1 00:00:10,800 --> 00:00:14,480 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,560 --> 00:00:18,400 Speaker 1: I'm Joe Wisenthal and I'm Tracy all the way, Tracy, 3 00:00:18,400 --> 00:00:24,080 Speaker 1: you know it's pretty dumb. You're gonna have to narrow 4 00:00:24,160 --> 00:00:26,840 Speaker 1: that down. I think it's done that we haven't written 5 00:00:26,880 --> 00:00:29,160 Speaker 1: a book yet, like all this time, and we like 6 00:00:29,240 --> 00:00:32,440 Speaker 1: kick her ound book ideas, but we never do it. Yeah, 7 00:00:33,000 --> 00:00:35,199 Speaker 1: I mean both of us are pretty busy with our 8 00:00:35,240 --> 00:00:38,000 Speaker 1: day jobs. But yes, I would love to write a book, 9 00:00:38,040 --> 00:00:41,959 Speaker 1: and we have discussed some ideas. Yeah, we have. We 10 00:00:42,080 --> 00:00:45,800 Speaker 1: talked about maybe doing one on bubbles, We've talked about 11 00:00:45,840 --> 00:00:49,760 Speaker 1: maybe one, uh doing one on this crisis perhaps, And 12 00:00:49,880 --> 00:00:52,400 Speaker 1: also one of our recurring themes on the podcast is 13 00:00:52,440 --> 00:00:54,720 Speaker 1: the question of what is money? And we've even talked 14 00:00:54,760 --> 00:00:57,160 Speaker 1: about maybe doing a book just like about what money 15 00:00:57,240 --> 00:01:00,240 Speaker 1: is from our perspective. Now, first of all, you're you're 16 00:01:00,280 --> 00:01:03,680 Speaker 1: giving away all our good book ideas, and some people 17 00:01:03,680 --> 00:01:05,080 Speaker 1: are going to rush out and do them before we 18 00:01:05,120 --> 00:01:07,640 Speaker 1: get a chance. But yeah, I mean we've done so 19 00:01:07,680 --> 00:01:11,440 Speaker 1: many episodes at this point about the nature of money 20 00:01:11,640 --> 00:01:15,480 Speaker 1: and how it works. I mean, stretching from sort of 21 00:01:15,560 --> 00:01:20,040 Speaker 1: anthropological takes way back in prehistory and all the way 22 00:01:20,120 --> 00:01:26,040 Speaker 1: up to cryptocurrency and digital money and things like that. Anyway, 23 00:01:26,120 --> 00:01:28,200 Speaker 1: You're right, I mean, the thing is at this point though, 24 00:01:28,200 --> 00:01:32,520 Speaker 1: there is no reason to worry about someone stealing our 25 00:01:32,560 --> 00:01:34,880 Speaker 1: idea to write a book about money, because it's actually 26 00:01:35,120 --> 00:01:37,760 Speaker 1: it's already been done people. Yeah, people are people are 27 00:01:37,800 --> 00:01:42,000 Speaker 1: already way ahead of us on this, including our guests today. 28 00:01:42,400 --> 00:01:44,679 Speaker 1: So really like we at this point we can just 29 00:01:44,720 --> 00:01:46,800 Speaker 1: sort of, I think, kill that idea because other people 30 00:01:46,800 --> 00:01:49,240 Speaker 1: have long us to the plot. Yeah, and I have 31 00:01:49,360 --> 00:01:51,640 Speaker 1: to say, the guests that we are about to have 32 00:01:51,840 --> 00:01:55,160 Speaker 1: on has written a very good book on the subject 33 00:01:55,360 --> 00:01:57,360 Speaker 1: of money, so you know, we don't want to go 34 00:01:57,440 --> 00:02:00,320 Speaker 1: up against that kind of competition, absolutely right, So we're 35 00:02:00,320 --> 00:02:02,640 Speaker 1: just gonna vacate the field to our current guest, and 36 00:02:02,680 --> 00:02:05,840 Speaker 1: hopefully as people listen to the conversation, they'll see the 37 00:02:05,840 --> 00:02:08,160 Speaker 1: good work has already been done on this. But it 38 00:02:08,280 --> 00:02:10,200 Speaker 1: is a really important topic and so even if other 39 00:02:10,240 --> 00:02:12,560 Speaker 1: people beat us to the book, we can still do 40 00:02:12,680 --> 00:02:16,240 Speaker 1: the podcast. And so without further ado, I'd like to 41 00:02:16,280 --> 00:02:19,920 Speaker 1: bring in our guest for the day. He is Jacob Goldstein. 42 00:02:20,080 --> 00:02:22,640 Speaker 1: He is the author of a new book, Money, The 43 00:02:22,680 --> 00:02:25,000 Speaker 1: True Story of a Made Up Thing, which is a 44 00:02:25,000 --> 00:02:27,520 Speaker 1: great title, and he is also the long time co 45 00:02:27,680 --> 00:02:31,280 Speaker 1: host of Planet Money. Jacob Goldstein, thank you very much 46 00:02:31,320 --> 00:02:34,320 Speaker 1: for joining us. I'm happy to do it. Thanks for 47 00:02:34,360 --> 00:02:36,840 Speaker 1: having me. So. Tracy and I have been doing this 48 00:02:36,840 --> 00:02:39,280 Speaker 1: podcast for a few years and we're like, let's do 49 00:02:39,320 --> 00:02:42,399 Speaker 1: a book about money, and we never do. So you did? 50 00:02:42,560 --> 00:02:45,480 Speaker 1: You do your podcast for a long time. You actually 51 00:02:45,520 --> 00:02:48,920 Speaker 1: did what Tracy and I only talk about. But what 52 00:02:49,000 --> 00:02:52,160 Speaker 1: was it about that you were attracted to money as 53 00:02:52,160 --> 00:02:55,520 Speaker 1: a subject in its own right? I mean as a 54 00:02:55,760 --> 00:02:58,760 Speaker 1: sort of set of history stories. It's amazing as a 55 00:02:58,800 --> 00:03:03,919 Speaker 1: way of just under standing how people in society sort 56 00:03:03,960 --> 00:03:07,840 Speaker 1: of get through the daily living. It's amazing. You know, 57 00:03:08,240 --> 00:03:10,919 Speaker 1: at Planet Money, I had done all of these kind 58 00:03:10,919 --> 00:03:13,160 Speaker 1: of one offs, Like you know, I did a story 59 00:03:13,200 --> 00:03:15,840 Speaker 1: about free banking in America when there was like five 60 00:03:15,880 --> 00:03:18,720 Speaker 1: thousand different kinds of paper money and merchants had to 61 00:03:18,760 --> 00:03:21,720 Speaker 1: get special magazines to figure out what paper money was 62 00:03:21,760 --> 00:03:23,359 Speaker 1: good and how much it was worth. And I've done 63 00:03:23,360 --> 00:03:26,200 Speaker 1: stories about the Depression and the gold standard. But like 64 00:03:26,280 --> 00:03:28,560 Speaker 1: I realized that if you sort of zoom out, there 65 00:03:28,639 --> 00:03:31,080 Speaker 1: is a very long arc, this kind of series of 66 00:03:31,160 --> 00:03:34,600 Speaker 1: origin stories of money being invented and reinvented and changing 67 00:03:34,600 --> 00:03:38,000 Speaker 1: over time. That makes what I think is a good book, 68 00:03:38,040 --> 00:03:40,760 Speaker 1: what I hope is a good book. So one of 69 00:03:40,800 --> 00:03:45,400 Speaker 1: the daunting things I think about approaching a subject like 70 00:03:45,960 --> 00:03:50,000 Speaker 1: money is just where to begin? How did you go 71 00:03:50,080 --> 00:03:54,440 Speaker 1: about starting? You know, like, what was your jumping off 72 00:03:54,480 --> 00:03:58,360 Speaker 1: point for the book? Well, we're looking for tips. Basically, 73 00:04:00,000 --> 00:04:02,120 Speaker 1: don't do it. That's my tip on writing a book. 74 00:04:02,200 --> 00:04:05,200 Speaker 1: It was much, it was very lonely. I think writing 75 00:04:05,200 --> 00:04:08,200 Speaker 1: a book together is a great idea. Um. I mean 76 00:04:08,240 --> 00:04:10,280 Speaker 1: basically what I tried to do was make a series 77 00:04:10,320 --> 00:04:13,040 Speaker 1: of origin stories. Right, So there is I mean, you 78 00:04:13,080 --> 00:04:15,600 Speaker 1: guys have talked about you know all right, I know, Joe, 79 00:04:15,640 --> 00:04:17,160 Speaker 1: you've talked about on Twitter. I don't recall if you've 80 00:04:17,160 --> 00:04:18,960 Speaker 1: talked about on the show sort of the myth of 81 00:04:19,000 --> 00:04:21,479 Speaker 1: Barter And there's kind of the early section. But the 82 00:04:21,520 --> 00:04:24,799 Speaker 1: framework for me is like finding this series of origin stories, 83 00:04:24,839 --> 00:04:26,440 Speaker 1: not trying to tell the whole story. You know, the 84 00:04:26,440 --> 00:04:29,160 Speaker 1: book is less than three pages long, and so there's 85 00:04:29,200 --> 00:04:33,920 Speaker 1: like these discrete moments when sort of the world changes 86 00:04:33,960 --> 00:04:36,120 Speaker 1: a lot in a short amount of time. Basically, right, 87 00:04:36,160 --> 00:04:38,440 Speaker 1: it is not this long, continuous story and one of 88 00:04:38,440 --> 00:04:40,680 Speaker 1: the really interesting things to me about money is there 89 00:04:40,760 --> 00:04:43,120 Speaker 1: is this kind of myopia that people get again and 90 00:04:43,120 --> 00:04:47,000 Speaker 1: again where they think whatever sort of monetary regime they're 91 00:04:47,040 --> 00:04:49,520 Speaker 1: living in, whatever moment they're living in, they think, oh, 92 00:04:49,680 --> 00:04:52,000 Speaker 1: this is just the way money works, and everything else 93 00:04:52,080 --> 00:04:54,719 Speaker 1: is like chaos or craziness or some dumb idea somebody 94 00:04:54,760 --> 00:04:58,080 Speaker 1: made up. I mean, maybe the most striking version from 95 00:04:58,080 --> 00:05:00,599 Speaker 1: our contemporary point of view is the gold stard. You know, 96 00:05:00,640 --> 00:05:03,600 Speaker 1: there's this famous paper by I Can Dream and Temn 97 00:05:03,760 --> 00:05:06,279 Speaker 1: where they talk about the gold standard mentality, and part 98 00:05:06,279 --> 00:05:08,680 Speaker 1: of what sort of screwed everybody over in the Great 99 00:05:08,720 --> 00:05:12,960 Speaker 1: Depression was they just couldn't imagine a world not on 100 00:05:13,040 --> 00:05:15,920 Speaker 1: the gold standard. And part of like Roosevelt's genius, frankly, 101 00:05:16,120 --> 00:05:18,040 Speaker 1: was to be like, yeah, whatever, let's try it, let's 102 00:05:18,040 --> 00:05:22,240 Speaker 1: devalue go, let's see what happens. So one of the 103 00:05:22,320 --> 00:05:25,440 Speaker 1: interesting things about money, and I guess why it's worth 104 00:05:25,480 --> 00:05:27,880 Speaker 1: a book, and of course other people have written books, 105 00:05:27,880 --> 00:05:29,919 Speaker 1: and who knows, maybe we'll also write a book, is 106 00:05:29,960 --> 00:05:32,839 Speaker 1: that it feels like one of these things. It's kind 107 00:05:32,839 --> 00:05:35,320 Speaker 1: of in my mind, it's like love, and there's like 108 00:05:35,360 --> 00:05:38,200 Speaker 1: a reason that like there's like a million songs that 109 00:05:38,240 --> 00:05:41,000 Speaker 1: have been written or poems that have written written about love, 110 00:05:41,600 --> 00:05:45,200 Speaker 1: but but it's never enough because no one actually has 111 00:05:45,240 --> 00:05:47,520 Speaker 1: like a super clear definition and we just sort of 112 00:05:47,520 --> 00:05:50,400 Speaker 1: get closer over time to our understanding. And so it 113 00:05:50,440 --> 00:05:53,000 Speaker 1: feels like money is the same thing, where it's like 114 00:05:53,480 --> 00:05:56,080 Speaker 1: people try to come up with some definition or a 115 00:05:56,120 --> 00:06:00,520 Speaker 1: few like, um, a few uh character sticks that all 116 00:06:00,560 --> 00:06:02,520 Speaker 1: money have. It's like, oh, it's a store of value 117 00:06:02,600 --> 00:06:06,040 Speaker 1: or two medium of exchange, and some of these concepts 118 00:06:06,080 --> 00:06:10,000 Speaker 1: are helpful, but it's like we never quite arrive at 119 00:06:10,000 --> 00:06:12,840 Speaker 1: the definition of what it what it is, and a 120 00:06:12,920 --> 00:06:15,720 Speaker 1: lot of the interesting cases are sort of at the 121 00:06:15,839 --> 00:06:18,960 Speaker 1: edge case where something is sort of straddles the line 122 00:06:19,040 --> 00:06:22,400 Speaker 1: between what is money and what is not money, and 123 00:06:22,440 --> 00:06:28,120 Speaker 1: there's not some sort of bright line that distinguishes the two. Yeah, 124 00:06:28,160 --> 00:06:30,400 Speaker 1: I mean you mentioned it being like love. I it 125 00:06:30,440 --> 00:06:33,560 Speaker 1: seems to me like music also in that way, right, 126 00:06:33,600 --> 00:06:38,080 Speaker 1: it is this thing that spontaneously arises in different contexts independently. 127 00:06:38,120 --> 00:06:40,560 Speaker 1: It's a thing that society has just seemed to create 128 00:06:41,120 --> 00:06:44,839 Speaker 1: on their own, and the sort of taxonomic questions, you know, 129 00:06:44,920 --> 00:06:46,800 Speaker 1: in the way that I don't know I'm old enough 130 00:06:46,839 --> 00:06:48,840 Speaker 1: to remember when hip hop was new, right, and there 131 00:06:48,920 --> 00:06:51,400 Speaker 1: was this sort of question of like, but is it music, 132 00:06:51,560 --> 00:06:54,159 Speaker 1: which I mean to me, it obviously is music, But 133 00:06:54,279 --> 00:06:58,080 Speaker 1: more importantly, who cares? Right? Like the the taxonomy is 134 00:06:58,120 --> 00:07:00,839 Speaker 1: not the interesting part. The interesting part is of what happens, 135 00:07:00,880 --> 00:07:03,200 Speaker 1: what are the stories, and then kind of how does 136 00:07:03,279 --> 00:07:06,279 Speaker 1: power shift, who gets what, who gets screwed, who gets 137 00:07:06,320 --> 00:07:09,240 Speaker 1: to take risks, who gets bailed out? So what happens 138 00:07:09,360 --> 00:07:13,280 Speaker 1: is really where it gets interesting to me. So in 139 00:07:13,320 --> 00:07:17,600 Speaker 1: your book you describe how money is basically a social 140 00:07:17,640 --> 00:07:21,480 Speaker 1: contract and a social construction, and it relies on trust 141 00:07:21,640 --> 00:07:24,720 Speaker 1: between all the parties involved. But one of the things 142 00:07:24,720 --> 00:07:28,559 Speaker 1: that I found most interesting was this idea of how 143 00:07:28,680 --> 00:07:32,920 Speaker 1: people get money and one chapter in particular, I can't 144 00:07:32,920 --> 00:07:34,840 Speaker 1: remember exactly what the name of the chapter was, but 145 00:07:34,960 --> 00:07:39,720 Speaker 1: something like how everyone can get lots more money. Um, 146 00:07:39,800 --> 00:07:42,960 Speaker 1: could you maybe describe that dynamic because I thought that 147 00:07:43,000 --> 00:07:46,960 Speaker 1: was really interesting. Yeah, yeah, I'm glad you liked that chapter. 148 00:07:47,160 --> 00:07:49,239 Speaker 1: I was worried that that was like a weirdo chapter 149 00:07:49,360 --> 00:07:51,280 Speaker 1: that didn't fit with the book, but I liked it too. 150 00:07:51,280 --> 00:07:53,600 Speaker 1: So first of all, thank you for liking that chapter. 151 00:07:54,040 --> 00:07:58,760 Speaker 1: So so um, I mean the kind of big idea 152 00:07:58,800 --> 00:08:01,760 Speaker 1: of that chapter is I think, I mean, there is 153 00:08:01,760 --> 00:08:04,480 Speaker 1: this idea the pie can get bigger, right, everybody can 154 00:08:04,480 --> 00:08:06,320 Speaker 1: have more money. But I think on a fairly deep 155 00:08:06,400 --> 00:08:09,280 Speaker 1: level people don't believe that, right. I think on a 156 00:08:09,360 --> 00:08:13,800 Speaker 1: fairly deep level, people have this very zero sum mentality, 157 00:08:13,840 --> 00:08:17,160 Speaker 1: which which means if somebody else has more money, some 158 00:08:17,240 --> 00:08:19,360 Speaker 1: other person is going to have less, and somebody's gain 159 00:08:19,480 --> 00:08:23,440 Speaker 1: must be somebody's loss. And that's just wrong, right, And 160 00:08:23,480 --> 00:08:24,840 Speaker 1: I don't know where it comes out of it, you know, 161 00:08:24,880 --> 00:08:26,640 Speaker 1: the I do that money is scarcer, like you're thinking 162 00:08:26,640 --> 00:08:28,560 Speaker 1: of money as gold. There's only so much gold. But 163 00:08:28,640 --> 00:08:31,640 Speaker 1: that's absolutely not correct, right, So the good news is 164 00:08:31,680 --> 00:08:33,560 Speaker 1: everybody can have more money. Of course, that doesn't mean 165 00:08:33,559 --> 00:08:35,360 Speaker 1: everybody will have more money. It doesn't mean there are 166 00:08:35,400 --> 00:08:37,960 Speaker 1: not cases where somebody's gaining it's not somebody's loss. But 167 00:08:38,040 --> 00:08:40,400 Speaker 1: what I did in that chapter to to illustrate that 168 00:08:40,520 --> 00:08:43,120 Speaker 1: is I looked at this story that was told by 169 00:08:43,160 --> 00:08:47,960 Speaker 1: this economist Bill Nordhouse, who who won the Nobel Prize 170 00:08:47,960 --> 00:08:50,920 Speaker 1: for other work. But he did this great study when 171 00:08:50,960 --> 00:08:54,080 Speaker 1: he was a young economist at Yale, where he looked 172 00:08:54,080 --> 00:08:59,520 Speaker 1: at artificial light for thousands of years from like ancient 173 00:08:59,559 --> 00:09:02,200 Speaker 1: babble on when they used sesame oil to light up 174 00:09:02,280 --> 00:09:05,080 Speaker 1: rooms through the end of the twentieth century, which was 175 00:09:05,080 --> 00:09:07,000 Speaker 1: when he wrote the paper. And he asked this question, 176 00:09:07,480 --> 00:09:11,400 Speaker 1: which you can basically phrase as if a regular person 177 00:09:11,600 --> 00:09:15,319 Speaker 1: works all day, how long can they light up a 178 00:09:15,400 --> 00:09:18,640 Speaker 1: room for? And he standardized it, right, and he went 179 00:09:18,760 --> 00:09:20,480 Speaker 1: all the way here, I should I should grab it 180 00:09:20,520 --> 00:09:22,760 Speaker 1: so I get the right numbers, because what he found is, 181 00:09:22,840 --> 00:09:27,360 Speaker 1: like you know, obviously ancient Babylon very low productivity society. 182 00:09:27,480 --> 00:09:30,560 Speaker 1: All the work they did was low productivity oil lamps 183 00:09:30,679 --> 00:09:33,120 Speaker 1: not a great, not a very efficient source of light. 184 00:09:33,200 --> 00:09:35,000 Speaker 1: And he found he found that if you work all 185 00:09:35,080 --> 00:09:38,679 Speaker 1: day in ancient Babylon and you spend your entire day's 186 00:09:38,760 --> 00:09:40,960 Speaker 1: wages to light up a room, you can light up 187 00:09:41,040 --> 00:09:43,400 Speaker 1: room for ten minutes. Right. And then he follows this 188 00:09:43,440 --> 00:09:46,120 Speaker 1: through time and what you find is for a very 189 00:09:46,120 --> 00:09:48,880 Speaker 1: long time after that, it doesn't change much, right, which 190 00:09:48,920 --> 00:09:51,120 Speaker 1: is the story of economic history. Right. Economic history is 191 00:09:51,120 --> 00:09:54,880 Speaker 1: basically thousands of years almost no productivity. Games. People are 192 00:09:54,880 --> 00:09:56,600 Speaker 1: doing the same kind of work, getting the same kind 193 00:09:56,600 --> 00:10:01,160 Speaker 1: of results. And then and then the phone came and 194 00:10:01,200 --> 00:10:03,520 Speaker 1: we all could just lie in bed and read your 195 00:10:03,520 --> 00:10:05,559 Speaker 1: Twitter feed all day and what should I do about 196 00:10:05,559 --> 00:10:09,720 Speaker 1: the sixty forty portfolio? Um? And then the industrial revolution 197 00:10:09,760 --> 00:10:12,720 Speaker 1: comes and it goes bananas, right, And there's multiple reasons. 198 00:10:12,720 --> 00:10:15,719 Speaker 1: There's like the industry revolution itself. There's science, and then 199 00:10:15,720 --> 00:10:17,880 Speaker 1: you get of course Edison, and the Edison story is 200 00:10:17,920 --> 00:10:21,920 Speaker 1: not just like science, but also finance is getting basically better. 201 00:10:22,040 --> 00:10:25,920 Speaker 1: There's patents, which is what Edison really built his business on. 202 00:10:26,480 --> 00:10:30,880 Speaker 1: There's just capital formation, right. JP Morgan is the money 203 00:10:30,880 --> 00:10:34,720 Speaker 1: behind Edison. And when Edison lights up Lower Manhattan, which 204 00:10:34,720 --> 00:10:36,520 Speaker 1: is the first time there's a power grade, he's actually 205 00:10:36,520 --> 00:10:40,319 Speaker 1: with Morrigan on Wall Street. And so you keep getting 206 00:10:40,320 --> 00:10:42,679 Speaker 1: these efficiency gains through the twentieth century then, so that 207 00:10:42,760 --> 00:10:46,280 Speaker 1: by the end of the twentieth century, a day's labor 208 00:10:46,520 --> 00:10:48,800 Speaker 1: goes from you know, having got you ten minutes of 209 00:10:48,880 --> 00:10:52,000 Speaker 1: light in Babylon to a few hours of light at 210 00:10:52,120 --> 00:10:55,120 Speaker 1: you know, eighteen hundreds by the end of the twentieth century. 211 00:10:55,120 --> 00:10:56,840 Speaker 1: If you work all day, I want to light up 212 00:10:56,840 --> 00:10:58,480 Speaker 1: a room with your day's wages, you can light it 213 00:10:58,559 --> 00:11:01,000 Speaker 1: up for thousands and thou sense of hours. Right, So 214 00:11:01,040 --> 00:11:04,520 Speaker 1: that is effectively everybody getting much more money from the 215 00:11:04,559 --> 00:11:07,960 Speaker 1: same amount of work. I love that. I mean, I 216 00:11:08,040 --> 00:11:11,040 Speaker 1: wonder something. I wonder if like people have this conception 217 00:11:11,080 --> 00:11:14,680 Speaker 1: of finite money. It's just like we think of money 218 00:11:14,800 --> 00:11:18,160 Speaker 1: must correspond to something in the real world or so 219 00:11:18,240 --> 00:11:24,640 Speaker 1: it's like we have all these real assets houses, computers, iPhones, cars, 220 00:11:25,200 --> 00:11:27,440 Speaker 1: and I wonder if people think of that, like the 221 00:11:27,480 --> 00:11:29,640 Speaker 1: money is like there's just sort of like this one 222 00:11:29,679 --> 00:11:34,160 Speaker 1: to one correspondent between money in the bank and the 223 00:11:34,280 --> 00:11:38,040 Speaker 1: thing that's real. Sort of the lack of appreciation of 224 00:11:38,080 --> 00:11:41,199 Speaker 1: how they're just two different things they are real things 225 00:11:41,240 --> 00:11:45,679 Speaker 1: and money things. Yeah, I mean there's also like I agree, 226 00:11:45,760 --> 00:11:48,280 Speaker 1: I think there's like a stock flow confusion, right. I 227 00:11:48,320 --> 00:11:50,480 Speaker 1: think people think of the stock maybe, which is what 228 00:11:50,520 --> 00:11:52,920 Speaker 1: you're saying, right, People think like there's some amount of 229 00:11:52,960 --> 00:11:55,160 Speaker 1: stuff in the world and the only question is how 230 00:11:55,160 --> 00:11:57,720 Speaker 1: do we divide it out? But the flow is really 231 00:11:57,720 --> 00:11:59,319 Speaker 1: what we care about. What we care about is people 232 00:11:59,360 --> 00:12:03,520 Speaker 1: going to work every day and making stuff and providing services, right, 233 00:12:03,559 --> 00:12:06,800 Speaker 1: and when we get productivity gains, that means we can 234 00:12:06,840 --> 00:12:08,400 Speaker 1: do the same amount of work and get more stuff. 235 00:12:08,400 --> 00:12:10,600 Speaker 1: I mean, I do think one other thing is because 236 00:12:10,640 --> 00:12:13,600 Speaker 1: we have had this, you know, last several decades where 237 00:12:14,000 --> 00:12:17,440 Speaker 1: the productivity gains have not been well distributed, or at 238 00:12:17,480 --> 00:12:20,600 Speaker 1: least have not been equally distributed. That makes it harder 239 00:12:20,640 --> 00:12:24,040 Speaker 1: to believe that productivity gains make everybody better off. Right, 240 00:12:24,080 --> 00:12:27,520 Speaker 1: If productivity gains are not making everybody better off, it's 241 00:12:27,520 --> 00:12:47,319 Speaker 1: harder to be excited about productivity gains. There's another way 242 00:12:47,520 --> 00:12:51,559 Speaker 1: that people can get money, uh, sometimes get lots of money, 243 00:12:51,559 --> 00:12:55,839 Speaker 1: and that's by creating new types of money, although that 244 00:12:56,320 --> 00:12:59,480 Speaker 1: doesn't always go hand in hand with productivity gains. Could 245 00:12:59,520 --> 00:13:03,880 Speaker 1: you maybe talk a little bit about shadow banking and 246 00:13:04,080 --> 00:13:08,320 Speaker 1: the creation of a very specific type of money, which 247 00:13:08,360 --> 00:13:12,000 Speaker 1: you go into in some detail in the book. Yeah, 248 00:13:12,080 --> 00:13:15,120 Speaker 1: So that's very basically starts in the nineteen seventies, and 249 00:13:15,120 --> 00:13:19,040 Speaker 1: this is the times, as you guys know, when banks, 250 00:13:19,080 --> 00:13:23,240 Speaker 1: regular banks were very highly regulated. Basically that came out 251 00:13:23,280 --> 00:13:26,040 Speaker 1: of the depression, right, and the depression the government, the 252 00:13:26,080 --> 00:13:29,480 Speaker 1: US government said okay, we're going to ensure deposits in 253 00:13:29,520 --> 00:13:32,040 Speaker 1: regular banks. So at that moment was when they really 254 00:13:32,080 --> 00:13:36,440 Speaker 1: made bank deposits just clearly unambiguously government backed money. Right. 255 00:13:36,800 --> 00:13:40,000 Speaker 1: But in exchange for ensuring deposits and banks, we're going 256 00:13:40,040 --> 00:13:42,080 Speaker 1: to regulate the hell out of banks. Including we're going 257 00:13:42,120 --> 00:13:45,240 Speaker 1: to say banks cannot pay interest on checking accounts, and 258 00:13:45,280 --> 00:13:48,120 Speaker 1: they can only pay a limited amount of interest, a 259 00:13:48,200 --> 00:13:51,199 Speaker 1: capt amount of interest on savings accounts. Right, that's the setting. 260 00:13:51,559 --> 00:13:54,760 Speaker 1: So in the seventies, there's these two guys, one of 261 00:13:54,760 --> 00:13:56,360 Speaker 1: whom passed away fe years ago, one of whom I 262 00:13:56,360 --> 00:13:59,240 Speaker 1: spoke to working on the book. His name was Bruce Bent, 263 00:13:59,320 --> 00:14:03,400 Speaker 1: who was like just a very like charming entrepreneur type 264 00:14:03,400 --> 00:14:06,400 Speaker 1: of guy. Grew up working class in Long Island. His 265 00:14:06,520 --> 00:14:08,719 Speaker 1: dad was a postman. As he told me, he said, 266 00:14:08,720 --> 00:14:10,840 Speaker 1: I always had an attraction to money, you know, talked 267 00:14:10,880 --> 00:14:13,160 Speaker 1: about hustling as a kid, collecting bottles and that kind 268 00:14:13,160 --> 00:14:16,640 Speaker 1: of thing. Went to Wall Street, wound up working at 269 00:14:16,679 --> 00:14:18,560 Speaker 1: an insurance company and then went off and started this 270 00:14:18,640 --> 00:14:24,120 Speaker 1: firm with his partner, Harry Brown. And what they wanted 271 00:14:24,160 --> 00:14:28,720 Speaker 1: to figure out was basically a way around those regulations 272 00:14:28,760 --> 00:14:31,960 Speaker 1: that limited interest that banks could pay, and especially the 273 00:14:32,040 --> 00:14:33,760 Speaker 1: rule that said you couldn't get any interest on just 274 00:14:33,800 --> 00:14:38,120 Speaker 1: a regular demand checking account. And they essentially invented the 275 00:14:38,200 --> 00:14:40,960 Speaker 1: Money Market Mutual Fund to to get around that. And 276 00:14:41,000 --> 00:14:43,840 Speaker 1: what that was was a way that people could put 277 00:14:43,880 --> 00:14:47,120 Speaker 1: money in this fund and get paid interest and take 278 00:14:47,120 --> 00:14:50,560 Speaker 1: out their money whenever they wanted, right, So it was 279 00:14:50,640 --> 00:14:53,760 Speaker 1: a lot like a checking account, but it paid more interest, 280 00:14:53,880 --> 00:14:57,000 Speaker 1: which is great. Uh, if you are the person putting 281 00:14:57,000 --> 00:14:59,960 Speaker 1: your money in the bank, right, it's not FDIC insure, 282 00:15:00,040 --> 00:15:02,280 Speaker 1: it's not government insured, so there is some amount of risk. 283 00:15:02,360 --> 00:15:05,880 Speaker 1: But they set it up deliberately to seem as much 284 00:15:05,920 --> 00:15:08,480 Speaker 1: like money in the bank as possible. And in particular, 285 00:15:09,320 --> 00:15:12,000 Speaker 1: you know, it was a mutual fund, and typically the 286 00:15:12,080 --> 00:15:14,680 Speaker 1: value of your money in a mutual fund fluctuates with 287 00:15:14,680 --> 00:15:17,760 Speaker 1: the underlying assets. But they were investing in like super 288 00:15:17,760 --> 00:15:21,400 Speaker 1: safe assets, just like a big treasury bills and CDs, 289 00:15:21,480 --> 00:15:24,160 Speaker 1: you know, big bank time deposits. And they said, we're 290 00:15:24,160 --> 00:15:26,880 Speaker 1: going to set up the accounting so every dollar you 291 00:15:26,960 --> 00:15:30,080 Speaker 1: put in is essentially always worth a dollar unless there's 292 00:15:30,120 --> 00:15:32,400 Speaker 1: some huge capacitrophy. But it's not gonna float every day, 293 00:15:32,440 --> 00:15:34,600 Speaker 1: it's not gonna fluctuate. It's gonna be like money in 294 00:15:34,640 --> 00:15:38,640 Speaker 1: the bank. And this of course was like a killer idea. 295 00:15:39,120 --> 00:15:42,080 Speaker 1: It took off. In fact, it took off so much 296 00:15:42,160 --> 00:15:45,120 Speaker 1: that it started to change finance as a whole, right, 297 00:15:45,160 --> 00:15:49,000 Speaker 1: because more and more people are putting money in money 298 00:15:49,000 --> 00:15:52,560 Speaker 1: market mutual funds. But now and there's more funds springing up, 299 00:15:52,600 --> 00:15:56,440 Speaker 1: and by the eighties, these funds need new assets, right 300 00:15:56,720 --> 00:15:58,600 Speaker 1: Brown and Bent. In their first fund they're still just 301 00:15:58,680 --> 00:16:02,880 Speaker 1: buying these super safe basically government guaranteed assets. But other 302 00:16:02,920 --> 00:16:06,480 Speaker 1: funds start buying commercial paper and then become the biggest buyers, 303 00:16:06,560 --> 00:16:09,520 Speaker 1: the most important buyers of commercial paper, which this is 304 00:16:09,600 --> 00:16:13,520 Speaker 1: short term corporate debt, short term safe, pretty safe corporate debt. 305 00:16:14,320 --> 00:16:16,800 Speaker 1: And and the banks don't like this. I found this 306 00:16:17,280 --> 00:16:20,600 Speaker 1: bank trade publication from the eighties when this is happening 307 00:16:20,800 --> 00:16:23,760 Speaker 1: that talked about banks seeing commercial paper as the enemy, right, 308 00:16:23,800 --> 00:16:28,200 Speaker 1: because this is basically taking away commercial lending from the banks. 309 00:16:29,040 --> 00:16:32,120 Speaker 1: So the banks, being you know, good at their job 310 00:16:32,160 --> 00:16:34,080 Speaker 1: of sort of getting in the middle of vast flows 311 00:16:34,080 --> 00:16:35,960 Speaker 1: of money, figure out how to get in on this. 312 00:16:36,000 --> 00:16:41,720 Speaker 1: City sets up the first conduit and creates asset back 313 00:16:41,760 --> 00:16:44,440 Speaker 1: to commercial paper, this new kind of commercial paper basically, 314 00:16:44,520 --> 00:16:46,720 Speaker 1: so it's a way for companies to borrow, it's a 315 00:16:46,720 --> 00:16:49,760 Speaker 1: way for money market mutual funds to lend, and it's 316 00:16:49,800 --> 00:16:51,400 Speaker 1: way for city to sort of get in the middle 317 00:16:51,440 --> 00:16:55,160 Speaker 1: and collect fees without really having to put their whole 318 00:16:55,320 --> 00:17:00,320 Speaker 1: bank nous on the line. So this grows. Mutual funds 319 00:17:00,320 --> 00:17:04,439 Speaker 1: are lending into this. As investment banks get bigger, mutual 320 00:17:04,440 --> 00:17:07,520 Speaker 1: funds money market mutual funds start becoming big lenders to 321 00:17:07,640 --> 00:17:12,040 Speaker 1: investment banks, largely through the repo market, and you see 322 00:17:12,600 --> 00:17:16,120 Speaker 1: growing through these innovations, if you want to call them, 323 00:17:16,160 --> 00:17:21,160 Speaker 1: that this parallel banking system. You mentioned that every share 324 00:17:21,320 --> 00:17:25,320 Speaker 1: in this reserve fund was worth exactly one dollar. It 325 00:17:25,400 --> 00:17:27,199 Speaker 1: is pegged to the dollar, and this strikes me as 326 00:17:27,240 --> 00:17:31,240 Speaker 1: like an important point here and sort of understanding what 327 00:17:31,320 --> 00:17:33,600 Speaker 1: money is, because it's like, Okay, you have a dollar bill, 328 00:17:34,280 --> 00:17:36,840 Speaker 1: it's worth one dollar, you know it towards the dollar. 329 00:17:36,960 --> 00:17:40,280 Speaker 1: You have a dollar in a normal savings account. It's 330 00:17:40,280 --> 00:17:43,359 Speaker 1: not the same thing. It's actually a liability of the bank. 331 00:17:43,760 --> 00:17:46,600 Speaker 1: But it's pegged at one to one to the dollar. 332 00:17:46,720 --> 00:17:50,520 Speaker 1: So we're basically can accept that it's roughly the same thing. Yeah, 333 00:17:50,600 --> 00:17:53,320 Speaker 1: and you have a government, you have the government guarantee, 334 00:17:53,640 --> 00:17:55,639 Speaker 1: and then you have this reserve fund, which is like 335 00:17:55,720 --> 00:18:00,280 Speaker 1: super safe or in theory at this point, only invest 336 00:18:00,320 --> 00:18:03,680 Speaker 1: in super safe things. Also, one share is also worth 337 00:18:03,680 --> 00:18:06,720 Speaker 1: a dollar, and so it seems to me that's sort 338 00:18:06,760 --> 00:18:10,040 Speaker 1: of like part of money nous. It's just the idea 339 00:18:10,119 --> 00:18:15,480 Speaker 1: of people accepting the different assets with very slightly different 340 00:18:15,960 --> 00:18:20,840 Speaker 1: risk profiles almost the same but slightly different. Are all, 341 00:18:21,280 --> 00:18:24,000 Speaker 1: you know, pegged in worth the same amount, even if 342 00:18:24,040 --> 00:18:26,560 Speaker 1: they're sort of fundamentally different things that you have in 343 00:18:26,560 --> 00:18:30,080 Speaker 1: your in your possession. Yeah, I mean redeemable at par 344 00:18:30,280 --> 00:18:34,560 Speaker 1: on demand, right, I think that that is a good definition. 345 00:18:34,680 --> 00:18:37,640 Speaker 1: I think, I mean they are slightly different risk profiles. 346 00:18:37,640 --> 00:18:39,880 Speaker 1: I think people basically need to think of it as 347 00:18:39,960 --> 00:18:42,239 Speaker 1: riskless for it to be money. That they might be 348 00:18:42,280 --> 00:18:44,359 Speaker 1: wrong about it being riskless, and they did end up 349 00:18:44,359 --> 00:18:46,440 Speaker 1: being wrong if we get they did, and and that's 350 00:18:46,440 --> 00:18:48,239 Speaker 1: when it stops being money, I would say, I mean 351 00:18:48,280 --> 00:18:50,280 Speaker 1: that's like I don't know if you guys have had 352 00:18:50,280 --> 00:18:53,200 Speaker 1: Gary Gorton on the show, but like he is really 353 00:18:53,200 --> 00:18:56,080 Speaker 1: good on this, and like my understanding, he's this Yale 354 00:18:56,080 --> 00:18:59,160 Speaker 1: professor who also worked for a I. G. In the aughts, 355 00:18:59,760 --> 00:19:03,000 Speaker 1: but who who basically my understanding of this sort of 356 00:19:03,119 --> 00:19:05,040 Speaker 1: arc and this way of thinking about money comes from him. 357 00:19:05,040 --> 00:19:09,080 Speaker 1: So he's he's great on this. So yes, redeemable at 358 00:19:09,080 --> 00:19:12,080 Speaker 1: par on demand. And I think you basically need to 359 00:19:12,080 --> 00:19:14,040 Speaker 1: think of it as riskless to be money, right, because 360 00:19:14,080 --> 00:19:16,600 Speaker 1: if it's not riskless. Then it's like an asset or 361 00:19:16,640 --> 00:19:18,960 Speaker 1: an investment or like maybe I'll win, maybe I'll lose, 362 00:19:19,000 --> 00:19:21,240 Speaker 1: but that's not money, so okay. So you have this 363 00:19:21,280 --> 00:19:24,960 Speaker 1: big system going. Money market mutual funds are a huge 364 00:19:25,400 --> 00:19:31,040 Speaker 1: lender into it. You know, other big institutions, sovereign wealth funds, 365 00:19:31,280 --> 00:19:36,200 Speaker 1: corporate treasuries also start lending into this universe of commercial paper, 366 00:19:36,240 --> 00:19:40,560 Speaker 1: asset back, commercial paper repo, and this lending ends up 367 00:19:40,680 --> 00:19:44,280 Speaker 1: being I feel like the still largely untold story of 368 00:19:44,280 --> 00:19:46,399 Speaker 1: the financial crisis. I mean, you guys probably know the 369 00:19:46,440 --> 00:19:47,680 Speaker 1: side of it. A lot of people who listen to 370 00:19:47,720 --> 00:19:49,280 Speaker 1: this show probably know the side of it. But I 371 00:19:49,280 --> 00:19:51,240 Speaker 1: will say, as someone who covers finance for a more 372 00:19:51,280 --> 00:19:54,160 Speaker 1: general audience, most people don't know the side of it. Right. 373 00:19:54,200 --> 00:19:57,440 Speaker 1: Most people still think of the financial crisis as just 374 00:19:58,320 --> 00:20:01,000 Speaker 1: dumb subprime loans that blew and then blew up the economy. 375 00:20:01,000 --> 00:20:03,679 Speaker 1: And that part is true. It's just insufficient, right. And 376 00:20:03,720 --> 00:20:06,040 Speaker 1: what this part of the story tells you is where 377 00:20:06,119 --> 00:20:09,320 Speaker 1: was the money coming from? Right? The money that the 378 00:20:09,359 --> 00:20:12,920 Speaker 1: subplot prime lenders were lending it was coming from money 379 00:20:12,960 --> 00:20:16,200 Speaker 1: market mutual fund deposits. You know, it was coming from 380 00:20:16,240 --> 00:20:21,800 Speaker 1: the shadow banking system, And what happened was basically there 381 00:20:21,960 --> 00:20:25,160 Speaker 1: was a bank run on the shadow banking system before 382 00:20:25,680 --> 00:20:31,040 Speaker 1: anybody realized that this system had become a parallel banking system. 383 00:20:31,080 --> 00:20:34,280 Speaker 1: That the you know, people's UH deposits, which I suppose 384 00:20:34,320 --> 00:20:36,680 Speaker 1: are not properly called deposits, but people think of them 385 00:20:36,720 --> 00:20:39,600 Speaker 1: that way, and money market mutual funds were sort of 386 00:20:39,680 --> 00:20:43,040 Speaker 1: lending into this system by the time people realized that 387 00:20:43,200 --> 00:20:45,400 Speaker 1: the run had already happened. Right. There's this famous Paul 388 00:20:45,440 --> 00:20:48,800 Speaker 1: McCulley Paul McCulley of PIMCO speech in two thousand seven 389 00:20:48,840 --> 00:20:50,959 Speaker 1: where I think that's where the coin where the term 390 00:20:51,000 --> 00:20:53,399 Speaker 1: shadow banking was coined. It was at the Jackson Hole 391 00:20:53,440 --> 00:20:56,200 Speaker 1: conference in two thousand seven. That was when the run 392 00:20:56,320 --> 00:21:00,399 Speaker 1: was basically starting. It started in the repo market. Gorton 393 00:21:00,440 --> 00:21:03,200 Speaker 1: has this great paper where he's described bigger and bigger haircuts. 394 00:21:03,280 --> 00:21:06,639 Speaker 1: They look at how big the haircuts are demanded for 395 00:21:06,760 --> 00:21:10,040 Speaker 1: repo and they start getting bigger. Around this time, UH, 396 00:21:10,040 --> 00:21:13,880 Speaker 1: this BNP PARVA fund failed and you start to see 397 00:21:13,880 --> 00:21:16,760 Speaker 1: this run on asset back commercial papers. So in some ways, 398 00:21:16,840 --> 00:21:19,120 Speaker 1: the crisis of two thousand eight really starts in two 399 00:21:19,160 --> 00:21:21,400 Speaker 1: thousand seven. But then, of course you see it sort 400 00:21:21,440 --> 00:21:24,600 Speaker 1: of stepping forward. You know, in spring of two thousand eight, 401 00:21:24,600 --> 00:21:27,880 Speaker 1: when Bear goes bust, that is basically a run, right, 402 00:21:27,920 --> 00:21:30,760 Speaker 1: Bear was solvent, and you see, actually the money market 403 00:21:30,840 --> 00:21:33,280 Speaker 1: mutual funds there. You see that week when everybody stopped 404 00:21:33,320 --> 00:21:36,160 Speaker 1: lending to Bear, like Fidelity alone, which is I think 405 00:21:36,160 --> 00:21:39,080 Speaker 1: by that point was the biggest mutual fund company. They 406 00:21:39,080 --> 00:21:42,320 Speaker 1: stopped lending Bear ten billion dollars, you know, and this 407 00:21:42,359 --> 00:21:44,080 Speaker 1: was money that Bear had just been rolling and rolling 408 00:21:44,080 --> 00:21:46,840 Speaker 1: and rolling, right, It was basically a deposit. And then 409 00:21:46,880 --> 00:21:50,320 Speaker 1: the same thing with Lehman. And the amazing thing about 410 00:21:50,400 --> 00:21:53,600 Speaker 1: Lehman is it gets us back to Bruce Bent, the 411 00:21:53,640 --> 00:21:56,879 Speaker 1: inventor of the Reserve Fund, the first money market mutual fund. 412 00:21:57,359 --> 00:22:00,560 Speaker 1: Bruce Bent, this whole time, as money mark mutual funds 413 00:22:00,560 --> 00:22:03,919 Speaker 1: are getting bigger and starting to a lend, starting to 414 00:22:03,960 --> 00:22:06,159 Speaker 1: get these assets that are risk here, the whole time 415 00:22:06,200 --> 00:22:09,440 Speaker 1: he has been complaining about the change in money market 416 00:22:09,480 --> 00:22:13,280 Speaker 1: mutual funds. He keeps saying, you know, through the nineties 417 00:22:13,280 --> 00:22:16,200 Speaker 1: into the odds, he keeps saying, money market mutual funds 418 00:22:16,200 --> 00:22:19,040 Speaker 1: should not be buying commercial paper. The whole point is 419 00:22:19,080 --> 00:22:21,400 Speaker 1: to bore you into a sound night's sleep, he loved 420 00:22:21,400 --> 00:22:26,480 Speaker 1: to say. But in September of two thousand eight, when 421 00:22:26,560 --> 00:22:30,119 Speaker 1: Lehman went bankrupt, low and behold Bruce Bence Reserve Fund, 422 00:22:30,600 --> 00:22:35,120 Speaker 1: first money market mutual fund ever was holding Lehman paper amazing, too, 423 00:22:35,280 --> 00:22:37,480 Speaker 1: too perfect of a narrative, right, too good to be true? 424 00:22:38,080 --> 00:22:40,800 Speaker 1: Just going back, So Bruce band started this thing, the 425 00:22:40,880 --> 00:22:45,680 Speaker 1: Reserve Fund. It's super boring the name, the reserve Fund. Yes, 426 00:22:45,920 --> 00:22:47,920 Speaker 1: he actually wanted to call it the savings fund, and 427 00:22:47,920 --> 00:22:49,919 Speaker 1: they wouldn't let him, so they picked another boring name. 428 00:22:50,040 --> 00:22:52,200 Speaker 1: So you hear something called the Reserve Fund, you might 429 00:22:52,240 --> 00:22:55,240 Speaker 1: even think it's like some sort of like Lasi official 430 00:22:55,400 --> 00:22:59,800 Speaker 1: government and from a box full of gold guarded by 431 00:22:59,840 --> 00:23:04,760 Speaker 1: US soldier for years, he just invested the absolute saves asset, 432 00:23:04,840 --> 00:23:08,360 Speaker 1: short term government bonds that are free from default risk. 433 00:23:08,840 --> 00:23:11,640 Speaker 1: The industry explodes because everybody likes being able to pick 434 00:23:11,720 --> 00:23:14,280 Speaker 1: up these two extra pennies that they couldn't get in 435 00:23:14,359 --> 00:23:18,800 Speaker 1: a typical checking account. Then other people realized that they 436 00:23:18,840 --> 00:23:22,000 Speaker 1: could get a little more spread by buying slightly risk 437 00:23:22,040 --> 00:23:24,640 Speaker 1: your assets, and that puts pressure on everyone to buy 438 00:23:24,760 --> 00:23:28,280 Speaker 1: risk your assets. And then by two eight even Bruce 439 00:23:28,320 --> 00:23:33,240 Speaker 1: bent owns Lehman paper. Yes, very well, very well done, 440 00:23:33,359 --> 00:23:37,399 Speaker 1: A plus. So that's not good. And then uh, the 441 00:23:37,480 --> 00:23:41,479 Speaker 1: next day the reserve fund breaks the buck. They say, oh, sorry, 442 00:23:41,680 --> 00:23:44,040 Speaker 1: your money. That was a dollar. Your dollar, that was 443 00:23:44,080 --> 00:23:46,639 Speaker 1: a dollar. It's actually not quite a dollar. So I 444 00:23:46,680 --> 00:23:50,000 Speaker 1: remember that day, um, when reserved primary broke the book. 445 00:23:50,040 --> 00:23:53,760 Speaker 1: That was such a massive, massive event in financial markets. 446 00:23:53,880 --> 00:23:56,440 Speaker 1: And it sort of speaks to exactly what you were saying, 447 00:23:56,480 --> 00:23:59,600 Speaker 1: which is this thing that everyone thought was safe in 448 00:23:59,600 --> 00:24:03,159 Speaker 1: a place to store money suddenly is no longer safe 449 00:24:03,200 --> 00:24:05,120 Speaker 1: in a place to store money. And it actually led 450 00:24:05,160 --> 00:24:10,159 Speaker 1: to a bunch of um emergency steps from various authorities 451 00:24:10,200 --> 00:24:13,240 Speaker 1: to try to to try to calm everything that was 452 00:24:13,280 --> 00:24:17,360 Speaker 1: going on. Yeah, and I mean, Joe to your earlier 453 00:24:17,440 --> 00:24:20,840 Speaker 1: point about you know, when does the thing become money 454 00:24:20,960 --> 00:24:25,560 Speaker 1: when the reserve fund breaks the buck. Suddenly a deposit 455 00:24:25,640 --> 00:24:28,960 Speaker 1: in a money market mutual fund becomes much less like money, right, 456 00:24:29,000 --> 00:24:30,800 Speaker 1: even though it didn't go down much, you know, it 457 00:24:30,880 --> 00:24:33,000 Speaker 1: was like, I don't know one percent or something of 458 00:24:33,000 --> 00:24:36,520 Speaker 1: their assets. We're Lehman paper, right, So if it's like 459 00:24:36,520 --> 00:24:38,760 Speaker 1: a normal mutual fund, your mutual fund goes down by 460 00:24:38,800 --> 00:24:40,920 Speaker 1: one percent in a day. That's just like Tuesday, that's 461 00:24:40,920 --> 00:24:44,480 Speaker 1: just a normal day, right. But the money nous of 462 00:24:44,520 --> 00:24:47,720 Speaker 1: it is what made the breaking the bucks so catastrophic. 463 00:24:47,760 --> 00:24:50,080 Speaker 1: I mean, there's there was this thing that happened hundreds 464 00:24:50,080 --> 00:24:52,240 Speaker 1: of years before in England when they first had paper money. 465 00:24:52,280 --> 00:24:54,520 Speaker 1: It was these goldsmith notes. And there's this moment when 466 00:24:54,560 --> 00:24:58,960 Speaker 1: there's like the first bank run on these fractional reserve goldsmiths, 467 00:24:59,000 --> 00:25:02,400 Speaker 1: and some guy at the British Treasury is like, these 468 00:25:02,480 --> 00:25:05,520 Speaker 1: notes we had taken is now not money, right, which 469 00:25:05,560 --> 00:25:09,680 Speaker 1: is like exactly what's happening when Bruce Bence Fund breaks 470 00:25:09,720 --> 00:25:13,080 Speaker 1: the buck. And and afterwards a few days later, President 471 00:25:13,600 --> 00:25:16,560 Speaker 1: Bush at the time gives this gives this speech at 472 00:25:16,600 --> 00:25:18,600 Speaker 1: the White House where he talks about money market mutual 473 00:25:18,600 --> 00:25:22,840 Speaker 1: funds and the government insures right then money market funds. 474 00:25:22,840 --> 00:25:25,360 Speaker 1: So what the government is rushing to do at that 475 00:25:25,400 --> 00:25:28,560 Speaker 1: moment is turn them back into money. Right. There's this 476 00:25:28,680 --> 00:25:31,560 Speaker 1: chaotic few days Tracy that you're describing when it's like, 477 00:25:31,960 --> 00:25:33,640 Speaker 1: oh my god, this thing that I thought was money 478 00:25:33,680 --> 00:25:35,439 Speaker 1: is not money. The Government's like, okay, okay, tell you 479 00:25:35,440 --> 00:25:37,400 Speaker 1: what we are going to put this inside the fence 480 00:25:37,440 --> 00:25:39,720 Speaker 1: of stuff we call money. We are going to ensure. 481 00:25:39,800 --> 00:25:42,240 Speaker 1: The U. S. Government is promising that if you already 482 00:25:42,240 --> 00:25:43,840 Speaker 1: put in a dollar in her, you're going to get 483 00:25:43,880 --> 00:25:47,000 Speaker 1: a dollar back. I really think, you know, there's like 484 00:25:47,160 --> 00:25:49,720 Speaker 1: there's like an alchemy involved here, right, because no one, 485 00:25:49,920 --> 00:25:55,639 Speaker 1: like if someone just lended to a subprime homeowner directly 486 00:25:55,760 --> 00:25:58,000 Speaker 1: and you held the note or you held that loan, 487 00:25:58,440 --> 00:26:02,080 Speaker 1: no one would think of that as money. Right. You think, Okay, 488 00:26:02,080 --> 00:26:04,640 Speaker 1: this is a risky asset, there's some risk that I'm 489 00:26:04,640 --> 00:26:08,080 Speaker 1: not going to get paid back, etcetera. Um, it's an asset. 490 00:26:08,119 --> 00:26:10,040 Speaker 1: It's worth something, but who knows what it's really worth. 491 00:26:10,160 --> 00:26:12,159 Speaker 1: I wouldn't really think of that as the money that 492 00:26:12,320 --> 00:26:16,119 Speaker 1: I have. It characterized the sort of pre crisis period, 493 00:26:16,160 --> 00:26:21,119 Speaker 1: I guess, was this alchemy where risky assets got turned 494 00:26:21,240 --> 00:26:26,600 Speaker 1: into something backed by what people thought was money. Assets 495 00:26:26,600 --> 00:26:28,760 Speaker 1: that were pegged one to one against the dollar, and 496 00:26:28,800 --> 00:26:31,200 Speaker 1: that sort of assumed to have the same risk profile 497 00:26:31,240 --> 00:26:33,800 Speaker 1: of the dollar, which is nothing. And so that moment 498 00:26:34,400 --> 00:26:37,879 Speaker 1: when the Reserve fund broke the buck was essentially that 499 00:26:38,000 --> 00:26:41,680 Speaker 1: realization that it was not really money that they had. 500 00:26:42,840 --> 00:26:45,159 Speaker 1: That's right. I mean that alchemy that you're talking about 501 00:26:45,640 --> 00:26:49,560 Speaker 1: is is like the most basic form of banking, right, 502 00:26:51,119 --> 00:26:54,159 Speaker 1: you know, that's that's the whole sort of thing banks 503 00:26:54,160 --> 00:27:00,439 Speaker 1: are doing, is turning relatively risky assets into riskless on 504 00:27:00,520 --> 00:27:06,080 Speaker 1: demand money, and like that is fundamentally problematic at times, right, 505 00:27:06,119 --> 00:27:09,840 Speaker 1: That's why we have financial crises. And you know, deposit 506 00:27:09,880 --> 00:27:15,920 Speaker 1: insurance stabilized that alchemy inside the banking system. But then 507 00:27:15,960 --> 00:27:18,720 Speaker 1: what happened sort of without anybody knowing it, or certainly 508 00:27:18,760 --> 00:27:22,800 Speaker 1: without regulators knowing it, was that alchemy started happening outside 509 00:27:22,840 --> 00:27:27,600 Speaker 1: that regulated stabilized fence and created the same instability we've 510 00:27:27,600 --> 00:27:47,560 Speaker 1: seen for ever with banks. So everyone talks about the 511 00:27:47,680 --> 00:27:52,199 Speaker 1: credit crunch sort of sparking the two financial crisis, but 512 00:27:52,520 --> 00:27:56,280 Speaker 1: actually the argument here is that it was a collateral 513 00:27:56,560 --> 00:28:00,000 Speaker 1: crunch within the shadow banking system, where everyone stopped trust 514 00:28:00,040 --> 00:28:04,080 Speaker 1: sting the things that were underpinning all these loans or 515 00:28:04,160 --> 00:28:10,080 Speaker 1: all these um different um alchemy transactions, and suddenly the 516 00:28:10,080 --> 00:28:13,040 Speaker 1: thing that was supposed to be ultra safe wasn't thought 517 00:28:13,119 --> 00:28:16,719 Speaker 1: of as safe anymore. The weird thing about all of this, 518 00:28:16,960 --> 00:28:20,720 Speaker 1: and something that continues to amaze me, is that even 519 00:28:20,760 --> 00:28:25,159 Speaker 1: though this has now been on regulators radar um for 520 00:28:25,240 --> 00:28:27,840 Speaker 1: many many years, basically in all the time since the 521 00:28:27,840 --> 00:28:31,720 Speaker 1: two thousands of financial crisis, everything is still kind of 522 00:28:32,240 --> 00:28:35,000 Speaker 1: works the same, or I mean there happened. There have 523 00:28:35,119 --> 00:28:39,000 Speaker 1: been some big changes, but there's still work to be 524 00:28:39,080 --> 00:28:43,280 Speaker 1: done in this quarter of the market. Yeah, I mean, 525 00:28:43,560 --> 00:28:47,600 Speaker 1: so after the crisis, some rules changed about some money 526 00:28:47,600 --> 00:28:52,480 Speaker 1: market mutual funds. Prime money market mutual funds for institutional 527 00:28:52,520 --> 00:28:55,800 Speaker 1: investors no longer have that fixed one dollar NAV. They 528 00:28:55,840 --> 00:28:58,880 Speaker 1: float to the I don't know to many decimals now, 529 00:28:59,360 --> 00:29:03,240 Speaker 1: So that's on, and there are certain rules about dating 530 00:29:03,520 --> 00:29:07,800 Speaker 1: and liquidity fees like, but it is still the case 531 00:29:07,920 --> 00:29:12,640 Speaker 1: that regular retail prime money market funds have that fixed 532 00:29:12,640 --> 00:29:15,320 Speaker 1: one dollar NAV. You can still write checks on them. 533 00:29:15,360 --> 00:29:17,920 Speaker 1: So yeah, I mean, I'm curious what you guys make 534 00:29:18,000 --> 00:29:20,400 Speaker 1: of that. Frankly, I feel like, you know, I studied 535 00:29:20,440 --> 00:29:23,240 Speaker 1: the history a lot. You guys probably follow the kind 536 00:29:23,240 --> 00:29:28,360 Speaker 1: of contemporary regulatory industry discussions more than I do. Like, 537 00:29:28,600 --> 00:29:30,520 Speaker 1: what do you think of this sort of state of 538 00:29:30,560 --> 00:29:35,120 Speaker 1: play in terms of shadow banking and regulation? This is 539 00:29:35,120 --> 00:29:38,560 Speaker 1: where I just like Tracy talk. I don't know, I 540 00:29:38,560 --> 00:29:41,480 Speaker 1: feel really behind on the latest, But like in the 541 00:29:41,520 --> 00:29:44,400 Speaker 1: repo market, I know they tried for so many years 542 00:29:44,480 --> 00:29:49,200 Speaker 1: to do a massive reform of tri party repo specifically, 543 00:29:49,240 --> 00:29:53,800 Speaker 1: and I just feel like it never really got um 544 00:29:53,840 --> 00:29:56,200 Speaker 1: to a point where it made a significant difference, and 545 00:29:56,240 --> 00:30:00,000 Speaker 1: we're still seeing the industry sort of ump to shipt 546 00:30:00,240 --> 00:30:01,760 Speaker 1: on its own. So I don't know if you saw this, 547 00:30:01,840 --> 00:30:07,200 Speaker 1: but last week UM Vanguard uh it's prime money market 548 00:30:07,200 --> 00:30:15,000 Speaker 1: funds said it was going to transform into all government collateral. Basically, well, 549 00:30:15,040 --> 00:30:17,600 Speaker 1: I guess if you're getting zero on if you're getting 550 00:30:17,720 --> 00:30:20,760 Speaker 1: zero on everything else, right, zero backed by the government 551 00:30:20,840 --> 00:30:25,000 Speaker 1: is better than zero not backed by the government. Yeah, exactly. Um, 552 00:30:25,040 --> 00:30:28,520 Speaker 1: but it is interesting to see a lot of MMFs 553 00:30:28,560 --> 00:30:31,320 Speaker 1: money market funds ought to do this on their own, 554 00:30:31,360 --> 00:30:34,120 Speaker 1: and they're doing it basically because of market constraints rather 555 00:30:34,200 --> 00:30:38,760 Speaker 1: than any regulation. But then the one sorry I'm going 556 00:30:38,800 --> 00:30:42,320 Speaker 1: on a slight um rambling tangent here, but the one 557 00:30:42,360 --> 00:30:46,400 Speaker 1: thing I wonder about is if if we strengthen the 558 00:30:46,440 --> 00:30:49,280 Speaker 1: repo market and money market funds by having them all 559 00:30:49,440 --> 00:30:53,920 Speaker 1: hold government collateral, then like obviously, anything that happens in 560 00:30:53,960 --> 00:30:56,200 Speaker 1: the treasury market is going to be a big, big 561 00:30:56,240 --> 00:30:59,400 Speaker 1: deal for the entire financial system, even more so than 562 00:30:59,440 --> 00:31:02,200 Speaker 1: it would have been before. And we saw some shades 563 00:31:02,280 --> 00:31:07,400 Speaker 1: of that in March with the COVID sparked crisis. You know, 564 00:31:07,440 --> 00:31:09,400 Speaker 1: we did have a season up in the repo market. 565 00:31:09,400 --> 00:31:12,040 Speaker 1: We have these leverage treasury trades that all blew up. 566 00:31:12,640 --> 00:31:14,600 Speaker 1: So I just wonder, and we saw the FED react 567 00:31:14,760 --> 00:31:17,400 Speaker 1: very very quickly because they know that this is a 568 00:31:17,480 --> 00:31:20,160 Speaker 1: pain point or a pressure point or a vulnerability in 569 00:31:20,200 --> 00:31:23,880 Speaker 1: the financial system. I just wonder if by building the 570 00:31:24,040 --> 00:31:28,720 Speaker 1: entire system on collateral that's deemed ultra safe, if we're 571 00:31:28,720 --> 00:31:32,880 Speaker 1: sort of setting ourselves up for another sudden experience where 572 00:31:32,920 --> 00:31:35,600 Speaker 1: that collateral suddenly is no longer considered safe. But on 573 00:31:35,600 --> 00:31:38,280 Speaker 1: the other hand, I cannot think of anything that that's 574 00:31:38,440 --> 00:31:41,280 Speaker 1: safer than US treasury. So I don't know what the 575 00:31:41,320 --> 00:31:44,720 Speaker 1: alternative would be. Yeah, it's hard. I mean, there's also 576 00:31:44,760 --> 00:31:47,760 Speaker 1: the idea. There's the idea of a safe asset shortage, right, 577 00:31:47,760 --> 00:31:50,320 Speaker 1: there's the idea that everybody wants safe assets. And you know, 578 00:31:50,440 --> 00:31:53,440 Speaker 1: part of part of the sort of odds story is 579 00:31:53,480 --> 00:31:57,920 Speaker 1: that the production of all this triple A rated debt 580 00:31:58,160 --> 00:32:00,800 Speaker 1: that later we all were like, oh, why was the 581 00:32:00,840 --> 00:32:03,520 Speaker 1: triple a? That there was a demand side, right, And 582 00:32:03,560 --> 00:32:06,400 Speaker 1: part of the demand side was coming from what you're 583 00:32:06,400 --> 00:32:10,000 Speaker 1: describing from people who wanted a very safe asset, and 584 00:32:10,120 --> 00:32:13,320 Speaker 1: like there was so much demand for treasuries that people 585 00:32:13,320 --> 00:32:15,240 Speaker 1: were like, Okay, I'll tell you what, here's a triple 586 00:32:15,280 --> 00:32:18,280 Speaker 1: A bond basically as good as a treasury. So that's 587 00:32:18,320 --> 00:32:20,720 Speaker 1: one problem that I just don't know what the answer 588 00:32:20,720 --> 00:32:23,479 Speaker 1: to is. All there may be more deficit spending weirdly, right, 589 00:32:23,800 --> 00:32:26,360 Speaker 1: I mean, the other thing I will say, they're interesting, 590 00:32:26,520 --> 00:32:29,440 Speaker 1: like very big ideas here, right. I Mean, one of 591 00:32:29,480 --> 00:32:31,880 Speaker 1: the fun things to me in writing the book is 592 00:32:32,000 --> 00:32:36,760 Speaker 1: realizing that there are massive changes in you know, what 593 00:32:36,840 --> 00:32:42,320 Speaker 1: money is in monetary regimes, and so presumably we're not 594 00:32:42,360 --> 00:32:44,480 Speaker 1: at the end of that, right, things aren't going to 595 00:32:44,520 --> 00:32:48,360 Speaker 1: stop changing, and so you know pretty clearly now the 596 00:32:48,400 --> 00:32:50,600 Speaker 1: one like big money idea of people talk about is 597 00:32:50,720 --> 00:32:52,160 Speaker 1: m M T, which is sort of in a different 598 00:32:52,240 --> 00:32:55,640 Speaker 1: universe from this conversation. But there are lots of interesting, weird, 599 00:32:55,760 --> 00:32:58,400 Speaker 1: big ideas that are more German here, right, Like there's 600 00:32:58,440 --> 00:33:01,480 Speaker 1: this old idea that doesn't really, Tracy frankly solve the 601 00:33:01,480 --> 00:33:04,200 Speaker 1: problem you're talking about. But there's this old idea, uh, 602 00:33:04,320 --> 00:33:07,560 Speaker 1: the Chicago Plan that you guys probably know, which is 603 00:33:07,600 --> 00:33:10,240 Speaker 1: basically I mean that is basically and even like you 604 00:33:10,240 --> 00:33:11,920 Speaker 1: know Martin Wolf of the f T who was like 605 00:33:11,960 --> 00:33:14,640 Speaker 1: super establishment, like very smart, but not at all like 606 00:33:14,640 --> 00:33:17,280 Speaker 1: a radical, like he wrote this book a few years ago. 607 00:33:17,320 --> 00:33:20,640 Speaker 1: I mean, their ideas are like, just just give up 608 00:33:20,640 --> 00:33:23,640 Speaker 1: on banking, give up on fraction reserve banking, whether it's 609 00:33:24,080 --> 00:33:27,040 Speaker 1: regular banks or shadow banks. Right, but even like John 610 00:33:27,080 --> 00:33:30,640 Speaker 1: Cochrane of the Hoover Institution, who is very like, you know, 611 00:33:31,280 --> 00:33:33,760 Speaker 1: these are not lefty ideas. John Cochrane is a very 612 00:33:33,840 --> 00:33:37,760 Speaker 1: pro free market idea guy, but his his thing is like, look, 613 00:33:38,440 --> 00:33:41,760 Speaker 1: there's just this fundamental problem with with Joe, what you 614 00:33:41,840 --> 00:33:44,480 Speaker 1: referred to as alchemy, right with with you know, the 615 00:33:44,520 --> 00:33:46,600 Speaker 1: creation of these safe assets that don't end up being 616 00:33:46,600 --> 00:33:51,160 Speaker 1: safe with liquidity transformation, maturity transformation, and like we don't 617 00:33:51,160 --> 00:33:53,240 Speaker 1: have to structure the world this way, right, I mean 618 00:33:53,280 --> 00:33:56,880 Speaker 1: you could have uh bond funds essentially, like if you 619 00:33:56,880 --> 00:33:59,040 Speaker 1: have money that you want to grow over time, you 620 00:33:59,080 --> 00:34:01,200 Speaker 1: could invest in a bond fund and if the bonds 621 00:34:01,200 --> 00:34:02,560 Speaker 1: pay off, you make money, and if they don't, you 622 00:34:02,600 --> 00:34:05,000 Speaker 1: lose money. And then you could have just like a 623 00:34:05,120 --> 00:34:08,360 Speaker 1: money warehouse that like where your paycheck gets deposited and 624 00:34:08,360 --> 00:34:10,080 Speaker 1: where you do your payments and you would pay a 625 00:34:10,120 --> 00:34:12,200 Speaker 1: little fee for that because it's a useful service, Like 626 00:34:12,520 --> 00:34:15,160 Speaker 1: they don't have to go together, right, Like that's the 627 00:34:15,200 --> 00:34:18,319 Speaker 1: fundamental thing, both in regular banking and shadow banking, and 628 00:34:18,360 --> 00:34:20,839 Speaker 1: so lots of problems would come with that. But it's 629 00:34:20,880 --> 00:34:23,880 Speaker 1: interesting to me to think that, like this whole universe 630 00:34:23,920 --> 00:34:26,880 Speaker 1: we're in is just one option. Just going back to 631 00:34:26,920 --> 00:34:29,480 Speaker 1: the Reserve Fund for a second, and you mentioned like 632 00:34:29,600 --> 00:34:32,680 Speaker 1: basically the solution they came up with is do whatever 633 00:34:32,719 --> 00:34:38,359 Speaker 1: you want, but don't peg the the share holders. It's 634 00:34:38,400 --> 00:34:40,200 Speaker 1: not do whatever you want, it's I mean, there there 635 00:34:40,200 --> 00:34:43,520 Speaker 1: are lots of rules about that. Don't treat it okay, 636 00:34:43,760 --> 00:34:47,560 Speaker 1: right they they're there are rules, but stop stop pegging 637 00:34:47,560 --> 00:34:50,040 Speaker 1: it to the dollar. And so it's essentially it's like 638 00:34:50,040 --> 00:34:52,720 Speaker 1: you know, at the beginning, it's like the reserve Fund 639 00:34:52,880 --> 00:34:55,880 Speaker 1: is a mutual fund that pretended to be a checking account, 640 00:34:56,040 --> 00:34:59,960 Speaker 1: so to speak, and the solution was keep it as 641 00:35:00,000 --> 00:35:04,920 Speaker 1: a mutual fund. Would just acknowledge that it's a mutual fund. Yeah, 642 00:35:04,960 --> 00:35:10,080 Speaker 1: I think if you could really do that, incredibly, Uh, 643 00:35:10,160 --> 00:35:14,120 Speaker 1: it would solve the problem. I don't believe that you can. 644 00:35:14,480 --> 00:35:17,240 Speaker 1: I guess, like the question is if there's another financial 645 00:35:17,280 --> 00:35:20,479 Speaker 1: crisis and another run on money market mutual funds? Will 646 00:35:20,520 --> 00:35:24,680 Speaker 1: the government ensure them again? And I would bet yes, right, 647 00:35:24,880 --> 00:35:27,360 Speaker 1: I would bet yes. Uh. You know, if the stock 648 00:35:27,400 --> 00:35:30,080 Speaker 1: market drops, the government doesn't say, okay, we'll buy all 649 00:35:30,120 --> 00:35:32,080 Speaker 1: your stock at a fixed price, like there's no everybody 650 00:35:32,080 --> 00:35:34,000 Speaker 1: knows you can lose money in the stock market. I 651 00:35:34,040 --> 00:35:40,440 Speaker 1: mean this spring, the FED immediately in March created facility 652 00:35:40,480 --> 00:35:43,040 Speaker 1: for money market mutual funds, and you know appropriately, so 653 00:35:43,120 --> 00:35:44,800 Speaker 1: to be clear, like the FED is the lender of 654 00:35:44,880 --> 00:35:48,000 Speaker 1: last resort. But there again right, Like traditionally lender of 655 00:35:48,080 --> 00:35:50,520 Speaker 1: last resort was what you get for being a bank, right, 656 00:35:50,520 --> 00:35:52,600 Speaker 1: It's part of the trade off of like being super 657 00:35:52,640 --> 00:35:54,640 Speaker 1: regulated and whatever, and one of the little goodies you 658 00:35:54,680 --> 00:35:58,680 Speaker 1: get is lender of last resort. But now these shadow 659 00:35:58,760 --> 00:36:00,600 Speaker 1: banks that are that don't have to put up with 660 00:36:00,600 --> 00:36:03,080 Speaker 1: everything a regulated bank has to put up with also 661 00:36:03,120 --> 00:36:06,600 Speaker 1: get lender of last resort. Although, to be fair, everybody 662 00:36:06,640 --> 00:36:10,400 Speaker 1: gets it now, right, corporations, just industrial corporations get it. 663 00:36:10,480 --> 00:36:15,960 Speaker 1: So whatever, should we leave it there or whatever? Yeah, 664 00:36:16,040 --> 00:36:19,080 Speaker 1: it's actually the last word of my book, is it? 665 00:36:19,239 --> 00:36:22,320 Speaker 1: Is it really the last word of your book? No? 666 00:36:22,320 --> 00:36:25,000 Speaker 1: No it is not. But I do think that's a 667 00:36:25,040 --> 00:36:27,239 Speaker 1: good I think I feel like with many kind of 668 00:36:27,400 --> 00:36:32,000 Speaker 1: questions about finance and finance regulation, just like, so whatever 669 00:36:32,440 --> 00:36:35,680 Speaker 1: is that actually a pretty good place end it there? So, Jacob, 670 00:36:35,920 --> 00:36:40,000 Speaker 1: thank you so much for joining us. It was really fun. Cheerance, Jacob. 671 00:36:40,040 --> 00:37:08,719 Speaker 1: That was great, Tracy, I really uh enjoyed Jacob's book. 672 00:37:08,760 --> 00:37:11,080 Speaker 1: You know, it's weird, um, you know, in addition to 673 00:37:11,160 --> 00:37:13,359 Speaker 1: him having beaten us at the punch on the Money Book, 674 00:37:13,520 --> 00:37:16,200 Speaker 1: it's funny talking to a fellow podcast post because I 675 00:37:16,280 --> 00:37:18,840 Speaker 1: kind of got intimidated because he's just like super smooth 676 00:37:19,120 --> 00:37:21,239 Speaker 1: and very comfortable at this and I'm used to being 677 00:37:21,239 --> 00:37:24,719 Speaker 1: the more comfortable talking one on that. I'm used to 678 00:37:24,760 --> 00:37:28,560 Speaker 1: us being the more talking one, you know, to us 679 00:37:28,640 --> 00:37:31,319 Speaker 1: being the more talkie ones on the podcast where we 680 00:37:31,360 --> 00:37:33,880 Speaker 1: interview guests. Well, No, I just feel like he's like 681 00:37:34,560 --> 00:37:36,960 Speaker 1: he's so sharp, you know, and he's so like he's 682 00:37:37,000 --> 00:37:40,240 Speaker 1: so like it's like a difference of talking to someone 683 00:37:40,440 --> 00:37:43,760 Speaker 1: who is a also does this for a living versus 684 00:37:43,760 --> 00:37:47,799 Speaker 1: someone like in finance who's like not not typically a 685 00:37:47,840 --> 00:37:51,600 Speaker 1: media person. I think he frames everything very very nicely. 686 00:37:51,640 --> 00:37:53,279 Speaker 1: But you know what else I was thinking when he 687 00:37:53,320 --> 00:37:57,680 Speaker 1: was basically, Basically, I'm saying that Jacob is like everything 688 00:37:57,680 --> 00:38:00,760 Speaker 1: that we do that we should aspire. Yes, I agree 689 00:38:00,760 --> 00:38:03,840 Speaker 1: with that, But I was thinking, you know, towards the end, 690 00:38:03,880 --> 00:38:08,000 Speaker 1: when we were talking about how things can suddenly become 691 00:38:08,800 --> 00:38:11,719 Speaker 1: money or can be considered money because of a sort 692 00:38:11,760 --> 00:38:14,280 Speaker 1: of shift, I was thinking, and how the Federal Reserve 693 00:38:14,320 --> 00:38:17,960 Speaker 1: doesn't guarantee stocks. Do you think, like everyone talks about 694 00:38:17,960 --> 00:38:22,000 Speaker 1: the Central Bank put and the notion that if stocks 695 00:38:22,040 --> 00:38:25,880 Speaker 1: go down enough and financial conditions tighten, that the Fed's 696 00:38:25,920 --> 00:38:27,719 Speaker 1: going to come in and do something about it. I 697 00:38:27,800 --> 00:38:30,920 Speaker 1: just I wonder. I wonder if stocks could ever be 698 00:38:30,960 --> 00:38:35,480 Speaker 1: treated as pure money. Probably not, But I don't think 699 00:38:35,520 --> 00:38:38,319 Speaker 1: they could ever be treated as like pure money. But 700 00:38:38,440 --> 00:38:41,799 Speaker 1: I do think you're onto something important, which is that 701 00:38:41,960 --> 00:38:44,920 Speaker 1: over time and as the bowl market continues, and as 702 00:38:44,960 --> 00:38:48,640 Speaker 1: every dip turns out to be a buying opportunity, more 703 00:38:48,680 --> 00:38:52,920 Speaker 1: and more people will look at their stock portfolios and 704 00:38:53,080 --> 00:38:57,440 Speaker 1: think of that, you know, as money or as something 705 00:38:57,480 --> 00:39:00,640 Speaker 1: that they can depend upon and not is an asset 706 00:39:00,680 --> 00:39:05,399 Speaker 1: that is extremely historically risky, that could go to zero. 707 00:39:05,480 --> 00:39:08,160 Speaker 1: And I do think it raises implications for all kinds 708 00:39:08,160 --> 00:39:10,640 Speaker 1: of things about how fast the government can intervene how 709 00:39:10,719 --> 00:39:15,080 Speaker 1: quickly uh sell Off will create a policy response, so well, 710 00:39:15,120 --> 00:39:18,359 Speaker 1: it's never going to be like you know, the reserve fund, 711 00:39:18,440 --> 00:39:21,160 Speaker 1: where the government steps in and literally guarantees a price. 712 00:39:21,800 --> 00:39:23,840 Speaker 1: I don't think like the premise of the question is 713 00:39:23,880 --> 00:39:26,160 Speaker 1: totally off the market in terms of people thinking of 714 00:39:26,920 --> 00:39:30,640 Speaker 1: the stock market itself as kind of a you know, 715 00:39:30,840 --> 00:39:35,120 Speaker 1: a policy asset, so to speak. Yeah, and making decisions 716 00:39:35,160 --> 00:39:39,000 Speaker 1: based on the soundness of the money and the stock accounts. Yeah, 717 00:39:39,080 --> 00:39:41,960 Speaker 1: that makes sense. And then I guess the other thing 718 00:39:42,040 --> 00:39:44,920 Speaker 1: I was thinking about, and the reason we sort of 719 00:39:45,000 --> 00:39:49,200 Speaker 1: dwelled on shadow banking and shadow money quite a lot, 720 00:39:49,360 --> 00:39:52,399 Speaker 1: was that this did come up just a few months ago, 721 00:39:52,520 --> 00:39:54,719 Speaker 1: and we did sort of see the ghosts of two 722 00:39:54,760 --> 00:39:59,640 Speaker 1: thousand and eight resurrect themselves in March with trouble at 723 00:39:59,640 --> 00:40:02,480 Speaker 1: money market funds, trouble in the repo market, and once 724 00:40:02,520 --> 00:40:05,280 Speaker 1: again we saw the regulators come in very very quickly 725 00:40:05,880 --> 00:40:09,759 Speaker 1: to solve those problems, knowing that they're huge, huge vulnerability 726 00:40:09,760 --> 00:40:12,839 Speaker 1: in the system. And I guess I just wonder, it's 727 00:40:12,840 --> 00:40:15,840 Speaker 1: been twelve years since two thousand eight, we didn't really 728 00:40:15,880 --> 00:40:20,880 Speaker 1: get the massive repot reform that we were promised. I 729 00:40:20,960 --> 00:40:25,919 Speaker 1: wonder if is going to give that Like I wonder 730 00:40:26,640 --> 00:40:29,040 Speaker 1: will be enough to revive that that effort and maybe 731 00:40:29,040 --> 00:40:31,160 Speaker 1: people will look at it again, or maybe everyone's so 732 00:40:31,239 --> 00:40:36,520 Speaker 1: distracted by everything that's going on that don't just forget it. Yeah. Yeah. 733 00:40:36,520 --> 00:40:39,120 Speaker 1: A few months ago, I was like, this crisis is 734 00:40:39,160 --> 00:40:42,160 Speaker 1: really going to prompt from seriously thinking about X, Y, 735 00:40:42,160 --> 00:40:45,960 Speaker 1: and Z, And now it's like everyone's distracted by a 736 00:40:46,000 --> 00:40:49,479 Speaker 1: million other things, so I'm more skeptical about that. Well, 737 00:40:49,640 --> 00:40:51,880 Speaker 1: one thing else I really liked about this episode, and 738 00:40:52,000 --> 00:40:55,279 Speaker 1: I'm really glad we drilled down into shadow banking and 739 00:40:55,320 --> 00:40:58,759 Speaker 1: it's connection to money is that over times this conversation 740 00:40:58,840 --> 00:41:03,239 Speaker 1: about money can be a little abstract and disconnected or 741 00:41:03,280 --> 00:41:06,240 Speaker 1: you really have to strain, I think, to see the relevance. 742 00:41:06,640 --> 00:41:08,560 Speaker 1: But this is an area that a I mean, look, 743 00:41:08,560 --> 00:41:12,200 Speaker 1: it's been part of like two recent blow ups, so 744 00:41:12,320 --> 00:41:15,000 Speaker 1: to speak. But it also kind of like provides a 745 00:41:15,080 --> 00:41:18,359 Speaker 1: roadmap for thinking about future crises and whether they're part 746 00:41:18,360 --> 00:41:21,520 Speaker 1: of the shadow banking system or not. It's like, and 747 00:41:21,560 --> 00:41:23,920 Speaker 1: you said you nailed it with your characterization of the 748 00:41:23,920 --> 00:41:26,680 Speaker 1: stock market, It's like, what are the things that we 749 00:41:26,760 --> 00:41:30,480 Speaker 1: think of as money now that may in a certain 750 00:41:30,600 --> 00:41:33,840 Speaker 1: scenario may not be money or may not be worth 751 00:41:34,000 --> 00:41:36,560 Speaker 1: you know, a dollar here is not actually a dollar, 752 00:41:37,160 --> 00:41:40,000 Speaker 1: and starting to think about like what are where else? 753 00:41:40,080 --> 00:41:43,759 Speaker 1: Is that that sort of sort of mental thing happening 754 00:41:43,920 --> 00:41:46,720 Speaker 1: might be like a good general framework for thinking about 755 00:41:47,040 --> 00:41:51,040 Speaker 1: where other vulnerabilities will eventually emerge. Yeah, I think that's 756 00:41:51,040 --> 00:41:55,239 Speaker 1: exactly right. Okay, Um, shall we leave it there. Well, 757 00:41:55,280 --> 00:41:57,520 Speaker 1: I was just gonna say one more thing related to that. 758 00:41:57,640 --> 00:41:59,560 Speaker 1: And I remember like a few years ago, like what 759 00:41:59,640 --> 00:42:01,960 Speaker 1: was it like end of when there was like a 760 00:42:02,000 --> 00:42:04,600 Speaker 1: bunch of like energy debt that was blowing up and 761 00:42:04,680 --> 00:42:07,319 Speaker 1: stuff like that and energy et. Yeah, there was a 762 00:42:07,800 --> 00:42:12,400 Speaker 1: there's a smaller credit crisis or stress in the credit market, 763 00:42:12,920 --> 00:42:14,680 Speaker 1: and I just remember thinking of the time it was like, yeah, 764 00:42:14,680 --> 00:42:16,000 Speaker 1: it's bad. A lot of people are gonna lose a 765 00:42:16,040 --> 00:42:18,920 Speaker 1: lot of money. But nobody thinks of like junk energy 766 00:42:18,960 --> 00:42:22,160 Speaker 1: debt is money, Like it's a risky asset and it's understood. 767 00:42:22,160 --> 00:42:24,160 Speaker 1: And I do think that that like framework is like 768 00:42:24,680 --> 00:42:26,920 Speaker 1: do people think that the thing they're holding is money 769 00:42:27,040 --> 00:42:29,080 Speaker 1: or do they sort of recognize like this is a 770 00:42:29,160 --> 00:42:32,320 Speaker 1: very volatile asset. And that's sort of in my mental portfolio. 771 00:42:32,480 --> 00:42:35,520 Speaker 1: Part of the risky stuff I hold sort of a again, 772 00:42:35,840 --> 00:42:38,440 Speaker 1: like a useful indicator of like is this going to 773 00:42:38,480 --> 00:42:41,840 Speaker 1: be a crisis or not? Yeah, Well, I don't know 774 00:42:41,880 --> 00:42:45,240 Speaker 1: if people treated energy debt or you know, junk created 775 00:42:45,280 --> 00:42:48,480 Speaker 1: debt like money, but there were certain there were certainly 776 00:42:48,520 --> 00:42:52,040 Speaker 1: people who treated it more like money than others. And 777 00:42:52,960 --> 00:42:55,719 Speaker 1: there's I think it was. It was Third Avenue, wasn't it. 778 00:42:55,719 --> 00:42:59,360 Speaker 1: It was David Bars's fund that blew up, partially because 779 00:43:00,120 --> 00:43:03,640 Speaker 1: they treated it as a more liquid asset than than 780 00:43:03,680 --> 00:43:08,319 Speaker 1: it actually turned out, and it turned out. So yeah, 781 00:43:08,520 --> 00:43:12,680 Speaker 1: now that's a good all right. This has been another 782 00:43:12,800 --> 00:43:15,920 Speaker 1: episode of the All Thoughts Podcast. I'm Tracy Alloway. You 783 00:43:15,920 --> 00:43:19,080 Speaker 1: can follow me on Twitter at Tracy Alloway. And I'm 784 00:43:19,160 --> 00:43:22,600 Speaker 1: Joe Wisenthal. You can follow me at The Stalwart. You 785 00:43:22,600 --> 00:43:25,719 Speaker 1: can follow our guest on Twitter, Jacob Goldstein. He's at 786 00:43:25,840 --> 00:43:28,799 Speaker 1: Jacob Goldstein, also the co host of Planet Money, so 787 00:43:28,920 --> 00:43:31,440 Speaker 1: check that out and check out his new book Money, 788 00:43:31,920 --> 00:43:34,759 Speaker 1: The True Story of a Made Up Thing, And be 789 00:43:34,840 --> 00:43:37,959 Speaker 1: sure to follow our producer on Twitter, Laura Carlston. She's 790 00:43:38,000 --> 00:43:41,120 Speaker 1: at Laura M. Carlton. Follow the Bloomberg head of podcast, 791 00:43:41,200 --> 00:43:44,880 Speaker 1: Francesca levi at Francesca Today and check out all of 792 00:43:44,880 --> 00:44:15,520 Speaker 1: our podcasts under the handle at podcast. Thanks for listening 793 00:44:02,640 --> 00:44:02,680 Speaker 1: to