The markets completely fall out of bed in a state of panic over the idea that the AI buildout is going to come to a screeching halt, specifically in places like Texas with a new governor, Ohio with a new governor, Georgia with a new governor.

Stephanie, you may not be surprised by this, but I'm actually going to take a contrarian position on this.

I think this is great news.

news for investors, for the market, for the financial community.

It's great news to let some of this air out of the balloon.

I mean, the balloon has been inflating for at least two years.

We have zero regulation.

you.

So what is the particular story of how Apollo is involved in that bridging from then until now?

Well, basically everyone at Apollo who started Apollo worked at Drexel, Drexel Burnham, Lambert, which, you know, a fascinating story of that firm, which was basically a bunch of nothing firms with a fancy name, makes it sound like they're really important, but were actually a bunch of failing firms that were kind of cobbled together and really were not much of anything, to be honest, until Mike Milken showed up and had this, you know, once in a generation relationship insightful idea about you know lending money to companies with less than stellar credit rating ratings because you know borrowing money and lending money and providing capital debt capital especially to companies before milking came along was sort of the purview of um you know, AAA rated companies or highly rated companies and companies, you know, investment grade companies, companies that didn't have those kind of credit ratings, which is like most companies, especially, you know, in emerging industries like cable television or cellular phones or, you know, hospitality or airlines, whatever it is, don't have great credit.

They're like big, you know, important companies.

But, you know, financing them became like this great insight that Mike Milken had.

And not only can you finance them, but actually you can get them to pay higher rates of interest to account for the risk, the higher risk of that loan.

And basically they don't default at any materially higher rates than, you know, investment grade credits.

So you're getting paid for risk that's not really coming to fruition.

And what do you see both in this particular story, but also across the broader scope of work?

What are the details here? What does Elon Musk want to do with Tesla?

I mean, you know, stipulating that Elon and I don't speak.

And so I'm not exactly sure what's going in the guys going through the guy's head.

But look, he's, you know, our first trillionaire.

He controls SpaceX.

Unequivocally, I think he did control Tesla.

I think his ownership and control has been diluted over the years.

But what's your take generally about the proposed price tag here and whether you think they can one day become profitable?

And then came the Ellison's, right? Is that really the answer?

And look, also, you know, as a guy who wrote a book about the rise and fall of GE, too, before this latest book about Leon, look, I would have never thought that GE would come apart at the seams.

Right.

I mean, who could have ever imagined? And they owned NBC and did a stupid deal and sold it to Comcast for pennies.

I mean, basically, I mean, that was one of the greatest.

Again, that was another example of Brian Roberts at his at his best and Steve Burke at their best scooping up, you know, NBCU from GE when they were desperate and they didn't even run an auction for it.

They just sold it to Comcast.

Is that how it works?

Is that how it works?

Well, it depends what your goals are as a private equity mogul.

There are plenty of private equity funds that are just private equity funds where people just buy companies with their own equity and other people's money, and then they They buy them, they try to fix them up, and then they sell them and they make a lot of money.

So a lot of people, I mean, private equity is like one of the greatest businesses ever created by man that's legal.

You know, I mean, people, pretty much everybody who's been involved in the private equity business has made a shitload of money and are very rich.

So there are people who just continue to do private equity.

Then there are the private equity firms that went public, Blackstone, Apollo, TPG, Carlyle, KKR, the bigger private equity firms.

Because he was tired of hearing them on both, you know, on the one hand, on the other hand.

we're talking about Mark

Rowan.

Mark Rowan, yeah.

The quote-unquote co-founder of Apollo.

quote unquote, co-founder of Apollo, but it was really Leon was the founder and Mark at that time was an associate.

But over time, for various reasons that I describe in the book, he was allowed to call himself a co-founder along with George Harris.

And Leon, when they went public, had given them 58 million shares each, made them billionaires many times over, probably the most generous gift that has ever been made to anybody on Wall Street.

were the safest part of the capital structure.

Yeah.

Uh, so for-- until from nineteen ninety to year of two thousand and eight to the, to the financial crisis, they were basically, uh, a private equity firm.

Again, would be opportunistically buying distressed debt, and if it could be converted to equity of companies, they would do that.

Uh, but basically, you know, especially, you know, uh, to-towards late, later years, uh, before the financial crisis, they were buying, you know, big companies, putting a lot of money out, uh, uh, as private equity investors.

And, uh, oftentimes, uh, they would hit home runs like with LyondellBasell or, or Hostess, and sometimes they would be troubled like, you know, Caesars Palace, the, the, uh, casino company.

You know, after the financial crisis, um, you know, the architecture of Wall Street was changing rapidly.

Uh, Mark Rowan was very perceptive about that.

How does he come into this movie?

Explain.

That's right.

He was a, a, a intellectual at Dartmouth, and you're right, he grew up on Park Avenue.

He went to Fieldston.

Uh, y- I mean, again, a Jewish kid from Park Avenue, uh, to end up would be Dartmouth at that time, uh, in the early '70s, but he did.

He was a philosophy major.

I read his thesis, uh, which is, uh, a, you know, an astounding piece of work, uh, you know, about the use of the mask in art, in literature, in modernism.

Oh, I see.

Tell us about Eli Black, his career trajectory, and the relationship that he had with his son, Leon.

Well, of course, this family was like the American, not only American success story, but also a story of immigration that is sort of classic in a way.

You know, settled on the Lower East Side.

Family had, in addition to rabbis, Orthodox rabbis, like kosher butchers.

In the family, Eli Black was very studious, and that was clear from the outset.

He was sent to, you know, they lived on the Lower East Side.

I think he went to the Shiva's up by Columbia, which required lengthy commutes each day.

But talk to us about the private equity days when that was the primary business for Apollo.

What was Jeffrey Epstein bringing to the table? [laughs]

Exactly.

Why would somebody with Leon Black's reputation for, uh, financial shrewdness be paying Jeffrey Epstein, a guy who didn't even, you know, barely graduated high school, an autodidact, for financial advice? It just blew everybody's mind.

And of course, 50 to 75 million b- was low.

It turned out to be 158 million, which blew people's mind.

So on quarterly analyst calls, uh, uh, Leon e- has started getting questions from research analysts about his relationship with Epstein.

Uh, I think some sort of institutional investors were getting nervous about that relationship and wanted to know the extent of it.

Hmm.

Could Apollo trigger a financial crisis?

I think there's a risk that the architecture of Apollo right now, which has also been basically copied by KKR and Brookfield Asset Management.

But basically, the architecture of the private credit industry now, as epitomized by Apollo, is that they created Athene, this insurance company that provides annuities.

So it's not like a property in casualty.

insurance company.

It's not a life insurance company.

They provide annuities.

the only person who introduced him to

Could Apollo trigger a financial crisis?

I think there's a risk that the architecture of Apollo right now, which has also been basically copied by KKR and Brookfield Asset Management.

But basically, the architecture of the private credit industry now, as epitomized by Apollo, is that they created Athene, this insurance company that provides annuities.

So it's not like a property and casualty thing.

insurance company.

It's not a life insurance company.

They provide annuities.

And

Could Apollo trigger a financial crisis?

I think there is a risk that the architecture of Apollo right now, which has also been basically copied by KKR and Brookfield Asset Management.

But basically, the architecture of the private credit industry now, as epitomized by Apollo, is that they created Athene, this insurance company that provides annuities.

So it's not like a property and casualty.

insurance company.

It's not a life insurance company.

They provide annuities.

the only person who introduced him to Bill Gates was

Yes.

And you add that to, what, our $40 trillion of debt, our 6% annual, uh, de- uh, deficits on the budget.

I mean, we're fiscally irresponsible.

As Ron and I were talking before, bond rates are going up steadily, and this is just going to add to th- This is never gonna happen, first of all, 'cause this is another one of his ridiculous promises that he makes that people actually believe, and nobody seems to care whether he delivers on it or not.

You know, winning wars and bringing grocery prices down, and giving us checks.

Who cares whether he does it or not? But if he were to do it, bond yields would, you know, crater, and, I mean, IE go up-

Okay.

He did have a hearing in June, that was in closed doors.

I remember those very well.

Okay.

And he made those, uh, his company that he, uh, ran, uh, owned, uh, made those, uh, p- paper tops to the milk, glass milk bottles, which of course now of course don't even exist, even in fossil form.

Um, and he converted that into a, uh, a conglomerate.

You know, conglomerates were really big in the '70s, '60s and '70s, you know, whether it was ITT or GE or, or any of the other big conglomerates.

Well, he created one called United Brands, the, the big centerpiece of which was United Fruit, which was the largest importer of bananas.

You know, we don't, uh, grow bananas in this country.

But this has destroyed the guy, right? So what happened, Bill?

What, throughout your work, struck you about Leon Black's, uh, his rise and his fortune and his relationship with Jeffrey Epstein?

Well, I mean, uh, first of all, yes, I agree that, uh, everybody, if they know him at all, they know him because of his relationship with, uh, Jeffrey Epstein, which is, of course, uh, I mean, uh, Jeffrey Epstein's behavior is reprehensible in e- every way, as we all know, and Leon's relationship, uh, is sordid, uh, at worst, uh, maybe even, uh, uh, potentially, uh, uh, criminal, although he's certainly not been, uh, found to have, uh, any, uh, criminal engagements with him.

Um, but it certainly is reflective of poor judgment, which he and Leon and I talked about.

Uh, but again, the, the story of, of Leon, uh, and his father and his family and, uh, you know, and I mean, Jeffrey Epstein is really the last portion of all of this.

Uh, uh, you know, it, it began with, uh, his, uh, f- his famous father, uh, committing suicide when, uh, Leon was, uh, in his second year at Harvard Business School, which he didn't even wanna go to, but his father, uh, basically, uh, insisted that he do that.

Uh, and then, uh, after his father's death, realizing that he had to become the family's breadwinner, uh, and he figured out that the best way to do that was to go to Wall Street.

Uh, turned out that he was very, very good at, uh, what Wall Street did, especially advising, uh, companies on mergers and acquisitions.

Hmm.

So what did Leon Black and Apollo take from that generation? What did Milken do? What did he teach them that sort of turned finance on its head?

Well, I, I mean, I- as we all know, I mean, Mike Milken was one of the true genius innovators on Wall Street.

The fact is that there's really not a whole lot of innovation on Wall Street, um, when you cut through it all.

I think Paul Volcker, the former Fed chairman, once said that the, you know, biggest innovation on Wall Street was the ATM machine, which, uh, was a nice line and, uh, obviously is a great thing, uh, to be able to get your money through a machine without having to go to the teller.

But Mike Milken and Lew Ranieri, who you mentioned, and, uh, and others who created, uh, the whole market for, you know, credit default swaps, um, were real innovators on Wall Street, with Milken probably being the biggest and most important innovator.

And, um, he essentially realized that, uh, you know, financing companies with less-than-stellar credit ratings, uh, could be lucrative to investors because they got, uh, a higher rate of interest and a higher yield, and the default rates were not particularly much higher than if you, uh, you know, bought investment-grade debt.

Uh, and, you know, for a long time, access to, uh, the debt markets was limited to a very few companies, uh, and they had to go to insurance companies or the banks.

And, and it might be hiding under some layers of financialization, though.

What was Lazard like when you got there in 1989? The offices, first of all, you're struck

by the offices because at that time they were in One Rock, One Rockefeller Center, and they were the same offices that...

Lazard had taken over from General Dynamics or something, a company that was in those offices in the 60s and 70s and then went bankrupt and had to jettison those offices.

And Lazard just took them over the way they were and didn't do any upgrades to them.

And by the time I got there, whatever it was, 20 or 30 years later, the carpet was... stained corridors, smelled cigar smoke.

The plants were dying in the corner.

There was gray, ugly linoleum.

I just love to

It seems like almost, I don't know how you think about it in terms of the development of the firm, but reading the book, it seems like that was the thing that really set them apart and also has fueled a lot of their recent growth, at least.

I mean, absolutely.

I mean, I think you have to make sure you understand the context for this, which is the financial crisis in 2008 and the new regulations from Dodd-Frank and the Fed that basically restricted...

the big Wall Street banks who many in Washington believe and I think correctly, you know, exacerbated the financial crisis and many of them as we discussed almost failed and would have failed if not for the bailouts and of course Lehman failed.

So, out of that crisis, out of those ashes rose what became a new architecture.

See, One of the major problems, as I'm sure you're well aware, with a fractional banking system and depository institutions is that, number one, the money that we deposit there is not at the bank.

Because in a fractional banking system, they are allowed to take the money that we put in the bank, our money, and for which we get very little interest.

What's your hunch? Is there a better mousetrap or not?

Um, explain him for people to understand.

Yeah.

So obviously, you're right.

Uh, private equity billionaires or hundred millionaires are kind of a dime a dozen these days.

I don't think there's a better business you could have been in that is both legal and can make you as much money as private equity did for the last forty years.

It's...

We kind of hit on more difficult times these days.

How do you square that with his financial acumen in making claims like these? Because it's obviously hurt his reputation, I think probably fatally.

Gotta stop the billionaires.

I, I mean, I think what, what, what is having a-an effect Is that, you know, these data centers are, um, designed to keep the AI boom going, and may be a requisite part of the AI boom.

And who are the beneficiaries of the AI boom? Uh, essentially, you know, billionaires and trillionaires, uh, who, um, you know, are already plenty rich.

So they're, like, moving forward to get even more, uh, rich without really, um, stopping at all and pausing at all.

And I think that's the purpose of this, uh, legislation and, and what's been going on here, to, to have people pause and really consider some of the consequences of these huge data centers, which use tremendous amounts of water and electricity, obviously, uh, destroy the landscape that was existing there and that will probably never be restored.

Um, uh, I read, uh, somewhere that, you know, calves in, uh, uh, in, in, uh, in some states are being born stillborn bec- because of proximity to the data centers.

So, you know, I think that people are really upset with the consequences, to say nothing of the potential job loss, 'cause we all know that, uh, AI at least is, uh, rumored, uh, to, or expected to cause job losses.

Will they not be able to accomplish their speedy development, their goals, their products, their LLMs, whatever? Will they not be able to build if they don't have the data centers to support compute? Are they worried about that?

Sure.

They're not making any more of it, and if you can afford to buy it, you want it, 'cause it's not gonna lose value.

These things have proven historically that they do not lose value.

Now, historically, the rules have been that you couldn't, uh, have private equity ownership in there.

You had to sort of have like individual owners.

You couldn't have like a private equity firm own, uh, a stake.

I was gonna say that, you know, you couldn't really have corporate ownership, but you know, that's not really true.

[laughs]

Just how reliant is our economy on AI at this point?

Hugely reliant.

One third on the spending is going to AI is new capital spending going to AI is kind of unprecedented.

And frankly, if I may quote the great late Yogi Berra, I mean, to me, it feels like deja vu all over again.

You know, what Wall Street likes to do is spend, spend, spend, you know, or provide capital to all sorts of funky ideas, uh, like mortgage backed securities as we did leading up to the 2008 financial crisis, like, uh, uh, building out, uh, the internet and, and, uh, uh, new telephone lines and data lines leading up to the crash of 2000 in the NASDAQ crash.

So to me, this feels like just sort of wanton, crazy capital spending, $500 billion going to NVIDIA.

I mean, it makes no sense, and I don't have any explanation yet for what all this capital is going for and why we need it and why it has to happen so quickly now.

who are trying to prepare for or AI-proof their lives, their jobs, what should they be concerned about?

So Bill, that sounds quite reasonable, but I guess the question really is, is David Ellison really in control or is his father, Larry Ellison, who has the money?

well obviously it is larry not only has he agreed to pony up 47 and a half billion dollars of equity He's also agreed to put more equity in if needed to sell the debt, which is going to end up being around $80 billion on this company.

So he's on the hook for a lot of money, more money than most human beings have.

And of course, now they've agreed to, in a sense, delay the closing until potentially June of next year.

And that's going to cost Larry Ellison another $650 million a quarter to Warner Brothers shareholders in a so-called ticking fee, because they actually thought they were going to close the deal by September 30th.

And so as part of the negotiation for the merger, he agreed to this ticking fee of $650 $50 million a quarter, which is going to approach another $2 billion by next June.

He's also agreed to pay a $7 billion breakup fee if he has to.

So I don't know what the son can say that takes away the shadow of the father.

Mm-hmm

... to do a deal with and had a merger agreement with.

Uh, and then Paramount obviously came in and offered more money, and the merger agreement with Netflix was rescinded, and one was signed with Paramount.

So even before that happened, uh, Paramount was trying to restrict, uh, what, uh, Zaslav, uh, and Warner Brothers could do between the s- between the signing of the merger agreement and closing.

And, and as you remember, you know, um, some on the Paramount side thought that that closing could be, you know, July 15th.

Well, obviously we're gonna be far away from that now.

So all of a sudden, you know, w- what those operating covenants are between signing and closing become much more relevant because if the deal's now not gonna close till the earlier of, uh, a- adjudication of this antitrust issue, which could go to the Supreme Court, which means it could take forever, or, or, or June of twenty twenty-seven, then, you know, that's alm- that's, like, 11 months that David needs to continue to operate this company as an independent, publicly traded company, uh, with its own board and, you know, uh, but he's basically ha- has to ask permission from the Ellisons really to do anything of substance-

[laughs]