The Chris Voss Show - The Chris Voss Show Podcast – The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

Episode Date: July 28, 2020

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor Katharina Pistor Capital is the defining feature of modern economies, yet most people have no idea where it actually comes from. What is it, exactly, that transforms mere wealth into an asset that automatically creates more wealth? The Code of Capital explains how capital is created behind closed doors in the offices of private attorneys, and why this little-known fact is one of the biggest reasons for the widening wealth gap between the holders of capital and everybody else. In this revealing book, Katharina Pistor argues that the law selectively “codes” certain assets, endowing them with the capacity to protect and produce private wealth. With the right legal coding, any object, claim, or idea can be turned into capital—and lawyers are the keepers of the code. Pistor describes how they pick and choose among different legal systems and legal devices for the ones that best serve their clients’ needs, and how techniques that were first perfected centuries ago to code landholdings as capital are being used today to code stocks, bonds, ideas, and even expectations—assets that exist only in law. A powerful new way of thinking about one of the most pernicious problems of our time, The Code of Capital explores the different ways that debt, complex financial products, and other assets are coded to give financial advantage to their holders. This provocative book paints a troubling portrait of the pervasive global nature of the code, the people who shape it, and the governments that enforce it. Awards and Recognition One of the Financial Times' Best Books of 2019: Economics One of the Financial Times' Readers' Best Books of 2019 One of Business Insider's Richard Feloni's best books of 2019 on how we can rethink today's capitalism and improve the economy A Project Syndicate Best Read in 2019 Katharina Pistor is a leading scholar and writer on corporate governance, money and finance, property rights, and comparative law and legal institutions. Pistor is the author or co-author of nine books. Her most recent book, The Code of Capital: How the Law Creates Wealth and Inequality, examines how assets such as land, private debt, business organizations, or knowledge are transformed into capital through contract law, property rights, collateral law, and trust, corporate, and bankruptcy law. The Code of Capital was named one of the best books of 2019 by the Financial Times and Business Insider.

You wanted the best. You've got the best podcast, the hottest podcast in the world. The Chris Voss Show, the preeminent podcast with guests so smart you may experience serious brain bleed. Get ready, get ready, strap yourself in. Keep your hands, arms and legs inside the vehicle at all times. Because you're about to go on a monster education roller coaster with your brain. Now, here's your host, Chris Voss. Hi, folks. This is Voss here from thechrisvossshow.com. The Chris Voss Show.com. Hey, we're coming to you with another great podcast.

We certainly appreciate you guys tuning in. We've had some really exciting authors and people of brilliant minds that have been on the Chris Voss Show lately. Thanks to a lot of people like Princeton Press who've been sending their authors to us so that we can take and interview them. But before that, be sure to refer the show to your family, friends, or relatives. Get them to go to thecvpn.com or chrisfosspodcastnetwork.com. There's nine podcasts. You may hear these podcasts on any one of those podcasts. The Book Author Podcast seems to be a popular one where people just love listening to great authors, so be sure to check that out as well.

And if you want to see the recorded version of this in video on The Chris Voss Show, you're going to youtube.com forward slash chrisvoss. Make sure you subscribe to the show. Give those videos some likes so that, you know, we keep making more. That's always a good idea. Today, we have a very brilliant author I'm excited to have on because she's really smart and has written an incredible book on the financial business and a lot of different things. We'll talk about taxation and how to create capital. Her name is Katerina Pistor. She has been teaching at Columbia Law School since 2001. Her research and teaching focuses on the law of firms and finance in the U.S.,

Europe, and other developing countries. Her most recent book, The Code of Capital, How the Law Creates Wealth and Inequality, was named one of the best books of the year by the Financial Times and Business Insider. She loves music and plays the harpsichord. Welcome to the show. How are you? I'm really well. Thank you for having me.

Awesome sauce. I'm excited to have you on because this is some stuff that people need to know about what's going on from a lot of different aspects. So give us an overview. Well, before we get into the book, let's start with what got you interested in writing this book and what it was about. You know, I think the real trigger was the 2008 financial crisis, and I did a large research project then with economists and other lawyers, political scientists, to try to understand the structure, the deep

structure of the financial system. Because my sense was that neither economists nor sociologists or others who had thought and written about finance had really understood the system because nobody was able to predict the crisis, right? And so I wanted to dissect what really happened. And so we started taking apart the financial system that led to the crisis. And what we found were the legal institutions that I talk about in the book, what we found were property rights and collateral and contracts and the common law trust, the corporate law, all legal institutions that have been with us for centuries, but that had been combined and recombined in certain ways to create what we now call the shadow banking system.

And so my question then was, you know, where did this all come from? What did these institutions do in earlier periods? And did they do something similar? Did they do something different? And that's why I started, you know, basically going back into history, doing a kind of reverse engineering and then trying to understand not only the financial system but capitalism more broadly. Awesome, Sos. So give us some dot coms so people can look you up,

find you on the web, and where they can get a hold of the book. Yeah, you can find me, of course, at Columbia Law School. You can get the book at Amazon. You can get it directly from Princeton. You can get it on Internet sites where you can order it through your bookstore. It should be easy to obtain. The Code of Capital, How the Law Creates Wealth and Inequality. So let's talk about the book. What's the overall thrust of the book and what it's deeply about? Yeah, basically in a nutshell, I would say, give me any object, any promise to

future payment, any idea, right? All these things are nice to have, but they're really not worth much. But I can flip them into a wealth generating asset. That's how I define capital, by giving it the right legal coding, the right DNA, if you wish. Right. So I have to flip a piece of land, which is a piece of dirt into real estate by giving it property rights. Right. I have to flip a promise to pay into an enforceable legal commitment to make it a financial asset. I have to flip an idea into a patent in order to make it produce wealth. And so that's the core idea. Give me these assets, these objects, these ideas. I flip them into wealth-generating assets through law.

That's the important thing. And law, of course, is a social good. It's something that is related to state power. But the point is that private parties can avail themselves of that state power to code capital in law, to code these objects and make them become wealth-generating assets. So would you say it's both bad and good? Because, I mean, obviously these lawyers, tax people,

they're paid to find loopholes or edges in the system of a tax system, no matter what the rule is. Is this a bad thing or a good thing, or is it a mix of both? Well, I think it's probably a mix of both. All things are somewhere in the mix of both, right? So the point, of course, is it's wonderful to have property rights, and it's wonderful to have enforceable contracts. Economists have told

us for decades, if not centuries, that you need this to have a viable economy. What I'm suggesting in my book, however, is that the extent to which we have allowed private parties to pick and choose the interests and assets that shall be coded as law, and then get the lawyers to do this in private law, and only once in a while have a court look over it, has shifted the power to determine who gets wealth, who has better access to the system, so much in favor of well-resourced private parties, that this explains the huge inequalities in wealth that we have today. And I think we just have pushed the system too far. Oh, wow. So, I mean, we've seen a lot of inequities in our world. I mean, over the past 30, 40 years, we've seen the dissolution of the middle class. We've seen poor people get poorer and rich people just get richer. I mean, there's a huge wealth gap in this country,

and the 1% or whatever seems to get richer, especially if you listen to Bernie Sanders, he'll go on about the 1%. But a lot of people that don't have access to this, you know, they don't have money, they don't have the ability to hire attorneys and everything else, they're kind of left behind for these systems, but these folks can go ahead and create it. I mean, like recently, we just saw, well, everyone's losing money and losing their jobs. I think they said the top 1% picked up like $500 billion in income still. So they're still doing fine with everything they're doing.

Yeah, I think, you know, for the crisis in particular, for the 2008 crisis and the 2020 COVID crisis, we also have to add the role of the central bank in protecting the assets and in protecting financial markets from collapsing. So one thing that might happen if you code your interests so well in law, you could actually overdo it and could trigger the self-destruction of the system. Because if you make really, really binding commitments and everybody does it and on that basis basically speculates for more to be gotten in the future, if then things change, like you get a COVID crisis, the whole thing can just self-destroy because everybody's enforcing their rights at the same time and that will destroy the system.

In that moment, the central banks are critical because they can come in and put a floor under what you lose. And I think that reinforces the wealth creation or the wealth distribution that we already get through the system I described. But if you then add on the help that central banks give to asset holders, that really exacerbates the problems that we have. Yeah, early on, and a lot of people don't follow this. I follow it because I've always studied the Fed. We had a mortgage company for almost 20 years,

so the Fed was kind of important to me in its rate setting and its adjustments. They could wipe out $75,000 worth of my money and just make a decision of a quarter- point adjustment with Alan Greenspan. But early on, they were floating almost like trillions a day to keep the market stable and everything else. And you're seeing this weird effect right now where you're still seeing the stock market go up. I don't know if there's the coming crash because there was kind of that denial that you saw in 2008 where the market was still like, ah, it's not going to be as bad as it was. And

then, you know, finally there was the cliff. Was that kind of what happened in 2008 where, you know, it was almost too big to fail with those commitments you mentioned? I think what was interesting in the 2008 crisis is that Lehman was allowed to fail. I think the Fed and the Treasury had made the decision at the time that Lehman was not too big to fail. It turned out it was too interconnected to fail, really. And so when they then were standing at the abyss, they bailed out AIG the next day, and all of a sudden all the arguments that you don't have the legal authority to bail out Lehman,

with AIG you just blinked and you did it. This is also an important point. I really argue in my book it's coded in law. The private commitments are coded in law. But in times of crisis, the law becomes elastic, and the elasticity is determined by those on the top. And the central banks in the US, in Europe, and elsewhere are typically trying to protect the system from self-destruction. And so they will protect those that are really central to the system, if they can. They made a wrong assessment with Lehman, but then they rescued

everybody else. And once again, everybody, you know, all those folks on the periphery, the small folks, they're left to fend for themselves. And then sort of just trying to protect the system, but a system that had created itself to become basically too big to fail, too interconnected to fail, almost placed a put option on the central bank, you know, dare letting us go under, because the entire system will crash. And under those circumstances, almost any policymaker will, you know, choose to protect. Would you say that also part of that was protecting the top 1% richest people in this country because they're the most largest vested in those assets? You know, you can't really look into the heads of the policymakers. You know, I would give them, you know, the benefit of the doubt and say they were thinking about the system, not necessarily the individuals behind that. Having said that,

however, I'm kind of disturbed by the fact that after the crisis, the first attempts to try to create greater transparency in the system allow us to look through who are really the ultimate beneficial owners at the other end of these assets. A couple of attempts were made to create greater transparencies, but this was pushed aside as soon as the system was back on its feet. So nobody really pushed hard enough, neither the Treasury or Central Bank, for really bringing that to the fore. And that tells me also that they do, of course, think to some extent of the asset holders behind the intermediaries that they're and the assets that they're protecting. Well, certainly the people who can afford to, you know, have the presidency or to be able to put a phone call in,

who are able to hire the lobbyists who are the foundations and the trusts, they can hire the lobbyists to go lobby either the Congress to give them favorable tax law or the other are probably on the president's speed dial of any president. Let me ask you this because this has always been a curious thing in my mind because Goldman Sachs was the large benefiter of the failure of Lehman Brothers. Was that a hit job or was that just a – No, it's difficult to say i think a couple of players in the markets already in 2007 felt that um goldman was trying to take a hard line against them and and and was playing sort of the hit guy and of course rescuing its own um back um by by doing

so and was quite aggressive i think gold Goldman was the first bank that put a collateral call on AIG Financial Product, which started basically bringing AIG down. But they also then stepped back from the brink because they realized if they did it too fast and too aggressive, they might die along with everybody else. So I think it's hard to disentangle this and really say what they are. And of course, they're multiple players. So I think it's hard to disentangle this and really say what they are, and of course they're multiple players, but I think most people would agree that it was one of the more aggressive players in the run-up to the crisis in 2008. It'd be interesting to follow the line of those asset acquisitions, because if I recall

rightly, Goldman Sachs picked up the fallen assets of Lehman Brothers, which seemed very convenient at the time. If you really think about it, and I'm just speculating here, if Goldman Sachs backed off the call, the capital call for, or the asset call for their thing, and instead had the Fed Reserve bail them out and give them money, that's money that goes back to Goldman Sachs, right? Yes. That's like me, somebody owed them money,

and they're like, we're going to file bankruptcy, Chris. And I'm like, I'm going to get my friends over at the Fed, our little organization, to give you the money so that you don't file bankruptcy on me. So he's kind of interesting. So you talk in the book about some of the different ways these guys use codes to create certain assets, endowing them with the capacity to protect and produce private wealth. You mentioned offshore banking and stuff. We saw the Panama Papers, which are kind of interesting because, well, they're very interesting, actually, because they showed how

different, even leaders in other countries, were using different offshore banking and all sorts of tricks and trades to be able to skew and hide their finances, sometimes what they've stolen from their countries. Yeah. You know, the Panama Papers are really interesting because they reveal the extent to which, in fact, law firms, right, were there on the ground doing the coding that makes it possible to evade taxes. So tax evasion is, of course, a strategy that itself involves a lot of the legal coding strategies that I describe in the book. So you need a legal entity, you need a corporation that will be recognized as a legal

entity in the US and in Germany and in France and elsewhere in the world, so that you can play the game of saying, actually, this money was made not in the US, but it was made in the Cayman. So we can basically shift some of our transactions through the accounts there. So you need a legal entity for that. And that's one of the core modules of my code of capital is a corporation or a trust, right? A trust is also creating a wheel around a set of assets to protect them from too many claimants.

And so, you know, the law firms in Panama are setting up these vehicles for clients and they paid nice fees to the lawyers and created the vehicles that allowed them to pretend that their profits were made elsewhere and were not taxable in many other jurisdictions. So this plays together. I'm not a tax expert myself. I allude to taxes. But one thing I also said in the book, and I just want to reiterate this, we very often create a blacklist of countries, of tax havens.

I think, you know, we also have other tools in the toolbox that we could use. We could, for example, think about denying the status of a legal entity to the entities that are incorporated in Panama, whether or not it's a black-listed country, right? But you could say we just ignore these types of legal tricks and we ignore the legal veils that you're trying to create. And most countries and most courts also still hesitate to do that, but I think that's also something we should be thinking about. One of the things that was interesting to me, I don't know if you talk about in the book, but like the tax havens in, I believe it's Ireland, where companies like Apple, you know, just about any major company set up a PO box there. And that's really all that's there.

And they were able to park their profits and revenues and stuff from other countries over there without bringing them to the U.S. so they could have a tax haven. Do you talk about that in the book? I do actually mention the case that the European Commission had brought against Apple, which actually was just turned down by the lower court in the European Union. But what I do discuss in the book is how Apple did this, right? Creating legal entities in Ireland and then having a kind of a sweetheart deal with Ireland so that you benefit from tax, almost tax-hating status.

I think Apple paid about 5% taxes on what it sold throughout the European Union. So they booked everything through Ireland where they had the special tax deal. And the commissioner, the competition authority in the EU said this is indirect state aid. So Ireland is basically giving you a subsidy. Now that was not turned down by the lower court. So the commission has to think again, but I found the argument actually quite compelling, but the court apparently did not.

But yes, these kinds of arrangements are exactly what we have to think about. And we can see this in the Panama Papers. We can see this in bright daylight in what Amazon or Apple or Starbucks and other major corporations do in Europe and elsewhere in the world. And this is why it's important for people to get your book and read your book because they need to understand what's going on. I've been lucky enough to be involved or see and understand. I've read a lot about financial instruments, how the Fed works.

I mean, I've encouraged everybody I know. I was talking to my mom last night, and I'm like, you should read some Fed books, how the Federal Reserve does what it does. There's a lot of great books, too, as to how it can destroy economies throughout the world and everything else just by its movements. And it's important for people to realize these things are doing because what we've been seeing and what we saw with Apple and other companies was they were skirting taxes. They don't pay any taxes here with all the tax charity they're given. Basically I've owned like 26 corporations.

I know how this game works. We get immense amount of charity. You can, you can bury so much stuff with all the different tax write-offs and everything you have and create losses and everything else. It's insane, but the average person can't do that. And we've been seeing for a long time this separation between the wealth and poor where the rich people can take advantage of these havens, and then the poor people are left more and more to carry the tax burden. So they pay more in taxes.

Warren Buffett brought this up where he was like, you know, I pay less taxes than my secretary. Yeah, no, I think relatively speaking, that's absolutely true. And I think sometimes the wealthy, of course, say, well, in nominal numbers, we pay more, of course, but relatively speaking to what they make, they do not. And I think Gabriel Zuckman has shown this very nicely in their work. But let me just make one more point on Apple. They did get some cash right now in the COVID crisis as well from the government, right? And it was justified by saying, well, Apple has to pay its employees as well. Now, we know that Apple has a lot of cash,

but it might not keep this in the U.S. It might keep this offshore, right? And that's, again, sort of, you know, the fact that sort of governments bail out companies that avail themselves of these kinds of legal tricks, you know, is deeply problematic. Years ago, we had our first few businesses. We got hit up by a trust attorney,

and we sat and had a meeting with him. And he sat down and explained to us how to set up trust. We owned a courier company, and because we had so many vehicles, each vehicle was a liability if it hit somebody. And so he was working to try and set us up where we could put each vehicle in a trust that would be separate from the corporation. So if that vehicle did the thing, then he explained to us, you know, how hard it is to pierce a trust. He explained to us how foundations work and everything else and how you can even funnel money to can you know provide cell phones or houses that they can

borrow rent and different different skeevy ways that you can use to skirt different things and we're just floored we couldn't afford the money he wanted to set up because we weren't rich enough at the time uh we're still in the new phases of our business but it blew my mind like a lot of people when they they they hear that some rich guy, you know, or some basketball star or whatever is like, he put his money in a charitable foundation. They're like, oh, he gave his money away. That's so wonderful he did that.

And they don't even understand what it truly means and is. Yeah. No, I think, you know, the trust, I would say, is really one of the most ingenious legal institutions for coding capital, because you can basically alter property rights without calling it a real transfer or without calling it a property right fully. So you can create these wheels that protect different assets and hide them both from sight and from access by different groups of creditors. It's, you know, that was one of the institutions where I went back in history and looked at its predecessor, the use. You can trace this to the 12th century, right?

And then you can see how it evolved over time and how in the 19th century, it was no longer used just for land, but other assets could be put into the trust. And how, of course, today, it is the securitization vehicle. When we talk about SPVs, the special purpose vehicles,

the financial jargon, I always say, you have to look through that. You have to understand the legal structures because an SPV just sounds like a little sexy. But what it is, it's a good old trust. And you can trace this thing back to the 16th century. And you have to understand what it does. It does exactly what you suggest. You can just sort of shift assets to something else that is a brainless creature. And you appoint a trustee that takes care of it. You write a trust deed and tell the trustee what to do. And you do this for some beneficiary that gets them the benefits on the other end. Yeah. And then, of course, you save a ton of money in taxes. Do you see these instruments?

I mean, I probably don't really answer this question, but do you see these instruments? I'm, I'm, this is, I mean, I probably don't really answer this question, but you see these instruments used in the establishment of PACs so that they can, you know, they can help encourage, let's sort of encourage politicians to change tax laws to their advantage or overlook different loopholes. Yeah, no, you know, I, I haven't really looked into details there. I wouldn't be surprised to see that. I mean, that it is the vehicle through which you would do that.

I see a lot of foundations get involved with PACs. Yeah, exactly. The same thing. It's a slightly different legal variation on the theme. Yeah. And then, you know, I mean, that's just how it happens. I mean, more and more, I mean, a lot of times there's been chatter that we've become more of an oligarchy, where the rich people are in this country.

And I think that's been true for a long time. The rich corporations and corporations are people, no matter what Mitt Romney says. You know, I mean, under tax law, it is a person. But, you know, there's people that are powerful and rich that run these corporations and own them. And they influence what they want. To me, the biggest heartbreak is seeing, you know,

if you, there's different graphs that are out there where it shows like from the fifties, like a 90% sort of tax rate for rich people, the ultra rich. And then it just keeps going down to where now it's actually lower than what the average person does. And so then you just have the average person carrying the economy because and tax income because rich people aren't paying the taxes and skirting it not only through

themselves and their instruments that you talk about in the book but also through their corporations yeah yeah no absolutely you know I think we think we have really seen sort of the decline of the tax for the wealthy. And the argument has been certainly since Reagan and Thatcher that you want to help free up capital and that ultimately everybody will benefit. But we now have the data in that this is just not true. We wouldn't have that income distribution if this is what had happened. And I think what we see instead is we're not really seeing the free forces of the markets and the liberty, but we do see a system where people have figured out how to use the law, which I think is a social good, to protect their assets and to create advantages that are greater than others.

And it's really, it's deeply fused with issues of power and law, not just free markets. That's an illusion. So let me ask you this. In your research on the book, did you find that if everyone were to have equal access to this, like somehow, I don't know, H&R Block decided to somehow give the same sort of information to the average person to cheat their taxes, would governments be forced to change? Because pretty much no one would be paying taxes at that point. Yeah, I mean, you could say either I give everybody the possibility to evade tax. We also put it more positively. You want to give everybody the possibility to create wealth-producing assets,

which is, I think, a more positive spin. And I think that's something I would support. I think giving everybody the ability to evade taxes doesn't make so much sense to me. I would rather sort of say, let's try to prevent tax evasion on a grand scale and also be a little bit more lenient on the small guys, right? I find it also irritating how much the IRS very often goes after the smaller guys rather than the bigger guys. Of course, more expensive to go after the biggest.

That's inequitable in a fundamental way. But I do think that we can think harder about how we can use these institutions that are, you know, they're not bad institutions, property rights or trust. We can use them for very good purposes as well, and how we can make sure that people have access to them and can protect themselves against future downturns, right? And that's what a corporate veal is all about. I have limited liability. So if something really bad happens, my personal wealth is not affected. That's a nice thing to have. But many mom and pop shops in this country and elsewhere don't do this. They're simple partnerships, and they lose their

shirts when things go wrong, as they do now in this crisis. So don't do this. They're simple partnerships and they lose their shirts when things go wrong as they do now in this crisis. So there are many more legal tools that we could use also to protect the more vulnerable, which we're not doing. And I think that's something I would really advocate strongly. Because we're really in a crazy position. You've got the Fed basically, I don't know, you call it printing money, floating the markets with trillions of dollars.

I mean, they are buying back the securities, the T-bills and stuff, technically, or giving them, as you said, a floor. But on top of that, you know, we're giving trillions of dollars out in support stuff. Most cities, like New York, I believe Governor Cuomo has talked about this a lot, where the problem is they don't have a lot of revenue coming in because there's no sales taxes on a mass scale coming in. You know, people aren't eating at restaurants and everything else. But they're paying out a lot of money for unemployment. Some states are seeing, you know, huge unemployment costs that they, you know, are beyond what they factored for. And then there's no revenue coming in.

And I'm sure the U.S. government is going to be experiencing this fairly soon where there's a lot less revenue coming in. I mean, they already put off the time that everyone had to file. And I'm sure maybe a lot of people will go for extensions. And God knows what's going to happen with people being had to file. And I'm sure maybe a lot of people go for extensions, and God knows what's going to happen with people being able to pay. But then you also have these instruments where we're piling more debt on the national debt to do trillion-dollar bailouts. They're talking about another one. And I'm not saying they're good or bad.

In fact, I think they're kind of good because you can print your way out of this sort of thing, but there is a penalty to this debt that you have that you're, you're carrying. You're kind of throwing, you know, like I tell my nephew is 20 years old. I'm like, have fun with your future. But yeah, you know, I think there's an important difference between the state of New York or the city of New York and the fed, right? I mean,

at least the fed can issue its own money and that's actually a powerful tool. No, it is, right? You're right. You're right. States can't do this. And that also gives you an option that others don't have. And so I think the states in this country and countries that don't have their own currencies, like the member of the Eurozone and others, they're really in a bind, right, because they don't have that option and they can only fund themselves through debt. And, of course, that will be more difficult to obtain as you indebt yourself more and you have decreasing income revenues, such as taxes, et cetera. So that's a real problem. The only help can come from the federal government, right?

If the federal government does not issue the money to fund its states and its cities in this country, then we're really in deep trouble. Yeah, a state can't file bankruptcy and they have to balance their budget, which is kind of interesting because then the federal government can do whatever it wants. That was part of the deal. So do you see us coming out of this?

Do you see it taking longer to come out of this trench? It took us pretty much 10 years to come out of the trench from 2008. What do you see the future of what we're going through right now and how it comes out the other side? That's so much harder to say. I think some people argued we've really never left the 2000 crisis behind entirely. When you look at the level of debt that companies racked up in the meantime, so households, I think, stabilized.

We got the banks sort of under control. But the other fragments or segments in the economy where people saw trouble before and some people argued also that a recession was coming already in February before we had this pandemic. Now, the pandemic puts us, I think, in a different place altogether, because it's so difficult to say when we will come out of that. So there's, in my mind, certainly not going to be a V-shaped, maybe a W-shaped recovery. It's not going to just turn around. I think we have to fundamentally change how we do things and how we also think about what we need to fund in the future.

If you just think about, you know, how quickly we understood what is really essential work. It's not what's being done from Wall Street. That all could work from home. But what is really essential is the people who take care of sick people and cleaners and essential workforce, et cetera. And I think there's a normative debate we have to have how to protect them in the future. But how do we get out of this? I think right now we have to rely heavily on the ability and

willingness, political willingness of the Fed, of the central government that has the money issuing authority to use that and to channel the money into the right hands. You know, what I found troubling as well is how difficult it was to reach households and small firms, right? We know exactly how to bail out the financial system. We know exactly how to reach the big corporations immediately in no time. We cannot reach those that are most vulnerable in a crisis like that. That too, I think, has to be rethought because it's unlikely to have been the last crisis right um if anything that we know in an uncertain world is that the uncertainty will

increase in the future um rather than decrease so we better think about how to become more resilient on that front yeah it was astounding to me like everyone was running around going i get a 1200 check and i'm like have you read the law? There's millionaires that are getting millions from the U.S. government that don't need the money. I mean, the Catholic Church got, I think, $2 billion. These guys got plenty of priceless stuff in the basement at the Vatican. They could hawk at a pawn shop if they really, you know, got in a bind. You know, not to mention one of the frustrations was is once they finally

released this data, there was a ton of tax-free churches that got money. Now, I'm all for supporting organizations if they're paying employees and stuff like that. But some of these organizations, number one, have a lot of money, and number two, don't pay any taxes. So I'm all for us supporting you or not you but i'm all for supporting churches or different tax freeze sort of bases but guess what we need that tax status back because we want our money back that's our money that's not your money you didn't

pay into it um maybe if you count employee rule taxes but yeah you're right it didn't it didn't you know the chill trickledown economics thing is BS. We saw that sold during Reagan. We also saw that during the beginning of the Trump administration with Paul Ryan and what they did with that huge tax bailout they gave to the rich. That was quite extraordinary. Yeah, no, I agree. I agree with that.

You know, I just want to add that in Europe, some countries actually made government help in this crisis contingent on paying taxes in the jurisdiction. So that's, I think, a little bit of a penalty for using tax avoidance strategies in Panama stories for then coming back and say, bail us out in the crisis. And I think that's the right thing to do, frankly. Yeah. It's going to be interesting because I was in Las Vegas during the 2008 crisis. Man, I watched that whole baby burn down. On my street, one out of four homes were filled with an occupant because they'd just been building crazy. But people just left their homes.

Every night you turn on the news and you'd see a squatter. They'd burn down a house because they didn't have electricity, so they're lighting fires in the house. And one out of four homes, and I would go out on my street. One out of four homes on my street were empty. Or no, one out of four homes on my street were full. So the other three were empty. And you would hear what would sound like crickets. People would come and they'd be like, Hey, there's a lot of crickets up here. And I'm like, no, that's the

fire alarms. They're going off because no one's replaced the battery in all the homes that are empty. And even after I moved out of my home, uh, and went to, I had a rental and I moved to California, the squatters had seen all the garbage cans out front. Clearly, they had moved out. They broke into the home and trashed it and sold all the appliances. And that was pretty normal. Literally, the police would kick them out of one home, and they already knew which empty home they were going to down the block,

and they would literally take all their belongings, go down the block, and move into the next home. It was extraordinary to see. But during that crisis, you could still go to the store. You could still go to work. You could still go to the casinos. Everything was still kind of operating in the, I don't know what you call it, but that segment of the economy was still able to operate. Small businesses were still able to go

and everything else. Now, I mean, it's a crisis of proportion way beyond that. And I'm seeing a lot of more people that are smaller business, medium-sized businesses, you know, maybe they have one or two franchises or restaurants, they're definitely going under, especially in California. They don't know how they can survive because California is kind of closing up. Many states are going back to closing up. We really botched this whole thing. So I'm not sure.

This could be one hell of a recovery or a Great Depression. Yeah, I mean, if I had to make a bet, it's probably more the latter than the former. I hope not. But I think we have eviction crisis looming, right? And in a situation where people really do not have the income to pay and they lost their jobs, they can't go to work because of the pandemic. And, you know, unless really Congress gets its act together and helps out in a more massive way,

I think people are really going to suffer very, very, very soon. And that will be across the country. I mean, some states have done better. I think New York seems to be recovering right now, although just look at the numbers in Barcelona and Spain today. They're getting the numbers up again. So just having brought the curve down doesn't mean that it's going to stay down. So we, this uncertainty, I think will add to the problems that people face. Cause if you don't know what the future will bear, how can you invest? How can you raise funds? How can you

survive? So I don't know, maybe we're going to have an eat the rich guillotine, let the meat cake French revolution moment where we're going to take all the people you wrote about in your book that have all these tax cheats and we're going to eat the rich. I don't know. You know, the funny thing is, you know, when you think about the French Revolution, I just wrote a review of Thomas Piketty's new book on capital and ideology. And he says, you know, it's all ideas that changes the world. And I then said, you know, you say all ideas that changes the world. And I then said,

you know, you say in your own book that how fast after the French Revolution, the inequality that existed before the French Revolution came back. So let's not fool ourselves. Just chopping off a couple of heads won't change the system, right? We have to think a little further. And it's the institutions in the end and the political will to change that will make a difference. It'll be interesting. Maybe we'll become more of a socialist society because it would seem to me that for the correction, and this is my theory, for the correction that needs to happen from the stuff you talked about in your book and everything else, we have to start tax the Trump-Ryan tax benefit. In fact, pull it back quite hard because we've got to go where the money is, right? I mean, I'm not…

Yeah, we definitely have to do this. We need more tax income as well. We have to create more equality. And taxing is both for revenue, but it's also for levying sort of the inequalities that we have. I mean, the good news is that everybody's going to do this in this world right now, right? I mean, so you no longer have the argument, oh, we just go then to England or we go somewhere else. Well, they're all in the same mess. So I think all countries will have to change their playbook a little bit. And that means that we probably will get a bit more control over capital, which has otherwise become quite footloose, as I explain in the book as well.

We have not only sort of opened the borders, but we also have created legal institutions for capital to allow to pick and choose basically where they go and pick and choose the laws that they wish to be governed by. It's definite income inequality. The biggest saddest part of all this was in the 2008 economy, watching a lot of people who are middle-aged, a lot of people who are retirement or retired just get wrecked and have their retirement destroyed. And for a lot of people, their retirement assets were in their home equity. And that was wiped out in 2008. I mean, I knew people that they pretty much had their retirement boxed up.

They were about ready to retire, and boom, that thing just took everything. And I'll never forget, I would go into Costco, and there would be these little old ladies working in Costco that were clearly beyond a working age and, and, and, and definitely age wasn't doing well for them. And I, I would sit and look at them and be like, oh my gosh, I, I wonder if she lost everything in the 2008, uh, crisis and she's being forced to work for minimum wage. And I was just, it was awful was awful and you see that all through las vegas at the time um and you know here we are 10 years later uh and we're gonna go through another crisis it's

gonna wipe another um you know 401ks and and god is what and retirement systems i mean it's almost like a double smack uh to people that you know i i don't even know how i'm gonna retire but i've always planned like warren buffett working seven years after I retire. I hope I can physically, but, or mentally. But still, I mean, the amount of wealth destruction for the middle class, the lower class has been epic and will be epic from this. Right. But also, I mean, I think you're absolutely right. And we, and I'm,

you know, myself in that age where I think about my retirement, but I'm also thinking a lot about the next generation, right? My students, and, and, and, and they're, you know, they're also, you know, spend a lot of money for the education. It's not clear that they're going to get the jobs, you know, this year is still okay, but you know, what's going to happen next year, nobody really knows. They had, you know, double whammies. They have basically came into college education during the years when we just got out of the last crisis, and now they got this big whammy again. And so for them, just building their future is, you know,

a big question mark right now as well. And I think a lot of them are really seeing uh facing a lot of stress in that regard as well it's very difficult to reassure them because we all don't know what's going to happen right it's um it's a difficult time yeah i mean we i i've told people we're all gonna need some mental health help after this we should have some national mental health uh you know ptsd sort of uh thing once we all get out of this because it's already hard enough to be living in your home. You know, we had a discussion a couple days ago with the author of Power Moves, Lauren McGoodwin, and she had written her book talking about how she was one of the millennials who came out of during the 2008 crisis. she came out, you know, she paid

for education, you know, did all the right things, came out and like no jobs and, you know, ends up living with her mom and she has to recreate her whole thing. And like you mentioned that this newest generation is going to go through the same thing. And, um, um, do you think, do you see with your students, maybe, I know millennials really picked up to kind of more of a socialist sort of thinking system. Do you think they'll move us more in that direction where we become a society that's more socialist? Well, I think there is more interest in alternative ways, different ways of doing things, right? So I teach corporations and typically we only talk about, you know, publicly traded big corporations and the legal disputes around them.

And I have more and more students who want to know more about public benefit corporations, about cooperatives, about other forms of business organizations. So I think that's very productive because, you know, although the corporation has dominated the economy for such a long time, there are different ways of organizing businesses. And maybe not everyone will produce as much, you know, returns just in financial terms,

but they could provide jobs and they could create income for people. So at least knowing about them and thinking about them. And that I see amongst my students, right? I mean, we're Columbia Law School. Lots of our students go and work in the big firms downtown, of course, right? But we also have lots of students who at least want to explore alternatives and think about what else is out there. I think – I know governments around the world like Canada and stuff

are providing a monthly stipend for, you know, lower-income, middle-income families. I think we may end up having to do a little bit of that. I don't know. It's going to be interesting to see. There's kind of a, there's talk of what they're going to do right now, but I think the Republican party, which controls the Senate is going to maybe punt to the November election because they really don't want to spend the money. And that'll be interesting to see from a politics aspect, if they just do a little bit, you know, just to get them through the election to see if they stay in power or if they figure out a way to make a money grab like they did with the Paul Ryan thing. It'll be interesting to see

how this all plays out. But what I'm getting to is that these monthly payments that we're making to people, and I'm not saying they're a bad thing, but like, you know, the additional $600 in unemployment benefit people are getting, I wonder if that will contribute more to a socialist society that believes that the government should provide more. I don't know. It's kind of an interesting thing. But I think there are also many different ways of doing that right you don't you can say you can give handouts there is also good arguments out there that say well let's create a government employment option people

want to work you know not all are shirkers and that's i think i find this always disturbing in the arguments that i hear a lot from the from the republican party as if people would just really not go to work anymore just because they have a little bit more cash right now at home. People do like to go out and contribute to society. I think most actually do it. And I think what people need is jobs and what people need is income. They don't need more debt. They really need a perspective for their own lives to generate the income.

And if the private sector cannot provide it because of circumstances, whether it's a major economic catastrophe or a pandemic right now, a combination of both, the government is the only one that can step in. And I think we have to think how to structure this in such a way that it's commensurate with the values that we have,

that private autonomy is something that people, especially in this country, cherish a lot. And I think we can find ways of making this work together. So I started studying socialism when I started going into academia. especially in this country cherish a lot. And I think we can find ways of making this work together. So, you know, I started studying socialism when I started going into academia. I studied, you know, Soviet law and Chinese law back, you know, way back then. And I spent a lot of time in Russia.

And it's not a system that anybody wants to aspire to, that type of socialism. I mean, really not. But there are different ways of doing things. And there, I think we can be much more creative. We can even go beyond the social democratic model of continental Europe. You know, I'm from Germany, so I cherish quite a few of these things. I grew up with them, right? But I think every country has to find its own ways and has a lot of potential and imagination, has to harness that to find its own way to to get out of this crisis and

this country is the richest country in the world right if this country can't pull it off who shall yeah that's kind of it's kind of scary um it'll be interesting i i said somewhere in one of our podcasts early on with this crisis that we may have to have like a new deal sort of system we we had at 1.2 to 4 trillion dollars worth of infrastructure that needs to be fixed in this country and a lot probably a lot of technology nowadays to go with it and the government just it may have to create that I believe was called the new deal under FDR. You know we built a Hoover Dam and a lot of different things that were paid for by the government but it put people back to work out of the Great Depression stuff. Anything more we should know about your book The Code of Capital How the Law Creates and inequality well i think i just want to add one thing because

we have talked so much about the united states um i'm also talking in the book about how global capital has been configured in domestic law and how important actually the law of the u.s and of the uk has been in creating a global system of capital. That also means that when you look around the world, you know, the US is really a rule maker, many other countries are rule takers. So there's a lot of power in this country also to reconfigure things that people in this country can benefit from much more so than in other countries where they just have to take what is out there. So I think, you know, law is a source of power. It's a social source of power. And I think we in this country have a lot of opportunity to think about how to reconfigure it to make sure that both inside this country, but also in the rest of the world, more people have access to

this in a meaningful way that is productive and more equitable than what we've done over the last several decades. Yeah, I think we're going to be forced with everything that's going on. You know, coronavirus has exposed so many fissures and created giant fault lines from those fissures of what we kind of knew were kind of like broken parts of our society between social and economic and everything else. But now it's created steaming fissures

that you know sometimes probably set to explode and and i think we're uh i think we're maybe due for some more unrest before we finally figure it out or it's going to be an ugly transition i don't know yeah no that's it's hard to say but i think you know we're already feeling it right it's not it's not a a, safe place right now. So people are thinking and they're acting and reacting. And I hope we get some more calmer leadership that helps us get through this and figure it out in a meaningful, well-productive, deliberative fashion rather than in a violent one that we don't want.

Yeah. And I've espoused this much on the Chris Voss Show podcast. People really need to think two years in the future with their choices and who they're voting for and who their leaders are going to be because they're going to have to invert a crisis. I don't know what your feeling is, but I've been telling people we're still in the honeymoon phase of this crisis. We haven't seen the evictions like you alluded to earlier.

We haven't seen the giant – we've seen bankruptcies coming, but it hasn't gotten quite down to the personal level yet. But we were that whole train that we had running in really important at a policy level, you know, who people vote for and what they put in. And hopefully we put in some confident people because this crisis is, I'm optimistic. I mean, it's hard to be optimistic about this thing, but I'm optimistic that hopefully maybe Joe Biden can get put in. He, you know, he, he, they helped guide us through the 2009 crisis. But you never know. I mean, in times like this, all bets are off the table. And sometimes, you know, in times like this, you see the rise of socialism. Like if you look at Venezuela, and I forget the gentleman who started it all.

It was back in the 90s, I think it was. Chavez. Yeah, Chavez. And he rose and helped destroy that country out of issues kind of like we're having right now. He's like, oh, I'll fix it all, and then just made it worse and then compounded it. And I think the only difference we have is coronavirus is the big equalizer. Like it doesn't care how rich you are. It doesn't care what you look like, what your class is. It doesn't care.

It's just going for you. Yeah, on a health basis for sure. No, but I think, you know, we also have a lot of other things in this country. I mean, lots of people are really, you know, well-educated. They're politically savvy. They're economically savvy. We have fantastic lawyers. We have people with a lot of imagination, and I think there are really lots of variations on the theme. We probably are going to shift a little bit more towards the government doing more,

but how it does that and who will benefit from that is all something that we should deliberate and think about creatively. And I don't think Venezuela or the Soviet Union also are a good comparator for that. I hope not. And hopefully we come out of this, I mean, I don't know if we'll be rich when we come out of this, but hopefully we come out of this with much more better social equality and financial equality, like what you talk about in your book, where maybe everyone can either take advantage of these or maybe a flat tax would eliminate a eliminate a lot of this game gamesmanship that's been going on uh so give us your dot coms where people can look you up on the interwebs

so you can look me up at columbia law school another faculty um web page you can find me on twitter at katarina pistor i'm on linkedin under my full name katarina pistor you can find my book at princeton you can it at Amazon, other major outlets. It's The Code of Capital, How the Law Creates Wealth and Inequality. Thanks for having me today. Thank you for coming on. And I encourage people to read these books. I know a lot of people are like, I don't like math and I don't like finance and stuff. You've got to understand how this world is working and sometimes how people have an advantage. And maybe you're one of those people who can be like, I'm going to get her books so I can figure out how to get some great tax

saving stuff going on. But it's important that we educate ourselves on what's going on in life, how it's being used, and we can have a discussion as to whether or not it's appropriate, whether or not there's equity or equality in it, and whether or not certain people have advantages that other people don't, whether we should close those Zupos or whether we should leave them open. So thank you for being on the show. And everyone check it out, Princeton University Press, The Code of Capital, How Law Creates Wealth and Inequality.

I encourage everyone to read it. Thanks, Amonis, for tuning in. Be sure to give us a like. Subscribe to us on YouTube if you can. Go refer the show. Give it five stars if you like it on iTunes. Give give us a good referral write a nice thing about us um you can tell them how incredibly good looking i am uh almost better than brad pitt and that's why you love the show or something like that not that i'm putting words in your mouth but you know if you want to say that

it's fine with me thanks for tuning in guys we'll see you next time and be safe thank you so much take care