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Speaker 1: Pushkin. I'm Michael Lewis and I'm Lady Jean Coott.

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Speaker 2: This is the big short companion podcast on Against the Rules.

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Speaker 2: In today's episode is all about the financial consequences of

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Speaker 2: the two thousand and eight recession. Michael, when you said

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Speaker 2: you wanted to do this episode, what consequences were you

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Speaker 2: thinking about?

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Speaker 3: You know, the things that all kinds of things sort

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Speaker 3: of popped to mind.

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Speaker 4: When you look at how Wall Street is now versus

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Speaker 4: how Wall Street was in say, two thousand and seven,

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Speaker 4: you can see that like the big investments banks Morgan Stanley, Goldman,

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Speaker 4: Sachs are far or less prestigious to work for. They're

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Speaker 4: not getting first cut of the college graduates. You can

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Speaker 4: see that a whole new set of institutions Jane Street, Citadel,

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Speaker 4: Jump Trading have arisen to take risk that previously we're

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Speaker 4: in the investment banks. It's like the risk who gets

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Speaker 4: to take the risk has changed and the banks just

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Speaker 4: generally have been removed from the process. That's like one thing.

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Speaker 4: Another thing is like Bitcoin is a response, or it

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Speaker 4: seems to have been a response. The guy who created it,

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Speaker 4: we no one knows who he actually is, but who

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Speaker 4: calls himselves to Toshi made it very clear that it

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Speaker 4: was a response to the mistrust he felt on the

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Speaker 4: back end of the financial crisis. I just wanted to

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Speaker 4: isolate the financial consequences and talk to someone who knows

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Speaker 4: more about this than I do.

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Speaker 3: See what we thought.

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Speaker 1: Matt Levine.

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Speaker 4: Like matt Levine from the moment he appeared on the

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Speaker 4: scene and started writing his Bloomberg column, I thought, thank God,

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Speaker 4: he's paying attention to this, so I don't have to, Like,

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Speaker 4: thank god that I can just like I mean, I

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Speaker 4: could come back in and dip into Wall Street every

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Speaker 4: now and then for big narratives, but that I don't

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Speaker 4: have to monitor it in the.

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Speaker 3: Same way because he basically does it for me.

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Speaker 2: You can.

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Speaker 4: I can just read matt Levine and he's he he

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Speaker 4: cares so much more about it than I do. Like

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Speaker 4: he cares so much more about the intricacies of finance.

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Speaker 4: The only time I cared is much about finance as

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Speaker 4: matt Levine was when I was actually working in it,

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Speaker 4: and then I was engrossed.

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Speaker 3: But since then I have a hard time caring.

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Speaker 4: Sometimes he makes me care about it, but I know

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Speaker 4: he's also like, if it's interesting, he will find it

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Speaker 4: and point it out, and so I can be a

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Speaker 4: little lazy about it. I'm just going to use his

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Speaker 4: energy to get them.

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Speaker 3: Across to you.

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Speaker 2: I'm really excited to hear that conversation. Matt Levine is

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Speaker 2: a columnist for Bloomberg Opinion and host of the newsletter

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Speaker 2: and podcast Money Stuff. His conversation with Michael Lewis is

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Speaker 2: coming right up.

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Speaker 1: First off, where were you during the financial crisis? What

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Speaker 1: were you doing?

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Speaker 5: Okay, so when you say during the financial crisis, I

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Speaker 5: was on vacation when Lehman filed. And it's, you know,

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Speaker 5: such a cliche, but my cousin was getting married in

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Speaker 5: northern California and I was. I was in Napa actually

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Speaker 5: the day that Leman file, and I woke up and

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Speaker 5: I looked at my phone or my BlackBerry or whatever,

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Speaker 5: and I saw that Lehman had filed. And I was stunned.

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Speaker 5: And I did the thing that everyone talks about, which

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Speaker 5: is I went outside to get coffee and everyone was

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Speaker 5: walking around being completely normal, and I had the thought

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Speaker 5: of like, what, like, do you not understand that the

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Speaker 5: world just ended? Because I was, you know, during the

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Speaker 5: financial crisis, I was working at Goldman as an investment banker.

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Speaker 1: So you were at Goldman in a job in investment banking.

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Speaker 4: All this was going down, and so when it is

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Speaker 4: going down, at any point do you start to think,

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Speaker 4: oh my I might not have a job.

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Speaker 1: Of course you did have. You did have.

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Speaker 5: Of course, of course how could you not. No, it's wild.

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Speaker 5: I mean there were definitely rounds of like off sudden.

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Speaker 5: You know, I was pretty fatalistic that, you know, either

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Speaker 5: it'd get laid off or I wouldn't. People on my

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Speaker 5: desk got laid off. I did not get laid off.

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Speaker 1: Did you at any point sink Olman's not going to survive?

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Speaker 5: You know, I was not sophisticated enough to have that thought.

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Speaker 5: Over time, I have come to understand how how leveraged

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Speaker 5: these institutions are and were, and how little of a

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Speaker 5: shove it takes to push investment banks into bankruptcy, and

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Speaker 5: how close we were in the scheme of things to

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Speaker 5: like Lehman and Bear. I was on a desk we

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Speaker 5: did like convertible bond deals and we did not do

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Speaker 5: a deal for six or nine months. We had a

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Speaker 5: master file where it's like a spreadshee where every time

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Speaker 5: anyone in the market did a deal in our sector,

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Speaker 5: we would like write in the details of the deal,

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Speaker 5: and it was blank. From I want to say, something

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Speaker 5: like September of two thousand and eight through March or

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Speaker 5: April of two thousand and nine was just blank, Like

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Speaker 5: no deals happened in the market. And so I spent

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Speaker 5: six months doing nothing and I did not you know,

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Speaker 5: take a long lunches or have vacation. I just sat

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Speaker 5: at my de can, panicked and tried to get deals

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Speaker 5: to happen, and no deals happened.

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Speaker 1: Did you get a bonus at the end of O nine?

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Speaker 5: I must have. I must have. Yeah, I did, you know?

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Speaker 5: I was down a lot from the previous year, but

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Speaker 5: we didn't get hear it.

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Speaker 1: Yeah.

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Speaker 4: Did you ever find yourself on the other end of

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Speaker 4: Wall Street hate?

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Speaker 5: Uh? Not, like personally, you know, I think that's like

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Speaker 5: Occupy Wall Street occurred around the end of my time

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Speaker 5: at Goldman, I think a little after I left, and

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Speaker 5: I would go and be interested in it, but like

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Speaker 5: I could see on TV hate for Goldman, but like

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Speaker 5: I never personally experienced it, and I kind of was like,

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Speaker 5: I don't know, there was a sense that it was

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Speaker 5: a little bit cool to be at a place that

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Speaker 5: everyone hated so much. It's like I felt like, oh, yeah,

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Speaker 5: look at us, everyone hates us.

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Speaker 4: You know who also feels like that people who work

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Speaker 4: at the irs. There's an incredible spread of corps because

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Speaker 4: they know everybody hates them and they think what they're

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Speaker 4: doing is virtuous, but they know everybody hates them, and

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Speaker 4: it somehow brings them together there.

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Speaker 5: I don't want to say that what we were doing

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Speaker 5: was like, you know, virtuous, virtuous, but it was fine,

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Speaker 5: you know, lead blank friends as they were doing God's work.

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Speaker 4: I want to hear your thoughts about the consequences in

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Speaker 4: the financial industry of the crisis, what came out of

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Speaker 4: it that's still with us.

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Speaker 5: Well. The thing that I most that I personally experienced

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Speaker 5: the most, that I'm personally most interested in, perhaps is

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Speaker 5: just a shift in in who does stuff in the

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Speaker 5: financial industry. I mean, when I was at Goldban, Goldman

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Speaker 5: was in many ways like the place to be right.

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Speaker 5: It was the place that sort of generated all the

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Speaker 5: hedgehund managers that like did a lot of the exciting deals.

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Speaker 5: That was sort of the center of Wall Street. And

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Speaker 5: after the financial crisis, the power really shifted away from

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Speaker 5: the investment banks for a bunch of reasons, you know,

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Speaker 5: largely regulatory, like largely you know, one, all the big,

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Speaker 5: the biggest investment banks like Goldbn became or were bought

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Speaker 5: by banks, so they became banks, and they regulated as banks.

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Speaker 5: And two, like you know, they'd almost blown up. And

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Speaker 5: so everyone kind of understood both regulators but also like

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Speaker 5: the banks themselves and the shareholders understood they couldn't be

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Speaker 5: as levered and as sort of short term funded as

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Speaker 5: they had been in two thousand and seven. And so

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Speaker 5: the banks got much more careful about their balance sheets

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Speaker 5: and they could do fewer trades, but also the regulators

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Speaker 5: kind of prohibited them from doing a lot of the

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Speaker 5: prop trading that was the way that places like Goldman

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Speaker 5: made outsize profits, and also the way they attracted and

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Speaker 5: retained and trained risk takers, and that kind of ended.

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Speaker 5: And the result is that a lot of the sort

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Speaker 5: of high end action that occurred at the investment banks

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Speaker 5: ended up at what are you know, the big like

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Speaker 5: today are big hedge funds or the big kind of

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Speaker 5: you know, they call them alternative asset managers, like in

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Speaker 5: my day they called them private equity firms. But like

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Speaker 5: you know, the like Apollos and Kkrs and Blackstones got

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Speaker 5: a lot more important because a lot of the kind

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Speaker 5: of like agree restive, go anywhere balance sheet financing that

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Speaker 5: the banks used to do, the banks are afraid to

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Speaker 5: do now, and these big institutions with their kind of

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Speaker 5: longer term balance sheets can do that now. And so

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Speaker 5: like I don't want to say no one wants to

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Speaker 5: work at Goldbin anymore. I still have a fondness for Goldman.

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Speaker 5: People still want to work at Golvin. But it's definitely

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Speaker 5: like the prestige locations on Wall Street have shifted to

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Speaker 5: the big hedge funds, the big asset managers, the big

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Speaker 5: high frequency trading firms. These are all places that are

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Speaker 5: kind of like closer to the center of the action

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Speaker 5: because they can take more risk. And the banks took

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Speaker 5: someone's risk in two thousand and eight that they can't

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Speaker 5: do it anymore.

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Speaker 4: We all decided that these places shouldn't be doing it, Yeah,

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Speaker 4: because the risk gets socialized if they screw it up.

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Speaker 5: Yeah, you know, it's it's I've become. When I was

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Speaker 5: a banker, I was like, what are you talking about?

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Speaker 5: Prop trading didn't cause the financial crisis, And as I

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Speaker 5: get older, I become more sympathetic to the regulatory changes.

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Speaker 5: I think one, the risk gets socialized if they screw

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Speaker 5: it up. But then also they're so lew Like banking

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Speaker 5: is a business model, but also investment banking is as

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Speaker 5: a as it was practiced by the big investment banks

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Speaker 5: in two thousand and seven, is such a levered business

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Speaker 5: model where you have like a thin sliver of equity

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Speaker 5: and a lot of very short term you know, deposits

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Speaker 5: or demand funding that can drive up overnight and if

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Speaker 5: you get anything wrong, like you vanish and you like

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Speaker 5: leave a crater in the in the market. When like

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Speaker 5: the private credit firms are doing weird loans that you know,

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Speaker 5: twenty years ago it would have been done by Goldman SSG.

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Speaker 5: Like those private credit firms have long term financing from

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Speaker 5: like you know, annuities, and they just they're not runnable,

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Speaker 5: like they won't blow up overnight, right, So there's a

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Speaker 5: lot of stuff like that.

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Speaker 1: They don't have depositors, Yeah, they.

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Speaker 5: Don't have depositors, and Goldman didn't have depositors in two

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Speaker 5: thousand and seven either, but like they had you know, right,

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Speaker 5: like overnight repo funding and it was a really risky

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Speaker 5: business model, and I think people realize that. And this

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Speaker 5: is like the story of every financial crisis is like

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Speaker 5: you find a way to get a lot of short

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Speaker 5: term information and sensitive financing against you know, risky stuff

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Speaker 5: that you're up to, and then you blow up. But

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Speaker 5: I think, like all in all, the system right now

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Speaker 5: it feels less blow up of both than it was

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Speaker 5: in two thousand and seven because there is less of

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Speaker 5: that short term financing against like whatever people are up to.

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Speaker 4: When we come back from the break, Matt Levine and

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Speaker 4: I talk about another consequence of the financial crisis bitcoin.

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Speaker 6: How did the Volkswagen Beetle go from being Hitler's dream

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Speaker 6: car to a hippie icon? How did a disgruntled center

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Speaker 6: fielder change the business of sports. I'm Jacob Goldstein and

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Speaker 6: on Business History, my co host Robert Smith and I

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Speaker 6: dig into the people and companies who created the modern world.

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Speaker 6: Business history is full of innovations and failures and insights

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Speaker 6: into how business works today. At the end of today's

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Speaker 6: episode of Against the Rules, We're going to play a

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Speaker 6: clip from our episode about Jim Simon's decades ago. Simon's

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Speaker 6: basically invented modern algorithmic trading, and after a few early

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Speaker 6: the hiccups, including buying up all the potatoes in Maine,

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Speaker 6: Simon's built a machine that generated incredible returns for decades.

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Speaker 6: The show is called Business History, and the previous coming

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Speaker 6: up at the end of today's episode of Against the Rules.

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Speaker 7: And Back with Bloomberg opinion columnist Matt Levine.

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Speaker 4: All right, so the first financial consequences is this kind

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Speaker 4: of mini status revolution on Wall Street where the people

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Speaker 4: who were the top dogs are no longer the top dogs,

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Speaker 4: and because the risks moved out of those firms and

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Speaker 4: into other places, and the status goes to where the

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Speaker 4: risk is being taken.

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Speaker 5: And that's a status revolution. It's also like, substantively.

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Speaker 1: You get a better financial model.

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Speaker 5: I think. So It's debatable, but I think.

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Speaker 1: So, yeah, Well would be the other side.

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Speaker 4: I mean, if you have Apollo and areas in these

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Speaker 4: places who have long term funding against their long term loans,

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Speaker 4: that does seem like a more stable thing than what

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Speaker 4: Goldman was doing or even what City Bank doing.

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Speaker 5: The main thing that you hear on the other side

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Speaker 5: is that people call these shadow banks, right, like the

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Speaker 5: banks are very carefully supervised, not always successfully, but there's

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Speaker 5: a lot of.

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Speaker 1: At least somebody's watching them.

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Speaker 5: There's a regulator who's watching the bank and telling them,

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Speaker 5: don't make that loan that's too risky, right, or thek

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Speaker 5: in theory that's happening with the private credit firms. They

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Speaker 5: can kind of do what they want because they're much

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Speaker 5: more lightly regulated because they don't have the crazy banking

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Speaker 5: funding model, because they're not too big to fail because

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Speaker 5: they're not you know, their losses aren't socialized. And then

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Speaker 5: you know, people do worry that leverage is creeping back

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Speaker 5: into the system because it has a habit of doing that, right,

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Speaker 5: private credit firms do get leverage from banks, so like

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Speaker 5: it's kind of circulating back into the banking system. And

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Speaker 5: you know, when you move away from like private credit,

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Speaker 5: like some of the stuff that banks used to do.

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Speaker 5: You know, I read about the basis trade, which is

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Speaker 5: you buy treasury bonds and you sell treasury futures and

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Speaker 5: it's a very very very low risk trade because those

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Speaker 5: are almost the same thing, but they're not quite the

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Speaker 5: same thing. And so people that trade up you know,

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Speaker 5: thirty or one hundred times, And that used to be

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Speaker 5: a thing that banks do, and now it's a thing

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Speaker 5: that like you know, the Citadels and Millenniums of the

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Speaker 5: world do. And you know, people definitely look around and say,

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Speaker 5: these things are much more lightly regulated than the old

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Speaker 5: banks were, and they're running out a hundred times leverage.

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Speaker 5: That seems risky, right, Like, and there are occasions where

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Speaker 5: the basis trade kind of blows up, and you know,

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Speaker 5: they're academics saying the FED should have to step in

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Speaker 5: when that happens. And so it's you know, there's in

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Speaker 5: the long run, you know, you say that, like you

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Speaker 5: socialize the risk when when the banks blow up, But like,

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Speaker 5: I'm not sure that was what people thought in like

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Speaker 5: two thousand and six, I'm not sure people thought that.

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Speaker 5: You know, you know, Jimmie Morgan and City Group had

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Speaker 5: deposit insurance and FED access and everything. But like Morgan,

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Speaker 5: Stanley and Goldman and Lehman and Bear were investment banks.

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Speaker 5: They were kind of more lightly regulated things. And then

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Speaker 5: it turns out that when they all blow up, the

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Speaker 5: sort of rational thing to do is to socialize the losses, right.

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Speaker 5: But but that was not obviously, It's just what happened, right,

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Speaker 5: And so you can imagine that happening again with you know,

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Speaker 5: if the big hedge funds that had become so central

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Speaker 5: to the financial system find a way to blow themselves up,

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Speaker 5: like well, those losses get socialized.

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Speaker 4: Maybe when I asked you what the financial consequences are

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Speaker 4: of the of the crisis and you said the big

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Speaker 4: win you were focusing on was I didn't think what

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Speaker 4: you were going to say what you did say.

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Speaker 1: I thought you were going to say bitcoin.

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Speaker 5: Uh yeah, I mean bitcoin is is. It's hard for

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Speaker 5: me to know how how directly bitcoin is a consequence

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Speaker 5: of the financial crisis. I mean, it's certainly the case that,

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Speaker 5: like the Bitcoin white paper references the financial crisis that

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Speaker 5: it seems like the pseudonymous Satoshi Nakamoto was, you know,

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Speaker 5: upset by the leverage in the banking system and by

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Speaker 5: the socialization of losses in the banking system, and wanted

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Speaker 5: a financial system that didn't look like that, that wasn't

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Speaker 5: fractional reserve banking, that wasn't risky, that wasn't based on

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Speaker 5: you know, powerful intermediaries who like got government support, but

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Speaker 5: was peer to peer and decentralized and safe, right, And

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Speaker 5: I think that resonated with a lot of people. There's

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Speaker 5: a like countercultural element to crypto and bitcoin, where people

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Speaker 5: got into it in part because they didn't trust the

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Speaker 5: banking system. But I don't want to overstate that, because

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Speaker 5: crypto quickly replicated a lot of the elements of the levered,

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Speaker 5: fractional reserve risky financial system, as you well know, right,

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Speaker 5: I mean, like, if you look at the career arc

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Speaker 5: of Sam Bankman Freed, like no part of what he

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Speaker 5: was doing was a reaction to the risky financial system

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Speaker 5: and traditional finance, right, Like, everything he was doing was

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Speaker 5: recreating that system with crypto.

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Speaker 4: One of the many ironies of crypto is that it

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Speaker 4: seems to be born out of mistrust of institutions and intermediaries,

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Speaker 4: and then it goes and recreates institutions and intermediaries. It

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Speaker 4: requires even more trust than the thing that it's replacing, because.

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Speaker 5: There's like, you know, a thousand people who like are like, oh,

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Speaker 5: I love this thing because it doesn't you know, it

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Speaker 5: replaces trust in intermediaries, and then there's like millions more

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Speaker 5: people are like, I like this thing because it went

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Speaker 5: up right, and then that's like much more you know

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Speaker 5: relevant then and then so then you have you can

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Speaker 5: build a system around that. And so if people like

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Speaker 5: it because it goes up, then like offer them leverage, right,

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Speaker 5: like offer them, uh, you know, trusted intermediary. And so

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Speaker 5: I think that there is this like like cultural connection

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Speaker 5: between crypto and mistrust in the financial system. But that

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Speaker 5: is only a very small part of the actual phenomenon

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Speaker 5: of crypto. The crypto winter that you know, kind of

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Speaker 5: began in the summer before the fall of FTX and

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Speaker 5: under with the fall of FTX really recreates two thousand

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Speaker 5: and eight, like really like beat for beat is like

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Speaker 5: this is what happens when you overlever something, you know,

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Speaker 5: like it stops going up, and so then there's nothing

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Speaker 5: you know, holding it up because because it's it's super overlevered,

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Speaker 5: and you know, there's no regulation and there's a lot

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Speaker 5: of non transparency about what is backing all of that leverage.

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Speaker 5: I said to you in the beginning, like I was

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Speaker 5: not sophisticated enough to understand the risk that Golbyn was

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Speaker 5: in when I was at Goldman, Like I witnessed the

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Speaker 5: financial crisis from inside of Goldban but I didn't like understand

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Speaker 5: it because I was like working my job, you know.

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Speaker 5: But then as I became a financial journalist, I became

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Speaker 5: more of a student of the two thousand and eight crisis,

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Speaker 5: and it was so useful and interesting to watch the

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Speaker 5: crypto crisis play out because it truly just relearned the

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Speaker 5: lessons of two thousand and eight. And like, one thing

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Speaker 5: you learn is that it's all the same thing, right,

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Speaker 5: like a financial crisis, is that they all look the same.

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Speaker 4: But a difference is that in the crypto crisis that

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Speaker 4: there is no government to come in.

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Speaker 5: Oh yeah, for a while there was Sam Bankman Freight, right,

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Speaker 5: I mean, like it it was truly like people in

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Speaker 5: crypto were like, well, there's no government, there's no FED,

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Speaker 5: but there is.

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Speaker 1: FTX, right, so there isn't that backstop.

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Speaker 5: But like but also, you know, the other big difference

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Speaker 5: is that the reason there's that backstop in two thousand

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Speaker 5: and eight is that there is a widespread and I

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Speaker 5: think pretty justified fear that like a collapse of you know,

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Speaker 5: the investment banks, the banking system, like that subsector of

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Speaker 5: the economy could have like real consequences for the real

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Speaker 5: economy because the banks are the lenders that kind of

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Speaker 5: like you know juice economic growth. Like one day maybe

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Speaker 5: crypto will be that important to the economy of that

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Speaker 5: like it wasn't that. It's not yet right, So there's

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Speaker 5: no government bialot because it didn't matter, right, Like all

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Speaker 5: of crypto could good as zero and nothing outside of

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Speaker 5: crypto would be affected by that.

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Speaker 1: You think that's still true now?

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Speaker 5: I think that is ninety percent true now. I think

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Speaker 5: that crypto people are working very very hard to change that, right.

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Speaker 5: I mean, you look at like the integration of stable

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Speaker 5: coins into the traditional financial system. You look at you know,

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Speaker 5: the crypto treasury companies, like there is this race to

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Speaker 5: integrate crypto into the real financial system. Some of that

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Speaker 5: is because the more you integrated into the real financial system,

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Speaker 5: the more it goes up right today, But some of

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Speaker 5: it is like the more you integrate into the real

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Speaker 5: financial system, the better your odds of getting a bailout

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Speaker 5: if something goes wrong. You could have like a broad

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Speaker 5: view of crypto. That's like crypto is finding the sort

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Speaker 5: of last sucker to buy your crypto assets, and like

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Speaker 5: the US taxpayer being the last sucker is like a

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Speaker 5: really good backstop.

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Speaker 1: That would be sarcasm in case you didn't pick up

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Speaker 1: on it.

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Speaker 4: When we return, we talk about the lessons we should

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Speaker 4: have learned but didn't from two thousand and eight, What

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Speaker 4: lessons do you think we should have learned from the

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Speaker 4: financial crisis that maybe we didn't.

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Speaker 5: I do think that, you know, I have a very

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Speaker 5: conventional view of what happened and what financial crises are,

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Speaker 5: which is that it's short term information and sensitive lever on.

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Speaker 5: Stuff that you think is safe is the dangerous thing, right.

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Speaker 1: Say to say that again really plain English.

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Speaker 5: The problem is when you a bank whoever buys stuff

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Speaker 5: that they think is pretty safe, they buy triple A

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Speaker 5: rated mortgage bonds or whatever, right, and they're like, well,

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Speaker 5: this stuff is really safe, so we can fund it

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Speaker 5: by borrowing overnight against it. We can like take bank

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Speaker 5: deposits and use it to buy thirty year triple A

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Speaker 5: mortgages because like they're so safe, right. That is like

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Speaker 5: the source of all financial crises, right. Sometimes it's literally

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Speaker 5: bank deposits, right, Like that's what a run on a

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Speaker 5: bank is. But in two thousand and eight, it's mostly

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Speaker 5: you know, the Goldmans and Lemons and Bears of the

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Speaker 5: world who are not really taking bank deposits, but who

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Speaker 5: are borrowing very short term in capital markets, and they're thinking, well,

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Speaker 5: you know, we have like a big diversified pool of

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Speaker 5: good assets where good traders, so it's pretty safe for

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Speaker 5: us to borrow short term to fund these long term assets.

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Speaker 5: And then like you lose confidence and that short term

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Speaker 5: funding goes away and you have to sell all your

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Speaker 5: assets and you can't sell them or you can only

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Speaker 5: sell them at deeply discounted prices, and then you go

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Speaker 5: from saying how great you are and how much money

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Speaker 5: you're making to being bankrupt in hours, you know, or days,

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Speaker 5: like it's an extremely fast catastrophe.

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Speaker 4: So there is there is a distinction to be made

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Speaker 4: in this story between the case where the assets actually

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Speaker 4: are safe and people are misperceiving them as unsafe, and

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Speaker 4: when they're actually not good at all and people are

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Speaker 4: correct to think that they're not worth what you pay

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Speaker 4: for them.

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Speaker 5: But in the moment, it's very hard for you to

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Speaker 5: you know, or you can't like really satisfy people that

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Speaker 5: everything that you own is good. But so right, like

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Speaker 5: the lesson to me is very straightforward, which is that

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Speaker 5: runnable you know, short term debt is is the thing

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Speaker 5: that causes financial crisis. Can people take their money out?

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Speaker 2: Right?

435
00:22:10,556 --> 00:22:13,076
Speaker 5: It's not the asset side, right, And so people worry

436
00:22:13,116 --> 00:22:16,676
Speaker 5: a lot about risky stuff. Risky stuff is fine if

437
00:22:16,676 --> 00:22:18,996
Speaker 5: everyone knows it's risky stuff, right. What's bad is when

438
00:22:18,996 --> 00:22:22,316
Speaker 5: you're buying triple a stuff that you think is good

439
00:22:22,316 --> 00:22:25,276
Speaker 5: that might really be good, right, I mean, like what's

440
00:22:25,316 --> 00:22:28,476
Speaker 5: bad is that you know there's marked and market losses

441
00:22:28,516 --> 00:22:30,196
Speaker 5: and you have short term funding and you get blown up.

442
00:22:30,236 --> 00:22:32,996
Speaker 5: So to me, the thing that like the number one

443
00:22:33,036 --> 00:22:35,196
Speaker 5: lesson to take away is worry about short term funding.

444
00:22:35,196 --> 00:22:38,156
Speaker 5: And I think the regulators definitely took that lesson, and

445
00:22:38,196 --> 00:22:41,156
Speaker 5: banks are now much more required to have much more capital,

446
00:22:41,156 --> 00:22:43,796
Speaker 5: they have much more liquidity, they're much less short term funded.

447
00:22:44,156 --> 00:22:47,796
Speaker 5: But the crypto the world didn't learn that lesson, you know,

448
00:22:47,876 --> 00:22:50,836
Speaker 5: and like there are a lot of other places where,

449
00:22:51,396 --> 00:22:55,396
Speaker 5: you know, like the reason the original banking crisis was

450
00:22:55,436 --> 00:22:57,876
Speaker 5: the sort of successor to the financial crisis is that

451
00:22:58,716 --> 00:23:00,676
Speaker 5: the regional banks at short term funding, right, I mean,

452
00:23:00,676 --> 00:23:04,196
Speaker 5: they had deposits, right. I think people didn't appreciate despite

453
00:23:04,396 --> 00:23:06,796
Speaker 5: how obvious it seems, people didn't appreciate how short term

454
00:23:06,796 --> 00:23:10,916
Speaker 5: the funding of a regional bank actually was. But like nowadays,

455
00:23:10,916 --> 00:23:12,636
Speaker 5: people are much more worried about the asset side, and

456
00:23:12,636 --> 00:23:15,036
Speaker 5: they're much more worried about Ooho Private Credit is investing

457
00:23:15,076 --> 00:23:17,036
Speaker 5: in risky stuff, and I think that's like the wrong

458
00:23:17,956 --> 00:23:19,876
Speaker 5: place to be looking if.

459
00:23:19,756 --> 00:23:21,196
Speaker 1: You're looking for the next crisis. Where do you think

460
00:23:21,196 --> 00:23:22,076
Speaker 1: the right place to look at?

461
00:23:22,236 --> 00:23:23,596
Speaker 5: Oh, I don't know. I don't want to be a

462
00:23:23,636 --> 00:23:27,076
Speaker 5: crisis longer. I do think that I want to be clear,

463
00:23:27,156 --> 00:23:28,996
Speaker 5: I'm not saying this is where the next crisis is.

464
00:23:28,996 --> 00:23:31,196
Speaker 5: But I do think that the big hedge funds are

465
00:23:31,236 --> 00:23:33,836
Speaker 5: really interesting, right, the Big four, like the multi strategy

466
00:23:33,876 --> 00:23:35,876
Speaker 5: hedge funds. They do a lot of the businesses that

467
00:23:35,916 --> 00:23:39,636
Speaker 5: banks used to do. They're very levered, and they have

468
00:23:39,716 --> 00:23:42,356
Speaker 5: this profile of like they're quite safe, right, Like they

469
00:23:42,396 --> 00:23:44,276
Speaker 5: have a good they have like high sharp ratios. They're

470
00:23:44,276 --> 00:23:47,996
Speaker 5: good at, like you know, steadily grinding out profits by

471
00:23:47,996 --> 00:23:51,556
Speaker 5: doing highly levered trades where they're essentially getting paid to

472
00:23:51,596 --> 00:23:53,356
Speaker 5: take the other side of the market and to provide

473
00:23:53,356 --> 00:23:56,236
Speaker 5: liquidity to the market. They're very well risk managed, they're

474
00:23:56,316 --> 00:23:59,396
Speaker 5: very smart. They are the places that train up the

475
00:23:59,436 --> 00:24:01,956
Speaker 5: best risk takers now in a way that like twenty

476
00:24:02,036 --> 00:24:04,436
Speaker 5: years ago that was the banks, Right, So all this

477
00:24:04,476 --> 00:24:07,076
Speaker 5: stuff like I'm not saying they're gonna have a crisis

478
00:24:07,116 --> 00:24:09,036
Speaker 5: to where I'm saying like that's where a crisis would be. Right,

479
00:24:09,196 --> 00:24:12,316
Speaker 5: are huge, They're like, you know, they're central to the market,

480
00:24:12,476 --> 00:24:15,956
Speaker 5: they're highly levered, and all these people banks hedgehos. Everyone

481
00:24:16,036 --> 00:24:17,996
Speaker 5: has learned you know, they were at coldn in two

482
00:24:17,996 --> 00:24:20,076
Speaker 5: thousand and seven, Like they've learned these lessons, right, But

483
00:24:20,756 --> 00:24:22,796
Speaker 5: you know, you keep turning the dial a little bit

484
00:24:22,796 --> 00:24:24,876
Speaker 5: more towards risk and then like there's some chance of

485
00:24:25,236 --> 00:24:25,956
Speaker 5: things going wrong.

486
00:24:26,556 --> 00:24:28,236
Speaker 1: So what else? Anything else popped in mind?

487
00:24:28,276 --> 00:24:32,956
Speaker 4: When I say financial consequences of the crisis Consumer Financial Protection.

488
00:24:32,676 --> 00:24:38,436
Speaker 5: Bureau, I mean that's over. I don't know like I

489
00:24:38,436 --> 00:24:41,676
Speaker 5: would put that in the category, Like that's like a

490
00:24:41,676 --> 00:24:44,676
Speaker 5: a sort of broad sociological consequence of the of the

491
00:24:44,676 --> 00:24:49,556
Speaker 5: financial crisis is that the big banks lost status. Now

492
00:24:49,676 --> 00:24:52,076
Speaker 5: you can go to Congress and say banks should not

493
00:24:52,116 --> 00:24:56,076
Speaker 5: be able to charge you know, overdraft fees, and everyone's like,

494
00:24:56,076 --> 00:24:58,756
Speaker 5: oh yeah, those banks, they suck, right, And so it's

495
00:24:58,796 --> 00:25:02,196
Speaker 5: easier to regulate banks just generally, right, Like banks have

496
00:25:02,316 --> 00:25:05,876
Speaker 5: less of ability to get what they want. I think

497
00:25:05,916 --> 00:25:09,156
Speaker 5: that is broadly a consequence of the crisis. Wh I

498
00:25:09,236 --> 00:25:11,596
Speaker 5: get like the CFPB's mandate, I mean, there's nothing to do,

499
00:25:11,796 --> 00:25:14,076
Speaker 5: there's nothing almost nothing to do with the financial cris

500
00:25:14,476 --> 00:25:17,716
Speaker 5: There is this nexus of giving people mortgages they can't

501
00:25:17,716 --> 00:25:20,916
Speaker 5: afford is both a bad consumer banking practice and a

502
00:25:21,316 --> 00:25:23,516
Speaker 5: you know, contributor to the financial crisis. Right, So like

503
00:25:23,596 --> 00:25:26,076
Speaker 5: there's that that's an important overlap. But most of the

504
00:25:26,076 --> 00:25:29,796
Speaker 5: CFPB is doing is like finding banks for doing things

505
00:25:29,796 --> 00:25:33,196
Speaker 5: that probably improve the stability of the banking system by

506
00:25:33,316 --> 00:25:34,716
Speaker 5: extracting money from consumers.

507
00:25:34,796 --> 00:25:34,956
Speaker 3: Right.

508
00:25:35,276 --> 00:25:37,476
Speaker 5: I mean, the CFPP is a consequence of the crisis

509
00:25:37,476 --> 00:25:39,516
Speaker 5: in the sense that people were mad at banks, and

510
00:25:39,556 --> 00:25:42,396
Speaker 5: so it was a lot more tenable to do things

511
00:25:42,436 --> 00:25:47,276
Speaker 5: to regulate or punish banks. But that just sort of

512
00:25:47,396 --> 00:25:50,396
Speaker 5: ended for political reasons.

513
00:25:50,756 --> 00:25:52,956
Speaker 4: So I wanted to pick your brain on just this subject,

514
00:25:52,996 --> 00:25:55,076
Speaker 4: and I think it sounds like I picked your brain clean,

515
00:25:55,596 --> 00:25:57,396
Speaker 4: unless there's something else you would like to say.

516
00:25:57,716 --> 00:25:59,756
Speaker 5: I'm a little interested in stable clims. I mean, like

517
00:26:00,636 --> 00:26:02,996
Speaker 5: stable clins are sort of a way to take risk

518
00:26:03,036 --> 00:26:04,956
Speaker 5: out of the financial system. Like instead of having your

519
00:26:04,956 --> 00:26:07,876
Speaker 5: money at a bank, which could invest it in weird stuff,

520
00:26:08,156 --> 00:26:10,436
Speaker 5: you have your money in this thing, a stable coin

521
00:26:10,476 --> 00:26:12,076
Speaker 5: that basically invested in treasury bills.

522
00:26:12,116 --> 00:26:12,356
Speaker 1: Right.

523
00:26:12,596 --> 00:26:14,076
Speaker 5: One thing that I write about a lot is that

524
00:26:14,116 --> 00:26:17,116
Speaker 5: banking has become narrower. And what that means is that

525
00:26:17,156 --> 00:26:22,996
Speaker 5: on the one hand, the institutions that do risky investing

526
00:26:23,116 --> 00:26:26,516
Speaker 5: are now increasingly funded with like long term locked up

527
00:26:26,596 --> 00:26:29,836
Speaker 5: equity type funding, so like private credit firms raise equity

528
00:26:29,876 --> 00:26:33,076
Speaker 5: to make loans, right rather than using deposits. And then

529
00:26:33,116 --> 00:26:38,996
Speaker 5: on the other side, the depository stuff is invested in safer,

530
00:26:39,076 --> 00:26:41,876
Speaker 5: shorter term stuff and so like classically that's money market funds,

531
00:26:41,916 --> 00:26:44,236
Speaker 5: where like you put money in money market fund they

532
00:26:44,236 --> 00:26:46,876
Speaker 5: put it in like treasury bills, you get interest, and

533
00:26:46,956 --> 00:26:49,836
Speaker 5: instead of them lending out your money long term, they're

534
00:26:49,836 --> 00:26:52,596
Speaker 5: just doing something very safe with it. And increasingly, like

535
00:26:52,636 --> 00:26:55,196
Speaker 5: stable coins are becoming that, right, and so like this

536
00:26:55,316 --> 00:26:58,236
Speaker 5: is like a crypto incoursion into the traditional financial system.

537
00:26:58,396 --> 00:27:02,796
Speaker 5: But also people also a lot of people, politicians, crypto

538
00:27:02,836 --> 00:27:05,676
Speaker 5: people really like it, right, because it does seem like

539
00:27:05,756 --> 00:27:08,956
Speaker 5: a safer, a more direct way to hold your money

540
00:27:09,276 --> 00:27:11,316
Speaker 5: then holding on a bank, which might be making you know,

541
00:27:11,356 --> 00:27:13,556
Speaker 5: buying mortgage decrees with it. I will tell you who

542
00:27:13,556 --> 00:27:16,396
Speaker 5: doesn't like it. My impression is that who doesn't like

543
00:27:16,396 --> 00:27:19,476
Speaker 5: it as the FED, right, because like the FED likes

544
00:27:19,796 --> 00:27:22,436
Speaker 5: the traditional banking system, right, they like the ability to

545
00:27:22,436 --> 00:27:26,756
Speaker 5: transmit monetary policy through bank reserves, right right, there is

546
00:27:26,796 --> 00:27:31,156
Speaker 5: this worry that like we're undermining the banking system by

547
00:27:31,996 --> 00:27:36,036
Speaker 5: moving a lot of what would have been deposits into

548
00:27:36,356 --> 00:27:39,116
Speaker 5: something else, money market funds and stable coins. There's an

549
00:27:39,156 --> 00:27:43,996
Speaker 5: article in at Bloomberg about how stable coins are potentially

550
00:27:44,076 --> 00:27:46,876
Speaker 5: an existential threat to regional banks because like regional banks,

551
00:27:47,396 --> 00:27:50,516
Speaker 5: they get deposits from like you know, companies depositing your paycheck,

552
00:27:50,676 --> 00:27:52,516
Speaker 5: and then they use that to like run their business,

553
00:27:52,516 --> 00:27:55,836
Speaker 5: making loans. And if stable coins become a good payment

554
00:27:55,876 --> 00:27:57,716
Speaker 5: mechanism and companies are just say I'll give you a

555
00:27:57,756 --> 00:28:00,116
Speaker 5: stable coin instead of like a direct deposit in your

556
00:28:00,156 --> 00:28:03,156
Speaker 5: bank account, then like JP Morgan will be fine, Like

557
00:28:03,196 --> 00:28:04,796
Speaker 5: they'll do a stable coin, It'll be fine. Right, But

558
00:28:04,836 --> 00:28:06,516
Speaker 5: like a lot of regional banks are going to have

559
00:28:06,916 --> 00:28:10,196
Speaker 5: trouble because the banking so them for so long was

560
00:28:10,236 --> 00:28:12,716
Speaker 5: the sort of sleight of hand of like we take

561
00:28:13,076 --> 00:28:15,556
Speaker 5: deposits that you think are super safe and we use

562
00:28:15,596 --> 00:28:18,436
Speaker 5: them to make risky investments. And if that's going away,

563
00:28:19,036 --> 00:28:22,236
Speaker 5: then it's an existential crisis for some number of banks.

564
00:28:22,596 --> 00:28:24,796
Speaker 5: And is that going away because of two thousand and eight,

565
00:28:24,996 --> 00:28:26,996
Speaker 5: Like a little bit you can draw that line, right,

566
00:28:27,036 --> 00:28:29,956
Speaker 5: Like the mistrust in the banks and like the understanding

567
00:28:29,996 --> 00:28:32,596
Speaker 5: that banks take risks with your money, like was sort

568
00:28:32,636 --> 00:28:35,196
Speaker 5: of like you know, brought back to the forefront by

569
00:28:35,236 --> 00:28:37,716
Speaker 5: the two thousand and eight crisis. And so some of

570
00:28:37,796 --> 00:28:40,436
Speaker 5: like the stable coin stuff and the narrower banking stuff

571
00:28:40,476 --> 00:28:42,396
Speaker 5: really is downstream of that. I mean I had never

572
00:28:42,396 --> 00:28:44,596
Speaker 5: heard the term narrow banking until two thousand and eight, right,

573
00:28:44,596 --> 00:28:46,916
Speaker 5: Like it became a thing after two thousand and eight.

574
00:28:46,956 --> 00:28:50,596
Speaker 5: People said this whole system of you know, we take

575
00:28:51,036 --> 00:28:52,836
Speaker 5: we take short term money and we use it to

576
00:28:52,876 --> 00:28:56,676
Speaker 5: take risk make risky bets just became a lot more suspicious.

577
00:28:57,116 --> 00:28:59,396
Speaker 1: Can you imagine a world where there are no banks?

578
00:29:00,116 --> 00:29:02,116
Speaker 5: People imagine a world with their no banks all the time,

579
00:29:02,236 --> 00:29:04,476
Speaker 5: I mean not exactly right. They imagine a world where

580
00:29:05,156 --> 00:29:09,796
Speaker 5: your deposits live in stable coins, stable coins, in bills

581
00:29:09,796 --> 00:29:12,596
Speaker 5: in reserves at the FED, right and US dollar you

582
00:29:12,596 --> 00:29:14,676
Speaker 5: know digital currency where like you don't have to have

583
00:29:14,716 --> 00:29:17,276
Speaker 5: a bank, you just your money, like the FED keeps

584
00:29:17,316 --> 00:29:19,356
Speaker 5: track of your account for you, you know. And then

585
00:29:19,396 --> 00:29:21,476
Speaker 5: how do you get a mortgage? Well, you know, like

586
00:29:23,156 --> 00:29:25,196
Speaker 5: lending club gives you a mortgage or like you know,

587
00:29:25,396 --> 00:29:27,196
Speaker 5: a private credit fram gives you a mortgage, or an

588
00:29:27,196 --> 00:29:30,956
Speaker 5: insurance company gives you a mortgage, you're Apollo Giollow. You

589
00:29:30,996 --> 00:29:33,356
Speaker 5: know one thing that Apollo does is they run annuities, right,

590
00:29:33,516 --> 00:29:36,156
Speaker 5: And an annuity is like we'll give you, you know, a

591
00:29:36,196 --> 00:29:38,076
Speaker 5: fixed cash flow for thirty years. Like that's the other

592
00:29:38,116 --> 00:29:40,476
Speaker 5: side of a mortgage, right. It makes total sense for

593
00:29:40,516 --> 00:29:42,916
Speaker 5: Apollo to say, we're gonna make mortgages on one side,

594
00:29:42,956 --> 00:29:44,396
Speaker 5: we're gonna do a new itis on the other side,

595
00:29:44,396 --> 00:29:47,076
Speaker 5: and they're gonna cross perfectly, right. So it's I think it's

596
00:29:47,076 --> 00:29:49,436
Speaker 5: pretty easy to imagine a world without banks. It's just

597
00:29:49,476 --> 00:29:51,956
Speaker 5: it's very hard to imagine the transition, right, Like, like

598
00:29:52,196 --> 00:29:53,796
Speaker 5: to go from the world of banks to a world

599
00:29:53,796 --> 00:29:56,316
Speaker 5: with that banks isn't going to be really would be

600
00:29:56,396 --> 00:29:58,436
Speaker 5: really you know, difficult for a lot of people.

601
00:29:58,836 --> 00:30:01,356
Speaker 1: But if it happens, and if that's the path we're on,

602
00:30:01,476 --> 00:30:03,916
Speaker 1: and then narrow banking is just a step on the

603
00:30:04,196 --> 00:30:05,676
Speaker 1: on the path to no banks.

604
00:30:06,276 --> 00:30:06,396
Speaker 8: Uh.

605
00:30:06,676 --> 00:30:08,636
Speaker 4: People will tell the story how it all may have

606
00:30:08,716 --> 00:30:10,476
Speaker 4: kind of just started with a financial crisis.

607
00:30:10,996 --> 00:30:12,756
Speaker 5: I think if that happened, I put a very low

608
00:30:12,796 --> 00:30:14,916
Speaker 5: probablit on happening. But if it happened. Yes, I think.

609
00:30:15,236 --> 00:30:17,436
Speaker 5: I think clearly the financial crisis would be the great

610
00:30:17,436 --> 00:30:19,916
Speaker 5: catalyst sport because like by the way I mentioned stable

611
00:30:20,276 --> 00:30:22,836
Speaker 5: like stablekins grat a bitcoin right, Bitcoin gros out of

612
00:30:22,836 --> 00:30:24,956
Speaker 5: the financial crisis actally right, like the sort of like

613
00:30:24,996 --> 00:30:28,276
Speaker 5: great flourishing of mistrust in the financial system can lead

614
00:30:28,276 --> 00:30:29,876
Speaker 5: to a lot of consequences, and I think we're like,

615
00:30:29,916 --> 00:30:32,076
Speaker 5: you know, partly down the road to those consequences.

616
00:30:32,756 --> 00:30:36,676
Speaker 7: That was Bloomberg opinion columnist Matt Levine. Next week, we're

617
00:30:36,676 --> 00:30:39,196
Speaker 7: wrapping up this Big Short Companion series by talking with

618
00:30:39,276 --> 00:30:41,836
Speaker 7: two people whose political career has got their starts with

619
00:30:41,876 --> 00:30:45,876
Speaker 7: a financial crisis, because the crisis changed more than just finance,

620
00:30:47,116 --> 00:30:48,476
Speaker 7: it changed politics too.

621
00:30:55,236 --> 00:30:58,116
Speaker 2: Against the Rules the Big Short Companion is hosted by

622
00:30:58,116 --> 00:31:01,756
Speaker 2: Michael Lewis. It's produced by me Luddy, Jin Kott and

623
00:31:01,836 --> 00:31:06,796
Speaker 2: Catherine Girodeu. Our editor is Julia Barton. Our theme was

624
00:31:06,796 --> 00:31:10,636
Speaker 2: composed by Nick Brittel, and our engineer is Hans Dale.

625
00:31:10,636 --> 00:31:17,196
Speaker 2: She special thanks to Nicole opten Bosch, Jasmine Faustino, Pamela Lawrence,

626
00:31:17,716 --> 00:31:21,036
Speaker 2: and the rest of the Pushkin Audiobooks team. Against the

627
00:31:21,116 --> 00:31:24,716
Speaker 2: Rules is a production of Pushkin Industries to find more

628
00:31:24,756 --> 00:31:29,476
Speaker 2: Pushkin podcasts listen on the iHeartRadio app, Apple Podcasts, or

629
00:31:29,516 --> 00:31:32,356
Speaker 2: wherever you listen to podcasts, And if you'd like to

630
00:31:32,396 --> 00:31:36,236
Speaker 2: listen ad free and learn about other exclusive offerings, don't

631
00:31:36,276 --> 00:31:39,156
Speaker 2: forget to sign up for a Pushkin Plus subscription at

632
00:31:39,156 --> 00:31:43,996
Speaker 2: pushkin dot fm, Slash Plus or honor Apple show page.

633
00:31:44,156 --> 00:31:46,996
Speaker 2: And you can get the big short now at pushkin

634
00:31:47,156 --> 00:31:52,516
Speaker 2: dot fm, slash Audiobooks, or wherever audiobooks are sold.

635
00:31:58,276 --> 00:32:00,396
Speaker 6: It's Jacob Goldstein. I'm the co host of a new

636
00:32:00,396 --> 00:32:03,356
Speaker 6: show called Business History, and we're bringing you a clip

637
00:32:03,436 --> 00:32:06,316
Speaker 6: right now from an episode we did about a mathematician

638
00:32:06,396 --> 00:32:10,436
Speaker 6: named Jim Simon's. Simons wanted to take human emotions out

639
00:32:10,476 --> 00:32:14,476
Speaker 6: of investing, and after a few early hiccups, including buying

640
00:32:14,556 --> 00:32:17,356
Speaker 6: up all the potatoes in Maine, he created one of

641
00:32:17,396 --> 00:32:20,596
Speaker 6: the greatest money machines in history. I really hope you

642
00:32:20,676 --> 00:32:22,556
Speaker 6: like the clip, and if you want to hear more,

643
00:32:22,636 --> 00:32:25,796
Speaker 6: please check out the show. It's called Business History and

644
00:32:25,836 --> 00:32:28,716
Speaker 6: it's available wherever you're listening right now.

645
00:32:29,676 --> 00:32:32,916
Speaker 8: They were doing what we would call today machine learning.

646
00:32:32,956 --> 00:32:37,316
Speaker 9: A machine learning is like essentially, you build a system

647
00:32:37,316 --> 00:32:39,236
Speaker 9: in a computer. You feeded a bunch of data, and

648
00:32:39,276 --> 00:32:42,236
Speaker 9: the system sort of builds a map of the relationships

649
00:32:42,236 --> 00:32:44,476
Speaker 9: in that data, and then with new data it can

650
00:32:44,556 --> 00:32:48,156
Speaker 9: kind of interpolate or extrapolate and make guesses about.

651
00:32:47,916 --> 00:32:48,836
Speaker 1: What should come next.

652
00:32:49,156 --> 00:32:52,556
Speaker 9: And of course today we have an exciting, maybe misleading,

653
00:32:52,716 --> 00:32:54,756
Speaker 9: confounding term for machine learning.

654
00:32:55,276 --> 00:32:56,076
Speaker 6: We call it AI.

655
00:32:56,396 --> 00:32:59,756
Speaker 8: Exactly right, right, This is still very basic machine learning.

656
00:32:59,956 --> 00:33:03,716
Speaker 8: And the computer at the time keeps making mistakes that

657
00:33:03,756 --> 00:33:07,876
Speaker 8: they didn't really understand. So, for instance, once the computer

658
00:33:08,516 --> 00:33:14,796
Speaker 8: developed a taste for potatoes, main potatoes, the system kept

659
00:33:14,836 --> 00:33:20,756
Speaker 8: buying main potato futures in the state of Maine, potato.

660
00:33:20,356 --> 00:33:22,916
Speaker 1: Potatoes, big harvest next year or whatever.

661
00:33:23,196 --> 00:33:27,236
Speaker 8: Yes, okay, until two thirds of the company's money was

662
00:33:27,276 --> 00:33:30,076
Speaker 8: in potatoes. They were all in potatoes. And they got

663
00:33:30,116 --> 00:33:32,396
Speaker 8: a call from the regulators, the cft A.

664
00:33:32,356 --> 00:33:35,796
Speaker 1: CFPP Commodi Futures Trading Commission.

665
00:33:35,476 --> 00:33:39,356
Speaker 8: Right saying whoa who are you guys, Like, what are

666
00:33:39,356 --> 00:33:41,996
Speaker 8: you doing over there? You have almost cornered the market

667
00:33:42,076 --> 00:33:45,796
Speaker 8: on potatoes. You have to sell. And they ended up

668
00:33:45,836 --> 00:33:50,636
Speaker 8: losing money on the trade because blown out on potatoes,

669
00:33:50,756 --> 00:33:54,436
Speaker 8: they had stopped the computer whatever the computer's plan was.

670
00:33:55,076 --> 00:33:57,836
Speaker 8: But you know, this was just one small weird thing.

671
00:33:58,276 --> 00:34:01,996
Speaker 8: Simon and Baum were really kind of nervous about this

672
00:34:02,036 --> 00:34:04,916
Speaker 8: whole thing. They had taken investors money, they didn't really

673
00:34:04,956 --> 00:34:09,116
Speaker 8: know if their system worked, And as the story gets told,

674
00:34:09,276 --> 00:34:12,436
Speaker 8: they start to like second guess the computer and themselves,

675
00:34:12,436 --> 00:34:14,716
Speaker 8: and they start to think, well, I have this intuition

676
00:34:14,796 --> 00:34:18,516
Speaker 8: that gold's gonna go up because of the geopolitical situation,

677
00:34:18,756 --> 00:34:20,516
Speaker 8: and they'd make some money on that, and then they'd

678
00:34:20,516 --> 00:34:23,756
Speaker 8: lose some money on that, and so by doubting their

679
00:34:23,796 --> 00:34:27,236
Speaker 8: own system, it just wasn't really working. And at that

680
00:34:27,276 --> 00:34:30,076
Speaker 8: point they're just Wall Street investors right with the big computer,

681
00:34:30,316 --> 00:34:33,236
Speaker 8: trying to buy more potatoes, and the man won't let

682
00:34:33,276 --> 00:34:34,156
Speaker 8: them buy potatoes