The World is Full of Pyramids: Our Conversation with the FT's Brooke Masters Part One

[00:00:00] Richard Kramer: welcome to bubble trouble conversations between 

the economist and author will Paige and myself, independent analyst, Richard. Where we lay out some inconvenient truths about how financial markets really work. Today, we've got a ringside seat to the battle in the markets between bubbles and troubles with Brook with the first of a two episode conversation with Brooke masters, the FTS chief business commentator, and an associate editor. More in a moment.

Welcome to Bubble Trouble. Brooke, can you introduce your work at the Ft and how many bubbles you've seen over your long career there?

[00:00:37] Brooke Masters: I've been at the Ft for, 15 years, and before that I was at The Washington Post and I covered the troubles of the dot com bubble. I covered the housing market bubble before 2007. I covered CDOs and CDO squareds and the bubble in crazy financial products before the financial crisis. And now it seems like we're covering another one.

It's very exciting.

[00:01:00] Richard Kramer: And you must feel that sense of deja VU all over again. As Yogi Berra would say, having 

seen it up close and personal in Washington, the aol.com bubble when Ted Leonsis made an absolute bundle, selling something@ at the very top of the first dot com.

[00:01:20] Brooke Masters: Oh, for sure. This definitely feels the same. I have to say one of the things that made my skin crawl was when my college age kid texted me in the middle of lockdown. So mom, I'm interested in this Game Stop thing. Shall I buy this? And I was like derivatives, terrible idea, GameStop crazy. But you know, he bought some, he made some money and I kept saying, sell, sell, sell.

And he did. And now he's got cash.

Well, it's an honor to have you on the podcast, Bruce. I have to say, I have unsubscribed from various newspapers in the past few months, but I've stuck with the Financial Times. And one of the reasons I do is your journalism. Be it covering corrupt companies or the value of private school education.

[00:02:01] Will Page: It's clear to me the work you put in to produce those words that pop out. So it's a real honor to have you on and what I wanted to discuss in the first half is entrepreneurship. Now I'm surrounded by Americans in this podcast, two Americans in London and one American New Jersey.

And you have some interesting presidents. Well, the most interesting ones, it was George W. Bush. Junior. And I don't know if you're a member, the speech he made about old Europe back in the day where he said that France and Germany are old Europe. They don't have the drive of the Americans. Don't have the business spirit of the Americans.

And then he went on to say, the French don't have a word for entrepreneur, which has to be the biggest gaffe in us. Presidential history and entrepreneurship is going to be the. This discussion and to get into it. I want to refer to something which is in my book, which is there's this argument that if you take the safety net away from society, the social welfare safety net, as it were, you make people more entrepreneurial.

This is what I was taught university way back in the age of Henry the eighth. But if you remove that safety. People take more risks and that's what makes America great. That was a kind of mantra that we were taught. Now. I spent the best part of 10 years in Sweden going up and down the Spotify as office.

That country has an amazing safety net, not just 18 month bank of maternity and paternity leave for parents. Yeah. The ability to take six months off work to start an education course, the ability to take nine months off work to start a startup, believe it or not, they incredible safety net. So the logic would go that they wouldn't have an entrepreneurial spirit.

Yeah. I see. No end of promising startups coming out of Sweden, most recent one being Klarna. I just want to ask us are American over here in Britain, we side to the pond, you stand on that safety net argument broke because it seems to be a bit of a contradiction to assume that you can, or you can't have the safety net and you can, and you can't have entrepreneurial spirit.

[00:03:55] Brooke Masters: I think there is an interesting Question of how you frame your safety net because Sweden's safety net is about freeing people up to take chances and having no safety net forces you to take chances. I think the countries that struggle because of the safety nets are the ones where the safety. Ties you to a job or ties you into a profession you're already in.

And so people are unwilling to take risks and very uncomfortable. I do think, it’s worth remembering as well. That many of the great American entrepreneurs are not in fact, poverty stricken immigrants, particularly in the computer age. I think this was less true, say at the turn of the 20th century.

But if you think about Bill Gates, for example, Yes. he founded Microsoft in his garage, but his dad was a lawyer. and crucially, his dad said patent the damn stuff. he, he had privilege and he had the ability to go be in the garage because he could still eat. I was very lucky and went to an Ivy league university and many, many of them.

CA my former classmates have gone on to found both, hedge funds and, ended up at big tech companies and helped found them and, did really fabulous things. But many of them were privileged. they could afford to take a job that wasn't necessarily going to pay off quickly because they had family resources. 

[00:05:14] Will Page: let's unpack a few things or you give examples of where the safety net could be. Counterpart. We're removing, it might have some sort of liquidity, but where you can have safety nets, which produces entrepreneurial spirit. Let's go through this in order. If I look here in London and as Americans in London, you may have noticed the same, the amount of French people living here.

Middle-class French bankers, French lawyers. Is that a function of the safety net in France. making it impossible to create new jobs. That is it's really hard to fire. So it's really hard to hire. So if you're ambitious, you come to London, is that a safety net gone wrong in Europe in your opinion? 

[00:05:49] Brooke Masters: I think in some cases it is, I think also particularly in finance, there is a network effect. So if you want to be an interesting entrepreneurial banker or somebody who does financial engineering, it's much easier to come to. The UK where it's already underway. And I think so that's part of why people come to the UK.

If you think about, I remember when air France tried to cut some pilots jobs and the poor human resources guy had his shirt ripped off him by the angry union people. I mean, that kind of anger is because these people assume they will never get another job if they are laid off here.

And I think that is less, you don't see that as much in other places. 

[00:06:29] Will Page: no, I don't know the rules in France at present, but when I was studying economics, I think there's still holes if Brooke Masters, as a teacher in France and she gets hired because she's a hopeless teacher. You get paid three quarters of the salary of a teacher and you don't have to go back into employment until someone comes along and pays you the same salary rate.

And there, you can see a rigidity as economists call it in the labor market. That for me is a safety net, which doesn't really serve its purpose.

[00:06:54] Brooke Masters: I would agree with that. I do think actually it's interesting right now where we are seeing what everyone is calling the great resignation, where Americans are fleeing their jobs at an incredible rates. What gets less. Publicity amid. This is many of them are taking better jobs because they feel in a tight labor market empowered to go, oh, find a better job.

And they're leaving hospitality where they have had in the U S in particular is incredibly poorly paid and entirely dependent on tips and moving into sectors where they can have a regular wage or they get at least get promised better benefits. And so do think that's right, a safety net that de-motivates people from working at all is not a great idea, but you also need one that empowers people to.

[00:07:35] Richard Kramer: Let me step in here and try to ask a couple of points that we touched on in our last podcast, we were talking about this great resignation, but also the effect of the gig economy on workers. And effectively a lot of the externalities that society is required to pick up healthcare, unemployment insurance.

All those extras that used to go along with a well-paid job in Europe or the U S have now been chucked aside. And it's kind of a fend for yourself world. Does that effectively turn everyone into becoming an entrepreneur? Not out of choice, but out of necessity because all the jobs there are, that are on offer are gig economy jobs, or the more creative way to say it.

These days is participating in the creator economy.

[00:08:24] Brooke Masters: I would say yes. I think it also helps explain why, kids, my son's age are out there buying, meme stocks, because they figured that. I get a good job with good benefits. So why not take a punt? It explains the enthusiasm for cryptocurrencies and things like that is that established companies and established apps are too hard to get.

So, be an Uber driver or speculate, invent your own graphic novel. They're all about the.

[00:08:49] Will Page: Interesting 

[00:08:50] Richard Kramer: now when you and I might've been graduating from our respective Ivy league universities, we may have gone to the same one at the same time. We don't know, but,the venerated, vanquisher of capital. Was the Gordon Gekko figure, the person who sat astride a traditional organization, a bank or any other sort of large company.

And now we venerate those entrepreneurs, those world changing, geniuses. what happens when people realize that only a tiny fraction of them get to be successful? And how much have we gone down the road of privileging those entrepre? And denigrating in some ways the people who work their way up ordinary jobs and work in large organizations that are doing that require large workforce is to get things done.

[00:09:39] Brooke Masters: My view would be actually we're already there. That a lot of the populism that we are seeing is people will say, yes, there's a one-in-a-million shot. You found the next Google, but it going to be me. I think that is a real, that is a real risk of venerating people who invents companies.

I think it's also listening to remember that the companies that succeed, they are often, they may be the first to market with an idea, but often they're one of several. And for various reasons, they end up being the survivor, they eat the others. And so for all those entrepreneurs, a bunch of people have dating app ideas, match.com seems to be making it.

but there are an awful lot of them that are. and I think that it's great that those people invent things, but if they fail, then what happens to them? I mean, I suppose if they get bought out and they ended up with some money and then they go start something else, that's good. that's a virtuous circle.

[00:10:29] Brooke Masters: If you found a company, you get bought by, they are coming, you end up with a bunch of cash and then you go and you found another company, hire some more people and then you're starting something that's good. But I think there are an awful lot of people who just get left by the way.

[00:10:41] Richard Kramer: but is this any different than, for example, the pro sports that people pay so much attention to all over the world where the, there are 400 some players in the national basketball association and there are 800 some players in the premier league and there are tens or hundreds of thousands. Of players that want those jobs and we're venerating the few that get to the top and largely ignoring those that get left behind.

[00:11:04] Brooke Masters: But I think when you are not painting the college football players or the college basketball players who are trying to get there and all the ones who don't make it end up with nothing, they don't get a proper education and they don't get paid for their time. That's what. If on the other hand, the people who are working, and don't quite make it, have at least a living wage in there.

And they're rewarded for their hard work. That's not such a bad thing. I think the world is full of pyramids. You know, only one person is present in United States and there are a lot of people who would like to be president. Not me, I should point out, but, I think that's, I mean, the world is not equal.

Outcomes are not equal, but you can't explore people on the way.

[00:11:41] Will Page: And we're going to wrap it up for part one. Thank you for this very inspirational talk. back in a moment. 

So we were discussing Theranos, which you've covered in the financial times recently. And the theme of fake it until you make it. Is there something to be said there about with regards to a reality check on the American dream? It's only those who can fund the 

faking that go on to the making. And those are the ones who have got the deep pockets in the first place. Do you think that's where there needs to be a bit of a correction in terms of how we view entrepreneurship. 

[00:12:08] Brooke Masters: I think it's dangerous to say Theranos she was privileged. She was funded. I mean, she got to $8 billion. so that is not the issue. It is that, people are good at faking it can attract money if they are privileged. I mean, she went to Stanford, she had sponsors, she made buddies 

But, but I do think there is a reality check on the American dream, which is that if you have a brilliant idea and especially until recently you happen to be, female or non-white or non privileged, the chances you could get a venture capitalist even look at and listen to you were almost nothing.

[00:12:40] Brooke Masters: And so there are lots of very smart people with very good ideas that have never had a chance. you know, I think it's a good thing that, the #metoo movement started some of this.

Like if you  had a great idea that a forty year old ivy league boy didn’t understand you could never get any funding because that's who had all the money.

[00:13:18] Richard Kramer: Hmm, but do you think there's a selection bias there? That says the only ideas that make it through are ones that make sense to those 40 year old MBAs. And a lot of the other ideas that would, be relevant to other walks of life and society are just never going to get funded because the people carrying the funding don't get the problem.

[00:13:41] Brooke Masters: Completely agree with you. I think it's no coincidence that there is an explosion in what they call fem tech and female oriented products right now. Like companies everywhere are starting to get funded for that because there isn't in the last five years, there's been this argument like, wow, venture capital is too white and too male.

And we need to think. And so everybody's like, oh wait, we better look around. And suddenly they're discovering that actually there's all these products that serve lots of needs that we never thought about. sometimes they serve needs that I'd rather not talk about, but.

[00:14:14] Richard Kramer: And before we wrap up and I hand it over to will I, we did talk about Theranose in our last podcast and I want to ask you, do you think that's a positive example that someone who fakes. I want to get caught out or do you think that's a negative example? 

[00:14:31] Richard Kramer: some people were talking about that this is going to set back entrepreneurship because people can take risks or this, this person who had a clever idea, somehow wasn't able to see it through.

How do you, which side of the debate do you fall on in that one? When there, so clearly as the courts have opined some level of malfeasance. But it might have a chilling effect on other people trying to launch crazy ideas.

[00:14:58] Brooke Masters: I don't buy that at all, frankly. I mean, if you look at the kind of male spaces she 

[00:15:02] Will Page: Case closed. 

[00:15:04] Brooke Masters: absolutely not even close. I mean, I think there, there are people. have great ideas and can't quite pull them off. I think there were, there was, the guys who invented MRIs up in Scotland and ended up having it was a Scotland, was Oxford and they ended up having to sell the Siemens.

I mean, those guys, I feel for she, she had a product that didn't work and she like cut and paste and logos of other companies and put them on. But that's not, that's not something that the way you, something was slightly wrong and you couldn't pull it off. And, and, and this was somehow chill people. I mean, if you have a bent towards fraud, you shouldn't be doing.

That's all there was to it.

[00:15:38] Richard Kramer: Right. And there were an and before I handed over to will to wrap up this first half there just a quick shout out to the Ft. You certainly did a fantastic job of calling out much to the dismay of many investors. What was going on at Wirecard, a classic example of faking it till you make it;  misrepresentation to the markets and all sorts of malfeasance thate haven't really seen the end of yet.

[00:16:05] Brooke Masters: Totally 

[00:16:06] Will Page: So Brooke. 

[00:16:07] Brooke Masters: edited the first Wirecard story that moved from our blog to. Our newsline, which meant we felt we were, we were, it was getting harder. and, and I mean, Dan McCrumly, who did the spearhead of 

an extraordinary dedicated reporter. And that is what we, as journalists lived. 

[00:16:26] Will Page: Brooke as we hit the break, I want to ask one question as an American who like a boomerang is returning back home shortly. And when you talk about where the system in America might be broken, if you were president for four more years is there one nudge you'd like to introduce, to make the system a little bit fairer When you look at your funding for ideas, the ability to do your startups and to pursue that American dream 

[00:16:51] Brooke Masters: I do think that better healthcare for everybody would make a huge difference. Obama tried to get there and we have a bit of it, but proper universal health care. could then have a brilliant idea and know that you are not endangering your family by leaving your job to try and work on it.I think that would make a big difference. 

[00:17:12] Richard Kramer: My experience in the UK that we've had all of our children on the national health service. I guess that's unthinkable in the us that you would rely on the public. For your most basic fundamental healthcare and, and an event in your life, which is so important to you as having your first children.

[00:17:37] Brooke Masters: Oh, for sure. I mean, you could not take that risk because if you aren't insured in theory you are eligible for Medicaid, if you have no income. But it's really risky. I mean, a Medicaid hospital is not necessarily the place you want to be for sure. you may get great care at a fabulous tertiary hospital system, but you could also end up someplace really dreadful.

you know I also think that, the small business administration has a miserable record for example, of the way its loans work. And there's 

is, statistical evidence that suggests that it has not funded all ideas equally. I mean, You can't call them racist because we don't know who each individual decision probably isn't or maybe it is, but maybe, but it's clear that it doesn't fund a wide enough range of people and ideas. 

[00:18:48] Richard Kramer: You see a lot of other countries that have sovereign wealth funds and those sovereign wealth funds often times acts as local VC for the governments of singapore, qataris and Norweigians, maybe small country examples but the French are trying to stand this up, do you think there is role being played by the national science foundation and DARPA and all those other traditional agencies that are doling out so much funding the national Institute of health, for example, that would be funding cutting edge.

[00:19:01] Brooke Masters: I would be inclined to say that I don't think funding is the barrier in the U S there is a really fully functional capital markets and lots of early seed funding. There's very good funding for basic research, from the government in things like DARPA and, and NIH. I think fair distribution of that.

It's probably important, but I don't think the actual volume, it's not, it's not the same issue that you have in other countries. I mean, the U S does have people with ideas and it does have money to fund them. The connections between them are sometimes too attenuated, particularly because the money tends to be concentrated in a couple of locations among a specific class of.

but I don't, I don't think the absolute value, there are a ton of VCs out there with money that they wish they could give to someone and they just don't have the imagination to find those people.

[00:19:48] Brooke Masters: You make me think that famous quote of the future's already here, it's just not evenly distributed, which makes me think, do you change the future or do you change the distribution? And we're going to wrap it up Thank you for this very inspirational talk. 

Brooke Masters: ‘I really enjoyed this. Thank you for having me.’

[00:20:03] Richard Kramer: If you're new to Bubble Trouble, we hope you'll follow the show. Wherever you listen to podcasts. Bubble Trouble is produced by Eric Nuzum, Jesse Baker and Julia Natt at Magnificent Noise. You can learn more at bubbletroublepodcast.com. Will Page and I will see you next time.