654. Is the Public Ready for Private Equity?
The episode examines the push to open private equity and other private markets to retail investors, especially through 401(k) plans, following a Trump administration executive order. Law professor Elizabeth DeFontenay and economist Steve Kaplan explain how private equity works, its historical outperformance versus public markets, and why that outperformance has likely diminished as the asset class has matured and become crowded. They warn that high fees, opaque pricing, illiquidity, and second-tier access mean that ordinary investors are unlikely to benefit from this shift, and that expanding retail exposure could change private markets themselves and increase systemic risks.
How the government got hedge funded
The episode explains how U.S. government debt is issued as Treasuries, how auctions work, and how primary dealer banks help distribute this debt. It then traces how hedge funds have become major players in the Treasury market via the "Treasury basis trade," using heavy borrowing and Treasuries as collateral, which can amplify risk. The hosts and guests discuss the March 2020 turmoil, the Federal Reserve's massive intervention, and the resulting moral hazard and policy trade‑offs between safe banks, stable markets, and allowing risk‑taking.
Two ways AI is changing the business of crime (Two Indicators)
The episode explores two ways artificial intelligence is reshaping criminal activity: AI-powered voice cloning scams targeting individuals and banks, and AI-driven trading bots that can destabilize or manipulate financial markets. In the first half, the hosts demonstrate a voice deepfake scam, talk to a fraud-prevention entrepreneur and a bank executive about weaknesses in voice authentication and the shift to layered security, and discuss how consumers can better protect themselves. In the second half, experts explain how more autonomous trading algorithms can unintentionally collude, raising hard questions about liability, regulation, and the broader risks AI poses to market integrity.