Jason Hartman starts the podcast episode breaking down new articles on the best performing assets in 2018. He discusses the idea of cash being king and the problem with measurements in real estate metrics. On the second segment of the show Jason hosts guest Brian R Alexander, author of the new book Glass House: The 1% Economy and the Shattering of the All-American Town. They discuss the state of Wall Street Investing and its impact on the average American. They go into the disconnect between the uber-wealthy elites and the average citizen.
Investor 0:00
You don’t have any investment real estate investments, you will not have the opportunity to learn to make mistake, learn from it. And then you will not be able to tell which one is a better investment. I think you just have to get it started somewhere and with the help of your investment counselor, and then keep moving forward.
Announcer 0:19
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:09
Welcome to Episode 1145. This is your host, Jason Hartman. Today we are going to talk with Brian Alexander. We’re going to talk about the glass house, the 1%, the economy, and the shattering of the all American town. interesting interview. interesting topic. You probably haven’t looked at it this way before. So I think you’re going to learn some new stuff on this episode with our guest. But before we get to that, two things, two things that I don’t know if I should say they amaze me, or if I should say they never cease to amaze me, or I don’t know what I should say about this. Okay, so two things. Number one, have you noticed in the world We’re old, you know, there’s that old concept of what comes around goes around the law of cause and effect that Denis waitley and Earl Nightingale and Jim Rohn and Zig Ziglar. Well, not six Sigler as much, but the other three taught me about when I was 17 years old, it changed my life, they really made me understand the value of being a good ethical person doing the right thing. Because if for no other reason, life or other people would get even with you, right. So, so there you go, maybe there’s a higher reason than that. But if for no other reason, there’s at least that, but it takes an awful long time for that to play out, doesn’t it? It can be years, it could be decades. Maybe what comes around does go around, but I tell you something, it takes a while to sort itself out. And I’m sure you’ve noticed this too. I know I have. I just saw it again today. I just saw it. couple of months ago, I see it all the time, right in life, in the world of business, the sleazy operators in whatever industry. I’m not just saying my industry, but I’m saying that to the sleazy operators always seem to end up with the other sleazy operators. They work together, they form alliances together when they’re kicked out of working with good operators. It’s just amazing to me. I was listening to this other podcast recently. And I’m thinking, wow, here we go. I know most of these people, and they’re all weasels, and it’s amazing. The weasel cartel can bolster each other and pat each other on the back in the weasel cartel. It’s just it’s like they have their own ecosystem. It’s amazing to me. And the sad thing about it is, the customers really can’t tell they probably just have no idea what they’re in for things look good. With window dressing, but then you go six months, you go a year later after the deal, and you really see how things have just not worked out the way they should, how promises are broken, how the weasels have really impacted your life. So that’s one thing that never ceases to amaze me. The other thing is the vast Wall Street conspiracy. Talk about the weasels patting each other on the back, right. And it’s so incredibly coordinated. It’s so aligned the way the media, the Wall Street media like bolsters each other’s I’m just going to say it but it’s amazing. I’m going to give you an example you ready for an example? Here we go. Here’s an example. I’m going to give you two examples. Before we get to our guest here. The first example comes from nasdaq.com. Is that a credible source? Well, hey Bernie Madoff used to be president of NASDAQ. So I guess it’s credible, right? NASDAQ some big deal. Okay, so here we go on nasdaq.com. They say the best asset class of 2018 question mark, you’ll never guess. Right? And it says, This year’s top performing asset class meaning 2018 because the articles written December 27 2018. This year’s top performing asset class isn’t stocks. It isn’t bonds, commodities, or real estate. And no, it’s not cryptocurrency either. It’s, drumroll please. cash, cash. The article goes on to say That’s right. Cash is the top performing asset class here to date, beating out US stocks, global stocks you investment grade bonds, junk bonds, commodities, real estate, you name it, cash is king.
Jason Hartman 6:08
Hmm, I guess you didn’t know any of my friends who were making fortunes in real estate last year. Now, why is that so misleading? Well, number one, it’s published by the vast Wall Street conspiracy right there. Right? All of you listening who are clients of ours? Well, probably all of you. I don’t want to say all because we know there are ups and downs and bumps in the road occasionally with some of you. But look, the vast majority of people invested in real estate in good prudent linear markets had excellent returns. Why can this article say that without these people getting sued into oblivion? Well, because number one, they’re so rich, he couldn’t afford to sue them, even if they’re lying through their teeth, which they are. Okay, but it’s the same lie. The vast Wall Street conspiracy tells you over and over. they calculate the return on real estate by only one metric of its multi dimensional metrics. What is that metric appreciation? And so they’re going to say that, of course the Case Shiller is overloaded by two thirds to three quarters, cyclical, overpriced markets that are declining when as they should be. Okay. These are markets we’ve never recommended. wouldn’t touch haven’t even thought much about those markets since 2004. When I was you know, working on selling my traditional real estate company in Irvine, California to Coldwell Banker. And you look around the country you look at any like we could do a Performa for probably 1000 people listening to this podcast right now. Okay, probably several thousand people listening to this podcast who are clients of ours who owned property These last year through 2018, it’s now 2019. When I’m recording, obviously, and we could look at the history of their property, we could put it into property tracker at property tracker.com. And between all of the multi dimensional aspects of their real estate investment, even if they had no appreciation, even if they have deep appreciation, because they’ve had cash flow, they’ve had tax benefits, they’ve had leverage. They’ve had inflation induced death, destruction, you know, they’ve had the whole panoply of multi dimensional returns, and that beat cash by a giant margin. Yet, if you read NASDAQ, you know, it’ll tell you that cash was the best deal going. And then this other article, you know, the same thing I just clipped part of it out. And this is the neighbors group that published this and I wrote Are you kidding me? Three question marks. Have you heard of income property three question marks. That was my comment. Cash was the best performing asset class of 2018. It’s no secret that many prominent economists feared were at the top of the market cycle, economic growth seems to be slowing. Okay. Fair enough. That’s all true. I agree with that. All around the globe, fear of a potential recession manifested in making cash the top performing asset of 2018. With the ups and downs in the stock market, many investors are flocking to cash, according to Bank of America, Merrill Lynch fund managers survey Oh, well, do you think they invest in real estate? Of course they do with all the money they’re stealing from the middle class investors? Yes, that’s what they invest in. They own all of the stock market people, hedge fund managers. Guess what? Guess what they own where they make a lot of money. Besides overcharging their clients. They make a lot of money owning a bunch of real estate. That’s what they do. So they did this survey, professional investors are holding the largest position in cash. January of 2009. Well, compared to what compared to your crappy stocks? Yeah, sure. Okay, fine. Now, admittedly, you know, the market has come back a bit since this, you know, it’s had its ups, its downs and all that stuff. But the point is, they’re looking at the entire year of 2018, saying that cash outperformed real estate. Are you freaking kidding me? That is like such a lie. It’s unbelievable. You take out the cyclical markets that have depreciated, and don’t have cash flow anyway. And you just do that survey based on good prudent linear markets with sensible properties, and they don’t have to appreciate one penny they could be flat could be a total flatline. And those assets with their just their cash on cash return just from cash flow only with massive massively outperform cash and in fact, they probably outlive Perform the stock market even on its best days. So, yeah, so.
Jason Hartman 11:09
Okay, let’s go over to NASDAQ. And let’s pick it out in front of NASDAQ. Yeah, let’s do that. Let’s get some picket signs. And we can maybe throw some eggs at the building. No, don’t do that because that would be illegal but picketing is legal. Okay, so no eggs, no throwing eggs. Okay, no graffiti, but just, you know, pick it. let’s organize some picketers. Let’s all meet in front of NASDAQ, and let’s get some picket signs and call them on their BS. Oh, maybe they tried to do that a few years back it was called Occupy Wall Street. But that was a misguided attempt by a bunch of lefty socialist. So that’s a different issue, right. Anyway, there you go. There’s your entertainment for for today. And now. Let’s go to our guests. By the way. I want to remind you we announced the winner of the YouTube contest. It was Edward Galbraith. Okay, we announced that yesterday on the show so congratulations please reach out to us because you only commented on YouTube we don’t have your contact information, but reach out to us through Jason Hartman calm or your investment counselor if you’re working with one of them at our firm and we can help you claim your free ticket for meet the masters or your $500 travel allowance to meet the masters. Either one your choice. claim that prize because you want congratulations. Okay, meet the Masters tickets couple more sold today. The hotel room block they extended it one more time. I begged them on the phone today Christine the hotel. I said Christine, we extend this and she says Jason, Monday is it we already extended at one time. And Monday is the final final final on the hotel room block. So book your rooms Get your tickets. Don’t miss that discounted price because you know, why pay 70 bucks more per night for a hotel then you have to you just don’t need to. It’s a waste. It’s a waste. Even if you have the money, it’s still a waste. Okay. Ben Franklin, he was probably pretty wealthy and as old right? What did he say? A penny saved is a penny earned. Hey, look at, I’m fine with spending money As long as it’s for a purpose. But just paying more for paying more is not a purpose. So yeah, tickets at Jason hartman.com slash masters. Let’s get to our guest and talk about the 1% economy. Here we go.
Jason Hartman 13:40
It’s my pleasure to welcome Brian Alexander. He’s a former columnist for NBC number one best selling author of his most recent book, glass house, the 1% economy and the shattering of the all American town. Brian, welcome. How are you? I’m good. Thank you very much. Good. Give us a sense of geography. Tell us where you’re located.
Brian R Alexander 13:59
I’m currently located in San Diego, California. Fantastic. I
Jason Hartman 14:03
used to live there myself beautiful place. So the 1% we’ve all heard a lot about the 1% since the Occupy Wall Street movement. Tell us about the premise of the book.
Brian R Alexander 14:15
Well, the premise of the book is what happens to a town when Wall Street gets its hands on a primary employer or in this case, employers in that town and what is the social Fallout, the economic fallout, the cultural fallout of that? And the reason I did that is because Lancaster, Ohio really stands in for a couple of hundred other towns all over, especially the middle part of the United States.
Jason Hartman 14:42
So Lancaster was the sort of town that inspired the book. Is that
Brian R Alexander 14:46
that that’s correct. That happens to be my hometown where I grew up.
Jason Hartman 14:49
Okay, great. So what happened there? I mean, did Wall Street the certain companies their go public, or they were acquired through roll ups or m&a? What happened?
Brian R Alexander 14:59
Well, focuses on a company called anchor Hawking glass anchor Hawking was a fortune 500 company one of the very rare fortune 500 companies located headquartered in a small town at its height and employed about 5000 people there. It was the world’s largest manufacturer of glass table where the second love glass containers, like bottles, mayonnaise jars, baby food jars, that sort of thing. And it had plants all over the United States. It was a big deal. And what happened to make a long story short is that in early 1980s, Wall Street discovered it and a guy named Carl Icahn who many listeners may be familiar with a corporate raider Carl Icahn corporate raider. Yep, he decided to pull what was then known as a green male move on anchor Hawking, and the effect of that wasn’t so much financial directly, but it created a cascade of events that eventually led to leveraged buyout by two different private equity companies that decimated the company and started the erosion of the town. Okay, so before we get to that, let’s make sure we just let’s back up a little bit here. And let’s talk about green mailing. He gave money to the Board of Directors is that to tell us what green mailing is I you know, I remember green mailing is you’ve got company XYZ and you make a widget and I show up and I say, guess what, I now own 5% or more of your stock. And I am going to demand board seats in a variety of changes and things that you may not like, or you can give me a premium for all this stock that I have purchased, and I’ll go away. In other words, I pay, you know, $10 for your stock, but if you give me $13 per share for your stock, I’ll go away and leave you alone.
Jason Hartman 16:55
Right, right. So in other words, they do that to prevent the hostile to Over, right? Yes. Okay. Then you mentioned leveraged buyouts or otherwise known as lbos. And, and that’s the practice of sort of using the company’s income to buy the company, right?
Brian R Alexander 17:12
It’s a pretty incredible broadly speaking, yes, what you do is you you borrow a bunch of money, you don’t have the money to buy the company. So instead you borrow the money, but that is not your debt. You create a shell company, and you force a merger with the show company is the thing, that entity that borrows the money, you create a merger, and then the new entity has all that debt. So you as the in this case, private equity companies, that’s not your debt anymore. That is the debt goes on the back of in this case, anchor Hawking. And when you do that you handcuff a company.
Jason Hartman 17:49
Right, right. So they can’t really move when they’re saddled with so much debt. Right?
Brian R Alexander 17:53
That’s right. Yeah.
Jason Hartman 17:54
Okay. So tell us what happens to the town now. So that’s kind of what the dynamics of the of the country And Carl Icahn corporate raider activities. And you know, look, we’ve all seen probably both of the Wall Street movies which sort of depict this behavior. You know, we were all familiar with this stuff that happened, you know, starting, I guess, starting in the 80s, really early pop being popularized in the 80s. And it’s debatable,
Brian R Alexander 18:18
I guess if this is good or bad if you know, it’s certainly good for the people who do it. They make money, but is it good for society, in terms of the company itself, and layoffs and splitting up companies and so forth, but then there’s the actual Geography The town, right, and I don’t think anyone really thinks too much about that until your book came along. And this sort of maneuver has a variety of effects. So when you have a town, that’s a relatively small town, and you have major employers like this, there’s a whole social web that springs up as a result of these companies being there, there’s a symbiotic relationship and so you have exactly It is that live in the town. Their kids go to the local school. They go to school with the factory workers, kids, their wives. In the old days, at least their wives were the Civic heart of the town. I got the polio vaccine because a bunch of these wives got together and said, well, the polio vaccine is now developed. We need to get our kids vaccinated. They created levees to make new sidewalks, they passed school bond issues, they were involved in the town, right. Another thing that happens is that workers have a pathway to the future. They’re at a stable company. They know that if they advance in the company, they’re going to make a decent living. They’re going to be able to send their kids to a decent State College. They’re going to be able to buy a better house and so they see this this future. And there’s a lot of town pride. You know, you would say to people Hey, I’m from the town where anchor Hawking is based in people from Tanzania, Africa to Japan, use anchor glassware and that that Budweiser beer you’re drinking comes out of an acre Hawking bottle. And when that stuff starts to go away, people become dispirited, and they are open to one thing over a period of about 35 years or they become open to electing somebody like Donald Trump, for example, who says that he’s going to bring it all back somehow.
Jason Hartman 20:21
Okay, so so sounds like you’re not a Trump fan?
Brian R Alexander 20:25
No, I am not a Trump. Okay. All
Jason Hartman 20:28
right. In terms of the town, I mean, I totally appreciate all the things you’re saying. And I’m someone who constantly watches and recommends that my listeners watch old TV shows and old movies, because it is mind boggling how far we’ve come or maybe how far we’ve decayed as a culture, you know, again, debatable, but things have certainly changed.
Brian R Alexander 20:54
And, you know, look,
Jason Hartman 20:56
I mean, couldn’t someone argue that hey, you’re being sentimental. That’s how the world Used to be I know, there were nice things about it since a community I get it, totally, totally get it. But everybody now has to just hone their skills and, you know, go with the much faster moving society, right? Isn’t that just the nature of things?
Brian R Alexander 21:17
Well, that’s what some people argue, in order to argue that though, you’ve got to say that community no longer matters, right? We are a social species. And I believe that community matters a great deal. Oh, I do too. And I’m sad to see it go away. In fact, I look just my own life, and the way community has just evaporated. But,
Jason Hartman 21:38
you know, there are so many causes of that. I mean, I know your book examines the Wall Street component, but social media and, you know, it’s a big world and a much more mobile society. And you know, there’s a lot more to that than just just the Wall Street component, right?
Brian R Alexander 21:53
Oh, yeah. No, absolutely. And in fact, the book does discuss some of that. Yeah, I’m not saying that all the world’s problems are laid at the feet of private equity companies. What I am saying is that towns like lackluster companies like anchor Hocking have become the feedlot for people to scrape money away and leave damages behind without consideration of what this is doing to people and what this means for us as a society.
Jason Hartman 22:23
Right, right. Okay, so take us through more of what it means for us as a society or gap. I think that’s maybe the place to go now.
Brian R Alexander 22:32
Well look, if you decide that your only goal in life is to enrich yourself or enrich your investors, you know, this is often referred to by Milton Friedman dogma of shareholder value. If that is the only goal you have and Friedman advocated that business ignore a lot of their social responsibilities it saying that they had very little social responsibility and their only responsibility Is to shareholders to create shareholder value, if that’s the only thing you’re looking for, and we live in a capitalist system, I believe that that is a recipe for doom. I believe that that businesses should certainly try to make money should certainly try to have a profit, but that there is a social responsibility. When you have a business and you have employees and you have a location and a home base. You owe things to that community because no business survives all by itself. we as Americans have actually fostered business through a variety of initiatives, a variety of tax outlays to try to develop a healthy business economy, healthy capitalist economy, and we deserve some things in return for that. One of them is fairness and the concept of a social contract. And a lot of business today seems to feel that there is no social contract, right? I would agree with you.
Jason Hartman 23:59
You know, I think this could actually be divided up a little bit more, you know, the Milton Friedman argument about shareholder value. I know he was behind that idea. But since the recent passing of jack Bogle, the founder of Vanguard, and, you know, the democratization of the stock market, you could argue I’ve been really looking at some of his work. And I’m almost finished with Fogle’s book, The battle for the soul of capitalism. And he distinguishes very nicely in that book between owners capitalism, otherwise known as shareholders, right, and if the Friedman idea, and managers capitalism, and, you know, with what you said, One could argue that it’s really managers capitalism, you know, that’s not necessarily creating that much value for the shareholders. It’s the bigwigs, the elitist that make all the money in those deals, right. Yeah, maybe a little trickles down to the shareholders. But there’s definitely a disconnect between the wall street insiders In the common shareholders now the guy that gets the, you know, the Carl Icahn that gets the premium green mailing the board shirt, that’s different. He’s in a different class. You know, during the Great Recession, when Warren Buffett bought all that be a stock, it wasn’t like the common investor could get that deal. He got, you know, same with the Goldman Sachs stock that he bought. So, there really is a disconnect between this elite insider Wall Street class, and the everyday American investor, isn’t there?
Brian R Alexander 25:27
Of course. Yeah. I mean, so you and I go to our, our little neighborhood broker and he does not have insight into any of these sorts of deals. You know, oftentimes when it comes to private equity, the actual investors in private equity are large pension funds, for example, because what they’re trying to do is beat the stock market. Now, there’s a lot of dispute about whether or not they actually do beat the stock market. But the point is that they have many millions of dollars to divide up. and invest in a variety of ways, one of which is to invest in a private equity firm that then goes out and buys companies and these leveraged buyouts the average investor, who’s got $1,000 to invest it, that’s just not available to them. So there is definitely a two tier system when it comes to investing.
Jason Hartman 26:21
Oh, it’s, it’s even worse than that. I would argue that the average investor that’s got 100,000 or a million dollars doesn’t get that deal, either. You know, it’s all No, of course, it’s the billionaires that get that deal. You know, it’s a total game. I mean, you know, it’s not even, it’s not like the thousand dollar guy doesn’t get it. Nobody gets it until you’re at the super elite class. But, you know, I think you can trace all this. I mean, I think at the core, you’re talking about, you know, greed, right. And it could really be traced back from what I can tell to Edward Bernays, the guy that really sort of invented modern public relations and advertising. And maybe that was around the 20s when this happened. That’s when people got greedy. Like everything I research says that Americans were just pretty normal before that they just wanted to live a decent life and, you know, have some progress and, you know, over time gain some wealth. But now, this has turned into this hyper wealth consciousness. And, you know, I would argue it’s not healthy. I don’t think it’s healthy. So I’m going to agree with you there. I think you’ll agree with me on that. But it’s just pervasive. It’s such as Wall Street, right.
Brian R Alexander 27:26
I dated to the beginning of the Reagan administration. So what happened with the Reagan administration was a variety of deregulation that had been really sort of put in place in the era of the New Deal. And the Reagan administration lifted lots of these regulations. For example, the idea that companies cannot buy their own stock. Well, that’s what companies do all the time. And if you look at the current Trump tax cuts on corporations, they didn’t use that money to invest in new r&d and hire lots of new people. They use that money. And share buybacks. And now in an era when CEOs are compensated in options on shares, sometimes much more than any actual salary, they have an incentive to buy back those shares because it raises the stock price. That’s just one example. You have something called carried interest, which is what private equity lives on. carried interest is a loophole that says that the money they make does not count as regular income, it counts as a rate that’s taxed at a lower rate than regular income. That’s called the carried interest loophole that private equity guys get. So they have an incentive to do these outrageous leveraged buyouts. And what they also do is something called for example, the dividend recap. And so what they do is that, you know, they control a company, let’s say, anchor Hawking and this did happen several times and anchor Hawking, they control the company, they want to squeeze some money out of the company. So they have that company. Take out more debt, and they pay themselves a dividend out of this debt. So they may say, okay, we’re going to take out a $30 million dividend recap, and we are going to take 15 or 20 million out of that 30 for ourselves, that’s using debt that then goes on the company to reap a payday for themselves. This kind of stuff happens all the time. I know, it’s managers, capitalism versus owners, capitalism, the owners of those shares that don’t most of them the general public, right, and the various retirement sons and so forth. The general public is part of, they’re not reaping most of the benefit of that. It’s the managers, the managers are the ones exploiting that system so terribly. But and what you what you end up with, however, is great disillusionment, a feeling of helplessness and hopelessness on the part of average people, right. You know, the current drug crisis in America is not just because heroin is widely available. And very cheap. It’s because people say why the hell not? Right. I want to feel good for a while because I’m going nowhere. No. suicide rate among men between the ages of 20 and 60 is skyrocketing. Why is that? Well, I believe it’s because they see no real future for advancement for themselves because they’re being blocked. I would agree with you. And you know, that’s especially this that suicide rate among middle aged white men, the ones that are the biggest victims of that, so it’s really quite tragic. But when you talk about
Jason Hartman 30:31
the Reagan era, I mean, you also got to ask compared to what like the for the reagan tax reform, for example, there was all kinds of malinvestment with doctors, you know, buying these nonsensical windmill investments that really did nothing. Now I know that technology is better nowadays, obviously. But and you know, we don’t need to go there debating wind power or not, but but the point was there there was all this encouragement in the old tax code before the Reagan reforms right to, you know, do a lot of malinvestment, and that wasn’t doing anything good for the economy. It was just scams to avoid paying taxes, you know. So yeah, there’s these things are very complex, aren’t they?
Brian R Alexander 31:13
Certainly they are. But we as a nation, decided at the beginning of the 80s actually really started in the very late 1970s. But the Reagan administration is a convenient place to take it because of the changes in laws that occurred there. We decided that we were going to sort of adore powerful, rich CEOs and they became almost like a movie celebrities. Well, the Hollywood did that. I mean, that was Michael Douglas and Wall Street. Well, but it was also jack welch at GE either. I mean, we made sort of Titans out of these guys, and we assumed or we came to believe, or we were told that cash equals virtue or cash equals brains, and and a lot of cases it doesn’t mean these people say that. They are Business geniuses, a lot of these private equity guys say that they’re doing God’s work, what they’re really doing is messing up sometimes good companies.
Jason Hartman 32:09
Well, and you could you could argue the same thing with the Silicon Valley and lead us to these really scary tech companies. You know, we revered these people like their gods or something, and they’re just people that are abusing our privacy rights. And yeah, they they do invent some cool stuff that changes our lives but it’s like this winner take all thing the way capital formation works in this country, and probably around the rest of the world. I guess I don’t know enough about it to say but is that it always goes to this winner take all this crowding out. Look at Howard Schultz at Starbucks. He’s crowded everybody out of the market. You gotta eat your and drink Starbucks poison. If you want to go to a coffee shop. There’s just nothing else left. Okay, you know, and, well,
Brian R Alexander 32:57
you know, there’s a whole other issue to talk about. We could if you wanted to about economic concentration and growing economic concentration, you know, Facebook is the current whipping boy for that cause and not without justification. Oh, yeah. Total justification Facebook. Yes. So, so we do have some serious issues. And there are people say, Well, we should just have unfettered capitalism. And make no mistake I consider myself a capitalist capitalism brought about 50 years of incredible prosperity not only to this country, but a lot of other countries following World War Two, but what we have now is a runaway vulture capitalism. It’s a perversion of what capitalism should be. And my belief is that we ought to start asking what it is that we want capitalism to do for us. And if we want capitalism to make lives better to improve our lot on this earth than it currently it’s failing and something needs to be done about it.
Jason Hartman 33:57
Okay, so what can we do let’s, let’s go Wrap it up with some action steps.
Brian R Alexander 34:01
Well, okay, well, so here’s a perfect example. Don’t say write your congressman.
Brian R Alexander 34:08
You know, we should, the government should somebody should close the carried interest loophole. So what effect would that have just Well, it would it would eliminate a lot of this incentive to do these leverage vials. Okay, so so there’ll be fewer there be less m&a activity. If we eliminate carried interest loophole, well, there’d be less leveraged buyout activity and there wouldn’t necessarily be less m&a activity, there would be less carried interest. So these dividend recaps, they count that as carried interest, for example. So do that. That’s one big thing right there. And there was a movement to do this during the Obama administration, but they chickened out. Donald Trump actually ran on closing the carried interest loophole and chickened out. So let’s do it. Let’s close the carried interest loophole. That’s a big one right there right off the bat. All right, so that’ll mean fewer leveraged buyouts, which will mean fewer buyouts. We all know if you can find something you’re gonna get less activity. But
Jason Hartman 35:02
I’m not saying that’s good or bad. I don’t want to sleep. Can you name a second one? Is there another step?
Brian R Alexander 35:07
Yes, you can create and this was something that was that has been done, but in my opinion, not enough, you can create mandated longer holding time. So for example, a private equity company would buy another company like anchor Hocking and try to turn it around in two years and sell it, you know, it’s like house flipping, they would try to flip the company off to another buyer or do an IPO within a very short period of time. And then oftentimes, the company would fail subsequent to that there was a new law saying that you’ve got to hold these companies for a little bit longer. I would suggest that we lengthen that time even more so that you can just go around flipping companies like this. Another one is pension reform. So a lot of times what happens is these private equity companies buy up a company like anchor Hawking there’s a pension there. They short the pension, they have the company declare bankruptcy. And they wipe away that
Jason Hartman 36:05
obligation and is so disgusting. I can’t believe they can get away with that, you know that right? And so that becomes the obligation of the Pension Benefit Guaranty Corporation, which at this moment is in a crisis, because so many of these maneuvers have occurred, that a lot of pensions are really at grave risk at the moment, right, there is a perfect example of disgusting managers capitalism. You know, and you know, you could argue like with bogles book, right, it’s all the stakeholders in a company, right? And there are three main audiences, their employees, and I’ll put employees and vendors in one group, and then there are shareholders and then there are the owners, the I guess the owners that are managing the company, you know, that the managers and so now we’ve got this imbalance of managers capitalism, and the managers are Was owners too but we’ve got this massive imbalance. I mean, you look at like lou dobbs book war on the middle class and it’s just insane the disconnect between typical worker pay and ceo pay. It’s absurd. It’s just beyond absurdity. You know, they’re just untethered, completely untethered now
Brian R Alexander 37:18
Yeah, they are, we need good sensible regulation in this country. And for a while now we’ve had this dogma that any regulation is bad regulation. On the contrary, we need good regulation.
Jason Hartman 37:33
The problem with regulation, though, is the government always end up ends up picking winners and losers, and it’s favoritism by lobbyists. Right. And so, that really, I don’t know if that works. I mean, I almost think that maybe you should just deregulate everything I you know, it’s just, I don’t know, you can never tell how this stuff’s going to play out until you do it. That’s the problem with things. There’s always a lag, right. You change the law today, one way or the other. And then it takes five years to Figure out what happened. And there was a new president by then and a new Congress. And
Brian R Alexander 38:05
but I disagree. I think regulation can work. For example, one of the best regulations ever was the Glass Steagall act. Yeah. And we had a long period of decades of very safe solid banking. Yeah, we lifted that we lifted the Glass Steagall, and then all the banks in a 2009 recession, right.
Jason Hartman 38:22
But some would argue that that was caused largely by the Community Reinvestment Act. And that took a couple of decades to play out and, you know, from Carter to Clinton to the Bush’s and you know, that caused the mortgage crisis, right, because it’s complicated stuff, isn’t it? Well, apparently, yeah. Hey, give out your website and tell people where they can find your book and all of your work. You’ve got other books as well.
Brian R Alexander 38:45
I do. So this book is glass house, the 1% economy and the shattering of the all American town. The book website is glass house book.com. My website is Brian are elexander all one word dot com. You can find me on Twitter at Brian R. Alexander.
Jason Hartman 39:05
And there you go. Ryan, thank you so much for joining us very spirited discussion. We really appreciate having you on the show.
Brian R Alexander 39:11
Thank you for having me.
Brian R Alexander 39:12
Join us March 23, and 24th for the 2019
Brian R Alexander 39:15
meet the masters of income property.
Brian R Alexander 39:18
Let’s break this down and look at some of the strengths of income property as an asset class. And I found that this event is really helpful because I’m totally a newbie to real estate investment. And so I picked up so much information. One of the great things about it is it’s so fragmented, right? embrace the fragmentation.
Jason Hartman 39:40
actually been learning a lot about the tax benefits to real estate and a lot of I’ve been investing actually well over 10 years now. And I learned a lot of new things today. The other advantage of this weekend is networking, meeting new property managers, meeting new area specialists and then seeing the product they have to offer that changes here by you. Register now with Jasonhartman.com slash masters. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.