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A
You're about to make a trade which you do you listen to. Is it get optioning those options or let's do a little research. Learn more@finra.org TradeSmart the Big Short the fantastic best selling book on the 2008 financial crisis has now been out for 15 years and the blockbuster movie adaptation just had its 10th anniversary. So today we revisit my conversation with author Michael Lewis on the epic story on whether the great financial Cris crisis could even have happened had today's social media existed then and on whether institutions like the Fed and the treasury are still capable of fixing another Crisis. For Friday, January 2nd, it's Brew Markets Daily and I'm Anne Barry. History doesn't repeat itself, but it often rhymes. So said Mark Twain. It started with housing. In the early 2000s, home prices in the US were soaring and banks made it easier than ever to borrow, even offering mortgages to people with shaky credit and very low likelihood of ever repaying them. So called subprime loans, often enticing those borrowers with low teaser interest rates that ballooned later. Now those risky loans were bundled into complex financial products called mortgage backed securities and sold to investors around the world. As long as home prices kept not just rising, but rising quickly, everyone made money. But by 2006, the housing boom peaked as house price growth slowed and then prices started to fall. Millions of homeowners couldn't refinance or make their payments and those complex mortgage backed securities became toxic. Banks that held or insured them started to take massive losses and by early 2007 the system was cracking with subprime mortgage lenders like New Century Financial Corporation filing for bankruptcy. Bear Stearns, one of Wall Street's oldest firms, collapsed in March 2008, bought in tatters by J.P. morgan in a government assisted deal. And in September 2008, Lehman Brothers, founded in 1850, filed for bankruptcy, the largest in U.S. history. Merrill lynch was sold overnight to bank of America. Aig, the world's biggest insurer, had to be rescued by the federal government. Even stalwarts like Citigroup and Morgan Stanley teetered on the edge. Credit markets froze, stock prices plunged and global trade slowed to a crawl. The crisis wiped out trillions in wealth and triggered the deepest recession since the 1930s. The US government and the Federal Reserve coordinated with bailouts and liquidity infusions to stabilize the financial system. Now the 2008 crisis wasn't just about bad loans. It was about inequality, of access to the American dream of home ownership, about incentives shaping behavior and about how regulations had not kept up with boundary pushing complexity on Wall Street. Now, one book that shone a light on some extraordinary personalities involved in the crisis with page turning, storytelling and pace was the Big Short, written by Michael Lewis, author of Liars Poker and published in 2010. Back in October to celebrate its 15 year anniversary and see which part of history might be rhyming today on I sat down with Michael Lewis. Coming up, our conversation. But first, a word from our sponsor, Vanguard to all the financial advisors listening. Let's talk bonds for a minute. Capturing value and fixed income is not easy.
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Vanguard Marketing Corporation Distributor now let's listen.
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A
Back to my conversation with Michael Lewis, the author of the big short. Michael Lewis, it's 2008. Everyone's in denial until it's too late in the run up to the crisis. Talk to me about the psychology of investors then and talk to me about the psychology of investors right now in this market.
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C
I think very different actually. But then especially when the. So where it gets interesting is when the banks start announcing losses in 2007 and the losses are perplexingly huge. It's like we lost $25 billion or Morgan Stanley announcing they lost $10 billion on a single trade. And it was like what is this? And there was a growing awareness that the banks were no longer the smart money. When I worked on Wall Street, I worked for the proprietary trading side of Solomon Brothers Prop Desk, the prop John Meriwether. I was the sales arm. So my job was to take these complicated bets they wanted to make and find counterparties, people who would take the other side of them. It was almost certainly stupid to take the other side of the Salomon Brothers trading firms bets that they were the smart money at the table. And so I had just kind of like I Think everybody assumed that if there was anything wrong with these banks, they were a little predatory and that you gotta be wary in their presence. If they want you to do something, you shouldn't do it.
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A
Right.
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C
And it turns out that, no, they're actually doing something incredibly stupid. And the best thing you could be is on the other side of their bets. Something radically had changed. And you could see, like, what are these places? Are they going to survive? And so once you cite the problem inside the banking system, it sort of like never goes away. So what was, I think nobody understood like why they had these problems, where this risk had come from. And the other thing was, the other wrinkle to 2008 was once people figured out, okay, they've made all these bad subprime loans and obviously kept some of them on their books, why, who knows? But they had. But they'd also created these diabolical instruments, credit default swaps, to replicate not just the ordinary subprime loan, but the worst of the subprime.
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A
The worst of the worst.
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C
Why do they replicate the worst of the worst? And they could replicate. And once you created that instrument, there was possibly infinite exposure. Like you could guess roughly how much real lending there was, but you couldn't guess how many of these side bets had been made.
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A
Right.
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So then, so at that point, nobody trusts anybody is what's going, what starts to happen. And what interested me, I don't know if it had just been that, if it had just been banks got stupid, I would never have had a book. It was interesting that other people got smart, that there were people who figured out what was going on well before anybody else figured out and took the smart side of the bet.
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A
Let's talk about one of those individuals who did that, Michael Burry. Okay, so there's a picture in the book. I've got my copy of the book. Everyone with my sticky notes. The big short. There's a scene early on. Michael Burry is either a medical resident or a doctor.
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C
Yeah.
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And he's spending the small hours, the wee hours of the morning, writing on Internet message boards. This is the late 1990s. What he's learned about. Do you remember writing.
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C
Yeah, yeah, yeah, yeah.
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He predated Reddit by more than five years. Yeah, right. Talk to me about the Michael Burry's of the world being the smart guys who are on the other side of the Wall street bets. And then what you are feeling as you watch the meme stocks evolve.
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C
Oh, well, so Michael Burry, I mean, he's a funny character. Because he set out to be a doctor.
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Yeah.
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And then he realized, I mean, I think what he says to me at one point is, you know, I was going to be a doctor, but I care about people. But not really. Like he basically didn't like people. And it's a little hard to go be a doctor when you don't like people. At the same time, he was obsessed with the market. I mean, he had a mind for the market and he is, you know, Warren Buffett was one of his heroes and he started to just make his own investments and post the reasoning behind his investments. And serious, big time New York money managers found him and staked him to go be Michael Burry. And what they did, but what they didn't realize is what they, I think they thought they were getting. A really shrewd stock market investor. That's what he was. And he wasn't a short seller. It was like he was a, a shrewd value investor. Right. And then one day they wake up and he's made a billion something dollars worth of bets against the subprime mortgage market, which he is, he. And he, I mean, really interestingly, a loan of the characters, actually not just in the book, but I think in the world. Dug into the actual security, into the mortgage bonds of the CDOs and found the actual loans and figured out that there was a moment when the crisis would start to manifest. And it was a moment when, when the teaser rates that were offered to subprime borrowers were gonna reset at higher levels and they would default. And he was absolutely right about this, but nobody believed him. And it created a huge mess in his life and it poisoned for him forever his relationship with investors. Like he doesn't take other people's money now, doesn't wanna be answerable, doesn't wanna be answerable to anybody else. So the Meme stocks, a different thing, right?
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Different thing. But let's talk about where it's similar, right? You've got Reddit, so you've got the ultimate message. More highly engaged investors about 2021.
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C
But if you put Michael Burry in a room with the Meme stock crowd, they talk right past each other. Because Michael Burry thought there was some ultimate truths to be gleaned from numbers.
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Absolutely.
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And the Meme stock, he was like, which way is this herd going? And we can drive it that way. It's like, it's so divorced from the principles of value investing, this Meme stock movement, it is, it doesn't matter what it's worth. It Matters where we go. And it's a social event more than a financial event. So that's the difference. Right. So Michael Berry is as antisocial a human being as ever walked the earth. Like he doesn't want to be around other people, he doesn't want to talk to other people. His whole social life has lived through email. He doesn't think it matters what other people are doing. It's like what he thinks. All that matters with meme stocks is what other people are doing.
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But Michael Burry did want to share his perspectives with other people. He did choose to go online and find a community of folks with whom he would, you know, write out. These are the stocks I think are undervalued. I guess the question is being online helped those big money guys find him.
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C
That's true.
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So now we've got the Reddit's the world and as a result flows of opinion, I won't call it information. Right, Flows of opinion at unprecedented speed.
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C
Yeah.
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If 2008 had happened in a world where everyone was online as much as they are, where social media where X. You know, we saw this in 03 when people were running on the banks in Silicon Valley. Banks wake 2008 happened. Now with social media where it's at, what do you think would happen?
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C
You know, this is a really interesting question. If you do that, you change 2008. So it has 20, 25 social media, I mean, almost for sure. The subprime problem doesn't build up to be as big as it is because people are going to be exposing it. You'll be reading online about the stripper in Las Vegas who just got her 25th loan. Right. So I think it might have helped actually. I mean the effect of social media, I mean, does a lot of things, but it does introduce some transparency. So I think the opacity, and it was opacity that made that event possible. The opacity was partly complexity, it was partly people not paying attention. So I think it wouldn't, it would have played out. It might not have been such a big problem. Yeah. So I don't think, when I think of what now rhymes with. It doesn't feel so much like 2008, it feels more like 1999. It feels more like the Internet bubble with a twist. So it feels what's going on in the markets, everything being concentrated around this new thing that God knows what AI, God knows what the financial prospects are. People say all kinds of things and it could be anything. Feels very like what people did with the Internet. Like it's going to change everything. Maybe true, but we're going to make a lot of money. I don't know. I don't know how you're going to make a lot of money. They know it has a really good story. And the difference now is 2008 gave us a world of intense mistrust of institutions, banks, governments. Bitcoin was born out of 2008. And this mistrust, combined with anger about how it played out and the anger that's found our way into our politics has led to an erosion of the institutions. The Federal Reserve right now is. Its independence is really threatened. American finances are much worse. If a crisis happens, it's like, what's going to put it out? I think that's the connection in 2008 is it was the beginning of the erosion of the mechanisms to deal with a crisis. And oddly, because it actually dealt with the crisis pretty reasonably, it stopped the depression from happening, I think. But the takeaway for the political takeaway is you can't trust these places.
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And what would the coalition look like, right, of big institutions, both private and public sector, to come together right now?
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Yeah, I don't know how it would happen. I mean, there's no coming together right now. So if 2008 happened now, would the Fed have the. Would the government have the stomach to do what needed to be done? An unpopular thing. It was an unpopular thing that was good for the people.
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A
The bailouts.
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C
The bailouts, I mean, they could have been done a little differently. They could have been done. They could have been more personally harsh to some of the people. But broadly speaking, it was wisely done. And could the government function that way now with the mistrust that people have about it and the way the people who run the government prey on that mistrust? I think it might be hard. So that. I think that's sort of like what 2008 teed up is a much more difficult next financial crisis.
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Let's talk about whether there are signs of a financial crisis. So there's one part in your book, I'm going to read it, where Barry says, quote, it is ludicrous to believe that asset bubbles can only be recognized in hindsight. There are specific identifiers that are entirely recognizable during the bubbles. Inflation. One hallmark of mania is the rapid rise of the incidence and complexity of fraud. Oh, great line. Yeah, your line.
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That. My line is his line.
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Your line quoting Barry's line, which he didn't.
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C
You know, he never said to anybody. It's all in emails. He Gave me all his emails. All of his social relations were by email. So all his thoughts are recorded. That was one of them.
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A
That's such a treasure trove to go through. When I read that, a couple of things popped into my mind. I thought of crypto and then I thought of ftx.
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C
Yeah.
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Okay. I thought of vendor financing and I thought of first brands.
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C
Yep.
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I think of subprime auto loans and I think, unfortunately, now, tricolor or tricolor. Are we in an asset bubble? Are these frauds signs of the incidents of the hallmark of mania?
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C
I remember when I read that line of Michael Burry's, I did have the thought, yes. There are signs that you're able to see. Not signs. Not signs. I'm able to see. I feel in the movie the guy who's angry with him for saying there's a bubble, saying you can't see a bubble. That's why it's called a bubble, Michael. And he saw the signs in that case and he was persuasive. I would just be very comfortable. Here's the problem with it. I'm uncomfortable with asset prices right now. I personally, in my own portfolio, have done things I've never done before.
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A
What have you done?
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C
I own gold. I've owned gold for six years. I've owned a lot of gold. So that's when I did it. I did. First I put a kind of toe in the water and then I thought, actually, I like this. And it started going up and I liked it a little more. So I bought. I did more and more and more. I'm sitting on a huge pile of gold.
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Right.
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If you'd have told me 10 years ago that I would in my lifetime own gold, I would have thought, no way.
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Why did you go in there in the first place? Why did you go into gold whenever you did six years ago?
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C
It's a funny story.
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A
Yeah, tell me.
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C
So I have my best friend in high school turned Ayn Randian libertarian kind. We drifted apart.
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Okay.
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C
When I catch up with him, it's during the financial crisis. He's left New Orleans. He is sold short the subprime mortgage. He's working in a Bear Stearns fund, but it's far enough away that he's okay. But he makes a fortune in the subprime mortgage and we start talking again. And he has me over to his house where he has become a rich person. He has a collection of old Roman coins and he shows me how they debase the currency over centuries. And then he gives me debasing the history of monetary policy, the history of currency debasement. And he said in my fund that he runs, a fund, I don't hold dollars. I hold gold as the currency. And I thought, it's an interesting idea. And we started just going back and forth about whether it was nuts to own gold. And he persuaded me that, given that I did believe that the United States was not getting its hands around its deficits and that we were going to inflate the problem away, I believe that. Why didn't I own something that was historically a great hedge? Now, the other hedge maybe would be bitcoin. But his argument was that these are all fictions, these are all fantasies. It's a common belief that gold is a store of value. It's only because people believe it that it's true. It could just go away tomorrow. And it's a common belief that bitcoin function is a store of value. Bitcoin go to zero tomorrow. He said, the common belief is stronger, and it's got deeper roots than in gold, than in bitcoin. If you own anything, you should own gold. So at that moment, I said, well, I've been talking about that. I'll just get some.
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Yeah.
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C
And so that's part of. I'm sitting on that. Sitting on a bunch of Berkshire Hathaway. And what is that? That's a huge pile of cash.
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Cash. I can say you basically.
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C
That's right. Yeah. And defensive stuff.
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Okay. Like Walmart's and all that kind of stuff.
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C
Yes.
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Okay.
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I don't know if he owns Walmart, but I do own. I own Walmart. And so I'm sitting there, clearly, I am thinking in my thinking or feeling like this feels. I'm very uneasy where things are going. I don't hear a coherent story about AI paying off the way people say it's gonna pay off. I don't hear a coherent story about how the United States government is gonna get its arms around its financial problems. And I see the Federal Reserve being threatened as it's never before been threatened. And there are not a lot of other places in the world to go that feel safer. Sure, you can buy some Swiss franc and pay a negative interest rate. So the other thing I did is I moved some money. I did move some money out of dollars into euro.
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A
You did?
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C
I did.
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Okay.
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C
So all odd things for me. So I. It would be. I got to say, I do feel uncomfortable.
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Something's uncomfortable.
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Do you buy crypt. But I could be completely. No.
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A
You didn't buy crypto?
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C
No.
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Okay.
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Now I Also say, I would not bet against bitcoin. That would be insane because you're betting, you are betting on, you're betting on a religion. It's a religion. It's religious faith, like with gold. And I don't know what's going to happen to that religious faith. I don't know how deep it is. It's getting deeper and deeper. It's amazing how not all the other cryptocurrencies, how bitcoin has woven its way into the human imagination, but it has and it survived a lot. Maybe it's a smart place to put money, but I don't feel comfortable with that. I would not. If you told me bitcoin would be worth zero in 10 years, I'd say that's possible.
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A
Right. But if you equally went the other way, you'd say that was possible.
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C
Yes, that's right. Could be a million dollars, too.
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A
I'm curious, a story for Question for another time. Is is it getting deeper or is it getting broader but shallow with cryptocurrencies? With crypto? Yeah.
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C
I think when it, when it starts to get institutional support, when you can buy an etf, that's crypto. When the president, I mean, here's a thought, like this is a thought that is unsettling. But we now have a president and his family who they're very long crypto, clearly. Right. Like, I don't know how much of their fortune is tied up in crypto, but it seems like almost all of it at this point. Like a lot of it. Some golf courses and a lot of crypto. And I don't know what else there is and I don't know what the golf courses are worth. But we do know that crypto is worth billions.
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Right now.
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Yeah, right now. Now, what is the best way to make crypto? Go up to base the dollar. We have a president who has a financial incentive to undermine the credibility of the currency. Doesn't mean he's gonna do it. But in human history, I don't think we've ever had that kind of misalignment of incentives. I mean, we do. The president has always, of course, has an interest in juicing the economy right before his next election. There's a misalignment there.
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A
And that's a tale as old as.
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C
Time that goes back forever cycles, you see, that goes back, it probably go. The Roman Empire.
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Correct.
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In some version. But. But that you actually can jack up your net worth by threatening the dollar is. That's a whole new thing. Makes me uncomfortable.
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A
That's A bold statement, Michael. I will say it.
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C
It's just a fact.
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A
Bold perspective. I do want to talk about incentives. You've talked about political incentives and economic ones. One theme in your book the Big Short is that incentives drive everything on Wall Street.
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C
I learned that from the Big Short. I learned that from the story. Because the question was like, what happened inside these big places to cause them to implode? And what they did, and they almost didn't realize what they were doing is they incentivized the traders to basically sell catastrophe insurance cheaply. This is a crude way to think about it, but it's as if you told the traders, sell as much tornado insurance as you can and you can book the premiums as trading profits. And we will treat this as a riskless trade because we don't believe there'll be tornadoes. And they did this and the traders did it. And these are really smart traders. So if those people, they're kind of the shrewdest traders on the planet. If those people can be incentivized to do such stupid things, who can't be?
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A
So today let's look at areas where incentives still exist that might be a little juicier. There's a lot of chatter right now around private credit. Let's go there. What's your perspective on where we are in private credit?
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C
I just don't know enough about what they've done. When these places first started to balloon, Ares, Apollo, Blackstone, and started to look like banks that were bigger than the.
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A
Banks and not regulated.
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C
And not regulated, the story, the happy story was, well, this is a really smart way for credit to be extended in the economy because on the one side they're taking money from pension funds and they're locked them up for, I don't know, say five years. And on the other hand, they're making five year loans. And so if the loans go bad, it's just the loss to the pension fund. It isn't. There's going to be a run on the bank. They don't have a duration mismatch. The duration mismatch in banks. Banks are kind of crazy institutions. Like if they didn't exist, I'm assured we would invent them.
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A
Interesting.
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C
But in this stage of a life where you have money market funds and whatever, because they're sitting there taking deposits that can run at any time and they're making long term bets, longer term bets, and the moment there's a whiff of a problem, the money's not there, the bank collapses. And it is amazing to me that regional banks, the banks that aren't implicitly guaranteed by the US Government haven't all gone out of business. I think that will happen sooner or later. But these new places, these so called private equity firms, but actually giant banks, I don't know how much they've levered up their bets. If it was just a match, I take the pension funds money and I lend it to gm. Well, that's not that big a deal. But if they're introducing leverage or any kind of duration risk, then what will we have? We have a huge, essentially a too big to fail firm that is not regulated and with big implications for the rest of the economy. And I know that they've started, I'm told, I just don't know. But I've been told that yes, they've got themselves in very risky positions and we should watch them very closely. But I don't know that's true.
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A
Let's talk about a different kind of leverage and that's consumer credit. And there's a moment early in the book where we've just met Vinnie Daniel who becomes another big character and he poses what is basically a rhetorical how do you make poor people feel wealthy when wages are stagnant? You give them cheap loans.
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C
That's right.
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A
Talk to me about buy now, pay later. Talk to me about neo banks. We are now in a world where people can get loans that aren't being underwritten in the traditional way.
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C
Yeah, no, I'm not following this closely enough to make anybody smarter about it. What is interesting that the inside of that cluster of characters in the Big Short, that what the subprime mortgage market was, was a solution to deep problems in the America, a temporary solution to deep problems in the American economy. That the financial expectations or aspirations of the ordinary American exceeded what was actually really possible. And that banks had come in and financialized their lives in ways to kind of create the illusion of a prosperity that wasn't there. And what is leverage? Leverage is like, it's like living. It's living in a assuming a prosperity that just doesn't exist, creating a kind of fiction, a temporary fiction in people's lives. And this was so, I think this is still, it's still a big deal, right? That we live in an aspirational economy. Things are they're okay for ordinary people, but they're not what people? I mean, one of the reasons people are angry, they look up at rich people and they don't have that and they're easily temptable. So I wouldn't be surprised if that got out of hand. Again, I just don't know if it's, you know, what I read in the newspaper. I just don't know if it's true. I'm just not writing about this now. But what I read in the newspaper is that actually the consumer's balance sheet is not that bad right now. The American consumer is not the problem right now. I don't know if it's true.
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A
When you think back to writing the book and the work that you did and you take a step back, today you've got kids right here going out into the professional world, trying to figure out how to build their own financial lives.
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C
Yep.
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A
What lessons do you hope that they, as young investors and finance professionals or young people interested in business, what lessons do you Hope they learned from 08?
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C
My kid's too young to have learned anything from 08, but from reading about it, so it's really funny. And my kids don't read my books. Maybe they'll listen to the audience, but if they were. Yeah, that's funny. If they saw the movie. Yeah, it's a great movie. Yeah. So there are a couple of big ones. One is basically don't live your life as a financial life. That it's like invest not to lose it, not because you think you're going to get rich investing. So that don't make the investment part of your life, the primary part of your life. It's like, just give it to people who are not going to lose it. Be conservative about it. 2 that a corollary to this is it is so easy to think you're smarter than a market and you're not. And this applies not just investing, but like my son and I have had been having long talks about sports gambling. And in fact, for my own podcast on sports gambling, I gave him $5,000 and said, you can go lose it, but you're going to learn a lesson. We're going to put a GoPro on your head and a mic on your lapel and you're going to go see if you think you're a smart sports gambler, go for it. And he learned like, oh, my God, I'm an idiot. It took him a while to learn he was an idiot. He thought he knew, like, when the warriors were going to win. And he learns that actually there's a market, there's a reason. The price is the price in the price is a lot of information, and you only have a fraction of it. The odds that you know more than a market are so slim. So the idea of you spending a lot, spinning your wheels a lot to, like, beat a market, it's not the best way to go through life for most people. It's kind of a dumb idea for most people. So those two things are really important. Time value of money. Be on the right side of that. The miracle of compound interest.
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A
Invest early, basically. Start early.
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C
Don't be a borrower, Be a lender. And to get yourself on the right side of that equation. So broad things like that is what I hope they understand. I think they understand all that.
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A
There's one thing that is facing younger people today, this new generation, which is grappling with which professions to pursue when AI, you know, sort of looming right over some of them. And there's one profession in particular that I couldn't help thinking about, which is the accounting profession. When you look at some of the folks in 2008 who figured this out, right, they had this, in some cases, real sort of forensic accounting background. They had the skill set to go and wade through incredibly complicated documents.
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C
Right.
- [30:22]
A
And the wherewithal to spend the time doing that. Do you think that the next generation is going to be trained to be forensic, to be able to dig in like that, given that so many AI tools are able to summarize things for them?
- [30:35]
C
Because they're not going to need to train to do it, because they know they can just hit a button in.
- [30:40]
A
The machine and get the output. But it's the digging that actually is where you uncover some of these things.
- [30:44]
C
What the AI won't do is ask the right question. It won't say what's going on in subprime mortgage bonds. You have to ask the question. And so if indeed AI is sophisticated enough to answer the question, it makes it much easier for people to get the right answer, that all they have to do is have the sense to ask the question.
- [31:06]
A
Right?
- [31:07]
C
And they actually don't need the forensic accounting skills. They just need to know, have the imagination to ask the question. So I don't think that would be. That's a bad thing. The broader question about what you should do with your life, given this technology, is going to sort of like, eliminate a third of the jobs on earth. That's a big. That's a big one. And I don't have a great answer to that. I don't know how you feel. I don't feel threatened by it yet. I don't think it's gonna. I think if you were gonna be a narrative nonfiction writer, you're fine. I don't know if you're being a professional journalist, interviewer, I think you're probably fine too. Cause you're asking the questions and I don't think it's gonna be that good at asking the questions. What's surprising to me about this is it seems clear that the most likely outcome of AI, nevermind, it's going to kill us all if we don't keep our eye on it. Never mind that it's going to make everybody rich or it's going to create multi trillion dollar companies. Never mind either those might happen. But what seems almost certain to happen is a lot of jobs are going to get eliminated and the social disruption from that, the anger from that is going to be incredible. And that nobody's really thinking about what to do about that. When you talk to one of these big companies that is a handful of companies that are generating the technology, they distract you from that question.
- [32:35]
A
There's a shrug almost. It's like it'll have to get figured out.
- [32:38]
C
Yeah, someone will figure it out. That doesn't happen though. It doesn't get figured out. And what they do is they redirect to. We're worried about it. It's gonna exterminate humanity and we're worried about that.
- [32:48]
A
Oh, the catastrophic.
- [32:49]
C
Yeah, but that's not the answer. There's no answer. And then I, and I don't care that you're worried about that because I don't think that's going to happen. I know what's going to happen. And you're not worried about that. Why aren't you worried about that? And so the broader question of like what you tell your kids to think about when they're going into the world, I mean you should think about this. Like don't go into some place that AI clearly disrupts now. Sad then it was just. What's really distressing is you ask people like Google what won't it replace. They'll look you in the eye and say nothing. That it will be able to do everything. I don't believe that. But that's what it says, that's what they think.
- [33:24]
A
I'm going to ask you one more question about 2008 and the big short. And then we're going to talk a little bit about you personally because that's, you know, equally, if not more interesting. I just want to finish on this topic of accountability. There's an article in the financial times in 2018 that reported that 47 bankers at that point, 10 years after the crisis had been jailed for their part in the crisis.
- [33:48]
C
I didn't know there were that many.
- [33:49]
A
Only one was from the United States. None of them were executives. What's your perspective on that? Should there have been some kind of accountability? I mean, personal accountability?
- [34:02]
C
Yes. I remember being frustrated by this question when I was working on the book. I remember asking while I was working on the book myself and my subjects, the people who knew the most about what had happened at the time, show me what laws were broken. And at the time, I think they all said, we can't identify a specific law, but this is fraud kind of thing. It was that kind of general thing. And it was amazing. It's often true. What's scandalous is not what's illegal, it's what's legal is like that the system legally allowed an awful lot of this behavior. However, since then, at least one of these characters has gone back and he thinks he's identified. It's pretty arcane, but, like, there were reports of subprime mortgage failures that were coming into the big banks that got buried and they got intentionally buried, he says, I don't know if it's true that maybe there's stuff like that, but the bigger point is how hard it was to prosecute these cases. I don't know if you remember, but federal prosecutors tried to jail the first Bear Stearns traders who went down. And do you remember the result of that? Do you remember? Well, first they didn't win. First they didn't go to jail. Not only did they not go to jail, but when they interviewed the jurors coming out, they were like, asking for the Bear Stearns traders numbers because they wanted to give them their money to invest. It was a legal catastrophe. And I think prosecutors looked at that and went, this is so complicated.
- [35:34]
A
Why are we doing this?
- [35:35]
C
Why we can't do it? It's so complicated. We cannot sell a jury on any of this. So it's not that prosecutors are not ambitious. It was just really a hard case to make. But you're absolutely right that one of the reasons we're living with this anger from the financial crisis, it's still there, is that people feel there was no justice, there's no fairness. And arbitrarily lynching a few of these people, I mean, might have actually been, you know, in the end, better for the society.
- [36:04]
A
What you just described literally reminds me of a chapter in a book I also just finished reading, which is Andrew Ross Sorkin's new book, 1929 on the Garbage. And there is literally a scene in there that I'm Thinking of as you're speaking now, Michael, where Mitchell.
- [36:20]
C
Charles Mitchell.
- [36:21]
A
Charles Mitchell is taken to court and the government is trying to sue him to prove that he'd committed fraud. The jury unanimously clears him.
- [36:31]
C
Yep.
- [36:32]
A
And the prosecutors are going, how. How. How could this have been? How could this be the outcome? I mean. So it's extraordinary to hear you now talk about.
- [36:40]
C
Very similar.
- [36:43]
A
So when I spoke with Andrew, I had read that he's a big fan of yours, and I asked him what he would ask you if he was sitting in my seat right now, particularly having now written this book on 1929, and he asked this.
- [36:55]
D
It's a different kind of question. It's about the craft of writing. For me, if I had. If I had an opportunity to sit with Michael, the question I would ask him would be about the process, about when he writes. There's some people who, I say they splatter things down on the page and then they go and try to fix it. Meaning they try to get everything out of their head and put it on the page and then they edit it. And then there's other people who really don't write the second sentence until they feel like the first sentence is perfect. And I want to know which he.
- [37:29]
C
Is closer to the second. Interesting. But neither. What I agonize over is structure and how to play the hand. The story. It's like a bridge hand. How am I going to play this hand? How am I going to tell the story? And when I've persuaded myself that I know sometimes I'm wrong, when I've persuaded myself that I know how I'm going to tell the story, and I sit down and start to write it, it comes very fast. Now I go back over it, and I do see infelicities and I do fix them. But once I start and once the train is on the track, it comes very easily to me. And I don't just throw stuff on the page. I don't. So this will dramatize it for you. The last 10 books, I have told my publisher, for example, I'm gonna give you the first fifth of it in January, the second fifth in February, all the way till June. I hit every date. And you can actually typeset the stuff as we go because I'm not gonna have to go back.
- [38:33]
A
Interesting. You're committed.
- [38:35]
C
I just don't. I don't. I just. Once I've done the revisions on the section and all that, and I've structured the book, I don't have to go back and fix it. I've never had to go back and fix it. I never. So that it's like. I think about another analogy is fresco painting. The way they painted the chapels in Florence in the 14th century or 15th century. They throw up the wet paint for that day's painting, and they had to know exactly what they were gonna do that day. And then it dried, and they couldn't do anything about it. So it's like that. I have to plan it very carefully in advance. And then it moves very fast in the writing of it. It moves very fast, and it's very clean.
- [39:18]
A
Tell me what you're up to now, because I know you've recorded the audiobook version of the Big Short. How was that? Hearing yourself read your own words?
- [39:28]
C
I never reread any of the books. I just have no interest in it. And so it was. It was actually surprising to me how rich the material was. That's why you can only do. You're a chef. You only do what the ingredients let you do and how good the ingredients were. It was really nice to see, like, oh, wow, that was a great story. It was great to have that kind of material. And I'd done this with Liars Poker two years ago, and that I was actually kind of offended by in places like, oh, this was the work of an amateur. I was 27. I just, you know, I was figuring out how to write a book by writing a book. And it had its virtues, but it was not nearly as clean as this one was. So that it was. It was a. It was a kind of a pleasant experience reading this one. And now I'm in the middle of another one, but I never talk about them while I'm doing them comes out. We can talk about it in a year.
- [40:22]
A
We absolutely have to come back. And you've got your podcast as well, which you've got going on just in your podcast, where we go find it. Tell us about that for a second.
- [40:30]
C
The podcast Call against the Rules. It exists for six years, and we do this and that in it. In this case, we've done seven episodes looking back on the financial crisis. And it opens. The first one dropped yesterday or two days ago. And it was just me Talking to Adam McKay, the filmmaker, about how he took this book and turned it into a movie, because that was a miracle.
- [40:48]
A
Brilliant. Everyone go check it out. The book, the movie, the podcast, the audiobook. It's a fantastic story. And again, there are things, lessons to learn as we continue to muddle through these books, these markets. Spain Times. Michael, thank you so much for joining.
- [41:01]
C
Total pleasure.
- [41:02]
A
Well, huge thanks to Michael Lewis for joining me for a fantastic conversation. And thank you to everyone who's been listening to the show and writing in. We love making this program and I'm looking forward to a new year of market analysis and enlightening conversations with more interesting guests. We are going to be back on Monday with a brand new episode of Brew Markets Daily, same time, same place.
- [41:24]
B
Brew Markets Daily is hosted by Ann Berry and produced by John Curto, Tarkab Delatif and Emily Millern, technical direction by Felicia Edwards. Rosemary Minkler is our audio engineer and the president of Morning Brew Inc. Is Devin Emery.