The Hall of Fame Roundtable

Join in the conversation with the industry's veterans as they reflect on where the industry has been in the past year and what, in their view, lies ahead for Munis.

Transcription:

Beth Coolidge (00:08):

Hi, for the last panel. Today we have our esteemed Hall of Famers. Many do not need an introduction, but I know that they will be going through an introducing themselves. Many of these individuals have really done a tremendous amount to shape our industry, and it's just such an honor to be able to have them on this podium. I would also like to introduce Ben Watkins, aka Pat McCoy to lead our discussion with our Hall of Famers, so please welcome them.

Ben Watkins (00:53):

Thank you very much. Appreciate it. This is to echo what's been said, a real honor and a privilege to look at the people sitting at this table who are honored here by the bond buyer have the privilege of knowing every one of them. So, and it's been a long tenure in the business, we've got enough experience up here. We could go back to the ice age. If you count back the number of years of experience that we have here and a broad cross section. What we're going to do is each of them is going to introduce themselves so you have a flavor for where they come, how they approach their role in the marketplace and what they've spent their careers doing. And then we're going to cover three or four different things, and I really want to hear what they have to say about all these things.

(01:51)

We're going to talk about regulation and compliance in the SEC. We're going to talk some about the IIJA and the Inflation Reduction Act and what that means for infrastructure in the country. We're also going to talk about the Muni market, the state of the Muni market, interest rates and that sort of thing. And some my personal favorite ESG and what it means to different people from where they sit and how they participate in the marketplace. And maybe talk if we have enough time, talk about federal monetary policy and what's going on in dc. So with that, I'm going to start peg, I'm going to start with you down on that end and then work our way back here and then we'll jump into regulation and compliance.

Peg Henry (02:44):

Great. He told me when we were registering that he was going to call on me first, and I also said we had a prep session and we have a long list of questions he could possibly ask, and he's not going to ask one of them. It's going to just be whatever comes into his mind. My name's Peg Henry, and I'm in charge of the legal group at Stifel that represents our municipal securities group. So it's everything from public finance, underwriting, sales and trading. I got started in this business in 81, and I think Jim Reynolds and I agreed one time. We got started at about the same time in this business, and it was purely happenstance. I was getting my master's in tax at GW, and I thought, well, okay, I want to find a place to work.

(03:41)

And they used to have these big books called Martindale and Hubble, and it listed all the lawyers in various jurisdictions. And I kept going through the list and shooting off letters to various firms that I thought I might want to work for. And I got hired by this very small firm in Washington dc and they did a lot of different types of tax work, but two of the things they did were bond related is Kmart deals. You remember Kmart deals? That was a long time ago. And then they did resource recovery deals. And I thought, well, okay, that sounds interesting. And I worked on a bunch of resource recovery deals, and then one of the partners got into a dispute with some of the other partners and left. And Head honor contacted him because Mudge Rose was looking for someone and he recommended me. And that's how I wound up at Mudge Rose, which is probably was the largest bond firm in the country. And I became a so-called 103 lawyer. So that's how I got started in the business.

Ben Watkins (04:51):

It is funny that you should say that because I don't think anybody affirmatively sets out and chooses public finance as a career. It just happens. And I have a similar story that I backed into it. They just said, we need somebody to do bond work, and I didn't know anything about anything else. So I said, sure. I volunteered. Here I am 40 years later, so I get it. And it's been wonderful.

Peg Henry (05:21):

Thank you.

Ben Watkins (05:21):

Go ahead, Frank.

Francis Fairman (05:22):

Okay. I'm Frank Fairman. I work at Piper Sandler. I joined Piper in 1983. 40 years later, I'm still there. Unlike peg, I haven't proved that I can get another job, but I managed to keep this one. Fortunately, I feel like I started in the public finance business. I started as a banker, had to learn the business pretty quickly. I was put in charge of our business at a young age back in 1991 at age 33. So I've literally been in charge of Piper's business for 33 years now. So I feel like in terms of my career, I've banked and worked for lot of clients banking deals. And then really more the second half of my career as we grew and got larger was really more managing, overseeing a business, building a business. I feel like I've been very fortunate. I feel like as much as anybody, I've seen what I would term the totality of the public finance business that our business at Piper is sort of very broad based, very diverse.

(06:31)

We work with big issuers, we work with very small issuers. We work geographically across the country, big cities, rural America. We have a lot of specialty businesses, do a lot of high grade business, do a lot of high yield business. We do a lot of underwriting business, but we've also got a fairly significant MA practice. So I feel like I've had the luxury of really learning this business in all its various aspects. In addition, I've been fortunate to have, I guess I'm still a member for a few more weeks of the MSRB board. I've been on that five years. I spent many years earlier in my career working on the MSRB and their professional qualifications committees. So I've very much enjoyed that experience. So I guess I think I was asked when we were talking about this, did I have any mentors? And in my career, I don't know that I really had a lot of mentors. I had one mentor very early in my career that helped me get started, who then decided to leave the business. But beyond that, I feel like it's been trial by fire and learning, and fortunately I've managed to somehow stick around.

Ben Watkins (07:43):

So you've just been making it up as you go?

Francis Fairman (07:45):

Pretty much.

Ben Watkins (07:47):

See that for all the young people out there, a way there is a path forward. Even if you don't know, I don't have all the answers. Lois, what about you?

Lois Scott. (07:58):

My name is Lois Scott. I, it's been a long time since I felt like I was the youngster on the panel, but I didn't get star ted in the business until 1983 back in Frank's years. And while he couldn't change jobs, I couldn't keep a job. I did pretty much every role in the public finance business. I was a commercial banker, investment banker, owned a firm, worked for the big banks, worked for big investment banks, and then this man named Rahm Emmanuel asked me to be the CFO at the city of Chicago, which was a blast because I got to be there for the days of downgrade to junk, which was a lot of fun to talk about with Rahm Emmanuel, who's got a great sense of humor. So I now am very, very proud.

(08:41)

I was frustrated that the rating world would do wreak some financial havoc on municipalities. And so when I left the city, I knocked on the door of Jim Nadler, the CEO of KBRA, and I said, I'm so damn frustrated with how the rating agencies have affected the municipal market. What can I do to help you? And he said, well, I don't know. Would you consider a board spot? And I said, I'd consider taking out the garbage, but yes, I will do that too. So that's my role. I now serve on a number of corporate boards.

Ben Watkins (09:10):

I've never seen anybody who rode the rocket into the ground. So nice to meet someone.

Lois Scott. (09:18):

Thank you and my predecessors followed it right back up.

Ben Watkins (09:22):

And survived. Survived. That's key. Greg, what about you? What your story?

Gregory Carey (09:29):

Thanks for having us. My name is Greg Carey. I'm the chairman of public finance at Goldman Sachs, and I run the firm's global sports business, both M and A and debt. I did start in the business in 1983 as Smith Barney was there for 21 years and came to Goldman 19 years ago. I remember back in the eighties, I was convincing Peg Henry how to do pyramid bonds, and I did convince her that we did refinance the pyramids of Egypt, the tax laws soon after the change, and I've always been, the tax person's always been at my heels as we created things like the pilot bonds for New York City. I did choose public finance as a career. My father was a bond attorney at Montrose, and he told me to be a banker, not a lawyer.

Ben Watkins (10:16):

Wise choice.

Gregory Carey (10:18):

But here in 1983. So I spend most of my time in sports now. I work in a lot of different Europeans. We just did a major deal for Barcelona. I'm involved in the messy stuff right now. But it's been a wonderful career. The business is not dead, it's just evolving. If it was dead, it was dying in 1987 to 91. This is nothing.

Ben Watkins (10:43):

So making a career out of messy stuff. Okay, that's good to know. For those of us who are not as cosmopolitan as you are, Greg, we might have not understood what you were talking about.

Gregory Carey (10:58):

But I have been to Tallahassee a number of times.

Ben Watkins (11:02):

So Howard, what about you? How'd you get started in the business?

Howard Zucker (11:08):

So my name is Howard Zucker. I'm a partner at Hawkins Delafield and Wood, where I started upon graduation of at law school 46 years ago. So I may predate all of you. So one of the things that we were asked to speak about or think about speaking about was mentors. So my takeaway message for young people, if there are any in the audience, is that a mentor can come from outside your organization. And I was very lucky as a very young associate to have two that I felt really took an interest in me and I benefited dramatically. One was a partner at a major law firm in New York that we were doing a lot of deals with over a two year, three year period. And he taught me more than any partner at Hawkins did. And he kept on trying to hire me away. Luckily, I kept rebuffing that for non meritorious reasons.

(12:18)

And then that firm gave up its public finance business. So I lucked out there. Another person from outside our organization, and you may have known him, Frank Coleman from Goldman Sachs. So Frank Coleman was one of the partners in public finance when I was a very young associate where we happened to take the same train line into Penn Station every day. And for some reason, and I had done, I was involved in some deals that Goldman was that he was involved in. And he would for 20, 25 minutes on four days a week, really talk to me about the business, not the legal side of the business, but about out public finance generally the market, client savvy, things like that. And he was great to me. I learned a lot from him. And during my career being managing partner for a while at Hawkins and president of Naville, I sometimes gave talks to younger associates, and I would call it usually 10 lessons I learned as a young associate.

(13:42)

And the first was the most important thing was you can't go too far wrong doing the right thing. And another lesson was, especially for lawyers, was the most important thing a lawyer owes to a client is to always give your best professional, honest advice, even if you know it's something the client does not want to hear, especially if you know it's not what he wants to hear. And lastly, be receptive to letting luck play a big role in your success. And I think it played a big role in mind when I was a second year associated Hawkins Al Oman, who was chairman of ways and means at the time, introduced a bill on April 24th, 1979 to dramatically curtail the single family bond business. And in our housing group, I was the youngest lawyer in the group, and therefore my time was probably considered the least. So I was told to track this for as long as it was pending.

(14:57)

And that lasted 20 months until toward the end of a session at December, 1980. That bill got attached in conference in the middle of the night and passed early in the morning, contrary to what all the pundits on Wall Street had told us that it'll never pass because it'll be blocked in the Senate. And since I all of a sudden overnight became the instant expert at Hawkins on the new law, which was dramatically different than the old law, all the partners who did housing would take me around to explain to our clients the new law. And may not have been a good fortune for people who do single family finance the beneficiaries, but is very lucky for me. So I always tell people, let luck contribute to your success. And there's a famous passage that I won't cite to you, but I recommend to you in Roger Kipling's, the Alejandra about luck. And with that, turn it over to you, Ben.

Ben Watkins (16:20):

Thanks, Howard. So I'm going to tell you a secret about Jim and for all the men in the room, especially the men who were married in the room understand this very well. The secret to his success is a woman behind him, huh? Yeah, Sandy, I met Sandy before I met Jim, and that was many, many, many years ago when he was first getting started creating his own firm. So Jim, tell us how you got started. I came on to you after you've launched your own entrepreneurial venture, which is synonymous with finance, not only in Chicago but nationally now.

Jim (17:01):

Yeah, Ben, we underwrite a lot of deals and they're all very special to me, but I'm waiting for that really special state of Florida negotiated.

Ben Watkins (17:21):

This is how I keep Jim coming back. He can't retire until he reaches that goal.

Jim (17:29):

But when that happens, you guys may not see Jim again. I think I'll say, just take me now would be, I'd like to set the record straight. Ben, first of all, I met your wife too, and she is truly the gem in the family. I could see the brains right away, but I want to set the record straight, Ben, I'm not a banker. I've never been a banker. And most of the bankers that work for me will tell you I'm not particularly fond of bankers for a lot of reasons. And they know why. I don't even know, I don't think bankers like bankers to be candid with him, but I've always been a bond salesman. I maybe the only Hall of Fame person that actually was a bond salesman. And my story again in Munis is just so it's very interesting, obvious, you may not hear one like this, but I started trading Bonds Muni Bonds in 1981. The prime rate was 20 and a half percent. Back then treasuries were about 16, 17, 18%. And they moved in points, not basis points.

(18:47)

And I traded the short end notes, project notes, some of the old timers, rans, tans bands, SOBs, and that's a Bond, Ben and good to know. And so I started at first Chicago Trading Bonds, and I still remember the day, and first Chicago was a major powerhouse here, continental Bank, but all the banks had investment bank partners because the investment banks really knew how to take the risk and jazz it up. And you guys in banks just had the balance sheet. So we carried all the bonds and Goldman Sachs and Morgan Stanley, JP, DLJ, and all those guys would sell all the bonds. I sat on the desk and I'm doing all this trading, and I'll be quick with this story, but I love this story. We had a Bond party. I was telling Beth and I was talking to a few folks in the old days.

(19:48)

Munis had parties every month, St. Louis Muni Club, Cincinnati Muni Club, Chicago Muni Club, New York, Muni Club Jersey, every club, and we had an outing in New York on the Hudson. We always took boats, Bryants on the Hudson, and I had negotiated what I thought was a heck of a salary, $32,000 in 1982, and I got my bonus and it was $32,000. I thought this was the greatest single day of all the days of my life. I called my mother, I called my friends, I called everybody, and then we went out on this boat ride in the Hudson and all the investment banks were there, and I was with this guy from Goldman Sachs. I don't know why all stories in with Goldman Sachs. They do. They always do. And so I was talking to this gentleman and I said, Hey, how you doing? We, we've been trading together. And he says, I feel terrible. I said, what's wrong with you? He said, I just got my bonus. I said, Hey, I got my bonus too. I feel pretty good. I said, how was yours? $300,000. 

(21:04)

I sobered up immediately. I just had to get off that boat. I wanted to get off that boat. I ran to the office the next day. We had one guy that worked for Goldman Sachs that had worked, and I said, listen, this guy that I trade with every day told me he got a $300,000 bonus. Could that be right? He said, yeah, oh yeah, that's what they pay. I said, what the hell are we doing sitting here on this desk? Right after that, I switched over to Smith Barney and came over. Back in those days, you sold Munis, and Greg and I are talking about it less a point plus a point plus another half in the account. The Muni business on the sales side back then was the highest.

Ben Watkins (21:51):

Salesman took all the damn money and the bankers got nothing.

Jim (21:54):

That's right. That's the way it was done. But that's how I got into the business. Love the business. I stayed on the street for 15 years, ran Merrill Lynch's business in the Midwest, ran paint Weber's business in the Midwest and always stayed in Chicago. I would never move to New York. And then 1997, I started Loop Capital.

Ben Watkins (22:17):

What a story. I guess when you run across your competition and they're making 10x, your bonus is 10x. And then you said, not only do you want to sell muni bonds, and not only did you excel at that and were the king of the empire on all that, then you decided, yeah, I think I need to own one of these firms, right? I think I need to run one of these things. Money machine, huh? I could sit here and listen to y'all's stories all day long. You know what, that's a hell of a lot more interesting than what we're getting ready to talk about.

(22:52)

To me anyway, the only thing I'm good for anymore is swapping old war stories. I'll have to tell you that I've got young people and on my staff who can run circles around me in terms of capabilities in the business, and it really takes, so for all you young people out there, it is having a team behind you that makes you look good. Even when you get old like me, is a wonderful, wonderful thing. And nobody knows what we do or how we do it. I'm like the ATM machine. They press the numbers and the money spits out, and so they leave us alone and let us do our thing. So it all works out. So we've got, in thinking about it and trying to stick to the script, which I'm not very good at, I warned you, peg, when I think about changes in the business have happened and changes in the landscape, what goes on in DC both from a regulatory standpoint as well as a legislative standpoint, can be game changers.

(23:55)

And so I want to talk about that a little bit from things that have impacted the industry, let's call it over the last 10 years or so. That seems kind of a reasonable period of time to think about. And we have different people with different perspectives. Obviously you guys know we've got a guy who owns this firms and trades bonds. We've got a bond lawyer who made his living, giving good legal advice and doing deals. We've got Greg, who's been several firms, but a bulge bracket firm, which is very different from where Frank is more of a regional broker dealer. And Lois has been on both sides of the equation, both as an issuer and as an advisor. And Peg has made her living in the compliance world primarily working at regulators and then also at dealer firms. So we have a very broad cross section to hear from.

(24:56)

And when I think about it, Dodd-Frank, post-financial crisis, Dodd Frank, we got something we didn't ask for, which was protection for issuers. And we needed protecting because we're just dumb rugs. We don't know what we're doing, and so we need protection. So it basically was put a regulatory regime around municipal advisors. So municipal advisors were the only unregulated party participating in transactions. And so then we got the rule, the MA rule from the SEC that said, well, whether you're an MA or an underwriter is all going to be dependent on the content of the conversation with the issuer. We'll figure out how that's going to work. And we've sailed past that. I thought that would be more disruptive to the business than it actually was. Whenever you have a rule that issuers are figuring out what the workaround is, you probably didn't really get it right then. More to the point more currently was MCDC and an enforcement action by the SEC a perception that there was widespread non-compliance with 15 C two 12 and filing your continuing disclosure filings, the obligations on the underwriter to believe key representations and warranties in the offering document. These things aren't getting filed. That wasn't getting disclosed. And so the SEC came after both the underwriting community and the issuer community, and they said, well, if you voluntarily surrender, we'll go easy on you.

(26:44)

Which resulted in huge suck of time and resources of the industry over two years to do dumpster diving to try to figure out who was in compliance and technical compliance and all those issues. So we've been through all that over the past several years. We've got change in administrations. The SEC commissioners change, the complexion changes, half Democrats, half Republicans, and the chair is in the prevailing party. And so a lot changes over time depending on who's sitting in those seats. So peg, talk to me about your experience in the business, kind of on the compliance side and what you see and how things have changed and what you see going forward. Okay.

Peg Henry (27:39):

Well, a great deal has changed. Right before Dodd-Frank, I was working at UBS in the legal department, and my specialty was student loan auction rates securities. And I worked with all the disclosures that the industry had devised primarily through SIFMA. At a certain point, the Swiss decided that they had had enough of student loan auction rate securities. Citi and UBS together did about 65% of all the student loan auction rate securities in the country. And the Swiss decided to pull the plug. I was asked to stay around for a while just to help straighten out what was going to happen with all those student loan auction rate securities. But I got an offer to go to the MSRB, and I thought that that was a better career path for me. And right after I got there, I got there at the end of 2009, and in 2010, Dodd-Frank was enacted with the MA rule, and I'll let you in on a little secret.

(28:54)

When I went to the MSRB, I knew next to nothing about the MSRB rules, but I sort of bluffed my way through it and became the General Counsel for market Regulation. At one point when I was making my way up the ranks there, I got called into a meeting one day and they said, we want you to draft all the rules from municipal advisors. I said, oh, sure, I can do that. And so I worked on that project and then I had the wonderful experience of dealing with the SEC. I mean, I had worked at the SEC briefly in 2001, but we drafted all these rules. There were two extra board meetings that year just to get all the rulemaking done, including fiduciary duty and all that. And we submitted them all to the SEC, and they had yet to release that MA rule at that point. But we said, well, for sure that financial advisors or municipal advisors will write rules for them. They accused us of front running them and forced us to withdraw all those rules that I had worked so hard on for a period of over a year. So that was an interesting experience. So then I left and went to Jeffries, and that's when MCDC hit that Bruce, that Ben mentioned. That was an incredible waste of money.

(30:28)

I said to Leanne Gaunt at one point, she heads up uni enforcement at the SEC. I said, can't we just pay the $500,000 fine? Because spending so much money on lawyers to try and figure out lists of deals that we think we violated it on, that's like over a million dollars right there. How come we just, it's cheaper for us just to pay the fine. She said What? But, and needless to say, that's why I say it was a waste of money because you never knew that they were going to find everybody in sight. I think they find just about everybody in the business that became the forerunner, I think of a disturbing trend that has been followed for the last several years. So MCDC got finished up in 2015.

(31:24)

The SEC continues to regulate by enforcement, and they have this 1994 interpretive release that dealt with a lot of questions about anti-fraud. And every once in a while they'll say, oh, we're going to update that, but they never do. So instead of updating that guidance so people have some knowledge of what could be a problem and avoid it, they bring cases this past year and into the beginning of this year, they brought seven cases involving limited offerings. So these are the deals that get exempt from 15 C two 12 if they're sold to no more than 35 investors and the denominations are at least a hundred thousand, and they think that the investors have some investment intent, they're not going to just turn around and sell it to somebody who's not qualified to own it. So they've never really issued any guidance on that subject, nothing coming out of the office of Municipal Securities, and all of a sudden we have seven enforcement actions. Now you can have your own views as to whether those enforcement proceedings were justified or not. I think there's two sides to that story, but it's a disturbing trend, which I have just seen time and time again over the time since MCDC.

Ben Watkins (32:53):

Yeah, that's sort of a low point. Greg, you want you or Frank, want to chime in on?

Gregory Carey (33:00):

The interesting thing. I've only been deposed three times in my 40 year career, the worst experience of my life. But going back to yield burning, which was the big deal, the lack of talent of the SEC and the people questioning you and the lack of what they were enforcing, is that still the case? It just doesn't seem like there's talent or direct from an up top or understanding what actually the rules were.

Peg Henry (33:27):

Well, it depends on what part of the SEC you're talking to. I find that they're getting better, but SEC exam is getting better, but they still don't have the in depth knowledge that the people they're examining have. And then you got FINRA, same story. They are getting better, but they're not really incredibly sophisticated.

Ben Watkins (33:59):

So that's a low point. The downside, one sort of change, and I'd be interested in you all's perspective on it if it's had any impact at all, is under Chair Clayton. They did, and we had the Covid crisis. They did an outline. Basically it was a memo from the chairman that encouraged voluntary disclosure for the issuer community for them to be able to speak to the marketplace without having to worry about being sued and deposed and put in jail. I'm curious if that, and that was a fundamental sort of a change in how they had approached the marketplace before that was under Rebecca Olsson and now Dave Sanchez is the head of OMS. I'm curious whether you guys think that's a trend or a one-off or is it going to be a change in the approach of how they approach the marketplace?

Peg Henry (34:54):

Well, just from my perspective, obviously I've worked for a number of dealer firms, right? I think Sanchez doesn't like dealer firms.

Ben Watkins (35:05):

Okay. Well there you have it. Frank, you have a comment, Some thoughts on that?

Francis Fairman (35:12):

Well, I mean just maybe back up a little bit on the topic of regulation. I mean, I feel like over my career I've seen the benefits of regulation, but I've also seen some of the downsides of it. I mean, I go back to the very beginning of my career when I was barely making $30,000 a year and had to write a $250 check to the North Dakota Commissioner for his reelection campaign so that we could become a co-manager on a deal and watch somebody like EF Hutton or Bear Stearns or somebody make all the money. So I feel like things like taking the political contribution element out of this business was huge and is a great example of regulation that was needed. At the same time talking about MCDC I called 2014 the summer of pain where we dealt with all the MCDC work as well as implementing the new MA rules. And I guess I would say the SEC actions that Peg talked about that are kind of sort of enforcement or rulemaking with enforcement without good guidance and sort of just forcing people into settlements and the whole electronic communications thing, which isn't specific to our business, but which is gigantic and which has already resulted in 1.8 billion of fines. So be careful what you text on your cell phone.

(36:43)

That part of it really bothers me and concerns me. I would say as a regulator myself for the past five years, I do feel strongly about the importance of self-regulation in this business. And I do worry that it is in some places under attack from certain parts of Congress, potentially from certain people in the SEC. And I think it's really important for this industry to maintain self-regulation because I think we do it better under self-regulation, whatever flaws there might be in that than the alternative. So I don't know, those are my thought.

Howard Zucker (37:22):

I have just a couple of thoughts. One is it has amazed me how much the chairman's philosophy affects the work of the SEC. So when you had a woman who was head of FINRA come over, she was used to being a regulator when you had follow her, Mary Jo White who had been the US attorney for the Southern District of New York who was a prosecutor, you got MCDC and other things and prosecutors look at behavior in the past and then seek to punish it. Regulators look at behavior and look prospectively to try to change it. And I think that's a big deal that's often overlooked. A lot of people thought with Clayton leaving and Gensler coming in, Gensler didn't have the track record of focus on municipal bonds. They thought that it'd be a lot different or a lot less.

(38:23)

I think the jury is out on that with speaking of Dave Sanchez. Dave Sanchez has been around the business in different areas, different firms, but I always appreciated as I told them this at the SEC Municipal Disclosure Conference, I said, I'm going to miss you being in private practice. Because I always thought when you're in private practice, you are always very forthright and very critical of the SEC. But now that you're at the SEC, I don't expect that to continue. And one thing I always thought is I never needed coffee at a conference when I'm listening to Sanchez or Ben Watkins, and sometimes they were on the same panel, so I'm going to miss that. But what Sanchez told me, he said, I'm really going to try. He's really going to try very hard to get out useful guidance for our industry. And I took it as being very sincere. The proof is in the pudding. So we'll see.

Lois Scott. (39:42):

Ben, can I jump in on this topic? Because I think one of the points that if the SEC were sitting here, I'd go nuts on, is they never contemplate the impact of their policies on the smaller firms and the regulatory compliance. Greg, how many people you in compliance?

Gregory Carey (39:58):

More than we have in banking.

Lois Scott. (40:00):

So now think about that. Think about the cost of that. They don't get bonuses. My guess would be, but they're still pretty wealthy. 

Gregory Carey (40:08):

We Call them the federation.

Lois Scott. (40:10):

Yes, But for small firms, I ran a small firm. Jim's was a small firm at one time, no longer. But the compliance burden that's placed on the small firm is really of concern. It's anti-competitive. One of my favorite books ever. And if you ever have the chance to listen to a man named Dr. Jeffrey West out of the Santa Fe Institute, he wrote a book called Scale and that every force in life, whether it is cancer cells or corporate development or anything, and he's now focusing on governments extensively scale is the one force stronger than any other force in the planet including gravity. And if we take that thought of scale, we're already moving towards scale. Now you're trying to be an upstart firm, you're trying to have innovative ideas. God bless the fass that remain out there, Diana, others, it's very, very difficult. The compliance burden really crowds out the little guys and the firms that are trying to innovate. And I think the SEC should be held to account on that.

Peg Henry (41:02):

Lois, I mean what they've got going on now with one minute trade reporting. I mean, It's crazy. It's small firms. How are they going to do one minute trade reporting? And there's talk about some exception or whatever for that, but it's hard to see how they're going to be able to comply with that.

Ben Watkins (41:24):

So quick comments on that was kind of a downer, but we started with the bad stuff first. We're going to get to the good stuff at the end, but we had to get that out of the way.

(41:40)

We all have to struggle with that. And whether it's the dealer community, the legal community, we all struggle with impact on the SEC has on the business and what is misdirected. Sometimes it can be constructive that they can do an awful lot of damage, create an awful lot of friction with what they intend to do. That's good. But just not understanding the business. I mean, everything about our business is idiosyncratic, so it's really hard to create a general rule in DC that's going to apply to everybody and actually do something efficiently and effectively. I'll just say that. So FDTA Financial Transparency Disclosure Act got passed. It got added on to the National Defense reauthorization. Creo, a Republican in Idaho Warner, a democrat in Virginia, Virginia sponsored it zero input from the industry. No clue about what it is or how it's going to impact is now law and going to be implemented about how to digitize disclosure and make everything searchable and create uniformity of data across the entire municipal spectrum on all filings that go to the SEC. Anybody have any thoughts on whether that's good, bad advantages, disadvantages, cost burdens got a couple of years to do it?

Francis Fairman (43:08):

Well, I'd be happy to comment, but I would say I'm not crazy about FDTA at the same time, I think they're going to find it really hard to implement, mean there's a time schedule set supposedly for the implementation, but just trying to figure out even what the taxonomy is when you look at, as you commented, all these diverse types of entities with different types of financial statements to try to basically create digital records that are machine readable seems to me almost an impossible task. I think they're going to get really bogged down in the implementation, but I would say to the extent that they push that forward, I mean, I've got a couple of concerns. I mean one just for the underwriting community, I just am concerned that we're going to get caught in the middle between issuers who are required to submit financials in electronic or machine readable format. And so I think that's going to be awkward.

(44:13)

I think it's not a great thing for the issuers who are forced into this. I mean certainly larger issuers and some who will do this already, but I guess I'm worried that it will actually drive smaller issuers out of the marketplace that I think you've got smaller issuers already who struggle with continuing disclosure and worrying about that. And I think if you're forcing machine readable financial statements on them and we don't yet really know what the cost or complexity is, I mean at some point in time that'll become easier and cheaper. But I just would hate to see this all pushed forward ahead of the reality of when it's really all workable.

Ben Watkins (44:52):

Right.

Lois Scott. (44:54):

I agree with that. Actually, the one thing I would add is that I think governments can make things machine readable. We have to create financials. That's what governments do. They have the files. The question is what do they do? What do the people do with the data once they get it? Can you compare the city of Chicago to New York City on a financial basis on any topic? You really can't. So you have the data out there and presumably that data leads to data analytics and Harvey's going to like it and Rich is going to like it, and you're going to be able to suck more data out and analyze it. But you've got to have that judgment about what you do with the data you have. And I think that the data's going to fall into analytic hands that don't understand how the municipal bond world works or how governments work.

Ben Watkins (45:32):

Right. Well, I'm in Frank's camp and I hope it collapses of its own weight. And I think when they come to realize what they're up against and trying to implement it, that ultimately will happen. Not that I'm anti disclosure all about disclosure more and better and all of that, but the form in which this is taken, I think that's going to be very difficult. Why don't we move off the regulatory front? Howard, you want to talk a bit about anything you see legislatively going on in Washington now that we should be aware of in the Muni space?

Howard Zucker (46:12):

Well, what I do want to talk about along those lines is about three weeks ago in the Bon Buyer, there was an article entitled An Alarm Sounds Over, the Tax Exemption was published. And when I used to regularly chair bond buyer conferences, I always would mention the bond buyer article from April 30th, 1938 entitled Roosevelt Urges Ban on Tax Exempt Bonds. So the recent article, without minimizing the attacks on the tax exemption, the recent article reminds me of the story of the patient who goes to a doctor and the doctor says, your test results came back, there's good news and there's bad news. Which do you want first? So the patient goes, well, give me the bad news. And the doctor says, the test results said you had one day to live. So you, after a pause, the patient says, what can possibly be the good news? And the doctor says The test results came back two days ago.

(47:31)

So I would just note a few things. First, 2013 was the hundredth anniversary of the first internal revenue code after the 16th Amendment allowing simplistically income taxes, national income taxes. That first code had an exemption from taxation for municipal bonds in one form or another that has been in every code since 1913, various degrees. So that exemption has always been, at least in my memory, and I go back as I say, 46 years constantly under attack. And there are always politicians with all due respect to both parties who sometimes do not know what they're talking about. Imagine that. And so for example, in 2017 after the chairman of the Ways Means committee constantly went to conferences and says He is not looking to deal with private activity bonds, including two days before in the chairman's mark, he proposed doing away with private activity bonds and interesting.

(48:54)

And that passed the Ways and Means Committee and it passed the House of Representatives. People don't seem to remember apparently in my discussions with people lately that it was Orrin Hatch who saved private activity bonds in the Senate as chairman of the Senate Finance Committee and Orrin Hatch had in my whole life of knowing about Orrin Hatcher started with the Oman Act in 1979, who's always a supporter of bonds, those people. And so that provision never got enacted, but it came very close six years later. I don't know who the Orrin hatches are around now. And my concern is they may not be around if the composition of the Senate changes and the composition of the house. And this is not a partisan thing, it's our industry. And so in 2009 era, the American Recovery and something Act enacted as a provision, a bans build America bonds, which were taxable bonds with a federal subsidy so we can all debate what the proper subsidy level was, but lost in the debate over Babs type subsidies.

(50:32)

The notion is the fact that Babs were an enormous success. The amount of Babs issued was staggering. And why is that important? Because the municipal bond market is like 3.7 trillion of outstanding debt. The taxable securities market debt securities market is well over 30 billion. The market is much broader and there's much more opportunities for issuers, American issuers to sell bonds to raise capital. And I think because some people in Congress didn't understand that how successful it was not only benefited issuers who issued BABs, but it also took pressure off issuers who had to compete with issuers in the tax exempt market by taking many big issuers to an extent, taking them out of the municipal market. And I really think that would be great if something like that were reenacted as occasionally bill's introduced to have some type of BABs light reenacted. And I hope someday that happens. I don't know if it'll happen in the remainder of my career, but I hope it happens. I think it'd be really valuable for the municipal issuers.

Gregory Carey (51:59):

It really going through that. And we kind of, the leader spent a lot of time on the BABs and then sequestration came in and can you really trust it again? And people who had that ability. But if you think about municipal credits are much higher. Look about the corporate market versus the municipal market. The average municipal rating is what A plus or a it's in the high strong, and the average corporate rating is probably in the Triple B type of credit, the duration. But this market is a piece or famine market. You get outflows of the 25 big firms and all of a sudden the street gets full and the market throws up and you have this gapping, we had this, it happened again this year. And having that outlet and taking a look at what that.

(52:48)

Should it be 25%, not 28%, should it be 33%. This is a market that ultimately it's going to have to happen. It is the last tax exemption that's going on. What is the real drain on the treasury? And for order to get to this, this is an infrastructure panel. How the hell are we going to pay for all this infrastructure that has to be done with the vehicle if we start having outflows, if people start the losses that people have, they bought fixed income securities two or three years ago, markets have short memories, but it's going to be slow to come back in the inflows. And if we start having huge supply, the market just can't handle it. We have the same thing in Europe. Europe is a much thinner market. It's a shorter duration market. And when there's outflows in Europe, there is nowhere to go. At least the crossover funds and stuff will come in here. There's nowhere there. And that's the instability of these markets. And having to have them function is very, very important in getting back to the lack of talent at the SEC. People have to understand that when we have a crisis, politicians only do something when there is a crisis at the edge. They don't do something proactively because they see the crisis that could happen.

Ben Watkins (54:02):

Right? Well, that's the reality of politics and especially when it comes to DC and the partisan divide now and the inability to get anything effectively done makes it very difficult. Why don't we follow on to that? And Jim, I'm interested in your and Frank and Greg's thoughts on, so we've seen a precipitous rise in interest rates 22 volumes down. Greg alluded to something that I've wanted to talk about and we've got on here, and that is volatility in our marketplaces, sources of liquidity, stability in our marketplace. What do you see going forward in terms of the impact on the market in terms of changes in monetary policy and increases in interest rate? How is that going to affect our business?

Jim (54:55):

Well, Ben, this is a topic that I focus on probably more than many folks, and that is what's really happening in the market with interest rates. What's interesting is Greg touched on something that the taxable market is about 10 times bigger than the Muni market. And we spend, now, I spend a good chunk of my time in the taxable marketplace in the corporate equity markets as well as Munis. But there's a few things that does come to mind in Munis with volume. I've always felt that there's always a clearing price for Muni bonds because there always is. You may not like it, you may not like the ratios, but there's never a time in the marketplace where you run out of Muni buyers. You just don't. The ratios collapse relative to treasuries, relative to taxable, and then when that does, there's an automatic mechanism that the taxable buyers start buying tax exempts because they're right about a hundred percent of taxable's. So it really does organize itself. And I've traded Muni markets where they were 101% and 102% of taxable rates, and the taxable buyers just came out and bought them like crazy, and then when it reversed, they made a lot of money. When you look at kind of going forward every other week, there's a discussion I saw Good let came out today that said the bond king, the new bond king, that we're definitely going to have a recession next year.

(56:30)

And I've seen Goldman Sachs again come out and say, the odds of a recession are extremely low. They're lowering the odds of hitting recession. I personally don't think we're going to have one. If we do, it's very mild. I think the consensus is we're right around the high end of rates and they'll start to come down. But even if they don't, and let's just say we stay here for a little bit longer and we've seen volume already impacted, I don't expect that it would be catastrophic for the municipal bond market. Certainly it's going to be a little bit more expensive to do your projects, but the bonds will be issued, prices are clear. There's one part of the market that I know we've been doing a lot of with the raise in interest rates. It's taken a lot of refunding's off the table. You just can't refund.

(57:25)

And so low and behold, we create tenders so you can go after those low coupon bonds that you really can't refund with a tender and do new bonds, and you're back in the market again. And so as we look at the marketplace, you're going to adjust, the market's always going to adjust. The volume's going to go up and down. One of the challenges that I see candidly in Munis, particularly during the other markets, when you have only done Munis like I did the first 15 years of my career, now I'm in the other markets. It's really the spreads that I think are really most dangerous to the Muni market, the takedowns, your area of expertise. Ben?

Ben Watkins (58:12):

I'm ready. I'm ready to pile on when you're ready.

Jim (58:13):

Let's go. Okay, let's start talking about some real stuff now. I mean, when you do the other markets, what's incredibly interesting, and Greg and I were talking about this earlier, the spread is the spread inequities. It's 5%. If you go to Goldman and say, I'm leaving Goldman, 7%, seven on smaller deals, seven on smaller deals, five. And I think arm's going to come at 1.8, but it's how many billion, 10 billion or whatever. I think the big thing is, and one of the things that really keeps a lot of young people from coming into our market, and when you're in the other markets, you see 30 something year old on the desk, 20 something year old on the desk and all these departments is really what happens to our spread and why it is that the word gets out to young people.

(59:08)

Don't go into that business. Nobody in no firm in bonds underwrites bonds for a dollar or for 50 cents except public finance bankers and no one will undercut as to what Greg and Greg, I'm going to flip it over to you. I know we're sort of singing the same from the same playbook in corporates and in equities, and you can't go from Goldman Sachs to JP Morgan to Bamal to city and get a better price. They're all going to be the same. And I think that's one of the things that Ben, being an issuer, I don't expect you to bring it up, but it's one of the things that we have to kind of come to grips with in a business that when you look out and you look at across the landscape, public finance bankers work longer in their career than corporate bankers. These guys are done at 50.

(01:00:09)

 you're an M and A banker, you stick around longer and because you've got good clients. But I think one of the things we have to look at, Greg, and I'm going to flip it over to you doing global stuff, you can compare it just like I do, is how we kind of get back to the point where you really get compensated for the work you do. If I'm a young guy coming out of Columbia, Northwestern, USA, and I want to go to a business where I can really refine my craft, am I going to go be a corporate banker, an m and a banker or public finance banker? And so those are some of the things that I spend about. Now, I am also chairman of the board of SIFMA. So as we kind of go through, I can tell you this. At SIFMA, we're suing, we just sued Missouri for their stance on ESG policies, on securities that you do. Probably going to be doing some things in Texas, Louisiana, a few other states. When you look at the regulation with Gary Gensler, what he's done at the SEC to the other markets, they don't even be Munis up. And so that area of the environment of being regulated is much tighter.

Gregory Carey (01:01:39):

First of all, public finance, having trained in a lot of my old colleagues, we got trained very, very well. We understand credit, the work development being a public finance banker, the credit, the training, the establishment of the credit versus the people on the corporate side, really just selling into different products, first of all. So people do work harder. We learn the business of credit much better in transactions. But this commoditization, the municipal market has been commoditized. It's 80% of the market is commoditized, whether it's a dollar or $2, which means the street's not underwriting anything. If they are, you lose money on a deal. It's called a negotiated sale, not a competitive sale. You get a negotiated sale, you're negotiated to make sure you don't lose money. I learned that from Bob Wagner in 1984. It's called negotiated, but the issue is the street gets full.

(01:02:35)

There's nothing behind it. If you're doing a corporate underwriting, there are no underwriting. You basically sold to the marketplace. That's what it's distributed out. There's a market. So with a thin buying base, and again, you're going to pay one way or another, this thing backs up. The spreads are going to widen, somebody else is going to come up, but you're going to pay a lot more. And if you had pay it a couple more bucks on an underwriting said credit cycles are actually healthy as you go through this because people realize that sometimes it's not free. It's good market. You could sell anything. A bad market sometimes 10 years ago, we gapped a hundred basis points in three days where treasuries gap 20 just because all of a sudden outflows and happening. So this commoditization of the marketplace is a difficult thing going forward. What's happening in Texas and a few other places where people can't underwrite? Well, at some point you're going to need that balance sheet or that distribution, and that cycle is what is going on right now, whether it's ESG or something else is not a healthy thing for the market, the investors, but it's getting back to spreads. The market will pay for it one way or another. And if you're not going to pay in a discount and you're going to pay it in rate and rate rate, you pay every year price upfront, you pay once.

Jim (01:03:51):

Yeah, I would just say with Greg, having always been on the underwriting side or the sales side, it feels real good when you priced your deal and paid your underwriter $1. You can measure that. You can go back to your firm and you can go back to your boss and say, we paid those underwriters $1. What you don't know is if you sold that deal 10 basis points too cheap, and if you had paid that underwriting firm fairly, they may have been able to hold that price and underwrite some bonds with more incentive behind it. And so when I'm running my panel at the, we're going to, this is one thing that has to be.

Gregory Carey (01:04:40):

Do you want to stand over there?

Jim (01:04:41):

No. This Is one of the topics that I think in the Bond community, we actually need to talk about. One other one, Ben, that, and I know I'm not the moderator here, but G37. I've often wondered about G37. Why is it, and I, I'm kind of shocked it hasn't been constitutionally challenged yet. 

Lois Scott. (01:05:06):

It hasn't.

Gregory Carey (01:05:08):

Right at the beginning.

Jim (01:05:11):

But if you stop, think about it. Lawyers that do Bond deals can write checks. Construction companies that build the stuff as a result of the Bond deal can write checks. Public finance folks can't write a check to a candidate that you support for whatever the reason above 250 if you can vote for. And it just feels bizarre to me that also that does not continue to be an issue around your freedom of speech. Your freedom, you're right to support who you want to support because of the fact, there's a suspicion that if you give money to this politician that they collect, I don't know, let's call it $10 million and you give a thousand bucks, you're going to get a award to Bond deal.

Ben Watkins (01:06:03):

Well, so we are where we are. I would argue the other side of all of these things, obviously we knew that I'm being nice to today.

Gregory Carey (01:06:14):

Wait a second. Thank God for the 11. It saved me 30 grand writing checks and for a dollar, I ain't that.

Lois Scott. (01:06:21):

I was going to say, By a show of hand, who wants to write more political checks?

Ben Watkins (01:06:25):

The pay to play train is sale a long time ago. Can't do it. In our business, we have a higher standard on the public side than they do on the corporate side, just the way it is. I don't set any underwriter's compensation by the way. I let the market set it. So hey, if somebody wants to pay up for my bonds, so be it. So I got the best of both worlds. These guys make me look good and I don't do anything but put it out to the bid.

Jim (01:07:03):

We're going to call for a strike on underwriting Florida bonds. I think.

Gregory Carey (01:07:07):

I haven't been to Tallahassee in a while.

Ben Watkins (01:07:10):

I know I'm like the Maytag repair man. Nobody comes to see me. No free lunches. No free drinks. Just lots of good friends.

Howard Zucker (01:07:18):

So if I could just tell quickly a story of how I met Ben. In 1994, I became head of a task force of Naville dealing with pay to play and there's an article in the Wall Street Journal and that morning in my office, my secretary tells me there's a Ben Watkins on the phone. Do you know a Ben Watkins? And I said, I don't think so. I said, who is he? So I said, he's from the Florida Bond Commission. I said, okay, be happy to speak to him. So Ben gets on and he said, I'm Ben Watkins, I'm head of the Florida Bond Commission and I know you're going to get, and I'm just quoting Ben, a lot of shit over this. But you're doing God's work.

Ben Watkins (01:08:07):

Yeah, the business has been better for it. I'll just say that. Why don't we talk about ESG for a minute because that's the issue. De jour, just by way of background, everybody knows what it is. My point of view on it is it's been an evolution in terms of ESG. The rating agencies got into business first in terms of my understanding of what it is and how it works. And then that evolved into and got conflated with thematic investing or impact investing. So we were talking past each other, we don't know what ESG means. What is it? Is it credit work or is it a marketing tool? Which is it? And so everybody's talking past each other on all of that. And then we've gotten into legislation really on the investment management side. It's an anti wokeness that the power wielded by investors and investing money is used inappropriately when it's based on anything other than fiduciary factors. So we've had legislation including Florida about what it is and what it isn't. So I'm curious what you guys see. Think about what does it mean for you? Is it good or bad for the marketplace? Is it something more than simply a political statement?

(01:09:46)

And how is this going to evolve going forward, Peg?

Peg Henry (01:09:51):

I promise not to have this be a downer. Remark. We moved off of the SEC.

Francis Fairman (01:09:55):

I thought you left the panel.

Peg Henry (01:10:03):

From my perspective, I look at several different angles. First of all, our underwriters tell us that you don't really gain any pricing advantage by calling something green or social or whatever. One thing I look at is disclosure. Okay? So we're doing a deal where the underwriter and the issuer wants to call their bond a social bond. And usually the issuers we deal with are self certifying. So we are careful to put some language in our offering document that says you, the investors should look at the description of the use of the proceeds that's described in the official statement. And you need to make your own judgment as to whether it satisfies your criteria for what's a social bond. We don't make any representations as far as whether it does or doesn't. Same with green and all that. So that's one avenue that I look at it from. I spend a lot of time dealing with all this anti boycott, this boycott legislation, and my deepest fear is that California's going to pass something and it's going to be the exact.

Jim (01:11:17):

We're issued for purposes that these investors supported. I think as we've gotten more information on the difficulties in certifying an ESG bond and continuing to have it certified all the way through maturity, it's created issues about the actual use of the proceeds. But I think there's a much bigger issue on ESG that's been a little bit perplexing to me having sold a lot of ESG bonds or bonds stated to be ESG, seeing the purpose of the issuance being really good purposes. The thing that surprised me though is why it's become a political thing. I can't explain why Texas, Missouri, Florida, and some of these other states hate them and blue states are just fine. Just that. And then maybe you can comment on that just the way it's is come down on political lines. In terms of ESG, it actually is, it's almost like a political platform.

(01:12:36)

I mean, what we had to do at SIFMA Sue the state of Missouri to just stop them from doing what they were doing, punitively on underwriters and investors is just bizarre. And when you talk about government activity and government engagement, it's government engagement on the state and local levels. And those are the things that have puzzled me. As in asset class, I think we certainly could have and should have created more guardrails around how you use the proceeds. I'm also chairman of the board of the Chicago Community Trust, one of the largest trust organizations in the country. And we had a lot of our donors that said they wanted their DAFs donor-advised funds a certain part invested in ESG bonds for certain purposes. And we looked to find those and we saw some funds BlackRock as sort of the poster child, especially down in Texas for this, that actually was responding to investor interest in investing in securities that had a social focus. And there was nothing wrong with that as long as that's what it was. But the politicization of that has just been something that it's just been bizarre and the way it's come down on red and blue states.

Ben Watkins (01:14:05):

Well, so from a policy perspective, The notion is decisions should be made on fiduciary factors only. So the question becomes is it okay to call something when you don't really know that's what it is? In other words, just using ESG to gather assets.

Jim (01:14:31):

But that's not what it was.

Ben Watkins (01:14:32):

Without what it was without any criteria behind it.

Jim (01:14:33):

But that's not what it was. If it was a certified ESG bond, that's what the purpose Was.

Ben Watkins (01:14:39):

So are label bonds okay? Or is there need to be something behind it and should there be some regulation written about how it's used in our marketplace?

Francis Fairman (01:14:52):

Well, I mean I think it's become a complex topic. I mean, I don't view ESG as good or bad. I try to take as neutralist stance as we can. We haven't been banned in any state yet. So that's why I'm trying to keep that record intact. But I guess I look at it as just, there's still so much confusion over what ESG is, and you could look at probably the majority of the municipal market and say it meets some ESG criteria because what we do for the most part is there's things that sort of benefit society in one way or the other.

(01:15:31)

I think that's what creates the confusion. Then the political side, unfortunately, I think it gets caught up around energy and energy policy and green energy versus oil. And so it just gets very politicized. But I don't know, it's not going away. I mean, clearly the idea to me of investors if they want to say, Hey, we want to invest in certain things that we feel good about or feel like serve certain purposes. But I think it's really hard to create a system that sort of categorizes, qualifies all these things in ways because I think different investors, different people think about it so differently that I think it's hard to have a single system to rate these bonds. I think some point it just gets down to being able to explain this is what this project is doing, these are the details of what we're financing, and at some point letting investors pick and choose. And I feel like until there's a rate advantage, it still is kind of a little bit.

Jim (01:16:33):

No, lemme just make one point now set up.

Francis Fairman (01:16:37):

Yeah, right.

Jim (01:16:38):

I think of all the people, that wasn't you Greg was it? But let me, I think it should be the investor that made the decision on where they wanted to put their money. If the city of Chicago issued a hundred million bonds to fight gang violence, to employ underprivileged youth and all the going to go to that, I'd take 50 basis points less in yield. And you know what I think a whole lot of people would, and I don't think we need a politician to say, see Chicago, you can't issue that debt even though the investors would, would accept a lower rate of interest because they believe in that purpose and that's what it was.

Gregory Carey (01:17:31):

It gets back to fiduciary. But you've made your determination on the guidelines that you're investing. That's correct. I pay my ConEd bill in New York and I pay extra money to get clean energy. I pay extra money on my bill. It's a decision I made. So it's the decision of the investor to saying, all right, I'm going to take for social things. I'll let it all my life company investors that I do in private placements are demanding that my projects have ESG because they have guidelines inside whether it's going to extend someone's life, who knows? But that's what exactly they're doing. So it's in that fiduciary with the rules of, Hey, I need to have this in the guidelines. I want have 20% ESG. So it fits into the fiduciary responsibility, not just getting the best rate. We go to the divestiture issues. You can't go in South Africa and 84 or the oil company. It's the same thing. The universities or whoever determined what is my guidelines for investing?

Ben Watkins (01:18:31):

So there is no, at least with respect to how the issue's been handled in the state of Florida, there's no prohibition about anybody investing in ESG. Let's be clear about that. It is the investor's decision about what it is they buy based on their diligence and their objectives. It's their money. They decide what is prohibited. Is labeling something that it may not be? And it is a much bigger issue that has been politicized and brought to infected in our market, but it is a much bigger decision on the pension side and the investment management side, that's where the issue resided. We are just the collateral damage in the Muni space in terms of the politicization of the issue. And so now we got to figure out how do we deal with this? Is this a regulatory solution? Do we let investors make decisions on their own? Do we label bonds? Do we require certification? Third party verifications isn't an expanded use of how we're using the proceeds, let the investors make their decision. There's no doubt that the whole of the municipal market, in my judgment, it's public infrastructure, it all qualifies for the social good. I don't think there should be any debate about that. But unfortunately that the political debate, the politicization of the issue has been thrust on us in the Muni space based on what's going on, the investment management world.

Lois Scott. (01:20:08):

There is one whole other.

Peg Henry (01:20:10):

There is a pending SEC tool called the naming rule. And if that goes through, it would say that let's say you call a self a green bond, right? 80 or a fund, green fund, 85% of what you have is investments, and that fund would have to qualify as green. So there is that pending. It's been pending for a while.

Ben Watkins (01:20:37):

Some movement in the space on the corporate side that basically says if you're going to represent something, there's got to be something under the hood to support it. And that seems fair and reasonable. I agree with that to everyone so that we have an honest trade and an honest marketplace. And in terms of going forward.

Lois Scott. (01:21:03):

There's one more dimension on ESG. I think that bears discussion. It's not just the marketing and the sale of the bonds, but it's about the disclosure of the risks involved in that municipal credit. Yes, thank you. And I think we got way off track in terms of assigning separate ratings on ESG as opposed to just recognizing that ESG, if I'm going to buy a bond in Miami, I sure as heck want to know what the plan is on the environmental right? Or if I'm going to buy bonds in other parts of the country that have different risks, there's a disclosure and ESG overlay that has to go into the risk discussion. And I'm not sure that Munis, which kind of say it's a go whatever, we don't really have a risk discussion the way corporate bonds are done, but I think that the risk really has to be incorporated into the credit analysis for the benefit of the investors.

Ben Watkins (01:21:44):

Yeah. Thank you Lois. I was having, I had a brown out exactly. The point I wanted to make is it really is a risk-based disclosure issue. And I'm sorry that it's gotten way off course in our industry and politicize, GFOA has done a good job doing best practices. It's all about evaluating risk. Nora Witt struck, my counterpart was in charge of it at S and P. And it's all about risk-based disclosure should be all about risk-based disclosure and it can be used very constructively in our marketplace.

Peg Henry (01:22:22):

And each of the rating agencies has a report that they put out directed at the municipal market where they describe the various risks and then in their rating report, they list the relevant ones as far as that particular credit. And it seems that if they're going to list it in a public report, a lot of thought has to go into, shouldn't that be in the OS?

Ben Watkins (01:22:46):

Right. Well, I'm going to, we've gone over time. I'm sorry I could stand up here all night to talk to these guys, but we're the only thing between you guys and a cocktail. So please join me in thanking these esteemed members who've made tremendous contribution.