The transcript from this week’s, MiB: Shelia Bair, former FDIC Chair, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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Masters in Business — Sheila Bair
Hosted by Barry Ritholtz · Bloomberg Radio · May 15, 2026
00:00:02 Announcer: Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Riol on Bloomberg Radio
00:00:16 Barry Ritholtz: This week on the podcast, another Extra, extra special guest, Sheila Bear, former FDIC, chairperson author. What a fascinating career. She was right in the thick of it through the financial crisis, butting Heads with Tim Geithner and, and working with Hank Paulson. She really has done more than just about anyone in the country to help shore up the financial system, the banking system, and to drive us all towards a better degree of financial education through her work, not only at the FDIC, but at Treasury and through all the books she’s written for children and young adults about finance.
00:01:02 I, I thought this was fascinating, and I think you will also, with no further ado, my conversation with Sheila Bear.
00:01:11 Sheila Bair: Thank you for having me.
00:01:12 Barry Ritholtz: So I want to start with a little bit of background from you. You get a bachelor’s in philosophy from the University of Kansas and then go to law school at the same school, university of Kansas, right. Where you got a jd. Yeah.
00:01:28 What was the career plan? Were you, did you want to be a lawyer or what were you thinking?
00:01:31 Sheila Bair: Well, I’m a native Kansan, grew up in southeast Kansas. Traditional Kansas Republican family, the whole, we were all J Hawks and dad went to medical school. KU mom went to nursing school. My sister was a physical therapist.
00:01:44 I was a, I didn’t choose a medical profession, but did choose ku. So it’s a good school. It was an affordable school, and I really didn’t know what I wanted to do. I was interested in philosophy.
00:01:55 I took a lot of courses in English and economics too, but majored in philosophy and realized pretty much as soon as I graduated, I wasn’t gonna get a very good job with that degree. So, well, you
00:02:07 Barry Ritholtz: Could always teach philosophy.
00:02:08 Sheila Bair: I could do that, but I would have to get a PhD in and probably go to school longer than I wanted to do, do that. So I decided to go to law school, which was a, you know, philosophy is a good major if you’re gonna go into law school, because both disciplines are about logical thinking analysis, you know, good writing skills. And so actually the philosophy major was, was good preparation for law school.
00:02:30 Barry Ritholtz: Yeah, yeah. Say, say the very least. So, so your career spans from government and academia and finance really at the highest levels across all three. Yeah.
00:02:42 What’s the through line? Connecting, connecting each of these worlds? Yeah. Government regulation, academia, and finance.
00:02:51 Sheila Bair: Yeah. Well, I have been, I’ve had a, I’ve done a lot of different things in my career and I, young people, I tell them, don’t try to pre-program your career career and don’t mean narrow minded about opportunities. And a lot of people stay in the same job for 30, 40, 50 years. I respect that.
00:03:05 That’s fine. That was never for me. I’m always looking for new things. But I guess my, my first entree to the big leagues released, adjacent to the big leagues, was when I worked for Bob Dahl as his council first in the Senate Judiciary Committee, where I actually, I staffed him on the Voting Rights Act, compromise to Title two, the Voting Rights Act, which is pretty much just eviscerated by the Supreme Court, which was, which was very, you know, that was my first big project for him.
00:03:31 So that, that’s, that hurts. But anyway, so I, and then I went with, to the leaders when became majority leader, I went to the Majority Leader’s office with them and handled a broader range of issues. But that’s, that’s really, and then I was on his 88 presidential campaign, actually, which obviously started in 1987. Those campaigns start a good year before the primaries began, and that’s where I started off as a civil rights lawyer and did civil rights issues and other things for him.
00:03:59 But we had the 1987 market crash in, during that time we were, I was working for his presidential campaign became a big issue. I had to take a crash course and stock markets. And that’s when I was first exposed to finance and found that I was really interested in it.
00:04:13 Barry Ritholtz: Huh. Really interesting. Is it, and I wanna focus on, on some of your writing, because you are, you’ve written for very different age groups, demographics, right? So, bull by the horns, obviously for adults about the G ffc.
00:04:28 But the Money Tales book series is aimed at kids, right? And then the new book is really aimed at, at teenagers, people starting out, right? How different is it communicating? Yeah.
00:04:45 Somewhat complex ideas to each, or is it the same? Is it just making it understandable or is it a different approach for each group?
00:04:51 Sheila Bair: It’s, no, it, it’s a bit of a different approach. I think, you know, that the fact that I didn’t really start in findings, that I segued into it working for the stock exchange than later many other senior level jobs. I had to start from scratch when I was learning it, and I had to learn it fast. And so, but I think my own experience helped me really break down and understand and understand how to approach understanding finance.
00:05:16 And one of the big issues is the terminology, the jargon that we use in, in the financial industry. And that can be very confusing and intimidating. And I think sometimes weaponized, frankly, by people who are trying to sell a product or service. So, but yeah, I mean, I think my early need to really start from scratch and learn, it helped me later break down and explain things.
00:05:37 And then I think also my philosophy major, the, the logical thinking, you know, breaking things down into their component parts, understanding the causal connections, kinda laying it out, the analysis out for people in an understandable way is something that I’ve always tried hard to do and have refined over the years. So, but yeah, the, my, you know, bull by the horns was definitely, it was written for a general population, but it talks a lot about securitization and, and topics that make, might make some people’s eyes glaze over. But for industry professionals, I think it was of interest. But my children’s books, and actually I, I wrote another book for teens called Bullies of Wall Street, which was a book about the, the financial crisis for teenagers.
00:06:20 And then I have, golly, since 2006, I’ve been on, you know, as a sideline writing picture books for children. And that those are really fun. ’cause those are fictionalized stories. I use rhyming verses.
00:06:32 They’re just fun. You can be creative. ’cause they’re really about basic concepts, you know, compounding interest risk, capital formation. Those are things that really you can’t explain at a very ba basic level for kids.
00:06:46 Ponzi schemes is one of ’em. Asset bubbles is one, I, I wrote one, it’s called Daisy Bubble. It’s kind of riff on the Tula bubble that occurred in Hollywood hundreds of years ago. And I, I was concerned that kids were not gonna get this.
00:06:59 And that’s one of my more popular books, especially with the boys. There’s a character named Sly Seal that’s manipulating the daisy market. And, and, you know, I make that very transparent in the book. And they, they enjoy that.
00:07:10 Barry Ritholtz: That’s very, that’s very funny. My, my favorite part of Bull by the Horns is just the really vivid detail you go into in with the clashes with Tim Geman. Oh, yeah. And Hank Paulson, if you could go back in time and magically change any decision that was made during the GFC, what, what was the wrong decision and how would you fix it?
00:07:38 Sheila Bair: You mean during the crisis or in the lead up to the
00:07:39 Barry Ritholtz: Crisis? Either or. What, what do you think, what do you think the big is? Excuse me.
00:07:45 It’s never one thing, but if, if, so let, let’s, since I mentioned Guyer Paulson, what of their decisions do you think was most problematic that you would’ve liked to reverse?
00:07:57 Sheila Bair: Yeah. Well, I think there should have been more accountability. I, I do think there should have been more accountability, I
00:08:02 Barry Ritholtz: Think, meaning Bankers Wall Street, that helped create
00:08:05 Sheila Bair: The crisis. Yes. We should have let at least provided more financial penalties, even if we weren’t gonna send people to jail. I think the bailouts could have been less generous.
00:08:14 I am still outraged that we let them pay bonuses at the end of 2009. So I think that was, you know, after giving ’em all this capital and then once they, you know, got the benefit of all these other programs and, you know, re stabilize themselves to enable ’em to pay that capital back so they could pay bonuses at the end of 2009 when the rest of the country was reeling in a recession. No, I think we could have been a lot tougher. So, but, you know, these things are all compromises.
00:08:40 And actually it was more with Tim Geer than Hank Pauls. And Hank and I could usually come to a common ground, and we did on issues where we started with different, different viewpoints. But yeah, I mean, I think there is a perception of some that they were kind of, the Wall Street was the center of the universe and the heartthrob of the economy, and we needed to take gender living care with it and all of that. And we need to do something.
00:09:04 I’m not suggesting we shouldn’t have provided some stabilization measures, but we didn’t have to. I think we really went overboard. And, and I do regret that, and I think people are still mad about it. I think a lot of the polarization that we have today stems from the, the perception on Main Street that not only did we bail these guys out, but we bailed them out very generously.
00:09:21 Barry Ritholtz: I, I, I couldn’t agree more. Let, let me shock listeners by saying, I think President Trump got something right, almost accidentally by taking a piece of a company like Intel. My, my big complaint during the bailouts were, Hey, if you’re gonna give these publicly traded companies a bailout and not send them to bankruptcy court, well great. Take 40% of the company Yeah.
00:09:49 And promise to sell it back to the public markets within a decade. Right. And it would’ve cut the cost of bailouts substantially and would’ve hurt existing shareholders and management who made a Yeah. Who helped create the whole disaster.
00:10:06 That’s
00:10:07 Sheila Bair: Exactly right. Yeah. No, I think that was, there was, we did a little bit of that, but not enough, because I think there was just a visceral reaction against being too tough. So
00:10:18 Barry Ritholtz: When the alternative is that those, that Hansen building down town with the tall columns and the judge who basically says, okay, you’re now in receivership. Yeah, yeah. Like, when you look at
00:10:30 Sheila Bair: The next,
00:10:31 Barry Ritholtz: I know the next best alternative is your toast. Oh, okay, we’ll give up 40% at a substantial Exactly. Discount and stay live to fight another day.
00:10:39 Sheila Bair: I, I couldn’t agree more. We were, they were looking, their baseline was what, you know, how these companies that operated before they got into trouble. And my baseline was, you know, bankruptcy was the alternative. We did, but it was uneven too.
00:10:51 So we put Fannie and Freddie into conservatorship. Right. And maybe they should have been put in bankruptcy too, but they were the, the, the statute provided for conservatorship where they still, you know, language still. So they, they got punished pretty well, and they didn’t, you know, we were still getting, well now they’re, they’re allowed to keep their capital, to build a capital base.
00:11:08 But the government’s made quite a bit of money since then from that a IG poor a IG, you know, they were, it’s my, they were effectively put conservatorship by the Fed and, and finally emerged from that. But, you know, there was an unevenness too with the way some of those entities were treated versus, for instance, a Citi group, which Right. You know, what else can we do to help you Citi group? I was, it was
00:11:30 Barry Ritholtz: For the third time. Fourth time. Yeah. Third times.
00:11:32 Yeah. Yeah. They’re like every generation, they’re back. They’re back with their hat in hands.
00:11:36 And they, again, we need a few billion. Right.
00:11:40 Sheila Bair: I’m, I’m, I’m rooting for, but you know, historically you knows that he is gonna be back.
00:11:44 Barry Ritholtz: So, so I, I’m kind of fascinated by, over the course of your car career, you have spanned three distinct cycles of deregulation. Right. So we had Graham Leach Bliley. Right.
00:12:00 Which certainly was a major factor, right. That led to the GFC. Yes. It was, we have the entire Dodd-Frank deregulation of, of the decade, the past decade, and then everything that’s Yeah.
00:12:19 Like all the carve outs and, and then most recently Yeah. Reducing the amount of net cap in reserve that Yeah. Banks have to hold that.
00:12:27 Sheila Bair: Yeah. That’s, that’s ongoing.
00:12:30 Barry Ritholtz: So, so why do we keep having these crises? Yeah. Is it structural? Is it the American political system?
00:12:35 Yeah. It seems like we’re constantly repeating these cycles over and over.
00:12:38 Sheila Bair: Yeah. Yeah. Well, we are, and deregulation was a big part of the crisis. Nobody wants to say that.
00:12:44 Or just lack of regulation. The Fed and Bernanke and Greensman of both said this. The Fed had the authority to write lending standards, mortgage lending standards for the entire industry. Problem is, most of these mortgages are being originated by non-banks.
00:12:57 Right. The banks were funding it. Right. But they were providing the, the conduit funding to get ’em obs securitizations.
00:13:02 But the Fed had the power to, to stop that and just flat out fu Oh, we don’t wanna constrain credit. If I hear that once, I think those are, you know, Warren Buffet once said the most dangerous wor words in, in finance. Everybody else is doing it. I think it’s, we’re gonna expand access to credit.
00:13:16 I swear to God, because it is used as an excuse for so many terrible, terrible, did decisions.
00:13:21 Barry Ritholtz: Didn’t Greenspan say, we don’t wanna stifle innovation in the finance markets.
00:13:26 Sheila Bair: Well, that’s, those are the interest words too, right. I don’t wanna stifle innovation either, but it’s just used as an excuse. Oh. You know, like we got, we gotta reduce capital to get more lending out there.
00:13:36 Right. When I think, I would argue there’s too much lending out there already. We’re seeing all the cockroaches screwing out now. So, so yeah.
00:13:42 So it was, and derivatives that you said, Graham Leach Bly, they broke down the, it created these two big to fail institutions. It all got bailed out, but also derivatives, their basically decision was that nobody needs to regulate derivatives markets. The, the theory was, well, the big banks were dealers, the derivatives dealers, they’re regulated by the bank regulators. So we don’t need market regulation.
00:14:01 And that did not turn out so well because the thing about the mortgage crisis was there were hundreds of billions of, of, of mortgages going bad. But there were trillions and trillions of financial engineering on top of how those mortgages would, would perform. And that’s really what got us at the end of the day. Yeah.
00:14:20 There were a lot of mortgages that never should have been made, but the system could have absorbed those underlying losses. It was, it was the derivatives on top of that that really brought things down suddenly.
00:14:30 Barry Ritholtz: So, so let’s talk a little bit about finance. The world has really gotten kind of interesting in terms of, we’re still seem to be dealing with the echoes of the financial crisis. Yeah. We’re, yeah.
00:14:48 It’s amazing. It’s almost 20 years ago. And yet things like when SVB, Silicon Valley Bank and, and Signature Bank failed in 2003, people started to get concerned about systemic risk, even though these are kind of two minor, that was not,
00:15:05 Sheila Bair: Those are not systemic. It was
00:15:07 Barry Ritholtz: Reaction Yeah. Systemically important they to financial institutions. Yeah. They, and yet, in order to cover uninsured depositors Yeah.
00:15:16 Regulators,
00:15:17 Sheila Bair: Who are the richest people? Some among the richest people in the country.
00:15:20 Barry Ritholtz: Gee, I wonder if there’s, I wonder if that’s just a total coincidence or if some upset people made some phone calls.
00:15:27 Sheila Bair: Yeah, I, I was appalled
00:15:28 Barry Ritholtz: Because if your local credit union Yeah. Goes out Yeah. And it’s, and you’re
00:15:33 Sheila Bair: Yeah. You’re, you’re taking a loss if you’re an uninsured deposit or a community bank. Yeah, you bet.
00:15:37 Barry Ritholtz: But if you’re a Silicon Valley VC and you’re connected, you, you get
00:15:41 Sheila Bair: Stable coin issuer. Yeah. It’s like somebody, the Biden administration was doing everything they could to kill crypto on one hand, and then they bail out. One of the biggest, they the biggest stable coin issuers who had, what, a couple, two and a half billion or so of uninsured deposits.
00:15:57 You’re really irresponsible on their part to put that much of their reserves in uninsured deposits. But they were bailed out. I couldn’t believe it. I wrote a very strong piece in the Financial Times after it happened.
00:16:07 I th you know, it was just this knee jerk bailout, bailout, bailout. Right. Especially if they’re rich, powerful people. I don’t, I was just, I was appalled.
00:16:15 I’m still appalled. I was, it was, it was 200 billion. It was not systemic. It had good assets.
00:16:20 If they had, they should have tried to find a, a buyer quickly
00:16:23 Barry Ritholtz: And like Washington Mutual.
00:16:25 Sheila Bair: Yeah. So, but there was, I think nobody said this, but my suspicion is there is outta this Biden administration religious adversity to, to, you know, bank mergers and acquisitions. Oh, look, we can’t make banks bigger. So instead of quickly trying to market and sell it, they didn’t do that.
00:16:42 And, but if, even if they hadn’t, if they just put it into a bridge bank, they had good assets, they probably could have paid 85 90 cents on the dollar to Didn’t
00:16:51 Barry Ritholtz: Someone else come along, buy all the assets anyway. Yeah. Well, yeah. Yeah.
00:16:55 So the merger happened regardless,
00:16:57 Sheila Bair: But, but it cost, the FDAC was 17, $18 billion the deposit insurance fund. It was, it was outrageous. I’m, I’m still aghast that that even happened. And that, you know, and you know, that annoys me with my Democrat friends who pretend that the Republicans are the ones that are pro industry and pro bail out, and then they do something like that.
00:17:17 So, go figure.
00:17:18 Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear, former chairperson of the FDIC, discussing regulation and deregulation in the modern financial system. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz.
00:17:50 You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Sheila Bear. She’s the former chair of the FDIC, which she helped steer through the financial crisis, her latest book, how Not to Lose a Million Dollars, aimed at Teenagers and helping them really understand the basics of finance. So let’s talk about something else that’s a potential issue.
00:18:15 Private credit has exploded in the past decade. It’s now over $2 trillion. And while we have all of these private, non-bank credit funds, they’re all being funded by regulated banks. Yeah.
00:18:29 Banks. Yeah. Is this just regulatory arbitrage? Yeah.
00:18:33 Sheila Bair: Well, it is in a not, but not in the way that I think the banks soundbites make it sound. So there’s, their soundbite is, is that the capital regulations are too onerous, much tougher than they are for these private funds, which is, the private funds are much less levered than banks. Right. Banks are, you know, on a, on a non-risk weighted basis, you know, bank, these big banks are operating with six 8% capital funding.
00:18:58 Right. It’s equity fund funding. So it’s not, it’s not like they’re, they have tougher capital requirements. The problem is these risk-based rules, and this is exactly what was going on in subprime two, the risk-based rules through the magic of securitization structures and quote unquote overcollateralization, you can lend to a private fund.
00:19:18 And the private fund will give you collateral. They’ll give you their loans and they’ll say they’ll be valued 150% of, of what your loan is. Right. So that you’re way over collateralized.
00:19:28 And if you do it that way, the capital rules will give you a very favorable capital treatments. You can use a lot of leverage increasing your return on equity with that by lending to the fund. If you make the loan directly to the highly levered business who the fund is lending to, you’ve got a very, very high capital charge. And so the argument is, well, you’re directly exposed to this highly levered business, so you know, you need to have it tougher than if you just lend the fund.
00:19:56 That problem is that you’re basically allowing banks to lend and fund indirectly, highly risky mortgages that they would not do or not be permitted to do, frankly, if they were doing it directly. And that’s exactly what was going on with subprime. These horrible unaffordable mortgages pedal to a lot of people who didn’t understand what they were getting. The banks were funding that through their, their were credit lines and their warehouse funding to, you know, provide the, provide the money to the originators packing about securitization and selling them.
00:20:29 And, and again, the capital refer required for that was much, much less than, than actually making a mortgage yourself and holding it. So it, it really is the same basic flaw in how the risk-based capital rules work. I would just say you can’t fund a mor a loan directly or indirectly that doesn’t meet prudent underwriting standards. ’cause what happens is the banks, from a societal standpoint, the banks are funding a lot of really risky loans that if they go bad, can have broader, bad adverse ramifications for the economy.
00:21:02 But they don’t look at it that way. And in point of fact, there are pending capital rules now that will make it even more favorable for these banks to be lending to these intermediary funds as opposed to lending directly. So that’s what’s driving this, not because banks have much tougher capital rules than, than private funds. That is not true.
00:21:20 It’s just that it’s, they can use more leverage to lend the fund directly than to lend the business
00:21:25 Barry Ritholtz: Itself. Here’s what the banks say, and I don’t necessarily believe this, but it, it, it’s not completely un unconscionable. They say when we were securitizing loans during the financial crisis, lending standards had been completely abdicated in all of these. No income check, no job check, just, yeah.
00:21:50 You know? Yeah, that’s true. Sign and pray. And then, oh, it’ll all come out in the, in the collateralization and the syndication.
00:21:57 Right. We’ll spread the risk around. Right. This is, hey, these are, we’re lending money to firms that have been in operation for 10, 20 years and names like Apollo and Carlisle and Blackstone who are trying to get a return on investment.
00:22:14 And this sounds a little familiar, you know, they would never put their reputations or their names at risk by doing anything too stupid. And besides the, the default rates have been really low and it’s highly spread out across sectors and geographies. Is that a fair argument or It,
00:22:33 Sheila Bair: It is a fair argument. And I’m not saying private credit is legitimate asset class. I I don’t, and I don’t think it’s systemic, primarily because you don’t have all this financial engineering sitting on top of it. I do think they’ve been making some really risky loans.
00:22:46 There are a lot of conflicts of interest involved since a lot of the private credit funds are affiliated with the private equity funds, they’re lending to the private equity portfolio companies. And this is a particular problem, actually. I, I’m more, I think this is an investor protection issue more than systemic issue. I really do.
00:23:03 And for sophisticated investors, I think private credit is absolutely a legitimate asset class. You know, gotta understand it’s not regulated. You don’t really know what the loans are worth. Right.
00:23:13 So there’s, there’s a big problem with getting a proper valuation on the assets. Not a lot of transparency for retail or even high wealth, high net worth individuals. There’s liquidity issue, right. The business model doesn’t really work unless most of the capital is locked in.
00:23:30 And, and frankly, there’s a re a lot of research questioning whether it really provides better returns. You know, the s and p 500 has been kicking it for, for several years now. Right. So, you know, so there, there are a lot of questions, but for sophisticated investors, you know, go forth and do it.
00:23:44 And it’s, I don’t think it’s systemic, but I do, and I do worry about these life insurance companies and the annuities because the, again, you’ve got private equity owned life insurance affiliate. You’ve got the private credit affiliate, you’ve got the life insurance affiliate lending into the private credit affiliate. You’re using these third party credit raters to make sure, you know, it’s all at arm’s length, but very incestuous. Yeah.
00:24:08 And that the BIS did a study about a year ago on this. And there others have taken a look at these valuations and they’re finding significant evidence of inflated values. So I, I do think we need to protect at the retail level. We need to, there need to be some not expanding access to this.
00:24:25 Barry Ritholtz: So you’re not a fan of private equity or private debt in 4 0 1 Ks? No,
00:24:30 Sheila Bair: I am not. As a matter of fact, I am not. You know what, if you wanna, there’s a pub, you, you wanna buy a stock in KKR, go for it. You know, you might check how it’s been forming.
00:24:38 I an actual, I don’t know how it’s been performing, but I’m just saying there are pub, if you really want exposure, there are, you know, publicly traded away BDCs. Now sure, there are publicly traded BDCs, there are public ways to do it. There are some funds, 40 ACT funds that do invest a small percentage in alternatives too. So there, there are ways now, but yeah, opening it up for, directly for retail, especially 4 0 1 Ks, to, to start, you know, loading up on this, on this asset class, I think is really problematic.
00:25:07 And I do worry that, you know, the, the, the, the plan sponsors, the fund sponsors, the 401k sponsors are gonna be getting the hard sell about, you know, putting this stuff into people’s 4 0 1 Ks. And I, and I, again, I don’t think retail, I know I don’t, I I don’t want exposure to it. I’ve read enough to make me really worried about it. So I think really sophisticated big institutions, which have traditionally been their investor base, they wanna do it fine, but no, it’s not right for retail.
00:25:35 And it, it shouldn’t be going into 4 0 1 Ks and I’m, yeah, I’m very worried about that.
00:25:39 Barry Ritholtz: And, and to put some numbers on what you had referenced about the performance, the median alternative funds doesn’t do all that great. No. Doesn’t, it’s not that diversified. No.
00:25:52 And it doesn’t outperform the s and p 500. Hey, if you’re lucky enough to get into a top decile fund Exactly. You, you’re gonna kill it. But it’s gonna take a couple hundred million dollars
00:26:03 Sheila Bair: Yes, exactly. To have access to that. Yeah. That’s, yeah.
00:26:05 The retail people are not gonna be getting the criminal LA crim on this. No, that’s, and that’s a huge issue. They’re gonna stuff the, the riskier stuff into the 401k.
00:26:13 Barry Ritholtz: It makes a lot of sense. So, so we’ve talked about everything, but too big to fail. Right. Which was a big part of the lead up to the financial crisis and how the fed, the FDIC, everybody dealt with it afterwards.
00:26:30 As an example, JP Morgan Chase now has over 4 trillion with a t Yeah. In assets. Can a bank that size be effectively regulated? Is is too big to fail the norm now?
00:26:44 Sheila Bair: Oh, I think so. It absolutely is. I mean, I, I worked hard in Dodd-Frank to come up with res, you know, to instill more, better authorities to put these large institutions into a resolution type process where you would impose that accountability. You could fire the top management, the boards and impose, you know, make the shareholders and bond holders unsecured creditors absorb the losses.
00:27:07 All the stuff we didn’t do during the crisis.
00:27:09 Barry Ritholtz: You mean normal bankruptcy rules?
00:27:11 Sheila Bair: Yeah, exactly. Yeah. It was, it was similar to the FDIC process, which is basically a bankruptcy process. And, and Title two, and Dodd-Frank, excuse Dodd-Frank provides for both the Title two mechanism, which is FDIC run and a bankruptcy process, a Title one process.
00:27:25 So the tools are there, but I don’t, I don’t think there’s any, I i I, I hate to say this, but I don’t think there’s any chance they’d ever use it. I really don’t. I think they’re gonna bail out again. They already, they already do.
00:27:36 They’ll, they’ll set up special lending facilities or ratchet interest rates down. You know, they’ll, if, if, you know, private equity, so actually I worry more about private equity than private credit because private equity funds are heavily exposed to software companies, which we don’t know how that’s gonna shake out. But there’s a quite a bit of concentration there is. So, you know, so, but if that sector gets into trouble, you know, the Fed will lend to the banks who can then lend the funds.
00:28:01 I mean, that’s, that’s just the way I think it works now. And I think a lot of the push for ev ever more deregulation, lower capital rules, is based on the assumption of the big bank lobbyist that they’re never gonna go down. There’s another kerfuffle, another problem. The fed’s just gonna open up the spigot again.
00:28:18 So, you know, why should they have to operate with all this capital when they can lower their capital and get much higher returns on equity? And I do think that’s, that’s the unspoken rationale, because it doesn’t make any sense otherwise. Because we’ve got a lot of uncertainties in the banking system right now to be lowering capital. Makes no sense.
00:28:37 Unless you’re just banking on a bailout if things get dicey.
00:28:40 Barry Ritholtz: Let, let’s talk about a financial crisis that really has gotten a lot of short shrift, given everything else we just discussed, which is the student debt crisis. Yeah. Yeah. We’ve seen just an explosion of student loans.
00:28:57 It was briefly and defaults, it was briefly put on pause during the pandemic. And right afterwards. I just saw a survey earlier today that said 83% of young people say this is a bad economy when by most historical measures, it’s a booming economy. Yeah.
00:29:18 Yeah. So, so how did we get here? Why is it so difficult to fix? What is a potential policy?
00:29:28 Solution to Yeah. The student debt crisis?
00:29:30 Sheila Bair: Yeah. Well, and I do, I think the headline numbers are, in this case shaped economy. I think the headline numbers can be, can be misleading. ’cause you gotta look at how, how that wealth is being distributed, of course.
00:29:39 But I think for student debt, I, I will give credit to the Trump administration in Congress. The, the BBB, the big beautiful bill, I hate that name, but it had some really important reforms to the student loan system. So they’ve dramatically simplified the repayment options. There’s now a standard plan and a one income based repayment plan.
00:29:59 They have imposed some accountability on colleges, which desperately needed to be done. And so it’s easy to kick colleges now with high default rates out of the, out of the loan system. They have gotten rid of negative amortizations. One of the, one of the frustrating things about student loan borrowers was that because in previous administrations, the repayment plans that were based on a percentage of your income were set so low that people were even, some of ’em were not, were paying zero because you had to earn a certain amount of money before, you know, a loan payment obligation even kicked in.
00:30:33 But what happened was, then they, for bookkeeping purposes or whatever, they would negatively amortize the loan. So all your unpaid interest was going into your debt principle and it was getting bigger and bigger. Just
00:30:43 Barry Ritholtz: Recapitalized.
00:30:44 Sheila Bair: Yeah, yeah. Forever. So even if you were, if even if you were making some payment, your got frustrated ’cause your debt was getting bigger and bigger. That’s all gone away with.
00:30:52 Now negative amortization has been abolished. Everybody has to pay at least $10 a month. I don’t think that’s unreasonable. If you got a loan from taxpayers, even if you’re struggling, you can pay $10 a month.
00:31:04 And then there’s, and then, so if you, and if that payment is so low, if you income driven payment is so low that you’re not covering your interest, the government will pay $50 a month to lower your principal. So, so long as you’re making at least $10 a month, your principal will go down each month. And I think this will be, it’s simpler and will provide better incentives to keep, make loan payments, keep up the loan payments, you’ll actually be able to see the principal going down. So I give credit, and in full disclosure, my son, who’s a fellow at the a EI was, was also heavily involved in this.
00:31:40 So he’s a chip off the old block though. We think a lot when it comes to student. Yeah. Simplification, more accountability.
00:31:47 And those are the things that this bill accomplished. So I’m, I’m hoping that this gets straightened up and people are having to pay now. But the transition to going from not paying for years, you know, and Trump did that too. We had this, what, three or four year long moratorium people are gonna have to pay now, it’s gonna hurt.
00:32:04 They haven’t made room in their budget for these lump
00:32:06 Barry Ritholtz: Payments. Well, $10 a month isn’t, isn’t,
00:32:08 Sheila Bair: It’s not huge. No, it’s
00:32:09 Barry Ritholtz: Not. Right. And if the government is kicking in 50, yeah. I mean, it’s not a ton of money, but it’s, no, it’s not, it’s not still, what, $600 a year?
00:32:16 Yeah. Yeah. Have we done enough to resolve the student debt crisis or no? What, what else can we do to move this along?
00:32:25 Yeah.
00:32:25 Sheila Bair: Well, I I do think there needs to be more accountability for colleges to assume some belong The schools themselves. Yes. The colleges themselves, because this is, this was, it was the classic misaligned economic incentives. So with the best of intentions, the Congress said, okay, and from now on, all the student loans can be made.
00:32:44 You know, pretty much all of ’em are gonna be made by the government. ’cause we’re worried the banks are not treating borrowers as well as they should. So we’re gonna be doing this. And then the, the colleges themselves will basically originate the loans.
00:32:56 So you apply to a college, and the college financial aid office will come up with a financial aid package, and they will calculate how much you need to borrow to go to their school. Well now what are their incentives? You know, they’re gonna get the money, right. Buying for a tuition room and board.
00:33:10 So they’re, they’re gonna get the money. They’re not on the hook if the student can’t repay the loan. So what do you think is gonna happen? And, and the the what happened exactly is you, you could have predicted it, inflation, you know, with tuition, you know, many multiples, what, you know,
00:33:26 Barry Ritholtz: 9% a year for 40 years, 50
00:33:28 Sheila Bair: Years for, for whatever. Yeah. So it’s crazy. Tuition is, as any parent knows or student knows, this skyrocketed become very unaffordable without borrowing.
00:33:37 And, but, you know, there was all this easy money. And the grad, the undergraduate is problem with the graduate schools. You know, a lot of young people then sold a bill of goods to get a master’s or a PhD because they’re unlike undergraduate loans. There is some caps on your federal loans, but no effective caps.
00:33:52 That’s been changed now too. There are some caps, thank goodness, on your graduate professional schools, you know, so somebody like me, oh, I’m gonna go get a PhD in philosophy so I can teach. Right? So I paid $300,000 to get my PhD in philosophy and get a job maybe paying 60,000 a year, some small college.
00:34:09 Well, that makes sense. But I think that’s happened to a lot of people. And, and I don’t think, you know, I don’t absolve the borrower either. They should have known better.
00:34:20 But the schools let this happen. These, these graduate professional schools can be real money makers. They are, the graduate schools in particular, real money makers for colleges. And the degrees are frequently do not enhance the earnings potential of the student.
00:34:32 Barry Ritholtz: So do you have any hope that students are, are in a better shape financially going forward? Or is this still very problematic and needs
00:34:41 Sheila Bair: More help? I know, I think things are getting better. And a lot of it is something else that Trump, the first Trump administration did, which Biden continues. And the, and the current Trump administration continues, is to publish postgraduate outcomes.
00:34:53 So you can go on college scoreboard now and put in a college and a degree that you may be thinking about it. And you can see what the graduates are actually making. And you can find out the graduation rate, you can find out the retention rate, you can find out all sorts of information that will tell you is that college graduating students and are they getting job good jobs after they leave? And so I think more and more parents and student advisors, high school, college advisors are using those tools are more calculators too, that are based on help you figure out how much you can borrow based on what your postgraduate income will likely be in that field at that college.
00:35:31 So there is more awareness. And then I think a lot of, you know, ironically this is coming back to buy a lot of the colleges now, because I think it got so expensive. People were starting to take a second look, well, do I really need to go to college? You know, for so long there was all this social pressure to go to college.
00:35:47 I was a college president. I’ve taught a university. I think it’s a wonderful experience, but it’s not for everybody. And you don’t have to do it.
00:35:53 And there’s no stigma if you don’t do it. You know, you might wanna go directly into the workforce, learn on the job, you might wanna go to a, a trade school. There are, you know, community colleges, you gotta be careful there too. But many of them provide really good, you know, education that’s less expensive and a shorter duration.
00:36:10 So I think students in their parents are also thinking more broadly that they don’t have to go to college. There may be other options available.
00:36:16 Barry Ritholtz: La last question about college and education. We have thousands and thousands of, of universities and colleges. Do we have too many? Too
00:36:28 Sheila Bair: Many? Yeah,
00:36:29 Barry Ritholtz: Probably do. I mean, are we gonna lose 10 or 20% of the college base over the next decade? Yeah,
00:36:35 Sheila Bair: We probably will. And I think the, the, the, the, the, the, the part of it that’s really, really struggling are the private liberal arts schools. And they, they became too pricey. And I, I think that’s sad because I used to be the president of one of those colleges and I think they do offer very special educational experience.
00:36:54 A very, you know, it’s, it’s, it’s more high touch. It’s more, you know, for some, you know, going to college when you’re 17, 18 years old can be pretty traumatic. You’ve never been away from home, you know, and so, so some students that small intimate college environment was a good option, but they’re really struggling now. And so I think we’ll still have them, but I think there’ll be a lot of consolidation there.
00:37:13 Hmm. And then it’s the weaker schools, you know, if they, they’re not proving their worth, they’re gonna, they’re gonna close probably, huh.
00:37:18 Barry Ritholtz: Yeah. Really, really fascinating. So you went from writing a crisis memoir for adults to totally the opposite direction, basic financial literacy for children. What made you decide to aim in between at yeah.
00:37:35 Young adults and teenagers? Yeah.
00:37:37 Sheila Bair: Well actually it was my editor who, you know, everybody, when I first started running the, the picture books, everybody said, oh, this is too, you know, elementary school children are too young for this. And they’re not, they absolutely. And the books have sold well, and, and they, they totally get it. But my, my publisher, everybody said, you need to write a book for teenagers.
00:37:54 And my publisher thought that was a good idea as well. And so I thought about it and I thought, yeah, because, you know, there’s more and more financial education being required in high schools. And I, I want, I’m concerned that as schools start offering these courses, that there’s, you know, good quality, accurate content. There’s a lot of people out there providing financial, you know, a lot of people on social media, a lot of curricula, you know, sponsored by industry groups.
00:38:19 And so I thought, well, you know, I’m gonna, I’m gonna throw my hat in here to try to provide some basic financial advice to teenagers as they’re entering adulthood. So that’s, that was the, I will have to say my, my publisher’s initiative, but I think it was a good idea and I’m pleased with the way they came book came out.
00:38:35 Barry Ritholtz: So, so I’m glad you brought up social media. Yeah. Gen Z and what’s the new generation after them? Generation Alpha.
00:38:43 Yeah. I, I can’t get someones generation. Jones is another one. I can’t keep up with it.
00:38:48 But they all seem to get a lot of financial advice from Instagram and YouTube. Yeah. And TikTok. Yeah.
00:38:55 Rather than, let’s say, more professional experienced folks. Right. How did that impact how you thought about reaching this age group and, and how did it shape the tone of, of your book? Yeah,
00:39:11 Sheila Bair: So it was, I did wanna get some accurate information out there because there’s, and a a, a big theme of this book is, you know, I say in the introduction, building wealth is not hard. You need to establish a regular saving investing habit. You need to avoid debt. That’s really what you need to do.
00:39:29 And, and, but there’s so much advice that’s just the opposite. And especially on social media, it pushes debt. You know, well, why bother with a nice safe index fund? You can go borrow some money and buy a rental property and make way, you know, way more returns than No, no, no, no.
00:39:45 So, but there’s crazy stuff like that or, or borrowing to invest in crypto or mim stocks or, you know, gambling, you know, and their kids are getting confused about the difference between gambling and investing. They’re very different things. So I wanted to, to provide some correctives to that. And then just basically also address and flag common financial behaviors that cost people money.
00:40:07 Like carrying a credit card balance that I’m very open in my first chapter about my, I totally got in trouble with credit card debt. I was just, just graduated from law school. I was a civil rights lawyer, then. Didn’t know anything about finance, didn’t care, thought it was beneath me.
00:40:22 I needed to, you know, buy some clothes for work. I needed to get a, an apartment and furnish my apartment as I was getting all these solicitations from various credit card issuers who had found out that I was now, you know, working for a living somehow. So yeah, I got in trouble with credit card debt and I made that minimum payment and I thought, wow, this is great. I can borrow this money and it, this tiny little payment every month.
00:40:43 And I ended up, I think it was about $6,000 in interest when all of a sudden done,
00:40:46 Barry Ritholtz: Oh my god, that’s a lot. Well,
00:40:48 Sheila Bair: Yeah. Which if it invest in the s and p 500, it would be worth around 240, 200 $50,000 now. So there you go. So, but I think, you know, just avoiding things like that, the average family pays 1600 a year in credit card interest.
00:41:01 If that was just put into an s and p 500 index fund, boy, you know, over 30 or 40 years, that’s, you’re talking real money, huh. So that was, I I wanted to emphasize that is the simplicity of, of how to build wealth compounding opportunity costs are big themes. Those are, I think those are so fundamental to understanding how to manage money. And, but I basically, I just wanna help kids avoid mistakes.
00:41:23 I don’t want them to have financial problems when they grow up. I want them to get off on a, on the good, on the right foot, which I did not, and a lot of people don’t.
00:41:29 Barry Ritholtz: Coming up, we continue our conversation with Sheila Bear discussing her latest book, how Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of Our Financial System. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I am Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio.
00:42:12 My extra special guest this week is Sheila Bear. She is the former chair of the FDIC. Her latest book is out How Not to Lose a Million Dollars, A Young Person’s Guide to Avoiding the Tricks and Traps of our Financial System. So, so you mentioned a couple of really interesting things that taken together.
00:42:34 Howard Linson runs a venture fund and he calls it the degenerate economy. Gambling speculation. Yeah, yeah. End of day options.
00:42:43 Mean stocks, crypto coins. Yeah. And all of these have been through, through apps and other Yes. Methods, yes.
00:42:51 Because of the phones have been adopted by teenagers en mass. What do you make of the DGen economy and what does it mean to the future health of, of these young adults? Yeah.
00:43:04 Sheila Bair: Well, it’s very dangerous and it’s particularly a problem with young boys. And oh, by the way, they shouldn’t be doing this if they’re under 18, but a lot of ’em, ours, we know they’re targeted and they, they don’t understand the, the worth of money. The, the apps just make it so easy and don’t, you know, they don’t make the connection between the financial losses they’re experiencing. It’s a game for them.
00:43:24 And, and the industry advertises. They, they do gamify it. So, and even, you know, stock trading, some of these online brokers are big ones. They, they gamify it and it’s not a game.
00:43:34 It’s, it’s serious money. Serious. And I think one of the things from early on, if parents give their children allowances, but tie that to work, I think it’s really important for kids to understand early on the connection between work and money. It’s not just free, easy, you know, ’cause too many kids don’t make that connection and their parents are generous with the credit cards or whatever.
00:43:56 And, and they use their credit card numbers to do all these gaming apps. And, and I just don’t think it, the reality of what these kids are doing actually sinks in until they’re really in over their head. And I think it’s purposeful. I think, you know, kids don’t understand the difference between gambling and investing.
00:44:13 Well, there’s a big difference. And you’re investing, you’re supporting capital formation and the real economy helping businesses who make real goods and real services raise money and operate or supporting the secondary market that enables all of that. And what are you supporting with gambling or crypto? I mean, some crypto to the extent it, it represents the technology, I think crypto technology is, is very valuable.
00:44:36 But these, these, these, you know, these different currencies and tokens that have nothing
00:44:41 Barry Ritholtz: Behind them, you can call ’em shit coins.
00:44:42 Sheila Bair: That’s what they’re, how I call ’em shit coins. ’cause that’s, that’s nothing behind them. I’m amazed that Bitcoin is held up. I think it’s just, you know, it’s kind of the, the granddaddy of ’em all.
00:44:50 So if you’re gonna invest, most people do a Bitcoin ’cause they’ve, they’ve heard about it and the rest of it is crap. But Bitcoin may be too, but it has lasted. I will give it that. But yeah, I mean, what are they supporting?
00:45:02 And they’re losing money. You know, there’s a, there was a study done of gambling apps that showed that the people that use gambling apps, only 5% take out more money than they put in. And it’s addictive in these, these gambling platforms. If these, even if you start winning, well wow.
00:45:18 Oh, you’re doing great. Here’s a little money, why don’t you keep going? You know, they want you to keep going until you start losing money. ’cause the yard are, you will always lose money.
00:45:25 And Bloomberg came out with some great research recently on prediction markets. 75% of the profits, I believe are going to 1%
00:45:32 Barry Ritholtz: Of the users. Less than 1%. Yeah. Less than 1%.
00:45:34 It’s crazy. It’s so less money.
00:45:36 Sheila Bair: The whole game is rigged. Well, even active trading of stocks, very few people can do that and make, make money consistently
00:45:42 Barry Ritholtz: Over time.
00:45:42 Sheila Bair: Yeah. And you’re gonna be going against people who do it for a living, have a lot more access to data and expertise and, you know, algorithms and all the things, all the tools you’ll not have when you try to actively trade
00:45:53 Barry Ritholtz: Stocks. So, so this is kind of fascinating. I bet most people don’t know how much of a passion project this has been for you so long. I’m not, did I read this correctly?
00:46:04 You established the financial education division within the Treasury department early. I did
00:46:08 Sheila Bair: The Office of Financial thousand early education early in 2001. Yeah, yeah, yeah, yeah, yeah. Well I did, I still, I established the Office of Financial Education and it’s grown now. It’s in the treasurer’s office now.
00:46:17 And I think they held, they held, they held a group, it’s called fl and it’s basically a, a council of all the different financial education components of the various different regulatory agencies. And it’s a good group. Yeah, I did start it. That’s, that’s one of the things that got me interested in I, and actually my first book I was, was pre-crisis, was Rock.
00:46:37 Rock and the Saving Shock. It actually came out in 2006 because based on that experience, it inspired me to start writing kids books. ’cause I became aware that there really weren’t any resources for elementary age schools.
00:46:48 Barry Ritholtz: So, so how not to lose a million dollars covers basics like savings accounts, right. Student loans, debt avoidance. Right. And retirement planning it.
00:46:55 Yep. It kind of raises a question, why aren’t we teaching our kids financial fundamentals at the grade school level? Yeah. Why, why is this not just part of civics and Yeah.
00:47:07 Sheila Bair: Yeah. Well it can and should be. I mean, I, I think there’s a big movement now to have a standalone high school personal finance class. But I think is good.
00:47:16 But it really, it needs to be more than that. It needs to be, every year it needs to be introduced. And, you know, math curriculum is an, an obvious place. ’cause I think it makes ma it will make math more interesting to kids if you do use money examples, right?
00:47:29 So you wanna learn about ratios and percentages. Let’s talk about compounding and how much your money grows at four percents a year, whatever. So it, it does need to be introduced every year. And, and again, that’s one of the reasons my books are, I mean there’s supplements to curricula.
00:47:44 I don’t write educational curricula, but there’s certainly could be assigned readings to go with those, those classroom efforts. And I think that’s important and the kids get it. They’re interested in it. They absolutely get it.
00:47:54 They’re not too
00:47:55 Barry Ritholtz: Young. One of my favorite parts of the BBB was the new newborn accounts. Oh,
00:48:03 Sheila Bair: It’s Trump accounts.
00:48:04 Barry Ritholtz: Yeah. The baby bonds, which Corey Booker started talking about, drawing a blank on the name of the venture capitalist who suggested something like this years ago. But it’s only a thousand dollars to every newborn in an investment account. Yeah.
00:48:18 Yeah. I Is this a good start? Is this gonna help kids learn about money? Yeah.
00:48:23 Yeah.
00:48:24 Sheila Bair: It absolutely is. It’s, I think, you know, it’s only for, there’s a three year period where children are born within this three year period we’ll get the thousand dollars. But it, it can be matched by employers. A lot of employers who
00:48:36 Barry Ritholtz: We’re hearing already, Dell and JP Morgan and a bunch of big employers. And they’ll do a a thousand dollars match. Exactly. And the assumption is this’ll be renewed after three years.
00:48:46 Sheila Bair: I, I hope so. I hope it is. I’m, you know, I’m kind of a fiscal conservative when it comes to our deficits, but I think this is a good way to spend the money. ’cause it goes directly, you know where it’s going.
00:48:56 You know, it’s helping. And it is, it’s a wonderful way to learn about the power of compounding. Congress mandated the, the money has to be invested in broad based index funds, which is good. Right.
00:49:06 I, you know, or we’d be seeing crypto and mim so, or whatever, right. So that’s, that’s good. But you can see over time how it’ll grow. And I hope, you know, when they’re 18 they can, they can take it out.
00:49:15 But I hope they leave it there and it just converts into a regular, i a at that point. But it’s, it’s great. It’s a wonderful financial educational tool as well as some additional financial security for low income families and their children.
00:49:27 Barry Ritholtz: So let, let’s talk about another aspect of money that’s so different today than it was when we were kids. Money is effectively invisible. Yeah. Credit cards, apps, buy now, pay later, subscriptions, all that.
00:49:42 There, there have been studies that have shown that if you give people a pile of cash to spend or a credit card loaded with the same amount, they spend more with the credit card than with actually paying, you know, greenbacks, which says a lot about the psychology of, you know, modern spending. It does. Yeah. So, so how do you, how do we recognize that and how do we teach kids the value of a dollar?
00:50:10 It’s, it’s, it’s really a challenge when you, you just tap the card and it’s magic.
00:50:15 Sheila Bair: It’s, it’s not real money. It’s funny money. Yeah. Well that’s what, you know, I think it’s important to attach an allowance to jobs.
00:50:23 I think helping kids make the connection between having to work and earning money is really, really important. ’cause the parents are too generous. They let ’em use their credit card. So that’s, they start getting that easy usage.
00:50:33 And if they’re using their parents’ credit card, they’re not having to, it’s not causing them any pain to spend money. So I think the parents can control a lot of this, but the, the kids need to understand the connection between earning money and spending money. And if they make that connection, they will be more judicious and careful with their money because they realize how dear it is because it took that $10, took an hour of their life, raking leaves or whatever, you know. So I, I think it’s, it’s important to make that connection and financial education understanding.
00:51:03 You know, I have a chapter on, I spend a lot of time on credit cards. ’cause I think it is a, an early trap for a lot of families and a lot of kids because it’s just so easy. And bnm PL is the same thing. B-M-P-L-I don’t like it.
00:51:15 Barry Ritholtz: Buy now, pay later,
00:51:16 Sheila Bair: Buy now, pay later. The whole idea is to facilitate impulse buying. Let’s face it, you know, you’re using BMPL when it’s really beyond your budget to buy. You weren’t thinking about buying it.
00:51:25 You don’t really have the money now to buy it, but you really want it. And that’s what BNPL does. And they’re, you know, BNPL users a, a very high percentage of them. You know, first of all it’s not interest free ’cause it ends up going on your credit card ’cause you can’t pay it off.
00:51:38 So you’re just carrying the balance on your credit card or it’s coming outta your checking account and you overdraft and you get an overdraft fee. So it’s not really, they say it’s interest rate, it’s not for a lot of users’, it’s not really, it gets them in a financial
00:51:50 Barry Ritholtz: Trouble. When we were kids it was called layaway lay. That’s right. And you didn’t get the good or item, I tell you until you paid it off.
00:51:57 And you very much understood. Yeah, I gotta shovel more, more sidewalks or, or mom more lawns Yeah. If I want that bike or whatever it happened to be. Exactly.
00:52:08 Yeah. It, it was, this is the opposite lesson.
00:52:10 Sheila Bair: It is. It, it totally is. And I, you know, so I think it feeds a lot of overspending. I think impulse, I, you know, kids are making decisions and decisions more impulsively.
00:52:21 I mean, they don’t have the same impulse control adults have. And, and I think you know it, people know that, retailers know that. Commercial entities know that. So they, they try to encourage them to make snap decisions to, to buy something.
00:52:35 And it just, it’s so important. I, I have a rule, wait a week when my chapter I’m budgeting about buying things. Just wait a week. You know, there’s some things you have to buy your needs, like your rent or whatever.
00:52:44 Right? But if, if it’s your wants, first of all, don’t buy any want that’s not within your budget. And even if you do wait a week, you know, just don’t buy it on impulse. Wait a week, come back to it.
00:52:54 You really wanna, or not? When I go into grade schools and do readings, I, my common question is, raise your hand if you’ve ever bought something you wish you hadn’t bought. Every hand goes up. Every hand goes up.
00:53:05 Yeah. Every hand goes up. It’s amazing. Yeah.
00:53:07 Already, you know, at seven years old, they, they’ve got buyer’s remorse. It’s usually junkie toys. What,
00:53:11 Barry Ritholtz: What I, speaking of junkie toys, when there’s a car I fixate on. My little hack is I’ll buy one of the die cast models and put it on my shelf. So for 60 bucks, I like, alright. I feel like, all right.
00:53:27 I, I have a little experience in this car. Yeah. And after a few weeks, it’s like, all I have the toy, I’m good. I don’t need to spend a hundred thousand dollars on another stupid thing for the garage.
00:53:38 Well,
00:53:38 Sheila Bair: That’s right. There’s a, there’s, there’s a chapter on buying a car too. I just bought a by a, I just bought a car, actually, a used car. I didn’t wanna, they, they proceed so fast, it’s gonna be second car.
00:53:47 But this, this, I couldn’t believe it. I mean, I knew this, I’ve had experience in the past. It’s been a while since I bought a car. He was trying to upsell me with everything.
00:53:54 And now they’re trying to sell me, give me all these service contracts. So would increase the price of the car by about 25%. It’s just, it’s just unbelievable. They’re, you know, kids wanna buy cars.
00:54:04 They want their own cars. That is such,
00:54:05 Barry Ritholtz: Such erritory. I I don’t think that’s true anymore. Anymore.
00:54:08 Sheila Bair: Maybe not,
00:54:09 Barry Ritholtz: Not a lot. A lot of kids aren’t getting licenses. They can uber wherever on mom’s urban. I think that’s true.
00:54:14 Yeah. Right. And it, it’s, there seem, although there is a renaissance of kids buying, let’s call ’em 20-year-old analog as opposed to digital cars with stick, with stick shifts, really. Like there’s a whole generation of new car enthusiast coming up.
00:54:34 Yeah. That I, I think a stick shift today is an anti-theft device because, you know, nobody knows how to drive. You bring it to a valet, they look at you, you go to a restaurant, they’re like, would you mind pulling it in over there? Yeah.
00:54:46 Okay. Nice.
00:54:47 Sheila Bair: That’s funny. But it’s really true. It, and it’s good because, you know, cars are expensive. The average monthly payments, well, like 700 a month, you know, for a young boy party,
00:54:56 Barry Ritholtz: It’s a thousand dollars a month is not uncommon on a lease. Yeah.
00:55:00 Sheila Bair: Well
00:55:00 Barry Ritholtz: Lease. And kids don’t understand why, Hey, no down payment. Yeah. Well, yeah.
00:55:05 But no, no residual at the end, you have the back. Right. It’s just the cost.
00:55:10 Sheila Bair: It’s exactly right. Yeah. So it, yeah. It’s really expensive for in person to buy a car if they can avoid that.
00:55:15 Barry Ritholtz: So, so I only have you for a few more minutes. Yeah. So let me jump to my favorite questions. I ask all my guests.
00:55:22 Starting with, tell us about your mentors who helped shape this Yeah. Career you’ve enjoyed through academia, finance, and government. Yeah.
00:55:31 Sheila Bair: Well, Bob Dole obviously stands out. He was really, he, he really taught me what public service meant. And he was always focused on the public interest. He was a populist in the good sense.
00:55:42 You know, he was from a small rural town in, in Kansas. He was horribly injured during World War ii. Laid up for years. The townspeople rallied, supported him, got him back to health.
00:55:52 Helped him become who he became. So he was really, he really focused on, on the public. And I learned that. And I think later in my career and at the FDIC, we, we kept that focus on the public, the people who are using the banks, not the banks.
00:56:06 Who are we helping? Were we helping the people who use banks? So I, I’m proud of that. And I learned a lot from him.
00:56:12 You know, later I got to know Paul Volker. I learned a lot from him. I, Paul Paul. Yeah, that’s right.
00:56:19 Elizabeth Dole was someone, I never really had a chance to work with her, but I knew her through, through the Senator Bob and had maintained contact with her over years. Another woman who inspired me, not a mentor, but Senator d O’Connor, the first woman, Supreme Court Justice, when I was on the Judiciary committee, I got to handle her confirmation. And she was just a lovely person. So a lot of people I’ve met over the years, but Dole really stands out as, as my, my prime supporter and, and mentor in my career.
00:56:48 Hmm. Yeah.
00:56:49 Barry Ritholtz: Let, let’s talk about books. What are you reading now? What are some of your favorites? Yeah,
00:56:53 Sheila Bair: So I love murder mysteries. I’m reading Anthony Horowitz’s new book, A Deadly Episode. I mean, if we an know Anthony Horowitz, he’s a British mystery brother. I
00:57:02 Barry Ritholtz: Know the name. Yeah. My wife is a fan of those. So she, yeah.
00:57:05 Sheila Bair: Well, she burns through those. Yeah. He’s quite prolific. Yeah.
00:57:07 Right. He, he was the young, he, he was actually chosen by the Ian Fleming estate to continue writing. He’s written two. They’re really good.
00:57:14 Yeah. I actually like
00:57:16 Barry Ritholtz: Tofl owned by Amazon.
00:57:19 Sheila Bair: That’s right. That’s right. So, so yeah. And then I’m reading John Hershey’s Hiroshima.
00:57:25 My family and I are going to Japan at the end of the month. And I wanted to, I’m dying to go take them. Yeah. Yeah.
00:57:29 And I, the kids kind of bought, I said, we’re gonna go to Hiroshima. ’cause I think that’s an important part of history. You need to, we need to see this and, and understand it. And I read Hiroshima when I was young, you know, probably, you know, high school.
00:57:41 Right. I think when it came out and, and it had such an impact on me in so media again. And it still has an impact on me. And especially everything going on in the world now.
00:57:49 And other countries, even Japan talking about wanting to have a nuclear capability because things just don’t seem very unsettled on that score right now. So that’s, those are my two. I usually have two books going. One nonfiction and one fiction.
00:58:02 Barry Ritholtz: So yeah. So I’m gonna recommend a book to you. Okay. It’s just really kind of fascinating.
00:58:06 An American who’s a professor somewhere in, in the uk, Brian Klaus with two As. And the book is called Fluke. And the book starts with this story of a young couple honeymooning in Kyoto. Later in life, the husband becomes the head of the war department.
00:58:29 And when we have to figure out where to drop the abo, he absolutely vetoes Kyoto And Hiroshima is what gets, is what gets true because this couple went there for a honeymoon. Oh, that’s really interesting. That country, that city is spared. And then it wasn’t supposed to be Nagasaki, it was in, I don’t remember what city it was, but there was cloud cover and they couldn’t, back then you were doing visual reads.
00:58:59 Right. You couldn’t see. So they went to the secondary target. Yeah.
00:59:03 And so think about, talk about flukes. Yeah. How random things are. Yeah.
00:59:08 So Hiroshima gets it because somebody went there on a honeymoon.
00:59:12 Sheila Bair: On a honeymoon. Just crazy. Well, and now you look back and why did any city get it? Couldn’t you drop it over the ocean or something?
00:59:17 You wanna make a point? I mean, really. I don’t, it’s hard for me, me to understand now. I know.
00:59:22 And that’s just, you know, we are not there at the time. There was a lot of
00:59:26 Barry Ritholtz: The psychology during
00:59:27 Sheila Bair: War time. Yeah. So different. And the Japanese had been, everybody had been horrible, but the Japanese had done some brutal things.
00:59:33 Well, for
00:59:33 Barry Ritholtz: Centuries.
00:59:34 Sheila Bair: Yeah. Well, okay. All right. Speak
00:59:35 Barry Ritholtz: To speak to China. Korea. Not I’m, no, no. I’m a big fan of Japan.
00:59:42 Yeah. But no, but they were quite a, they in China Ruthless Empire
00:59:45 Sheila Bair: For a long time. Yeah. Yeah. So there was a lot of, so I understand that.
00:59:49 And I think, well, maybe the horror of it when, you know, and the, and I think that’s why John Hershey’s book was so important. ’cause it really underscored the horror of it. But maybe because people then understood how horrible it was, it made it even less likely every anybody would ever use it again. I’m gonna, I’m gonna rationalize it that way.
01:00:05 But it is hard. You know, you look back and, oh my gosh, did we really have to do that to people? Because it was, it was not just the people who probably were killed immediately were the lucky ones. Oh yeah.
01:00:14 The radiation sickness after the horrors
01:00:17 Barry Ritholtz: Slow up. I think I signed that same book in, in high school and
01:00:20 Sheila Bair: Everybody read it. Yeah.
01:00:21 Barry Ritholtz: And plowed through it. And it was just,
01:00:23 Sheila Bair: It was, yeah. No, it’s very well written. It was. Yeah.
01:00:26 Barry Ritholtz: Let, let’s shift to, are you streaming anything these days? You listen to any podcasts? I don’t. Or watching anything.
01:00:31 Yeah.
01:00:32 Sheila Bair: I don’t stream or podcasts that much. I get podcaster, I like to read transcripts of podcasts ’cause I can read a lot Faster. Faster. That’s what I can listen
01:00:39 Barry Ritholtz: Faster. Yeah. How, how about Netflix or HBO or anything like that? Yeah.
01:00:42 Sheila Bair: You know, again, I’m, I’m, you know, one note on this murder, BBC, I’m there, you know, I love the murder mystery box box. Yeah. The, all the, all the agathe IES I’ve seen in the, the David Che prose are by far the best. Foils war was great.
01:00:58 Also, Anthony Horowitz, the, he did a, the, the,
01:01:02 Barry Ritholtz: They made it into a series or a movie.
01:01:05 Sheila Bair: Which one? The Foils War. Foils of War. Foils War.
01:01:07 Actually, that was, that was a TV series. It wasn’t a book. That was one of the few things. But it’s, it’s, it’s, it’s really good.
01:01:13 I like the, the Morse. You know, have you ever watched Morse Inspector Morse? No. That’s, that’s so famous.
01:01:19 Sounds me familiar. It
01:01:20 Barry Ritholtz: Used to be on PBS at one point.
01:01:21 Sheila Bair: Yeah. Yeah. It’s old. But there were three Morse and then Endeavor, which was about Morse when he was younger.
01:01:27 And then Lewis, who was Morse’s sidekick. So BBC did a really good job there. So yeah, these are old stuff. I recycle ’em.
01:01:33 But yeah, I, I love, I love BBC and I love British. I love British Redbox. Excuse me. I love
01:01:38 Barry Ritholtz: Our final two questions. What sort of advice would you give to a recent college grad interested in a career in banking or finance or government service?
01:01:50 Sheila Bair: Yeah. Well, I would say be open-minded, because I think the job market is, you know, we don’t know. AI is kind of having a negative impact on entry level white collar jobs. So they’re need to be thoughtful about that and how to navigate that.
01:02:05 So I think you need to be open-minded. But preferably, if you have options, you know, pick, pick a company that has a good culture. I, you know, ask them how they think about their customers. Right.
01:02:17 If they’re an investment firm and they talk about them like, Muppets, you probably don’t wanna work there. But if they talk, talk about them as
01:02:24 Barry Ritholtz: I remember Muppets
01:02:25 Sheila Bair: Mpe. Yeah. Just to mention an example. So I think, I think it’s important, any business actually, whether it’s finance or any real economy business, how they think about their customers and treat their customers.
01:02:36 ’cause I do think long, long-term success is based on having a mutually beneficial relationship with your customers. So I would, and, you know, just the work ethic and, but, and again, keep an open mind. Sometimes things you weren’t even thinking about come up and they turn out to be really, really good job choices.
01:02:52 Barry Ritholtz: And our final question, what is it that you know about the world of banking regulations, government service, financial industry today might have been useful to know way back when, when you were first getting started. Yeah,
01:03:07 Sheila Bair: I thought about that. Markets, right? Not personal finance, but market. Clearly credit card debt
01:03:14 Barry Ritholtz: Go whichever way you want.
01:03:15 Sheila Bair: Yeah. Well, compounding was something I did or did not understand in credit card rates. That
01:03:20 Barry Ritholtz: Comes up surprisingly
01:03:22 Sheila Bair: Frequently. Yeah. Yeah.
01:03:22 Barry Ritholtz: So because it’s not intuitive.
01:03:23 Sheila Bair: Yeah. No, it’s not. And the, the daily compounding is, you know, it, it, it backs up pretty quickly, I think for markets, financial markets and investing in particular. I, I’ve actually done pretty well over time.
01:03:35 I was, my grandmother gave me a thousand dollars when she was getting later in life near her death. And she didn’t have much, but she wanted to give my sister and I something. So she gave me a thousand dollars and told me to put it in IRA. That was back when IRAs had just gotten started.
01:03:50 And with my dad’s self, I put it in the contra fund. It’s worth a lot of money now. Right. So I, I’ve made some lucky I’ve, I’ve stuck mainly, I’ve picked a few stocks, but I’ve picked mainly diversified index funds of various sorts.
01:04:03 And I wish I’d understand better about being brave during the dips though. You know, I think I usually, I, I, I buy and hold, so I don’t, I don’t sell when the market’s going down, which is the worst thing you can do. But I think I would’ve been a little more courageous buying in the dips,
01:04:15 Barry Ritholtz: You know, buy, buying more into, into weakness. Yeah. Yeah. Well, well, Sheila, thank you for being so generous with your time.
01:04:21 As always, a delight. We have been speaking with Sheila Bear, former chair of the FDIC, author of the new book, how Not to Lose a Million Dollars. If you enjoy this conversation, well check out any of the 600 we’ve done over the past 12 years. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts.
01:04:44 I would be remiss if I didn’t thank the crack staff that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer.
01:04:59 I’m Barry Bri Holtz. You’ve been listening to Masters in Business on Bloomberg Radio Video.
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