From Here We Go Again With Kal Penn: Another Economic Crash with Michael Lewis

Hey SNAFU fans! We wanted to share another episode from a show that we think you'll enjoy: Here We Go Again with Kal Penn. Each week, Kal Penn takes today’s trends and headlines and asks: Why does history keep repeating itself? From the new space race and plane delays to fad drugs and movie remakes, our guest's answers will make you feel better about everything. Back in 2008, it seemed like everyone was talking about the financial crisis. And then came The Big Short, Michael Lewis' book-to-screen story that exposed the corrupt subprime mortgage industry and its impact on the 08 crash. Now, it seems like everyone's wondering: Are we heading towards another big recession? Who would you trust if you were that very man who exposed that broken system in the first place? Kal gets candid with journalist and author Michael Lewis about our financial future, who he trusts with his money, and why. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

• 0:01Speaker 00

  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, oh, the odds are like 50/50 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.

• 0:44Speaker 00

  And 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.

• 0:56Speaker 01

  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.

• 1:01Speaker 00

  Because you have gold under your bed.

• 1:03Speaker 01

  Well, I actually do, a little bit. But just a little bit.

• 1:11Speaker 02

  Here we go again, again, again, again.

• 1:17Speaker 00

  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 Kal Penn.

• 1:42Speaker 01

  I'm here. Hello, hello.

• 1:43Speaker 00

  Hey, Michael.

• 1:45Speaker 01

  Kal?

• 1:46Speaker 00

  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 re-released 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?

• 2:31Speaker 01

  So what are we doing? What is this? Tell me something.

• 2:35Speaker 00

  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 I know some of them, having grown up in 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, at the time, a pretty good college friend, had been directly involved in the following way.

• 3:19Speaker 00

  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.

• 3:59Speaker 00

  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 what's stopping these people from doing this kind of shit again? So namely, I I thought maybe we'd open up.

• 4:26Speaker 01

  Can I stop? Can I stop you for a second?

• 4:28Speaker 00

  Yes, please, please.

• 4:29Speaker 01

  I want to unpack that little anecdote. So when you encounter him and he explains what he's doing, is still peak craze or is it after the fact?

• 4:37Speaker 00

  It's after the fact.

• 4:39Speaker 01

  So he's it's all collapsed.

• 4:41Speaker 00

  It has all collapsed, yes.

• 4:42Speaker 01

  It's and the fact that you say, you know, people just. I think people are bewildered by the idea of selling subprime mortgages. Because you think as 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 it's it's not intuitive.

• 5:10Speaker 00

  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 they're multilingual, they moved to the United States with advanced degrees. So when I hear stories of like, oh, somebody didn't know what they were signing, my first reaction is, well, boo fucking 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. Don't 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.

• 5:46Speaker 01

  And and there's, you know, there there's a 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.

• 6:01Speaker 00

  Yeah.

• 6:01Speaker 01

  So that anything you get thrown at you, well, it's just, I'll just take more and more and more and more. And 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.

• 6:16Speaker 00

  I, yeah.

• 6:17Speaker 01

  You know, that that 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. Well, 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 friend's 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.

• 6:57Speaker 00

  So what I was gonna 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?

• 7:11Speaker 01

  It's funny, I asked the same question of of of all my characters back in the day. 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 eight year old or a seven year old. And Steve Isman, who who is played by Steve 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, I have, we start with a 20 year old.

• 7:37Speaker 00

  Yeah, fine, great.

• 7:38Speaker 01

  But okay, no, I'll do my, yeah, so five year old is a little rough, but can we can we be a little older?

• 7:44Speaker 00

  Yeah, please.

• 7:44Speaker 01

  We can be a little older.

• 7:45Speaker 00

  You picked the age, 20 is good.

• 7:46Speaker 01

  I'll pick the age, but but I'll just try my mother, an 88 year old. So what happens here, your friend was selling subprime mortgages. It was 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 gonna lose any money if if those that person eventually defaults as they turned out likely to do.

• 8:19Speaker 00

  Right.

• 8:20Speaker 01

  So what your friend is doing is acting on behalf of some bigger mortgage lender who will then.

• 8:28Speaker 01

  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.

• 9:11Speaker 01

  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 credit scores, the, 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

• 9:56Speaker 01

  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 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 stripper, there's a stripper in Las Vegas with 27 houses. It's that, that kind of thing. So what makes it possible is one,

• 10:43Speaker 01

  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 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 do, 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 peddle these loans in the form of bonds to, like, German investors.

• 11:25Speaker 00

  That's what you mean when you say stuff went all over the world.

• 11:28Speaker 01

  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? Are you not?

• 11:43Speaker 00

  A big date when Lehman Brothers went bankrupt was September 15th, 2008. For somebody who does what you do, like, is that a date where you remember what you were doing, remember what you were thinking, or did things follow that showed you the gravity of that day?

• 11:59Speaker 01

  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 can'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 Front Point Partners, it was an obscure hedge fund that mainly traded in stocks, had figured out that all the Wall Street firms were making

• 12:44Speaker 01

  this mistake, and made this big bet against the subprime mortgage market. And they were so disoriented.

• 12:54Speaker 01

  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, you know, capitalism was going to survive, kind of thing. It was that 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,

• 13:34Speaker 00

  Yeah.

• 13:35Speaker 01

  I wasn't there. You know, I, they just told me about this. It's their experience that pops to mind.

• 13:40Speaker 00

  What was the result of that financial crash for people in your lives? Like, I obviously know this guy who was selling some mortgages and I, I had friends who, you know, I, I lost money in retirement or money that they'd saved up for their kid's college. But did any of your neighbors, friends, family lose jobs, houses? That, did you see anyone on the news that you knew that you were researching? Like, what was that impact like for you?

• 14:07Speaker 01

  But you know, it actually pops to my mind, nothing. That, that I was so, I was reading the news of other people's, people I didn't know.

• 14:14Speaker 00

  Yeah.

• 14:15Speaker 01

  Their tragedies. Wasn't hard to imagine them. I had old colleagues on Wall Street whose careers went up in flames. And, 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 gotten, 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.

• 14:54Speaker 00

  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.

• 15:14Speaker 01

  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.

• 15:25Speaker 00

  Yeah, my biggest flaw is that I care too.

• 15:27Speaker 01

  I love, I love too well.

• 15:29Speaker 00

  Yeah.

• 15:30Speaker 01

  It's not quite that, but no one was going to prosecute Louis Rineiri for creating the mortgage bond. No one was gonna, no one was probably gonna 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 to. And the people who were to blame, this is to answer your question. There were people inside the Wall Street firms in 2006 to 2008, who really, really should have taken the blame. And none of those people got up and said, oh, I'm sorry. No.

• 16:06Speaker 00

  For any of them, right? You just said, nobody's, 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?

• 16:17Speaker 01

  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 Paulson could bet they were gonna go bad.

• 16:56Speaker 00

  Yeah.

• 16:56Speaker 01

  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.

• 17:11Speaker 01

  Now, maybe that's legal. It is legal.

• 17:13Speaker 00

  Yeah.

• 17:13Speaker 01

  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, is that fraud? Maybe you could get people on fraud.

• 17:39Speaker 00

  Okay.

• 17:39Speaker 01

  It was hard. If you go, if you rewind the tape, at the very beginning, you may not, you know, I don't know, 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. U.S. prosecutors tried to put the people who ran that fund in jail.

• 18:05Speaker 00

  Uh huh.

• 18:06Speaker 01

  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?

• 18:21Speaker 00

  Oh, my God.

• 18:22Speaker 01

  I want to, I think I would, I want to invest my money for me.

• 18:27Speaker 00

  Oh, my God.

• 18:28Speaker 01

  There was such a, there was such a, there was such a, in the very beginning, the prosecutor, they 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 they'd been at least an attempt.

• 18:51Speaker 00

  Yeah.

• 18:51Speaker 01

  To prosecute. At the very top, but there wasn't.

• 19:01Speaker 00

  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 political spectrum, have they been kind of watered down themselves?

• 19:42Speaker 01

  So, there is 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, part one to the answer to your, this question you just asked is, so, yes, things, systems were put in place, constraints were put in place. Specifically, the banks were neutered. They can't take the same kind of risk.

• 20:23Speaker 01

  Those banks you know, Citigroup, Maryland, Morgan Stanley, Bank of America, that they have more capital and 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.

• 20:41Speaker 00

  Okay.

• 20:42Speaker 01

  However, the risk still wants to be taken.

• 20:44Speaker 00

  Yeah, and I feel like they know the people taking the risk.

• 20:46Speaker 01

  And, yeah, they know the people taking the risk. And they're getting more and more involved. The place where the risk is being taken are places that you maybe are even, they're just barely conscious of. The place is called Apollo and Blackstone.

• 21:00Speaker 00

  These are all private equity?

• 21:01Speaker 01

  They're all private.

• 21:02Speaker 00

  Yeah.

• 21:03Speaker 01

  So, they're all way outside the regulatory framework. It 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, 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, Ares, 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 not 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

• 21:48Speaker 01

  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.

• 22:02Speaker 00

  Uh huh.

• 22:03Speaker 01

  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.

• 22:28Speaker 00

  But so if people are making money in the short term, then who's losing money in the long term when, when something collapses?

• 22:37Speaker 01

  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.

• 23:22Speaker 01

  But he never got, he never gave his bonus back.

• 23:24Speaker 00

  That's crazy.

• 23:26Speaker 01

  It's crazy. So it's crazy. So that's the problem.

• 23:28Speaker 00

  Where's this guy now?

• 23:30Speaker 01

  In New Jersey, where they all go.

• 23:31Speaker 00

  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.

• 23:40Speaker 01

  No, you gotta, you gotta find all this in New Jersey. Yeah. New Jersey is filled with characters.

• 23:45Speaker 00

  That's a very diplomatic way of putting it.

• 23:47Speaker 01

  It's 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.

• 24:00Speaker 00

  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?

• 24:36Speaker 01

  That's, that's not a bad way of putting it.

• 24:38Speaker 00

  That's fucking crazy.

• 24:40Speaker 01

  It's, it's a little more complicated than that. It wasn't, it's not just private equity, but it, but it is true. It is crazy. On the other hand, let me, 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, these investment banks, Goldman Sachs and Solomon Brothers and Morgan Stanley and so on, in the eighties and early nineties, 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 employees. And it's, they're exposed. They don't want to do really stupid things when they're exposed.

• 25:22Speaker 00

  They're exposed in what way? What does that mean?

• 25:24Speaker 01

  Well, so if Lehman Brothers, when it went down, had not been a, a public corporation, it had been back what it used to be. It was owned by the employees. All those, you know, Dick Fold and all the people who ran that place would have not only lost all the money in the place, they would have lost their houses.

• 25:42Speaker 00

  Right.

• 25:42Speaker 01

  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, this risk, this catastrophic risk for short-term return. Because they knew that when the catastrophic risk, they would have sensed it. When, 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, they're public companies. So we,

• 26:26Speaker 01

  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 loans, they have the same problem as the old banks did going into the financial crisis. And it is essentially, you know, one, 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.

• 26:52Speaker 00

  Geez. Oh, there's a word for, there's a phrase for that?

• 26:54Speaker 01

  There's a word for it. And so, yeah, so I mean, that's, that's what's going on. That's what's going on.

• 26:59Speaker 00

  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?

• 27:11Speaker 01

  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-

• 27:19Speaker 00

  Because you have gold under your bed?

• 27:21Speaker 01

  Well, yeah, I actually do, a little bit. But just a little bit. But, but, um, but the, it's, 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, the Treasury, Federal Reserve especially, and the independence of the Federal Reserve, its ability to-

• 27:58Speaker 01

  Be the grown up in the room and I use that 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 out the banks. So the banks are going to be fine. 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

• 28:40Speaker 01

  it all worked out. But the premise of this whole resolution was the existence of a trusted grown up 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 and 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

• 29:21Speaker 01

  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. Yeah. I really do believe the Federal Reserve is going to, is to calm everything down. I, 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.

• 30:01Speaker 00

  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, you're, you know, 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?

• 30:37Speaker 01

  Yep.

• 30:38Speaker 00

  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 crypto?

• 30:51Speaker 01

  It wasn't a joke.

• 30:52Speaker 00

  Are you, it wasn't a joke for me, too. No, I know.

• 30:55Speaker 01

  So I will tell, I'll tell you, what do I do? How do I live this way? How, 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, you know? And having said that, this is an important point. I can remember when I first became aware of

• 31:34Speaker 01

  the news. I mean, like, like, as a thing that you just didn't take on faith. And it was when I was at Solomon 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, you know, basically a kid. And I looked at it, and I thought, well, It's not, it's not completely wrong what she wrote, but it was like, it wasn't completely right. She missed, it, it, 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

• 32:17Speaker 01

  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, I read the New York Times, I glance at the Washington Post, I read the Wall Street Journal, you know, very useful to me, because it's coming from a completely different spaces than the Financial Times. They're just sort of like, they're Switzerland. They don't, they don't, like, they're looking at what's going on in America like they're looking at

• 32:58Speaker 01

  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. Well, it's much shorter now, anyway. It's shorter now. It's like a thin paper. And my money. Where I do, where do I keep money? Where do you keep your money? So. Who do you trust? Schwab. Uh huh. Very important. They don't take big positions themselves. They, they, they were notably, like, they, they were not in trouble during the financial crisis. Okay. JP Morgan, because I figure that, in fact, I don't, I gotta say, I don't understand

• 33:41Speaker 01

  why anybody keeps more than, you know, whatever the deposit insurance now is, at a local bank, at a regional bank. It's, uh, there are a handful of banks that are implicitly federally guaranteed, like Too Big to Fail, and JB 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, and that's a, 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. 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.

• 34:24Speaker 01

  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 a 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. War. I was worried about him. I call him up and he's got this excited tone in his voice, even though I haven't talked in 20 years. It's like we was yesterday. He goes, Michael, my 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 he had a fund outside of bear that Bear Stearns funded.

• 35:07Speaker 01

  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 gonna 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 that it's work.

• 35:30Speaker 00

  For people who are listening, why specifically gold? Because your friend told you to or because there was something else?

• 35:37Speaker 01

  So the argument is gold has no intrin really in in it's not worth $3,600 a ounce. It's use value.

• 35:44Speaker 00

  Yeah.

• 35:45Speaker 01

  The argument is it has social trust. You can't explain why or how it got this, but it 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 gonna go up and and there's saying why you I mean, it's just. It's got a history, but I do feel I gotta say, I don't feel completely comfortable with my holding. I I bought into this idea. That my friend sold me a sold me over an afternoon. I thought. Part of what I was thinking is it'll be a fun way to keep in touch with him is I'll buy some of it.

• 36:27Speaker 00

  Yeah.

• 36:28Speaker 01

  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.

• 36:37Speaker 01

  So that's what happened.

• 36:39Speaker 00

  I'm gonna ask you a couple of rapid fire trust questions. Do you trust the following?

• 36:43Speaker 01

  Can we do one to 10 or is it yes or no?

• 36:45Speaker 00

  Sure, you could do one to 10. Yeah, one to 10 is great. Do you trust the front page of the New York Times?

• 36:51Speaker 01

  Eight. 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.

• 37:11Speaker 00

  Yeah.

• 37:11Speaker 01

  So that, that is, that has caused my trust in the New York Times to decline.

• 37:15Speaker 00

  Hmm, that's well said. Okay, what about the front page of the New York Times style section?

• 37:20Speaker 01

  Ah, that stuff, that's 10, baby.

• 37:22Speaker 00

  There it is. And 10, by the way, 10 being the most trusted.

• 37:25Speaker 01

  It doesn't really ask me to trust it.

• 37:27Speaker 00

  It's critical for an idiot like me who has no sense of style and is trying to learn because I trust it.

• 37:33Speaker 01

  Oh, no, no, no, don't do that. Don't, don't not figure out which color t-shirt to wear or whether you can wear shorts in the winter from, don't, don't do that.

• 37:41Speaker 00

  Okay, street tacos in Los Angeles?

• 37:44Speaker 01

  Ha, four.

• 37:46Speaker 00

  Ooh, hard to disagree on that.

• 37:48Speaker 01

  I have a very sensitive stomach and I've had some bad experiences.

• 37:51Speaker 00

  Okay, that's fair. I would do, I would do an 8.5 or nine, but if it's a stomach issue, I get it.

• 37:56Speaker 01

  It's a stomach issue.

• 37:57Speaker 00

  Uh, okay, then let's move on to hot dogs. Hot dogs at Yankee Stadium?

• 38:00Speaker 01

  Oh, God, five. I'm sorry. It's the, and it's just, and it's, 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.

• 38:13Speaker 00

  Okay.

• 38:14Speaker 01

  But, but it went from, oh, this is a natural thing that a human being should eat.

• 38:18Speaker 00

  Yeah.

• 38:18Speaker 01

  To, I really, I feel the same way about Pop-Tarts. Like, if, if, if, if like someone from outer, green, little green man from outer space came down and stared at this thing, would he yet identify it as a food?

• 38:29Speaker 00

  Yeah.

• 38:30Speaker 01

  And it's probably not. And there's probably a good reason for that.

• 38:35Speaker 00

  Okay, uh, social security.

• 38:40Speaker 01

  Uh, six and a half, seven. And that is just, it's gonna be inflated away. I mean, the value of the, I think the value of the benefits will be eroded. I don't think the population will put up with it just being taken away.

• 38:55Speaker 00

  Yeah.

• 38:56Speaker 01

  Because people have it in their heads, I paid for this. That's my money.

• 38:59Speaker 00

  Yeah.

• 38:59Speaker 01

  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.

• 39:08Speaker 00

  Congress.

• 39:10Speaker 01

  I mean, I got asked, trust to do what? I mean, I could, 10 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 some, there are 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.

• 39:54Speaker 01

  But I know that the institution's gonna end up in a, not a good place. So, anyway, one to 10. If you put this to the American public, you get a one.

• 40:03Speaker 00

  Yeah.

• 40:04Speaker 01

  Three.

• 40:05Speaker 00

  Okay. Well, my last, my last two trust things were gold and your weed guy. And I know how you feel about gold.

• 40:13Speaker 01

  You know, I, gold, eight. But my weed guy, so I have never taken a single hit. I've never, I've never even tried marijuana.

• 40:25Speaker 00

  And you just do edibles?

• 40:27Speaker 01

  Eventually, I'll probably come around to edibles. Friends tell me, like, they'll change my life.

• 40:34Speaker 01

  But I have not. So, I don't have a view of my weed guy.

• 40:37Speaker 00

  All right.

• 40:37Speaker 01

  So, there's no, I don't have a weed guy.

• 40:39Speaker 00

  Sure.

• 40:40Speaker 01

  So, I default to trust, so we'll say 10. I trust my weed guy 10. Because it costs me, it costs me nothing to trust him.

• 40:47Speaker 00

  Awesome. Thank you for your time, Michael.

• 40:49Speaker 01

  All right. Totally fun.

• 40:53Speaker 00

  Here We Go Again is a production of iHeart Podcasts and Snafu Media in association with Newmetric Media. Our executive producers are me, Kal 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. Our consulting producer is Ramon Borsalino. Tori Smith is our associate producer. Theme music by Chris Kelly, logo by Matt Gosson. Legal review from Daniel Welsh, Caroline Johnson, and Megan Halsen. Special thanks to Glenn Basner, Isaac Dunham, Adam Horn, Lane Klein, and everyone at iHeart Podcasts, but especially Will Pearson, Carrie Lieberman, and Nikki Etor.

• 41:37Speaker 00

  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 Kal Penn.