Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have a special guest.
Speaker 1: His name is David Enrich and he is the finance
Speaker 1: editor at the New York Times. Previously he was a
Speaker 1: journalist at The Wall Street Journal. Last time we spoke
Speaker 1: with David, it was when his new book The Spider
Speaker 1: Network came out. That was back in all about libor manipulation.
Speaker 1: His new book is Dark Towers. It's all about Deutsche
Speaker 1: Bank and how what was once a sleepy, backwater German bank. Okay,
Speaker 1: they also helped funds the Holocaust and the Nazi war machine,
Speaker 1: but how they ended up having global aspirations in the
Speaker 1: nineties and two thousand's, briefly becoming the biggest bank in
Speaker 1: the world before an epic collapse. David is a really
Speaker 1: interesting investigative journalist. He does a wonderful job flashing out
Speaker 1: the characters in his book, who are all real people.
Speaker 1: This isn't fiction. He is telling a story about what happens,
Speaker 1: how it happens, and why. And he had access to
Speaker 1: a treasure trove of documents and emails. In the Deutsche
Speaker 1: Bank story, it's just utterly utterly compelling if you're at
Speaker 1: all interested in stories of malfeasan set joint financial institutions.
Speaker 1: This is up there with When Genius Failed and other
Speaker 1: such issues, only this one involves criminality, not bad training decisions. So,
Speaker 1: with no further ado, my conversation with The New York
Speaker 1: Times David Enrich. This is Masters in Business with Barry
Speaker 1: Ridholts on Bloomberg Radio. My special guest this week is
Speaker 1: David Enrich. He is the finance editor at The New
Speaker 1: York Times. Previously, he was an investigative journalist at The
Speaker 1: Wall Street Journal. He is the author of several books,
Speaker 1: most recently Dark Towers, Deutsche Bank, Donald Trump, and An
Speaker 1: Epic Trail of Destruction. Previously, he wrote The Spider Network,
Speaker 1: a book about the libor manipulation. David Enrich, Welcome back
Speaker 1: to Bloomberg. Thanks for having me to Barry. So we
Speaker 1: had you on a couple of years ago to discuss
Speaker 1: The Spider Network, which I thought was a fascinating tail.
Speaker 1: It it read like a spy novel almost and a
Speaker 1: very short period of time elapse between that book and
Speaker 1: Dark Towers. Obviously there's some overlap with Liebor and Deutsche Bank,
Speaker 1: but why so quick? Between the two books? How did
Speaker 1: the new one come about? Well? Why so quick? Is
Speaker 1: the same question I've gotten from a number of people,
Speaker 1: including my wife. And you know what the reality is,
Speaker 1: when you've got a good idea for a book, they
Speaker 1: don't come around that often, at least not for me,
Speaker 1: and so you kind of jump at it at the
Speaker 1: opportunity while you can. In this case, I mean, I've
Speaker 1: been upset things about Deutsche Bank for really the better
Speaker 1: part of the decade. Um back. I've been working with
Speaker 1: the Wall Street Journal in London from two thousand two sixteen,
Speaker 1: and during that period I was covering with banking and finance,
Speaker 1: and you know, the biggest most troubled bank at that
Speaker 1: time was Deutsche Bank, and it was it was pretty
Speaker 1: technical and industry specific story. It was not something that
Speaker 1: captured much public imagination, I don't think outside of the
Speaker 1: finance world. But with the election of Donald Trump and
Speaker 1: given his very close ties to Deutsche Bank over a
Speaker 1: long period of time, the story kind of started becoming
Speaker 1: a much more palatable story for the general public. And
Speaker 1: I felt like I was in a really good position
Speaker 1: to tell that, so I, you know, just grabbed the
Speaker 1: opportunity while I could, and I do wish in hindsight,
Speaker 1: I had It's hard writing a book, you know, it
Speaker 1: takes a lot of time, and it's this labor of
Speaker 1: love but also his objects of complete in total obsession,
Speaker 1: and I've got little kids, and so it was. It
Speaker 1: was not the easiest couple of years doing this, especially
Speaker 1: when you're writing about a topic that is changing in
Speaker 1: real time, ongoing investigations, ongoing soft price fluctuation. How did
Speaker 1: you deal with the fact that this story continued past
Speaker 1: when you put your pen down. Well, that's an interesting question.
Speaker 1: I made a decision pretty early on in the consulta
Speaker 1: issue with my publisher that this is not going to
Speaker 1: be a book that told you everything in the world
Speaker 1: about Deutsche Bank, and tried to break a lot of
Speaker 1: news about the current ongoing kind of reorganizations at the
Speaker 1: bank and restructurings and things like that. There was it
Speaker 1: was going to be, and you know, as you probably know,
Speaker 1: like eight percent of the book of the book is
Speaker 1: the story of how Deutsche Bank grew from this provincial,
Speaker 1: really German focused bank into this global juggernaut and into
Speaker 1: this epic disaster, and so much less of the book
Speaker 1: is spent focusing on the past, basically from the two
Speaker 1: thousands sixteen period, two seventeen period onward, where the bank
Speaker 1: has been in this pretty hardcore cleanup mode. And so
Speaker 1: I had the liberty of just kind of drawing a
Speaker 1: line basically around the time that shortly after the time
Speaker 1: that the bank's leadership changed for you know, the eighteenth
Speaker 1: time and uh, and so I really that made it
Speaker 1: a lot easier to kind of put blinders on. Obviously,
Speaker 1: I focused very I paid a lot of attention to
Speaker 1: what was going on with the various reorganizations and the
Speaker 1: new leadership. And I said a lot of time talking
Speaker 1: to people who were involved in that. But what I
Speaker 1: was not particularly worried about every little incremental twist and
Speaker 1: turn as related to the bank and its financials. I
Speaker 1: was much more interested, frankly, in in terms of things
Speaker 1: that were moving, uh, you know, as I was writing,
Speaker 1: as it related to investigations on money laundering and Donald Trump.
Speaker 1: And so I spent I did spend a lot of
Speaker 1: time both in the book and also doing reporting and
Speaker 1: writing for the New York Times, uh, on those kind
Speaker 1: of live topics. The other things that were much more
Speaker 1: coming out of Germany, where I you know, just in
Speaker 1: addition to not think move that core to the narrative
Speaker 1: in the book, I also just simply wasn't as well sourced.
Speaker 1: So um, I kind of just narrowed my field of
Speaker 1: vision a little bit, which I think was it is
Speaker 1: a little bit of a gamble, and I think it frankly,
Speaker 1: it will probably make the book a little you know,
Speaker 1: less satisfying in some ways to a certain um slice
Speaker 1: of the world that is really obsessed with understanding where
Speaker 1: the bank currently is. Uh, But I think for the
Speaker 1: vast majority of readers it's a pretty good look at
Speaker 1: how the bank and how the bank on to some soone,
Speaker 1: how good companies in general get into someone trouble in
Speaker 1: the kind of decisions and incentives that are set up
Speaker 1: along the way that really lead down this pretty disastrous path.
Speaker 1: And to me, going to bank is just this classic
Speaker 1: case study and how not only how not to run
Speaker 1: a business, but the perils of growing too fast and
Speaker 1: incentivizing people to essentially make just very bad decisions over
Speaker 1: and over to them. So you hit on exactly a
Speaker 1: question I was going to ask later, but I might
Speaker 1: as well ask it now. When we look at some
Speaker 1: of the biggest disasters of the past decade, whether it
Speaker 1: was the collapse of We Works or all the trouble
Speaker 1: that Uber got into, or go back to Lehman Brothers,
Speaker 1: Deutsche Bank did many of the same things, disregardful legality,
Speaker 1: incentivizing people for profits regardless of the consequences, effectively short
Speaker 1: term versus long term greedy. Is that a fair assessment
Speaker 1: of Deutsche Bank. Yeah, absolutely, I think that the bank,
Speaker 1: and I think it's actually deeper than that in some ways.
Speaker 1: I mean, thanks are obviously kind of peculiar beasts, right,
Speaker 1: I mean, they are entrusted with essentially operating the economy
Speaker 1: to a large extent for the entire world. And so
Speaker 1: unlike an Uber we Work, which is important in its
Speaker 1: own right, and it is kind of transformed the way
Speaker 1: we live or work. It's banks occupied this very special
Speaker 1: role at the heart of the financial system and therefore
Speaker 1: the heart of the economy. And to me, there's one
Speaker 1: of the most important shifts that taken place in the
Speaker 1: global finance in the past I don't know, thirty years
Speaker 1: at this point, I guess, is the transition from banks
Speaker 1: being viewed as these kind of the profitable but not
Speaker 1: egregiously profitable. They really, um, they have been much more
Speaker 1: like public utilities. And they're to kind of grief the
Speaker 1: years of the global economy and this transition that a
Speaker 1: place that the coincides large was a big wall throught
Speaker 1: firms going from private partnerships into publicly traded companies and
Speaker 1: then later becoming banks. Uh, toward these just ridiculously fat
Speaker 1: profit margins has been It's been very destructive for the
Speaker 1: banks themselves in many cases, but it's also been very
Speaker 1: destructive for the economy and for the financial system, I think.
Speaker 1: And so Deutsche Banks transition from being this you know,
Speaker 1: pretty plain vanilla German lender that was primarily focused on
Speaker 1: helping big German companies spread their wings internationally and to
Speaker 1: a lesser extent, helping non German companies enter the German
Speaker 1: or European markets. And you know, those were very study
Speaker 1: businesses and very important businesses. And in Deutsche Bank, as
Speaker 1: a result of that, played a leading role in the
Speaker 1: development of railroads in the nineteenth and early twentieth centuries.
Speaker 1: It played a leading role in the reconstruction redevelopment of
Speaker 1: Europe after World War Two and going out into the
Speaker 1: mid nine reason as the iron curtains cell it played.
Speaker 1: The bank played a leading role in helping to globalize
Speaker 1: the economy and knocked down by unhealthy barriers to economic
Speaker 1: development in some countries, and it was the banks CEO
Speaker 1: up until the late nineteen eighties was a leading advocate
Speaker 1: of forgiving thirdal depths, for example. And so it was
Speaker 1: a bank that occupied this role not only you know,
Speaker 1: providing banking services, but was it viewed its role as
Speaker 1: kind of essential and intertwined with the fate of Germany
Speaker 1: and the fate of Europe. And that sifted very dramatically
Speaker 1: starting in the mid when the bank got a taste
Speaker 1: for Wall Street and it decided that it was going
Speaker 1: to prioritize short term profits above everything else. And you know,
Speaker 1: I think we'll probably get into this later, but that
Speaker 1: led to a complete transformation of the bank's culture and
Speaker 1: one where literally the only thing you were supposed to
Speaker 1: look at when deciding whether to do a certain transaction
Speaker 1: or to bring on a certain client or make certain
Speaker 1: investments as a business was what will the impact of
Speaker 1: this decision be on our profits this quarter or maybe
Speaker 1: this year. But there's no consideration to what will this
Speaker 1: dud our reputations. What will this dud our business five
Speaker 1: years from now? Is this sustainable? Is this smart? And
Speaker 1: you know that that kind of just blinders on short
Speaker 1: term decision making has very anticipatable consequences, and in a
Speaker 1: business like banking that is highly levered, the seriousness the
Speaker 1: gravity of those mistakes is dramatically amplified, to say the
Speaker 1: very least. Removing the risk from the risk reward analysis
Speaker 1: naturally leaves to certain outcomes. So let's talk a little
Speaker 1: bit about that rise and fall we discussed earlier. In
Speaker 1: the nineteen eighties and nineties, Deutsche Bank was a sleepy
Speaker 1: regional bank in Germany. Of its profits came from testing banking,
Speaker 1: and once this transformation and embrace of derivatives and aggressive
Speaker 1: risk and trading and leverage took place, that shut up
Speaker 1: to eighty five percent a year later. How did this
Speaker 1: happen and how did it change the culture at Deutsche Bank? Well,
Speaker 1: the in those kind of two very related questions, and
Speaker 1: and the way it happened is that starting in the
Speaker 1: mid the banks leaders saw that the big American banks
Speaker 1: were making a tremendous amount of money on Wall Street
Speaker 1: and also making a tremendous amount of money and kind
Speaker 1: of approaching on the turf of European banks like Deutsche
Speaker 1: Bank and Goldman Facts. Famously one a big deal taking
Speaker 1: Deutsche Telecom private, and that that was a kind of
Speaker 1: assignment that had traditionally gone to the hometown banks, European banks. Instead,
Speaker 1: Deutche Bank got a role in that deal, the Goldman
Speaker 1: Facts as the lead and that was a huge wake
Speaker 1: up call to Deutsche Bank executives that, you know, Wall
Speaker 1: Street was coming to invade their turf. Maybe it's time
Speaker 1: for them to go invade Wall Streets turf. And so,
Speaker 1: starting in the bank went on this epic hiring spree
Speaker 1: where it brought in initially a small group of salesmen
Speaker 1: and traders from Mary Lynch and basically gave them a
Speaker 1: blank check to hire as many people as they could,
Speaker 1: and they went on to hire thousands of people from
Speaker 1: the big Wall Street firms of the time, very very quickly,
Speaker 1: and that very quickly transformed that or began to transform
Speaker 1: the culture from an institution that was primarily a German
Speaker 1: one to one that was much more international, and the
Speaker 1: locals of power started to shift slowly but surely from
Speaker 1: Frankfort and Berlin to London and to a lesser extent
Speaker 1: in New York. And even with spending billions of dollars
Speaker 1: hiring thousands of people in this very fast manner, the
Speaker 1: bank up much biggers actually in derivatives, but it still
Speaker 1: was kind of a second tier, maybe even third tier
Speaker 1: player on Wall Street and in many other many markets
Speaker 1: around the world. So in the late ninety nineties, so
Speaker 1: a few years after it started this expansion, the bank
Speaker 1: decide that it really needed to double down on this strategy,
Speaker 1: and so they went shopping for a big Wall Street
Speaker 1: firm to buy, and they, you know, they were looking
Speaker 1: at the likes of Mary Lynch Lehman Brothers, Uh and
Speaker 1: Bankers Trust, which at the time was kind of one
Speaker 1: of the most swashbuckling firms on Wall Street. It was
Speaker 1: in pretty serious financial trouble because of very bad that
Speaker 1: it's made on derivatives, and the FED was actually looking
Speaker 1: for a stronger financial institution to come in and acquire
Speaker 1: bankers Trust and basically take the mess off the FITS hands.
Speaker 1: And so the SAD learned that Deutsche Bank was in
Speaker 1: the market for a deal and kind of broker disagreement
Speaker 1: where Deutsche Bank in would spend ten billion dollar ers
Speaker 1: to buy bankers trust, and so that deal happened and
Speaker 1: almost overnight the bank was transformed. I mean, as you mentioned,
Speaker 1: the share of the bank's overall profits that came from investment,
Speaker 1: banking and sales and trading went up and more than
Speaker 1: tripled basically at the stroke of the pen. And but
Speaker 1: it also are more important, really just completely changed the
Speaker 1: bank's culture and the power had gone from being in
Speaker 1: Germany and now is clear that since the overwhelming majority
Speaker 1: of the bank's profits were coming from London and New York,
Speaker 1: that's where the power centers should be. And so you
Speaker 1: know that there were kind of very there's some cosmetic
Speaker 1: changes where I think pretty symbolic, like the bank's official
Speaker 1: language went from being German to English. But the more
Speaker 1: important ones were that the supervisory board of the bank,
Speaker 1: which was primarily consisted of German industrialists and corporate chieftain
Speaker 1: and even labor leaders, was completely It was just neutered essentially,
Speaker 1: and instead the mandate became, look, we're going to step
Speaker 1: on the gas. We want to be as big as
Speaker 1: we can, as profitable as we can, as quickly as
Speaker 1: we can. And so the bank just underwent this really
Speaker 1: revolutionary change where they had metrics that measured how profitable
Speaker 1: they were, how quickly and that was they were. They
Speaker 1: were using a metric called return on equity, which traditionally
Speaker 1: a banks return on equity would be in the maybe
Speaker 1: high single digits, very very low double digits. And the
Speaker 1: newly appointed CEO in two thou too, Joe Ackerman, who
Speaker 1: is himself a credit Swiss veteran, came in and said
Speaker 1: that we want in the next two years for our
Speaker 1: return and equity to go to and you know, that
Speaker 1: was a huge jointment. At the time that he made
Speaker 1: that prediction. I think the return on equity was four
Speaker 1: or five percent, So he was basically called in the
Speaker 1: period of two or three years for that to increase
Speaker 1: what I guess which is you know, exbraordinary. And the
Speaker 1: crazy thing is they achieved it, and he by the
Speaker 1: mid two thousands Deutsche Bank had gone had become one
Speaker 1: of the most profitable places on the planet and the
Speaker 1: but again, the decision, the way they achieved that was
Speaker 1: it really wasn't that complicated. They started evaluating every transaccident
Speaker 1: and every client they did based on it's the return
Speaker 1: on equity. So they were not going to be able
Speaker 1: to make a profit on a loan or another transaction,
Speaker 1: they simply wouldn't do it. And if a client like
Speaker 1: a German mid sized business for example, wasn't going because
Speaker 1: that relationship wasn't going to generate that huge return, they
Speaker 1: would drop the clients. And so the reality was that
Speaker 1: most of the business the bank had been doing in
Speaker 1: Germany it was not all that profitable, and part because
Speaker 1: the German banking system has this huge lot of banks,
Speaker 1: so there's intense competition, which drives prices way down. So
Speaker 1: let me let me circle back to something you said
Speaker 1: before we drift too far away the supervision of the bank.
Speaker 1: What is the valve stat I don't know how to
Speaker 1: pronounce the divorce the divorce and the management board, and
Speaker 1: then there's the supervisory board, which is really supposed to
Speaker 1: be the oversight board. So between those two entities and
Speaker 1: the Federal Reserve and the UH, the various regulators in
Speaker 1: the UK and the regulators in Germany, how did Deutsche
Speaker 1: Bank manage two skirt regulations, to skirt risk management, to
Speaker 1: hide losses, to do all these things that bad banks
Speaker 1: have a tendency to do for years and years and
Speaker 1: years that this went on for almost two decades, didn't it. Yeah,
Speaker 1: And you would think, given the number of regulators that
Speaker 1: were supposed to be overseeing the bank, you would think
Speaker 1: that it would have been very hard for them to
Speaker 1: do that. And the reality be as the exact opposite,
Speaker 1: which is that there was a patchwork of weak regulators
Speaker 1: all over the globe, and the bank very deathly played
Speaker 1: those regulators off each other. So the result was that
Speaker 1: almost no one was actually doing substantive kind of hard
Speaker 1: nosed oversight of them, and often which is the German
Speaker 1: bank regulator was it wasn't is notorious for essentially playing
Speaker 1: defense on behalf of hometown companies, and so Boten would
Speaker 1: essentially demand that any regulatory inquiries that came from the
Speaker 1: US or the UK had to be routed through this
Speaker 1: labyrinth of German bureaucracy and and in some cases to
Speaker 1: prevent the bank from complying with regulatory requests from outside
Speaker 1: of Germany. And the FED, for its part, which was
Speaker 1: really supposed to be aggressively overseeing a large swath of
Speaker 1: the banks US business, and the FED knew that there
Speaker 1: were really serious problems gone on. Weather it was uh,
Speaker 1: you know, weak defenses against money laundering or did the
Speaker 1: quality integrity of the financial data the bank was producing.
Speaker 1: And over and over again the FET voice these concerns
Speaker 1: to bank starting around two dozen two, and over and
Speaker 1: over again, the bank did nothing to actually address the
Speaker 1: sects concerns, and on a number of occasions the FETE
Speaker 1: came in and punished the bank. That these were punishments.
Speaker 1: That were to describe them as light touch would be
Speaker 1: really like abould be exaggerating it. It's you know, they
Speaker 1: were not even imposing any monetary penalties, they were not
Speaker 1: publicly admonishing any executives. They were just very weak written orders.
Speaker 1: And the bank and executives I talked to said explicitly
Speaker 1: that the fact of the matters, they knew that the
Speaker 1: consequences from misbehaving were not really that severe, and so
Speaker 1: in the benefits to misbehaving in some cases were very attractive,
Speaker 1: and they could make a lot of money providing services
Speaker 1: like money laundering or or you know, money transfer services
Speaker 1: to countries that were under U S sanctions, And it's
Speaker 1: a pretty easy decision for them. Quite fascinating. So let's
Speaker 1: talk a little bit about Russia and Deutsche Bank and
Speaker 1: Trump and I have to start with the question, how
Speaker 1: is it that Deutsche Bank was the only bank in
Speaker 1: the world that actually would lend money to Donald Trump?
Speaker 1: What's the background there? Well, the background is that banks,
Speaker 1: as a general rule don't like lending money to people
Speaker 1: or institutions that have a tendency of defaulting on their loans.
Speaker 1: And that is a pretty good description. Knows exactly what
Speaker 1: Donald Trump was in the late nines, and he had
Speaker 1: repeatedly defaulted or his companies had repeatedly defaulted on their debts.
Speaker 1: And as a result of that, mainstream financial instantiations were very,
Speaker 1: very wary about doing any any business with them because
Speaker 1: it wasn't Deutsche Bank considered a mainstream financial entity. How
Speaker 1: different were they from JP Morgan or Best Starts? Well,
Speaker 1: in the US, they were very different. And this was
Speaker 1: the period where Deutsche Bank was trying to really establish
Speaker 1: a name for itself and make inroads in the U S.
Speaker 1: It was more or less a nonentity at the time,
Speaker 1: and so the bank set out to try and build
Speaker 1: a business, in particular business of commercial mortgage BacT security,
Speaker 1: so basically making big real estate loans and then packaging
Speaker 1: those into bonds. And you know the key the first
Speaker 1: key step to that is finding commercial real estate clients
Speaker 1: to lend to. And they it was very hard for
Speaker 1: them to establish profitable relationships with the kinds of big
Speaker 1: names in commercial real estate, as they were already banked
Speaker 1: by much bigger banks, by JP Morgan or Bear or City,
Speaker 1: and so they had to go kind of fishing for
Speaker 1: the scraps. And it just so happened that Trump at
Speaker 1: the time was in need of money himself, and so
Speaker 1: they paired up. And it's kind of a match made
Speaker 1: in heaven to do with this bank that's desperate for
Speaker 1: clients in the US and you have this businessman who's
Speaker 1: desperate for a bank. And so starting in, the bank
Speaker 1: made several hundred million dollars of loans Trump in a
Speaker 1: very short period of time, and every basically off to
Speaker 1: the races from there. What's fascinating is Trump had a
Speaker 1: relationship with Deutsche Bank and then he stiffed them on
Speaker 1: a loan and came back to that same division and
Speaker 1: was soundly rejected, but somehow managed to talk a different
Speaker 1: division into making a new loan to him. Could could
Speaker 1: you So essentially one division paid off the loan to
Speaker 1: a separate division. Could you explain that, yeah, and this
Speaker 1: is actually not the first time that has happened at Deutschment.
Speaker 1: There are at least two other occasions where the bank,
Speaker 1: one part of the bank made a loan or is
Speaker 1: he's debt for Trump and he defaulted and he was
Speaker 1: off limits for that division, and then comes back to
Speaker 1: another division of the bank and find a way to
Speaker 1: do business with them. The most famous example of this
Speaker 1: is in two thousand eight, he defaulted on uh Dave
Speaker 1: loan to finance the Chicago skyscraper, and there's all sorts
Speaker 1: of litigation where Trump suites the bank, and eventually they
Speaker 1: reached a settlement that says Trump has to repay a
Speaker 1: certain portion of that loan in a couple of years.
Speaker 1: And so that brings you to two thousand eleven or
Speaker 1: so and Trump reaching Trump through Jared Kushner, his son
Speaker 1: in law, who had a relationship with a private banker
Speaker 1: at Deutsche Bank named Rosemary Rablick. Kushner introduces his father
Speaker 1: in law to Rosemary Rablick works in the private banking division,
Speaker 1: and basically Rablick and her boss make a decision that
Speaker 1: even though the bank has been burned by Trump, even
Speaker 1: though he's off limits to the most of the bank.
Speaker 1: They are willing to take that risk and start a
Speaker 1: new relationship with him, bring him on, bring him back
Speaker 1: on as a client. And so the bank makes a
Speaker 1: couple of loans to him starting in early two twelve.
Speaker 1: One of them is to finance the acquisition and renovation
Speaker 1: of the door Al Golf resort in Florida. But the
Speaker 1: other is, I believe a forty eight million dollar loan
Speaker 1: to Reap that's used primarily to repay what Trumps still
Speaker 1: owed this different division of Deutsche Bank for the defaulted
Speaker 1: loan on the Chicago Tower. And that is uh. I
Speaker 1: don't know. I've been covering banking and finance for almost
Speaker 1: twenty years now, and I've never seen anything like that.
Speaker 1: And I still talk to people in the banking world
Speaker 1: today who are just kind of, you know, their jaw
Speaker 1: just drops when they hear the story. It's not something
Speaker 1: that a normal bank with proper risk management and a
Speaker 1: good cohesive internal culture would ever dream of doing. And
Speaker 1: for obvious reasons, right it's embarrassing for the bank. The
Speaker 1: bad credit risk and the potential reputational damage of getting
Speaker 1: back in bed with this guy actor. He's already stiffed
Speaker 1: you multiple times. It just doesn't make much sense, right,
Speaker 1: quite amazing. I love the anecdote within the book about
Speaker 1: Trump's relationship with bear Stern. He was buddies with their
Speaker 1: CEO A. S. Greenberg. And even though Ace and him
Speaker 1: or friends, Ace won't sign off on a loan. And
Speaker 1: the poor banker that has to call Trump to tell
Speaker 1: him that A said no, has this brilliant way of
Speaker 1: letting him down. Uh, And he says to Trump, Ace
Speaker 1: loves you. The reason he doesn't want to do it
Speaker 1: is because he told me there are four guys in
Speaker 1: the world he doesn't want to be on the opposite
Speaker 1: side of the table from Bill Gates, Warren Buvett, Henry Cravis,
Speaker 1: and you how Unearthed could such a transparently but kissing
Speaker 1: ploy work on anybody? It was, really, it was perfectly
Speaker 1: and it's perfectly tailored to the client in this case.
Speaker 1: And you know, I sometimes has a skeptical cynicals journalist
Speaker 1: and roll my eyes when investment bankers like both about
Speaker 1: their skills and how valuable they are. But I'm gonna
Speaker 1: tell you, when I heard this story related to me
Speaker 1: by by the banker who pulled this off, I was
Speaker 1: just so impressed. It is a real in addition to
Speaker 1: being hilarious, he knew his client, He understood the psychology
Speaker 1: of his client and managed it perfectly. Who knew that
Speaker 1: know your client rule could ever be applied in such
Speaker 1: a brilliant way. Let's talk a little bit about Deutsche Bank.
Speaker 1: What sort of ties did Jeffrey Epstein, who, even after
Speaker 1: he's been dead, still keeps popping up in the news.
Speaker 1: What sort of ties did Epstein have to the bank? Well,
Speaker 1: Epstein's relationship with the bank is not as long as
Speaker 1: the bank's relationship with Trump, but in a lot of
Speaker 1: ways it's much work reaches. And starting around two dozen twelve,
Speaker 1: Epstein's longtime bank JP Morgan decided that it could not
Speaker 1: continue to do business with him, in part these we've been,
Speaker 1: you know, publicly convicted of sex crimes and there are
Speaker 1: all these rumors flying around about continued stuff that he
Speaker 1: was doing and whether it was being a predator or
Speaker 1: money laundering, and so they cut tout Japan Morgon cut
Speaker 1: ties with Epstein, And within months of that decision to
Speaker 1: cut ties with him, the banker at JP Morgan, who
Speaker 1: had managed the Epstein relationship, left JP Morgan and was
Speaker 1: hired by Deutsche Bank, and as far as I can tell,
Speaker 1: one of the first things he did upon walking in
Speaker 1: the doors at Deutsche Bank was to convince his superiors
Speaker 1: that they should rein basically maiate a relationship with Jeffrey Epstein,
Speaker 1: and very quickly the bank brought Epstein on as a
Speaker 1: client and started not only lending him money but providing
Speaker 1: all sorts of kind of account management and cash management
Speaker 1: services to all these shell companies he was creating. And
Speaker 1: the relationship lasted up until almost last summer, basically and
Speaker 1: just very shortly before Epstein was arrested and charged with
Speaker 1: operating a sex trafficking room. And again, the really remarkable
Speaker 1: thing here is not some that they the bank was
Speaker 1: willing to take risks on the client that other banks
Speaker 1: found unacceptable, because that is, you know, we just we
Speaker 1: already know that about Deutsche Bank. Was really remarkable in
Speaker 1: this case that a number of employees up and down
Speaker 1: the food chain at the bank rings really serious concerns
Speaker 1: about this business. And there is their concerns about doing
Speaker 1: business with convicted criminal. There were concerns about all the
Speaker 1: rumors swirling around about his continued criminality, and there were
Speaker 1: concerns from anti money laundering officers inside the bank that
Speaker 1: he was using the bank to launder money, And time
Speaker 1: after time, those concerns were voiced to executives of the
Speaker 1: food chain and discussed by executives at a pretty senilor
Speaker 1: level within the bank, and the concerns were just tossed aside.
Speaker 1: They decided the risks were not so severe that it
Speaker 1: would justify ending a relationship that was turning out to
Speaker 1: be quite lucrative for the bank. So let me push
Speaker 1: back on your earlier statement that Deutsche Bank's culture has changed,
Speaker 1: and I'm gonn go someplace from the book that I
Speaker 1: wasn't planning on, but I now have to based on
Speaker 1: what you just said. Deutsche Bank is the entity that
Speaker 1: effectively funded the construction of concentration camps at hit under Hitler,
Speaker 1: that they were essentially Hitler's banker. They fired all of
Speaker 1: the senior managements who were Jewish, they confiscated a lot
Speaker 1: of Jewish assets. Deutsche Bank was a really bad actor
Speaker 1: during the period leading up to the war and during
Speaker 1: the war. So the question I have to ask is,
Speaker 1: how is this morally bankrupt, corrupt entity today any different
Speaker 1: than the bank that helped fund the Nazis. Yeah, that's
Speaker 1: a I mean, that's a good question as and and
Speaker 1: you're totally right first of all, that Deutsche Bank was,
Speaker 1: as a saint the book, a party to genocide. I mean,
Speaker 1: it was a criminal enterprise. The US wanted to dissolve
Speaker 1: Deutsche Bank after World War Two because of its participation
Speaker 1: in war crimes. It's CEO was tried and convicted of
Speaker 1: being a war criminal. And I mean, look, there's I
Speaker 1: think a danger in equating the crimes that took place
Speaker 1: in the genocide that took place in the war, crimes
Speaker 1: that took place with the crimes that Deutsche bankas has
Speaker 1: committed in the past twenty years. And these the crimes
Speaker 1: in in the Holocausts were just I think unique and
Speaker 1: uh just uniquely awful. And I'm not sure anything they've
Speaker 1: done today really composed that. But I also think that
Speaker 1: that was and I'm not at all trying to defend
Speaker 1: the bank's conduct during that period because it's indefensible, but
Speaker 1: that was an extraordinary moment in corporate Germany. And there
Speaker 1: are a lot most in fact, most of the big
Speaker 1: German companies at the time participated one way or another
Speaker 1: in genocide, and whether it was chemical companies manufacturing poison
Speaker 1: gas or banks helping uh, you know, time as the
Speaker 1: Nazi war effort, and a lot of those companies and
Speaker 1: are auto manufacturers making cars or tanks or things like that,
Speaker 1: and a lot of those companies still exist today. And
Speaker 1: you know, so I'm not sure it's I'm kind of
Speaker 1: struggling with this answer because I don't want to it
Speaker 1: all sound like I'm justifying or defending with the Bank's
Speaker 1: actions during that period. H But look, they came out
Speaker 1: of World War Two and they did change, and they played,
Speaker 1: as I said earlier, a leading role in the reconstruction
Speaker 1: and redevelopment of Europe. They admitted their crimes and apologists
Speaker 1: for their crimes during the Holocaust, which does not make
Speaker 1: it right, but at least is you know, a small
Speaker 1: step toward making it right and serves also right. Didn't
Speaker 1: they write some big texts? Yeah? They did, and they,
Speaker 1: you know, like much of Germany, they and they've spent
Speaker 1: the better part of the past century apologizing and trying
Speaker 1: to make right the awful times that they committed. All right,
Speaker 1: fair enough, let's let's go from Jeffrey Epstein to genocide
Speaker 1: to something a little lighter, Let's talk about Russian money
Speaker 1: laundering and Deutsche Bank's role. Tell us about the pair
Speaker 1: trade situation that Deutsche Bank came up with that allowed
Speaker 1: Russian oligarchs to move rubles into dollars pretty seamlessly. Yeah, well,
Speaker 1: just even before we explained that. And I think it's
Speaker 1: worth noting that Deutsche Bank for basically ever, for on
Speaker 1: most of its existence, has been making a lot of
Speaker 1: money by providing banking services in Russia that most of
Speaker 1: the rest of the world, for one reason or another
Speaker 1: did not see, did not see his particularly good idea.
Speaker 1: And so you know, they initially were financing railroads for
Speaker 1: the czar, and that shifted to serving the communist government.
Speaker 1: They're basically NonStop, with the brief exception of World War
Speaker 1: two and um, and then starting in the early two thousand,
Speaker 1: as this new class of oligarchs emerged, Deotsche Bank was
Speaker 1: one of the only Western banks operating in Russia and
Speaker 1: basically assisting these Kremlin linked oligarchs in moving their money
Speaker 1: out of out of Eastern Europe and into the Western
Speaker 1: financial system, whether that was into uh the Eurozone or
Speaker 1: into the US financial system, and the starts. Describe those
Speaker 1: mirror trades. Describe those mirror trades because it's a fascinating
Speaker 1: methodology and it's kind of shocking. No, none of the
Speaker 1: regulators picked it up very quickly. Yes, I think the
Speaker 1: simplest way to describe these trades is that they're called
Speaker 1: mirror trades because there are two trades that take place
Speaker 1: basically simultaneously that are reverse images to each other. So uh,
Speaker 1: in Russia you would have an oligarch, and the result
Speaker 1: of those trades is that money goes from being in
Speaker 1: roubles to being in most likely euros. And so one example,
Speaker 1: a Russian will basically purchase a bunch of blue shift
Speaker 1: shares of a company, using rubles to acquire the shares,
Speaker 1: and then, in a separate transaction that takes place simultaneously
Speaker 1: with the same amount, a shell company head quartered in
Speaker 1: maybe some place like Cyprus, which is part of the
Speaker 1: Eurozone but very lately regulated, will sell the same number
Speaker 1: of shares that were just bought by the Russian, and
Speaker 1: the result is that the Russian has spent his rubles
Speaker 1: buying shares, and the Russian who controls the shell company
Speaker 1: has also liquidated those shares in Cyprus and raised the
Speaker 1: same amount of money in euros. And so just like that,
Speaker 1: with the help of Deutschebek moving the money back and
Speaker 1: forth between the Russian and these shell companies, the just
Speaker 1: like that, you've got ruble. You once at rubles, they're
Speaker 1: now euros and your money is in the European financial system.
Speaker 1: So it's fairly and it's much more complicated than I
Speaker 1: just said that. The nuts and both of it are
Speaker 1: actually pretty simple and uh kind of almost elegant in
Speaker 1: their simplicity, I think. And again, a normal bank with
Speaker 1: proper checks and balances and internal controls in good computer
Speaker 1: systems would have spotted this pretty quickly because they would
Speaker 1: have seen that there are these two simultaneous transactions offen
Speaker 1: quite large transactions taking place instantly at the at the
Speaker 1: exact same time, in the exact same amounts, and involving
Speaker 1: these shell companies linked to Russians. And you know that
Speaker 1: would raise a lot of red flags at a normal,
Speaker 1: healthy financial institution, don't you. Bank was not a normal,
Speaker 1: healthy financial institution. So so let's talk a little bit
Speaker 1: about your writing process. In the book, we could talk
Speaker 1: more about oligarchs and bed actor states and and how
Speaker 1: Deutsche Bank UM laundered money for them, But I think
Speaker 1: people get the sense we all would have been better
Speaker 1: off if Deutsche Bank would have been given a corporate
Speaker 1: death penalty after World War Two. That was a mistake
Speaker 1: and I don't want to dwell on that. Let talking
Speaker 1: said about your writing about the book, there's an incredible
Speaker 1: amount of detail and character development in the book, UM,
Speaker 1: including some of my the most interesting people UM within
Speaker 1: the book are really fleshed out. How did you go
Speaker 1: about writing this and how much research did you put
Speaker 1: into figuring out who this huge cast of characters were
Speaker 1: and how they all interacted with each other. It's quite
Speaker 1: a giant puzzle. Yeah. I mean the bottom line is
Speaker 1: I just read a lot, and I read. I think
Speaker 1: I did my best to read every single thing that
Speaker 1: had been written about Deutsche Bank from the midies to
Speaker 1: the present day. And so that was in extraordinary amount
Speaker 1: of background research, not just in the media, but in
Speaker 1: academic papers, in government documents, in laws of things like that.
Speaker 1: And and then I just set out to meet as
Speaker 1: many people as I could who have been involved for it,
Speaker 1: worked for the bank, and that ranged from people and
Speaker 1: then I started with people who have been at a
Speaker 1: pretty high level inside the bank. And you know, almost
Speaker 1: none of those people are still working there. And one
Speaker 1: of the extraordinary things like Deutsche Bank, more than any
Speaker 1: other bank I've ever encountered in my career, is that
Speaker 1: almost everyone who leaves Deutsche Bank does so with a
Speaker 1: very bitter taste in their mouths. And so a lot
Speaker 1: of those people were willing to talk to me based
Speaker 1: on the basically because they could. They knew that everyone
Speaker 1: else would have their knives out, and they wanted to
Speaker 1: protect themselves and tell their side of the story preemptively.
Speaker 1: And so for journalists that is just a very nice
Speaker 1: phenomenon to be experiencing, because everyone is eager to tell
Speaker 1: their side of the story because they assume everyone else
Speaker 1: is going to be talking. And so and there was
Speaker 1: you know, and you just sit down with these people
Speaker 1: over drinks or dinner or breakfast, and you you know,
Speaker 1: you just asked them to tell you stories. And the
Speaker 1: stories were extraordinary. And a lot of these are very
Speaker 1: smart people, even though a lot of them made very
Speaker 1: serious mistakes, and they've did memories and allow of them
Speaker 1: these documents that they contempor any documents that they've kept,
Speaker 1: and so, yeah, and I spent I don't know, many
Speaker 1: many many hours interviewing and spending time with and scores
Speaker 1: of these people. So let's talk about probably the only
Speaker 1: decent character in the whole book, Bill brock Smith. Am
Speaker 1: I pronouncing his last name right? Bro Smith? Yeah? Bro Smith?
Speaker 1: So he is the person who essentially invented the form
Speaker 1: of derivatives and derivative trading that Deutsche Bank built all
Speaker 1: its initial wealth on, and he understood risk management better
Speaker 1: than anybody else in the bank. And even after he
Speaker 1: leaves the bank, he stays on as a consultants and
Speaker 1: continues to internalize all of the bad behavior and feels
Speaker 1: guilt for everything that he's not doing others are doing
Speaker 1: and profiting on, and ultimately commits suicide for the sins
Speaker 1: of others. How was it researching him? And tell us
Speaker 1: about his son Val? How much he helped in the
Speaker 1: entire process. You you wrote a big piece on Val
Speaker 1: at the New York Times, Right, Yeah, that's right? And
Speaker 1: Val and Val was indispensable to telling his father's story.
Speaker 1: And he was extremely helpful in introducing me, or not
Speaker 1: really introducing, but pointing me towards a lot of the
Speaker 1: people his dad had worked with and shortly after his
Speaker 1: father's death in two thousand fourteen, Val gained access to
Speaker 1: his father's personal email accounts, which for a variety of
Speaker 1: Bill Brokesman had been using for a lot of his
Speaker 1: Deutsche Bank work and so and Val shared, uh, you know,
Speaker 1: hundreds of not thousands of those emails and documents from
Speaker 1: those email in the AHO accounts with me, And so
Speaker 1: that provides And that's another way, by the way that
Speaker 1: I was able to recreate some dialogue and uh, you know,
Speaker 1: it's just you know, it was vital um. Val is
Speaker 1: a complicated person, as are we all, and um, you know,
Speaker 1: it's been a difficult relationship with him over the years,
Speaker 1: but and he he was very eager to, as you
Speaker 1: like to say, cultivate his father's legacy, and and it
Speaker 1: was a legacy worth cultivating. And Bill, as you said,
Speaker 1: was kind of a legendary risk manager and legendary derived
Speaker 1: with his expert I think more important than either of
Speaker 1: those things, though, is that he was a man who
Speaker 1: had a conscience and had a sense of ethics and
Speaker 1: was not afraid to stick with those and really stand
Speaker 1: up for them when challenge colleagues. And Bink was very
Speaker 1: short on people with strong ethical and moral compasses and
Speaker 1: brokenly stood out. As you know, he was the conscience
Speaker 1: of the bank in a lot of ways. That's the
Speaker 1: way a lot of his colleagues described him to me
Speaker 1: as and and he said he internalized a lot of
Speaker 1: the bank's problems. And so it ends up being kind
Speaker 1: of a tragedy in a lot of ways. Um very
Speaker 1: much so that I I'm up to the part in
Speaker 1: the book where so Val is the adopted steps on Um.
Speaker 1: Bill leaves seven suicide notes for various people, including one
Speaker 1: for Val, who's kind of been a near duell, a
Speaker 1: little bit of a junkie and a musician. But he
Speaker 1: finds a new purpose in life trying to clear his
Speaker 1: father's name and through an organization guardians a piece, he
Speaker 1: learns how to become a hacker, a little bit, set
Speaker 1: up WiFi packet sniffing, and literally drives from California New
Speaker 1: York in order to to set up a packet sniffing
Speaker 1: sting to get his step mom's email passwords. They're they're
Speaker 1: somewhat estranged. He's on a a month allowance but never
Speaker 1: inherited any real money after his father died. Tell Us
Speaker 1: what Val discovers in his mother's email account, Well, there
Speaker 1: are two kind of main categories of sting, and one
Speaker 1: is that he discovers all of these documents that pertained
Speaker 1: at Deutsche Bank's efforts to essentially cover up some of
Speaker 1: the reasons that Bill brooke Smith had committed suicide. And
Speaker 1: and he finds that there is a bank the bank
Speaker 1: had conducted this kind of very uh slipshod internal review
Speaker 1: of the circumstances of his death and some other stuff
Speaker 1: as well. Um, and then the secondly he finds all
Speaker 1: these suicide notes and you know all but I think
Speaker 1: two of them are too family members. One is to
Speaker 1: a family friend, and but the final one is to
Speaker 1: the bank CEO at the time, onto Chain, and it
Speaker 1: lays out in just heartbreaking detail what Bill Brookesmith blamed
Speaker 1: himself for. And I don't I want to spoil that
Speaker 1: for everyone, but there's, um, it really it's it's to me,
Speaker 1: it's really heartbreaking. It's also a testament to Val having
Speaker 1: worked really hard to unearthed this stuff without really knowing
Speaker 1: what the payoff was going to be. And and you know,
Speaker 1: motivated by this stew of really complicated personal emotional, familial Uh,
Speaker 1: factors that are you know, any of us can probably
Speaker 1: kind of a madsine And uh, you know, Val, as
Speaker 1: you said, it, has this terrible thonging out with his family.
Speaker 1: Frankly had a terrible thong out with me too. And
Speaker 1: you know, I think it is just a reminder that
Speaker 1: whistleblowers take many different shapes, takes many different forms, and
Speaker 1: Val is not a conventional whistleblower. But this the service
Speaker 1: that he has provided to the public by exposing all
Speaker 1: the Deutsche Bank stuff, I think is really undeniable and laudible. Yeah,
Speaker 1: no doubt about that. You know, I'm reminded of what
Speaker 1: he discovers in his stepdad's suicide note to him, essentially saying, hey,
Speaker 1: you're the only one worthy of carrying on the approximate name,
Speaker 1: and I'm proud of you as my son. I wonder
Speaker 1: if that just delayed Valsworth's fears and gave him some
Speaker 1: motivation to do all the things he did. A lot
Speaker 1: of what we now know about Deutsche Bank and how
Speaker 1: they hit giant losses during O eight oh nine, and
Speaker 1: how they lied to regulators, none of that would have
Speaker 1: come out the FED the Federal Reserve letter warning that
Speaker 1: they were in in trouble. None of that would have
Speaker 1: come out without Val brox Smith. Is that Is that
Speaker 1: a fair statement? Yeah? I think, And there was a
Speaker 1: tremendous amount that fairness. There were a lot of other
Speaker 1: whistleblowers to be like, really helpful to me and to
Speaker 1: other journalists and to regulators over the year. So I
Speaker 1: don't want to give Val all the credit for that,
Speaker 1: but there's no look, Val has been. Our ability to
Speaker 1: understand Deutsche Bank's very ugly inner workings is you know,
Speaker 1: in large part due to VAL's efforts to get the
Speaker 1: stuff in the public domain. And you know, everyone can
Speaker 1: question VAL's character and his motives and things like that,
Speaker 1: and I frankly have from time to time myself. And
Speaker 1: but again there's really no denying the public service that
Speaker 1: he has provided. So you mentioned you had a falling
Speaker 1: out with him, Um, tell us what you can about it.
Speaker 1: What happens. Is he happy with the book? Is he unhappy?
Speaker 1: He doesn't come across as a bad guy. He comes
Speaker 1: across as kind of, you know, a person having a
Speaker 1: hard time finding his place in the world and and
Speaker 1: a little bit of a junkie. But he does perform
Speaker 1: a service. What what is going on with him? Um?
Speaker 1: And how does he um? I think he. I mean,
Speaker 1: I'm a little way of putting words in his mouth,
Speaker 1: but my understanding that he is very he The book
Speaker 1: accurately portrays his father's life and work, which is Look,
Speaker 1: from my perspective, that is something that I feel really
Speaker 1: good about it. I think he has had a lot
Speaker 1: of trouble, uh reading my descriptions of him, and I think,
Speaker 1: give you know, Val has been I got I start
Speaker 1: getting to know about just a few days after his
Speaker 1: father's death. And so I've been with him on this
Speaker 1: journey from early until now. And you know, it's not
Speaker 1: like I know him that well, but I know him
Speaker 1: pretty well. I was talking to him every day, multiple
Speaker 1: times a day for the better part of four years
Speaker 1: and or five years. And look, it's painful, I think,
Speaker 1: to read difficult things about yourself in the New York
Speaker 1: Times or in a book. And there are difficult things
Speaker 1: about him in the book, like he's a complicated, flawed person,
Speaker 1: as are we all. But he he, as you said,
Speaker 1: he struggled with some emotional issues themselves and abuse issues.
Speaker 1: And I think it's hard for anyone to read those things.
Speaker 1: So we've had, I mean me, it would be an
Speaker 1: understatement for me to describe ballanting angry with me. He
Speaker 1: is like furious with me. I think he would love
Speaker 1: to destroy me probably. Uh, And it which is very
Speaker 1: you know, that's not a diffeeling for me to have.
Speaker 1: And it's I guess kind of just like a occupational
Speaker 1: hazard as a journalist when you get to know a
Speaker 1: source as well as this, and uh, it takes the
Speaker 1: relationship can take on tones of a friendship when in
Speaker 1: reality is not a friendship. Right, he used a source
Speaker 1: in the subject of what I'm writing about, and I'm
Speaker 1: a journalist, and uh, but I think it is very Look,
Speaker 1: I've learned a lot about myself and about like my
Speaker 1: own tradecraft in over the years working with l and
Speaker 1: I've certainly made some mistakes along the way. And uh
Speaker 1: so I don't want to make it sound like I
Speaker 1: don't know there's I'm struggling a little bit here again,
Speaker 1: because right, that's challenging. But there's no avoiding that based
Speaker 1: on the book, what he found, the document prove, the emails,
Speaker 1: the all of the things he found completely changes not
Speaker 1: just the picture of at your bank, but it paints
Speaker 1: really a full portrait of the depth of depravity that
Speaker 1: was going on at the bank, UM during those years,
Speaker 1: and if nothing else, I hope he's pleased that he
Speaker 1: helped you get to a deep, dark, ugly truth about
Speaker 1: what was once one of the biggest banks in the world. Well,
Speaker 1: I feel similarly, and hopefully he'll listen to this, and
Speaker 1: you know he pleased to hear that that you're reading
Speaker 1: him the story as well. Well, Well, it's a fascinating
Speaker 1: story and really well told. Um. Before we get to
Speaker 1: our favorite questions, I just have to talk a little
Speaker 1: bit about your previous book, which is somewhat similar in
Speaker 1: its scope of dealing with finance characters and illegality and criminality. UM.
Speaker 1: And that was the Spider Network, all about the law
Speaker 1: I bore manipulation, and that pre dates, um, your contact
Speaker 1: with val By by a year. You were contacted by
Speaker 1: a currency trader named Tom Hayes, who really was a
Speaker 1: savant when it came to this and kinda took the
Speaker 1: blame for what a lot of other people did. Tell
Speaker 1: us a little bit about your relationship with yet another
Speaker 1: damaged person in the world of finance, Tom Hayes. How
Speaker 1: did how did that come about? Well, I got to
Speaker 1: know Tom Hayes starting in I guess early, so this
Speaker 1: was about a year before I started my relationship with Val.
Speaker 1: And Hayes was been for many years a very successful
Speaker 1: interest rate trader at a succession of good thanks and
Speaker 1: it was criminally charged in the US and arrested in
Speaker 1: the UK at the end of for being the alleged
Speaker 1: mastermind of the labor manipulation scandal. And I tried to
Speaker 1: get in touch with Tom very shortly after he was arrested,
Speaker 1: and you know, I'm sure I was among many journalists
Speaker 1: trying to do that, and I ultimately found a way
Speaker 1: in through a friend of his and a business school
Speaker 1: classmate of his who I spent some time with, and
Speaker 1: she eventually introduced me. I guess see, actually gave Tom
Speaker 1: my cell phone number and uh early, and I didn't
Speaker 1: really expect to hear from him. But one night I
Speaker 1: was sitting on the sofa in my apartment in London
Speaker 1: and got a text from an unknown number that said,
Speaker 1: I'm willing to meet with you, but I need to
Speaker 1: be sure I can trust you. This goes much much
Speaker 1: higher than anyone realizes, even the Department of Justice. And
Speaker 1: so that was the start of a secret Year's man
Speaker 1: relationship I had at Hayes that I eventually he agreed
Speaker 1: to make it public UM after his trial in twenty
Speaker 1: of team UM. So I mean that was he is
Speaker 1: mildly autistic, he's got as springers and he is someone
Speaker 1: who has It was just like a fascinating relations to
Speaker 1: form me because he is uh, he's a genius UM.
Speaker 1: But he's also in some wayers that's completely inept and
Speaker 1: had really struggled. He he doesn't I couldn't even say
Speaker 1: that he's he is uh. You know, he doesn't communicate
Speaker 1: like people normally do in my my experience to be
Speaker 1: on the people on Wall Street and he's on the spectrum.
Speaker 1: He has problems reading social cues. He's problems understanding when
Speaker 1: people are lying to him. Easy to set up a
Speaker 1: guy like that to be the full guy. I assume
Speaker 1: by now he's out of prison, what's he doing with
Speaker 1: his life these days? No, he's still I mean, he
Speaker 1: has gone from being in a maximum security prison to
Speaker 1: being in Uh's essentially an open prison, so he can
Speaker 1: uh is some rights to be able to go out
Speaker 1: into um like society and have a have a job.
Speaker 1: But he still has to go back to prison at night.
Speaker 1: And um, so he I mean, he is by far
Speaker 1: the person who has you know, taken the most painful
Speaker 1: personal consequences of I think anyone in the banking industry
Speaker 1: since the financial crisis. Um. And he is just about
Speaker 1: the least likely person he would think to have that role.
Speaker 1: And again he is, you know, he's someone who I
Speaker 1: think had trouble detecting some shades of gray and it
Speaker 1: didn't see that libra manipulation was outright illegal, and it
Speaker 1: was kind of incentivized and encouraged by his superiors and
Speaker 1: his colleagues to do this and it didn't and that
Speaker 1: which is not a thing he's without blame. I mean,
Speaker 1: he's certainly like deserved lame. I think he, in his
Speaker 1: heart of hearts, knew what he was doing and was
Speaker 1: not quite right. U. But the notion that this is
Speaker 1: the man who he received initially a fourteen year prisons
Speaker 1: um and you know that's one of his supervisors. Everybody
Speaker 1: else who was making the same were managing nobody forget
Speaker 1: going to prison. No one even really got into any trouble. Yeah,
Speaker 1: I mean a few people lost their jobs, but as
Speaker 1: is often the case in the finance industry, where institutional
Speaker 1: memories are very short. A lot of those people got
Speaker 1: rehired and re entered the workforce. And you know there
Speaker 1: have been since then. So he was tried and convicted
Speaker 1: in fifteen, and over the past five years there have
Speaker 1: been a a smattering of other traders who have been
Speaker 1: UM convicted and or served some time in jail, and UH,
Speaker 1: none with sentences of anything like the magnetis of what
Speaker 1: has got and um And I think since I wrote
Speaker 1: that book, the public perspective, especially in the UK, which
Speaker 1: is where allow Us took place, has really shifted towards
Speaker 1: initially viewing Hayes as this evil mastermind, which is the
Speaker 1: case the government made about him, to viewing him at
Speaker 1: this point largely as a scapegoat who, while guess he
Speaker 1: did some things wrong, has become the single, the sole
Speaker 1: person who is paying a price for an entire institution,
Speaker 1: for an entire industry's grade and Moufie's, which obviously is
Speaker 1: not fair. So so, between the research and writing of
Speaker 1: the two books, between Dark Towers and the Spider Network,
Speaker 1: what surprised you that was parallel between uh, these two
Speaker 1: areas of wanton criminality and what just surprised you in
Speaker 1: general as you were doing your research. Well, I mean
Speaker 1: what surprised me most in the research process for both
Speaker 1: books was and I'm not sure that this this is the
Speaker 1: answer you're looking for, but and it really it was
Speaker 1: almost it was just a fascinating journey from getting to
Speaker 1: know these two people in these two books. So and
Speaker 1: the one Aunt Hays, who is unlike any person I've
Speaker 1: ever met in my life, and then val Broke Smith
Speaker 1: in the second book, who you know is also unlike
Speaker 1: anyone I've ever met in my life. And those are certainly,
Speaker 1: without any question or competition, the longest running and most
Speaker 1: intemps and you know, stressful source relationships I've ever had.
Speaker 1: Um In fact, they're probably too the most intense stressful
Speaker 1: relationships I've ever had period um and and you know,
Speaker 1: you learn a lot about yourself when you're when you're
Speaker 1: spending years interacting with complicated people and trying to figure
Speaker 1: out how to relate to them and communicate effectively with them,
Speaker 1: and trying to understand the world through their eyes. I
Speaker 1: think it's one of the things I love most about
Speaker 1: journalism and this type of storytelling is that it expands,
Speaker 1: it's for me, I kind of expand did my way
Speaker 1: of thinking about the range of emotions that people have.
Speaker 1: It's really helped me, I think the or learn a
Speaker 1: lot more about empathy and um. So it's been from
Speaker 1: just a personal Samplin really fascinating and I think positive.
Speaker 1: Let me ask you a quick question here that is
Speaker 1: forward looking. You've covered some of the malfeasance around the
Speaker 1: Cares Act. You wrote a story about hospitals getting bailouts,
Speaker 1: executives taking big bonuses and then laying off people even
Speaker 1: though they're not supposed to. What do you think the
Speaker 1: book about the Cares Act malfeasance is going to be
Speaker 1: five years from now. Is has some of the criminality
Speaker 1: around the government bailout risen to the same levels as
Speaker 1: Libor and Deutsche Bank? Or is this really just your
Speaker 1: run of the mill malfeasance. Well under the third answers,
Speaker 1: I don't know. Um. The longer answer is that, based
Speaker 1: on what I've seen at this point with the Kars Act,
Speaker 1: it's less about mouth seasons and the criminality and much
Speaker 1: more about sloppiness and with like a side helping of greed,
Speaker 1: and there's the bail The Cares Act in general was
Speaker 1: obviously rushed through UH Congress and has been implemented in
Speaker 1: this really tasty way on the like, which sounds bad
Speaker 1: except when you think about the context, which is that
Speaker 1: the Trump administration was understandably very desperate to get this
Speaker 1: money out into the economy as quickly as possible. And
Speaker 1: I think there's a business made that they were willing
Speaker 1: to take some heat for, you know, some recipients getting
Speaker 1: money that they really didn't deserve. Some recipients use them money,
Speaker 1: and in appropriate way, it's for the fate of broadly
Speaker 1: getting trillions of dollars into the economy very quickly. And
Speaker 1: so I think the journalists and media plays a very
Speaker 1: important role in accountability here in terms of writing about
Speaker 1: missus of money or fraud and things like that. But
Speaker 1: I also think it's important not to let those examples
Speaker 1: of wrongdoing or UH sloppiness or an aptitude corrode all
Speaker 1: faith in this program, or to really question the effectiveness
Speaker 1: or utility of this program overall, because there, I mean, God,
Speaker 1: imagine the shape behind me would be in right now,
Speaker 1: those brillions of dollars will not being put into the autonomy.
Speaker 1: And don't don't let the tell web the dog in
Speaker 1: other words, Yeah, But on the other hand, this story
Speaker 1: is not fully told. The reporting will become much clearer
Speaker 1: as time passes. And you know, it's entirely possible there
Speaker 1: is some serious criminality and malfeasons going on in a
Speaker 1: Broadway that we, or at least I am not currently
Speaker 1: aware of. And if that's the case, man, what a
Speaker 1: story that will be. Yeah, to say the least. All right,
Speaker 1: let's jump to our speed round. These are our favorite
Speaker 1: questions we ask all our guests, and and this is
Speaker 1: the part of the conversation that we're going to keep
Speaker 1: it fast and short. And let's start with what are
Speaker 1: you streaming these days? Give us your favorite Netflix, Amazon
Speaker 1: shows or podcasts you're listening to. I listened to The Daily,
Speaker 1: which is a New York Times podcast just about every day.
Speaker 1: I just listened to a Window of Chains, which is fantastic. Uh, Netflix,
Speaker 1: the best thing, the best show I've watched in a
Speaker 1: long time as host, which I love. Tell us about
Speaker 1: your mentors who helped guide your career in journalism. I'm
Speaker 1: going back to college. I had a great professor, Jack Pitney,
Speaker 1: who really taught me more than anyone else about writing
Speaker 1: well and keeping things and active voice, not using ad firms, uh,
Speaker 1: keeping sentences shortened sweet in journalism, and I think the
Speaker 1: best mentor I've had is Bruce Orwall Is, a legendary
Speaker 1: reporter and editor at The Wall Streets turn All who
Speaker 1: coached me through my relationship with Tom Hayes and to
Speaker 1: some extent Thal Brooke Smith as well. And he's now
Speaker 1: the global sports editor at the Journal. And he's just
Speaker 1: he's an extraordinary person and journalist. And he's been a
Speaker 1: mentor two dozens and dozens of really the journalists over
Speaker 1: the years. Fascinating. Tell us about some of your favorite books.
Speaker 1: What are you reading now and what are some of
Speaker 1: your all time favorites. Um. I am right now reading
Speaker 1: straight Man, which is a novel um and got it.
Speaker 1: Cannot remember who it's by the but it's fantastic. It's
Speaker 1: not new. UM. I recently read Hidden Valley Road, which
Speaker 1: I think everyone is probably reading, which is also fantastic.
Speaker 1: But UM, I think right now my favorite all time
Speaker 1: book is a little more obscur it's called or I'll
Speaker 1: Dress You in Morning and morning as in like reason,
Speaker 1: not morning as in the time of day. And it's
Speaker 1: non fiction. Yeah, morning with you and It was wrinking,
Speaker 1: I believe, in the late sixties by a pair of journalists. Uh.
Speaker 1: And it's about bull fighting in Spain, and it is
Speaker 1: lyrical and fascinating. It it was just a wonderful, wonderful book.
Speaker 1: And what sort of advice would you give to a
Speaker 1: recent college graduate who is thinking about a career in
Speaker 1: either journalism or long form investigative journalism. I think, I mean,
Speaker 1: there's so much advice I could give to me. The
Speaker 1: advice that I wish I had gotten when I was
Speaker 1: just starting is starts. You want to be as aggressive
Speaker 1: and fast moving and ambitious as you can be, but
Speaker 1: make sure if you're finding a place to start working
Speaker 1: where you have a good editor and you have a
Speaker 1: good mentor, and where when you make mistakes and when
Speaker 1: you fail, you're not going to do so in such
Speaker 1: a spectacular way that it chapterdizes your entire career. And
Speaker 1: because you will make mistakes and you will fail, and
Speaker 1: you want to do that in kind of a obtained
Speaker 1: safe environment. And then a related question, I guess is
Speaker 1: what do you know about the world of journalism today
Speaker 1: that you wish you knew when you were first getting
Speaker 1: starting out? Yeah, I mean that's that everyone makes mistakes
Speaker 1: and that those mistakes can be really brave if they're
Speaker 1: not done. And you know, you know, you don't want
Speaker 1: to be like start rock climbing without ropes, and uh,
Speaker 1: it's the same with journalism, like you need to respect
Speaker 1: what you don't know and respect what you can learn
Speaker 1: from others. And so I think there's a temptation I
Speaker 1: know I certainly faced this myself where you kind of
Speaker 1: just you think you know everything when you're twenty two
Speaker 1: years old and you want to go off and just
Speaker 1: prove yourselves and you think you can do it, and
Speaker 1: the reality is maybe you can do it, but you
Speaker 1: you will do it so much better and in a
Speaker 1: much more productive way if you're doing it with someone
Speaker 1: who's going to make you better. And so that often means, uh,
Speaker 1: not get going for the goal and everything. You need
Speaker 1: to kind of check your ambitions a little bit and
Speaker 1: find an organization and individuals you can work with that
Speaker 1: what really that you will learn a lot from. Thanks
Speaker 1: David for being so generous with your time. If you
Speaker 1: enjoy this conversation, check out all our previous such interviews.
Speaker 1: We have over three hundred recorded over the past six years.
Speaker 1: You can find them at iTunes, Spotify, Google Podcasts, ditch
Speaker 1: your overcast wherever finer podcasts are sold. We love your comments,
Speaker 1: feedback and suggestions right to us at m IB podcast
Speaker 1: at Bloomberg dot net. You can check out my weekly
Speaker 1: column on Bloomberg dot com slash Opinion. Sign up for
Speaker 1: my daily reads at rid Halts dot com. Be sure
Speaker 1: and give the show a review at Apple iTunes. You
Speaker 1: can follow me on Twitter at rid Haltz. I would
Speaker 1: be remiss if I did not thank the crack staff
Speaker 1: that helps us put this conversation together each week. Tim
Speaker 1: Harrow is my audio engineer, Michael Boyle's my producer. Atika
Speaker 1: val Bron is our project manager. Michael Batnick is my
Speaker 1: head of research. I'm Barry rid Holts. You've been listening
Speaker 1: to Master's of Business on Bloomberg Radio.