Alan Waxman - Private Credit and the Modern Financial System - [Invest Like the Best, EP.466]
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Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PositiveSum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc.
This is a unique conversation. It's my second with Alan Waxman, the founder and leader of Sixth Street, one of the largest private capital investment firms in the world. Him and I have been going back and forth about the history of financial guidelines and incentives and how those systems through time shape the system that we live in today and shape outcomes in the financial markets. We thought it would be a neat opportunity to walk through in great detail what he calls system one, two and three going all the way back to 1933 and the initial regulation Glass steagall which kicked off system on
There's a lot going on in the news. What I'd say is what you're reading in the news today are the symptoms but not really the root cause. And as an investor, when we try to figure out what's happening in a current moment, which is we're definitely in a moment right now, we do two things. First of all, we think about it from the standpoint of how did this get here? What's the history of it? How do we get here to really figure out the current moment and also determine where we're going? So I think we'll talk about a little bit about the history of how we got here. And then the second thing, and
Yeah, it's just across low risk appetite, yeah.
So it's a low risk appetite. And again, because one, the fixed income market hadn't developed, which is part of the story here, but also because investment banks, they were more in the moving business than the storage business. They were pricing securities to basically sell to other people, they weren't pricing it to hold for their own balance sheet. Now that changes as we get into the eighties, but again, broadly speaking for this first system from 1933 to 1999, it was working, just wasn't optimized.
The lesson from this is with really good guardrails, you can get long stability.
You can get long stability, but again, you also have to think about job creation and economic growth. And I think if there's one criticism of the system, which is why the Glass Steagall Act got repealed in 1999, I can talk about why it got repealed, what sort of the steps leading up to that, is that it wasn't optimized, and as you go to a more globalized world and you're competing with, say, European banks, you become less and less competitive. So in a non globalized world, it was probably okay, but as we got to a more globalized world, it wasn't really optimized to maximize economic growth fo
Okay, so we get to the mid late nineties, what happens in addition to new competitive pressures? Walk us through the transition into what becomes syste
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