Ep. 190 — Scott Shay: When Cash Flow Disappears Overnight

5 min read

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Episode Summary

Your revenue disappeared on a Thursday afternoon and your debt service did not get the memo. That’s where a lot of owners sat in March 2020, and where Scott Shay was sitting too, except he was running the bank on the other side of those phone calls. Scott is the co-founder and chairman of Signature Bank in New York, built from scratch to over $50 billion in assets, and the first one in his family to attend college. His father was a holocaust survivor. He has lived through every major crash since 1987. I caught him days after Broadway closed, with both of us quarantined, and we got into the suddenness of this downturn versus the ones before it, why overconcentration in banking, airlines, telecom, and tech made the whole system more fragile, why paying above the stock price in an efficient market is a form of self-deification, what 40% of Americans not having $400 in an emergency actually means for owners, and the long-term vision his father used to survive Auschwitz, which is the same vision that gets you through this.

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## Top 10 Takeaways
  1. Revenue can go from full to zero in a single afternoon. Your debt service doesn’t care.
  2. Humans are wired for routine. Uncertain timeframes break us faster than the size of the shock.
  3. The Golden Rule of Banking: don’t do to your customer what you wouldn’t want done to you.
  4. The 2008 crisis was a moral failure dressed up as a financial one (stated income, liar’s loans, triple-A junk).
  5. Discount rates that assumed a perfect world are about to reprice for the one we actually live in.
  6. Overconcentration in any industry is not strength. It’s fragility hidden by good weather.
  7. Building from scratch is slower than acquiring, and every client who walks in is yours for a reason.
  8. Paying above the market price in an efficient market is a quiet form of self-deification.
  9. Low rates prop up assets for owners and crush returns for savers. That’s inequality by policy.
  10. The long-term vision gets you through. Not tomorrow, not next week, but you do get through.

Sound Bites

“We’ve seen companies that went from thriving companies to having no revenues. Not just like a dip but like gone.” (@00:05:06) — Scott Shay

“Don’t do unto your depositor, your borrower, your colleague, your counterparty, your vendor anything that would be hateful if done unto you.” (@00:08:01) — Scott Shay

“The overconcentration that’s happened in the economy is actually bad not just for the companies in the end. What’s much worse is that it’s bad for us as individuals and it’s bad for businesses.” (@00:16:03) — Scott Shay

“If you believe in an efficient market, how can you pay over the stock market price? It doesn’t make any sense. If all the information is embedded in the stock price, how are you going to make any money by buying something? Well, you got to think you’re smarter than everybody else, and that’s a little bit of self-deification too.” (@00:23:55) — Scott Shay

“The entrepreneurs have the same problems as these Americans that can’t afford the $400 payment. They can’t afford one payroll to be missed.” (@00:31:18) — Ryan Tansom

“He had this long-term vision that he would be free. And people who unfortunately thought that they would be freed next month or next week didn’t make it.” (@00:54:25) — Scott Shay

About This Episode

Scott Shay is the co-founder and chairman of Signature Bank in New York, which he started from scratch in 2001 with $42.5 million in capital and grew to over $50 billion in assets without a single acquisition. He’s the author of In Good Faith, a five-year project arguing that belief in God is rational in light of modern science and history, and has lived through every major financial crisis since the 1987 crash. Ryan caught him in March 2020, both quarantined, days after Broadway closed and weeks before anyone knew what COVID would do to the economy. The conversation ranges from banking discipline and the Golden Rule of Banking through industry overconcentration to his father’s survival of the concentration camps and the long-term vision that gets you through.

Resources Mentioned

  • In Good Faith by Scott Shay — Scott’s five-year project on the rationality of belief, audiobook narrated by Andrew Toles. — scottshay.com
  • Signature Bank — The bank Scott co-founded and built from scratch.
  • Antifragile by Nassim Nicholas Taleb — Referenced on fragility from overconcentration.
  • The Infinite Game by Simon Sinek — Referenced on conscious capitalism and long-term thinking.
  • Ray Dalio — Referenced on monetary vs fiscal policy needing to talk to each other.
  • Warren Buffett — Referenced for the “you don’t know who’s swimming naked until the tide goes out” line.
  • Yuval Harari, Christopher Hitchens, Richard Dawkins, Sam Harris, Daniel Dennett — Atheist authors Scott engaged with in writing In Good Faith.
  • Karen Armstrong — The Case for God — Referenced as one of the few books answering the new atheist case.
  • Scott’s TEDx talk on Wall Street and bank concentration — Available on ted.com and YouTube.

Connections

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