Embracing Change: Traditional Finance Meets the Digital Economy

Following the significant January 11th decision by the SEC to permit spot Bitcoin ETFs trading our panel of esteemed experts—Zoe Cruz, Lex Sokolin, and Andrew Hohns—dive deep into the implications of this newfound accessibility in crypto investing.

They shed light on why the younger generations, Gen Z and millennials, are pivotal to the future of the crypto space, delve into both traditional and innovative use cases for this transformative technology, and explore how DeFi meets essential financial needs within blockchain networks. Moderated by Bancorp and Cohen Circle Co-Founder Daniel Cohen.

Below are some highlights from the webinar, followed by the replay and a full transcript.


On the SEC decision to allow spot Bitcoin ETFs

This is really just the beginning of a whole new segment of capital markets gaining easy access to Bitcoin and driving additional demand for what is already the scarcest and most truly finite fungible asset in the world. - Andrew Hohns, Newmarket Capital

You don't just want to hold those assets and make them special for yourself because of capital gains. You want to use those assets and participate in the various software, decentralized finance, NFTs, decentralized physical infrastructure, all the stuff that's been built on that computational financial architecture of blockchains. I'm really excited to get rid of this feeling of riskiness and illicitness that has, has unfortunately stayed with the industry and just make it yet another regular thing that people are exposed. - Lex Sokolin, Generative Ventures

On use cases in crypto

The idea of a community having the ability to make decisions in a decentralized autonomous organization, those are uses that I'm really excited for. - Daniel Cohen, Cohen Circle

The future is bigger and bigger communities, creating an ecosystem...decentralized finance, within that ecosystem, nation states will allow you to grow exponentially, and you could have the banking functions within that ecosystem. - Zoe Cruz, Menai Financial

Refugees, political dissidents and abused women are holding on to Bitcoin and saving in a way that gives them personal freedom. People are not really counting on Avalanche or Cardano to provide them with that personal freedom when they're crossing the border trying to escape circumstances that are very difficult. - Andrew Hohns

On investing in the digital asset space

Zero allocation to this space is the wrong answer. More than three to 5% is also the wrong answer. Because this is nascent, some of these tokens will cease to exist, some of these projects will fail dramatically. But the way I look at it as an asset allocator, in my own family office, you make money by taking risks. That's how I made my career, but you need to get paid for the risk. - Zoe Cruz

For the Web3 world and the crypto world, it's an economic architecture, which has its own financial system. And that's going to exist and it already does exist alongside the traditional financial system. But it just so happens that it is the place where the growth is going to root. It's the interesting place to build. It's the unexplored frontier and people are moving into it both with their capital and career decisions. And so, I think if I can leave people with anything is just to be curious and to explore it as seriously as you can. - Lex Sokolin


Full Webinar Replay: Embracing Change - Traditional Finance Meets the Digital Economy

Full Transcript

The below transcript has been edited for clarity.

Daniel Cohen  00:00

Good morning. Thanks for everybody who is joining us. We're very excited about our panel for two reasons. We're fascinated by what's going on in digital assets, and we're excited to talk about it as potentially we're coming out of this crypto winter, given that the SEC has approved spot Bitcoin ETFs. And it's made it easier for investors to safely participate in the space.

With this regulatory change, is that a major shift? And what do you guys talk about the value of future digital assets?

Andrew Hohns  05:26

I think that yesterday was definitely a watershed moment for the digital asset industry to begin seeing so many major and established participants offer spot Bitcoin ETFs. We saw tremendous inflows. It was the third largest first day begin for Blackrock in its history of ETFs, which have been at this point 576 of them. And this is really just the beginning of a whole new segment of capital markets gaining easy access to Bitcoin and driving additional demand for what is already the scarcest and most truly finite fungible asset in the world.

The interesting aspect of yesterday was how Vanguard prevented its clients from trading in the ETFs, and the trending posts on Twitter to boycott Vanguard, and so many people saying they're moving their accounts. It just reminds us that even these products are heavily permissioned. And it's interesting to take a permissionless asset like Bitcoin, where you can move it 24 hours a day, seven days a week, anywhere around the world whenever you'd like to another address and put it into a structure that is only trading during market hours. And where intermediaries can turn on or off the spigot. So, you have to be aware of exactly what you're buying, of course, that it pertains to every investment. But here we saw that in real time developing yesterday.

Daniel Cohen  07:20

It is a little bit weird that you have a whole bunch of people who theoretically are DeFi focused cheering on a minor change in the regulations with the SEC and allowing people like BlackRock and Vanguard to dominate the discussion. What are your feelings about the announcement, Zoe?

Zoe Cruz  07:43

It is a watershed event, but only in the sense that the SEC, which is the most important regulator in the world, finally acquiesced. The fact that 42 countries around the world are creating a framework of legislation and regulatory oversight, and 20 of them have already done it. The fact that yesterday Gensler acquiesced is a very important event, because the SEC is important. And I think it shows that the industry has achieved escape velocity. And it's early days. Ultimately, it's one more way to express your interest in buying Bitcoin. The centralized, the oligopolistic, if you will, the current finance financiers, they will try to dominate this place. As Andrew said, the question is, how do you take a decentralized permissionless instrument and have 3 or 4 oligopolists kind of determine how it works? I think it will be a centralized finance and decentralized finance coexisting for a long time to come.

Daniel Cohen  09:42

If you look at ETFs, it's gonna be an interesting experience because ETFs are based upon permissions market makers going in and buying the ‘basket’, which is only one thing, which is spot Bitcoin. And buying in the redemption requests of these people who can sell their shares back to the ETF or just sell to other people if the markets are there. This adds a new level of arbitrage in what's traditionally been considered a relatively opaque asset class.

Now we're entering a new environment where this is the first step to opening up. Is the SEC more receptive to digital currencies?

Lek Sokolin  11:51

I think the approval of the ETF is removing an enormous damage that has been done to the American consumer for probably half a decade. We had bad products in the market for a long time, which caused financial destruction. And that was, in many ways people trying to get the product out and not being able to structure it correctly. And so this is way overdue.

Crypto is in large part around financial manufacturing. So being able to make the financial product. Digital gold is the simplest thing you can make. You get to own it, and to send it to people and talk about its correlation. The next question is, what else is out there? You don't just want to hold those assets and make them special for yourself because of capital gains. You want to use those assets and participate in the various software, decentralized finance, NFTs, decentralized physical infrastructure, all the stuff that's been built on that computational financial architecture of blockchains.

I'm really excited to get rid of this feeling of riskiness and illicitness that has, has unfortunately stayed with the industry and just make it yet another regular thing that people are exposed.

The final point is that you've got both the virtual cycle up and down in crypto. So, when Bitcoin does well, the capital gains get reinvested into other projects and other frontier projects, and then those do well. And then you end up having the luxury markets of digital art and things like that booming. And of course, you have the collapse of those when you're deleveraging, and things go poorly. I'm excited for a new cycle, a new year, and a very different atmosphere for the longer tail of projects that come off of the Bitcoin gains.

Daniel Cohen  16:12

Zoe, let's focus on Solana and why you thought Solana was a great new case use case for traditional investors.

Zoe Cruz 17:00

It's a great question you're asking. Before I answer it, the younger generation, in terms of this industry cannot continue to thrive, if it doesn't basically get the approval of politicians and of regulators around the globe. I saw a survey that the majority of millennials in this country and Gen Z, they basically will support pro crypto candidates. And as you know, the way the world works is follow the money. So as that generation becomes more and more active, I think you only have positive tailwinds as opposed to headwinds in the industry.

As you know, Solana was caught up in FTX. It was one of the big positions. It was up 1,000% in the last 12 months, it was down a lot the year before. But we look at the trajectory to put things in the portfolio. Are they real? What Lex was alluding to in terms of Bitcoin is the leader in digital gold or a store of value, and it's making huge inroads to being part and parcel of a portfolio. And Andrew does second and third derivatives of that asset class. But ultimately, there is this other universe that you write software that points to a particular use case where the design of Bitcoin is not particularly conducive to micro payments. If I want to buy something from a basket weaver in Nigeria, Bitcoin is not necessarily what I would use. So, each coin is designed for a particular use case.

Daniel Cohen  20:18

How do you see the development going forward? How does DeFi develop out of this? And what are the new currencies that have to be developed? Or are the existing currencies going to be the ones that people use?

Lek Sokolin  20:46

It’s a space that's been around now for quite a bit of time, and has developed all of this lingo and terminology about what it is. So, it's often a very steep learning curve. And people use these magic words, and it's easy to lose people. But if you think about financial services, it is full of acronyms as well. I'll try to give a couple of analogies which will hopefully spark curiosity for people to engage further on it. You know, the simplest explanation of why millennials and Gen Z are interested in in crypto candidates and supporting it politically. It's money on the internet. All your other money, it's not for the internet.

The second order of explanation is Bitcoins invented digital scarcity, the scarcity of digital goods. In the physical world, we have physical scarcity. If I give you a cup of coffee, I don't have the cup of coffee, thanks to the laws of physics.  If I send you a picture of a cup of coffee via email, you will have that picture and I will have that picture as well. So, there's no scarcity of digital goods. If I send you my digital Bitcoin, you have it and I don't. So that's the first invention. The second invention is not just sending some sort of container or object back and forth. It is building software environments in which these things can be programmed. So that's the difference between chains like XRP for fast payments and Bitcoins for holding and for slow payments. It's much more powerful to create a programming environment in which we can create software that can then interact and generate rules and algorithms for those digital objects that you're moving around.

Most of the early software that's been built is on Etherium. And other variants of programmable chains have had to do with the digital objects, the tokens that travel on those chains. And so decentralized finance, you can think of them as programs that are executed by the Ethereum network that have FinTech functionality, and the FinTech functionality they have is exactly the same as you would want in any financial services system.

So, there's no difference in the core needs that people have for finance. People need to pay, to save, to invest, to ensure those are repeatable. Decentralized finance allows the execution of fulfilling of those needs, within the architecture of blockchains. If you have a defy lending protocol, you can put tokens in a box and take out a loan, collateralized lending. If you have a decentralized exchange, you can put tokens in a box and get other tokens, so you have an exchange venue, with people putting capital in and so on.

The specifics of the transformations don't really matter as much to say that, like any financial function you would want, within this venue within this chain programmable environment. These things have been built out during 2018, 2019, 2020. And they have been viciously attacked during the bear market and the FTX collapse. That reminder of the FTX collapse was very much human failure and fraud and personal failure rather than programming failure. So these decentralized protocols for financial functions functioned very well throughout that time, and you could see people's balances, you could see where the money was coming in going out, you could do that block by block. I think that infrastructure is really important. And it's important as more people come into Bitcoin and look for places to spend it on and to own various things on chain. And then the more productivity, the more labor and GDP is created.

Daniel Cohen  27:03

We've been interested in the use cases of DeFi since 2000, and cryptocurrency in theory and programmable currencies, and all those things since 2016. There's huge opportunities. I think this is where the younger generations, you know, really get it and the older generations don't. The idea of a community having the ability to make decisions in a decentralized autonomous organization, those are uses that I'm really excited for.

When do you think we're going to see adoption of more of the technologies that are embedded in a lot of the cryptocurrencies?

Zoe Cruz  32:17

Well, look, I think the future is bigger and bigger communities, creating an ecosystem. What Lex was talking about decentralized finance, within that ecosystem, nation states will allow you to grow exponentially, and you could have the banking functions within that ecosystem. But I believe there are two major power levers that nation states have and that is monetary policy and fiscal policy. They will never ever give up control of either one of those things. So for me what these regulatory body of rules that the globe is developing around me, politicians are developing and regulators. What they're saying is Bitcoin to Bitcoin, knock your socks off, we're gonna let you grow to the moon, at least the enlightened ones do. But the Fiat on and off ramps, I'm gonna regulate you the way I regulate Citigroup, and you go to jail.

They will change the way many business models work, where the intermediaries will be eliminated, to some extent. Fiat currencies aren't going anywhere. I have enormous respect for Warren Buffett and Charlie Munger, these are giants of the world. They don't understand how this new world is going to work. They don't have enough respect of the way Lex and his generation will change the world. But I think that generation doesn't have enough respect. So I think it's the coexistence of the two that will enable this industry to continue to grow.

Daniel Cohen  34:40

This gets us to a demographic issue, which is the younger generation took over earlier because there were fewer of the older generation. Now we're holding on, and it just delays everything, but it's interesting.

Andrew's really been focused on more of the traditional finance problem. So maybe you can tell us about your project in digital currencies and digital assets.

Andrew Hohns  35:31

Since we're talking generationally, I'll raise the flag to represent Gen X here. Gen X is very pragmatic. We can look to the past and see where we've come from, and we can look to the future and see all of the amazing things that are coming down the pike. But right now, the digital asset world remains pretty small in global terms. And our orientation from Newmarket is really focused as long term lenders and we bring a structured credit approach to this universe. And for that reason, we've really been focused on Bitcoin because although it may not be the fastest land animal, it definitely has the greatest endurance. Bitcoin has been around for 15 years now it has the best 15 year track record of any financial asset in history. Etherium has been outperforming Bitcoin for the last four years since May 2020. We'll have to check in and see how it does in 15 years. Solana has been outperforming Bitcoin for the last year, maybe that makes Eth, like a Springbok and Solana like a Cheetah. But they can't necessarily run the full marathon.

As lenders, we're focused on the long term collateral value. And I view personally that Bitcoin is very clearly excellent, pristine collateral. It's finite, it's scarce, it's fungible, it's weightless, it's infinitely divisible. It's transportable around the world trades 24 hours a day, seven days a week, it has the greatest cross currency liquidity pool of any acid in the world, and tremendous use cases. It may not be as programmable as some of these other digital currencies, there are certainly programmable elements and side chains and layer two solutions that are very interesting, and working in Bitcoin. But they're also layer one solutions that are really profound. Refugees, political dissidents and abused women are holding on to Bitcoin and saving in a way that gives them personal freedom. And people are not really counting on Avalanche or Cardano to provide them with that personal freedom when they're crossing the border trying to escape circumstances that are very difficult.

Bitcoin use cases extend beyond some of the things that are happening in the DeFi world into some very profound savings and investment technology. So what we're doing with it, to bring it a little bit into focus, Daniel, is we've developed an approach to lending that is honestly kind of ancient in its orientation, in the sense that it's very much like what the Torah says or what the Koran says in terms of not prioritizing interests, but prioritizing risk sharing.

We're combining Bitcoin with traditionally financeable assets in a combined collateral package and extending loans to the combination of those assets. So, for example, we take performing multifamily apartment buildings, which has a traditional loan and we offer the sponsor a refinancing opportunity with some excess proceeds and instead of cash out, the sponsor uses those excess proceeds to put Bitcoin in and effectively read denominates a portion of the equity in the asset that they know in like out of Fiat and into Bitcoin. And that introduces some of bitcoins medium to long term economics into the value of the asset that the sponsor already has, which is already providing them equity income, which is very valuable. It creates a collateral package that is uncorrelated that is likely to grow in Fiat value much more rapidly.  Then the amortization itself would deliver the project in a traditional loan. And on the upside, we can share in some of the appreciation of the Bitcoin over the life of the loan.

Zoe Cruz  41:49

For me, it's a continuum. It's great to see that smart, capable people like Andrew, are using this in the traditional finance sense. But I would say the one thing and I think there was a question there that reminds me of the fact that in the States, the way we look at Bitcoin, the question was, when can you buy a cup of coffee with Bitcoin? Well, in the US, it's irrational to buy a cup of coffee with Bitcoin. In Venezuela? It's not. In the US, my answer is no. Andrew’s solution is a much better solution of pristine collateral for Bitcoin. The Argentinian peso lost 98% of its value in less than a year. So, rational to buy a cup of coffee with Bitcoin there.

I love the fact that serious people like Andrew and Lex, they're continuing to participate in an industry that will grow exponentially. But the way I say and why we give exposure long only exposure in our product to investors, zero allocation to this space is the wrong answer. More than three to 5% is also the wrong answer. Because this is nascent, some of these tokens will cease to exist, some of these projects will fail dramatically. But the way I look at it as an asset allocator, in my own family office, you make money by taking risks. That's how I made my career, but you need to get paid for the risk. Right now, the macro world is such that the only asset class that I see the asymmetry of risk reward in your favor at this point, is this asset class, because you're getting paid for investing in a very risky asset class.

Daniel Cohen  44:20

Does this ETF decision set Bitcoin projects back for various second tier payment mechanisms. Are people only approaching it as an asset class?

Andrew Hohns  44:51

Look, the nice thing about Bitcoin is theirs is simultaneously the scarcest asset in the world, and there's also plenty to go around. In other words, It's permissionless. And when someone builds on Bitcoin, it just adds strength to someone else's project on Bitcoin. And what they're doing in Venezuela is maybe not so much buying the Bitcoin, although some of them are, of course, buying the coffee with Bitcoin on a lightning wallet where you can transfer off chain very economically and instantaneously for smaller transactions. But really, they're saving in Bitcoin. And then when they're ready to make a purchase, they're converting their savings to some other currency. Could be a traditional political currency in the jurisdiction, where they're located, or it could be some other digital currency that they utilize to transact more rapidly. With the ETF, that introduces a new buyer base, which is going to be chomping away at the amount of available Bitcoin that exists and adding additional value to the various projects that are being built on it. But it's infinitely divisible. And so it lends itself to a multitude of uses.

Zoe Cruz  46:08

To me, what you just described, Andrew, is synthetic affects trading, because affects is trillions of dollars around the world. Back at my old job, if I wanted to send a billion dollars from Citigroup, the SWIFT system correspondent banking system works fine. If you're a plumber, sending some money to Mexico, 10 bucks, not so good. So, the use case that's currently in the billions of dollars that's being executed as we speak, is synthetic affects that through the digital asset.

Daniel Cohen  46:58

The best use case you guys are talking about are in terms of preserving asset value. Argentines have $500 billion in US dollar assets and $80 billion in US physical cash, right? Are we gonna see payment mechanisms for this?

Lek Sokolin  48:57

I think the answer to pretty much all the rhetorical questions is it already exists, and it works. And there's thousands if not millions of people are using it. So, anybody in the audience that has a rhetorical, but what about question is already wrong. Because the answer is that it exists. You know, there's one distinction I kind of want to bring about, which is there tends to be confusion when talking about crypto between what would be Apple stock and the iPhone. Nobody is like, oh, I don't have enough iPhones in my portfolio. And then, at the same time, it's like, why can't I buy sandwiches with Apple stock? You know, Apple is a bad company. And the point is, there's functionality of thing and then there's the value capture of the thing. And they are different things. And bitcoin is tricky conceptually in part because it's such a macro play. And in many ways, it's super simple. It's got a macro value prop, which is, you know, the apocalypse hedge for all the central banks in the world going down and you have a new global reserve currency. There's just so much more beyond that.

And a lot can be built on Bitcoin as a currency. But you do have to buy into the sort of the macro story about the dollar and the value of digital gold and so on. There's also a version in the space where you don't have to buy into it at all, you can say the dollar is supreme. And so if I want to send $1 to Argentina, or Brazil, or Venezuela, there are applications that are being built across every single remittance corridor you can think of from Mexico to Singapore, the Philippines that are using the USD see the turnover of stable coins on Etherium is at or larger than visa. So you don't even have to buy into the sort of the new money argument and say, Okay, forget about the Apple stock, the iPhone, the functionality of this thing is an operating system of applications that are all open source, they're all decentralized, and they take money in every asset class, in one place.

So you're going from a place where you have core banking systems for the banks and portfolio management for the investment managers and the payment rails for Visa and MasterCard, and the insurance companies having different architecture, and then the custodians and the exchanges, and the CSD is and blah, blah, blah, right?  And you taking all of that you're setting it on fire and throwing it in the rubbish.

And then instead using a single computational interface, that's open source that anyone can write software to that's completely interoperable. So, venture capital looks like private equity looks like real estate looks like equities looks like paying for a sandwich looks like taking an insurance contract out. From a venture perspective and the exposure of where the growth is going to come from. It's all the businesses that are being built in this economy, they're using these pieces to build better businesses. And I don't have to ask a lot of these legacy questions. And I think Bitcoin is an enormous part of that.

Daniel Cohen  52:44

Those of us who haven't been as deep in the Bitcoin space, or the cryptocurrency space would have said that, really this idea that we're all going to be paying with cryptocurrency is ridiculous, but what you're saying is, and dispute this if you want, is that there's really a foothold already. But just like building the American railroads, there was an enormous amount of issues with financial fraud.

And in terms of building the currency rails for millennials, and Gen X, you know, we're still moving forward in that direction. Do you guys dispute or agree with that?

Lek Sokolin  53:30

I'll go to the visa statement of network of networks. You know, these aren't winner take all across the world markets. When you get into an Uber, you can't pay with cash, cash is no good. And an Uber, you have to use Web2 payment systems plugged into Apple Pay or Google Pay, right. It's a different payment network and economy than the cash economy. You can't throw a phone at somebody who wants to be paid in cash. If you go into a store in Asia, and it needs you to scan a QR code and only Alipay is going to work. And so similarly, for the Web3 world and the crypto world, it's an economic architecture, which has its own financial system. And that's going to exist and it already does exist alongside the traditional financial system. But it just so happens that it is the place where the growth is going to root. It's the interesting place to build. It's the unexplored frontier and people are moving into it both with their capital and career decisions. And so, I think if I can leave people with anything is just to be curious and to explore it, you know, as, as seriously as you can.

Daniel Cohen  54:47

Do you think the crypto winter is behind us?

Zoe Cruz  55:03

If you look at where we started, the last two collapses in 2015 and 2000, I think. You had this massive collapse and then it went up. So, we superimposed where we are currently with Bitcoin at 45,000. Where it is, the trajectories steeply upward sloping, you still have 40% -  50% to get to the previous high. In the last 12 months, if we project correctly, you should have another doubling, tripling of the major assets of this asset class. So, yes, unequivocally.

Lek Sokolin  55:55

What I will tell you is that I'm seeing enormous enthusiasm by developers and builders in the space. People are moving, and they've been moving for the last 12 months, so there's a huge disconnect between the entrepreneurial kind of class and then the institutional LP asset allocator class who's like, oh, crypto, we were proven right. Somebody did some fraud. And I don't mean to be glib about it, but it's just a deep misunderstanding of the actual value prop. So there's still a big disconnect on the ground and in the financial crowd, but I think we're gonna see a ton of really interesting applications emerge. And I think a lot of that is going to be overlapping with AI, productivity, the labor, digital labor coming out of AI. And so, you know, we're entering that world.

Daniel Cohen  57:01

Lex, we agree completely with that viewpoint. Andrew, go ahead.

Andrew Hohns  57:05

Certainly, winters are for building and building projects, and there's been a lot of building that's been happening. For us, it's long term view on the collateral value of Bitcoin. So, it's not timing the market, it's time in the market. I do think that we're in a very bullish position right now, in terms of being blocked 825,500 or so on our way to the next having at 840,000, the ETFs, the FASB rule change that's going to enable companies to recognize quarterly value changes in their in their earnings, as opposed to the prior system where you could only write it down. So many different factors, everything that's being built on Bitcoin, etc, I think it's a bullish setup.

And if you look at every four year period in Bitcoin history, since the November 2012, having the 50th percentile, compound annual growth rate has been 97%. The fifth percentile has been 30%. And the very, very worst four year hold period has been 23%. So the short term volatility is incredibly interesting and headline grabbing. But in a sense, when in doubt, zoom out and focus on the bigger picture of what's happening here, which I think is the direction of travel that is very compelling overall.

Daniel Cohen  58:34

Anybody want to say where Bitcoin will be at the end of this decade?

Zoe Cruz  58:41

I'll just begin by saying I don't know. But I would say the industry will be much more meaningful and part and parcel of the way we live, what the value could be, you could convince me it could be a million dollars. But if currently, I think in markets, my macro view of the world is we’re at a huge inflection point. And so although I'm bullish on the asset class, if basically, I'm right, that inflation isn't going back down to 2%, in my lifetime, and the Fed isn't going to ease, and inflation actually goes back up, which I think it will, because of the friction of what's going on in movements of goods and capital and the yield curve steepens. Maybe the next year, you have another correction. But that doesn't negate for me when you look at an investment fundamentally, it's the risk reward the asymmetry of risk reward. So the asymmetry of risk reward is still in the favor of this asset class Bitcoin at the head of the queue.

Lek Sokolin  59:52

If we are at one and a half to generously 2 trillion. We have market cap in this asset class, I think we're looking at 10 or 20 trillion by the end of the decade. I mean, this is where growth happens, right? I mean, there's what 400 trillion or so of human economic stuff out there. And I just see more and more economic stuff go here, and more and more GDP go here, you know, so and in the way that like, ecommerce in the US, Amazon, I think, has maybe what a 12% share of retail commerce. And everyone says, only 12% share, you know, went from two to 12%. And it's a trillion-dollar company. And I think for crypto, it's the same where the share numbers might appear low, but you're gonna see just absolutely incredible value generation. And some of that will happen in Bitcoin and the main chains, but so much more will happen. People building businesses and projects on top of these chains that are still hard to conceptualize. So, I think it's an amazing place to both be a founder as well as to take risk as well as to be an early investor.

Daniel Cohen  1:05:27

Thank you everybody, and thanks, everybody for watching.

AI Talks: Applications in Healthcare, Finance, and Cybersecurity

Join industry leaders in Healthcare, Financial Services, and Cybersecurity for a discussion of real-world applications of AI at their companies - Oscar Health, Pagaya, and IronNet. From opportunities to transform patient care to optimizing financial operations and fortifying cyber defenses against evolving threats in cybersecurity, tune in for a lively discussion.

With Panelists:

With a special introduction by Betsy Cohen, Co-Founder, Cohen Circle and The Bancorp.

Below are some highlights from the webinar, followed by a replay.


On the Risks and Threats of AI

Understanding the ethical pieces of technology is extremely important to make sure we're moving in the right direction, and that we're utilizing technology that is actually better for mankind. This would not be the first time this has happened. I think that if we were able to do that with nuclear energy 70 years ago, which is probably the most destructive thing that was ever invented, we will be able to do it with AI.  - Avital Pardo, Pagaya

When you think about AI like this unbelievably brilliant child, how do you bring that child up to act responsibly in our culture, which may be different than the culture of another country who wants this child to be brought up as a lethal weapon or as somebody who spreads disinformation to benefit that country...I think we are going to see this area evolve into a huge part of warfare. If they attack us in that area, are we ready to defend? And the answer, in my opinion, is, no, we are not. - General Keith Alexander, IronNet

On the Opportunity in LLMs and Data Structuring

It's very difficult to get a complete picture of the healthcare data sets. We have these little islands of data captured, and those islands may be multiple versions of the truth. It creates a real hazard when you're working in healthcare, when you try to apply a large language model, while against that data set you have to spend extensive amount of time and energy to get it right before you apply the large language models to the data. - Mark Bertolini, Oscar Health

Being able to get more data Is a huge influence of how good your AI becomes, but also standardizing the data, correcting the data, and building a correct framework of data...The tech infrastructure that is required to analyze huge sets of data becomes easier over the years. Ten years ago, when we started, we needed to develop the entire stack ourselves. But now we don't need to do that anymore.  I think that both the data, the infrastructure, and the usage of a better algorithm over time is what will make AI better and better. - Avital Pardo, Pagaya

We have to come up with a solution that gives us the radar picture in cyber that allows us to see the attacks coming so we can respond and defend. You can see the issue even for the upcoming elections. Adversaries are going to put disinformation into the network. They've done it in in the past. We see it in Ukraine. We saw it in our previous elections. We're gonna see it in 2024. How do we defend against that? How do we stop that disinformation?  - General Alexander, IronNet

On What's Next with AI

Can we make the system more convenient, accessible, and affordable by virtue of reducing the administrative burden on people and the way they have to use the healthcare system ...Can we use it for pharmaceutical research and using the data that's been used in the past to approve drugs, and therapies in a way that we can do that quicker and more affordably than running all these massive, patient studies and waiting so long to get these technologies introduced into society? As an investor, I have to say, where do I want to place my bets? Is it on the experience side or is it on the clinical side? And how can I make money on that side of the business?  - Mark Bertolini, Oscar Health

I think what's going to be extremely interesting about this revolution, is that this is the first time that we're seeing a machine that kind of thinks in a similar way to a human. That has deduction capabilities and reasoning capabilities and generalization capabilities that is very human-like thinking. And that can interact with humans. We're still in the very early days of that. And I think we'll see that developing over time to a place where the machines think like humans.  - Avital Pardo, Pagaya


Full Webinar Replay: AI Talks

Daniel Cohen, (Moderator): We're super excited about this topic, because for a number of months, everybody has been talking about this – about AI.  And we're lucky enough to have 3 people who've been involved in various elements of the applications of AI across 3 different sectors in very prominent positions, healthcare, finance, and cybersecurity.  Mark Bertolini of Oscar Health, General Alexander of IronNet, and Avital Pardo from Pagaya.

You have all been involved in changing technology through AI. Over the last 6 to 9 months as it's stormed onto the scene and everything from you know, people's homework to making up court filings that are completely wrong. How has this  changed your lives, or how do you expect it to?   

Avital Pardo: For me, as someone who's been working on different types of AI models for the past 10 years, I saw this revolution starting 10 years ago. It was clear that in a specific set of problems, where we can standardize the data, we have enough samples, and that we have enough attributes regarding what we're trying to predict that the AI framework would be better than what humans can do. So even 10 years ago, when we started in credit underwriting, it was obvious for us that AI would win over humans. 

With the release of ChatGPT, the entire domain of AI is having somewhat of a moon landing moment, where something that was happening for a long time behind the scenes had some kind of an event that made the general public aware of it. And I think this will have a lot of different implications for the technology, and for this domain. We'll see a lot of investments go to this area. We'll see that spending within generative AI in different places of the value chain. I also see it in in different ways of analyzing complex data like a reconciliation of financial data.  

Daniel Cohen, (Moderator): Mark, Oscar Health has some areas where it implements AI. How do you see this revolutionizing what Oscar does?  

Mark Bertolini: Oscar is really a technology company with a health insurance laboratory. We have been very intentional since our inception of owning our tech stack front to back. And as a result, we're an industry where the industry is at a 0 NPS, we're at an NPS score of 57. So, a very positive score from the member experience standpoint. 

 As we look at how we deploy AI, we're very careful about discriminating between things that make it easier to use. On the back end of our business, we deploy AI very large language models very specifically against things like fraud, waste, and abuse like risk adjustment. All those sorts of algorithms that we would run in the past with actuaries, and teams inside the company, we can now do with large language models. We're in a continuous hackathon. 

We've now got 47 large language models that we’re applying against our business tech stack front to back in large part because we have a single threaded tech stack, and a single version of the truth when it comes to data, versus where a lot of companies actually have to take their data, clean it up to use it in our language models in order to make it more effective. But we're very careful. And we have significant review on things that touch clinical care where patients can be impacted. 

Daniel Cohen, (Moderator): Avital, when involved in lending, which is a highly regulated business, when you apply AI, do you still feel that you're able to get 100 percent bias free? 

Avital Pardo: We work in lending and with major banks, so everything we do in AI needs to be viewed from a compliance standpoint and specifically a model compliance standpoint, which is sometimes difficult for the data scientists. But this is the right thing to do.

Our mission is to promote financial inclusivity. Do I think AI does that better? Actually, much better. I don't know if bias free is something that exists. But I think machine logic is much more bias free than human logic. We've run a lot of internal studies regarding that to understand and different types of decision making that are not just related to the way the company builds models or underwriting or makes credit decisions. What creates biases? In multiple verticals of landing in industries where there's some kind of meeting between the person making some kind of decision in the process. And the person was asking, ‘Who's asking for the loan?’ The level of bias that gets introduced to the system to the decision framework is higher. The more we remove people from making the decision and leave them to supervise how the decision is being made, I think we will get much better. We'll get less biases, and we'll promote financial inclusivity.   

Daniel Cohen, (Moderator): General Alexander, you really were part of the formation of CYBERCOM. Maybe you can tell us about how you were dealing with AI, both adversarial and the uses that it could have in stopping adversarial threats. 

GEN (Ret) Keith Alexander: When you start thinking about AI, the key thing is the data set that you're using. Is it curated? Do I trust it? And if I trust it, then I'm going to get good responses. We're seeing with the more recent models a lot of stuff has happened, as you saw, with ChatGPT. They burst onto the scene because they were able to pass the logs in where the previous models were at the bottom percent. Now they're at the top. So these hundreds of billions parameter models, huge models provide much better response. So that's a good thing. 

The key issue that we face, and cyber faces is how accurate, how good is the data that we're using? How do we curate? And when we start to think about cyberspace, whether we'd like it or not, war is going to be conducted in this space as well. And you can see that going on in Ukraine today. 

You can create AI models that look at vulnerabilities and threats that bring things together faster than we can as humans. You have all these things that now beat what humans can do. The adversary is going to attack you with AI use across a whole series of things to probe, to detect, to get by. And the only way to respond is with AI models that now can see, understand, and defend.  And now this digital space is going to rapidly evolve, and it gets around things like disinformation. We have it in the real world. Let's say hypothetically that some people don't agree on the facts. And you're gonna have that in the virtual world, and that is one of the biggest issues that we face.  

When you think about AI like this unbelievably brilliant child. This child is really brilliant. How do you bring that child up to act responsibly in our culture, which may be different than the culture of another country. Who wants this child to be brought up as a lethal weapon or as somebody who spreads disinformation to benefit that country. So, we have all these elements coming in in cyber. I think we are going to see this area evolve into a huge part of warfare. If they attack us in that area, are we ready to defend? And the answer, in my opinion, is, no, we are not. 

If you think about missile technology, to defend against missiles coming in gives us about a 30 min response time. Now, when you think about cyber, it's in milliseconds. The government cannot easily see what's hitting Oscar Health, what's hitting Pagaya, what's hitting the banks. What's hitting the energy sectors. The consequences? Our nation is at risk in this area. We have to come up with that solution that gives us the radar picture in cyber that allows us to see the attacks coming in so we can respond and defend it. You can see the issue even for the upcoming elections. Adversaries are going to put disinformation into the network. They've done it in in the past. We see it in Ukraine. We saw it in our previous elections. We're gonna see it in 2024. What do we? How do we defend against that? How do we stop that disinformation?  

Daniel Cohen, (Moderator): One of the things that both IronNet and Pagaya have pioneered was you had the insight that the more we need data, the more data we have, the better the models. 

Avital Pardo: We've built an AI work plan for 3, 4, or 5 years ahead. Data was a huge part of that. And being able to get more data Is a huge influence of how good your AI becomes, but also standardizing the data, correcting the data, and building a correct framework of data.  Another thing is the ability to actually use this set of data. The tech infrastructure that is required to analyze huge sets of data becomes easier over the years. 10 years ago, when we started, we needed to develop the entire stack ourselves. But now we don't need to do that anymore.  I think that both the data, the infrastructure, and the usage of a better algorithm over time. This is what makes AI better and better. 

GEN (Ret) Keith Alexander: On this point, there's a key thing that Avital is bringing up. And that is the exceptionally large language models. 300 billion parameters up to a trillion are extremely expensive to build. We have these huge corporations that can now jump in and lead that innovation. Because what we're talking about here is the innovation wave like building computers in the sixties and seventies. Now, we're talking about artificial intelligence and the innovation that comes from that. That's hugely important for our nation. This is a great opportunity, and you know a lot of people pick on big companies. But if it weren't for the big companies, we wouldn't be able to afford the big models. So this is this is something that I think we must come to grips with. How do we do that? How do we make it responsive to our social and cultural requirements?  

Daniel Cohen, (Moderator): Mark, so how do you see the data? If you look at AI in terms of the data sets and what you're using today, I mean, where do you think that is? How do you let large language models or AI structure data for itself? 

Mark Bertolini: The healthcare data sets are all sort of captured little islands that are considered proprietary by insurance companies, pharmaceutical companies, hospitals, physicians. And so, it's very difficult to get a complete picture of the data. We have these little islands of data captured, and those islands may be multiple versions of the truth. Where Mark Bertolini is in the system in multiple different ways based on the type of technology they use. So, it creates a real hazard when you're working in healthcare, when you try to apply a large language, while against that data set you have to spend extensive amount of time and energy to get it right before you apply the large language models to the data. 

Daniel Cohen, (Moderator): Right now, all your companies, Pagaya, IronNet, and Oscar Healthcare are in this island system, where we have strong data protections, sharing data across providers and things like that. Both of your companies also have similar strong protections. As you've been able to take anonymized data and use that in large data sets by partnering among multiple organizations to get the data that you really need and create. As you look forward, could you see a day where the same models that are analyzing the data are applied at a different level to structuring the data and take out the human component of deciding how it was going to be structured? And how do you think that's gonna evolve?  

Avital Pardo: It's a very good question. In the past we've done a lot of work on data structuring and trying to automate the structuring. What we found is that what actually works in all automation is the ability to correct data. Especially in our industry, where credit bureau data is very important for creating decisions. Your data is reported by tens of thousands of different organizations, and in various ways that are sometimes not correct.  

We started by trying to do it in a heuristic way, saying, ‘Okay, we see the same person, and we see different types of reporting regarding this same person. So what can we conclude?’ So we started heuristically, but at the end, we started building automations to find that this is a much more difficult domain because it's difficult to create supervision for the models. You're trying to make a credit decision, the story that you have an historical data set saying, 'Okay, this is a specific loan, and it was either paid or not paid.' Or this is what ended up happening to this loan. But when you're looking on an unstructured data set and saying, 'Okay, I know some of it is mislabeled. Let's try to find what is mislabeled here,' based on a very, very specific domain. It's much more difficult. 

Daniel Cohen, (Moderator): If you look at the risk, General Alexander, do you have anything to add to how you see that approach? 

GEN (Ret) Keith Alexander: Yeah, I'II agree with Avital. I think we're on the cusp of this when I look at what we're doing and machine learning, so I'll call that the baby steps to AI. The real issue is now acquiring all the data and logical groupings and how you use that data. So you have these huge foundational models. And you build on top of those models that you're gonna run that are gonna hit specific areas. Vulnerability assessments, detection algorithms, threat related data sets. You can see these models starting to evolve as logical areas that you would have in AI. So, I think the structuring of it because the foundational models that are these big ones, just keep going on as those grow and become available. Then you're gonna see all these other things spring up around it that allows us to take in the data and structure it.  

Mark Bertolini: On the healthcare data access, I would not call it a privacy problem. I would call it a policy problem. If we were to have a single patient identifier for everybody in the countryike our social security numbers, and we were to have a single provider identifier you could seek through node encryption that data that you need for that patient. And I would argue, it's better to have it everywhere versus in one place where it can be attacked. If you could use that, you could actually access the data you need to make decisions about a patient.

But we refuse to make those kinds of decisions as a society where, as a political infrastructure around this issue of HIPPA and privacy, and how are we going to use the data? But if you make the patient identifier something that the patient releases to the provider to go seek that data it allows us access to the data. So, the transparency problem is largely a political policy issue. It's not a technology problem. 

Daniel Cohen, (Moderator): Yeah, the problem is we all have that instinct, like most of us grew up at a time where when you were 13 years old, you were anonymous. You had to find a pay phone to call your parents, and if you're missing, you were generally missing, even though you might have been right outside your house. Today, I know exactly where my kids are. I look on find my iphone and that's where they are. I don't want the world knowing about my medical records or my financial records, or anything else like that. But AI, with its ability to move forward in these large language modelsf or better or worse, will eventually be able to de-anonymize me.   

How do you guys really feel like we should deal with them and isn't it inevitable, General Alexander, that somebody will be able to associate American military personnel data with transactions with other things and get to a mapping of a whole country. And if we can't prevent it? Don't we have to jump in?   

GEN (Ret) Keith Alexander: Yeah, just look at the break in of some of this security information on all the military, hundreds of millions of records stolen?  I think that's a great concern. Now, having said that, I think there are more destructive paths that people are going to use cyber for. Just think about all the things in healthcare that you can do to impact patient care, things that you can do to limit movement of goods, things that you can do to shut down the IT and energy sectors. All of these are issues that I think are going to be the early battles in terms of cyber and cyber defense, because up to this point, you know, this is pre-airplane. Nobody could reach us. They'd have to get on a boat and come. And now they have missiles and other stuff, and now they have cyber. 

Daniel Cohen, (Moderator): Do we have to regulate?  

GEN (Ret) Keith Alexander: I think this is an area, because 90 plus percent of it is in the private sector and the public sector needs to partner with the private sector to make this work. The public sector, the government, the military, has the authority to actually respond to attacks against our nation. The commercial sector does not have that authority. Nor does it have that in cyber. So, if you are allowing an adversary to take an unlimited number of shots at you in the physical world with weapons, you'd say, where's the military who's protecting me? We protect that. So we have to do that in cyber as well.   

Mark Bertolini: We as a society do not respond fast enough to technological threats from other nations. China has been buying 62.5% of all the fiber optic cable in the world to wire for 5G. Why? Because 5G allows you less than a millisecond of latency and computing on the edge of the network, the devices can be dumber. And as a result, they can use it more effectively, both in commerce and in cyber. And yet in the United States to get fiber optic cable laid in an appropriate enough level to create the response that we would need as a country. It's going to take years to get it done. And it's because we have to get permits for every foot of cable we have to bury. We have to do it town by town, city by city, state by state. And that's gonna create a huge competitive disadvantage. I think it's a national defense issue in the end. 

Avital Pardo: I would also distinguish between regulation and data protection, which I think as you both said are different issues. Defending against the Chinese or the Russians, or a country effort to steal data. I think, Daniel, the kind of scenario you portrayed, I would think most of it is happening. I think that some countries out there know your medical records. I think this is a real threat that is happening. But I'm not sure this will be solved by regulation, and I think that when we look at regulation especially when LLMs become stronger and AI will become stronger and stronger. We need to start thinking about it and understanding it.

Understanding the ethical pieces of technology is extremely important to make sure we're moving in the right direction, and that we're utilizing technology that is actually better for mankind. But this would not be the first time this has happened. I think that if we're able to do that with nuclear energy 70 years ago, which is probably the most destructive thing that was ever invented, we will be able to do it with AI as well.   

GEN (Ret) Keith Alexander: What Avital brings up is one of the questions that people are wrestling with. How do you know that you control the AI that you develop? That's gonna be an issue, so that having the right guard rails around it. Think of this like SkyNet under Terminator, how do you make sure that the AI that you do actually has the culture and other things that it needs not to evolve a step beyond where it was intended. That's the concern I think people have, because if you train it to be like a person and now it can actually reason and interact, what does it reason and what is its prime directive? And how do you make sure that's all controlled? I think that's an issue that causes a lot of discussion and alarm. It shouldn't slow us down. It's something that we should flip around and say--How do we ensure that happens because AI is coming at us. We're not gonna stop it. 

Daniel Cohen (Moderator): It's a question of nuclear proliferation, right? It happens period, no matter what you want it to be, and you can make a big fuss about it and arrest a couple of people. But in the end the proliferation will happen, because it's so desirous to evolve it that countries that don't have the resources of the United States are able to develop it without ways of of doing lots of stuff. The future holds a lot of risks for us. And the regulation, you know, is going to be difficult.  

I'm just gonna ask you guys, if somebody were making a venture investment in AI, if you were the head of Softbank, where would you be looking right now? 

GEN (Ret) Keith Alexander: My thought is they're going to have to figure out how they build a large language model. Do the foundational models that all these other applications are going to build on. That's going to be a competition. I believe that most of them right now are all US-based. Everybody's gonna try to go do their own. They're expensive. They're hard to do. But they're gonna develop their own. Hence the evolution. You know what you mentioned the versions between chat, and now it's at a point when it broke through with these larger models, with billions of parameters. All of a sudden they're doing things, everybody goes. Wow! This is great. And now it's out there. 

All these other countries are going to say, we need to develop our own foundational model at scale. And so I think others are going to say, how do we compete in that area? And that's going to be a huge area of competition, because all the other things that reside in it are going to be useful. 

Mark Bertolini: It is use cases that demonstrate the capabilities. In our business we would look at in healthcare two versions. One is, can we make the system more convenient, accessible, and affordable by virtue of reducing the administrative burden on people and the way they have to use the healthcare system. So instead of getting referrals and prior authorizations, can we give them a roadmap to use the system without having to get permission. So that's one set of parameters, and those are the parameters we're working on with vigor at Oscar right now.  

The other side is the clinical stuff and a very different level of investment. That's around how accurate can we get on image reading by using large language models? Using the data available versus having humans have to look at it. What can we do to cut the cost of that? The convenience of it? Where do you want to make your bet? Can we use it for pharmaceutical research and using the data that's been used in the past to approve drugs, and therapies in a way that we can do that quicker and more affordably than running all these massive, patient studies and waiting so long to get these technologies introduced into society? As an investor, I have to say, where do I want to place my bets? Is it on the experience side or is it on the clinical side? And how can I make money on that side of the business  

Avital Pardo: I think that when you examine technology, and try to think about investment, then there's two main aspects. The first is the use cases, and the second is what we call the defensibility of the technology or the business model. I think what's unique about this technology is that the use cases - everybody can see them. You don't have to be a business expert. You can see them in a lot of places, and it's easy to envision different use cases. What's more difficult, and I think we don't have a good answer yet, is what would be a defensible business model over time and what will not? And I think that this is where I would start thinking. I think this is what will be decided over the next year or two.  

I would bet on everything that has to do with infrastructure. So the infrastructure of building, training the model is definitely like that. Nvidia is a good example. But there's going to be a lot of the tech stack is going to be huge for this. Everything that has to do with infrastructure. Then everything that has to do with something that creates unique data, you can train the models on. So now, the models are trained on everything. But if you have a specific domain where you hold the unique data that enables you to train the model on that. That I think that credit and healthcare are gonna be part of that. Then this will definitely, I think this can create a mode over time. And the third thing is human interaction. If you create something that creates a lot of human interaction, you can improve the models.   

Daniel Cohen (Moderator): It will be very interesting to see how this will shape up. If you separate the world into hardware, software, and applications in this AI space, where would you rather be? 

GEN (Ret) Keith Alexander: I think hardware chips is an amazing area. And you mentioned some of those, Nvidia, and everybody's coming up with the dance chips. But I think the real thrust of this will be in the software, the tools and the capabilities that companies like Pagaya, Oscar Health, IronNet and others create using that.  

Mark Bertolini: I would say more platform. What is the platform that's being created here? And is the platform valuable? The economics of the platform? Because I think the specific applications the use cases are going to get into the public domain. They won't be hard to copy, it's how you use them against the customer base. It's going to matter. So it's really the platform capabilities that you could build from it. 

GEN (Ret) Keith Alexander: When you say that, Mark, do you mean the platform like the model itself, the foundational models, large language models, or you mean the hardware platforms? 

Mark Bertolini: No, I'm talking about the platform, digital platform that you're using to run the business like, you know, Amazon uses cloud technology as a platform that does all sorts of things for its businesses and generates most of its earnings. So, it's that platform capability.  

Avital Pardo: I kind of agree with both. I would say, not in apps, not in hardware. But something in the middle. Can be software, can be kind of a software infrastructure. But somewhere there. I think what's more important is what's happening in the application of the level of technology, and less important how it was actually built. I think what's going to be extremely interesting about this revolution is that this is the first time we're seeing a machine that kind of thinks in a similar way to a human. That has deduction capabilities and reasoning capabilities and generalization capabilities that is very human-like thinking. And that can interact with humans. We're still in the very early days of that. And I think we'll see that developing over time to a place where the machines think like humans.  

There would be some kind of a machine logic that is different than a human logic. It's very similar to how machines started playing chess. They started playing chess like humans. But for the past 5 years, they're playing chess in a very different way. And then we understand that human strategies within chess are just a subset of strategies and do not represent everything. And I think it's going to be the same with human logic. And we understand that the way we think of the world and human logic is just a subset of potential logic, and that what we're now excited about is that machines started thinking like humans. But in a few years, we’ll understand that they will stop thinking like humans. It will be very scary, but I think a lot of the value will come from there over time. 

Daniel Cohen (Moderator): And will we then learn how to think in different logical patterns?  

Mark Bertolini: Humans will never be able to analyze the level of data that these new machines will think. So how do we create the connection that allows us to learn, because our brains are too primitive to do what they ultimately will do. So, when you talk about neural networks, from the human standpoint, we're primitive. They're going to be far more advanced, less emotional.  

Daniel Cohen (Moderator): How do you think AI will help patient engagement and members getting in and staying in care? 

Mark Bertolini: I think it'll be very powerful, and what I call the next best thing to do for a patient. So, here's where I am at this moment in time. And here's the next most important thing I can do to improve my quality of life. And that's going to be patient determined. So, quality of life is determined by me, not by the front cover of men's fitness magazines. You know, what is my version of health? Because most people view their health as a barrier to the life they want to lead, not as some sort of condition. So, if I can solve the limitations in my life around health by taking the next best step, then that's where these machines will help. 

Daniel Cohen (Moderator): I hope everybody who's listened to us enjoyed it, and I hope most of all our panelists enjoyed it. I've definitely learned a decent amount. Thank you everybody and I hope to talk to you soon.  

State of Mortgage

With interest rates on the rise, a scarcity of housing inventory, and the possibility of an impending housing crisis, what are the implications for the mortgage industry?

This panel brings together experts in mortgage, including John Paasonen from Maxwell, Arvin Wijay of Consolidated Analytics, and Chris Whalen of Whalen Global Advisors for a discussion on the state of the mortgage industry today, moderated by Daniel Cohen, Co-founder of Cohen Circle.

The panelists discuss:

Below are some highlights from the webinar, followed by a replay.


On the dynamics in today's mortgage market

You're seeing that the average DTI is dropping, the average loan to value is dropping, while the credit scores are maintaining fairly constant...so all of that sort of indicates tighter credit overall in the market, and makes it much more challenging for buyers to not just find a home to buy, but actually to qualify for that home for a lender to take the risk. - John Paasonen, Maxwell

I'm hoping, with a little bit of technology, artificial intelligence, robotic process automation, we are going to become more efficient. So we can become people-process-technology combined. How we can we be efficient and how we can be stabilize costs, because the lenders cannot carry this kind of fixed cost and lose money.  - Arvin Wijay, Consolidated Analytics

There's not much Refi business out there right now, which tends to be much less expensive and a big part of revenue. So the industry today, it's trying to survive on a very low amount of purchase business...I think we see a lot more restructuring, and a lot more M&A activity in the second half of the year. - Chris Whalen, Whalen Global Advisors

On the opportunities and challenges in new tech and AI

The opportunity to take [mortgage technology] to the next level, to save money on kickouts, save money on defaults, and put backs, save money on processing time and errors. The opportunities for eliminating costs and reducing losses are just enormous. And that's why it's such an exciting time still, for the mortgage industry. - Daniel Cohen, Cohen Circle

One of the interesting things is the new technology companies keep all the data. And I think that's going to become the industry standard. So all of the older tech and the rest of them, they're gonna have to run really fast to keep up with the expectations of the regulators in Washington. And the lawyers. - Chris Whalen, Whalen Global Advisors

Where we see the application for AI in the short term is around being an aid to the different participants in the manufacturing line...We've been testing this tool that automatically generates letters of explanation for a borrower...It produces the letter, but the borrower still has to review it, before they can submit it. How do we enable AI to filter the pipeline to identify borrowers most likely to convert to loans? For the manager, how do we give them natural language reporting? - John Paasonen, Maxwell

On what to expect in the next few years

2024 is going to be a reset year on the people who did deals between four and a half to 6% or slightly above, and there's going to be some reset, and then there's going to be some supply coming through the COVID era policies that's going to move some inventory into the market. So there's going to be some positive momentum, but we'll be cautious. - Arvin Wijay, Consolidated Analytics

There's so many other factors at play right now, whether it's the war in Ukraine, whether it's how much household wealth is held by baby boomers that are still spending and not producing, whether it's inventory, whether it's the Fed funds rate...What we're betting on is lenders will need help across the value chain of origination to get there, and many of them will say, this is the time for us to reassess how we're structured and how we actually do business - John Paasonen, Maxwell


The mortgage company of the future is going to be a repositioned dinosaur or a consolidated dinosaur, that's completely changed their workflow in order to make the whole entire process a lot cheaper. - Daniel Cohen, Cohen Circle


Full Webinar Replay: State of Mortgage

Webinar: When Banks Fail

Our webinar brings together three prominent voices in banking and finance for a lively debate.

The panelists explore:

With:

  • Betsy Cohen, three-time bank founder and serial investor
  • David Kotok, CIO of Cumberland Advisors and famed commentator
  • Abby Joseph Cohen, Columbia Business School Professor and retired Goldman Sachs Partner

Moderated by Jewelle Bickford, Retired Global Partner at Rothschild NA

Below are some highlights from the webinar, followed by a full transcript.


If you only needed your telephone in order to take out the deposits, the Treasury the Fed, the FDIC had an obligation to respond with the same alacrity. And they didn't. They didn't give on that first round, the comfort that a solution would follow. A solution did follow. But that moment of pause, I think was a great contributor to the ultimate outflow of deposits. - Betsy Cohen

We have a number of the banking institutions that got into trouble that forgot some of the basic rules of how to be a bank 101, including things like diversification of deposits, diversification of liabilities, credits, but also, they kind of forgot about how to diversify and how to manage their risks. - Abby Joseph Cohen

My view is the Fed did intervene. And they did it several times. And the amounts involved exceed the amount of bank failures in the great financial crisis. So I applaud the action of the Fed. They acted as quickly as they could, they stopped a contagion. And the risk of that contagion to the banking system in the US economy was enormous. - David Kotok


The transcript from the live webinar on May 22 has been edited for clarity, and included below the replay video.

Jewelle Bickford 04:35
Welcome to our seminar on the banking crisis and navigating the aftermath. I'm Jewelle Bickford and I will be your moderator today. I was a formerly a partner at Rothschild investment bank, and more recently, a partner in Evercore Wealth Management, from which I retired last year to become the president of Paradigm for Parity, a nonprofit, which partners with corporations to help women achieve gender equality with racial equity by 2030.

It is our pleasure to have a distinguished panel of guests this afternoon. I'll begin by introducing Betsy Cohen, the founder of Cohen Circle. She has had a distinguished career. She started over 40 years ago in banking, real estate and financial law. Her career began as a professor at Rutgers teaching antitrust regulation and government antitrust law and government regulation. I think she soon found that banking could be more lucrative and switched careers. She founded the Jefferson Bank and more recently in 1999, if not the very first, one of the first FDIC-insured, online banks servicing the FinTech industry. Betsy has been described by Forbes as a Most Powerful Self Made Woman. But my favorite description of Betsy was when the Financial Times called her a female banking tycoon. She has served on many boards, including the Asia Society and Metropolitan Opera and the Metropolitan Museum. So she spends many hours giving back.

Our next guest is Abby Joseph Cohen, who is currently a Business Professor at Columbia Business School. Abby was extremely well known as a former partner at Goldman Sachs. She did research on economics, political policy, and the capital markets, and advised all of us as well as several foundations and institutions. But my favorite of Abby is the major baseball league, their endowment. Imagine being so well known in the financial markets, that Harvard Business School has a case study around your life and career, and that you've had your own profile in the New Yorker and your own cartoon. Welcome Abby.

Our next guest is David Kotok, who has had an equally distinguished career. He is the Chief Investment Officer and Founder of Cumberland Advisors. He's a frequent contributor to the financial media, both the New York Times, The Wall Street Journal, Barron's, and Bloomberg. He has written four books, but my favorite is From Bear to Bull Market with ETFs. He's also been in government in New Jersey, he was on River Port Authority, and also on the Treasury transition team for Governor Thomas Paine and Christy Whitman. Welcome, David. So let's get started.

Abby, who is to blame? How did this happen? Is it the fault of the bank managers and the CEOs? Is it the fault of the regulars? Set the stage for us, please.

Abby Joseph Cohen 09:31
Jewell, thank you for what I think will be the beginning of a wonderful discussion. I think it's important to recognize that there has been a confluence of factors that contributed to the most recent banking crisis, and we need to talk about all of them. However, let me in the interest of brevity just mention four of them.

The first has to do of course with Fed policy and the rise in interest rates over 18 months. And it wasn't the rise in rates itself that was the particular problem. But that so many participants in financial markets sort of forgot how to deal with changing interest rates, we became so accustomed to low rates, in fact, rates that were on an inflation adjusted basis, zero or less, and we became accustomed to that low volatility. So when that began to change, many of the banks were not prepared.

The second thing to keep in mind is that there was plain and simple, some really bad banking. We have a number of the banking institutions that got into trouble that forgot some of the basic rules of how to be a bank 101, including things like diversification of deposits, diversification of liabilities, credits, but also, they kind of forgot about how to diversify and how to manage their risks. In one case, for example, Silicon Valley Bank, there was no risk officer for the final several months of that bank's existence.

The third piece is that the supervision and regulation that would normally be provided by the Fed and the FDIC, was somewhat lacking. And a recent report by the Fed indicated that in fact, was partially to blame. Now, there can't be enough regulators to sit on top of every single bank. And in fact, the Fed, the Fed staff did signal to SVB Bank as one example, that they were concerned about some poor risk management techniques. But the bank didn't follow up. Neither did the Fed. And one of the questions is, why not?

And one final factor that we have to keep in mind is that in some ways, what happened several weeks ago, was a bank run. There have been bank runs in the United States for centuries. Not that we're such an old country, but you can go back to the early 19th century, and find other examples of bank runs. This was a 21st Century Bank run, you didn't have to go to the bank to ask for your money, you just had to pull out your phone and transfer the funds somewhere else. And so much of what happened, happened very, very quickly. Social media played a role as well. And it didn't really give the banks or the regulator's an opportunity to take care of this perhaps in, let's call it a less panic kind of manner.

Jewelle Bickford 13:08
Well, thank you. This gives us a lot to build on. See. I have always thought one of the major strengths of the US banking system is the broad range of regional and community banks throughout our country. What is the impact on them? And also expand a little bit on what Abby said is this crisis self inflicted?

Betsy Cohen 13:35
It's self inflicted in that the bankers did not really act as bankers, they were acting as marketers as growth company CEOs, etc. But managing a bank is managing risk. And I think they took their eye off the off the ball, I do agree with you. That one of the strengths of the US banking system is the localness of the banks, the ability to respond to a particular community, which has characteristics that are different from those that are national. And so the understanding of community needs has always been a great strength, which we haven't seen in countries that have very concentrated banking formats. But I think this will impact the community banks because the essence of this is the element of trust, as it is in big banks and small banks, but trust by depositors, by borrowers in fidelity, and the professionalism of the bankers and the bank regulators.

And so if we go back to what Abby was saying about a run on the bank, whether it be electronic or in person. I think the funding mechanism which has been traditional for community banks, which is primarily local deposits, has to be unsettled. At this point, we see a great movement from deposits into treasury bills, and that's yet another story. But if in fact, the funding is not there, then the lending will not be possible. And that is a circle, which is not virtuous.

Jewelle Bickford 15:38
That's an excellent point. David, you heard Abby say the Fed even said themselves, that they have some responsibility here. Is it fair to criticize the Fed and talk a little bit about the cost that is ensuing as a result?

David Kotok 15:59
Well, Abby opened remarks with four factors. So one of the factors was the Fed, and Betsy demonstrated factors, which were not the fear, but the behavior of bankers. So if we say was the Fed at fault, yes. But it's a very interesting debate, to say, you're going to make a policy that is going to affect an entire system. And you're going to do so coming out of a long stretch of zero interest rates and Pandemic fighting, and then an inflation surge, all of which can be criticized with a retrospective, but in real time as a policymaker are very, very difficult to deal with.

I think the Fed did a reasonably good job with what it had to deal with. And then when it came to the run on the bank that Abby described so well, with SVB, the Fed intervened to stop a sequential contagion in the banking system. And it did so in a very unusual way. It developed a method to lend to the FDIC as a federal agency. Once that happened, it was able to support the deposit structure. So we didn't have depositors lose their money and trigger sequential collapse. The Fed acted quickly, it had to wait for the FDIC to cease SVB. And then it had to go through a process and that process was enshrined in 2018 in law, so it's falling quickly. Now it's a counterfactual to make the argument I just raised. The we don't have a counterfactual, the counterfactual would have been what happened if the Fed didn't intervene. And we can speculate about that.

But my view is the Fed did intervene. And they did it several times. And the amounts involved exceed the amount of bank failure in the great financial crisis. So I applaud the action of the Fed. They acted as quickly as they could, they stopped a contagion. And the risk of that contagion to the banking system in the US economy was enormous, in my opinion. That's I think Fed did a good job here.

Jewelle Bickford 18:53
Okay, well, they'll that's a wonderful point to be made. And I'm sure they'll be very happy to hear. Abby, I'd like to go back to you again, please. How do we know when this is over? Are we through with the banking crisis? If the Fed has done such a good job, as David described, is it over?

Abby Joseph Cohen 19:15
That is a very difficult question for you to answer with any humility or confidence. But let me follow up David's comment, and that is to say, the Fed admitted that there was some mistakes that they made prior to the collapse of SVB and signature, but I agree wholeheartedly that they've done a terrific job since and this is part of the answer to your question, Jewel, which is they are now paying very careful attention to other institutions where there may be similar problems.

Also, keep in mind that one of the things they did was make it pretty clear to everybody is that there is no limit upward limit. In terms of that FDIC insurance. One of the reasons we saw money flying out of some financial institutions, including at First Republic, is that many of the depositors were nervous about whether their funds would be protected. And I think that the Fed and FDIC have made it clear that those funds will be protected in whatever institution they're in. And that's something that should, I believe, have a calming influence on on what's going on. You know, the Fed learned lessons from previous crises, and one of the most important ones was 1930, where the Fed made some huge mistakes, there was a very large commercial bank that was viewed as a regional bank, at that time called Bank of United States. This is a bank that was illiquid, it was not insolvent, and the Federal Reserve, and the bank and the Federal Reserve Bank of New York took the position that they couldn't do anything about it. And when the other commercial banks at that time, basically refused to provide any assistance, Bank of United States closed shop.

Now, the consequences were enormous. It was actually the largest commercial bank in the United States, in terms of size of deposits and number of accounts, and it basically was responsible, according to scholars, Ben Bernanke, who's a Princeton study, the Great Depression. Milton Friedman, Anna Schwartz, and they believe that it was the failure allowed by the Federal Reserve in 1930, of this bank that turned the recession of 1929, into the Great Depression of the 1930s. And this is a Fed that learned its lesson in that regard. We certainly saw it in the 2008 and 2009, GFC, when Mr. Bernanke was in charge, and I think we saw it again. Now, when the Fed moved in quickly. Whatever the risk factors weren't leading up to the crisis, this is a Fed that has shown it's willing to step up when there's a problem and try to take care of it to reduce the likelihood of contagion. So my response to your question, is it over? I don't know for sure. But I think that they will continue to play whack a mole, if they need to.

And I think that we have already seen some calming down. But that he makes a good point, we have seen that money has flown out o,f float out rather, of some of the regional banks that's gone into some of the very large major banks, the so called G-SIBs, the globally systemically important banks. And what's happened is the concentration of our banking system has increased. So whereas originally, we might have told ourselves, our banking system is best served, by having lots of institutions, we now see that the money is being concentrated in a very small handful of very large institutions.

Jewelle Bickford 23:17
Well, that's an interesting question for Betsy. I mean, Betsy, do you think as a result of what's happened that Abby's talking about, JP Morgan acquiring 30 billion of assets from First Republic and all this consolidation, do you think that means we're going to end up like the Canadian system? Are we going to have, you know, a few mega banks and no more community banks? And And also, if you can add to the question, or your answer, is there anything anybody can do, the Fed can do to help the community banks get these deposits? Again?

Betsy Cohen 23:51
I would like to begin by taking issue with my co-panelists. So on the question, the Fed, and we're using that as the term I think for the overarching governmental regulating bodies really did quit. And I take issue because just as it was mentioned, that if you only needed your telephone in order to take out the deposits, the Treasury the Fed, the FDIC had an obligation to respond with the same alacrity. And they didn't. They didn't give on that first round, the comfort that a solution would follow. A solution did follow. But that moment of pause, I think was a great contributor to the ultimate outflow of deposits. I think the community banks will recover from that, because there is a much more direct communication mechanism. But I do think that we, the sequence of events, has moved us toward a much more lopsided and concentrated banking system than we might have envisioned even five or 10 years ago.

Jewelle Bickford 25:30
Well, that brings me to the question that I asked David, and I'm going to ask all three of you. What are the costs going forward? I mean, are the banks going to have to pay all kinds of new fees? Or is the consumer going to have to pay a great deal more, I'm not just talking about interest rate costs, although that's a huge cost. So David, let me start with you. And then I'd like everybody to weigh in on this topic.

David Kotok 25:57
We know there's a cost. Because we know the FDIC now has a plan to replenish the Deposit Insurance Fund. So we know a cost will be levied, we know there'll be a cut off point at 5 billion in deposits. We know what the fee will be, roughly two basis points of months. And we know what it will take, two years. And those are estimates. But they are pretty refined. That's cost that's coming. That's coming on every midsize and larger bank in the United States, every one of them. That's our system.

So we know that Betsy made a point about community banks to new banks are under more scrutiny. They are the supplier of credit and banking services to small and independent businesses, and in some places in the country to the agricultural businesses. And they are under a contraction in the ability to extend credit that to cost with to transfer to the small and independent business, or to the agriculture sector or other sectors. So that's the second derivative costs, but it's a big one. The third cost is hard to estimate, in my opinion. And that's uncertainty premium, the definition of an uncertainty premium, is you can't estimate what it is, you know it's there. But you don't know how much it is. And Betsy makes a point that I think is very valid in the initial pause, the initial pause, scared the hell out of everybody. And the repair of that pause. Trigger of uncertainty premium may be underway.

But if I might, it's being exacerbated by the debt ceiling debate, which means two things: we have simultaneous problems in the financial sector, and then they apply to the banking sector. And at the same time, we have no resolution of clarity on either one. And if I may, a good example that applies to banks and banking this morning. This morning, the difference between the normal relationship between a one month treasury bill yield, and the federal funds rate, which is the policy rate was out of whack by 58 basis points, that's over half of 1% in cost. That is a cost that's being directly or indirectly imposed on every bank, every bank deposit, every business, every money market fund in the United States. That's this morning. Why? Because the uncertainty of the banking system is in play. And we don't know how to measure it. But we do have a way this morning to put an estimated price on it. And at the same time, the debt ceiling debate is raging. And we have a way to estimate the combined price. And it's almost 60 basis points, six tenths of 1% and an interest rate on the entire country and all of its businesses and financial system. So there is a cost. And that cost is being applied right now today to you and me and everybody on this call.

Jewelle Bickford 29:46
Well, that brings me to an interesting point. Going back to Betsy, how do small businesses deal with the economics of this? What advice do you have for founders, especially in the startup world?

Betsy Cohen 30:04
I think it's very serious. And I think it will cause the failure of bankruptcy of a number of companies that might, if they had had access to credit, over the interim period in which they were building a business, to fail. I think we saw just a foreplay of this in the in the pandemic, when the PPP was being administered. Small businesses that did not have access to the lending mechanism to tide them over -- whether it be restaurants or other consumer businesses that are generally small businesses-- and did not have any customers because no one could come out. We saw those that got access to the PPP were able to survive, and many that did not survive. And we will see this accelerated in this next period. Because of the lending contraction. I think the way to at least work at the issue for small businesses is to reinforce their communication with community banks if they have them already, or to develop them if they don't.

Jewelle Bickford 31:51
Is there any on the flip side of this? Is there any strategy that you can suggest that banks can implement to restore customer confidence so that they start depositing again in the regional banks, and so that they have money to lend going back to this circle?

Betsy Cohen 32:10
I think it's going to take time. I think that there is no instant viewer for lack of trust. And so I think that over time, whether it's one month or two months or a longer period, that trust is going to have to build up again. And if communication is part of that development, or redevelopment of a trusted situation. That's what I think small businesses are going to have to work at.

Jewelle Bickford 32:48
I know that you started your career with a lot of experience in real estate, don't these community banks often lend in real estate?

Betsy Cohen 32:57
Well, I think they've been shocked, so to speak, by the fact that one of the major elements that needs to be managed is the duration of loans, vis a vie the duration of funding mechanism that deposits. And I think that banks like First Republic, which made a significant number of longer term, real estate loans, and it's inherent in real estate, that the loans be longer and not on the same cycle as the demand deposits. You know, may shy away from that. So I think real estate, it's not only the cost of the borrowing, it's the availability and the borrowing, which may in fact impact the development of ongoing Real Estate projects.

Jewelle Bickford 38:06
Do you expect there to be new regulations on behalf of the government? Because the banks didn't do what they were supposed to do? Or do you just think it's a matter of better enforcement?

Abby Joseph Cohen 38:28
I think the discussion thus far is really more along the lines of better enforcement, internal enforcement, making sure that risk control systems are in place. But let's keep in mind that even though we have many fewer financial institutions, many fewer banks than we used to, there are still a lot more financial institutions than regulators. And you can't expect each of the regulatory authorities be at the Fed or the FDIC, or the comptroller of the currency, to actually have enough people to be sitting with the auditors at each financial institution. So it really becomes a question as it often is of self policing.

And I do think a number of these institutions have learned some lessons? One of the things to keep in mind is that the damage that has occurred with regard to many of these institutions hasn't been to the depositors. And I think that's a good thing, because the depositors were protected, but there has been significant damage to the shareholders. In some cases, the shareholders were wiped out. In other cases, shareholders have lost a significant percentage of the value they thought, and we've been so damaged to the bond holders. And I think that managements of many of these companies in response to their outside shareholders. Some bondholders are just going to have to learn to be more careful. And as Betsy put it, they need to worry about internal risk controls.

Jewelle Bickford 40:10
David, what do you think? Do you agree with Abby? Or do you think we're going to have the new government regulation?

David Kotok 40:18
Yeah, I agree with Abby. And I think we'll see more government regulation. If we look at history, starting with 1930, and the failure of the Bank of the United States, every time we reach a point and have a financial crisis of some type, two things happen. One, it is followed by more scrutiny, more regulation, and more intense restriction to avoid a repetition. You could criticize that and say yes, but they come in and fight the war that's already been fought and lost. And that's part of our system.

The other thing we do is we go through an intellectual debate about moral hazard. But moral hazard in our system changes every time we have a crisis. I had clients who said to me, we should have let the depositors fail of SVB, we should have let the depositors lose money, it would have helped the system. Don't you agree? I said, No. Tell me what benefit it has to bankrupt. Many other companies fire those employees, destroy their capital structure. So we have the moral hazard debate. It's an intellectual debate, I happen to agree with it. I wish everybody were more responsible, but they're not. So our system is changing. We'll have more rules, more scrutiny, more regulations. This time, we're going to see more clawback on management. The management of SVB will be defending themselves in court for a while. There is an issue here of management responsibility, responsibility to the public, to shareholders, and behaviors. And the scrutiny this time, because of the size of these events will be enormous. And that's a probably a good thing, because it's in favor of integrity as a manager.

Jewelle Bickford 42:45
I saw in the paper that the CEO did not wish to give back his bonus, which was huge, many millions of dollars that had been given to him just shortly before this crisis exploded. Do you think that he will be made to give it all back?

David Kotok 43:02
I can't say what he will be made to do or not to do. But what I can say is, there is a desire to see discipline imposed on management decisions, which certainly don't seem to be within high integrity standards. Maybe the United States needs South Singapore law, instead of US law. And things might be different. I see Abby smiling at that one week, we're gonna see it in the public domain this time after this crisis.

Jewelle Bickford 43:48
Okay, Betsy. What's your view?

Betsy Cohen 43:53
I agree with everything that's been said, but would add just a bit to it. I think management will be punished, so to speak, during this next period of time, because there's a build up of anger, that management was not punished in the last financial crisis. So that will carry over. I think it's probably well placed. Because, in fact, even if it's not management's fault, the profile of a successful bank has really changed during this recent period. It went from being well managed in terms of profitability, to being growth oriented. And those two things don't always coalesce. So management has a lot of responsibility. And it may be convenient for management to be more in the limelight in terms of what I'll call punishment. But it really is, I think, a healthy thing in that if it can be kept in balance, that management, reimagines the bank as a group of assets that have to be risk managed. And that is the essence of banking. And it would be a good thing to have that be the measure by which management is judged.

Jewelle Bickford 45:45
This panel has presented a rather grim picture, if I'm going to summarize here, management will be punished, banks will lend less in their communities, because it's going to take time to build back faith with the depositors to get the deposits to build up the money to lend. And we're probably going to see some new regulation and hopefully better enforcement. Is that fair?

And when you overlay on top of this, that we have this crypto currency? Do you think the government is going to regulate what I look at as a sort of shadow banking system?

Betsy Cohen 46:37
I'm happy to start, I don't know where the end is. But I think cryptocurrency has been a mystery, in terms of its management, to regulators for a period that extends beyond or that of the recent crisis, I think it is a very difficult area to come to conclusion on. But I also think that it is a symptom of what was growing unease with the banking system in terms of looking for alternative mechanisms for the transfer of funds. So it doesn't stand alone, it turns and it isn't necessarily a result of this recent crisis. But we'll have to be dealt with over the course of the next years, in maybe a wholly different way.

Jewelle Bickford 47:50
Abby, what's your view of what I call the shadow banking system?

Abby Joseph Cohen 47:56
The shadow banking system is far broader than just crypto. I'm not a huge crypto fan. One little factoid, of course, is that Bitcoin itself is incredibly energy wasteful. So I don't quite understand the enthusiasm for it. But the shadow banking system is very, very broad. It's not just banking institutions that we became accustomed to, but you look at hedge funds, private equity funds, etc. Many of them have been stepping in through things like private equity, but also private credit. And when we think about, where could there be a points of stress over the next year or so I think private credit is clearly one of those areas. A great deal of institutional money went into that category, a lot of foundations and endowments and so on. And the question is, was it priced properly, when interest rates were so low, particularly inflation adjusted interest rates, and now that nominal rates have have risen, and real rates have risen, a lot of that private credit, may turn out to be not quite so well structured? And this to me is a potential problem.

Jewelle Bickford 49:16
David, do you have any comment on this, please?

David Kotok

I would make two quick points. We saw a cryptocurrency dealer blow up in a bankruptcy. And we will be litigating that for a while. And it was a shock. It was not a banking, systemic shock. It was a shock. People lost money. They complained, I remember the clamoring for the FDIC to extend $250,000 worth of coverage to a Bitcoin investor that lost money. Now, there are words for temerity in various languages. But that's temerity. And that's exactly what distinguishes the banks, the banking system, the Federal Reserve, the FDIC, the US dollar, as a reserve currency and all its institutional history and legacy good and bad, from these others.

The second point is when you have a banking crisis, and you have lending contraction, at the margin, you move some customers away from the banking system, because they are without choice. So they are then more vulnerable to the private side, which is not reported and not observed. A lot of loans have a phrase attached to them, the little letters EBITDA, there is no generally accepted accounting principle. Definitely definition of EBITDA, different strokes for different folks. That's a warning for those who want to play. We are very careful. In our firm, we do reviews of portfolios for banks and for our clients, we stay within the mainstream and avoid the other shadow side. That's our choice. That's why we have clients who come to us. So different strokes, different folks. What I fear is this banking crisis will shift some of that activity into this murkier area.

Jewelle Bickford 50:34
That's a sobering point. I'd like to close by talking about the elephant in the room, which is the debt crisis, raising the debt ceiling. We briefly discussed it. But I'd like to start by asking each of you the probabilities. So Betsy, why don't you begin, what is your feeling about the raising the debt ceiling? Do you think Congress is going to do this and 10, 12 days that are left?

Betsy Cohen 54:36
Well, I've been so pessimistic that I feel that I have to be optimistic someplace. And I guess maybe I'm pollyannish on this, but I do think that despite all the political pressures, that there is recognition of the importance of coming to a positive, or an agreed upon conclusion, with respect to the debt ceiling, and so I would say, because there is no other choice in my mind that it will get resolved. I know that sounds uncharacteristically optimistic for me. But I'm gonna stick with it.

Jewelle Bickford 55:23
Well, I'm happy to hear that. Abby, what is your feeling?

Abby Joseph Cohen 55:28
Well, let's begin with the observation that the debt ceiling itself is absurd.

Jewelle Bickford 55:35
Glad you mentioned that.

Abby Joseph Cohen 55:37
To basically have a situation where, let's say, an individual has used their credit card. And at the end of the month, that individual says, "To show you my fiscal rectitude, I'm not going to pay my credit card." That's exactly what's going on here. The Congress has already approved these expenditures, a lot of the money has already been spent and so on. We are the only country that has this debt ceiling process. It's absurd. And what's going on now is the theater of the absurd in my view.

Since 1960, the debt ceiling has been raised, if I remember the data, 78 times, two thirds of those occasions were under a Republican President, one-third under a Democratic president. So to think that this is a Democratic issue, or a Republican issue is also not quite correct. What I do worry about, though, is that Mr. McCarthy, who has to be running the process now for the house, as speaker is very beholden politically, to many of the extreme elements in his own party. There are many people who have said they're never going to vote to raise the debt ceiling. Now, hopefully, they'll change their mind.

And I think that we have a situation where there may also be some in the Republican caucus who think it would be okay to mess up the the economy a bit, particularly to benefit their candidate for 2024. So I find myself somewhat pessimistic. That doesn't mean the debt ceiling situation won't be resolved, it has to be resolved. The question is, when, and how much damage will be done in the interim. As we discussed earlier, there's already damage, we've already seen credit default swaps being priced as if there's a big problem. In the United States, we've already seen interest rates rise more than we think they probably would have done. Other than that. And I'll just remind everybody that the last time this happened, which was 2011, again, Republican Congress, a Democratic president, the rating agencies downgraded US Treasuries. But the market downgraded US Treasuries days before the rating agencies actually did. So as David suggested, at the very beginning of this discussion, keep your eye on what interest rates are actually doing. And what this tells me is that there's already concern about what's going to happen in the United States as a consequence of this.

Jewelle Bickford 58:33
David, what's your view on raising the debt ceiling?

David Kotok 58:36
I agree with Betsy, it'll eventually be done. And I like her optimism. I agree with Abby, and her concern and the risks she's articulated. I agree with her pessimism. And I ask one question- has no answer. Is our political system so fragile? That the only way we get a resolution in matters like this is to have a TARP moment on the stock exchange when we wake up the country? We haven't had the TARP moment. SVB could have been one. It's a good thing it wasn't. And if there were TARP moment tomorrow, which would be one of the great market opportunities for those of us who would be willing to take it? But which shocked the country and jolt the politicians and leave them then no choice? Maybe? Maybe Janet Yellen has to say, "I can't send you your social security payment this month, because Congress won't let me." Maybe that's what it'll take. We'll see.

Jewelle Bickford 59:50
Maybe we should suggest to Janet Yellen that she not send any money to anybody in Congress in any capacity. Maybe if they didn't get their paycheck.

David Kotok 1:00:02
Jewelle, when you say that, I'm ready to vote for you for any office at the federal level you want to run for.

Jewelle Bickford 1:00:08
Thank you very much. Well, this has really been fun for me. And I want to thank everybody in the audience for attending. And I want to thank our panelists who are certainly among the most knowledgeable people that I know on this topic.

Fireside Chat: Women Who Lead

In honor of Women's History Month, Cohen Circle held an intimate fireside chat with Co-Founder, Betsy Cohen, and CEO, Amanda Abrams, moderated by Emmy and Peabody winning journalist, Jan Hopkins on Friday, March 31.

Here are some key highlights from the discussion, followed by a full transcript.


Tips on making your voice heard

If you're sitting in a board meeting, you may not realize that people aren't soliciting your input as a woman, you may be the only woman in the room. And people may be participating, not calling on you, not asking your opinion. And in those situations, it's important to speak up, to be assertive, but assertive in the right way. Make sure that you are actually a part of the conversation at those types of meetings and in those situations. - Amanda Abrams [9:08]

Overcoming sexism in the workplace

I think each of us has to know ourselves. And we have to find our own voice. Just remembering what it is that you were trying to achieve allows you to slough off this ridiculous situation in which you find yourself and just move forward. I mean, you just keep going. - Betsy Cohen [11:11]

Thoughts on the current investing climate

People are looking for happy news. They're looking for a reason to invest. There's a lot of cash on the sidelines. There's a lot of uncertainty in the world. And although a small positive downtick in inflation is not the answer, it makes you feel that maybe the solution is on the horizon. - Betsy Cohen [18:41]

I think there are a lot of different factors that are converging now that makes [ESG impact investing] really interesting. You have a a significant transfer of wealth. That will be ongoing through this decade, and the transfer of wealth to this next generation that has a real vested interest in putting dollars to work and allocating money to investments that have an impact focus. - Amanda Abrams [25:26]

What's changed for women in the workplace

Everybody comes to the table with their own baggage. And you have to get many generations into the process before there's an acceptance of a new set of facts. - Betsy Cohen [43:42]

What I'm really interested in seeing going forward is for more women networks...to grow to also include men. So men and women are helping women move forward. I think that'll be an interesting next step. - Amanda Abrams [45:42]

On what is was like being a SPAC pioneer

We had to go into a meeting with a client and actually spell SPAC. I mean, we started there. We thought we had made great progress when they could spell it and had heard of it. So 45 minutes of an hour meeting would be talking about what was the SPAC and how did it work and all the rest of it. And then maybe phase three was talking about why we provided a better lens as we had deep, deep knowledge of the capital markets and the investors. -Betsy Cohen [54:12]

Words of wisdom for rising leaders

I would say that you can look at being in the weeds as being an opportunity, all of those very detailed things that you get into as a junior person. And all of those interactions you have with people trying to figure out all the little details, those are the building blocks that your career gets formed on. - Amanda Abrams [55:42]

Look broad, follow your curiosity and seek out new opportunities all the time. Stay curious. Stay curious. - Betsy Cohen [56:59]


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The transcript from March 31 has been edited for clarity, and included below.

Jan Hopkins 00:03
Welcome, everyone. I'm John Hopkins, a former CNN, business news anchor and correspondent. I won a Peabody and an Emmy when I was there and am also a former president of the Economic Club of New York, where I met Betsy Cohen. Betsy was the Audit Committee Chairman when I was the President. I now serve on a number of boards, Franklin Templeton Mutual Fund boards and also several SPAC boards led by Betsy, including the first all woman board that was listed on the NASDAQ.

So I'd like to introduce both Betsy and Amanda. We're going to talk about current events. We'll talk about careers. We'll talk about mentorship and leadership, because this is the end of Women's History Month and so we're looking at women leaders.

Betsy Cohen, is a legend. She was the second female law professor on the East Coast after Ruth Bader Ginsburg. She founded three banks, including Jefferson bank and also Bancorp Bank, which was the first virtual bank. She was on the 2022 Forbes Most Powerful Self Made Women list and is a serial FinTech investor.

Amanda Abrams is the CEO of Cohen Circle, where Betsy is the Co-Founder and Chairman. The two of them obviously work together. Amanda joined the team at Cohen Circle from CardConnect after she and the Cohens took that payments company public in 2016. Amanda was formerly a lawyer, Betsy also a lawyer, and moved into the FinTech and the entrepreneurial space. Amanda has been named a 2022 Inspiring FinTech Female Leader by New York City FinTech Women.

Welcome to both of you. I wonder how how you met? Amanda, where you Betsy's lawyer?

Amanda Abrams 02:36
Initially, yes. While I was a lawyer, I started working with Betsy in that capacity. I worked with various companies, including the Bancorp when Betsy was there. And one of the first major transactions I did with Betsy was the CardConnect acquisition. It was the first SPAC Betsy and Daniel [Cohen] had launched, I served as a lawyer on that transaction. And when that transaction closed, I switched sides.

So I left my position at a law firm and I joined the company that Betsy and Daniel took public, CardConnect. I always joke that it was my shortest lived job because the day after I arrived at CardConnect, they received a bid to be acquired by another public company. At that time, Betsy was on the board of CardConnect. And she and Daniel were really starting to build out Cohen Circle in a more institutional way. So after speaking with with Betsy, I decided to come over and join them and help them in this journey of building up the company. And it has been a fantastic journey so far.

Jan Hopkins 03:42
Betsy, what did you see in Amanda that you wanted her to not only be your lawyer, but also work with you on deals and managing a company?

Betsy Cohen 03:52
We say about the CardConnect sale to First Data that we not only got the money, but we got Amanda as well. What I think we all saw in Amanda was not only her enormous competence, but her ability to solve problems, and be a real force in terms of her conversations and resolutions of issues, not only with other lawyers, but as a negotiator in a business context. And that was what we were looking for.

Jan Hopkins 04:37
Amanda, Betsy is a mentor to you but also a boss, right?

Amanda Abrams 04:44
Betsy is both a fantastic mentor and a fantastic boss. When I joined Cohen circle, one of the things I was interested in doing professionally was transitioning from a lawyer to a business role. So Betsy, also having had that similar transitional experience was a great mentor in the sense of being able to help me take the skills I learned as a lawyer, but change the perspective I have and the lens I use to look at issues.

It is a bit of a process. And I actually still think it's an ongoing process. But it has been very helpful having Betsy as both a mentor and a boss in that capacity, asking me questions and leading me to think about something in a different way and make my own decisions.

Jan Hopkins 05:52
Betsy, how do you choose people to mentor?

Betsy Cohen 05:55
I really do choose people not to mentor, my standards are very high. Amanda is one of the few that met them. You just have so much time, Jan. And in order to create the kind of relationship that Amanda and I have now, in which just because of the duration of my opportunity set, as we say, I've been able to be in many more transactions than Amanda, I can bring something to the table. And so that I think is a value.

Sometimes I have the ability to step back, because I'm not as much on the front lines as Amanda is. That's the nice thing about being Chairman, someday Amanda will know that. It allows me to be both an onlooker, and a third person in the conversation, and therefore to be able to elicit from it some of the elements that when you're in the heat of negotiations get lost. So we each serve a role.

Jan Hopkins 07:26
Betsy, when you started, there weren't mentors for you. How did you make your own way? Were there were male mentors that were helpful?

Betsy Cohen 07:44
I would say the male mentors, were not all that interested in being helpful, and there were not any women mentors. So I just made it up as I went along. And so far, so good.

Jan Hopkins 08:00
There's something to say for that, the making it up as you go along. Amanda, you've had to do that too in your career.

Amanda Abrams 08:08
Yes. And even on the mentor side, prior to working with Betsy, I spent a long time as a corporate lawyer, there was a formal mentoring program in place where I was practicing. But what I've found throughout my years is that it's not the people that are assigned to mentor you that really matter. It's more important to find the people that you have a personal connection with, that you form a relationship with, where their best interests are really what they want to move forward. And I think that kind of making up as you go along applies there in terms of you don't have to stick with the program that's given to you, you have to find what really works for you on a mentor sense.

Betsy Cohen 08:51
I think Amanda told me and I'll just prompt her to this. Once that she had a very valuable lesson that came from either an assigned or unassigned mentor, about participating in conversations. I know everyone would love to hear that.

Amanda 09:08
Yes. So as a corporate lawyer, and especially 15 years ago, it was a very male heavy practice. And my informal mentor, not the one that was assigned to me, that was also a woman I had a very good relationship with. As I started to grow in my career and attend more board meetings, more high level type negotiations, which were heavily dominated by men, my mentor gave me a really great piece of advice.

Be very aware of your situation and proactive in how you participate. If you're sitting in a board meeting, you may not without paying close attention, or realize that people aren't soliciting your input as a woman you may be the only woman in the room. And people may be participating, not calling on you, not asking your opinion. And and in those situations, it's important to speak up, to be assertive, but assertive in the right way. Make sure that you are actually a part of the conversation at those types of meetings and in those situations.

Jan Hopkins 10:12
Right. And make sure that people are are hearing you. Betsy, you certainly have had that experience where you've said something and then, you know, a male says the same thing, and they pay attention to him.

Betsy Cohen 10:23
It is emblazoned in my mind. I can see myself today sitting in the boardroom of a bank holding company in Western Virginia, where the rest of the board was made up of silver haired, Southern gentleman. And I would say something, and there would be dead silence. And then Bob next door to me would say exactly the same thing. And everyone would say, with enthusiasm, 'Bob, that was a great idea'. I mean, I can't even begin to tell you the number of times that happened. It's as if you were invisible.

Jan Hopkins 11:08
But you have to keep going, right? How did you overcome that?

Betsy 11:11
I think each of us has to know ourselves. And we have to find our own voice. I think Amanda's story is an important one, because really what her mentor was telling her is to find your way to be part of it to have a seat at the table. But, I think that keeping one's focus on what the end goal is, which is to be, in a law firm, an important contributor in terms of the thinking process, in terms of business to be able to have, offer and execute on solutions. You know, just remembering what it is that you were trying to achieve allows you to slough off this ridiculous situation in which you find yourself and just move forward. I mean, you just keep going.

Betsy Cohen 12:16
You actually have another kind of funny story about going to a conference when you were CEO of a bank. Can you tell that story quickly?

Betsy 12:41
Sure. I was named the CEO of a bank in Washington, DC. And there was a tri state conference for CEOs of banks in Maryland, Virginia, and the district. And I was invited, and I was really very excited. I thought, boy, are they going to just say, isn't this terrific? And so I went to the conference. And as I was walking into the hall, a gentleman tapped me on the shoulder, I thought, terrific, he knows who I am. And he's gonna say hello. Which would have been very helpful, because I didn't know anybody in the room. But when he tapped me on the shoulder, he said, would you get me a cup of coffee?

And I really was at the fork in the road. I could have said, What? What do you mean, would I get you a cup of coffee? But what I did rather was to say to him, how do you take it? And I went, and I got the coffee, brought it back to him. And I said, if I may, I'd like to give you something. And I showed him my card. At which point he almost dropped the coffee. But he said to me, Oh, my God, this is just terrible. And I said to him, I'll tell you, you can make amends. And there are two things that I would like. One is that I have a portfolio of loans. I'd like to participate with your institution. And secondly, I'd like a cup of coffee and I take mine black. So it diffused the situation because really, I wanted to connect with this guy. Because I did have a portfolio of loans that I wanted to participate and we became good friends thereafter.

Jan Hopkins 14:50
And being angry was not going to help you in that situation.

Betsy Cohen 14:55
No, it was not going to help me. It was not going to move my situation forward. And although it might have given me a moment of feeling good, it really wasn't a long term solution.

Jan Hopkins 15:15
So Amanda, have you had any experiences like that? Or how have we moved beyond that kind of thing?

Amanda Abrams 15:20
I think we've come a long way. I think there's still probably a way to go. But I have had a few more decades for society to develop. And for things to change. I had a similar situation to Betsy's when I was a very junior lawyer, where in a meeting, someone asked me to get them a cup of coffee. I had a very different reaction to say, why don't I introduce you to the assistant, I'm part of the legal team. But I think that part of my reaction is a reflection of the changing times where I think people expect when that happens now for women to be more assertive in explaining that perhaps the situation didn't pan out the way that that one would professionally expected it to.

Jan Hopkins 16:12
Interesting. Let's look at some of your experiences. Betsy, as someone who has started banks, then Chairman and CEO of Banks, let's look at the Silicon Valley Bank situation. And what do you see there? What did they do wrong, besides a mismatch of their assets and their liabilities?

Betsy 16:43
Well, Jan, it's not a small thing. I mean, there are two basic principles that you're taught in banking 101, which they apparently failed. One is that you don't have concentrations of customers. And they were very concentrated in a single industry, which should have given them greater understanding of their situation than they seem to have, because they should have known that.

Companies were having difficulty raising their next round of capital, therefore, they would be looking to their current funds, which were on deposit with Silicon Valley Bank, to use to tide them over. But apparently, that did not penetrate. But concentrations, and also duration matching, they were in a situation where interest rates were low. They were reaching for yield, they weren't focused on the fact that their funding sources were short term and on demand, and their loans were 20 to 30. And they're not their loans, and primarily, their securities, the securities were fine quality, but they were all just too long. By the time they recognized the problem, which was 18 months into this a very steep rise in interest rates, it was too late and they had wiped out a substantial amount of their capital.

Jan Hopkins 18:28
The market now is moving higher. And maybe it's gone beyond that crisis. And maybe we're gonna see lower interest rates sooner as a result of it. What do you think of that?

Betsy Cohen 18:41
I would be surprised. I would not be surprised to find that interest rates inch up more slowly than they would have otherwise. But you know, it's a complex question, which involves the behavior of the economy, as well as anything else. And I think we saw in today's inflation report, that inflation had been lower than anticipated. People are looking for happy news. They're looking for a reason to invest. There's a lot of cash on the sidelines. There's a lot of uncertainty in the world. And although a small positive downtick in inflation is not the answer, it makes you feel that maybe the solution is on the horizon.

Jan Hopkins 19:41
Amanda, are you seeing any activity that's starting in the mergers and acquisitions space or the SPAC world or is it too soon?

Amanda Abrams 19:53
I think we are in a period now where people would typically refer to it as the IPO window being closed, meaning that it's just much harder to access the public markets for many companies. We think of reverse mergers, essentially SPACs as being a vehicle that gives us a unique opportunity to access the public markets or a unique route to the public markets in times when IPO windows are closed or open. It's a tool that's unique and very appropriate for some companies, beneficial for some, but doesn't work for all.

For those that are in this market, very close to profitability, and looking for a last round of capital to to get to profitability, and perhaps struggling in the private markets, which are quite difficult to fundraise in these days, it can be a good option. Especially if it's a business model that perhaps needs some incremental investor engagement benefits from a longer marketing process and more engaged discussions with investors, and benefits from a SPAC sponsor partner that knows the capital markets and can help a target company navigate the capital markets. And for companies that have those types of qualities and characteristics. I think it can be a route that allows them to circumvent that closed IPO window.

Jan Hopkins 21:16
Do you think it will open again?

Amanda Abrams 21:19
Everything is cyclical. I think, yes, we'll get there at some point.

Betsy Cohen 21:22
Yeah. But as Amanda was saying, the the outlook of CEOs of these companies is very different than it was 12 months ago, it's not only that the investor doesn't want to come in, but the CEO doesn't want to go out. And they don't want to go out because not only the valuations are lower than their wildest dreams used to be. But also because the volatility makes it unpredictable. And the SPAC vehicles that are currently in the market were designed, you know, a SPAC is only a legal vehicle intended to, as Amanda said, provide capital to appropriate companies with a lot of bells and whistles around it so that it's it's often more beneficial than an IPO in the traditional sense. But they were drafted, you know, 12-15 months ago with a very different external environment. So if you ask, are the existing vehicles that are currently listed all going to close? The answer is no. But if you look forward, as we try to do and think about what would be an appropriate vehicle today, and therefore provide you with an opportunity to engage with companies over the next 12 to 18 months? That's a very different answer.

Jan Hopkins 23:13
I've heard you say that you are there to help companies throughout the capital structure. So there are other vehicles that you're looking at at this point?

Betsy Cohen 23:25
Absolutely. As Amanda said, we have been investors over the last three years, up in lower ranges of the capital market. So we're up and down the capital market. Because we do companies, less mature companies. We too, are looking to what is the right thing as fiduciaries to do for the investor and for our investors. If it is to look for companies that are public ready, and therefore, both the investors in the company will have good experience, you know, we have one answer, and if it is to prepare that company, for that eventuality with a round of capital, that is, you know, meets their needs. That's another answer.

But people are much more realistic today. I mean, look at what Stripe did. Stripe moved its valuation from 95 billion to 50 billion. You might think--what are they out of their minds? Why are they raising money? They raised it for a very specific reason. But the fact of the matter was that they wanted good mid term investors in that business, not only so the investors could make a profit, which is certainly a motivating factor, but also so Stripe would remain at the top of their list when investment opportunity came at 75 billion or 90 billion, or whatever the number happens to be. So it's ever changing, you're always reading the tea leaves. And it's an always ever changing set of considerations. I mean, that's one of the joys of Cohen Circle. We specialize in thinking, we do a lot of thinking, and not always come out with the right answer, but more often than not.

Jan Hopkins 25:53
Amanda, what are you seeing?

Amanda Abrams 25:56
On the investment horizon, one area that has been of interest to us, and that that we think has a really broad opportunity set is the ESG impact investing space. I think there are a lot of different factors that are converging now that makes this really interesting. You have a a significant transfer of wealth. That will be ongoing through this decade, and the transfer of wealth to this next generation that has a real vested interest in putting dollars to work and allocating money to investments that have an impact focus.

So they're thinking more about the disconnect between intention and alignment and how to invest it in a way that corrects that disconnect. I think that push is something that will make impact investing even more mainstream in the coming years than it already is. On top of that all of the recent advances in technology, like AI, is making so many services and products more accessible to underserved and under resourced persons and populations, that it's really broadening the opportunity set just generally.

Jan Hopkins 27:10
But there has been pushback on ESG first. First, it was a wonderful thing that everyone embraced. And now there's opposition that ultimately, if it takes a different form, it's not as widespread. I mean, what's the result?

Betsy Cohen 27:34
There has been what they call greenwashing, right, to put a layer of ribbon around the not so attractive box. But I think that what we're trying to do is beyond that, it's not only helping younger companies with setting up their governance in the proper way, you're helping them to look at the environmental impact of what they're doing. But we're really looking for companies that can make a difference primarily in health and financial services, which are two areas that we know and find other companies to which we can be additive.

So we've always done this in financial services, where we will network with a company to broaden their distribution capacity, just because we know the field, we know the ecosystem, we know what will work and what won't work. And there are areas of impact that we can identify where we can actually be helpful. It's not only the capital, but it's really the experience and networking opportunities that we bring to the table.

Jan Hopkins 29:13
With Bancorp which was an Internet bank, you saw a lot of FinTech companies that were growing up. And you were able to tap them when you went to the next part of your career, which was SPACs, right?

Betsy 30:27
It's really advising and mentoring, but very specifically coming out of your own experience.

Jan Hopkins 31:04
Talking about how one's career goes in directions that you maybe don't expect, certainly at the beginning, you didn't expect to be at this point and have done all the things that that you've done, right?

Betsy Cohen 31:19
I'm a person with a limited attention span, I guess. But I like to reinvent myself. And in this field, it's every couple of years, every 5,6,7,8 years. And it becomes possible here. Not only is technology moving, we're just in a field, which is dynamic, technology's moving consumers and small businesses are moving in their capacity to access that information. AI is taking over the world. You know, so there's so many variables, so many things that are changing the landscape that we had even a couple of years ago, that it's very possible to look at this field in a different way.

Jan Hopkins 32:15
Amanda, same question for you. When you started out, did you have any idea that you were going to be taking the road that you've taken?

Amanda Abrams 32:30
That's such a great question. No, definitely not. I think that if at any point in my career, you asked what I would be picturing myself doing 5-7 years from now, and I answered you, I probably would have gotten it wrong. So I think it's a unique perspective into the way your career can have twists and turns with the different opportunities that are presented to you. And if you're open minded and willing to kind of take advantage and shift with those twists and turns, you can end up in a really interesting place. So not only in terms of who you intersect with on a personal level, but also the way the market shifs and the opportunities that get opened up, and being able to identify those, kind of are what have directed my path.

Jan Hopkins 33:20
Also, using a skill set in different ways, the lawyer skill set as an administrator or an investor. So let me switch directions, a lot of people in the audience are concerned about how to balance work and life. And Betsy, you had children, and worked and a husband. And all of you, I mean, you and your husband, were both setting up companies. And now you actually work with one of your sons. I mean, how did you learn to balance? Or did it just kind of happen? Any words of wisdom?

Betsy 34:03
I guess the only word of wisdom I can say is that if you think of your life in in phases, as opposed to thinking of it is one single linear continuum, or the same thing every day, I think you have an advantage. There was a time when it was very important for me and Ed, we set up a law firm together, to leave the house at 9:30 and get back by 4:30. There was no zoom, but there were two children under the age of three that required attention. But each phase is different. And you know, you really have to think about it. You have to think about what's up appropriate for maybe this next couple of years, and be able to say that there will be no moment in which it will all be perfect.

I remember I was Chairman of the board of this bank in Washington, DC, sitting at a board meeting and having a moment of panic that is with me today. And this happened probably 40 years ago. It was my day to do carpool. And there I was in Washington, DC, and carpool was in Philadelphia, these little kids who were depending upon me to pick them up at school, something would happen to them. I mean, you know, it's that kind of thing. It has to happen. It happens to everyone, and it happens more frequently, at certain points in your life. Things are complicated. And you just have to keep thinking about what you're doing and know that it won't be this way forever.

Jan Hopkins 36:12
Amanda, do you have any words of advice about how you're managing work life balance and what you've learned through the years?

Amanda Abrams 36:21
It's a good question. I think that my biggest piece of advice is it's always an iterative process. You're never going to say, I found the right work life balance. Things are always changing. Even with COVID and everyone being home, and now meetings being on Zoom, and people seem more accessible 24/7 has even changed the shift of how you think about work life balance, and how you think about maybe shutting things off more when you're at home. I think it's always just a moving goal, that you always have to be changing your perspective on how you're managing things, and never expect to actually reach that goal, just be happy that you're always improving.

Betsy Cohen 37:04
I think also, in addition to the goals changing, we change, our own needs change. And we get satisfaction out of different things. And our personal lives evolve. So finding the right connection between the two is, as Amanda said, an iterative process.

Jan Hopkins 37:33
Betsy, you work very closely with Daniel, one of your sons, and your husband Ed works with Jonathan, your other son. How did you decide which son works with which parent? Or did it just kind of happen?

Betsy Cohen 37:50
I think it more or less happened, but it was the right thing to happen. If I was working with John, who's very hands on, we would be at each other's throats every day. You know, there's just no question about it. Not that we don't have a good relationship, but we have many of the same characteristics. Ed and Daniel also share characteristics, which is that they're able to stand back and let us do all the work [laughter]. No. That they're able to stand back, and, you know, be thoughtful and have big picture and all the rest of it. Not that both of them don't work hard. But it's a different way of doing things. And so I think the match of having one each within each pairing was a good thing. And Daniel and I have always had a good relationship. I think we have a lot of mutual respect, and a lot of trust. And that makes a good partner.

Jan Hopkins 39:05
So Amanda, you work with both of them. What do you see about this relationship? And do you end up getting in the middle?

Amanda Abrams 39:14
I have the utmost respect for both of them individually, and the utmost respect for the way they work together as a mother - son team. I adore my family but I don't think I could work with them. A lot of people say the people that you're closest to are the ones that can often get under your skin. I've never seen that on a professional level between Betsy and Daniel. They both bring different perspectives, different ways of looking at things, in different working styles. And it works really well. I think they both have a a very high level of respect for one another and treat each other like partners instead of like with mother and son, when they are in a professional experience.

That blend of perspective and respect is something of a secret sauce. Relationships and strength of relationships is a really critical underpinning for how we approach everything, and Daniel and Betsy's relationship is really a building block on which the organization is built. And it's important to us culturally. It has set a really great tone for how we approach our business dealings as partners and partnerships rather than transactions.

Jan Hopkins 40:35
Betsy, are there some things that you depend on Daniel to do, because it's within his skill set, closing deals, for example? And some things he depends on you to do?

Betsy Cohen 40:53
Daniel has an an incredible depth of knowledge. Across the board, it is very deep, but he has a real depth of knowledge of the insurance industry, of complex transactions of capital markets in a way that I, because I was on the other side of it for many years and not in the field, really can't match. And you're right, that there are relationships that I might carry forward. And skill sets of that sort. And analysis not only on a technical basis, but on a non technical basis. So my EQ is pretty high.

Jan Hopkins 42:06
Amanda, how do you fit in? Do you rely on on Betsy for some things, and Daniel for other things?

Amanda Abrams 42:19
I think just as Betsy described, each of them has their own set of strengths. Betsy has an amazing affinity for understanding personal interactions and what motivates people. And if I'm thinking about how to handle an interpersonal situation, or how to even approach negotiations, I think many times Betsy is my go to for those types of questions. And Daniel has a different set of strengths. They overlap in many ways, but there there are certain topics where I would prioritize talking to Betsy or talking to Daniel, depending on the topic.

Jan Hopkins 42:59
Let's kind of look over time. And look at women's issues over decades. What's the biggest change that you've noticed in women in the workforce in the last 20 , 10 or 5 years?

Betsy Cohen 43:26
Even just real numbers are extraordinary. When I went to law school, there were six women in a class of 200. Amanda, when you went to Harvard, how many women were there in the class?

Amanda Abrams 43:39
I think we were probably pretty close to 50-50.

Betsy Cohen 43:42
So I mean, that's a measure. I think that women started out in maybe the 1970s and 1980s, making their way through. And I'm talking about the financial side, in financial industries, in areas that were measurable. So in Portfolio Management, in things where at the end of the day, you had an objective measure and you weren't measuring how good a woman was versus a man you were measuring whether the portfolio of X performed better than the portfolio of Y.

And then another step might have been around, I don't know another 10 or 15 years later, I mean, things just don't move along that fast. And women began to find their place in a broader sense and moved I think, in the early part of the 2000s into a much more strategic set of positions. And now we see emerging. I mean, one of the women that I mentored who's now the CEO of one of the Fortune 500 companies. So it's a long process. Because everybody comes to the table with their own baggage. And you have to get many generations into the process before there's an acceptance of a new set of facts.

Jan Hopkins 45:35
And Amanda, what have you seen over a couple decades?

Amanda Abrams 45:42
From when I started as a lawyer to now, I see many more women in more senior roles. As a junior lawyer, I could see a very significant drop off from the amount of women that were in junior roles compared to senior roles, and especially as women or women lawyers had children, it would really significantly narrow the funnel at that point. I think there have been a lot of movements towards more flexibility around work arrangements, more awareness of creating environments and flexible scheduling to help address that disparity at the more senior level, as well as many more networks and initiatives that have been put in place to help women advance to those more senior levels and qualified women, women that are as qualified as men in those counterparts.

What I'm really interested in seeing going forward is there's many women networks that are women for women. Women connecting with each other and moving them forward. But to see more of those networks grow to also include men, so men and women helping women move forward, I think that'll be an interesting next step.

Jan Hopkins 46:54
The reality is that it does need to be a team. And the team is men and women. Women can be supportive of each other. And, and often women are competitive with each other. I mean, it's not all a friendly kind of situation.

Betsy Cohen 47:13
Oh yeah. And as this was emerging, there was what used to be called the queen bee syndrome, which was a woman who had been the only woman in a position and now she's there's another woman, and she was in a competitive position, and she was not happy. But I think we move past that, because the numbers are big enough. No one expects to be the only woman doing X, Y and Z. You know, but it will take time. I mean, pay equality will take time. Today 80%. Now, I'd say it's another 100 years before it gets to 100.

Jan Hopkins 48:10
Well, and women on boards, same thing, that number is increasing. It's not at parity, but many of the new board members are women and minorities. You know, there's a real emphasis in that direction. I was on a board where there were three women, and that made a huge difference. I'm also on a board with two women. And on board with one, it's a very different dynamic. If you have half, or maybe even more than half the dynamic is gonna change. Anything to add to that, Amanda, that you've seen?

Amanda Abrams 48:57
I agree with everything you just said, Jan, I think we, as an organization have been and Betsy especially have been forward thinking in this respect. And I think we've seen a lot more people follow this type of dynamic where there have been pushes not only to have one one woman on a board, but to have more equal representation, multiple women.

I know you mentioned you are part of the first all women board SPAC. And that effort on our part was actually prompted by the regulation that came out around that time that said, public companies had to have one, one woman on the board. And we had set out really to show everybody that you could get not only one qualified woman, it was actually entirely possible and quite easy to find an entire board full of qualified women. And I think more people trying to push that forward, currently and that'll be important for equality.

Betsy Cohen 49:59
I'd say it was Daniel's idea, actually, give him credit for it. But I can remember the first meeting that he came to, that had an all woman board. I think he was terrified. I mean, it was very good on the theory, but when it came to the reality, it was a little bit testy.

[AUDIENCE QUESTIONS ARE TAKEN]

Jan Hopkins 50:41
The first audience question is: The Cohens pioneered US SPAC creation and fintech space. Was there any blueprint which was followed?

Betsy Cohen 51:09
Both Daniel and I come from a lot of public company experience. I took eight companies from an idea to the public markets. Daniel's been in the public markets for many, many years in very sophisticated ways. And for us, it was really a natural next step. It was a reformation of opportunities that we had been involved in before. So I think we benefited from the fact that we had this cohort of FinTech companies at the Bancorp and we could see their growth. But we did already have the public company knowledge.

So I think it was something that we thought very early in the game, I guess, maybe 2014, we started to think about this 2015 was the issuance of first SPAC. So you know, we've been at it a long time, and I think, came to it by building on skill sets that we already had.

Jan Hopkins 52:48
It's different, right? In the sense of not having an exact blueprint.

Amanda Abrams 53:00
I think that when we think back to that first SPAC transaction, there was a blueprint, in terms solely of structures, facts existed, there was a known way to set us back up. But what the team did and was really unique is it took that structure and applied it in a way and and executed it in a way that used all of those skill sets that Betsy just described. So this was the first SPAC that had ever even had a FinTech focus, the first FinTech company that went public via SPAC.

And I recall, in the early phases, people thought of that as very out of the box. SPACs had been historically used for manufacturing companies or companies that were in dire straits looking at a bankruptcy and used to restructure them. So taking this, this blueprint was only a small piece of what made that so successful, it was really all of those skills that were applied in a way of thinking about how to use that structure in a unique way.

Jan Hopkins 54:09
And you know, some of them haven't been successful.

Betsy Cohen 54:12
No, but we had the challenge of having to go to a meeting with a client and actually, spelling SPAC. I mean, we started there. We thought we had made great progress when they could spell it and had heard of it. But we then had to describe it. So 45 minutes of an hour meeting would be talking about what was the SPAC and how did it work and all the rest of it. And then maybe phase three was talking about why we provided a better lens for them as Amanda said we had deep, deep knowledge of the capital markets and the investors and all the rest of it, we just started with what is simply a legal structure. And so we're innovative to that extent. But I don't think we could have done it without the cumulative experience and knowledge that we had had previously.

Jan Hopkins 55:25
Actually, I'm going to close out with a question that kind of goes back about that knowledge. What advice would each of you give to your younger selves about building your career? Amanda, you first.

Amanda Abrams 55:42
I would say that you can look at being in the weeds as being an opportunity, all of those very detailed things that you get into as a junior person. And all of those interactions you have with people trying to figure out all the little details, those are the building blocks that your career gets formed on.

As a younger person, so many people are eager to leapfrog that stage and get to the more senior stage where they feel like they're really adding value, or they're doing something critical, and they don't realize that that's really the building blocks for your career, that that's where you're going to form a lot of the relationships that take you throughout your professional career and all of the knowledge and what makes you really good at what you do later on. I think it's hard to have an appreciation for it when you're in it. But once you're past it, you really, really can see that.

Jan Hopkins 56:39
So Betsy, what advice would you give your younger self

Betsy Cohen 56:43
Always continue to look for opportunities. Maybe not a career, a linear career, you know, but really opportunities and be flexible.

Jan Hopkins 56:56
And that's still the case? Is that right?

Betsy Cohen 56:59
It's still the case for me, because I'm ordinary, but I think it's even more important for a younger person to be willing to insert in their search for what they enjoy doing. Because unless you enjoy doing it, please don't do it. You know, the lens of going beyond their particular niche, and thinking broadly and having broad experiences, which they can bring to the table and enrich the conversation but also not to think about them as career ladders. I mean, going one step at a time, up and up. I mean, it's just, there are so many adjacencies. So look broad, follow your curiosity and seek out new opportunities all the time. Stay curious. Stay curious.

Jan Hopkins 58:18
Thank you both Amanda Abrams, and Betsy Cohen, and all of you who have joined us today for this webinar on women who lead. Thanks, and have a great day everybody.

Webinar: Getting it Right with BaaS

How FIs can invest in the right partners to meet customer demands for embedded finance.

Hear from panelists at MaxwellBillGO, and FinTech Masala as they answer these questions and discuss the biggest opportunities (and challenges) in BaaS for financial institutions.

With fintech and banking pioneers Betsy Z. CohenJohn PaasonenKen Salazar, & Dan Long, moderated by Daniel Cohen.

Watch the full recording here.

Highlights

We're at a point now, both in consumer awareness and technology in support, where the banks can actually take back the customer. That's the real benefit of embedded finance. - Betsy Cohen, Cohen Circle

Today's consumer is frustrated with the fragmentation of what what it takes to manage their personal financial lives, and their well being...The majority of Americans are living paycheck to paycheck, they are literally managing their cash flow on a daily basis, and prioritizing when bills need to be paid. And FIs have not updated that experience and made it easy for the consumer to manage and pay their bills. - Ken Salazar, BillGO

I love the ATM example. Banks were afraid of losing touch with their customer. But in fact, what it did was create another touch point with their customer, where they could have another experience and engage that consumer  as the consumer mindset was shifting and how they wanted to interact with their bank.- John Paasonen, Maxwell

We've seen a lot of large FIS focus on data, how to how to gather data, and use that data to create better products and services. A lot of investors on a strategic basis look at what kind of products they want to integrate upfront that really drive revenue, and how they want to expand their margin. - Dan Long, Cohen Circle

If you have one product with a customer, the customer might move, if you have two products, they're less likely to move. If you have three, you touch them in three ways. They'll never leave. Betsy Cohen, Cohen Circle