Ladies and gentlemen, welcome to the Business Brew.
I am your host, Bill Brewster. This one is a banger.
John Maxfield from Maxfield on Banks joins the show.
We'll drop a couple links in the show notes.
I'm just going to say what I said to him at the end of it.
I didn't know if this would be entertaining or not.
I was a little bit like John's, some dude that likes Banks.
He might be kind of nerdy. This guy has got personality.
He's got substance. I enjoyed talking to him, I
cried laughing listening or talking to him.
So I hope you all enjoy it. I don't think that there's any
disclaimers that are needed, but just in case, nothing in this
program is financial advice. Consult your financial advisor
before making investment decisions.
This is for entertainment purposes only.
Don't do anything stupid. Read all the SEC filings.
You know the drill. Do your own due diligence.
And that's all I got. Before this music drops, I do
want to give a shout out to my editing team at Speech Docs.
You can find them on Twitter at Speech and Docs's Docs.
Dax and his team are fantastic. All I can say is that Dax and
his team offer incredibly good value, and I very much
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So if you are somebody who is thinking about starting a
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That's SPEECHDOCS. Ladies and gentlemen, joined by
John Maxfield. Maxfield on Banks.
If you don't know him, you should know him and you're going
to know him after this. And I was fortunate enough John
sent me some of his background work and a link to some of his
presentations. And I am glad that I did the
prep work because I think John is a an interesting personality
with interesting thoughts and probably the guy that loves
banking the most. Is that fair to say?
That's probably nobody has said that ever, but that may be true.
Actually, Bill, I think that, yeah.
I mean you just basically like developed a love for banking out
of nothing. Right.
I mean, life is what we make of it.
I'm like creative guy, but also pretty analytical.
And so like, I approach banking as an art, you know what I mean?
And so like it's about storytelling because it's
through stories that you teach, you know what I mean?
Stories stick in people's heads. And so like, I like to tell
stories and I like to play with ways to tell stories, whether
it's in writing, whether it's videography, all the different
ways. And so that that's kind of kind
of what I do. All right.
A story I do want to tell because I want to get into the
periodization stuff that we were talking about offline before we
started recording, but the story that I was watching right before
we hopped on the mic. Do you mind talking a little bit
about the commonalities of really great bankers?
You were talking about AP Giannini saw his dad get shot
and you know, that died with $550,000 in his bank account.
And, and it seems to me that a lot of the, a lot of the bankers
had trauma in their life or grew up in, in tough circumstances.
So if you could riff on that, I think that's a good story to
hook people in. Yeah.
So the thing to note about banking is that the supply and
demand dynamics in banking are opposite the supply and demand
dynamics in other businesses. And that's because the demand
for like a car or, you know, a pair of shoes or whatever it is,
there's an there's a limit to how much somebody's going to
buy. Even if you reduce the price to
like $1.00 for Mercedes, like I'd buy 5I love Mercedes, OK,
but I would still only buy 5. Credit is a completely different
animal, right? You are a banker, you know that
if you drop the terms and the rates low enough, right?
And you ease up on those terms, the demand for credit is
literally infinite, right? And so that means that the
people that run these institutions, that it is
incumbent upon them to throttle their growth.
The market won't throttle your growth, which is the traditional
way growth is throttled in other businesses, right?
In banking, it is upon you to throttle your own growth.
And so then you have to start digging into and you have to
say, OK, like what are the characteristics that enable
bankers to throttle their own growth?
And I say they need to throttle their own growth because what
you see is in the cycles in banking on the upswing, it's the
banks that grow the fastest and kind of drink their own kool-aid
that then crash on the other side.
And so you have to say, OK, well, what is it about a banker
or a person that enables them to operate in that environment to
throttle their own growth? And so you think like, OK, that
is very opposed to how the normal human is, right?
We've all read all the behavioral science studies,
right? The marshmallows, we want one
marshmallow now, not 2 marshmallows tomorrow.
You know what I mean? Like we know how that that the
brain works. And so you have to actually find
brains that work in a different way, kind of like a Warren
Buffett type of brain, right? And so then you say, well, OK,
where do those brains come from? OK.
And in my opinion, in my research, they come from two
different places. 1 you can be a part of the lucky gene pool, a
Jamie Dimon, right, A Bill Dimcheck, the brilliant just,
but just part of the lucky gene pool.
Now Jamie also grew up in an environment where his father was
good friends with Sandy Weill and then he went and worked
Sandy Weill. So he was also in an environment
where that was, he was conditioned to be excellent,
right. But the other place where I have
found extraordinary bankers or what enables a banker to get to
that place is some sort of acute tragedy of hardship early in
their life. It is amazing when you go around
and you look at the performance of banks throughout the entire
country and then you'd kind of like, you know, big, small,
north-south, East, West, AG banks, business banks, retail
banks, whatever it is. When you look at all those
different banks and you say, OK, what is the commonality here?
There is no statistical significant commonality in the
quantitative metrics that ties them all together.
So then you have to step into the kind of the subjective realm
and say, what is it about these people?
And it is this what it seems to be some element of tragedy of
hardship or early in their life, which steals them later on in
life to make the right decisions because everybody's going to be
pressuring them to grow fast. Their employees are going to
pressure them to grow fast. Their shareholders, their
everybody is right, even themselves.
So they have to have that fortitude to say no.
And that is where I believe that fortitude comes from.
One, especially 2 if you're public and other other bank
stocks that are growing faster going up higher than yours and
they may not be reserving as much, but you kind of, yeah,
that is a lot of pressure. Yeah.
And it's a negative art, right. I I like the story that you told
there was, I want to say it's a Chicago bank, but I could be
wrong. There was one bank that had a
bunch of earnings and then basically went bankrupt
overnight and the guy was trying to collect.
He hung himself in his client's house, and his client owed him
$17 million. But the guy was a plumber.
Yeah. So that yeah, right.
Like that's a. Great kind of clients that you
can get. Yeah, that I mean like a plumber
is lives in a has got a $17 million credit line.
You know what I mean? Let me tell you a, a story that
really gets right down to this, OK.
Richard Davis, good friend of mine, he was the former chairman
and CEO of U.S. bank, the 5th largest bank in the country.
This guy is absolutely phenomenal.
I mean, a, a true prodigy, mathematical prodigy also just
like a, a really, really special guy.
Well, early on in his life and he was an AVP at a bank in
Southern California called Security Pacific.
It was one of the big Southern California banks that eventually
folded into what became today's Bank of America.
And he was over at his parents house with his wife and kids the
night before Thanksgiving. It was like in 1988, I think.
And the toilet in the house was broken and it was like dripping.
And Richard says to his father, he says, let me go down to the
hardware store, get the piece, I'll come back and fix it real
quick. And his dad says, no, get the
kids home. You know, I'll take care of it.
We'll see you tomorrow for dinner.
So Richard and his wife packed with the kids up in the car.
They drive across Los Angeles to their house.
They get home. The phone is ringing as soon as
they walk in the door and they pick it up.
Hello, It's his parents, neighbors.
And they say, get to the hospital.
Something happens to your father.
So Richard and Teresa, they drop their kids off at their
neighbors. They rushed the hospital.
By the time Richard and Teresa got to the hospital, this father
had passed away. And what at the time, Richard
was like an AVP, which there weren't very many AV PS at a
bank that size. So he was already a kind of a
big deal. But then he went on to become
one of the greatest bankers of all time as the CEO of U.S.
bank. He came out and spoke after one
of those meetings in the White House.
He was the banker that came out and spoke.
And I was up there visiting one time after, after he has retired
as CEO and I was because I wanted to figure out like, how
is this guy like so amazing? The performance of the bank is
amazing. He's amazing.
He had like 100% on like, you know, whatever that, what's
that, that website where you gauge employ your employers.
What's that called? Oh, Glassdoor.
Glassdoor. Yeah, he like 99% approve on
Glassdoor. So I'm up there and we're I
spend 2 days with him and we're going through all these
questions and we take a break. And he's the Co chairman of the
Super Bowl committee in Minneapolis that year because
they had just built U.S. bank Stadium and they're going to
have the Super Bowl in that. And so he's like, well, let's
just go around and I'll walk you through the skyways.
The you know, like the, you know, all those, you know,
things like those bridges that the internal bridge or the
indoor bridges that connect all the buildings in Minneapolis
because it's so cold. Well, they're all glass.
And so he's like, what we'll do is I'll walk you around, I'll
show you where all the stuff for the Super Bowl is going to be.
And I'm like, that sounds like a great idea, Richard.
And so we go around, he's like, you know, that's where the the
ski jump, fake ski jump is going to be.
The Dallas Cowboy cheerleader is going to dance over that, you
know, all that kind of stuff, you know?
And we come across a young lady and her parents.
I didn't know that her parents were as we're walking across one
of these skyways and she comes up and, oh, Mr. Davis.
And he's like, oh, and I don't remember what her name was, but
he did. And she's like 24 years old.
She's young, OK, young. OK.
So he comes up and she's like, oh, well, these are my parents.
And he turns on her parents. And it was one of the most
amazing things I've ever seen in my entire life.
Like the distance at which he stood, the tilt of his body,
like the level of his voice, how he was making eye contact with
him. And he just tells him, you
should be so proud of your daughter.
She is such an asset to this bank.
We are so lucky to have her. This is one of the finest
bankers in all of America. Telling a 24 year old who knows
what she did at the bank, You know how she probably just
started. Do you know what I mean?
It's a people. Business though, it's a people
business and I'm watching the continents on these people's
faces and I'm like, these people are never going to forget this.
I mean, this is a gift that like they'll remember till till the
very end. And so I was like, where did he
learn this? So I go and I call his wife.
I said, Teresa, where did Richard figure that out?
You know what I mean? What an amazing gift that is
because when I was watching it, I'm like, this is how he built
that bank. Yeah.
This is how we built that bank, you know what I mean?
How you get employees to love you.
How you get employees to love you and do hard works too, all
these different things, you know, and she says, well, tell
let me tell you a story. And she told that story about
his father. And she said, and so because
what happened is after they left, his then father walked one
block down the street to a shopping center where there's a
hardware store. And he went in and he has, he's
walking across that street, he's hit by a truck and killed
instantly, a hit and run driver. I don't think they ever found
the guy. And what's Teresa's point was
that Richard always wants parents to have the opportunity
to be proud of their children. That is one of his core beliefs.
And so on his employees birthdays, if he knows about
them, he calls their parents. Oh wow, it's interesting.
I don't know that I would like that.
I'd be like you don't want. To call my parents, some of us.
But The thing is that like that is where that comes from.
And I could tell you stories like that about two dozen
bankers. And here's the next.
Let me tell you one last piece of this story that I love.
OK, so a couple years later after I hear this story, I'm in
Los Angeles and I'm like, I'm going to go down to where his
parents house was and I'm going to walk that walk.
You know what I mean? Yeah.
And so I go down there and I park in front of their old house
and I walk down the block and I walk across the street into the
shopping center and I look around and there's no hardware
store. And I'm like, OK, so I go on.
I'm asking people, do you know if there's a hardware store and
there's like these are like 18 year old kids working at like
Dollar General? They're like, they're like, no,
dude. Get lost bro, like we're going
to call the. Police, get out of your boomer.
Yeah. And so like, I finally rented to
an older woman and she's like 75 years old.
She's like a hairdresser. And I said, ma'am, do you know
if there there's a hardware store here, if there ever was
one? And she said, yes, there was
one. I said, well, do you know where
it was? And she said, yeah.
And there it's one of those strip malls where it's in an L
And then there's a detached thing like where like
restaurants, kind of like a Chili's, you know what I mean,
would be. And she said, she's right over
there. And I turn around.
It's a motherfuking U.S. bank branch.
Oh wow. Yeah, wow.
There. You go, yeah, that is that is
sick. My first boss.
Shout out to Erica Coleman if she's listening.
She was fantastic with with clients just like knew everybody
and grew up in investment banking.
So knew how to cover industries and knew who to connect, how to
connect them, what everybody needed, what the right
facilities were. I mean, it would I like when you
talk positively about bankers, I think that too often people have
a negative association of banking and it's because they're
focused on investment banks or and even I mean, investment
banks have an important role, but you know, sort of the
banking blow ups. And I don't think that they're
thinking about like the true grease of the economy and what
banks really do. I had another guy, Mark
Pressler, that took me under his wing for a bit and he said our
job is to make our clients as rich as possible while
protecting the bank's capital. And I thought that that was a
pretty good way of saying it. Yeah.
Just got to remember the second part.
In, in, in banking, there's that natural tension between revenue
and risk, you know what I mean? That is really, really acute.
And it's the the those who balance that, that do the best
over the long term, obviously. Yeah, it's tough.
It's tough to have a deal at the end and then like, you know,
somebody else gets stupid on terms and you can't do it.
But over the long term, you know, in five years when that
bank's not there, you get another bite at the apple.
But it's tough to swallow that in the moment.
Well, and the other thing kind of to your point about like
society has a perception of bankers.
And I've read contemporary materials on banking going back
to the beginning of this country.
And it's always been this case, that case, except for very brief
periods of time where kind of bankers are treated like
celebrities. And what you find is that really
kind of the thrust of the argument against bankers is that
they're greedy fat cats who are just intent on making money off
of other people's money. You know what I mean?
But the reality is that when you meet these people, they are
literally like the finest people in the country.
Like you go to any small town, any medium sized town, and you
go to any of those charitable organizations and you look at
the people who are moving and shaking them on those boards.
They're like 9 times out of 10, their bankers are on those
boards and they're major players.
So they do so much for their communities.
And then you think about like you drive into a small town, you
go to the main intersection that the what's the only two-story
building in the town? It's a bank.
Yeah. Do you know what I mean?
And so like these things, like money matters a lot.
You know, people pretend like maybe it doesn't matter, like
you get rich, you shouldn't care about money.
No, no, no, money matters a lot. Do you know what I mean?
This is the bankers who can really responsibly take control
of that money, make an enormous difference in their communities.
Yeah, yeah, that's right. And, and and that's how, I mean,
that's how people just dreams get financed, you know, and
that's how they employ people. And I don't know, it's an
immensely important industry. What was?
I. Shoot, I was thinking of
something. Oh, well, let's go into the
periodization thing and then I'll come back to my thought
that escaped. All right.
So, so you want to describe sort of without the graphs, it can be
kind of tough. I can link to your presentation
in in case people want to see. But to the extent that we can
talk about it, maybe that's a good place.
So let me start here. SO ever since that we were
talking about this earlier, but ever since I was a child, I've
gone subject matter by subject matter in my life.
And what I do is I study them. I, I, I totally concentrate
myself in the literature. I study them until I'm able to
reduce them to a simple, single, simple underlying principle that
is robust enough to explain everything that happens in that
environment. And so I was doing, I've done
this with a whole bunch of different topics, high Mountain,
High Mountain, High altine, mountaineering, geopolitics,
certain elements of physics, all sorts of stuff, hard stuff, easy
stuff, all sorts of stuff. And so when I came upon banking
in 2008, when the financial crisis said, I thought, I don't
know very much about this and, and I would like to know more.
I figured it would probably take me like 6 months a year to do
what I did in these other subject matters because banking,
it may be hard, but it is not complicated, particularly if
it's done right. OK, but I was reading dozens of
books, hundreds of books, and then going through all the data,
aggregating data sets to go back all the way to the beginning.
And then I built a network of the finest CE OS in this
country. And I don't go and just ask them
like a journalist, like some lame questions for a story.
We spend days together and we talk about philosophy and all
sorts of things, you know? And so I'd gone through all this
and I still couldn't reduce banking in the same way.
And I was like, this, this doesn't make any sense.
And So what you realize is that when you study subject matters,
there's an invisible scaffolding that exists behind every subject
matter. And it's the same exit,
invisible scaffolding. And if the scaffolding works,
you can. And you know, you know the
scaffolding, it's easy to climb your way up to the top
relatively quickly, OK. But if the scaffolding is
broken, you get off in the wrong place, OK.
And what there's different pieces to the scaffolding, but
one of the pieces is this historical vertical.
If you want to master a subject matter, you've got to master the
history of it. But if you want to master the
history of a subject matter like banking that is like 230 years,
like thousands of banks and all these different things
happening, the only way you can do it is if you simplify it.
And the way you simplify it in this context is called
periodization. So you break the subject matter
down into periods or eras, OK, like the Roman Empire era, the
Ottoman Empire era, right? That in the context of banking,
what you choose to be, the thing that switches from one era to
another era is really, really important.
And done right, the most elegant periodization is 1, where it's
the same thing that switches all the different, all the errors
through time, right? It's that same simple underlying
principle, right? So I was going through the
scholars and I had the data, and the scholars were saying that
the thing that causes errors to switch from 1:00 to another is
in my terms, in my words, the presence or absence of a central
bank like authority. And so you go back to time, and
then you take that period, OK. And but then you take those data
sets that I build and you take them all the way back, and you
layer those two things on top of each other.
You put the periodization on top of the charts, the Seminole
charts. And what you find is that the
two don't match. And So what I mean is that like
there'll be a, there's a like in the population of bank, the bank
population chart, there's this huge run up that starts in 1879
and then peaks out in 1921 and then drops down because there's
a bunch of failures in the 20s and the Great Depression, the
periodization that the scholars had was ran right in the middle
of that big run up. So it didn't explain it, right.
So you're not explaining the cycles.
So then once I realized the periodization was wrong, then it
was just a matter of going back and figuring out what the right
thing was. And in the in the course of
figuring out that right thing is how I was able to reduce it to
the simple kind of underlying principle that that I've been
seeking. So, so there's a period in there
called the free banking area or free banking era that you refer
to. What was that like?
OK. So the free banking era, if you
think about what makes the banking industry today, there
are some really big important players within the top one or
two is Andrew Jackson. Because what we had is early in
the country, we had two central banks, central bank like
authorities, the First United Bank of the United States and
the Second Bank of the United States.
They're both based in based in Philadelphia.
Those were basically like political gifts given to
friends, OK, those charters. And like, that was the same
thing with like the Bank of New York.
That was Alexander Hamilton, then Barr, then, you know, like,
so like those those were given as political like favors.
Andrew Jackson was like, well, I'm done with this.
Like we're going to democratize banking and allow anybody to
open a bank if they want, OK. And so he comes in in 1836 and
does not he, he, the Congress renews the charter of that
second bank, but then he vetoes it.
So that bank goes away. So now there's a just open
season for people all over the country.
And this is while we're expanding westward and there's
these huge real estate bubbles going on with these westward
expansion. So as this is happening, all
these banks are opening up, expanding westward to finance
these people coming in on the railroad.
Sure, right. But what they would do is this
is back in the day when banks would actually issue currency,
OK, but you'd have to have your currency backed by bonds, state
bonds typically. So what these banks would do,
they're they're called Wildcat banks.
They would take. So you they would have a bank
and they would base it in like Detroit, which back in the day
was just a swamp. And they do.
I have an unlimited amount of currency that I can issue.
I mean, it's got to be backed by bonds.
So what, I hold the bonds and then I can issue the currency
and I assume there's some sort of fractional reserve?
There's a ratio. Exactly.
There's a ratio. Well, but what you do is you
have these Wildcat banks. You put a bank way out in the
woods, right? And then you you issue that
currency into, say, a large metropolitan area, so that
currency never gets back for redemption.
Oh do. You see what I'm saying?
And So what you find is that you'll have these banks that are
issuing these currencies in these far off cities that the
examiners or whoever's looking after the banks in these smaller
towns have no idea what's going on.
So you'll have like these some of these banks failed and
they'll have like $10 in assets versus like $100 in liabilities.
I mean, it was like that kind of situation.
And what, they were just taking salary out the whole time or
something like they weren't doing it for the equity to go
up? No, no.
So what they're doing is you arbitrage they're they're
effectively. So here's another really
interesting thing. So let's say you and I wanted to
start a bank in this time and you and I, we need $10 million
for capital, right? And you've got let's say
1,000,000 and I've got maybe a million, OK, like we have
2,000,000. Where are we going to get the
other 8 million? Well, me and Bill just decide
that the bank we're about to found is going to lend us the
money to found it. Hell of a deal, right?
And so you are borrowing money from the bank that you are found
isn't even found. You're bootstrapping your way
up, right. And So what you're doing in that
situation is you're arbitraging the interest that you have to
pay to the bank on those on you're borrowing versus the
dividends the bank is paying you.
So here's what's interesting. OK, what that let bankers to do
at the time was what you go get higher yielding securities.
They were limited with their charges because of the state
legislation that they could only buy state backed bonds or
federal bonds. Well, what were the best
yielding bonds in the 1850s? In particular, bonds from
Confederate, what became Confederate states.
And so like you had Indiana, Illinois, Ohio, like Illinois in
1861, you see this humongous spike in bank failures and you
think like, oh, that's because of Fort Sumter.
And then the Union Army went down and whooped some butt in
the South and like all those banks failed.
No, in 1861, the humongous spike was northern banks that were
holding Southern bonds to maximize that arbitrage.
And then when Fort Sumter hit those southern bonds like
Missouri, Tennessee, Georgia, they literally overnight fell
50%. Huh.
Wiped them all out. Literally wiped almost every
bank in Illinois out immediately after Fort Sumter hit.
It's crazy. Interesting.
Yeah, Huh. Yeah.
Well, that's credit it. It's all going well until it
doesn't go well. Everything is fine until it
isn't. That's right then.
Then you better hope that your your LGD is not too bad, which
in that case it was it. Was 100%.
Yeah. So, So what do you so where are
we now? I I mean, I know that that's
kind of like where are we now? Where are we going?
Is kind of what I'm what I'm thinking.
So very good question. So let's go back to
periodization real quick because that that will make it very
clear where we're at. So what you found is that the
thing that causes these big changes in the curves are what I
call novel liquidity flows. So when a ton of liquidity flows
into a system and it can flow into a system from one of two
ways through the ground like a geyser money creation or from
another system, IE Europe. OK.
So like a bunch of money that big run up that we saw between
1879 and 1921, that was a function of capital coming in
from Europe, new liquidity coming in from Europe to finance
the growth of the United States because the trade patterns had
switched that year from basically a century of perpetual
deficits to a century of perpetual surpluses.
So you're thinking, think about all that money that you're
reversing the flow of huge flows of money, You know what I mean?
And so you look at that and you think like, OK, well, that's
really interesting. And one of the things you see is
after every major novel liquidity surge, there is
something that falls, and I call them liquidity destruction
events, because what you see is all this money comes in and you
have your goods and services. So it gets totally out of whack,
right? And the system is trying to
bring it back. That's why inflation does what
inflation does, right? Is is trying to bring it up like
this, right? But you can't inflate that fast
over one year, you know, you got to kind of slowly inflate,
right? And So what you see is that when
that money comes in, the way you kind of bring it back into
equilibrium is these liquidity destruction events.
And there's two particularly effective liquidity destruction
events. First is a bank failure, and the
second is a stock market crash. They just light liquidity on
fire, right? And so now if you think about
bank history, that's how you can think about it.
Novel liquidity surge, liquidity destruction events, novel
liquidity surge, liquidity destruction events, novel
liquidity surge, liquidity destruction events.
That explains the entire history of banking.
So now, where does that put us today?
So what we found is we had the novel liquidity surge in the
1870s that ultimately ended up in the Great Depression.
And then we had this period of like, basically nothing is
happening in the industry because everybody's so afraid
from another Great Depression. And we just gone through World
War 2, so this period called the Great Moderation.
But then that all changes in 1973.
There's a huge surge of current of liquidity into the system in
an unusual way. That was really the
proliferation of the euro dollar market and euro dollars,
although they are ostensibly dollars, U.S. dollars that are
unrepatriated, that's so they just exist out in the ether and
they're not included in our money supply.
The reality is that while those dollars are in foreign banks,
they tend to be in foreign banks branches in New York better than
lending that money into our economy.
So unbeknownst to us, there's basically a a surreptitious
doubling on the money supply in the 1970s, OK, as a result of
the changing trade patterns as a result of the oil crises in the
1970s, OK. And so that leads that whole
thing, OK, That leads into the 1980s, all those liquidity
destruction events. There are four major banking
crises. Then you have a CRE crisis in
the early 90s. But then that that liquidity
destruction or that that novel liquidity surge doesn't end
until the financial crisis of 2008, that change in trade
patterns into the 70s that caused the financial crisis of
2008. So then after 2008, people like
me were like, they're not very many people like me, thank God.
But like we were like, well, are we in the old era?
Are we in the new era? Or are we in purgatory?
And This is why I don't have any friends.
But that's neither that's beside the point.
You really don't want to sit around and talk about that.
Like literally nobody cares. Most of all my wife.
She cares the least. Your banker friends care.
Exactly. Anyways, So we're all so like a
guy, like, I'm sitting like, what does this mean?
Because, like, the system had like, expended all that excess
liquidity. So where are we at now?
Yeah. And so we had all that
deflation. Remember that, all that kind of
stuff. Then what happens in 2020?
COVID hits. That fiscal and monetary
response is enormous. It is the largest novel
liquidity surge in the history of the United States by a
significant margin. If you look at the response to
the financial, the government's response to financial crisis is
like this. The response to COVID crisis is
like this. Yeah, it's that big.
And So what did we see immediately after the novel?
Liquidity surge. Liquidity destruction events.
Bank failures. Yeah.
But but in aggregate, we haven't seen that many, right?
I mean, it's not what we got First Republic Silicon Valley,
but like things were pretty OK after that, right?
And the liquidity just went somewhere else.
The stock market's got a ton of flows.
The only reason that things went OK is because the potency of the
government's response to those banks.
Yeah, only reason. So that kind of gone.
That kind of makes me wonder are are we like in in questions that
are unanswerable? Do you think that that we are
trending towards a period where institutions are a little less
trusted and therefore the government won't be able to
respond as well? Or is, or have we sort of
learned as an economy that these kind of responses are necessary
and they're going to be ingrained in the way that we
live? It's kind of like Mike Tyson's
like saying like everyone has a plan until they get punched in
the face, you know what I mean? Everybody has these ideas about
what they are and are not going to do in a financial crisis in
terms of government response. And when the financial crisis
hits, they all just do the same thing.
That's they always just throw everything at it.
And that's what we want them to do.
We don't want a Great Depression, you know what I
mean? So like I whether in, in periods
like that, it doesn't really matter.
There's rational thought of suspended anyways, you know what
I mean? These people are just pouring
stuff in. So I, you know, I, I would say
it wouldn't change that. Now there are, we are seeing
question, you know, like there are questions about the
integrity of these institutions, all institutions right now in
the country, you know what I mean?
So you know, there's going to be a little bit of that shaking out
for everyone. Yeah, Yeah.
Well, that's kind of what I wonder.
I mean, it just seems like, and, and maybe it is the global
savings glut thesis, but it, it just seems to me like there's so
much liquidity and so many flows into the US that I, it's like a
tidal wave that I don't know when it'll stop.
And if you look at like have you heard the red those?
I don't know that you want it to stop.
For the record, I mean the the fun times are fun.
I mean. But, you know, things that can't
go on forever don't go on forever.
No doubt, no doubt. You and I both know that we
can't predict the future. You know what I mean?
We're both, we're both comfortable with that.
But what I will say is that there's so much liquidity out
there looking for places to go that are, you know, you can earn
a decent return that like if things get even marginally bad,
that money floods in. You know what I mean?
Particularly in real estate. I mean, I have tons of people, I
know tons of people who are investments are in real estate,
like they would love to be buying deals, you know what I
mean? If there's, if they're a good
price, because balance sheets across this country look
fantastic because of PPP. I mean, they still look good
because of PPP, which is an interesting thing.
A friend of mine asked the other day, he's like, since why
haven't we seen an enormous rise in corporate defaults or
commercial defaults since the rates jumped 500 basis points?
And the reason is that ordinarily that would be a
problem, but these balance sheets can absorb so much more
right now. Yeah, well, the government's
balance sheet is the one that doesn't look good, no.
No, that's a fair statement. Yeah.
But we, but we just transferred it, I feel like interesting.
So there is this interesting dynamic that is going on that on
one hand, I think banks should be in a position to lend as
aggressively as ever and make safe loans in part because of
the balance sheets that you alluded to.
And on the other, you have the growth of private credit.
And I'm kind of curious how people that you talk to think
about why that industry has grown in the way it has and
whether or not banks are hamstrung in certain ways.
You, you answered your question with the last with your last
point. I mean that's how bankers feel.
Bankers feel like in a lot of these areas they cannot compete
competitively because of the regulations that they face that,
that the non that like kind of the shadow banks Oregon, like
the non banks financial institutions don't face that.
That's what a banker would tell you.
Yeah. And I mean, we believe that to
be the truth, yeah. I believe that to be the truth,
yes. OK.
Because what triggered some of our like, I think what got us
talking is I had commented about the Andreessen pod and you would
sort of given your take. And it's interesting to me that
banks feel like they cannot lend, but we are somehow OK
with, I don't know if the right term is like a neo bank or a
rent a bank or I mean, now there's, I don't even know
what's going on in crypto. I probably should, but I don't.
It's just interesting how many things are popping up around
banks that are taking share from the traditional lending market.
I guess in theory you could say, well, they don't have the
fractional reserve risk, right? They're not as levered.
So if the risk is there, it's fine.
But I'm just kind of, I find it interesting.
I don't know how I feel about it.
I don't know how I feel about it either, other than that, that
what I would tell you is that this has always been the case.
There's always been always, always, always, always, always,
always, always going back to being there.
The trust companies in the late 1800s, then you had like MMA
accounts and all these other things that are popping up in
the United 70s and 80s. And like it's this has always
been the case. There's always been, you know,
people kind of nipping on you kind of on the perimeter, you
know what I mean? Because it's such an incredible
business if it's done right. I mean, the thing that you need
to understand about banking is that you cannot be too
ambitious, OK? You cannot be too ambitious.
And that comes straight from the word the mouth of Renee Jones,
who's the CEO of M&T Bank, which is like IT and Glacier are the
two best performing banks of all time, OK.
And what I mean by that is that, like if you try to earn 20% on
your equity, you can earn 20% on your equity.
Like then you're going to earn 0% or -10% at some point and
then those FDIC is going to take you over.
The, the good banker takes his 12% happily and goes and golfs
at three. I mean, that's a little bit of
an exaggeration, but they take it, you know what I mean?
They just take their 12%. They know that the market
overall returns 8 to 9 percent on an annualized basis over a
long time. So they know that a 12% return
on equity is nothing to shake a stick at and not and nothing to
risk by pushing for a few more basis points by taking on a
bunch of risk with a highly leveraged institution.
Yeah, yeah, that makes sense. And I, I do think there is merit
to saying like, look, if if private credit is full of junkie
loans, but it's only whatever 1 1/2 times levered, that's a
whole lot better than having it in a bank that's 10 times
levered or with the famous Buffett quote, what it that was
20 times levered, right. So right, you can, you can have,
I don't know, I don't know, I guess you, you can have the risk
elsewhere and not have a contagion issue I think.
There is. There's an interesting story
that overlaps these two right now, and that's Sofi.
I don't know how much you followed them and I didn't know.
Dude, feel free to educate me. The community of investors that
I mean, they are like rabid, the Sofi investors, they're that
they're like, they are rabidly in favor of like Anthony Noto
and Sofi and stuff like that. And so I would just, I was asked
to be on a podcast to talk about Sofi.
And so I come at it from a traditional bank perspective.
So I was looking at it and I'm thinking like, Oh my God, this
looks like a tinderbox. I mean, how they're getting
their funds, what they're lending on, their lack of
experience doing any of it they haven't been through.
I mean, it looks the rate of growth.
It looked to me, and I could be totally wrong.
It looks completely bonkers. Oh, I thought that you were
going to say. I thought that you were going to
be like. And then I look deeper and now I
don't think so. But yeah, I mean, gross
financial institutions in general are not where you want
to play, I don't think. Yeah.
And so you have these like you have this one that's kind of
like doing the fintech stuff, but with the charter and
growing. I mean, so 5 stadium, I mean,
this is not an old company and they're big enough to, I mean,
like, you know, yeah, I I hope the best for them.
But like, it's. Do you understand how that
doesn't end poorly? Yeah.
Well, it's probably going to. Well, I mean, what's their
market cap now? This is going to be a huge
company that I know nothing about, thankfully.
It's like if you asked me if I could avoid poison, I'd be fine
with it. 18 billion? I don't know.
Geez. What are they, what are they,
what are they, what are they trading at?
Well, I I only have earnings up 91 times, so you know.
Does it say what they're trading to for book?
I'm going to pull it up. I don't have it up right now,
but I mean it's got to be 5-6 times, don't you think?
And my guess? Is it's, it's a healthy margin.
Yeah, that's wild. Hey, I don't know, let me not to
not to derail this, but like there's another really
interesting bank that like your viewers are probably your
listener I'd be really interested in.
What is does Sofi do anything unique that you think that
you've been able to figure out other than alternate a good
shareholder base? They started as basically a
monoline student lender, student loan company, and now they've
gone into more general consumer lending, you know, loss given
defaults on consumer loans, non secured consumer loans, They're
high, you know what I mean? And so they're a huge portion of
their portfolios. Now that and then they have some
mortgage products that they portfolio but like I'll.
Tell you what the forward price to book is only 2.8.
Of course you got to believe the reserves and the quality of the
book, but that's right, That's that.
Yeah, a bank's balance sheet is not shelved in the non fiction
section, You know what I mean? Well, it isn't.
You go to the fiction section to find that thing.
Yeah, it is until it isn't. OK, I didn't mean to cut you
off, but that that's the answer there.
But have you heard about triumph?
No, I haven't. I haven't covered financials in
a bit. I I sort of outsource that for a
bit. Listen to this story so good
friend of mine runs his name is Aaron Graft randomly we went to
we both did the law school in Texas even he went to Baylor.
I went to SMU. He was two years ahead of me.
I interviewed with him at a he was at a law firm as a young
associate and he interviewed me and then we met like years
later. I was like, you were the one
that interviewed me. Anyways, so he goes and he buys
these. He was in 2006, he quit law.
He didn't want to be a lawyer any longer.
So and he bought these commercials in college.
He borrowed money from this famous banker, Ross McKnight and
built this apartment building, this apartment complex.
And then he decided I want to stay in real estate.
But so then what he was doing is he, he was buying bad deals out
of CMBSS, fixing them up and then selling them.
He did it three times and made 1,000,000 bucks each time or
something like that. Financial crisis hits.
He can no longer compete because now you have like the oak trees
and stuff like that, the black zones, the big ones coming in,
the big money coming in to buy up that kind of stuff, right?
And but he has boosted up his company because he thought they
had figured it out. So he's got all these people,
he's got to pay. He's got to figure out like how
to make that happen. So he decides, well, like, I
need a more permanent supply of capital, so I'm going to buy a
bank. He's 30 years old at the time,
OK? He goes and raises $45 million
from investors in Midland, which of course, like, oh, Texas,
that's like raising one. Oil company oil money, Yeah.
Yeah, OK. He raises it.
He buys a bank. And what he's going to do, he
buys a bank in Dallas, a troubled bank in Dallas.
And what he's going to do is he's going to run a Beal, an
Andy Beal model. That means he's going to expand
and contract the balance sheet like an accordion.
OK, which is like risky as hell, but like, and very few,
basically nobody but Andy Beal has proven that they can do it.
And, and a guy back in the 1800s, very famous banker back
in the 1800s could do it too. But it takes him so long to get
regulatory approval because like these bankers, the, the
regulators like dude, you don't have any idea how to run a bank
and you're going to have to put 25,000,000 in capital in this
thing and then 20 million in take care of the bad loans.
You know what I mean? Once he raised the money and
they approve it, he misses the opportunity to have a Beale
model because he can't buy because at that point, like
assets are on the run. So then he goes and he buys a
factoring company up in Chicago that factors trucking invoices,
OK? The typical yield on those are
like 24%, OK, And these are short term credits, OK, These
are short. These are almost as good as
cash, OK. These are 30 day credits OK from
legit? Depending on who your
counterparty is, it's a legit counterparty.
But by and large, so long as you kind of know the lay of the
land, there is fraud and there certainly you know what I mean.
But the problem is that you go your trucker and you go and you
pick up a load. You have a paper invoice, right?
You have them sign it at the dock at the loading document.
You take a picture of that. You send it to get a factor.
You send it to, you know, and then you send it to the broker,
you send all the different things.
But it is a, such a, an inefficient way to deal with
things because then all that stuff has to be hand entered and
it's prone for fraud and it's prone to mistake and all these
things. So just to service it cost like
14 an annualized basis of 14 yields, Fortune percent 14%.
OK, so he comes in Aaron's like whoa, like we're going to do it.
We're going to basically do kind of a PAC W model where you put a
high yield and commercial finance engine on top of a of a
retail deposit franchise. They re Jack out that yield.
So they do that because now they're doing these this
factoring, right? So their yield goes way up.
But then they go to this that in the trucking industry.
And mind you, the trucking industry is equivalent to 8% of
USGDP. That's how big that is, OK?
So they go, they're like, it's just a mess.
And they're like, well, is I wonder if there's a way to make
this easier so we can like bring down these costs.
So they go to this industry event and it has all the
players, the brokers, the shippers, the truckers, the
factors that has everybody, OK. And they're going to sit down
and talk about using the blockchain to build out a
network. So then you can verify these
transactions. So everybody's just going to get
on this network. So you can just immediately
verify these transactions, right?
So that makes it so quick and easy.
I mean, it drops the cost from like 14 percentage points to
like 14 basis points, something like that.
You know what I mean? Takes and sucks that much cost
out of the system. OK, so they're doing it, but
everybody in the trucking industry, I guess, hates each
other. I don't know why, but I guess
they all hate each other. OK.
It's so like, the thing descended and it fell apart.
So Aaron goes home and he's got this younger brother.
He comes in this amazing family, and he goes home and he's got
this younger brother who's, like, a whiz at computers, OK?
And he's like, because his brother's like, we can just do
it ourself. And Aaron being Aaron was like,
that sounds like a terrific idea, OK?
Aaron is the type of guy who runs towards challenge and runs
away from boredom, just runs towards the most challenging
thing he could finally possibly find, OK?
They build this network, OK. And now they're in the process
of putting everybody on it. They've, I think they've gotten
like I, I, I haven't talked to Aaron for in a bit, but like, I
think they've gotten 6065% of the market share of all the, all
the players in the industry are now using their network.
And so you think about it, it's like the competitive advantage
of that network effect. Yeah, it's, it's, it's
unbelievable. It's such a crazy story about
how like where a story can begin and where a story can end.
You know what I mean? Because the story begins with
this guy who just wants to buy, you know, troubled properties
out of CNBS is it's ending with what is basically going to be a
complete monopoly of controlling the payments.
I'm sure you wouldn't want me to use that word, but controlling
the payment system in the trucking industry, I mean, it's,
it's absolutely bonkers. Well, when you say monopoly, I
mean it's a network effect, right?
Which I mean, I, what do you think?
I think those are legal. I don't know.
We'll see. I, I think the government would
not like them to be legal. But I don't know.
I don't know how you recreate it right.
Yeah. Yeah, exactly.
And how do you, how do you spin off half of a network effect?
Can you make people undo things that create monopolies?
I don't think so, at least not if they're a monoline business.
And did we not learn with like AT&T that it just going to go
back anyways? Yeah.
Well, I do. I do have some sympathy to like
using a profitable part of your business to subsidized the loss
leader in order to, you know, eventually own everything I that
that makes me uncomfortable, but it's good for consumers in the
interim. It is good for truckers and this
is a community of people that high finance people don't give a
shit about. Yeah, Aaron Graft and his team,
they love truckers. Like they are so good to
truckers and they've made truckers lives so much easier.
Are they going to capture the margin or is some of the margin
going to go back to the truckers, do you think?
Oh, they give most of it, the majority of it, the majority of
it back to the truckers. I mean, like they capture just a
very, very tiny portion, but of course, like we're talking large
numbers. Yeah.
Well, it's one of those things that if it used to cost 14%, now
it costs four and you give them six and keep four of the
difference, right. I think that math works.
You can make nice margins. They would give like 11 of the
12% like that or you know what I mean?
They give it a a ton back. Wow, Yeah, that's interesting.
And I'd imagine the speed of of the factoring increases, right,
'cause you don't have to mess with all of the paperwork and
all the people in the middle. Wow, how efficient is that?
Organization gonna be you can put before they're just pulling
payments now you can push them out.
I mean, it's like they've conceptualized this whole
process in such a fascinating way and and they're just
absolutely killing it. Huh.
Reminds me there's AI can't pull it out of my head right now, but
there's an insurance company in Richmond that the stock is done
well. So people talk about it, but I
think there's really something to this where they're just so
much more efficient than everybody else that they seem to
be growing like crazy. But then then I talked to
insurance people and, you know, you start talking to specialists
and, and say something's different this time.
And when it comes to insurance and banking, more often than
not, they say no, It's never. Different things are always the
same. It's like I mean I swear to God
it they are always the same. Like when Silicon Valley went
down people were like this has never happened before.
Can you believe what an unparalleled situation bro?
Like no this has happened like 3 or 4 times.
Yeah, I don't know that the thing that I don't know has ever
happened before is like VCs crying for help before the help
is even needed and then creating the lack of confidence.
But that was interesting to watch.
OK, that's. An interesting question.
Wait wait wait. The VCs crying for help ahead of
time. Or I mean, or once it went now.
No, it's just I this the way that social media accelerated
the panic and and who was at the middle of spreading some of that
gasoline on the fire I found unsightly, but that.
But that's no different than going to the town square and
saying everybody's got to pull out their money, right?
It's just a different form. So there's a bank here?
Have you been to Portland, OR have you been out here before?
No, I'm just going to finish my thought though real quick.
It's interesting. It's no, it's just interesting
that that people that that like Atlas Shrugged seem to cry for
help when shit hits their fan. You don't want to go off to the
magical garden in the valley. No, it's on Gault.
What's on Gault? I mean, you know, I, I it.
Was Gault? Isn't that what it is?
Yeah. I gotta get awesome.
I love that book, though. It's a tremendous.
Yeah, well. I mean, there's an elegant, it's
elegant, right? But people show you who they are
when the chips are down and the times are tough and when you're
out there crying for help, I don't know that you can then,
you know, claim that that that's your favorite book to live by.
But that is neither here nor there.
What were you asking me? Have I been out to Portland?
I've never been out to Portland. You have.
No, I've never. The only the only northwestern
state I've ever been to is Washington.
So there's one of the patriarchs of the city is a guy named, his
last name is Pitoc PITTOCK. And there's this big mansion up
on the hill that now you can go on tour or stuff like that Pitoc
mansion. And he owned like The Oregonian
and a whole bunch of stuff and a bank because that's what you did
back in the day. The big industrials also owned
banks and. Bad ass.
Some people get a Mercedes, he got a bank.
I like it. Little guys like us get Mercedes
guys like. Yeah, I want a bank.
But anyways, he died and there was a big dispute about what who
was going to control the bank in like kind of how the will was
playing out. The other banks in town spread
rumors in the newspapers that the bank was going under and it
in fact did because that's what you can do in banking.
You can become a self fulfilling prophecy.
So your point is your point about like that you had made
earlier like this kind of thing like about the VCs and how
they're treated and what they did in that context about like
Peter Thiel, like he basically was the one who ignited the run?
Like. This, this type of thing where
other people intentionally do these things.
This happened many, many, many, many, many times.
Let me give you one more story. This is a great one, OK?
This is I think it's 1874 when Jay Cook's bank went down.
So there's a panic, OK? People are worried about what's
happening on Wall Street, OK. And they, there's a bank, Union
Bank, that that Vanderbilt, the Cornelius Vanderbilt is behind
and like has money and get borrows money from it and all
this kind of stuff. And a rumor circulates around
town that Vanderbilt cannot pay his $1.2 million credit line.
And so Vanderbilt is out of money.
Oh shit, his hitting the fan. So there's a run on this bank
because the newspaper goes to his house and they're like, we
want to ask him about that. He wasn't home.
They're like he's run off. Oh.
Interesting. He's run out of money.
There's a panic on Wall Street and all these banks go down.
And then later on in the afternoon, he comes sauntering
in on his source, saying, like, what's going on, guys?
Yeah, that's right. I was just having tea, bitches.
I I didn't run out of money. Right into my thing for a horse.
Literally, he had no idea. I was doing really important
rich people stuff. I was shooting things and riding
on my horse. Exactly.
Interesting. So then what happens to the
bank? There was a run, yeah.
Yeah, it's gone. It it was gone.
That's an expensive horse ride. Now mind you that.
There have been the failure rate in banking is much much greater
than the survival rate that by my research there have been
17,000 plus banks that have failed and we only have about
4000 banks today. Yeah, some of that was mergers,
though. No, no, no, no, no, no, no, no.
There's 22,000 mergers. Yes.
OK. So you're saying out of like
roughly 40,000 banks, we're down to 4000?
Yeah. So 17 + 22 + 4 and then throw in
a few more thousand because there's periods in the 1800s
where like certain states didn't give us any data.
Interesting. So when you're building these,
these data sets, I mean what the one, I don't think, I know we
said this offline. I don't think we said it already
took you 2000 hours to build one of the data sets.
Yes, to to build and verify, I mean, cause a lot, some of these
like you have to go into old newspapers and get the data from
you know what I mean? And so let me, let me give you a
crazy story, OK? I've never told this story
before in public, but it's like one of my favorite stories, OK,
So I'm I, so I've, I've built out a data set going back to the
civil war of bank failures because bank failures.
If you want to understand banking, that's where you begin
failures. You begin there and then you go
elsewhere, OK, Because failure is the rule, not the exception.
OK, So I built it back to the Civil War.
And then I'm like just failure by failure, state by state, year
by year, going through these old newspapers on newspaper.com.
I mean, they're, I guarantee if they looked at all the usage of
that thing and they like I ranked number one by a long way
for that year, you know what I mean?
Like who's this guy? Yeah, yeah, yeah, yeah, yeah.
Who's this guy? Oh, my God.
I just totally lost track of where I was going.
What was I? What?
Was this, I don't know, it was your favorite story that you've
never told in public? Oh, yeah, yeah, yeah, yeah,
yeah. So I didn't.
I'm like, well, let me just do some.
So one of the things I'll do when I'm looking for something
is I'll do a Google search and then I'll just go down and I'll
just go click, click, click, click, click.
I'll just like open up all the tabs, like click, click, click,
click, click, click, click. And then like all the tabs will
go across, you know what I mean? And then I'll do 50 and I'll
just go through each tab, you know what I mean?
I'll just go through all of them, you know what I mean?
And then like you would be amazed, like you'll be like 250
in and then you'll find the thing.
It's crazy. OK, so I'm clicking through all
these things and I click on this link and an Excel file starts
loading. I'm like, the fuck is that?
You know, I opened that Excel file.
It's got like thousands. It's got basically every bank
that had failed between the beginning of the country, 1809
and the Civil War. Wow.
Almost impossible to build. Turns out I'd it came from the
Federal Reserve Bank in Minneapolis.
And I think what it was is they were it was a back channel where
they would share the data set. I don't know for sure.
My gear system shared the data set with the researchers.
Huh. I happened upon it and so that
helped me I'm so I then took my list and then augmented theirs
where they missed some I included.
And then that's what allowed me to build out the whole thing.
So a couple years later I was like, I should e-mail this guy
and thank him. You know the main guy.
Probably like I wish you'd never found it.
I got fired. He was like the top.
He was like the top research guy at at at the bank at the
Minneapolis at the time. And then he moved down to teach
in Emory, I believe. And so I emailed him at Emory.
I said, well, Sir, just so you know, thank you for the data set
I happened upon. It is amazing.
I will only use it for good. I never heard from him.
Yeah. But like, yeah, it's, yeah.
So that's why these things take a long time, because just
nobody's very few people have ever actually tried to do it
before. Yeah, I'm in a, this is not at
all that, but I was in an investing group and I shared a
transcript with with them yesterday and it was like 15
pages or 14 pages and one important paragraph.
And the paragraph was at the end.
And we were like, yeah, you know, 15 pages of reading for
one, one paragraph. But the other comment that was
made with that is if you had uploaded that particular
transcript to an AILLM and asked it to summarize, there would be
no way that it would know that that paragraph was the important
paragraph. So to your point on like opening
50 links and whatnot and going through it and finding the link,
I think that kind of research isn't going anywhere for a very
long time and there's a lot of value in it.
I mean, when people go around talking the I'm going to use AI
to do this, I'm going to use AI to do that, I say please do.
Yeah, please do. You don't even know the
questions. You don't leave me alone in my
field. I'm going to be the only one who
actually knows what I'm talking about because I have actually
learned it. Yeah.
I'm not taking shortcuts. So I'm like, use AI all you want
because I also know because the data I have and what I know
about banking, I've used it. I've tested AI on the things
that I know that I know a lot of people don't know, and it
doesn't know it either. Yeah.
And these are central things in banking.
So it's like, I'm like, whatever.
So when you're testing it, you'll ask it specific questions
that you know the answer to and it can't pull them.
I'll be like, how many banks have failed since the beginning
of the country? Yeah.
And I can't remember what the number was, but it was way off.
Way off. But I mean like, like by a
factor of like 4, something like that.
I mean, it's huge way off. Yeah, well, that's a shame.
Now you won't trust it. That's what happened to me with
the news. Once I started reading about
things I knew about and I was like, this is not what I think
is going on here. Yeah, AI, it's like there's a,
there's a role for it, no question about it.
But it's not at our level. It's not people who use their
brains to actually figure things out like we are safe from that,
certainly for now. Yeah, yeah.
I don't know how it'll look in a year, right, but.
I think it'll look better, I hope.
Yeah. I, I think because I think the
more and more that like as kids come through school and they
like, the more and more they get prone to take all these
shortcuts. Like it's like to develop the
deep, to develop my knowledge took me not only just 15 years,
but I spent 12 months, 365 days working 18 hours every single
day because I, I studied banking for 12 years.
I couldn't figure the thing out. I said, listen, I'm going to
give this one more year because I'm not going to spend my life
on something I can't figure out. I'm giving it one year.
If I can figure it out, then I'll stay in here for a little
bit longer. If I can, I'll move on to
something else. And so I said the only way I'm
going to be able to find the flaw in the in this, whatever
the theoretical flaw was, I didn't know what the time is.
If I read contemporary, if I would just read contemporary
materials starting the year 1790 every single year about what
happened in banking all the way through to 2020.
The thought process being that if I do that, I will have more.
I will have jammed more into my head at any one particular point
in time that I can conceptually move around than anyone ever
before, and probably by a lot. And so it was that process going
through this that allowed me to identify that the periodization
was wrong. But in the process of figuring
out the periodization, like I can talk about all the different
crises and like I can, I can. I can get on TV or on a stage in
front of 1000 people without notes.
I don't prepare for speeches. I get on stage and just speak.
And I, yeah, well, the preparations been done, right?
The preparations been done, and so it's like if you don't give
yourself that opportunity to learn a subject matter like
that, you're never going to be able to compete with people who
do. What is the your take away from,
well, I don't know that you can summarize this, but what's
what's like the big take away that you have from banking?
And all this studying. Like if I were to reduce it to.
So let me answer that two ways. So in the banking context, the
way to think about banking is that abundance begets failure,
not scarcity. I like that abundance begets
failure. So that's the number one thing
to think. The second thing is that like,
you know, I've talked and spent time with hundreds of bank CE OS
and I've studied many, many, many more.
And the thing that I have found is that the best bankers in
terms of performance also tend to be the best people.
Like there is a huge overlap. I have not met any good bankers
that I consider good from a quantitative perspective.
OK, that is a jerk, not one. And and now who I am now, they
can't be a jerk to me that they'd be a Doo Doo.
But that is not always, that is not always been the case.
And for most of my career, that was not the case.
So how did you build your network?
Like to somebody that's like, Dang, I hope that I could do
what John did in a, in a different way.
Like what'd you do? Just grind it out, reach out to
people, try to add value and do it that way.
Yeah, I mean, I, I developed, unbeknownst to me, I developed
somewhat of a reputation for the depth of my research.
I did not know that. And then the the thing that
changed everything for me, I'll tell another Richard Davis
story, is I called U.S. bank because I'd studied Richard
Davis and U.S. bank. I I can't remember why I called
them, but their comms guy said, hey, are you John?
You're John Maxfield. I said, yeah.
He said Richard told me as soon whenever you call that he wants
you to come up here and spend time.
So I went up there to spend time with him.
And my thought process was that I'm not going to go into this
very important man's office and take all these hours from his
life and ask him questions that are in an SSCC document.
Yeah, the level of disrespect that these analysts go in and
they what they are asking these people to spend their time on is
unbelievable. You know, the the numbers are
there and asking any for forecast is absurd.
You know, just logically, right. Yeah.
Well, so I said. I'm justify your job.
I'm going to go in there and I'm going to ask him the most
personal questions you can possibly imagine, you know, like
about the death of I like. And so I asked him, I said, and
I was so freaking nervous because I've never been in that
environment before. I was like, you know, those the
floors of those buildings are quite impressive.
And I remember sitting in the chair and, like, just a little
shaking with nerves. And there was a like a magazine
on the table, but it was a hardcover and it was for private
jets. And I thought, this is a
different place for me to be than a magazine that's hardcover
for private jets, you know? And so I go into his office and
we're just kind of shooting the shit.
And then he said, well, let's get going.
So OK, well, let's go, you know, And I said, here's my first
question. I want you to tell me who you're
more like, your mom or your dad, and why.
And he let out this audible gasp.
It was just like instantaneous, this short and instantaneous.
And in that second, I saw who Richard Davis was.
I got past the armor. And it was in that second I
thought, this is what I'm going to do because nobody else will
have the balls to go and do this.
I would imagine that was Adam Robinson always talks well,
talks frequently about delighting people, right?
And like, adding value to their day and to go and have an actual
conversation with him where you're not, you know, like
sucking up and you're genuinely interested in who that person
is, I suspect accomplished the goal that both of you wanted to.
I mean, he's your friend now, right?
So it's a good use of time. I've been told by some of the
top bankers in this country not to.
I'm saying this because it shows how much it matters.
If you care about people, OK, if you genuine, I genuinely care
about these people. Like I don't care about
professional life is personal to me.
I can't separate them, you know, they're all the same.
So these are my personal friends.
So many of these bankers have told me that spending time with
them, my spending time when I go and spend those two or three
days with them was the highlight of their career.
It's not because of me. Let me be very clear, it's not
because of me. I am a vehicle for I ask good
questions and I listen to every word they say and I ask all the
follow up questions and I remember what they said early on
or the previous day or the last year.
You know what I mean? And like that is why I've been
able to build the network I've built because I care and they
know it and they trust me. They've I know secrets about
these people you would not believe and they all know they
will never go anywhere. I like it.
This this part of the conversation is the part that
people should listen to. I mean, not that the rest is
not, but this is the golden conversations I feel like.
Yes, yeah. You ask good questions.
So you know the effect it has on people.
You know, like the saying if you want to be interesting, be
interested. It's true.
I mean, how many good conversations have you been in
built where the person learns literally nothing about you, But
you get, oh, you leave knowing like literally I, I mean, I'll
leave with a conversation, like after a 30 minute conversation
with a person. I mean, I'll know what their
great granddaddy did, you know what I mean?
And they're like, that's the most interesting conversation
I've ever had. I'm like, you're just, you don't
say this, but you're just like, you were just talking about
yourself, the whole. Time.
Yeah, people do like that. You know, but I'm like, I agree
with you. That was the most interesting
conversation because I learned everything about you that was
super interesting, you know? So yeah, I.
Don't. Know well, I try to teach my
kids. I'm like, listen man, if you
talk and you're not learning, and that's not totally true, but
it's true more often than not. Yeah.
I got to ask you this before I, before you get out of here, why
is city everybody's favorite? You said something, you had a
chart and it was something you were like, it's everybody's
favorite. And then somebody was like, oh,
city, what's go? What's what's going on behind
that comment? I don't know if you have a
position in city. Sir, I don't.
I don't. You might I, I know.
It's always pitched as a turnaround story that I know.
For 150 years, Citigroup has stepped right into the middle of
every goddamn crisis this city, this country has had.
Right into the middle of them. I mean, like, there's all you go
back to the 1920s, they were like lending money to like Cuban
sugar companies and then Cuba revolution and like that all
goes away, you know what I mean? And then in the 80s, they're
lending money, they're recycling the Petro dollars into like less
developed countries. And then like it was insolvent
at that point. And then like, of course, in the
financial crisis of 08, it was insolvent.
And this is like the problem with Citigroup is it's so
freaking complicated. It is literally impossible to
manage. That is my take on it.
I mean, like, it is so complicated, but it is such an
important element of the global financial system.
And one of the ways that we project financial power is
through that company, which is why that company never fails.
Like the government could not allow that that bank to fail
because it is such a big piece of the global economy and
sitting here on our shores is really important.
Interesting. That's my take on it anyways.
Yeah, yeah, yeah. No, it's like what what did,
what did Andreessen talk about? It's it's almost like a non
governmental governmental organization in a way.
I mean, like I said, I, I haven't covered financials in a
bit. And, and a lot of the reason is
because I just don't, I mean, I, there's a couple banks that I'm
comfortable with being like, OK, I kind of understand this.
Most of them. I just know that the people that
cover them know a lot more than I do, which is probably true of
everything to be fair, but that specifically I know.
Can I tell you another story that I've ever said publicly?
So I'm not going to say the name of this person, although like,
it won't be hard to figure out who they are.
So whenever I go on like big interviews, I typically bring my
wife because like, I want a second set of eyes.
Do you know what I mean? Yeah.
She's really, she's from Afghanistan.
She's really perceptive, you know what I mean?
Like, you walk into a valley, they'll get you, you know what I
mean? Like, she's not going to joke
around. She was like, she is a killer,
you know what I mean? OK.
And so, like, she's good, you know?
You want eyes like that on you, you know what I mean?
And so I go to the. I'm hanging out with the
chairman of Citigroup, OK? And we go to his house.
So I always make them. I'd make them let me into their
house. I part of the deal you want you
want you want to chill with John.
I got to see your house. You know what I mean?
Interesting. That's that's how you learn
about something. There's one way.
So we go to his house in Greenwich and like, I've been to
some nice houses before, OK, but never like this one.
It had $100 million art collection in.
It even Zazzlev would be jealous.
Yeah. And part of that was that
collection was financed by a change in control payment, $50
million change in control payment when Bank of America
sold the nation's bank. OK, There's $50 million change
of control. There's $100 million went to
Coulter, the CEO, and then 50 million to this other person who
negotiated the deal. And then this person took that
and to put it in Bank of Hawaii and then tripled, like tripled
it, a whole bunch of that in Bank of Hawaii.
So he did really, really well. And so we're sitting in the
living room and we're like drinking tea.
And they have like staff and stuff like that.
And my wife and his wife are over at the end of the couch and
me and him are over here. And I'm like, like, anytime
you're in a situation like you don't have like that much money,
you know, you're kind of like what?
You may be different than me in this regard, Bill.
But you know, like, it's intimidating a little bit.
And I remember thinking it's his teacup and I didn't want to put
it on the table in front of me because I didn't have a coaster.
Yeah, no, you know that table might be $1,000,000 table.
Yeah, and I said, and I where do you want this?
You want to put a coaster, you know, don't worry about it.
And I'm looking at the table because the thing that shocked
me is that it like wasn't a table.
It was like a thing that came out of an Egyptian mummy's tomb.
Oh. That's gangster.
It was so gangster. And I'm like, OK, Sir, you know?
Yeah. Is that a?
People or whatever. That made it through an Egyptian
mummy's tomb. Your your tea glass isn't going
to do anything to it. Yeah, yeah.
I don't know, man. Different strokes for different
folks. You make it, you can spend it,
right? Hey, I am not criticizing at
all. I'm just telling a conceptual
story because it's fun, you know?
Yeah, yeah, yeah. I I am all for people getting
rich. I am all for and I want to be
really, really rich at the end of the day, you know what I
mean? But I do believe in getting rich
the right way. Yeah, I just want to be
comfortable, man. I, I don't think I'd want a
house that big because I don't want to manage the staff.
I know that's kind of silly to say, but like, I just.
I'd like to find out if that's pleasant or not.
Yeah, I wouldn't. I mean, I wouldn't mind like a
nanny, you know, like that. But we could always have an au
pair if I really wanted one. But I don't.
So there you go. There you go.
There you, you. You can buy us an au pair, Bill.
We're happy to no. No, no, I'm not looking to spend
my money on other people's au pairs.
If you contribute to the John and Jamil Maxwell Memorial
Mortgage Fund, Sir, we're accepting.
There you go. I like that.
Well, so if people do want to contribute, how can they support
what you do? Read my work, sign up for my sub
stack where? Should they sign up?
It's on Maxwell on banks.com. And so the thing about my sub
stack is that you're, you're primarily paying for the
archives. But if you want to understand
banking, the answer is in those archives.
And I dropped the price to $250 a year down from 1000.
So because after I stopped, right.
So to give access to the archives at a reasonable cost.
So that's what I would recommend.
But more importantly, I host the most elite banking symposium in
the country every year. And what I do is I put these
bankers in these incredible environments.
I'm doing seven of them over seven years.
And I'm doing in the seven major banking cities in the United
States. I did that.
I did the first in Philadelphia, the second in Dallas.
This upcoming year is in Boston, which is why I'm wearing my this
Boston hat. And what I do is I put these in
bankers in I encase them in an incomplete environment.
This is how I describe it. And excuse the language.
If JP Morgan fucked Disneyland, out would come the banking
symposium, OK? I don't know if it's a
legitimate child or an illegitimate child, but out it
comes, OK? And it's my baby, OK?
God, the image that I have and. So like in Philadelphia?
Poor Mickey Mouse, anyway. So in Philadelphia, I bought out
this old bank building that was built in 1855 right across the
street from the Second Bank of the United States.
So right down there by the there's one block away from like
the Liberty or like the Independence Hall.
And I turned it into an art gallery.
I did. I do like all this art.
I use data to make esoteric, esoteric data to make art.
And it's really cool stuff. Yeah, I I like that a lot.
I the the graphs you show are very cool and the way that you
do them is very cool. Well, like look at this.
Like I have all these. Yeah, yeah.
Anyways, so I turned it into I, I hung 200 of these things and
turned the entire thing into an art gallery with oh, that's
sweet. Yeah, it was sick.
And then we stayed and I always put them in a hotel that was
either an old bank building or significant to a bank, you know
what I mean? And so like I and then I, we
talk about these thing, we talk about banking in ways that
nobody talks about banking ever. And I'll get them on stage.
There's crying. There's like, it's crazy.
It's, it's these a wonderful, incredible experience because
the level of trust is so high. And then in Dallas last year,
this year, I turned it into a cinematic experience.
So I traveled the country with this young hotshot videographer.
For three months, Yeah. Your videos are dope.
Yeah, and some. Shows are sweet.
I was like, this dude's got some artist in them.
I like it. Yeah.
And so I turned it into this. So we made all these videos and
these movies of like travelling around the country.
And then we, we, I put them in this, this the, do you know old
Parkland? Have you ever heard of that in
Dallas? Sorry.
OK, So the Crow family, like the largest real estate developers
in the country, like Harling Crow, he is now the, the, the
patriarch of the family. And so they bought this old
hospital, old Parkland right outside of downtown.
And then they built it out to be like the headquarters of
Trammell Crow. They're in the company and one
of the things they did is they built a chamber, 4 stories, but
a little ground, and it looks like the Senate chamber.
It's insane and amazing. And so I brought them down there
and we show them all these videos.
We talked about all these amazing bank things and like all
this stuff. But then I also had
videographers there that then turned them into part of the
cinematic experience, you know what I mean?
And so now I'm able to like bring all this stuff out and I'm
kind of like in preparation for Boston.
That's why you're seeing an uptick in all the stuff I'm I'm
rolling out because I want people to see like the first two
years for proofs of concept. I lost money the first two years
on them. This year I'm going to make
money because this year I know that it works and everybody
thinks that they're phenomenal. So we're going to run it up to
200 people. The first year when I kept it
under 100, we're going to run it up to 200 people.
So if there's anybody on this podcast who can afford $5000 and
to stay in an expensive hotel that wants to learn about
banking and truly be among the best, truly be among the best,
not these people out there who say that the best top front
bank. No, when I say it, it's true.
And like, if you want to be in that environment and learn about
banking, that is the place to be.
And so like if, if there's anything, I don't need anybody
to do anything for me. But if they want to learn about
banking I would love for them to read my sub stack and come to my
event. That's dope.
Well, there you go. And then if enough people do it,
maybe I can get a little bit of credit for participating in
funding your nanny because I gave you a couple leads.
I don't need anything else, just a little bit of credit.
I will get If that happens, you will get more than a little Sir,
don't worry. I like it, man.
I'll tell you what, I when when I was like, all right, I'm going
to talk to Maxfield on banks. I had no idea how entertaining
you'd be. I have quite enjoyed this
conversation. I hope when your wife listens,
she enjoys it too, because you know that second viewpoint.
I had that with one guest. His wife was like, I don't know
how you said this, but we got over it.
Don't worry, she's not going to listen.
I like it. I like it.
Well, I don't think you said anything that you need to be too
embarrassed about anyway. But let me say before we sign
off, like it's been such a pleasure.
I said this at the beginning before we were taping.
Like, I've watched what you've been up to and I respect you as
a voice and like how you go about doing what you do.
And so like, it's just been wonderful, like, to be able to
connect with you. And like, I think, I suspect
we're going to be friends for a while, my friend.
Well, I appreciate it very much. I look forward to that.
Man, you cracked me up today and thank you.
Thank you for the kind words, it means a lot.
My pleasure. All right, my man.
All right. Take care.