Henry Blodgett (3:33)

It's an incredible book. You've done a fantastic job, just as you did with the prior one, Too big to Fail. And I've read a lot of books about 1929. This one is by far the best in terms of going into what people were actually thinking and doing. And it is incredibly helpful for anybody who wants to be a student of these sort of periods and learn about them. And so, yes, I would say that's the main reason, is that it's another terrific book by you. But I will second what you said before, which I think is that a lot of people do think we're in a period that might be the 1920s again, just as in the 1990s, a lot of us thought it was the 1920s again and before the great financial crisis, and yet it happened anyway. So what is the current Andrew Ross Sork view of what is happening now? Are we in another 1920s and are we headed for another big buck?

Andrew Ross Sorkin (4:22)

So I actually think that one of the great myths of 1929, and it's really actually one of the reasons I wanted to write the book, was that we had a financial crisis, but that it wasn't preordained, that it had to become the Great Depression, and that really the crash was just the first domino of a series of dominoes that led to the Great Depression. I say that because I think we are more maybe in 1996 or 7 or 1998 or something like that. And could we have a real pullback in the market, a massive correction? I think we could. That that ultimately creates a recession in the economy. I do. Do I think that it has to be like the Great Depression? I don't. And I hope it doesn't have to turn into something akin to what we saw in 2008. I would say the only wild card on both of those fronts is that the lesson we learned from 29 and I think we saw it in action in 2008 is from a policy perspective, when you have these terrible situations, you have to throw money at the problem. Typically, I mean, the Federal Reserve US Government throws money at the problem. And what I don't know, which is maybe different today is, you know, back then, 1929, we had a budget surplus. Today, obviously, you know, we're going on $40 trillion of debt. So is there some kind of red line that we could cross in trying to save the system if in fact we have another crisis? And does that turn into some kind of self fulfilling vicious cycle that puts you in some kind of austerity trap that I don't even know about?

Henry Blodgett (6:09)

Well, let me say, and not to suck up to you, but I have gone on record as saying exactly the same thing, which is, yes, we are in another bubble phase, but it's probably more like 1997 than the end of 1999. So a Ways to go. And those are very long years in which a lot happens and great fortunes are made and then gone on to be lost in the 1990s and 2000s. So come back to that lesson. So having studied so many different financial crises, the correct response, what you're saying is for the government to just hit the gas and make money as cheap as possible.

Andrew Ross Sorkin (6:47)

I mean, I think the lesson in 1929 was that they didn't hit the gas. And one of the reasons we let we got to the Great Depression is we moved into a sort of state of austerity. We did and made a whole series of other poor choices about raising taxes, about implementing tariffs. Know back then also there was a gold standard. So it wasn't clear that you could actually just print money ad nauseam. There was no real effort to protect the banks back then. In that moment, a lot of those things have changed. We have an sec, we have, you know, bank capital requirements now, we have all sorts of other rules that hopefully would be somewhat helpful. But again, if the lesson is you gotta spend money. And by the way, we did this during the pandemic, you know, the pandemic, we threw money at the problem. The only difference is, as I said, is there a moment at which like the bondholders of the world say, you know, we like you guys and we're happy to borrow money from you, but you're gonna pay us an extraordinary amount of money for the risk.

Henry Blodgett (7:47)

And on that point, I, going back to the financial crisis 2007-2009, I was a commentator and I remember being freaked out then by the amount of debt and the amount that was being spent, even though in hindsight it was exactly the right policy response, it's the same thing. It's very clear they saved us from another Great Depression. There's no, no question about that. And yet even the folks who were optimistic then, like Paul Krugman, was very out front saying, stop worrying about the debt, we've got the capacity. Don't worry about inflation. We'll talk about that later. Even now, Paul Krugman and many others who were very optimistic during the financial crisis are saying the same thing you are, which is okay, we're getting to a point where we actually do have to think about it.

Andrew Ross Sorkin (8:33)

And I think that that to me is the nerve wracking part. So it is true, and I think you're right on about whether it's 96 or 97 or what have you. You never know where you are in a bubble. And fortunes are often made prior to a crash. I spoke to Paul Tudor Jones earlier this year and he was saying that he thought we were In September of 1999, I think he said, okay, so.

Henry Blodgett (8:59)

He'S much closer to the end.

Andrew Ross Sorkin (9:01)

But by the way, the stock market still went up 40% from there. Right. You know, by the way, back in 1928, Charles Merrill, who was the co founder of Merrill lynch, told everybody to get out of the stock market. Between the beginning of 1928 and September 1929, the market went up 90%. And so this is why it's important to listen to the Cassandras and to see the red flags and to think about them and try to adjust around it. But I think it's very hard for the most part for almost any of these people to time it properly.

Henry Blodgett (9:37)

That and what people forget in the aftermath, for obvious reasons, is the pain of daily missing out on a move like the one you described. And I think you have a line in your book about how people saying one of the most discombobulate things that can happen is having to watch your neighbor get rich. Yes, that FOMO and that mass. I'm missing out on this one time thing that everybody's getting on. That is the thing that drives people to play. And it's incomprehensible in hindsight because it looks like it was so obvious what were you doing. But I am sure that Charles Merrill, as I think you described, took a lot of brick bats for that. People who warn of coming catastrophes are not beloved when the market is still going up.

Andrew Ross Sorkin (10:23)

Look, this, this is human nature. You know, back then, I don't Think they called it fomo, but that's what, you know, that's what it was. It's, it's today you'd say keeping up with the Schwarzman's. You know, you're, that's, that's what the American public is trying to do oftentimes. And when you see your neighbor doing well, especially by the way, in a day and age of inequality, I mean, I think back in the 20s there was remarkable inequality. A lot of people come into the big cities for the first time, they're seeing that inequality and they're thinking one of the only ways out or to have that success may be the lottery ticket. I need to buy that lottery ticket. And I think we're also in a similar state now. So I could see people betting on the market in a way. I mean, I think you saw it even with GameStop or some of the sort of memeifications people playing all this because they, they see it a bit as a lottery ticket as opposed to an investment.

Henry Blodgett (11:15)

Yeah. And I, I don't, I mean to go back to the book like. And I will say that one of the reasons I read it so closely and was so excited about it when I saw you announce it about a year ago was this period is personally relevant to me because I grew up hearing stories about this amazing great grandfather in the family who made this huge fortune in the 1920s and then lost all of it. And he had his own rail car which was like the private jet.

Andrew Ross Sorkin (11:42)

Wow, he did.

Henry Blodgett (11:43)

And so, yes, so that's what everybody had instead of the private jets. And, and I remember growing up hearing lots of stories about, you know, you can't take any risk. And also we have to live up to the great grandfather who lost everything and the apartment on fifth Avenue that was given away in the Great Depression because the market or the everything, all the value collapsed. And so, so for me this period has always been a very salient period. And it's one of the reasons I was so excited to, to read the book. And one of the things that I've realized as I talk to people about it is I think people don't realize just how bad it was and what the crash was like. And so if I could just ask you, like, give us an example of what the peak to trough looked like and what the economy looked like in this because I think again now it's almost a hundred years ago and therefore almost irrelevant to a lot of people.

Andrew Ross Sorkin (12:34)

What's so surprising to me was, you know, think about even just go 1990 or 19, 29, 28, as I said to September 29, you have a stock market up 90%. But more interestingly, you have most ordinary investors for the first time have, have bought this stock on margin. I mean, literally everybody did this on margin. So they had walked into a brokerage house, put down a dollar, and they were lent $10. It was literally a 10 to 1 scenario. So the market actually, I mean, only the market drops from September. To call it November 13th, that was a low 50%. And by the end of 1929, for better or worse, the market was actually only down 17%. And so actually, if you just looked at the Dow, you wouldn't have, you would have missed it. You wouldn't have appreciated what was really happening. I, by the way, think that Hoover actually missed part of this because he was sort of looking at the market as that was his barometer. But he didn't appreciate that the 50% downdraft in the market wasn't just people who were losing their equity. They were getting the phone calls that were saying, you gotta give us your house. And so, so many of the main characters in this book, leading banks, leading investment houses, all sorts of things of that nature are literally, you know, come 1931, 32, we have 25% unemployment in America. 9,000 banks are going out of business. And most of these people, it sounds like maybe like one of your relatives, your grandfather, you know, lost everything. I mean, literally lost everything, stopped out.

Henry Blodgett (14:18)

And it's gone, your equity is gone. And I. So the 25% unemployment, that's the big salient figure of the Great Depression. Just in the stock market, to, to let people know, stock market dropped 89% from peak to trough. So a dollar was suddenly worth 10 cents even in the financial crisis, where it really did look like the world was going to end for a few minutes in 2009, we only dropped 50% in the market. So it's just an unprecedented drop for the United States stock market. And just to be, to be put that into today, the Dow is somewhere around 50,000. Today it would mean dropping to 5,000. I remember when the Dow first crossed 5,000. I had just gotten to Wall street and it was this huge thing that nobody thought possible. And there was a strategist at my firm named Ralph Acampora who predicted crazily that the Dow was going to someday go to 7,000. And everybody thought he was a complete lunatic. But here we are at 50,000. The equivalent drop in a few years would be 5,000. So absolutely catastrophic. And I look at today and you look at Nvidia, one of the big leading stocks now trading at whatever call it 170. I think the highs at 185 as we speak, it'd be dropping to 2. So tell us again about the mistakes that you feel were made by Hoover and others.

Andrew Ross Sorkin (15:46)

Well, I think there's sort of two periods of mistakes. One period was on the front end trying, you know, could have you prevented the crash from happening at all. And one of the things that was fascinating was, you know, as I was going through the letters and memos and diaries of members of the Federal Reserve during this period in the spring of, of 29, they're debating how they can snuff out the speculation. They are. They, they see it for what it is. They want to get rid of it. It's not that they don't, but. And by the way, Hoover too recognized that there was a problem. They don't really know how to do it without tipping the entire economy over. And I think back then, you know, the Federal Reserve was still so new. It was born in 1913. So, you know, some people even back then were describing it still as a, quote, experiment. It was still an experiment. And so if you were on the board, you were thinking to yourself, well, if we raise interest rates to really snuff out the speculation, that might work. But if the economy falls over, we're not just getting hauled up in front of Congress. They may eliminate the experiment unto itself. So there was almost a political pressure, not in terms of Hoover telling them what to do, the way I think people think of political pressure today with the Federal Reserve, but there was a sense of just the politics of, of the moment. You also had Hoover trying to think about what he could do. He ultimately, you know, also had a Treasury Secretary who he didn't get along with, who was a true capitalist, Andrew Mellon, who sort of had a view of, you know, you make it great, you lose it great. That's, that's, that's the shakes. And then of course, you had Carter Glass, who was a senator in Virginia, who was really the Elizabeth Warren of his time, who had all of these ideas about how he, he was going to try to snuff out the speculation himself. He was trying to introduce bills in the Senate, you know, that would add taxes to short term trading, for example, as a way to sort of slow it down. Of course, none of that moves forward. So a, what could you do on the front end?

Henry Blodgett (17:56)

Right. And just to stop you there, because I think it's so Important, I think. I think with these periods, when we look back in hindsight, I think the. The main story that gets told is everyone just went insane and everyone thought everything was going to go up forever. It was mass delusion. Now we're sane, so it will never happen again. And throughout your book, as you just described, one of the things you do so well is point out that lots and lots and lots of people thought it was a huge speculative bubble and they should do something about it. And so this idea that it was a surprise to people was crazy. At the same time, you also had enormous numbers of people that you talk about in the book arguing very fervently that, no, it is fine, you're fundamentally supportive. New era, all these amazing technologies, we're unlocking the consumer. Electricity, radios, planes, cars. It's totally new. So you do actually have a reasonable argument on the other side. And those two things together, I would argue, plus the fact that literally nobody wants you to pull the plug on the bath when it's filling up. Nobody. And so the political problem you're talking about is acute.

Andrew Ross Sorkin (19:08)

You use the plug on the bath. Warren Buffett says nobody ever wants to take the punch away from the punch bowl. Right. I mean, that's what Chuck Prince back in 2007 used to say, when the music's playing, you gotta dance. Yeah. And I think that that was the sense in the 20s, I think that was the sense in the 90s, and I think that was the sense of in 2006 and 7, even when there were articles, you know, questioning whether there was a real estate bubble or this or that. I mean, there were. There have always been Cassandras. Again, it's just trying to capture it in the right moment.

Henry Blodgett (19:44)

That's right. And another book about this type of period that I've always found incredibly valuable is Galbraith's short History of Financial Euphoria, which I know you have read and cite in the book. And one of the things that I was struck by, I read it right after the dot com crash. It would have helped me a lot to have read it a couple of years earlier. But of the things he points out so clearly is, he said, look, in every bubble, there are two types of people. They're the people who think, no, this time is different. Like there these fundamental changes, like today, AI, it's different. It's different because for the first time in history, the technology is going to do the thinking that's fundamentally different. Either the world's going to end or we're going to go on to billion percent productivity or whatever your story is. But there's something that makes it that maybe it's different. And then the second kind, according to Galbraith, are the people who say, no, it's another bubble, but I'm going to get out before the top. And most of those folks end up getting killed. But the reason I dwell on this is I really feel like looking back, even at the dot coms now and even at the financial crisis, everything is so obvious in hindsight that we collectively tell ourselves these stories that, oh, everyone just went insane and that'll never happen again, so we don't have to worry.

Andrew Ross Sorkin (21:00)

Here's my question to you then. So here we are in this moment and we can go back to 29 for a second, but here we are in a moment now where I think you and I will agree that there's a lot of red flags in terms of some of the AI spending, some of the commitments that are being made, some of the circular deals. You look at all those things and say, I don't know if the red flags move, they're yellow flags.

Henry Blodgett (21:20)

Absolutely.

Andrew Ross Sorkin (21:21)

But you don't know how long things can effectively stay irrational relative to people staying liquid. I mean, that is fundamentally the question.

Henry Blodgett (21:33)

That's right. And you can tell yourself any story about how big AI will get. And if you're an institutional investor that has the ability to invest in OpenAI or any of the other leaders, you feel like you've got to take it and you got to work out the numbers. And yes, with private deals is the thing that doesn't come to light all that often is private investors get a lot of protections that nobody ever knows about in terms of returns and everything else. So the valuation numbers are a less reasonable. But yes, it's exactly, exactly what it is. Is another reason why it keeps happening is you can't say definitively when we're going to hit the top or how big the top is going to be. And a lot of the stories that we tell ourselves in the middle of these eras come true. The Internet was huge. A lot of mortgage innovation did help in a lot of ways. 1929, all those technologies did get built out. So a lot of the stories are true. It's just that the pattern itself keeps repeating.

Andrew Ross Sorkin (22:28)

And that's, you know, that's the trillion dollar question today. And back then was probably the billion dollar question.

Henry Blodgett (22:37)

Support for solutions comes from Zoom. The way we work is changing and zoom is leading the way, bringing together meetings, chat docs, your AI companion and more. All on one powerful platform. With everything connected, teams can stay focused, share ideas faster, and actually enjoy getting things done. From smart AI features to tools built for real collaboration, Zoom helps make your workday work for you. Ready to join? Visit zoom.compodcast to learn more and zoom ahead.

Zoran Mamdani (23:18)

Okay, so you may have heard New York City gets a new mayor this week 34 year old democratic socialist Zoran Mamdani. Madani's election was one of the biggest wins for the left in 2025, but since then he's been quietly going about a new task, trying to make sure his sweeping campaign promises can actually happen.

Henry Blodgett (23:38)

An agenda that will freeze the rents for more than 2 million rent stabilized tenants, make bus fast and free, and deliver universal childcare across our city. I'm a little skeptical about how he's.

Version History Host (23:51)

Going to get everything done. I think that's what a lot of people are promised.

Henry Blodgett (23:54)

So many things like free buses, housing and all that. Promises, promises.

Zoran Mamdani (24:00)

Can this new kind of politics succeed? Or is this Mamdani's high point? The days before he gets into office on this episode of Today Explained from box, we sit down with New York City's mayor elect and ask him directly.

Andrew Ross Sorkin (24:15)

Is he for real?

Zoran Mamdani (24:17)

That's this week on Today Explained for.

Version History Host (24:20)

Most of the history of television, if you missed a show, you just missed it. It was over, it was gone. But then this little company called TiVo came along and gave people superpowers. You could pause live television, you could rewind it, you could save it and watch it later. It was intended and the people who had it could not stop talking about it. This week on Version History, a new chat show about old technology, we talk about the history of TiVo and how it is that a company whose products actually no one ever really had or used became one of the most iconic stories in tech. All that on Version History, wherever you get podcasts.

Henry Blodgett (24:59)

So people see it coming. To me, that's one of the first myths. What else did you see like that caused the bubble?

Andrew Ross Sorkin (25:09)

So once you had the confidence get sucked out of the system in the fall of 29, you had a president in Hoover who had this idea that somehow he could jawbone the public into believing things were better than they really were. By the way, not that different than the president we have today, not that different than the president we had just prior. But there were also policy choices that were made which clearly were a mistake. There was a sort of a move towards austerity or a move to raise taxes and at the worst time, a move to try to press companies to raise wages at a time when they couldn't afford to do such a thing. And then Hoover's decision to implement the Smoot hawley tariffs in 1930, which was really him just trying to make good on his pledge in 1928, you know, to get elected president. In 28, he was so desperate to get farmers to vote for him that he had told them all that he was going to put tariffs in place to try to protect them. And so 1930 comes around, and he says, I got to.

Henry Blodgett (26:11)

I got it.

Andrew Ross Sorkin (26:11)

I pledged I would do it. I'm going to do it. Despite every economist and banker in America going down to the Oval Office and begging on their knees to tell them that this was going to be a giant mistake. Of course, you know, Trade falls by 60% 12 months later.

Henry Blodgett (26:26)

And so when you look at President Trump, one of the things his defenders will say is, yeah, okay, he comes in with a lot of conviction on ideas that a lot of traditional economists think are crazy, like the tariffs. But he speaks market. He cares about the market going up. And, you know, if the market were to pull back, he would be a pragmatist about it. Is that your view?

Andrew Ross Sorkin (26:50)

Well, look, I think he's more pragmatic than. Than Hoover in that regard. In fact, his tariff approach is slightly different than what Hoover did, and I think that's actually worth noting. So Hoover actually was thought about tariffs almost the way Trump did on Liberation Day, if you will. If you remember when he announced the sort of what people thought were outrageous tariff levels across the board, no matter what, when Hoover implemented the tariffs, they were the tariffs. The same tariffs for everybody, no negotiations. Obviously. One of the things we've seen, obviously, over the last several months is that Trump has approached this in terms of trying to capture these bilateral deals where he's effectively lowered the tariffs in some cases by, you know, more than 50%. If not, if. If not more than that. So there is a distinction to this. And I do think he does measure himself to some degree in the context of the markets. And I think actually the markets may be the. The only thing that had been the real governor on him. You go back to think about Liberation Day, he backed off when the markets. When the bond market freaked out. You know, in the fall, when he was talking about tariffs on China and the market freaked out, he also backed off. So maybe, you know, people say, who. Who can tell him no? Maybe it's the markets who tell him no.

Henry Blodgett (28:05)

And another thing we know about President Trump is he does not care about the debt so perhaps if we do have a break in the next couple of years where, as you suggest, everybody in the should be stepping on the gas, whether we can afford it or not, perhaps he's inclined to do that. And I would imagine it would be.

Andrew Ross Sorkin (28:26)

You know, I was surprised, I don't know if you were back during the pandemic, you know, there was a bailout, bailout for everybody, PPE loans, airlines, everybody. And I remember thinking to myself, having lived through 2008 and all of the political consternation and finger pointing after that, the idea of bailing out financial institutions was considered anathema. It was this idea that we were rewarding the arsonists. And then the pandemic happens and we, you know, send checks to anybody who's, you know, half sentient and even, even to some mailboxes where people are not sentient or even alive, frankly. And nobody said a word. And now it might have been that because everybody got the money, nobody, nobody, nobody had a problem with it. But it was very interesting to me. So it would be very interesting if there is another crash, you know, if you started sending money to the big tech companies, for example, if you end up sending money to Amazon or to Google or to Meta, what the political ramifications of that would be.

Henry Blodgett (29:31)

It's a good question. So a more general question, are these patterns boom and bust, are they bad? Should we try to prevent them if we can?

Andrew Ross Sorkin (29:42)

So look, it's funny you ask that I think we should try to prevent them from getting out of control. But I actually think one of the lessons for me, and maybe I'm talking against my book in this regard, is you do want some sense of speculation in the system. Speculation unto itself should not be considered a dirty word. Whoever originally bet on Elon Musk and Tesla and SpaceX, it was an absurd idea at the time and that was a speculation and you need that. And if you don't have some kind of speculative feeling in the air, you can't have the sort of great innovations of our time. So you do want to create an environment where people want to make big bets and big swings. You just don't want to let it get completely out of control. And I do think there's a distinction between venture capitalists who make those early bets and then you need a public market to make the bet too. But it's, you know, the secondary market's a different kind of business and is not always as critical. It's sort of critical as part of the ecosystem, but it isn't actually as critical to getting a company up and running to begin with.

Henry Blodgett (30:58)

And I agree completely. And I think that that's one of the points that those who study bubbles throughout history will often point to is like, yes, a ton of money was lost on railroads, but then we had railroads and other investors who didn't make the bets on the way up, bought the assets for cheap. They did very well over the long haul. The Internet was created, all the technology we talked about before, and ultimately it is people willing to make those bets that that makes sense. I think the challenge for everybody involved is figuring out, okay, when is it getting out of hand? Because you could look at OpenAI today and say, yes, one can assume that AI will be huge and that the front runner has the opportunity to be the Amazon of the era, and then look at the. The amount of heroic performance that that company has to have for the next five years to justify the current valuation, let alone a huge return on top of it, and say, wow, some people are making some awfully long bets. And so it's. I feel like one of the differences between now and certainly the Internet boom and the financial crisis is that most of it's institutional speculation. These aren't IPOs, it's not individuals. And that insulates it, I think, from a very large extent. But how do we know when things are getting out of hand? And what regulations would you have if you could create them that would prevent.

Andrew Ross Sorkin (32:26)

Well, before I go there, there's one other, I think, important distinction between now and. Call it 20s or prior to 20s with railroads or maybe even the Internet to some degree, which was, you know, laying fiber in the ground. The version of that that's happening today is data centers to power all of this. And it's not clear to me that data centers are like train tracks or even like fiber, insofar as it seems like you're gonna have to continually upgrade the data center constantly. You know, once you put the tracks down, the train tracks on the ground, yeah, you might have to repair them every now and then. Same thing with fiber. But depending on what you believe the depreciation schedule is for an Nvidia chip, it might be that you're gonna like a. Like an iPhone. You might want the newest chip every two or three years just to. And so then how does that investment really work? And so I do think that's one thing that we need to think about in this, you know, in the. This time is different. This time actually is different in that regard.

Henry Blodgett (33:33)

To me, yes, I think it's a great point. Paul Kudrowski has talked about this. A lot of folks have talked about it. And to your point, it's yes, railroad tracks last 25 years. What are the depreciation schedules now? People are fighting about whether they only last two years or whether they might last as long as six years. Either way, it is a huge number being spent for stuff that's going to be old pretty quick.

Andrew Ross Sorkin (33:54)

So you asked though, I think the critical question, which is, okay, let's say you're a regulator or just in the investment community and you could try to prevent things from getting out of hand, what do you do? So one of the things you could do, though I think at this moment you probably wouldn't do, the Fed could try to raise interest rates to try to tamp down speculation. But that would be at a time when we have both an inflation problem on one end and an unemployment problem on the other. So there's very little, just the blunt instrument of the Fed can do about this. However, I do think that transparency, sunlight is critical always and oftentimes when you don't have it is when you have problems. I don't think today that so much of the data center AI ecosystem is transparent anymore because so much of it relies on private credit. I'm not just talking about the money. Look, there is real cash coming from the big hyperscalers, but the energy ecosystem that's powering this, the real estate industry, the construction industry that's building these things, there is a lot of leverage in the system. Every financial crisis to me is really always a function of leverage. And I don't think today, if you were to ask Jay Powell if he really knows where all the leverage is and how interconnected it is, that he would say he knows, because in the aftermath of 2008, really as a function of both capital requirements that the Fed implemented and Dodd Frank and other things, so much of the lending scheme in America moved towards private credit, which is a completely other world with no disclosure. And so many of the businesses also live either in private equity or venture capital where there is sometimes people would say cynically, a sort of mark to make believe universe where it's unclear whether the valuations are real to begin with. So I think to me it's there where, you know, if you could get a little sun on that, that could be a bit of a disinfectant.

Henry Blodgett (35:54)

I think you're exactly right. And I think one of the other things Galbraith talks about that too, that leverage is inherent in all of these periods. And I think the Another thing he says is after the crash, what happens is you have legal ramifications, storm in scapegoating, people want villains. And then you look at a lot of these things and say, okay, well, that seemed okay at the time, but we got to do something about it. And I think you've put your picture, your finger on one of the areas that in hindsight, people will look back at and say, wait a minute, we can't allow that to happen without being able to see it happen.

Andrew Ross Sorkin (36:30)

But what's so interesting is in the moment, people don't think that it's a problem.

Henry Blodgett (36:33)

That's right.

Andrew Ross Sorkin (36:34)

That's right. By the way, back in the 20s, you know, there was all sorts of rampant manipulation going on. I mean, shocking, these shocking pool operations, which were basically pump and dump schemes by the elite and where they pull the rug. And everybody knew what was going on to some degree.

Henry Blodgett (36:49)

Insider trading was legal. Wasn't legal.

Andrew Ross Sorkin (36:50)

It was all legal. But I went back trying as somebody who writes about characters and people. I wanted to find some individual, some member of the elite that somehow didn't participate in these schemes because he believed it was probably. He at that point, believed that somehow this was immoral. And I could not find that person. I couldn't find quotes from some individual who had a real morality problem with what was going on because there were no rules. And the market is so interesting because I think that everybody who's in the market to some degree thinks they're in the business of trying to outwit somebody else. Right. Whoever's buying a stock thinks they're smarter in that moment, that the person's selling them the stock. And whoever's selling a stock in that moment must think that they're smarter than the person that's buying it from them. And so I think even back then, there was a view that the sort of manipulation that was happening was sort of part and parcel of just trying.

Henry Blodgett (37:49)

To outwit the other side, how the game is played. And you want to play with the pros, however the game is played. And. Absolutely, and I'll give you a couple of stories just because I think they'll amuse you too. But especially with my family experience when I was an analyst in the 1990s, Internet's happening, market's going crazy. I remember asking all the smart old people, is this the 1920s again? You know, it's starting to seem like it's kind of like it. And people say, oh, no, no, no. Now we have the SEC and we have amazing accounting, and it's a modern market and so those things don't happen anymore. And then kaboom, it happens all over again. And here we are again. And so that's my question to you is even if we can get the regulation perfect, are we going to ever stop these?

Andrew Ross Sorkin (38:34)

Oh, I think invariably we won't. I think we will always have periods of excess, periods of indiscriminate spending that's powered in large part by debt. And I think you could try to limit it, as I said, but I think we'll always be living with it. It's the human nature, it's the fomo. I hate to say it's the jealousy and envy that drives so much of our society, but that's a piece of what's happening.

Henry Blodgett (39:00)

That's right. And I, I don't, I mean, having looked at a bunch myself and having lived through the one that I lived through and then the two, since I don't think you can stop them. I think they're inherent to capitalism and I think it's exactly what you described. I mean, going back to my own experience, unfortunately, we are well aware of my getting taken to task by Elliot Spitzer. For we have discovered that analysts worked with bankers to pitch IPO business. This is outrageous. I remember coming up in the 1990s and reading the front page Wall Street Journal reports about the new analyst Jack Grubman, who is both an analyst and a banker. And this is the way it is done and nobody questioned it in those days. It's the same thing you were saying about the pool operations and so forth. So you're right. That's the other thing that happens is I think if the AI boom crashes, we will then look back and say that this whole private shadowy debt that funded the whole thing was crazy and we've got to change it. But now no one's going to speak up and change it. People are making too much money.

Andrew Ross Sorkin (40:02)

I think that's true. And invariably when we do fix it, if we do, it'll be fighting some prior war that will create some new problem and we'll find the next thing. I mean, the reason why private credit was invented was to get out of the regulated universe and get into, and get back into the unregulated universe. So there's always going to be folks who are trying to figure out how to get to the next place. And it's very hard from a regulatory perspective to get ahead of that. And maybe it's not in our interest. I mean, I would say it's in our interest to get ahead of it in certain ways. But as you said, maybe you need a little bit. You need a little bit of it.

Henry Blodgett (40:44)

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Henry Blodgett (41:57)

So you've now written the book. You've talked to many, many, many people about it. You've heard from people about it. What are the most important takeaways? What do you want to leave people with? From your study of these two historic periods and now living through poss mean.

Andrew Ross Sorkin (42:11)

I think the biggest things are a and it's, it's what Galbraith has said, it's debt. It really is the leverage piece. You have to keep your eye on the leverage. And especially in a moment like today where you don't know where the leverage is, you have to say to yourself, okay, that's a yellow flag or a red flag. And I got to think about that. Transparency, manipulation, I think you do have to watch for that and things that seem normal to us today. But you sort of have to understand in the private markets, for example, do we believe that all the marks are really the marks? Especially by the way, as some of these newfangled products are going to enter the public market. So I think the next thing we're going to start to see is private equity, venture capital, private credit are going to be available in these sort of semi liquid funds that are going to be made available to retirees to the public every time we have new financial products that get introduced, tokenizing private companies in the public markets, all of that crypto, all that kind of stuff. Invariably there's, there's chicanery, there just always is. Even you could argue, you know, the, the popular popularization of SPACs in the, you know, 2020, 2021. By the way, the product unto itself was Not a bad product. All these things can be done in good ways. It's just that they don't come with the right guardrails. And the people who build them on day one don't try to put guardrails around them for obvious reasons. And then when things tip over, then they do. So I think it's a little bit of that. And then the last piece, which is just the human piece, maybe goes to the fomo, is just whatever our sense of confidence is. I think we need to check it at every turn. I think that humanity is such that we always want more and we just need to take a step back occasionally. And I think all too often we don't.

Henry Blodgett (44:03)

And as we look at this current period, are there lessons from the 1920s or the great financial crisis that you think can alert us to when the top might be coming here and what we can do? Say we're the second kind of person who thinks, no, no, no, it's a bubble, but I'll get about before the top, which is, by the way, what I was in the 1990s, and that backfired. I missed it.

Andrew Ross Sorkin (44:26)

So I think. I mean, this is why I think the timing thing doesn't work. But this goes to. And I hate the word diversification because I think one of the things we learned in 2008 is you could be as diversified as you want. It doesn't matter. I think there's a lot of people who are fully long, AI Nvidia, all of the like or crypto, all the risky stuff. And I think you get to a moment like this. Now the question is, are we 96, 97, 98, depending on what your threshold for risk is and for when you need the money, this might be a time not say you have to get out of all these stocks at all, but where you look at the portfolio and you say, if I'm a hundred percent invested, maybe I should only be 70% invested. Maybe I should have a little bit of cash on the sideline because I know I may need it in the next couple years. And maybe in the next couple years, things get a little bit more complicated and that you're not going to feel bad about it when your neighbor who never tried to diversify, seems like they're doing better than you next year. And by the way, maybe there won't be any crash for a decade or longer. Who knows? You have to have the constitution to say that's okay, too. And for the most part, that worked out for people like Warren Buffett over the years.

Henry Blodgett (45:47)

So lessons for investors, I mean, you just had one and companies. Because the other big piece of these eras is if you were running a company, there is this logic process where you say, look, if we don't spend the $10 billion in this case, then another company will do it and we will lose our position. So we have to do it and we have to hire all the people and we've got to raise more money to go faster and stay ahead. So there is a real logic there that you just simply don't want to lose your position. You don't want to give up the opportunities to others investors you talked about. And you're not the only one to say that maybe the best approach to avoid feeling stupid and burned either way is to just have a toe in the water. Howard Marks, an incredible investor, wrote this recently saying nobody knows, but far better to at least have a little bit of exposure so you get, you go along with it than not.

Andrew Ross Sorkin (46:38)

But I think that's the same answer if you're a CEO.

Henry Blodgett (46:41)

That's right. That's right. I think that's right.

Andrew Ross Sorkin (46:42)

I think it's the same whatever the investment is, you just, you, do you want to bet the whole company on it or do you want to bet most of the company on it so that if it doesn't totally work, there's still a shot?

Henry Blodgett (46:55)

That's right. And so that seems to be very sane. What about for politicians and government?

Andrew Ross Sorkin (47:03)

That's more complicated to me because I think we're living in a very unique universe where we really are taking the guardrails off. I think this is not the moment you take the guardrails off. I think a lot of times people introduce new products in this sort of guise of democratizing finance or innovation in finance. And I think that's where we get a little, that's where things get tricky. And again, I think it, it's about disclosure. I think it's about incentives and motives and trying to understand, you know, when people are selling. I think that was, by the way, the problem with the SPACs. You had people who, you know, were putting up projections for three, four, five years and yet they could sell their stocks, you know, in three months if you, if you had tied, for example, the, I always thought that they should tie. Whoever the sponsor of a SPAC is, should be tied to whatever the projection is. If they wanted to project out five years, they have to hold the stock for five years. They wouldn't only project it out for six months. They, that's fine too. But, but it would change the dynamic with which the investor class would think about it. So I just think we need to come up with more aligned practices. And I think right now in particular, especially as there's a sort of new products coming to market, some of these semi liquid instruments, I don't know if you followed this, they're going to look like stocks that you can buy on any given day. But in truth, if too many people try to sell it all at the same time, everyone can't get out at the same time. That could get super complicated. And we got to figure out how those should work, for example.

Henry Blodgett (48:39)

And I would say going back to your other point on everything that happens in the private markets now out of sight. One of the things we did have in the 1990s was a roaring IPO market. IPO documentation is pretty good. You know a lot about the company when it goes public. And one of the things, the backlash there led to it just becoming much more expensive, much higher regulatory hurdles to be a public company. And that drove companies to stay private forever. And I would say one of the things that's a bummer about that if you're an investor and you're not in a venture capital fund, is you gotta watch Facebook go from when you spot it at a $500 million valuation or whatever it happens to be, to 50 billion when it goes public. And you've missed that. Run from your perspective, watching as a journalist and seeing what happened in the 1990s, is that a regulation that you feel like we should roll back? Should we have the ability for companies to go public earlier than they used to? Or is that just again, encouraging too many people to take risk that they shouldn't take?

Andrew Ross Sorkin (49:42)

Well, to me, the great complication is I think you want more companies to be public rather than less. We have created an environment where it doesn't seem to be so fun to be a public company and we've made it easy to be a private company. So that's the other thing. You could work this both ways. Carrot stick on certain kinds of businesses to actually incentivize companies to become public. Do you want them public early? I'm not against them being public early again though, as assuming that all the disclosures are there. I actually think that there would be a discount on the, you know, if it's all done in the open, I think there'd be a fair discount on those stocks. Yeah.

Henry Blodgett (50:27)

I mean, my, my problem with the, the risk factors and disclosures in perspectives is they never talk about the actual risk factor, which is this idea might not work. Management might screw up and the thing will go splat and you'll lose everything. Or competitors might talk about competition and execution related stuff, but it somehow just never gets the fact like this is a long ball, it's probably not going to work. But if it does work, yeah, there might be great returns.

Andrew Ross Sorkin (50:54)

But here's the hard part. Think about, think about Amazon. You know, I remember covering Amazon in the late 90s when, you know, what was that cover story? Was Amazon bomb Amazon.com and look at Amazon now.

Henry Blodgett (51:08)

Absolutely. But going back to the point on IPOs, so when Amazon went public, I don't remember the exact numbers, but I think the valuation was something like 400 million, which is a joke today. I mean today seed rounds are getting done at 4 billion, what have you. It's like AI is like the Internet boom with three zeros attached. But also because companies are going public so much later is you can't capture that in the public markets. And so when Amazon went public, 1997, I think, huge controversy. It's just a bookstore, it's not making money. Books is a terrible business. Why, why are people paying these crazy prices? But if you said, well, they could go into other things besides books and then they can be in other businesses, the upside is way greater than the potential downside, which yes, of course is 100%. So it actually looks like a good bet. My problem with if, if OpenAI went public today and it was all converted to common and it was trading at 500 billion to a trillion dollars again, you've got to have just heroic assumptions about how they execute in the future. So do you get that thousand x return as a possibility? You don't. So for me, I actually wish, to your point, we would have companies go public earlier and slightly easier than before. Any more to add on that? Any? Well, let me ask you one other thing. So the, the private markets, the debt, are there other practices that you're seeing now and are there people doing things that you think will be in the crosshairs if and when this all goes to, to pot?

Andrew Ross Sorkin (52:43)

No, look, I think it's, it's most. No, I, I mean there's not. I, I don't know where you land on, on vendor financing and these circular transactions where it does seem like, you know, $1 is moving around a whole bunch of places and there's some double counting going on.

Henry Blodgett (52:59)

No, it's very similar to what we saw after the 1990s with AOL and others.

Andrew Ross Sorkin (53:04)

If these things fail, I think you will have some kind of, you know, comeuppance. The accountants will get in trouble again. The investor, you know, the CEOs will, they'll say, you knew what was happening. And by the way, the public did know what was happening because here we are talking about it and that's the, that's, that's the craziest part.

Henry Blodgett (53:24)

But that's right.

Andrew Ross Sorkin (53:25)

Again, I'm hopeful that all of this stuff is going to work. So we'll see.

Henry Blodgett (53:32)

I'm hopeful too. And I also do think that there's going to be much less public anger because you don't have so many individuals laying down money on these stocks. Microsoft, if Microsoft has to take an $80 billion write off because as you say, the chips were only usable for two years as opposed to six, so what? No one will care. The stock will go up because the bad news will finally be out of the way. And yes, I think the risk is where the debt is.

Andrew Ross Sorkin (53:59)

Well, unless you believe there's a massive RE rating.

Henry Blodgett (54:03)

Absolutely. Because AI yes.

Andrew Ross Sorkin (54:05)

All the build companies. Could there be a moment, almost maybe even like a Netflix moment? You remember a couple years ago when Netflix, you know, their subscriber numbers weren't growing the way people expected and then every other media company was sort of chasing the same strategy, you know, lost half their value overnight. Now Netflix is doing great today, but there can be these moments and when they're levered moments, that's where it gets complicated.

Henry Blodgett (54:30)

That's right. And so all stocks could go down and everyone could be angry about that. Absolutely. I think it's a little bit, there's a little bit more insulated when it is someone is making a bet on a specific company where we see these practices. But yes, there is certainly a lot for fodder that we're going to see a much wider impact if and when this does break. All right, to finish up, Andrew Ross Sorkin, you are on TV at an incredibly early hour every morning. You are then putting out your own newspaper within the New York Times every morning or every afternoon somehow that I get in my mail and everyone should have it. It's Dealbook. It's excellent. Yet you somehow find time in the middle of the day to write these 400 page incredibly researched stories for a reason. I know, but my goodness, you do a lot. But I guess the question is, what's next? And are you. Has your agent already sold the third in your series about the AI bubble?

Andrew Ross Sorkin (55:26)

No, no, no, no, no. I always say I was writing this as a prequel to Too Big to Fail. So that I didn't have to write a sequel.

Henry Blodgett (55:36)

I predict we will be getting a sequel. I don't know how long it'll take.

Andrew Ross Sorkin (55:40)

But I predict we will get My wife says I'm not allowed to write another book until my kids go to college and I have an 8 year old. So you gotta go 10 years before we have another crash. Can you hold one off?

Henry Blodgett (55:55)

Look, I think if we have something on the order of what happened with the dot coms or the financial crisis, I think you will be drafted into service for your skills to tell us what really happened behind the scenes as it was happening. Andrew, great to talk to you. Thank you so much. And we'll see you on TV in the morning.

Andrew Ross Sorkin (56:11)

Hey, thanks so much. I appreciate it.

Henry Blodgett (56:14)

Solutions is produced by Megan Cunain. Jim Mackle is our video editor. Our theme music is by Trackademics. Nishat Kurwa is Vox Media's executive producer of podcasts. Thanks for listening to Solutions from the Vox Media Podcast Network. I'm your host, Henry Blodgett. We'll see you soon. Support for Solutions comes from Zoom. Your work tool shouldn't slow you down. Zoom brings meetings, chat docs, and your AI companion together on one platform to help you work better. Visit zoom.compodcast to learn more and Zoom ahead.