The Exchanges

Q Mr. Mr. Evans agreed with you, um, and he agreed with you citing several problems with, with China and also several positives of the US, uh, which, for his sake, I'll probably leave, uh, for him to tell you over a dinner. Can I, can I ask you, for Europe, is Europe weaker than ever, Mark?

A No, I don't think it is actually on the face of it. It's obviously there's a massive shock with the war and the energy, uh, hit that comes with that. And so there's reason to think that it might be, but I'm going to take the other side of this. First is that, uh, the financial system, this is unusual. I don't think I've ever been in a position in my career where I've been able to say, uh, the European banking system is in better shape than in most other countries. And certainly the U S in this case, Uh, but that is the case, so their financial system is, uh, is, is solid. Uh, I know Credit Suisse failed, but, you know, it had relatively unique circumstances, and the core of the system is strong. The second is to say that they're using most of the levers of policy now. So fiscal policy is not a permanent headwind to growth there. Thirdly, they've got a pretty good framework in place for the climate, you know, the net zero transition. So the U S is going to catch up and I think a pull ahead, but Europe's been doing pretty well there and that's driving investments. So I don't think they're weaker and at least initially, and it's, it's more than initial because it's been longer than a year. I think the European response to the crisis, the crisis being the war, has actually, has made them stronger. It will make them stronger in the medium term. It's accelerated some things that they…

AI assessment note: “No, I don't think it is actually on the face of it.”

Q Can I ask Mark a really unfair one? And again, I'll blame Mr. Evans for this one because I can do it. Um, which governments and big corporations are acting more than they're talking about climate initiatives?

A Uh, I would say, acting more than they're talking, uh, look, I would say a company like, uh, And they talk about it, but you know, a company like Walmart, um, in terms of, you know, Walmart's got, I've, I'm not going to do them justice, but it's certainly well over a million SKUs, uh, in their, in their various stores. And, you know, if, if you, as a retailer, you ultimately take responsibility for what are called scope three emissions. So the emissions all the way through the value chain, which means you need to know what the emissions are of all those products, uh, that you're putting on the shelves at Walmart. And, uh, They are rigorously going through that and then working with their suppliers to, you know, optimize those and get them down. And I, I don't, I don't know that given the complexity and scale of that business, you could talk enough about it and still, you know, given what they're doing, they're saying less about it than, uh, than what they're putting into place. Uh, in terms of governments. Yeah. This is recency bias. It was in Australia a few weeks ago. And, uh, I'd say that The shift, uh, at all levels of government in Australia is, is underappreciated, and, you know, that's a pretty can-do country, so when you have a decisive shift, uh, what we're seeing is pretty big, uh, shift in, uh, activity there, and, and we'll, we'll hear a lot more about it.

AI assessment note: “a company like, uh, And they talk about it, but you know, a company like Walmart”

Q This is really unfair of me to ask, but I'm too interested. When we see interest rates increase, what happens then, Mark? How do the markets respond in your mind? Obviously, it's futuristic looking, but how do you expect them to respond?

A Well, what tends to happen when interest rates increase is that there is a amplified impact on the interest rates of risk assets or the discount rates on risk assets. So if If the bank rate goes up by one percentage point, the discount rate tends to go up by one and a half to two and a half points, depending on where the asset is on the risk spectrum. And so unless the income from that asset is rising more rapidly, you get a price adjustment, and this is an overall tightening in financial conditions. So the extent to which you're at the furthest end of the spectrum in terms of risk tends to have a larger effect on the value, at least in temporary terms for those risk assets. You could crypto various DeFi applications in that camp. They've had a very large run-up. To some extent, it's been indiscriminate, and there's likely to be a pullback. Now, let me not say, unless anyone thinks that, that a pullback means an end, because I think I've tried to stress that there's real value being created here. So it's a pullback, which then, for the better applications, the more resilient ones, there's a new bottom from which to move.

AI assessment note: “unless the income from that asset is rising more rapidly, you get a price adjustment”

Q I mean, this is true, but at least our steps would be off the charts. I do want to start there with some context, and this is going way back, but I love a bit of history. So how did you make your way into the world of finance, come to be governor of the Bank of England, and now come to Brookfield?

A Well, you know, I became an economist and went into finance, and particularly the macroeconomic end of finance, because out of interest, I wanted to understand how the world worked, make some money along the way, but understand how the world worked, and really, I've operated at the intersection of the private sector and the public sector, so when I was at Goldman Sachs, we did a lot of sovereign advisory work. I ultimately, as you know, then went into public service proper at the Bank of Canada, and then, candidly, an accident of history made me the governor of the Bank of England. Many are You know, still wondering why that happened, but, you know, too late now. I can at least say that the shift to Brookfield and my association with Stripe, both of those were very deliberate. You know, I had a very good seat on as governor and over a tumultuous time on where the world was going, where the big opportunities would be, and I felt that I wanted to be both in climate transition and in this intersection of the future of finance.

AI assessment note: “an accident of history made me the governor of the Bank of England.”

Q over in some respects. So that is, uh, that's quite refreshing in some ways. Um, my question to you is, I have Bill Ackman on the show, and he presented the view that, essentially, we need to guarantee all deposits in banks, and once you do that, you'll reinsert consumer confidence, and turmoil will really be quashed in many ways. Do we need to guarantee all deposits in banks, Mark?

A Um, I think it's, well, I'll say a couple of things. One is that what we're seeing is that the current commitment, the current structure, which does not guarantee all deposits in banks is proving time inconsistent. So under pressure, authorities are coming in and on a case by case basis, effectively guaranteeing all deposits in banks. So After you have a few of those, you ask the question, it's a fair question whether, well, shouldn't you just jump to the end state, which is to guarantee all deposits in banks? That's the first point. Second point, there is a bit of an issue, uh, which is somebody has to take that decision. It has to be duly authorized, and in the US that requires, uh, an act of Congress. So the effective way to guarantee all those deposits is not going to happen quickly. That's second. Third, There is a bigger argument and maybe we'll get into this, but I'll just put it on the table, which is, uh, something, uh, uh, Andrew Bailey, uh, the current governor of the bank of England, uh, a point, he made a seemingly esoteric point, but quite an important point around the nature of money. And his point was in effect, most people don't realize that there's a difference between money that's created by a bank, a private bank, so-called inside money, Uh, versus the money that, you know, when people used to use cash that, uh, they would see the manifestation of money crea…

AI assessment note: “the current structure, which does not guarantee all deposits in banks is proving time inconsistent”

Q Can I ask, can you provide me with an example of an innovation that went through this cycle, experienced this Ponzi realization moment, but had underlying value to the innovation, that then was kind of reborn efficiently? Because in my mind, it's just like, people realize it's a Ponzi scheme and never come back.

A I'll give you an example of a financial innovation where that's the case. So, you know, the collateralized loan market, uh, CMBS, uh, collateralized mortgage backed securities got taken to the assumptions underlying them got taken to ridiculous extremes, Ponzi extremes. So the price appreciation built into those structures in 2006, 2007 brought the whole, literally the house, uh, you know, the house of cards crashing down. But the core innovation there lives on And I think has served the market quite well, the financial system as a whole quite well. And we've ended up actually with a much more robust is not totally robust to be clear, but a much more robust, what some would call shadow banking system. I would call non-bank finance, uh, that providing a different channel of credit and actually given what's going on in the banking sector, a very welcome example of credit. I think you're also asking though about a Fundamental innovation that, you know, has gone up and down through the boom bust cycle. And I think the example a little closer to home for me would be in hydrogen, where we've had a couple of those, uh, euphoric cycles. The last one was early 2000. Uh, we're entering another, and I think a much more solidly, uh, grounded one. Time will tell though. I can't actually Give you the example of hydrogen fully deployed in a way that's, uh, you know, mainstream commercial. I t…

AI assessment note: “collateralized mortgage backed securities got taken to... Ponzi extremes... But the core innovation there lives on”

Q Mark, can I ask, you mentioned regional banks earlier. What's the future of regional banks in the US?

A I would say, uh, go small or go home. I mean, it's, uh, it's, you know, it's always the US banking system, relatively, uh, you know, very large number of institutions by, by number in the US, you know, kind of barbell strategy was, it was dangerous to be in that awkward middle where you're a large regional, and therefore you have a lot of corporate deposits, deposits above the minimum, They turn out to be much more flighty. What we saw with Silicon Valley, what we're seeing with First Republic, that's an awkward place to be. If you're, if you're a narrow regional, you know, small, literally close to your customers, uh, largely insured deposits, more stable funding base, you're okay. It's an okay business. You don't have a lot of growth opportunities, or you're going to get consolidated up into, uh, some of those, uh, very large institutions. So I think there's going to be really a wave of consolidation, another wave. This, this has, Happened over time, but we'll accelerate. And, you know, in part it's accelerating because the competition, not just, uh, well, not just for the regionals, but also for the large institutions is very much coming from FinTech. And as a bigger picture point, the system is moving towards a form of narrow banking as a, as, as a core competitor to a fractional, uh, fractional reserve banks. In other words, banks that create their own money, uh, and lever…

AI assessment note: “So I think there's going to be really a wave of consolidation”

Q Mark, I am a, I'm a technologist, I'm a startup investor, so I'm naive, which means I'm allowed to ask questions like this. What's the speed of rate hike? Was it irresponsible? It was unparalleled to any other rate hike, supposedly, you know, in the recent times. Was it an irresponsible speed of rate hike?

A I think it was necessary. It has consequences. I think that one of the assumptions that Uh, economists, uh, not always financiers, but economists often make is that things move in a linear fashion. Whereas, uh, well, certainly technologist knows that things, uh, things get disruptive. Uh, there's, there's quantum moves and in finance, there are situations where it isn't the case that when you move from, uh, well, certainly in this case, when you move from zero interest rates to five percent interest rates in a short period of time, It doesn't mean the cost of credit moves up lockstep with each of those moves. You get to positions where the availability of credit just stops from certain channels. We're starting, you know, we're seeing that in the regional banking sector. We'll see that in other part, uh, leverage parts of, uh, of the system. I guess we saw it at the various, at the very start of this move, uh, we saw it in leverage crypto, which wasn't macro significant, but it was for some individuals. So I think the responsibility, uh, dancing around this a bit, as you can tell, but as a responsibility of the authorities is, is to recognize that the faster things go, the more likely there are to be these, to put it politely, nonlinearities or sudden stops, and that needs to be taken into account. Yeah.

AI assessment note: “I think it was necessary. It has consequences.”

Q Okay, so I asked this question of Mr. Mark Evans, and he gave me a fascinating, and this was this week, so I'm going to compare your statements here, and I know. I said to him, you can long, you can invest in the future of one, the U.S. or China over a 10 year period. Which do you invest in?

A I'd invest in the U.S. Why? Okay, why would I do that? I mean, you know, partly that the, you know, okay, we've got a track record and past performances and, you know, an indicator of future, but the Main components of what has driven American exceptionalism over, uh, over decades, uh, more than a century still are there. I mean, still, uh, partly because of immigration, but, uh, it's still the case that, uh, you know, the quality of, uh, skills is amazing. The financial ecosystem, yes, it has SVB and FRB, but it also has, you know, the whole VC complex. I won't, uh, tape myself by only naming one or two of them. Uh, of course you're, you know, by extension, my host here, uh, is part of that. It has still the best mechanism of creative destruction in the world. Uh, I think, uh, there's some who argue your European competition policy is now stronger. I'm not totally convinced. Notice that US competition policy has just been reinforced. You know, it has a huge market and has ability to get market access. So it has all of that. And, you know, they've just pivoted, you know, America, when it moves, moves big. And so in this space in climate, which is one of the big drivers of Growth going forward. They have, uh, the U S in the, in this space of the time, since we last spoke has gone from well behind Europe, the UK, amongst the major industrialized countries in addressing climate ch…

AI assessment note: “I'd invest in the U.S. Why? Okay, why would I do that?”

Q Can I ask Mark a really unfair one? And again, I'll blame Mr. Evans for this one because I can do it. Um, which governments and big corporations are acting more than they're talking about climate initiatives?

A Uh, I would say, acting more than they're talking, uh, look, I would say a company like, uh, And they talk about it, but you know, a company like Walmart, um, in terms of, you know, Walmart's got, I've, I'm not going to do them justice, but it's certainly well over a million SKUs, uh, in their, in their various stores. And, you know, if, if you, as a retailer, you ultimately take responsibility for what are called scope three emissions. So the emissions all the way through the value chain, which means you need to know what the emissions are of all those products, uh, that you're putting on the shelves at Walmart. And, uh, They are rigorously going through that and then working with their suppliers to, you know, optimize those and get them down. And I, I don't, I don't know that given the complexity and scale of that business, you could talk enough about it and still, you know, given what they're doing, they're saying less about it than, uh, than what they're putting into place. Uh, in terms of governments. Yeah. This is recency bias. It was in Australia a few weeks ago. And, uh, I'd say that The shift, uh, at all levels of government in Australia is, is underappreciated, and, you know, that's a pretty can-do country, so when you have a decisive shift, uh, what we're seeing is pretty big, uh, shift in, uh, activity there, and, and we'll, we'll hear a lot more about it.

AI assessment note: “The shift, uh, at all levels of government in Australia is, is underappreciated”

Q Final part of that question, which, which governments are talking more than they're acting? And then we'll do a quick fire.

A Uh, yeah, I think the, you know, I am the United Nations special envoy. So I would have said the US, but I can't say that anymore. I think it's a relative game. So I'd now say that, you know, the time has come For the next phase of what the UK is going to do, maybe that's the best way to put it, right? So it's like anything, you can be out in front, you can be leading, but then others, others catch up to you, start to lap you. So, uh, uh, I think the UK has had a good track record, but I'll quote the, I'll quote the Climate Change Commission, which is, you know, this independent body that does an assessment of the government. It says that, uh, more than half It, it, it does not yet have everything in place, uh, in order to, uh, reach its medium term targets, uh, and has given 300 different recommendations of what's necessary to do it. So I guess that would fall into the, into the talk more than act.

AI assessment note: “I guess that would fall into the, into the talk more than act.”

Q Okay, so I asked this question of Mr. Mark Evans, and he gave me a fascinating, and this was this week, so I'm going to compare your statements here, and I know. I said to him, you can long, you can invest in the future of one, the U.S. or China over a 10 year period. Which do you invest in?

A I'd invest in the U.S. Why? Okay, why would I do that? I mean, you know, partly that the, you know, okay, we've got a track record and past performances and, you know, an indicator of future, but the Main components of what has driven American exceptionalism over, uh, over decades, uh, more than a century still are there. I mean, still, uh, partly because of immigration, but, uh, it's still the case that, uh, you know, the quality of, uh, skills is amazing. The financial ecosystem, yes, it has SVB and FRB, but it also has, you know, the whole VC complex. I won't, uh, tape myself by only naming one or two of them. Uh, of course you're, you know, by extension, my host here, uh, is part of that. It has still the best mechanism of creative destruction in the world. Uh, I think, uh, there's some who argue your European competition policy is now stronger. I'm not totally convinced. Notice that US competition policy has just been reinforced. You know, it has a huge market and has ability to get market access. So it has all of that. And, you know, they've just pivoted, you know, America, when it moves, moves big. And so in this space in climate, which is one of the big drivers of Growth going forward. They have, uh, the U S in the, in this space of the time, since we last spoke has gone from well behind Europe, the UK, amongst the major industrialized countries in addressing climate ch…

AI assessment note: “I'd invest in the U.S. Why? Okay, why would I do that?”

Q Final one. We do this again in, uh, twenty-twenty-eight, so five years out. Where's Mark then?

A I would like to think that I have, uh, I'm no longer a special envoy, um, uh, because, uh, what the objective is, so I'm going to define it in the negative. I'm no longer a special envoy, uh, because I'm, you know, tired of not being paid by the UN, um, but more seriously, because the kind of things I'm working on are just so run of the mill, they're mainstream, that everybody does it, and that's when you have successes that, you know, this is just You know, carbon competitiveness is just part of the value equation. It's part of the way things are analyzed and capital flows naturally. And so then at that point, what am I doing? I'm an intern at Harry VC by that point.

AI assessment note: “I would like to think that I have, uh, I'm no longer a special envoy”

Q Final part of that question, which, which governments are talking more than they're acting? And then we'll do a quick fire.

A Uh, yeah, I think the, you know, I am the United Nations special envoy. So I would have said the US, but I can't say that anymore. I think it's a relative game. So I'd now say that, you know, the time has come For the next phase of what the UK is going to do, maybe that's the best way to put it, right? So it's like anything, you can be out in front, you can be leading, but then others, others catch up to you, start to lap you. So, uh, uh, I think the UK has had a good track record, but I'll quote the, I'll quote the Climate Change Commission, which is, you know, this independent body that does an assessment of the government. It says that, uh, more than half It, it, it does not yet have everything in place, uh, in order to, uh, reach its medium term targets, uh, and has given 300 different recommendations of what's necessary to do it. So I guess that would fall into the, into the talk more than act.

AI assessment note: “So I guess that would fall into the, into the talk more than act.”

Q So when we think about, like, that centralized role, does that mean that they retain fiscal and monetary policy? Because I always think, you know, when we think about kind of taxation in a new world of GDP first finance, how on earth do governments and central banks have any form of control?

A Well, I think there's a couple things. One is, I've never been a fan of financial transaction tax. So to the extent to which there are a series of seamless, frictionless, decentralized financial transactions, fantastic, that's great. To the extent to which somebody ultimately is making income, capital gains, you know, do they as a citizen have a responsibility to declare those? Yes. And pay the appropriate taxes. Now, if the system, and look, I haven't thought through the full design of it, if the only on and off ramps, if it's only in the on and off ramps, Between various pockets of activity that you realize those gains, those income gains or capital gains as you move between areas. That's the way ultimately it will be captured. In terms of monetary policy, in terms of central banks, quote, control of the system. So one of the things that we see in the system, of course, is the desire to get liquidity to earn yield from the underlying crypto assets and to lend through, you know, whether it's of or, you know, lend through some sort of marketplace, which is understandable. By the way, it's It's also one of the ways you introduce real systemic risks. One of the lessons of a boom, which you've only seen the boom side of, not the bust side of, but what happens in a boom is that, you know, there's big capital gains. People want to see benefit of those capital gains. The assumption o…

AI assessment note: “if it's only in the on and off ramps... That's the way ultimately it will be captured.”

Q So when we think about, like, that centralized role, does that mean that they retain fiscal and monetary policy? Because I always think, you know, when we think about kind of taxation in a new world of GDP first finance, how on earth do governments and central banks have any form of control?

A Well, I think there's a couple things. One is, I've never been a fan of financial transaction tax. So to the extent to which there are a series of seamless, frictionless, decentralized financial transactions, fantastic, that's great. To the extent to which somebody ultimately is making income, capital gains, you know, do they as a citizen have a responsibility to declare those? Yes. And pay the appropriate taxes. Now, if the system, and look, I haven't thought through the full design of it, if the only on and off ramps, if it's only in the on and off ramps, Between various pockets of activity that you realize those gains, those income gains or capital gains as you move between areas. That's the way ultimately it will be captured. In terms of monetary policy, in terms of central banks, quote, control of the system. So one of the things that we see in the system, of course, is the desire to get liquidity to earn yield from the underlying crypto assets and to lend through, you know, whether it's of or, you know, lend through some sort of marketplace, which is understandable. By the way, it's It's also one of the ways you introduce real systemic risks. One of the lessons of a boom, which you've only seen the boom side of, not the bust side of, but what happens in a boom is that, you know, there's big capital gains. People want to see benefit of those capital gains. The assumption o…

AI assessment note: “if it's only in the on and off ramps... That's the way ultimately it will be captured”