WEBVTT - Another Economic Crash with Michael Lewis 0:00:01.160 --> 0:00:03.240 I am the son of immigrants and have son of 0:00:03.279 --> 0:00:07.280 immigrant energy, which means I just save everything. I tend 0:00:07.320 --> 0:00:10.399 to not really spend that much money because I'm saving 0:00:10.440 --> 0:00:12.400 for the rainy day that we all know is going 0:00:12.440 --> 0:00:15.280 to come. But there are a lot of signs pointing 0:00:15.320 --> 0:00:18.520 to the economy taking a potential left turn. Here the 0:00:18.600 --> 0:00:21.600 report card that tracks how the economy is doing, it's 0:00:21.640 --> 0:00:24.480 called the Leading Economic Index has been falling for months. 0:00:24.920 --> 0:00:27.280 Big banks like UBS are saying there's a high chance 0:00:27.280 --> 0:00:30.520 of a recession soon. And then you have economists who 0:00:30.560 --> 0:00:32.320 individually are sort of like, oh, the odds are like 0:00:32.360 --> 0:00:34.720 fifty to fifty within the next year. But at the 0:00:34.720 --> 0:00:37.960 same time, fewer houses are being built, companies are hiring less. 0:00:38.040 --> 0:00:40.960 There's obviously an affordability crisis in major cities, but in 0:00:41.000 --> 0:00:43.479 plenty of places around the country. And that's why we're 0:00:43.479 --> 0:00:46.760 here today. And instead of instead of scaring you further, 0:00:46.800 --> 0:00:48.680 I thought, why not talk to somebody who actually knows 0:00:49.360 --> 0:00:51.519 and has written about the two thousand and eight financial 0:00:51.520 --> 0:00:53.559 crisis and can help us understand whether we're headed for 0:00:53.600 --> 0:00:54.120 a new one. 0:00:56.000 --> 0:00:56.640 You know, it's funny. 0:00:56.680 --> 0:00:59.280 I don't live my life in fear of a financial crash. 0:00:59.320 --> 0:01:02.280 So I'm not thinking, oh, it's always this way, but 0:01:02.480 --> 0:01:02.920 because you. 0:01:02.840 --> 0:01:05.560 Have gold under your bed, that well actually do a 0:01:05.560 --> 0:01:08.039 little bit, just a little bit. 0:01:11.360 --> 0:01:17.920 Here we go again, again, again, again. This is here 0:01:17.959 --> 0:01:20.600 we Go Again, a show where we take today's trends 0:01:20.600 --> 0:01:24.480 and headlines and then ask why does history keep repeating itself? 0:01:24.959 --> 0:01:27.240 I'm Calpin, here we go. 0:01:42.160 --> 0:01:46.200 I'm here, Michael cal So. 0:01:46.319 --> 0:01:49.720 Let me brag a little bit about the person across 0:01:49.760 --> 0:01:52.880 from me. I'm a big fan of Michael Lewis. Michael 0:01:52.920 --> 0:01:54.680 Lewis is one of those rare people who can take 0:01:54.800 --> 0:01:58.400 really complicated, insane things like Wall Street creed or baseball 0:01:58.440 --> 0:02:02.200 statistics and them digestible in like a page turning. This 0:02:02.280 --> 0:02:04.520 is a thriller sort of a way. He's written books 0:02:04.840 --> 0:02:06.600 like The blind Side and The Big Short. The Big 0:02:06.600 --> 0:02:09.680 Short just got re released as an audiobook, which Michael 0:02:09.720 --> 0:02:12.239 narrates for the very first time. He's got a podcast 0:02:12.280 --> 0:02:15.239 about trust in modern life. It's called Against the Rules. 0:02:15.360 --> 0:02:18.960 So basically, I'm nerding out hard because I love complicated 0:02:19.000 --> 0:02:21.480 things that can be distilled down for like a nerdy 0:02:21.560 --> 0:02:23.359 dummy like me, and I'm fortunate enough to get to 0:02:23.400 --> 0:02:26.160 ask him the question that's been on my mind. Are 0:02:26.160 --> 0:02:27.760 we going to live through another two thousand and eight 0:02:27.800 --> 0:02:28.640 financial crisis? 0:02:28.680 --> 0:02:29.080 I hope not? 0:02:29.480 --> 0:02:31.640 But then who can I actually trust with my money? 0:02:31.840 --> 0:02:34.639 So? What are we doing? What is this? Tell me something? 0:02:35.280 --> 0:02:37.560 I remember Michael the first time I saw Moneyball, and 0:02:37.600 --> 0:02:41.160 obviously I'm a big fan of the big short and 0:02:41.200 --> 0:02:42.840 my first question was, all, how do I get cast 0:02:42.840 --> 0:02:45.919 in this? Because there are hell of shady brown guys 0:02:46.040 --> 0:02:48.960 in the finance world, many of whom are now in prison. 0:02:49.400 --> 0:02:52.320 I'm trying to get life rights to some of these stories. Also, 0:02:52.360 --> 0:02:53.960 I'm from New Jersey, so if we want to talk 0:02:54.000 --> 0:02:57.720 about like shady guys in the finance world, I know 0:02:57.800 --> 0:03:01.000 some of them, having grown up with County. But I'm 0:03:01.000 --> 0:03:03.760 a big fan. I appreciate you being here. In prepping 0:03:03.800 --> 0:03:07.160 to talk to you, I thought about two thousand and 0:03:07.200 --> 0:03:12.080 eight financial crisis, and sort of after it, I learned 0:03:12.120 --> 0:03:15.200 that an old friend of mine at the time, pretty 0:03:15.200 --> 0:03:19.399 good college friend, had been directly involved in the following way. 0:03:19.480 --> 0:03:23.960 He was selling subprime mortgages for one of those big companies. 0:03:24.080 --> 0:03:26.480 And so, I, you know, I was a little bit 0:03:26.480 --> 0:03:28.280 on my soapbox, I think like most of us were, 0:03:28.320 --> 0:03:31.680 and I wanted to learn what it was like to 0:03:31.760 --> 0:03:33.960 cause that much harmed to vulnerable people. And I think 0:03:34.000 --> 0:03:35.760 maybe part of the problem was I asked it in 0:03:35.800 --> 0:03:39.200 that way, and I was kind of reminded of how 0:03:39.320 --> 0:03:43.200 naive I am sometimes, because this guy's answers were basically 0:03:43.680 --> 0:03:45.720 that he and everyone else knew that what they were 0:03:45.720 --> 0:03:49.240 doing was wrong all along. He couldn't resist all the 0:03:49.280 --> 0:03:52.360 bonuses and the new clients that he was getting by 0:03:52.360 --> 0:03:55.920 selling these subprime mortgages. Everything turned to shit. These guys 0:03:55.920 --> 0:03:58.080 basically just shrugged and said oh well and moved on 0:03:58.120 --> 0:04:00.440 to a different job. And then when all was said 0:04:00.440 --> 0:04:03.200 and done, there were like zero consequences for him and 0:04:03.280 --> 0:04:06.680 kind of anybody in his position, with the exception of 0:04:06.680 --> 0:04:09.680 maybe like losing my respect, which I don't think he 0:04:09.760 --> 0:04:12.560 cared to found much to begin with. But that's always 0:04:12.560 --> 0:04:16.160 bothered me because aside from the sheer moral outrage, there 0:04:16.200 --> 0:04:19.760 was this huge lack of consequences, and I just sort 0:04:19.800 --> 0:04:22.159 of was thinking, like, you know what, what's stopping these 0:04:22.160 --> 0:04:25.400 people from doing this kind of shit again? So namely, 0:04:25.680 --> 0:04:26.800 I thought maybe we'd open it. 0:04:26.880 --> 0:04:28.440 Can stop? Can I stop your yes? 0:04:28.480 --> 0:04:29.000 Please please? 0:04:29.480 --> 0:04:32.880 I want to unpack that little anecdote. So when you 0:04:33.040 --> 0:04:35.600 encounter him and he explains what he's doing, is still 0:04:35.640 --> 0:04:37.520 peak craze or is it after the fact. 0:04:37.760 --> 0:04:38.960 It's after the fact. 0:04:39.160 --> 0:04:40.600 So's it's all collapsed. 0:04:41.320 --> 0:04:42.239 It has all collapsed. 0:04:42.320 --> 0:04:45.480 Yes, And the fact that you say, you know, people just. 0:04:46.880 --> 0:04:49.359 I think people are bewildered by the idea of selling 0:04:49.440 --> 0:04:53.760 subpower mortgages because you think, as your homeowners take out mortgages, 0:04:54.040 --> 0:04:57.119 the idea of these things being pedled like you're trying 0:04:57.160 --> 0:05:00.160 to persuade people to take out alone and that as 0:05:00.160 --> 0:05:04.200 an act of sales to people who already have dicey 0:05:04.320 --> 0:05:07.600 credit right there, there's like, like, what is this? 0:05:07.760 --> 0:05:09.600 It's not intuitive? 0:05:10.120 --> 0:05:12.919 No, and this was this is what kind of enraged me. 0:05:13.040 --> 0:05:16.240 Is like, you know, I mean the son of immigrants 0:05:16.440 --> 0:05:19.320 who whose immigration story is very different. My parents both 0:05:19.480 --> 0:05:22.000 speak English, they're multi lingual. They moved to the United 0:05:22.040 --> 0:05:25.360 States with advanced degrees. So when I hear stories of like, oh, 0:05:25.400 --> 0:05:27.640 somebody didn't know what they were signing, my first reaction 0:05:27.720 --> 0:05:30.440 is well, boo fucking who, Like who told you not 0:05:30.520 --> 0:05:32.719 to read all the paperwork? But then you talk to 0:05:32.800 --> 0:05:36.920 guys like this who are literally peddling something saying like Oh, 0:05:36.960 --> 0:05:39.560 don't worry about it. I'm your friend. Don't worry about 0:05:39.560 --> 0:05:41.920 the fine print. Knowing that these people are going to 0:05:41.960 --> 0:05:44.280 default on their mortgages at some point, but that there 0:05:44.320 --> 0:05:46.200 was a bonus in it for him was insane to me. 0:05:46.520 --> 0:05:50.640 And there's you know, there there's a eons of habit 0:05:51.400 --> 0:05:55.640 baked into the minds of the consumer, and it's a 0:05:55.680 --> 0:05:57.240 bit like it's a bit like junk food. 0:05:57.240 --> 0:06:00.279 Like that, you you know, baked into our brains. 0:06:00.279 --> 0:06:03.719 A scarcity so that anything you get thrown at you, 0:06:04.160 --> 0:06:05.560 I'll just take more and more and more and more. 0:06:06.400 --> 0:06:08.000 And the idea that. 0:06:07.839 --> 0:06:11.440 Someone's going to give you a loan that you shouldn't take, 0:06:12.000 --> 0:06:13.880 it's a little hard to get your mind around that. 0:06:13.960 --> 0:06:15.560 You're thinking, like, well, if they're lending it to me, 0:06:15.640 --> 0:06:18.440 they know what they're doing. You know that I should 0:06:18.680 --> 0:06:21.920 It means I should do it. So my first reaction 0:06:22.040 --> 0:06:23.839 when I started to hear the story of the subprime 0:06:23.880 --> 0:06:25.520 crisis back when I was working on the Big Short 0:06:25.560 --> 0:06:29.159 was like, well, you know, people shouldn't borrow money they 0:06:29.160 --> 0:06:32.479 can't repay. It was less sympathetic. The more I dug 0:06:32.560 --> 0:06:35.440 into it, the more predatory it all felt. And that's 0:06:35.480 --> 0:06:38.120 not to let everybody off the hook. But you were 0:06:38.279 --> 0:06:40.279 right to be outraged by. 0:06:40.120 --> 0:06:41.560 Your friend's behavior. 0:06:41.680 --> 0:06:45.640 It was just where high finance met the working class, 0:06:46.279 --> 0:06:51.320 that border, where someone was who understood these things was 0:06:51.360 --> 0:06:53.520 actually peddling them to someone who didn't. 0:06:53.839 --> 0:06:56.760 Was maybe the ugliest part of the whole event. 0:06:57.120 --> 0:06:58.920 So what I was going to say was, if you like, 0:06:59.040 --> 0:07:01.080 let's say we went back to two thousand and six 0:07:01.200 --> 0:07:04.120 leading up to two thousand and eight, as if I 0:07:04.279 --> 0:07:07.200 was like a five year old, what are some indicators 0:07:07.279 --> 0:07:09.560 that we could see as like normal people that were 0:07:09.560 --> 0:07:11.360 heading towards this crash in two thousand and eight. 0:07:11.880 --> 0:07:16.640 It's funny I asked the same question of all my 0:07:16.880 --> 0:07:20.440 characters back in the day, and just recently re asked 0:07:20.480 --> 0:07:23.080 them for the podcast I'm doing alongside The Big Short, 0:07:23.240 --> 0:07:24.240 And I said just that. 0:07:24.320 --> 0:07:25.760 I actually said, like an eight year old or a 0:07:25.800 --> 0:07:26.440 seven year old. 0:07:26.640 --> 0:07:30.520 And Steve Eisman, who was played by Steve Steve Correll 0:07:30.560 --> 0:07:33.240 in the movie, looked at me. He said, you can't 0:07:33.240 --> 0:07:35.400 explain this to a five year old, He said, you 0:07:35.400 --> 0:07:37.000 can explain this to I, haven't we start with. 0:07:36.920 --> 0:07:37.760 A twenty year old? 0:07:37.840 --> 0:07:38.080 Yeah? 0:07:38.080 --> 0:07:40.720 Fine, great, but okay, no, I'll do my Yeah. So 0:07:40.840 --> 0:07:43.160 five year old's a little rough. But can can we 0:07:43.200 --> 0:07:45.200 be a little older? Yeah? Please? Can me a little older? 0:07:45.200 --> 0:07:46.440 You picked the age twenties. 0:07:46.200 --> 0:07:48.160 I'll pick the age, but I'll just try My mother 0:07:49.080 --> 0:07:53.080 an eighty eight year old. So what happens here? Your 0:07:53.160 --> 0:07:57.280 friend was selling subprime mortgages, and which is a weird idea, right, 0:07:57.320 --> 0:07:58.680 you have to get your mind around that. He's run 0:07:58.680 --> 0:08:00.920 around looking for people who probably shouldn't borrow the money 0:08:00.920 --> 0:08:04.040 to borrow the money to buy a house. And your 0:08:04.080 --> 0:08:06.800 friend is only doing that because your friend is not 0:08:06.840 --> 0:08:09.280 going to sit there with the loan. Your friend isn't 0:08:09.360 --> 0:08:12.680 lending you that person the money himself. He's not going 0:08:12.680 --> 0:08:14.880 to sit there. He's going to lose any money if 0:08:15.160 --> 0:08:18.840 if those that person eventually defaults, as they turned out 0:08:18.880 --> 0:08:22.880 likely to do. So what your friend is doing is 0:08:23.000 --> 0:08:27.480 acting on behalf of some bigger mortgage lender who will 0:08:27.520 --> 0:08:32.880 then take the loans and hand them off to I 0:08:32.880 --> 0:08:36.080 mean there'll be sometimes multiple stages, but a big Wall 0:08:36.080 --> 0:08:40.000 Street firm eventually and a city group, a merrill lynch, 0:08:40.240 --> 0:08:42.880 a goldman's axe who will put them all in a 0:08:42.880 --> 0:08:47.120 big pot. All these loans and the pot you know 0:08:47.160 --> 0:08:50.120 what's coming into that pot is mortgage payments from all 0:08:50.160 --> 0:08:52.959 these people who bought the houses, and that can be 0:08:53.000 --> 0:08:55.360 turned into a bond, you know, It's just like that 0:08:55.400 --> 0:08:57.320 looks like a bond, so they can sell it off 0:08:57.360 --> 0:09:01.200 as pieces of paper in this pool of mortgages. Now 0:09:01.920 --> 0:09:04.439 who ends up owning it? That at the time was 0:09:04.480 --> 0:09:06.440 one of the great mysteries. This stuff went all over 0:09:06.480 --> 0:09:08.439 the world, and in fact, some of the big Wall 0:09:08.440 --> 0:09:10.280 Street banks end up keeping a lot of it on 0:09:10.360 --> 0:09:11.640 their books stupidly. 0:09:12.360 --> 0:09:13.520 But along the way. 0:09:13.640 --> 0:09:16.360 The big point is the person making the loan is 0:09:16.400 --> 0:09:19.160 not exposed in any way. The person's physically doing it. 0:09:19.200 --> 0:09:21.120 They have no incentive for the loan to be a 0:09:21.200 --> 0:09:24.120 smart loan, incentive to generate as many of the loans 0:09:24.120 --> 0:09:27.720 as possible. They also have an incentive because these loans, 0:09:27.960 --> 0:09:32.239 you know, the general characteristics of the loan are evaluated 0:09:32.280 --> 0:09:33.760 by the people who are taking the loans off the 0:09:33.800 --> 0:09:36.600 hands of that person who lent the money. So the 0:09:36.640 --> 0:09:40.920 fight the credit scores. How much money do they put down? 0:09:41.200 --> 0:09:43.880 All that stuff they would make a loan riskier or 0:09:43.920 --> 0:09:46.840 less risky. They have an incentive to lie about that 0:09:47.960 --> 0:09:51.600 or game it in some way. So what happens there's 0:09:51.640 --> 0:09:55.480 a chain. This loan gets passed through several hands and 0:09:55.520 --> 0:09:59.000 eventually ends up being held by some investor in the 0:09:59.040 --> 0:10:04.240 form of a bond. But along the way, in various ways, 0:10:04.280 --> 0:10:07.840 the risk gets disguised, and along the way it gets 0:10:07.880 --> 0:10:11.920 packaged into these big and big black boxes, and the 0:10:12.000 --> 0:10:15.199 boxes get harder and harder to see inside of, so 0:10:15.280 --> 0:10:21.960 that it takes superhuman sort of analytical research diligence to 0:10:22.160 --> 0:10:24.920 figure out what the hell of the loans are behind 0:10:24.960 --> 0:10:27.520 the bonds, and that in fact, the characters are the 0:10:27.520 --> 0:10:30.120 big short one of them. Anyway, you know, he distinguished 0:10:30.160 --> 0:10:32.199 himself of actually going into the black box and seeing, 0:10:32.240 --> 0:10:34.400 oh my god, there's a stripper. There's a stripper in 0:10:34.440 --> 0:10:37.559 Las Vegas with twenty seven houses. You know, it's that 0:10:38.000 --> 0:10:42.120 kind of thing. So what makes it possible is one 0:10:43.320 --> 0:10:45.800 the neediness at the bottom of the chain, the neediness 0:10:45.800 --> 0:10:47.480 of the person who is borrowing the money in. 0:10:47.480 --> 0:10:49.960 The first place, the desires. 0:10:50.240 --> 0:10:52.760 As one of my characters put it, this market was 0:10:52.920 --> 0:10:57.320 totally a reflection of the working class Americans inability to 0:10:57.360 --> 0:11:00.320 live up to their expectations, and financial expectation is that 0:11:00.360 --> 0:11:02.480 their salaries were not meeting and. 0:11:02.400 --> 0:11:05.079 This sort of filled the hole, so it starts there. 0:11:05.600 --> 0:11:06.720 Then it's like your. 0:11:06.559 --> 0:11:11.120 Friends immorality, willingness to to exploit, to make these loans 0:11:11.200 --> 0:11:14.400 people wh shouldn't have them, the willingness of the whole 0:11:14.440 --> 0:11:17.920 financial system, the big banks to disguise the risk in 0:11:17.960 --> 0:11:21.439 the loans and their ability is subsequently to pedal these 0:11:21.480 --> 0:11:25.480 loans in the form of bonds to like German investors. 0:11:25.960 --> 0:11:27.560 That's what you mean when you say stuff went all 0:11:27.600 --> 0:11:28.120 over the world. 0:11:28.320 --> 0:11:30.760 It went all over the world. And part of the 0:11:30.760 --> 0:11:34.320 reason there's a crisis is that no one knows how 0:11:34.400 --> 0:11:37.079 much of it there is or who's got it. So 0:11:37.240 --> 0:11:40.520 it's like you can't nobody trust anybody at that moment. 0:11:40.640 --> 0:11:43.040 It's like, are you bankrupt too? Are you not? 0:11:43.559 --> 0:11:48.560 A big date when Lehman Brothers went bankrupt was September fifteenth, 0:11:48.640 --> 0:11:51.840 two thousand and eight. For somebody who does what you do, like, 0:11:52.320 --> 0:11:54.800 is that a date where you remember what you were doing, 0:11:54.880 --> 0:11:57.280 remember what you were thinking, or did things follow that 0:11:57.760 --> 0:11:59.160 showed you the gravity of that day. 0:12:00.520 --> 0:12:03.000 I was already into the book I was. 0:12:04.160 --> 0:12:06.920 I was already reporting the big short when bear Stearns 0:12:06.960 --> 0:12:09.559 went down in whatever February. I didn't remember the dates. 0:12:10.000 --> 0:12:12.160 I locked in on it. I started to kind of 0:12:12.240 --> 0:12:16.280 kick around and talk to people. I can't remember where 0:12:16.320 --> 0:12:18.360 I was when Lehman went down. And you know what's 0:12:18.360 --> 0:12:21.400 funny is not only can I not remember where I was, 0:12:22.280 --> 0:12:26.839 I remember vividly where my characters were, who I cared about. 0:12:27.200 --> 0:12:30.199 I started to live this through my characters. And there 0:12:30.240 --> 0:12:31.960 was a scene that I thought was going to end 0:12:32.000 --> 0:12:34.640 the movie, and it ended the book where these characters 0:12:34.800 --> 0:12:37.720 there were. The firm was called Front Point Partners. It 0:12:37.800 --> 0:12:41.679 was an obscure hedge fund that mainly traded in stocks. 0:12:42.200 --> 0:12:44.720 Had figured out that all the Wall Street firms were 0:12:44.720 --> 0:12:47.720 making this mistake and made this big bet against the 0:12:47.760 --> 0:12:56.160 subprime mortgage market. And they were so disoriented by being 0:12:56.600 --> 0:12:59.920 proved so right that it wasn't just they were going 0:12:59.920 --> 0:13:02.240 to get rich, but maybe the whole world was going 0:13:02.320 --> 0:13:04.200 to come down, Like it was just a little unclear 0:13:04.280 --> 0:13:07.760 at that moment whether you know, capitalism was going to survive. 0:13:07.920 --> 0:13:09.760 Kind of thing. It was that it felt that dire 0:13:09.840 --> 0:13:10.600 to them. 0:13:11.120 --> 0:13:14.640 They were so aware of just how badly behaved the 0:13:14.720 --> 0:13:18.800 financial system had been. They imagined a cataclysm even greater 0:13:18.880 --> 0:13:20.559 than the one that occurred, and. 0:13:20.520 --> 0:13:22.520 They all wandered the streets. There were four of them. 0:13:22.559 --> 0:13:24.800 They wandered the streets of Manhattan and converged on. 0:13:24.760 --> 0:13:27.800 Saint Patrick's Cathedral and sat on the steps and just 0:13:27.920 --> 0:13:30.400 watched the people like they were ghosts, passing them by, 0:13:30.440 --> 0:13:32.199 and say, those people do not know what's about to 0:13:32.280 --> 0:13:35.200 hit them. So when I think about that day, I 0:13:35.280 --> 0:13:37.600 wasn't there. You know, they just told me about this. 0:13:38.559 --> 0:13:40.559 It's their experience that pops to mind. 0:13:40.760 --> 0:13:44.520 What was the result of that financial crash for people 0:13:44.520 --> 0:13:46.760 in your lives? Like I obviously know this guy who 0:13:46.800 --> 0:13:50.120 was selling some mortgages, and I had friends who you know, 0:13:50.800 --> 0:13:53.360 lost money in retirement or money that they had saved 0:13:53.400 --> 0:13:55.760 up for their kids college. But did any of your 0:13:55.840 --> 0:14:01.680 neighbor's friend's family lose jobs houses? Did you see anyone 0:14:01.679 --> 0:14:04.760 on the news that you knew that you were researching? 0:14:04.920 --> 0:14:06.880 Like what was that impact like for you? 0:14:07.240 --> 0:14:10.520 But you know what actually popstimized nothing that I was. 0:14:10.559 --> 0:14:13.679 So I was reading the news of other people's people. 0:14:13.720 --> 0:14:18.240 I didn't know their tragedies. It wasn't hard to imagine them. 0:14:18.720 --> 0:14:22.760 I had old colleagues on Wall Street whose careers went 0:14:22.840 --> 0:14:26.880 up in flames and in some cases kind of unjustifiably, 0:14:26.920 --> 0:14:28.520 you know, it was a funny thing I worked. I 0:14:28.560 --> 0:14:31.040 worked at Solomon Brothers in the nineteen eighties, you know, 0:14:31.160 --> 0:14:33.800 in the Stone Age, but that as it happened. 0:14:33.960 --> 0:14:35.880 This is one of the reasons I got I took 0:14:35.880 --> 0:14:36.840 an interest in the story. 0:14:37.320 --> 0:14:40.600 Is I was there basically when the mortgage bond market 0:14:40.680 --> 0:14:42.840 was being invented by Solomon Brothers. 0:14:42.920 --> 0:14:43.240 Uh huh. 0:14:43.280 --> 0:14:47.440 So I saw, you know, Frankenstein's monster be created, and 0:14:47.480 --> 0:14:49.880 now I was watching the monster come back and eat everybody, 0:14:50.320 --> 0:14:52.960 and the people who had created the monster knew what 0:14:53.040 --> 0:14:54.280 the monster was capable of. 0:14:54.840 --> 0:14:57.640 Were everyone's reactions like that? Like, I assume you called 0:14:57.640 --> 0:15:00.080 a lot of these people up, like the idea of that, 0:15:00.120 --> 0:15:02.480 oh shit, we were the ones that created this. Was 0:15:02.520 --> 0:15:05.960 that across the board or or by the way, is 0:15:06.000 --> 0:15:08.240 this truly one of those like there are five puppeteers 0:15:08.240 --> 0:15:10.960 at the top type of situation and they're acknowledging it, 0:15:10.960 --> 0:15:13.360 but everybody at the deputy level is pretending they had 0:15:13.360 --> 0:15:14.120 nothing to do with it. 0:15:14.320 --> 0:15:17.160 So here's the weird thing. Maybe it's not so weird. 0:15:17.480 --> 0:15:19.360 You know how it's easy to confess to something that 0:15:19.400 --> 0:15:21.920 you actually didn't. It's not that damning to confess to 0:15:22.320 --> 0:15:25.560 Oh I work too hard. Oh, I care too much, 0:15:25.840 --> 0:15:29.200 my biggest too, I loved you, I love too well, 0:15:30.200 --> 0:15:32.920 it's not quite that. But no one was going to 0:15:32.960 --> 0:15:36.640 prosecute Louis Ranieri for creating the mortgage bond. No one 0:15:36.680 --> 0:15:38.920 was going to no one was probably going to completely 0:15:38.960 --> 0:15:41.920 buy he was really responsible for someone taking the mortgage 0:15:41.920 --> 0:15:43.440 bond and doing awful things with it. 0:15:44.120 --> 0:15:47.680 So there's something a little disingenuous about taking. 0:15:47.480 --> 0:15:49.240 The blame for the whole thing when you're not to. 0:15:49.600 --> 0:15:52.760 And the people who were to blame this answer your question. 0:15:53.480 --> 0:15:57.280 They were people inside the Wall Street firms in two 0:15:57.360 --> 0:16:01.080 thousand and six to two thousand and eight who really 0:16:01.600 --> 0:16:04.160 really should have taken the blame. And none of those 0:16:04.160 --> 0:16:05.680 people got up and said, oh I'm sorry. 0:16:06.280 --> 0:16:08.840 No for any of them, Right, you just said nobody's 0:16:09.160 --> 0:16:11.920 nobody's going after that that top guy. But for any 0:16:11.960 --> 0:16:13.680 of them, the top guy or anybody in the middle, 0:16:13.720 --> 0:16:16.080 did they actually technically do anything illegal. 0:16:17.080 --> 0:16:18.200 It's a really good question. 0:16:19.120 --> 0:16:22.520 And I have a friend, the writer Michael Kinsley, who 0:16:22.520 --> 0:16:25.640 always says the scandal isn't what's illegal, it's what's legal. 0:16:26.320 --> 0:16:28.800 A large part of the story of the crisis is 0:16:28.840 --> 0:16:31.440 it's scandalous how much of this was legal, Like how 0:16:31.520 --> 0:16:34.000 much you could define print got you off the hook 0:16:34.480 --> 0:16:36.960 because it was immoral. It's you know, the idea that 0:16:37.080 --> 0:16:42.800 for example, Goldman Sachs could conspire with John Paulson, short 0:16:42.800 --> 0:16:48.080 seller who wanted to bet against subprime mortgages, to create 0:16:48.160 --> 0:16:51.000 billions and billions of dollars of side bets on the 0:16:51.200 --> 0:16:54.680 very worst mortgage bonds they created, so so so paulse 0:16:54.720 --> 0:16:57.000 could bet they were going to go bad. And these 0:16:57.000 --> 0:16:58.640 are just like it's just like it's a you can 0:16:58.720 --> 0:17:01.600 think of it as like replicating the worst loans to 0:17:01.720 --> 0:17:06.240 infinity and injecting those things into the financial system. So 0:17:06.280 --> 0:17:08.800 getting other people Germans or whoever to take the other 0:17:08.880 --> 0:17:09.840 side of that bet. 0:17:11.240 --> 0:17:14.480 Now maybe that's legal, it is legal. It's horrible. 0:17:14.720 --> 0:17:18.800 It's like because you're essentially introducing pollution, are a poison 0:17:19.119 --> 0:17:21.919 into the financial system, and so you can take a 0:17:21.960 --> 0:17:22.960 little profit off of it. 0:17:23.000 --> 0:17:25.840 People who know more than I do would tell you 0:17:25.920 --> 0:17:27.440 that people. 0:17:27.240 --> 0:17:32.840 In firms hid or ignored reports of how bad. 0:17:32.680 --> 0:17:34.879 The mortgages were so no one would know. 0:17:35.200 --> 0:17:37.720 So that, you know, is that fraud. Maybe you could 0:17:37.760 --> 0:17:41.199 get people on fraud. It was hard if you go 0:17:41.320 --> 0:17:44.840 if you rewind the tape at the very beginning. 0:17:44.480 --> 0:17:44.879 You may not. 0:17:45.200 --> 0:17:46.720 You know, I don't know sure this is even in 0:17:46.720 --> 0:17:48.359 the book, and my memory of it is going to 0:17:48.400 --> 0:17:52.359 be a little fuzzy. But bear Sterns had a fund 0:17:52.640 --> 0:17:55.800 that was attached to bear Sterns that went down, and 0:17:55.800 --> 0:17:56.920 it went down because they. 0:17:56.840 --> 0:17:59.000 Were actually they owned a lot of this stuff. 0:18:00.880 --> 0:18:04.240 US prosecutors tried to put the people who ran that 0:18:04.359 --> 0:18:09.320 fund in jail, and the trial was in New Jersey 0:18:09.440 --> 0:18:12.760 and this was early early financial crisis, and not only 0:18:12.800 --> 0:18:17.280 did they fail, but the jur there were jurors quoted 0:18:17.280 --> 0:18:20.200 in the newspaper afterwards saying, can you get me the 0:18:20.280 --> 0:18:22.960 number of those guys from barristers? I wanted them to 0:18:23.240 --> 0:18:26.960 I think have I wanted to invest my money for. 0:18:27.960 --> 0:18:30.920 So there was such a there was such a There 0:18:30.960 --> 0:18:34.080 was such an at the very beginning, they were prosecutors 0:18:34.080 --> 0:18:37.880 who were embarrassed trying to kind of like prosecute this thing, 0:18:38.480 --> 0:18:42.040 and it was hard, it was so complicated. So the 0:18:42.119 --> 0:18:45.920 answer is, I don't I'm sure people broke the law. Basically, 0:18:45.960 --> 0:18:48.719 no one went to jail. In retrospect, the whole society 0:18:48.760 --> 0:18:50.240 would have been better off if they've been at least 0:18:50.280 --> 0:18:53.840 an attempt to prosecute the very topic there wasn't. 0:19:01.240 --> 0:19:03.840 Yeah, so then if there was no attempt made to 0:19:03.840 --> 0:19:06.120 prosecute and it sounds like if you know, okay, you 0:19:06.200 --> 0:19:10.120 did all these fifty things wrong that caused this massive, 0:19:10.280 --> 0:19:14.000 awful global collapse, but technically the only thing we could 0:19:14.000 --> 0:19:17.080 get you on is fraud, then that makes me wonder 0:19:17.320 --> 0:19:20.360 all of the conversations about how fragile the economy is 0:19:20.520 --> 0:19:24.639 again today, are there systems in place to prevent another 0:19:24.800 --> 0:19:27.639 crash in the way you just described it? And if so, 0:19:27.720 --> 0:19:31.199 what are they? What are they responsible for? Putting a 0:19:31.320 --> 0:19:34.719 check in? And it did the current administration dissolve any 0:19:34.720 --> 0:19:37.200 of them? Like did they exist post two thousand and eight? 0:19:37.600 --> 0:19:40.800 But then over the political spectrum have they been kind 0:19:40.800 --> 0:19:41.840 of watered down themselves? 0:19:42.359 --> 0:19:47.680 So there is a deathless problem in the financial system always, 0:19:47.760 --> 0:19:50.159 and it gets worse the more complicated it gets, and 0:19:50.200 --> 0:19:53.080 the financial system gets it's more and more complicated, And 0:19:53.119 --> 0:19:56.640 the problem is that people get paid more to take 0:19:56.680 --> 0:20:00.480 more risk, and the best way to get paid more 0:20:00.520 --> 0:20:02.920 for taking more risk is disguise the risk you're taken 0:20:02.960 --> 0:20:05.960 and not actually take the risk yourself. The system is 0:20:05.960 --> 0:20:08.720