How Do Banks Influence Our Economy?

We are going to look in commercial and learn how banks serve us. We’ll find out how Nancy Wallace is helping herself, and helping the bank to fulfill its purposes. By looking in on Frank Hamilton, we learn the meaning of credit. And by following along with Richard Martin we’ll see how bank credits serve the world of business.

David Scranton: Yes, banks have changed a lot since the day as a baby boomer we first learned about them in school. But, something’s about banks haven’t changed including the key role that they play in the economy and also the love-hate relationship that most Americans have with these banks. So what role might banks play and determine the faith of the economy and financial market, as well as your own retirement plan. Well to get that answer it’s time once again to tune out the hype and focus on the facts. Facts that matter to you, the income generation.

Let’s get started. Get ready to separate reality from.

The History Of Banks

David Scranton: Hi, I’m David Scranton. The history of America and its civilization, in general, is completely intertwined with the history of banks.

  • They are important economic progress.
  • They protect society’s wealth.
  • They help society grow and prosper through lending.

But you know there is a dark side. History is filled with examples of banks using their powers of hindering economic progress instead of helping it, of triggering financial disaster. We’ve all lived through one such example of that in a very, very recent past so question becomes…Could it happen again?

Beyond that, what role could banks, from regional banks to central banks play in dictating where the financial markets are headed? Well, helping us answer these vital questions will be our guest, economist and bestselling author Mohamed El-Erian and Danielle DiMartino Booth author of Fed Up an insider’s page on why the federal would be bad for America.

First, let’s take a quick look at the history of banks and banking. The necessity of banks became clear soon after coins became the preferred the source of currency in the ancient empire. Once governments and individuals accumulated enough coins they realizedthey need to make protecting these assets a top priority. Now if you were of this show that phrase should sound familiar.

Obviously, most ancient homes didn’t have skillsets so for a time the wealthier citizens held their coins in temples, watched over by a priest and other clerks who could be trusted, supposedly trusted anyway. Record from Greece, Rome, Egypt and Ancient Babylon revealed that many temples loan money in addition to keeping it safe making them essentially the very first banks.

Pretty soon a class of wealthy merchants emerged, who created a business around lending coins and charging interest, refining the banking business model to the one that we know today. It was the Romans who eventually took banking out of the temples and created separate buildings for safe storage and lending of coins. Independent moneylenders continue to thrive, basically taking on the role of modern-day loan sharks.

Meanwhile, most legitimate commerce and all governmental transactions went to the newly established institutional banking system. This is where the importance of banks really began to enhance the power of banks and to create complexities and controversies in the relationship with the government.

The Power Of Banks

For example, it was first Julius Cesar who gave bankers the power to confiscate land in loan payments. This was a huge change that prior to his law no women who own land were basically untouchable and could simply pass their debts down to descendants.

Banks In The Roman Empire

The Roman Empire eventually died of course but many of its banking policies and practices lived on. One, unfortunately, was that of government taking out loans during hard times, often with the king setting the terms. Now, this led to countless cases of wasteful government spending that led to crippling debt, but thank goodness that this problem no longer exist.

Evolution Of Banking In Britain

It’s funny, but another major evolution of banking came along in Britain in 1776 courtesy of Adam Smith, whose invisible hand theory paved the way to modern day capitalism. Money lenders and bankers could now limit the states involvement in the banking sector and the economy as a whole, along for the competitive banking industry. Smith’s idea took off in the New World but they weren’t immediately successful. The average life of a state charter retail bank in the beginning was only 5 years, after which any notes they’d issued had become virtually worthless.

Compounding the problem that there was still no such thing as deposit insurance meaning that if your bank was robbed your money was simply gone. In light of all these problems, Americans increasingly begin to mistrust banks. Then treasury secretary, Alexander Hamilton changed the game again by establishing a national bank that would accept member bank notes at par, to help them through hard times.

Eventually, this national bank created uniform national currency and set up a system through which national banks backed up their notes by purchasing treasury securities and essentially creating a liquid market. With the national bank established and the industry more stabilized, large merchant banks emerged that specialized in business loans and corporate finance. As they grew larger and more powerful many of these merchant banks transform their international connections into political power.

As this happen, not surprisingly most Americans distrust for banks and bankers only increased. In many ways, we’ve come a long way in the last 150 years or so. In other ways though, we haven’t come that far at all. Many of those large merchant banks that rose to power in the industry infancy are still among the most powerful banks in the world today. We’ll talk more about how they’ve influence the course of the US economy in modern areas and how they continue to do so. Now I’d like to welcome my first guest Mohamed El-Erian.

Mohamed El-Erian is Chief Economic Advisor at Allianz. He’s a colonist for Bloomberg View and contributing editor of the Financial Times. He served as Chair of the Global Development Council under President Obama and was named one of foreign policies top global thinkers 4 years in a row. He is the author of two New York Times best sellers including When Markets Collide, as well as The Only Game in Town Central Banks Instability in avoiding the next collapse. Mohamed welcome back to the show.

Mohamed El-Erian

Mohamed El-Erian: Thank you David.

David Scranton: Recently in you had written that, “in the ten years since a global financial crisis damaged many lives and almost tipped the world into a multiyear depression. Efforts have been made to strengthen the banking system and reduce its risk of contaminating the real economy.” How successfully do you think these efforts really are in terms of preventing a future banking collapse like the one we had in 2008?

Mohamed El-Erian: I think we have been good at playing defense. So we have been good at preempting another crisis and certainly the banking system itself is safer, higher capital buffers better liability management. But, we haven’t been good at playing offense. We haven’t been able until recently to unleash the considerable potential of this economy. So good defense, less good offense.

The 2008 Global Financial Crisis – Depending On Finance For The Engine Of Growth

David Scranton: When you say playing offense do you mean that there are still people that are creditworthy out there that simply aren’t able to get loan? Is that what you are referring to?

Mohamed El-Erian: Yes I think two things. One is that the banking system still doesn’t serve enough people and the other one is to the extent that the risk is there it has moved and it has moved. So the banking sector has become safer. The risk to financial stability is now in the none-banks. So there’s been two elements that have operated, but part of it is because we can’t over-rely on finance. That was a big mistake made in the run-up to the 2008 global financial crisis. We depended on finance as the engine of growth. That is wrong. Better engines of growth that are more durable and that is what we should be investing in and we are to certain extent doing so now.

David Scranton: You said the risk to the banks a moment ago, does it rely today with the banks that lies with other institutions or other entities, what do you mean by that?

Mohamed El-Erian:  So part of the strategy coming out of the global financial crisis was to use a central bank to deliver not just financial stability but macroeconomic outcomes to deliver higher growth. Now central banks can’t do what’s needed. They cannot invest in infrastructure, they cannot invest in people, they cannot deregulated, and they cannot impose the fiscal system. The only thing central banks can do is use what’s called the financial asset. In other way manipulate asset prices in order to change behaviors. So what does the central bank do, it lowers interest rates, it puts in more liquidity hoping that people will take more financial risk and as they see asset prices go up because there’s more risk taking they become more confident about the economy. That is not a great way to run a railroad. They had to do it become political polarization precluded other things but is not a good way to do it because it decouples finance from the real economy.


David Scranton: It’s kind of like a placebo effect is it not that in essence the FED reserve created by doing that.

Mohamed El-Erian: They did get some reaction and growth would have been lowered than it would been otherwise but even Ben Bernanke in 2010 when he announced the shift said remember it comes with, “benefits cost and risks”. And the longer you are in this mode, the lower the benefits, and the higher the cost and the risk. I don’t think he or anybody else imagined that we would be in this mode for such a long time.

David Scranton:  Sure I mean we’ve been here for a decade now and I agree completely. When we come back we are going to talk a little about the FED reserve with you and the economy and what do you think the FED reserve going to raise interest rates 3 more times, 4 more times, what direction they are going in. If you stay with us we’ll be right back and you stay with us also. We have much more here in terms of words of wisdom from Mohamed El-Erian on Income Generation. We’ll be right back.

The Federal Reserve And The Economy

David Scranton: J.P Morgan, Goldman Sachs, these are still some of the major players in the banking world today. As some of you probably know it was the rising power of these big merchant banks that led to the creation of our central bank, the FED reserve. J.P Morgan and company in particular was the major force. It emerged as the leader among all merchant banks in the late 1800s. It was connected directly to London which was the financial center of the world at that time. The banks power influence continue and it grew into the new century and was put to the test when the first major financial crisis occurred. It started with a collapse in shares of copper trust that set of a panic in 1907. People pulled their money out of banks and investments in the markets subsequently plunged. With no FED reserve bank to take action the most powerful merchant bank in the country took on that role. J.P Morgan used its claw to get all the major players on Wall Street to manipulate the capital and credit them control in an effort to calm the panic and minimize the damage as much as possible. Supposedly this was a lesson learned that help to ensure that no private banker would ever again hold so much power. In 1913, the government formed the FED reserve Bank to do exactly what J.P Morgan had just done, and that is to take action in the event of a major financial crisis. Now the Fed was also charged with helping minimize the likelihood of such crisis by influencing monetary policy to help keep maximum employment, stable prices and moderate long-term interest rates. And, with helping to ensure the safety of the US banking and financial systems and with protecting consumers. Here’s the thing. When starting the Fed the government put J.P Morgan other powerful family owned merchant banks in charge of creating its structure. There are some who believe that these original designers still basically control the FED reserve to this day. Whether you believe that are not, one thing that the creation of the Fed couldn’t do was curb the trend toward financial power and an increasing amount of political power being controlled by Wall Street itself. America got another major taste of the potential dangers of this trend on October 29th. That is of 1929, otherwise known as Black Tuesday. Although the Fed had existed for more than a decade by that time it could do nothing to contain the historic stock market crash that occurred that day. It basically refused to do anything in terms of economic manipulation, the stop the result in great depression. But it did take steps a long with the government to try to shorten it. How? By winning back the public’s trust in banks and the financial system. Now that sounds a bit familiar. You probably hear me talk about how many of the FED reserve Actions in the wake of the financial crisis were designed to do the exact same thing and that is to manipulate the public into spending and borrowing and trusting the banking system once again. Why? The goal of shortening the recession. We’ll talk more about the bank industry and its role in the financial crisis and the Feds action since then a bit later on in this show. Right now it’s time to welcome back Mohamed El-ErianIt could have been the same articles, in one of your articles you talked about the recent jobs report. Now it’s seeming as there’s a little bit more uncertainty in the economy and with the potential for trade war and everything. How do you think that’s going to affect the FED reserve decisions throughout the rest of the year and into next year?


Mohamed El-Erian:  I still that the Fed will hike one more time this year. So 3 hikes in total for 2018 and the balance of risk is towards a fourth hike. Why is that? First, the economy is good, it’s doing well. We haven’t yet felt any meaningful impact from the trade tension. Second, the latest inflation numbers show you that we are at the highest headline rate since 2012 and the highest core rate since January 2017, so the Fed is very close to saying we have met our dual objective, 2% inflation and labor market. The problem David is what’s happening in the rest of the world. The rest of the world is not in a good place. It is slowing down, it is losing momentum. The Fed has to balance these two things, that’s why I think I don’t yet buy that we are going to get 4 hikes. I still think we get 3 hikes but I recognize that the balance of risk is towards 4.


David Scranton: So the question then becomes, here is the Fed taking a more hawkish approach most the rest of world is taking a more dovish approach. It’s really creating a governor for long term interest rates keeping them down. Is that ultimately going to limit what the FED reserve can do here without risk of creating a flat low curve?

Mohamed El-Erian: So you are absolutely right, the curve is flat. It is as flat as 28 basis points between the 2 year and the 10 year. That’s a very small differential for 8 years’ worth of maturity. So on the surface there’s reasons to worry because that in the past has signaled a slowing economy. Let me give you another indicator David. The difference between our 10 year and the German 2 year. Our 10 year is about 255 basis points above the German. That is very, very high and that explains why we should be less worried about the flat low curve. What’s happening abroad is depressing our market interest rate. At the longer end you have what I call non-commercial buyers. People who come into our market because they are pushed into our markets they keep our rates low, but at the shorter end you have the impact of the FED reserves. So that’s why we have a flat low curve. It is more technical than it is a signal of a slowing economy.


David Scranton: So you are saying that it’s really a symptom of a different problem, not the problem that typically indicates that we are going into recession which is a very good point. It’s funny you mentioned it too versus the 10. Even the 2 year versus the 30-year government bond in our country has been anywhere between .35 and .4% which is ridiculous. That’s an extra 28 years of risk for a third of percent interest. It’s crazy. Can you remember when is the last time you could remember the difference between short term and long term rates being this narrow?

Mohamed El-Erian: It goes back a long time and it did signal a significant economic slowdown. That’s why the Fed says we are looking at it, we are monitoring it very closely but we are not yet worried about it. So it hasn’t changed the Feds intention to hike rates but they are looking at it.


David Scranton: It sounds like then as long as things are happening abroad it’s creating a governor on those long term rates. All these bond vigilantes out there are going to have to wait a long time before they see their bond bubble burst, or at least until Europe starts and the rest of the world starts getting better economic shape. Would that be your take on their spin?

Mohamed El-Erian: Yes I think you want to wait for 2 things before you declare a major bare market in the US bond market. One is, that things pick up in the rest of the world and that two central banks in particular the ECB in Frankfurt and the Bank of Japan in Tokyo stop buying massive securities on a regular basis.

David Scranton: Meaning our government bonds.

Mohamed El-Erian: Yeah they have what’s called quantitative easing programs which is what we have but we don’t have anymore, whereby every month they buy securities so they depress the price of their securities that push people to our securities which brings our price up and the yields down. So both yields come down. The second element is one that’s less talked about what’s known as LDI, Liability Driven…


David Scranton: Mohamed if I can get you to hold on for just a minute we need to take a commercial break, they are talking in my ear. We’ll be right back in a minute to finish this conversation. You stay with us too we are right back here on the Income Generation.


[Break 22:27-23:43]


David Scranton: Now as most people know the worst financial disaster in America since the great depression, the financial crisis was the result of an international bank in crisis that reaches breaking point when the major invested bank Lehman Brothers collapsed in September of 2008. One could argue the bank sowed the seeds of its own collapse with reckless, short sided and downright greedy practices during the US housing boom in early 2000s. Lehman Brothers acquired five mortgage lenders including a subprime lender that specialize what’s known as alt a loans. Meaning loans made to borrow without full documentation. Otherwise known as flyer loans. Then by the first quarter of 2007 warning signs were building at the Housing Market was about to collapse. Defaults on these subprime mortgages rose to 7 year hike. The rest as they say is history. In the first week of September 2008, Lehman Brothers stocked 77% in the midst of plunging equity markets around the world. On September 15th, with over 600 billion dollars in assets they file the largest bankruptcy in US history. That same day the Jones industry average fell by 4 1/2% and ultimately the stock market would continue to plunge by nearly a total of 60%. Essentially Lehman Brothers and others had become real estate edge funds disguised as investment banks during the housing boom. In keeping with the history of large, powerful banks that we’ve been discussing so far in the show once the bottom fell out they were deemed to be too big to fail by the US government. Massive bail outs of most of the major banks were approved through this thing call the TARP, Troubled Asset Relief Program. It helps of preventing a possible collapse of the entire world financial system. In all the treasury department over that time, over 700 billion dollars of tax payer money and much more than that by some accounts towards this bank effort. Was it worth it? Well in terms of preventing a global financial collapse you could say yes it was. In terms of fending off the great recession obviously it wasn’t. Why? Because even as the government proceeded to bail off the banks it became harder and harder for the average home owner to actually qualify for mortgage. With your qualified buyers in the market, home prices continued to plum it and the problem got worse. Even though the big banks were saved by the bail outs, stock markets around the world still dropped and decimated the savings of many Americans who were retired or close to retirement. In the end the long history of American’s mistrusting banks reached lofty new heights in awake of the financial crisis. Understandably so, the effort to win that trust back has been underway if you think about ever since spare headed by the FED reserve using strategies that in both tactical and psychological. To a large extent though these efforts have failed. That failure is one of the major reasons that we find ourselves in what I like to call the unprecedented age of economic uncertainty.

We’re back here on the Income Generation with Mohamed El-Erian. Now sorry to cut you off there for a moment, we talked about the two reasons that two things would have to happen for long term to go up into create a bursting of the bond bubble as so many people are erroneously predicting today. One is that a lot of foreign governments would have to stop or slow down the purchasing of our government bonds. You were about to give me the second one, what is that?


Mohamed El-Erian: The second one comes not from the public sector, not from central banks but from the private sector. It comes from companies because the stock market did so well last year, a lot of companies on a better position to immunize the liabilities, to match future liabilities on the pension side with more secure income on the asset side and that’s why they are also buying longer dated bonds. So both these sources are what’s known as non-commercial buying of the markets and they keep interest rates low.


David Scranton: Change your subject for just a second and I thank you for that. I hadn’t actually thought about the second one myself to the extent that you have. Great point! Now you made a pretty bold statement and I love you for your optimism and your patriotism and all that. You said in one of your writings, I can’t remember exactly where but you said that we will win a trade war. You seem to have said that with confidence, why is that?

U.S. Trade War With China

Mohamed El-Erian: Because we are less dependent on international trade than other countries including China. In relative terms, we win this war. It comes at a cost of some absolute damage. The big question for me David is, at what point does China realize that they are in the position that Ronald Regan put the Soviet Union in when he embarked on the military spending race. The US can win the relative war. The question is, how long does it take for China to realize that and to respond to what our genuine grievance is about intellectual property rights, about joint venture requirements? There are things there that would suggest that we may end up with still free but fairer trade but it’s a risky time.


David Scranton: Interesting. Economically speaking the trade war for China could end up being what the cold war was for Russia. Our audience, The Income Generation members, those baby boomers who are either retired or kind of on that final descent into retirement, what should they do? What’s your best advice for them? I love you because like myself here a fixed income guy, but you are also in equity as individual managing international portfolios in the past, global portfolios. What would you tell those viewers that are looking at lower yields on fix income, looking at a stock market that’s going up for over 9 years in running now, what would you say to them?


Mohamed El-Erian: I would say recognize that we are changing landscape. You see it already in higher volatility, higher short term interest rates, and understand that we are entering a world of greater divergence in economic performance and greater dispersion in asset prices. So just first understand that this is a very different landscape that what we have seen in previous years. Otherwise you are going to become completely unsettled and the risk of a mistake goes up. That’s the first critical issue. The second is ask yourself what mistake can you afford to make and what mistake can you not afford to make. That’s really important when the landscape changes. Thirdly, make sure that you have some dry powder because in this volatility some good names, strong balance sheet, good business models will get temporarily depressed.


David Scranton: In the 40 seconds or so we have left tell us what you think. I’ve said this recently that today is a buying a 500 index which is trade who are probably not going to be ideal. It almost seems now like individual stock selection if you are going to be in the equity market or you start to look at certain companies exports. It almost seems like that’s what people have to do if they want to make money in the equity market versus buying a mutual fund or an index. Your thoughts.

Mohamed El-Erian: Yes in capital letters and that is the outcome of greater dispersion in asset prices.

David Scranton: So it’s a different world. It’s the new normal I think is the phrase that you helped us coin 10 years ago, the new normal. The new normal is treading forward. Mohamed thank you so much for being on our show once again. It’s been my pleasure.

Mohamed El-Erian: Thank you.

David Scranton: Alright stay with us we’ll be right back here with lots more on the Income Generation.

Danielle DiMartino Booth

David Scranton: With the TARP program develop the banks, the FED reserve instituted and unprecedented effort not only to manipulate the economy and financial markets but to manipulate yes, you and me. Americans, quantitative easing was not just an effort to jump start the economy mathematically but also to jump start it emotionally. There was an attempt to quickly erase all the fear and uncertainty prompted by the bank in crisis in the stock market crash and replace it with trust and optimism. But, by enlarge it hasn’t worked. Yes it’s true that some everyday investors were eventually forced up the risk curve as I like to call it back into the stock market based upon the mistaken belief that low interest rates made other investment options less attractive. But, they weren’t tricked again into spending and borrowing just because interest rates were low. Instead they focused on paying down debt and trying to rebuild their savings. To a large extent many baby boomers are still focused on those things particular those of us in the Income Generation. Here’s why, as I explain many times economic recovery since the financial crisis has led so far behind the stock market’s recovery, created in unprecedented age of again as I like to call it economic uncertainty. Danielle DiMartino Booth is a global thought leader sought for insights on the financial markets in monetary policy both in the US and abroad. She’s founder of the Economic Consulting Firm, Money Strong LLC, and a fulltime columnist for Bloomberg View and author of the Amazon Best Seller FED UP: An insider’s take on why the FED reserve is bad for America. Danielle welcome to the show.

Danielle DiMartino Booth: Great to be here. Thank you for having me.

David Scranton: Now I have to confess. I know you told me that you are actually in Idaho right now and I have to confess I have never been to Idaho but obviously the Skype doesn’t work too well in Idaho from what I understand, is that correct?

Danielle DiMartino Booth: Clearly we’ve had some technical difficulties indeed.

David Scranton: So listen, you say you are a FED insider, in what way?

Insights From A Former FED Insider

Danielle DiMartino Booth: A former FED insider and I actually like to say reform. I advised Richard Fisher when he was president of the Dallas FED reserve for the better part of a decade throughout the financial crisis. He and I had one thing in common, neither of us were PhDs in economics. Both of us were MBAs in finance would come from Wall Street.

David Scranton: I see. I actually had interview with him 2 1/2 years ago when the FED first started raising interest rates we were on a show together, smart man can argue with anything Mr. Fisher says.

Danielle DiMartino Booth: I intend to not argue with the boss.

David Scranton: That’s right. What prompted you to write the book?

Danielle DiMartino Booth: In the years that followed the financial crisis there was an internal recognition at the FED, something had gone seriously wrong. That part was good and they determine what the gages that they use to follow prices and inflation had really failed them. They had failed to capture the runaway home crises, the runaway prices in the stock market and they determine that they needed to come up with a new inflation. I was very excited when the determination came down and then they promptly chose to do nothing. Their inflation gages gave them license to be lower for longer and that’s what they chose to do. They chose to keep their blinders on and as a result I became very fed up.

David Scranton: You know the old saying figures don’t lie but liars figure you could make numbers pretty much with whatever you want. So you say in some ways you are better off without the FED reserve. But then we have come a long way from the days when J.P Morgan had to jump in and play the role of the FED reserve, what would we do without a FED reserve or what we would have in place of a FED reserve if they were to go away.

Danielle DiMartino Booth: Well let me be really clear. I am not an advocate of ending the FED at all. In fact the last chapter through the blueprint of how I would reinvest the FED. For national security and financial stability purposes I’m a huge advocate of keeping the FED, it just need to be taken down.

David Scranton: In the minute or so we have left in the segment, tell us what are the top one or two things that you think need to be done to fix the FED?

Danielle DiMartino Booth: I think the lines of the FED need to be redrawn to represent the economy, the United States is today, not what it was in 1913. And it all should have permanent votes and do a mandate of maximizing employment and minimizing inflation should be taken back to what it was before 1977 and that is just minimizing inflation.

David Scranton: You think that the FED reserve now don’t ask, don’t tell they won’t talk about this but really cares about what the stock market participants think?

Danielle DiMartino Booth: I think that the onus of the FED to prove that they no longer care what the stock market thinks because since 1987 when Greens man came into office the tail wag the dog and FED stock market to dictate monetary.

David Scranton: I agree with that 100%. Danielle thank you we’ll be right back with a little bit more so Danielle please stay with us and you stay with us also. We’ll be right back here with more on the Income Generation.

David Scranton: We are back now with more with Danielle DiMartino Booth. So Danielle I agree completely. I think the FED reserve has gotten a little bit too concerned about Wall Street and I think now they have got their hands filled trying to prove that they really don’t care what happens with Wall Street with the stock market or what Wall Street thinks. Let’s switch gears with this a minute if we can. You like I had predicted the housing back in 2007. What do you see on the orison now? What risk exist now, you see any major fundamental collapses coming up in the future potentially? Talk to us about that.

Danielle DiMartino Booth: One of the things I’ve been following the most closely it was one word on how they quickly, just because housing is not as overvalued as it was during 2006/2007 does not mean that housing is not at a very high risk right now of undergoing major correction, but that is housing. The bigger risk I think is where the new sources of leverage are in the current area and that would be in the corporate bond market. I took a deep dive and look at what corporate bonds leverage look like. Because of the degradation of the quality within the investment university these are supposedly the highest foreseen quality bond but now we have over 50% of the investment grade bond market is triple in credit rating for just one notch above junk.

David Scranton: They are barely invested grade.

Danielle DiMartino Booth: Barely invested grade over 50% of the investment grade market today. Net leverage at these companies has doubled since 2000. Jim Crow pointed this out so when you look at the true investment grade market it’s about 2 1/2 trillion dollars and I look at the other 5 trillion dollars of the market as being really what we should call junk. Speaking of the housing market and the crisis investors are blindly on fate taking the credit rating agencies diligent and not doing their own homework and these are the things that we are in.

David Scranton: Danielle I agree with you 100%. It’s funny you are getting into what we do at our company really lots of corporate bond issues and I’ve been saying it for a long time that just buying triple these brokers are just buying triple across the board and not doing a deep dive on the credit and the financials are really not doing their clients a service. I have a bigger concern though and we only have about 20 seconds left to cover it, but you tell me in some ways aren’t these bonds even a bigger concern today.

Danielle DiMartino Booth: I certainly think that [unclear 42:29] walking through a mine field because there are some involving states and in solving cities and we have to bear that only cities can declare bankruptcy, you should tie with the future but not Illinois as the future, the state.

David Scranton: Fortunately President Trump taken away some of those tax deductions of state and local income taxes. I don’t think it has help that very much. Danielle thank you so much. It’s been my pleasure. You stay with us we’ll be right back with more on the Income Generation.

David Scranton: I’d like to take this opportunity to thank both our guest for joining us for another episode of the Income Generation. I also like to thank you our new and returning viewers. If you are close to retirement and really want to know how to protect and maximize your money, it’s absolutely essential that you stay informed and up to date. Right here is where you can do it on the Income Generation. I’m David Scranton, thanks again and we’ll see you next week.

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