Billionaire investment banker Ken Moelis reveals his thoughts on taxes, regulation, and winning the talent war against tech

• Investment banking rainmaker Ken Moelis says there isn't a problem with a high marginal tax on income above $10 million dollars, as Alexandria Ocasio-Cortez has suggested. He argues that there isn't much income to tax above that level and marginal tax rates need to start around $250,000 in order to have an impact. And he says a 70% tax rate at that level "would crush the economy."
• Moelis says when rates are this low people always find ways to "juice" returns. He says it's not like 2008 but "you'll find more leverage in the system if there's a sustained downturn than most people think."
• The biggest threat to the US economy is a real change to the regulatory environment, according to Moelis. As long as the US is friendly to capital, there is no place in the world people would rather put their money.
• When it comes to attracting top talent, Moelis says he understands the draw of the tech sector for young people that want to change the world. But he says that investment banks need to make it clear to prospective employees that want to change the world that the leverage you have in a financial role is way more than people understand.

Ken Moelis has been in the investment banking industry for over 30 years and is the founder and CEO of investment bank Moelis & Company. Moelis sat down with Business Insider's Sara Silverstein at the annual meeting of the World Economic Forum in Davos, Switzerland. Following is a transcript of the video.

Sara Silverstein: So you were one of the few people that saw Donald Trump winning the presidency. That would seem to be a huge blind spot for everybody. Do you think that blind spot is still exists?

Ken Moelis: Well, it might exist. For right now, you have somebody announcing on the other side of the field sort of every day. In fact, I was talking the other day, I expect almost 10% of the Democrats Senate to run for president. Eight to 10% percent of the existing Democrat senate will be in the race. So sooner or later they'll actually be a person against a person. Right now there's a person against a hope and an ideal. And so I think it's too early to tell. We're going to have to see the attributes of the actual choice we have.

Silverstein: From a purely economic standpoint, what is the most important thing from a presidential candidate?

Moelis: Well, look, as I always say, the United States should be a bastion of free markets. Deregulation is great for the economy. So people get all involved in personalities, but which direction the train is going is sometimes more important than you know how loud and obnoxious the conductor is.

Silverstein: Is there something that you think both the left and the right should agree on that they don't agree on right now?

Moelis: Sure. Deregulation. Free markets. I think we're going to, I expect we'll talk about it, but we're going to have a big debate in this race about tax rates. And I think yes, I think there are fundamentally going to pull in different directions.

Silverstein: Everybody's talking about AOC's proposed 70% marginal tax rate. What do you think are the economic implications of that?

Moelis: Look, it's ultimately going to get fought. The marginal rate has to start at $250, $300, $350 thousand whatever the sloganeering is in order to get any money out of the US population. The marginal rate always ends up being debated right around $250, $300 thousand. So look, if you impose a 70% tax rate on that type of wage earner, you're going to crush the economy,

Silverstein: But at $10 million?

Moelis: It's never, there's no money there. There's no, it's, you know, maybe we should have 99% at $10 million. I don't know. There's no money. There's no policy there. It's slow. So it's going to be, it's going to be decided at the $250 thousand to $350 thousand rate. The only decision will be where in that band you put extremely high marginal rates because that's where the money is. And we might as well talk about that early.

Silverstein: Looking at the markets. Are there any places that you think are over leveraged or are in danger?

Moelis: Yeah, I don't think it's -I think leverage in the system inherent in lots of financial products. I think it's hard to find because some of it is back levered. Some of it's places that are - People find new places to put leverage all the time. Look, I don't think it's 2008 because our financial system and our financial companies are more stable. But I think you'll find more leverage in the system if there's a sustained downturn than most people think.

Silverstein: Are there any market dynamics that are leading to that or can you hint at which pockets there might be leveraged hiding?

Moelis: Yeah, low returns. Look when most people are earning when four or five percent is the risk free return or two or three percent. There's a lot of people who want to kind of try to juice that two, three or four percent. And so you back leverage it and you put leverage in places to just get an incremental one or two percent. So at this time, at these low rates, people do things to boost rates that they might regret in a different environment.

Silverstein: And where do you think valuations are?

Moelis: They're okay. I think we're, you know, tell me what happens next year in the economy. I think if we, if we don't have a downturn and we keep policy at low tax rates, high growth, deregulation, I think we're in the range

Silverstein: And what would hurt the economy the most?

Moelis: I think a real change in the regulatory environment. Look, behind the scenes - I think people don't realize that the deregulation has activated expansionary policy at all companies. That's why we're at four percent unemployment. People are expanding and capital is coming back to the US. If the US is friendly to capital, there's no place in the world everybody would rather put their money. And we used to be the bastion of free market capitalism and if we continue to do it, we'll have our outsized investment.

Silverstein: Does that matter at all if we're friendly to other countries?

Moelis: Look, I think we are friendly. The funny part here is each country has their crisis going on. I think we're so inwardly focused. France has a crisis going on about who's looking after their middle class. England obviously with Brexit. I think you're going to see India have a an interesting election about who's looking out for the middle class. Brazil just had a big election. So the one thing is if everybody represents themselves and negotiates fairly with with other countries, I think there'll be a good outcome, but everybody has to focus a little bit on their own country

Silverstein: You've been in banking forever and you started your own banking firm. How much has banking changed since the financial crisis? The actual culture and being in banking?

Moelis: Tremendously. And a lot of it is regulatory. A lot of it is awareness of conflict and we've benefited a lot from people very focused on conflict of interest. But a lot is technological. A lot of things that used to be done human to human are extremely more efficient done machine to machine. And it's radically changing the profitability of financial institution.

Silverstein: And for the actual investment bankers that you hire, are there different skills you're looking for and is it a different work environment than it was 15 years ago?

Moelis: Yeah, it's different, but the key element, and I'll tell you, you can see it. You have to be willing to work hard. Look, people hire us and they want us to work hard. But number one, they want to trust us. Trust and integrity. And that's a baseline entry point and it takes a long time. So that is also the cycle with technology. Now, some of the big firms, they don't have enough time to establish it. And you know it takes a lot of years to establish a feeling of trust, loyalty and confidentiality.

Silverstein: Does banking still get the best and the brightest right out of college and out of business school?

Moelis: I think so. I think we're still right up there. I get the attraction of technology and I see it in my own - I have four children and I see the attraction of technology. But really, if you want to change - young people always say they want to change the world, and I think the leverage you have in a financial role is way more than people understand. That when you're sitting in the room with CEO's and executives and boards it's quite an exhilarating place to be and I think we could do a better job of explaining that to young people.