WEBVTT - How One Bank Shaped American Capitalism 0:00:15.396 --> 0:00:32.476 Pushkin Pushkin from Pushkin Industries. This is Deep Background, the 0:00:32.516 --> 0:00:35.716 show where we explore the stories behind the stories in 0:00:35.756 --> 0:00:40.596 the news. I'm Noah Feldman. As regular listeners know, on 0:00:40.636 --> 0:00:43.756 this season of Deep Background, we've been focusing on power 0:00:43.956 --> 0:00:47.676 in its many different forms. We've talked a fair amount 0:00:47.796 --> 0:00:52.116 about power and global politics. We've talked about power and publishing. 0:00:52.676 --> 0:00:56.196 But until now we haven't had a direct conversation about 0:00:56.276 --> 0:00:58.436 one of the most important seats of power in the 0:00:58.516 --> 0:01:03.436 United States and indeed in the world. Wall Street Today's 0:01:03.476 --> 0:01:06.836 guest is here to help us fill that gap. Zachary 0:01:06.916 --> 0:01:10.476 Carrabelle is a historian and author who spent years working 0:01:10.556 --> 0:01:13.196 on Wall Street, both as head of Global Strategies That 0:01:13.356 --> 0:01:16.916 Investment and as president or Fred Alger and Company. He's 0:01:16.916 --> 0:01:20.836 the author of a new book called Inside Money, Brown, Brothers, 0:01:20.836 --> 0:01:24.556 Harriman and the American Way of Power. The book charts 0:01:24.636 --> 0:01:28.476 the long history of this particular investment bank, suggesting that 0:01:28.516 --> 0:01:32.196 its ability to survive for two hundred years of boom 0:01:32.236 --> 0:01:36.156 and bust cycles comes from its refusal to over extend 0:01:36.196 --> 0:01:39.876 itself and to take on too much risk, a lesson 0:01:39.956 --> 0:01:43.356 that he believes Wall Street today could learn a lot 0:01:43.676 --> 0:01:47.876 from Zach is the perfect person to talk about power, 0:01:48.516 --> 0:01:52.916 Wall Street history and where we're going in the future. Zach, 0:01:53.036 --> 0:01:58.516 thank you so much for being here. Zach, you are 0:01:59.076 --> 0:02:03.076 a polymathic and unusual person, and in a sense, you're 0:02:03.076 --> 0:02:06.916 the ideal person to have written this new book because 0:02:06.956 --> 0:02:10.276 you have a PhD in history, You've never stopped writing 0:02:10.316 --> 0:02:13.236 books of history, no matter what other thing you've been doing. 0:02:13.316 --> 0:02:17.876 You've also had several different careers in and around finance, 0:02:18.436 --> 0:02:21.036 and that really means that if anyone were going to 0:02:21.076 --> 0:02:23.396 write a book that was going to be, in effect 0:02:23.436 --> 0:02:27.356 a history of power in American capitalism, it would be you. 0:02:28.516 --> 0:02:31.796 I read your new book Inside Money, Brown, Brothers, Harriman 0:02:31.836 --> 0:02:35.316 and the American Way of Power as really that a 0:02:35.316 --> 0:02:39.196 book that tells the story of capitalism in America through 0:02:39.236 --> 0:02:43.356 the eyes of one venerable firm. What gave you the 0:02:43.436 --> 0:02:46.836 idea to do this? That's exactly what the book is, 0:02:47.236 --> 0:02:51.276 and look narcissistically, it is the perfect culmination of a 0:02:51.276 --> 0:02:53.156 lot of what I've done for the past twenty years, 0:02:53.196 --> 0:02:57.236 and that it brings together the academic strain and the 0:02:57.396 --> 0:03:03.476 financial investment career strain into one delightful four hundred plus 0:03:03.516 --> 0:03:05.876 page package. It ended up, I think, in a weird way, 0:03:05.916 --> 0:03:08.436 being a lot more interesting to me writing the book 0:03:09.156 --> 0:03:14.676 and really thinking through the nature of American capitalism and 0:03:14.716 --> 0:03:19.156 the nature of American power over two centuries, and the 0:03:19.236 --> 0:03:24.276 sort of arbitrariness of one definition of capitalism that has 0:03:24.316 --> 0:03:28.796 emerged in the past thirty years versus multiple different capitalisms 0:03:28.796 --> 0:03:32.356 that could just as well have predominated and at earlier 0:03:32.356 --> 0:03:34.476 points in the past did And that you know, we're 0:03:34.476 --> 0:03:38.316 constantly in the position of remaking our culture and remaking 0:03:38.356 --> 0:03:42.116 what we think of our systems. And then a weird way, 0:03:42.156 --> 0:03:45.556 this book became pointed in that direction in a way 0:03:45.556 --> 0:03:47.716 that I didn't actually expect when I sat down to 0:03:47.716 --> 0:03:50.156 write the book. I was going to ask you that 0:03:50.196 --> 0:03:52.316 which came first, the chicken or the egg question? Did 0:03:52.316 --> 0:03:55.316 you pick your topic this bank and its history, and 0:03:55.356 --> 0:03:58.036 then from there you realize that it was emblematic or 0:03:58.076 --> 0:04:01.676 were you looking for some concrete story to tell that 0:04:01.716 --> 0:04:05.276 would enable you to paint the big canvas. Yeah, and 0:04:05.356 --> 0:04:07.356 it was definitely the latter. I did not set out 0:04:07.396 --> 0:04:09.476 to write a book about Brown Brothers Harriman. I did 0:04:09.556 --> 0:04:11.196 sit out to write a book about the crucial role 0:04:11.236 --> 0:04:14.916 of money making American power in the nineteenth century, and 0:04:14.956 --> 0:04:16.836 then how the men and they were all men, and 0:04:16.916 --> 0:04:18.916 they were all white men, and they were mostly Protestant 0:04:18.916 --> 0:04:22.396 white men. How that cohort made the global system of 0:04:22.436 --> 0:04:24.996 the twentieth century, and where that leaves us today. So 0:04:25.036 --> 0:04:27.116 that's kind of the arc I wanted to look at. 0:04:27.596 --> 0:04:30.316 And they're the perfect aperture for that art. They are 0:04:31.036 --> 0:04:34.516 maybe the only firm that could actually tell that story 0:04:34.596 --> 0:04:36.796 from the get go to the present, because first of all, 0:04:36.836 --> 0:04:39.036 they're the only one that has been around for two 0:04:39.036 --> 0:04:42.076 plus centuries, which doesn't make them worth writing about. Right, 0:04:42.276 --> 0:04:45.436 living long is not living necessarily interesting. I really thought 0:04:45.436 --> 0:04:46.996 at one point, like, how am I going to make 0:04:47.596 --> 0:04:50.876 a group of stayed bankers, particularly in the nineteenth century, 0:04:51.196 --> 0:04:53.276 who wanted to be stayed, who didn't want to be 0:04:53.276 --> 0:04:55.396 in the news, who spent a lot of their history 0:04:56.036 --> 0:04:58.116 celebrating the fact that every day they woke up and 0:04:58.156 --> 0:05:00.836 their name was not in the papers as a good day. 0:05:01.276 --> 0:05:03.756 You know, how do you make that interesting? The arc 0:05:03.796 --> 0:05:06.276 I thought was interesting. Turned out I think that they're 0:05:06.316 --> 0:05:09.036 a lot more interesting than even I thought going into it. 0:05:09.236 --> 0:05:11.716 I share with you the sense that there's an alchemy here. 0:05:11.756 --> 0:05:14.276 You know the book doesn't. If you were not the 0:05:14.316 --> 0:05:16.596 author of the book, I don't think I would have 0:05:16.636 --> 0:05:18.956 picked it up, because I would have thought, this is 0:05:18.956 --> 0:05:20.916 a great topic, But how the world could you tell 0:05:20.956 --> 0:05:23.956 it in a way that is in fact engaging? But 0:05:23.996 --> 0:05:25.956 because I've read your other books, I knew you would 0:05:25.956 --> 0:05:28.076 be able to find a way to do that. What 0:05:28.116 --> 0:05:31.276 was the trick? And for listeners who are thinking, why 0:05:31.316 --> 0:05:33.716 in the world would I be interested in this, I'm 0:05:33.716 --> 0:05:35.836 definitely interested in the history of capitalism in the nature 0:05:35.836 --> 0:05:37.196 of power, But why would I want to hear it 0:05:37.236 --> 0:05:41.196 told through these folks? What for you were the features 0:05:41.556 --> 0:05:44.316 of those cautious state people who, as you show, we're 0:05:44.356 --> 0:05:47.316 trying to be the ones always to avoid going under 0:05:48.596 --> 0:05:50.596 What is it about them that you were able to 0:05:50.596 --> 0:05:53.476 make interesting? So, first of all, it turns out Brown 0:05:53.516 --> 0:05:57.516 Brothers was present at the creation of almost everything vital 0:05:57.996 --> 0:06:00.716 in American certainly economic history and in many ways just 0:06:00.796 --> 0:06:04.396 American history. They're just in the back row right, They're 0:06:04.836 --> 0:06:07.596 they're like the zelle. They're in the second row, back left, 0:06:08.116 --> 0:06:09.796 kind of looking like a bank, and they don't really 0:06:09.796 --> 0:06:11.916 want to be the story and they don't want to 0:06:11.636 --> 0:06:14.036 be the picture. But without them. There's no story and 0:06:14.036 --> 0:06:18.876 there's no picture, and there is a lot of drama 0:06:19.076 --> 0:06:22.796 in the creation of a nation, and the creation of 0:06:22.796 --> 0:06:25.196 a nation like the United States, which kind of emerges 0:06:25.196 --> 0:06:29.476 out of nowhere in the nineteenth century, graced with lots 0:06:29.476 --> 0:06:33.316 of resources but very little invested capital, and you have 0:06:33.356 --> 0:06:35.636 these this firm like Brown Brothers that essentially creates the 0:06:35.636 --> 0:06:40.436 paper money system that I think is a huge differential, right, 0:06:40.436 --> 0:06:42.996 It's partly what makes the United States the United States. 0:06:43.076 --> 0:06:46.236 Is this incredibly chaotic, liquid world where if you had 0:06:46.236 --> 0:06:48.556 a hope and a dream, it was way easier to 0:06:48.556 --> 0:06:50.836 get money because it was paper. It wasn't people, it 0:06:50.916 --> 0:06:54.316 wasn't gold, it wasn't land. And Brown Brothers is kind 0:06:54.356 --> 0:06:56.796 of at the epicenter of this, you know, the the 0:06:57.236 --> 0:07:01.196 alchemists who were really mindful of the destructive potential of 0:07:01.236 --> 0:07:05.276 their alchemy and not animated by greed and not animated 0:07:05.276 --> 0:07:09.276 by personal gain at the expense of public good. I 0:07:09.316 --> 0:07:12.996 actually found that that section of the book completely gripping, 0:07:13.596 --> 0:07:16.116 and I learned a huge amount from it. And I 0:07:16.156 --> 0:07:20.876 wonder if you'd spend just a moment telling listeners just 0:07:20.916 --> 0:07:23.756 the short version of this. I mean, I guess I 0:07:23.836 --> 0:07:27.236 knew in a general sort of way that Fiat backed 0:07:27.316 --> 0:07:31.076 currency greenbacks were really a product of the Civil War 0:07:31.596 --> 0:07:34.836 in some general way. And I also knew from working 0:07:34.876 --> 0:07:38.796 on my own interest in the history of the Constitution, 0:07:39.596 --> 0:07:44.036 that in the early years of the Republic, money was 0:07:44.116 --> 0:07:47.876 very scarce because there was still a sense that we 0:07:47.916 --> 0:07:50.516 had to be dependent on gold and silver, and there 0:07:50.556 --> 0:07:53.316 wasn't that much gold and silver in North America relative 0:07:53.356 --> 0:07:55.396 to what there was in Europe, and so it was 0:07:55.436 --> 0:07:58.396 always hard to get hold of money, and so as 0:07:58.396 --> 0:08:00.796 a consequence, there was always a lot of need for 0:08:00.876 --> 0:08:05.276 some other mechanisms of credit. What you show so beautifully 0:08:05.356 --> 0:08:08.676 in the book is that there was an interim solution there, 0:08:09.276 --> 0:08:14.276 and that that solution we've somewhat forgotten today was letters 0:08:14.316 --> 0:08:18.196 of credit. Say a word about what that is and 0:08:18.356 --> 0:08:20.596 why it matters, and then from there maybe we can 0:08:20.636 --> 0:08:24.236 talk about the metaphoric relationship that that has to the 0:08:24.276 --> 0:08:27.276 way the capital moves today in the world. So this 0:08:27.356 --> 0:08:30.556 is one of these things that narratively I found challenging 0:08:30.636 --> 0:08:34.196 the way, like a theoretical physicist can find it challenging 0:08:34.236 --> 0:08:37.596 to write a popular story of that in a way 0:08:37.636 --> 0:08:40.316 that doesn't put people to sleep. You know, the idea 0:08:40.356 --> 0:08:42.756 of writing at great length about letters of credit was 0:08:43.196 --> 0:08:47.156 kind of a nonstarter narratively. Nonetheless, just like the strong 0:08:47.196 --> 0:08:50.196 and weak forces of an atom, trying to explain that 0:08:50.236 --> 0:08:55.156 as a pretty crucial binding force for society seems essential 0:08:55.276 --> 0:09:00.956 and completely overlooked in our story of what essentially makes 0:09:00.956 --> 0:09:04.076 the United States as affluent and powerful as it was. 0:09:04.556 --> 0:09:07.316 So for much of the nineteenth century, you either had 0:09:07.676 --> 0:09:10.276 too little money or too much money, too much currency. 0:09:10.836 --> 0:09:12.916 People needed money, so they're all these banks issuing a 0:09:12.956 --> 0:09:14.956 lot of currency, and it was worth about as much 0:09:14.956 --> 0:09:16.716 as it was until it wasn't. And that's why you 0:09:16.756 --> 0:09:19.036 had every twenty years in the nineteenth century, you have 0:09:19.116 --> 0:09:22.476 a financial crisis, a panic in eighteen nineteen, eighteen thirty seven, 0:09:22.516 --> 0:09:25.716 eighteen fifty seven, eighteen seventy three, eighteen ninety three, nineteen 0:09:25.716 --> 0:09:29.516 o seven, of course nineteen twenty nine. And behind the 0:09:29.556 --> 0:09:31.716 scenes in the system you have a very few number 0:09:31.756 --> 0:09:34.476 of players at which Brown Brows was essential, who make 0:09:34.556 --> 0:09:36.756 sure that the trains run on time. Literally, I mean 0:09:36.796 --> 0:09:39.916 they helped build the first passenger railroad, the BNO, and 0:09:39.996 --> 0:09:43.196 they helped create the transatlantic shipping system so that people 0:09:43.276 --> 0:09:46.476 knew that if they made stuff and grew stuff, that 0:09:46.636 --> 0:09:50.636 someone would buy the stuff. And letters of credit were 0:09:50.676 --> 0:09:54.596 the connective tissue, first between cotton growers in the South 0:09:54.636 --> 0:09:57.236 and people bought the cotton in England and turned it 0:09:57.236 --> 0:10:00.276 into cloth, and then for all sorts of trade, every 0:10:00.276 --> 0:10:04.276 single trade, and without which there's no system, right, there's 0:10:04.316 --> 0:10:06.676 no assurance that people will be able to buy and 0:10:06.676 --> 0:10:10.356 sell stuff. And the amount of cher liquidity in the 0:10:10.476 --> 0:10:15.876 United States did lead to these incredible periods of capital 0:10:15.916 --> 0:10:18.436 creation and booms, and then it led to these incredibly 0:10:18.996 --> 0:10:22.436 tumultuous bus much worse than anything we saw in two 0:10:22.436 --> 0:10:24.636 thousand and eight two thousand and nine. I mean, these 0:10:24.676 --> 0:10:28.636 panics eviscerated the financial system, and then you had these 0:10:28.636 --> 0:10:31.036 bankers at the center of it, of whom Brown Brothers 0:10:31.076 --> 0:10:34.996 were the most important, making sure that in spite of everything, 0:10:35.076 --> 0:10:37.276 there would be trade, there would be goods. Some of 0:10:37.276 --> 0:10:40.836 it was hugely morally problematic, right, the cotton trade was 0:10:40.956 --> 0:10:43.276 on the backs of enslaved men and women, and Brown 0:10:43.316 --> 0:10:46.476 Brothers was totally complicit in that, and a lot of 0:10:46.476 --> 0:10:50.356 which was basically helping the creation of the American economy 0:10:50.356 --> 0:10:52.956 and the creation of the United States. And these letters 0:10:52.956 --> 0:10:55.116 were what you used as kind of a trusted I 0:10:55.196 --> 0:10:57.516 know that if I part with my goods, someone on 0:10:57.556 --> 0:10:59.956 the other side, the other side the Atlantic, will buy them, 0:11:00.436 --> 0:11:03.476 and if I part with my money, I'll get my goods. 0:11:03.636 --> 0:11:06.316 And these letters of credit were that connective tissue. And 0:11:06.316 --> 0:11:09.836 we're essentially, if not invented by Brown Brothers, perfected by 0:11:09.836 --> 0:11:13.196 them and then used by other banks and other financial intermediaries. 0:11:13.436 --> 0:11:15.796 First of all, that was a fantastically clear explanation, so 0:11:15.836 --> 0:11:17.396 thank you. But I think you do so well in 0:11:17.396 --> 0:11:21.156 the book to show that Brown Brothers played a major 0:11:21.236 --> 0:11:24.436 role in answering the question who can you trust? You 0:11:24.436 --> 0:11:27.356 know that basically, unless there's an answer to that question 0:11:27.396 --> 0:11:31.956 where a person attached, a financial system cannot gain the 0:11:32.076 --> 0:11:36.076 kind of trajectory that it needs to get flowing. Flow 0:11:36.196 --> 0:11:39.516 is everything, and if you don't trust people, you can't 0:11:39.636 --> 0:11:43.156 get flow with the scale that is necessary. Reading that, 0:11:43.396 --> 0:11:47.916 one starts immediately to feel the question of what about today? 0:11:48.116 --> 0:11:51.516 Where does such trust lie in the system today, if 0:11:51.556 --> 0:11:55.316 at all, should it exist to a greater degree than 0:11:55.396 --> 0:11:57.756 it in fact does? And what is the presence or 0:11:57.756 --> 0:12:00.436 absence of trust in our current system? Tell us about 0:12:00.436 --> 0:12:03.316 where things stand, you know, So the interesting thing is, 0:12:03.356 --> 0:12:06.676 as you highlight their word was their bond. The reputation 0:12:06.796 --> 0:12:09.036 was key a lot of the letters at Alexander Brown 0:12:09.236 --> 0:12:12.156 in the first thirty years of the nineteenth century writes 0:12:12.236 --> 0:12:14.836 to his four sons, who are the Brown brothers? Heads? 0:12:14.916 --> 0:12:19.916 Brown brothers? You sound like some distillation of Ben Franklin 0:12:19.916 --> 0:12:23.356 and Poor Richard's Almanac, and Polonius and Hamlet and every 0:12:23.396 --> 0:12:26.476 kind of homily and cliche that every parent has ever 0:12:26.516 --> 0:12:30.356 given to every child. Don't take risks that are beyond 0:12:30.396 --> 0:12:33.396 your means. Make sure you know the people you're in 0:12:33.436 --> 0:12:37.316 business with. Its trust is easily lost and hard to gain. 0:12:38.236 --> 0:12:41.236 And they kind of live this and breathe it because 0:12:41.316 --> 0:12:44.836 they recognize that in a world without a lot of trust, 0:12:45.356 --> 0:12:49.116 those things are unequivocally true. What's really fascinating about today 0:12:49.436 --> 0:12:53.276 is I don't think we have fully appreciated what a 0:12:53.356 --> 0:12:57.156 radical break the past fifty years have been globally in 0:12:57.236 --> 0:13:00.076 terms of how human beings conceive of money, right, and 0:13:00.196 --> 0:13:04.156 that the idea that a paper promise is worth more 0:13:04.236 --> 0:13:07.516 than the paper it's written on was a completely alien 0:13:07.596 --> 0:13:10.676 concept for most societies for most of history and still 0:13:10.716 --> 0:13:14.636 makes people, you know, radically uncomfortable with the notion of really, 0:13:14.676 --> 0:13:15.956 at the end of the day, if I give you 0:13:15.996 --> 0:13:19.276 a dollar, whether it's digital or paper, it's a pretty 0:13:19.476 --> 0:13:22.476 abstract thing. And the fact that we say that it 0:13:22.516 --> 0:13:24.716 has values because all of us have kind of collectively 0:13:24.796 --> 0:13:28.116 decided that it has value, not because it actually has 0:13:28.156 --> 0:13:32.996 any intrinsic value. And cryptocurrency dramatizes this to an incredible 0:13:33.156 --> 0:13:35.876 degree exactly, which is also why I'm really impatient with 0:13:35.916 --> 0:13:38.836 a lot of crypto skeptics. Not that I'm a crypto bull, 0:13:38.876 --> 0:13:41.636 I'm just saying the crypto skeptics say, oh, come on, 0:13:41.716 --> 0:13:44.956 it's not worth anything, right, without recognizing that frankly, we 0:13:45.036 --> 0:13:47.516 live in a world that there's no intrinsic value to 0:13:47.636 --> 0:13:50.596 most things. You know, it's the value we ascribe to 0:13:50.636 --> 0:13:53.996 it with intermediars who we think will be good for it. 0:13:54.556 --> 0:13:57.996 And in many ways, you know, us power today, as 0:13:57.996 --> 0:14:00.916 cemented by the global possession of the dollar, because there 0:14:00.956 --> 0:14:04.996 needs to be some common means of exchange, relies on 0:14:05.036 --> 0:14:07.476 a lot of faith in the system. That makes a 0:14:07.516 --> 0:14:10.076 lot of people uncomfortable, but it is the product of 0:14:10.116 --> 0:14:12.956 several hundred years of evolution, of which the paper money 0:14:13.356 --> 0:14:16.716 part of the nineteenth century is like the first chapter 0:14:17.156 --> 0:14:19.556 of which we're now living. In the later chapters, the 0:14:19.676 --> 0:14:22.396 question of trust isn't interesting, and that like, I don't 0:14:22.436 --> 0:14:25.116 necessarily trust my bank in the sense of I think 0:14:25.116 --> 0:14:28.076 they're good people, But I trust my bank in the 0:14:28.156 --> 0:14:31.036 sense of I clearly believe that if I put money 0:14:31.076 --> 0:14:34.316 in the bank, they're good for it. And that's a 0:14:34.356 --> 0:14:37.076 combination of a little bit of a regulatory framework, right 0:14:37.116 --> 0:14:40.236 new deal law is saying your deposits are insured, and 0:14:40.356 --> 0:14:42.876 a little bit of you know, I don't have any 0:14:42.916 --> 0:14:45.276 reason to believe otherwise, and I need that, like we 0:14:45.316 --> 0:14:47.876 need that to function. And in an early version, you 0:14:47.916 --> 0:14:51.396 need something like Brown Brothers, which is surely their reputation. 0:14:52.196 --> 0:14:54.476 So I don't think trust has gone away. We just 0:14:54.476 --> 0:14:57.916 don't think of it in quite the same way. And 0:14:58.116 --> 0:15:00.876 arguably it's a slightly different phenomenon. Right, I mean, we 0:15:00.996 --> 0:15:03.476 begin with the idea that I know you, and I 0:15:03.516 --> 0:15:05.556 trust you because I know you to be the kind 0:15:05.596 --> 0:15:09.276 of person based on my experience of you, whom I 0:15:09.276 --> 0:15:12.516 can rely on. Then you get a firm like Brown 0:15:12.556 --> 0:15:17.476 Brothers that begins to institutionalize that trust. I may not 0:15:17.596 --> 0:15:20.076 know you, but I know your brand and I know 0:15:20.116 --> 0:15:23.796 that your bank is committed to not going under, and 0:15:23.836 --> 0:15:26.556 so in that sense, I trust you. So that's a 0:15:26.556 --> 0:15:29.116 bit of an institutionalization of the trust away from one 0:15:29.196 --> 0:15:32.436 person to an institution, but it's still a small institution, 0:15:32.476 --> 0:15:36.956 and it's still a family owned institution. What you have today, though, 0:15:37.116 --> 0:15:40.916 is a very different stage in the evolution, where the 0:15:40.956 --> 0:15:44.476 trust is almost almost not at all in the institutions 0:15:44.796 --> 0:15:50.556 and almost all in the governmental structures that create the 0:15:50.596 --> 0:15:53.516 conditions where we think that the institution will follow the 0:15:53.636 --> 0:15:58.196 rules because otherwise people would go to prison. And that's 0:15:58.196 --> 0:16:01.796 a different kind of institutional trust. It's still trust in 0:16:01.796 --> 0:16:04.316 a set of institutions, but they're less the institutions, the 0:16:04.356 --> 0:16:08.756 financial institutions themselves, and more the regulators of those institutions. 0:16:09.356 --> 0:16:13.676 So you're totally right about the regulatory framework and that 0:16:13.756 --> 0:16:17.036 being an essential component to people's trust in the financial system. 0:16:17.276 --> 0:16:19.556 This is an explicit in the book. It's certainly explicit 0:16:19.596 --> 0:16:21.916 in a lot of what I've written about. I think 0:16:22.036 --> 0:16:25.716 regulation is necessary but not sufficient, right, and some of 0:16:25.716 --> 0:16:30.476 the regulatory craze today in the Biden administration this is 0:16:30.476 --> 0:16:33.476 a whole other conversation, but I think it treats regulation 0:16:33.516 --> 0:16:36.956 as sufficient and necessary. One of the lessons of a 0:16:36.996 --> 0:16:40.356 Brown Brother's culture is that you need a culture. Right. 0:16:40.836 --> 0:16:43.476 You can regulate behavior, but you can't really regulate culture, 0:16:43.556 --> 0:16:47.436 or you cannot create a regulatory framework that leads companies 0:16:47.836 --> 0:16:49.516 in the near and I think even the mid term 0:16:49.876 --> 0:16:53.076 to embody a different culture. What's fascinating about an earlier 0:16:53.156 --> 0:16:56.756 version of American capitalism was it was an an internal 0:16:56.796 --> 0:17:01.156 culture that recognized the ineluctable bond between private gain and 0:17:01.196 --> 0:17:05.956 public good, and that individuals and collectives that were private. 0:17:08.276 --> 0:17:11.796 It was part of a narrative of we I eat 0:17:11.836 --> 0:17:15.916 the individual, and the company is responsible to the collective 0:17:16.476 --> 0:17:19.396 because ultimately, we the individual in the company can't thrive 0:17:19.876 --> 0:17:23.916 unless the collective in which we're embedded also thrives. That 0:17:23.996 --> 0:17:27.356 was a non regulatory ethos, and it led to some 0:17:27.436 --> 0:17:32.036 of the behavior that regulation seeks to force. So it 0:17:32.116 --> 0:17:35.316 was internal guardrails rather than external guardrails. And I happen 0:17:35.356 --> 0:17:36.956 to believe in part of the point of the book 0:17:37.156 --> 0:17:41.476 is culture matters, and without those internal guardrails, all the 0:17:41.516 --> 0:17:44.356 external guardrails in the world, they can create an adversarial 0:17:44.396 --> 0:17:47.556 culture where behavior is constrained, but they cannot easily create 0:17:47.876 --> 0:17:53.996 positive behavior, they can curtail negative behavior. We'll be right back. 0:18:03.556 --> 0:18:06.476 Let me ask you a question, Zach, about a theme 0:18:06.516 --> 0:18:08.876 that is already in the title of your book. There's 0:18:08.876 --> 0:18:11.996 a more ultiple meaning to the title inside Money. But 0:18:12.436 --> 0:18:16.276 on any of those possible meanings of that phrase, there's 0:18:16.276 --> 0:18:18.716 an idea that there is an inside and an outside 0:18:18.836 --> 0:18:23.156 to money, that there are elites who understand what's going 0:18:23.196 --> 0:18:27.196 on and who have a lot of power and the 0:18:27.236 --> 0:18:29.756 capacity to pull strings, and then there's the rest of 0:18:29.836 --> 0:18:32.196 us who are on the outside. Maybe our noses are 0:18:32.196 --> 0:18:34.156 pressed up against the glass. Maybe we don't even know 0:18:34.156 --> 0:18:36.796 where the glass is to press our nose up against it, 0:18:36.836 --> 0:18:43.636 And sociologically that remains true. But arguably there is a 0:18:43.716 --> 0:18:49.996 democratizing impulse in finance today that it's not the first time. 0:18:50.116 --> 0:18:52.316 You know, There's been lots of other moments when the 0:18:52.356 --> 0:18:55.356 public got interested, and sometimes that was a sign that 0:18:55.396 --> 0:18:57.156 there was about to be a crash, but we certainly 0:18:57.196 --> 0:18:59.396 seem to be in one now where people talk about 0:18:59.996 --> 0:19:03.436 gamification of trading, They talk about how easy it is 0:19:03.436 --> 0:19:05.196 to open a coin base account, they talk about how 0:19:05.196 --> 0:19:08.316 easy is to trade on platforms like robin Hood, and 0:19:08.356 --> 0:19:13.716 then you actually have the crazy phenomenon of activists whose 0:19:14.196 --> 0:19:17.276 nature of their activism is to boost up stocks that 0:19:17.916 --> 0:19:20.316 the insiders agree aren't very valuable, and that frankly, any 0:19:20.396 --> 0:19:23.436 rational person would agree aren't very valuable, and they're experiencing 0:19:23.436 --> 0:19:27.476 it as a kind of thrill of the outsiders. And 0:19:27.556 --> 0:19:31.196 in that sense, it's a populist or democratizing with a 0:19:31.196 --> 0:19:35.996 small d mode of finance. What do you think about 0:19:36.036 --> 0:19:43.236 that when you read about populist impulses to beat the 0:19:43.316 --> 0:19:46.956 insiders at their own game, yea? Or when you read 0:19:46.996 --> 0:19:49.436 people saying, you know what's wrong with finances, that it's 0:19:49.476 --> 0:19:51.556 in the hands of the few. It ought to be 0:19:51.596 --> 0:19:54.516 in the hands of the many, right or wrong? Do 0:19:54.596 --> 0:19:56.956 you feel some sense of fear when you hear that? 0:19:57.076 --> 0:19:58.676 Do you think, oh my god, these poor people are 0:19:58.716 --> 0:20:02.476 gonna hurt themselves. Nope. I think I celebrate almost all 0:20:02.476 --> 0:20:05.356 of that, but with the cautionary reality of people will 0:20:05.396 --> 0:20:07.276 be harmed by that, just as they were harmed by 0:20:07.316 --> 0:20:10.676 the system that they're being rejected. You know, revolution is 0:20:10.716 --> 0:20:12.876 often necessary, but it's not very balanced. I mean, I 0:20:12.876 --> 0:20:14.996 would prefer for evolutionary change. I think we'd all be 0:20:15.036 --> 0:20:19.116 healthier for it, because there'd be less collateral damage along 0:20:19.116 --> 0:20:21.836 the way, So a populist opening, you know, that's a 0:20:21.836 --> 0:20:25.236 little less burn it all down, burn baby burn. I 0:20:25.236 --> 0:20:27.596 mean there's an element of the the whole thing that 0:20:27.596 --> 0:20:29.476 went on with Game Stop, and there's an element with 0:20:29.556 --> 0:20:32.956 Robin Hood that can approach the burn baby burn attitudes 0:20:32.996 --> 0:20:36.916 of the late sixties, like the system is irremediably corrupt, 0:20:37.236 --> 0:20:39.076 so we should just blow it up and start it again. 0:20:39.156 --> 0:20:41.476 I'm not really into that one, but but it's so 0:20:41.596 --> 0:20:44.476 interesting you're saying that because I have the exact opposite instinct. 0:20:44.836 --> 0:20:47.596 I look at Game Stop and I say, boy, in 0:20:47.636 --> 0:20:49.516 the sixties, when they wanted to burn it all down, 0:20:49.876 --> 0:20:51.796 they didn't say it and let's do it by trading 0:20:51.836 --> 0:20:54.956 and making money. Right. There was a kind of utopian 0:20:55.036 --> 0:20:59.796 idealism associated with being anti capitalist. Today, capitalism is so 0:20:59.916 --> 0:21:02.116 much the you know, the air we breathe, the water 0:21:02.156 --> 0:21:05.316 we drink, that the burn it down comes in the 0:21:05.316 --> 0:21:08.276 form of let's do a trade, right, let's let's I 0:21:08.276 --> 0:21:10.956 mean that you can't get closer to the ultimate victory 0:21:10.956 --> 0:21:13.196 of capitalism than if the people who want to break 0:21:13.316 --> 0:21:16.396 capitalism want to break it by capitalist means. They're not 0:21:16.436 --> 0:21:19.676 trying to use the master's tools to deconstruct the master's house. 0:21:20.076 --> 0:21:23.156 They're trying to use the master's tools to become the masters. 0:21:23.396 --> 0:21:26.836 Neither more nor less, that is definitely true. I do 0:21:26.916 --> 0:21:31.436 think more inputs, more egalitarian, more access to more capital 0:21:31.516 --> 0:21:34.756 for more people who can make their own choices, that 0:21:34.876 --> 0:21:37.716 I find a good thing, you know, And the same 0:21:37.716 --> 0:21:41.236 way that unlocking capital in the nineteenth century was nett 0:21:41.276 --> 0:21:43.796 I think a better thing than not led more people 0:21:43.836 --> 0:21:45.756 to have what we would consider to be a middle 0:21:45.796 --> 0:21:47.876 class life. It's the story of what's going on in Asia. 0:21:47.916 --> 0:21:50.796 You know, it's like unlocking human capital and actually creating 0:21:50.796 --> 0:21:55.196 a capital system. But this honestly is a philosophical discussion 0:21:55.236 --> 0:21:58.076 because it leads to answers in action of kind of 0:21:58.076 --> 0:22:00.396 the cup half full, cup half empty. Right, If you 0:22:00.516 --> 0:22:04.036 somewhat celebrate these moves, you have a different attitude. If 0:22:04.116 --> 0:22:06.116 I'm at the SEC right now and I think both 0:22:06.196 --> 0:22:10.916 game stop and crypto and the kind of unregulated mass 0:22:11.036 --> 0:22:15.716 of financial activity is unleashing destructive forces that need to 0:22:15.756 --> 0:22:19.436 be bottled, You're going to have a particular regulatory and 0:22:19.756 --> 0:22:22.596 or philosophical response if you think that they are inherently 0:22:23.316 --> 0:22:26.636 positive developments and that they would create more inclusivity. What 0:22:26.836 --> 0:22:29.556 wasn't very elite to system you're going to think in 0:22:29.676 --> 0:22:32.756 terms of regulation and guardrails very differently. So in that sense, 0:22:32.756 --> 0:22:36.796 I think the where you sit visa VI these developments 0:22:36.916 --> 0:22:39.996 shapes what kind of policies and what kind of actions 0:22:40.036 --> 0:22:44.236 you take in the present. Really, intimately, I'm really interested 0:22:44.276 --> 0:22:47.156