WEBVTT - Why 2026 Is Beginning to Look Like 1929 (with Andrew Ross Sorkin) 0:00:02.720 --> 0:00:08.440 Bloomberg Audio Studios, podcasts, radio news. 0:00:19.320 --> 0:00:21.880 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:22.200 --> 0:00:24.720 and this is trump Anomics, the podcast that looks at 0:00:24.720 --> 0:00:28.680 the economic world of Donald Trump, how he's already shaking 0:00:28.760 --> 0:00:31.240 up the global economy and modern earth is going to 0:00:31.280 --> 0:00:37.120 happen next this week, we have something a little different, 0:00:37.320 --> 0:00:42.200 a conversation with arguably the world's most famous business journalist 0:00:42.560 --> 0:00:45.920 about something big that happened nearly one hundred years ago 0:00:46.400 --> 0:00:52.839 but could very well be happening again. Thank you very much, 0:00:52.880 --> 0:00:54.320 Andrew Ross Sulkin for joining us. 0:00:54.320 --> 0:00:56.000 Thank you for having me. I'm excited to be here. 0:00:56.040 --> 0:00:58.000 It's quite unusual to have you, not least because you're 0:00:58.000 --> 0:01:00.279 a full time journalist for not just one, but two 0:01:00.440 --> 0:01:04.399 of our leading competitors, The Times and CNBC. But we're 0:01:04.400 --> 0:01:06.720 big enough to take it. But it's also quite rare 0:01:06.760 --> 0:01:11.080 to have someone who's primarily a business journalist. We most 0:01:11.160 --> 0:01:17.360 often have economic policy makers or economists, or political reporters 0:01:17.400 --> 0:01:21.480 for that matter, but you do, in your position, sit 0:01:21.520 --> 0:01:25.000 at the intersection of Wall Street and Washington and media, 0:01:25.080 --> 0:01:27.200 and that is where we're very interested in. We're there 0:01:27.240 --> 0:01:30.920 a lot and I guess most important for this conversation. 0:01:31.080 --> 0:01:34.440 You have written two cracking books about two moments in 0:01:34.520 --> 0:01:37.199 economic history that I'm really interested in, and I think 0:01:37.400 --> 0:01:41.039 many of our listeners are interested in the global financial crisis, 0:01:41.400 --> 0:01:45.800 Too Big to Fail and now most recently nineteen twenty nine. 0:01:46.200 --> 0:01:49.240 You know, obviously nineteen twenty nine and what came after. 0:01:50.080 --> 0:01:52.880 People are drawing more and more parallels with now. And 0:01:52.920 --> 0:01:56.760 we're recording this on Monday, the eighth of June. After 0:01:56.760 --> 0:01:58.720 what is I think now being referred to a healthy 0:01:58.760 --> 0:02:04.080 pullback in stocks, but obviously lots of discussion around how 0:02:04.320 --> 0:02:07.960 vulnerable this stock market might be. But I wanted to 0:02:08.000 --> 0:02:11.720 talk about the book in nineteen twenty nine first, because 0:02:11.760 --> 0:02:13.480 I have to admit, when I heard you were writing 0:02:13.520 --> 0:02:15.120 this book, I did wonder am I going to want 0:02:15.160 --> 0:02:18.160 to read another book on that topic. It's a fantastic 0:02:18.200 --> 0:02:20.600 moment in history if you're interested in economic history. But 0:02:20.639 --> 0:02:22.200 there have been a lot of books I think that 0:02:22.560 --> 0:02:26.480 I love the JK. Galbraith, The Great Crash. I think 0:02:26.520 --> 0:02:28.840 that's just like I've read that fabulous. I can't remember 0:02:28.840 --> 0:02:31.240 how many times. So why did you think there was 0:02:31.280 --> 0:02:33.280 a room for another book? If I can ask you 0:02:33.320 --> 0:02:34.120 the obvious question. 0:02:34.200 --> 0:02:36.840 Now, I, like you, had read a lot of the 0:02:36.880 --> 0:02:40.520 other books as well, and for whatever reason, most of 0:02:40.560 --> 0:02:42.880 the books that have been written about this period, to 0:02:43.000 --> 0:02:45.880 me were written by economists. They were written in a 0:02:45.919 --> 0:02:49.680 particular kind of style. And the kind of book that 0:02:49.880 --> 0:02:54.120 I always love to read more than any is the 0:02:54.120 --> 0:02:56.960 book that takes you inside the room with the characters, 0:02:57.440 --> 0:03:01.840 that doesn't treat things as economic systems or economic cycles 0:03:02.080 --> 0:03:06.359 so much as really examines the people who make decisions 0:03:06.360 --> 0:03:10.960 that I would argue drive the economic systems and economic cycles, 0:03:11.560 --> 0:03:14.919 and put you in a place where you can understand 0:03:15.000 --> 0:03:21.760 their motivations, their incentives, you can understand their morality, whether 0:03:21.840 --> 0:03:27.320 they were aligned or unaligned with reality. And so to me, 0:03:29.040 --> 0:03:32.240 I thought that was the opening. Could you write a 0:03:32.400 --> 0:03:35.560 character driven story that really puts you there in so 0:03:35.640 --> 0:03:38.800 that the reader, the public can really understand what was 0:03:38.880 --> 0:03:44.400 going on, not just in this sort of economic story, 0:03:44.520 --> 0:03:49.120 but in the personal story of these people. And the 0:03:49.240 --> 0:03:51.600 truth is that the challenge was trying to figure out 0:03:52.040 --> 0:03:56.920 could I find enough granular detail from diaries, from memos, 0:03:56.920 --> 0:04:00.720 from notes, from transcripts so that you really could feel 0:04:00.720 --> 0:04:02.120 like you were inside of their head. 0:04:02.520 --> 0:04:04.320 In famously, that is what you did. You were kind 0:04:04.360 --> 0:04:06.560 of the first draft of that bit of history for 0:04:06.640 --> 0:04:10.480 the global financial crisis, or that particular period where the 0:04:10.480 --> 0:04:14.080 bailout tart was being pulled together in two thousand and eight. 0:04:14.480 --> 0:04:17.200 You sort of think of the comparisons between those two books. 0:04:17.200 --> 0:04:19.400 I was talking to someone actually this weekend who happened 0:04:19.440 --> 0:04:22.000 to be quite a senior policy maker during the global 0:04:22.000 --> 0:04:26.120 financial crisis, and he had read nineteen twenty nine, and 0:04:26.200 --> 0:04:27.440 I said, what do you think of it? He was 0:04:27.880 --> 0:04:30.520 really impressed by the degree of detail, as you say, 0:04:30.520 --> 0:04:33.000 and the description of the characters. But he said, the 0:04:33.040 --> 0:04:35.640 real lesson was that it was no one's fault. And 0:04:35.640 --> 0:04:38.120 he didn't think that was true of the global financial crisis. 0:04:38.160 --> 0:04:40.600 But what was the big thing that you took away 0:04:40.600 --> 0:04:42.800 from it once you got to know all these characters? 0:04:42.960 --> 0:04:47.640 Oh goodness. Look, I'm a believer typically, and I probably 0:04:47.720 --> 0:04:50.880 believe this about two thousand and eight as well, not 0:04:51.000 --> 0:04:53.840 that it's nobody's fault, but in fact that when you 0:04:53.880 --> 0:04:57.120 have a crisis of this kind of magnitude, it's everybody's fault. 0:04:57.960 --> 0:05:00.839 What is interesting, by the way, to me about nineteen 0:05:00.880 --> 0:05:04.440 twenty nine, Oddly enough, when you get to this issue 0:05:04.480 --> 0:05:08.000 of fault or blame. If you read the diaries of 0:05:08.120 --> 0:05:12.640 people who lost a fortune in nineteen twenty nine, lost 0:05:12.680 --> 0:05:16.640 their home, had the margin call most of the diaries 0:05:16.680 --> 0:05:21.640 suggest that they blame themselves. They actually were not pointing fingers, 0:05:21.640 --> 0:05:25.440 They were not blaming others. They were saying, I shouldn't 0:05:25.480 --> 0:05:29.120 have done this. I had The phrase fomo didn't exist 0:05:29.200 --> 0:05:31.479 back then, but they all had fomo. They all this 0:05:31.600 --> 0:05:35.559 fear of missing out. And that was a real poll 0:05:35.640 --> 0:05:37.479 for so many people who got into the market for 0:05:37.520 --> 0:05:39.400 the very first time, and some of them felt that 0:05:39.440 --> 0:05:41.520 they got suckered a little bit by a broker or 0:05:41.560 --> 0:05:43.920 two who had peddled them something, but they really thought 0:05:43.960 --> 0:05:47.560 it was their own doing, which is so very different 0:05:48.120 --> 0:05:51.080 than the feelings in two thousand and eight, which was 0:05:51.440 --> 0:05:56.080 to finger point at everybody but yourself, I should say, 0:05:56.200 --> 0:06:00.120 just caveat in fairness. By the time we got in 0:06:00.200 --> 0:06:03.360 nineteen thirty two in the United States, if you read 0:06:03.440 --> 0:06:06.760 a lot of the same diaries, the finger pornting has 0:06:06.760 --> 0:06:10.200 now begun because we've now moved to a whole new 0:06:10.760 --> 0:06:13.719 level of unemployment twenty five percent unemployment in the United States, 0:06:13.760 --> 0:06:15.960 and the economy had faltered to such a point where 0:06:16.000 --> 0:06:18.919 I think everybody was just grasping it straw us. But 0:06:19.160 --> 0:06:21.719 in the immediate aftermath, in terms of faults, when you 0:06:21.720 --> 0:06:25.320 say who is to blame, people blame themselves. 0:06:25.560 --> 0:06:27.120 One of the things that people mean, I think when 0:06:27.160 --> 0:06:30.040 they say it wasn't their fault was that the system, 0:06:30.200 --> 0:06:33.320 you know, the Federal Reserve had barely just begun to exist. 0:06:34.040 --> 0:06:38.120 The infrastructure that is that was there to some extend 0:06:38.160 --> 0:06:40.320 in two thousand and eight, and then they had to 0:06:40.400 --> 0:06:42.440 kind of build some of their own things. All of 0:06:42.480 --> 0:06:44.680 that had yet to be built again. To me, in 0:06:44.760 --> 0:06:47.400 the mind of an economist or regulator. 0:06:47.520 --> 0:06:52.279 Literally no rules. Insider trading was legal, There was no 0:06:52.600 --> 0:06:56.680 sec the investment banks and commercial banks were attached at 0:06:56.720 --> 0:06:59.920 the hip. This was before Glass Steegel. There were no 0:07:00.120 --> 0:07:03.680 capital requirement rules from the Bank Act, which came in 0:07:03.760 --> 0:07:07.320 nineteen forty. None of it existed. And in fact, one 0:07:07.360 --> 0:07:10.640 of the things that fascinated me and I went searching 0:07:10.720 --> 0:07:12.840 for it. You know, today we look at a lot 0:07:12.880 --> 0:07:15.320 of the things that happened in the twenties and you say, 0:07:15.600 --> 0:07:19.320 this is clearly wrong. This is should be legal, if 0:07:19.360 --> 0:07:23.080 not immoral, And I was searching for somebody just one 0:07:23.240 --> 0:07:28.360 person who decided contemporaneously in the moment not to participate 0:07:28.400 --> 0:07:31.320 in some of the manipulation that was happening, and I 0:07:31.360 --> 0:07:34.120 couldn't find it. I thought there would be somebody who 0:07:34.160 --> 0:07:36.120 would be raising their hands saying, oh, I cannot be 0:07:36.200 --> 0:07:41.560 part of this wildness, is immoral behavior. But it wasn't 0:07:41.640 --> 0:07:44.160 the case. You know, the markets are a funny thing. 0:07:44.200 --> 0:07:46.760 It's always been this battle of wits, and when you 0:07:46.840 --> 0:07:50.120 have no rules. To the extent that there was manipulation, 0:07:50.240 --> 0:07:52.480 it was really people who thought that they were just 0:07:52.640 --> 0:07:54.680 outwitting the other side. 0:07:54.960 --> 0:07:57.760 If it's not against the law, then people do feel 0:07:57.800 --> 0:08:01.040 even if there's just something iffy about it, they will 0:08:01.080 --> 0:08:02.680 often feel completely justified. 0:08:02.720 --> 0:08:04.880 I think the truth is they don't question what they're 0:08:04.880 --> 0:08:08.320 doing because it gets back to this idea of wits 0:08:08.520 --> 0:08:12.320 or trying to outsmart the other person. If you think 0:08:12.360 --> 0:08:16.960 about it long enough, whoever is buying a stock in 0:08:17.000 --> 0:08:20.080 that moment has to think that they're smarter than the 0:08:20.120 --> 0:08:22.600 person selling them the stock, and whoever selling them the 0:08:22.600 --> 0:08:24.880 stock has to think that they are smarter in that 0:08:24.920 --> 0:08:27.720 moment than the person that happens to be buying the stock. 0:08:27.760 --> 0:08:30.960 And I think that's pretty much what the stock market is. 0:08:31.080 --> 0:08:37.160 And so when you think about how philosophically people think, 0:08:38.320 --> 0:08:42.199 they think they are in the business of outsmarting somebody else. 0:08:42.360 --> 0:08:43.679 And you write about in the book, there was quite 0:08:43.679 --> 0:08:45.400 a lot of discussion about should we clamp down on 0:08:45.440 --> 0:08:49.359 speculation everything else. All the discussion now is about removing 0:08:49.440 --> 0:08:54.520 guardrails and reducing regulation, freeing up banks, well, particularly from 0:08:54.600 --> 0:08:59.880 the ministration, but freeing up banks, not having crypto be 0:09:00.160 --> 0:09:01.400 subject to these regulations. 0:09:01.400 --> 0:09:05.120 Oh, we are dismantling the guardrails. I mean, it is 0:09:05.200 --> 0:09:08.280 happening right in front of us. You know, in the 0:09:08.320 --> 0:09:11.320 past week, I don't know if you saw Goldman Sachs 0:09:11.800 --> 0:09:16.720 and Morgan Stanley, which are underwriting the SpaceX IPO. Their 0:09:16.840 --> 0:09:22.040 analysts are now putting out research internally that's been used 0:09:22.080 --> 0:09:26.600 to sell to sell the IPO, that is bullish to 0:09:26.640 --> 0:09:30.280 the point that they're putting out projections about where this 0:09:30.360 --> 0:09:35.360 company could be in twenty thirty and twenty forty. But 0:09:35.600 --> 0:09:40.720 after the dot com bust, we actually changed the law 0:09:41.240 --> 0:09:47.240 so that bank analysts, who arguably were conflicted because of 0:09:47.280 --> 0:09:50.800 their relationship to the underwriter of a stock, we're limited 0:09:50.960 --> 0:09:52.760 in terms of what they could do. What they could 0:09:52.760 --> 0:09:55.640 say how the bank could use their research and things 0:09:55.720 --> 0:09:59.040 like that, and yet we've now changed the rules again 0:09:59.320 --> 0:10:03.040 all over. I think when you think about crypto whether 0:10:03.400 --> 0:10:07.199 or when you think about the idea that people are 0:10:07.280 --> 0:10:12.280 trying to tokenize different private investments or take private credit 0:10:12.360 --> 0:10:15.200 or private equity or venture capital and wrap it in 0:10:15.280 --> 0:10:19.000 a public wrapper that looks like a stock. I mean, 0:10:19.120 --> 0:10:21.760 all of these things are new innovations, and by the way, 0:10:21.760 --> 0:10:25.200 they may be good innovations to some degree, but they 0:10:25.520 --> 0:10:28.880 don't come with what I would imagine to be the 0:10:28.920 --> 0:10:34.240 requisite guard rails to prevent things from going over the 0:10:34.280 --> 0:10:36.719 cliff and the other pieces. You're bringing new investors in, 0:10:36.760 --> 0:10:40.800 and anytime you bring new investors into the market, there 0:10:40.800 --> 0:10:44.200 should be a little bit of handholding. Maybe that sounds paternalistic, 0:10:44.200 --> 0:10:47.240 but I think that's the lesson of the last hundred years. 0:10:47.360 --> 0:10:51.960 That's such a parallel with the democratization of finance that 0:10:52.040 --> 0:10:55.920 you saw in The Leader and the sort of late twenties. 0:10:55.600 --> 0:10:59.800 Late twenties. That phrase, by the way, democratization of finance 0:11:00.600 --> 0:11:04.360 was used repeatedly in the late twenties. By the way, 0:11:04.360 --> 0:11:07.400 it was just used last week by Jamie Diamond when 0:11:07.400 --> 0:11:10.760 he was talking about the SpaceX IPO and the idea 0:11:10.800 --> 0:11:14.600 that that particular IPO is now going to a lot, 0:11:15.120 --> 0:11:18.720 a lot more shares for retail investors than just about 0:11:18.720 --> 0:11:19.920 any IPO in history. 0:11:20.240 --> 0:11:22.040 And when you look at that history, it does seem 0:11:22.040 --> 0:11:24.760 to be just when you open up everything. We saw 0:11:24.800 --> 0:11:27.160 that four to one k's last year opened up to 0:11:27.200 --> 0:11:31.120 crypto and private equity is now more accessible, as you said, 0:11:31.160 --> 0:11:34.720 in various ways, and all of these IPO is coming 0:11:34.720 --> 0:11:36.600 down the track, and the big debate about when they 0:11:36.640 --> 0:11:39.600 can get into the indusicy. You must have been found 0:11:39.640 --> 0:11:42.720 it more and more uncanny looking at some of the dvs. 0:11:42.320 --> 0:11:46.360 But component parts. I mean, the last year, I even 0:11:46.360 --> 0:11:49.320 said the last five years. I remember when the game 0:11:49.400 --> 0:11:54.160 stop scenario was happening twenty twenty, twenty twenty one, I 0:11:54.200 --> 0:11:57.240 was thinking, oh my goodness, we are living in nineteen 0:11:57.280 --> 0:12:00.559 twenty nine, and there are so many elements to our 0:12:00.679 --> 0:12:05.319 market today that have these sort of eerie parallels. That's 0:12:05.360 --> 0:12:07.520 not to say that we're going to crash tomorrow, but 0:12:07.640 --> 0:12:11.400 it does suggest that memories are short, and if anything, 0:12:11.520 --> 0:12:15.000 the goal of this book I always think to myself 0:12:15.320 --> 0:12:19.320 was I never wanted to write a sequel too big 0:12:19.360 --> 0:12:22.120 to fail. I was considered this the prequel. So if 0:12:22.120 --> 0:12:25.600 you can remind people of what actually happened in the past, 0:12:26.040 --> 0:12:30.280 maybe it will prevent people from tipping over in the future. 0:12:30.440 --> 0:12:33.719 The other big parallel, obviously, is the role of technology. 0:12:33.960 --> 0:12:36.839 We talk about speculative fever, but it was around as now. 0:12:37.240 --> 0:12:39.960 A lot of it was around a real technological innovation, 0:12:40.120 --> 0:12:44.480 many technological innovations that were going to be pretty transformative 0:12:44.800 --> 0:12:47.680 for the economy. I mean, you had automobiles, you had 0:12:48.120 --> 0:12:52.400 radio electrification, all of it, people the Limberg boom, you know, 0:12:52.440 --> 0:12:57.400 people getting on planes. And yet even with a transformative technology, 0:12:57.880 --> 0:13:01.240 you still had, as you described, the RCA stock which 0:13:01.320 --> 0:13:05.120 rose enormously ended up at ninety seven percent. 0:13:05.200 --> 0:13:06.679 It was of its time. 0:13:06.920 --> 0:13:09.720 So how did you see that sort of parallel, because 0:13:09.760 --> 0:13:11.160 it seemed to me. I mean, one of the things 0:13:11.200 --> 0:13:13.439 I thought was very striking is that was a technology. 0:13:13.920 --> 0:13:17.520 We can talk about the now, the concentration of you know, 0:13:17.600 --> 0:13:19.600 how much of the returns in the stock market this year, 0:13:19.600 --> 0:13:21.320 and how much of the economy has been driven by 0:13:21.320 --> 0:13:26.760 the AI boom, but electrification, with probably some exceptions people, 0:13:26.800 --> 0:13:29.320 I assume we're pretty positive about this stuff. It was 0:13:29.360 --> 0:13:32.640 in liberating them, whereas this technology people are getting more 0:13:32.679 --> 0:13:37.240 and more frightened of maybe even angry about. 0:13:37.280 --> 0:13:39.440 Oh look, there's all sorts of questions about AI. But 0:13:39.559 --> 0:13:41.560 I do think that every time we've gone through a 0:13:41.600 --> 0:13:46.560 technological revolution, there has been a shocking amount of speculation. 0:13:47.280 --> 0:13:53.720 The question is not whether you can prevent speculation. I 0:13:53.720 --> 0:13:56.160 would argue to you, by the way, that you need 0:13:56.200 --> 0:14:00.560 speculation in the system. That speculation, to some degree built America. 0:14:01.080 --> 0:14:03.120 I mean, it really did. I was just talking to 0:14:03.160 --> 0:14:05.600 Jeff Bezos about two weeks ago. We were talking about 0:14:05.720 --> 0:14:08.000 whether we were in a bubble, and he was making 0:14:08.000 --> 0:14:10.959 the argument that when you think about sort of the 0:14:11.080 --> 0:14:16.960 progress technological progress of humanity, it has almost invariably come 0:14:16.960 --> 0:14:18.440 with a bubble, even if you go back and look 0:14:18.440 --> 0:14:22.760 at the biotech bubble, the most recent one. And anytime 0:14:22.760 --> 0:14:25.880 there's a bubble, there's lots of good investment and lots 0:14:25.920 --> 0:14:30.800 of bad investment. Questions, can you avoid it from becoming 0:14:31.120 --> 0:14:34.200 too much? But I think you almost have to embrace 0:14:34.960 --> 0:14:40.440 some semblance of it, as sort of backwards sounding as 0:14:40.480 --> 0:14:42.200 that may very well be. 0:14:42.960 --> 0:14:45.160 As an economist, you know, that was one of the 0:14:45.160 --> 0:14:47.640 big lessons. You know, this thing that still debated about 0:14:47.640 --> 0:14:50.720 whether Alan Greenspan was right to say easier to clean 0:14:50.800 --> 0:14:53.680 up after a bubble is burst than to try and 0:14:53.720 --> 0:14:56.400 stop it going up. You basically still believe that, even 0:14:56.440 --> 0:14:57.440 though we went through. 0:14:58.640 --> 0:15:01.760 I believe it. I I just think that the question 0:15:01.840 --> 0:15:04.480 is can you prevent the bubble from getting too big? 0:15:06.240 --> 0:15:09.160 And can you actually prevent a bubble on the front end. 0:15:10.120 --> 0:15:14.000 So there's always two sort of big policy choices when 0:15:14.040 --> 0:15:16.360 a crisis comes. One is can you prevent it from 0:15:16.360 --> 0:15:20.080 happening at all? And if you can't prevent it from 0:15:20.080 --> 0:15:22.400 happening at all and it does pop, then what you 0:15:22.560 --> 0:15:25.000 do about it. I think that we could do a 0:15:25.000 --> 0:15:28.200 better job on the front end, and I know we 0:15:28.240 --> 0:15:31.000 could do a better job on the back end. But 0:15:31.080 --> 0:15:34.800 the idea of eliminating these bubbles entirely, I think is 0:15:35.120 --> 0:15:37.480 a misguided effort. 0:15:37.560 --> 0:15:40.760 Ultimately, I think that's probably right, but I think that is. 0:15:40.720 --> 0:15:42.640 Not politically popular thing to say no. 0:15:43.000 --> 0:15:45.480 But I think it's more again with the sort of 0:15:45.480 --> 0:15:47.960 economics hat on, what you care about is not the 0:15:48.000 --> 0:15:51.320 speculation or even the bubble, but whether it infects the 0:15:51.320 --> 0:15:54.520 broader economy. And that's obviously what you saw in the 0:15:54.560 --> 0:15:57.160 thirties and that was because of the failure of credit 0:15:57.240 --> 0:15:59.160 and all of these things. You know, if you look 0:15:59.240 --> 0:16:01.600 nineteen eighty seven, which was the kind of famously the 0:16:01.640 --> 0:16:03.680 first time sort of in modern times where you'd have 0:16:03.760 --> 0:16:06.720 that sort of spiral of selling that people experienced, by 0:16:06.720 --> 0:16:09.160 the end of there was no impact on the economy. 0:16:09.440 --> 0:16:11.560 The market was barely affected by the end of the year. 0:16:11.800 --> 0:16:14.600 Even the bursting of the tech bubble in lots of countries, 0:16:14.640 --> 0:16:16.800 there was no recession. There was a very mild recession 0:16:17.360 --> 0:16:20.200 in the US. So a lot of it is about leverage, 0:16:20.240 --> 0:16:22.800 and you can reduce the amount of leverage that is 0:16:22.840 --> 0:16:25.200 built into a bubble or that speculator way. 0:16:25.320 --> 0:16:26.840 And I'm going to argue against my own book for 0:16:26.880 --> 0:16:30.200 a moment, you could make the same nineteen eighty seven 0:16:30.280 --> 0:16:34.240 argument to some degree about nineteen twenty nine. By the 0:16:34.360 --> 0:16:36.280 end of the year, if you had closed your eyes 0:16:36.320 --> 0:16:39.400 and didn't know what happened during the year, the stock 0:16:39.480 --> 0:16:43.720 market looked like it had only fallen seventeen percent, And 0:16:43.760 --> 0:16:45.720 if you just looked at it that way, you'd say, oh, 0:16:46.400 --> 0:16:49.360 not a big deal, what a blip. The problem was 0:16:49.800 --> 0:16:53.320 that ordinary Americans had gone to their brokerage house and 0:16:53.640 --> 0:16:57.160 we're giving. They were getting ten to one leverage, and 0:16:57.240 --> 0:17:01.440 so when the fifty percent decline happened between October and November, 0:17:02.440 --> 0:17:04.280 it wasn't that they could ride it out. It was 0:17:04.359 --> 0:17:07.199 that the banks were calling and taking their homes. So 0:17:08.119 --> 0:17:11.840 it is interesting sort of how you can ride out 0:17:12.040 --> 0:17:15.560 or not a crisis, and then that crisis what it 0:17:15.600 --> 0:17:19.160 does to confidence, which to me is ultimately the first 0:17:19.200 --> 0:17:21.399 domino and a sequence of dominoes that leads to the 0:17:21.400 --> 0:17:26.000 Great Depression. It was not preordained in nineteen twenty nine 0:17:26.200 --> 0:17:29.439 that you ultimately had to get to a nineteen thirty 0:17:29.440 --> 0:17:33.280 two style twenty five percent unemployment Great Depression. 0:17:43.720 --> 0:17:47.399 Because everybody's talking about how dependent the economy is on 0:17:48.080 --> 0:17:52.119 the AI boom and or expectations around AI and the 0:17:52.160 --> 0:17:55.399 productivity associated with that. And I think we just model 0:17:55.560 --> 0:17:58.560 to your point as a twenty percent fall in the SMP, 0:17:58.720 --> 0:18:01.399 which is kind of similar to the tech bubble. But 0:18:01.440 --> 0:18:06.320 then that also affecting investment in the US, physical investment, 0:18:06.480 --> 0:18:09.640 which is obviously so much in AI now, and general 0:18:09.640 --> 0:18:12.719 confidence and credit. If you source that I kind of declined. 0:18:13.000 --> 0:18:14.359 Do you worry about it infecting me? 0:18:14.840 --> 0:18:17.359 I worry, but I worry about two things. In the 0:18:17.400 --> 0:18:21.399 context of AI, I worry about are we in an 0:18:21.440 --> 0:18:26.320 AI bubble, and that everybody can't afford effectively all the 0:18:26.359 --> 0:18:29.000 infrastructure investment and everything else that comes along with that, 0:18:29.320 --> 0:18:32.240 and it somehow pops along the way people don't find 0:18:32.240 --> 0:18:34.760 the productivity that they were hoping for. Whether it's some 0:18:34.840 --> 0:18:38.480 kind of technological shift that allows all these models to 0:18:38.520 --> 0:18:40.960 work without all of the chips and data centers on 0:18:40.960 --> 0:18:46.400 one end. But I also worry about what happens in success, 0:18:47.119 --> 0:18:49.840 and I don't know if you've modeled that out, because 0:18:49.840 --> 0:18:53.440 in success it probably means that we have to have 0:18:53.560 --> 0:18:57.680 a shocking amount of unemployment. I would think to make 0:18:57.760 --> 0:19:01.960 up to make those productivity means that would be necessary 0:19:02.400 --> 0:19:05.600 to justify those valuations, a lot of people would have 0:19:05.600 --> 0:19:07.840 to lose their jobs. Now, if so many people lose 0:19:07.880 --> 0:19:10.520 their jobs, who is going to pay for all of 0:19:10.520 --> 0:19:13.679 this stuff? So to me, there's sort of a double 0:19:13.800 --> 0:19:18.080 edged bubble in the AI world that is different than 0:19:18.119 --> 0:19:19.520 some of the previous ones we've lived through. 0:19:19.520 --> 0:19:20.680 And that was a little bit while I was trying 0:19:20.680 --> 0:19:22.840 to get to about the unpopularity, because I do think 0:19:22.880 --> 0:19:26.600 there's a possibility that you get the backlash before the 0:19:26.600 --> 0:19:27.159 product of it. 0:19:27.240 --> 0:19:29.680 I mean, one of the ways it's having it right now. 0:19:29.440 --> 0:19:31.560 One of the ways the bubbles might burst. You probably 0:19:31.560 --> 0:19:34.280 saw there was an NBC poll that's like, now AI 0:19:34.400 --> 0:19:38.760 is more unpopular than Donald Trump and Ice, but still 0:19:38.800 --> 0:19:41.239 just slightly. The only things that are more unpopular than 0:19:41.280 --> 0:19:43.919 AI now is Rahm and the Democratic Party. 0:19:45.000 --> 0:19:48.280 I mean, look at look at all of those commencement speeches. Yeah, 0:19:48.640 --> 0:19:50.439 in the United States in the last couple of weeks, 0:19:50.480 --> 0:19:53.879 every time the word AI was uttered, you know, the 0:19:53.960 --> 0:19:58.320 kids were booing, and they were booing because they're demonstrably 0:19:58.359 --> 0:20:00.879 worried about their own future and you and that is visceral. 0:20:00.960 --> 0:20:02.879 You can feel it when you talk to these young people. 0:20:02.960 --> 0:20:05.760 I mean, is that what could potentially be the trigger 0:20:05.920 --> 0:20:08.360 for the bubble bursting. If it actually looks like it's 0:20:08.400 --> 0:20:12.320 not going to be politically tolerable to have the kind 0:20:12.359 --> 0:20:14.639 of productivity growth or at least in the on the 0:20:14.680 --> 0:20:18.480 timeframe that's needed for these valuations, people start to question, 0:20:18.560 --> 0:20:21.160 you know, if you have regulation coming in, if it's 0:20:21.200 --> 0:20:24.000 just not going to be possible to realize all of 0:20:24.040 --> 0:20:27.120 these miracles. Is that the thing that people could say, oh, 0:20:27.119 --> 0:20:29.000 hang on, this isn't going to happen, not because it 0:20:29.040 --> 0:20:31.639 couldn't happen, but because politically it's going to be impossible. 0:20:31.640 --> 0:20:34.480 If it's going to be politically impossible, I actually wonder 0:20:34.520 --> 0:20:37.400 whether technologically it's not going to happen as fast as 0:20:37.440 --> 0:20:40.200 people think. You know, Bloomberg just did a conference where 0:20:40.240 --> 0:20:43.399 they spoke with dari Amude's sister and she asked to 0:20:43.480 --> 0:20:47.760 unemployment and here's anthropic. They're going public very soon. They've 0:20:48.000 --> 0:20:50.439 they've warned people that you know, there's going to be 0:20:50.600 --> 0:20:53.680 massive job losses. And she was asked, quite directly, does 0:20:53.720 --> 0:20:57.640 she think that there's been job losses yet, and effectively said, no, yes, 0:20:57.720 --> 0:21:01.840 we've seen job lossing nowouncements and things like that, and 0:21:01.880 --> 0:21:05.280 even companies like Square under Jack Dorsey have said we're 0:21:05.359 --> 0:21:08.040 laying off people because of AI. But I think most 0:21:08.080 --> 0:21:13.240 people have yet to find actually the Roi on Ai, 0:21:14.400 --> 0:21:18.280 the Roi on Ai so much so that they are 0:21:18.920 --> 0:21:19.600 firing people. 0:21:20.560 --> 0:21:21.960 No. I think that's what we find as well. And 0:21:21.960 --> 0:21:25.040 we also we do all these things on passing the 0:21:25.640 --> 0:21:29.280 earning statements and other things, and you know, there does 0:21:29.320 --> 0:21:31.080 seem to be a lot of kind of AI washing 0:21:31.160 --> 0:21:33.400 and you don't want to say restructuring you say, you know, 0:21:33.440 --> 0:21:38.560 we're discovering all these benefits from AI thinking about how that, 0:21:38.720 --> 0:21:43.159 however it happens if you do have a crash or 0:21:43.480 --> 0:21:45.840 a financial crisis related to all the things that we've 0:21:45.880 --> 0:21:48.879 talked about. I was really struck, and this may be 0:21:48.920 --> 0:21:51.119 partly from my perspective, because I saw a sort of 0:21:51.200 --> 0:21:53.639 dry run for the global financial crisis sitting in the 0:21:53.720 --> 0:21:56.840 US Treasury dealing with Asia Financial Crisis and LTCM back 0:21:56.840 --> 0:21:58.680 in the late nineties. Because I was talking to you, 0:21:58.760 --> 0:22:01.800 I went back to the Too Big To and reading 0:22:01.840 --> 0:22:05.520 that description of these policy makers, many of them, like 0:22:05.520 --> 0:22:09.040 Tim Geitner, had basically been lifelong public service, just grappling 0:22:09.080 --> 0:22:12.439 with what the facts were and trying to come up 0:22:12.480 --> 0:22:16.040 with the right plan and then managing just about to 0:22:16.080 --> 0:22:19.679 get bipartisan support to do things. And that seemed almost 0:22:19.720 --> 0:22:23.080 as far away in history as the nineteen twenty nine. 0:22:23.240 --> 0:22:26.680 It feels like a completely another world, certainly another Washington. 0:22:27.160 --> 0:22:30.200 So when you are writing your book about the next crash, 0:22:30.520 --> 0:22:32.640 what's the policy making piece going to look like? Because 0:22:32.640 --> 0:22:34.200 it doesn't feel like it's going to look like that. 0:22:34.640 --> 0:22:39.440