WEBVTT - Private Credit: It's 2008's All The Way Down 0:00:01.720 --> 0:00:05.000 Cool Zone Media. 0:00:06.120 --> 0:00:08.480 Welcome to it could happen here, a podcast where I 0:00:08.520 --> 0:00:11.800 explain fake money things that are actually real. To Molly Molly, 0:00:12.400 --> 0:00:15.200 thank you so much for coming back on. I am 0:00:15.240 --> 0:00:19.520 your host, Miya Long. I'm excited to learn now long 0:00:19.560 --> 0:00:22.200 ago in a galaxy far far away. And I'm saying 0:00:22.200 --> 0:00:24.760 this because I legitimately do not remember how many weeks 0:00:24.760 --> 0:00:28.880 ago we released the original one of this. But back 0:00:28.920 --> 0:00:31.800 in that episode where we explained shadow banking, I said 0:00:31.840 --> 0:00:35.040 that I had had to cut off the part of 0:00:35.120 --> 0:00:37.440 the episode that was the reason why I wrote it 0:00:37.479 --> 0:00:41.200 in the first place. It happens to me every week, Yes, 0:00:42.159 --> 0:00:45.599 so Coma. I've also kind of had to split some 0:00:45.680 --> 0:00:47.479 of this episode off. That will probably that will be 0:00:47.479 --> 0:00:52.559 another episode, probably with Edzeitron, whenever I have enough seconds 0:00:52.600 --> 0:00:56.400 in my life to pull all of that together. But 0:00:57.280 --> 0:01:01.000 today we are here to talk about the actual sort 0:01:01.040 --> 0:01:04.479 of shadow bank run. I guess you would call it 0:01:05.000 --> 0:01:07.800 financial problems that caused me to write the shadow banking 0:01:07.840 --> 0:01:08.959 episode in the first place. 0:01:09.400 --> 0:01:12.920 Oh right, why I originally asked you what shadow banking is. 0:01:13.319 --> 0:01:16.280 There's some kind of economy problem and there was like 0:01:16.319 --> 0:01:18.039 a fake run on the fake banks. 0:01:18.600 --> 0:01:22.000 Yes, and Molly, you will be extremely unhappy to note 0:01:22.120 --> 0:01:24.800 that a big part of the reason why there was 0:01:24.800 --> 0:01:26.399 the fake run on the fank banks was that the 0:01:26.400 --> 0:01:28.440 shadow banks loaned a bunch of money to a different 0:01:28.440 --> 0:01:29.440 type of shadow bank. 0:01:29.760 --> 0:01:31.000 I don't think they should have done that. 0:01:30.920 --> 0:01:33.639 And that shadow bank went under. Great things are. 0:01:33.480 --> 0:01:37.360 Happening here, but they're not FDIC insured Mia. 0:01:37.120 --> 0:01:41.520 Nope, nope, nope, nope. So okay, this gets us back 0:01:41.560 --> 0:01:44.400 to our original definition of a shadow bank, which is 0:01:44.440 --> 0:01:47.000 that it's a bank that does banking things. That's not 0:01:47.120 --> 0:01:50.960 a bank, so it's not ensured by the FDIC. They 0:01:51.000 --> 0:01:53.840 don't have to have money on hand to make sure 0:01:53.880 --> 0:01:56.320 that they can't be a bank run on them. 0:01:56.240 --> 0:01:59.440 Right, So they just said no more transactions please. 0:02:00.520 --> 0:02:04.760 Yes. So what Molly is referring to is a few 0:02:04.760 --> 0:02:06.880 weeks ago. I guess maybe like a month ago. At 0:02:06.880 --> 0:02:11.080 this point, there was actually a breakthrough into the kind 0:02:11.080 --> 0:02:14.480 of mainstream ish of some stuff that I've been brewing 0:02:14.520 --> 0:02:16.960 in the financial news for a while, and that was 0:02:17.000 --> 0:02:22.520 that a bunch of companies, Morgan stan Lee and Blackrock. 0:02:22.560 --> 0:02:26.680 I think we're kind of the two biggest ones that 0:02:26.760 --> 0:02:29.160 stopped this. Although a bunch of these sort of smaller 0:02:29.440 --> 0:02:31.760 what are called private credit firms also sort of did 0:02:31.800 --> 0:02:33.320 things like this, and. 0:02:33.240 --> 0:02:37.000 So because they're not really banks, there's no regulation that 0:02:37.040 --> 0:02:40.639 says they have to serve their customers, right, they can 0:02:40.720 --> 0:02:41.240 just say no. 0:02:41.760 --> 0:02:44.920 Okay, So this is part of what's really a shit show. 0:02:45.000 --> 0:02:47.000 I guess let's start at the beginning. So what happened? 0:02:47.120 --> 0:02:50.720 Sorry I got as derailed. Yeah, let's run back to 0:02:51.680 --> 0:02:54.440 the specific thing we're talking about. Here is a thing 0:02:54.520 --> 0:02:57.960 called private credit, and so private credit. I'm just going 0:02:58.000 --> 0:03:00.840 to read this thing from the telerwind, which is, I 0:03:00.880 --> 0:03:04.160 don't know, the telor window is actually a decently useful thing. 0:03:04.320 --> 0:03:07.239 Where the teller window is. The FED is like I'm 0:03:07.240 --> 0:03:10.360 going to explain something to normal people. Now. The problem 0:03:10.480 --> 0:03:12.519 is that this is still the Federal Reserve. So their 0:03:12.520 --> 0:03:15.120 explanation for normal people. By normal people, they mean like, 0:03:15.520 --> 0:03:17.600 I don't know, like dipshit day traders. 0:03:17.240 --> 0:03:20.400 Right, normal people don't have questions about the Federal Reserve. 0:03:21.200 --> 0:03:23.560 Yeah, So it's like this is like for people who 0:03:23.600 --> 0:03:26.520 are kind of know this stuff but are running into 0:03:26.520 --> 0:03:30.320 this like arcane subfield for the first time. So I'm 0:03:30.360 --> 0:03:31.800 just going to quote from them because I think it's 0:03:31.800 --> 0:03:35.440 an interesting place to start. Although there is no universal 0:03:35.480 --> 0:03:39.120 definition which you know things are going great when a 0:03:39.240 --> 0:03:41.560 second episode in a road talking about it, you can't 0:03:41.560 --> 0:03:47.600 all agree what's it's so good? It's so good? Although 0:03:47.640 --> 0:03:51.240 there is no universal definition, private credit generally refers to 0:03:51.320 --> 0:03:54.720 a loan that is negotiated between a borrower and a 0:03:54.800 --> 0:03:58.960 small group of non bank lenders. These non bank financial 0:03:58.960 --> 0:04:03.920 institution lenders are typically alternative asset managers, such as private 0:04:03.960 --> 0:04:10.240 equity firms, who package loans in different investment vehicles. Other 0:04:10.360 --> 0:04:14.080 non bank financial institutions like pension funds, insurance companies, and 0:04:14.160 --> 0:04:18.479 sovereign wealth funds then invest in those vehicles. So this 0:04:18.560 --> 0:04:21.160 is the stuff that we talked about from last episode, 0:04:21.600 --> 0:04:26.320 where okay, so you have multiple layers of shadow banks, right. 0:04:27.279 --> 0:04:30.279 You have on the one hand that the private credit 0:04:30.360 --> 0:04:32.839 firms are these these sort of groups that go in 0:04:33.600 --> 0:04:36.839 and sometimes they're just their own things. There's a bunch 0:04:36.839 --> 0:04:40.279 of different kinds of them. Private equities firms tend to 0:04:40.360 --> 0:04:44.200 have like one arm of the private equity firm that's 0:04:44.240 --> 0:04:47.800 there like this is our shiny private credit wing. There 0:04:47.800 --> 0:04:51.640 were also these things called business development corporations which do 0:04:51.760 --> 0:04:55.560 these There are other types of them too. But basically 0:04:55.560 --> 0:04:57.600 what those companies do is they go in and they 0:04:57.640 --> 0:05:02.440 negotiate a loan with a usually a pretty long term 0:05:02.880 --> 0:05:06.359 for repayments on the loan with a company. Now, the 0:05:06.440 --> 0:05:09.720 thing about these loans is that the terms of those 0:05:09.800 --> 0:05:12.640 loans are secret from everybody. 0:05:13.400 --> 0:05:15.520 Yeah, even the people involved. 0:05:15.880 --> 0:05:18.479 Well when I say secret, I mean the company that's 0:05:18.560 --> 0:05:21.760 taking out the loan and the bank know how they work. 0:05:22.080 --> 0:05:25.240 No one else does. And then what happens is these 0:05:25.279 --> 0:05:28.000 are usually fairly risky loans because if you weren't doing 0:05:28.040 --> 0:05:30.039 a risky loan, you would get your money through like 0:05:30.200 --> 0:05:33.720 a normal bank. Yeah, allow you to do it normal style. Right, 0:05:34.080 --> 0:05:36.279 this is not normal style. These are risky. And then 0:05:36.800 --> 0:05:39.479 they do the thing called securitization, which we talked about 0:05:39.560 --> 0:05:43.280 last episode, where you take a loan and do magic 0:05:43.360 --> 0:05:45.560 to it and turn it into something that someone else 0:05:45.640 --> 0:05:46.040 can buy. 0:05:46.800 --> 0:05:50.240 Whatever happened to products and services, neo, whatever happened to products. 0:05:50.080 --> 0:05:52.520 Well, because products and services make less money than betting 0:05:52.560 --> 0:05:54.680 on products and services. This is this is also where 0:05:54.720 --> 0:05:59.000 this is all going. So there's some real issues here 0:05:59.760 --> 0:06:00.719 with private credit. 0:06:01.160 --> 0:06:04.240 So we're buying and selling money that isn't real. And 0:06:04.640 --> 0:06:06.600 add the absence of money that isn't real. And then 0:06:06.600 --> 0:06:08.359 so what happened when there was the run on the 0:06:08.360 --> 0:06:09.120 fake bank. 0:06:09.680 --> 0:06:11.839 Well, that's kind of work. 0:06:11.680 --> 0:06:13.479 Because how can you do a run on a bank 0:06:13.480 --> 0:06:15.920 if there's no money because you're not asking to get 0:06:15.920 --> 0:06:17.760 your money back out of it because there was never 0:06:17.800 --> 0:06:18.360 any money. 0:06:18.640 --> 0:06:20.919 Well, so here's the thing. So a lot of the 0:06:20.920 --> 0:06:23.640 way that these things work sometimes like they are obviously 0:06:23.680 --> 0:06:26.039 selling the loans and packages, but a lot of the 0:06:26.040 --> 0:06:27.800 way that it works is that it does kind of 0:06:27.839 --> 0:06:30.080 work like a normal bank, which is i mean, instead 0:06:30.080 --> 0:06:32.440 of being a lender, you're like an investor, but you 0:06:32.440 --> 0:06:34.400 give them a bunch of your money and they give 0:06:34.440 --> 0:06:37.039 it to these loan things. So it is just literally 0:06:37.040 --> 0:06:40.360 a normal bank, except it's not subject to banking regulations 0:06:40.400 --> 0:06:44.039 and it's risk here, right, So like like Apollo Capital 0:06:44.040 --> 0:06:45.720 Management or whatever, it's like you give a bunch of 0:06:45.760 --> 0:06:49.440 money to Apollo Capital Management, just like Lowal Capital whatever 0:06:49.760 --> 0:06:51.480 is like apall Global Capital is one of the big 0:06:51.640 --> 0:06:53.400 firms in this thing, and then they give that money 0:06:53.400 --> 0:06:57.120 out and loans and then you're basically just supposed to 0:06:57.200 --> 0:07:01.279 wait because you know, remember last episode we talked about 0:07:01.279 --> 0:07:04.240 how in the way that normal bank works, Right, there's 0:07:04.320 --> 0:07:08.360 like a fundamental kind of gap right where you are 0:07:08.400 --> 0:07:11.640 putting your money in as like a short term thing 0:07:11.680 --> 0:07:14.080 that you can take out immediately, and then the bank 0:07:14.200 --> 0:07:16.720 is turning the short term money into a long term loan. Right. 0:07:16.760 --> 0:07:18.440 It takes time for the money to grow up. 0:07:18.840 --> 0:07:22.800 Yes, And the reason we have financial regulations is to 0:07:22.880 --> 0:07:24.960 force the banks to have money on hand so that 0:07:25.000 --> 0:07:28.080 if you need your money back, you can take it out. Now, 0:07:29.400 --> 0:07:33.480 these banks don't have this because these are shadow banks. 0:07:33.520 --> 0:07:36.880 They are the credit arms of private equity. They're fucking 0:07:37.480 --> 0:07:39.600 I don't know, they're like capital management firms. 0:07:39.600 --> 0:07:43.280 They're like, dude, Right, So, like a normal run on 0:07:43.280 --> 0:07:45.240 the bank is like, obviously the bank doesn't have one 0:07:45.320 --> 0:07:47.400 hundred percent of all I put cash in the bank. 0:07:47.440 --> 0:07:49.200 We all put cash in the bank, and everyone wants 0:07:49.240 --> 0:07:50.960 all their cash bag. The bank doesn't have one hundred 0:07:50.960 --> 0:07:52.680 percent of that cash, You get that, right, It's like 0:07:52.680 --> 0:07:54.800 they have it invested and it hasn't. Those loans haven't 0:07:54.800 --> 0:07:58.080 matured yet and things like that. But theoretically, if all 0:07:58.080 --> 0:08:01.920 those loans matured, that bank does have all of those dollars. 0:08:02.600 --> 0:08:05.640 But the shadow bank they're selling these same loans to 0:08:05.760 --> 0:08:09.080 multiple people. So even if everything matured properly, they don't 0:08:09.120 --> 0:08:11.840 have all of those dollars anymore. Yeah, the dollars don't 0:08:11.880 --> 0:08:12.560 all exist. 0:08:12.760 --> 0:08:15.880 I mean, Jimmy fair, the bank's dollars also work like 0:08:15.920 --> 0:08:18.600 that because the banks are also selling their loans off. 0:08:19.120 --> 0:08:20.880 But well, you're saying that they were using like the 0:08:20.920 --> 0:08:24.200 same mortgage to secure a bunch of different Yeah. 0:08:24.280 --> 0:08:26.600 Right, so that's like, yeah, that's like a classic shadow 0:08:26.600 --> 0:08:28.560 banking thing. We're actually going to get back to that 0:08:28.600 --> 0:08:31.520 because they're doing an even dumber version of that now. 0:08:31.840 --> 0:08:33.319 I'm just saying it seems like a run on the 0:08:33.320 --> 0:08:36.000 bank would be kind of inevitable even in a minor crisis, 0:08:36.320 --> 0:08:41.360 because they're not have most of the money they're pretending exists. 0:08:41.480 --> 0:08:44.240 Yeah. Well, but okay, so I think what I would 0:08:44.240 --> 0:08:46.240 say about that is that this is also a problem 0:08:46.240 --> 0:08:48.520 for regular banks, right, Like, I don't think this is 0:08:48.559 --> 0:08:52.600 actually a structurally different crisis, like because like the crisis 0:08:52.640 --> 0:08:54.720 here is just that the money is out in loans 0:08:55.360 --> 0:08:57.400 and they they don't have it on hands. And this 0:08:57.480 --> 0:08:59.760 is the structural crisis that the private credit people are doing, 0:08:59.800 --> 0:09:01.720 is that their money is also out on loans, so 0:09:01.720 --> 0:09:04.840 they don't have it, And a lot of these loans 0:09:05.120 --> 0:09:09.680 are like seven year loans in like very risky companies. 0:09:09.720 --> 0:09:11.640 So the money like really isn't. 0:09:11.400 --> 0:09:15.360 There, right, because that venture capital like whatever is that's 0:09:15.480 --> 0:09:18.560 an inflated valuation. So you're talking about like almost ten 0:09:18.600 --> 0:09:20.760 billion dollars, but it isn't and it never will be 0:09:20.800 --> 0:09:21.480 and it never was. 0:09:22.360 --> 0:09:24.160 Yeah. Well, and the other thing that's going on too, 0:09:24.200 --> 0:09:26.320 right is like these these are supposed to be risky loans, 0:09:27.080 --> 0:09:28.240 so they have a high rate. 0:09:28.120 --> 0:09:30.960 Of return if they return. 0:09:31.440 --> 0:09:35.640 But yes, and this is where this gets not good 0:09:35.800 --> 0:09:38.920 because so the US private credit market is one point 0:09:38.920 --> 0:09:43.960 three trillion dollars like under management. The global market is 0:09:44.000 --> 0:09:48.040 like three point five trillion dollars of assets. I'm not 0:09:48.120 --> 0:09:50.600 really going to go into the Chinese private credit market 0:09:50.640 --> 0:09:54.840 here because that's its own episode. But the way that 0:09:54.880 --> 0:09:57.640 these that these companies deal with this is that they 0:09:57.679 --> 0:10:00.559 have these funds, right, and then the fund gives out 0:10:00.600 --> 0:10:02.960 like the loans, and they have a limit to the 0:10:02.960 --> 0:10:05.120 total amount of like the percent of the value of 0:10:05.160 --> 0:10:07.640 the fund that can be taken out at one time. 0:10:08.120 --> 0:10:10.880 And that's what's been being hit. The industry standard is 0:10:10.920 --> 0:10:12.880 supposed to be about five percent of the fund can 0:10:12.960 --> 0:10:15.199 be withdrawn per quarter, and then after that they just 0:10:15.200 --> 0:10:17.320 shut down redemptions. And that's what you saw in the 0:10:17.320 --> 0:10:19.280 news because a bunch of companies, and some of these 0:10:19.320 --> 0:10:22.160 companies have higher limits, they're like almost like eight or nine, 0:10:22.200 --> 0:10:25.760 like the ten percent, they'll stop it at like nine roughly. 0:10:26.280 --> 0:10:30.000 So, more than anything, shutting down redemptions is an indicator 0:10:30.000 --> 0:10:33.760 that the market has panicked, right, that the investors are 0:10:33.800 --> 0:10:36.400 spooked and they want their money back because this risky 0:10:36.440 --> 0:10:39.040 investment is now looking like a very bad choice. 0:10:39.240 --> 0:10:42.640 Yes, but this is a real structural problem because right. 0:10:42.520 --> 0:10:44.840 But like as a measurement of something, it's just like 0:10:45.360 --> 0:10:48.560 what we're measuring is how many investors are shitting their pants. 0:10:48.720 --> 0:10:50.959 And there's a reason they're shitting their pants. And the 0:10:51.000 --> 0:10:53.040 reason they're shitting their pants is that basically, all of 0:10:53.080 --> 0:10:55.720 these firms have been eating a colossal amount of shit. 0:10:56.520 --> 0:10:58.520 And the reason they're eating a colossal amount of shit, 0:10:58.640 --> 0:11:01.200 I mean, some of it is very stupid. Some of 0:11:01.240 --> 0:11:04.080 them are eating shit because they gave money to like 0:11:04.280 --> 0:11:07.199 normal tech firms, but then now they're all scared they're 0:11:07.200 --> 0:11:10.079 gonna get out competed by AI firms. Some of them 0:11:10.080 --> 0:11:12.040 have given a bunch of money Blue Owl particularly, and 0:11:12.080 --> 0:11:14.160 this is what we're gonna get into in the episode 0:11:14.200 --> 0:11:16.920 with Ed has given a lot of money to AI firms, 0:11:17.200 --> 0:11:20.480 which is a fucking nightmare. Great investment, Yeah, incredible stuff 0:11:20.520 --> 0:11:20.800 going on. 0:11:21.040 --> 0:11:22.520 I'm sure. I'm sure that's what Ed will say. Ed 0:11:22.520 --> 0:11:23.800 will say that was a good investment. 0:11:24.440 --> 0:11:38.400 It's so fun. It's so fun. The main thing that 0:11:38.440 --> 0:11:40.960 they've been eating shit on. And this is where this 0:11:41.040 --> 0:11:44.959 kind of hit the mainstream because a whole bunch of 0:11:45.640 --> 0:11:50.160 normal banks also ate shit on this JP Morgan ate 0:11:50.240 --> 0:11:54.720 shit on this loan. So a huge amount of money 0:11:54.880 --> 0:11:58.400 was poured into this firm called Tricolor, which we touched 0:11:58.400 --> 0:12:01.280 on briefly last episode but then didn't really talk about 0:12:01.360 --> 0:12:06.000 much about what it did. So, Okay, JP Morgan has 0:12:06.040 --> 0:12:08.400 lost one hundred and seventy million dollars. 0:12:09.000 --> 0:12:09.760 Oh, no big deal. 0:12:10.559 --> 0:12:12.439 Yeah, which, and it's funny. It's funny because like the 0:12:12.520 --> 0:12:14.839 JP Morgan CEO were like, yeah, we kind of atehit 0:12:14.920 --> 0:12:17.959 on this, and also their CEO gave this quote where 0:12:18.000 --> 0:12:20.760 he was like, where there's one cockroach, there's probably more, 0:12:21.160 --> 0:12:25.800 which is like an extremely normal thing for the finance 0:12:25.920 --> 0:12:29.240 kind of saying about the market. 0:12:29.000 --> 0:12:31.800 Haven't we have an infestation of accidentally losing one hundred 0:12:31.840 --> 0:12:33.000 and seventy million dollars? 0:12:33.480 --> 0:12:37.160 Yeah, I mean it's not great. But like in the 0:12:37.160 --> 0:12:40.320 grand scheme of things, right, like JP Morgan does have 0:12:40.960 --> 0:12:45.040 four trillion or something dollars under management. 0:12:45.679 --> 0:12:48.440 Right, But if he's saying if there's one cockroach, there's more, Yeah, 0:12:48.559 --> 0:12:50.880 Usually if you have one cockroach, you have one hundred cockroaches. 0:12:50.920 --> 0:12:53.079 So if you have one hundred, one hundred and seventy 0:12:53.120 --> 0:12:54.040 million dollar fuck. 0:12:53.880 --> 0:12:58.240 Ups, yes, and that's not great, right. And like Barclays, 0:12:58.320 --> 0:13:01.199 which is the very sort of like frist just British bank, 0:13:01.320 --> 0:13:03.320 which also ate shit for doing this kind of stuff. 0:13:03.360 --> 0:13:05.720 Two two thousand and eight also lost like one hundred 0:13:05.720 --> 0:13:12.280 million pounds. What's interesting about this specific one is this firm, Tricolor, 0:13:13.080 --> 0:13:15.960 is a subprime auto loan company. 0:13:16.240 --> 0:13:22.920 Oh, that's a phenomenal business model, Molly. I. So they're 0:13:22.960 --> 0:13:25.000 responsible for the Nissan Ultima. 0:13:25.600 --> 0:13:31.960 Yeah, this is that this is what is known as 0:13:32.040 --> 0:13:35.920 an idea that could not possibly have gone right. It's 0:13:36.040 --> 0:13:39.920 very funny because when you read the stuff from Tricolor, 0:13:40.120 --> 0:13:43.120 they're all like, oh, we're trying to like help people 0:13:43.160 --> 0:13:46.439 who are like underserved in markets who need cars. 0:13:47.040 --> 0:13:51.920 Oh so, but here's the thing about a shitty auto loan, 0:13:52.360 --> 0:13:55.400 is you know, right, you are serving an underserved community. 0:13:55.400 --> 0:13:57.000 You are serving people with bad credit who might not 0:13:57.040 --> 0:13:58.920 otherwise be able to get a car, but you're serving 0:13:59.000 --> 0:14:02.440 them by fucking them. Yes, And this is the thing 0:14:02.480 --> 0:14:03.360 that you can tell. 0:14:03.480 --> 0:14:06.160 Yeah, they they know that they're lying about this, right, 0:14:06.240 --> 0:14:09.440 it's just so evil. Yeah, And like this is all 0:14:09.559 --> 0:14:12.800 downstream of you know, this is all downstream with the 0:14:12.800 --> 0:14:15.280 fact that we've built our cities around cars, right, and 0:14:15.320 --> 0:14:18.920 we built our cities around cars specifically, and this is 0:14:18.920 --> 0:14:21.160 a really fun thing. We built our cities around cars 0:14:21.160 --> 0:14:25.320 specifically because we had created so much manufacturing capacity after 0:14:25.440 --> 0:14:28.680 after World War Two that like Ford and General Motors 0:14:28.680 --> 0:14:31.680 had like pumped into that. They were like, we need 0:14:31.800 --> 0:14:33.960 a fucking way to make money off of all of this. 0:14:34.240 --> 0:14:36.480 And this is also, by the way, why we did 0:14:36.520 --> 0:14:39.920 the Marshall Plan, Like we rebuilt Europe to sell cars 0:14:39.960 --> 0:14:40.360 to them. 0:14:40.440 --> 0:14:43.680 It's this terrible snowball of like induced demand and then 0:14:43.720 --> 0:14:45.640 dealing with that and then the fallout of that, and yeah, 0:14:45.840 --> 0:14:47.360 trying to reorganize from that. 0:14:47.520 --> 0:14:50.120 Yeah, and we have destroyed the world with this. 0:14:50.800 --> 0:14:52.040 It rocks. Thank you, Henry Ford. 0:14:52.120 --> 0:14:54.680 It's so good. It's so good. We have literally like 0:14:54.880 --> 0:14:58.440 Earth is fucked because of this. This is like one 0:14:58.480 --> 0:15:00.880 of the largest engines of global climate change is the 0:15:00.880 --> 0:15:02.760 fact that we had all these fucking factories after World 0:15:02.800 --> 0:15:05.080 War Two and these companies didn't want to eat shit 0:15:05.120 --> 0:15:05.360 on them. 0:15:05.400 --> 0:15:07.320 So now so everybody needs a car, but they can't 0:15:07.320 --> 0:15:09.560 afford one. So now we have a fake bank doing 0:15:09.640 --> 0:15:10.880 fake fucking auto loans. 0:15:11.040 --> 0:15:12.960 Yep, yep. Who By the way, and I kind of 0:15:12.960 --> 0:15:15.480 emphasize this enough, right, The hole that we are in 0:15:15.600 --> 0:15:19.400 here is that there is in theory, if you're going 0:15:19.480 --> 0:15:22.560 to be running a market economy, there is like room 0:15:22.800 --> 0:15:26.080 in it for hey, this person has a long shot 0:15:26.160 --> 0:15:28.920 but good business idea and we need to get the money. 0:15:29.120 --> 0:15:32.080 Sure, Like there's nothing wrong with the idea of loans. 0:15:32.600 --> 0:15:34.080 Yeah, but if your whole. 0:15:33.840 --> 0:15:37.440 Business model is exploiting people who need loans. 0:15:37.080 --> 0:15:39.400 That yeah, well but this is you know, this is 0:15:39.840 --> 0:15:43.240 going one layer up from like this soubpar model loan company. Right. 0:15:43.640 --> 0:15:47.200 The problem that we're going to hit with all of 0:15:47.240 --> 0:15:52.440 these private credit firms is that they're giving loans to 0:15:52.560 --> 0:15:56.400 just this shit. Right. The things that they're giving high 0:15:56.480 --> 0:16:02.120 risk loans to aren't like interesting businesses. They're subprime auto 0:16:02.240 --> 0:16:08.160 loan companies, and they're like weird AI data center creation companies. Right, 0:16:08.240 --> 0:16:12.400 it's like that shit, and this is where everything goes 0:16:12.440 --> 0:16:15.400 to shit because you know, and it's something that actually 0:16:15.440 --> 0:16:18.440 wasn't really reported on very much in a lot of 0:16:18.480 --> 0:16:21.560 the coverage on these companies eating shit. But like what 0:16:21.640 --> 0:16:24.040 this company was doing was they were literally doing all 0:16:24.040 --> 0:16:26.520 of the two thousand and eight stuff, right. They give 0:16:26.560 --> 0:16:29.920 out these subprime loans, which they know like a bunch 0:16:29.920 --> 0:16:32.400 of them are going to fail. They pull them all 0:16:32.440 --> 0:16:36.200 together into these like tranches of loans, and then they 0:16:36.240 --> 0:16:38.960 sell them off doing the securitization stuff we talked about 0:16:39.000 --> 0:16:43.280 last time, and again this is literally exactly how the 0:16:43.280 --> 0:16:46.560 subprime mortgage crisis worked, except for doing it with auto loans. 0:16:47.120 --> 0:16:50.800 It seems a little bit more evil. Yeah, And they're 0:16:50.800 --> 0:16:52.600 doing this thing right. They're doing the thing that we 0:16:52.640 --> 0:16:56.920 saw with the housing loans, where the same car is 0:16:57.000 --> 0:17:00.600 collateral for multiple of these loans. And the reason they're 0:17:00.640 --> 0:17:03.880 doing this right is that this company, Tricolor, their entire 0:17:03.920 --> 0:17:07.919 business model is trying to borrow more money from banks 0:17:07.960 --> 0:17:10.199 so that they can send out more of these shitty 0:17:10.240 --> 0:17:12.440 auto loans, so they can then sell that stuff back. 0:17:12.800 --> 0:17:16.560 And so they're also like heavily leveraged, right because they're 0:17:16.640 --> 0:17:20.280 they're taking out like every single loan they can possibly do. 0:17:20.480 --> 0:17:22.879 They're doing instruments so that they're the collateral on the 0:17:22.920 --> 0:17:25.320 loans that they are taking. So they take that money 0:17:25.320 --> 0:17:27.679 and give out more of these shitty auto loans. The 0:17:27.680 --> 0:17:30.679 collateral on that is multiple of the shitty auto loans. 0:17:31.240 --> 0:17:33.000 I mean, I would say it's a house of cards, 0:17:33.000 --> 0:17:35.320 but like, yeah, it's not even it's not even that 0:17:35.440 --> 0:17:38.879 it's imaginary. It's just it's like the bottom row on 0:17:38.920 --> 0:17:40.800 this house of cards is just your imagination. 0:17:40.960 --> 0:17:43.439 Yeah, it's it's it's wildly coyote running off the cliff 0:17:43.680 --> 0:17:45.439 and he's still standing there and as long as his 0:17:45.480 --> 0:17:49.200 feet are moving, no one realizes that that like, wait, 0:17:49.240 --> 0:17:51.280 hold on, this is the this is literally the fakest 0:17:51.280 --> 0:17:54.280 thing I've ever seen. And then it goes under, and 0:17:54.400 --> 0:17:55.440 this is a shit show. 0:17:55.720 --> 0:17:57.639 That's the only possible outcome. 0:17:57.320 --> 0:17:58.800 The only possi way it could have gone under. It 0:17:58.880 --> 0:18:01.520 is like we've we've done this before. We all wash 0:18:01.600 --> 0:18:02.239 two thousand and eight. 0:18:02.359 --> 0:18:04.760 But there's not like an ideal version of this where 0:18:04.800 --> 0:18:08.880 it works. This can only not work. Yeah, it's insane. 0:18:09.000 --> 0:18:12.600 It's like, so why are we doing because there's one 0:18:12.680 --> 0:18:14.600 year where it made a billion dollars? 0:18:14.920 --> 0:18:18.280 Right, Buying Ponzi schemes are really profitable the first year. 0:18:18.440 --> 0:18:20.920 Right, right, That's like that's the thing, right. 0:18:20.840 --> 0:18:23.520 It really it works out really good for the first guy. 0:18:24.800 --> 0:18:27.040 Yeah, And like like part of what's going on here 0:18:27.080 --> 0:18:29.879 too is you know, like this is some of the 0:18:29.880 --> 0:18:32.800 stuff that caused the original bubble, but like we have 0:18:32.880 --> 0:18:35.960 this era like the the early twenty twenties and like 0:18:36.040 --> 0:18:38.840 late twenty tens that's like the zero fed inches rate era, right, 0:18:38.880 --> 0:18:41.359 where like it is basically just free to borrow money, 0:18:42.359 --> 0:18:45.000 and so there's just all of this money slashing around 0:18:45.080 --> 0:18:50.280 that there's nothing to invest into. This fuels all sorts 0:18:50.280 --> 0:18:54.800 of just like heinous shit, right because there's suddenly just 0:18:54.840 --> 0:18:57.120 like all of these pools of capital with like nothing 0:18:57.160 --> 0:18:59.280 to invest in, and so they're investing it in like 0:19:00.040 --> 0:19:02.919 defense companies and like Palenteer and shit like that. 0:19:02.880 --> 0:19:04.880 Is this why we got stuff like the juice ero. 0:19:04.960 --> 0:19:07.840 Yeah, but that's like the other thing, right, is like no, 0:19:07.880 --> 0:19:10.880 but like like like the juicearo thing is like legitimately. 0:19:10.480 --> 0:19:12.920 Venture capital was just like pouring money into stuff that 0:19:13.040 --> 0:19:15.920 was just like not fucking real. Yeah, you could juice 0:19:15.960 --> 0:19:16.720 fruit at home and. 0:19:16.760 --> 0:19:18.439 Like like this is you know, I talked about this 0:19:18.480 --> 0:19:21.879 on a different episode about venture capital, and like the 0:19:21.920 --> 0:19:24.080 way that it's done tech fascism, right, was eventually they 0:19:24.080 --> 0:19:27.960 started putting that money into like building the material basis 0:19:28.000 --> 0:19:29.960 for like a tech fascist state, and that's what they've 0:19:30.000 --> 0:19:31.720 been doing in sort of I kind. 0:19:31.560 --> 0:19:34.040 Of wish they stuck to their cocaine ideas, like juice ero. 0:19:34.440 --> 0:19:36.280 Yeah, that was a better part. 0:19:36.359 --> 0:19:37.440 It was more fun than fascist. 0:19:37.640 --> 0:19:40.280 No, No, it's more fun than like turning every single 0:19:40.320 --> 0:19:43.240 door in every single car in San Francisco into a 0:19:43.280 --> 0:19:47.720 surveillance machine and then like going in and like basically 0:19:47.760 --> 0:19:51.800 cooing governments. And yeah, but on the sort of like 0:19:52.320 --> 0:19:54.960 pure financial end of this, you get all of these 0:19:55.000 --> 0:19:57.520 companies that are just pouring all of this money into 0:19:58.560 --> 0:20:01.639 there's those layers of this too, right. We're like, you know, 0:20:01.760 --> 0:20:03.800 if you're like like JP Morgan, which is like an 0:20:03.880 --> 0:20:05.440 actual bank, right. 0:20:05.520 --> 0:20:05.880