WEBVTT - Interview With Sebastian Mallaby: Masters in Business (Audio) 0:00:00.120 --> 0:00:02.320 Masters in Business is brought to you by the American 0:00:02.400 --> 0:00:07.160 Arbitration Association. Business disputes are inevitable, resolve Faster with the 0:00:07.200 --> 0:00:12.240 American Arbitration Association, the global leader in alternative dispute resolution 0:00:12.360 --> 0:00:15.800 for over ninety years. Learn more at a d R 0:00:16.160 --> 0:00:22.440 dot org. This is Masters in Business with Barry Ridholts 0:00:22.560 --> 0:00:27.240 on Boomberg Radio. This week. On the podcast, I have 0:00:27.520 --> 0:00:30.280 Sebastian Mallaby, and I have to tell you I found 0:00:30.280 --> 0:00:35.480 this to be an absolutely fascinating conversation. We definitely sort 0:00:35.520 --> 0:00:40.640 of go off into the weeds on some wonky um 0:00:40.680 --> 0:00:45.560 history and biography of who Alan Greenspan was and why 0:00:45.640 --> 0:00:49.920 he had such an outsized uh influence. If if you're 0:00:49.960 --> 0:00:54.400 a Federal Reserve watcher or econo geek, you will find 0:00:54.440 --> 0:00:57.680 a lot of this stuff fascinating, and we talked about 0:00:57.720 --> 0:01:01.480 it extensively. I prob belie could have spent another hour 0:01:02.080 --> 0:01:05.200 just on Alan Greenspan, but if I did that, I 0:01:05.240 --> 0:01:08.120 wouldn't have been able to get some more money than God, 0:01:08.160 --> 0:01:12.480 which is a delightful book on hedge fund managers, highly recommended. 0:01:13.200 --> 0:01:16.319 I could babble about this stuff endlessly, but instead of 0:01:16.360 --> 0:01:20.600 me doing that without any further Ado my conversation with 0:01:20.640 --> 0:01:27.120 Sebastian Mallaby. This is Masters in Business with Barry Ridholts 0:01:27.240 --> 0:01:32.520 on Bloomberg Radio. My special guest today is Sebastian Mallaby. 0:01:33.200 --> 0:01:36.360 He is an author and the paul A. Vulgar Fellow 0:01:36.440 --> 0:01:40.920 for International Economics at the Council on Foreign Relations. He 0:01:41.000 --> 0:01:44.800 has contributed to The Washington Post and The Economist, and 0:01:44.880 --> 0:01:48.160 he is the author of More Money Than God Hedge 0:01:48.160 --> 0:01:50.520 Funds in the Making of the New Elite, that won 0:01:50.640 --> 0:01:54.120 the two thousand and eleven Lobe Prize and was a 0:01:54.160 --> 0:01:58.000 New York Times bestseller. His most recent book, The Man 0:01:58.160 --> 0:02:02.800 Who Knew, The Life and Times of Alan Greenspan. Uh 0:02:02.840 --> 0:02:06.040 Sebastian Mallaby. Welcome to Bloomberg. Great to pay with you, Parry, 0:02:06.280 --> 0:02:11.560 So I'm fascinated by both your process and the topics 0:02:11.600 --> 0:02:15.000 you cover. Let's start with The Man Who Knew, a 0:02:15.080 --> 0:02:19.320 title I perhaps might choose to argue with you over, 0:02:19.880 --> 0:02:22.640 but I can't argue with this quote. This sex up 0:02:22.639 --> 0:02:26.400 from the book. No post war figure has loomed over 0:02:26.480 --> 0:02:32.080 global finance as imposingly as Alan Greenspan, America's FED Chairman 0:02:32.560 --> 0:02:36.840 became FED Chairman the month of the crash, and no 0:02:37.000 --> 0:02:41.040 figure has been more paradoxical. A man who preached the 0:02:41.160 --> 0:02:45.280 virtue of the gold standard yet came to embody paper money. 0:02:45.600 --> 0:02:48.880 A man who posed as a dry technocrat yet was 0:02:49.080 --> 0:02:53.679 political to his core. Let's discuss that. Well, he is 0:02:53.720 --> 0:02:55.960 a man of paradox this and I didn't quite understand 0:02:56.040 --> 0:02:59.760 before I began writing quite how deep those paradox has went. 0:02:59.840 --> 0:03:02.959 But he was a person who had lectured in the 0:03:03.080 --> 0:03:07.400 nineteen sixties that the creation of the Federal Reserve was 0:03:07.520 --> 0:03:11.440 and historic disaster. So the man who later embodied the 0:03:11.480 --> 0:03:14.720 Federal Reserve personified the central bank. He didn't believe there 0:03:14.720 --> 0:03:17.760 should be a central bank, which which is which is ironic? 0:03:17.800 --> 0:03:21.600 I always found it fascinating that he was such a 0:03:21.680 --> 0:03:26.120 Fed chairman, interventionist, and yet he very much argued for 0:03:26.200 --> 0:03:30.000 learning the marketplace work things out themselves. Yes, he had 0:03:30.040 --> 0:03:33.200 begun in his earlier life, in his thirties and forties, 0:03:33.680 --> 0:03:37.160 as a very determined libertarian. I mean this idea that 0:03:37.200 --> 0:03:38.920 there shouldn't be a central bank was because he believed 0:03:38.920 --> 0:03:41.480 in a goal standard. Why because he didn't want the 0:03:41.480 --> 0:03:43.320 government to be in the business of making money. He 0:03:43.360 --> 0:03:46.000 thought that that was too much government power. And yet 0:03:46.040 --> 0:03:48.680 when he was FED chairman, of course, not only did 0:03:48.720 --> 0:03:51.280 he move interest rates around quite a lot to try 0:03:51.280 --> 0:03:55.040 to micromanage the level of inflation, but also he was 0:03:55.080 --> 0:03:58.840 willing to intervene when there was a crisis repeatedly and 0:03:59.000 --> 0:04:03.640 bail things out. Literally within his first few weeks of 0:04:03.840 --> 0:04:09.400 joining the FED, the seven Crash occurs down in a 0:04:09.440 --> 0:04:13.080 single day, lots of panic, and he stepped in and 0:04:13.080 --> 0:04:17.200 provided liquidity. Really that set the tone for the rest 0:04:17.240 --> 0:04:20.000 of his his career. It did, so you know, when 0:04:20.040 --> 0:04:23.840 there was the Mexico crisis in the beginning of nineteen five, 0:04:23.920 --> 0:04:26.640 the FED helped to bail out Mexico. When there was, 0:04:27.000 --> 0:04:29.599 you know, the East Asian crisis, green Span was involved 0:04:29.920 --> 0:04:32.160 long term capital management. The hedge fund goes down in 0:04:33.440 --> 0:04:35.240 and the FED, in my view, that's really where they 0:04:35.360 --> 0:04:38.000 really go overboard and cut interest rates no fewer than 0:04:38.080 --> 0:04:40.919 three times to try to stabilize the markets. After that 0:04:41.000 --> 0:04:43.520 hedge fund went down. Then, of course, after the Nasdaq 0:04:43.560 --> 0:04:46.560 bubble bus, you know, another round of super loose policy. 0:04:46.640 --> 0:04:50.560 So yes, repeated interventions to stabilize finance, and and of 0:04:50.760 --> 0:04:56.040 most famously after nine eleven there were fairly radical interest 0:04:56.120 --> 0:04:59.960 rate cuts, the Greenspan FED took rates down to level 0:05:00.400 --> 0:05:03.800 they really hadn't been on, especially for as long as 0:05:03.800 --> 0:05:06.080 they were kept there right now. As I remember, they 0:05:06.080 --> 0:05:08.840 were down at one on the federal funds rate in 0:05:08.920 --> 0:05:11.600 the summer of two thousand three and stuck there for 0:05:11.640 --> 0:05:13.839 a whole year to two thousand four, right below two 0:05:13.880 --> 0:05:16.480 percent for three years, at one percent for a single year, 0:05:16.880 --> 0:05:20.080 and subsequent to that, a number of assets that are 0:05:20.760 --> 0:05:26.880 priced in either dollars or credit, housing, oil, all the commodities, gold, 0:05:27.160 --> 0:05:29.440 they all took off right And I think what that 0:05:29.480 --> 0:05:31.800 points to is the difficulty for the FED on the 0:05:31.839 --> 0:05:35.560 one hand of targeting inflation. So if you're looking at 0:05:35.560 --> 0:05:38.360 consumer price in fashion or however, you measure that that 0:05:38.400 --> 0:05:41.800 can be stable, while asset prices are not a tool stable. 0:05:41.800 --> 0:05:45.240 They're going crazy. And the central dilemma, which still remains 0:05:45.560 --> 0:05:47.520 for the FED and maybe quite relevant actually in the 0:05:47.560 --> 0:05:51.080 next twelve months, is that you can be thinking, Okay, 0:05:51.120 --> 0:05:54.400 I'm doing a good job because inflation is low and stable, 0:05:54.480 --> 0:05:56.719 but you're not getting a good job because all these 0:05:56.760 --> 0:06:01.679 asset prices are bubbling away uncontrollably. The thing that stood 0:06:01.680 --> 0:06:05.719 out to me from another book that takes A similar 0:06:06.000 --> 0:06:09.880 look was Roger Lonstein's Origins of the crash, and he 0:06:10.000 --> 0:06:14.800 talks about the opportunity the Federal Reserve had after long 0:06:14.880 --> 0:06:19.919 term capital management to impose some discipline on market participants 0:06:19.960 --> 0:06:23.160 and say, hey, we don't want to engage in moral hazard. 0:06:23.800 --> 0:06:26.080 You guys mess this up, you figure it out. It's 0:06:26.120 --> 0:06:30.200 not systemic, it's not threatening. And maybe there's a lesson 0:06:30.240 --> 0:06:32.480 to be learned there that that might be asking a 0:06:32.520 --> 0:06:34.960 little too much of the Federal Reserve to think along 0:06:35.000 --> 0:06:38.600 those lines. But do you agree with that assessment that 0:06:39.120 --> 0:06:43.440 this intervention, amongst many help set the stage for the 0:06:43.480 --> 0:06:47.640 future crisis. Definitely. I mean, I think that the expression 0:06:47.760 --> 0:06:51.159 used on wall streets after the long term capital management 0:06:51.160 --> 0:06:55.680 experience was Uncle Allan will take care of us. That 0:06:55.880 --> 0:06:57.400 is not a good way for traders to be feeling, 0:06:57.400 --> 0:06:59.159 because then they're gonna take too much risk. And I 0:06:59.160 --> 0:07:02.240 think it was really ascerbated by the way in the 0:07:02.440 --> 0:07:05.600 two thousand four or five period when the Fed started 0:07:05.640 --> 0:07:10.520 to do a forward guidance that further exacerbated this feeling 0:07:10.560 --> 0:07:13.040 that Uncle Allan was there. He was pretty much telling 0:07:13.080 --> 0:07:15.880 you how quickly interest rates we're going to be raised, 0:07:16.240 --> 0:07:18.679 and therefore you could take a ton of risk because 0:07:18.720 --> 0:07:20.880 you knew you wouldn't be ambushed by a sudden rate 0:07:20.920 --> 0:07:24.120 hike of seventy five basis points. I'm Barry Rihults. You're 0:07:24.240 --> 0:07:28.160 listening to Master's in Business on Bloomberg Radio. My special 0:07:28.240 --> 0:07:31.800 guest today is Sebastian Mallaby. He is the author of 0:07:32.320 --> 0:07:35.920 the highly regarded The Man Who Knew The Life and 0:07:36.000 --> 0:07:40.400 Times of Alan greenspan. Uh. The reviews on this book 0:07:40.520 --> 0:07:43.920 have been wonderful. I've been working my way through it. 0:07:45.120 --> 0:07:47.400 You spent so at first, I have to talk a 0:07:47.400 --> 0:07:51.520 little bit about your process. You spent about five years 0:07:51.760 --> 0:07:55.480 researching and writing. This is that right? Yeah? My kids 0:07:55.520 --> 0:07:56.840 make fun of me that every time I write a 0:07:56.880 --> 0:07:59.360 book it seems to take longer than the last one. 0:08:00.200 --> 0:08:02.240 And this did take a bit over five years. And 0:08:02.320 --> 0:08:04.640 it wasn't that was my plan. But it was so 0:08:04.680 --> 0:08:06.960 fascinating once I got into it. I discovered so much 0:08:07.000 --> 0:08:09.800 new stuff that people didn't know about this very public figure, 0:08:09.840 --> 0:08:12.040 and yet there were private things to be discovered. Give 0:08:12.120 --> 0:08:15.880 us an example, well, you know we remember the sort 0:08:15.920 --> 0:08:20.000 of bursuited sober, pinstriped fed chairman going on about trucking 0:08:20.040 --> 0:08:23.480 capacity utilization in the Midwest. You don't remember that he 0:08:23.600 --> 0:08:27.640 was the guy who bought the Buick Electra convertible automobile, 0:08:28.080 --> 0:08:29.840 you know, and drove it so fast up and down 0:08:29.840 --> 0:08:33.040 Manhattan that, as his girlfriend said, um, you know, it 0:08:33.080 --> 0:08:36.600 wasn't a moderate pace and he got he got plenty 0:08:36.600 --> 0:08:39.120 of speeding tickets. You know. He was not against marriage. 0:08:39.120 --> 0:08:41.160 He did it twice, but he was single between twenty 0:08:41.240 --> 0:08:44.439 seven and seventy one. You describe him as a ladies man. 0:08:44.559 --> 0:08:48.440 Is that an exaggeration or is that a fair description. Well, 0:08:48.480 --> 0:08:51.920 he had a succession of remarkably beautiful girlfriends in this 0:08:52.240 --> 0:08:54.680 as he said, you know, there was this little interim 0:08:54.720 --> 0:08:57.640 between twenty seven and seventy one, and in this period 0:08:57.640 --> 0:08:59.120 and these are his words, not mine, you know, he 0:08:59.200 --> 0:09:04.280 dated news anchors, beauty queens and much in between. So 0:09:04.440 --> 0:09:08.319 there was quite a list there. That's quite that's quite fascinating. Look, 0:09:08.480 --> 0:09:13.040 we were referencing earlier, um, the forward guidance that the 0:09:13.120 --> 0:09:17.560 FED began in two thousand and four. So this was 0:09:17.640 --> 0:09:21.800 with green Spans still as FED chairman, but the new 0:09:21.880 --> 0:09:24.920 kid in town coming in as vice chairman, Ben Bernanke, 0:09:25.640 --> 0:09:28.040 and you argue more or less in the book that 0:09:28.160 --> 0:09:32.920 forward guidance helped set the stage for the financial crisis. 0:09:33.160 --> 0:09:36.920 So let's talk a little bit about this. Why was 0:09:37.000 --> 0:09:39.760 this such a break from past policy and how did 0:09:39.760 --> 0:09:43.880 it impact um the future crisis. Well, in terms of 0:09:43.920 --> 0:09:46.200 the difference from past policy, if you go back to 0:09:46.240 --> 0:09:49.400 the nineteen eighties and you look at the big moments 0:09:49.480 --> 0:09:54.560 in monetary policy, they were remarkably untelegraphed. So Paul volca 0:09:54.640 --> 0:09:59.360 in two gave up monetary targets, big change in the 0:09:59.360 --> 0:10:02.520 Fed's policy. He didn't even announce it when he did that, 0:10:03.200 --> 0:10:04.840 and then he showed up a bit later at a 0:10:04.880 --> 0:10:08.240 conference of bankers and said something like him, well, we 0:10:08.280 --> 0:10:10.679 made a little adjustment and how we approached this stuff, 0:10:10.679 --> 0:10:12.360 but we might go back, and we're not sure if 0:10:12.360 --> 0:10:14.480 we're going to stick with it. I mean, the level 0:10:14.520 --> 0:10:17.760 of communication was very, very low, to the point where 0:10:17.880 --> 0:10:20.600 people didn't know that the Fed wouldn't come out and announced, hey, 0:10:20.600 --> 0:10:23.440 we raised interest rates. It would show up in in 0:10:23.480 --> 0:10:29.400 their actual open market activity, not from a missive And 0:10:29.559 --> 0:10:33.199 that all changed under Greenspan, didn't it exactly? So bit 0:10:33.240 --> 0:10:36.000 by bit there was more openness, and the Fed did 0:10:36.040 --> 0:10:39.480 announce the policy change once it decided it. And then 0:10:39.600 --> 0:10:42.240 in the two thousands you get to this period where 0:10:42.320 --> 0:10:45.040 not only does the Fed announce what it's just decided, 0:10:45.320 --> 0:10:48.040 it also guides the markets about what it's going to 0:10:48.080 --> 0:10:50.240 be doing in the future. And that's the crucial change. 0:10:50.679 --> 0:10:52.840 And to me, what that did to Wall Street was 0:10:53.400 --> 0:10:56.600 that Wall Street suddenly felt it wouldn't be ambushed by 0:10:56.600 --> 0:10:59.679 a sudden jump in the short term interest rate. So 0:10:59.760 --> 0:11:05.240 this change took normally conservative bond managers and traders and 0:11:05.320 --> 0:11:09.240 gave them a little more carde blanche to take more 0:11:09.360 --> 0:11:13.560 risk and embrace a trade that was fraught with the 0:11:13.600 --> 0:11:17.480 potential of the Fed suddenly and unexpectedly raising rates. If 0:11:17.520 --> 0:11:20.240 you compare the two thousand four kind of period to 0:11:21.360 --> 0:11:24.480 four when the FED was in a tightening cycle, and 0:11:24.480 --> 0:11:27.559 at one point it did twenty five basis points, sometimes 0:11:27.640 --> 0:11:30.040 fifty basis points. There was one meeting where they raised 0:11:30.040 --> 0:11:34.320 by seventy five basis points. That cause what one bond 0:11:34.320 --> 0:11:38.319 trader at the time called Hurricane Greenspan. Right, people got 0:11:38.360 --> 0:11:40.559 blown up if they were leveraged. You know, there was 0:11:40.640 --> 0:11:44.640 real market discipline being imposed. Market discipline meaning people weren't 0:11:44.720 --> 0:11:47.560 leveraging up. The carry trades because you never knew when 0:11:47.600 --> 0:11:49.760 a sudden rate increase would come along, and the guys 0:11:49.800 --> 0:11:52.640 who were leveraged, like Michael Steinhardt, the hedge fund trader, 0:11:52.679 --> 0:11:55.400 for example, blew up. You know, he was done enormously 0:11:55.480 --> 0:11:59.120 in punished by the FED for taking too much risk. 0:11:59.440 --> 0:12:01.080 And you've got to do that in markets a bit 0:12:01.240 --> 0:12:04.920 to to remind people that it's risky. So removing that 0:12:05.160 --> 0:12:10.520 potential of the unexpected increase pretty much allowed allowed traders 0:12:10.559 --> 0:12:15.240 to embrace more risk, embrace more leverage, get much further 0:12:15.280 --> 0:12:18.120 out over their skis than they previously had been doing. Yeah, 0:12:18.120 --> 0:12:20.320 and I think it's worth just trying to encapsulate this 0:12:20.400 --> 0:12:22.439 for your listeners in the following way, because it's it's 0:12:22.520 --> 0:12:25.920 it's a misunderstanding and a disagreement that persists even today 0:12:25.920 --> 0:12:28.280 in the debates that I have with policy makers. So 0:12:28.400 --> 0:12:31.240 sometimes there people say to me, look, if you raise 0:12:31.280 --> 0:12:33.600 the short term industrates the FED was raising rates in 0:12:33.600 --> 0:12:37.000 two thousand five, then you know the short term rate 0:12:37.160 --> 0:12:39.680 is more expensive to borrow, so you're gonna have less 0:12:39.679 --> 0:12:42.319 carry trade. And I say, yeah, you have to think 0:12:42.360 --> 0:12:45.800 about the risk adjusted return, not just the return. If 0:12:45.840 --> 0:12:49.200 the sharp ratio, the risk adjusted return on a carry 0:12:49.200 --> 0:12:52.680 trade improves, then Wall Street will do more. One of 0:12:52.679 --> 0:12:56.800 the things that I was aware of and and you 0:12:56.960 --> 0:13:02.360 reference was in the early nineties is when a few 0:13:02.480 --> 0:13:06.720 days before an f O m C meeting, green Span 0:13:06.880 --> 0:13:10.199 on his own decides to cut rates and the governors 0:13:10.240 --> 0:13:15.000 went berserk and subsequently remove the ability of the Federal 0:13:15.000 --> 0:13:18.800 Reserve to act that independently outside of a real emergency. 0:13:19.160 --> 0:13:22.640 Tell us a little bit about that moment. Well, you know, 0:13:22.679 --> 0:13:25.800 Greenspan was always known as the Imperial Fed Chairman. He 0:13:26.720 --> 0:13:30.280 massed massive power unto himself, and if you know, all 0:13:30.280 --> 0:13:32.960 through this period he really dominated the system. And in 0:13:33.000 --> 0:13:35.800 the early period he had this particular device that you're 0:13:35.800 --> 0:13:38.760 talking about, where basically they would have a meeting, they 0:13:38.760 --> 0:13:41.120 wouldn't quite come to a decision about what they should do, 0:13:41.520 --> 0:13:43.320 and so they would end the meeting saying that the 0:13:43.320 --> 0:13:46.840 Fed Chairman had the authority to move into straits in 0:13:46.920 --> 0:13:51.400 between meeting, just on his own authority. And Greenspan of 0:13:51.400 --> 0:13:53.280 course like that because it gave him the power, and 0:13:53.360 --> 0:13:55.679 he used to do that a lot in the first 0:13:55.679 --> 0:13:58.520 few years, until finally his committee had enough of that 0:13:58.559 --> 0:14:01.040 and stopped him. I mean, it was just days before 0:14:01.080 --> 0:14:03.440 a meeting. It seemed like he was snubbing his nose 0:14:03.480 --> 0:14:06.200 at them and they weren't happy with it. Let's let's 0:14:06.240 --> 0:14:08.960 talk about some of the other things. Ben BERNANKEI gave 0:14:09.000 --> 0:14:12.040 you a wonderful He said, it wasn't a review, but 0:14:12.200 --> 0:14:15.560 it was a write up of the book. He disagrees 0:14:15.640 --> 0:14:19.480 with you about green SPAN's role uh in leading up 0:14:19.520 --> 0:14:22.920 to the crisis. Um, let's let's discuss that. What do 0:14:22.960 --> 0:14:27.440 you think about the former Fair chairman's discussion of the book. Well, 0:14:27.480 --> 0:14:29.440 you know, I'm very grateful to Ben Bernankey because he 0:14:29.480 --> 0:14:32.160 did write a very gracious, long response. He said, it's 0:14:32.360 --> 0:14:35.920 highly recommended, So how can I complain. Um. At the 0:14:35.960 --> 0:14:38.240 same time, we we do have a disagreement, and you're right. 0:14:38.320 --> 0:14:42.120 Part of the disagreement is about the interpretation of Greenspan's 0:14:42.480 --> 0:14:46.880 motivation for not raising interest rates more aggressively. I say 0:14:46.880 --> 0:14:48.880 in my book that some of it had to do 0:14:48.960 --> 0:14:52.520 with personality, that green Span didn't like to confront people 0:14:52.600 --> 0:14:56.760 directly and aggressively. I'm Barry Ridholts. You're listening to Master's 0:14:56.760 --> 0:15:00.360 in Business on Bloomberg Radio. My special guest today is 0:15:00.400 --> 0:15:04.200 Sebastian Mallaby. He is the author of More Money Than 0:15:04.280 --> 0:15:06.800 God Hedge Funds and the Making of the New Elite, 0:15:07.200 --> 0:15:09.960 as well as, most recently The Man Who Knew the 0:15:10.080 --> 0:15:13.640 Life and Times of Alan Greenspan. Let's talk a little 0:15:13.680 --> 0:15:17.440 bit about your writing process. You you referenced that it 0:15:17.480 --> 0:15:21.600 took you five years to write this. Is that the 0:15:21.680 --> 0:15:25.240 research that's so time consuming or is it physically the 0:15:25.280 --> 0:15:29.480 process of getting words on paper, um, and then editing 0:15:29.520 --> 0:15:32.600 and re editing that that's so time consuming. It's mostly 0:15:32.640 --> 0:15:36.280 the research. I mean, this was a huge project of 0:15:36.320 --> 0:15:40.280 going to presidential archives and you know, going through what 0:15:40.440 --> 0:15:45.400 the Nixon Library might have about Nixon's involvements with green Span, etcetera, etcetera, 0:15:45.720 --> 0:15:47.440 And and the big I think what really makes this 0:15:47.520 --> 0:15:49.960 kind of book worth doing is you've got to put 0:15:50.000 --> 0:15:53.480 on the table information that people didn't have before. And 0:15:54.120 --> 0:15:57.000 that's not easy with a guy who is literally in 0:15:57.040 --> 0:16:01.040 the public eye and financial television is showing the thickness 0:16:01.080 --> 0:16:02.880 of his briefcase on the way to one f M 0:16:03.160 --> 0:16:06.200 f m C meeting as indication of what might happen. 0:16:06.520 --> 0:16:09.520 He's that closely watched. Yeah, but so you really have 0:16:09.640 --> 0:16:12.200 to go down every moss hole and really hope you 0:16:12.240 --> 0:16:14.960 find something, and sometimes you just get lucky. So, for example, 0:16:15.520 --> 0:16:18.800 I went to see the guy who operated green Spans 0:16:19.040 --> 0:16:23.080 computers when you know, like the technician who was working 0:16:23.120 --> 0:16:26.320 for green Spans consulting company in the nine sixties. And 0:16:26.360 --> 0:16:28.720 I went there on the theory that this is a 0:16:28.720 --> 0:16:32.240 person who would have some color about the culture of 0:16:32.280 --> 0:16:36.360 green SPAN's little company. And so I show up and um, 0:16:36.400 --> 0:16:38.680 it's in the middle of nowhere in the woods in Virginia. 0:16:38.720 --> 0:16:40.560 There's a clearing in the words, a cabin, this guy 0:16:40.600 --> 0:16:43.000 living by himself, and I start talking with him, and 0:16:43.000 --> 0:16:45.920 it turns out he's an Iron Rand follower, and he 0:16:46.040 --> 0:16:49.320 was the person who in his basement had this store 0:16:49.680 --> 0:16:52.800 of green Spans speeches when he was close to Iron 0:16:52.880 --> 0:16:57.080 Rand come on three page transcript on it was called 0:16:57.080 --> 0:17:00.520 the Economics of a Free Society, green SPAN's worldview when 0:17:00.520 --> 0:17:02.480 he was thirty eight years old. So you know, I 0:17:02.520 --> 0:17:04.960 didn't go there expecting to find it there, but I did. 0:17:04.960 --> 0:17:06.680 And you just have to go everywhere and hope you 0:17:06.720 --> 0:17:09.480 find stuff that that's amazing. So did this guy ever 0:17:09.560 --> 0:17:12.439 publish that or did he allow you full access to it? 0:17:12.680 --> 0:17:15.680 He gave me a full three page print out of 0:17:15.720 --> 0:17:18.600 the whole thing a photocopy, and it would have taken 0:17:18.600 --> 0:17:20.920 me five years to read three hundred pages of Queen 0:17:20.960 --> 0:17:24.119 spans ran speeches. Now you get a feeling of why 0:17:24.160 --> 0:17:26.080 it does take a while to do this this work. 0:17:26.119 --> 0:17:28.840 You know. I went to see Pat buchannan on the 0:17:28.840 --> 0:17:33.560 theory that Bricannon was a Nixon speech writer and green 0:17:33.600 --> 0:17:35.600 Span had been involved in the same Nixon campaign. So 0:17:35.680 --> 0:17:37.840 I thought Pat mcannon would tell me if his stories. 0:17:38.280 --> 0:17:40.880 It turns out he didn't just tell me stories. He 0:17:40.960 --> 0:17:43.159 also said, now in my basement, you should come down 0:17:43.160 --> 0:17:45.440 and have a look. And in Pat mcanna's basement there's 0:17:45.440 --> 0:17:48.480 two things, right, there's a fantastic collection of antique firearms, 0:17:49.240 --> 0:17:52.159 and there are all the memos that people wrote to 0:17:52.280 --> 0:17:55.280 Nixon in the sixties seven sixty eight campaign, including green 0:17:55.320 --> 0:17:58.160 Spans memos. So that doesn't go to a presidential library. 0:17:58.160 --> 0:18:00.439 I would assume the law was that has to be archived, 0:18:00.560 --> 0:18:03.679 or maybe that's a ladder piece of legislation. Well, I 0:18:03.720 --> 0:18:08.040 think that the campaign stuff. Yeah, right, So this is 0:18:08.080 --> 0:18:11.879 when green Span was in the war room during Nixon's campaign. 0:18:11.960 --> 0:18:15.119 He begins by writing pure economic advice, then he starts 0:18:15.119 --> 0:18:17.679 to do political advice. He starts to analyze polls for 0:18:17.800 --> 0:18:20.800 Nixon and then he does spin. I mean literally is 0:18:20.840 --> 0:18:24.000 telling Nixon, you know you believe this, but you shouldn't 0:18:24.040 --> 0:18:25.760 emphasize it too much because it won't go over well 0:18:25.800 --> 0:18:29.320 with the with the public um. So you know, how 0:18:29.320 --> 0:18:32.960 about phrasing it this way? That's fascinating. It reveals the 0:18:33.000 --> 0:18:35.399 political side of Alan Greenspan. I need to get some 0:18:35.440 --> 0:18:38.760 more stuff in my basement. So in the description of 0:18:38.760 --> 0:18:42.679 the book, it says you have unlimited You had unlimited 0:18:42.680 --> 0:18:48.320 access to Alan Greenspan. Define unlimited access? Did you really 0:18:49.000 --> 0:18:51.639 spend that much time with him? And how forthcoming was 0:18:51.720 --> 0:18:55.240 he about the writing you were doing. When I would 0:18:55.280 --> 0:18:57.520 go over to his office every week or two, I'd 0:18:57.520 --> 0:19:00.480 spent a couple of hours talking to him. After doing 0:19:00.520 --> 0:19:04.119 this for seventy hours, I stopped counting. I think for 0:19:04.200 --> 0:19:06.280 me it was research and for him it was therapy. 0:19:07.400 --> 0:19:12.080 So it was very open access. And for example, one 0:19:12.080 --> 0:19:14.760 other document that nobody had been able to find before 0:19:15.720 --> 0:19:20.560 was Alan Greenspan's PhD thesis, and I heard about that. 0:19:20.760 --> 0:19:23.000 He gave it to me. Now he gave it to 0:19:23.040 --> 0:19:24.680 me partly because I think, you know, I was asking 0:19:24.720 --> 0:19:27.679 him so many questions about his early intellectual development. And 0:19:27.720 --> 0:19:29.480 after a while he kept on glancing up at a 0:19:29.560 --> 0:19:31.239 shelf and I looked up there and I saw this 0:19:31.240 --> 0:19:33.880 big binder, and I kind of I figured he had 0:19:33.920 --> 0:19:36.320 it there, so he gave it to me. And you know, 0:19:36.359 --> 0:19:38.560 that was fascinating because it was really about how the 0:19:38.600 --> 0:19:42.440 central bank must fight bubbles. So it's one of these 0:19:42.640 --> 0:19:47.119 enormous ironies. Wow, that's amazing. Now. The also famously he 0:19:47.280 --> 0:19:52.000 never got his PhD in economics. What why did he 0:19:52.240 --> 0:19:55.919 not complete his PhD? THEASI, Well, what happened was actually 0:19:55.920 --> 0:19:59.040 that he began the PhD when he was young, in 0:19:59.080 --> 0:20:02.000 the nineteen fift and never completed it. Then he went 0:20:02.000 --> 0:20:04.679 into business. He was a guy who grew up with 0:20:04.720 --> 0:20:07.119 not much money. He wanted to start making money, and 0:20:07.160 --> 0:20:10.560 so he did very well as a paid consultant and 0:20:10.640 --> 0:20:15.000 economics and that was more attractive. But then way later, 0:20:15.200 --> 0:20:17.560 in fact, when he was in his early fifties, he'd 0:20:17.640 --> 0:20:20.879 by this time being President Ford's chairman of the Council 0:20:20.880 --> 0:20:23.880 of Economic Advices, and his old friends at New York 0:20:23.920 --> 0:20:26.399 University said, um, you know, you should really get a 0:20:26.440 --> 0:20:28.320 PhD since you're an economist, and why don't you come 0:20:28.359 --> 0:20:30.960 back and take some classes. So he went back, took 0:20:30.960 --> 0:20:34.760 the classes, did the coursework, and they assembled a collection 0:20:34.800 --> 0:20:37.200 of papers that he'd written over the years, and then 0:20:37.240 --> 0:20:40.000 he did get a PhD. Then I'm Barry Ridholtz. You're 0:20:40.040 --> 0:20:43.400 listening to Master's in Business on Bloomberg Radio. My guest 0:20:43.440 --> 0:20:47.959 today is Sebastian Mallaby. He is the author, amongst other things, 0:20:48.760 --> 0:20:52.159 More Money than God, which won the Lobe Award in 0:20:52.160 --> 0:20:55.360 two thousand eleven. It was a New York Times best seller. 0:20:55.680 --> 0:20:58.720 Let's talk a little bit about this book, um, which 0:20:58.800 --> 0:21:01.520 is really quite fast. And first I have to ask 0:21:03.440 --> 0:21:07.560 explain from whence the title comes. Well, it's a bit 0:21:07.560 --> 0:21:12.359 of a funny one. But the U nickname for JP Morgan, 0:21:12.480 --> 0:21:17.000 the famous banker, was Jupiter. And I looked up how 0:21:17.119 --> 0:21:21.399 much money JP Morgan had when he died um in 0:21:21.440 --> 0:21:23.879 an inflation adjusted dollars, and it came to something like, 0:21:24.119 --> 0:21:27.600 I think one point three billion is a piker exactly. 0:21:27.640 --> 0:21:31.040 I realized that modern hedge fund managers in a single 0:21:31.119 --> 0:21:35.000 year occasionally make more money than Jupiter. Jim sound Simon's 0:21:35.080 --> 0:21:38.000 Ray Dalio. They have two and three billion dollar years 0:21:38.000 --> 0:21:41.159 on a regular basis, right, So I went for the title. 0:21:41.240 --> 0:21:42.959 A lot of people hate the title. They say, oh, 0:21:43.000 --> 0:21:47.159 I love the title it because you know, you're describing 0:21:47.400 --> 0:21:54.200 a very very distinct class of of asset managers who 0:21:54.320 --> 0:21:58.960 have been there's no other way to describe it, wildly compensated. 0:21:59.160 --> 0:22:03.439 And you know, nothing is more expressive than than their phrase. 0:22:03.840 --> 0:22:06.640 So so let's let's discuss this group a little bit. 0:22:07.280 --> 0:22:11.080 Explaining the most secretive subculture of our economy posed an 0:22:11.119 --> 0:22:16.200 irresistible investigative challenge. Uh. You also say the common view 0:22:16.200 --> 0:22:19.880 of hedge funds seemed ripe for correction. So let's let's 0:22:19.880 --> 0:22:23.560 talk about both of those. What was the investigative challenge 0:22:23.600 --> 0:22:27.520 here reviewing a variety of different hedge fund managers. Well, 0:22:27.520 --> 0:22:29.040 I mean, a lot of aspects of the U S 0:22:29.080 --> 0:22:31.240 economy are very transparent. You can look stuff up on 0:22:31.240 --> 0:22:34.879 the Internet and so forth. Hedge fund managers are typically 0:22:34.960 --> 0:22:38.520 quite secretive, and they didn't want to talk about their 0:22:38.880 --> 0:22:42.320 methods because some of it is proprietary, and they just 0:22:42.320 --> 0:22:44.719 want to be discreet because they figured most public attention 0:22:44.760 --> 0:22:48.920 they get is negative, and so persuading people to talk 0:22:48.960 --> 0:22:52.159