[Music] We have before us the opportunity to forge for ourselves and for future generations. A new world order. This is multi-polarity charting the rise of the new multi-polar world order. [Music] Coming up this week, you're only supposed to blow his bloody head off. As Donald Trump is saved by God Almighty, we're indisputably living in a lucky timeline. But while the country might have dodged civil war, American politics has been changed utterly by the events of Saturday, and still not for the better. Meanwhile, Trump's VP pick is lukewarm on Britain and positively tappled on Project Ukraine. He's being sold as a successor and someone who can bring real intellectual half to the MAGA project. But isn't the intellectual wing of a populist party rather like the library in a whorehouse? Finally, private equity was once sold as the honest, hard work, real project end of the financial services sector. Take a company, make it better. So why are they suddenly robbing Peter to pay Paul? And what happens when Peter's cash runs out? But first, did you enjoy the theatre, Mrs. Trump? Well, this weekend, an event took place that many people, many a crystal ball predicted. Many people have been talking this event up around the water cooler, although many people haven't been saying it as much in public because it might be so horrendous, I suppose. We're talking, of course, about an assassination attempt on former president and probably future president, Donald Trump. I'm sure listeners probably know it took place on Saturday at a rally in Pennsylvania. A young man appears about 20 years old, climbed up on the roof of a nearby building with some sort of an AR platform rifle and took a shot at Donald Trump, and despite the fact that Donald Trump is still alive with minor injuries, the young man made his shot, and Donald Trump only missed death by a random turn of the hat. Now, obviously, there's a lot to say about the assassination itself, the fact that it took place, the failures of security and so on that are being endlessly debated now online. But I think really the first thing to talk about, the most important thing to talk about is how much it's changed the political temperature in the United States. I mean, the obvious change that's taken place is people now think Donald Trump is an absolute chew in, effectively, for president, and the reason for that is, again, everybody will know this, but after he was shot and had a bit of his ear torn off, presumably got a nasty case of tinnitus in the year as a rifle round went by his ear, and he got pulled to the ground by secret service members. He rose to his feet and fist pumped the air and said, "Fight, fight, fight" with bloodstreaming down his face. I mean, this guy's 78 years old. And, I mean, I've never seen anything like it. I think even Donald Trump's worst enemies were impressed by how he handled the situation that Cooley was under fire, captured in a very famous image that will probably be permanently famous now. We've got an image with Trump that looks the most staged image you'll ever see in your life, and yet it's not staged. Biden is now not really considering dropping out anymore because I think Democrats have just given up. They look at that image of Trump, and they say, "That's what everyone's going to be thinking about. That's what everyone's going to be talking about for the next few weeks." And that's fine. That's a short-term political issue. But I think the real concern here is that this has really raised the temperature in America, and it's really, really set the country up, I think. I don't want to be too pessimistic about it because I hope I'm wrong about this. But I think it's set the country up for a lot more violence, effectively. This is a very different event that feels to me. I mean, look, most people, most of the time, who are going to try and assassinate a president, have a screw loose, probably. They're a bit mad. Perhaps they're rational. They have their rational faculties intact. But you know, they kind of probably are like the character in the movie Taxi Driver or something. They're a bit off. And no doubt this was probably the case in the present event, but I think the issue here is that typically when an assassin takes a shot at a president, it's because they personally don't like the president, their grand standing, something like this. But I think people rightly sense that the Trump assassination comes in a very, very different political moment, where Trump is portrayed as this archvilla, sort of a neo-Hitler or something like that. And the media is kind of stoking up this sentiment. I mean, if you take the media rhetoric seriously, if you actually say, well, Trump is truly a new Hitler and he's going to put people in concentration camps and, you know, he's going to start World War III, although Biden's doing enough to start World War III as it is. But if you believe that stuff, you go, you know, you're a young, impressionable person with some issues and you say, well, I'm going to take it into my own hands to stop it. You know, it's what would you have done if you were back and you had a clear shot at Hitler in 1943? And most people would say, well, obviously you take the shot. So, you know, the type of media environment that exists is creating a very different type of assassination event and not just that, but it's creating a different way that an assassination attempt is perceived by the broader public. We covered this earlier when the Slovakia Prime Minister, Robert Fizzo, there was an attempt on his life and we highlighted this exact same phenomenon. This is a media-oriented bout of violence. I'd be very concerned that this violence might be very infectious on both sides, that if and when Trump is elected, that this type of violent act will increasingly be seen as normal violent acts against politicians that you disagree with, or, you know, you think it's Hitler, which today in America, there's not much light between the two, but also on the other side. I think that the conservatives, people on the right Trump supporters have actually been -- listeners may not like me saying this -- but have been relatively patient with the demonizations, with, you know, a lot of the rioting that took place in the first Trump administration and so on. And it feels to me that those images, the image of Trump standing up waving his fists in the air and shedding fight, fight, fight, I think that just brings the temperature up for everybody. And I really do. After that assassination attempt, I really do worry for the political stability in America in 2025. When I first heard the news, my first thought was, well, America's going to be America. I mean, a number of presidents have been assassinated before. There was Abraham Lincoln, James A. Garfield in the 19th century then, William McKinley around the turn of the 20th century, and John F. Kennedy. But in addition to that, and in addition to those who were actually killed, Theodore Roosevelt and Ronald Reagan, who were presidents who were injured by shooting, who were actually shot and injured. And there was also a range of assassination attempts and assassination plots, including against Andrew Jackson, Abraham Lincoln a couple of times before he was finally assassinated against William Howard Taft, and Herbert Hoover, against Franklin Delano Roosevelt, against Harry Truman, against Kennedy before he was shot, against Nixon, against Ford. I mean, it really seems to be a common theme. I mean, even presidential candidates have been assassinated before. Most famously, of course, Robert Kennedy, who was shot in 1968 in Los Angeles by Sirhan Sirhan in a hotel. I think this time, though, you are right to say, Philip, that it is different, because quite quickly after that initial thought formed in my mind, another kind of butted in and pushed it out, and I said, no, exactly the same thing happened in Europe before and after the Robert Fizzo assassination attempt, in which he was shot, more than once, and had to recover for quite some time in hospital, and by all accounts was quite lucky that he was able to recover at all. And that has been the radicalization of the mainstream media, even as they've become, I think it's fair to say, less reliable as conveyors of factual news and impartial attempt to give the interested citizens a glimpse of the truth. Even as they've become worse at that, they have become more radical in their language, the language with which they treat politicians these days seems to be much more like the language with which British tabloids used to use when they referred to England football team managers. Very aggressive, very liberal, injudicious with the language that they use. Our shocked, as we spoke about on a previous podcast, that after Fizzo was shot several times, they continued with this, and it was his fault for being a divisive politician. It was bound to happen because he's divisive, and that was very much the case in the US, and as you very rightly say, Philip Pilkington, the strange thing is that a lot of the folks who were comparing Trump to Hitler, literally comparing him to Hitler, saying that he was going to be the end of the republic, the end of liberty, the end of democracy, the same people saying, "Oh, no, this is a terrible thing." Well, if you believe that, why is it a terrible thing? Surely, you know, if you are at all justified in using political violence, it is to rise up against tyranny, and even if you don't believe that, I think that is what Americans tend to believe, that is what the constitution seems to protect and allow for. So it does seem strange to me this dichotomy between the language that they were using and what they were claiming would be the consequence of Donald J. Trump returning to the White House. And the fact that they're regretful, that somebody should use violence to prevent him from doing so. And I think this is a very dangerous thing. And I would say that it also seems to me to fit in with a quite standard environment or political black backdrop during moments when the world re-orders itself. We've spoken before about how when the world re-orders itself, the boundaries of empires and spheres of influence change and shift, and what inevitably happens is that certain fault lines, which tend to be historical, so you might talk about the Balkans in Southeast Europe. You might talk about the Middle East, you might talk about the Caucasus, you might talk about Southeast Asia and certain areas. You might even talk about the South Atlantic in terms of the Falklands, but that's not a traditional one. These places tend to erupt again in violence as actors seek to solidify control over areas that used to be tamped down within a sphere of influence. The last time we had a great reordering of the global order was between 1914 and 1945. And obviously the main aspect of this was a horrendous and hellish and catastrophic really global conflagration, where tens of millions of people were killed over this 25-30-year period. Ultimately, that is what people remember, but I think they forget also, societies changed hugely at that time as well. Monoches fell and nations came into place and became national republics, for example, socialism and communism rose. Countries became democratic, whereas previously they hadn't. They extended their franchise, even in a country like Britain extended its franchise quite radically between 1914 and 1945. And a whole range of societal changes took place. And I think during those societal changes, you do tend to get a greater amount of political violence, both without the political system and within it as well. For instance, in the run-up to the American Civil War, he had the famous Caning of Charles Sumnera, or I think he was a senator, and he was cained by a representative Preston Brooks, who took exception to some of the language that he'd used in a Congressional speech or Senate speech. And similarly recently within the system, there was a sort of, at a Congressional, I think, a Senate hearing. You know, one of the congressmen actually stood up and offered the witness to go outside and have a fight. Literally. I think you tend to see in such moments, greater instances of social instability and political violence. And I think this is quite in keeping with the general trends and what tends to happen when global orders seem to reorder themselves. In addition to those moments of international instability and unfortunately violence, I think you do tend to get internal violence, social unrest and political instability as well. Yeah, I think what you're saying about the strange, two-faced media reaction is really interesting. I think it's probably worth considering in a little bit more detail, because I think it's kind of been a little bit of a mass golf moment. So listeners in America or listeners who have lived in America will be familiar with the fact that there's a show, I think it's on MSNBC called Morning Joe. Morning Joe is this kind of strange creation of America, I'd say post-2016 Trump. It's a very kind of typical show for America. It's something that bills itself as something that everybody tunes into. So if you go over to America and you stay in a hotel and you turn on the television in the morning while you're getting ready, you'll see Morning Joe and it'll have this kind of very benign character to it. Like get a cup of Joe, get a cup of coffee and get yourself ready. And Joe Scarborough, who's one of the hosts, Mika Brzezinski, Brzezinski the senior's daughter, they kind of tell you what to think about the day and so on. But what's so strange about the show is apart from the format and apart from the cutesy name, it's actually quite an aggressive show. It's very anti-Trump. It brings up very kind of issues that'll get your blood up if you're a liberal especially. So if you're kind of watching Morning Joe, you don't kind of have your nice cup of coffee and go into work ready to kind of like make pals with everybody. And if your Republican colleague disagrees with you, well that's okay, we're all Americans now. No, the purpose of Morning Joe is very clearly to get your blood up in the morning. And it's very striking because having lived in America twice, the first time around, Morning Joe did not exist. Morning Joe is a kind of a strange phenomenon in and of itself. The day on Monday after the Trump assassination, Morning Joe, I think for the first time ever, was not put on the air. And I watched on Twitter the clip went around of the Tuesday appearance of the Morning Joe crew, and they were completely shell-shopped by the fact that the network took them off because they saw themselves as these very middle of the road, very normal commentators, whereas the network had judged them, frankly, too dangerous to put on that day. I mean, there's no other way to say it, maybe they framed it to themselves differently. And so I think what this shows is that people who are engaged in this sort of media in the United States, they sort of believe it and don't believe it. I'm sure that the hosts of Morning Joe or any other show, Liberal Shown America, will genuinely believe that Trump is the worst president in the world. But when they see the consequences of that, as you say, like, if it is really Hitler, then, you know, it's not unreasonable to want to get rid of Hitler. When they see the consequences of that, they start to go, whoa, wait a minute. How much do I really believe in what I'm saying? I think that could be taken as kind of a, well, okay, thankfully, they don't really believe what they're saying. I wouldn't read it in that direction. I think this type of performance and so on is indicative of an underlying deep social instability where people's mouths run ahead of their intended actions. It's a bit like going to a bar and running your mouth off and getting in a fight. And you would know intention of getting in the fight, but you couldn't help yourself when you ran your mouth off, and after you get beaten up, you go, oh, that was the stupidest thing I've ever done. Yeah, I agree 100% with that. It feels like people are far more aggressive with their language. Not just in America, by the way, in Britain as well, compared with when I first started getting vaguely interested in politics in the late '90s and early 2000s. It feels, if listeners can understand this difference, that people no longer see those who disagree with them as opponents. They see them as enemies. They see them as people who are incompatible with their vision of what the state is, and therefore any victory becomes like a zero-sum game. It doesn't become like a time out of office, a time when you can rebuild, a time when the other side gets a chance. It becomes a kind of a mortal threat to the nation. And at least that's how they talk anyway. Now, this might have other driving forces. It might, you know, it might be, in fact, because, you know, the internet and social media demands clicks. You know, people get their news from the internet these days. They don't, you know, get their news delivered to their doorstep or through their letterbox, as they did in the past, or they don't stop off at the news edge and on the way to work and pick up the newspaper and read it. You know, most people are getting their stuff from, you know, their mobile phone or their laptop or their PC. And maybe that demands more inflammatory language. It might be because of social media, because the algorithms understand and know that outrage is the most powerful tool to get people to keep scrolling and clicking and commenting and liking and whatever. This sort of thing has happened in the past. It has happened in the past where the two sides of a political debate stop viewing each other as opponents and start viewing each other as enemies and enemies, in fact, that are incompatible with the continuation of the state itself. So I don't think this is unique to the internet age, but it is happening. I think the media ought to be far more careful, far more careful about the language that they use. We've covered this before on the podcast. Please go look it up after the assassination attempt on Robert Fizzo. We discussed this. I've chronicled instances of this in Twitter and how it works and the effect that it has. So we won't go into it again. But I think this is very much a phenomenon. And I do think that it's very much indicative of social unrest, social discord and political instability, more than it is the fashionable view that it's being driven by the internet and social media. That's my view anyway. And I do think that for those reasons, the media, I wouldn't say it's complicit in this, because the word complicit has a very specific meaning that we ought to be careful with. I need to be careful with my own language here if I'm going to practice what I preach. But I will say that the language that the media uses has been extreme. I think it's been ridiculous as well. I mean, if Trump is far right, what was Hitler? You know, what are actual hardcore fascists? I think also we saw what he was like when he was in power. I mean, maybe you could have made that argument that he was a secret far right totalitarian fascist before he was elected in 2016 and served the full term as president. But I'm not sure you can say that now after he has. But anyway, I mean, even if you do see him as an unseemly and suboptimal character to have as president, you know, I think some of the language is outrageous. And I think it, you know, I mean, there are not cases out there. And as I said, you know, I think somebody said on Twitter, I mean, you know, if you would go back to kill baby Hitler, why wouldn't you? Why wouldn't you take a shot at the person that everyone in the media and the whole establishment and one political party is saying is literally modern hit? I mean, it's, you know, I think this is a big issue, actually. And, you know, I think a lot of the media show no signs of backing down from this. But how long that will last I don't know. And certainly, they showed no contrition, no remorse, no change of habit after feet. So suffered even worse injuries at the hands of a would-be assassin in Europe. On the other side of the aisle, there's been a very specific response as well, which is whether there's any truth to it or not. It doesn't really matter. It's very much so out there. A lot of people who are Trump supporters think that there was some conspiracy and that the establishment have tried to kill Trump. Again, it doesn't matter if that's true or not. That is now circulating. It is widely circulating. It's not just circulating on little random conspiracy channels on Alex Jones, fairly mainstream channels as far as I can tell are now talking about that, or at least theorizing about it. So I just say that sets us up for 2025. What we've just described in terms of the liberal media, whose mouth is running way ahead of its fist as far as I can tell. And then on the right, an increasing sense that they, quote unquote, have finally tried it. They've finally tried to take it, the big guy. And I don't think that bodes well for America. I know people have been complaining about heated political rhetoric in America. And as you've said, Andrew, that America's going to be America. Something feels different about this. Something feels really off. So I hope nothing happens. I hope the temperature cools down. But I have a sneaking suspicion that if and when Trump gets in January 2025, things are going to start to kick off in America. Let's advance. Donald Trump. As chosen as his vice presidential nominee to sit below him on the ticket, won J.D. Vance. There was rumors and speculation that it could be little Marco Rubio, the Senator from Florida, I believe. And there was even talk that it could be Nikki Haley, Neocom Nikki, who is very much an establishment Republican figure, views on foreign policy differ very little from Biden and Jake Sullivan and Victoria Newlands. However, Trump has gone an entirely different way. He's gone outside the establishment and chosen J.D. Vance. Well, who's J.D. Vance? J.D. Vance first hit the mainstream press by authoring a memoir called Hillbilly Elegy, which was about his extremely dysfunctional upbringing in impoverished Appalachian town in the United States. His family racked by drug addiction and alcoholism, his surrounding, benighted by poverty and crushing fecklessness. And the efforts of the matriarch figure who ultimately raised him his grandmother to lift him out of this environment, which he ultimately did by his bootstraps. He joined the U.S. Marine Corps, which allowed him to go through college. He served in Iraq. He eventually went to Yale. He wrote his memoir. He became a Senator. So really, the boy did very good. And the other very prominent thing about J.D. Vance, is he has close links with Silicon Valley. He worked with then eccentric, rather eccentric, investor called Peter Thiel, or Peter Thiel, who is now very much a mainstream figure on the more intellectual side of the alt-right. And J.D. Vance himself has become a big kind of load star, a big political beacon for the post-liberal right in the United States. His views on the way that a country should run are very much drawn from people like Adrian Vermeul and Peter Thiel on the more technocratic side. And all of these characters that we see on the post-liberal populist right in the United States, it's not really old fashioned republicanism. It's more of a statist and socially traditional, socially conservative republicanism. And if it's very well with Trumpism, however, what's really interesting, from our point of view, Philip Pilkington, are his views on foreign policy. Because on foreign policy, he fits very nicely with the multi-polarity podcast. Because he takes something that I think would be much closer to a realist view, the view that people like most prominently John Miesheimer have, but also other foreign policy thinkers like Stephen Walt, for example. And what J.D. Vance has espoused in the past is that the United States should let Europe defend itself and should do so right quick. It should seek to extend the Abraham Accords in the Middle East and essentially piece down that theatre of the world so that it can focus its entire energy on the Western Pacific, the South China Sea, and the People's Republic of China's Eastern Seaboard. This is classic realpolitik. It fits very much with the sort of ideas that people like Elbridge Colby, who is another republican of that mind and worked indeed with the first Trump administration, espouse. And ultimately I think that Mr. Trump's selection of J.D. Vance must be worrying for Europe, because while many American politicians, even including Barack Obama and even before that, have really implored Europe to start spending more on their own defence, to start taking more of the burden. J.D. Vance has been very direct about it. He wrote a opinion editorial in the Financial Times, I think in April, in which he basically said, "Look, you guys are essentially attacks on U.S. citizens. We're paying for your defence and that costs us money." He was really direct about it. And when you start putting it in that language, it would seem to me that they're simply not going to accept Europe soft-pedaling on this anymore. And that wouldn't necessarily have been the case if, say, Nikki Haley had got the job, if, say, Marco Rubio had got the job. That said, Philip, before I let you chime in, different vice presidents have different roles. I mean, some of them, like, I don't know, like, say Dick Cheney, they have a really big role in making decisions. They're part of the president's inner team. At the other end of the spectrum, you have vice presidents who don't do much at all. I mean, what did Pence do in Trump's first term? What really does Kamala Harris do with Joe Biden? I have no idea to be perfectly frank with you. There are also presidents who are used as kind of, like, campaign tools. They're sent around the country to speak to people, to make them feel wanted and remembered. And there are those presidents like Joe Biden and Obama's team, which understand how to work things in the capital. They understand which senator needs to be cajoled to vote for something like the president wants, or which ranking member of which committee needs to have his ass kicked and threatened to vote the way the president wants. They understand how all of this works, and they're used in that way. So there are different types of vice presidents. I'm not saying that, you know, because JD Vance holds these rules, it's definitely going to be the case that Donald Trump is going to follow that direction. But then if he wasn't, why choose Vance? It seems to me that it's a signal that Trump is going Trumpian, I suppose we might say, which would be different to the way he governed in his first term, which was much more close to a standard Republican, except the fact that there were no new wars. Yeah, I think that's a pretty good reading of the situation. I'll just give a slightly different lens on the political figure that is JD Vance, less focusing on his personal life, and more focusing on where he came from and I think where he differs somewhat from Trump. Some of our listeners may be familiar with what I'm saying, but I think actually some of it will be novel, given the fact that I was kind of involved in a lot of this back in the day. Basically, when Trump came to power in 2016, there was no plan. It was a complete surprise candidate, in effect. Nobody really knew what to do. There was an ethereal Trump ideology that definitely wasn't free market and that wasn't free trade and that recognized that there were mistakes in the past, in terms of foreign policy, trade policy and so on. But there was no real intellectual half to it. When Trump got elected, a lot of people scrambled to put together that intellectual framework. Some of them are the people you talked about. Like Peter Thiel started talking about technocratic government on the right. There was the Journal of American Affairs, which I wrote for in the early days. I know the editors quite well. American Affairs tried to focus on various aspects of policy and so on. And then there was the rise, I think you alluded to it as well, of the post-liberal movement, which is as much of philosophical movement in a way, a political philosophy, critique of liberalism and so on. And all of these different threads, I would say, are at a very high level intellectually. I mean, the post-liberal movement, as you say, has people like Adrian Verneul, a very senior law professor at Harvard. American Affairs has had some stellar and very famous people write for it. But even beyond just the fame game, it's been a very high-quality debate. I think it's been one of the most important political debates, certainly since the end of the Second World War. Well, J.D. Vance represents that. And that's why he's very different to Trump. Trump's a creature of instinct, not just in terms of his personal temperament, which clearly he is a creature of instinct. But in terms of the politician that he is, he just wants to break down doors and get what he wants to get done. And he completely acts on instinct in those terms. J.D. Vance is the first politician to make it to a very senior position in a major Western country. Certainly at this level, let's put it that way, vice president or potential vice president of the United States, he's the first of these post-liberal politicians. I mean, that's what J.D. Vance is. Huge development, and obviously I'm very happy about it, because I've spent a lot of time working on those ideas. But okay, so that's a slightly different lens on where it came from. I think that then feeds into the question, or the big question, in this podcast, multi-polarity and so on. Again, what you say is true. There are different strands within this kind of intellectual movement, as it were. You mentioned Elbridge Colby. We've had Colby on the show in the past. Colby is quite the China Hawk, let's just say. He's a realist, but he's a realist of a slightly different stripe to people, other realists who are less hawkish on China and more open to engagement. Interestingly about Colby, Colby comes from a very similar political philosophy background as the post-liberals. I think he did his dissertation thesis on some sort of Catholic philosophy. I can't remember the exact titles. It's just to draw the threads together, Colby's from that world. Well, he's taken a very hawkish position on China in a realist vein, and of course, the competing trend with Colbyism, if you want to call it that, or China Hawkism, on the new right. Again, we're introducing a million terms now, but this is the million you were talking about. The alternative ideas are multi-polarity. I mean, they are. I don't want to put the podcast on a big pedestal. We're not the only ones talking about it. But the alternative idea is something like what we espouse on the podcast. And although JD Vance has signed on to a large part, the China hawks and so on, I've certainly seen evidence from his Twitter account and so on, that they are cognizant of the debates that are currently being had on this podcast and elsewhere. They are paying attention to these changes that show that America no longer possesses the global reach that they had, or were thought to have had five years ago or ten years ago. People in these circles are actively having these debates, and these circles overlap with JD Vance World. I think that should be really interesting to listeners. These new intellectual circles have grown up mainly in America. The debate that we're having is part of that. Now, that's not going to tell us, as you say, what direction foreign policy is going to go in. But at the very least, we are seeing these sorts of ideas start to kind of touch the White House in a way. And I think, no matter what happens, I think that that's a massive achievement, and I think it's very exciting. Philip, like as you know, famously and indeed wantonly ignorant of US politics, you let much less so. So may I ask, what do you think the selection of JD Vance for the vice presidential nominee on the Trump ticket mean, both for the Trump ticket and potentially the way that Trump is thinking about governing, if and when he is elected in November and after he's inaugurated in January? I would be very surprised if Donald Trump, who is not an intellectual in any sense, although he's not stupid, some people say he's stupid, he's not stupid. But he's not an intellectual, never has been, he's a construction guy, he's a business man, purely. I would be very surprised at this stage if Donald Trump isn't vaguely aware of the fact that some sort of an intellectual movement has built up around his initial presidency and around his initial campaign. And my guess would be that JD Vance has been explained to Trump as representing that, as a means by which to pass down the crime. Very nice Donald, you came up with this political program based purely on instinct and you put it into action, you're the man of action that got it over the line. Well, into that vacuum came a bunch of people who came up with these ideas and they've coalesced around JD Vance. I think that's basically what he signals. Now, I'll only caveat that with it was not a sure thing that JD Vance was going to be put in. And yes, Trump could have totally put in either a neo-con or a non-entity to try and appeal to donors and other people in the party in order to get them on side. And so the final decision to put JD Vance there has been Trump saying the Republican party is going to be on this platform now. And that in itself is a huge development. And, you know, plus I suppose with somebody so far outside the establishment is vice president, there's much less point of the evil deep state assassinated in Trump now, isn't there? Or maybe that's a bad joke, I'm sorry, nobody laughed. Ponzi Capital Management. So there was a very interesting article in the Financial Times this week about certain developments that are very strange and ominous in the private equity space. Very briefly, what private equity is, it's a type of investment style and also therefore an asset class that you can invest in that goes out and buys up companies and holds them privately in a fund structure. So you can't, you know, you can't buy or sell these companies on the stock exchange in your trading account that you have. You have to go through the fund in order to get access to these companies. I know these various justifications for that and so on. But basically, private equities become a massive industry. It used to be a fairly small industry in the 1990s. It was very successful in the 1990s. It was an innovative idea. And then like many ideas and finance, it blows up, gets a little bit bloated. And that's kind of where we are today. Well, basically the way a private equity fund works is it takes in money from investors. It puts this money into various companies, as I said, it takes them private. That's the terminology. You take them into ownership. No one else can see what's going on. The fund owns them. And then it manages them. It also usually engages in financial engineering. It usually engages in borrowing on the back of the company's balance sheet. And using that borrowing, people who support private equity would say use that borrowing to grow the companies and better allow them to become what they should have been and weren't able to be under the owner. And people who are against private equity would say that some of those loans are to kind of boost the financials of the company and justify extracting more wealth. The truth is probably somewhere in between and probably different for different funds depending on how well they're managed. But in effect, the way that the investors get paid in a private equity fund year to year. Now they usually get a big payout at the end, but when all the companies are sold. So year to year they get dividends, they get dividend payments from the fund. So all the companies profits go into a pool and the dividends are paying it. Well, the financial times has pointed out that something a little bit strange is happening in private equity land or at least has been happening. I think it's been stopped now. Where the private equity funds themselves were going through a very dry period. You know, there are various interpretations of why this is. We might get into it later, but the private equity funds weren't doing well. In order to continue making their dividend payments, they were engaging in borrowing against the entire fund, the entire portfolio of companies. So they're just leveraging up the fund structure itself. And, you know, sometimes it's not completely crazy to leverage up a fund structure if something needs to be invested in or if you found a really good deal and you don't have enough capital to deploy or something like that, you can justify this in finance land. But what was actually happening was they were engaging in these net asset value loans or NAV loans, loans on the entire portfolio, in order to pay investors their dividends. And here's the really weird thing. The investors who you would think in theory would say, great, well, at least I'm getting my dividend. Well, no, your average private equity investor is actually pretty sophisticated and wouldn't be fooled by that. They came back to the funds and said, are you borrowing money on the back of the fund to pay us our dividend? And presumably the private equity manager said, yes. And they said, please stop doing that. That's crazy. That's really dangerous. That's like borrowing more on your credit card to pay off another credit card. And in fact, that type of borrowing in the economics literature has a name. It's called Ponzi financing, it was given the name was granted to it by Hyman Minsky, the economist. People have probably heard of Hyman Minsky and Minsky moments and so on. And Hyman Minsky said, when a financial structure gets too rotten, gets too bloated and starts engaging in Ponzi financing, that is borrowing just to pay off previous borrowings, you're probably at the end of the rope. And when you see that type of dynamic pick up, you probably have a financial system that's pretty close to blowing the lid. While I wrote an article for Unhertz saying precisely this, this type of borrowing that the FT is talking about looks very much so like end of the road Ponzi borrowing, which opens the possibility that the private equity, the entire private equity industry, may have a huge problem on its hands. I think it might be related to commercial property, I think that might be the main driver, and they might have been covering it up for the past year, using this kind of Ponzi borrowing. And the last thing I'll say is, you know, somebody could say, okay, well private equity is just for rich people, it's just a rich people investment. And so if the stupid rich people put their money into this and the managers started engaging in nav borrowing or Ponzi borrowing or whatever you want to call it, to pay them their dividends like fake, fake dividends that are borrowed from the bank, that's fine, they just lose their money, you know, caveat emptor, you know, let the buyer beware, it's their problem. The issue here is that my sense, well it's not just my sense, I used to work in asset management, I know for a fact that many pension funds have been convinced to invest in private equity, pension funds and so on, and I think banks too, have been very frustrated since 2008 because of the low interest rates, because they can't get a good return on their capital, and so they've been pushing capital further out beyond the bounds of where they've previously been pushing capital. And one of the asset classes, it's thought of as an asset class that they invest in is private equity. Here's the final piece of the puzzle, I think that there's some evidence that the private equity vehicles might be landing in the housing markets and the real estate market as the Americans call it. And I think this might be, we might be seeing a housing boom, which could turn into a housing bust that's got around the regulations put in place since 2008 to stop housing boons by borrowing from what's called the non bank sector or the shadow bank sector. Translation, private equity and certain types of hedge fund vehicles, I think that could be what's going on. If I'm correct on any of this, and this thing blows up, what we'll see is that the blow up will start to affect pension funds and also possibly banks. And at that point, there could be, there could have to be bailouts of the private equity vehicles themselves to prop up the pension funds and the banks. And this will cause an enormous scandal no doubt, and it'll also raise a big question of whether the regulation worked at all, or whether it just pushed bad lending out of banks and into this non bank, non banked, non regulated sector. So I've got a couple of questions about this. The first is that, as far as I understand, in finance, when companies look at their financial structure anywhere, or when analysts look at a company's financial structure is the way I should put that. Quite often, they look to have that financial structure optimized, financially optimized, it's got a certain amount of debt built in. It's quite often you read analyst notes in the market and they'll say X company has got too little leverage essentially. There's room to leverage up and pay shareholders dividends. So, I mean, I'm not sure whether that's a good thing or bad thing, but certainly it's something that said that, you know, there's a view that there is an optimal level for a company of debt for a company to have. My first question is, is it possible for these private equity companies to be saying like, look, actually, we've got a way of kind of leveraging up here. And that can improve our returns to our shareholders because we can actually use the strength of our balance sheet essentially to take on debt and by doing that optimize our financial structure. The second question I have is, do you have any concept of what the expo here's a better question. Does anybody have any concept of the exposure that the banking sector and the broader financial sector has to private equity and also the private debt, which is something that you and I have spoke to about on the podcast before because we're well aware that during the subprime mortgage bust in 2007. Nobody, nobody had any idea about banking sector exposure to CDOs collateral collateralized debt obligations and, you know, mortgage securities, securitize mortgage debt and all of that kind of stuff. And when it went pop, it started dragging everybody in. And once you drag a certain critical mass within the banking sector in, then those banks who even those banks who aren't seriously exposed to it start to worry because they are seriously exposed to other banks. So, first of all, do you have an idea about what the exposure is but secondly and more importantly, does anybody have an idea because on things like the derivatives that, you know, ultimately led to the subprime mortgage bust going beyond just a bust of a certain section of the mortgage market and becoming something that could have brought the entire global economy down. So, like the losses that banks are crew here are worth more than a market capitalization, if the market, if the subprime mortgage mark goes down by 30%. Right. And then other banks start looking at those banks and they have huge obligations and huge calls on those banks and they start panicking and the whole thing goes couplunk. Do you have a sense that anybody has a handle on how much private equity and private debt there is out there, what the exposure is to the banks and whether this could cause a kind of a serious 2008 style crash again. Second question is easier to answer than the first. No one has a clue. I think some central banks have actually put out kind of like orange light warnings on this like this is a really opaque sector and it's exactly the analogy that you've just made. It's another one of these insanely opaque sectors. I led in by trying to explain private equity and one of the things that I said was when a private equity vehicle buys up a bunch of companies, they come in under private ownership. No one really sees much and I'll tell you, having seen a little bit of the industry, not much. I've never worked in private equity, but I know people who have I know various people and I've seen a little bit of the inside of it. They don't even often communicate in very clear terms with their own clients with their own investors exactly what they're doing. It's a very, very opaque structure. This has been highlighted by regulators, but they haven't been able to get it over the line because actually a lot of these central banks and so on are currently pushing this idea that pension funds should actually diversify into private equity. It's an enormous coup. In fact, the current labor government in Britain are looking at the Australian model of supers, they're called these giant pension funds, and they're saying that they should replicate it. These supers are massively invested in alternative investments. That's, they're called so short answer. No, nobody has a clue. And I totally think your, your analogy with with the opaque mortgage backed securities is exactly correct. On the first question, that's a lot more complicated. That's about financial engineering and so on. Well, the first thing I'd say is the justification that you gave that, you know, these genius financial engineering wizards come along, usually with MBA degrees or quant finance degrees. And they say, oh, we can get a more optimal balance sheet out of this company that we just bought. That's always been the justification, or at least one of the justifications for private equity. I would just say that may or may not be the case. That depends on how much you agree or disagree with the private equity model. It ultimately comes down to this. Are guys that get MBAs and finance degrees with no real world proven business expertise or, you know, they've never proved themselves in running a company or anything. Are they better at structuring a company than somebody with mass experience, starting a company, running a company, being a kind of a senior level person in a company that oversees things. If you think that the wizards who go into the universities and learn these balance sheet tricks are going to be superior, then people who actually date today around companies or start companies, successful companies and so on, then private equity is a good idea. If you disagree with that statement, private equity is probably not such a good idea. We might find out whether it is a good idea or not very shortly if I'm correct about what's going on. But I just finished by saying the problem that's currently happening has nothing to do with that. That's an abstract question of whether private equity is a good idea or a bad idea. And for the sake of this podcast, I'll be relatively agnostic about it. My real opinion is sometimes private equity can be good. Sometimes it cannot. It really depends on who's holding the bag and how responsible the fund is and so on. But the question here is a lot simpler because while people can go back and forth on that argument about whether it's a good idea or a bad idea, whether it produces good companies, whether it destroys companies, whether it assets, trip companies, whether the financial engineering is all about profit extraction in the short term, all those are really interesting. But what I'm talking about where they're borrowing on their entire portfolio to pay off dividends. No, I'm sorry. There's no debate about that. That's completely crazy. And that's why the investors themselves turned around and they told these guys, pump their breaks guys. You've gotten way over your skis. And the last thing I'd say is the fact that they've managed to get so over their skis and have their own investors turn around and go, that's crazy. Shows just how much power a lot of these private equity guys think there is in financial engineering. And financial engineering at the end of the day, okay, I'd be clever sometimes or whatever, but it's trying to create money out of nothing. I mean, in a sense, you know, nothing happens. You just move numbers around a balance sheet. And if you've become so convinced that this magic works, I can totally see you leveraging up your entire portfolio to try and pay down dividends and justifying it to yourself saying this is a great idea. But it sort of feels at that point, like you're at the end of the road, like you're the drug addict who's hit rock bottom and you're about to realize that the past five years on the streets haven't been so great. I suppose we'll really start to have to worry, Philip, when the big investment banks start purchasing masses of these private equity, you know, leverage debt obligations and bonds and layering them into private equity backed securities. And selling them as fully diversified AAA backed bonds to pension funds and average people on the street and then perhaps creating synthetic versions of those as well. I mean, that that that would be the final, the final moment of the private equity boom when we really started worrying about this, right? I'm not telling anyone to Google collateralized loan obligations, but I'm not saying that that is what they are, but if anyone wants to Google collateralized loan obligations, feel free. Okay, and on that cheering note, farewell podcast listeners. If I are not, it's my time. You're only supposed to blow the body doors off. You can't get even close, my poor. [music] [ Silence ]
