Comments
Transcript
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OCGreat interview Ed!!! It's always good to look at all angles
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OCDefending wallstreet and the Fed, can you say brown nosing?
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SSPowell Pivot----maybe pandering to Japan and Europe?
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GGHe got stopped out on his bond shorts imo! 😉
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CCLove the clarity of this man's thinking. Reminds me of David Simon, the great journalist turned screen writer producer of the Wire.
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VPI would extremely doubt that if the bond market implodes, that stocks wouldn't take an even more extraordinary thrashing, imho.
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VPDid he say "Bigfoot" has been seen again? Good interview and appreciate the candor along with inherent frustration many of us have, I think.
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KBThe problem is the Fed can't allow the markets to collapse without causing the value of their balance sheet to collapse. If the value of their assets collapse, so will the US dollar, and raising interest rates will only make matters worse. The only way to prevent this kind of hyperinflation from kicking in is, ironically, to print money in order to prop up the value of their balance sheet. The problem began with QE, when they put all of that bad debt on their balance sheets, in effect backing the US dollar with crap that only had value because they were buying it. Once this happened, the entire system became distorted. QE initiated a paradigm in which inflation is avoided by propping up the markets in order to keep the Fed's balance sheet from losing value. This is why printing money has been paradoxically deflationary. In other words, QE exposed the Fed to market risk. This is what Mr. Cohen seems to have missed. From the Fed's perspective, the concern isn't with the economy or with the political calculus, it's with their own survival. They can't just "do the right thing" and force a little pain today to avoid even greater pain tomorrow. As soon as they fail to maintain the value of the capital markets a hyperinflation spiral will ensue that they won't have any way out of. Aggressively raising interest rates, the traditional way out of inflation, will only serve to hasten the demise of their balance sheet and accelerate the hyperinflation. They need to reduce their balance sheet, but they can't because expanding their balance sheet seems to be the only thing maintaining its value. in short, they can't get out of QE. That's the crisis we face. It has nothing to do with a failure to do the right thing, they simply have boxed themselves into a corner.
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AATrump’s fault.....oh wait, when did QE start? When were zero rates in the US actually in place? Not under Trump, fact.
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JBEd: Let me play devils advocate Cohan: Let me contradict what I just said Ed: Allow me to push back for a second "some would say ____" Cohan: Blah blah Orange Man Bad
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SCObviously this guy ain't voting for Trump. lol
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WGI guess you could say that Cohan's interview here represents the kind of nonsensical, non-sequitur claptrap common in mainstream media today--some truths, half-truths, & falsehoods framed with bald partisan assertions. Such material doesn't increase understanding of markets, policy, or recent history; it only illustrates (as single sample) the intentionally partisan hackery common today in mainstream media. Remove all partisan framing and assertions and you're left with a grossly incomplete and misleading set of remarks about markets & policy. So I presume Cohan's niche is to feed partisans. Weird that RV bothered, but that's not a complaint; RV typically constitutes the opposite of this house-of-mirrors nonsense, I could have just skipped it. Since I wish I had, I'll refrain from wasting more time commenting.
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jmRead the comments. Seems like people reacted to his anti Trump position and not to the overarching theme that short interest rates were held at 25bps for years (along with QE) producing very high and in his view and mine, unsustainable levels of indebtedness. That view is accurate. As is his unspoken view that Trump is completely unfit to be a dog catcher, much less a president.
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wjThis person seems to forget trump took over after the DEBT king Obama. This is trumps problem. The debt is too great raise interest rates.
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ACWorse interview on RVTV. Why is he using examples to prove his point, without complete knowledge? "He knows what he's doing. He knows how to price risk. This is a senior loan. I'm not sure exactly whether it was secured, but I assume it was secured." First of many stupid comments where it becomes apparent he hasn't got the details to back-up his thesis properly.
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JLInteresting and understandable that this interviewee has garnered one of the most disputed viewer-ratings in RV history. Definitely heated, emotional at times, sometimes confused, but zooming out to the big picture I found the exposure of the emotion and passion itself to be illuminating. And a good reminder how hot it is out in "the real world," and how much hotter the times and the people in them may become. Use this level of intensity carefully, RV, like salt on a steak it's easy to overdo it.
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RSwhy people still talk about "artificially" low interest rates?? there is nothing artificial in the low interests rates! the economy cant handle higher rates and we saw it when fed hinted at 3%+ rates.
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BBOutfits are almost identical.
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CELol!! Unfortunately for Mr.Cohan, he come across as dogmatic, simplistic and unable to provide an depth in thinking. When posted in the same week as a David Rosenberg interview, one gets a chance to contrast with truly great thinking. I was very happy to so many RV folks having similar assessment- this is a strong community! Well done to Ed as interviewer.
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PPI think this guy got more thumbs down than any presenter I've seen since the inception of RV... I'm not surprised .... He's a NYT bestselling author REALLY????
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PPReal Visions ask the subscribers not to bash the presenters... Now ask the presenters not to spew their political opinions... no one cares what this guy thinks politically. First off he needs to realize that Greenspan started this %hit show not Trump or any other politician.
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ABORANGE MAN BAD. Poor guy has a serious case of TDS. He wakes up thinking about Trump and goes to bed thinking about Trump. Mr. Cohan is one of the most dangerous men in finance, because he understands the problem of debt, but does not understand the root. He believes Bernanke needed to act in 2008. That QE1 was a must do, however QE1 the is the cause for the future crisis, not Trump. Moreover, the decades of Fed manipulation has created this problem, not one man. I don't agree with Trump's stance on interest rates, but I understand that he wants the same playing field as this predecessor. Until we allow the bad debt to burn (which will be painful), and discontinue Fed liquidity rescues we will never have the reset needed to spur new economic growth. Mr. Cohan's fixation on the corporate tax cuts is laughable. There is more tax revenue flowing into the Treasury than ever before. Mr. Cohan seems to be a parrot with talking points, not really thinking, but just another charlatan the Ivy League seems to breed.
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DHM3 has increased fifty-fold in sixty years, even though US population only increased 85%. https://fred.stlouisfed.org/series/MABMM301USM189S?fbclid=IwAR17bG-STByykVZby9gf1m4JsRX4pKnbtbxg85AN74UbwP6vZHEqYSrwMv4
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JDDitto.. Ed, good job trying to get something useful out of this interview. Again and again.. William, I agree with a lot that was said, but I already have my tinfoil hat snugly affixed to my head. Tell me something useful.
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NSi dont get what this has to do with trump. Is trump such a great puppet master that he can maneuver powell right to where he wants him? Or did powell realize that the time to fix things passed long ago and now the fed is just providing life support? Yes the markets were only down 20% when the fed was on a raising cycle but if powell had continued 20% would have been 50% and powell would have taken the fall for his predecessors. So he did the only logical thing. More cow bell.
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SWLiked it. Ed - Great job - at ease and at your best. William - the hate here mirrors the demographic profile and comes from folk who think the last ten or more years are normal....
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JWMore than 30 minutes in and nothing but an endless rant with ZERO info.
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FBSad and very little added value
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SUGreat video 😀, please bring William Cohen back in the near future!
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DGI think he is more angry at the manipulated system then blaming it on a single person. He makes a good accurate presentation of where we stand today and rightfully so is frustrated. Don't be hypersensitive to some of the people he quotes. I think he speaks a lot of truth.
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JEI like the fire, but the defensiveness of the guest really detracts from the conversation.
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TKI felt like we were just listening to Peter Schiff, in which case why not just bring Peter in?
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SGStopped halfway through. Very painful to watch. This guy has been hanging out in the Vanity Fair offices way to long.
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BMThank God I didn't waste to much time on this character...thank you to those in the comment section. Once again you've saved me precious time!
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dmHe needs to look in the mirror as his disdain for Trump is distorting his perspective. Waste of my time.
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RMNot sure why all the hate. If Cohan loves anyone, it seems to Leon Black ha. In crazy markets like this, we need to step back and look at things from a high level. I enjoyed this and the recent Fleckenstein interview. Keeps things in perspective. Thank you, Ed and William.
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HRLet me remind people that Obama met with Janet Yellen 45 times in the course of 8 years. Trump has had 2-3 meetings in 3 years. Who has done the jaw boning? Both if we are being honest. The speaker's anti Trump bias comes on way too strong and his message is already obvious to many of us RV viewers, so his praising Bernanke while criticizing Greenspan and Powell is disingenuous.
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DNCohan’s premise is of course correct, and there is no doubt that debt loads that cannot a. handle higher rates and b. recession/deflation are clearly too high. How/when the Minsky moment comes about and through what avenue is still unclear. In any event, the interviewer in these videos often tries to boil it all down to “how to play it all....” when the interviewee is clearly not close to enough to market nuance to provide meaningful insight. My expectation is that cans get kicked, policy stays easy until it is crystal clear to key cohorts/politicians the inefficacy of the policies. Like if Japan and Europe and US have low / negative rates and it does nothing to inflation, then may they should consider why velocity is so low and whether or not it impacts aggregate supply more than demand.
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KSI love how pissed off this guy is. I particularly love Ed's occasional look of being slightly amused. I don't feel particularly educated after this interview but I do feel entertained. 10/10
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WMI agree with most of what Mr Cohan said but he cheapened the argument with the political attacks. Additional some better clearer recommendations would have helped.
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TZOK, I don't feel remotely confident regarding my money in the bank. What if I buy stocks. Let's say gold stocks. Are stocks in general more secure than just a bank account with numbers on it? I mean if a specific stock is on my account. Let's say a 1000 shares. Are the bank or the Brokerage firm allow to liquidate it in case of insolvency issues? Where can I figure it out? I am an EU citizen. Thanks for any comments! I think Real Vision should make videos about these issues as well! A week with layers, rules, regulations, insurance!
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JSAwesome, you can’t say that he doesn’t have conviction! I am now watching every video where the votes are split close to 50/50. It’s like professional wrestling where the champ is the wrestler who get the most mail ( fan or hate). Just bought some bitcoin after this.
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TDHe has some good points but his politics are bleeding through too much.
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MCCohan: Trump bad. Bad. Trump.
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DPFew investors rode the Dow from 6500 to 28K. If you were in at 6500 more than likely you were in at 14K shortly before that. So you've doubled your investment in about 14 years. That's not an amazing feat.
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CLFED and Central Banks must get the blame for their incursions in closing up the system and the distortions to price discovery.
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NBI applaud Mr. Cohan for pounding the table on the ridiculousness of where we stand today. He breaks it down to the most fundamental truth. RISK IS MISPRICED IN A MAJOR WAY. Be careful children
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DSWhat a waste of time. Not one original thought/interesting angle...nothing. It’s gonna end badly blablabla. What’s next here, a weekly horoscope??
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adAtleast he is honest about it, even he may got the timing wrong about November 2020.
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PUI believe any interviewee who introduces too strong a political view in his/her message weakens the intellectual integrity of the message(s) conveyed in the interview. Ed, I love your chuckle at the end, priceless.
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DMThis is not a political forum.
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LAI cannot wait for the cental banks and President's scams to blow up in their faces. They think working class people are stupid to buy their BS.
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AMIt would help to differentiate between a bond ETF and individual bonds. An individual bond rolls down the yield curve. As it tick tocks is way to maturity, the duration of the bond decreases. This is different from a bond ETF which maintains the same duration. Different instruments with different purposes is the way I see it. Also helpful to differentiate between a corporate bond and a Government bond. The last debt crisis saw Government bond yields go to the floor whereas corporate credit spreads blew out. So capital gains on paper for risk-free bonds and capital losses on paper for corporate bonds. Junk got slaughtered. One more thing...in an environment where corporate credit spreads widen out materially, an index like the Russell 2000 will surely get squashed.
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FWThis guy should take the transcript of this talk to a capable, commonsense English teacher to walk him through all the contradictory verbiage on its face, let alone conjured through a blatant anti-Trump political bias. Then, some basic reality of real world macro and microeconomics might help him out, not to blame the Columbia Business School. Hedgeye pointed out Q3/18 that inflation was set to decline Q4/18 so no Fed mandate justification for interest rate hikes, hence bad things since including a diminished '19 GDP. Fantasy financial journalism, not to blame the financial institution he, evidently, hung out in for some years. He has no idea where we are in financial history and why so many markets are at their high end in valuations with no arbitrary opinion to be applied. It is there to be dealt with and not complained about. Blow the whole thing up by next summer to repent and start out to 'get it right this time' purity. Sounds like adopting a Warren/Bernie prescription template for healthcare Marxist/Leninist heaven.
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MNI'd rather listen to Ed discuss the topic and this guy. Ed is much more thoughtful and insightful on this anyways. You can tell he's not used to getting questions and people letting him bloviate. Very much the IB type. He makes valid points about the debt markets, but doesn't add anything whatsoever to the conversation.
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RMGreat interview Ed! Unfortunately your guest was so clearly biased and prejudiced (with a super inflated ego to boot) that I really couldn't take much away from this video. Loved your "push back" questions which the guest failed to answer properly. Cohan clearly views the markets through his political bias lens and would definitely be a loser if he was investing based on those views.
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JCAlso Junk at 11-12% back in the day was more indicative of dicey CCC paper - not the overall market itself. Single B paper was more like 6-10% even back in the early 2000-2007 go-go years. Over 11-12% more mezzanine like returns. But his point is still valid (that 5% junk bond yields are nuts and not represent the real risk). Anyway, this stuff doesn't happen in a vacuum. The M&A and PE world where he came from have been huge supporters of low rates and cutting credit protections so they could do their high-priced, overleveraged deals and get their fees. Over the past few decades hey pushed the underwriting banks to loosen credit protections to almost nothing ('covenant light') and flooded the market with overleveraged (and underpriced) deals. So it's not just the Fed doing these things all on their own. Market may be addicted to low interest rates, but sure seems like its way too late now to make the hard choices - not many politicans want to touch this issue and instead everyone wants to just let the Fed keep printing away so they don't have to cut spending or raise taxes. Once they institute MMT it will only get worse, and that's not going to the the Fed. Finally, we had massive deficits under Obama even in the latter years of his 2nd term where the deficit approached $1 trillion, and under his watch the national debt almost doubled from $10 trillion to $20 trillion. So this spending bonanza all started well before Orange Man.
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ARAnd where exactly the second level thinking ? Who else does not know that junk bonds and BBB are misspriced ?
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DHWe trade what is the market is doing and not trade how we want the market to behave. For instance, I disagree with the repo and QE but financial assets are going to inflate. Why would you short the market when clearly financial asset prices are increasing.
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JFTerribly superficial interview. Yes, I understand the earth is spherical — what’s the insight exactly?
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RWWow!! Well done Ed - a great interview
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JCGreen cords FTW! I think Powell caved due to the markets tanking big time last December plus the housing market showing signs of real pressure when mortgage rates spiked. Clearly the Fed overtightened and tried to reduce the BS too much together at the same time. The idea that this is 'all Donald Trump's fault' after QE 1-3 plus years of zero interest rates all through the Obama administration is highly misleading, to say the least. That said, ZIRP or NIRP are highly destructive policies and central banks should be held accountable for what they have wrought.
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DFThis guy is Grant on steroids...
WILLIAM COHAN: When you have 12 years of artificially low interest rates, you have 12 years of people taking risks for which they're not getting properly compensated. I don't see how you can invest in the bond market. It's a longer period of time. It's lower interest rates. It's a variety of asset classes. It's not just mortgage related securities, everything is overpriced. All of these debt securities are overpriced, and I think it's an absolute disaster waiting to happen.
ED HARRISON: Hi, I'm Ed Harrison for Real Vision and I'm talking to William Cohan, who is a bestselling author and journalist. Bill, great to have you here at Real Vision.
WILLIAM COHAN: Great to be here, Ed. Thank you.
ED HARRISON: Before we, were going to talk about a little bit about debt markets, I thought it was interesting before we started filming, we were talking about Columbia Business School, which we both went to and our years there, and both of us when we graduated, graduated into financial crises. I think it's that somehow reminds me that joke Jamie Dimon told when he was like, there's always a crisis on Wall Street every four or five years. It seems that that's the case. The question now is, are the debt markets going to be part of the next crisis that we're having coming up?
WILLIAM COHAN: Well, of course, the short answer is yes. Because as you said, it's inevitable. One thing that-- I wrote this book called, Why Wall Street Matters, after I'd written History of Lazard, the History of Bear Stearns, the History of Goldman Sachs. One thing I learned through the writing of these histories, is that in this country, there's a financial crisis approximately every 10 to 15 years.
ED HARRISON: Even less sometimes it seems.
WILLIAM COHAN: Even less sometimes it seems. The country was born in a financial crisis because we couldn't pay for the Revolutionary War. Sometimes, the federal government would foment the crisis, sometimes Wall Street would foment or exacerbate the crisis. Now, it's been literally 12 years since the last. We're certainly, in my view, long overdue-- and not because of the historical demand that we have a financial crisis, but just because of, which I'm sure we'll talk about, the various aspects of what's going on in the market which to me, leads to the inevitable conclusion that a financial crisis of major proportions is on the way.
ED HARRISON: There are two things I thought were interesting there. Let me hit on one of them. You mentioned Lazard in particular and I think one of the important things in terms of this interview, even though I said bestselling author and journalist as your title, the reality is that you are a former practitioner. When we talk about you as a journalist coming and you can talk the talk and walk the walk because you've actually been there. I think that's important. Wouldn't you say that your career on Wall Street actually informs you as to the mindset that we might have right now at this particular point in the business cycle?
WILLIAM COHAN: I'd been a journalist. Before I went to Columbia Business School, I went to Columbia Journalism School, I was a practicing journalist on a daily paper in Raleigh, North Carolina. Then I came back to Columbia Business School. After I graduated, I went to Wall Street, 17 years. First at GE Capital, then at Lazard, and Merrill Lynch and what became JPMorgan Chase. I was head of the media and telecom practice in the M&A group at JPMorgan Chase until 2004. Then went back to writing, wrote my first book about Lazard.
Obviously, when you spend 17 years doing something like working on Wall Street, not only do you understand the language, as you say, you can talk the talk, I have the scars on my back from the experience, but I have a lot of knowledge and I think nuance and understanding of the way markets work, the way Wall Street works, what motivates people on Wall Street. It's not nearly as black and white as people want us to think especially politicians. That's why I wrote Why Wall Street Matters because I thought the rhetoric was really getting out of control as we were heading into the 2016 election, where everybody was bashing Wall Street without really understanding the central role that Wall Street plays in not only our economy, but the world economy.
I thought it was worthwhile to tone down the rhetoric, tone down the blame game, and explore the good things that Wall Street does and let's celebrate them, but also let's point out the things that Wall Street doesn't do well, and try to fix them. Of course, that all gets drowned out all the time because Wall Street's an easy target and fun to victimize and make them into the bad guy. I think my background on Wall Street brings allows me to have a unique perspective in writing about Wall Street and writing about the economy.
ED HARRISON: Thinking about debt market. As you talk about that, Wall Street incentives and where we are in the business cycle comes to mind in terms of interest rates. I guess the macro view that I have is that the Federal Reserve has a mandate, a dual mandate, to keep inflation low and to keep unemployment also low. They used interest rates to do that, but by leaving interest rates at zero percent for so long, they have fueled animal spirits on Wall Street and a lot of companies that wouldn't normally be financed have been financed. How do you see that?
WILLIAM COHAN: Obviously, I completely agree with that. I think again, there's some subtleties and nuances in the argument. After the financial crisis, I have to give Ben Bernanke, the then Fed Chairman, a lot of credit for-- no pun intended-- for structuring a way to revive the economy after 2008 by intentionally lowering interest rates, both short term and then through this quantitative easing program, one, two and three, which led to a huge expansion of the Fed's balance sheet from about 800 billion of assets to about 4.5 trillion of assets.
In effect, going into the market and buying all these debt securities, whether they're treasuries or mortgage securities or Fannie and Freddie backed securities that in effect created a huge source of demand in the bond market, which of course, raised the price bonds and lowered their yield across the board for a very long time, bought any number trillions, in fact, of these securities from the market, from Wall Street firms that had them on their balance sheets that didn't want them and couldn't sell them and essentially created a big foot of demand where there hadn't been before.
That was a very interesting way and a very creative way. They've been done, tried once before during the Great Depression briefly, under Roosevelt, which people forget, and of course, Bernanke had been a student of the Great Depression and so was determined not to repeat those mistakes and I think he deserves a lot of credit for that and for getting the economy revved up again.
ED HARRISON: I see a but coming.
WILLIAM COHAN: There's a but coming because at some point, you have to say enough's enough. When you keep interest rates-- there's zero interest rate policies, so-called zero policy, so low for so long, well, then strange things begin to happen. In my view, the strange things that begin to happen and there's evidence strewn all over the landscape is that people begin to take risks in search of higher yield, what are called the Yield Hunger Games, people engage in the Yield Hunger Games trying to find higher rewards than they can get in presumably safer security. They begin taking more and more risk and not getting compensated for that risk, so-called mispricing of risk.
That has gone on now. I don't know what the dividing line should have been when the economy was recovered sufficiently to start reducing the zero interest rate policy, but it's certainly now, it's been going on-- with exception of parts of 2018, it's been going on for 12 years, and that is absolutely too long. You see evidence of this all over, you see whether it's covenant light loans that are in the trillions of dollars that that are unfavorable to lenders.
You see the explosion of BBB credit, near junk bond like credit that is-- people talking about the BBB cliff, the concern that once the markets slow down, once the economy slows down, a lot of these bonds are going to go into junk credit and have to be sold or potentially would be defaulting and that's money that is very hard to recover. You see what's happening in the junk bond market where once upon a time, to get compensated for the risk that people were taking by lending money to less credit worthy companies, they should be getting 10% or 11% or 12% yield on their money. Instead, the bond market is yielding 5.50%, which is ridiculous because that people just are not getting compensated for the risk they're taking.
Whether you see auto loans have exploded and defaults on auto loans have exploded. We have huge trillions of dollars of student debt. We're literally a world awash in debt, something like $235 trillion. Once AAA rated companies, of which there are very, very few now. GE has 100 billion of debt. AT&T has 180 billion of debt. Companies have been rewarded because of the zero interest rate policy, a combination of low interest rates and tax deductibility of interest to issue debt. Of course, that's what they've done.
The Fed has pushed companies to issue as much debt as they possibly can, which is great for them, but horrible for investors, horrible for lenders. Eventually this is going-- this is just one of the asset bubbles. The debt market is this huge asset bubble which, in my mind, is going to explode. If I could just give you one example of how you can see that there are smart people who completely understand this, one of my favorite examples is this merger that recently took place between Gatehouse Media and Gannett to create the largest owner of newspapers in this country now.
Why? We all know that the newspaper industry has been struggling and this merger is in part a result of that struggle to try to cut costs. As far as mergers goes relatively small, about $2 billion, $2.5 billion deal, and it just closed in November, but the lender, the consideration that the Gatehouse paid to Gannett was half for stock in cash. To fund the cash portion of that consideration, the company got a loan from Apollo, which is Leon Black, the big private equity firm.
ED HARRISON: He knows what he's doing.
WILLIAM COHAN: He knows what he's doing. He knows how to price risk. This is a senior loan. I'm not sure exactly whether it was secured, but I assume it was secured. Instead of getting 5.5%, which would have been a junk bond rate in this market, he got 11.5%. He's getting paid 11.5% a year on a $1.8 billion loan. At closing, he got a 6% fee. He got another $120 million at closing. That's pricing risk correctly.
Leon Black knows how to price risk correctly. Unfortunately, institutional investors all over the world-- because they have to show returns to beat the market or whatever, they get sucked into this vortex of trying to get higher and higher