WEBVTT - The FrontPoint Boys 0:00:15.316 --> 0:00:19.996 Push Kim. 0:00:20.236 --> 0:00:23.756 I'm Lydia Dean Cott and I'm Michael Lewis, and we're 0:00:23.796 --> 0:00:27.476 continuing our special series about The Big Short. In this episode, 0:00:27.596 --> 0:00:30.636 we're gonna hear from three guys who worked for Steve Eisman, 0:00:30.836 --> 0:00:33.836 a fund manager at front Point Partners who bet on 0:00:33.916 --> 0:00:36.876 the housing market crashing in the late two thousands and 0:00:37.116 --> 0:00:39.956 was right. In the movie version of The Big Short, 0:00:40.236 --> 0:00:42.996 Eisman is called Mark Baum, and I want to play 0:00:42.996 --> 0:00:45.476 you a clip that's narrated by Ryan Gosling in which 0:00:45.516 --> 0:00:47.756 we're introduced to the three guys who worked for him. 0:00:48.036 --> 0:00:49.196 What if you just say, I just want to play 0:00:49.196 --> 0:00:50.676 you a clip and then I we'll explain after. 0:00:53.476 --> 0:00:56.796 Okay, It starts with Steve Carrell playing Mark Baum. 0:00:57.356 --> 0:00:57.716 Guys. 0:00:57.916 --> 0:00:59.996 Cynthia wants me to quit and I'll put a B 0:01:00.076 --> 0:01:00.756 and B in for Mott. 0:01:01.636 --> 0:01:03.476 So that's great. I'd love to see Mark Baum run 0:01:03.516 --> 0:01:04.316 a bed and breakfast. 0:01:04.836 --> 0:01:08.116 Benny Daniel, you know how to make a muffin Mark's numbers. 0:01:07.796 --> 0:01:09.556 Guy, no joke. 0:01:09.636 --> 0:01:11.116 She could actually make a move to her mind. 0:01:11.236 --> 0:01:14.116 I mean she made me start wearing a seat. Porter Collins, 0:01:14.876 --> 0:01:16.676 former Olympic rower who went to Brown. 0:01:17.676 --> 0:01:19.996 Sorry, I think we're the front Point because there is 0:01:19.996 --> 0:01:22.276 another front Point in the same building, that is Bonds, 0:01:22.516 --> 0:01:26.436 and Danny moses the optimist of the bunch and a 0:01:26.476 --> 0:01:28.396 hell of a trader, which is the only reason they 0:01:28.396 --> 0:01:31.436 put up with his bullshit optimism. It was this guy 0:01:31.676 --> 0:01:35.636 from Deutsche who was talking about shorting housing bonds. 0:01:36.756 --> 0:01:39.636 So that's the movie version of what the front Point 0:01:40.036 --> 0:01:43.036 partners were like. Based on minoractions with them. That sounds 0:01:43.036 --> 0:01:44.876 about right. What was it like for you when you 0:01:44.916 --> 0:01:45.516 first met them? 0:01:46.356 --> 0:01:49.716 Oh, the movie completely nails their interactions. I think of 0:01:49.876 --> 0:01:52.876 Eisman as sort of the main character, and he was 0:01:52.956 --> 0:01:55.516 kind of the big picture person, and then these other 0:01:55.556 --> 0:01:59.756 three guys were doing various little picture things. The big 0:01:59.796 --> 0:02:02.396 picture thing they were doing for me was watching Eisman. 0:02:02.836 --> 0:02:05.956 But each played kind of a slightly different role and 0:02:06.356 --> 0:02:09.036 each could contribute to the story. But there were so 0:02:09.276 --> 0:02:12.356 downstage voices but characters in and of themselves, and I 0:02:12.556 --> 0:02:15.996 kind of felt, especially the jerrymy Strong character playing Vinnie, 0:02:16.716 --> 0:02:21.156 the movie just kind of nailed him. 0:02:21.196 --> 0:02:24.436 This is the Big Short Companion podcast, and on today's episode, 0:02:24.636 --> 0:02:28.076 Michael Lewis talks with the three front Point employees, Porter, Danny, 0:02:28.116 --> 0:02:32.476 and Vinnie. 0:02:33.356 --> 0:02:35.356 The first of the three front Point traders I spoke 0:02:35.396 --> 0:02:38.116 to was Porter Collins. I asked him about meeting the 0:02:38.156 --> 0:02:40.516 trader from Deutsche Bank who is going to let them 0:02:40.516 --> 0:02:43.676 in on the big short itself, the bet against subprime 0:02:43.716 --> 0:02:49.876 mortgage bonds. Greg Littman walks into your life. Describe Greg 0:02:49.956 --> 0:02:50.556 Littman to me. 0:02:50.916 --> 0:02:54.276 He looked like a Wall Street salesman. Whoever walked in 0:02:54.316 --> 0:02:56.516 that door that was gonna sell us credit to false 0:02:56.516 --> 0:03:01.116 swaps on housing was gonna get beaten up. But he 0:03:01.196 --> 0:03:04.796 walked in the room and he was one hundred and 0:03:04.876 --> 0:03:09.116 twenty percent confident about everything, and so therefore it made 0:03:09.276 --> 0:03:12.556 it's so much easier for us to not like him 0:03:13.636 --> 0:03:16.996 and to be skeptical of him and to go after him. 0:03:17.516 --> 0:03:19.476 You know what, They have a scene in the movie 0:03:19.476 --> 0:03:22.876 he said, I hung out with fashion friends, right. He 0:03:22.996 --> 0:03:25.436 wanted to play that coolness factor as well, So he 0:03:25.596 --> 0:03:29.236 wasn't like a funny duddy Wall Street salesman. He was 0:03:29.276 --> 0:03:33.716 a young, flashy Wall Street salesman, and he put on 0:03:33.796 --> 0:03:37.316 a sales pitch and all of us in the room 0:03:37.676 --> 0:03:38.876 thought it was too good to be true. 0:03:39.356 --> 0:03:42.156 The first thing that pops up in our head was 0:03:42.236 --> 0:03:50.156 how intense yet entertained we were during the whole process. 0:03:50.556 --> 0:03:55.556 That's Vincent Daniel, whose character would launch Jeremy Strong's acting career. 0:03:56.756 --> 0:03:59.916 It was very intensive every day to be thinking about 0:04:00.596 --> 0:04:03.396 this investment that we were doing, this trade we were doing, 0:04:04.276 --> 0:04:08.916 and then, like everything associated with our office, we made 0:04:08.916 --> 0:04:12.876 it quite entertaining to make sure that we kept saying minds. 0:04:13.476 --> 0:04:15.756 So let's start this way. If you're just explaining to 0:04:15.796 --> 0:04:19.556 your kids what the hell of financial crisis was without 0:04:19.676 --> 0:04:22.836 using financial jargons, so in a way they'd understand that 0:04:22.916 --> 0:04:25.196 what happened in two thousand and eight, it was such 0:04:25.196 --> 0:04:29.196 a big deal, and what role did you play in it? 0:04:29.276 --> 0:04:32.916 Well, the housing market crashed, right, and no one really 0:04:32.916 --> 0:04:35.676 talks about the why it crashed or what happened. There 0:04:35.716 --> 0:04:38.556 was a lot of bad loans that were made to 0:04:38.716 --> 0:04:44.076 people who shouldn't have gotten those loans at housing prices 0:04:44.196 --> 0:04:47.876 that were way too high and unaffordable for them, and 0:04:49.316 --> 0:04:51.996 they had an inability to pay those loans. Without getting 0:04:52.076 --> 0:04:55.516 into the intricacies of how we got there in the 0:04:55.516 --> 0:04:56.396 first place. 0:04:56.556 --> 0:04:58.756 I'm gonna play the role of your child, okay, dad, 0:04:58.876 --> 0:05:01.316 So if that happened, so everybody lost a lot of 0:05:01.316 --> 0:05:04.756 money because the housing prices collapsed. How did you make money? 0:05:05.076 --> 0:05:09.396 Well, we were betting that. 0:05:10.796 --> 0:05:13.396 The housing prices would collapse, and that was based upon 0:05:13.476 --> 0:05:16.076 information and research. To kids, this is why you spend 0:05:16.116 --> 0:05:18.236 a lot of time going to school and doing your 0:05:18.276 --> 0:05:22.716 homemann Is because what we were doing was our homework 0:05:22.756 --> 0:05:26.836 and realized that housing prices were too high and these 0:05:26.876 --> 0:05:29.916 loans were going bad. And then so we figured it 0:05:29.916 --> 0:05:33.316 out a way to make an investment. I'll use the 0:05:33.356 --> 0:05:35.516 word investment rather than a bet. I guess to the 0:05:35.596 --> 0:05:39.436 kids that it would all go bad and we would 0:05:39.436 --> 0:05:39.916 make money. 0:05:40.196 --> 0:05:42.436 Who let you make this investment? I mean if you 0:05:42.516 --> 0:05:44.636 made money, somebody lost money. 0:05:44.836 --> 0:05:49.756 Yes, there was a middleman, right like any gambling ring 0:05:49.876 --> 0:05:52.276 usually has. As there's a middleman who was a bookie, 0:05:52.916 --> 0:05:55.596 and he was taking both sides of the bets. So 0:05:55.956 --> 0:05:58.196 we didn't really know who was on the other side. 0:05:58.396 --> 0:06:01.516 For the most part up until the end, we just 0:06:01.596 --> 0:06:03.756 knew that we had the ability to do what we 0:06:03.836 --> 0:06:07.636 wanted to do, and these brokers, these middlemen, allowed us 0:06:07.676 --> 0:06:08.036 to do it. 0:06:08.396 --> 0:06:11.716 Let me continue in this vein of childlike questions. Sure, 0:06:12.316 --> 0:06:15.476 why didn't everybody do their homework like what happened? 0:06:16.316 --> 0:06:19.636 Imagine if you're in school, and you're getting away with 0:06:19.676 --> 0:06:22.796 getting good grades without doing your homework. So more and 0:06:22.836 --> 0:06:26.476 more people will just not do their homework and everything 0:06:26.516 --> 0:06:29.396 will work out well. But if you actually did your homework, 0:06:30.116 --> 0:06:35.236 you would realize that at some point not doing your 0:06:35.236 --> 0:06:36.876 homework was not going to work. In fact, it was 0:06:36.916 --> 0:06:38.756 going to be really bad. And if you did do 0:06:38.836 --> 0:06:42.116 your homework, you were going to be rewarded in some way, 0:06:42.156 --> 0:06:43.236 shape or form or fashion. 0:06:43.316 --> 0:06:46.356 Yeah, how hard was it for you to get your 0:06:46.396 --> 0:06:49.996 mind around the idea that you all could be right 0:06:50.076 --> 0:06:53.556 and the whole world was wrong. You were making a 0:06:53.596 --> 0:06:57.436 bet against the supposedly smartest people on Wall Street, who 0:06:57.516 --> 0:07:01.036 were inside the biggest firms on Wall Street, and they 0:07:01.036 --> 0:07:01.876 were all wrong. 0:07:02.316 --> 0:07:03.756 I'll tell you why, Mike. 0:07:04.156 --> 0:07:06.556 It was the only place that I had a PhD 0:07:07.156 --> 0:07:08.156 in what was happening? 0:07:08.836 --> 0:07:10.676 Right. I lived this. 0:07:12.196 --> 0:07:15.436 In the late nineties because I was covering the subprime 0:07:15.676 --> 0:07:21.316 mortgage companies way back when, So this was this was 0:07:21.356 --> 0:07:24.276 secondhand knowledge to me. If the massive crisis of this 0:07:24.396 --> 0:07:27.796 country was happening in the healthcare industry, I would have 0:07:27.836 --> 0:07:30.796 been useless. I would have been just like every other 0:07:30.836 --> 0:07:35.196 schmuck Wall Street person opining. But this was the one 0:07:35.196 --> 0:07:37.396 place where we were not opining. We had the data 0:07:37.396 --> 0:07:41.316 better than everyone, and at that time, you know, the 0:07:41.436 --> 0:07:45.956 data was not perfectly presentable to everyone because you could 0:07:45.996 --> 0:07:48.596 get it, it wasn't proprietary, but no one even knew 0:07:48.596 --> 0:07:51.316 what we were talking about. I remember seeing this data 0:07:51.356 --> 0:07:55.476 back in the nineties. So every month data would come 0:07:55.476 --> 0:07:58.876 out that would show the delinquencies and losses of these 0:07:58.916 --> 0:08:01.276 respective pools of mortgages. 0:08:00.836 --> 0:08:02.916 Right, people not paying back their loans. 0:08:02.716 --> 0:08:07.596 Right, correct, and you could comp them to the prior 0:08:07.676 --> 0:08:11.076 your vintages and the ones that we were short, the 0:08:11.076 --> 0:08:14.956 ones that we were betting against. The curves were horrifically bad. 0:08:15.156 --> 0:08:18.116 Like the delinquencies were well north of where they should be. 0:08:18.156 --> 0:08:20.276 The losses were starting to pile up and be well 0:08:20.316 --> 0:08:23.236 north of where they should be. So to us, to me, 0:08:23.356 --> 0:08:26.236 I'll speak for myself, it was simple math that we 0:08:26.236 --> 0:08:29.196 were going to be right. What I didn't realize was 0:08:29.196 --> 0:08:31.316 how far the FED would go to make sure that 0:08:31.396 --> 0:08:35.076 I was wrong. And quite frankly, I think we were 0:08:35.116 --> 0:08:40.076 a little fortunate that they didn't understand what we understood. 0:08:40.276 --> 0:08:43.476 And at that point in time, this is probably one 0:08:43.476 --> 0:08:45.476 of the first and probably last times in our lives 0:08:45.556 --> 0:08:49.316 that we knew more than the most important people in 0:08:49.356 --> 0:08:51.916 the world thought they knew about this subject matter. 0:08:52.076 --> 0:08:54.356 How do you explain the ignorance of the most important 0:08:54.356 --> 0:08:55.836 people in the world. I mean, you would have thought 0:08:55.836 --> 0:08:58.516 that City Group and Merrill Lynch in the Federal Reserve 0:08:58.916 --> 0:09:02.676 would have people equally expert on this subject. Two were 0:09:02.676 --> 0:09:04.716 looking at all the data and all the curves, just 0:09:04.796 --> 0:09:06.996 like you in retrospect you look back on that. How 0:09:06.996 --> 0:09:08.796 do you explain it? 0:09:09.316 --> 0:09:09.716 Of money? 0:09:09.796 --> 0:09:12.796 That's the only way that in my head that rationalizes. 0:09:13.676 --> 0:09:17.796 I always assume that people saw what I saw, Particularly 0:09:17.836 --> 0:09:20.156 the people that were this close to the situation, that 0:09:20.236 --> 0:09:24.516 were analyzing these bonds and these these they knew, they 0:09:24.556 --> 0:09:27.796 had to know, but there was just too much money 0:09:28.396 --> 0:09:32.676 to be made on the incremental subprime loan. There was 0:09:32.716 --> 0:09:35.116 just too much money to be made, So they all 0:09:35.156 --> 0:09:38.396 turned the most intelligent ones turned the blind eye. 0:09:38.556 --> 0:09:40.636 Yeah my opinion, Yeah. 0:09:40.116 --> 0:09:43.956 That makes total sense that the only other people around 0:09:43.996 --> 0:09:47.156 who had access to the information were all being paid 0:09:47.716 --> 0:09:49.116 to misinterpret the information. 0:09:50.276 --> 0:09:50.636 Correct. 0:09:52.276 --> 0:09:54.876 We're going to take a quick break when we come back. 0:09:55.236 --> 0:09:58.276 I asked Vinnie and the other front Boy guys how 0:09:58.276 --> 0:10:01.676 being depicted in my book and in the movie affected 0:10:01.676 --> 0:10:03.236 their lives afterwards. 0:10:06.476 --> 0:10:09.636 How did the Volkswagen Beetle go from being hitler dream 0:10:09.676 --> 0:10:13.036 car to a hippie icon? How did a disgruntled center 0:10:13.076 --> 0:10:16.756 fielder change the business of sports? I'm Jacob Goldstein and 0:10:16.916 --> 0:10:19.676 on Business History my co host Robert Smith, and I 0:10:19.756 --> 0:10:22.756 dig into the people and companies who created the modern world. 0:10:23.156 --> 0:10:26.716 Business History is full of innovations and failures and insights 0:10:26.756 --> 0:10:29.996 into how business works today. At the end of today's 0:10:30.036 --> 0:10:31.996 episode of Against the Rules, we're going to play a 0:10:31.996 --> 0:10:36.396 clip from our episode about Jim Simon's decades ago. Simon's 0:10:36.436 --> 0:10:41.196 basically invented modern algorithmic trading, and after a few early hiccups, 0:10:41.236 --> 0:10:44.836 including buying up all the potatoes in Maine, Simon's built 0:10:44.876 --> 0:10:49.436 a machine that generated incredible returns for decades. The show 0:10:49.516 --> 0:10:52.316 is called Business History, and the previews coming up at 0:10:52.316 --> 0:10:54.476 the end of today's episode of Against the Rules. 0:10:56.636 --> 0:10:59.236 Have the book in the movie sort of screwed up 0:10:59.276 --> 0:11:01.796 your memory of the experience in the way your you know, 0:11:02.356 --> 0:11:05.196 pictures from a family vacation screw up your family memory 0:11:05.196 --> 0:11:07.516 of the family vacation because all you end up remembering 0:11:07.596 --> 0:11:10.916 is the pictures. Or do you have scenes in your 0:11:10.996 --> 0:11:13.876 head that are just separate from that, that are vivid 0:11:13.916 --> 0:11:16.356 to you about the experience. 0:11:17.436 --> 0:11:20.596 I'll give you a great personal business scene that really 0:11:20.636 --> 0:11:24.996 gets to I think what you're getting at. So I 0:11:25.076 --> 0:11:30.756 might get the dates slightly wrong. October two thousand and eight. Okay, 0:11:32.036 --> 0:11:36.956 my now deceased father in law takes the entire family 0:11:37.676 --> 0:11:42.196 on a Disney vacation and we were there during the 0:11:42.236 --> 0:11:46.716 time that the markets were blowing up. So while I'm 0:11:46.956 --> 0:11:49.716 on it's a small world. I know that the S 0:11:49.796 --> 0:11:54.276 ANDP is down three four percent, but I'm there with 0:11:54.436 --> 0:11:59.676 my nieces, my nephews, my kids, and thankfully we're on 0:11:59.716 --> 0:12:02.116 the right side of it, right, thankfully Like that, that 0:12:02.636 --> 0:12:05.676 was the only solace was that my father in law 0:12:05.876 --> 0:12:08.556 had money in the markets like he was. He was 0:12:09.356 --> 0:12:12.876 somewhat financially sadly, you know, he did, you know, pretty 0:12:12.876 --> 0:12:13.716 well in markets. 0:12:14.156 --> 0:12:16.676 And I remember him going we're in the pool. 0:12:18.236 --> 0:12:19.796 We're in the pool with all the kids, and I 0:12:19.836 --> 0:12:22.596 remember him going to, I guess, go to the bathroom, right, 0:12:23.276 --> 0:12:25.996 And I just sat there saying, he's going to come 0:12:26.036 --> 0:12:30.436 out check markets and he's going to have the face 0:12:30.436 --> 0:12:35.396 of the grim Reaper and look for me immediately and 0:12:35.516 --> 0:12:38.516 sure as shit. Every day that I was there, about 0:12:38.556 --> 0:12:41.036 four point thirty he comes out and I'm sitting there. 0:12:41.236 --> 0:12:42.596 I probably have a cocktail in my hand. 0:12:42.596 --> 0:12:45.516 I go here, it comes right, and he would just go, Vinny, 0:12:45.756 --> 0:12:49.156 what in the world is going on? And so that 0:12:49.316 --> 0:12:52.516 is kind of one of my memories of it gets 0:12:52.556 --> 0:12:55.316 back to, wow, we knew a lot back then, and 0:12:55.356 --> 0:12:57.836 I'm sitting in Disney World where everyone's playing around, no 0:12:57.876 --> 0:13:01.436 one's paying attention to anything. But come after four o'clock, 0:13:01.556 --> 0:13:04.716 my father in law started paying attention every day and 0:13:05.196 --> 0:13:07.836 I think the market was dound like ten percent that week. 0:13:08.076 --> 0:13:09.916 And what do you say to him when he says, Vinnie, 0:13:09.916 --> 0:13:10.716 what the hell's going on? 0:13:11.156 --> 0:13:14.636 It's like, well, I go, there's a problem with the 0:13:14.676 --> 0:13:17.756 housing market. And what you don't want to say is 0:13:18.596 --> 0:13:20.756 I've been trying to tell you this, but no one 0:13:20.836 --> 0:13:25.436 really listens to you until the markets actually go down. 0:13:25.596 --> 0:13:29.716 Has anybody been angry at you for being right? 0:13:29.836 --> 0:13:30.276 No? 0:13:30.276 --> 0:13:31.276 No, You've got no anger. 0:13:31.356 --> 0:13:35.036 No, no anger. Every once in a while you get well, 0:13:35.036 --> 0:13:35.996 why didn't you stop this? 0:13:36.716 --> 0:13:36.876 Right? 0:13:37.356 --> 0:13:40.796 Or I remember a few years ago I would get 0:13:40.876 --> 0:13:44.396 the like, how do you feel comfortable profiting from this? 0:13:44.876 --> 0:13:47.316 And the way. 0:13:47.156 --> 0:13:52.956 I explained our way around. It was like, look, we 0:13:52.996 --> 0:13:57.196 went down to Washington, DC many a time's pre crisis. 0:13:58.236 --> 0:13:59.956 We are not silent wallflowers. 0:14:00.516 --> 0:14:03.076 We went there and said, you guys are screwing up 0:14:03.196 --> 0:14:06.436 royally and I've come to learn and I have this line. 0:14:06.436 --> 0:14:09.396 I was like, unless you go to DC with a 0:14:09.436 --> 0:14:12.276 suitcase full of money on the accel express, no one's 0:14:12.276 --> 0:14:14.676 going to listen to And they didn't. 0:14:14.956 --> 0:14:17.636 So it's not like we didn't try. We did. 0:14:18.276 --> 0:14:21.116 And I know we didn't cause the crisis that I know, 0:14:23.156 --> 0:14:26.076 do we accelerate the crisis by increasing the amount of 0:14:26.636 --> 0:14:30.196 like synthetic stuff that was put on it? Maybe someone 0:14:30.196 --> 0:14:33.316 could maybe make that argument, But by the time we 0:14:33.396 --> 0:14:35.196 got involved, it was already gone. 0:14:35.796 --> 0:14:38.196 So when you look back, looking back at the way 0:14:38.196 --> 0:14:41.316 you may have played a poker hand, is there any 0:14:41.836 --> 0:14:44.516 if you could replay it? Would you replay it any differently? 0:14:45.676 --> 0:14:48.476 I would replay the after effects. 0:14:48.956 --> 0:14:52.596 What I didn't realize was how they were going to 0:14:52.676 --> 0:14:57.836 quote remedy the issue, right, I wasn't of the belief 0:14:57.876 --> 0:14:59.116 that a lot of people were going to go to 0:14:59.196 --> 0:15:03.796 jail and like, but what I didn't realize to this day, 0:15:05.036 --> 0:15:11.076 I think that episode that incident. Recession was the last 0:15:11.116 --> 0:15:15.436 time material adverse price discovery can happen in markets. 0:15:15.836 --> 0:15:19.116 Explain that, Explain that to a child what material adverse 0:15:19.156 --> 0:15:20.076 price selection is? 0:15:21.116 --> 0:15:26.596 Okay? In markets, things go up, things go down. Right? 0:15:29.076 --> 0:15:32.276 Would we have been taught by textbooks to believe that 0:15:32.276 --> 0:15:36.996 that's just how markets work, that's how capitalism works. Specifically, 0:15:37.556 --> 0:15:39.356 is that yes, you will have booms, but you will 0:15:39.356 --> 0:15:45.116 also have busts. The government said, we don't want busts anymore. 0:15:45.556 --> 0:15:51.076 We don't want prices to go back. Particularly, we don't 0:15:51.076 --> 0:15:53.876 want prices to go bad. And this probably where I 0:15:53.876 --> 0:15:55.356 don't think it's controversial at all. 0:15:55.916 --> 0:15:56.636 We don't want. 0:15:56.436 --> 0:15:58.596 Prices to go bad for the people who could actually 0:15:58.636 --> 0:16:02.316 afford for prices to go bad, meaning the wealthy people. 0:16:04.076 --> 0:16:09.356 You have your you're too influential, you're too powerful, you're 0:16:09.396 --> 0:16:13.756 too required to continue to spend the money that you 0:16:13.836 --> 0:16:16.956 do your wealth such that at the end of the day, 0:16:17.796 --> 0:16:19.596 we're going to bail you out, because if we don't 0:16:19.596 --> 0:16:23.476 bail you out, there are some major negative implications to 0:16:23.596 --> 0:16:28.396 the overall economy. Right, Whereas, sadly, for the people who 0:16:28.476 --> 0:16:36.556 can't afford price discovery, poor lower middle class, you're allowed 0:16:36.596 --> 0:16:41.596 to go bust because you're not that important. So if 0:16:41.636 --> 0:16:45.476 I had to do something different, I would recognize that 0:16:45.676 --> 0:16:49.996 sad fact a lot earlier than I have. That the 0:16:50.036 --> 0:16:55.356 way they're going to remedy every calamity going forward, the 0:16:55.396 --> 0:17:00.356 minute something goes bad, the swap team and the fire 0:17:00.356 --> 0:17:03.196 hoses are out immediately to make sure it doesn't go poorly. 0:17:03.316 --> 0:17:05.676 Give me an example of the fire hoses coming out. 0:17:06.476 --> 0:17:09.116 The Silicon Valley Bank, and they're making it as if 0:17:09.156 --> 0:17:12.036 Silicon Valley Bank was small. It wasn't that small, right, 0:17:12.876 --> 0:17:16.956 If a major bank of that kind went under in 0:17:16.996 --> 0:17:19.636 a market where a price discovery was allowed, you would 0:17:19.676 --> 0:17:24.236 probably see the markets go down a material amount. They 0:17:24.316 --> 0:17:28.116 remedied that situation in two days over the weekend. They 0:17:28.196 --> 0:17:33.196 just basically flooded the lines with fake credit, right a 0:17:33.236 --> 0:17:36.796 line of credit to make sure that any bank that 0:17:36.876 --> 0:17:39.756 was about to go under, regional bank that was about 0:17:39.756 --> 0:17:42.116 to go under would be saved by this line of credit. 0:17:42.556 --> 0:17:47.756 And so the market rightfully so ignored the adverse price 0:17:47.836 --> 0:17:50.316 discovery because they realized that the FED had its back, 0:17:50.436 --> 0:17:53.036 and they did not allow this to fester for more 0:17:53.116 --> 0:17:54.316 than a week. 0:17:55.276 --> 0:17:55.676 That's it. 0:17:57.196 --> 0:17:59.716 There used to be a time when price discovery was allowed. 0:18:00.036 --> 0:18:01.116 It's not allowed anymore. 0:18:02.716 --> 0:18:05.196 I get asked a bunch why I opened and closed 0:18:05.196 --> 0:18:07.756 the Big Short with these characters, these front point guys 0:18:08.276 --> 0:18:11.196 and particular Steve Eisman. Part of it was they had 0:18:11.196 --> 0:18:13.996 this really deep experience with the subprime lending market that 0:18:14.076 --> 0:18:16.916 went back to the early nineteen nineties. They had seen 0:18:16.996 --> 0:18:20.676 firsthand this ugly border between high finance and the American 0:18:20.716 --> 0:18:23.836 lower middle class. And so they were in a way 0:18:23.916 --> 0:18:27.076 there at the very beginning of the story. But I 0:18:27.156 --> 0:18:29.196 ended the book with him because they had just handed 0:18:29.276 --> 0:18:33.716 me an ending on a platter. The day Lehman Brothers 0:18:33.716 --> 0:18:37.676 failed and they became rich, they were actually totally shell shocked. 0:18:38.596 --> 0:18:41.116 They wandered around midtown Manhattan and wound up on the 0:18:41.116 --> 0:18:44.436 steps of Saint Patrick's Cathedral. Here's Danny Moses. 0:18:45.076 --> 0:18:48.516 Literally until the day that Lehman went down, and we'd 0:18:48.556 --> 0:18:51.316 never realized how big this thing was, and so that 0:18:51.356 --> 0:18:54.196 moment on Saint Patrick's Cathedral on those steps was real. 0:18:54.716 --> 0:18:57.156 So I don't want you to describe the moment on 0:18:57.316 --> 0:18:58.596 Saint Patrick's Cathedral, and. 0:18:58.676 --> 0:19:01.556 We realized that like this is this is bad, like 0:19:01.596 --> 0:19:03.596 this is going to be over, Like what how is 0:19:03.596 --> 0:19:06.596 this going to play out? And so literally left the 0:19:06.636 --> 0:19:09.796 trading desk, gave it to junior trader reporter Vinnie walked 0:19:09.836 --> 0:19:12.276 me out. You know, Saint Patri's Cathedral was about one 0:19:12.316 --> 0:19:15.436 avenue over, and Steve was at a conference down at 0:19:15.436 --> 0:19:17.996 Goldman Sachs that day, probably raising as much money as 0:19:17.996 --> 0:19:20.356 he wanted to at that point, and we were sitting 0:19:20.396 --> 0:19:22.436 up there on the steps and we just had a 0:19:22.516 --> 0:19:25.676 very cathartic kind of moment watching people go by. Some 0:19:25.716 --> 0:19:29.476 were construction workers, some bus drive some oblivious, but then 0:19:29.796 --> 0:19:31.836 the lawyers and the Wall Street people walking by, they 0:19:31.916 --> 0:19:34.516 probably knew. And I guess at that moment in time, 0:19:34.556 --> 0:19:36.036 you felt like I wish I was one of the 0:19:36.036 --> 0:19:38.476 people who didn't know anything that was going on. I 0:19:38.516 --> 0:19:40.476 thought to myself, they have no idea what's about to 0:19:40.476 --> 0:19:44.156 happen to them, Meaning if the economic system collapses, they're 0:19:44.196 --> 0:19:46.116 going to feel it because the government's going to be 0:19:46.396 --> 0:19:49.916 effectively in dire straits. And you know, it's amazing when 0:19:49.956 --> 0:19:54.356 you fast forward to today, all the consequences of all 0:19:54.396 --> 0:19:58.116 those things that happened seventeen years ago are not only 0:19:58.156 --> 0:20:01.396 still with us, potentially end up getting a lot worse 0:20:01.516 --> 0:20:03.516 because of the moral hazard and the hubris that's you know, 0:20:03.596 --> 0:20:04.276 still out there. 0:20:04.636 --> 0:20:07.396 When I talk to them about publishing their stories, all 0:20:07.436 --> 0:20:11.316 the characters in the book shared this one concern. They 0:20:11.316 --> 0:20:13.596 were all really worried how it would look to have 0:20:13.676 --> 0:20:16.276 made a fortune from the collapse of a system and 0:20:16.316 --> 0:20:20.076 the ruin of so many careers and lives. Porter Collins 0:20:20.156 --> 0:20:21.356 especially brought this up. 0:20:22.276 --> 0:20:25.796 I was scared, you know. When the book came out. 0:20:25.836 --> 0:20:30.796 My grandfather read it and he didn't really approve. He 0:20:31.316 --> 0:20:33.876 was like, well, you made all this money and everyone 0:20:33.916 --> 0:20:37.596 lost their homes, Like how does that make you feel? 0:20:39.116 --> 0:20:42.076 And so like that was that other side of the coin, right. 0:20:42.236 --> 0:20:43.596 And what did you say to What did you say 0:20:43.636 --> 0:20:43.956 to him? 0:20:45.636 --> 0:20:48.396 I said, he was right, you know, and he had 0:20:48.476 --> 0:20:52.196 the memory going back to you know, the depression, right, 0:20:52.236 --> 0:20:55.196 he came from a different era people forget all this stuff, 0:20:55.236 --> 0:20:57.756 and so you know, I had a bit of that. 0:20:58.196 --> 0:21:01.036 Maybe it's the waspiness in me or whatever it is. 0:21:01.116 --> 0:21:01.836 I was scared. 0:21:06.276 --> 0:21:09.316 If i'd asked you to predict, as you're saying, I think, 0:21:09.356 --> 0:21:12.436 on the steps of the Saint Patrick's Cathedral, what the 0:21:12.476 --> 0:21:16.716 world's going to look like in fifteen years, And I 0:21:16.756 --> 0:21:19.916 mean not just the financial markets, but also the political markets. 0:21:21.636 --> 0:21:23.236 How far off would you have been? What did you 0:21:23.316 --> 0:21:25.996 imagine what was going to happen and what did happen. 0:21:28.596 --> 0:21:31.716 I would have imagined that we would have had I 0:21:31.756 --> 0:21:35.596 would have been wrong. Put it that way. I would 0:21:35.596 --> 0:21:38.476 have imagined that there would have been more justice, or 0:21:38.956 --> 0:21:42.436 if you looked at prior times in history, there would 0:21:42.436 --> 0:21:48.356 have been more time to remedy the situation through price discovery. 0:21:48.436 --> 0:21:51.716 We wouldn't have allowed the proliferation of some of the 0:21:51.756 --> 0:21:53.236 excess leverage that has happened. 0:21:53.996 --> 0:21:55.836 But I was naive. 0:22:00.156 --> 0:22:02.556 So the system is set up in a way to 0:22:02.676 --> 0:22:06.196 reward the risk and not really punish the people that 0:22:07.076 --> 0:22:09.636 make the wrong bets. And so, yeah, you can lose 0:22:09.636 --> 0:22:11.956 your job, but as we saw during the financial no 0:22:11.956 --> 0:22:14.236