← Intelligence Squared
Intelligence Squared
Trump, Markets and The Greatest Crash in U.S. History, with Andrew Ross Sorkin (Part One)
00:38:58
Loading summary
Transcript89 lines
- [00:00]
A
Black Friday Savings are here at the Home Depot, which means it's time to add new cordless power to your collection. Right now, when you buy a select battery kit from one of our top brands like Ryobi or Milwaukee, you'll get a select tool from that same brand for free. Click into one of our best deals of the season and stock up on tools for all your upcoming projects. Get Black Friday Savings happening now at the Home Depot. Limit one per transaction exclusion supply full eligible tool list in store and online. Toast the holidays in a new way.
- [00:33]
B
And raise a glass of Rumchata, a delicious creamy blend of horchata with rum. Enjoy it over ice or in your coffee. Rumchata. Your holiday cocktails just got sweeter. Tap or click the banner for more Drink responsibly. Caribbean rum with real dairy cream, natural and artificial flavors. Alcohol 13.75% by volume 27.5 proof. Copyright 2025 Agave Loco Brands, Pojoaquee, Wisconsin. All rights reserved. Welcome to Intelligence Squared, where great minds meet. I'm producer Mia Sorrenti. Today's episode is part one of our recent live event with author, New York Times columnist and CNBC presenter Andrew Ross Sorkin. Ross Sorkin joined us at Conway hall to discuss the lessons of the 1929 financial crash and how that era of political instability and market turmoil eerily mirrors today. In 1929, the world watched as the unstoppable Wall street bull market went into freefall, wiping out fortunes and triggering a depression that reshaped a generation. Drawing from his new book, 1929, Andrew Ross Sorkin explores the cycles of speculation, regulatory failure, and economic warning signs that we ignore at our own peril. Let's join our host, Gillian Tett now with more. Well, thank you very much indeed. And it's fantastic to be here, and it's great to be here with somebody who is one of the most prominent media figures in America today. We were chatting earlier and we reckon we've known each other for 23 years. Andrew reckons we first met in probably either London or New York when we were both quite junior financial reporters. And we both went on to carry on writing about finance. Myself for the Financial Times, Andrew for the New York Times. He was a New York Times reporter first. Then he went out and created DealBook. And then the great financial crisis happened in 2008, and we both wrote books about the financial crisis. You wrote Too Big to Fail. I wrote Fool's Gold Mine was a little bestseller. Yours was a very, very big bestseller. No Hard Feelings and You then went on, if that wasn't enough to become this anchor for CNBC for Squawkbox, which has made you very famous in America. If that wasn't enough, in your spare time, you decided to go out and write a TV show script called Billions. You've dabbled in a whole bunch of other stuff on the side in between all this. And you've still been writing articles for the New York Times, and DealBook is still going strong. I mean, you must basically be cloned at least four times over, because I don't know how you fit this into 124 hours. And between all this, I discovered talking backstage. He's also spent the last eight years, eight years, eight years secretly writing a new book and not telling anyone about it because he says in his spare time, if he had any spare time, he became obsessed with the story of 1929 and how it happened, why it happened, who were the key characters, and, of course, what lessons we have for today. So we, we are in for a treat because we're not only going to hear about the story of 1929, and this is his new book, which he's just told me in England it sold a lot heavier than in America.
- [04:20]
A
It's true.
- [04:21]
B
Don't know why, but it can double up as a sort of doorstop as well. But it's a terrific, terrific read. I read it on a plane just the other day, and I actually stayed awake for a very long time, much longer than I planned because it's so readable. But we're going to be talking about that, and we're going to be talking also about what the lessons are right now for all of us, given that we're living in an era which looks an awful lot like 1928 under some measures, when you look at the markets, when you look at the AI bubble, when you look at the hubris, and when you look above all else at the personalities, people like Elon Musk, people like Yen Sen Heng, people like Jamie Dimon, they're not that different from some of the characters in this book. So no pressure. But before we start, I'm going to quickly make sure that you're all awake and ready to engage with what I hope is going to be an amazing conversation by asking you all to take part in the poll. And the poll question I'm going to ask you, which I believe is going to go up on the. Up on the screen, which you can find with a QR code, is this. How likely do you think it is that the world could experience an economic crisis like the Great Depression within the next 10 years? How likely is it that we're going to have a replay of what happened after 1929, in the 1930s with a big depression caused by a financial crash? Do you think that's going to happen in the next 10 years or not? And I will give you a spoiler and say, I'm going to ask you that now. And I'm going to ask you that also at the end of our conversation to see whether Andrew has managed to change your mind or not. So once again, no pressure. I don't know if I'm going to.
- [06:11]
A
Try to change people's minds on this one. We'll see.
- [06:16]
B
It's still okay. The Internet still working. Okay, while the Internet's working, I'm presuming you've all voted. Andrew, tell me why you think that might be the wrong question.
- [06:23]
A
So what I hope, and I think the great lesson for me of this book is that The Crash of 1929 was just one domino in a series of dominoes. In fact, the book is about the series of dominoes with the crash beginning a series of policy choices that ultimately were mistakes that ultimately led to the Great Depression. In fact, by the way, the phrase the Great Depression was chosen by President Hoover. Oddly enough, he had been calling it a panic and decided that was a bad word. He thought it was less panicky if he told people that it was a depression. So that was.
- [07:02]
B
And you made the point in the book that the problem about calling something a depression in a bid to calm people down on the basis that panic is too panicky is a panic at least tends to last a short time.
- [07:15]
A
Depression can last a very long time.
- [07:17]
B
Exactly. And it did.
- [07:19]
A
So what I was going to to my answer about this, I'm hoping that we have actually learned a whole bunch of lessons, policy lessons since this period that would prevent another Great Depression. Do I think that there is a crash that's coming in the next 10 years? Without doubt. I would be shocked if there wasn't a crash. The question is what happens on the other side of the crash? And I like to believe that when and we'll talk about some of the policy choices that were made that were mistakes, that one of the big policy choices that was made that we learned was the wrong choice, was learned by Ben Bernanke and was played out in 2008, which is one of the things you have to do if you've missed preventing the crash. What you have to do on the other side is you do have to pursue a series of bailouts which are politically unpopular, and you have to flood the system with money, as politically unpopular as that is.
- [08:13]
B
Right.
- [08:13]
A
And he learned that because back then, and we can talk about why it was they ultimately sat on their hands for a whole host of reasons. So I like to think that if we got into that kind of situation, we wouldn't be doing some of those things. Having said that, we also, by the way, had a budget surplus in the United States in 1929. And so what I don't know is if you actually did flood the system with money at a time when you actually don't have it so you're borrowing more, is there a moment at which the investor class, bondholders and the like raise their hand and say, excuse me, you know, we like you guys, we're happy to continue lending, but boy, are we going to have to charge you a lot more. And what happens then?
- [08:53]
B
Yes, well, we'll come back to that in a minute because I think to my mind, that is the key question, and it also helps explain why gold and Bitcoin and things like that are rising in price so dramatically. That question about whether there is enough money in the system today to do what they did in 1929. But before we start that, I will give you the answer as to how you voted. The proportion of you who think that it's likely that we're going to have a global economic crisis in the next 10 years is 45%.
- [09:23]
A
Wow.
- [09:23]
B
The proportion who think it's unlikely is 42%. So on balance, you're gloomy and there's 13% of you who are undecided. So they're the ones we can play for tonight. Because I actually agree with you. I think that a financial crash is almost certainly going to happen. I think when you look at what's happening with AI and a lot of the other market markets right now, it's very hard to believe that that's going to carry on going up indefinitely, particularly in private credit. But I think a depression is more questionable. So we'll see at the end whether they agree with us or not. But anyway, perhaps we can roll back for a moment. Tell me why and how did you decide to write this book? Because, as I say, you wrote your book about too big to fail, about the 2008 crisis. You then went off and took on four different jobs all at once. And yet somehow, in the middle of this, you decided it would be a great moment to start spending every single holiday, even with your kids researching this book. Why?
- [10:28]
A
So the truth was, people used to ask me, after I wrote Too Big to Fail, they would come up to me and they would ask me to compare 2008 to 1929. And I had no good answer. And so I went researching on a vacation. I downloaded all these books to my Kindle, like a real nerd. I mean, to really waste the vacation. And I guess I bought some other books, physical books with me, and I started reading these books. And I became obsessed with the story, but more importantly, became obsessed with the idea that none of the books that I had read felt to me like the true sort of character. Driven inside the room, fly on the Wall, Barbarians at the Gate, Den of Thieves style book that I always loved. And I thought to myself, is that possible? Most of the books that have been written about this period, and there's some great ones, Kenneth Galbraith, John Brooks wrote once in Galconda, there's a great book that was called the Bubble Burst, actually written by two Brits in the 70s that was very well done. But they all sort of had a little bit of a remove to them in terms of the way they were.
- [11:33]
B
They were a bit academic, a little academic.
- [11:35]
A
The Bubble Burst was. And actually, John Brooks's book had some interesting characters, but it wasn't told to me with the full arc. And then in the room. And I happened to be at Harvard University giving a lecture. And I got there early, and I'm never anywhere early. And I happened to walk into the library there, and they had. And I guess I knew this. They had the archives of Thomas Lamont, who's a big character in this book. Thomas Lamont was running JPMorgan. Morgan in 1929. He worked under a guy named Jack Morgan, who was the son of J.P. morgan. And I asked if I could look through some of these boxes. And I literally, on the first box, opened it up, looked through a folder, and his secretary was keeping transcripts of his phone calls and conversations and meetings with Hoover and Roosevelt. And I thought to myself, bingo. However, I went back to the archivist and I said, my name is Andrew Sorkin. I wrote this book Too Big to Fail. I want to write Too Big to fail for 1929. Do you have more material like this? And she said, you can't write that book.
- [12:41]
B
Well, the archivist told you that.
- [12:42]
A
The archivist said, you're never going to be able to write this book. And that actually was probably actually why I wrote it. It was a personal. It was a personal challenge.
- [12:51]
B
Have you gone back to see her? And Give her a copy.
- [12:54]
A
She knows about the book? Yes. I've been back and forth with her for years now. She was right. She said to me, the kind of granular detail you want, there's not one or two or three archives that have all this material in that you can go just excavate. And so it turned into this almost obsessive sort of puzzle that I was trying to put together by trying to find materially in archives probably 30, 40 different places around the country and the world. At certain points, I was paying students in different locations to go find things for me. I was flying to different places. It became this sort of crazy thing. And the reason I didn't tell anybody about it all this time was because I thought most people would think I was out of my mind.
- [13:38]
B
I think they might have done. But that explains why no one's written sort of a real Fly on the Wall, breathless story of 1929 before, if it's all scattered.
- [13:47]
A
I think that part of the reason why this kind of story wasn't told was just the challenge of actually finding the material. And there was so much of it was a needle in a haystack. The main character in this book is a guy named Charlie Mitchell. They called him Sunshine Charlie. He really sort of invented modern credit in America and ran a bank called National City, which becomes City. He never kept notes. There's no letters, memos in any kind of archive at all. Citigroup, which has its own archive, doesn't have material from Charlie Mitchell. And so what I ended up having to do was very early on, I was able to get the New York Fed. I shouldn't say early on, but midway in the project, I got the New York Federal Reserve to give me the board minutes from that period.
- [14:27]
B
Had they given it to anyone else before?
- [14:29]
A
Never disclosed. In fact, the first time they gave them to me, they took six months because they had their lawyers redacting information from the board minutes from 100 years ago. I mean, it was crazy.
- [14:41]
B
And did you find out when they redacted?
- [14:43]
A
I ultimately did. And there was an interesting reason for why they did it. It was not as revelatory as you might imagine, but nonetheless, that provided sort of a treasure map for me for where Charlie would be at any one moment. And because of that, I was then able to say, okay, well, Charlie probably then talked to these five people. And then I would go try to find archives related to them. And then sometimes they wouldn't have material, but they would be corresponding with other people. And then I would go try to find their archives. So it was this sort of. And sometimes you'd land on something that would be just magical and I would be the happiest person for a whole week. And sometimes you'd be so depressed because you couldn't find anything.
- [15:19]
B
Well, it sounds like an extraordinary kind of whodunit detective story just to get this stuff together. It also sounds like the recipe for another TV series or TV script. Are you writing this yet?
- [15:30]
A
I am not writing it yet.
- [15:31]
B
Are we gonna see it in Netflix?
- [15:33]
A
Let's cross our fingers.
- [15:35]
B
Well, I don't quite believe that, but I'm sure we will see it in Netflix as I or a movie. But one of the things that's fascinating about the account because it's told through the stories of a few key characters like Thomas Lamont, like Charlie Sunshine Charlie, is that in the run up to 1929, the big crash of the market, there's a sense of extreme excitement and hubris in New York. And every time anyone starts saying it looks dangerous, it looks like it's out of control. There's this perception that you're old fashioned, that you're not patriotic, that you're not a true believer. You just have to believe and get swept up on this. And everyone gets swept up in fomo. Do you see parallels between what's been happening in the last year or so?
- [16:27]
A
I mean, flashing light parallels. But the truth was, I didn't think when I started this book, I was not even looking for the parallels. I was not imagining.
- [16:34]
B
Because you started in 20. 2015 or something.
- [16:36]
A
2016, I would say. End of 16. 16. I wasn't thinking about any of these things. I remember the only thing that I remember thinking, oh, this is a Parallel, is that E.F. hutton owned Mar a Lago in 1929 and was throwing big parties. I thought, huh, I'll have to include that little detail. But, you know, tariffs were not on the table. Tariffs were on the table. I mean, so many of the things. But I would say the piece that you're referring to, I think the biggest piece is the 1920s really was this remarkable period of shocking euphoria and technological change. Everybody really was excited about the technology. And the truth was they had reason to be so. Automobiles were emerging as a meaningful piece of our economy. You had telecommunications, you had radio, rca, the ticker symbol is radio was the Nvidia of its time. I mean, it was like a meme stock. Everybody wanted a piece of all of this. And that's where the excitement came. You also had this remarkable amount of euphoria coming from the bank. So all of this was powered for the first time by debt. That's the other major piece of this prior to 1919 in America. And I would even argue here, probably even more importantly, taking a loan of any real sort was considered a moral system. It was just not something you would do. It was not something that proper people did. And it wasn't until John Rascob, who was running General Motors at the time, decided, how am I going to sell more cars? I'm going to sell more cars by loaning people money so they could buy my cars, that it became a socially acceptable practice. And after that, a company called Sears Roebucks started doing the same to sell appliances. And then Sunshine Charlie clocked what's happening and says, ok, well, we can sell stock and we'll loan you money. And you could walk into a brokerage house. I mean, they were popping up on the corners of street streets like, you know, pret a manger or Starbucks or something. And you could walk in into a hotel. They were everywhere. And you would walk in and you could put a dollar down and they would literally loan you $10. And that's how this all sort of emerged in this wild and crazy way. And so that feels very similar to me, right?
- [18:41]
B
And there were a couple of people in 1929 who were issuing warnings. A few people did sell up early.
- [18:47]
A
But here's the problem, here's the conundrum with being the Cassandra. So here we are as the Cassandras. Charles Merrill, who founded Merrill lynch, beginning of 1928, tells all of his clients and the public to get out of the market. He says there's going to be a great crash. Now, he was right, but he was wrong. Because from the beginning of 1928 to September of 1929, the stock market went up by 90%.
- [19:16]
B
And we're seeing that again. I mean, there have been Cassandras out there for the last few years. But the problem is if you're managing money and you keep coming up short against the index, you don't survive.
- [19:26]
A
So this is the hard part. I was just with Paul Tudor Jones two weeks ago, and he said he thought that we were in the equivalent of October of 1999. And I said, ooh, that sounds very scary. October of 1999. And then he said, yeah, but the stock. Stock market went up 40% from there before it fell. And so the question is whether people either know or don't know when to get on and off the train or whether they should be on the train at all. And the truth is, over the last hundred years, it's been a lot more profitable to be on the train and a professional optimist than ultimately to be the professional Cassandra.
- [20:03]
B
Because the other thing that's fascinating about this story is that there were all kinds of lights flashing red during the course of 1929. The government itself, Washington itself, the White House was deeply concerned about what was going on. There were people shorting the market and essentially being very cynical about it as well. And yet when the market started to finally crack, it didn't crack in one go at all, did it?
- [20:30]
A
No.
- [20:31]
B
I mean, when people think that 1929 was one big explosive collapse and you went from here to there overnight and everything got wiped out, I mean, that's totally wrong, isn't it? Which is very good today.
- [20:46]
A
People sometimes say that there' syou know, they all think it's one day. They talk about a Black Thursday, some people talk about a Black Monday, they talk about a Black Tuesday, by the way, there were all of those black days. I mean, it really was like that. And the truth was that the market fell effectively from mid October over the course of a month, ultimately till November 13, it was down from the high of about 50%. But here's the even more shocking part. By the end of 1929, the stock market was only down for the year, 17%. Most people don't know that. But the interesting component of this is the reason why it was such a generationally scarring moment, is that most Americans, all of these ordinary investors who had participated in the market for the very first time in their life, had taken on that debt, that 10 to 1 deal at the brokerage house. So that when the market fell 50%, it wasn't just that their equities were down by 50%, it was that they owed 10 times that. And so all of a sudden they were losing their homes, they're mortgaging their houses. I mean, that's really why it was as painful as it was and as I said, sort of became the first domino of then a series of things that go badly wrong.
- [21:59]
B
And the other thing that's striking is that the market then rallied quite noticeably, and then it went down again, and then went up again, and then it just sunk, sunk, sunk, sunk, sunk for a very long time. So it wasn't a big explosion at the end. It was more just a continual sagging.
- [22:18]
A
But I would say it was a continual sagging because of the choices. So President Hoover gets into office in March 4, 1929. So a lot of people say, well could, if he stopped this, it would have been very hard to actually jump in front of the train. I think I'm somewhat sympathetic on that front because it was only a couple of months in the job to begin with. But then once this crash happens, he then makes all sorts of choices that were at a minimum quite misunderstood. At one point, very early on, he decides that he should raise taxes in the middle of all of this. At another point he's pushing corporations to raise wages. He thinks that's how he's going to save things. And of course the companies can't pay the wages. He decides in 1930 to implement Smoot Hawley tariffs. This is something actually in 1928 when he was running for president, he was so desperate to get farmers to vote for him that, that he had pledged to them that he would implement a tariff program so that they'd vote for him. So he felt in 1930 that he needed to make good on his pledge. Well, every economist in America was screaming from the rooftops the way they were screaming at Trump just four months ago, writing full page letters in the newspaper saying please don't do this. Thomas Lamont was going down there to beg him and he did it. And global trade, I think, fell by 60% 12 months later. So I think it's all of those things. And then it's the Fed, which sat on its hands most of this period for two reasons. A lot of there's a big conversation about the independence of central banks in this age today. But back then they were worried about the politics. You know, I went back and read so many of the diaries of the Federal Reserve members and one of the reasons that they didn't want to do too much on the front end, meaning to try to stop the crash. They were all worried about the speculation. They thought this was terrible. But they thought if they raised interest rates, rates too high and tipped over the economy, they'd be blamed. Excuse me. And the Fed was so new, born in 1913, they called it the experiment still that it would end, meaning that the Federal Reserve would just be, would disappear. They would end the entire project. And so they didn't do anything. And then on the other side, the idea of flooding the system with money was very difficult because they were on the gold standard. And then there was a whole debate about that.
- [24:28]
B
Foreign. This episode is brought to you by Progressive Insurance. Do you ever think about switching insurance companies just to see if you could save some cash? Well, Progressive makes it easy. Just drop in some details about yourself and see if you're eligible to save money when you bundle your home and auto policies. The process only takes minutes and it could mean hundreds more in your pocket. Visit progressive.com after this episode to see if you could save Progressive Casualty Insurance Company and affiliates. Potential savings will vary. Not available in all states. It's that time of year again. Everyone knows that the holidays can become.
- [25:13]
A
Overwhelming quickly, so the sooner you get.
- [25:16]
B
Things done, the better for both shoppers and businesses.
- [25:19]
A
The best time to score great deals during the holidays is Black Friday Cyber Monday weekend.
- [25:24]
B
Shopify is the commerce platform behind millions of businesses around the world, from household.
- [25:29]
A
Names to entrepreneurs who are participating in.
- [25:31]
B
Their first Black Friday Cyber Monday this year. This Black Friday join thousands of new.
- [25:36]
A
Entrepreneurs hearing for the first time with Shopify. Sign up for your free trial today at shopify.com promo that's shopify.com promo go to shopify.com promo and make this Black Friday one to remember so good, so good.
- [25:54]
B
So good. Give big, Save big with Rack Friday deals at Nordstrom Rack for a limited time, take an extra 40% off red tag clearance for a total Savings up to 75% off. Save on gifts for everyone on your list from brands like Vince Cole, Haan, Sam Edelman and more. All sales final and restrictions apply. The best stuff goes fast, so bring your gift list and your wish list to your nearest Nordstrom Rack today. So you're about to make a trade based on a friend's text, but which you do you listen to is it we could buy a house in Tulum, get optioning those options. We could lose everything. Or let's do a little research, get your head in the trade and make the investment decision that's right for you.
- [26:46]
A
Learn more@finra.org TradeSmart Coca Cola for the big, for the small, the short and the tall. Peacemakers, risk takers for the optimists, pessimists for long distance love for introverts and.
- [27:07]
B
Extroverts, the thinkers and the doers for.
- [27:12]
A
Old friends and new Coca Cola for everyone. Pick up some Coca Cola at a store near you.
- [27:25]
B
And so out of this came, as you say, the depression and a series of policy mistakes which really only started to almost half turn around when you go. Got Roosevelt coming in now. And one of the things I again find fascinating is it took a whole four years from the market starting to crash for any sense of reckoning or regulation to actually emerge with the famous Glass Steagall Act. And the Glass Steagall act wasn't actually driven by particularly pure Motives at all, was it?
- [27:57]
A
That was one of the great revelations for me. So one of the great characters in this book, I think, is a guy named Carter Glass. Carter Glass was a senator in Virginia. And he was, for those of you who know who Elizabeth Warren is in America, he was the Elizabeth Warren of his time. He was probably a racist. Elizabeth Warren. He was actually trying to bring segregation, or really to bring segregation back, frankly, at that time. He had helped create the Federal Reserve the first time around. And he, for much of the. He was one of the Cassandras. In the twenties, he would rail about this thing called Mitchellism, Charlie Mitchell, and how he thought that Charlie Mitchell was going to upend America because of this speculative fever that he was creating. By the way, once I realized that those two characters were sort of at each other, that's when I thought I had a. Actually had a story, had a narrative, yes, had a narrative spine. But the truth is that the Glass Steagall bill, which ultimately broke up banks in America, broke up the investment banking side, effectively, the casino side, from the sort of retail, commercial side of banking, was not pure. I think, you know, a lot of times today it's cited in the US Especially by folks on the left, as some, you know, one of the great bastions of progressive rulemaking. Progressive rulemaking. The truth is, when you get underneath this story, it is almost shocking to me how corrupt that bill really is. Part of the bill was ultimately written by a banker against the wishes of Carter Glass, who's writing letters bitterly complaining to a friend of his about what's really happening here and how Roosevelt was effectively being sort of spun by one of the Rockefellers who wanted to, you know, shiv JP Morgan by putting this bill together. So, yes, that part was a.
- [29:42]
B
It was all basically dirty dealing and.
- [29:44]
A
Fights for a lot of dirty dealing. And that stuff was. Was not, by the way, in any real literature.
- [29:49]
B
Not at all. So why did the crash turn into depression?
- [29:54]
A
I think. I mean, first of all, let's just define the crash turned into the Depression, in my mind, was at its worst, 1932, 25% unemployment. That really was sort of the bottom.
- [30:08]
B
I think, in the U.S. 25% unemployment. I mean, can you imagine that?
- [30:12]
A
Did I mean, tented camps everywhere in New York City, literally, there were tented camps in Central park across the street from where Charlie Mitchell used to lived at the time. And then by 1933, I think we had 9,000 banks in America fail. So you said, how did the crash turn into that? So, first of all, I think it Was the confidence that was sort of sucked out of the system. System.
- [30:39]
B
Everyone basically animal spirits, quote John Wayne claims imploded.
- [30:43]
A
Imploded. There was no real investment of any sort. You had the banks faltering in part because, by the way, interestingly, back then we had so many banks in the country and you weren't allowed to merge the banks. That was illegal at the time because everyone was trying to be very protective of the local bank. But that was a terrible mistake because you were on the gold standard. You couldn't print money. You couldn't really print money. So that was a problem. You had the tax piece. I just think it was the layer upon layer upon layer, and that's what really sunk.
- [31:20]
B
So I want to come back to some of the characters in a moment, but before we do, why do you think it's different now? Do you think the fact that the bank of England or the Federal Reserve could essentially just print money if we had another.
- [31:32]
A
So I think the biggest issue is we could print money. That's the first piece we could print money.
- [31:37]
B
And in fact, we did print money after the. After Covid. We did during the pandemic 2008. Yes.
- [31:43]
A
And interestingly, I was surprised. I don't know about you. I remember after 2008, there were so many recriminations about bailouts and about sort of flooding the system with money. When Covid happened, there were no recriminations. Nobody was screaming from the rooftop saying, this is crazy. They were saying, give me the money. And they were very happy about it. So I thought it would be almost politically unpalatable to do that again. Clearly that's not the case. So I think that you would see the Federal Reserve do something like that again. The one thing that I don't know is how the national debt piece overlays, what with this. And the other thing that I think that I'm unclear about today, that I think everyone's unclear about, is where the leverage lies today. And what I mean by that is if every financial crisis ultimately is a function of too much leverage in the system, too much debt, that's the match that lights the fire every single time. It's the accelerant to the whole situation. If in 29, it was these margin loans, in 2008, it was was subprime loans, today, it's probably the leverage that's living in private credit around the ecosystem that's now building the AI bubble, which is to say it's not just the tech companies getting involved, it's the energy companies that are powering these things, it's the construction companies, it's the real estate, there's the whole sort of complex. And because we don't because big, basically after 2008, most loans moved from the bank balance sheet to these private credit firms. We don't really know the full extent of it. And we also don't know how connected the private credit funds are, not to get too in the weeds for some people here, how connected they are to the banks. In some cases the banks are actually helping these guys lever up their funds. In other cases, there's liquidity provisions. And so if everybody sort of runs through the exits at the same time, there could be a problem that I don't think we even can comprehend.
- [33:43]
B
Yeah, of course, the problem with private credit is that it is private and therefore it's not public. And therefore you can't see it very clearly. And that creates a lot of problems. And one of the great truisms of the last 200 years of financial crises is every time there's a crisis, the authorities change the regulations and rules to deal with the last crisis, and then they create the next crisis crisis in response. Because the reason we have private credit today exploding is after 2008, the bank of England, the Fed, clamped down on the banks, the public market.
- [34:16]
A
Well, this is what you've written so much about gold and everything else.
- [34:19]
B
Yes. And so it all went into the private markets. I mean, I guess there's two questions there. One is, if the private credit markets were to burst or to fail, or if people start to lose trust in that, would that be a pop or would it be a long slow hiss as the air came out the bubble? Because one of the things about private markets is they don't have to. The people running private markets don't have to reveal what they think the value of their assets actually are. So unlike a stock market where you can see the prices go up, go down, and if they all start collapsing, everyone panics. And that feeds on itself. In private credit, it's not visible. And so it can be quite stealthy and slow instead of a pop.
- [35:04]
A
So I agree with you. I think you could be stealthy and slow and just so everyone, we're all on the same page together here. The thing that's so interesting about private credit, so in a bank, the bank lends out the money, but you, the depositor whose money they're effectively lending out, can call on that money on any given day. So you can. And that's why we have runs on banks, because the bank has lent out too much money, and then everybody else is trying to get the money beforehand. Private credit ostensibly is supposed to be safer because what's technically supposed to have happened is I've gone. I've gone to you and I've said, give me a billion dollars, please, and I will give it back to you. I'll give you the Money back in 10 years from now, and then I will go loan it for 10 years. And so there's supposed to be a sort of a match in terms of the duration, so you can't call on it early. So the reason why it could be a long hiss is also because the money's not due back to the investor for a much longer period of time. And technically, in some cases, you can even extend out when you are supposed to make those payouts.
- [36:12]
B
Yes, well, the difference between if there's a sudden, you can get a panic, but then you actually get a clearing out of all the excess, if there's.
- [36:21]
A
A long, slow hiss, you can have it like zombies.
- [36:23]
B
You don't have such a dramatic. You have zombies and you have something like Japan, where no one trusts the value of anything anymore because everyone knows there's a lot of rot in the system that's concealed and it just keeps feeding on itself and creates deflation and a real loss of confidence in a very pernicious way. I think a pop is like a heart attack and a hiss is more like cancer, but both can be pretty bad.
- [36:48]
A
So maybe I don't want either.
- [36:51]
B
Absolutely not. But if the problem is in private credit today, a lot of that is resting on the AI story, because all the metrics around AI right now are just either signs of a new world and this time it's different and a reason to be excited, or they're the signs of a world gone completely mad. And the metrics and the valuations are ever more extreme. The concentration in stock markets in Britain and in America is incredibly extreme, based on the AI valuations. Everyone's sort of hyped up about AI.
- [37:30]
A
Well, so the thing that concerns me with AI in this moment is if you look at just the math in terms of the money coming into large language models and the frontier models and those companies and then making the commitments that they're making to either build out data centers or lease data centers, the math just doesn't add at all. And it's unclear whether the math will ever add. And if you really talk to most of the folks in Silicon Valley, they will tell you that it doesn't pencil out. They will tell you it is more of a religious belief that if you build it, they will come on the other side and maybe they'll be right, but more likely they'll be wrong. Or at least there'll be a hiccup along the way. But the flip side of it that I worry about just as much, which we haven't talked about yet, is if the in success, if AI truly is successful. So here we are talking about if it's not as successful as it's supposed to be in success, if those valuations do make any logical sense to you whatsoever, they only make logical sense if they create enormous amounts of productivity. What does productivity mean? It ultimately means less cost for more growth. How do you get more growth with less cost? It means that all of us lose our jobs, aren't doing what we do. And then the question is, how does that math add? Because who's going to pay for this in the end? So this one to me is a two sided, truly a double edged sword in that it may not work one way, but even if it works as it's supposed to work, it may not work.
- [39:02]
B
Thanks for listening to Intelligence Squared. This episode was produced by Margarita Valparto and it was edited by Mark Roberts. For ad free episodes and full length recordings. Become a member@intelligencesquared.com membership and to join us at future events, head to intelligencesquared.com attend to see our full program. You've been listening to Intelligence Squared. Thanks for joining us.
- [39:44]
A
Limu Emu and Doug, Here we have.
- [39:47]
B
The Limu Emu in its natural habitat helping people customize their car insurance and save hundreds with Liberty Mutual. Fascinating.
- [39:58]
A
It's accompanied by his natural ally, Doug. Uh, Limu is that guy with the binoculars watching us. Cut the camera.
- [40:05]
B
They see us.
- [40:05]
A
Only pay for what you need@libertymutual.com Liberty Liberty Liberty Liberty Savings. Very underwritten by Liberty Mutual Insurance Company and affiliates. Excludes Massachusetts.