You really spent your career in and around the Gulf.
Give us an investors perspective right now in the Gulf.
Where are there opportunities? But also were there perils?
So it's always been a misunderstood era, right?
Because it's tribes and flags when we talk about the Gulf.
There's 54 countries really that make up kind of the the consortium of Gulf
countries, four big ones. But if you think about it, the the
resource curse. So from 1960 on, the discovery of oil
and gas in these small populations led them and really a 70 year period to
dominate the investable world. So from producing oil and gas, being the
beneficiary of receiving those dollars up until now to reinvest in them and
saying we've got to diversify, we have growing populations, we're now becoming
more astute and aligned in the international economy.
How do we diversify? What do we diversify into?
And remember, the constituency is it's not a pension fund.
So their investable universe, the big sovereign wealth funds, which by the
way, are the largest investors in the world today, idea mubadala pif KKR are
multi-thousand investment groups investing in all asset classes around
the world. So the goal at the moment is for them to
diversify outside investments and at the same time start moving their own
economies and their own young populations to a non resource based
economy. And that's the that's the biggest
challenge in most of these countries. The royal family directs the politics,
and the politics is also driving the business decisions.
So you have the same individuals in various positions that are looking at
these big themes over long periods of time.
And the constituency is the legacy. It's not for the retirement of
individuals, so it's booming. Whenever one invests cross-border,
there's political risk involved. How does one assess the political risk
in that region? Certainly we've seen it flare up in
Saudi Arabia in various ways. How does one assess that and make sure
that you're protected from that, possibly affecting your investment
slowly and carefully? I'm a great example of that.
So I think for all for all business men,
soft diplomacy is is part of the goal that you're trying
to reach long line relationships, understanding the geopolitical risks of
where you are, the rule of law, the cultural orientation.
We've always talked about this cultural sixth sense, but foreign
policy has so much to do with it, especially in this region.
It's a dangerous place. Why is it dangerous?
Because all of these countries have been our allies.
Really from the beginning of World War One.
They as a group are the largest buyers of U.S.
military equipment. Saudi Arabia, Qatar, Abu Dhabi
are our largest foreign buyers of US military.
And we have military agreements with all of them.
But foreign policy ebbs and flows and that part of the region.
And as we've seen now with sanctions, for instance, and Russia and the threat
of sanctions elsewhere, the rule of law sometimes is confusing to them as to the
difference between foreign policy and military policy, business practice,
business diplomacy. As the United States returns to kind of
a globalization mode, which we can talk to more, which is what's happening, I'm
not in favor of that, by the way, but it is certainly happening.
You know, this idea of let's make America great, I was always an
enthusiast, said, why don't we let's make America great in the world better.
We're just missing one piece of that. So the geopolitical aspect is so
important for the U.S. now not to give up on that and not to
just be there to take money, because if we don't help, if we're not there to
hand-in-glove fix the rest of the things they need, China will be there, Russia
will be there. They'll fill that void.
The the the dollar. Inconceivable to think that you would be
in a petro business and not use dollars. But we're really at the verge of that
about to happen with the renminbi going to a digital currency.
You know any of these things could happen if there's just a mismatch
between foreign policy thought, military execution and business soft diplomacy.
So I think it's it's it's a moving target.
And we all need to be cautious and we all need to participate.
And participating in business is the easiest way to solve some of those
cross-cultural issues. Tom, you referred to your personal
experience and being exposed to some of the risks in what you call soft power
with investing. You obviously were indicted on nine
counts. You had a seven week, eight week trial
in the Eastern District of New York. You were acquitted on all charges, I
must say. What did you learn from that experience
that would be helpful to others in 2016? Bob Mueller started investigating
President Trump for Russia. And.
By the way, I have nothing but respect for Mueller and his team.
They did the job they were supposed to do, and they did it elegantly and in the
manner of which it was supposed to be done.
And during that time, had he had asked me to testify voluntarily, which which I
did, and this was about Russia. But in that process, the Gulf states
were starting to. Two surface to surface for interest.
Never. Never for any evil purpose.
Never for any attendant purpose. Just saying in this campaign, we don't
know who Donald Trump is. Who is Donald Trump?
I thought this for me at the time was an incredible opportunity.
I mean, you and I have talked before. I was never really political.
Donald had been a friend of mine forever.
I thought, this is a great opportunity to start chipping at the system from
somebody outside of the system. So what got confused with me was my
interaction, which was always business. As I said, the rulers of all these
countries also are the ones making all the business decisions.
So the sovereign wealth funds ultimately are governed and ruled by a monarchy.
These are monarchies never inappropriate.
The big funds India Mobile is run by some of the brightest young
professionals ever, as is QE, as is never an ounce of of impropriety.
And on the heels of the Mueller investigation, some of the prosecutors
when they left, go back into their own regimes.
Let me just start with saying people are always
asking me, is that at the prosecutors corrupt, are they evil?
Did this come from Merrick Garland or is he targeting you?
And my answer is absolutely not. Quite apart from your long term
relations in the Gulf, you've been a long term real estate investor.
Commercial real estate is very much in the news these days.
A lot of troubles in some parts of the commercial real estate business, and
it's affected some banks, including First Republic Bank, that you at one
point owned, as I recall. And we're on the was on the board of.
What did we learn from First Republic Bank.
How concerned should we be about broader problems?
What happened to those banks was not a credit problem, not a capital problem.
It was a confidence problem. It had never happened before in history
with a click on a phone. You could have $18 billion of
withdrawals in an afternoon liquidity for those deposits.
Just a simple way, I think for for all of us to look at it is that banking
makes no sense. If you take short term deposits and you
match it with long term loans,
what you're putting on the balance sheet along with the requirement, the
government saying you need to buy long term bonds at fixed rates.
It has the lowest capital charge, but those are held to maturity.
You don't have to market those to market and then you have assets for sale and
you and you have loans, but your main source of funding is deposits.
So during the zero interest rates, huge companies were not concerned with
putting their deposits and getting yield because there was no yield.
So they did four services. So a bank like First Republic Bank
supplied extraordinary service along with zero credit risk that banks credit
loss ratio was 0.003 over 30 years. So it wasn't it wasn't a credit crisis.