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Jason Hartman welcomes Scott Shay to the show. He is co-founder of Signature Bank and author of In Good Faith: Questioning Religion and Atheism. The two have a discussion on society being more cash averse, the continued degradation of ethics and characters, and how we can change that. They look at the history of Glass Steagall then connect Adam Smith to Leviticus Chapter 19.
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Welcome to the Solomon success show, where we explore the timeless wisdom of King Solomon and the Bible, as it relates to business and investing false prophets and get rich quick schemes are everywhere. Let’s not be distracted by these. Instead, let’s go to the source, the eternal principles that create a life of peace, power and prosperity. Here’s our host, Jason Hartman.
Jason Hartman 0:40
It’s my pleasure to welcome Scott H. Shea. He is co founder and chairman of signature bank. He’s the author of two books, and we’ll talk about them today. Scott, welcome. How are you?
Scott Shay 0:50
Thank you. It’s good to be with you, Jason.
Jason Hartman 0:51
Yeah. And where are you located? Give our listeners a sense of geography.
Scott Shay 0:55
Sure. I’m located right now in New York, New York, just a couple blocks from Times Square fan.
Jason Hartman 1:00
past the Big Apple, you did a TED talk and you’ve written two books. Now, I believe you talk about a variety of things. But first consolidation. I mean, the consolidation in the banking world is pretty scary, you know, the idea of American businesses that will have this free open market plays with competition. Competition inspires innovation and good pricing for consumers and good service, and so on and so forth. the banking industry, even post Great Recession. I mean, it’s, it’s more consolidate than ever, isn’t it?
Scott Shay 1:34
Yes, it is. And I think it’s been one of the great mistakes of government policy over the last 25 years. I mean, we now have such over consolidation that for banks essentially control 60% of the market, and if you go to six or seven banks, you’re up to 70% of the market. And that’s not good for the American economy. It’s not good for the consumer. I mean, and it’s not even good for our nation. interest because when you have that few banks, if one of them is about to fail, frankly, we’re gonna have to bail them out. It doesn’t matter what the law says, oh, they’re too big to fail. That’s the phrase we heard over and over again, right? too big to fail the phrase, and supposedly we have legislation that that are using that doesn’t permit that. But, you know, look, we wouldn’t interest our country’s defense to four or five military bases, yet, we’ve essentially entrusted our economy to four or five banks, you know,
Jason Hartman 2:31
and just as an aside note, and, Scott, I bet you agree with me on this, but I have no idea. It’s a tangent. What’s going on in the world of technology is maybe scarier than the banking world. The idea that one company called Google can control 70 or more percent of the global Internet search traffic between Google and YouTube is absolutely appalling to me, but that’s another discussion for another day. So in the banking world, you get This example about JPMorgan Chase, and how really, a small business person seeking financing for their business would be able to go to what 19 different banks and convince some banker to loan the money, right. But now, they can only go one place, right?
Scott Shay 3:17
Well, that example that I gave in my TED talk about JPMorgan consisting of 19 banks is pretty accurate. And it’s a big problem, because you used to just have to convince one bank of your character. And by the way, it’s also bad from a public policy perspective, because now, let’s say that one big bank, JPMorgan we just took as an example, but it could be any big bank systemically makes bad decisions. Well, from the other side, that bank is now going to be in serious trouble. So we both have less business choice and more risk for the economy, because fewer people are making final decisions. So it’s a lose lose proposition.
Jason Hartman 3:58
Yeah, it really is. It really is. So couldn’t someone though argue, though, that look when you get these big giant companies, there are economies of scale and efficiencies? And I mean, centralization isn’t all bad is it? Or is well,
Scott Shay 4:13
let me just say this. And I think that there have been several studies of bank mergers. And they’ve all been pretty consistent 60% of bank mergers result in the destruction of value 20% in value staying about the same and 20% value accretion. That’s not a good record. I mean, signature bank and one of the things that we’re proud of is we grew from zero from the 85th hundred largest bank to the 14th largest bank. We didn’t do one acquisition, and we didn’t do one merger. We just got bigger. We’re today a $45 billion bank because we gave good service. And that to me, is the most important way to try to grow market share, right? Absolutely. Absolutely.
Jason Hartman 5:00
But well, you know, I mean, it’s not wrong for businesses to acquire other businesses is it?
Scott Shay 5:05
It’s now wrong for 95% of the banks. But at the top end, where the mergers were allowed that allowed banks to grow to be well above 10% of assets? The country? Yes, I think that was a public policy mistake. And I’ve argued that to members of Congress, house and senate and to the executive.
Jason Hartman 5:25
Yeah, no, I mean, I agree with you. I’m just playing devil’s advocate on a few of these points. You know, anytime something is too big to fail, it’s just, there’s no way that could ever be argued that that is healthy. It is extremely scary. And it makes for corporate socialism, where the taxpayers are paying to bail out these rotten rotten behaviors of these companies. What about on the wall street side? I mean, you know, they call them banks, but it’s not exactly banks. You know, when you look at the investment banks like Goldman Sachs and so forth, I mean, there’s way too much consolidation there too. Right.
Scott Shay 5:59
There is Look at it a little differently. I think that Glass Steagall should have never been. And I will contemporaneously. I’d said Glass Steagall repeal was a mistake I think it should be reimposed. Right. I think, combining the safety and soundness functions of banking. You know, making sure that money’s there making sure that safe loans are made with the more casino aspects of investment banking, which rightly shouldn’t be speculative. You we want liquidity and marketplaces. But essentially, by tying the two together with a casino side of banking is funded by deposits by federally insured deposits, I think was just one of the many mothers have bad ideas. And it should be repealed. I think there was nothing wrong with letting a Goldman Sachs or a Lehman or Merrill get big. And by the way, you know, maybe letting there be a wind down of Lehman Brothers, you know, maybe in a little more sensible fashion, but nonetheless, a bankruptcy. Mm hmm. Whereas you can’t do it. With the bank, because when you do that with a bank, you end up destroying money. Because the deposits are on the other side of the balance sheet for banks, which has an impact on the economy. It’s not just the creditors who lose, it’s the economy the losers. So, combining those two functions never made sense to me. And I think that, you know, I hope in some near future Congress and administration that Glass Steagall is reimpose the Volcker act was an attempt to do Glass Steagall light, and it doesn’t work. Did you
Jason Hartman 7:32
accomplish? Did you just say the Volcker act? Is that what you said the Volcker rule?
Scott Shay 7:37
That was part of Franklin Park, right? rule, the former fed chief the Volcker rule was put into place as part of Dodd Frank. It has been implemented to some degree and it’s supposed to ameliorate some of the impacts of not having Glass Steagall, but it’s one of those things that’s not efficient or fall and doesn’t really to my view, I think Paul Volcker is a hero, but it doesn’t work.
Jason Hartman 8:02
Well, he’s the only one that had the guts to break the back of inflation. In America take the hard medicine for a while. It did work, it did work. Talk to us a little bit more, I don’t think people really have an understanding of Glass Steagall and the real impact of that. So give us a little history lesson on that if you would like, you know, When did it happen? Or when did the change happen? I should say, I think was the 90s. Right. And it allowed the banks to get into what the brokerage business and then what was the real, what was the real result of that and just give us a little layman’s overview of that, if you would.
Scott Shay 8:36
So the real the you’ve got to go back a little further in history than the 90s. The in the 20s. The banks and the investment banks were essentially there was no regulation even before the fed the investment banks and the banks were essentially together. jp morgan famously did that himself when he was a person that just the name of a bank and he would use deposit or credit or Money both to finance loans and to underwrite stocks and bonds and to trade. When the great stock market crash happened in 29, people blamed part of the reason for the bank failures on that very combination, because banks could fail because the underwriting of stocks and bonds didn’t go so well. So a senator and a member of the House by the name of Glass Steagall said, can’t do this anymore. So they passed a bill and that bill was the law of the land until 1999, if I’m not mistaken, and then it was repealed. Late 90s. I could be off on a year or so but late 90s. And then the law was repealed. And so you could get Citibank acquiring Salomon Smith Barney. You could get Bank of America acquiring Merrill Lynch and you could get Goldman Sachs starting Marcus, you know, and starting its own bank. And that I think, has laid the seed corn for I think of some future financial crisis. I think the sooner that we unwind that and let Goldman Sachs let them go back to being an underwriter, let them grow, let them compete against Morgan Stanley, but they should stay out of the commercial banking depositor business and the bank should stay out of, again, the casino aspects of the business of speculative business even though I’m a big advocate of those businesses, we need those. We need speculation we need market makers to provide liquidity. We just shouldn’t do it with depositor funds.
Jason Hartman 10:30
Mm hmm. Yeah. Well, that’s true now with the positive funds. Sure. Talk to us a little bit about cash if you would. It was amazing to me. I was in Sweden a few months back. I took a group of my clients there. I saw signs all over the place that said no cash accepted. The whole country is almost cashless. And that concerns me I mean, listen, I don’t use much cash myself. But cash is a form of privacy. And I want the option to use it if I want to, you know, and I think that’s sort of an important thing. What What do you think about this sort of cashless movement? I mean, India recently demonetised, one of its larger currencies, a lot of merchants in the US won’t take 50 and hundred dollar bills, they won’t take anything over a 20. What does this mean to all of us?
Scott Shay 11:21
First of all, this is a really important question. It goes to civil liberties. It goes to a lot of a lot of really core questions about us as individuals and as economic beings. And I wrote an article I just we can’t go into it all here, but I wrote an article anybody can google it under my name Scott Shay sh a, why? a cashless society, the dangers of a cashless society, the risks, you pointed out some of the risks, but the risks are even larger in a cashless society. Because once all of your money is digitized, and the government let’s just take the government for can know every single transaction that you Jason, do. If you decide You’re going to a basketball game or a baseball game, buying gas, whatever you decide to do, can be instantly known for buying a copy of Catcher in the Rye or attending a protest rally right now. Or let’s say Jason, you put on a few pounds and that the government thought you know, you could be at risk of diabetes. We’re not going to allow your card, your chip your whatever you do your facial recognition, to permit you to buy any fizzy, sugary soda. So you’re just not going to be allowed to do that. So your card, your face, your chip will be declined. It’s a way frankly, of having total control over you because essentially, we are economic beings. And the way we express our humanity, for better for worse to certain degree is through transactions, intellectual or economic with other people. And once you no longer have the freedom to make those decisions for yourself. That’s a bad thing. So I coined a term in this article, that at the point where the government can immediately know every transaction that you do, I mean, you probably have notifications of your credit card transactions on your smartphone. Well, once the government knows every single transaction that you do, Jason, we have arrived at what I call the Eco angularity, which is sort of my mashup of economic singularity. It’s the point he can get clarity is the point at which we have the risk of losing our real human rights as economic beings and and it’s easier to imagine today than when I wrote my article several years ago, the technology exists for that today the technology exists for real time understanding of every economic action you take.
Jason Hartman 13:51
Yeah, that’s pretty scary stuff. Talk about Big brother is watching you. That’s another of the many ways in which Big brother is doing that. You know, It seems, I don’t know, maybe I’m just being too cynical, sort of strange. I’m on one hand, I think it’s an amazing time to be alive. And I say that all the time, because it really is. But on the other hand, I think there are some pretty ugly things going on in the world. And one of which that it seems to impact me almost every day in business. And I just, I get very discouraged by it. There seems to be this real lack of ethics and character anymore nowadays. What’s going on out there? You know, you’ve written about this and spoken about it a lot. Give us an overview of your thoughts.
Scott Shay 14:36
Yeah. Well, thank you. I mean, that’s really something that I’m heavily focused on today. I mean, I just completed a book in good faith, questioning religion and atheism, where this is one of the core issues that I deal with, which is modern morality and how we get our modern morality from the Bible. And in my book, one of the things that I do is I talk about when I first came to New York, the first year I was in New York, I got a ride downtown. I lived in the Upper East Side of Manhattan. And I got a ride downtown from a middle level trader who kept explaining to me on each of these rides. Remember this was in the days these were in the 80s. They were before you had cell phones, right in cars. So we had people that have talked to each other. They weren’t cars there was, you know, just incredible when it comes to ancient history. But we weren’t in dinosaurs. We were still in a car. In any event, he would explain to me and sort of my cost of getting this free trip out of town from him was he would tell me his philosophy. And his philosophy was, what was best for him was best. And he liked rules that were very detail, because then he could stay as long as he stayed in the middle of the rules and didn’t break any rule. He could make as much money or manipulate those rules. As much as he could get away with there was no sort of spirit To the rules, that was what was good for him. And by the way, he knew he had to manage people up. He knew he had to manage people done, he never would say, and he was the modern day Machiavellian in that he wanted himself to look good wanting to do sort of social virtue displays. But what he really wanted to do was to figure out how he could make as much money for himself and whatever achieved that was good, whatever didn’t achieve that was bad. And that’s really an idolatry of money. It’s making money, your key value, and in a way, it was sort of the reason it’s, I called it idolatry is because I define idolatry is sort of different than I think most people think of it. idolatry to me, and I did I go into more detail in good faith in the book is a set of lies about power. It’s describing Superman. Natural or super authority to finite beings, I people, ideologies, elements like money. And we thought we overcame that thousands of years ago with the god King Pharaoh. But the 20th century was all about idolatry. You know, people 10s of millions of people marched their death in China, because Mao told them to, and Stalin sent 10s of millions of people to the Gulag, and why did they do it because they ascribe an authority or an idolatry to someone. And let me bring this home in a small I don’t want to call it a small way but how we overlook that moral mistake of sliding into adultery every day, the movement currently in reaction that started with the revelations about Harvey Weinstein, why did people give themselves over to Harvey Weinstein and think that they had to do whatever he did, whether it was in whatever manipulative way he imagined
Jason Hartman 17:59
right? Because because they ascribed an authority to him
Scott Shay 18:02
right? He was an idol so you couldn’t topple just like you couldn’t tackle the god King Pharaoh. You couldn’t topple Harvey Weinstein, he could make or break your career. And he did that largely to women it looks like but to some men to where they had to literally do unnatural things because we believe this a society, his lies about power, and no one called him out. And look, the Bible is all about speaking truth to power. And you know, prophets who spoke back to Kings and the like, and that’s what we’re so surely missing in today’s day and age and like you, I really look at what goes on and I, you know, I want to cry, sometimes, from pedophile priests to red handed rabbis, inflammatory m&ms. I mean, it happens everywhere. It’s happening in the business world and it’s happening sadly in the religious world, and that’s what my book is really all about, is trying to reclaim and re identify important values, understand what idolatry is, and put that out there. And I think once you do that people feel enabled in, you know, ennoble to some degree to to step up and to stand up.
Jason Hartman 19:13
So how do we fix this?
Scott Shay 19:14
Well, I think the first place we fix this is by re embracing the golden rule, which is, I think, something that both religiously inclined folks and atheists can do, which is, in our policy, you know, like every other bank, we have to have a policy of corporate standards. And you know, it just got to be like other banks, I saw it was getting bigger and bigger. And so I added a line at the beginning, which, frankly, for most policies, I think you could, I think you realize 10s of thousands of pages of bank regulation, if you just put in, don’t do unto your client, what you wouldn’t want them to do to you.
Jason Hartman 19:55
Good luck with that one.
Scott Shay 19:57
Well, I think you were faced 10s of thousands of bank regulations from the FDIC to everybody. Yeah, well, the Fed.
Jason Hartman 20:05
That’s not that’s not just true in banking. It’s true of really any law. I mean, you could get rid of law after law after law, if you just had the golden rule. I mean, hey, that’s why it’s the golden rule. It makes sense. It works, right? It does. But then you don’t have people like that trader I was talking about who was happy if there were very detailed rules, because then all he had to do was figure out how to get around though. Right, exactly. That’s such a good point, you know, and this is what the central planners and government never realized, too, you know, you could look at this another way, is that they don’t realize that the market reacts to things. And so every time there’s a new law, a new tax law, a new minimum wage law, whatever, you know, everybody finds a way to get around it. You know, a good example that’s sort of easy to understand is Obamacare. Right? So Obamacare comes out and suddenly, every 40 hour a week or full time employee becomes a 30 or 32 hour a week. part time employees, you know, all these companies react to it. That’s the way it works. So if you just have the golden rule how simple it would be right?
Scott Shay 21:08
It would be very simple. And I think that the other thing that we need to think about is, you know, as we’re entering an era you touched on Google, briefly and the like, but I think is we enter an era where more and more decisions are made by machines, and all sorts of ways. I think, putting morality and reason back in the center. It’s going to be more inclusive, more and more crucial to society. I think it’s very easy for technologies to be very, very discriminatory. I worry about AI when it comes to credit decisioning because even if you and I talked about this in the book, even if you it’s in section one of the book, even if you tell your AI and don’t allow it to know whether a person is black or brown or green or yellow or pink, or whatever, the AI is definitionally. Very, very, very smart. And it’s going to figure out all sorts of groupings of people who may have similar characteristics. That’s what the so called fat pipe social algorithms do. And so you’ll end up discriminating against people who there’s really no reason to discriminate against them other than the networks that they have their families, their other their friends. And we could end up consigning certain groups of people to always be at the bottom of the economic totem pole to always pay the highest rate on credit cards. Star Wars have the most difficulty getting mortgages. Why? Because we could say and financial institutions might say, well, we didn’t do that we didn’t discriminate that that’s what the AI system told us. And I worry that we that just like I spoke about idolatry in other ways we could make ai decisioning we could, just like Harvey Weinstein, we could impute to it a sort of super authority that’s unstoppable. Well, we have to trust our AI because it’s making the right decisions, right? Well, that’s why it’s more and more important. It’s as important as ever, that we call out idolatry for what it is we recognize what institutions and what ideologies and what technologies were bowing down to, and that we fixed that through, you know, again, I think a good first proxy is the golden rule. So these are the things the reason that I think that is someone who is a believer that we can say, oh, belief is on one side, and businesses on the other because where the rubber meets the road is an Adam Smith recognize that the Bible recognize that just as well. I mean, if you can only read one chapter of the Bible, read chapter 19. Everything that we do, economically, God is a witness what’s chapter 19, Chapter 19, and Leviticus, okay, Chapter 19, and Leviticus, which is in a way it says, Don’t cheat. Don’t lie. Don’t steal Every time it says that because I am the Lord your God. In other words, just like Adam Smith had an invisible hand, witnessing every transaction, the Bible says, whenever you do a transaction, there are three parties. There’s you, your counterparty and God watching to see what you’re doing. Well, having that sense of morality is going to be more and more important when a lot of decisions are semi invisible.
Jason Hartman 24:25
Right. And you know what, I’m glad you mentioned that and maybe we’ll wrap up with this, but there are people who believe that you can just have this atheistic world and have the government hold people accountable for their wrong deeds and such. And, you know, people just like you gave the example of the Wall Street trader or anybody in any circumstance, everybody knows that they can get away with stuff the government, even though Big brother is watching can’t watch everything and certainly can’t prosecute Everything right? When people have no higher authority than government, that is just a recipe for disaster in my opinion, you’ve got to have people live in, you know, and I’ll just say it’s some degree of fear. Maybe that’s not the most eloquent choice of words, that they will have consequences for their actions. Do you agree with that?
Scott Shay 25:22
Well, look, I’d like to stick with the carrot instead of the stick, right? And the people, they, I think people have faith and recognize that every other person on this planet has some sort of divine spark, or if they don’t believe that, at least believes that we share an important part of humanity with everybody else, and therefore we have a duty and those values are taught from an early age. I think that we have a good shot and I don’t get me wrong. You need to be able to punish people who do wrong, they need to have punishment if they do something terribly wrong. But I’d like to start on the good side,
Jason Hartman 25:55
whatever it is, but I’m saying, you know, no higher accountability from the government, right? You know, I think that’s why you need God in society. That’s my point.
Scott Shay 26:03
I agree. I totally agree. I think even government shouldn’t be all powerful. You know, I mean, that’s why we have divided government is something that, frankly, we’ve gotten from the Bible to where this shouldn’t even be one part of government. That is all powerful. I mean, in the Bible, you had the high priest, you had the king, you had this Sanhedrin, the judicial department, and you had the Prophet whose job was always to speak truth to power. I mean, you don’t want any part. You don’t even want government to be all powerful. And what nothing to be all powerful yet.
Jason Hartman 26:35
Exactly, exactly. Scott, give out your website and tell people where they can find out more.
Scott Shay 26:40
I’d love people to go to my website, which is in good faith calm. There. You can learn more about the book and learn more about what I’m saying and get some links to that Ted Talk into some of my articles. And if you’d like and hopefully you will, please please order the book.
Jason Hartman 26:57
Fantastic Scott che thanks for joining us.
Scott Shay 26:59
Thank you. Jason, a pleasure.
Jason Hartman 27:03
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