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SNAFU with Ed Helms
From Here We Go Again With Kal Penn: Another Economic Crash with Michael Lewis
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- [00:01]
Kalpen (Cal) Penn
I am the son of immigrants and have son of immigrant energy, which means I just save everything. I tend to not really spend that much money because I'm saving for the rainy day that we all know is going to come. But there are a lot of signs pointing to the economy taking a potential left turn here. The report card that tracks how the economy is doing, it's called the leading economic index, has been falling for months. Big banks like UBS are saying there's a high chance of a recession soon. And then you have economists who individually are sort of like all the odds are like 5050 within the next year. But at the same time, fewer houses are being built, companies are hiring less. There's obviously an affordability crisis in major cities, but in plenty of places around the country. And that's why we're here today. And instead of, instead of scaring you further, I thought why not talk to somebody who actually knows and has written about the 2008 financial crisis and can help us understand whether we're headed for a new one.
- [00:56]
Michael Lewis
You know, it's funny, I don't live my life in fear of a financial crash, so I'm not thinking, oh, it's always this way, but because you have.
- [01:03]
Kalpen (Cal) Penn
Gold under your bed.
- [01:05]
Michael Lewis
Well, I actually do a little bit. Just a little bit.
- [01:11]
Here we go again. Again, again, again.
- [01:17]
Kalpen (Cal) Penn
This is Here We Go Again, a show where we take today's trends and headlines and then ask, why does history keep repeating itself? I'm Kalpen.
- [01:26]
Michael Lewis
Here we go.
- [01:41]
Commercial Narrator 1
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- [01:47]
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- [02:16]
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- [02:37]
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- [02:51]
Michael Lewis
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- [03:52]
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- [04:29]
Michael Lewis
Hello. Hello.
- [04:30]
Kalpen (Cal) Penn
Hey Michael.
- [04:31]
Michael Lewis
Cal.
- [04:32]
Kalpen (Cal) Penn
So let me brag a little bit about the person across from me. I'm a big fan of Michael Lewis. Michael Lewis is one of those rare people who can take really complicated, insane things like Wall street greed or baseball statistics and make them digestible in like a page turning. This is a thriller sort of a way. He's written books like the Blind side and the Big Short. The Big Short just got rereleased as an audiobook which Michael narrates for the very first time. He's got a podcast about trust in modern life. It's called against the Rules. So basically I'm nerding out hard because I I love complicated things that can be distilled down for like a nerdy dummy like me. And I'm fortunate enough to get to ask him the question that's been on my mind. Are we going to live through another 2008, financial crisis. I hope not. But then who can I actually trust with my money?
- [05:18]
Michael Lewis
So what are we doing? What is this? Tell me something.
- [05:21]
Kalpen (Cal) Penn
I remember, Michael, the first time I saw Moneyball. And obviously I'm a big fan of the big short. And my first question was, oh, how do I get cast in this? Because there are hella shady brown guys in the finance world, many of whom are now in prison. I'm trying to get life rights to some of these stories. Also, I'm from New Jersey, so if we want to talk about, like, shady guys in the finance world, I know some of them having grown up in Monmouth County. But I'm a big fan. I appreciate you being here. In prepping to talk to you, I thought about 2008 financial crisis, and sort of after it, I learned that an old friend of mine, a. A at the time, pretty good college friend, had been directly involved in the following way. He was selling subprime mortgages for one of those big companies. And so I, you know, I was a little bit on my soapbox, I think, like most of us were. And I. I wanted to learn what it was like to cause that much harm to vulnerable people. And I think maybe part of the problem was I asked it in that way, and I was kind of reminded of how naive I am sometimes because this guy's answers were basically that he and everyone else knew that what they were doing was wrong all along. He couldn't resist all the bonuses and the new clients that he was getting by selling these subprime mortgages. Everything turned to shit. These guys basically just shrugged and said, oh, well, and moved on to a different job. And then when all was said and done, there were like, zero consequences for him and kind of anybody in his position, with the exception of maybe like, losing my respect, which I don't think he cared about much to begin with, but. But that's always bothered me because aside from the sheer moral outrage, there was this huge lack of consequences. And I just sort of was thinking, like, you know, what's stopping these people from doing this kind of shit again? So, namely, I thought maybe we'd open up.
- [07:13]
Michael Lewis
Can I stop? Can I stop you?
- [07:14]
Kalpen (Cal) Penn
Yes, please, please.
- [07:16]
Michael Lewis
I want to unpack that little anecdote. So when you encounter him and he explains what he's doing, you is still peak craze, or is it after the fact?
- [07:24]
Kalpen (Cal) Penn
It's after the fact.
- [07:25]
Michael Lewis
So it's all collapsed?
- [07:27]
Kalpen (Cal) Penn
It has all collapsed, yes.
- [07:29]
Michael Lewis
And the fact that you say, you know, people just. I think people are bewildered by the idea of selling subpar mortgages because you think is your homeowners take out mortgages. The idea of these things being peddled, like you're trying to persuade people to take out a loan and that is an act of sales to people who already have dicey credit right there. There's like, like what is this? It's not intuitive.
- [07:56]
Kalpen (Cal) Penn
No. And this was, this is what kind of enraged me is like, you know, I'm the son of immigrants who, whose immigration story is very different. My parents both speak English, they're multilingual. They moved to the United States with advanced degrees. So when I hear stories like, oh, somebody didn't know what they were signing, my first reaction is, well, boo. Who, like who, who told you not to read all the paperwork? But then you talk to guys like this who are literally peddling something saying like, oh, don't worry about it though, I'm your friend. Don't worry about the fine print. Knowing that these people are going to default on their mortgages at some point, but that there was a bonus in it for him was insane to me.
- [08:33]
Michael Lewis
And there's, you know, there, there's eons of habit baked into the, the minds of the consumer. And it's a bit like, it's a bit like junk food like that you, you know, baked into our brains is scarcity.
- [08:48]
Kalpen (Cal) Penn
Yeah.
- [08:48]
Michael Lewis
So that anything you get thrown at you, it's just, I'll just take more and more and more and more. And the idea that someone's going to give you a loan that you shouldn't take, it's a little hard to get your mind around that. You're thinking like, well, if they're lending it to me, they know what they're doing, you know, I should, it means I should do it. So my first reaction when I started to hear the story of the subprime crisis back when I was working on the big short was like, oh, you know, people shouldn't borrow money they can't repay. It was less sympathetic. The more I dug into it, the more predatory it all felt. And that's not to let everybody off the hook. But you were right to be outraged by your friends behavior. It was just where high finance met the working class. That border where someone was who understood these things was actually peddling them to someone who didn't was maybe the ugliest part of the whole event.
- [09:43]
Kalpen (Cal) Penn
So what I was going to say was if you like, let's say we went back to 2006 leading up to 2008 as if I was like a five year old. What are some indicators that we could see as like normal people that were heading towards this crash in 2008?
- [09:58]
Michael Lewis
It's funny, I asked the same question of, of, of all my characters back and just recently re asked them for the podcast I'm doing alongside the Big Short. And I said just that. I actually said like an 8 year old or a 7 year old. And Steve Eisman, who is played by Steve Carell in the movie, looked at me. He said, you can't explain this to a five year old. He says you can explain this to. How about we start with a 20 year old?
- [10:24]
Kalpen (Cal) Penn
Yeah, fine, great.
- [10:25]
Michael Lewis
But okay, no, I'll do my. Yeah, so five year olds, a little rough, but can we be a little older?
- [10:30]
Kalpen (Cal) Penn
Yeah, please, we can be a little older. You pick the age.
- [10:32]
Michael Lewis
20 is good, I'll pick the age, but I'll just try my mother an 88 year old. So what happens here? Your friend was selling subprime mortgages, which is a weird idea, right? You have to get your mind around that. He's going around looking for people who probably shouldn't borrow the money to borrow the money to buy a house. And your friend is only doing that because your friend is not going to sit there with the loan. Your friend isn't lending that person the money himself. He's not going to sit there. He's going to lose any money if, if those. That person eventually defaults, as they turned out likely to do.
- [11:06]
Kalpen (Cal) Penn
Right.
- [11:07]
Michael Lewis
So what your friend is doing is acting on behalf of some bigger mortgage lender who will then take the loans and hand them off to. I mean, there'll be sometimes multiple stages, but a big Wall street firm eventually, and a Citigroup, a Merrill Lynch, a Goldman Sachs, who will put them all in a big pot. All these loans and the pot, you know what's coming into that pot is mortgage payments from all these people who bought the houses. And that can be turned into a bond. You know, it's just like that looks like a bond. So they sell it off as pieces of paper in this pool of mortgages. Now who ends up owning it? That at the time was one of the great mysteries. This stuff went all over the world. And in fact, some of the big Wall street banks end up keeping a lot of it on their books, stupidly. But along the way, the big point is the person making the loan is not exposed in any way. The person's physically doing it. They have no incentive for the loan to be a smart loan. They have incentive to generate as many of the Loans as possible. They also have an incentive because these loans, you know, the general characteristics of the loan are evaluated by the people who are taking the loans off the hands of that person who lent the money. So the fic, the credit scores, how much money do they put down, all that stuff that would make a loan riskier or less risky. They have an incentive to lie about that or game it in some way. So what happens? There's a chain, this loan gets passed through several hands and eventually ends up being held by some investor in the form of a bond. But along the way, in various ways, the risk gets disguised. And along the way it gets packaged into these big and big black boxes and the boxes get harder and harder to see inside of. So that it takes superhuman sort of analytical research, diligence to figure out what the hell the loans are behind the bonds. And that in fact the characters of the big short one of them anyway, you know, he distinguished himself by actually going into the black box and seeing, oh my God, there's a strip, there's a stripper in Las Vegas with 27 houses. You know, it's that, that kind of thing. So what makes it possible is one, the neediness at the bottom of the chain. The neediness of the person who is borrowing the money in the first place. The desire as, as one of my characters put it, this market was totally a reflection of the working class Americans inability to live up to their expectations. They had financial expectations that their salaries were not meeting. And this sort of filled the hole. So it starts there. Then it's like your friends, immorality, willingness to go to exploit, to make these loans to people who shouldn't have them. The willingness of the whole financial system, the big banks to disguise the risk in the loans and their ability subsequently to pedal these loans in the form of bonds to like German investors.
- [14:12]
Kalpen (Cal) Penn
That's what you mean when you say stuff went all over the world.
- [14:14]
Michael Lewis
It went all over the world. And part of the reason there's a crisis is that no one knows how much of it there is or who's got it. So it's like you can't. Nobody trusts anybody at that moment. It's like, are you bankrupt too?
- [14:29]
Kalpen (Cal) Penn
Are you not a big date? When Lehman Brothers went bankrupt was September 15, 2008. For somebody who does what you do, is that a date where you remember what you were doing, remember what you were thinking? Or did things follow that that showed you the gravity of that day.
- [14:47]
Michael Lewis
I was already into the book. I was already, I was already reporting the big short When Bear Stearns went down in whatever, February, I didn't remember the dates. I locked in on it and I started to kind of kick around and talk to people. I can't remember where I was when Lehman went down. And you know what's funny is not only can I not remember where I was, I remember vividly where my characters were, who I cared about. I started to live this through my characters. And there was a scene that I thought was going to end the movie and it ended the book where these characters. The firm was called FrontPoint Partners. It was an obscure hedge fund that mainly traded in stocks. Had figured out that all the Wall street firms were making this mistake and made this big bet against the subprime mortgage market. And they were so disoriented by being proved so right that it wasn't just they were going to get rich, but maybe the whole world was going to come down. Like, it was just a little unclear at that moment whether capitalism was going to survive kind of thing. It felt that dire to them. They were so aware of just how badly behaved the financial system had been. They imagined a cataclysm even greater than the one that occurred. And they all wandered the streets. There were four of them. They wandered the streets of Manhattan and converged on St. Patrick's Cathedral and sat on the steps and just watched the people like they were ghosts passing them by and say, those people do not know what's about to hit them. So when I think about that day, I wasn't there. They just told me about this. It's their experience that pops to mind.
- [16:27]
Kalpen (Cal) Penn
What was the result of that financial crash for people in your lives? I obviously know this guy who was selling, some have mortgages, and I had friends who, you know, lost money in retirement or money that they'd saved up for their kids, college. But did any of your neighbors, friends, family lose jobs, houses? Did you see anyone on the news that you knew that you were researching? Like, what was that impact like for you?
- [16:54]
Michael Lewis
You know, it actually pops to mind nothing that, that I was so I was reading the news of other people's people. I didn't know their tragedies. Wasn't hard to imagine them. I had old colleagues on Wall street whose careers went up in flames and in some cases, kind of unjustifiably. You know, it was a funny thing. I worked. I worked at Solomon brothers in the 1980s, you know, in the Stone Age. But that, as it happened, this is one of the reasons I got, I got took an interest in the story is I was there basically when the mortgage bond market was being invented by Solomon Brothers. So I saw, you know, Frankenstein's monster be created. And now I was watching the monster come back and eat everybody. And the people who had created the monster knew what the monster was capable of.
- [17:41]
Kalpen (Cal) Penn
Were everyone's reactions like that? Like, I assume you called a lot of these people up, like the, the idea that, oh, shit, we were the ones that created this. Was that across the board? Or, or, by the way, is this truly one of those, like, there are five puppeteers at the top type of situation and they're acknowledging it, but everybody at the deputy level is pretending they had nothing to do with it.
- [18:01]
Michael Lewis
So here's the weird thing. Maybe it's not so weird. You know how it's easy to confess to something that you actually didn't. It's not that damning to confess to, oh, I work too hard. Oh, I care too much.
- [18:12]
Kalpen (Cal) Penn
Yeah. My biggest flaw is that I care too much.
- [18:14]
Michael Lewis
I love too. Well, it's not quite that, but no one was going to prosecute Louis Ranieri for creating the mortgage bond. No one was going to. No one was probably going to completely buy he was really responsible for someone taking the mortgage bond and doing awful things with it. So there's something a little disingenuous about taking the blame for the whole thing when you're not. And the people who were to blame your. This answer your question? There were people inside the Wall street firms in 2006-2008 who really, really should have taken the blame. And none of those people got up and said, oh, I'm sorry, no, for any of them.
- [18:54]
Kalpen (Cal) Penn
Right. You just said, nobody's going after that. That top guy. But for any of them, the top guy or anybody in the middle, did they actually technically do anything illegal?
- [19:03]
Michael Lewis
It's a really good question. And I have a friend, the writer Michael Kinsley, who always says the scandal isn't what's illegal, it's what's legal. A large part of the story of the crisis is it's scandalous. How much of this was legal? Like, how much you could. The fine print got you off the hook because it was immoral. It's, you know, the idea that, for example, Goldman Sachs could conspire with John Paulson, short seller, who wanted to bet against subprime mortgages to create billions and billions of dollars of side bets on the very worst mortgage bonds they created. So, so, so Paulson could bet they were going to go bad.
- [19:43]
Kalpen (Cal) Penn
Yeah.
- [19:43]
Michael Lewis
And these are just like, it's just like, it's a. You can think of it as like replicating the worst loans to infinity and, and injecting those things into the financial system. So getting other people, Germans or whoever, to take the other side of that bet. Now maybe that's legal. It is legal.
- [19:59]
Kalpen (Cal) Penn
Yeah.
- [20:00]
Michael Lewis
It's horrible. It's like, because you're essentially introducing pollution or poison into the financial system, and so you can take a little profit off of it. People who know more than I do would tell you that people in firms hid or ignored reports of how bad the mortgages were so no one would know. So that you know it was a fraud. Maybe you could get people on fraud.
- [20:26]
Kalpen (Cal) Penn
Okay.
- [20:26]
Michael Lewis
It was hard. If you go. If you rewind the tape at the very beginning, you may not. You know, I'm not sure this is even in the book, and my memory of it is going to be a little fuzzy, but Bear Stearns had a fund that was attached to Bear Stearns that went down. And it went down because they were actually. They owned a lot of this stuff.
- [20:47]
US prosecutors tried to put the people who ran that fund in jail. And the trial was in New Jersey. And this was early, early financial crisis. And not only did they fail, but the juror. There were jurors quoted in the newspaper afterwards saying, can you get me the number of those guys from Bear Stearns? I want them to. I think I would have them. I wanted to invest my. My money for my. So there was such a. There was such a. There was such an. In the very beginning, the process, there were prosecutors who were embarrassed trying to kind of like prosecute this thing. And it was hard. It was so complicated. So the answer is, I don't. I'm sure people broke the law. Basically. No one went to jail. In retrospect, the whole society would have been better off if there'd been at least an attempt to prosecute the very top. But there wasn'.
- [21:47]
Commercial Narrator 1
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- [22:15]
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- [24:52]
Kalpen (Cal) Penn
Yeah. So then if, if there was no attempt made to prosecute, and it sounds like if you know, okay, you did all these 50 things wrong that caused this massive, awful global collapse, but technically the only thing we could get you on is fraud, then that makes me wonder all of the conversations about how fragile the economy is again today. Are there systems in place to prevent another crash in the way you just described it? And if so, what are they? What are they responsible for putting a check in? And did the current administration dissolve any of them? Like, did they exist post 2008? But then over the, over the political spectrum have they been kind of watered down themselves?
- [25:33]
Michael Lewis
So there's a, there is a, a deathless problem in the financial system always. And it gets worse the more complicated it gets, and the financial system just gets more and more complicated. And the problem is that people get paid more to take more risk. And the best way to get paid more for taking more risk is disguise the risk you're taking and not actually take the risk yourself. The system is always looking to hide the risk. So par one to the answer to this question you just asked is. So, yes, systems were put in place, constraints were put in place. Specifically, the banks were doing neutered. They can't take the same kind of risk. Those banks, you know, Citigroup, Maryland, Morgan Stanley, bank of America, that they have more capital and they're, they're not allowed to roll the bones in the way they rolled the bones way back when. They're much more boring places. They themselves are unlikely to be the place where the risk gets hidden.
- [26:33]
Kalpen (Cal) Penn
Okay.
- [26:33]
Michael Lewis
However the risk still wants to be taken.
- [26:36]
Kalpen (Cal) Penn
Yeah. And I feel like they know the people taking the risk and.
- [26:38]
Michael Lewis
Yeah, they know the people taking the risk and they're, and they're getting more and more involved. The place where the risk is being taken are places that you maybe are even just barely conscious of, places called Apollo and Blackstone.
- [26:51]
Kalpen (Cal) Penn
These are all private equity.
- [26:53]
Michael Lewis
They're all private.
- [26:54]
Kalpen (Cal) Penn
Yeah.
- [26:54]
Michael Lewis
So they're all, they're all way outside the regulatory framework that top stops the banks from. So it's like you squeeze the orange and the juice went outside and the juice is outside and it's floating around, it's sloshing around and it's hard to know. I mean, I had someone tell me the other day, I mean, someone who watches these places closely, that Blackstone, Aries, Apollo, who are now making. They have trillions of dollars in loans they're making. They used to be. That's not what they used to do. They're essentially doing banking outside the banking system, told me that they've, These are the institutions that are now too big to fail. By too big to fail, I mean that if they were to fail, the government would come in and backstop them so that anybody who's got money in them won't lose their money. And we don't know exactly how it's going to go down. But the risk that they're terrified of is that it's the financial, next financial crisis starts there. I do not know if that's true. I just, I do know that, you know, people follow their incentives in the financial system. And if you can find ways to get paid short term for taking a lot of risk, that won't go bad for a while. People will do that and the risk goes bad. When the risk goes bad and between now and then, people make a lot of money. I mean, this is why these things go in cycles. It's partly memory and partly. It takes a little while for the financial system to figure out how to hide the risk again.
- [28:20]
Kalpen (Cal) Penn
But so if people are making money in the short term, then who's losing money in the long term when, when something collapses?
- [28:28]
Michael Lewis
Well, if the collapse occurs in an institution that's too big to fail, the first approximation is the taxpayer. Their government comes in. It's more complicated than that. Let's take a single simple example. There was a trader at Morgan Stanley in the run up to the financial crisis who I think was paid $50 million in bonuses for his supposedly clever trades in the subprime mortgage market. He was effectively long the market. He effectively owned subprime mortgage bonds. More complicated than that, but roughly so when his trades go bad and Morgan Stanley loses on his trades, $10 billion. First place it's Morgan Stanley shareholders. Second place, it's any taxpayer funds that come in to bail out Morgan Stanley. But he never had to give his bonus back.
- [29:16]
Kalpen (Cal) Penn
That's crazy.
- [29:17]
Michael Lewis
That's crazy. So it's crazy. So that's the problem. Where's this in New Jersey where they all go?
- [29:23]
Kalpen (Cal) Penn
See, this is what, what did I say when I opened? I knew plenty of people growing up who were, who were shady as hell. And it wasn't just the mafia ties.
- [29:32]
Michael Lewis
Now you got to do you get finalists in New Jersey. New Jersey is filled with characters.
- [29:37]
Kalpen (Cal) Penn
That's a very diplomatic way of putting it.
- [29:39]
Michael Lewis
Probably gambling on sports. I don't know what he's doing. So they're just. The problem is incentives. People follow their incentives and a really complicated system starts to generate screwed up incentives and people do screwed up things.
- [29:51]
Kalpen (Cal) Penn
Can I, I just want to very simply try to recap something that you said to make sure I understood it properly, that I was curious what laws have changed to make sure that the same thing doesn't happen as what happened in 2008. And you're saying that all of the risk then went to private equity, which means there's zero oversight. So we've collectively decided as a society that instead of putting proper checks and balances to prevent the system from repeating those mistakes, we're just going to make it so that nobody can see what those mistakes are. Is that correct?
- [30:27]
Michael Lewis
That's a, that's not a bad way of putting it.
- [30:29]
Kalpen (Cal) Penn
That's fucking crazy.
- [30:32]
Michael Lewis
It's, it's a little more complicated than that. It's not just private equity, but it, but it is true. It is crazy. On the other hand, let me just, let me argue against myself a moment. Well, I do think where this all starts for me, where the financial crisis starts is when these investment banks, Goldman Sachs and Solomon Brothers and Morgan Stanley and so on in the 80s and early 90s, go from being private partnerships to being public corporations. Because it is true that when they're private partnerships, the people who own them are the, the employees and it's, they're exposed. They don't want to do really stupid things when they're exposed.
- [31:14]
Kalpen (Cal) Penn
They're exposed. In what way? What does that mean?
- [31:15]
Michael Lewis
Well, so if Lehman Brothers, when it went down had not been a public corporation, it had been back what it used to be, it was owned by the employees. All those, you know, Dick Fuld and all the people who own, ran that place would have not only lost all the money in the place, they would have lost their houses.
- [31:33]
Kalpen (Cal) Penn
Right?
- [31:34]
Michael Lewis
I got, you know, they would have been, they would have had unlimited liability for the things that happened there. They wouldn't have behaved that way. They would not have taken this risk, this catastrophic risk for short term return because they knew that when the catastrophic risk, they would have sensed it when things went bad, they were on the hook. So I do like that structure. And that structure, in some ways I think Wall street has been remoralized in that jump trading and Jane street and Citadel. These are all private companies and if they go bad, if they do really stupid things, the people who run them are going to feel a lot of pain. So I think they'll behave more intelligently. The big private equity firms, I think most of them are, there are, they're public companies. So we, in that case we. So the ones who are doing all this banking, this kind of, I don't know what you call it, shadow banking or whatever you call it, they're actually making the loans and trillions of dollars of loans. They have the same problem as the old banks did going into the financial crisis. And it is essentially there's a phrase that people use on Wall street, regulatory arbitrage, which just means moving the risk to places where the regulators can't see it.
- [32:43]
Kalpen (Cal) Penn
Jeez. Oh, there's a phrase for that, the word for it.
- [32:47]
Michael Lewis
And so, yeah, so, I mean, that's what's going on. That's what's going on.
- [32:51]
Kalpen (Cal) Penn
Does this moment that we're living in, like right now, does that feel different than any of the other moments that we've lived through? Or are people always scared that we're headed towards a financial crash?
- [33:04]
Michael Lewis
You know, it's funny, I don't live my life in fear of a financial crash. So I'm not thinking, oh, it's always this way, but because you have gold under your bed. Well, I actually do a little bit, but just a little bit. But it always feels different, right? What feels different now to me is, in an alarming way, the reason we endured the financial crisis without social collapse, without depression, without 30% unemployment, without, like political chaos, all the rest was we had these institutions, the Federal Reserve and the Treasury. Federal Reserve especially. And the independence of the Federal Reserve, its ability to be the grown up in the room and use this word carefully. But the trusted institution. No one really doubted in 2008 that the federal government, the US federal government had the wherewithal to backstop all the risk to come in and say, all these banks made all these shitty loans. They're all going to go out of business. But we'll just, we're going to bail at the banks. So the banks are going to be, calm down, everybody. Don't pull your money out of the banks. The banks can continue to do their business as they always do their business. We're good for it. And the Federal Reserve bought trillions of dollars of like, mortgages. You know, they took the loans off the books of the banks. Turns out they made a lot of money doing it. I mean, they bought them at distressed prices. So it all worked out. But the premise of this whole resolution was the existence of a trusted grownup whose credit no one doubted. We are now in a situation where we have an administration that is dying to get its hand on the Federal Reserve and essentially eliminate all trust in it, which is what will happen if they get their hands on it, like make it politicize the institution. And our federal government's finances seem uncontrollable. And so what happens if there's a financial crisis without a trusted adult? That's the, that's, that's what feels different. Like if people run for gold or Bitcoin or whatever, the next time things start collapsing, will the promise of the US Government to bail everybody out stop them, like, say, oh, okay, I believe that. Yeah. Yeah, I do want to hold these dollars that you're going to print gazillions more of. Yeah, I really do believe the Federal Reserve is going to, is to calm everything down. And I just, I just, you know, it's, it's not. We've reached a point where those institutions can't function, but they've been really weakened. And I just don't know how a financial crisis plays out without an institution that you trust.
- [35:53]
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- [38:59]
Kalpen (Cal) Penn
The trust part of it I'm so curious about. I think about this a lot also. Not just by the way, government institutions, but all of these legacy institutions that I think people are questioning. Right. Your newspaper, your, you know, I'm, I'm a biased artist, First Amendment advocate, all of the, everything from you know, Biden and Harris's crackdown on college campuses for free speech, right up to Jimmy Kimmel getting taken off the air for free speech. Like there are many, many multifaceted sides to that conversation. But a lot of it distills down into do we trust ABC and Disney? Do we trust the New York Times?
- [39:35]
Michael Lewis
Yep.
- [39:36]
Kalpen (Cal) Penn
What are we trusting these institutions? So it's not just government. So I'm curious, like when you wake up every morning, where do you go for your information? Who do you, who do you trust with your money? Like the, like, you know, gold jokes aside, are you in? Are you? It wasn't a joke for me too. No, I know.
- [39:53]
Michael Lewis
So I will tell, I'll tell you what do I do? How do I live this way? Where do I place my trust? I do not share Americans seemingly complete distrust of media. It is amazing how untrusted the media is in our country right now. I've written for the New York Times and the New Yorker and all these places and I know there are referees who are there to, to make sure you're not just making stuff up. And having said that, this is an important point. I can remember when I first became aware of the news. I mean.
- [40:36]
As a thing that you just didn't take on faith. And it was when I was at Salomon Brothers when all of a sudden I was doing something that was in the news. I was in the Solomon Brothers training program and a New York Times magazine writer came through and wrote about our training program. And then I was 23 or years old. I was basically a kid. And I looked at and I thought, well, it's not completely wrong what she wrote, but it was like it wasn't completely right. She missed. She didn't have it. It wasn't that she had an angle. It was just that she didn't know very much. You know, she was there and talked to a couple of people. So then a penny dropped for me. Well, if this is true of something I know about, what about all these things I don't know about? If I'm reading about the Arab Israeli conflict, what's the likelihood that they've got that anymore? Right? And so assume the person is more or less trying to do their best and has some bias, and sometimes they reveal their bias, but mainly it's just like the nature of news gathering is pretty shallow. So how. Getting out of. How do I live my life? So I hold it all kind of loosely, but I read the New York Times, I glance at the Washington Post, I read the Wall Street Journal. You know, it very useful to me because it's coming from a completely different space as the Financial Times. It just sort of like they're Switzerland. They, they don't, they don't. Like, they're looking at what's going on in America like they're looking at Mars. And, and that's very helpful. So those are newspapers. I let all kinds of podcasts and stuff in. I, I, I graze. I get more, more sources, less deeply. In the last 10 years, I've not read the New York Times as deeply as I read the New York Times 20 years ago.
- [42:14]
Kalpen (Cal) Penn
Well, it's much shorter now. Anyway, it's short.
- [42:17]
Michael Lewis
And my money, where I do, where do I keep money?
- [42:20]
Kalpen (Cal) Penn
Where do you keep your money? So who do you trust?
- [42:23]
Michael Lewis
Schwab. Very important. They don't take big positions themselves. They were notably, like, they, they were not in trouble during the financial crisis.
- [42:34]
Kalpen (Cal) Penn
Okay.
- [42:35]
Michael Lewis
J.P. morgan is. I figure that. In fact, I don't know. I got to say, I don't understand why anybody keeps more than, you know, whatever the deposit insurance now is at a local bank, at a regional bank, it's. There are a handful of banks that are implicitly federally guaranteed, like, too big to fail. And J.P. morgan is the biggest and the best run and a little bit out of the country. Like, not a lot, but a little bit out of the country. And that's. I lived in London when I started my writing career, and so I had to have a bank account. I just kept that bank account in London.
- [43:06]
Kalpen (Cal) Penn
Oh, cool. Okay.
- [43:07]
Michael Lewis
And, but what I invest in, in my weak moments, I will very occasionally buy a stock of a company, of an actual company. It's almost always a mistake. I get lucky, but I don't. I never know enough to actually. I know more. I know I don't know more than the market. And I, and I get excited about something and I ignore the fact that I don't know mainly index funds and Berkshire Hathaway, which is the kind of index fund, it's a big fund, and then gold. So I have a friend who runs MONEY who was a high school friend. He became a libertarian, he became an Ayn Randian. I lost track of him until the financial crisis. I heard he was working for Bear Stearns. I was worried about him. I call him up and he's got this excited tone in his voice. Even though we haven't talked in 20 years, it's like we was yesterday. He goes, michael, Mike, I can't talk, I'm busy. And I said, I'm just worried about you. And he goes, no, no, no, I'm short. He had a fund outside of Bear that Bear Stearns funded. And he made the big short. He made the trade. And he gave me a little lecture 10 years ago about the debasement of the currency and the history of currency debasement. And it so spooked me that I just thought, okay, I'm a buy some gold. So I actually bought some gold and it's gone up and up and up and I can't recommend it really, except.
- [44:27]
Kalpen (Cal) Penn
That it's worked for people who are listening, why specifically gold? Because your friend told you to or because there was something else?
- [44:35]
Michael Lewis
So the argument is gold has no, really, it's not worth $3,600 an ounce. It's use value. The argument is it has social trust. You can't explain why or how it got this, but it is ingrained in us, in human beings, to believe this thing is valuable and to run to it when all else doesn't work and everybody agrees to do it, even if they aren't conscious of it. And so when things go really bad, it's going to go up. And there's saying why. I mean, it's just, it's got a history. But I do feel, I got to say, I don't feel completely comfortable with my holding. I bought into this idea that my friend sold me over an afternoon. I thought part of what I was thinking is, will be a fun way to keep in touch with him is I'll buy some of it and we will be talking about it. And then it just started going up so fast. I forgot about my friend and thought about, wow, I got a bunch of gold.
- [45:36]
So that's what happened.
- [45:37]
Kalpen (Cal) Penn
I'm going to ask you a couple of rapid fire trust questions. Do you trust the following?
- [45:42]
Michael Lewis
Can we do 1 to 10 or is it yes or no?
- [45:43]
Kalpen (Cal) Penn
Sure, you could do 1 to 10. Yeah, 1 to 10 is great. Do you trust the front page of the New York Times?
- [45:49]
Michael Lewis
8. The front page, Yeah. I mean, the New York Times generally. Eight, seven and a half, eight. In these times. People have been run out of the New York Times for being wrong thinking in the last 10 years, you can't, you know, the James Bennett episode, that kind of stuff. He printing something that offended other people gets people fired. That's outrageous. Yeah, so that, that is. That has caused my trust in the New York Times to decline.
- [46:14]
Kalpen (Cal) Penn
That's well said. Okay, what about the front page of the New York Times style section?
- [46:19]
Michael Lewis
Ah, that stuff. That's 10, baby.
- [46:20]
Kalpen (Cal) Penn
There it is. And 10, by the way, 10 being.
- [46:22]
Michael Lewis
The most trusted asked me. It doesn't really ask me to trust it.
- [46:26]
Kalpen (Cal) Penn
I. It's critical for an idiot like me who has no sense of style and is trying to learn because I trust.
- [46:31]
Michael Lewis
Oh, no, no, no. Don't do that. Don't. Donot figure out which colored T shirt to wear or whether you can wear shorts in the winter from. Don't. Don't do that.
- [46:40]
Kalpen (Cal) Penn
Okay. Street tacos in Los Angeles.
- [46:43]
Michael Lewis
4.
- [46:44]
Kalpen (Cal) Penn
Ooh. Hard to say.
- [46:46]
Michael Lewis
I have a very sensitive stomach and I've had some bad experiences.
- [46:49]
Kalpen (Cal) Penn
Okay, that's fair. I would do. I would do an 8.5 or 9. But if it's a stomach issue, I get it.
- [46:54]
Michael Lewis
It's a stomach issue.
- [46:55]
Kalpen (Cal) Penn
Okay, then let's move on to hot dogs. Hot dogs at Y Stadium.
- [46:58]
Michael Lewis
Oh, God. Five. I'm sorry. It's. And it's just.
- [47:02]
Kalpen (Cal) Penn
And it's.
- [47:02]
Michael Lewis
It's also just like as I've gotten older, the appeal of the hot dog has declined. And it's declining. It won't. It's asymptotically. I don't think it will go to zero.
- [47:11]
Kalpen (Cal) Penn
Okay.
- [47:12]
Michael Lewis
But, but it went from, oh, this is a natural thing that a human being should eat.
- [47:16]
Kalpen (Cal) Penn
Yeah.
- [47:16]
Michael Lewis
To I really. I feel the same way about pop Tarts. Like if, if, if it, if like someone from outer green, little green man from outer space came down and stared at this thing, would he identify it as a food?
- [47:28]
Kalpen (Cal) Penn
Y.
- [47:29]
Michael Lewis
Probably not. And there's probably a good reason for that.
- [47:33]
Kalpen (Cal) Penn
Okay.
- [47:35]
Social Security.
- [47:40]
Michael Lewis
Six and a half. Seven. And that is just. It's going to be inflated away. I mean, the value of the. I think the value of benefits will be eroded. I don't think the population will put up with it just being taken away because people have it in their heads, I paid for this. That's my money.
- [47:57]
Kalpen (Cal) Penn
Yeah.
- [47:57]
Michael Lewis
They're just holding it. So, I mean, you can print, always print more dollars. So we'll get some of it, but not what you'd hope for Congress.
- [48:08]
I mean, I got asked trust to do what I mean, I could. Ten in some ways and one in others. It's. Here's the conundrum, the thing that I can't get out of my head about Congress. If you go in and spend time with the individuals, as I've actually I've done recently, I always come away feeling good about the people. I always come away feeling bad about their circumstances, like the situation. And so I come away thinking it isn't the actual people we're putting in there that's the problem. It's the situation we put them in. So there's the things about the structure of the institution that are catastrophically bad. So I actually kind of trust the people, like when I meet them and spend time with them, but I know that the institution is going to end up in a not a good place. So anyway, 1 to 10, if you put this to the American public, you get a one.
- [49:01]
Kalpen (Cal) Penn
Yeah.
- [49:02]
Michael Lewis
Three.
- [49:03]
Kalpen (Cal) Penn
Okay. Well, my last. My last two trust things were gold. And your weed guy. And I know how you feel about gold.
- [49:11]
Michael Lewis
You know, I gold 8. But my we guy. So I have never taken a single hit. I've never even tried marijuana.
- [49:24]
Kalpen (Cal) Penn
You just do edibles.
- [49:26]
Michael Lewis
Eventually, I'll probably come around to edibles. Friends tell me, like, they'll change my life, but I have not. So I don't have a view of my wee guy.
- [49:35]
Kalpen (Cal) Penn
All right, so there's edibles.
- [49:36]
Michael Lewis
I don't have a wee guy.
- [49:37]
Kalpen (Cal) Penn
Sure.
- [49:38]
Michael Lewis
So I default to trust. So we'll say 10. I trust my we got because it costs me nothing to trust him.
- [49:45]
Kalpen (Cal) Penn
Awesome. Thank you for your time, Michael.
- [49:47]
Michael Lewis
All right. Totally fun.
- [49:51]
Kalpen (Cal) Penn
Here we go again as a production of iHeart podcasts and snafu Media in association with New Metric Media. Our executive producers are me, Cal Penn, Ed Helms, Mike Falbo, Alyssa Martino, Andy Kim, Pat Kelly, Chris Kelly, and Dylan Fagan. Megan Tan is our producer and writer. Dave Shumka is our producer and editor, and our consulting producer is Raman Borsalino. Tori Smith is our associate Producer Theme music by Chris Kelly Logo by Matt Gossen Legal review from Daniel Welch, Caroline Johnson and Megan Halson. Special thanks to Glenn Basner, Isaac Dunham, Adam Horne, Lane Klein and everyone at iHeart podcasts, but especially Will Pearson, Kerry Lieberman and Nikki Etor.
- [50:35]
Thanks for listening everybody. Tell your friends, write a review. All of this helps. I appreciate you listening and until we go again, I'm Kelpin.
- [50:45]
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- [51:15]
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- [52:46]
Michael Lewis
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- [53:07]
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Michael Lewis
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