Speaker 1: Push Kim.
Speaker 2: I'm Lydia Dean Cott and I'm Michael Lewis, and we're
Speaker 2: continuing our special series about The Big Short. In this episode,
Speaker 2: we're gonna hear from three guys who worked for Steve Eisman,
Speaker 2: a fund manager at front Point Partners who bet on
Speaker 2: the housing market crashing in the late two thousands and
Speaker 2: was right. In the movie version of The Big Short,
Speaker 2: Eisman is called Mark Baum, and I want to play
Speaker 2: you a clip that's narrated by Ryan Gosling in which
Speaker 2: we're introduced to the three guys who worked for him.
Speaker 3: What if you just say, I just want to play
Speaker 3: you a clip and then I we'll explain after.
Speaker 2: Okay, It starts with Steve Carrell playing Mark Baum.
Speaker 1: Guys.
Speaker 3: Cynthia wants me to quit and I'll put a B
Speaker 3: and B in for Mott.
Speaker 4: So that's great. I'd love to see Mark Baum run
Speaker 4: a bed and breakfast.
Speaker 3: Benny Daniel, you know how to make a muffin Mark's numbers.
Speaker 1: Guy, no joke.
Speaker 5: She could actually make a move to her mind.
Speaker 1: I mean she made me start wearing a seat. Porter Collins,
Speaker 1: former Olympic rower who went to Brown.
Speaker 3: Sorry, I think we're the front Point because there is
Speaker 3: another front Point in the same building, that is Bonds,
Speaker 3: and Danny moses the optimist of the bunch and a
Speaker 3: hell of a trader, which is the only reason they
Speaker 3: put up with his bullshit optimism. It was this guy
Speaker 3: from Deutsche who was talking about shorting housing bonds.
Speaker 2: So that's the movie version of what the front Point
Speaker 2: partners were like. Based on minoractions with them. That sounds
Speaker 2: about right. What was it like for you when you
Speaker 2: first met them?
Speaker 3: Oh, the movie completely nails their interactions. I think of
Speaker 3: Eisman as sort of the main character, and he was
Speaker 3: kind of the big picture person, and then these other
Speaker 3: three guys were doing various little picture things. The big
Speaker 3: picture thing they were doing for me was watching Eisman.
Speaker 3: But each played kind of a slightly different role and
Speaker 3: each could contribute to the story. But there were so
Speaker 3: downstage voices but characters in and of themselves, and I
Speaker 3: kind of felt, especially the jerrymy Strong character playing Vinnie,
Speaker 3: the movie just kind of nailed him.
Speaker 2: This is the Big Short Companion podcast, and on today's episode,
Speaker 2: Michael Lewis talks with the three front Point employees, Porter, Danny,
Speaker 2: and Vinnie.
Speaker 3: The first of the three front Point traders I spoke
Speaker 3: to was Porter Collins. I asked him about meeting the
Speaker 3: trader from Deutsche Bank who is going to let them
Speaker 3: in on the big short itself, the bet against subprime
Speaker 3: mortgage bonds. Greg Littman walks into your life. Describe Greg
Speaker 3: Littman to me.
Speaker 5: He looked like a Wall Street salesman. Whoever walked in
Speaker 5: that door that was gonna sell us credit to false
Speaker 5: swaps on housing was gonna get beaten up. But he
Speaker 5: walked in the room and he was one hundred and
Speaker 5: twenty percent confident about everything, and so therefore it made
Speaker 5: it's so much easier for us to not like him
Speaker 5: and to be skeptical of him and to go after him.
Speaker 5: You know what, They have a scene in the movie
Speaker 5: he said, I hung out with fashion friends, right. He
Speaker 5: wanted to play that coolness factor as well, So he
Speaker 5: wasn't like a funny duddy Wall Street salesman. He was
Speaker 5: a young, flashy Wall Street salesman, and he put on
Speaker 5: a sales pitch and all of us in the room
Speaker 5: thought it was too good to be true.
Speaker 6: The first thing that pops up in our head was
Speaker 6: how intense yet entertained we were during the whole process.
Speaker 3: That's Vincent Daniel, whose character would launch Jeremy Strong's acting career.
Speaker 6: It was very intensive every day to be thinking about
Speaker 6: this investment that we were doing, this trade we were doing,
Speaker 6: and then, like everything associated with our office, we made
Speaker 6: it quite entertaining to make sure that we kept saying minds.
Speaker 3: So let's start this way. If you're just explaining to
Speaker 3: your kids what the hell of financial crisis was without
Speaker 3: using financial jargons, so in a way they'd understand that
Speaker 3: what happened in two thousand and eight, it was such
Speaker 3: a big deal, and what role did you play in it?
Speaker 6: Well, the housing market crashed, right, and no one really
Speaker 6: talks about the why it crashed or what happened. There
Speaker 6: was a lot of bad loans that were made to
Speaker 6: people who shouldn't have gotten those loans at housing prices
Speaker 6: that were way too high and unaffordable for them, and
Speaker 6: they had an inability to pay those loans. Without getting
Speaker 6: into the intricacies of how we got there in the
Speaker 6: first place.
Speaker 3: I'm gonna play the role of your child, okay, dad,
Speaker 3: So if that happened, so everybody lost a lot of
Speaker 3: money because the housing prices collapsed. How did you make money?
Speaker 1: Well, we were betting that.
Speaker 6: The housing prices would collapse, and that was based upon
Speaker 6: information and research. To kids, this is why you spend
Speaker 6: a lot of time going to school and doing your
Speaker 6: homemann Is because what we were doing was our homework
Speaker 6: and realized that housing prices were too high and these
Speaker 6: loans were going bad. And then so we figured it
Speaker 6: out a way to make an investment. I'll use the
Speaker 6: word investment rather than a bet. I guess to the
Speaker 6: kids that it would all go bad and we would
Speaker 6: make money.
Speaker 3: Who let you make this investment? I mean if you
Speaker 3: made money, somebody lost money.
Speaker 6: Yes, there was a middleman, right like any gambling ring
Speaker 6: usually has. As there's a middleman who was a bookie,
Speaker 6: and he was taking both sides of the bets. So
Speaker 6: we didn't really know who was on the other side.
Speaker 6: For the most part up until the end, we just
Speaker 6: knew that we had the ability to do what we
Speaker 6: wanted to do, and these brokers, these middlemen, allowed us
Speaker 6: to do it.
Speaker 3: Let me continue in this vein of childlike questions. Sure,
Speaker 3: why didn't everybody do their homework like what happened?
Speaker 6: Imagine if you're in school, and you're getting away with
Speaker 6: getting good grades without doing your homework. So more and
Speaker 6: more people will just not do their homework and everything
Speaker 6: will work out well. But if you actually did your homework,
Speaker 6: you would realize that at some point not doing your
Speaker 6: homework was not going to work. In fact, it was
Speaker 6: going to be really bad. And if you did do
Speaker 6: your homework, you were going to be rewarded in some way,
Speaker 6: shape or form or fashion.
Speaker 3: Yeah, how hard was it for you to get your
Speaker 3: mind around the idea that you all could be right
Speaker 3: and the whole world was wrong. You were making a
Speaker 3: bet against the supposedly smartest people on Wall Street, who
Speaker 3: were inside the biggest firms on Wall Street, and they
Speaker 3: were all wrong.
Speaker 1: I'll tell you why, Mike.
Speaker 6: It was the only place that I had a PhD
Speaker 6: in what was happening?
Speaker 1: Right. I lived this.
Speaker 6: In the late nineties because I was covering the subprime
Speaker 6: mortgage companies way back when, So this was this was
Speaker 6: secondhand knowledge to me. If the massive crisis of this
Speaker 6: country was happening in the healthcare industry, I would have
Speaker 6: been useless. I would have been just like every other
Speaker 6: schmuck Wall Street person opining. But this was the one
Speaker 6: place where we were not opining. We had the data
Speaker 6: better than everyone, and at that time, you know, the
Speaker 6: data was not perfectly presentable to everyone because you could
Speaker 6: get it, it wasn't proprietary, but no one even knew
Speaker 6: what we were talking about. I remember seeing this data
Speaker 6: back in the nineties. So every month data would come
Speaker 6: out that would show the delinquencies and losses of these
Speaker 6: respective pools of mortgages.
Speaker 3: Right, people not paying back their loans.
Speaker 6: Right, correct, and you could comp them to the prior
Speaker 6: your vintages and the ones that we were short, the
Speaker 6: ones that we were betting against. The curves were horrifically bad.
Speaker 6: Like the delinquencies were well north of where they should be.
Speaker 6: The losses were starting to pile up and be well
Speaker 6: north of where they should be. So to us, to me,
Speaker 6: I'll speak for myself, it was simple math that we
Speaker 6: were going to be right. What I didn't realize was
Speaker 6: how far the FED would go to make sure that
Speaker 6: I was wrong. And quite frankly, I think we were
Speaker 6: a little fortunate that they didn't understand what we understood.
Speaker 6: And at that point in time, this is probably one
Speaker 6: of the first and probably last times in our lives
Speaker 6: that we knew more than the most important people in
Speaker 6: the world thought they knew about this subject matter.
Speaker 3: How do you explain the ignorance of the most important
Speaker 3: people in the world. I mean, you would have thought
Speaker 3: that City Group and Merrill Lynch in the Federal Reserve
Speaker 3: would have people equally expert on this subject. Two were
Speaker 3: looking at all the data and all the curves, just
Speaker 3: like you in retrospect you look back on that. How
Speaker 3: do you explain it?
Speaker 1: Of money?
Speaker 6: That's the only way that in my head that rationalizes.
Speaker 6: I always assume that people saw what I saw, Particularly
Speaker 6: the people that were this close to the situation, that
Speaker 6: were analyzing these bonds and these these they knew, they
Speaker 6: had to know, but there was just too much money
Speaker 6: to be made on the incremental subprime loan. There was
Speaker 6: just too much money to be made, So they all
Speaker 6: turned the most intelligent ones turned the blind eye.
Speaker 1: Yeah my opinion, Yeah.
Speaker 3: That makes total sense that the only other people around
Speaker 3: who had access to the information were all being paid
Speaker 3: to misinterpret the information.
Speaker 1: Correct.
Speaker 3: We're going to take a quick break when we come back.
Speaker 3: I asked Vinnie and the other front Boy guys how
Speaker 3: being depicted in my book and in the movie affected
Speaker 3: their lives afterwards.
Speaker 7: How did the Volkswagen Beetle go from being hitler dream
Speaker 7: car to a hippie icon? How did a disgruntled center
Speaker 7: fielder change the business of sports? I'm Jacob Goldstein and
Speaker 7: on Business History my co host Robert Smith, and I
Speaker 7: dig into the people and companies who created the modern world.
Speaker 7: Business History is full of innovations and failures and insights
Speaker 7: into how business works today. At the end of today's
Speaker 7: episode of Against the Rules, we're going to play a
Speaker 7: clip from our episode about Jim Simon's decades ago. Simon's
Speaker 7: basically invented modern algorithmic trading, and after a few early hiccups,
Speaker 7: including buying up all the potatoes in Maine, Simon's built
Speaker 7: a machine that generated incredible returns for decades. The show
Speaker 7: is called Business History, and the previews coming up at
Speaker 7: the end of today's episode of Against the Rules.
Speaker 3: Have the book in the movie sort of screwed up
Speaker 3: your memory of the experience in the way your you know,
Speaker 3: pictures from a family vacation screw up your family memory
Speaker 3: of the family vacation because all you end up remembering
Speaker 3: is the pictures. Or do you have scenes in your
Speaker 3: head that are just separate from that, that are vivid
Speaker 3: to you about the experience.
Speaker 6: I'll give you a great personal business scene that really
Speaker 6: gets to I think what you're getting at. So I
Speaker 6: might get the dates slightly wrong. October two thousand and eight. Okay,
Speaker 6: my now deceased father in law takes the entire family
Speaker 6: on a Disney vacation and we were there during the
Speaker 6: time that the markets were blowing up. So while I'm
Speaker 6: on it's a small world. I know that the S
Speaker 6: ANDP is down three four percent, but I'm there with
Speaker 6: my nieces, my nephews, my kids, and thankfully we're on
Speaker 6: the right side of it, right, thankfully Like that, that
Speaker 6: was the only solace was that my father in law
Speaker 6: had money in the markets like he was. He was
Speaker 6: somewhat financially sadly, you know, he did, you know, pretty
Speaker 6: well in markets.
Speaker 1: And I remember him going we're in the pool.
Speaker 6: We're in the pool with all the kids, and I
Speaker 6: remember him going to, I guess, go to the bathroom, right,
Speaker 6: And I just sat there saying, he's going to come
Speaker 6: out check markets and he's going to have the face
Speaker 6: of the grim Reaper and look for me immediately and
Speaker 6: sure as shit. Every day that I was there, about
Speaker 6: four point thirty he comes out and I'm sitting there.
Speaker 1: I probably have a cocktail in my hand.
Speaker 6: I go here, it comes right, and he would just go, Vinny,
Speaker 6: what in the world is going on? And so that
Speaker 6: is kind of one of my memories of it gets
Speaker 6: back to, wow, we knew a lot back then, and
Speaker 6: I'm sitting in Disney World where everyone's playing around, no
Speaker 6: one's paying attention to anything. But come after four o'clock,
Speaker 6: my father in law started paying attention every day and
Speaker 6: I think the market was dound like ten percent that week.
Speaker 3: And what do you say to him when he says, Vinnie,
Speaker 3: what the hell's going on?
Speaker 6: It's like, well, I go, there's a problem with the
Speaker 6: housing market. And what you don't want to say is
Speaker 6: I've been trying to tell you this, but no one
Speaker 6: really listens to you until the markets actually go down.
Speaker 3: Has anybody been angry at you for being right?
Speaker 1: No?
Speaker 3: No, You've got no anger.
Speaker 6: No, no anger. Every once in a while you get well,
Speaker 6: why didn't you stop this?
Speaker 1: Right?
Speaker 6: Or I remember a few years ago I would get
Speaker 6: the like, how do you feel comfortable profiting from this?
Speaker 1: And the way.
Speaker 6: I explained our way around. It was like, look, we
Speaker 6: went down to Washington, DC many a time's pre crisis.
Speaker 1: We are not silent wallflowers.
Speaker 6: We went there and said, you guys are screwing up
Speaker 6: royally and I've come to learn and I have this line.
Speaker 6: I was like, unless you go to DC with a
Speaker 6: suitcase full of money on the accel express, no one's
Speaker 6: going to listen to And they didn't.
Speaker 1: So it's not like we didn't try. We did.
Speaker 6: And I know we didn't cause the crisis that I know,
Speaker 6: do we accelerate the crisis by increasing the amount of
Speaker 6: like synthetic stuff that was put on it? Maybe someone
Speaker 6: could maybe make that argument, But by the time we
Speaker 6: got involved, it was already gone.
Speaker 3: So when you look back, looking back at the way
Speaker 3: you may have played a poker hand, is there any
Speaker 3: if you could replay it? Would you replay it any differently?
Speaker 1: I would replay the after effects.
Speaker 6: What I didn't realize was how they were going to
Speaker 6: quote remedy the issue, right, I wasn't of the belief
Speaker 6: that a lot of people were going to go to
Speaker 6: jail and like, but what I didn't realize to this day,
Speaker 6: I think that episode that incident. Recession was the last
Speaker 6: time material adverse price discovery can happen in markets.
Speaker 3: Explain that, Explain that to a child what material adverse
Speaker 3: price selection is?
Speaker 1: Okay? In markets, things go up, things go down. Right?
Speaker 6: Would we have been taught by textbooks to believe that
Speaker 6: that's just how markets work, that's how capitalism works. Specifically,
Speaker 6: is that yes, you will have booms, but you will
Speaker 6: also have busts. The government said, we don't want busts anymore.
Speaker 6: We don't want prices to go back. Particularly, we don't
Speaker 6: want prices to go bad. And this probably where I
Speaker 6: don't think it's controversial at all.
Speaker 1: We don't want.
Speaker 6: Prices to go bad for the people who could actually
Speaker 6: afford for prices to go bad, meaning the wealthy people.
Speaker 6: You have your you're too influential, you're too powerful, you're
Speaker 6: too required to continue to spend the money that you
Speaker 6: do your wealth such that at the end of the day,
Speaker 6: we're going to bail you out, because if we don't
Speaker 6: bail you out, there are some major negative implications to
Speaker 6: the overall economy. Right, Whereas, sadly, for the people who
Speaker 6: can't afford price discovery, poor lower middle class, you're allowed
Speaker 6: to go bust because you're not that important. So if
Speaker 6: I had to do something different, I would recognize that
Speaker 6: sad fact a lot earlier than I have. That the
Speaker 6: way they're going to remedy every calamity going forward, the
Speaker 6: minute something goes bad, the swap team and the fire
Speaker 6: hoses are out immediately to make sure it doesn't go poorly.
Speaker 3: Give me an example of the fire hoses coming out.
Speaker 6: The Silicon Valley Bank, and they're making it as if
Speaker 6: Silicon Valley Bank was small. It wasn't that small, right,
Speaker 6: If a major bank of that kind went under in
Speaker 6: a market where a price discovery was allowed, you would
Speaker 6: probably see the markets go down a material amount. They
Speaker 6: remedied that situation in two days over the weekend. They
Speaker 6: just basically flooded the lines with fake credit, right a
Speaker 6: line of credit to make sure that any bank that
Speaker 6: was about to go under, regional bank that was about
Speaker 6: to go under would be saved by this line of credit.
Speaker 6: And so the market rightfully so ignored the adverse price
Speaker 6: discovery because they realized that the FED had its back,
Speaker 6: and they did not allow this to fester for more
Speaker 6: than a week.
Speaker 1: That's it.
Speaker 6: There used to be a time when price discovery was allowed.
Speaker 6: It's not allowed anymore.
Speaker 3: I get asked a bunch why I opened and closed
Speaker 3: the Big Short with these characters, these front point guys
Speaker 3: and particular Steve Eisman. Part of it was they had
Speaker 3: this really deep experience with the subprime lending market that
Speaker 3: went back to the early nineteen nineties. They had seen
Speaker 3: firsthand this ugly border between high finance and the American
Speaker 3: lower middle class. And so they were in a way
Speaker 3: there at the very beginning of the story. But I
Speaker 3: ended the book with him because they had just handed
Speaker 3: me an ending on a platter. The day Lehman Brothers
Speaker 3: failed and they became rich, they were actually totally shell shocked.
Speaker 3: They wandered around midtown Manhattan and wound up on the
Speaker 3: steps of Saint Patrick's Cathedral. Here's Danny Moses.
Speaker 4: Literally until the day that Lehman went down, and we'd
Speaker 4: never realized how big this thing was, and so that
Speaker 4: moment on Saint Patrick's Cathedral on those steps was real.
Speaker 3: So I don't want you to describe the moment on
Speaker 3: Saint Patrick's Cathedral, and.
Speaker 4: We realized that like this is this is bad, like
Speaker 4: this is going to be over, Like what how is
Speaker 4: this going to play out? And so literally left the
Speaker 4: trading desk, gave it to junior trader reporter Vinnie walked
Speaker 4: me out. You know, Saint Patri's Cathedral was about one
Speaker 4: avenue over, and Steve was at a conference down at
Speaker 4: Goldman Sachs that day, probably raising as much money as
Speaker 4: he wanted to at that point, and we were sitting
Speaker 4: up there on the steps and we just had a
Speaker 4: very cathartic kind of moment watching people go by. Some
Speaker 4: were construction workers, some bus drive some oblivious, but then
Speaker 4: the lawyers and the Wall Street people walking by, they
Speaker 4: probably knew. And I guess at that moment in time,
Speaker 4: you felt like I wish I was one of the
Speaker 4: people who didn't know anything that was going on. I
Speaker 4: thought to myself, they have no idea what's about to
Speaker 4: happen to them, Meaning if the economic system collapses, they're
Speaker 4: going to feel it because the government's going to be
Speaker 4: effectively in dire straits. And you know, it's amazing when
Speaker 4: you fast forward to today, all the consequences of all
Speaker 4: those things that happened seventeen years ago are not only
Speaker 4: still with us, potentially end up getting a lot worse
Speaker 4: because of the moral hazard and the hubris that's you know,
Speaker 4: still out there.
Speaker 3: When I talk to them about publishing their stories, all
Speaker 3: the characters in the book shared this one concern. They
Speaker 3: were all really worried how it would look to have
Speaker 3: made a fortune from the collapse of a system and
Speaker 3: the ruin of so many careers and lives. Porter Collins
Speaker 3: especially brought this up.
Speaker 5: I was scared, you know. When the book came out.
Speaker 5: My grandfather read it and he didn't really approve. He
Speaker 5: was like, well, you made all this money and everyone
Speaker 5: lost their homes, Like how does that make you feel?
Speaker 5: And so like that was that other side of the coin, right.
Speaker 3: And what did you say to What did you say
Speaker 3: to him?
Speaker 5: I said, he was right, you know, and he had
Speaker 5: the memory going back to you know, the depression, right,
Speaker 5: he came from a different era people forget all this stuff,
Speaker 5: and so you know, I had a bit of that.
Speaker 5: Maybe it's the waspiness in me or whatever it is.
Speaker 5: I was scared.
Speaker 3: If i'd asked you to predict, as you're saying, I think,
Speaker 3: on the steps of the Saint Patrick's Cathedral, what the
Speaker 3: world's going to look like in fifteen years, And I
Speaker 3: mean not just the financial markets, but also the political markets.
Speaker 3: How far off would you have been? What did you
Speaker 3: imagine what was going to happen and what did happen.
Speaker 6: I would have imagined that we would have had I
Speaker 6: would have been wrong. Put it that way. I would
Speaker 6: have imagined that there would have been more justice, or
Speaker 6: if you looked at prior times in history, there would
Speaker 6: have been more time to remedy the situation through price discovery.
Speaker 6: We wouldn't have allowed the proliferation of some of the
Speaker 6: excess leverage that has happened.
Speaker 1: But I was naive.
Speaker 4: So the system is set up in a way to
Speaker 4: reward the risk and not really punish the people that
Speaker 4: make the wrong bets. And so, yeah, you can lose
Speaker 4: your job, but as we saw during the financial no
Speaker 4: one went to jail afterwards, and who bailed them out?
Speaker 4: The taxpayer and the shareholders. Over time, that was it.
Speaker 4: No one else did. Some people paid fines here and there,
Speaker 4: but that's pretty much all it was. So the moral
Speaker 4: hazard that was created as a result of this and
Speaker 4: the crisis stays with us today.
Speaker 3: I want to thank Danny Moses, Vincent Daniel, and Porter
Speaker 3: Collins for talking with me once again starting next week,
Speaker 3: We're going to widen out our lens and look at
Speaker 3: all the ways the financial crisis changed our world, but
Speaker 3: also how maybe the system averted something even worse than
Speaker 3: what we got.
Speaker 2: Against the Rules, The Big Short Companion is hosted by
Speaker 2: Michael Lewis. It's produced by Me Ludy, Jane Cott and
Speaker 2: Catherine Girodell. Our editor is Julia Barton. Our theme was
Speaker 2: composed by Nick Brittel, and our engineer is Hans Dale
Speaker 2: Sheeting special thanks to Nicole opten Bosch, Jasmine Faustino, Pamela
Speaker 2: Lawrence and the rest of the Pushkin Audiobooks team. Against
Speaker 2: the Rules is a production of Pushkin Industries. To find
Speaker 2: more Pushkin podcasts, listen on the iHeartRadio app, Apple Podcasts
Speaker 2: or wherever you listen to podcasts, And if you'd like
Speaker 2: to listen ad free and learn about other exclusive offerings,
Speaker 2: don't forget to sign up for a Pushkin Plus subscription
Speaker 2: at pushkin dot fm, Slash Plus or honor Apple show page.
Speaker 2: And you can get The Big Short now at Pushkin
Speaker 2: dot fm, Slash Audiobooks or wherever audiobooks are sold.
Speaker 7: It's Jacob Goldstein. I'm the co host of a new
Speaker 7: show called Business History, and we're bringing you a clip
Speaker 7: right now from an episode we did about a mathematician
Speaker 7: name Jim Simon's. Simons wanted to take human emotions out
Speaker 7: of investing, and after a few early hiccups, including buying
Speaker 7: up all the potatoes in Maine, he created one of
Speaker 7: the greatest money machines in history. I really hope you
Speaker 7: like the clip, and if you want to hear more,
Speaker 7: please check out the show. It's called Business History and
Speaker 7: it's available wherever you're listening right now. They were doing
Speaker 7: what we would call today machine learning.
Speaker 8: A machine learning is like essentially, you build a system
Speaker 8: in a computer, you feeded a bunch of data and
Speaker 8: the system sort of builds a map of the relationships
Speaker 8: in that data, and then with new data it can
Speaker 8: kind of interpolate or extrapolate and make guesses about.
Speaker 1: What should come next.
Speaker 8: And of course today we have an exciting, maybe misleading,
Speaker 8: confounding term for machine learning.
Speaker 1: We call it AI.
Speaker 9: Exactly right, right, this is still very basic machine learning,
Speaker 9: and the computer at the time keeps making mistakes that
Speaker 9: they didn't really understand. So, for instance, once the computer
Speaker 9: developed a taste for potatoes, main potatoes. The system kept
Speaker 9: buying main potato futures in the state of Maine, potato.
Speaker 8: Potatoes, big harvest next year or whatever, Yes, okay.
Speaker 9: Until two thirds of the company's money was in potatoes.
Speaker 9: They were all in potatoes. And they got a call
Speaker 9: from the regulators, the.
Speaker 7: CFT CFPP Commodi Futures Trading Commission.
Speaker 9: Right saying, whoa who are you guys, Like, what are
Speaker 9: you doing over there? You have almost cornered the market
Speaker 9: on potatoes. You have to sell. And they ended up
Speaker 9: losing money on the trade because blown out on potatoes,
Speaker 9: they had stopped the computer whatever the computer's plan was.
Speaker 9: But you know, this was just one small weird thing.
Speaker 9: Simon and Baum were really kind of nervous about this
Speaker 9: whole thing. They had taken investors money, they didn't really
Speaker 9: know if their system worked. And as the story gets told,
Speaker 9: they start to like second guess the computer and themselves,
Speaker 9: and they start to think, well, I have this intuition
Speaker 9: that gold's going to go up because of the geopolitical situation,
Speaker 9: and they'd make some money on that, and then they'd
Speaker 9: lose some money on that, and so by doubting their
Speaker 9: own system, it just wasn't really working, and at that
Speaker 9: point they're just Wall Street investors, right with the big computer,
Speaker 9: trying to buy more potatoes, and the man won't let
Speaker 9: them buy potatoes.