if you want to put a picture in your mind for what happens at the, it's called the markets unit within ANZ, think of the Wolf of Wall Street. They've quoted things such as bullying and substance abuse. And it's like, yeah, you've got a bunch of idiot dudes. And I say dudes deliberately, right? Like a hundred percent, these guys, you know, snorting coke and betting huge ungodly sums of other people's money on markets and taking ridiculous risks. Now, the free market guy inside me goes, yeah, have at it, do what you like. But except, you know, banks deserve special regulation because they're a special kind of business.

1:00:16They're different to a manufacturer, a retailer, a miner and any other, there is no other business on the planet. It's why you need a special license to do it that can create money out of thin air to play with, you know? And it's sort of like, and you guys have been doing all kinds of silly buggering stuff with it. And like, why wouldn't you, you know, why wouldn't you if I can do all of that and, and, and cream all the profits to myself. Right. Right. Exactly. But if it goes bad, I go, Oh, we're systemically important. You can't let us, if you let us fail, the economy is going to get into a tailspin and I guess we'll bail you out then.

1:00:49Right. And it's a little like capitalism on the way up, socialism on the way down and so they can talk about cultural issues this has been it is it is uh you know i don't want to mention names because i don't want to get in a little trouble but but but this is all i mean it all stems from the top you know a culture does right and and not that you can be possibly responsible or aware of everything that goes on in such a large organization but when it happens you know a thousand times in a row at some point you just got to go for god's sake you You know, do something about that. You know, it's ridiculous.

1:01:21And so, yeah, APRA has done what it has had to do. And I don't mind that, by the way, mate. I mean, that's – we talk about systemically important. If we're going to treat these businesses as systemically important and we're going to make sure they are too big to fail – again, we're not bailing out the shareholders, but we are going to, you know, keep the institution alive – then the very least the regulator should do is say, and accordingly, I'm going to regulate you to within an inch of your life because if you're going to be too big to fail, I'm going to make sure you don't fail. You know, I'm going to make sure the bailout's not required.

1:01:46So I think I'm balanced. I'm with APRA on this one. If it smells like a duck, walks like a duck, cracks like a duck, then regulate the hell out of it. Put the capital requirements up because I want to make sure there's something going on. Now, I do say - If you want a safety net, you've got to play by these rules. If you don't want a safety net, have at it. Do what you like. Exactly. Because you cop it all, but you can't have both. You can't have that protection from us, the people, the government, you know, without consequence. Or if you don't want that safety net, then here's the reality. They wouldn't be doing this kind of stuff, I would imagine, because the incentive is different.

1:02:25It's like I'm not going to blow up my livelihood, you know, for the sake of a little bit of extra profit. But I will if there's no downside, right? The investment banks used to be partnerships. Yeah. And banks used to be private banks. And I've got to say, I am not miles away from a view that we should probably return to that or severely, severely, severely constrain their ability to take risks. Yep. For those reasons. Because as you say, when you're playing with the house money and hedge you in, tells you don't lose, that is a terrible place to start, right? And I think that's, to my mind, that's the key is until and unless the people making the decisions have as much on the hook as the shareholders.

1:03:07and by definition the too big to fail hat, the rest of the country has. You know, if a bank attacks risk for three years, makes$10 million a year, then leaves, the next year everything falls over, then he or she bears no risk, no responsibility, no penalty. The shareholders get screwed. And yes, they were a shareholder in the institution. They possibly could or should have known the risk they were taking. But if you're a mum and dad investor with a super fund, you're like, oh, I'll put 10 % of my money in CBA because it seems safe. And then I shouldn't use CBA because I don't know who the CEOs, I don't care.

1:03:35But, you know, see how Bank X makes a bad decision, takes a bad risk, blows the thing up. I mean, at one hand, yes, it's capitalism, and yes, you get what you get. But it's also that disconnect between do the bank shareholders really know exactly the risk they were taking, or were they only told what they needed to be told or what the management needed to tell them while they took those risks? And that's why if it's a private bank, if the family's money, like Lloyd's of London, great example, right? The Lloyd's partners were wiped out. Yep. Because it was a partnership. After hundreds of years or whatever of an operation.

1:04:07Exactly. But my point is they lasted for that long because they did the right thing. Right. And when they got it wrong, the whole thing went bust and they felt it themselves. So if they made mistakes, they weren't mistakes of, as a salaried employer, I'm going to try and make an absolute mint, taking risk with someone else's money and then get out of here before, you know, before everything goes bad. They lost money because they just went back. Compare that with the Lehman Brothers. listed company, employees had shares thought it was going to be fine, blew itself up. Why? Because they took stupid risks because they weren't on the hook for the, which is what you just said, not on the hook for the consequences.

1:04:40But that's, I think I'd make them private businesses or partnerships. Or the other thing I'd do is severely constrain them. So no proprietary training, bugger off. If you're a bank, you lend and you borrow. That's what you do. That's all you do. You're a retail bank or a, what do you just call it? A commercial, a savings bank. You just literally call it, the Westpac Savings Bank was a savings bank. Or a whale savings bank, I think it was. What do you do? You do loans and you do deposits. That's all you do. Nothing stupid. If you want to take this other risk, then you're not a bank. You're something else.

1:05:06And that's – they used to be – go on. Sorry. No, I interrupted. Go on. I was going to say, that used to be separated in the US by law. Funnily enough, pre-GFC, they were allowed to operate together. The stupid priority risks are what blew up, what otherwise were, frankly, traditional longstanding business banks that borrowed in length. That's what they did. Yep. I mean, I think as a culture, as a society, we fundamentally misunderstand what banks are, you know. And they arose for incredibly sound, sensible reasons. They solved a massive problem historically because I don't want to keep all my gold at home because the bandits will come in and sort of take it.

1:05:44So I need someone to store it, right? And it turns out that there are massive advantages of scale when you do that because rather than everyone having to build a vault and have a guard out the front, we can just centralize that and it's really, really handy. And then they went, wait a second, no one ever seems to want their money at the same time so I can lend out more than I had. that's fractional reserve bank. That's a good thing. Like in a lot of ways, that's kind of the way it works because you either hold it or you lend. You can't hold it and lend it at the same time. So if you're going to have lending, you need to have depositing.

1:06:13That's how it works. That's kind of the idea. And then, because just gold is just very hard to like divide up and it's very hard to move around and it's very risky being a better instrument and all of this kind of stuff. So banks not only had the storage and security angle solved, but they also had the transaction payment settlement solution solved because now I just have to call the bank or wire the bank in the old days or send out the courier or go down and visit them and just say, you know that number that's in my account? Can you reduce my number and add it to Scott's number? It sounds like I'm being condescending.

1:06:47It was a radical revolution. It's part of how the economy grew. The Venetians did it hundreds of years ago and it radically transformed society. And what it did is it opened up access to capital from those who had savings but didn't know what to do with it to those that had really good business venture ideas but didn't have the capital. And so that, the modern banking arose to solve very, very real-world problems and with that unleashed all kinds of investment, capital investment that otherwise wouldn't have. We're all much, much, much richer off as a result of the banking system. Now, before you think I've lost my mind, it's like, well, Andrew sounds like he's being president.

1:07:30it's the banks. What's happened over the years? And it's been a gradual thing. It hasn't been an orchestrated thing. It's just been a very baby step kind of thing. The better way to think about a bank in the modern context is that it's a private equity company. So what you do, so we all think, we all have this little vision that it's like, oh, I've got my$100. I'm going to give that to the bank. The bank goes and puts it in the vault. And if ever I want it, they'll go give it back to me. But if I don't want it, and chances are, I don't want all of it at once, and certainly not everyone, they'll lend it out to other people.

1:08:01And that's all good and well. They'll be very prudent in who they lend it to. They'll make a bit of interest on that. And they'll share that interest with me. And in fact, they'll offer me an interest rate, essentially a cut of that. So to attract me as a depositor, so that they can sort of lend it out. We've gotten to the stage now, because every crisis, we sort of go, oh, gosh, we really should have higher capital adequacy ratios, so things don't get too out of control. And then we water them down as we're doing. I think Dutton proposed that the other day. Exactly. So again, we go through these cycles again and again.

1:08:31But what I say, think about like a private equity firm, because what happens is the amount of equity in the bank is a fraction of what they actually do. Like when I say equity, it's the fancy way of saying net assets. So when I give my money to the bank, all I really have in return is an IOU. It's like, trust me, bro, I'll pay it back if ever you want it. In the meantime, I'm going to not only give that to a business or in Australia, a mortgagee, that's what we do. We don't improve the capital stock. We just give money to people to buy Easter Island heads. And I'm going to do that with money that I've literally created myself because I can match it on the accounting.

1:09:16So I've got the asset being the promise that this person will pay me back over time, the liability is that I've just created a deposit out of thin air. And the books match up. Sorry, this is a very long run up, mate. I was going to say, this was the short version, right? This is the short version, right?

1:09:32This is why these capital adequacy ratios are so important, because that's what the regulator puts in place. If it wasn't for a capital adequacy ratio, a bank could create infinite capital. Now, in a sane world, there might be a limitation on that because if we lend out too much and those loans go too bad, we will blow up and we'll take our money and our shareholders' money sort of with us. But again, as we've said, that incentive isn't there. But they're not a lot. I think the T1 capital adequacy ratio for Australian banks is what, 10%, 12%, something like that? Yeah, no way. So you can lend out 10 times more than what you actually have, right?

1:10:12And so what I'm saying is that it feels – we talk about it as finance bros, right? We'll say the safest – the worst return but the safest investment is to leave your money at the bank. And it's like actually the more you think about it, the more – it's not though, is it? Because I'm actually giving my money and they're taking that money, multiplying it by 10 and giving it to someone else. Now, that all – again, that's been great because if that money has been – it comes back to the very early point at the start of the pod. If that money was put into a business that created a widget that made us all richer and gave great returns to their investors, and they could meet their interest payments, repay their loan, I could share in the interest of deposit, everyone is better off and everyone wins.

1:10:55Where it goes bad, this was the GFC, it's exactly what happened at the GFC, and the prior banking crisis, and the prior banking crisis, and every banking crisis ever, is that the money was lent into things that couldn't be repaid. and they couldn't be repaid because the venture went belly up or the house lost in value. It's just like, it's the chopper, it's the scene from the Chopper movie. Chopper, no money. No money here. There's no money here, Chopper. And then we have a bank run for the remaining amount of money that's there and then the government goes, oh, we can't let you fail, so I guess we'll do an asset swap, which don't worry, it's a saying, no new money is really created, and they basically buy all this toxic debt off them, let it go bad, and we give you fresh bank reserves as a consequence of all of that.

1:11:40The incentive structure is so insane. And again, the competitive dynamic is such, especially with the moral hazard of the bailout, is just sort of like if I don't dance, I'm going to be left behind. So I'm going to play the game too. And we're going to lend more and more and more money to less and less productive enterprises. We're going to do it with more and more and more leverage because if we don't, we're going to be uncompetitive. And if it goes bad, when it goes bad, because it inevitably will go bad. You push that far enough. It's okay. We'll get bailed out. And it's just, it's, it's, what do you do about that?

1:12:14Well, you recognize that a bank's primary function is to serve this incredibly valuable role in society. It is not to enrich the bankers. They don't have a God-given right to use this. Can I have that right? Can I have a banking license? I'll do that, right? Like it's such a privileged, important, structurally, fundamentally, like critical function that to your point, sorry, it's very long. No, you can't bet with that money. No, there are restrictions on what you can do with it. Yes, you must leave a little bit of dry powder in reserve just in case. And it's just sort of like, oh, but our profit will go down.

1:12:54I don't care. The profit only needs to be as much as to make the entire venture worthwhile. It's not something where you're entitled to super profits or however you want to define that, but it's just like a very, very basic rate of return to make the whole endeavour worthwhile. That is it. And if all you did was just do traditional old school banking, you'd probably get that, which is why it's a very long run up, which is why I would say no bank bailouts. Let it fail. Bail out the depositors. Don't bail out the banks. Again, that's effectively what the bank bailouts are, though, to be fair. No, I've thought about that.

1:13:31I think you're wrong because the shareholders do wear it because of the dilution, but the bondholders get bailed out and the bondholders are a very significant contributor to the capital. That depends on what the bailout, then we have to define what the terms of the bailout are. Because I agree with you, I wouldn't bail out the bondholders either. No, let it all fail. All is in the problem. So that's why I want to be really clear about what we're defining here. The management don't get bailed out. The shareholders don't get bailed out. The bondholders don't get bailed out. but the depositors are protected because there is A, societal responsibility, and B, systemic contagion.

1:14:02Yep. But when we do bailouts, we bail out everyone except the shareholders. That's what I'm saying. It depends on what the bailout is. Then you said let it all fail. So that's why I'm trying to be really split about what we're saying because we're agreeing. I just wanted to be clear about the terms so we're clear that this is about what we're saying should happen in that circumstance. I mean, by the way, that's never going to happen because the systemic important dimension to it, because every single one of you listening to this right now have a pretty significant portion of your money tied up in the banks.

1:14:35And you might – here's me. I hate the banks. I wouldn't touch them with my own money. Not at this price, not at this point in the cycle. There's context that is around. It's not just I hate the banks because they're evil, although I do. but they just don't make they don't they don't make investments uh sense uh at this point in time yeah um it's it's it's oh what am i trying i'm tying myself i'm choking on my own rage here scott the problem the problem with it all is is that we have just engineered it so that every single australian has exposure to it through their superannuation fund and when you think of the market, the ASX go, well, it's diversified.

1:15:19Is it though? Is it really? Because it's like 28 % of it is just the four big banks. Throw in Macquarie, throw in some of the other ones, and you've basically got a third of the entire market is in banks. And whether you like it or not, you're tied up to it. And even if somehow you just arrived and you don't have any superannuation and you've got no direct investments, you're still tied into it because it's one of the major pillars holding up our society. So it's, again, all of that says to me that APRA, this is finally put a pin in this, APRA has done the right thing. In fact, they should go a hundred times further and really do it across the board and just get rid of all of this nonsense.

1:15:58It's too important not to do it. 100%. Got it on. Do you feel better, Mr. Page? No. I get angry at him. I say it out loud and I anger myself with it. The anger with it is that it's kind of like it's very hard to see, but once you see it, it's so obvious. And yet, like, the powers that be don't. And I don't think they're willfully not seeing it. It's hard to see and they're naive to it. And it's just none of us have a proper conception as to what this system is and how it's sort of arranged. And it's not a Bitcoin thing, by the way. I'm just talking about banks in general. No, I hear you. I honestly don't.

1:16:40I think they've got to say it. I think, well, I think it's self-delusion, honestly, mate, is what I think it is. I think that if you are, and here's the, it's kind of understandable on one level because any government official, regulated bureaucrat has to balance competing interests. That's almost always by definition, right? Someone else's restriction is a removal, someone else's freedom. And, you know, if you're protecting me, maybe you're harming you or at least restricting your ability to do stuff because I can look after or vice versa. And I'm not a libertarian by any stretch, but I suspect if I was to look inside, there are probably some dodgy people because they're just always out in any organization.

1:17:18But if I look into the hearts and minds of someone at APRA, they're kind of like, well, I've got competing interests here and I've got to try and weigh up not only the potential for the risk, but the size and the probability of those risks in that context. So if a bank fail, would that suck? Yes. Okay, how likely is the Australian bank to fail? Well, somewhere between very likely and almost impossible. And then you say, okay, on that basis, where would you set the dial as to how much restriction or regulation? You know, I've talked about small business regulation before. And it applies in every part of life.

1:17:50How many laws do you make a cafe abide by to operate well? Now, you and I think would say probably less, almost certainly. We haven't done a proper, you know, in the inventory of all the cafe regulations, but there's a pretty good chance that we could remove a couple without causing too much drama. Look, as long as the food is of a safe standard and no one's being exploited on an employment level, there's some basic protections, but yeah. And then some regulator would say, but actually that extra regulation I think is needed, you don't think is needed, is there for this reason. And if we flip that on its head, we're the ones saying, let's regulate the banks harder because, you know, and someone on the other end is going, well, how many regulators they really need?

1:18:24As long as they're doing this and doing that, that should be enough. Now, I'm not arguing for equivalence at all, because I agree with you, mate. I'm just, again, a bit of a bit of a bit of just the other side of the story. I just presume that someone in the APRA who's like, I mean, it could happen, but how onerous should I make the regulation so that I make the chance of it happening below whatever minuscule threshold? Now, you and I, I think, would probably say, yeah, keep going. Go your hardest, right? Whatever level you need to get to to do that is probably worth doing. But if you're kind of trying to faithfully weigh those up, I can absolutely imagine a conversation where it's like, well, I've kind of got this, you know, does it, your point about productive capital, you know, and replacing capital, well, does this limit the chance of us making business loans?

1:19:06Maybe. Does it slow the rate of economic growth? Maybe. Does it mean we've got less employment? Maybe. Okay, well, then how do I weigh it up? And again, I would do it anyway. I think there are some things where you can still say, I hear you, but we're doing it anyway. I'm just going to have to deal with the consequences because they are less bad. I'm leaving room for the conscientious. No, not saying you're not either, by the way, but there's just some conscientious, someone at DAPRA who's like, I hope this is the right, I hope I'm getting it right. I know it's not perfect. There is no perfect answer.

1:19:33this is where I think it should roughly be. I will say, by the way, on top of that, mate, I think the worst case, the ones you talked about who don't know are the politicians. And this is where you get too much politics in bureaucracy, especially there's too much bureaucracy. There's too much politics in that bureaucracy where someone like the treasurer during, I think it might have been treasurer of Friedberg, I don't want to name check in case I get it wrong, who lowered the lending buffer during COVID to try and increase lending, right? The idea was let's keep the economy moving. And again, if you think it's for the right reasons, then that makes sense.

1:19:59If it was just to pump house prices, then it was the wrong idea. But if you say, well, let's lower the buffer, let's make lending easier for a bit just so we can keep the economy going, that might have been a view. We know in hindsight it pushed house price up 20%, 21 % in a year. Some of us knew in foresight. Well, this is what I'm saying, right? So it's like what's worth doing? It's like if the police just kept their noses out of it and said, let's let the experts at APRA actually do what they think is best for the country given the mandate. Let's not kind of put that pressure on them and make those decisions for them.

1:20:28I think we'd be in a better place. I'll make two quick comments We're so far over time It's ridiculous But whatever As I say It's on you dear listener At this point Not choosing to be here Which is dangerous Andrew at some point Just says Right we've gone past this point I can go as long as I want Because now it's on them Which is you know It's a thing It's a thing Go on mate I had a conversation The other day With a friend Along similar lines And I would contend That good projects Will always find funding Because people like money Yeah You know so So with an opportunity cost though, there's only so much lending funding that is available at some level.

1:21:03Yeah, true. Someone misses out. The hurdle rate lifts, I guess, is probably the best way to put it. So I'll come back to that point. Okay, sorry. Yes, it's a good point though. But where we have gotten into trouble over the last couple of decades is that because the lending standards have been too lax, it's not that capital creation is not a good thing. It's a great – I just made a big point about the Venetians doing it hundreds of years ago. It's a great thing. That's right. If, if massive underlying bold asterisks all around it, that credit creation is put to good productive use. When you do that credit creation and it is put to very marginal use and you have malinvestment, then you have capital destruction, wealth destruction.

1:21:42That's where things, that's where always things go bad. So this back to the point of like, okay, well, regulators have to sort of find that right point. I would go, this is why I'm so laissez-faire in this domain, is because it's a very, very hard thing to determine. I wouldn't envy that that regulator's job is to go, well, okay, you're in charge. You set the limit. Gosh, I don't know. Which is why the threat of insolvency, death, corporate death, I think is such a valuable thing. So when I say let them fail, it sounds really cavalier and you're not thinking through the consequences. I actually am.

1:22:22I'm thinking that in a world where I'm Shane Elliott or whatever his name is, the CEO at ANZ, you know, and there's existential threat if we push it too far. It doesn't guarantee there's no silly buggers, but it radically limits it. In other words, we don't need a regulator when we remove. I'm sorry. Be careful with what I say. We don't need as much regulation when there is threat of extinction. When there's no threat of extinction, regulation is all we've got. And then we're back to that sort of problem. So again, let's push that idea forward. ANZ goes out there, starts lending money to all kinds of stupid things, you know, like in the Big Short.

1:23:05You know, you've got exotic dancers with 12 investment properties all negatively geared and, you know, it's all crazy. And they get into trouble and they fail. Now, presumably, there'll be other banks out there that are not as silly, and they won't have done that, again, because there is the threat of death. Again, we bail out the depositors because it wasn't their fault. And we can't expect every mum and dad to do massive due diligence on the lending capacity, balance sheet, strength, and investment chops of the lending offices. We can't do all of that. But we let the bank fail. See you later.

1:23:41Shareholders go to zero. Bondholders lose all of their money. Welcome to the world of investing. That's how it happens. Happens to me and to you all the time. Like that's just how it is. And the others just pick up their money and they walk over to Commonwealth Bank. And the money that you had there up to a certain limit is guaranteed. Reserve banks go, by the way, we're all, the loss has already happened in the economy. We're all going to wear that in some socialized kind of way, but it's probably the better outcome given the alternative. And the other banks go, holy hell, we really should have a look at our loan book.

1:24:10We probably should think very carefully about the projects that we'll end. As I said at the start, good projects will always find funding, right? Marginal projects, would it be more difficult to find funding for marginal projects? Yes. Is that a bad thing? I don't know. I don't think so. The fact that every, remember a few years back, post-COVID, when there's money flowing everywhere, we had stocks on the ASX trading 30-time sales. That was a loose credit environment. How did that end? Like, not good. Not good. And yet someone back then would have made the argument, oh, if you're too restrictive on credit creation, there won't be enough money for productive enterprise.

1:24:52Like, yeah, but there always would have been enough for the good projects and just all this dumb stuff. No one's funding the guy who's making the monkey JPEGs, right? And that's a good thing. I know we have this conversation regularly. and because we're already over time, I'm going to throw it back in just to, if you've listened to Ram's comment on that for the first time, my only issue is you just, we've just finished talking about management and the principal agent problem. And I don't think your solution works for public companies because as much as I love public companies and investing, there is no significant shareholder who is going to be both aware of and strong enough to, and given you, or you've already mentioned the competitive realities of I've got to be as irrational as my least rational competitor to stay in business.

1:25:34Yeah. So I think the CEO of XBank, I'm just going to rather name anyone, says, I'm out of here in four years' time. I reckon I can keep this dance going for at least four and a half years, so why do I care? And that's why I go back to if you're going to take that approach, you've got to have, I think, honestly, partnerships or private banks. I don't think it works because the shareholder gets it in the neck, the CEO has already got his bonus or her bonus, and no one learns a lesson. And the moral hazard, CEOs don't have moral hazard. There is zero moral hazard for a CEO. There's only moral hazard for shareholders.

1:26:03and if they're too diffuse and small to impact the business, then we've actually created a system where, or allowed a system to be created, where we've actually, moral house can't exist because there isn't a place to put that risk. And that's why I think we need the regulation or we make it private slash partnership where the people with money on the line are the ones involved in the decision-making. So that if the A &S CEO, or I shouldn't again, the ex-bank CEO makes bad calls, that CEO's entire fortune and the fortune of his management team and the 15 or 20 or 40 shareholders rather than the million shareholders of ANZ get wiped out.

1:26:37In a perfect world, I completely agree with you. I just think the principal agent problem is too indissoluble to be able to be assumed to apply and to actually moderate public company behaviour. I just don't think it does. In fact, every time a public company has done the wrong thing, it's not the shareholders who've gone, I voted for you to defraud. We're going to start, we're not going to now. No shareholder went, I know you're running those Chinese junkets for gambles and I know it's illegal, but I'm really happy for you to do it. I'm happy you're putting my money on the line. And whenever you have that disconnect, I just don't think you can take a view to believe, even if you're happy to let them wipe them out, on that bit, you can say, well, you deserve it.

1:27:15I don't think an interest is enough moral hazard to improve behaviour. That's the bit where I have an issue about assuming that can be done the way you describe it. I just don't think it's, I think it's more complex in its implementation. And I think that's frankly enough to not make it work, but that's just my view. Yeah, I mean, it's always more complicated in reality. I mean, I guess the distinction I would make, and this is something that never gets enough attention ever, is corporate governance and board structures. You're right. The CEO will always operate within their incentive framework.

1:27:45If there was a robust board that is there beyond just the four years, you know, their mandated role is through - But it doesn't happen, right? So that's where we're back to regulation or private business. I don't think - I wonder if it would happen, though, again, if it was – look, I don't know. All I know is that the incentives are really, really bad at the moment. A million percent. I completely agree. Absolutely agree. A hundred percent agree. And we have – And it starts with them not being savings banks. It goes back to the structure of the business and we allow a pillar of – and again, whichever solution, whether it's private, whether it's hyper-regulation, whether it's splitting back off those parts of the business, what we're trying to do here is say, let's align the risk with the importance.

1:28:26That's fundamental. whichever version we come up with. I'm not into your, I'm not into letting them fail as long as we know the people who own it are involved in the decision making or suitably informed of the decision making so they know what risk they're taking. That's the bit where I think as long as you separate that, you've got cowboys at the top and again, we saw Lehman's. How many people in Lehman were like, I know we're going to take really bad risks to try and make some money. That's a great idea versus the 15 people on the trading desk who went, we've got this great formula. What was the formula?

1:28:51It was the, what was it called? Something, whatever it was called. Value at risk, Value at risk formula. And who in the bank understood the value at risk formula? Four people. And yet the entire organization, every shareholder, was basing their entire life on, do you reckon they're getting that right in that little room? Oh, yeah, probably. Or even the shareholder said, can you explain to him? He's like, I don't understand that algebra. I guess if you're selling, that's true. I don't disagree with your intent and the broad principle. I just wonder if it's deliverable in that sense. Maybe it is, but that's my concern.

1:29:26Let me drop this before I throw the smoke bomb and we disappear to the end of the episode. I just described before the historical precedent that led to the formation of banks. In a world where I don't need anyone to custody my money or middleman the transaction of my money, that's a different world, right? So all I'll say is it's all academic to me because I'm my own bank. and on that questionable note this is what I get to let the podcast go too long people it's your fault we will we'll end it there I'm obviously having a run out of time the time is it's immaterial it's you know it's ephemeral it's all those things but it's been an enjoyable chat listen I hope you've enjoyed if you made it this far please reconsider your life choices we'll be back we'll be back on Sunday with another mailbag edition until we're there I'll see you then in fuller cheers The Motley Fool and people appearing in this program may have positions in the companies mentioned.

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