WBD254 Audio Transcription

The Banking Lending Crisis with FEDUPBIZOWNER

Interview date: Wednesday 5th August 2020

Note: the following is a transcription of my interview with FEDUPBIZOWNER. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

In this interview, I talk to anonymous Twitter account FEDUPBIZOWNER. We discuss COVID's impact on the lending markets if the banks are facing an insolvency crisis, why stock markets are hitting all-time highs and hedging with gold and Bitcoin.

“I think banks are scared shitless. I think they know what’s sitting on their books and they’re praying like holy hell that they will still be solvent in 12 months.”

— FEDUPBIZOWNER

Interview Transcription

Peter McCormack: Freddy, how are you, man?

FEDUPBIZOWNER:  I'm good, how are you, sir?

Peter McCormack: I'm very good. So before we get going, we should let people know that you aren't really called Freddy, and this is an anonymous interview. But we're going to use the name Freddy for the sake of it, just to let people know about that. But listen, look, welcome to the show. I'm going to tell you why we're doing this, somebody tagged me in a Twitter thread the other day, and they said, "Pete, you need to talk to this guy" and I went through the thread, and it interested me for two specific reasons, I'm going to tell you why.

The first reason is I think it's a very good lens for what is going on economically. But secondly, I think it's also quite a good lens for a potential bunch of fuckery that's going on in the build-up to this 2020 election. Would you say both of those are fair observations?

FEDUPBIZOWNER: 100%.

Peter McCormack: All right, cool. Just before we get started, you don't have any political suasion. I think I saw you say you're apolitical, right?

FEDUPBIZOWNER: I am a libertarian, which is to say I am fiscally conservative, socially don't care.

Peter McCormack: Interesting. Okay, that's cool. Well then we're definitely going to have a little chat about Bitcoin at the end, if you're a libertarian. I've definitely been drawn into the libertarian world. I wouldn't say I'm fully there, I've historically voted, but I didn't vote in the last election. I would say if my hand was forced, I'm kind of right-of-center. I kind of have parts of me socially care about the most unfortunate in society. That's perhaps me not shedding my socialist roots from my childhood yet. But that's where I'd say I'm at.

FEDUPBIZOWNER: Yeah, when I say I don't care, I mean I'm indifferent, meaning I don't believe the government should be involved. Gay marriage is one of those issues that people always refer to, and my response is always, "If you want to marry a donkey, go ahead." It just doesn't matter, I don't think the government should be involved. I do think that the government shouldn't be involved with spending money on things they don't belong spending money on. So that's really sort of where I draw the line. But beyond that, have at it.

Peter McCormack: Well there are some Bitcoiners who would say before when there was a separation of church and state, now is the time for separation of money and state and I think if you weren't in that camp, you certainly feel like going through your Twitter's feed. This already feels like you are there now.

FEDUPBIZOWNER: I think you could say that.

Peter McCormack: Okay. Right, listen, so before we get into it, let's get into it, "Stiff drink time" as your tweet said. Let's start by, do you want to explain to people who you are as best as you can, whilst remaining anonymous, and the work it is that you do?

FEDUPBIZOWNER: Sure! I've been involved with lending to the franchise space for 15 years. So the franchise space in the United States is roughly between 5% and 10% of US GDP, it's a huge part of the economy and where I am is situated realistically between 20 to 30 major US franchise chains, many of which I would assume your listeners are familiar with.

So think Domino's, Jersey Mike's, Dunkin Donuts, Massage Envy, Orangetheory Fitness, which I think is in Britain now and then on the other side, dealing with 15 to 20 lenders, ranging the gamut from SBA for smaller operators all the way up through consortiums of banks for operators who need lines of credit upwards of $30million - $50 million. So I'm sort of at the centre of a lot and I'm one of the only people in the United States with that purview.

What I mean by that is there's plenty of banks who know what's on their books, and plenty of bankers who know what they're going after and what they chase, but they don't know what they don't chase, and they don't know what the other banks have. So I sort of have the view of, "Okay, what are all the lenders doing?" In sort of a summary, and then, what are all the franchisees and franchisors doing? so I have a really unique perspective into national lending and national franchise performance, which is a big part of small business in the US.

Peter McCormack: So you're like a middleman between these two groups of businesses. Do you work on behalf of the franchisees to secure loans, or do you work on the behalf of the loans to find franchisees, or is it a bit of both?

FEDUPBIZOWNER: It's a bit of both because I'm paid either by the franchisee or by the bank. My job is basically to talk to the franchisee, figure out what it is they're looking to accomplish, long-term and short term, and then marry them with a lender who's going to be able to fit that, because what you don't want to do is put them with a bank and then six months later, you're going to have to refinance them out and there's consequences to those things.

So my job is to basically know the lending landscape and understand who the best fit is for somebody and basically save them a lot of time and pain by not making the wrong decision.

Peter McCormack: Okay. It would probably help just to explain a little bit about how the franchisee market works, the kind of economics of it, because franchising is one of those things you start to hear about one day. Like you grow up going to McDonald's and you just think McDonald's is just one big company with lots of branches and similar with Pizza Hut, Domino's, all those kinds of places.

Then suddenly you hear one day there's franchises, you're like, "what is that?" And there's like, "Well one company will own 50 McDonald's across the UK etc" and so it's a new concept you hear of at one point, but just talk about the economics of how it actually works.

FEDUPBIZOWNER: So what happens is a franchisor has an idea, so for instance, Domino's, and they go to market and they sell franchises to individual entrepreneurs who want to open in an individual market. So they pay a one-time franchise fee and ongoing royalty, and then they get to develop that market. So for instance, there was one... Are you familiar with Orangetheory Fitness in the UK?

Peter McCormack: No, I'm not, but please explain away.

FEDUPBIZOWNER: The reason I say that is, there's an owner in the United States who basically developed a certain segment here and then said, "Okay, I've developed here in the United States and now I want to go develop the United Kingdom." So he has the rights to the entire United Kingdom, so basically it's like a sub-license. So the franchisor, like the creator of the concept, doesn't want to own and operate the business on a day-to-day basis.

So what they basically do is say, "Okay, we have the infrastructure in place, you're going to buy the infrastructure, and for that you're going to pay a royalty ongoing to us as the business owner, and we'll support you with national advertising, marketing support, product distribution and things like that." So it has cost, it has benefits, but when a franchise gets to scale, like for instance a Domino's and they can do national advertising, that's going to help your store.

Where it's a smaller concept, you're buying in on the hope that that concept can become the next Domino's, because realistically you're paying for something that you could do on your own at the very beginning of a brand. But if you don't get in early, you don't get the best sites, the best locations, the best areas, so there's cost benefits both ways.

Peter McCormack: And it can be quite lucrative for successful franchise owners and operators?

FEDUPBIZOWNER: Absolutely! To give you an example and I won't name concepts specifically, but if you get into in a location early on a food concept, you could run 20%, 25% margins, which is really high. But then as you get down the chain, in terms of site selection and available markets, those margins can shrink, they could become negative.

So first to the dance gets rewarded by taking the most risk, if the franchise takes off and then there's some chains where it really doesn't matter where you go, the chain's just going to be successful regardless, but those are fewer and far between.

So for a franchisee, it's very important to pick the right concept in the right area at the right time and we sort of do that on our side. I'll have clients ask me about, "Hey, what do you think about this concept?" I've done enough and I've been in this space long enough, I've seen enough financials, and I can sort of advise people, "Should you do this? Should you not do this?" It's just one of the things that I'm able to do, but yeah, it's very lucrative if you're in the right spot.

Peter McCormack: Okay. Let's go back to January this year. You had a good 2019, was it about $500 million in loans that you secured?

FEDUPBIZOWNER: Yeah, roughly.

Peter McCormack: And 2020, good start, could potentially got even as high as $750 million loan secured based on your projections.

FEDUPBIZOWNER: Yeah, at the time that everything froze in March, I had about $300 million worth of loans that were approved or in closing. So I think my estimate was conservative, but I don't ever really like to overestimate. I just know the business was literally booming and credit was free flowing, people were expanding, it was really, really good. The economy was roaring.

Peter McCormack: Okay, good. So COVID hits, obviously, in terms of your business, like everyone's business, kind of everything slows down and we're all trying to figure out what's already going on probably for a month or so. Now we're a few months in, and you're starting to get a very different picture of the economic recovery based on what's happening in the lending market now. Is that fair?

FEDUPBIZOWNER: Yeah, I think it's best to reference sort of '08 and '09 because there's a lot of people who either are owners or lenders, quite frankly, who just have never been through that recession. They're just younger and they never navigated it. So in '08/'09, it was a slow drip of banks tightening up or leaving the space, in March, it was an avalanche.

Everybody stopped at once, banks left, they just closed up shop, laid people off and that's what's been happening in the last few months are just lay offs, banks closing up shop, and we can get into why I think that matters. But it's just a different vibe from '08/'09 because it was just so sudden and so widespread. It was everybody at once and it hasn't resumed.

Peter McCormack: I'm going to try and identify a key difference between I think what happened in '08, '09 and what's happening now. So in '08/'09, obviously it was an economic crash, and then everyone has to kind of figure their way out of it. Some businesses will be fine and some businesses will struggle, but it is a recession. What we've got at the moment is what is looking like a much deeper recession, but a bigger problem is this unknown of when this COVID situation will go away. 

We have places on lockdown, places coming out of lockdown, going back into lockdown and it's a global issue. So I guess one of the things is that, especially in these franchisees and franchise markets, that they are tight margins and if businesses are going to have to open and close, or have a limited customer base because especially if you're operating say a concert venue, particularly difficult situation at the moment, I would say that is one of the biggest differences, right?

FEDUPBIZOWNER: Yeah, but what I have found very interesting for the most part about what I'm seeing, is unless you are a public gathering type concept, and what I mean by that is a gym, a school, a cycle centre, things like that, where the government is mandating certain percentages of occupancy, think of chains with drive throughs, they're not necessarily as effective. What I am seeing mostly is that if you're not in one of those segments, the business owners are just fine. That's what's really different about this, this is a bank problem.

Peter McCormack: Okay.

FEDUPBIZOWNER: This isn't an owner problem because I have clients and everybody harps on the PPP as not working and you know what? It had its fault, but in my sector, if you were able to stay open and you weren't forced to close, you have the government cover your payroll for two and a half months while you were still operating and having sales and a lot of these guys are literally sitting on all of that cash.

So you have business owners who are flushed with cash, who would like to use it to go buy people or expand and they can't, because they're shut off from the credit market.

Peter McCormack: Okay, so let's dig into that. What's going on in the credit market then?

FEDUPBIZOWNER: There's three different types of lending. So I'm going to try to keep this easy for listeners who may not be familiar and I'm going to use school analogies. You've got elementary school where you learned to read and write, that's an SBA. It's for younger businesses who are just learning. It's more risky, you don't know how the "student" is going to turn out, and it's for startup sort of businesses. So it's not designed for an operator with 20 units in 10 years time in business.

If you want to get into specifics of why, we can certainly do that, but for the most part, SBA is for startups and right now that's the majority of what is available to borrowers, hence the problem. Then you have sort of the middle school market, which are loans from say $500,000 to $2 million, and they're designed for people who have say two to five years time in business, a couple of operating entities that are profitable and are now looking to expand and of take it to the next level.

They've proven themselves as capable business owners, and now the private debt market is open to them. Then you have sort of the college level, which are private lenders who focus on bigger operators with loans, generally ranging from $2 million to say $30 million. That's the market that is most effected right now, and that's the market that quite frankly needs to get unfrozen.

Then you have basically the PhD level, which are guys who are at $50 million worth of debt, and they're really into private equity and bank consortiums and things like that. Those markets are really affected, but they're bigger operators, so the solutions for them will end up a little different, and I don't know that that's really viable for what main street is dealing with, because majority of the franchise owners fit into that under $30 million box in one way or the other.

Peter McCormack: Okay, and just to repeat, you're saying for some of these companies or these franchisees, that businesses are fine, they're profitable, they've got enough business, they just can't ask access credit.

FEDUPBIZOWNER: Right. I want you to think of it this way, are you familiar with the mortgage market at all, like home mortgage market?

Peter McCormack: Yeah, in that I have a mortgage.

FEDUPBIZOWNER: Well, no. I mean with what's going on in that market.

Peter McCormack: No, please tell me.

FEDUPBIZOWNER: My neighbour's a mortgage broker, I have friends who are mortgage brokers, so some of this is anecdotal and some of this I know just from reading an article. So if I'm wrong, correct me, but from what I gather, if you have a Fannie or Freddie backed loan or FHA loan, no problem because the government's buying your loan. That's the SBA equivalent. As soon as you start hitting jumbo, it's very difficult, as there are strict lending requirements, high net worth, high down payment, high post-close liquidity, those same sort of issues are present in the business lending market.

Peter McCormack: Can we just go back a step? So in the mortgage market your loans are protected by the FDIC, is that correct?

FEDUPBIZOWNER: I'm not a mortgage broker.

Peter McCormack: I think it's the FDIC, because I did some looking into this with regards to... I did a thing about Steve Mnuchin and what happened with OneWest. They would insure the loans of the banks, so if the banks ever collapsed, it would protect the economy. That's what the FDIC does. Is the SBA this similar for corporate loans?

FEDUPBIZOWNER: Yeah, so the way the SBA functions with business loans is the bank will originate the loan and the government, they collect an origination fee and then they are paid X amount of points by the government for originating the loan. They have to service the loan and for that, the government will buy 80% of the guarantee if the loan goes bad.

So the bank services the loan, they either will keep them on their books or sell them off into a portfolio where people are investing in them. But regardless, SBA loans are backed by the government anywhere between 75% and 80% depending on when they were originated.

Peter McCormack: So the SBA is a small business administration, right?

FEDUPBIZOWNER: Correct.

Peter McCormack: Yeah, someone will correct me if I've got this wrong, but that sounds very similar if not the same as what the FDIC does with regards to mortgages.

FEDUPBIZOWNER: Yeah, I'm not sure if it's the FDIC, but I know it is Fannie and Freddie that are buying them. I don't know all the mechanics, that's not my world, but yes, conceptually it's going to be the same thing.

Peter McCormack: But also, I guess this makes a more buoyant market for lending because the banks that are lending know they have a certain amount of protection.

FEDUPBIZOWNER: Correct, but that's where the problem's coming in, as those banks are still not lending freely. So I think it's best to use a few examples because I think that's how your listeners will understand this. Even though the government is backing the loans, you still can't get banks to lend to certain industries and they wouldn't even want to take on a 20% risk.

So you have that aspect, where if you're a gym owner or you own like a trampoline park or a concert venue, things like that, it's nearly impossible to get a loan right now, even through the SBA where the government's guaranteeing 80% of the loans.

Peter McCormack: Okay.

FEDUPBIZOWNER: The second problem is the SBA has a standard operating procedure with a litany of rules that almost nobody understands, just sort of like the tax code here, that describe how you must underwrite a loan in order to get the guarantee. But the biggest problem with that manual is it doesn't cater to larger operators. Remember we said at the beginning that SBA is designed for smaller operators with one or two units, startup entities, it's not designed for somebody... I ike the analogy, you ever watch Elf? Where the elf is sitting in class with all the first graders?

Peter McCormack: Yeah.

FEDUPBIZOWNER: He's huge! That's the equivalent. You're trying to put somebody huge into a first grade class, it doesn't work because of the operating procedures. So the way the SBA underwrites, and it's quirky, and it quite frankly needs to be changed if they're going to be the only game in town, and it's part of the problem with the credit market, is if you have 15 units and you want to refinance your loan, in order to refinance under the SBA, if you have 15 separate entities, each entity needs to cashflow its own debt.

Meaning if you have 14 stores that can service the debt, and you have one unit that cannot, and you are currently with a bank that has a lien on all 15 of your locations, well you can't refinance through the SBA, because your current bank is not going to release your lien and the SBA can't loan you the money because every store can't service its debt. So that's one of the reasons why the SBA does not work. The second reason is they have lending limits, they can only go to $5 million. Now it got extended to $10 million in the CARES act, but banks have conveniently just ignored that positive change.

Really the third reason why SBA sort of just doesn't work, and I'm going to use an example for this, is I have a gym owner who has no debt. It's a chain, I won't say which one, but it's a high profile chain, it's desirable by banks and in March, banks would've ran over themselves to get this guy as a client, so he has no debt. Typically this person would belong in the conventional market for loans, they would not be in an SBA, so three units, $1 million in profit and no debt, that is quite literally the ideal borrower for a bank.

Peter McCormack: Of course, yeah.

FEDUPBIZOWNER: So he comes to me and says, "Hey, I'm sitting on this cash, but it's personal cash, I don't want to dig into it. I'd like a loan for $750,000 to continue to fund my business because I'm not sure what's going to happen. I just want to take advantage of what's going on and just have a buffer." I said, "Okay, no problem. That should be easy to do." So conventional market again is closed off to fitness and so I sent him to the SBA. I get back "overqualified", because he has too much cash on him.

Are you starting to see why the SBA as a solution does not work? These are loans that frankly don't belong with the SBA, but because of how the conventional lending market has been closed off, they are stuck there and the standard operating procedure of the SBA is so restrictive and so rules-based where you can't make exceptions, that good borrowers can effectively be shut out of the lending market right now.

Peter McCormack: There could be something else going on here, the timing's funny. I just went down to the shop early to grab a coffee, and I bumped into a girl I know who is a personal trainer and her boyfriend is a spin instructor at our local gym, the gym I'm a member of. I was just chatting to her and she said, "Have you been back to the gym yet?" I said, "No, I've been even thinking of getting rid of my membership." I won't to say her boyfriend's name, but she said, "The gym is empty at the moment, there's nobody in there, there's nobody going."

You also know I've kind of set up a home gym, I've got myself a Peloton, I've got some weights and stuff here, I'm going outside running and I don't actually have a need for a gym here. Now I know what you're saying about the SBA here, but is there also another thing going on whereby potentially risk departments are starting to see societal changes, even if they're short term, but perhaps certain gyms who are in debt, aren't able to service their loans because even though they're back open, their revenues are down, they maybe are seeing...

You know when we had the housing crisis of 2008, and if you watched The Big Short, there was that guy watching the defaults and he was seeing the default screen.

FEDUPBIZOWNER: I love that movie.

Peter McCormack: Yeah, but is there a potential here that there's other signals from the market coming in like large numbers of people canceling memberships, certain gyms unable to pay off their debts, and then there's also this kind of recognition of these category of businesses which require public gatherings as just too high risk now?

FEDUPBIZOWNER: I agree with you, except that my data from the people I'm talking to is in places where the government is not mandating restrictions. They are generally back at 70% to 80% of where they were.

Peter McCormack: Right, okay.

FEDUPBIZOWNER: So from that sense, given the margins on most fitness concepts, they're still profitable and they can still service their debt. So I agree with you to an extent, but the data that I see doesn't validate that yet, except where the government is involved. With that being said, your point is correct in so far as I have had... I don't want to get really stuck on onto fitness here because it's more widespread, but I have gotten excuses from lenders that basically say, "Yes, the numbers are fine, but we're afraid that they may have to lock down again."

So the lack of a clear policy in terms of shutdowns and what will cause it and when they can reopen, that is the bigger issue. In terms of any business that requires large public gatherings to make money, it's the uncertainty of what the government will do, not necessarily a reflection on the business or the business owner. It's the macro environment from the government, not on the business itself, if that makes sense.

Peter McCormack: Okay, I think you need to just be like quite specific. What do you think is going on here?

FEDUPBIZOWNER: Truly going on?

Peter McCormack: Yeah, truly going on.

FEDUPBIZOWNER: I think banks are scared shitless. I think they know what's sitting on their books and they are praying like holy hell that they will still be solvent in 12 months.

Peter McCormack: Yeah, I thought you were going to say something similar, because I feel like right now we are teetering on the edge of an economic apocalypse which I see, and a lot of people I know, say for example in this Bitcoin world I operate in, they see it. But outside of that, in friendship circles, people who just do standard jobs, I don't think they do see it and I think there's this real lack of understanding of how the economy works, which I don't fully understand by the way myself.

But I think some people think, "Oh, we had a lockdown, we've got a government. The government can just print money and provide these furloughs schemes, and then we're all going to go back to work and yeah, maybe some businesses are going to close, but perhaps in a few months we're going to be back to normal." But clearly we're not.

FEDUPBIZOWNER: No. I live in my own bubble, but I know that my bubble provides a lot of jobs and it's outward facing to the public and basically if you drive down the street in America and you go by a street mall, those malls are filled by my franchise brands. America's one giant franchise brand when you drive down the street.

So I know that what I see is truly what's going on, on what the public's going to see as far as vacancies in street malls and things like that and so the larger point that I'm making about the bank specifically, is they've left the space on the private lending side, they're just gone and the ones that are left, and I'm talking banks that I worked with through 2008 and 2009, they've just laid everybody off.

The ones who are left are either running at skeleton crew, meaning they've laid off everybody but one sales rep, one credit person and one person to close loans, they're either doing that, they're either not taking new clients and not loaning money to old clients and just sort of managing their portfolio, a combination of both of those things, or if they are taking new clients, it's the 1% of the 1%. So what I mean by that is, I'm going to give you a true example, because I think it's the easiest way to do this. If you own a Domino's or a Popeye's or a Wingstop, franchises that are thriving right now, you can still access the debt market.

We're just going to talk about two similarly situated people. You're a Domino's owner, you have 20 units, you have 10 years' time in business, you've got $5 million in EBITDA and $5 million in debt. You're one-to-one leverage, you're quite literally one of the best qualified borrowers on the planet, you can get along. I subbed that exact same person out for a B level or C level brand, I'm talking brand, so like a massage shop that only has 300 open units nationally, or a gym similarly situated, you do not get access to the conventional credit market.

So it's buyer specific and client specific as well as brand specific. Unless you're part of a tier one brand and you're a tier one operator, conventional lending is dead for you. It doesn't exist, it's gone. In terms of the SBA, as a fallback, for all the reasons we already discussed, it doesn't work for somebody who is Buddy-the-Elf size sitting in a first grade classroom, it can't work.

So the lending market is frozen in respect of growth and what worries me about that are the repercussions, because if you can't grow, you stagnate, which means you can't turn over the bad operators when you should be... I call it sharks need to eat and right now the sharks can't eat cause they're locked in a cage and the only way they're going to get out is either if banks start lending, or they're going to get stuck having to use private equity, and that doesn't work well for anybody long term.

Peter McCormack: Well, no. I've got very, very limited exposure back from when I used to work in advertising. We had an agency and we used to do work with a restaurant brands and very small ones actually that were five or six kind of locations and I remember too getting swallowed up by the venture capital firms that invested in them because something went wrong or rather they got completely swallowed up because they're vultures.

FEDUPBIZOWNER: Some are, not all are. But the point is, if you're an entrepreneur...

Peter McCormack: But it's expensive money, to borrow?

FEDUPBIZOWNER: Right! I'll give you a couple real world examples that happened to me in the last few days since my thread went viral. Private equity is designed for people who A, either want to grow faster than banks will let them, or B, can't access the debt market and want to grow. That's really what they're for. Good idea, banks won't give you money, so you need to take on an investment.

If you're an entrepreneur who has built a 50 unit business, where you're doing $30 million in sales, and you're doing just fine, why do you want to take on a partner and give up your equity that you've built so hard, that you've worked so hard for just because the debt market is not open to you? Because if you don't do that, your alternative is going to be taking sort of mezzanine hard money debt at 9% or 10% and that's just unsustainable for somebody of that size, because if you have to look at the difference between an interest payment on 7 years at a 4% loan versus a 10% loan, it's enormous.

The credit markets need to function in that mid tier range for people who are not looking to take on a private equity partner for various reasons, and don't want to spend 9% to 10% for money, simply because banks don't deem their brand viable. That's where we're headed, and that's the problem.

Peter McCormack: What do you believe are the wider implications of this economically? Is this like a strong signal that we're heading into a very deep recession, or is it a strong signal that we're heading into some kind of... Because I was talking about it to a friend earlier today. He's got a advertising agency in London, since they've been put on lockdown, everyone's worked from home. They were about to take out a two year lease on a shared office space, but they've cancelled it.

They've decided they're going to be a remote company now. So they've got a shift in what their business is doing. That's going to have quite a drastic impact on major city corporate offices. I spoke to another guy in San Francisco who's going through a similar situation. So we've got that going on, we've got a recession, we've got people perhaps wanting...

So I've spoken to a lot of people who've treated this lockdown as a way to rethink their life, reconfigure the way they want life. You add that to the economic data, and we've got quite a strong shift in society. So what do you think is going on here? Are we just talking about recessions here?

FEDUPBIZOWNER: No. Personally, I think there's something major going on under the surface, but quite frankly, I'm not the one pulling the strings. I know there's people that have to be somewhere and I'm not privy to those strings. As George Carlin says, it's a big club and I ain't in it. So all I can see are what the effects of what their policies are and whether it's intentionally sabotaging the bank lending market, or they're just plain stupid and not understanding what they're doing, I can't really figure it out.

Peter McCormack: Well, if this was intentional, what could they be doing, and what would the benefit be?

FEDUPBIZOWNER: If this is intentional, their plan is to nationalize the banks, there's no question.

Peter McCormack: Okay.

FEDUPBIZOWNER: If you eliminate the private lending market, if you follow this through to where it is right now... Right now you have limited banks who will only lend to limited borrowers in that medium sized range between $2 million and say $50 million. That market is basically nonexistent. then you have government backed banks who are screaming by the way, and this isn't public knowledge yet because the bill isn't out but I'll just share it.

The banks on the SBA side are screaming for the government to up their guarantee to 90% because they really don't want to take any risk at all. Well if they do that, how big of a leap is it to go from a 90% guarantee to 100% guarantee on any loan that you do, the government buying it all in defacto nationalization?

Peter McCormack: Okay, yeah. But the problem with that if there's no risk lending, we can get back to almost like crazy times with the housing market lending in the build up to 2008. You need some kind of game theory risk when you're lending money.

FEDUPBIZOWNER: I agree, but I can't figure out. If I knew the end game, I would be a billionaire and I would already be retired. It's just impossible to know what it is that they're doing. I can just tell you what the repercussions are, is that the debt markets are shut off to a lot of people, and the only way they're going to open up it seems is if the government starts guaranteeing more of the loans.

Peter McCormack: Let's talk about the other thing that's going on which I'm very suspicious about, but I think is kind of obvious, right? So Donald Trump, most of his speeches and his interviews, he talks about having the greatest economy ever and I don't know what his measures are, but whatever. He said he had the greatest economy ever. Certainly the economy was doing well on certain measures, perhaps not another's, but let's give him the benefit of the doubt.

I would say by the way, you take us back to January '19, the 2020 election was a landslide Trump win, if you ask me. Now we have COVID, which comes with a whole bunch of other issues and problems that he's had to navigate and we have economic output is down, unemployment is up, yet we have the stock market at record levels.

Now we know it's fairly simple to pump the stock market by where you put the stimulus money, you could be writing checks to people who are out of work and who need to eat, which has happened, but you can also write massive checks to private companies who are able to buy back stock, able to manipulate the performance of their business. I'm under the impression that these are the things that have led to the stock market being at record levels. I believe this manipulation is entirely on purpose because this is a solid argument going into the 2020 election. What about you?

FEDUPBIZOWNER: Yeah, the market's a joke. It doesn't reflect reality. I'm not a stock market guy, I'm invested personally myself I am a 100% in gold and gold miners because I'm betting against the Ponzi scheme that this is, it's all going to come crashing down. It's unsustainable, and either we're going full Zimbabwe and our stock market's going to a 100,000 on the Dow because the dollar will be worth zero or it's coming down and either way I want to own gold. So that's where I'm invested because I'm not buying Apple at...

Well I don't know, what is it today? $400 a share, $450? I have no clue. I'm not going to buy Tesla at their valuations, it's just silly to me. So myself, I'm in gold, I have a large physical supply and I don't know how they're going to keep this thing going other than to keep printing money, so that's why I'm positioned where I am. But they're going to do whatever they do, but I'm not a financial advisor, I'm just doing whatever I can as sort of an average person to protect myself from what I see coming.

Peter McCormack: I think that's a very fair way of looking at it, it's like the lens that you've seen in the lending market that you operate. But interesting, let's talk about the gold thing.

FEDUPBIZOWNER: Actually, if I could take this back, and truthfully, I think I know too much, because in full disclosure, I tried to short this market for about three months and got my ass kicked.

Peter McCormack: Jesus.

FEDUPBIZOWNER: I got destroyed for three straight months, because I'm like, "This is unsustainable, I know what's going on in the lending market in the real world, how is the stock market doing what it's doing?" Then I just came to the conclusion that they don't care, and this has become a matter of basically national security to keep the stock market where it is and to keep it going up.

So I've had to join the party. It goes against everything that I again believe, but what am I going to do? I can't fight the system forever and go broke just because I know what's really going on. I got to sort of just accept it for what it is and try to navigate it.

Peter McCormack: There will be a time when it is good to short the market. I don't know when that is either, I don't trade the stock market anymore, I haven't done it for years. I have got my ass kicked before with things that don't make sense at all to me, but I tell you, one thing does make sense to me, is gold, so let's talk about that. I think this is an interesting topic to get into, because I am going to make you talk about Bitcoin a little bit, just a little bit.

FEDUPBIZOWNER: That's fine.

Peter McCormack: All right, because I think you and I are... Do you know who Peter Schiff is?

FEDUPBIZOWNER: I love Peter.

Peter McCormack: Yeah, so I debated him recently. Well I say debated him, he talked over me for about an hour and a half.I tried to get a few points in, but the main point is I think we are on the same side, and I think the reason you own gold is the exact same reason I own Bitcoin. I think we're on exactly the same side.

FEDUPBIZOWNER: I would agree. There's just no way... It's always the same rationale and I actually read something today where it said... I'm a millennial, and it said that millennials are flocking to Bitcoin and older generations are flocking to gold. It's the exact same reason, people aren't stupid.

Peter McCormack: I actually want both. I haven't got gold yet, my intention is to get some. I actually want both, and I think it's sensible to dig a hole in the garden, put some cash in there in case there's a run on the banks and have a bit of gold in there and I definitely want to buy some gold. I haven't got there yet, but I am pretty balls deep in Bitcoin right now, I'll be honest. I think we're there for the same reason, but I want to ask, how much have you looked at Bitcoin? How much do you know?

FEDUPBIZOWNER: I know enough, my background's in law also. So my issues with Bitcoin are not that it's Bitcoin, and if you can refute these, I would become a Bitcoin supporter, but I've never had anybody effectively satisfy my concerns on my issues and I have a few.

Peter McCormack: I'm in for the challenge, let's go for it.

FEDUPBIZOWNER: All right, so my biggest issue with Bitcoin is I don't believe that the next war is going to be fought with weapons. I believe it's going to be fought cyber and through computers and if there's no power and no computer network, your Bitcoins are useless. That's my biggest concern with Bitcoin, is it's not tangible, it's not physical, and if the power's off or you're there jamming signals, you can't effectively access your money.

That is my number one concern, and I've never had anybody be able to refute it other than it would be Mad Max and your gold won't matter either. That's great, but at least I know that someone will take it if they have something I want.

Peter McCormack: Yeah, I mean that is a point. I don't know if it's a fair point, but definitely it's certainly a point. Okay, let's deal with that in a couple of ways. Firstly, I'm not sure on the odds of that war coming, and if it does come, I'm not sure that I'm going to be stuck. I think the chances of me being stuck in the UK with no power or access to power, I think is so low that I think the investment in Bitcoin is still worth it.

I still want to hold gold, but I understand the point you're making. Actually, even if there is no power, you will still have generators, you still have mesh networks, so there will still be the ability to use Bitcoin. It will be sure difficult, but that's a very tough argument to go up against and I think it's a very unlikely scenario.

FEDUPBIZOWNER: So that that's my first issue. Second issue is... This one you could probably...

Peter McCormack: Well, I would say with that one, even if you believe it, I would say... So for example, the reason I want to hold a bit of gold and my gold would be kind of probably 10% of my Bitcoin holdings.

But the reason I want that bit of gold is for that scenario whereby I need something in my hand just in case and it's not that I can't access the internet, but maybe I have to do some kind of trade with somebody who doesn't want Bitcoin and doesn't know anything about it, but that would take gold.

So I've got a similar scenario and a similar reason for holding gold and my proportion is so low because I think it's such an unlikely scenario.

FEDUPBIZOWNER: Yeah, well, I don't think it's unlikely and I have one reason for that.

Peter McCormack: Okay.

FEDUPBIZOWNER: There is no chance that anybody is going to win a military war with the United States, and the only way you will ever beat the United States in a war, just because of geographical reasons, the way our borders are, just the way we're situated, there is no way to beat the United States without defeating it from within and the only way you're ever going to do that is by turning the lights off.

So for me, I don't think it's as far fetched as you might, because nobody stands a chance going up against us in an actual hot war where bombs are being dropped.

Peter McCormack: Well I've always thought we're at that point now where it doesn't make sense for any superpower to go to war.

FEDUPBIZOWNER: It's utter destruction.

Peter McCormack: Yeah, it's utter destruction. But I also don't think there's any benefit to attacking each other's infrastructures and turn the lights off. It's a different kind of utter destruction, but I don't see that coming. But I accept your point.

FEDUPBIZOWNER: Then my second reason that I just don't really like Bitcoin is more just logical and I'd love to hear a refutation on it quite frankly.

Peter McCormack: All right, let's go with this one.

FEDUPBIZOWNER: There is 0.0 chance in my mind where the government, if they decide to go with a crypto based system is going to allow an outside the system challenger, just like they don't allow random people to print their own money. To me, Bitcoin and all cryptos would fall right into that category of direct competitor with government issued currency, and they would be outlawed immediately.

Peter McCormack: Okay, this is more of an interesting one to get into and again, there's a couple of points here. The government cannot create a competitor to Bitcoin, they can create a cryptocurrency in that it is a currency that can be exist online, it can exist on a blockchain, you can use cryptographic proofs and I'm uncertainly out my depth in certain technical explanations, but what they cannot do is they cannot create something like Bitcoin and they have no need to.

Why would they? Let's go with the key fundamental feature of Bitcoin, which they will never do. Bitcoin has a limited supply of 21 million. There is no scenario where a government will create a fixed supply say of a digital dollar or a digital currency, because that means they lose the money printer. So that scenario will never happen. Secondly, the thing about Bitcoin is it has this trust network because it's decentralized, it isn't owned by anyone, it can't be controlled by anyone and so because of that, people trust it a little bit... Kind of a lot more.

FEDUPBIZOWNER: I agree with everything you just said.

Peter McCormack: Well, on the final point, the great thing about Bitcoin is we've got an example, is that you can't switch it off. So China banned Bitcoin, but they can't stop people using it. The only thing that would happen is if they banned it, there would be a temporary hit on the price, which happened when China banned Bitcoin.

But when China banned Bitcoin, it was about like, I don't know, $3,000, $5,000 and we're back at like $11,500, we've been to $20,000 and you cannot switch off Bitcoin because it's decentralized. So the US can ban it, but they can't stop people using it. I can carry the private keys in my head and I can transfer Bitcoin to you without anyone knowing.

FEDUPBIZOWNER: I agree with you, but here's where I will push back and all points are valid, I agree with all of them. I just don't think they'll overcome the government power that would happen, and here's why I say that. What does government do? Realistically, what is their number one function?

Peter McCormack: I guess that depends on who you are. So I think the number one role of government is to stay in power.

FEDUPBIZOWNER: Right, how do they stay in power?

Peter McCormack: By manipulating the people to vote for them?

FEDUPBIZOWNER: Well that's one, but what is the tool of their power? Taxes. There's no government on the planet that is going to allow a business, it doesn't matter if you and I barter through Bitcoin, they don't care about that. What they'll care about is, "Is the McDonald's franchisee accepting Bitcoin, not reporting that income and circumventing my tax system?"

For that reason, they're going to ban all businesses from accepting Bitcoin and if they do that, which they will, because they won't be able to collect taxes on the sales otherwise, we're talking sales tax at the point of purchase, we're talking income tax on the profits, we're talking all of it and because government will never, ever forego the ability to collect the maximum amount of taxes possible, they will ban all businesses from accepting Bitcoin and at that point, it is effectively dead as a unit of measure of currency.

Peter McCormack: Let's call that a scenario. Let me give you an alternative scenario, which maybe is worth having some small exposure to Bitcoin. Bitcoin is an asset, it is essentially a digital gold, scarce supply, what if we have a scenario whereby a government or your government has recognized the benefits of having a digital version of gold?

The government holds gold, what if the reason they don't ban it, is because they hold it themselves? What if the fact that they've got in so early and they've got a decent size holding, it doesn't make sense for them to hold it because they hold so much value in it. What if holding a high position in Bitcoin is beneficial to the government on a geopolitical level.

FEDUPBIZOWNER: If that was true, I would agree with you. But personally, I don't know enough about Bitcoin, so I'd be purely speculating with this next statement, but I haven't seen that governments worldwide have stores of Bitcoin.

Peter McCormack: So it's starting. Again, these are the nefarious states because it helps them to get round sanctions, but we know North Korea, Venezuela and Iran have all used Bitcoin. We know that. What we don't know if there are... It doesn't make sense for a government to admit they're stacking Bitcoin, because that's a signal to the market, which would create a run on the Bitcoin essentially, the price would skyrocket, but it wouldn't be beneficial.

FEDUPBIZOWNER: Bitcoin would go to infinity if that was the case.

Peter McCormack: Well it would certainly shoot up and I would be able to buy a Lamborghini. But what I'm saying is I accept all your potential scenarios, they are potential scenarios, but I still think Bitcoin suffices. The one thing that I really love is that you can ban the trade of Bitcoin, but you can't stop it. You can legislate against it, but you can't prevent it.

FEDUPBIZOWNER: I completely agree with you. Like I said, you're not wrong about any of your points, none! My issue just comes in terms of, will it be worth what you think it might be worth, right? Because you have to think of it from a business owner's perspective. If they move accepting Bitcoin illegal, and there are criminal penalties to it, no business is going to take it and that means you end up on sort of the eBay system, which by the way, it will still have value.

There is no scenario in my view, just like with gold, where Bitcoin will have no value yet. I know Peter Schiff, that's his point, Bitcoin's going to zero, but that's stupid and nonsensical. It will have value because there will be plenty of people who... Say the United States bans it, but France doesn't, there will be plenty of businesses in France who will gladly take Bitcoin. So the upside risk for you is that Bitcoin becomes so prevalent that businesses revolt against those laws on mass, that's a giant upside for you.

I just don't know if governments cracked down and truly cracked down worldwide, and it would be coordinated by the way, it wouldn't just be one country, it would be all of them at once. I don't know that business owners on mass would push back. It would be a battle quite frankly and that's why I'm not comfortable with Bitcoin, because I'm not sure they'll win a battle with all of the nation states against them.

Peter McCormack: This is where I think it comes to hedging. For example, I'm very comfortable with Bitcoin, which is why I hold the majority of my wealth in it, but I still want a bit of gold just in case because I have this kind of nagging thing in the back of my mind.

I think for gold bugs you can flip that the other way, and if you understand what Bitcoin is, and it's like a digital gold and you understand the risks and you have those fears, but at the same time you know the upside, should you be wrong, isn't it worth having a small amount of exposure for that potential huge upside?

FEDUPBIZOWNER: Maybe. I'm not convinced personally. I'm just not convinced of digital currencies and what I don't like about Bitcoin the most, forget my thoughts on the geopolitical side and all of that, those are tail risks and they are what they are. My biggest concern with Bitcoin is it's not stable. It can go from $12,000 to... What did it do the other day? I think I saw it went from $12,000 to like $10,000 in like 5 minutes.

I'm not comfortable with something that can do that, that doesn't work for me personally. There are those who can tolerate it because they're just in it for the long haul, whether it goes to a $1,00 or $100,000, it is what it is. You have a belief, I am not comfortable investing in that scenario.

Peter McCormack: You know why it does that though, right?

FEDUPBIZOWNER: I don't actually.

Peter McCormack: It's gone from a value of $0 to $200 billion in 10 years and I think for most Bitcoiners the kind of end goal here is taking over gold, is being a more dominant form of money or dominant asset than gold. You can't go from $0 to $10 trillion without a bit of volatility.

FEDUPBIZOWNER: That's true.

Peter McCormack: But over time, if you actually go measure it, over time, the volatility is starting to show indications of leveling out. The volatility now, it's not like it was five years ago and certainly not like it was 10 years ago, because as Bitcoin grows, there's more liquidity in the market, there's more ways to trade it and it's becoming less volatile. But at the same time, gold has been volatile to the upside over these last few months.

FEDUPBIZOWNER: Well the truth is gold and silvers particularly, they've been suppressed for years. They're not even back to fair value from where they were, I believe, and I'm not a money expert, but I could swear I saw something the other day where to get to fair value from like 1987, it still needs to get to inflation adjusted like $2,500 puts it in inflation adjusted.

Peter McCormack: Wow!

FEDUPBIZOWNER: So we're still under where gold should be. So we haven't even got to where it's going, because we're not even...

Peter McCormack: Yeah, well isn't Schiff calling for like $15,000 an ounce gold or something?

FEDUPBIZOWNER: If we're going to print unlimited money, there's no limit to where gold can go.

Peter McCormack: Yeah, true. Well I think we're on the same side, you're still playing CDs and I'm listening to MP3s.

FEDUPBIZOWNER: Truly it's possible. I am more afraid of what governments would do the same way that they confiscated gold in the '30s, which by the way, that's a very big risk as far as I'm concerned for what I'm holding and I am afraid they would do the same thing the best way that they could to Bitcoin, because the thing government will not tolerate is a competitor. It just won't tolerate it. Whether that competitor is gold or Bitcoin or both, they may come after both.

Peter McCormack: No, it's true and do you know what? The rebel inside me is someone who listens to rock and roll music and is covered in tattoos, the other thing I like about Bitcoin, is it's kind of a fuck you to the government. Well listen Freddy, this has been great, it's been super useful.

I appreciate you coming on and talking about this to me. I think a lot of people are going to be interested to hear what you say, because I think this lens that you have into what's going on in the economy is very important right now, and in some ways it's super scary. Usually this is the point I'll say, "Look, tell people where to follow you and how to get in touch." You can let people know your Twitter handle anyway.

FEDUPBIZOWNER: Yeah, it's @HRGPFOREVER, and then my tagline is "FEDUPBIZOWNER". It's a livestream of my sarcasm and rants at how screwed up the system is at the moment.

Peter McCormack: Yeah man, we're all seeing it! Look, I appreciate you coming on though Freddy, it's good to talk to you. Listen, let's stay in touch, I'm pretty sure I'm following you now and I'm going to be looking out for your rants and seeing what else you got to say. But yeah, keep doing what you're doing and I hope your account keeps blowing up. I think you've had some interesting stuff out there.

FEDUPBIZOWNER: I appreciate it, thank you for your time!