Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House, our podcast from Intercontinental Exchange on markets, leadership, and vision in global business, the dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. Now, welcome Inside the Ice House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
Let me tell you a story about one of the eeriest nights of my life. It was Thursday, March 12th, 2020. I'd been approached by Nellie Bowles, who's now running The Free Press with her spouse, Bari Weiss, but who was then writing for the New York Times about spending a night on the floor of the New York Stock Exchange.
Nelly wanted to watch, with an obsession for which she's known, a crew of industrial cleaners wearing hazmat suits scrub every inch of our building with disinfectant to try to stave off the advance of COVID-19, which would ultimately shut down the place for nine weeks. This felt right out of the early episodes of Station 11 or The Last of Us when anyone was doing everything to try to put the kibosh on the pandemic, ultimately to no avail.
As the company's comms guy, I felt obligated to stick around into the wee hours with the crew, even while Nellie left pretty quickly, leaving her photographer, Victor Llorente, to document the scene for the photo essay that would run the following Monday under the headline, How Businesses Get a Deep Clean.
Now, I can't begin to describe the dystopian feeling I got as the crew did their work. Masked up with respirators, laying down a chemical film with sprayers that created clouds around the trading booths as the molecular particles tried to kill whatever airborne particulates were raining death around the world. They offered, nay, they demanded that I wear a full hazmat mask too if I wanted to hang around and watch them work.
Now my wife, who works for the NYPD, and my son and daughter were at home in the West Village. As the hours ticked on, the streets were emptying and they'd stay pretty much empty night and day for the months that followed. On that night, I looked at the box of big league facial protection that the crew brought along, and as I left finally at about 11:00 PM, carefully boxed my mask and grabbed three more, just in case by morning there'd be a necessity if my family needed to make a quick exit from the city among an uncertain atmosphere. Suffice to say to this day, those masks remain in their boxes unopened, now nearly three years later. They were interesting months to be sure at the NYSE, the NYPD, and across the country and around the world.
Just a few days before my overnight on the stock exchange floor, I was hosting CNBC's Jim Cramer for his first visit Inside the ICE House. Jim and I talked about the recent volatility in the markets and the potential spread of shutdowns around the country. Bit of a hypochondriac, Jim talked about his newly acquired habit of carrying hand sanitizer and he confessed that he also might have to pack a mask for his next visit to the Philadelphia Flyers game. I thought he was nuts.
By Monday, March 9th when the episode was released, the Dow Jones Industrial Average plummeted 1800 points. The next podcast episode I recorded would be our first remote one ever, with the NYSE's Chief Operating Officer Michael Blaugrund, came out a few days after my overnight at the NYSE with the title Episode 166, The Decision to Temporarily Close the New York Stock Exchange Trading Floor.
These events came rushing back to me when I opened up the new book by our guest today, Liz Hoffman, who spent some of the last three years detailing the business world's actions, reactions, and responses in the wake of the pandemic that swept across the globe. Liz takes readers behind the scenes and into the personal thought bubbles of US business titans making decisions in real time. The pages traced the pandemic from a far off problem to shutting down the entire nation, followed by the starts and stops of reopening the economy amid a changed world and workforce.
As you'll hear, Michael Blaugrund was just one of my colleagues and past podcast guests to feature in Liz's deeply researched and riveting storytelling in her pages. The chapters cover everything from the intrigue behind the federal bailout plans to the personal tragedies and tribulations that the decision makers faced during the pandemic, to the inner working of the levers of companies as they deployed their assets to try to raise funds and lower costs without decimating their workforces. Our conversation with Semafor's Liz Hoffman on Crash Landing: The Inside Story of How the World's Biggest Companies Survived an Economy on the Brink, it's coming up right after this.
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Josh King:
Our guest today, Liz Hoffman, is the business and finance editor for Semafor and the author of Crash Landing: The Inside Story of How the World's Biggest Companies Survived An Economy on the Brink. Previously, Liz was a senior reporter at the Wall Street Journal covering investment banking and M&A. Welcome, Liz, Inside the ICE House.
Liz Hoffman:
Thanks for having me.
Josh King:
So the New York Stock Exchange floor located about a hundred feet below us is a central setting of the beginning of your book. Is this your first time back to our humble home since those early morning pacing sessions that you described my colleagues making while deciding how to respond to the pandemic?
Liz Hoffman:
I was very briefly here in the fall for the Grindr IPO, which is sort of-
Josh King:
A great event, by the way.
Liz Hoffman:
Great event. There was, I think, a big drag show and bagel brunch out on Broad Street.
Josh King:
Outside on Experience Square.
Liz Hoffman:
I came because it was, I think, really moment that felt like the markets were bouncing back, and that was fun. It was cold. No, so this will be my first time back since then, and second time in three years.
Josh King:
One of the characters in your book is my friend John Tuttle, the vice chairman of the Exchange, and his feverish efforts while his pregnant wife was at home to develop a testing regimen to keep the floor open, thanks in part to the then governor of New York, Andrew Cuomo. What was it like piecing together this TikTok?
Liz Hoffman:
I decided early on that I wanted to spend time on the New York Stock Exchange. My background obviously is as a finance reporter, and when I approached the project from the start, if you remember early on, there was a real sense it was going to be a financial crisis. Ultimately, it didn't really turn out that way and we can talk about why, but to me the New York Stock Exchange is such an iconic physical place that represents something that's very hard to make tangible, which is the international capital markets.
So I knew I wanted to spend time on that story. It was just incredibly fraught, because you have to remember, the early days, there wasn't enough testing. Every company was trying to figure out are we an essential workforce? There were some really detailed, and I think ultimately really thoughtful, discussions among the New York Stock Exchange leadership about that.
The thinking was from John Tuttle and Stacey Cunningham and others that, A, this is an important symbol. The New York Stock Exchange, I think, closed very briefly after 9/11, so the decision wasn't taken lightly to do it again. Ultimately, was it safe? The way they came down was, no. We really shouldn't be here. There's too many people and there's too much we don't know. So I think leadership deserves a lot of credit for taking that decision.
Then on the back end, the decision to reopen. How could we do it safely and how could we get enough testing? The resources were so scarce. The last thing any private sector company wants to be doing is to be taxing resources that are needed to keep hospitals open and subways running. So I think that was, in a way that I hadn't really appreciated when I started reporting the book, ended up being a really good microcosm for the tough decisions that you have to make when you're balancing shareholder interest, public safety, employee safety, and then the extra weight of we matter. If we close, people will care. It will be a moment, and it really was.
Josh King:
It certainly starts with imperfect information and becomes as you go along, not only for the people here in this building, but for everyone else in the country and around the world, a learning experience, a very fast study of what was going on. So, Liz, Crash Landing begins, the way you tell the tale, in Davos at the 2020 World Economic Forum, right before COVID entered our lexicon. As is usually the case, the good and the great took to the airwaves to spar with CNBC's reporters under the Alpine Peaks. Here is Joe Kernen peppering treasury secretary Steve Mnuchin on what was, at the time, topic A that week, Greta Thunberg and the environment.
Joe Kernen:
I think it's a serious issue. What I think is somewhat serious is that she has been elevated to a position, whether it's from Time Magazine or being a finalist in the Nobel Peace, whatever you want to call it, she's here to great fanfare. Is that a commentary on anything, do you think, about Davos or about where we are in the world in general and in terms of climate alarmism, et cetera?
Steve Mnuchin:
Well, let me just comment, because obviously the climate issue is something that is being talked about this week. I think, quite frankly, our environmental policies are misunderstood. The President absolutely believes in clean air and clean water. He supports a clean environment. He announced this week the support of the Trillion Tree Initiative, which will have an important impact on emissions. What the President has said is he got out of the Paris Agreement, not because he doesn't like the environment, but because it was a bad deal. It was unfair for the US.
Josh King:
So as we would soon be dealing with far more urgent issues than the Trillion Tree Initiative, sketch out how you think Mnuchin and others were on, as you say, borrowed time.
Liz Hoffman:
Davos in 2020, I think will go down as this is one of the most absurd gatherings of people in history. These are folks, these are CEOs, these are policy makers who should have incredibly good lines of sight into what's happening in the global economy. By the time that conference kicked off, a couple hundred people were sick in Asia, the US had confirmed its first case, and yet I don't remember hearing about it at all. To your point with that clip, I think the Trump Administration officials spent most of the week talking about their tax cuts and environmental stuff, a lot of environmental ESG talk from the CEOs.
I will give Steven Mnuchin credit. There was a closed door dinner with a bunch of CEOs who were all talking about these tenured, very Davos big idea talk. He said, "You guys, you're talking about the wrong thing. There is a city of 11 million people in China that's on lockdown and nobody's paying attention."
Josh King:
Mnuchin wouldn't say that on the air with Kernen?
Liz Hoffman:
He did not say it on the air with Kernen. You remember when the President was asked about it, I think basically what he said was it's totally under control, not at all worried about it, and by the way, the CEOs when they were asked on television about it. CEO of Novartis said, "I think all the right things are happening." Jamie Dimon at JP Morgan went and was waxing poetical about capitalism. I think some of that is that no one wants to be a fear monger.
Second, was a lot we didn't know then. Again, I was at Davos. I was shoulder to shoulder at the parties and in security lines. One thing I've tried in this book is to really take everyone back to what was happening in the moment and what we knew. To your point, this was a crisis that unfolded so quickly with imperfect information that was made obsolete first by the week, then by the day, then by the hour. So yeah, Davos, it's a great example of just people not seeing what's right in front of them.
Josh King:
Talking about people not seeing what's right in front of them, I mentioned how Michael Blaugrund was our first remote episode, but our first recording of this year was in person with Jay Clayton who sat, where you sit now, a couple weeks ago. He shared his memories of his tenure at the SEC. The pages of your book capture the anxiety leading up to the market wide circuit breakers. Let's hear Bob Pisani on the floor of the NYSE with our then president, Stacey Cunningham, from that day on March 9th when those circuit breakers kicked in.
Bob Pisani:
Grabbing Stacey here, of course the head of the New York Stock Exchange. Stacey Cunningham joining us. Stacey, we've had a halt here for 15 minutes. Do you want to explain what the market is doing right now, what the traders are doing?
Stacey Cunningham:
Yeah, the market right circuit breakers are designed to slow trading down for a few minutes to get investors the ability to understand what's happening in the market, consume the information, and make decisions based on market conditions. It's a plan that's put in place for situations like this. It's been tested. We test it every quarter, so this is operating as it's supposed to.
Bob Pisani:
The important thing is that this is not meant to change any of the fundamental facts that we're dealing with, this virus, if the purpose is to allow the trading community to seek liquidity.
Josh King:
So Liz, with the advantage of hindsight, how did the markets manage those days?
Liz Hoffman:
I think they managed great, and that was not at all clear going in. You have these mechanisms that are set up, these circuit breakers, and they are tested synthetically on a regular basis. I wrote in the book, it's like the equivalent of changing the battery and your smoke alarm and then hoping that your house doesn't burn down. I think, more or less, they managed pretty well. It was incredibly volatile, incredibly quickly.
I think the circuit breakers worked as intended. You mentioned that Jay Clayton was here, and I hope his recollections match what I wrote in the book, but he and Stacey Cunningham had spoken early that morning, Jay in Washington and Stacey up here, because everyone knew it was coming. The futures were all pointing to a limit down. The real question was what would happen when trading reopened? Would there be enough buyers?
I have the scene in the book at the SEC where Jay's deputy, Brett Redford, and his people in his office and he says, "Are there enough buyers?" There were really worried that there wouldn't be enough buyers to find a new price when it reopened. Ultimately, I think it went pretty well, the ninth, Certainly there was another one a week later, but they worked more or less as intended in a way that you don't always see of backup, backup plans.
Josh King:
People like Brett, who's from Delaware, and Stacey loom large in your book. Given that you actually hail from Hershey, Pennsylvania, did it ever come up in your reporting that Stacey had earlier in her career, that she was the market maker for The Hershey Company, which is NYSE ticker symbol HSY?
Liz Hoffman:
I don't think it ever did. I don't think it ever came up. I did know that she started as a floor specialist and a market maker and had one of those careers on Wall Street that probably will never quite be replicated given the way the markets moved. I'll have to ask her about that.
Josh King:
So as we did our research for the show, realized that Hershey was not only the last M&A deal that you covered, but you had some insider knowledge on why the company would never let itself be acquired. We have an amazing picture of Stacey and someone dressed up as a Hershey Kiss. Any chance that was you given where you hail from?
Liz Hoffman:
Probably not, but my first job in high school was I worked at the Hotel Hershey in their activities department, and as part of that, one day a week you had to put on one of the chocolate costumes and take pictures in the lobby with people. So I don't think I was ever a Hershey Kiss. I think I was a Kit Kat bar, if memory serves, but that was a long time ago. No, you're right. It wasn't my last M&A scoop on the beat. I think I was joining the banking team like the next week.
Josh King:
What was Hershey's defense?
Liz Hoffman:
They're controlled by a trust. I remember we were chasing that and we finally nailed it. I said, "Guys, this is very exciting. It's never going to happen." This had been tried before in the 2000's. I think it was Mars or Wrigley at the time. Hershey is a great asset, but it is controlled by a trust. It is just deeply embedded in that community. The streetlights in Hershey are topped with Hershey Kisses. It's just incredibly hard. It might make all the sense in the world on paper, but a deal like that is never going to happen.
Josh King:
So beside the streetlights and the occasional wafting of chocolate smells and access to a great amusement park, what brought the Hoffman family to eastern Pennsylvania originally?
Liz Hoffman:
Parents are both from Philadelphia. My dad was a lawyer and worked for the attorney general in Harrisburg. Mom's a doctor. Worked for the Penn State Medical Center. It's where she went to med school. So yeah, grew up in central Pennsylvania, went to school in Boston, went to Tufts, moved to Chicago to get my masters at Northwestern, and then I came to New York in 2011.
Josh King:
Focusing on that time at Tufts, you got the Timothy Horgan Award named after the great Boston Globe sports columnist for being the Jumbos' leading sports journalist. What was your initial career path? How did you fall into reporting?
Liz Hoffman:
Totally by accident. I was interested in politics and was a political science major and a minor in public health, and thought I wanted to go to DC and do political stuff. My brother Ben was two years ahead of me at Tufts. So when I got there, he was a junior and he was running the sports department of the newspaper, Tufts Daily. Smallest school in the country with a daily newspaper. They needed somebody to cover women's field hockey that fall and I played in high school, and so I did.
Then they needed someone to cover women's basketball, which I had also played in high school, so I did. Then I just stuck around and I realized on my junior year that I liked it more than what I was doing in the classroom. To everyone's credit around me, no one tried to talk me out of it. This was 2006, seven, eight, and no one tried to say, journalism is dying. Why don't you go get a real job? So I've only ever been a reporter.
Josh King:
So as you're going from the school newspaper, the Tufts Daily to doing this in the real world, you were interning for the Patriot Ledger. Does covering collegiate sports prepare you well to cover the business arena?
Liz Hoffman:
I used to make jokes when I was on the M&A team that sports reporting is actually a lot like M&A. There's two teams, they're on the field, there's tactics going to play out, someone's going to win. No, actually I loved being a small town reporter at the Patriot Ledger. I covered school boards and zoning meetings and police departments, and that's just incredibly good training for reporters. You get a call, there's an arrest. You got to go down at the courthouse and see what you can get the cops to tell you. It's very bread and butter reporting that I think trains you well to just roll with the punches and figure out what you need to know and who would know it.
Josh King:
You start with the Patriot Ledger, and then as you said earlier, you headed off to Madill. Were there elements of that training and that educational experience that you found yourself calling back on as you covered a very unique story in COVID-19?
Liz Hoffman:
I went because I couldn't find a job. It was 2008 and no one was hiring. I was like, ah, everything will be better in a year. So I went to get a one year master's.
Josh King:
How did the career develop after graduate school and was business the direction you chose to follow?
Liz Hoffman:
I had a job in Chicago for a couple of years working for a small family-owned media company, briefly working for their parenting magazine. I was 22, had no kids, and no business doing that. I wanted to come back east and I was eager to get into something that felt meatier. Again, with this direction of travel of journalism, I wanted something that was more professional and sustainable. So I ended up at Law360 in New York.
My recollection is that I was hired to cover something that now sounds terrible, maybe securities litigation or insurance regulation, something that would've been less interesting than what I did cover. On my first day they said, "Well, we're thinking about launching a corporate section. Do you want to cover M&A?" As I recall, I said, "I don't know what that is, but sure." So I worked there for about two and a half years covering M&A for corporate lawyers, which was just an incredibly good education in business, in law, and deals. Yeah. Trade pubs I think are great places for reporters to get their starts.
Josh King:
So after your run at the Wall Street Journal, last year you joined Semafor started by the former Bloomberg Media CEO, Justin Smith, and Ben Smith, who I know from his time at Politico before he went to Buzzfeed and the New York Times. Here is Ben talking about his vision for the new outlet.
Ben Smith:
Part we're trying to be more transparent about our journalism. On the page, we've broken down the story form, which is this black box of news, facts-
Andrew Ross Sorkin:
It looks totally different. It's almost like it has... It's a multiform. It has different sections.
Ben Smith:
What we're trying to say is the thing that we hear from readers, which is tell us, here's the news. Here's what the reporter thinks. Here's a legitimate alternate point of view on the same facts. Here, when we can, is a global point of view. They're often irreconcilable differences, but it's interesting to know what they're thinking in Beijing.
Josh King:
That's Ben talking with Andrew Ross Sorkin. I saw the piece from a couple of days ago that you wrote with Ben on Forbes, Russia Hawks and an $800 million deal in peril. What was the opportunity that led you to join the Smith's new venture?
Liz Hoffman:
I'd been at the Wall Street Journal for nine years and I loved every day of it. I have a lot of respect for Legacy Media, but I do think there's something interesting happening in the industry, and not just in media, but there's just a declining trust in institutions of all kinds. I realize I say that sitting in one of the iconic institutions in the country. I think declining trust in institutions, but increasingly people are pretty discerning about individuals, and that a lot of that trust and credibility is being rubbed off from big brands onto individuals. I wanted to see if I could, frankly, if I could pull that off, and just to do something that was a little bit different and more entrepreneurial.
Ben and Justin, as you know, just have incredible track records of success in media. I don't know. Felt like a good time. I'm sure there's some, we can get into it in the book later, but this is all part of The Great Resignation. People were rethinking their careers and what they wanted out of it. I'm not sure that was conscious, but I'm sure there's some of that.
Josh King:
Certainly Nellie Bowles and Bari Weiss are example number one if you're wanting to talk about that.
Liz Hoffman:
Well, I'd have to make a list, but I think if you looked at all the executives who are featured the book, probably a third of them aren't in their jobs anymore.
Josh King:
Now the Semafor product looks good on the screen. I like the typeface against-
Liz Hoffman:
Do you like the yellow?
Josh King:
I'd call it a faint greenish background. What do you guys call it?
Liz Hoffman:
I will pass that on to our head of design. No, they're very particular about the shade of yellow. I'm not an aesthetics expert, so I'll stay away from whatever the actual name of it is, but they spent a lot of time tweaking.
Josh King:
Oh, I'm sure and it looks very, very distinctive on screen. You certainly feel a nod to what the Financial Times has done with their hue as well. I guess more important are the differing perspectives that Ben talked about in the clip. What's it like to actually do reporting and writing there compared to the Patriot Ledger or the Wall Street Journal for that matter?
Liz Hoffman:
I found when I was at the Wall Street Journal that you would do the hard thing. You'd go get a story. You'd write it as straight down the middle as you could, and then you put your best stuff on Twitter. The stuff that like you couldn't, for reasons of voice or editing or brand, just weren't going to fit in the newspaper. That always seemed a little silly to me, in part because I don't like creating content for free for Twitter. I'd rather do it for my employer.
No, I think a lot of what we hear from consumers of media is that they don't know what they're getting. Again, as a reporter, I've never intentionally written something that I thought was slanted or betrayed my personal bias, but that stuff sneaks in. Sneaks in on who you choose to quote and how you choose to stack the blocks, and the headline that goes on it and all of that.
I think the thing we're trying to do is just attack that head on. Just straight up, here are the facts. Those have to be as accurate as if I were reporting them for the Wall Street Journal. Here's genuinely what I think about it. I've been covering the industry for 10 years. Don't devolve into hot takes, but things that are thoughtful and provide some context and analysis. Then here's genuinely why I might be wrong, but to really elevate that competing voice rather than have a-
Josh King:
That is actually a block in the story.
Liz Hoffman:
No, exactly. It's called Room for Disagreement. In a traditional news article, it's called the To Be Sure Graph, to be sure, and it's somewhere between paragraph four and 10. It's there I think as occasionally as a box checking exercise. I think we really just wanted to elevate it and put a real smart voice behind it and just acknowledge our own blind spots head on.
Josh King:
Regular listeners of this podcast know that I got this fascination with the media startup world, where often the journalists behind the business become the story if it's a big enough news. Your move to Semafor covered pretty heavily in your competitor Axios and elsewhere. What was it like being on the other side of the reporting paradigm?
Liz Hoffman:
I'll tell you after that happened, I called some sources whose own personnel moves I had covered over the years, perhaps with a little less care than I should have, and said, "Oh, my god. That was terrible." So it is an odd thing when people are writing about you. It was very strange. I wanted mostly to make sure that I had told, obviously, the Wall Street Journal before that happened.
I called my book publisher at midnight the night before, because I realized I'd forgotten to tell him that you will not be publishing a book by a Wall Street Journal reporter.
Josh King:
How were they with that?
Liz Hoffman:
Incredibly supportive. I think was a lot, and remains a lot, of buzz around Semafor and they've been hugely supportive of the project as well.
Josh King:
After the break, Liz Hoffman, author of Crash Landing, and I are going to talk about her process for writing the book and some of the stories contained in its pages. That's all coming up right after this.
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Josh King:
Welcome back. Before the break, I was talking with Liz Hoffman, author of Crash Landing, about her career and the state of journalism today. So Liz, April, 2020, you published this 9,000 word piece for the Wall Street Journal that became the inspiration for Crash Landing. I was aware of you putting together this TikTok at the time. How did you tackle the assignment from your editors initially and when did you decide to expand that long form article into a book?
Liz Hoffman:
That was the kind of story that the Wall Street Journal does just incredibly well. I think it had contributions from 20 other reporters and came together in about three days. If I remember right, I got that assignment on a Tuesday and I think it took over the business section on Saturday. So I think it was so clear, and one of very few things that was clear at that time, that this was just absolutely a moment that needed to be captured. I think the headline on the piece, if I remember right, was the month that American business shut down, something like that. The economy just stopped and there was clearly a good story to be told there.
After that, everyone became pandemic reporters. Beats got suspended and you were just following stories where they went. I'd gotten some inbound from some agents and publishers and I said, "I don't know." Usually reporters cover a story for a while on their beat and then they realize there's a book in it. So two of my colleagues and friends wrote a book on WeWork a couple years ago. They had covered it was obviously a great story. They wrote a book.
This was a little different because the entire economy is a lot of people's beats at the Wall Street Journal and it touched industries that I had never covered, like airlines and hotels and manufacturing things, where I had never spent any time. So I really wanted to chew on it for a little bit and see if I could write a proposal and then see if anyone would buy it. By the summer it was pretty clear there was a story and I thought, "Well, if not me, who?" So I don't know, no one was thinking all that clearly then, but it seemed like a project worth doing.
Josh King:
Talking about that story on WeWork, eventually it became TV series called WeCrashed. You extolled some of the blurbs for the book on Twitter a couple weeks ago, including one from my friend Brian Koppelman, the showrunner of Billions, who wrote, I'm going to quote Brian's blurb here, "This book reads like a suspense thriller even though every word is true."
Now, I listened the other day to a Rewatchables with Brian, Bill Simmons and Ryen Russillo in which the threesome broke down the 2011 Wall Street thriller, Margin Call, with Jeremy Irons playing a thinly veiled Dick Fuld of Lehman Brothers. Have you and Brian talked about maybe adapting Crash Landing for film and do you think Jeremy Irons could pull off a believable James Gorman?
Liz Hoffman:
First of all, Margin Call is a perfect movie. It is by far the best movie about Wall Street. I'm a big fan. I have perhaps not been shameless enough in asking Brian for his support. He's very generous with his blurb. Jeremy Irons could absolutely pull off a James Gorman.
Josh King:
Certainly with the accent and the wryness.
Liz Hoffman:
Yeah, he's got the right hair I think too. No, I've spent some time over the last year casting some of these people in my head, but there's a reason I'm not a casting director in Hollywood.
Josh King:
Just staying on James Gorman for a second, his nervous navigation of the early months of the pandemic embodies, I think, what we all went through at the time. Let's hear a bit of Gorman talking with Erik Schatzker on Bloomberg Television back on April 16th, 2020.
Erik Schatzker:
I have to start here, James. You had the coronavirus. You spent a month sick at home running an 80,000 person firm. How are you doing?
James Gorman:
I'm doing great, thank you. I'm completely recovered and to be perfectly clear, I had the virus, but I was one of the lucky ones. I was not hospitalized. My lungs did not get infected, which was a real blessing. While it's unpleasant, it certainly, in those conditions, it's manageable. My heart just goes out to the folks who are not that fortunate or who had underlying health issues and the very elderly who have really struggled and tragically passed away. It's a curse and I just wish everybody well who gets it and wish them stay hydrated, stay rested, and wish them the best.
Josh King:
So Liz, why was Gorman's story traversing the globe, managing the unknown risks of the virus, make him the ideal person to capture the universal experience that we all faced?
Liz Hoffman:
I focused on Morgan Stanley and James' story for a couple of reasons. First, to your point, he did have it. Now that doesn't seem particularly noteworthy, but it was a big deal at the time. As I report in the book, they didn't disclose it until he was out of the woods, but they were having conversations with his board. He got his board together and says, "We need to talk about what happens if I die."
So I think at this point, having had coronavirus is not a real badge of honor, but it, I think, gave him a unique experience as he steered this big firm through the crisis. The other is that Morgan Stanley story is really book ended by two giant deals that they did. They bought E-Trade. They announced it on what would prove to be then the peak of the market in February of 2020. Then they bought Eaton Vance about a year and a half later. They were making huge bets at a time that no one else was, and frankly, both of those deals had been home runs.
So I think one lesson coming out of the pandemic that I tried to capture in the book is make a lot of decisions. If you are an above average CEO, you'll bat 60-40 on whether your decisions are good. The fact that so many decisions were made so quickly and most of them turned out pretty well, I think actually turns that corporate management orthodoxy on its head a little bit, where everything is murder boarded out and there's decks and there's months of strategic planning. Actually, if you think you're right and you have a track record of being right, I think the people who won coming out of the crisis were offensive, not defensive.
Josh King:
Gorman had his health scare. Jamie Dimon had a major health scare as well. As I was thinking about our conversation last night, going back and looking at some of the coverage, looking at maybe some more recent headlines from Gorman, questioning whether all the right moves actually were made in terms of the efforts by the banks to get their employees back into the offices. They might have had second guessing about that to themselves. As you and your editors putting the finishing touches on retelling the story of those early 2020 days, was there anything that you didn't know at the time that you discovered or perhaps had forgotten and rediscovered that surprised you?
Liz Hoffman:
The funny thing about books is, I was a newspaper reporter, so the life cycle of a story was anywhere between two hours and a week and a half, and not a lot of time for naval gazing after the fact. I think one thing, especially sitting where we are now and looking at what's happened to the labor market and looking at what I think is a generational shift in power between capital and labor effectively, workers are really holding the upper hand right now.
Wall Street actually was the first place where you started to see that stir. In part, that's a function of the privilege. A lot of people didn't go home ever, and they stayed at their jobs. The fight to get white collar workers back, particularly in cities like New York, was just much harder than I think most CEOs anticipated. I came out of that actually with some, I think, on the side of the CEOs here. I have an anecdote in the book of David Solomon, CEO of Goldman Sachs, lives downtown, taking walks on the weekends, sees the bars are packed with presumably a lot of his employees, shows up on Monday, no one's in the office. So I think there was probably a little bit of self-indulgence that got baked into the white collar workforce.
That said, I don't really understand the hand ringing that we're in now. I think most CEOs would tell you they don't expect everyone to be back in five days a week ever again, so people can figure out what works for them. I think that tug of war went on a lot longer and was a lot harder than people thought. I think James said publicly that he misjudged the mood, whether people would be ready to come back. Remember CEOs, they like being in the office. They run a big company. They want to see what's going on. So they have a different view on the butts and seats rule.
Josh King:
Off Wall Street and away from the banks, Gorman's not the only CEO you write about to give readers a sense of the net closing around the US economy as the pandemic moves closer to our shores. I want to focus a little bit on Bill Ackman, who we talked about recently with David O'Reilly of Howard Hughes Corporation. That's NYSE ticker symbol HHC. How did Bill use the credit market to hedge, just like he had a decade earlier, and do you think he was unjustly maligned for his comments and actions at the time?
Liz Hoffman:
I do. To the second part, I do, and I can explain why. People think of Bill Ackman as an activist stock picker effectively, but his two big trades in the pandemic, as I report in the book, he called this thing coming and going and had almost nothing to do with the deeply researched stock positions or activist needling that he's known for. He noticed in early 2020, before the pandemic, you got to remember this was the era of free money basically no risk was being priced in anywhere. Treasuries were yielding zero, so fixed income investors had to buy junk bonds and junk bond buyers had to buy stocks. So the spreads on all of these things were just so compressed.
He noticed that the market was mispricing, and effectively, that they weren't charging any more to ensure against the risk of default on low rated bonds versus, for example, treasuries, assuming that any given company was about as safe a credit bet as the US Treasury. Which when you say it out loud, obviously not true. He looked at his stock portfolio and said, "Look, I think this thing is going to crash. We have two options. We can either sell, and I mean sell, everything or..."
Josh King:
Just like Margin Call.
Liz Hoffman:
Exactly right, or we can put on a giant hedge in the form of credit default swaps, which ensure against the risk that a bond isn't repaid. So that's what they did. They spent 27 million and whatever, effectively insurance premiums, in late February of 2020. Within about three weeks that position was worth two and a half billion dollars, because everyone woke up to the risk that he had seen. Everyone got scared in a hurry, so just astronomical returns on that bet.
You'll remember he went on television on March 18th, middle of the day, CNBC, with just this interview that just lit Wall Street on a fire. Hell is coming. Sell everything. He's saying he went to the bank and took money out. It was very hair raising stuff. He was criticized pretty heavily once it came out that he had had the short position on the market. He was criticized pretty heavily for effectively trying to tank it.
Ultimately, as I report in the book, he had closed out that short position and actually he was net long stocks again, because he believed that the only solution to this problem was so obvious that the President was going to shut down the country for 30 days. That would be the end of it and everything would rally and he wanted to ride the stocks back up. So just to make a good example of just the emotional tenor of those couple of weeks and people moving very quickly with very imperfect information.
Then on the back end, look, the inflation that we're living in now, I'm surprised that people have been surprised by this, because you had two years of huge savings build up between government stimulus and then just we weren't spending. Then people burst out of that and they wanted to spend money, so you have a huge increase in demand. Then because of supply chain snarls and rolling lockdowns in many parts of the world, not enough supply, so prices are going to go up. Ackman, as you said, was early to that trend and put on an interest rate bet in early 2021, effectively betting that the Fed was going to have to raise rates. He was early on that, but ultimately, obviously, correct and turned like 200 million into another 2 billion dollars.
Josh King:
Unbelievable.
Liz Hoffman:
Called the coming and going.
Josh King:
The coming and going, and-
Liz Hoffman:
By the way, this isn't even what he does.
Josh King:
I know, I know. Talking about the coming and going now, our conversation has winding its way from right here at the New York Stock Exchange to James Gorman's office to Bill Ackman's office. Let's now, because I think it's a good segue, head down to DC. The Federal Reserve, then and now, led by chair Jerome Powell, you describe him as the accidental chief of the world's most powerful central bank. How do you think he's done in the role on both sides of the pandemic?
Liz Hoffman:
I think he's done quite well. Looking at a high level at the government's response to the crisis in its early days, I think like solid A minus. They did in about six weeks what it took the government nine months to do in 2008, what it never did in 1929, which is to spend your way out of it, to really be the lender of last resort, to stimulate the economy, to preserve jobs. So I think on the way in, very good. You could argue, and I probably would, that it went on a little too long, that the spigot was open too wide for too long. The inflation might have been a little less bad, but I don't think we were ever going to avoid it.
I think where you can fairly criticize the Fed is they were too slow to raise rates. They started in March of last year, even though the Bank of England was talking about it in late 2021. They were probably three to six months too late to do that, which has required them to hike faster and higher than people had thought. Every time they do that, the market seems to be surprised. So we, I think, are to blame for this level of volatility and certainly for the level of inflation that we've seen.
Josh King:
Talking about some of the other fallout in the after action report. Earlier this week, the Pandemic Response Accountability Committee reported that it found 5.4 billion dollars in fraud from the Paycheck Protection Program, or PPP loans, and that the COVID-19 Economic Injury Disaster Loan Program. Now you write that Brown University calculated the PPP only saved about 1.5 million jobs, but the treasury cites more than a 10x number on that. Were you able to investigate why there's such a difference and is there an argument that the government doing something quickly, but inefficiently, was better than a more deliberate process?
Liz Hoffman:
There's always a trade off in these situations between speed and efficiency. You can means test every program, but it's going to take a long time to get out the door. Look, 5 billion dollars is a lot of money, but I think 520 something billion dollars went out the door. So I would actually argue, I think the PPP was a pretty well designed program as far as these things go. Yes, they were criticized for spending money to keep people on the payroll, but if they're not on the payroll, they're on unemployment. Which is another mess and chronically underfunded, and less efficient because it's state by state than it is by simply the government just paying your salary.
Was it perfect? No, I think it made a lot of sense in the moment. There's always Monday morning quarterbacking, but that was a program that was pretty well designed, pretty well executed. Had a bumpy first couple of days and there was some concern that the banks wouldn't participate and who was eligible. Ultimately, ended up spending almost exactly what the bean counters at treasury thought it would, and I think is a success when you look back at it.
Josh King:
Talking about payrolls and unemployment, the book focuses really on two industries in particular outside of financial services, the automotive industry and the airlines, tells a larger story of what was happening in the economy. Why did you choose those two industries as your examples?
Liz Hoffman:
Airlines were an obvious one. The pandemic, as I wrote in my forward, because I've tried when I wrote the book to, again, to take people back to what was happening in the moment. The things that now seem ridiculous, really didn't seem ridiculous then and things that now seem obvious, were just not. I was on a family vacation to the Gulf and was flying back from the Tampa Airport on March 8th. Two days later, I left the Wall Street Journal's offices and I basically never went back. So just as a way of saying that I understand how fast things moved and it's easy to criticize the way things were handled. The airline industry was just so hard hit. You remember seeing those pictures of planes parked in the desert, and if you were flying, it was empty.
I was at LaGuardia, maybe in June of 2020, and it was eerie. It was weird. That's an industry that is just constantly booming and busting. It's incredibly capital intensive. You can complain all you want about how expensive your seat is. Airlines don't actually really make any money, but they're national critical infrastructure. So I think I really wanted to look at what happens when they were so hard hit and the options really were letting them fail or massive bailout, which was hugely unpopular. I think actually probably less efficient in the end than the Paycheck Protection Program was in terms of jobs saved, and certainly didn't prevent us from having all kinds of airline labor malfunctions on the back end.
Josh King:
I remember I was watching that story pretty closely and obsessively trying to see how different airlines were managing their problems in different ways from, as you say, parking the airplanes out in the desert to furloughing employees. Let's hear from Doug Parker, the CEO of American Airlines, offering a customer update on April 15th, 2020.
Doug Parker:
Hello, everyone. It's a privilege to stand in front of you on behalf of American Airlines 130,000 team members, many of whom continue to operate flights and serve those who require essential travel today. We want to take a moment to update you on how American Airlines is keeping our customers and team members safe and connecting with the communities we serve.
This week, we were fortunate to receive payroll support from the US Department of the Treasury. These funds will be used to support our team through the summer and into the fall, funding team member salaries and benefits, and keeping American flying. This will ensure that we're all here and ready to fly when all of you are ready to return to the skies.
Josh King:
So Doug told treasury Secretary Steve Mnuchin that the industry would need probably about 50 billion dollars to stay afloat. Your pages take us into the high stakes negotiating between the airlines, as you mentioned earlier, the labor unions in Capitol Hill. Can you talk about how those airlines use strategic cutting of travel routes to influence Congress, and the ways that both the airlines and the unions shared and leaked information to move the CARES Act and are the legislation forward?
Liz Hoffman:
Yeah, I'll start back a little bit earlier, which is that the airline CEOs were at the White House on March 4th. Mostly, they were there because they really wanted the President to stay on national television, that it was safe to fly, and he did. They got what they wanted. After that meeting, Doug Parker, as you mentioned, the CEO of American Airlines, slipped away for a quick meeting with Steven Mnuchin. He was asked by one of his fellow CEOs, as I write in the book, "What are you going to meet the treasury secretary for?" He said, "Listen, I think before this is over, we're to be across the table from him. So if he wants to talk, I'm going to talk." That was March 4th, and just two weeks later, they are in the middle of trying to negotiate a 50 billion dollar lifeline that they badly need.
Now, the politics around the CARES Act were complicated, and got very thorny. The problem fundamentally for the airlines, as I write in the book, is Sara Nelson, who runs a big flight attendants union, said to the CEOs, "Nobody likes you." That's not a good position to be in when you have your hand out for 50 billion dollars.
It was ultimately saved by the Democrats. If you remember, the CARES Act was originally going to be loans only that had to be paid back by the airlines. While that is a very fair position for treasury, for example, to have taken, because treasury's job is not to lose taxpayer's money, the precedent there is tough. Because after 9/11, there were some loans that were given to the airlines and it ultimately didn't really help anyone and contributed to the bankruptcy of a few, because they just couldn't quite pay back the debt.
The negotiation was really over, are these going to be grants or are they going to be loans? The airline CEOs were told right on the eve of the CARES Act getting finalized, there's no grants in here. We will give you money, you will pay it back with interest. Ultimately what happened is, for an unrelated reason, the Democrats kept the bill off the floor. The political fight there was really about whether there was enough aid going to state and local governments, public hospitals and cities, and that kind of thing.
As often happens in legislation, there's some reset and everyone takes a minute and thinks, and the next thing you know, something's in the bill. So ultimately there were 50 billion dollars. About half of that was straight payroll support, so think of it as the Paycheck Protection Program, but on steroids. Then there were grants and there were loans that ultimately kept airlines flying.
Now, they had to keep serving cities that they were serving before. There were some strings that came with that. There were some limits on, for example, share buybacks and executive compensation, very similar to what was foisted on the banks in 2008. Then fast forward to the fall of 2020 and that money is going to expire. So there's this real game of chicken that's happening over the summer between the industry and Congress. As you said, there were some shots fired. American released a list, I think of a couple dozen cities that they were going to stop flying to. As I report, they were strategically included airports-
Josh King:
Certain members' districts.
Liz Hoffman:
Correct, because those flights to, pick your home district from DC, direct flights super important to Washington. So yeah, those were threatened as hostages. Ultimately, the second round of funding was approved, but not until Christmas. Basically all through the fall, the airlines are spending money that they really didn't have.
Josh King:
One of my favorite anecdotes from the pages was about how the Tysons Corner Hilton became the highest grossing Hilton property for a short time, thanks to a trapped group from Saudi Arabia. Now, each industry and company had to make decisions to soldier through, reduce operations, or completely shut down. What can business leaders learn from how the subjects of your book weighed the economic, emotional, medical, and human factors to make their decisions?
Liz Hoffman:
The first lesson is you can never be too liquid. You can never have too much cash. Every 10 years or so, somebody learns this at great cost, but whatever you think is cash, it isn't unless it's actually cash. You mentioned Hilton CEO, Chris Nassetta, was the first big blue chip company to pull their credit lines with banks. They did it early in March. There's an anecdote in the book where the CFO had gone to, Kevin Jacobs, had gone to Barbados. He had promised his wife and kids vacation, and they're down at the pool and he's up in the hotel room yelling at bankers, saying, send us the money. That's the funny thing about lines of credit is that they're extended in theory in good times, and then everyone calls them all at once and the banks don't really want to fund it.
A very memorable quote, which is the bankers are saying, "Why do you need it? Everything seems fine." He said, "You don't know that your bank is about to fail until it's about to fail." He said, "I've read Too Big to Fail and that happens fast." Which is to say, his concern was that the banks would fail and that they wouldn't send Hilton the money. So they pulled that line really early, so early that it was a story. It was a headline in itself. The line in the book about Chris Nassetta, the CEO, someone forwards him that story. He says, "In a week, this isn't going to be worth writing about." He was totally right. Everyone started trying to get their hands on every dollar they could. So that's, I think, lesson number one.
Lesson number two is something that I think CEOs had spent a lot of the last decade talking about without really having to think about, which is this stakeholder concept. Balancing people with profits. That's not that hard to do when there's lots of profits and there isn't really anything going on in the world. I will say that, and there may be some self selection in who agreed to speak with me for the book, should say right up front. These are people who thought they had good stories to tell. Almost everyone I talked to was trying to do the right thing, and almost all of them did it almost all of the time. Which is to say, they sent people home early.
A couple of notable exceptions, certainly in industries that I didn't really cover closely, but like cruises and meat packing. There was a memorable outbreak on the JP Morgan equities trading floor. Kept people there a little too long, but broadly speaking, people who could go home were sent home. They were more or less sent home with the tools they needed to do their jobs. They were treated like grownups. I think the lesson that CEOs get out of that is people did great. Companies are a lot more resilient. Workers are a lot more flexible. If they have confidence in you and where you're going, then you just over communicate and you trust people to be grownups. I think those are the companies that really did well coming out of this.
Josh King:
Talking about, you mentioned, Too Big to Fail. As we wrap up, the bull market that began in March 2009 was the longest in history. You described economic conditions as tinder awaiting to light. Did the government and business response to pandemic act as a controlled burn to clear space for continued growth this year and into the future?
Liz Hoffman:
I think, yes. I think one thing that the pandemic accomplished, and we should always say none of it was worth it, but the markets have become basically addicted to a very easy monetary environment. Every time you'll remember the Fed tried to taper, tried to taper, tried to shrink the balance sheet, the markets would freak out and they would retreat. So you ended up with real concern that the market was just could not be weaned off of this decade of free money and very low risk, low volatility. I think that lesson has clearly been learned. I'm sure it will take some number of years and then we'll unlearn it again, but I think the Fed in the position that they're in now just had no choice but to tighten, and the market be damned. So I think that was a one good thing coming out of this. There has been a bit of a reset.
The other thing though is that I think... What's the old Warren Buffet line? "When the tide goes out, you can see who's been swimming naked." There was some of that. That said, I think the pandemic was actually so devastating that you didn't quite see the dispersion and outcomes that you might have in a crisis that was half as bad. Fundamentally, look, I think CEOs made a lot of good decisions and many of them deserve a lot of credit. What really happened here is that the federal government spent 6 trillion to backstop everything, and that soaks up a lot of mistakes. So just as an intellectual exercise, I think I was a little disappointed with the lack of diversity in outcomes. Everyone did fine, and I think the lesson for policymakers going forward is just act fast.
Josh King:
The lesson for public policymakers, everyone act fast. Liz, we've only really touched the surface of what's in the pages of the book. Anything that we haven't discussed that you think listeners ought to know and any other big projects in the works, another book perhaps?
Liz Hoffman:
The funny thing about the book is that it ends with, maybe inflation. Just the timeline of publishing a book leaves a lot to be added in the paperback afterward, I'm sure. No, there's certainly a companion book to be written about this that is much more focused on the next five years, which I think are going to be tough. Growth is slowing. Just think about your own finances. A lot of things made sense when money was free. They don't make sense if mortgage rates are going to be five, six, 7%.
Look, I'm a believer in the free market. I think these things will shake themselves out. They usually do it messily and with a couple of fits and starts, but I think we're in for a very weird year and a half, two years in the economy. Just a lot of indicators, cross purposes and don't make any sense. We're starting to see real divergences in outcomes, which is interesting after a decade of, I was as a finance reporter for 10 years, and nothing happened. There'll be a lot coming out of that.
I don't know. I'm very invested in Semafor right now. We are three months old and running very fast. I think punching way above our weight and having a great time doing it. So Ben, who you heard from earlier, would yell at me if I did not tell people to go semafor.com. You can sign up for our newsletters. I do a twice a week business and finance newsletter that I'm really having a lot of fun with.
Josh King:
Well, we'll keep our eye on your byline at Semafor and for recapping and revisiting those eerie three years going back to February, March 2020, that night spent home alone here at the New York Stock Exchange with a hazmat wearing cleaning crew, to today when the Exchange is back to its normal self, vibrant, waiting for the IPO mark to reopen. Thanks so much for joining us Inside the ICE House.
Liz Hoffman:
Thanks for having me.
Josh King:
That's our conversation for this week. Our guest was Liz Hoffman, the business and finance editor for Semafor and author of Crash Landing: The Inside Story of How the World's Biggest Companies Survived an Economy on the Brink. Her book is out now from Crown.
If you like what you heard, please rate us on iTunes so other folks know where to find us. If you've got a comment or question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweeted at us @ICEHousePodcast. Our show is produced by Pete Ash with engineering and editing from Ian Wolf. I'm Josh King, your host, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE, nor it's affiliates, make any representations or warranties expressed or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein, all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.
