1 00:00:10,080 --> 00:00:14,080 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,120 --> 00:00:18,080 Speaker 1: I'm Joe Wisntal and I'm Tracy Halloway. Tracy, you know, 3 00:00:18,760 --> 00:00:23,280 Speaker 1: the specifics of the f t X Saga disaster collapse 4 00:00:23,320 --> 00:00:25,280 Speaker 1: are still coming out, but one thing we do know 5 00:00:25,640 --> 00:00:29,880 Speaker 1: is that, you know, there's nothing really that new about manias. 6 00:00:30,040 --> 00:00:33,080 Speaker 1: There's nothing really new about bubbles. There's nothing really new 7 00:00:33,120 --> 00:00:36,800 Speaker 1: about sort of like wildcat shadow banks that implode and 8 00:00:36,840 --> 00:00:38,800 Speaker 1: lose a lot of money. Like in a way, the 9 00:00:38,880 --> 00:00:42,080 Speaker 1: story is as old as time. Well, I I broadly 10 00:00:42,240 --> 00:00:45,680 Speaker 1: agree with that, like every speculative bubble is going to 11 00:00:45,760 --> 00:00:48,839 Speaker 1: have some similarities. But I feel like, I don't know, 12 00:00:48,880 --> 00:00:50,960 Speaker 1: I feel like when it comes to crypto, there is 13 00:00:51,000 --> 00:00:54,960 Speaker 1: something about it specifically that just feels like really really 14 00:00:55,680 --> 00:00:58,800 Speaker 1: I'm trying to think of the right word, maybe cynical 15 00:00:59,440 --> 00:01:04,160 Speaker 1: or nileistic. Like it's hard to tell how many true 16 00:01:04,160 --> 00:01:07,400 Speaker 1: believers are out there versus people who are basically just 17 00:01:07,440 --> 00:01:10,919 Speaker 1: gambling on digital tokens who want to get rich quickly. 18 00:01:11,080 --> 00:01:14,119 Speaker 1: But I do feel like, and I wrote this after 19 00:01:14,200 --> 00:01:17,760 Speaker 1: we recorded that episode with Sam bankman Fried and Matt 20 00:01:17,840 --> 00:01:20,120 Speaker 1: Levin where he described yield farming as you know, the 21 00:01:20,160 --> 00:01:23,119 Speaker 1: magic money box. But it feels like people kind of 22 00:01:23,240 --> 00:01:28,280 Speaker 1: run two bubbles nowadays. And Lily Frankis talked to us 23 00:01:28,319 --> 00:01:30,520 Speaker 1: about this as well, but she was saying, people sort 24 00:01:30,560 --> 00:01:33,040 Speaker 1: of have this compressed timeline where they just see an 25 00:01:33,040 --> 00:01:35,679 Speaker 1: opportunity to get rich quick, and the idea is to 26 00:01:35,720 --> 00:01:38,440 Speaker 1: get out before everyone else. But as you say, there 27 00:01:38,440 --> 00:01:41,200 Speaker 1: have been bubbles throughout history where people have tried to 28 00:01:41,240 --> 00:01:43,880 Speaker 1: do the exact same thing. No, but I think you 29 00:01:44,200 --> 00:01:46,520 Speaker 1: make a really good point and homing in on this 30 00:01:46,600 --> 00:01:49,040 Speaker 1: idea of running two bubbles is sort of like this 31 00:01:49,440 --> 00:01:52,320 Speaker 1: strategy that a lot of people employ. Like I've always 32 00:01:52,360 --> 00:01:53,920 Speaker 1: sort of had this theory and i don't know if 33 00:01:53,960 --> 00:01:56,280 Speaker 1: it's really true because I've never looked at it empirically. 34 00:01:56,560 --> 00:01:59,920 Speaker 1: So it's like just for twitter type of theory, you know, 35 00:02:00,160 --> 00:02:04,240 Speaker 1: it's like I don't have to do you have any 36 00:02:04,280 --> 00:02:08,040 Speaker 1: other types of theory? Not really, that was mean Carmen 37 00:02:08,080 --> 00:02:09,920 Speaker 1: cut that. No, No, keep that and keep that in 38 00:02:10,280 --> 00:02:12,480 Speaker 1: people getting to hear the real, the real back and 39 00:02:12,520 --> 00:02:14,920 Speaker 1: forth between us. But you know, just this like idea 40 00:02:15,040 --> 00:02:18,560 Speaker 1: of like in a period of economic procarity and so forth, 41 00:02:19,000 --> 00:02:21,760 Speaker 1: if you don't feel like there's like tremendous like economic 42 00:02:21,760 --> 00:02:25,200 Speaker 1: opportunities for you, then you have to run towards bubbles, 43 00:02:25,240 --> 00:02:27,480 Speaker 1: because maybe a bubble will come round two or three, 44 00:02:27,639 --> 00:02:30,200 Speaker 1: four times in your life maybe, And if you don't 45 00:02:30,200 --> 00:02:31,880 Speaker 1: strike it rich on one of them, like when you're 46 00:02:31,880 --> 00:02:33,880 Speaker 1: gonna make it. Well, this is exactly it. If you 47 00:02:33,960 --> 00:02:37,640 Speaker 1: don't see the possibility of getting rich or even you know, 48 00:02:37,960 --> 00:02:41,200 Speaker 1: reasonably comfortable in your day to day job, then why 49 00:02:41,240 --> 00:02:44,440 Speaker 1: wouldn't you look at something like crypto as basically a 50 00:02:44,440 --> 00:02:47,959 Speaker 1: lottery ticket, right, You could get lucky if you put 51 00:02:48,080 --> 00:02:50,880 Speaker 1: enough money into this investment and if enough people do 52 00:02:50,960 --> 00:02:52,799 Speaker 1: the same thing. So I think that's how a lot 53 00:02:52,800 --> 00:02:55,600 Speaker 1: of people were viewing it, this sort of lottery ticket, 54 00:02:56,000 --> 00:02:58,200 Speaker 1: you know. And there's another thing and you sort of 55 00:02:58,280 --> 00:03:01,519 Speaker 1: touched on this, which is that know, yes, okay, there's 56 00:03:01,520 --> 00:03:05,480 Speaker 1: always bubbles throughout history, but some bubbles in particular like 57 00:03:05,600 --> 00:03:08,600 Speaker 1: really cellvision of like changing the world. Right, So it's 58 00:03:08,600 --> 00:03:11,639 Speaker 1: like cryptocurrencies are like beanie babies, is I think people say, 59 00:03:11,720 --> 00:03:14,560 Speaker 1: But I don't even think that at the very peak 60 00:03:14,680 --> 00:03:19,120 Speaker 1: of like the beanie baby mania, that anyone actually believe 61 00:03:19,200 --> 00:03:20,880 Speaker 1: like they were going to change the world right, as 62 00:03:20,919 --> 00:03:22,239 Speaker 1: far as I know, as far as I know, I 63 00:03:22,240 --> 00:03:24,240 Speaker 1: don't think. So we're going to have the beanie baby 64 00:03:24,320 --> 00:03:27,119 Speaker 1: based economy and everyone is going to have their own 65 00:03:27,120 --> 00:03:31,080 Speaker 1: beanie baby wallet, and we'll have financial independence and we 66 00:03:31,120 --> 00:03:34,040 Speaker 1: won't have to go through you know, middlemen like the banks. 67 00:03:34,080 --> 00:03:37,400 Speaker 1: It'll be great. We'll just trade beanie babies with each other. Yeah, 68 00:03:37,440 --> 00:03:39,280 Speaker 1: I think. I think you're right. I think that's exactly 69 00:03:39,360 --> 00:03:41,560 Speaker 1: what happened. But no, like so, you know, some of 70 00:03:41,600 --> 00:03:44,560 Speaker 1: these manias, and the dot com one of course too 71 00:03:44,680 --> 00:03:46,440 Speaker 1: is like the world is going to change, and they 72 00:03:46,480 --> 00:03:48,440 Speaker 1: were kind of right about that, because the Internet did 73 00:03:48,520 --> 00:03:50,400 Speaker 1: change the world. But you know, I do want to 74 00:03:50,520 --> 00:03:53,600 Speaker 1: understand more about not only like the history of bubbles, 75 00:03:53,840 --> 00:03:56,760 Speaker 1: not only what the FTX and crypto implosion is similar to, 76 00:03:57,440 --> 00:04:00,520 Speaker 1: but like what history says also about this sort of 77 00:04:00,560 --> 00:04:02,520 Speaker 1: like what I perceive is like this cat and mouse 78 00:04:02,560 --> 00:04:06,000 Speaker 1: game that regulators play with different kinds of neil banks 79 00:04:06,040 --> 00:04:08,920 Speaker 1: of swords. I understand like neil bank might meet something else, 80 00:04:08,960 --> 00:04:11,560 Speaker 1: but I mean like new attempts to recreate the financial 81 00:04:11,560 --> 00:04:15,960 Speaker 1: system and the endless sort of chase and sort of 82 00:04:16,000 --> 00:04:19,520 Speaker 1: attempt to regulate them, and the hot money flows out 83 00:04:19,560 --> 00:04:23,640 Speaker 1: of the regulated system totally. I think looking into the 84 00:04:23,640 --> 00:04:27,520 Speaker 1: similarities and the differences with pass bubbles is definitely something 85 00:04:27,560 --> 00:04:29,400 Speaker 1: that we need to do. The other thing that I 86 00:04:29,480 --> 00:04:32,799 Speaker 1: find striking about crypto and I know there have been 87 00:04:32,839 --> 00:04:37,599 Speaker 1: you know, private money projects throughout history, but it does 88 00:04:37,680 --> 00:04:41,159 Speaker 1: feel like Crypto was almost like the apex of that effort, 89 00:04:41,200 --> 00:04:45,799 Speaker 1: Like we are going to create a financial bubble out 90 00:04:45,839 --> 00:04:50,080 Speaker 1: of pure like money that we have created. I don't know, 91 00:04:50,120 --> 00:04:55,120 Speaker 1: it feels like the financial like speculative mania kind of 92 00:04:55,240 --> 00:04:59,080 Speaker 1: reached almost its purest form when it comes to crypto, 93 00:04:59,200 --> 00:05:03,280 Speaker 1: Like this is about making money with pretend money that 94 00:05:03,320 --> 00:05:06,560 Speaker 1: we have created. Like that's what it feels like to me. Yeah, 95 00:05:06,920 --> 00:05:08,479 Speaker 1: we could go down to this rabbit hole. But like 96 00:05:08,520 --> 00:05:11,120 Speaker 1: this idea of like the complete separation of a new 97 00:05:11,160 --> 00:05:15,200 Speaker 1: financial system from the existing regulated legal financial system is 98 00:05:15,240 --> 00:05:17,840 Speaker 1: like a financial fascinating angle. Anyway, you and I we 99 00:05:17,920 --> 00:05:20,920 Speaker 1: could chat for hours, but should we should we talk? 100 00:05:21,000 --> 00:05:22,320 Speaker 1: Should we bring it in an action? Should we bring 101 00:05:22,360 --> 00:05:24,640 Speaker 1: it in? Yeah? Yeah, we should, we should. Okay, So 102 00:05:24,680 --> 00:05:27,000 Speaker 1: I'm very excited about our guests. We've never had him 103 00:05:27,080 --> 00:05:29,560 Speaker 1: on the show before, I don't think, but we have 104 00:05:29,680 --> 00:05:32,720 Speaker 1: been reading him forever for as long as like the 105 00:05:32,760 --> 00:05:37,040 Speaker 1: financial or eco blogg Is fhere and twitter sphere has existed. 106 00:05:37,120 --> 00:05:39,440 Speaker 1: One of the true originals we're gonna be speaking to 107 00:05:39,960 --> 00:05:43,240 Speaker 1: Brad DeLong. He's a professor of economics at the University 108 00:05:43,279 --> 00:05:47,080 Speaker 1: of California at Berkeley. He's probably been two online since 109 00:05:48,720 --> 00:05:50,840 Speaker 1: and he is the author of a new book called 110 00:05:50,920 --> 00:05:55,599 Speaker 1: Slouching Towards Utopia and Economic History of the twentieth Century. 111 00:05:55,640 --> 00:05:58,440 Speaker 1: This is a true specialty economic history. So how does 112 00:05:58,520 --> 00:06:02,440 Speaker 1: FTX and crypto it into history? Brad, Thank you so 113 00:06:02,560 --> 00:06:05,200 Speaker 1: much for coming on the podcast. I can't believe it's 114 00:06:05,200 --> 00:06:07,920 Speaker 1: taken us this long to have you on. Now, thank 115 00:06:07,960 --> 00:06:10,840 Speaker 1: you very very much for inviting me. Now, it's true 116 00:06:10,839 --> 00:06:12,960 Speaker 1: that I actually have been in the same room when 117 00:06:13,120 --> 00:06:16,480 Speaker 1: Joe with the past and I have actually spoken words 118 00:06:16,520 --> 00:06:18,839 Speaker 1: out of my mouth that have caused vibration to the 119 00:06:18,920 --> 00:06:21,560 Speaker 1: air that have gone into his ears, and he has 120 00:06:21,640 --> 00:06:24,320 Speaker 1: talked back. Although that was a decade ago, yeah, um, 121 00:06:24,360 --> 00:06:27,800 Speaker 1: But overwhelmingly over the past three well five years or so, 122 00:06:27,960 --> 00:06:30,240 Speaker 1: and as long as odd Lots been running, it's been 123 00:06:30,320 --> 00:06:33,640 Speaker 1: very much a paras social relationship in which I listened 124 00:06:33,640 --> 00:06:35,880 Speaker 1: to Joe and Tracy and then I argue with them 125 00:06:35,960 --> 00:06:38,600 Speaker 1: volubly in my shower until my wife tells them to 126 00:06:38,720 --> 00:06:42,799 Speaker 1: shut up. And so it's great to be here, great 127 00:06:42,839 --> 00:06:45,480 Speaker 1: to be here. Actually for reals here in the metaverse, 128 00:06:45,760 --> 00:06:48,920 Speaker 1: we are definitely We're glad to have you, Brad. We're 129 00:06:48,960 --> 00:06:51,920 Speaker 1: definitely clipping that Kerman and putting that out as an 130 00:06:51,960 --> 00:06:56,400 Speaker 1: audiogram on Twitter as soon as possible. What is uh 131 00:06:56,520 --> 00:06:58,320 Speaker 1: if there is still a Twitter? If there is still 132 00:06:58,360 --> 00:07:00,440 Speaker 1: a Twitter by the time this episode and comes out, 133 00:07:00,480 --> 00:07:03,480 Speaker 1: which I hope f t X. I say those letters 134 00:07:03,520 --> 00:07:06,159 Speaker 1: to you, and as an economic historian, what comes to 135 00:07:06,200 --> 00:07:09,480 Speaker 1: mind first? What are those words conjure up for you? First? 136 00:07:09,520 --> 00:07:12,280 Speaker 1: It conjures up the south Sea Bubble of the early 137 00:07:12,400 --> 00:07:17,320 Speaker 1: seventeen hundreds. You see, Great Britain had gone all in 138 00:07:17,440 --> 00:07:21,080 Speaker 1: and its wars with France starting in six nine, and 139 00:07:21,160 --> 00:07:24,920 Speaker 1: had issued many, many metric f tons of debt during it. 140 00:07:24,920 --> 00:07:27,320 Speaker 1: It was a country of six million fighting a country 141 00:07:27,320 --> 00:07:30,520 Speaker 1: of twenty million and winning, you know, and piling up 142 00:07:30,560 --> 00:07:33,960 Speaker 1: dead issue after debt issue after debt issue. But all 143 00:07:34,000 --> 00:07:37,400 Speaker 1: of them were on different terms. None of them were tradeable. 144 00:07:38,000 --> 00:07:41,440 Speaker 1: And along comes the south Sea Corporation with the idea 145 00:07:41,520 --> 00:07:44,320 Speaker 1: that we are going to create a different form of money. 146 00:07:45,080 --> 00:07:47,040 Speaker 1: We are going to buy up all of the British 147 00:07:47,160 --> 00:07:50,360 Speaker 1: National debt. We are going to consolidate it. We're going 148 00:07:50,400 --> 00:07:53,000 Speaker 1: to take all the different securities and mesh them together, 149 00:07:53,600 --> 00:07:56,720 Speaker 1: and then we are going to sell equal identical shares 150 00:07:57,000 --> 00:08:01,320 Speaker 1: of all of the consolidated debts. And because we're selling 151 00:08:01,440 --> 00:08:05,280 Speaker 1: one product, it's going to be tradeable, it's going to 152 00:08:05,320 --> 00:08:07,960 Speaker 1: be clear what it is, because it's just a particular 153 00:08:08,040 --> 00:08:11,480 Speaker 1: slice of the total debt. And the proprietors of the 154 00:08:11,520 --> 00:08:14,720 Speaker 1: south Sea Company said, we're going to get fabulously rich 155 00:08:14,800 --> 00:08:18,040 Speaker 1: here because going we're going to create this enormous liquidity 156 00:08:18,080 --> 00:08:22,240 Speaker 1: premium in the British National debt which is not previously unexisted, 157 00:08:22,480 --> 00:08:25,000 Speaker 1: and we're going to skim off a third of that 158 00:08:25,080 --> 00:08:30,120 Speaker 1: liquidity value for us and our financers, and for you, 159 00:08:30,320 --> 00:08:32,760 Speaker 1: Mr Member of Parliament, if you will help Greece our 160 00:08:32,800 --> 00:08:34,800 Speaker 1: bills go through the House of Commons so we can 161 00:08:34,840 --> 00:08:40,320 Speaker 1: actually do this enormous bubble followed by enormous crash. You know. 162 00:08:40,559 --> 00:08:43,480 Speaker 1: Source of the Sir Isaac Newton quote. I can calculate 163 00:08:43,520 --> 00:08:46,520 Speaker 1: the motions of heavenly bodies, but I cannot calculate the 164 00:08:46,559 --> 00:08:50,000 Speaker 1: madness of craps. So talk to us a little bit 165 00:08:50,000 --> 00:08:53,960 Speaker 1: more like, what exactly is the parallel here other than 166 00:08:54,679 --> 00:08:57,880 Speaker 1: the south Sea Bubble, you know, involved creating a new 167 00:08:57,960 --> 00:09:00,760 Speaker 1: type of money, Like, are there other ways in the 168 00:09:00,800 --> 00:09:04,080 Speaker 1: way that the bubble built, in the way that people 169 00:09:04,160 --> 00:09:09,680 Speaker 1: sort of marketed that idea to investors? Um, Yes, indeed, yes, 170 00:09:09,720 --> 00:09:14,600 Speaker 1: indeed that it's not just what the original Bitcoin and 171 00:09:14,600 --> 00:09:17,720 Speaker 1: ethereum people saying, we're going to have a whole new 172 00:09:17,760 --> 00:09:20,440 Speaker 1: form of money. It's also that you're getting in on 173 00:09:20,520 --> 00:09:23,400 Speaker 1: the ground floor of what's going to be a truly 174 00:09:23,440 --> 00:09:27,439 Speaker 1: remarkable financial transformation. It's also going to be that we 175 00:09:27,559 --> 00:09:30,880 Speaker 1: understand how to work the political system to make it 176 00:09:30,960 --> 00:09:34,880 Speaker 1: work for us. And it's also a huge number of 177 00:09:34,920 --> 00:09:40,080 Speaker 1: copycats with all kinds of things, some of which are public, 178 00:09:40,200 --> 00:09:43,280 Speaker 1: some of which are not, some of which are promises 179 00:09:43,360 --> 00:09:45,920 Speaker 1: that we will have a business model at some point 180 00:09:45,920 --> 00:09:49,120 Speaker 1: in the future, some of which are totally blue sky 181 00:09:49,280 --> 00:09:53,679 Speaker 1: and incapable of realization in less than a century. And 182 00:09:53,760 --> 00:09:56,960 Speaker 1: some of them are ideas that actually worked out in 183 00:09:57,000 --> 00:09:59,559 Speaker 1: the very long run, right like the South Sea Bubble 184 00:09:59,600 --> 00:10:03,320 Speaker 1: company that wanted to send out an expedition to establish 185 00:10:03,400 --> 00:10:06,880 Speaker 1: a trading post at the closest place where the Great 186 00:10:06,960 --> 00:10:09,680 Speaker 1: Lakes meet the Mississippi River where you just have to 187 00:10:09,720 --> 00:10:12,560 Speaker 1: cut it drag a canoe across three miles. The Mississippi 188 00:10:12,679 --> 00:10:15,880 Speaker 1: River turned out to be important. Yes, And you know, 189 00:10:15,920 --> 00:10:18,560 Speaker 1: where's the place where you drag a canoe across three 190 00:10:18,559 --> 00:10:20,800 Speaker 1: miles to get from the Mississippi to the Great Lakes. 191 00:10:21,360 --> 00:10:28,320 Speaker 1: You know what that's now called Chicago. I was thinking 192 00:10:29,080 --> 00:10:33,360 Speaker 1: that was embarrassing on our part, but alas a hundred 193 00:10:33,400 --> 00:10:36,160 Speaker 1: and sixty years too early for anyone to actually want 194 00:10:36,200 --> 00:10:38,960 Speaker 1: to live in Chicago where the wind comes howling in 195 00:10:39,040 --> 00:10:41,400 Speaker 1: from Lake Michigan, and where I was last weekend, where's 196 00:10:41,480 --> 00:10:44,760 Speaker 1: fifteen degrees. So you know, going back to just the 197 00:10:45,240 --> 00:10:49,920 Speaker 1: south Sea Company like buying up all of the non 198 00:10:49,920 --> 00:10:53,520 Speaker 1: fungible British debt and all of these different like sort 199 00:10:53,520 --> 00:10:56,679 Speaker 1: of like random liquid que SIPs and turning it into 200 00:10:56,760 --> 00:10:59,719 Speaker 1: something that's liquid and fungible on every shared where it 201 00:10:59,760 --> 00:11:02,319 Speaker 1: seems like a pretty good idea. It is a very 202 00:11:02,360 --> 00:11:05,240 Speaker 1: good idea. In the end, it was actually executed, but 203 00:11:05,280 --> 00:11:07,840 Speaker 1: it was executed by the Bank of England and not 204 00:11:08,000 --> 00:11:10,439 Speaker 1: by the south Sea Company, which is one reason why 205 00:11:10,440 --> 00:11:13,000 Speaker 1: the Bank of England still has its very large financial 206 00:11:13,000 --> 00:11:15,960 Speaker 1: temple on thread Needle Street, while there is no physical 207 00:11:16,000 --> 00:11:18,640 Speaker 1: sign of the south Sea Company anywhere in this fallen 208 00:11:18,679 --> 00:11:23,280 Speaker 1: sublunary sphere. M hm brad. What was the trigger for 209 00:11:23,320 --> 00:11:26,440 Speaker 1: the south Sea bubble actually collapsing and are there any 210 00:11:26,480 --> 00:11:29,760 Speaker 1: parallels there with what we're seeing now in crypto? It's 211 00:11:30,000 --> 00:11:34,600 Speaker 1: very hard to tell what the trigger is. John Kenneth 212 00:11:34,640 --> 00:11:39,920 Speaker 1: Galbraith used to say that there's this thing called the bezel, 213 00:11:41,200 --> 00:11:43,880 Speaker 1: which is the money that the early adopters who have 214 00:11:43,960 --> 00:11:47,240 Speaker 1: now selled out have known they've won, but the money 215 00:11:47,320 --> 00:11:49,840 Speaker 1: that the people, the greater fools, do not yet know 216 00:11:49,920 --> 00:11:53,240 Speaker 1: that they have lost. It looks like the trigger was 217 00:11:53,400 --> 00:11:56,880 Speaker 1: the south Sea Company actually attempting to flex its political 218 00:11:57,000 --> 00:12:02,840 Speaker 1: muscles and get Parliament to push out some of its competitors, 219 00:12:02,880 --> 00:12:05,360 Speaker 1: to rule that some of its competitors would in fact 220 00:12:05,360 --> 00:12:09,040 Speaker 1: be illegal, in order to concentrate demand for bubble like 221 00:12:09,120 --> 00:12:11,680 Speaker 1: assets in the shares of the south Sea Company, which 222 00:12:11,679 --> 00:12:14,400 Speaker 1: we're still trading on a win issued basis, and wanting 223 00:12:14,440 --> 00:12:17,320 Speaker 1: to push them up to the sky um. But that 224 00:12:17,320 --> 00:12:21,240 Speaker 1: that caused enough selling and enough loss of value elsewhere 225 00:12:21,559 --> 00:12:24,040 Speaker 1: that people began to question the value of the south 226 00:12:24,040 --> 00:12:27,280 Speaker 1: Sea Company's stock as well. You know, and once people 227 00:12:27,360 --> 00:12:32,200 Speaker 1: start saying, maybe this isn't actually as good, maybe I 228 00:12:32,280 --> 00:12:37,040 Speaker 1: am the greatest fool, then the thing is over. Joe, 229 00:12:37,080 --> 00:12:39,800 Speaker 1: I cannot tell you how many columns I have both 230 00:12:39,880 --> 00:12:43,840 Speaker 1: written and read over my lifetime in finance that start 231 00:12:43,880 --> 00:12:47,640 Speaker 1: with galper It's the bezel. It's like the perfect analogy 232 00:12:47,800 --> 00:12:50,280 Speaker 1: for so many things. It's a bit of a cliche, 233 00:12:50,360 --> 00:12:52,760 Speaker 1: but it also is perfect. I'm also kind of struck 234 00:12:52,800 --> 00:12:56,640 Speaker 1: by this politics point in because again, you know, thinking 235 00:12:56,640 --> 00:13:00,440 Speaker 1: about parallels. A is you had SBF who had attempted 236 00:13:00,480 --> 00:13:05,839 Speaker 1: to become extremely influential within politics, and not only that 237 00:13:06,120 --> 00:13:10,240 Speaker 1: to your point, even you know this idea of politics, 238 00:13:10,280 --> 00:13:12,559 Speaker 1: of the idea of like pushing out others, and literally 239 00:13:12,960 --> 00:13:16,640 Speaker 1: just like in the weeks before the ft X collapsed, 240 00:13:16,880 --> 00:13:20,040 Speaker 1: he was advocating for a certain type of defy regulation 241 00:13:20,120 --> 00:13:24,160 Speaker 1: that many people in defy believe its targeting them. And 242 00:13:24,240 --> 00:13:27,679 Speaker 1: so this is actually maybe more parallels than maybe we 243 00:13:27,720 --> 00:13:31,960 Speaker 1: would have guessed. Yes, yes, yes, yes. And there's a 244 00:13:32,080 --> 00:13:35,040 Speaker 1: very nice south Sea bubble book by Tom Levinson called 245 00:13:35,080 --> 00:13:38,800 Speaker 1: Money for Nothing, which I think everyone should read, along 246 00:13:38,840 --> 00:13:43,160 Speaker 1: with Sequoia capitals pieces on why we're investing so much 247 00:13:43,160 --> 00:13:45,360 Speaker 1: and Sam Bankman read and why you should invest in 248 00:13:45,440 --> 00:14:05,040 Speaker 1: them too. Um that everyone should read this much so 249 00:14:05,640 --> 00:14:08,080 Speaker 1: one of the things when it comes to bubbles, and 250 00:14:08,160 --> 00:14:10,120 Speaker 1: Joe kind of touched on this in the intro, but 251 00:14:10,559 --> 00:14:14,480 Speaker 1: almost every big bubble actually does tell some sort of 252 00:14:14,520 --> 00:14:19,440 Speaker 1: compelling story. And obviously in hindsight you think, well, this 253 00:14:19,600 --> 00:14:22,800 Speaker 1: was blown completely out of proportion, or parts of this 254 00:14:22,880 --> 00:14:24,960 Speaker 1: were true, but not all of it, like in the 255 00:14:25,000 --> 00:14:27,640 Speaker 1: dot com bubble. Like talk to us a little bit 256 00:14:27,680 --> 00:14:31,680 Speaker 1: more about that psychological aspect of bubbles and how do 257 00:14:31,760 --> 00:14:37,040 Speaker 1: people actually differentiate between you know, life world changing technology 258 00:14:37,280 --> 00:14:42,760 Speaker 1: versus a speculative asset. Well, mostly mostly there is a 259 00:14:42,920 --> 00:14:48,640 Speaker 1: story about a life changing and very profitable technology underneath there. 260 00:14:49,440 --> 00:14:53,320 Speaker 1: You know, that is the end driving the thing, right 261 00:14:53,720 --> 00:14:56,840 Speaker 1: that we are going to build a railroad from New 262 00:14:56,920 --> 00:14:59,920 Speaker 1: York to Chicago, and then we are going to collect 263 00:15:00,000 --> 00:15:03,920 Speaker 1: a huge amount of money because we own the railroad 264 00:15:04,000 --> 00:15:06,760 Speaker 1: from New York to Chicago. But then it turns out 265 00:15:06,840 --> 00:15:08,920 Speaker 1: that there actually is a lot of money that wants 266 00:15:08,920 --> 00:15:11,040 Speaker 1: to do this, and there is not one railroad, but 267 00:15:11,080 --> 00:15:14,320 Speaker 1: there are three railroads from New York to Chicago, and 268 00:15:14,600 --> 00:15:17,400 Speaker 1: you know, each of them has high fixed but very 269 00:15:17,440 --> 00:15:20,440 Speaker 1: low variable costs, so each of them has an incentive 270 00:15:20,480 --> 00:15:23,680 Speaker 1: to undercut the others, and so none of the railroads 271 00:15:23,680 --> 00:15:26,320 Speaker 1: can ever make any money because whenever anyone jacks up 272 00:15:26,360 --> 00:15:28,800 Speaker 1: their rates, one of the other two undercuts it, and 273 00:15:28,840 --> 00:15:32,040 Speaker 1: so all the railroads go smash with their equity going 274 00:15:32,080 --> 00:15:35,320 Speaker 1: to zero and their bonds going to very steep discounts. 275 00:15:35,360 --> 00:15:39,440 Speaker 1: But at the end, the United States has three railroads 276 00:15:39,480 --> 00:15:42,320 Speaker 1: from New York to Chicago, and everyone who wants to 277 00:15:42,360 --> 00:15:44,800 Speaker 1: move goods or people from New York to Chicago and 278 00:15:44,840 --> 00:15:49,560 Speaker 1: back is enormously blessed by this, you know. Joe Stiglett 279 00:15:49,600 --> 00:15:52,360 Speaker 1: says something similar about the dot com bubble right that 280 00:15:52,560 --> 00:15:54,880 Speaker 1: m c I World Calm was saying it was making 281 00:15:54,960 --> 00:15:58,840 Speaker 1: huge amounts of fortunes by building out fiber everywhere it 282 00:15:58,920 --> 00:16:01,080 Speaker 1: was lying in its account thing. But lots of other 283 00:16:01,080 --> 00:16:03,840 Speaker 1: people followed it, and then we had a decade of 284 00:16:03,920 --> 00:16:08,360 Speaker 1: dark fiber in which transferring bits across the United States 285 00:16:08,400 --> 00:16:12,600 Speaker 1: was essentially free, and that nourished the growth of the Internet. 286 00:16:12,880 --> 00:16:16,600 Speaker 1: That is, the collective losses of investors in telecom during 287 00:16:16,640 --> 00:16:20,040 Speaker 1: the dot com bubble was a social gift in terms 288 00:16:20,120 --> 00:16:23,920 Speaker 1: that it produced a huge amount of telecommunications infrastructure that 289 00:16:24,080 --> 00:16:26,080 Speaker 1: all of us in the first decade of the twenty 290 00:16:26,120 --> 00:16:29,520 Speaker 1: first century benefited from massively. In the case of the 291 00:16:29,520 --> 00:16:32,280 Speaker 1: south Sea bubble, you've got the British bond mark that 292 00:16:32,840 --> 00:16:36,200 Speaker 1: rich British people could move their money from land to 293 00:16:36,280 --> 00:16:41,360 Speaker 1: commercial enterprises, into government debt and out again swiftly and easily, 294 00:16:41,480 --> 00:16:44,880 Speaker 1: and so have more options and more peace of mind. 295 00:16:45,360 --> 00:16:50,400 Speaker 1: But in the crypto bubble, um, what do you get right? 296 00:16:50,520 --> 00:16:53,240 Speaker 1: I wanted to bid on the Financial Times n f 297 00:16:53,360 --> 00:16:56,800 Speaker 1: T M f t X Tombstone, but could not connect 298 00:16:56,840 --> 00:16:59,400 Speaker 1: by wall by Slanto wallet to the f T S site, 299 00:16:59,440 --> 00:17:02,000 Speaker 1: so I never bit on it at all. But you 300 00:17:02,040 --> 00:17:05,159 Speaker 1: get a particular number that says it gives you some 301 00:17:05,240 --> 00:17:08,040 Speaker 1: kind of special claim on a particular picture of a 302 00:17:08,040 --> 00:17:12,360 Speaker 1: monkey that everyone has on their desktop. It's very unclear. 303 00:17:13,680 --> 00:17:17,720 Speaker 1: Usually there is real money there. There is actually a 304 00:17:17,760 --> 00:17:20,320 Speaker 1: pot of gold at the end of the rainbow, but 305 00:17:20,560 --> 00:17:24,440 Speaker 1: it was never too clear what the pot of gold 306 00:17:24,520 --> 00:17:27,679 Speaker 1: was supposed to be in crypto, you know, just setting 307 00:17:27,720 --> 00:17:31,720 Speaker 1: aside this question of like, has any productive infrastructure been 308 00:17:31,800 --> 00:17:34,280 Speaker 1: laid that we will benefit from this? Because I do 309 00:17:34,640 --> 00:17:37,200 Speaker 1: I don't know what the answer it is also striking 310 00:17:37,320 --> 00:17:40,840 Speaker 1: your point about you know, you have the real road boom, 311 00:17:40,880 --> 00:17:42,960 Speaker 1: but no one can make money operating a real road. 312 00:17:43,119 --> 00:17:45,679 Speaker 1: And again kind of an interesting parallel here with crypto, 313 00:17:45,760 --> 00:17:51,480 Speaker 1: where you have like this insane bowl market for it's 314 00:17:51,480 --> 00:17:53,800 Speaker 1: hard to find actually the entity to accrued a lot 315 00:17:53,840 --> 00:17:56,920 Speaker 1: of profits even during the boom, you know, and especially 316 00:17:56,960 --> 00:17:59,000 Speaker 1: f TX, and people are like, how did you lose money? 317 00:17:59,119 --> 00:18:00,679 Speaker 1: Is the biggest boom of the time and you were 318 00:18:00,680 --> 00:18:03,679 Speaker 1: trading it and you're mostly long cryptone is still you 319 00:18:03,720 --> 00:18:06,719 Speaker 1: managed to lose money. So I find that to be fascinating. 320 00:18:06,800 --> 00:18:09,240 Speaker 1: You know, another question I want to ask about the 321 00:18:09,240 --> 00:18:13,080 Speaker 1: south Sea Company. You know, whenever, whenever anyone goes bust, right, 322 00:18:13,320 --> 00:18:16,520 Speaker 1: there's a question of like, well, were they fraud stirs 323 00:18:16,560 --> 00:18:19,439 Speaker 1: from the beginning? Was it a fraud? Was it just 324 00:18:19,600 --> 00:18:22,959 Speaker 1: a wrong way bet which can happen in finance and 325 00:18:23,119 --> 00:18:27,080 Speaker 1: people lose money, but it doesn't necessarily mean anything nefarious. 326 00:18:27,119 --> 00:18:31,760 Speaker 1: The people operating the south Sea Company, how did they 327 00:18:31,800 --> 00:18:33,560 Speaker 1: see it? Did they see us so we have a 328 00:18:33,640 --> 00:18:36,080 Speaker 1: chance to take everyone's money? Or do they really believe 329 00:18:36,119 --> 00:18:39,920 Speaker 1: they were building something important? Oh? They said, we have 330 00:18:40,280 --> 00:18:43,840 Speaker 1: bonds that are currently yielding six percent in the market. 331 00:18:44,280 --> 00:18:47,880 Speaker 1: We can issue consoles that will yield four percent um, 332 00:18:47,920 --> 00:18:51,480 Speaker 1: we can earn fifty on the value of the British 333 00:18:51,520 --> 00:18:54,920 Speaker 1: government debt if we managed to get this deal done 334 00:18:55,520 --> 00:18:58,119 Speaker 1: and cream off at least a third of that from themselves. 335 00:18:58,240 --> 00:19:01,840 Speaker 1: They were really, really true believes um. But of course, 336 00:19:01,960 --> 00:19:05,479 Speaker 1: once they have salted the market, lots and lots and 337 00:19:05,560 --> 00:19:10,119 Speaker 1: lots of other people come in with other opportunities, people 338 00:19:10,160 --> 00:19:14,840 Speaker 1: who are significantly less true believer ish, and sufficiently more 339 00:19:15,760 --> 00:19:18,920 Speaker 1: people are willing to give other people money for badly 340 00:19:18,960 --> 00:19:21,919 Speaker 1: thought out business plans. I too, can come up with 341 00:19:21,960 --> 00:19:24,280 Speaker 1: a badly thought out business plan, and then I'll be 342 00:19:24,359 --> 00:19:28,040 Speaker 1: off to France before anyone actually asks for their money back. 343 00:19:28,760 --> 00:19:32,720 Speaker 1: M hmm. This is a related question, but do you 344 00:19:32,800 --> 00:19:36,480 Speaker 1: think once once you start having those types of speculators 345 00:19:36,600 --> 00:19:40,280 Speaker 1: or I guess hangers on come into an industry, does 346 00:19:40,320 --> 00:19:45,080 Speaker 1: it start to affect the behavior of like, even legitimate 347 00:19:45,119 --> 00:19:48,720 Speaker 1: players within that speculative industry. And the reason I ask 348 00:19:48,840 --> 00:19:51,639 Speaker 1: is because in the course of prepping for this episode, 349 00:19:51,960 --> 00:19:58,359 Speaker 1: I found this quote from Vitalic Peuterin from that I 350 00:19:58,400 --> 00:20:01,320 Speaker 1: thought was fascinating in retrospe But the quote is in 351 00:20:01,359 --> 00:20:05,040 Speaker 1: the case of ethereum, if somehow eight percent of Ethereum's 352 00:20:05,119 --> 00:20:09,120 Speaker 1: users just end up being cryptocurrency speculators. Would we then 353 00:20:09,200 --> 00:20:14,000 Speaker 1: have a social responsibility to start optimizing for that constituency 354 00:20:14,040 --> 00:20:17,880 Speaker 1: because that would end up being our constituency. Like that 355 00:20:17,920 --> 00:20:22,800 Speaker 1: to me is interesting. Is there a reflexivity between the industry, 356 00:20:22,960 --> 00:20:28,639 Speaker 1: the speculative industry and the speculators um? The fact you 357 00:20:28,640 --> 00:20:32,439 Speaker 1: mean that the existence of speculators deranges people exactly? Like 358 00:20:32,520 --> 00:20:35,880 Speaker 1: does it? Does it change their own behavior? So maybe 359 00:20:35,960 --> 00:20:38,679 Speaker 1: I was growing two lips because I love two lips, 360 00:20:38,800 --> 00:20:41,800 Speaker 1: But now that I have all these people speculating, you know, 361 00:20:42,000 --> 00:20:46,760 Speaker 1: like the calculation starts to change. Yeah. The old teacher 362 00:20:46,840 --> 00:20:50,080 Speaker 1: Charlie Kimdlberger had a very nice line about this. You know, 363 00:20:50,119 --> 00:20:53,240 Speaker 1: there's nothing that deranges you more than watching a friend 364 00:20:53,240 --> 00:20:56,680 Speaker 1: to become rich. I like that, you know. And as 365 00:20:56,720 --> 00:20:59,320 Speaker 1: the late Richard Blum says, after a while, if you 366 00:20:59,359 --> 00:21:02,800 Speaker 1: see lots of people around you who have become fabulously 367 00:21:02,920 --> 00:21:05,680 Speaker 1: rich by making stupid investments, you begin to think making 368 00:21:05,720 --> 00:21:09,000 Speaker 1: stupid investments is a good business model. You know, it 369 00:21:09,119 --> 00:21:17,560 Speaker 1: really does unhinge everyone, especially because economists are always wrong 370 00:21:17,720 --> 00:21:21,600 Speaker 1: in always thinking that bubbles and such will crash before 371 00:21:21,640 --> 00:21:24,919 Speaker 1: they do right, And so it hangs on, and it 372 00:21:25,000 --> 00:21:28,080 Speaker 1: hangs on, and it hangs on far beyond the point 373 00:21:28,560 --> 00:21:31,400 Speaker 1: at which the sober economists have been saying, this will 374 00:21:31,520 --> 00:21:35,240 Speaker 1: certainly not going to be sustained for this long, right, 375 00:21:35,760 --> 00:21:38,440 Speaker 1: And then there comes the point when economists began saying, well, 376 00:21:38,480 --> 00:21:41,280 Speaker 1: maybe g this time it is different, at which case 377 00:21:41,280 --> 00:21:43,840 Speaker 1: you better sell quickly. So, just on the topic of 378 00:21:43,920 --> 00:21:48,000 Speaker 1: bubbles actually crashing, I mean, you can get different types 379 00:21:48,119 --> 00:21:52,200 Speaker 1: of mania crashes. So you can get relatively small ones 380 00:21:52,320 --> 00:21:55,199 Speaker 1: that don't seem to have a broader impact on the 381 00:21:55,200 --> 00:21:58,600 Speaker 1: economy or the financial system. I mean, beanie babies might 382 00:21:58,640 --> 00:22:01,720 Speaker 1: have been painful for some individuals, but I don't think 383 00:22:01,720 --> 00:22:06,520 Speaker 1: it actually to like a credit crisis or anything like that. 384 00:22:06,880 --> 00:22:09,200 Speaker 1: But you can also have these big bubbles that crash 385 00:22:09,280 --> 00:22:13,000 Speaker 1: and have enormous consequences for the economy. Talk to us 386 00:22:13,000 --> 00:22:16,439 Speaker 1: about how how those effects play out. Yeah, and I 387 00:22:16,480 --> 00:22:20,200 Speaker 1: was about to ask you what the key is leverage. Yes, 388 00:22:20,280 --> 00:22:23,720 Speaker 1: the dot com bubble crashed. When the dot com bubble crashed, 389 00:22:23,720 --> 00:22:27,720 Speaker 1: it took down four trillion dollars of wealth that people 390 00:22:27,800 --> 00:22:32,040 Speaker 1: thought they had. But because it had all been equity 391 00:22:33,320 --> 00:22:35,440 Speaker 1: and the investors of the dot com bubble who went 392 00:22:35,520 --> 00:22:40,600 Speaker 1: broke weren't high. They leveraged. The unemployment rate only goes 393 00:22:40,680 --> 00:22:45,280 Speaker 1: up by one percentage point and comes back down fairly quickly. 394 00:22:45,560 --> 00:22:49,440 Speaker 1: By contrast, you know, I remember March of two thousand 395 00:22:49,520 --> 00:22:51,560 Speaker 1: and eight and we were doing our rough back of 396 00:22:51,600 --> 00:22:56,720 Speaker 1: the envelope calculations about the subprime collapse, and we concluded 397 00:22:57,160 --> 00:23:00,280 Speaker 1: that there was about five billion dollars of more ages 398 00:23:00,320 --> 00:23:02,199 Speaker 1: that weren't going to be paid off. And you know, 399 00:23:02,280 --> 00:23:05,479 Speaker 1: that's one eighth the size of the dot com crash. 400 00:23:05,720 --> 00:23:09,520 Speaker 1: And yet that one eighth as large loss created a 401 00:23:09,520 --> 00:23:13,239 Speaker 1: crisis that pushed the unemployment up by six percent, and 402 00:23:13,320 --> 00:23:15,560 Speaker 1: it took us a full decade to get back to 403 00:23:15,640 --> 00:23:20,080 Speaker 1: full employment after that for lots of reasons, but the 404 00:23:20,240 --> 00:23:24,159 Speaker 1: huge difference was that the people who had been investing 405 00:23:24,200 --> 00:23:27,480 Speaker 1: in subprime when they shouldn't be were the major money 406 00:23:27,520 --> 00:23:30,679 Speaker 1: center banks who were saying, Aha, here's a chance for 407 00:23:30,800 --> 00:23:34,879 Speaker 1: us to do some regulatory arbitrage. These derivatives are rated 408 00:23:34,920 --> 00:23:37,760 Speaker 1: triple A, so we can use them as our core reserves, 409 00:23:38,080 --> 00:23:41,440 Speaker 1: and they're paying us fifteen basis points more than real 410 00:23:41,520 --> 00:23:44,920 Speaker 1: triple A assets are. And it was the fact that 411 00:23:44,920 --> 00:23:48,399 Speaker 1: that was held by guys who were leveraged forty to one, 412 00:23:48,760 --> 00:23:53,840 Speaker 1: you know, as their core reserves that made a simple 413 00:23:53,920 --> 00:23:58,439 Speaker 1: crash of an asset into an enormous, interlinked chain of 414 00:23:58,520 --> 00:24:01,680 Speaker 1: bankruptcies were at the them. No one is sure is 415 00:24:01,760 --> 00:24:05,840 Speaker 1: they're they're solving because everyone has so much counterparty risk. 416 00:24:05,920 --> 00:24:09,520 Speaker 1: They do not understand that everyone pulls into their shells 417 00:24:09,600 --> 00:24:13,399 Speaker 1: and sells what they can and otherwise hunkers. Now, we 418 00:24:13,440 --> 00:24:16,560 Speaker 1: don't think that's going to happen outside the crypto sphere 419 00:24:16,880 --> 00:24:37,080 Speaker 1: right now, We really do not think so. So another 420 00:24:37,560 --> 00:24:41,400 Speaker 1: question in a sort of how these patterns work out, 421 00:24:41,520 --> 00:24:45,240 Speaker 1: and again it seems like one possibility with the FTX 422 00:24:45,320 --> 00:24:49,560 Speaker 1: story is that it started off as like a sort of, um, 423 00:24:49,760 --> 00:24:53,359 Speaker 1: you know, let's build an online crypto futures exchange, let's 424 00:24:53,400 --> 00:24:55,920 Speaker 1: build a crypto hedge fund, and maybe it started out 425 00:24:55,960 --> 00:24:58,199 Speaker 1: working well and it grew, and then at some point 426 00:24:58,800 --> 00:25:02,360 Speaker 1: as it started to lapse, what maybe started as sort 427 00:25:02,400 --> 00:25:04,960 Speaker 1: of like, let's attempt to build a business, and we 428 00:25:04,960 --> 00:25:07,600 Speaker 1: don't know, and so this is you know, maybe you know, 429 00:25:07,760 --> 00:25:11,520 Speaker 1: edge more towards bad business practices like moving FTX customer 430 00:25:11,560 --> 00:25:15,160 Speaker 1: money to ALAMT or other things that someone might allege 431 00:25:15,160 --> 00:25:17,640 Speaker 1: his fraud or lying to the public about the safety 432 00:25:17,640 --> 00:25:20,720 Speaker 1: of the reserves. You pointed out that, you know, in 433 00:25:20,760 --> 00:25:22,760 Speaker 1: a boom, at a bubble, you can have this sort 434 00:25:22,760 --> 00:25:26,159 Speaker 1: of like the derangement of behavior. So if Tracy is 435 00:25:26,200 --> 00:25:29,280 Speaker 1: a tulip farmer who just likes the flowers and then 436 00:25:29,359 --> 00:25:31,800 Speaker 1: suddenly gets into it for money, or I think baby 437 00:25:32,160 --> 00:25:35,119 Speaker 1: babies are cute and suddenly I'm a speculator. You know, 438 00:25:35,200 --> 00:25:38,159 Speaker 1: do you have a similar phenomenon where people can start 439 00:25:38,240 --> 00:25:41,760 Speaker 1: an entity and have sort of like genuine good faith 440 00:25:41,880 --> 00:25:46,000 Speaker 1: intentions of building a business, but as the as it 441 00:25:46,040 --> 00:25:50,080 Speaker 1: all tips over and collapses, essentially the fraud becomes the 442 00:25:50,119 --> 00:25:55,040 Speaker 1: attempt to keep the real business going. Well. Then first 443 00:25:55,160 --> 00:25:58,840 Speaker 1: there's one stage in which you think, well, g there's 444 00:25:58,840 --> 00:26:03,080 Speaker 1: a hiccup, but we can recover, and then G that 445 00:26:03,160 --> 00:26:05,960 Speaker 1: didn't work. Now the question is do we start doing 446 00:26:06,040 --> 00:26:09,520 Speaker 1: something that we really shouldn't thinking that we will probably 447 00:26:09,520 --> 00:26:12,680 Speaker 1: recover and then we can paper it over. And then 448 00:26:12,720 --> 00:26:15,760 Speaker 1: there comes a stage where this is going down, and 449 00:26:15,800 --> 00:26:19,120 Speaker 1: do we try to grab for everything we can at 450 00:26:19,160 --> 00:26:21,960 Speaker 1: the moment in order to flee to France or to 451 00:26:22,680 --> 00:26:26,320 Speaker 1: kind of position ourselves better for future negotiations, you know, 452 00:26:26,400 --> 00:26:30,560 Speaker 1: that's rarely an immediate, once and for all decision. It's 453 00:26:30,600 --> 00:26:35,240 Speaker 1: something that happens gradually and then suddenly right that. I'm 454 00:26:35,280 --> 00:26:38,000 Speaker 1: sure that Sam Bankman Freed did not set out to 455 00:26:38,240 --> 00:26:42,399 Speaker 1: steal eight billion dollars from ft X and lose some 456 00:26:42,520 --> 00:26:45,480 Speaker 1: of it in trading in Alameda and perhaps secrete some 457 00:26:45,600 --> 00:26:48,119 Speaker 1: of it someplace else in places we do not know 458 00:26:48,320 --> 00:26:52,120 Speaker 1: since the accountants messed up. But he did start out 459 00:26:52,200 --> 00:26:54,600 Speaker 1: thinking that money from f t X could be very 460 00:26:54,680 --> 00:26:59,239 Speaker 1: useful in getting Alameda over this particular bad patch, and 461 00:26:59,280 --> 00:27:02,359 Speaker 1: then things it a snowball after that. If you want 462 00:27:02,440 --> 00:27:05,080 Speaker 1: to be a rich person and live a rich life, 463 00:27:05,160 --> 00:27:08,639 Speaker 1: you moderate your bets according to what's called the Kelly criteria. 464 00:27:09,600 --> 00:27:13,160 Speaker 1: Right you value. You won't take a bet that involves 465 00:27:13,160 --> 00:27:16,560 Speaker 1: a fifty chance of losing half your money unless the 466 00:27:16,720 --> 00:27:19,680 Speaker 1: upside more than doubles gives you a fifty chance of 467 00:27:19,720 --> 00:27:22,359 Speaker 1: more than doubling your money. And the problem with Sam 468 00:27:22,400 --> 00:27:25,280 Speaker 1: Bankman Fried and company is that they've been listening to 469 00:27:25,320 --> 00:27:28,280 Speaker 1: these philosophers who are telling them that they should make 470 00:27:28,480 --> 00:27:33,000 Speaker 1: any positive net present value value bet whatsoever. And if 471 00:27:33,040 --> 00:27:35,040 Speaker 1: you do that, if you make much risk your bets 472 00:27:35,040 --> 00:27:38,760 Speaker 1: than the Kelly criterion. Then you wind up bankrupt with 473 00:27:38,960 --> 00:27:44,240 Speaker 1: very high probability and extraordinarily filthy rich with very low probability, 474 00:27:44,400 --> 00:27:47,879 Speaker 1: you know, but still positive expected value. And then the 475 00:27:47,960 --> 00:27:50,560 Speaker 1: question is what do you have the moral fiber to 476 00:27:50,680 --> 00:27:53,840 Speaker 1: do or not do in all those cases where bankruptcy 477 00:27:53,920 --> 00:27:56,159 Speaker 1: is staring you in the face. You know, since you 478 00:27:56,280 --> 00:27:58,719 Speaker 1: mentioned fleet of France, is there a pretty long history 479 00:27:58,720 --> 00:28:02,280 Speaker 1: in these stories of someone winding up in another country's 480 00:28:02,320 --> 00:28:04,840 Speaker 1: borders after it implodes? Is that is that a common 481 00:28:04,920 --> 00:28:09,560 Speaker 1: through line threat financial collaption. It's a common story. I 482 00:28:09,600 --> 00:28:14,640 Speaker 1: don't exactly know how common it actually is in terms 483 00:28:14,720 --> 00:28:17,560 Speaker 1: of how much how much money actually gets taken up 484 00:28:17,600 --> 00:28:21,800 Speaker 1: and gets wound up someplace else, relatively far away where 485 00:28:21,920 --> 00:28:25,800 Speaker 1: other people cannot reach you. In Britain in the eighteen 486 00:28:25,880 --> 00:28:29,600 Speaker 1: hundreds and before, when they actually had debtors prison, it 487 00:28:29,760 --> 00:28:34,000 Speaker 1: was significantly more common than since. And it's not clear 488 00:28:34,080 --> 00:28:36,320 Speaker 1: to what extent it's we're getting away with our ill 489 00:28:36,400 --> 00:28:39,760 Speaker 1: gotten gains and to what extent it's simply that we 490 00:28:39,800 --> 00:28:42,080 Speaker 1: do not want to have to spend our lives incarcerated 491 00:28:42,080 --> 00:28:44,400 Speaker 1: in the Marshall Sea prison because we're never getting out 492 00:28:44,440 --> 00:28:49,560 Speaker 1: of this. M um Brad you mentioned kindle Burger earlier, 493 00:28:49,600 --> 00:28:52,480 Speaker 1: and of course he wrote a sort of seminal piece 494 00:28:52,520 --> 00:28:55,800 Speaker 1: about financial manias and bubbles. But a big part of 495 00:28:55,920 --> 00:29:00,600 Speaker 1: kindle Burger is talking about what should actually be when 496 00:29:00,600 --> 00:29:03,640 Speaker 1: it comes to bubbles, and he talks a lot about 497 00:29:03,720 --> 00:29:06,800 Speaker 1: a lender of last resort. There are other options to 498 00:29:06,920 --> 00:29:09,280 Speaker 1: you know, he talks about like maybe you can do nothing, 499 00:29:09,520 --> 00:29:12,680 Speaker 1: or you can declare a bank holiday or have some 500 00:29:12,720 --> 00:29:15,040 Speaker 1: sort of central bank rescue that sort of thing. But 501 00:29:15,120 --> 00:29:18,960 Speaker 1: when it comes to crypto, are any of those options 502 00:29:19,000 --> 00:29:22,720 Speaker 1: on the table. What should be done about a speculative 503 00:29:22,960 --> 00:29:26,640 Speaker 1: mania like crypto? Um, Well, the lender of last resort 504 00:29:26,720 --> 00:29:30,520 Speaker 1: is mostly Kindleburger wearing his canesie and macro economist hat, 505 00:29:31,320 --> 00:29:34,320 Speaker 1: and it's very much lend freely at a penalty rate 506 00:29:34,400 --> 00:29:37,680 Speaker 1: on collateral that is good in normal times to systemically 507 00:29:38,400 --> 00:29:42,120 Speaker 1: right to systemically important institutions in order to build a 508 00:29:42,160 --> 00:29:45,000 Speaker 1: firewall between what's going on in finance and you know, 509 00:29:45,040 --> 00:29:48,760 Speaker 1: the real economy of people kind of with jobs making 510 00:29:48,800 --> 00:29:53,680 Speaker 1: things as to what should be actually done with the 511 00:29:53,760 --> 00:29:58,880 Speaker 1: speculative assets themselves, you know, I mean, the money was gone, 512 00:29:59,000 --> 00:30:03,120 Speaker 1: the money was ever really there. In some sense, wealth 513 00:30:03,320 --> 00:30:05,760 Speaker 1: is trust that there is going to be an enterprise 514 00:30:05,920 --> 00:30:07,920 Speaker 1: there in the future that is going to be doing 515 00:30:08,040 --> 00:30:11,840 Speaker 1: something of value, and once the crash is over, there's 516 00:30:11,960 --> 00:30:14,880 Speaker 1: no such thing. All you can do is hope to 517 00:30:14,920 --> 00:30:18,720 Speaker 1: get back whatever some of the money that the people 518 00:30:18,760 --> 00:30:22,320 Speaker 1: who bailed out relatively early managed to squirrel away when 519 00:30:22,320 --> 00:30:24,320 Speaker 1: they said, I've been a fool, but here comes a 520 00:30:24,320 --> 00:30:26,760 Speaker 1: greater fool. Let me hand this risk off to them. 521 00:30:27,240 --> 00:30:29,760 Speaker 1: With things like the housing crisis of two thousand and 522 00:30:29,760 --> 00:30:32,520 Speaker 1: eight and two thousand and ten, there were lots of 523 00:30:32,560 --> 00:30:36,560 Speaker 1: things you could do in terms of settling who is 524 00:30:36,640 --> 00:30:38,760 Speaker 1: actually going to bear the debts, who is going to 525 00:30:38,800 --> 00:30:41,920 Speaker 1: eat the losses as fast as possible, so that then 526 00:30:42,000 --> 00:30:46,000 Speaker 1: the economy can get going again and people don't find 527 00:30:46,040 --> 00:30:49,080 Speaker 1: themselves hindered by the fact that that you worry that 528 00:30:49,120 --> 00:30:52,320 Speaker 1: if you make a loan to them, your loan will 529 00:30:52,320 --> 00:30:54,280 Speaker 1: then be grabbed and given away to one of their 530 00:30:54,320 --> 00:30:57,240 Speaker 1: creditors and not actually be part of a bit ongoing, 531 00:30:57,280 --> 00:31:00,320 Speaker 1: forward looking business. You know, that is where there are 532 00:31:00,360 --> 00:31:02,880 Speaker 1: things to be done there. In the addition, they are 533 00:31:03,000 --> 00:31:06,920 Speaker 1: kind of clearing the financial rubble away, so that you 534 00:31:06,960 --> 00:31:10,719 Speaker 1: know the financial system of loaning and borrowing and enterprising 535 00:31:10,720 --> 00:31:14,080 Speaker 1: can start again. But as I see it, there's no 536 00:31:14,520 --> 00:31:18,080 Speaker 1: system of loaning and borrowing and enterprise. There's no enterprising 537 00:31:18,160 --> 00:31:21,440 Speaker 1: underneath the loaning and borrowing. You know, there are computer 538 00:31:21,520 --> 00:31:26,080 Speaker 1: programmers looking for Web three use cases, but they don't 539 00:31:26,120 --> 00:31:30,040 Speaker 1: really need crypto assets to do this um and it's 540 00:31:30,120 --> 00:31:34,160 Speaker 1: unclear how trading crypto assets helps discover those Web three 541 00:31:34,240 --> 00:31:39,600 Speaker 1: use cases. M what about as the speculative mania builds, 542 00:31:39,840 --> 00:31:43,120 Speaker 1: is there something that regulators should do, Like if they 543 00:31:43,200 --> 00:31:46,560 Speaker 1: see something risky happening, should they immediately crack down on 544 00:31:46,600 --> 00:31:49,360 Speaker 1: it or should they allow the free market to operate 545 00:31:49,400 --> 00:31:53,120 Speaker 1: as long as it isn't fraud or necessarily illegal. And again, 546 00:31:53,120 --> 00:31:55,200 Speaker 1: when it comes to crypto, we could have a whole 547 00:31:55,240 --> 00:31:58,280 Speaker 1: other conversation about whether or not it's legal or not. 548 00:31:58,640 --> 00:32:01,920 Speaker 1: But I do get the impression that regulators themselves or 549 00:32:02,000 --> 00:32:05,800 Speaker 1: policymakers themselves are sort of caught up in the narrative, 550 00:32:06,120 --> 00:32:09,720 Speaker 1: or at the very least they themselves are uncertain about 551 00:32:09,760 --> 00:32:12,800 Speaker 1: whether or not they should believe this story about this 552 00:32:12,960 --> 00:32:16,440 Speaker 1: brand new technology that's going to change the world, or 553 00:32:16,480 --> 00:32:19,400 Speaker 1: if it's actually just a Ponzi scheme. Like there seems 554 00:32:19,400 --> 00:32:22,720 Speaker 1: to be attention there within the minds of regulators. This 555 00:32:22,880 --> 00:32:27,880 Speaker 1: is the the probably mythical story about what Alan Greenspan 556 00:32:28,400 --> 00:32:31,160 Speaker 1: told FED governed, the late FED governor, the late and 557 00:32:31,280 --> 00:32:33,920 Speaker 1: Ed Gramleck in the early two thousands when Graham Lick 558 00:32:34,000 --> 00:32:37,160 Speaker 1: said you need to do something about subcrime, and green 559 00:32:37,240 --> 00:32:39,480 Speaker 1: Span is supposed to be said, there are lenders who 560 00:32:39,480 --> 00:32:42,080 Speaker 1: want to lend, There are borrowers who want to borrow. 561 00:32:42,400 --> 00:32:45,840 Speaker 1: All of them have their congressmen on speed dial. I'm 562 00:32:45,880 --> 00:32:47,440 Speaker 1: going to get in the middle of them and tell 563 00:32:47,480 --> 00:32:49,800 Speaker 1: them you can't do this deal and then get ground 564 00:32:49,840 --> 00:32:52,719 Speaker 1: into absolute dust up on Capitol Hill. You know, I 565 00:32:52,800 --> 00:32:55,320 Speaker 1: can't do that. I have to sit back and then 566 00:32:55,360 --> 00:32:57,880 Speaker 1: try to clean up the mess afterwards, you know, and 567 00:32:57,960 --> 00:33:01,360 Speaker 1: hope that I can that. That's definitely a piece of it. 568 00:33:01,800 --> 00:33:06,479 Speaker 1: But also regulators are likely to be um grabbed by 569 00:33:06,480 --> 00:33:09,120 Speaker 1: the same currents of thought that makes them think this 570 00:33:09,240 --> 00:33:11,760 Speaker 1: is the next new big thing as anyone else you know, 571 00:33:11,800 --> 00:33:14,720 Speaker 1: and are unlikely to get in the way. But if 572 00:33:14,760 --> 00:33:19,640 Speaker 1: you do have regulators right cutting down on leverage, making 573 00:33:19,760 --> 00:33:24,120 Speaker 1: leverage really difficult is I think a very important thing 574 00:33:24,200 --> 00:33:29,160 Speaker 1: to do. And also it's nice to not be in 575 00:33:29,280 --> 00:33:33,160 Speaker 1: the free money business, right that if someone running a 576 00:33:33,200 --> 00:33:37,320 Speaker 1: Ponzi scheme has to show someone five of real profits 577 00:33:37,400 --> 00:33:40,880 Speaker 1: every year, or actually pay out five percent on values 578 00:33:40,920 --> 00:33:43,760 Speaker 1: every year. It's much harder to keep it going than 579 00:33:44,040 --> 00:33:47,200 Speaker 1: if the treasury rate is zero and you don't have 580 00:33:47,240 --> 00:33:50,120 Speaker 1: to pay out anything um every year, but just send 581 00:33:50,160 --> 00:33:55,120 Speaker 1: them a statement saying their balance has grown. M I 582 00:33:55,200 --> 00:33:57,320 Speaker 1: think the problem, on the other hand, is that raising 583 00:33:57,360 --> 00:34:00,560 Speaker 1: interest rates puts a lot of real people out of work. 584 00:34:01,320 --> 00:34:04,240 Speaker 1: I think there's really important or interesting about like this 585 00:34:04,360 --> 00:34:07,440 Speaker 1: sort of dilemma of regulators. And it's like, you know, 586 00:34:07,480 --> 00:34:10,000 Speaker 1: you hear this all the time with crypto. It's like like, 587 00:34:10,040 --> 00:34:12,960 Speaker 1: don't don't tamp down on innovation, and it's really important 588 00:34:13,000 --> 00:34:15,239 Speaker 1: there's gonna be some innovation coming. And I said, you 589 00:34:15,280 --> 00:34:18,239 Speaker 1: sort of get that, you know, that sort of conflict 590 00:34:18,239 --> 00:34:20,320 Speaker 1: among regulators, Like I don't want to be the regulator 591 00:34:20,360 --> 00:34:23,440 Speaker 1: who like stamped on some innovation and then it flourishes 592 00:34:23,480 --> 00:34:27,000 Speaker 1: elsewhere and makes finance more efficient. But this idea of like, well, 593 00:34:27,120 --> 00:34:30,040 Speaker 1: just just take care of the leverage channel and then okay, 594 00:34:30,040 --> 00:34:32,840 Speaker 1: do whatever you want, just hive it off, Like it 595 00:34:32,920 --> 00:34:34,799 Speaker 1: seems like that is like a way to think about 596 00:34:34,800 --> 00:34:37,400 Speaker 1: It's like, all right, do we want to like completely 597 00:34:37,520 --> 00:34:40,600 Speaker 1: kill crypto because of it. I don't know, maybe maybe not, 598 00:34:41,000 --> 00:34:43,480 Speaker 1: but maybe it's just the better way to think about 599 00:34:43,480 --> 00:34:46,560 Speaker 1: it is just hive it off from any entity that 600 00:34:46,600 --> 00:34:49,360 Speaker 1: could have like systemic leverage, like an f d C 601 00:34:49,520 --> 00:34:53,160 Speaker 1: in shirt retail bank account, and a bunch of people 602 00:34:53,280 --> 00:34:56,040 Speaker 1: pointing out that, you know, if you gamble on the 603 00:34:56,120 --> 00:35:00,160 Speaker 1: stock market, there are actual companies you're gambling on that 604 00:35:00,239 --> 00:35:04,360 Speaker 1: have actual profits, and that the SNP earnings yield is 605 00:35:05,000 --> 00:35:08,080 Speaker 1: what four and a half percent? Now, you know, so 606 00:35:08,120 --> 00:35:10,400 Speaker 1: there are four and a half cents coming into the 607 00:35:10,480 --> 00:35:15,000 Speaker 1: system every year for each dollar that's in the system, 608 00:35:15,040 --> 00:35:20,279 Speaker 1: as opposed to crypto, where nothing's coming in and where 609 00:35:20,280 --> 00:35:23,879 Speaker 1: there are hopes for the future. It's that someday when 610 00:35:23,920 --> 00:35:27,640 Speaker 1: someone actually finds a Web three use case, they're going 611 00:35:27,640 --> 00:35:30,200 Speaker 1: to want to build their Web three use case on 612 00:35:30,320 --> 00:35:33,560 Speaker 1: top of this particular blockchain coin that you happen to 613 00:35:33,600 --> 00:35:36,520 Speaker 1: own today. And no one has ever explained to me 614 00:35:36,719 --> 00:35:39,920 Speaker 1: why anyone in the future would ever who has a 615 00:35:39,960 --> 00:35:42,120 Speaker 1: Web three use case would ever want to give away 616 00:35:42,120 --> 00:35:44,560 Speaker 1: a lot of the value to today's holders of bitcoin 617 00:35:44,600 --> 00:35:48,080 Speaker 1: of it, or if they're that's a great point. So 618 00:35:48,880 --> 00:35:52,040 Speaker 1: just going back to some of our discussion UM at 619 00:35:52,080 --> 00:35:56,120 Speaker 1: the intro, and it does feel to me like with Crypto, 620 00:35:56,400 --> 00:36:00,200 Speaker 1: there was a sense of nihilism about it. And I'm 621 00:36:00,200 --> 00:36:02,640 Speaker 1: sure some people are true believers. In fact, I know 622 00:36:02,719 --> 00:36:07,280 Speaker 1: some people are because they yell at me on Twitter 623 00:36:07,400 --> 00:36:11,399 Speaker 1: all the time whenever you know, I'm sure they're out there. 624 00:36:11,600 --> 00:36:15,200 Speaker 1: But there is they're true believers rather than butts programmed 625 00:36:15,239 --> 00:36:18,239 Speaker 1: by non true believers. Yes, that's a good point. I've 626 00:36:18,280 --> 00:36:21,040 Speaker 1: probably just been been emotionally abused by a bunch of 627 00:36:21,160 --> 00:36:25,680 Speaker 1: robots for the past three years. But anyway, UM, this 628 00:36:25,840 --> 00:36:29,840 Speaker 1: lottery ticket idea, I wonder if you could talk about whether, 629 00:36:29,960 --> 00:36:31,839 Speaker 1: and you know, this is kind of what your your 630 00:36:31,880 --> 00:36:35,680 Speaker 1: new book is all about, slouching towards utopia. This idea 631 00:36:35,800 --> 00:36:39,920 Speaker 1: that even though we've had a great improvement in human 632 00:36:40,000 --> 00:36:43,040 Speaker 1: well being and lifestyle, that a lot of people still 633 00:36:43,120 --> 00:36:46,480 Speaker 1: feel like they're being left behind or they feel poor 634 00:36:46,680 --> 00:36:51,279 Speaker 1: relative to other people. So in that environment, in an 635 00:36:51,440 --> 00:36:54,600 Speaker 1: environment where you're upset because it feels like you are 636 00:36:54,680 --> 00:36:58,359 Speaker 1: not getting ahead compared to your neighbor or compared to 637 00:36:58,600 --> 00:37:03,440 Speaker 1: a billionaire, to that lend itself to more opportunities for 638 00:37:03,480 --> 00:37:09,600 Speaker 1: speculative manias to build um. It certainly seems to right. 639 00:37:10,520 --> 00:37:14,560 Speaker 1: It certainly seems to situations in which people thinking they're 640 00:37:14,600 --> 00:37:18,680 Speaker 1: not getting what they deserve while other people around them 641 00:37:18,719 --> 00:37:21,560 Speaker 1: are getting much more than they deserve because they are 642 00:37:21,600 --> 00:37:25,200 Speaker 1: managing to work the system in some way makes people 643 00:37:25,239 --> 00:37:28,160 Speaker 1: think working the system somehow has got to be a 644 00:37:28,200 --> 00:37:31,640 Speaker 1: successful strategy because look at all these other people who 645 00:37:31,680 --> 00:37:35,840 Speaker 1: are managing to do it um and that makes people 646 00:37:36,680 --> 00:37:40,600 Speaker 1: rather easy prey for a whole bunch of social engineering projects. 647 00:37:41,520 --> 00:37:44,359 Speaker 1: I just have a one last question. Actually, once again, 648 00:37:44,400 --> 00:37:45,919 Speaker 1: I sort of want to go back to the south 649 00:37:45,960 --> 00:37:49,319 Speaker 1: Sea bubble. But this idea of copycats, this idea that okay, 650 00:37:49,360 --> 00:37:51,520 Speaker 1: actually maybe there was some soundness to this idea of 651 00:37:51,800 --> 00:37:55,840 Speaker 1: consolidating all this British debt and creating one fungible security 652 00:37:55,880 --> 00:37:57,920 Speaker 1: that anyone can treat. It sounds pretty good, And of 653 00:37:57,960 --> 00:38:01,719 Speaker 1: course copycats abound in crypto all over the place. What 654 00:38:01,760 --> 00:38:04,000 Speaker 1: if those copy cans do, though, what were the other 655 00:38:04,120 --> 00:38:06,399 Speaker 1: entities that saw the south Sea bubble and they say 656 00:38:06,440 --> 00:38:08,440 Speaker 1: we want to get in on get in on this action. 657 00:38:08,719 --> 00:38:12,360 Speaker 1: What were the sort of I don't know, bastardizations, distortions whatever. 658 00:38:12,719 --> 00:38:15,279 Speaker 1: That's sort of like that they glommed onto or that 659 00:38:15,400 --> 00:38:18,560 Speaker 1: they that that was their approach. As the sort of 660 00:38:18,960 --> 00:38:22,799 Speaker 1: number of entities doing this sort of multiplied. Well, It's 661 00:38:22,840 --> 00:38:25,520 Speaker 1: called the south Sea Bubble because bo the south Sea 662 00:38:25,520 --> 00:38:29,520 Speaker 1: Company originally was supposed to be a trading company sending 663 00:38:29,520 --> 00:38:32,840 Speaker 1: out ships to the South Seas, and I only switched 664 00:38:32,920 --> 00:38:36,319 Speaker 1: to their you know, bank, to their British government debt 665 00:38:36,360 --> 00:38:40,879 Speaker 1: business model later on. I don't want to say it's everything, um, 666 00:38:40,920 --> 00:38:42,719 Speaker 1: I do want to say that in the south Sea 667 00:38:42,760 --> 00:38:46,839 Speaker 1: Bubble it's a lot of commercial and colonization enterprises as 668 00:38:47,719 --> 00:38:52,080 Speaker 1: rather than purely financial manipulation, although I'd say making the 669 00:38:52,120 --> 00:38:55,440 Speaker 1: British government debt bungible and marketable is a little bit 670 00:38:55,480 --> 00:38:58,600 Speaker 1: more than a financial manipulation. But yes, it's that the 671 00:38:58,640 --> 00:39:02,240 Speaker 1: south Sea Company had a story, and once it becomes 672 00:39:02,280 --> 00:39:06,280 Speaker 1: clear that stories attract money, then the returns to having 673 00:39:06,320 --> 00:39:10,200 Speaker 1: a story are quite high, and lots of people will 674 00:39:10,200 --> 00:39:14,200 Speaker 1: say I can make up a story too, Bred DeLong, 675 00:39:14,520 --> 00:39:17,719 Speaker 1: Thank you so much for coming on been uh. I 676 00:39:17,719 --> 00:39:19,920 Speaker 1: can't believe it's the first time we've had you, but 677 00:39:20,480 --> 00:39:22,680 Speaker 1: definitely I hope to have you back at some point 678 00:39:22,680 --> 00:39:26,200 Speaker 1: and everything should check out the book Welcome me back 679 00:39:26,360 --> 00:39:29,840 Speaker 1: and keep doing what you're doing, because you've been an 680 00:39:29,920 --> 00:39:34,799 Speaker 1: amazingly you've been actually killing it. We didn't just have 681 00:39:34,920 --> 00:39:37,200 Speaker 1: you on to say that what we would have had 682 00:39:37,239 --> 00:39:39,520 Speaker 1: we know this is a condition of coming out. We 683 00:39:39,560 --> 00:39:40,840 Speaker 1: know you were gonna say that, would have had you 684 00:39:40,840 --> 00:39:44,480 Speaker 1: on much earlier. But thank you so much. Plus plus, 685 00:39:44,520 --> 00:39:47,239 Speaker 1: I hope the listeners to Odd Thoughts can push my 686 00:39:47,280 --> 00:39:50,799 Speaker 1: book above all format sales. All right for the course 687 00:39:50,840 --> 00:39:53,719 Speaker 1: of the next week. We could do this go out 688 00:39:53,880 --> 00:39:58,279 Speaker 1: by Yeah, we can. We can make this happen, all right, 689 00:39:58,280 --> 00:40:02,000 Speaker 1: take care of bread. Thank you very very much. Thanks Brad. 690 00:40:02,040 --> 00:40:20,520 Speaker 1: That was great, Tracy. I love talking to Brad. I 691 00:40:20,520 --> 00:40:23,520 Speaker 1: think probably my favorite part was all the great things 692 00:40:23,520 --> 00:40:28,000 Speaker 1: he said about odd Lots. Yes, for real, I thought 693 00:40:28,000 --> 00:40:31,879 Speaker 1: the leverage point was. I mean that stood out because 694 00:40:31,920 --> 00:40:35,719 Speaker 1: I do think you know, a politician, I mean, you know, 695 00:40:36,239 --> 00:40:38,839 Speaker 1: we could take Eric Adams as an example, the mayor 696 00:40:38,880 --> 00:40:40,440 Speaker 1: of New York, because he said he was gonna he 697 00:40:40,480 --> 00:40:42,279 Speaker 1: believed in crypto so much he was going to take 698 00:40:42,320 --> 00:40:46,759 Speaker 1: a portion of his salary in cryptocurrencies. But like a regulator, 699 00:40:46,880 --> 00:40:50,560 Speaker 1: a politician might not be the best placed person to 700 00:40:50,680 --> 00:40:54,040 Speaker 1: decide whether a new industry is legitimate or not, and 701 00:40:54,080 --> 00:40:55,880 Speaker 1: I think there can be a lot of confusion. And 702 00:40:55,920 --> 00:40:59,360 Speaker 1: obviously regulators don't want to stamp out something new and 703 00:40:59,440 --> 00:41:01,960 Speaker 1: innovative just because they're unfamiliar with it and they think 704 00:41:01,960 --> 00:41:05,240 Speaker 1: it might be risky. At the same time, you would 705 00:41:05,239 --> 00:41:08,000 Speaker 1: assume that they don't want to let speculative bubbles grow. 706 00:41:08,680 --> 00:41:12,560 Speaker 1: And so it's really interesting to me this idea of 707 00:41:12,600 --> 00:41:15,680 Speaker 1: having them focus on the leverage channel instead, So don't 708 00:41:15,680 --> 00:41:19,080 Speaker 1: crack down on the thing itself, but maybe try to 709 00:41:19,239 --> 00:41:23,280 Speaker 1: police the credit aspect of it, the leverage that's allowing 710 00:41:23,280 --> 00:41:28,360 Speaker 1: it to grow unreasonably quickly. Yeah, the linkages between these 711 00:41:28,520 --> 00:41:32,880 Speaker 1: entities and the financial infrastructure that it's really important to protect. 712 00:41:32,880 --> 00:41:34,920 Speaker 1: So right like that seems to me that they write, 713 00:41:35,280 --> 00:41:37,880 Speaker 1: let it do what it's gonna do, but you know, 714 00:41:38,280 --> 00:41:42,680 Speaker 1: make sure that city group is not providing major funding 715 00:41:43,120 --> 00:41:46,160 Speaker 1: two ft X or whoever else. It seems like a 716 00:41:46,239 --> 00:41:48,480 Speaker 1: very reasonable way to think about it, so that it's 717 00:41:48,560 --> 00:41:52,600 Speaker 1: not about like that, because regulators aren't equipped to know 718 00:41:52,680 --> 00:41:54,719 Speaker 1: what the technology of the future is, right, and there 719 00:41:54,760 --> 00:41:56,879 Speaker 1: are some innovations that are going to come, and some 720 00:41:56,920 --> 00:41:59,200 Speaker 1: innovations that might even involve a lot of money that 721 00:41:59,320 --> 00:42:02,200 Speaker 1: may become extremely important. Maybe crypto is even gonna be 722 00:42:02,239 --> 00:42:04,880 Speaker 1: among them. I don't know. But rather than having to 723 00:42:05,000 --> 00:42:07,000 Speaker 1: make that decision, just like, well how do you hive 724 00:42:07,000 --> 00:42:10,319 Speaker 1: it off? Right? And the other thing that stood out 725 00:42:10,360 --> 00:42:12,640 Speaker 1: to me, and I know, you know, the podcast was 726 00:42:12,680 --> 00:42:16,000 Speaker 1: sort of talking about parallels with historical financial bubbles, but 727 00:42:16,080 --> 00:42:18,680 Speaker 1: I really think like a couple of things stood out 728 00:42:18,719 --> 00:42:22,120 Speaker 1: about crypto, or stand out about crypto, And one is 729 00:42:22,120 --> 00:42:24,840 Speaker 1: this idea of the story. So every bubble has a 730 00:42:24,840 --> 00:42:29,880 Speaker 1: compelling story, but crypto and especially bitcoin didn't have just 731 00:42:30,000 --> 00:42:33,200 Speaker 1: one compelling story. It had like I can't even count 732 00:42:33,200 --> 00:42:36,319 Speaker 1: them all, probably dozens, and they're constantly changing, right, so 733 00:42:36,440 --> 00:42:38,360 Speaker 1: you know it was going to change the financial system. 734 00:42:38,440 --> 00:42:40,680 Speaker 1: It's gonna be an inflation head, a store of value, 735 00:42:40,719 --> 00:42:44,359 Speaker 1: a payment mechanism, like all these things rolled up into one. 736 00:42:44,840 --> 00:42:48,600 Speaker 1: And that narrative flexibility, I think is probably the thing 737 00:42:48,719 --> 00:42:51,960 Speaker 1: that's kept a lot of crypto going for a long time. 738 00:42:52,480 --> 00:42:55,360 Speaker 1: And now I should just mention the new narrative for bitcoin, 739 00:42:55,400 --> 00:42:58,240 Speaker 1: of course, is that it isn't crypto. It's the polar 740 00:42:58,280 --> 00:43:01,799 Speaker 1: opposite of all the coins and all the sketchy things 741 00:43:01,800 --> 00:43:05,480 Speaker 1: and all of that. But then secondly, The other thing 742 00:43:05,600 --> 00:43:08,560 Speaker 1: that stands out to me about crypto, and you know 743 00:43:08,600 --> 00:43:12,520 Speaker 1: you asked this in your last question about copycats. Crypto 744 00:43:12,640 --> 00:43:16,880 Speaker 1: is perfect for copycats, right because there's no limit on 745 00:43:16,920 --> 00:43:20,520 Speaker 1: the amount of new digital tokens or assets that you 746 00:43:20,600 --> 00:43:22,839 Speaker 1: can create. You don't even have to pretend to like 747 00:43:23,239 --> 00:43:26,600 Speaker 1: put together some capital to go buy some tulip bulbs 748 00:43:26,640 --> 00:43:29,120 Speaker 1: and grow them, or go buy a bunch of beanie babies. 749 00:43:29,120 --> 00:43:31,480 Speaker 1: You just sort of like create them out of thin 750 00:43:31,520 --> 00:43:33,839 Speaker 1: air and just put them into the ecosystem and hope 751 00:43:33,880 --> 00:43:37,879 Speaker 1: that they attract inflows. Those two things, the narrative flexibility 752 00:43:38,000 --> 00:43:41,360 Speaker 1: and the copycat potential, like that to me is probably 753 00:43:41,840 --> 00:43:47,239 Speaker 1: what stood out about this whole that you literally, like 754 00:43:47,440 --> 00:43:50,640 Speaker 1: you and I could literally copy and paste the big 755 00:43:50,680 --> 00:43:53,640 Speaker 1: coin or ethereum source code and make the most minor tweaks, 756 00:43:53,760 --> 00:43:55,400 Speaker 1: and some people have made a lot of money doing that. 757 00:43:55,480 --> 00:43:58,600 Speaker 1: I mean, like I think light Coin, like that guy 758 00:43:58,640 --> 00:44:01,279 Speaker 1: made a ton of money, and I was basically that 759 00:44:01,440 --> 00:44:03,560 Speaker 1: like they took the bitcoin code and I think they 760 00:44:03,640 --> 00:44:05,919 Speaker 1: changed the block time and that is probably like two 761 00:44:06,000 --> 00:44:09,200 Speaker 1: numbers or something like that, and then that was a 762 00:44:09,200 --> 00:44:11,919 Speaker 1: new coin that was created. You know. The other thing 763 00:44:12,280 --> 00:44:14,399 Speaker 1: that I thought was really interesting and again like sort 764 00:44:14,400 --> 00:44:17,600 Speaker 1: of spooky parallels with FTX specifically, is this idea of 765 00:44:17,640 --> 00:44:20,080 Speaker 1: like the politics and what a he was talking about 766 00:44:20,080 --> 00:44:24,200 Speaker 1: the south Sea Company trying to become very influential politically 767 00:44:24,200 --> 00:44:28,319 Speaker 1: but also to the point of like going after political competitors. 768 00:44:28,719 --> 00:44:30,680 Speaker 1: And it really was. It was the end of October 769 00:44:30,880 --> 00:44:34,280 Speaker 1: that SPF was in the news a lot for pushing 770 00:44:34,320 --> 00:44:37,440 Speaker 1: these regulations that many in the sort of crypto defied 771 00:44:37,480 --> 00:44:41,839 Speaker 1: community perceived as being harmful to them. So there really 772 00:44:41,880 --> 00:44:43,919 Speaker 1: isn't much news sometimes. I mean, as you say, there's 773 00:44:44,040 --> 00:44:46,719 Speaker 1: some very crypto Hesitan novelty. But it's one of some 774 00:44:46,760 --> 00:44:49,600 Speaker 1: of these patterns. Man, boy, did they repeat? Yeah, like 775 00:44:49,800 --> 00:44:53,520 Speaker 1: history doesn't necessarily repeat, but it definitely rhymes. It comes 776 00:44:53,560 --> 00:44:56,960 Speaker 1: close to it, does it does. But I do think 777 00:44:57,000 --> 00:44:59,839 Speaker 1: there are some idiosyncrasies that kind of like make this 778 00:45:00,040 --> 00:45:04,120 Speaker 1: one inpecial and that just you know on this point too, 779 00:45:04,360 --> 00:45:07,839 Speaker 1: And I totally feel this, which is the economists always 780 00:45:07,840 --> 00:45:11,520 Speaker 1: everyone underestimates how long these things can go on. And 781 00:45:11,520 --> 00:45:14,120 Speaker 1: then the longer you go on, you started questioning your 782 00:45:14,160 --> 00:45:17,040 Speaker 1: own sanity because you're like, I mean totally and so 783 00:45:17,080 --> 00:45:19,080 Speaker 1: you're like, oh, maybe there's something here I don't know, 784 00:45:19,120 --> 00:45:22,080 Speaker 1: and so yeah, totally can I tell you, Like, I'm 785 00:45:22,080 --> 00:45:27,080 Speaker 1: pretty sure I've written like two obituaries on crypto, probably career. 786 00:45:27,280 --> 00:45:31,160 Speaker 1: You're probably one of them. There's yeah, there's like a 787 00:45:31,160 --> 00:45:34,640 Speaker 1: bitcoin obituaries page where they where they list all of 788 00:45:34,680 --> 00:45:38,480 Speaker 1: the failed so we we gotta go find it. But 789 00:45:38,560 --> 00:45:41,000 Speaker 1: I do think that's another thing that like confused a 790 00:45:41,000 --> 00:45:44,480 Speaker 1: lot of people this time around. It's just like, you know, 791 00:45:44,560 --> 00:45:47,440 Speaker 1: you have something that people were calling a Ponzi scheme 792 00:45:47,640 --> 00:45:52,920 Speaker 1: as early as and it just keeps going and you're like, 793 00:45:53,160 --> 00:45:55,840 Speaker 1: am I the crazy one here? Like are all the 794 00:45:55,880 --> 00:45:58,919 Speaker 1: bots yelling at me on the internet? Are they right? Like? 795 00:45:59,560 --> 00:46:02,239 Speaker 1: It's the cool anyway. I do think talking about other 796 00:46:02,360 --> 00:46:05,160 Speaker 1: historical bubbles and sort of pulling out what's similar and 797 00:46:05,160 --> 00:46:08,040 Speaker 1: what's different. I find that very helpful and cathartic. Well, 798 00:46:08,080 --> 00:46:10,440 Speaker 1: you know, we don't we're not like trading like you know, 799 00:46:10,520 --> 00:46:13,440 Speaker 1: it's thankfully we're not money managers whose job is to 800 00:46:13,960 --> 00:46:16,280 Speaker 1: tell clients. But I do think in the way everyone 801 00:46:16,360 --> 00:46:19,040 Speaker 1: does feel like they had to take on crypto specifically, 802 00:46:19,440 --> 00:46:21,600 Speaker 1: they had to take a side, right or a lot 803 00:46:21,600 --> 00:46:23,720 Speaker 1: of people felt that pressure to sort of like cast 804 00:46:23,760 --> 00:46:25,799 Speaker 1: their lot on one side of the other. And if 805 00:46:25,840 --> 00:46:27,600 Speaker 1: you had this view for many years, like, I don't 806 00:46:27,640 --> 00:46:29,840 Speaker 1: really see how this sustainable. I don't see how defies 807 00:46:29,880 --> 00:46:33,239 Speaker 1: actually find as whatever, Like you can go a long 808 00:46:33,320 --> 00:46:35,600 Speaker 1: time and look really dumb and suffer for it even 809 00:46:35,640 --> 00:46:39,520 Speaker 1: if you hadn't like made a literal money. Bet Oh, totally. 810 00:46:39,520 --> 00:46:41,920 Speaker 1: And it also goes back to the momentum idea, right, like, 811 00:46:42,120 --> 00:46:44,760 Speaker 1: sometimes the way to make money and to make alpha 812 00:46:44,880 --> 00:46:47,040 Speaker 1: is to jump on the thing that is getting a 813 00:46:47,040 --> 00:46:49,239 Speaker 1: lot of interest and a lot of inflows. And even 814 00:46:49,280 --> 00:46:51,560 Speaker 1: if you think it's stupid, you just kind of ride 815 00:46:51,560 --> 00:46:54,080 Speaker 1: with it and hope you can get out before everyone else. 816 00:46:54,640 --> 00:46:57,920 Speaker 1: But again, as Brad pointed out, this has been a 817 00:46:58,000 --> 00:47:01,640 Speaker 1: sort of defining feature of bubbles through about history. Shall 818 00:47:01,640 --> 00:47:03,239 Speaker 1: we leave it there? Let's leave it there, all right? 819 00:47:03,560 --> 00:47:06,600 Speaker 1: This has been another episode of the All Thoughts podcast. 820 00:47:06,680 --> 00:47:09,279 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 821 00:47:09,320 --> 00:47:12,000 Speaker 1: Tracy Alloway and I'm Joe Isn't Though. You can follow 822 00:47:12,040 --> 00:47:15,520 Speaker 1: me on Twitter at the Stalwart. Follow our guest Bred DeLong. 823 00:47:15,640 --> 00:47:18,600 Speaker 1: He's at DeLong on Twitter, and check out his book 824 00:47:18,680 --> 00:47:23,240 Speaker 1: Slouching towards Utopia. Follow our producer Carmen Rodriguez at Carmen 825 00:47:23,360 --> 00:47:26,160 Speaker 1: armand and check out all of the podcasts at Bloomberg 826 00:47:26,280 --> 00:47:30,320 Speaker 1: unto the handle at podcasts and for more Odd Lots content, 827 00:47:30,360 --> 00:47:33,080 Speaker 1: go to Bloomberg dot com slash odd Blogged, where we 828 00:47:33,200 --> 00:47:36,680 Speaker 1: post episode transcripts Tracy and I plug and we even 829 00:47:36,719 --> 00:47:40,000 Speaker 1: write a weekly newsletter on these topics that you should subscribe. 830 00:47:40,440 --> 00:48:07,400 Speaker 1: Thanks for listening to it. E