Speaker unverified: observation

Transcript context

…It seems like your philosophy is that the worst thing will happen. So just plan for it. Don’t say, oh, we’re good as long as this crazy, insane four Sigma event doesn’t happen. You’re like, no. That will happen, and it happens often. Yeah. When I look at it, when I do stress tests and a risk for high yield, I remember getting to J.P. Morgan and going through the risk books. Their stress test was that high yield would move 40%, the credit spread. That time was at 400 or whatever it was. That means 560. I said, no. Our stress test is going to be worst ever. Worst ever was 17%. They said, that’ll never happen again. The market’s more sophisticated. Well, in 2008, it hit 20% and you couldn’t have sold a bond. There was no market. So those things do happen. The point isn’t that you’re trying to guess them. The point is you can handle them, so you continue to build your business. I always look what I call the fat tails and manage that we can handle all the fat tails. Not the stress test the Fed gives us, but all the fat tails. Markets down 50%, interest rates up to 8%, credit spreads back to worst ever. Of course, your results will be worse, but you’re there. The thing about financial services, leverage kills you. Aggressive accounting can kill you, which a lot of companies do. Also, confidence. If you lose money as a financial company—I always knew this too—the headlines are people read that. If they’re a line on putting their money with you, they look at that difference. They lose trust.…

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