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…needs to vote not to sue you. The default is you're not going to get sued. All right, all right, all right. So Bear Stearns happens. Six months later, you get another phone call. WaMu is going under. You do buy WaMu. Contrary to everything we're talking about with Bear, WaMu is actually a great acquisition. Right? Yeah. So this is a lesson about acquisitions. It's very hard. Remember, we bought WaMu a week after Lehman went bankrupt. And most boards wouldn't have touched that. At all, because the whole system feels... Like the whole system was in trouble. But WaMu put us in California, parts of Nevada, Arizona — no, not Arizona — Georgia, Florida, which we weren't in. So think of these really healthy states.And they had 2,300 branches. They had huge mortgage problems. But we had looked at it over and over and over. So we knew their mortgage books cold, and we wrote off losses. We bought it for... And this was all before... We bought it for $30 billion, discounted to tangible book value because they had debt, and we left the debt behind.And that $30 billion was approximately what the mortgage loss was going to be. So we bought the company. Think of it. We bought a company clean. We wrote off all that stuff. The books were clean.And then we did something unheard of, too. The next day or two days later, I went in the market, raised another $11 billion of equity, which I didn't really need. But again, this is my conservatism. I was like, "You know what? This can get even worse."And I don't want to be short capital or liquidity. So we raised that to make sure our balance sheet was just as strong after WaMu than it was before WaMu. And you already had the reputation to pull this off, right? I'm imagining in the worst month of the financial crisis, who can go out and raise $11 billion of equity? Yeah. People trust you. Well, yeah, we knew a lot of shareholders, and you earned your trust over time with shareholders.And we explained, we gave them a quick little presentation. Yeah. A lot of them stepped up and said, "This is great." They also know we can execute it because behind the Bear Stearns acquisition, people forget the work. The next day, you had 50,000 people consolidating 5,000 applications, branches, compensation programs, settlement programs, payment systems. It's a lot of work.But we obviously have the capability to do that, and we have the capability to do WaMu. I think we finished the WaMu consolidations in nine months — all of them. So that within nine months, they were all in the same systems, which allows you to start doing a better job in customer service and things like that. So this fortress balance sheet strategy, raising this equity capital, and having additional margin of safety and conservative accounting — in retrospect, it seems like the obvious right strategy for running a large financial institution. Why wasn't everyone else copying it? Have people changed, and does everyone else run their banks like this now? I think people are more conservative today. I think regulators are more conservative today. wasn't everyone else copying it? Have people changed, and does everyone else run their banks like this now? I think people are more conservative today. I think regulators are more conservative today. But again, I go back to people get involved in aggressive accounting; they don't look at stressing their own bank in a real way.You saw people take too much interest rate risk, too much credit exposure, too much optionality risk, or sometimes it's new products. So if you look at the financial services, very often it's the new products that blow up. It takes a while. They haven't been through a cycle.And you had that with equities way back in 1929. You had it with options, you had it with equity derivatives, you had it with mortgages, you had with Ginnie Maes. Even Ginnie Maes at one point blew up even though they're government guaranteed. Arguably you had it with quant and with LTCM. It happened with leveraged lending. And then people become more rational in how they run these balance sheets now. They think through the... So I have to ask you, is this private credit today? I don't really think so. I don't think it's $2 trillion. It's grown rapidly. That's an issue. But the other thing about markets is there are some very good actors in it who know what they're doing. Customers like the product. So I always say, the customers like it, but there are also people who don't know what they're doing, and it's grown rapidly. So there may be something in there that would become a problem one day, but I don't think it's systemic.So that $2 trillion... the mortgage market, when the market blew up, was, I'm going to say, nine trillion, and a trillion dollars was lost. This is, and it was... A trillion dollars was also in a... Highly leveraged. Back then. Yeah, a lot of these private credits are not leveraged. That doesn't mean there won't be problems. But it's slightly different. But if you look at the whole system, there are other things out there that are leveraged that can cause problems. Of course, people take secret leverage in ways that don't necessarily... I see it. What are some of these in your mind that are potentially problematic today? Well, look, when you look at asset prices, they're rather high. I'm not saying that's bad. But if today P/Es were 15 as opposed to 23, I'd say that's a lot less risk, a lot less to fall. And you have some upside. I would say at 23, there's not a lot of upside, and there's a long way to fall. And that's true with credit spreads.So, we stress test everything. We do like 100 stress tests a week to make sure we can handle a wide variety of things.And then the other thing, and the biggest risk to me, is cyber. I mean, I think this cyber stuff is, we're very good at it. We work with all the government agencies. They would say the chamber, we spend $800 million a year or something on it. We educate people on it. We just do.But it is... you're talking about grids and communications companies and water and even part of the military establishment. The protections are not what you need if we ever get any kind of war where cyber is involved. re talking about grids and communications companies and water and even part of the military establishment. The protections are not what you need if we ever get any kind of war where cyber is involved. And China is very good at it, and so is Russia, but Russia is mostly criminal, which is slightly different. All right, I'm going to pull us back to the story. We're going to fast forward to 2023. We're not really equipped to talk about Russia. It's not what we do on Acquired. But, Silicon Valley Bank... Yeah. And First Republic both fail. You're there again. Did you see it coming? What lessons did you learn from how 2008 went that you could apply in 2023? Obviously, you bought First Republic. Silicon Valley Bank did some very good stuff, but they both had something unique that we didn't know at the time. I'm going to call them concentrated deposits. Not uninsured, because people were misstating that. Concentrated.And so a lot of venture capital... What happened to Silicon Valley Bank and First Republic is some of these large venture capital companies — call them, there are hundreds of them, maybe a thousand — told their constituent clients that they invested in, who all banked in Silicon Valley and First Republic, "The banks aren't safe. Get out." And they all removed their deposits.At Silicon Valley Bank, I think they had 200 billion in deposits; 100 billion in one day. And that caused the problem. But they also had other problems. They didn't have proper liquidity. They didn't have their collateral posted at the Fed, and they had taken too much interest rate exposure.And the interest rate exposure was hidden by accounting. It was called "held to maturity," where you don't have to mark even Treasuries to market. And I always hated held to maturity, but it gives you better regulatory returns and stuff like that.But when that "held to maturity" [asset was re-evaluated], if you said, "What's the tangible book value of one of these banks?" And you said it was 100, all of a sudden it was 50. If you just marked that one thing to market, now you're into judgment land.At what point, if you saw a bank where just that one mark had the tangible book value drop to 40 or 30 cents to the dollar, would you panic? I would have said, "That's too much risk."And the regulators helped us because they said rates were going to stay low forever. So these banks bought a lot of 3% mortgages. And when 3% mortgages, when rates went up to 5%, were worth 60 cents on the dollar or 50 cents, that was it.And so both of those had [issues]. They took too much interest rate exposure, known to management and the regulators, and it was fixable.So we knew a little bit about Silicon Valley Bank. We were trying to compete in that area. So we learned a lot afterwards about how to do a better job for that ecosystem of venture capital. We have a whole campus in Palo Alto now. We've hired 500 innovation bankers. We cover venture capital companies. We're not as good as they are yet. We're going to get there because we're organized slightly differently.And we knew First Republic. We were watching it. I called Janet Yellen.…

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