Transcript: Jim Millstein & Restructuring of AIG



The transcript from this week’s MIB: Jim Millstein, AIG Restructurer, is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.


This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. His name is Jim Millstein and he has a fascinating history not just in the world of corporate restructuring, but related to the financial crisis and the restructuring of AIG and a variety of other debacles he’s had a front row seat to.

If you are at all a student of how companies go bad and what we do with them afterwards, you are going to find this to be an absolutely fascinating conversation. He has a deep expertise in this space starting out at Cleary Gottlieb going to Lazard Frères, launching his own firm, Millstein and Company which was recently purchased by Guggenheim Securities and dead center in the middle of that, being the chief restructuring officer at the Treasury Department in the middle of the bailouts on ’09, ’10 and ’11.

So I found this to be an absolutely intriguing conversation and I suspect you will as well. With no further ado my conversation with Jim Millstein.

I’m Barry Ritholtz; you’re listening to Masters in Business on Bloomberg Radio. My special guest this week is Jim Millstein, he is the cochairman of Guggenheim Securities. He comes to us with a bachelors from Princeton, a Masters from Berkeley, he graduated with a degree in law from Columbia, currently he is an adjunct professor at Georgetown University Law Center but perhaps most interesting for our purposes he was the chief restructuring officer at Treasury from 2009 to 2011 responsible for oversight and management of Uncle Sam’s largest financial sector rescues.

Indeed he was the principal architect of the restructuring of American International Group, Jim Millstein, welcome to Bloomberg.


RITHOLTZ: So you have a fascinating background, you begin your career as a lawyer at Cleary Gottlieb, what did you imagine your career was going to look like when you first started as an attorney?

MILLSTEIN: Well, like many attorneys I kind of wandered into my first job without a real clear vision of what I was going to do, but Reagan had gotten elected, I had spent a couple of years out of Berkeley being a policy analyst and working on what was then called industrial policy which was something that the United States probably implements only through the Defense Department.


MILLSTEIN: And — but we had been part of a small group of scholars who were trying to urge the United States to deal with the then Japanese threat to our electronics and semiconductor and steel and automobile industries by actually coordinating tariff trade tax and investment policy through…

RITHOLTZ: Sort of the way Trump is doing now.

MILLSTEIN: Well yeah.

RITHOLTZ: Maybe not quite…

MILLSTEIN: Not so coordinated…

RITHOLTZ: As structured but…


RITHOLTZ: But the basic premise is we should be proactive here.

MILLSTEIN: Yes, well, you know other countries are, right? We were dealing with a mercantilist nation in Japan, really Germany the same after World War II, China’s obviously now engaged in the same kinds of — yes, the same kinds of behavior. But they have all learned from each other. The Koreans learn from the Japanese the Chinese learned from both of them and they have a coordinated policy of credit, investment, tax, trade in order to promote domestic employment and production.

And the United States, we’ve taken a more free market hands-off laissez-faire approach and you can see the consequences now as we find ourselves in a much more competitive environment.

Anyway, long story short, I spent a couple of years working on those kinds of issues. Reagan gets elected, we’re now in the you know Reagan Thatcher dismantle the welfare state industrial policy is probably the — never going to be on that agenda so I determined instead of going back to Washington and working in the government, I’m going to work for a liberal international law firm, Cleary Gottlieb that helped create the predecessor to the European Union after World War II.

It was founded by a group of State Department officials in Paris and Washington simultaneously and they helped create the iron and steel union which was a precursor of the EU.

RITHOLTZ: So how do you transition from Cleary Gottlieb to Lazard Frères? That doesn’t seem like a natural path?

MILLSTEIN: Well I’ve been working on the — Lazard and Cleary shared a client called Pan American Airways which was the dominant international carrier in the ’50s, ’60s and ’70s …


MILLSTEIN: That’s right. PanAm.

And disappeared into the dustbin of history, but in the ’50s, ’60s, ’70s and ’80s, it was the dominant international carrier for the United States, it fell on hard times as the markets were deregulated and they found themselves subject to competition they really couldn’t handle because they were a product of a regulated industry.


MILLSTEIN: And they ultimately went bankrupt, Lazard and Cleary shared it was my first big debtor case as a lawyer running in effect, an orderly liquidation of Pan Am selling its roots off to United and to American hither and yon. And at the end of the case, Felix Rohatyn called me and said “You’re in the wrong business, you really should be a banker.” And I resisted then, that was like 1992 or 1994, I resisted changing my career then but in 1999, they came calling again and after I was working on a large restructuring in Korea called Daewoo.

RITHOLTZ: Giant, giant company.

MILLSTEIN: Again, one of the they again one of the one of the Korean Kidetsu (ph), it was their version and the trading company, steel company, electronics company textile company…

RITHOLTZ: Finance, real estate…

MILLSTEIN: Finance, real estate, the whole nine yards, 10 percent of the Korean economy in one company under one roof.

RITHOLTZ: What could go wrong with that?

MILLSTEIN: What can go wrong with that? And they borrowed $60 billion in all over God’s green earth and you know fell on hard times as a result of the Thai Baht crisis which became the Korean Won crisis in the late ’90s.

And they hired — so they hired Cleary and I was in charge of that and I hired Lazard to help me with it because they had restructuring and they had the presence all over God’s green earth where we had to restructure various debts, so I got to know the guys running that practice very well at the end of it they leaned over across the aisle from some hot god-awful flight from Tokyo to New York and said “You know, you’re in the wrong business” and I said “I’ve heard this before.”

RITHOLTZ: (LAUGHTER) From you guys, right.

MILLSTEIN: Yes, so this time I succumbed to the offer.

RITHOLTZ: So you’re there from 2000 to 2008 and we had a couple of little things happen in ’08, how did you go from Lazard doing corporate restructuring to working with Uncle Sam who was a little concerned about Lehman and AIG and everything else?

MILLSTEIN: So I answered the phone is basically the answer to that. I had a — you know, it’s funny how the world works, I had a friend — a guy I had worked with when he was a young policy analyst in the Carter administration when I was a…

RITHOLTZ: A young whippersnapper lawyer?

MILLSTEIN: Well, no, when I was a you know, a graduate student out of Berkeley and I was writing things on industrial policy and he was reading them and helping promote them across the Carter administration and anyway I picked up, shortly after the election like 10 minutes after the election of President Obama, then to be President Obama, I got a call from him and he said you might have noticed we are doing a couple of restructuring down here, new administration could use someone with your background, would you be willing to come?

And you know I’ve always had an interest in who would’ve believed that the country needed my expertise in particular but there it was.

RITHOLTZ: Quite fascinating. So you mentioned you got a phone call what made you decide to take what sounded like a pretty thankless role?

MILLSTEIN: Well, that’s what I do for a living, pretty thankless roles, but you know, I think — I thought I might be able to make a modest contribution given my background and I had been a student of the financial crisis since it was unfolding, we at Lazard, we’re running on the leading restructuring practice, we had a lot of these the front end of the subprime crisis running in — coming through our doors, American…

RITHOLTZ: Mortgage companies and others.

MILLSTEIN: Mortgage, originators, and distributors coming through, you know, they were the first to fail, the front end of the system was the first to fail and that was in ’07, and you know, I’m a curious fellow and I was — there was a plethora of these companies coming in like what’s going on?

RITHOLTZ: There was a website called mortgage and it tracked, there is something like 400 of them blew up, but it would track it in real time and kept a running list, it was quite astonishing.

MILLSTEIN: And some of the biggest ones, New Century, American Home Mortgage showed up at our doors as our clients we were presided over and help them liquidate themselves in effect and so I — you know, my antenna went up, I got smart about the subprime crisis and the leveraging in the financial system and how they were levering themselves around these products and others.

So when this call came, you know having become a student of what is going on in the American financial industry between 2000 and 2008 you know, my curiosity alone drove me to Washington.

RITHOLTZ: So the news crosses, AIG gets $182 billion bailout, what is your immediate response when you see these — these are hard — we are kind of used to them today but at the time, these numbers were just unfathomable.

MILLSTEIN: Yes, by the time I got there, AIG had already borrowed from the Fed in one pocket or another $132 billion, and that was in over the course of eight weeks between September 18 when the first loan was inked until the time you know the transition team was in place and we’re now trying to figure out what was going on. They had borrowed $132 billion and that’s when you know the restructuring first began, right?

In most cases, with the exception of Lehman Brothers, what the federal government, the Fed, the treasury and the FDIC did during the course of 2008 was just refinance the balance sheets, the short-term debt coming due on the balance sheets of all of these companies.

RITHOLTZ: Basically saying these companies are effectively solvent but they have a very short-term liquidity issue and if we could free that up, all these are companies worth saving and if they crash, it causes a big problem otherwise.

MILLSTEIN: Well an insolvency expert would say there are two definitions of insolvency, there is a balance sheet insolvency where your liabilities exceed your fair market value of your assets and then there is illiquidity your inability to pay your debts when due.

It was clear at the time that none of these companies could pay their debts when due, they needed in effect what the Fed was established to do, to be a lender of last resort, an emergency provider of liquidity when the markets freeze up in their panic, and the Fed the FDIC and the Treasury Department did this fairly well (ph) during the Bush administration under the leadership of Secretary Paulson and Ben Bernanke at the fed. So by the time we get there in late ’08. We haven’t yet assumed the powers but there’s a transition going on, a baton passing exercise going on between the Paulson Treasury Department and the Geithner Treasury Department.

RITHOLTZ: And those guys have worked together previously so it wasn’t like they were strangers, Geithner and was that the present on the New York Fed.


RITHOLTZ: So everybody kind of knew each other.

MILLSTEIN: Yes, no, no, there was a very seamless transition and you know sometimes you get lucky as a country.


MILLSTEIN: Right? We have the leading economic historian of the Great Depression sitting as the Chairman of the Federal Reserve, he may not have had a playbook as to what to do but he knew what the Fed did wrong in the 30s and he was dedicated not to doing that again.

RITHOLTZ: Hey, learning what not to do is half the battle.


RITHOLTZ: It puts you way ahead of people.

So you mentioned the difference between the liquidity events and a solvency event and you mentioned in passing, Lehman Brothers, let’s talk about that a second, there have been some academic studies that said at the time Lehman Brothers went belly up, their value was somewhere between a negative $100 billion and negative $200 billion. Of all the companies out there, they really seem to be completely insolvent, fair statement?

MILLSTEIN: Well so if you took a snapshot, I would venture to say, if you take a snapshot and mark to market the balance sheets of any of the major financial institutions particularly the broker-dealers, Goldman, Morgan Stanley, Merrill Lynch, on September 1st maybe make it September 9th, the day after Fannie and Freddie are taken into conservatorship and panic runs through the entire conventional and subprime — they have already run through the subprime market but now you take the largest you know mortgage…

RITHOLTZ: Conforming mortgage…


MILLSTEIN: Right, so exactly and you put them into conservatorship on the theory that either they are illiquid and need the government support or their insolvent and need the government’s balance sheet to back them. If you took a snapshot of the balance sheets of any of the major financial institutions in the United States on September 9th and said mark this all to market right now where anything is trading, I dare say in a balance sheet basis they all look insolvent.

But, and that was sort of the thing, is that there’s a relationship between your ability to maintain a position and your solvency, so you know, of Keynes famously said “The markets can stay irrational longer than you can say solvent.” But if you can stay solvent that is liquid through a downturn…

RITHOLTZ: You’re okay.

MILLSTEIN: You’re okay. And so in effect.

RITHOLTZ: And in fact, better, you come out the other side actually pretty good.

MILLSTEIN: Right. So in the case of Lehman, right? So you have Lehman Weekend, the story has been told many times but the Fed at the New York Fed,, they are trying to figure out if they can broker a marriage between Lehman and Barclays or Lehman and Bank of America and each of those institutions of prospective buyers is doing diligence as fast as they can on Lehman’s book to try and figure out which part of the bank if maybe the entire part of the bank they will take and in particular, BofA has done as good a job as could be done in the circumstances and analysis of Lehman’s real estate portfolio and they conclude that the marks that the — last marks on the portfolio vastly overstate the value.

RITHOLTZ: Right. Fabricated, completed fabricated.

MILLSTEIN: Well, who knows whether it’s fabricated, the market was going to collapse if you could have held on to it, who knows?

RITHOLTZ: So let me share my pet peeve.


RITHOLTZ: Which is we will hold aside the FASB rule change that no longer required mark to market, we will discuss that later.


RITHOLTZ: But the repo 105, if you have to every quarter a few days before you report your earnings and you have to swear up your quarterly numbers, you have to move $50 billion plus of liability off your balance sheet.


RITHOLTZ: That kind of implies that not only is your accounting not somewhat opaque but it implies that you’re committing accounting fraud on your investors and you’re probably either in bad shape or deeply insolvent and we’ve since found that forget the mark to market, they’re deeply insolvent.

MILLSTEIN: Yes. Okay so that was a conclusion the fed ran.



MILLSTEIN: And they concluded that they really didn’t have a statutory base on which to be able to fund — provide emergency lending to Lehman. You know, I think in retrospect given the fallout that immediately occurred upon the filing of that bankruptcy, maybe we should have been more creative. We could have hoisted losses on the shareholders, we could have hoisted the losses…

RITHOLTZ: But we did.

MILLSTEIN: Right, we had a bankruptcy, we could’ve achieved the kind of you know anti-moral hazard problem with bailouts potentially in the way we structured alone to the broker-dealer so as to avoid the kind of adverse impacts that — I mean, the filing of Lehman Brothers created a panic.

RITHOLTZ: Well okay, I’m not going to disagree with that.

MILLSTEIN: Right, and so you know that the whole the whole script of the rescue from the beginning of with Bear Stearns to the opening of the FX lines to make sure that the European banks didn’t default against their on their own debt and therefore default on their American counterparties which would’ve created a liquidity crisis here to the, you know putting Fannie and Freddie into conservatorship the saving of AIG a series of emergency the alphabet soup of emergency lending programs the Fed instituted, you know the prime dealer credit facility…


MILLSTEIN: The TALF, the TAF (ph), you know commercial paper facility I mean you know there was a every market that had frozen up, they intervened in and tried to restart in order to provide liquidity to the system and so the question is you know in the midst of that just tsunami of credit support and liquidity you decide to take one company down.

RITHOLTZ: My pet thesis is Dick Fuld said no to Warren Buffett’s offer to inject capital over the summer and I wish it was a fly on the wall in that room, because I have to imagine between Paulson and Bernanke and Geithner, someone said “This idiot said no to Warren Buffett, how can we possibly save him?” They had an opportunity, he was a pig, he has — was always been a pig and now he should be in an orange jumpsuit, but let’s…

MILLSTEIN: We’re not automatons.


MILLSTEIN: Personalities and personal histories matter and I so I don’t think there is a — I don’t think you’re crazy in that thought.

RITHOLTZ: So let’s talk a little about what’s going on currently in your career after you leave treasury you go to work as a banker and an investor and you pretty much decide to hang out your own shingle, Millstein and Company, tell us about the launch of that firm and what the thinking was as opposed to being attached to another giant financial entity.

MILLSTEIN: Yes, I mean one thing working in the government (inaudible) is the desire to have a boss, so I decided I would set up my own shop, I really had no know grand plans but we went from, you know, one answering another call to another call to another call and before I knew it, I had offices in New York and Washington where we’re working on largish corporate restructurings and sovereign restructurings again and also you know reinvesting the profits of the business of partners, the guys who join me and guys and gals who join me, you know, we all agreed that the advisory business is a business that goes up and down, revenue is volatile, whereas if we could actually make some solid investments we might be able to provide ourselves with a little more secure income in the matter and to generate wealth particularly for the young kids who were working for me.

So anyway, seven years into this, we ended up with 35 people doing corporate and sovereign restructuring and you know, 15 people doing investing and we had rates from third-party funds and you know I’m not getting any younger, I’m 63 years old and the people who joined me were all in their 30s and 40s and I’ve turned to them and said we have a strategic problem, two strategic problems, one we’re a small boutique entering what I think will be a synonymy of restructuring to come, and we really could use the leverage of a larger firm with arms and legs in various industries with real industry expertise as opposed to our sort of product specialty called restructuring on the one hand and the other strategic challenge was you know, we built a franchise and I’m not getting any younger so eventually, we concluded that merging with a larger financial services firm made sense, Allan Schwartz and I have been talking for three or four years.

RITHOLTZ: Former Bear Stearns CEO, is that right?

MILLSTEIN: Former Bear Stearns CEO and really one of the most widely respected bankers investment bankers in the United States and is you know Disney’s banker, Verizon’s banker, he’s a very well-respected board room banker and tactician and strategist. So and he and I become friends after the crisis and so it became — it was a natural fit, they have 400 bankers who do you know tech media telecom, power and energy, real estate, and the whole landscape waterfront as well as sales and trading so the kind of you know what Morgan Stanley and Goldman Sachs were back in the early ’90s.

They’ve built an independent investment bank.

RITHOLTZ: Before they went public.

MILLSTEIN: Before they went public and expanded their balance sheets…

RITHOLTZ: Tremendously, right.

So you mentioned something in passing I can’t let go by, you think we’re at the leading edge of a wave of future restructurings, is that global? Is that industry-specific? Where do you see that happening?

MILLSTEIN: Well let’s do some stats, you know, corporate debt to GDP is the highest it’s been in American history ever, so we have a very levered corporate sector and part of that is you know, the financial reengineering of their own balance sheet stock buybacks funded with debt, part of that is you know the buyout waves and leveraging generally that’s associated with the buyouts, and part of that is you know just the general tend to the credits been so cheap that corporations have reengineered their own…


RITHOLTZ: So that was the question I immediately popped into my mind after you said that was well is a reason for them not to be leveraged up when money is almost not quite free and as long as they are I hope everyone learned the lesson about fixed versus variable lending in the financial crisis as long as those rates are locked in, it seems like their debt servicing is fairly affordable.


RITHOLTZ: Until profits…


MILLSTEIN: But there are two sides of that, right? You know if your cash flows decline because of a recession suddenly your leverage goes from manageable to unmanageable and if you’re in a rising interest rate environment, forget about floating rate, you know a lot of bank that is floating rate but that’s a leverage level, it is generally 2 to 3 times so it’s not going to sink a company even in a declining cash loan environment but the real risk is refinancing risk which is exactly what we saw during the financial crisis with the financial institutions…


RITHOLTZ: In other words, they have to roll that that debt over and now it’s at a much higher rate or maybe they can’t roll it over at all?

MILLSTEIN: Exactly so with a very highly levered corporate sector and if you look at credit quality, Barry, I mean I’m sure you know the stats, 50 percent of the so-called investment-grade debt is the lowest investment-grade ranking and the noninvestment grade debt it now constitutes more than half of all debt on the corporate sector in the United States. So you have a highly levered sector with very low credit quality, you know, we could, and you have a fed raising interest rates, the federal government borrowing like a drunken sailor on leave.

RITHOLTZ: I always object to that metaphor because drunken sailors spend their own money.

MILLSTEIN: Exactly. Okay you’re right that the federal government borrowing like there was no tomorrow, how about that?

RITHOLTZ: Fair enough.

You’ve had a ringside seat to some of the most fascinating restructurings of recent memory, you either worked on these or near, or people in the firm did some work on them US Airways, Charter Communications, the autoworkers, the carmakers bail out and reboot, even countries like Cyprus and Greece and the United States, Puerto Rico, so I have to ask you what you all these things have in common and what are the important differences when you look at these big financial snafus, what should we make of these?

MILLSTEIN: Yes, so Tolstoy in “Anna Karenina” says it all, “Happy families are alike and each unhappy family is unhappy in its own way” and each restructuring you know is unique in its own way, there’s sometimes it’s management that just you know went off in a frolic and detour spent too much money levered up and on a mistaken strategy.

Other times, it’s you know, a change in the business cycle and a highly levered balance sheet that takes a perfectly good company that in ordinary time to generate even in bad times, are generating cash flow but it’s just got the wrong balance sheet for the kind of cash flows capable of generating through a cycle. And so you’re doing a balance sheet restructuring of a good business.

You know and other times it’s the business that you know who’s time has come, whose mission has long since passed.

RITHOLTZ: Hypothetically a company like Sears.

MILLSTEIN: Exactly. And so…

RITHOLTZ: Or not so hypothetically…


MILLSTEIN: Yes, real world apparently yeah. You know, in the case of countries, it’s some combination of investor enthusiasm, misplaced enthusiasm for sovereign debt and a failure to really look at the underlying dynamics of the country’s economy.

RITHOLTZ: I was just in Iceland and the story there is just — it’s crazy.

MILLSTEIN: Now, it’s crazy again.

RITHOLTZ: Right. It is an island of you know…


RITHOLTZ: The size of Boston right in and they were levered like 88 to 1 against GDP is just nuts.

MILLSTEIN: Well, they were product of the you know of open capital no capital controls and capital swishing, swashing through the system.

RITHOLTZ: So how is that different from Greece or Puerto Rico?

MILLSTEIN: Well, Puerto Rico, the capital markets were open and as long as they were open, you could do deficit financing.

RITHOLTZ: Right even though states and cities are not supposed to do deficit finance.

MILLSTEIN: That is right, but there but you know municipal bankers of which I do not count myself as one have found lots of ways to…

RITHOLTZ: Getting around those rules.

MILLSTEIN: Well to find ways to finance deficits that are not completely transparent.

And so Puerto Rico went into recession in 2006 as a result of change in federal law that had formally subsidized the pharmaceutical production on the island that had a 20 year tax break that encourage pharmaceuticals to do their final packaging on the island and created 350,000 jobs and lots of tax revenues and that expired in 2006, Puerto Rico went into recession that they still have not come out of…

RITHOLTZ: A decade plus letter.

MILLSTEIN: Yes, a decade plus later and they financed the decline in tax revenues with debt, lots of it so they by the time they got to us, Millstein and Company then in 2014, they had $75 billion of debt for an island of 3 1/2 million people, they had the pension systems that were underfunded to the tune of $30 billion or $40 billion and a real inability to pay their debts when due and particularly as the capital markets shut to them. And as long as you are going to roll that debt over.

RITHOLTZ: It doesn’t matter.

MILLSTEIN: It doesn’t matter.

But if you can’t roll it over because you know, suddenly, you are borrowing what you would — the debt you would incur at 2 percent in the muni market, you are now having to pay 8 percent tax-free, you know it just makes it unsustainable.

RITHOLTZ: Right I was on in Puerto Rico, I want to say 14 or 15 and already there was a brain drain going on, there were — people forget it’s not a different country right, you could hop on an American Airlines flight and go anywhere in the United States, no passport required.

MILLSTEIN: Right and lots of people did and have and so in any event, so you know countries are much more complex, and we’re seeing and frankly we were doing a lot of work now in the United States because you have a series of states that don’t look all that much better than Puerto Rico did in 2014.

RITHOLTZ: Illinois has to be a giant mess.

MILLSTEIN: Illinois, Connecticut, I mean all of the…

RITHOLTZ: How did Connecticut go south so fast? I mean at one point they were one of the wealthier states in the country.

MILLSTEIN: Well they are still one of the wealthier states in the country, the problem is that they’ve their economy is growing slower than the rest of the surrounding states and they’ve levered themselves up and deferred pension contributions for 20 years and as…


RITHOLTZ: What could go wrong with that?

MILLSTEIN: Right I mean you know this is the responsible handling of the commitments you make as a state is critical to the stability of the state.

RITHOLTZ: So if you’re a fill in the blank teacher, police officer, fireman in any of these states, are you going to get 100 cents on the dollar of your expected pension retirement or everything is on the table in order to make these states solvent again?

MILLSTEIN: You know, it seems unlikely.


MILLSTEIN: Yes, there is a $3.5 trillion deficiency in the funding of state employee pensions nationwide, $3.5 trillion dollars.

RITHOLTZ: Amazing.

MILLSTEIN: And the problem for these public employees is that you know at least today even in Trump’s America, there are no walls built between the boundaries of different state so if a state starts overtaxing compared to other states, its employees, its citizens and under serving them in terms of the provision of current services in the form of good infrastructure, good schools…

RITHOLTZ: People leave.

MILLSTEIN: People leave and when they leave…

RITHOLTZ: Look at Kansas, what a mess they made over there.

MILLSTEIN: They take — and when they leave they take their tax revenues and property taxes and income taxes with them and it becomes an adverse feedback loop, fewer and fewer, fewer number of citizens are supporting a greater and growing liability for legacy costs and so you know this is that there is going to have to be a reckoning here.

RITHOLTZ: That is the name of your next book, “The Reckoning.”

MILLSTEIN: “The Reckoning.”

RITHOLTZ: I like that, so let’s let something that’s a little more cheerful I know you are a fan of watching the financial sector and looking at some of the dominant players which have become very concentrated post crisis and I know you’re a fan of FINTECH and what when you look at this, are these big companies to stay entrenched and keep putting up walls to prevent competition, or can the new financial technologies, can these new upstart companies break that hegemony from the big finance companies.

MILLSTEIN: The answer to that is it’s going to depend on government policy.


MILLSTEIN: Because what is going on with the financials and FINTECH is similar to what’s gone with Facebook and Snapchat and Google and every other you know highflying startup technology company…

RITHOLTZ: Now, why aren’t those tech companies just thought of as aggressively competing in the marketplace and you have Apple and you have Amazon, you have Google, you have Facebook, you’ve all these companies that granted there are four giant winners but still any you know, you could look at how many search engines were there before Google became dominant.

MILLSTEIN: Right, so but these companies are rolling up in a potential threats to their competition and it’s a great exit for a venture capitalist and for an entrepreneur who has a great idea to sell yourself to Google, to Amazon, to Apple, to Facebook, and the big banks are doing the same thing and FINTECH.

There have been a multitude of startups in and around the financial services space and the big banks recognize the potential threats so they are doing a lot of in-house R&D but there also acquiring a lot of the new startups and so government policy will really make a difference and here’s a thought experiment that I urge you and your listeners to think about.

So today, we have a the bank centric deposit system, right? If you want to store your money have immediate access to your cash liquidity ready to trade off from liquidity versus return, you are going to have a deposit account at a bank to meet your ordinary immediate spending needs.

It’s safe because it’s guaranteed by the federal government. The banks in turn you’re your deposits and deposit them their excess reserves at the Fed and the Fed is now paying them 75 basis points for the privilege of having those excess reserves on deposit with the Fed, the Fed is basically a clearinghouse among all the banks.

Well, what if you, Barry Ritholtz, could have a deposit account at the Fed? You could get 75 basis points and you could direct the Fed to transfer your money to your mutual fund, to your utility bill, to your wherever you wanted it to go. In other words, what if you had a bank account at the Fed.

RITHOLTZ: If I can become a systemically important financial institution I know they’ll — they will be able to bail me out…


MILLSTEIN: Well, maybe that wouldn’t come with your deposit account.

RITHOLTZ: Oh okay…


MILLSTEIN: But the facility with which monetary policy could then be conducted is extraordinary, right? Because if they want to encourage savings to be — if they want to encourage savings and reduce the money supply, they would increase the interest rate in your deposit account, if they want to encourage investment and spending, they would reduce the interest rate maybe even have a negative interest rate to force your money out, but the point is that it would disintermediate the banks and banks arguably would have to go find other sources of funding other than subsidize deposits from the federal government.

RITHOLTZ: And you’re implying FINTECH is going to play this role…


RITHOLTZ: Or potentially can play this way.

MILLSTEIN: Yes, I don’t know where you are on the crypto currency debate.

RITHOLTZ: I’m a full-blown Met.

MILLSTEIN: As opposed to an Oriole who is you know a full…


RITHOLTZ: … relate to that, but still.

MILLSTEIN: Okay but in effect the Fed could issue with this digital currency, you have a trusted agent issuing a digital currency that allows individuals to in effect transact in electronic form as opposed to just allowing…

RITHOLTZ: Via the blockchain is that what you’re suggesting?

MILLSTEIN: Well, they might implement it via blockchain…

RITHOLTZ: That is fascinating.

MILLSTEIN: Right now, the implementation itself is quite expensive in blockchain, their processing costs far exceed what the antiquated networks of Visa and MasterCard their processing cost but it may get there.


RITHOLTZ: Now people something like 20 percent of all crypto currencies have been lost and if I lose my credit card my liability is capped at $50, so until we find a way around that…

MILLSTEIN: Yes, no, I think there are lots of problems with this but the biggest problem the biggest problem with any currency or fiat currency is whether it’s legal tender and so you know and until it’s excepted as a form of payment by the federal government it’s really just the speculative tool.

RITHOLTZ: Quite fascinating. Can you stick around a little bit? I have a million more questions for you.


RITHOLTZ: We’ve been speaking with Jim Millstein, he is the cochairman of Guggenheim Securities.

If you enjoyed this conversation, well be sure and come back for the podcast extras where we keep the tape rolling and continue discussing all things restructuring. You can find that at iTunes, Stitcher, Overcast, wherever your finer podcasts are sold.

We love your comments, feedback, and suggestions, write to us at You can check out my daily column on or follow me on Twitter @Ritholtz.

I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.

Welcome to the podcast, Jim, thank you so much for doing this. I am not only fascinated by the entire financial crisis over, that that was my doctoral thesis.


RITHOLTZ: Sort of. But there’s so much minutia in that space that I think so many people don’t know and you were literally table right there, you had a seat at the table right in the middle of that.

MILLSTEIN: In the belly of the beast.

RITHOLTZ: And never any interest in writing the a book going I mean…


RITHOLTZ: I mean for posterity’s sake, there should be a full data dump on everything you — we have…


MILLSTEIN: What I learned when I went to Washington, right.


RITHOLTZ: But not from the perspective of a central banker, I’m glad Bernanke had his expertise although you know whatever they screw up in surgery and they have to send someone in to fix it, it’s never the original surgeon because he has a vested interest in protecting his own reputation. My thought process was hey Larry Summers was there you know was the guy who repealed Glass-Steagall and pass the commodity futures modernization act, Tim Geithner was the New York Federal Reserve President and Bernanke was kind of there cheering Greenspan along to doing all of his — talk about a reputation collapse, but all of his ideology, Bernanke he was right there with him.

So I wonder if this really was the optimal maybe that’s the right word, the optimal crew to go in and rescue. That said I completely appreciate Bernanke having had his expertise and perhaps of all of them he was the right guy in the right time.

MILLSTEIN: Yes, well Tim had his own qualifications, right? He lived through many people thought he had worked at Goldman Sachs or something…



MILLSTEIN: He had been a long-term treasury department official.


RITHOLTZ: Right, he was public …


MILLSTEIN: And he had gone through the Thai Baht crisis, he’d seen the crisis in Latin America in the ’80s when he was young man so you know I think he had he came to the crisis — this crisis with some background and experience and understood the tools and the importance of doing what we did. So all that said, you know, when I got out of the government having been a corporate restructuring guy rather than a financial regulation, financial industry banker, you know I determined that I needed to go teach a course on financial regulation and the crisis in order to figure out what I had just gone through.


MILLSTEIN: And you know…


RITHOLTZ: You write in order to figure out what you think in your case, you teach in order figure to figure out…



RITHOLTZ: And you are still doing that at Georgetown.

MILLSTEIN: Yes, I just finished the third semester of teaching on that with Tim Massad who ran the CFTC under the last — in the last Obama administration and he also had been in treasury with us in the TARP program and so he and I taught that together which was you know, it was fun to do it with him my third time around but I think it’s still too fresh, you know…



MILLSTEIN: And from the point of writing a book…


RITHOLTZ: It’s a decade old.

MILLSTEIN: But I think it’s still too fresh and you have a lot of kind of you know from the front line accounts that have already been written.

RITHOLTZ: Right, and those were written pretty much in real, time they came out within a year or two.

MILLSTEIN: Exactly and then you know, Secretary Geithner wrote his book and Bernanke he wrote his book and Paulsons written his book and there have been a couple of you know lieutenants and sergeants have written their books but I think…

RITHOLTZ: Plus random idiots who had nothing whatsoever to do with it who came out and spilled their point…


MILLSTEIN: I’m actually in the middle of reading Tooze’s book which I think is — it’s called “Crashed.”

RITHOLTZ: Oh sure.

MILLSTEIN: Yes, it’s very good because it takes a — it situates the crisis in the kind of macroeconomic environment of the early 2000’s of the early oughts and you know if you’ve just cast you know the thing that the crisis is it kind of overwhelmed everything else that might we might have been thinking and using as a frame of reference, it overwhelmed you know the introduction to the iPhone which has had at least as important an impact to our culture and society as the crash itself had in 2008. The iPhone introduced in 2007 but you know what Tooze highlights is and it’s relevant today to the existing problems with China is you know we had a savings glut that we’re all worried about that we thought that you know that…

RITHOLTZ: I’ve always hated that argument, so terrible.

MILLSTEIN: But it’s true, having run deficits and trade deficits run deficit since the Clinton administration and run trade deficit since the 60s you know we’ve been exporting dollars around the globe for 40 years, at the same time that we’re deregulating the financial system and the largest holder of dollars were you there, there were two pools — huge pools of dollars offshore, one in Europe…

RITHOLTZ: China and Japan.

MILLSTEIN: Yes, China, Japan, and in Europe right and that savings glut was the you know was the concern of the fed and of all the macro…


RITHOLTZ: Bernanke wrote a white paper on that.


RITHOLTZ: And I thought it was just the horrific just completely clueless argument from people who were — it’s a classic example, I have a lot of respect for academic research and writing, but often when you get into the real world situations sometimes the academics take an idea and they go off. So what’s more significant? The savings glut or rates at zero and bond managers scrambling for any sort of yields and telling their existing traders and managers go find me some yield and if you can’t, I’ll fire you and find someone who can, what’s this alt-a and some prime security stuff that is safe as treasuries and paying a few hundred basis points higher, why don’t we have more of that?


RITHOLTZ: That’s a real world thing that the academics have a tendency to miss.

MILLSTEIN: For sure.

RITHOLTZ: Until after the fact.

MILLSTEIN: Yes, but they are — in defense of some academics, my friends Gary Gorton and Andrew Metrick at Yale have done a great writing about the confluence of events that led to the great innovation of the subprime mortgage of the you know two year teaser interest…


MILLSTEIN: The 228 or the 327.

RITHOLTZ: I could have saved them a lot of paper and said you have no real wage gains for 30 years and people are going to do — to maintain their living standard even though their incomes are much lower so that means debt and restructure.

MILLSTEIN: So here’s another book, an obscure book that you might want to read called “Capitalizing on Crisis” it’s written by Krippner, I think is her name, Greta Krippner, and it’s all about the political origins of modern American finance and the story she tells which I think is when you and I live through, I think you’re a little younger than me but not much.

RITHOLTZ: You got about five or six years on me.

MILLSTEIN: Yes, was that you know the stagflation of the 1970s created a political crisis because…

RITHOLTZ: It was a lasting impact that people are unaware of.

MILLSTEIN: And the one of the biggest policy initiatives of the Reagan Administration every administration since has been to expand the provision of credit, where income were lagging and failing and falling behind, we substituted credit.

RITHOLTZ: No doubt about that.

MILLSTEIN: Widespread credit availability and you know levered up both the government to do so, levered up the households in order to you turn their homes into the cash machines to supplement so they could supplement their incomes with the increase in the value of their homes, to finance the purchase of everything under the sun from every consumer durable available through credit cards and installment credit.

RITHOLTZ: A lot of that goes back to post World War 2, ’50s and ’60s…


RITHOLTZ: But really the ’70s is what flipped that when suddenly giant inflation, and no — that was the beginning of no real wage gains and then the whole Reagan era forward it was clear that capital had a better seat at the government policy table than labor did and 30 to 40 years later we’ve seen what are we now — the percentage of corporate profits as a percentage of GDP is at its all-time high which means that labor is getting less, I pretend to be a free-market capitalist but I can’t help but look at those numbers and say hey this is problematic we keep this up and we are going to elect some crazy populist as president, and then what?

MILLSTEIN: Okay, and then what? And so here’s another book for your listeners, it is called “Can Capitalism be Saved” by my good friend, Steve Pearlstein who is the chief economics writer of the Washington Post, and he has written a really thoughtful book about is greed good? No. Is fairness going to make us poor? No. You know it’s a very serious treatment of the questions that we’re now confronting as a nation with the highest inequality in American history.

RITHOLTZ: So does he conclude capitalism can be saved or…

MILLSTEIN: Yes, capitalism can be saved but we what we and this is been true you know it’s really since the progressive era you, know the this is a joint venture between government and capital to come up with a society that is productive and just.

RITHOLTZ: So I have — and this will be my last pet thesis. Europe began as a feudal system where the king owned everything and you are allowed to work on the land and if he threw you a little bit of wheat and some food to survive that was up from zero and the reason Europeans are so much more comfortable with some aspect of socialism with their capitalism is they started out with zero and as they went higher and higher, to them “Wait, we get to own land we get to have…” Well since you used — since the government used to provide everything, food, protection, what have you, having the government pay for healthcare and retirement and education seems to make sense.

The US on the other hand started with the exact opposite, the government did nothing and you are responsible for 100 percent of your safety so one starting from zero and going up and the other starting from 100 and going down and there’s resistance in both directions…

MILLSTEIN: The myths by which we live. Right? You and I, our immediate parents, their grandparents you have to go probably back four generations before you have someone homesteading.


MILLSTEIN: And you know protecting themselves and fending for themselves and yet this myth of the American frontier is very powerful in our political ideology and therefore in our social policy but the reality you know four generations later from the last homestead of the last frontiers woman and man is a multiethnic, multiracial society, you know we have one of the greatest challenges I think in human history which is can we create a tribe — one tribe out of many you know, e pluribus unum, and it really is it befalls to us as Americans to figure out whether we can make this a democracy out of you know many tribes.

RITHOLTZ: I think we need to do a better job of educating our students, not just teaching them to attest as middle school and in high school students but having them have a better understanding of all these forces and teaching them how to think as opposed to teaching them to memorize because we’ve created several generations of people so you and I both have an advantage of a legal education which to me the most important thing law school teaches you is not case law, is not specific, but the entire process of here’s the basic syllogism, here — so you don’t know what the laws is going to look like in the future, you don’t know what sort of random fact pattern you are going to encounter, how can you regardless of circumstances apply some specific fact pattern to whatever the case law happens to be at that moment? You have to learn how to think, it’s very flexible and it’s very open-minded.

And I don’t know of a lot of other industries that teach that.

MILLSTEIN: I agree with you.

And I think legal education may be at the other goes on maybe a year too long…

RITHOLTZ: Yes, for sure.


MILLSTEIN: But I think the training is unsurpassed.

RITHOLTZ: It’s not what to think but how to think.

MILLSTEIN: How to think.

RITHOLTZ: And I make fun of my MBA buddies who are taught what to think.


RITHOLTZ: Or they are taught the canon of financial literacy but not necessarily and now here’s how to analyze when either this stops working or this goes wrong or in its if I want to make this a JD versus an MBA but they are two very different philosophical approaches and in the modern world where everything is topsy-turvy, I have come to the conclusion that learning how to think is a tremendous skill to have.

MILLSTEIN: Yes, but I also think I agree with that and surely our schools can do a better job of developing that you know, emotional intelligence and analytic ability, the ability to handle new facts and put them and find new patterns.

But I also think that the social media has isolate in a funny way has isolated people from one another — it is isolating communities as much as it’s creating across community, the possibility of cross community communication. And so I’ve come around to the view that we really need National Service that in order to…

RITHOLTZ: Works in Israel.

MILLSTEIN: Yes, it works in Israel and it made sense…


RITHOLTZ: And Switzerland for that matter.

MILLSTEIN: …Jews from all over the world, different ethnic and national backgrounds into one little desert country and it was a way of forging a national identity and I think we have that problem in the United States now, we really — we’ve separating it did not into separate tribes and not just Democrat and Republican but you know the identity politics…

RITHOLTZ: Urban versus farming…





RITHOLTZ: With a million splits.

MILLSTEIN: And I think you know I think two or three years of mandatory National Service is the best hope for the future of this country.

RITHOLTZ: I have a buddy who’s an American citizen at UBS but he grew up in Switzerland and I don’t know if they’re still doing this but not all that long ago, every citizen and every resident was obligated to serve at least one year in the military or some other…


RITHOLTZ: Public service.

MILLSTEIN: It doesn’t have to be military here…


MILLSTEIN: I mean I think there’s lots of need in America that could be met by a national corps and I think having you know the experience before you go to college of actually having to live and work with people different to yourself but all of whom are American would be a great national unifier.

RITHOLTZ: That’s quite fascinating.

In 2011, I found this interesting quote of yours, “The need for a chief restructuring officer is really part of the past.” So how did you realize, hey my work here is done, it’s time to move on and the Lone Ranger’s goes off into the sunset, how — what made you come to that conclusion?

MILLSTEIN: Well, I think the macroeconomic condition surely had eased and so the Fed has embarked on its quantitative easing, the markets had rallied you know the depth of the market — the equity market and the credit market were in May of 2009, by the time you got to the end of 2010, you would seen the rally back, the rallies have both started in both markets and most importantly by the end of 2009, the interbank lending market opened up again, the banks were actually comfortable enough with each other to start lending to each other over night and that was a pretty real sign of the that the crisis had passed.

But you know I was part of the cleanup crew and part of my job was to get the taxpayers money back. By the time 2010 had ended, we had struck a deal with AIG’s board for a complete recapitalization of the company, we had converted some debt into TARP equity, some fed debt into TARP equity along the way in 2009, and then we did a series of asset sales and restructurings from AIG. We reduced its balance sheet from $1 trillion of assets to half a trillion of asset selling off its Asian life insurance operations, it’s Middle East life insurance operations, its Middle European life insurance operations and 100 other businesses along the way that they were involved in.

RITHOLTZ: So what does AIG look like today?

MILLSTEIN: So AIG today is still large one of the largest property-casualty insurers in the world, it’s a one of the largest domestic life insurance companies and not a lot else, we sold off the aircraft leasing business, the consumer finance business, as I said all these other worldwide life insurance operations.

RITHOLTZ: So they had a ton of assets, they were very savable.

MILLSTEIN: They were very savable and as a result of the asset sales we managed to use the asset sales to pay off the feds loans leaving the federal government with you know $50 billion of preferred stock, we converted the preferred stock into 92 percent of the common stock and so we now had a liquid market and eventually we had a liquid market into which to offload the treasury shares of common stock.

RITHOLTZ: So that brings up another peeve of mine, I think that process where the rescuer gets most of the equity is a reasonable one, hey we’re taking all the risk, we’re putting up all this money, maybe this works out maybe it doesn’t, and so there is a big upside at the end of it not that the government is doing this for the trade…


RITHOLTZ: They want to prevent the next Great Depression but it seems fair we didn’t seem to do that with anybody else. We rescued Bank of America Merrill Lynch, Citi for I don’t know, the 14th time Citi has been bailed out, I think it’s three or four over the past century, they have a long history of that, go down the list of other companies that were that needed bailing out and were rescued and were illiquid but the balance sheet was transparence.

You know, the one lesson everybody forgets from Lehman Brothers is if you are going to have an opaque balance sheet that’s — forget the insolvency just the inability for anyone to figure out what the hell is going on there, if you need a rescue, you’re in trouble and that’s a big part of that.

So why didn’t we take a similar approach to AIG where effectively Uncle Sam was the debtor-in-possession financing and when that worked out they captured whatever upside there was to be captured.

MILLSTEIN: Yeah so I think look I think the structure of the TARP program which was where we and ultimately determined to infuse the preferred stock equity into the balance sheet of all the major financial institutions, I think there could be some serious criticism of the way this was done for particular by I think it may have created more of a political backlash…

RITHOLTZ: For sure.

MILLSTEIN: Against the program that it needed to…

RITHOLTZ: The Tea Party and everything else.

MILLSTEIN: Well, I mean there the origins of the Tea Party is something we could debate for a while but no doubt the crisis had something to do with it but I think the one that the one criticism I would have of the initial TARP program was that the as long as the preferred stock was outstanding, the company should not have been permitted to pay the kinds of bonuses that they had.


MILLSTEIN: I mean as long as you’re beholden to the federal government for equity…

RITHOLTZ: Right, there should be…


RITHOLTZ: Now wasn’t there — did the fed have to sign off on bonuses?

MILLSTEIN: Eventually they didn’t sign off on the 2009 bonuses — 2008 bonuses and I think that was the one — those were the bonuses that provoked the enormous political…


RITHOLTZ: Because they should have been clawing back bonuses not paying them.

MILLSTEIN: Yes, and I think most Americans were kind of you know right in the view of like wait a second, you are paying us f billions of dollars of bonuses with taxpayer money, I mean really?

RITHOLTZ: For bankrupting the company, nice work, here is a bonus.

MILLSTEIN: Now, the counter you know what Secretary Paulson would say who designed this, this preferred as it was important that everyone participate, every all the major institutions participate because we couldn’t permit the negative inference that if Jamie Dimon held out that he was the only solvent bank in America and so they had to make the terms of the preferred as relatively benign and painless as possible in order to induce widespread participation by all of the institution, so there could be no picking and choosing of winners and losers…


RITHOLTZ: So here’s where I make fun of academics again and you don’t want to be too heavy-handed but you could have had a less egregious set up and if Jamie Dimon doesn’t want to participate, well then Bernanke he has to say to him full New Jersey bent nose accents, “Hey, nice bank you got there. Shame if anything were to happen to it.” How much more do you have to say to set listen this is a disaster, we’re about to have the Great Depression, either you participate in this or I have a feeling that the next time you come to the normal transaction process at the fed which is what every single day, yes, good luck with that.

MILLSTEIN: Yes, I hear you on that I mean…

RITHOLTZ: I mean it is…


MILLSTEIN: I actually got into a fight with Elizabeth Warren during a public hearing when I was testifying about what we’re doing with AIG and Allied Financial and she was beating me up that we should have tried to extract a discount from AIG’s counterparties on their CDS on CDOs which your audience probably understands what I just meant in those acronyms…

RITHOLTZ: Sort of counterproductive if you want to reliquify the system and encourage some counterparty.

MILLSTEIN: But you have power, she said, you had the power to get Goldman Sachs to give up a discount rather than to pay them off in full, wasn’t this a backdoor bailout of Goldman Sachs?

And I would like, secretary — but she wasn’t secretary, she was Professor Warren if so you tell me how I’m supposed to as a government of the United States how I’m supposed to play that hand, I’m supposed to benefit AIG’s shareholders by taking it out of Goldman Sachs when in fact we’re standing behind both of these companies, the whole point was to avoid default across the system and to avoid AIG defaulting on any of its obligations because if it defaulted on any of its obligations, its credit rating would’ve been impaired and we would’ve been started had to write even bigger checks.


RITHOLTZ: What was the response to that?

MILLSTEIN: A political response.


But meanwhile the — you know, there’s — there was no good solution there was just what was the least bad solution and ultimately even though we’ve recovered, there’s been a cost of this recovery for sure between income inequality and the rise of populism and you know, it’s one of those things that it could’ve been a whole lot worse but part of me feels like it could’ve been — it could’ve been a lot better.

MILLSTEIN: Yes, I think the big mistake politically was the stimulus.

And if you are looking at the Chinese…

RITHOLTZ: Too small.

MILLSTEIN: Too small, the Chinese you know and if you look at what the federal government’s doing now, right? These Republicans who were totally opposed to the Obama stimulus have just enacted you know what one of the largest tax — $1 trillion.

RITHOLTZ: At way higher in the economic cycle and as opposed to right in the …


RITHOLTZ: And by the way, for those of you who don’t like that comment about a Republican-controlled Congress affecting a giant stimulus, be sure and send your emails to Jim Millstein at

MILLSTEIN: (LAUGHTER) Yes, that would get there.

RITHOLTZ: But it’s true, you know, if Keynes had this right in the middle of the financial crisis, you cut taxes, you deficit spends, and when you have a robust economy that’s when you can stop your deficit spending and raise taxes and balance the budget, we’ve done it totally as backwards (ph).

MILLSTEIN: Right, and so you know in the 2009, we got Democratic-controlled Congress to do a stimulus bent but, Obama went back to the well in 2010 after the tea party took the Republican Congress…

RITHOLTZ: Too late.

MILLSTEIN: In 11 just couldn’t get it done, went back for the infrastructure program, could never get anything from the Republican congress.

RITHOLTZ: Well, McConnell specifically said my role is to make sure he gets nothing else done going forward.

MILLSTEIN: Right so for you know so we you reap what you sow, so here we are.

RITHOLTZ: I guess we do. So I have 1 million other questions but I want to get to our favorite questions before and — so let’s jump let’s jump right into this. What’s the most important thing that people don’t know about Jim Millstein?

MILLSTEIN: I’m a horrible golfer.

RITHOLTZ: Really? Me too but I don’t play golf.

MILLSTEIN: (LAUGHTER) Okay, well there you go.

RITHOLTZ: What’s your excuse?

MILLSTEIN: I don’t know, I’m a glutton for punishment.

RITHOLTZ: Really, but you play regularly?

MILLSTEIN: No, I try. But I can’t play regularly but I try.

RITHOLTZ: That is very funny. Tell us about your early mentors.

MILLSTEIN: I had a professor at Princeton, a guy named Sheldon Wolin who recently passed who is a political theorist and historian of political theory and that’s what I did in my first years as an academic so he had a very important influence on my intellectual development.

As a career, I had a partner at Cleary Gottlieb, named Alan Applebaum who really taught me to be a lawyer, taught me the whole how to deal with clients, how to analyze a situation, how to take multi-parties with conflicting interests and produce a common result that is acceptable to them.

MILLSTEIN: You know, we haven’t even discussed your dad who is a renowned attorney how did he impact your career decision, did you know you are always going to be a lawyer?

MILLSTEIN: Yes, it was like a residency requirement in my family.

RITHOLTZ: I kind of had the same thing.

MILLSTEIN: You know, my father loves, he is still alive and still practicing here and there.

RITHOLTZ: Your dad is 90 though, is he?

MILLSTEIN: 92 this year.

RITHOLTZ: Still practicing.

MILLSTEIN: Still practicing.

RITHOLTZ: God bless him, oh my god.

MILLSTEIN: Still giving advice to people, he is a consultant. And the thing is he loved when I was growing up, he just loved what he did, right? So I mean it was hard you know not to look at him and be with him and not see the law as something that was incredibly engaging and because it — and for him it was then as has been for me a mix of you know a crossing of between private sector and public sector.


MILLSTEIN: I mean the law, the rule of law is what governs our private relations but someone has to create that…


MILLSTEIN: Yes, somebody has to create that law.


MILLSTEIN: And that’s a public policy exercise.

RITHOLTZ: So what maybe this is a good point to ask this question what attorneys and other professionals have influenced the way you approach both legal backed banking and public service?

MILLSTEIN: You know there’s been lots of influences on that but I mean I think the — I think the important point here is that I have found that there’s really no upside to dishonesty and that you know people who can’t be trusted are people who are not going to get stuffed done except in dark rooms and back alleys.

And so if you want to work in the social political legal business world you know your reputation is the most important thing you have been and observances of ethics and honesty I know this is a counterfactual in this administration but the observance of ethics and honesty is extremely important to your long-term success.

RITHOLTZ: I’m looking for a response to that and the only thing I could come up with is it’s funny how each subsequent administration’s popularity gets revisited in the future, not only has George Bush’s reputation gone up during this administration, but the Obama ministration’s ratings have all gone up especially because you know, drama free, no scandals, the keyword the keeps coming up is integrity and hopefully that will matter again at one point in our future.

MILLSTEIN: Yes, I’m sure it will.

RITHOLTZ: You mentioned a couple of books, tell us what your favorite books are, what you read for fun fiction and nonfiction.

MILLSTEIN: I’m a nonfiction reader and you know again after having gone through a major historical event and had a ringside seat, I’ve been reading lots around it but I think the most interesting nonfiction book I have read non — unrelated to the financial crisis is a book called “Sapiens.”

RITHOLTZ: I knew you were going to go that way.

MILLSTEIN: And by Harari.

And I think it’s an extremely important book.

RITHOLTZ: Have you seen the follow-up?

MILLSTEIN: I haven’t read the follow up.


RITHOLTZ: “Homo Deus.” It is much darker.

MILLSTEIN: Yes, much more dark.

RITHOLTZ: This book is very interesting, I don’t agree with everything in it, but at least there is some recognition that humanity is special and “Home Deus” is like, all right now here is how everything goes to hell in the future.

MILLSTEIN: But I think I think the fundamental insight of “Sapiens” is it’s really important which is you know the success of the species has been our ability to collaborate around abstract concepts, communications obviously key the development of language and all that, but then the ability to collaborate and coordinate our behavior around abstract concept, concepts of God, concepts of nation, of state, of community, I mean these are all abstractions, you couldn’t you know you can’t visualize the nation except through symbols and through you know a summary of its history, and a set of objectives that you might believe it or important to it to achieve in the future.

And you know to me that’s the big challenge of the that the country faces, this inability again to figure out how to collaborate together on a common future across this very diverse country.

RITHOLTZ: Quite interesting. What are you excited about right now? What do you think is a fascinating issue or topic these days?

MILLSTEIN: You know, that the New York Giants having gone one and four at the start of the season I’m just so depressed, it’s very hard to focus on anything other than that for the moment, I’m still licking my wounds.

RITHOLTZ: So let’s talk about a time you failed and what you learned from that experience.

MILLSTEIN: Yes so I was in — as a young lawyer not so young, I was handling my first major cross-border restructuring and the creditor is represented by one of the greats of the bankruptcy bar, Leonard Rosen, of Wachtell, Rosen, Lipton and Katz.

RITHOLTZ: Sure, he is the Rosen in Wachtell.

MILLSTEIN: Yes, and he was just a gentleman and scholar and a wonderful person and we’re having a dialogue as to how we are going to land this company in a restructuring, he represented the creditor and it’s me representing the debtors and we were — we had as you can only have with Leonard, a kind of gentlemanly disagreement with regard to sort of what the endgame was, who was going to end up owning the company and how we were going to restructure it and we were resisting putting the company in front of a judge too soon until we had an agreement with the creditors because most bankruptcies are less expensive and less time-consuming…

RITHOLTZ: You present to the more or less…

MILLSTEIN: If it is pre-packed.


MILLSTEIN: You write the judges there to confirm what everyone’s agreed rather than to mediate the dispute ongoing.


MILLSTEIN: And the so we were resisting filing it and Leonard thought that you know we were being irrational and impudent and so he did something that I didn’t believe could be done, he filed an involuntary petition, the creditors put the company into bankruptcy in Canada and under Canadian law, I had been advised by my Canadian co-counsel, this was not a procedure available to creditors and so Leonard picked up the phone so he called me one morning is that I think you need to be in Toronto this afternoon and I said why, he said because we have put the company into a CCAA proceeding in the Ontario Superior Courts this morning.

And I said you can’t do that.

RITHOLTZ: Well, we did.

MILLSTEIN: He said they just did. And so you know, the lesson the failure was a failure of imagination, a failure to realize that the law is not a given but something that is created and constantly created every day.

RITHOLTZ: A little more flexible than you imagine.


RITHOLTZ: That’s quite interesting. So what you do for fun other than be a terrible golfer?

MILLSTEIN: So I hike, I’ve got a group of friends that we’ve gone on various you know trips across the around the world you know hiking and exhausting ourselves, that’s been the you know…

RITHOLTZ: Any place interesting recently?

MILLSTEIN: We went to Norway last — last year or the year before.

RITHOLTZ: Just discussing Norway last night, that is amazing.

MILLSTEIN: Up and down the Fjord country was gorgeous…


MILLSTEIN: The food was spectacular and we had a stopover on the way to the hike in Oslo and on the back were on and then on the coming back in Stockholm and Stockholm is just an amazing city.


MILLSTEIN: An amazing city, and these two countries actually are really free — for Americans and particularly you know given our current dispute about the role of government…


MILLSTEIN: And inequality.

A trip to these countries should be mandatory because they have national healthcare, they have subsidized higher education, they have…

RITHOLTZ: Retirement.

MILLSTEIN: They have affordable housing subsidies…

RITHOLTZ: Maternity leave, paternity leave…

MILLSTEIN: All of that all of those basic social system supports and yet they are dynamic economies with entrepreneurship and growth rates that rival ours, now they are small homogeneous countries they don’t have the many of the challenges we have in establishing common — the commonality but these are you know what the right would call social welfare states that are functioning where the gap between the richest and the poorest is only three times, not the 300 times it is in the United States and yet they’ve maintained a sense of entrepreneurialism and dynamism in their economy that this the nanny state is not necessarily you know deterring dynamism and entrepreneurship in the economy.

RITHOLTZ: Sounds fascinating. I’ve been to Helsinki, I’ve been to Copenhagen, I’ve never been to Stockholm, I assume you do that in the summer and not…


RITHOLTZ: So if some young lawyer, or recent college grad or a millennial came to you and said they were thinking about a career in restructuring in that aspect of banking, what sort of advice would you give them?

MILLSTEIN: Well, it’s a choice — just as we’re talking about before, it’s a choice between business school and law school, I’d say go to law school, get firm grounding in the law, you know it’s been a great career for me, I like being a problem solver and you know of each of these restructurings is different as I said before but you know in effect, you’re taking something and you know making something out of a failure and you know and sometimes the something is just redeploying the capital, liberating the capital that’s involved in a bad business but most of the time, you know, you’re figuring out what went wrong and fixing it and saving you know capital and jobs and so you can kind of feel like you did something good.

RITHOLTZ: Quite interesting. And our final question what you know about the world of corporate restructuring today that you wish you knew 25, 30 years ago when you are really first getting started?

MILLSTEIN: Well you know we — this has been, we talked a little bit about the deregulation in the financial system, I mean the consequence of that is we went into the 1980s with the bank centric financial system where credit intermediation was primarily conducted by banks and we ended we came out of the financial crisis after 40 years of deregulation with a market centered funding system.

And the development of the secondary markets and secondary credit markets…

RITHOLTZ: The shadow banking.

MILLSTEIN: The shadow banking system starting with you know the junk bonds created by Mike Milliken in the late 80s you know we have a bond market that now dominates credit intermediation and we — and the bond market has greater and greater transparency with secondary with trades all the time and prices so there’s a there is the illusion of fair value created by, you know, the day-to-day pricing of a given bond…

RITHOLTZ: Right, and that pricing may not hold.

MILLSTEIN: And that pricing may not hold and it may reflect supply demand dynamics rather than fundamental value, it may reflect you know the interest rate policy of the Federal Reserve as compared to where was it up when the bond was originally issued, there are lots of it but market participants today who live by their marks and are judged by their marks and are measured by their marks and are compensated by their marks, that is it — that is the biggest different difference.

I used to sit in rooms in the 1980s with banks and insurance companies and talk about fundamental value and the mark didn’t matter, what they were trying to do is maximize the recovery of their position and today you sit in a room with traders who are trying to — who are trying to maximize their liquidity and their mark and very different from fundamental value.

RITHOLTZ: Quite fascinating. We have been speaking with Jim Millstein he is currently the cochairman of Guggenheim Securities, an adjunct professor at Georgetown University Law and former chief restructuring officer at Treasury.

If you enjoyed this conversation, well be sure look up an inch or down an inch on Apple iTunes, Overcast, Stitcher, and you can see any of the other 225 such conversations we’ve had over the past four plus years.

We love your comments feedback and suggestions write to us at I would be remiss if I did not thank the crack staff that helps put together these conversations each week. Michael Batnick is my head of research, Madena Parwana is my producer, Taylor Riggs is our booker, Atika Valbrun is our project manager.

I’m Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.

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