Wait, Did Our Economy Just Stop?! With Liz Hoffman

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1:47I'm Anthony Scaramucci and welcome to Open Book, where I talk with some of the most interesting and brilliant minds in our world today. In this show, I'll bring on guests in business, politics, entertainment, and more to go deep into a piece of their work, whether it's a highly anticipated book, an in-depth feature story, or an opinion piece that has captured my attention. We'll dig into why it matters to you and how their work is shaping our future.

2:21COVID-19 was tough. It was a huge step into the unknown for all of us. As a business leader, I can tell you, man, it's probably been the most difficult three years of my life. Beginning in March of 2020, my firm that I run, Skybridge, had the worst year. Let me repeat that. It had the worst year in the month of March 2020. And so obviously we're rebuilding from there. And the whole thing happened so quickly and so abruptly. And I just want to take people back to 2019, where we had these expectations of low inflation and decent unemployment figures and reasonably strong economic growth, completely wrecked by COVID-19.

3:03And of course, we're dealing now with the aftermath of that, too much money into the system by the Fed, too much inflation now, rising interest rates. And here comes Liz Hoffman with her fantastic new book, Crash Landing. Crash Landing digs into the inside story. It explores what it took to steer a company and the economy for that matter through the pandemic. It's a wonderful guidebook for people in terms of dealing with and managing through a crisis with lots of unknowns. One thing COVID-19 did to everybody, which is evident in this book, is that it caught us all off guard. Well, how did some of the smartest and best minds in the world deal with that?

3:44Liz gets into that. It's a phenomenal book. We'll be addressing those things with her today.

3:55Joining me now on Open Book is Liz Hoffman. She's the business and finance editor at Semaphore, and she's a former reporter at the Wall Street Journal. And she's got a bestseller here. The title of the book is Crash Landing, the inside story of how the world's biggest company survived an economy on the brink. I said to Liz, I was up all night reading this book, and it was a bit of therapy for me, okay, because I've been getting destroyed since the COVID-19 started. Lots of decisions that we made went in the wrong direction. And weirdly, I took comfort from the book that there's very smart people out there, Liz, that also were stuck in this crisis and were trying to survive on the brink.

4:37So let's start with the uneasiness of the early 2020. And you talk about a lecture that Bill Ackman gave at the London School of Economics. Interestingly enough, I was speaking at that event as well. It was early 2020. Set the scene for us. So this is mid-February of 2020. If you've been following closely. This thing has been circulating in China for about six weeks. It had not yet really broken through to the mainstream consciousness, certainly in the West, that was starting to kind of make its march, you know, regionally across countries. And Bill is at this investor talk and he, I'm sorry, the student talk, and he is asked, what do you think?

5:16What do you make of this? And he says, I think this is the biggest black swan out there right now. And actually, as he's answering the question, some kid in the front row like sneezes and Bill winces and freaks out a little bit. And to me, it was a good story about, to your point, just like how little we knew. And very few people, I think, saw this coming. Bill, to his credit, is one of them. And he made a big bet coming and going on this thing that we can talk about. But one thing I really wanted to do in writing this book was to remind people how weird it was, right? Because the pandemic became this like groundhog's dance, long funk that kind of wouldn't end.

5:52And things that in the beginning, if you remember, were scary and weird and strangely earnest in a way that I think like we've sort of lost the emotional punch of those early days. And it was important to me as I was setting the scene to look at these decisions that were made to kind of remind people the mindset of the people making the decisions. You also talk about in the early part of the book, the Davos 2020. President Trump gave a interview there with Joe Kernan, basically saying everything was okay not to worry about the impending pandemic. Steve Mnuchin, however, voiced concerns at a dinner.

6:24But there was general optimism there. I remember I was there as well. I remember people thinking economy's growing strong. And by the way, full confession, Skybridge got this wrong. I thought the pandemic was going to be like SARS and mirrors. And I thought the economy was going to chug along relatively unaffected. Man, did I get that wrong? But set the scene for us. Mnuchin is talking. He's a little worried. Other people are nonchalant about it. So Davos to me, and I was there too, will go down as one of the most absurd gatherings of human beings in history, right? You have these people who have lines of sight into these multinational companies.

6:59They've got supply chains, they've got employees everywhere. Sometimes they are running, they're directing economies, they're regulators. And you're right, there was this just bubble of optimism. And there's a joke to be made here about Davos man and how he always gets it wrong. And I actually wrote a lot about that coming into Davos of 2023. You know, especially that year, Davos was really dominated by two things, this sort of overwhelming optimism and a lot of ESG talk. It was a real climate, Davos. And sort of that's what Mnuchin was responding to. He's at this private dinner orchestrated. I was not there, but orchestrated by The Wall Street Journal, hosted.

7:34And he's listening to all these CEOs talk about their climate goals. You know, he says, you guys are missing the point, right? You know, even for Mnuchin, who's like a very wealthy guy, like just the sort of 10-year talk that you hear at Davos. It's very lofty and misses the point. And he says, first of all, Iran's nuclear program has gotten no airtime here and we should probably be talking about it. But also, there's a city of 11 million people that's on lockdown. You guys are all blowing it. And it's one of those things that didn't really prick the bubble in the room, though, when I talked to CEOs later who were there.

8:04It was something that they remembered in the early days of the pandemic and, you know, felt foolish. And that was something about the pandemic, especially in the early days. Everyone constantly felt foolish all the time, making these decisions that were just immediately made obsolete. Well, you know, and this, again, doesn't reflect well on me. I went to a World Health Organization meeting inside the Congress Center. There were pandemic experts and two WHO officials. Several hedge fund managers were there. I won't name their names because they always get mad at me when I name their names. But we walked out of there and we were told that this was going to be a non-event.

8:38But needless to say, myself and those managers in that room, their performance, Liz, and our performance particularly, was really bad in the first quarter of 2020. We were not set up for an abrupt stoppage of work, an abrupt slowdown in the economy and everyone going indoors during a pandemic. You know, I just, for what it's worth, I went back and I watched a video of that. I wasn't in the room for that one, but I was on like the next Superbug. And they spent most of the time talking about the overprescription of antibiotics, right? Yes, exactly. Exactly. Well, I remember that one as well. So it's interesting, you know, and again, I'm not trying to pee on Davos.

9:13I love going there. But in 2007, the world was going to grow forever. Then we had the explosive global financial crisis. In 2009, the world was going to open up and we were all going to fall into the center of the earth. And then we had the greatest bull market run in history. 2016, Hillary Clinton is going to be the president. Donald Trump wins 2020. And you remember the consensus of 2020 was Donald Trump was going to resoundingly win reelection. Of course, this was also that the pandemic wasn't going to be a big deal. And so we got those things wrong as well. You write about something called the champagne decade, where everybody enjoyed these rewards.

9:47And then we have this sort of crash landing. I love insights from guys like, you know, Brian Chesky and Jim Hackett. Let's go to some of the experiences you highlight in terms of talking with them. And then I want you to talk a little bit about Morgan Stanley and James Gorman. Yeah. I mean, taking them sort of one at a time, Airbnb had just such a fascinating pandemic story. They came into 2020 expecting to go public. They were going to take their place in the Silicon Valley pantheon. And Brian Chesky had spent the holidays of 19 with a big stack of prospectuses, kind of trying to tell Airbnb's story.

10:21What do we want this to be? And, you know, the notes he's scribbling to himself, he's a real iPhone note guy, where that 2020 is going to be the year of connection and that Airbnb should be the venue for that, which just always stuck with me as I reported the book out and as the years kind of went on. You know, the idea in early March that you would A, leave your house, B, go to a stranger's house, right? It just sounded insane. And I was actually in the camp of this company is Toast. They pulled off a very expensive capital raise in early April. They got about$2 billion from Silver Lake and 6th Street, an incredibly humbling fundraise.

10:57Their valuation went from 30 something billion to about 17. And they did one of the things really important, which is they, they fired people quickly. It's unpleasant, but the rule, we're starting to see it now in tech, which is like cut as deep as you think on the front end, but, but be transparent and be forthcoming about it. But then they started to notice what we all did, which is that people actually did want to travel, but they didn't want to go to a hotel in Vegas for the weekend. I'm sure they'll be back for salt, Anthony, don't worry, but they wanted to go to the mountains for a month.

11:23And so they pivoted incredibly quickly to these long-term stays, got a huge boost from, you know, what I'll call kind of resilience of consumer capitalism. People do want to do stuff. And they went public at the end of the year at a valuation of over a hundred billion dollars. So just like a crazy pandemic story. And, and a good lesson, honestly, like, to your point about the champagne decade, like you invested through that, there weren't a lot of like tough calls to make. It didn't pay to be contrarian for a lot of that decade. Right. And the, you know, Sixth Street and Silver Lake have just made boatloads of money on Airbnb.

11:53And it was like a good reminder that that decade is over and we're in a position now we're seeing it with interest rates and all manner of stuff. We're in the middle of a bank run as we speak, where like investors get to make calls. They get to have conviction and either, you know, win or lose on that. But that's the world we're in now. No, it's interesting. That decade is over. There's something else happening though. There's this undercurrent of technological change through artificial intelligence and possibly the blockchain. Although it looks like the U.S. government doesn't like the blockchain.

12:20We'll talk a little bit about it. I want to get your opinion of that. But before we go there, I want to stay on the book. March 11th, WHO, they declared a global pandemic. The stocks are tanking and people are terrified. You've got the situation with James Gorman at Morgan Stanley. He tests positive for COVID. Does he capture the experience that we all experienced? Tell us a little bit about the World Health Organization and the cross current there with your conversations with Gorman and the Morgan Stanley leadership. You know, Morgan Stanley, James got sick at a time when that was like newsworthy, right?

12:54I mean, now presumably we've all basically had this at least once. And the world is obviously very different with vaccines, but it was scary. And he was really sick. They made a call actually not to disclose it unless he went into the hospital, which should take you back to just how scary that stuff was. But he called the New York Fed and said, I think you should know that I've got this thing, called his board and said, we need to fine tune the succession plan because I could die. And that just always sort of stuck with me. And again, he didn't die and many other people did. I don't want to belabor that point.

13:26But you think of all the tail risks that can hit a company in a crisis, but your CEO catching a deadly plague is not usually on them. So, you know, they also had a hell of a pandemic, right? James has been a serial acquirer of late, and they had just done this huge deal in February for E-Trade, struck actually right at the top of the market. And you would think that might be humbling, but nope, they went back and bought Eaton Vance, a huge asset manager, you know, in the middle of the pandemic. And those deals have been home run. So again, these, you know, if you think you are making good decisions, my takeaway from this crisis is make a lot of them, right?

14:00Have conviction, you know, move ahead. And if you bat 60-40, like you will move your company in the right direction. Yeah, you know, it's interesting. You know, in my experience, we shut the office early, tried to keep everybody. I mean, we had a little bit of a pay cut that we put in place. And then we made a pivot into crypto, which actually worked in 21, didn't work in 22. too. But something systematic did change, Liz, I think, and I want to get your reaction to it. I sort of, when I closed your book, I was like, you're capturing the tactical and the strategic, and you also have a little bit of a macro overlay of what's going on in the economy.

14:36I want to test a theory on you. Tell me what you think. But when I closed your book last night, I said to myself, okay, we were on a zero interest rate policy, decent growth, low unemployment, very low inflation, sort of a Goldilocks economy, we abruptly stop everything. And then we really make a series of miscalculations about how quickly we can put things back together, the supply chain, the transitory nature of inflation versus the secular systemic nature of inflation. And now it feels like we inducted so much money into the money supply. And now we're trying to take all the money out that we didn't sit down and say, okay, what are the permutational outcomes to all of this?

15:15And what am I missing? Do we have thoughtful people? And again, I believe they're all well-intentioned, but I'm just wondering, did anybody fully think through everything or was this sort of born from expediency? Let's rush the money into the system. Let's rush the money out of the system. And did anybody think, okay, well, if we do that, you're going to cause a banking crisis because all the balance sheets to pass these stress tests are going to have to be in treasuries. But if we do that, all those treasuries are going to go down. And some of those banks don't have the, particularly the regional banks, they don't have the sophistication to hedge out the treasury risk.

15:48We want to yell at them now and we want, you know, our politicians want them to go to zero. But they were really following Fed guidance. October of 2021, you know, Jerome Powell said, no, no, no, we got this under control. We're not going to have to raise rates 400 basis points later in 12 months, the largest rate increase in 40 years in terms of the rapidity of it. So what do you say to all that? Do I have it roughly right or what do you say? I think you do have it roughly right. I mean, look, there's always a trade-off between getting money out quickly and getting it where it needs to go. And I think, you know, the government did in about six or eight weeks in 2020, and then obviously followed it up with a lot of stimulus that I think was pretty clearly went on too long.

16:28But, you know, it did in about six or eight weeks what it took them six or eight months to do in 2008, what they never did in 1929, you know, 1979, 1987, these prior shocks, 2001. And yeah, like money went with almost certainly too much of it. If you're asking for like mistakes, and again, like I think second guessing people who, to your point, are smart in a tough position trying to do the right thing, the fiscal stimulus went on too long and was too much. That spigot was open for too long. And you're starting to see when you saw this huge inflation as people went to spend that down and ran right into the buzzsaw of supply chain snarls.

17:03And then I think pretty clearly the Fed was too slow to start raising interest rates. Not by a lot. I think they probably should have started in the fall of 21. Instead, they started in the spring of 22. And that probably means a bunch of those 75 basis point increases could have been 50 and the 50 could have been 25 and we could have settled somewhere better now. The second half of your argument. I've heard it from a lot of people, right? Which is the Fed made us do it, right? This big push both 2008 to keep a bunch of liquid assets and what could be more liquid than treasuries. I think there's some fairness to that.

17:34The other point you made, which is they're not sophisticated enough to hedge it. That's not what happened with Silicon Valley Bank. They knew exactly what they were doing. Hedging it is a cost. And so if your whole thing is we're going to do some risky stuff to make more money, you're not really inclined to pay money to protect yourself from the risks of it. So hedging an interest rate book is not complicated stuff. Silicon Valley. I was really more thinking of the smaller banks that are out there. You know, we have a bank out here on Long Island. You know, the guys I talked to there, they're saying, hey, man, we wouldn't really know how to do that.

18:00I mean, they're super overcapitalized. But no, but I hear you. Let me ask you this because I've been dying to ask you this because you're actually a very objective journalist. I enjoy reading your byline. You always come up with great scoops and you try to do a really good job of sourcing. What do you make of the media during the crash landing experience during the time that you're writing this book, how would you grade the media? Was there good information? Was there biased information? I think people are generally confused. Were the vaccines good? Were they bad? I can give you my opinion, of course.

18:36I'm five times vaccinated, so obviously I believe in them. But what's your reaction to the whole thing? I think most Americans are confused by the media at this point in terms of what to believe and what not to believe. But what do you say to that? I would say, I think broadly speaking, the media quitted itself pretty well with a couple of topical exceptions. You know, this idea that the media is overly dramatizes things that are not dramatic, I think is fairly clearly disproven. You know, the pandemic had been around for six or eight weeks in China, and I did not as a regular consumer to spit in the media.

19:11There was not a drumbeat of hysteria on that. You know, I think we're talking now and again, I'm not a health reporter. I'm not a China reporter, but there is clearly like a discussion happening in the U.S. intelligence community now. Some agencies have publicly said there's actually is a chance that this was a lab leak, which, you know, was very clearly and loudly sort of disputed by the media at the time. I don't know. You know, we're in the middle of a slightly different crisis now, which is, you know, we're in the middle of a could be a real problem in the banking system. And I've actually been pretty impressed with how, you know, the media has handled this.

19:43has been very thoughtful about reporting. Bank runs are particularly tricky stories to report because they become self-fulfilling. But no, I think in times of crisis, actually, the media sort of rises to the occasion. I'm sure that's the answer you would expect, and you might have some different thoughts. But looking back, I was pretty proud on it. And writing a book is a different process. But as I kind of re-reported a lot of what was out there at the time, I found that it held up pretty well. No, look, I think it's fair. I mean, you've got a lot going on, though, in this book. We've got the initial response.

20:11We have the confusion about what the right response is from different companies. Donald Trump's talking about reopening the sort of economy by Easter, you know, which obviously the pandemic, per se, they can't do. And of course, they don't do. Then you have the New York Stock Exchange. What do you see as the defining moment and perhaps the most absurd things that went on? Stock Exchange is an interesting one, I think, because on one hand, you know, it's such an iconic symbol of American capitalism, right? The trading floor doesn't really need to be there downtown in Manhattan. Certainly the executives there think it adds some value, but like most trading happens digitally.

20:46And so if you're going to have this and closing the floor of the New York Stock Exchange, right, would have just been an incredibly traumatic, like scary thing for a lot of people. But at the same time, it obviously wasn't safe. And so, you know, we started to hear there's all these phrases. I think our lexicon grew in really interesting ways during the pandemic, things like super spreader, right, social distance, and essential workers. And, you know, Stacey Cunningham, who was running the stock exchange at the time, you know, they'd had a positive test on the corporate side, if I remember right, early in the week of the 16th of March, I think that Tuesday, if you remember, that's also the second circuit breaker, right?

21:21Like these markets are freaking out and the infrastructure is holding up pretty well, but the people are not obviously. And she makes a call, though it's a strange one, which is they're going to close, but not for like two more days. Part of it is that they were trying to get through an index rebalancing cycle on Friday, which isn't, you know, sort of complicated. But it was a strange middle ground. And, you know, the question really was like, are floor brokers essential workers? And she decided that they weren't. And the testing capacity that you would need to safely keep that floor open, if it could even be done, would have sapped, you know, resources from where they were needed.

21:52It's the part of the book I really love because you have insight into people's decision making and the methods, the methodology that you're using to make those decisions. And, you know, You can have OCD in your decision-making and still get the decision wrong. You can overthink it 100 times because there's just so many variables that were outside of our control. You've got emotional responses, economic, medical responses, just the human response to illness. What do you think was the biggest lesson for these companies? When you finished your work, you said, okay, I'm at the Harvard Business School.