Michael Lewis Q&A with Danny Moses, Vincent Daniel & Porter Collins
Summary
Market Insights: Michael Lewis discusses the enduring impact of the 2008 financial crisis, emphasizing that many current global issues can be traced back to it, including political shifts and economic policies.
Investment Themes: The conversation highlights the shift of risk from traditional banks to private equity and other financial institutions, suggesting that these entities now hold significant systemic risk.
Federal Reserve's Role: The discussion touches on the Federal Reserve's balance sheet, noting its large holdings of US Treasuries and mortgage-backed securities, and questioning the long-term implications of such monetary policies.
Private Equity Concerns: The panel expresses concerns about the private equity sector, suggesting that its growth and influence could lead to a future financial crisis, especially if large funds face liquidity issues.
Government Debt: The conversation highlights the growing US government debt as a major economic risk, with concerns about how it will be managed and the potential for inflationary pressures.
Future Financial Crises: There is speculation that the next financial crisis may originate from government fiscal policies rather than the private sector, with potential triggers including sovereign debt issues in other countries.
AI and Writing: Michael Lewis advises young writers not to fear AI, suggesting that human creativity and the ability to gather unique stories from the world are irreplaceable by technology.
Character-Driven Narratives: Lewis emphasizes the importance of character-driven storytelling in his work, using real-world experiences and interactions to create compelling narratives that challenge prevailing opinions.
Transcript
I'm Danny Moses, host of the On the Tape podcast. As many of you know, from time to time, I have my former partners and friends, Porter Collins and Vincent Daniel join me on the pod. When they do, we normally call that segment, what are we doing? Well, in late August, the three of us got together and we launched what are we doing? Contrarians at the gate on Substack. And within that Substack, we launched a podcast called the Friday Night Dirty. And last Friday, we had our friend and best-selling author of The Big Short, Michael Lewis, join us, where we reminisced about the past, talked about the current state of the markets, and took live Q&A from our Substack members. While I had Michael Lewis as a guest on the tape several months ago, I think you'll find this conversation even more entertaining. So, please enjoy this episode of the What Are We Doing Friday Night Dirty. And if you like what you heard, please go in the show notes and subscribe to our Substack. All right, welcome to a very special edition of the Friday Night Dirty. Friday Night Dirty brought to you by the What Are We Doing Crew. I got Vincent Daniel. Next, we got Porter, Parts Unknown, and very special guest here, bestselling author Michael Lewis and friend friend from the Big Short and friend from everywhere else. Michael, thank you for coming in here. >> It's a it's a gas to be here. >> Well, we're going to get into your reason that you're here. I know you're going to be here again in a few weeks and we just reconnected recently because the Big Short anniversary, the movie, the book, everything going on here. But why don't we start kind of with that is that uh it's been 15 years since the book. >> It's been 10 years since the movie, right? And uh give us a little flavor for what you're doing now to kind of repromote this and why and why we reconnected recently. >> So it starts with the accident of the audio rights coming back to me. And I didn't actually read the book in the first place. And and in in just the last couple years, Pushkin, my podcast company, has gotten really good at doing audio books. So they're not just books, they're kind of like dramatic experiences. So he thought, I'll read it and we'll do it that way. And the reason so, so we had the rights is what got me thinking about this. And the reason to do it was that I have felt, I don't know how you guys feel about this. I have felt like that we're still living with that event, the the financial crisis that they're that you can point to a lot of things that are going on in the world now and say it goes back to that. And um including Donald Trump. So I thought what we'll do is we'll release the wereed the book. people can listen to it or not, but we'll do um like a podcast season on the side of it just looking at consequences of the basically consequences of the financial crisis, re thinking about the financial crisis again. So, to that end, as you know, I had some of my characters on and there's an episode with you three and there's another episode with Steve Eisman and Greg Litman, uh who was sort of at the the spider at the center of the web, uh way back when. Um but then there are other things. I mean, the first episode is with Adam McKay, the movie maker, because I was I was I mean, one, more people have seen the movie than read the book, but but two, it I was so interested and you must be too in how he took that and turned it into a movie. I never I mean, I never imagined. >> Do you remember one of the first things we said? So, we meet Adam McKay and the first thing I think it was Porter or Danny said and said, "How the hell are you going to make this thing into a movie that's going to sell?" I said that >> like and just and he goes, "I'm gonna throw a lot of eye candy at this thing." Right. And sure as [ __ ] he did and and it worked. God bless him. >> I remember when you called us and you said they're going to make this movie. I don't know how. >> Yeah. >> But they're going to make it a movie. And you told us that. So >> I read this when I read his script. I thought, "Oh, I can kind of see it now, but only kind of." And it was it was it's it was such an improbable thing. I mean, it's it is it's amazing how well it turned out given how hard it was to do. Think about what even writing it as a book. I can remember thinking they're just real big obstacles here. Get getting people at the center of the whole thing was was a device so diabolically complicated. It was almost inexplicable. >> Was there anything in the book that you wish got translated better or didn't translate well into the movie? Because we know the things that were fact and fiction that happened, you know, the movie versus the book. The alligator chasing Porter and I, things like that. He just obviously took fourth wall stuff with people. Was there anything that you would have done differently or anything? You know, it's funny. You know, a movie script is 8,000 words and a book is 100,000 words. So, they obviously had to leave at least 92,000 words out. And but when I looked at it, I did not think, "Oh, they should have put that in." I think, you know, it's funny. The book ends with you guys. Yeah. >> Sitting on the steps of St. Patrick's Cathedral just watching the chaos. I can remember like nobody in the taxi cabs. the streets qu you know Leman had just exploded you know and and you all sitting there thinking these people don't know what's about to happen to them I thought that was a I might have ended the movie with that like I ended the book I can't remember how they ended the movie ended the movie with a kind of essay I think right >> the only person going to jail was some >> that's right that's right and the movie and this get so and I thought what attracted me to it was I didn't come to it with a lot of outrage I mean I worked on Wall Street I that I I came I didn't I was I was shocked by the stupidity of the big institutions but it was more like aed by the stupidity. It wasn't like oh I can't believe they'll do bad things to their customers. That that that was I didn't have any of that problem. So for me it was just story. It was like an filled with great characters. You all were some of them. Um for McKay it was anger. I mean, he he the movie is much angrier than the book, and he he really I think he had to work to suppress his his political the political uh sort of op-ed that he wanted to write. Uh and and he didn't suppress it that much, but it, you know, he had to suppress it for the sake of the story. I didn't have that much going that going on. So, when I watched it, I did think, well, is it the tone is different here? Not only is it funnier, I mean, or it's overtly comic in places. Um, but it but it's it's also it's got this overt political purpose that the book really didn't have, >> right? Which is >> but Michael, we were definitely angry, right? That that that was a big thing about you know our group. I mean they they called uh you know how is America's angriest hedge fund like >> so you were angry I wasn't angry. >> Yes. That's different, right? I mean the characters all had different attitudes towards the thing. Yes, you were angry. I wasn't sitting there. I wasn't angry. I wasn't That's not Wasn't I wasn't sitting there. I was de I mean, I hate to say this. I was delighted like it was like because I was just thinking of the material. >> I was thinking, "Oh, this is going to be so much fun to write." >> I remember you calling it the sequel to Liars Poker or the book end. >> The book end it still feels like the book end of Liars Poker, right? Yeah. And and and and in fact, in in fact, it isn't. There's never an end to Wall Street. So, that's is a little it's not the end of Wall Street. Um but this business of taking the investment banks and turning them into public corporations where all this risk could be taken but if it went wrong the shareholders everybody else paid for it right the mis the misalignment of the incentives that started with Solomon brothers going public you know whenever it was 81 and was clearly not a bright idea but and and in fact gave rise to the material I had for liars poker. It ends in 2008 and now I mean yes we have Goldman Sachs and Morgan Stanley still exist but what's going on inside them is much less interesting. the risk the interesting risk takingaking has all been kind of squeezed out into other places right sort of like a Jane Street they're they're they're of tertiary importance these these in the in of are tertiary interest in the risk-taking world you know Aries and Apollo and they're taking one side of their business and Jane Street and Jump and all the rest are taking another side of their business and yeah they make money maybe they make lots of money but it isn't where the best and the brightest want to go anymore >> it is amazing how since the global financial crisis what we're still dealing obviously with the after effects the with the debt on the government's balance sheet, the debt at the Federal Reserve and stuff they're still carrying. We still have the moral hazard issue. We still have all the same issues. We've never really dealt with it, right? Really haven't cleared quote all those assets. >> You watch this more closely than I do. But what is left on the balance sheet of the Federal Reserve? >> A lot of US treasuries, a lot of mortgage back securities. >> They still own mortgage bonds. >> Yeah. Like two two trillion. >> They still have that. >> Not taking it off, >> right? Not the super exotic stuff, but but they have NBS securities. which when you think about it, they're artificially yield curve control as they call it, right? So, you're keeping rates low because you need to because we just had >> wonder what the yield curve would look like if they dumped everything. >> Well, they've tried and they tapered, you know, so they they tried that for a period of time. It's 6.6 trillion though, still at this point. It was 100 billion before the financial crisis. >> You know, it's interesting how that institution has morphed. It's just changed. Yeah. You go back, you go back to the Great Depression and it existed, but it was so it was scared of its own shadow. It wouldn't even it wouldn't even inject a lot of money into the economy just to to to prop up the economy in a banking crisis. And now I mean it got so bold. It it knew I think Bernanki this is we do have an episode in the in the uh podcast series along with the the big short audio book that but that is just on the Federal Reserve and there's an economist young economist named Emmy Nakamura who's um you know she's a whisbang monetary economist at Pal who who is is a is a Fed watcher um and she she said in the course of the conversation that Bernani said he was aware he was gambling with the Fed's independence that it was it was such a bold step they were taking that the political consequences the endgame might be no fed independence and here we are right I mean it isn't >> it isn't for the same reason exactly it isn't that but but it it did it it it probably did um undermine uh kind of the public trust of the institution uh in a way that makes it a little bit more likely Trump can just take it uh anyway >> yeah so we have a ton questions. We're going to mix them in here from our studio audience, so to speak. So, John Lieberman, uh, Ghost, the voice, uh, why don't you come in here and ask a question and identify maybe who's asking it if that's okay. >> Yes, gentlemen, we have questions lining up and lining up for Michael and for the guys. We'll start with Gary Webb. Gary asks, "Do you guys believe that sharply higher loan modifications will be a precursor to rising delinquencies and defaults? So that is a question for you all but it's an interesting question >> because that's in private more in the private markets that we're seeing all these modifications. Porter you want to give that one a shot because all they're doing is extending and pretending right the loan mods. So >> you know it dep I mean we've seen the loan mods throughout every different crisis right it's in08 they they modded you know over the last 10 years they've modded everything. So do I think that's new? No I don't think that's new at all. It's just extending and pretending. Well, Michael, where you asked where the risk has gone, it's in private equity to a degree and now they want to send all this product to retail investors and so we got to keep modifying so it still looks good. So it holds its value and loans are picking payment in kind instead of paying interest. And by the way, they charge fees on payment in kind, which is incredible. Um, so that's where the risk lies in the system, but it's not in the banking system, so people aren't as concerned. But Vinnie has a thesis for when when it does happen, what's going to happen, Ben? >> Well, they're gonna bail him out. >> They're gonna bail him out. The problem is is that because our pension capital, endowment capital, the big capitalism now fully invested in private equity, >> it's too big to fail. So, you know better than anyone because you write about it all the time. Where's the regulatory arbitrage? That's where the that's where the smart money is going to heat seek. That's right. That's where they are. The Jane Streets, the private equities and the like. They get too big. >> When you think private equity, what institutions you think? You think about Apollo? >> I think Apollo Blackstone, right? and and those guys and and to and KKR and to me if and when the [ __ ] hits the fan, they're going to call their friends in DC and say these pensions would ATMs are not going to open up Monday morning >> and they need a bailout and it's going to happen. >> But the I mean I think the problem is our biggest risk our biggest the three of us all see the biggest risk out there is the government. It's a $ 37 trillion issue and it's and it's and it's the the the reason for what's going on in the economy, right? They they have to fund everything short. There's so much debt. We've transferred all that debt from the from the, you know, public companies through COVID through now. It's all sitting, you know, and at the US government. And the question is is, you know, who's going to buy that debt? You know, the Chinese aren't really going to buy it. The Japanese probably aren't going to buy it. And so I think they're going to print the money. >> So what So I want you to tell me a story that ends in a financial crisis. Like how does it start? Is it some sort of auction failure? Is it a what happens? Is it >> at some point inflation that they can't disguise, right, is going to rear its ugly head again, right? >> Fed raises rates >> and the Fed has to tighten liquidity and raise rates, >> right? which creates raises the the debt service payments >> which creates the spiral. Right. Right. Because right now the the unknown that people don't really appreciate in my opinion >> is how freaking levered the capital market system is. >> Right. No one buys treasuries just to buy treasuries on an unlevered basis. They do basis trades at 50 to 100 to one. >> I I buy treasuries. >> I do. God bless you. >> Well, not at 50 times leverage. >> No, no, just by yourself. Do you buy bills or do you buy bonds? >> Just bills. >> That's okay. Yeah. No one's buying the long duration bonds. Oh, right. But if for the people who buying long duration, someone has to buy them, right? >> Silicon Valley tried it. How did that work out for you? Yeah. >> But so they're levered 50 to1 so they can make a small spread. Right. >> If all of a sudden volatility creeps up, right, because rates are rising, right? You create sort of a spiral. >> So So that's the way I >> I don't want to ruin your podcast, but the other thing I want to hear, I want to hear you tell me the story of how a crisis starts in the private equity system in in the private equity business. like what happens it loan fail failure to repay loans to priv these private equity lenders >> I think there's a about 99% correlation right in those markets to a lot of they're all the same you know to a degree right so if you know whatever the loan to value is debt to IBID do coverage and things like that without getting too wonky but a lot of them might be in the same industry but what it'll take will be one large asset that either fails or something that it turns >> some asset class >> an asset class or a particular asset It's so big that the correlation of it would make means that the other bonds themselves also need to get marked down that are in the same sector maybe >> and then you have this kind of one one time event because you you know you hear about from time to time >> currency goes one way someone gets carried out right nickel goes below you know get people get carried out like things happen it'll take one of those instances where some big fund is like and then it's like what else does that fund own it has nothing to do you know so you think blackstone a no etc., whatever it is, you think they're too big to fail now. >> Yes. >> Yes. >> Yeah. They're the new banking system. >> It's really interesting. >> Well, think about where a lot of the Washington appointees are coming from now. Black Rockck, >> Blackstone, >> it's at Carlilele. It's no longer >> Well, it is still Goldman and JP Morgan, but but private equity has sort of moved in. The way I think it'll happen is in order for private equity to work, the investors, the LPs need distributions to come back. So you sort of create it's a bit of a I don't want to call it a pyramid scheme, but there but there is a function of hey, I'm making money off my prior investments. I'll invest in fund 25 while you're giving me money from fund 15. Right? >> If all of a sudden the money from fund 15 no longer comes in the door, right? >> I'm not doing fund 25. Not going to do it. Right? And once you do that, then you say, "Well, there's no price discovery." And when do the pensioners say, "I'm not getting any distributions." Right? That's way I think this All right, >> gentlemen. I'm going to jump in if you don't mind. Sorry, Porter. Porter's mouth is moving. We're going to come to Porter in a minute, but let's kind of do a lightning round because we literally have north of about 40 questions. Everybody has questions for all four of you. I'm going to start with two for Michael. The first is uh fifth risk has changed exponentially. Your thoughts and then tangentially Michael reflecting 10 years later what's the lesson that you learned from the big short which wasn't obvious when you wrote the book. >> So I'm not sure I understand what what the question was with >> fifth risk is rearing its head again. >> Yes. And I'm going back in and writing another book. Uh I mean the f the first time I mean when I think about Trump and the government the first time I think you know he didn't think he was going to win. He was the dog who caught the bus and and he didn't arrive thinking he with any kind of plan to run the government. And in fact and what got me interested in the story in the first place again I'm like a story machine. I'm not looking for like to make political points, but in this case, I thought it was wild that this person who had zero experience running anything like a government was being handed the biggest institution on the planet. And he the first thing he does right after he's elected is fire his transition team, the 525 people who are supposed to go in and learn what the hell's going on. I think it provided him with some information. Like if you if I said you're president, you'd panic, right? What the hell is it? What is it? I got to run this thing. What is it? What's in the Department of Agriculture? I have no idea. What are they doing? And that he and then he turns to Chris Christie after he fires these people and says, Chris, we're so smart. We can learn what they do in an hour. And I thought, well, that was just like a literary opportunity. I could go in and get all the briefings that they would have gotten from people who were sitting there with like finger sandwiches and diet cokes waiting to meet with somebody. And then I start when I started at like the first among the first meetings I took, I would call the people who were waiting to do it and nobody was showing up was with the people who ran the nuclear arsenal in the department of energy and it was like I was the first one who showed up to hear the briefing. That's just wild, right? So that's Trump won is that the fifth risk is that it's like what happens? What is like using his neglect as an excuse to figure out what the government does picking just a few departments? I think now he's come in with a plan. It's not his plan, but but it is a very detailed plan and it's a radical plan and it's to dismantle the federal government and reshape it as a purely partisan political thing. It's like a weapon to weaponize it and and that means something completely different. Negle neglect is different from you know malicious. Do you think this shutdown that we have now versus the last time that you know the amount of people that are there trying to run the essential services that are supposed to these agencies it's we're going to see some issues obviously potentially at some of these agencies just because they're not as deep as they were. Doge came at the beginning of the year and so >> no the big the big difference between the two shutdowns you're right he's now this is a this is like a book end with his first shutdown is that the first shutdown he didn't really it didn't there he wasn't he his mind had not gone to because the people around him their mind had not gone down it got gotten to what can we use this for and um in this case they're talking about f actually using it fire uh uh like lots and lots of these people who are just who were furoughed and um So it will have a that that's a radically different act. >> The the same people will be on the job like the people at the airport who make sure you're not Yeah. Yeah. Yeah. The TSA people will still be there that they'll be but they won't be being paid, >> right? So you it's a question of like when they start calling in sick and uh I mean you'll see a degradation of services and who knows how long it will last. That that's not the big thing. The big thing is disruption of long-term projects that you don't even see. Uh that that's that's the big thing and the price is very it's very hard to measure the price >> but anyway it's the once again I mean just as a matter of story the material is unbelievable. Yeah. >> So so that the second question was about the big short >> what happened. So the it's so I would say the big the single biggest lesson that I got out of the big short and it affected my life was the power of incentives like what people did inside Morgan Stanley Mel Lynch City Bank uh that was catastrophically stupid putting their institutions at you know mortal risk because they were actually paid to do it and that if you pay people to do stupid stuff they'll do stupid stuff. So I that I I don't know if I ever told you guys this, but after I wrote the book, I went to my publisher and I said, "Do you do realize that my incentives are not we our incentives are not aligned. You give me a big advance uh mostly with authors like you never see another nickel. You get, you know, you're not actually you don't have an equity stake in the book and my incentive is to is to um maximize revenues because I just get a percentage of the cover price and you're trying to make profits." I said, "I've just seen the power of incentives. let's sit down and figure out how to align our incentives. And ever since then, I've owned half the books and I don't take advance. And it and it was because of this book. It was because I said, I've got to be so care if if if this can happen to those people, it can happen to me. Like you got to be so careful what your incentives are because you will you'll be led by them. >> Yeah. >> Yeah. It's like guys that run big funds that run10 billion dollars and they're clipping a 2% management fee. >> Yeah. So, they're going to make the money regardless. Question is, what is their incentive to create an incentive fee? All right, John, we'll take another question. I think Porter's going to have one also. Sorry. >> Yep. Don would like to know, "How has fiscal dominance changed the way equities are priced?" >> It's probably a Porter question if you want to do that. >> Seems like whenever there's substance, Porter has to answer it. >> Yes. >> Well, our friend Luke Roman fiscal dominance. Yeah. >> The fiscal dominance, the fiscal dominance thing is basically just what we're we're talking about before is that the government has has basically crowded out everything, right? And now we're running you know 6% budget deficits and you know every you know everything post I would say COVID to me when when we were running or actually the first Trump when he when he started doing uh you know tax cuts and deficit uh deficit funding um and and tax cuts, right? And so why we why were we doing that? Why were we giving tax cuts and running a deficit at the same time? It makes no [ __ ] sense, right? It's just stupidity just to I I don't know why. >> That's why we love gold so much. Yeah. >> You're just you're just you're just stealing from the government essentially. And um you know, and we've been running deficits ever since. And and I don't think we can get out of it, right? That's the thing. It's like, you know, >> inflation. Actually, the irony is you need to inflate all assets to get out of it. That's the >> no matter what administration, they have to run deficits. They can't they I mean, remember when when Biden was running like what is he doing? Why is he running a se 8% budget deficits? makes no sense. And sure enough, Trump comes in. He tries to do Doge for about 30 seconds and and and flipped. >> So So can I ask a question? Yeah. >> Because we're this we haven't been together. I know. >> I mean, we have not been together all together in a very long time. >> And I don't think I've ever got to ask you >> what it was like I have two questions. What it was like being written about by me. >> When I showed up in your office, I was amazed you all let me in. It was really nice you let me in. If you would not let me in and I never would have read written the book because you were the first people who on the right side of the bed who I actually encountered and you you three and and Eisman it kind of explained to me what was going on in my you know my brain exploded. Um was it uncomfortable >> having me around? Was it were you when was after every time I left were you all going in a room and saying what the [ __ ] are we doing talking to him? Uh were you upset with the book? What? I'm curious. I want to hear your take. >> Do you want to give it a crack first, Ben? >> No. First off, you called me on page 10. I don't know how I know that exactly. You called me young, fit, and handsome. So after that, everything everything was fair game. I, you know, and I'm just going to testament to you. >> You are my favorite author. So So the fact that you were writing our story, >> right? I I was I was >> Well, that's that's got to be weird. >> That was ar like I and I couldn't believe that like he's going to write about us. This this guy's going to write about us. So, we I was I'll speak for myself. I was more than happy to provide you the story that I felt like we were in the right. We tried to do like yes, we made a lot of money, but we tried to do the right thing. So, for me, yeah, >> I wasn't that uh upset about or or thinking like what am I doing here? If you remember it came, you came in through Meredith Whitney. That's right. So, it was already pre-screened, but to Vinnie's point, you were one of our heroes. I mean, you written about Wall Street and I think >> from Liars Poker, we had that same thought process and mentality about Wall Street anyway, right? So we had seen a bunch of stuff and I think we were excited and what you did with maybe didn't know it but you were providing information to us by the questions that you were asking us because if you're asking certain questions it made us think about why would Michael ask that question like how much risk is really in this system or and then you would go off and come back and you go off and come back and I remember each of us would meet with you separately right >> we rarely would the four of us sit down with you a lot of independence whatever and so you would go and you' be like to us is that someone I should talk to I'm like yeah let me know what they let me let me know what they're about um but no but I think you actually so we there was a trust factor from the very beginning and when you wrote the article first remember um >> y >> Vanity Fair >> no it was portfolio magazine >> portfolio magazine sorry um and then the book came out obviously after that but it was already over by the time you written the book right >> um but no it was uh and Porter might want to opine on it but >> well you know I I explained this to Michael on the podcast the other day but you know I was the youngest guy in the team and maybe it's because of my waspy conservatism or whatever. You know, I was the most nervous about any of this stuff. You know, talking, you know, Wasper to told to never talk about money. And you know, when you know, my grandfather who who was who I was very close with, you know, I forget it was after he read the book or after he watched the movie. And he he goes to me, well, why are we celebrating here? You know, like yeah, you guys, you know, saw this coming, but like everyone lost their jobs and everyone, you know, got got destroyed. Like this is this is a horrible story. like and so >> so you gave it all to charity. That's what put it away all the way. Yeah. Yeah. Yeah. Exactly. >> Which is >> I did start a foundation. Yeah. >> Yeah. I know you did. I know you. All right, John. >> So, I got one more question. Yes. And that is like the movie. I haven't re I want to hear what the effects of the movie on your lives has been. >> Yeah. Um well, >> you go first. >> Find out about my testicle. That was that was from Adam McCay. Thanks for that. Uh Porter likes to wear pants that are cut too short with no socks when he wears loafers. We got that. And then Vinnie with his blackberry on his side and chewing gum contest, you know, consist. So, a lot of the movie for me was like I felt like the three of us were sitting on the desk like we were. They did an incredible job, you know, doing that. But, uh, >> but how does it rip it? I've never had anybody make a movie. >> We were still managing money when, you know, during that time period. So, we tried to not let it really didn't really go to our heads at all. We enjoyed it. We enjoyed the I think the the fun about it, but we never took it serious. to attract a lot of attention to you >> if you mention the movie like when you're with people >> like they are kind of apprehensive of talking to you about it right um >> but once they're like can I talk about the movie I'm like yeah I'm never going to bring it up but bring it right like like um and I remember I was at a and of course I was fortunately played by Jeremy Strong who is blown up and is a superstar now and I was at a dinner like one of these Wall Street dinners and and I just started going off on somebody on the other side, right? And because he he made one of these stupid Wall Street comments with too much confidence and I was like and I was like, "Did you actually speak to the person or is this just a [ __ ] opinion?" >> Right? And and I just started going and there was about four really good. So I think someone brought in models and and the four really good-looking people goes, "I know that character, right?" Like like Jeremy nailed you, right? like and so like [ __ ] like that of every once in a while comes up. >> Yeah. >> Um which is really funny. >> Yeah. >> I don't what what the only >> Go ahead Porter. >> I think it [ __ ] us up for a little while because you know we were we were known as the big short guys. So we so for there was a period of call it five six years and also we were still dealing with the you know the crisis and our head was still in the crisis. We it was hard for us to be bullish because we were the big short guys. So, how can we possibly be bullish, >> right? >> And so, I think it [ __ ] with our heads for I would say a good three, four years. Thankfully, you know, I didn't have to do therapy, but I did my own therapy and I I've cured myself. So, it's good. >> The problem is people like, so what do you like now or what do you hate now and what do you know that? And we explain right place, right time, right product to express a trade, but people forget it wasn't that trade. It was that trade was part of it. We had a short book, an equity book that we did well. We had a long equity book that did well. So it wasn't that was just an extra tool that provided it. So uh >> anyway anyway all right John next curiosity. >> All right we have a lot of financial and investment questions but here's one for Michael uh because Rick Weekes has been super patient here and Rick is asking on behalf of his daughter Michael. What advice would you give to a young writer or wouldbe editor trying to build a career who's very concerned about adverse disruption coming from AI? >> Oh, I don't know. So, I I have a couple of thoughts about this. The the the um the my first my first step here is to say ignore it. Um, I just don't think that AI is going to generate it. I don't feel threatened by it. Yeah. I I And I tell you, and I don't feel threatened by it for a couple reasons. One is I think it's going to be a long time before like AI can tell a good joke, a good original joke. Like it's it it's not what it does. AI is going to generate the kind of intelligence it generates. It's kind of intelligence that codes computers. And I think it's it's going to be less good at kind of creative acts. The other thing is if you were doing if if she's the kind of writer that I am where you're going out into the world and finding stuff and trying to make sense of it, the AI only knows what it knows. Like it only knows if it had tried to write the big short. >> Yeah. >> It wouldn't before I wrote the big short um it would it wouldn't have known you. It wouldn't have kn it wouldn't have known any of the character. It wouldn't have had any material. So that that that the the I think the exciting thing is going out into the world, finding things people don't know about, finding people that people don't know about and organizing um the people in the situations into stories that make sense of the world. And that is that's implying that you're you're gathering material that just it just isn't available to the to the to the machine. Now after afterwards it may be able to take your thing and do something with it that replicates it or undermines the marketability of it or whatever but the creation of it is still it requires a human being interacting with human beings. Uh so I I just wouldn't worry about it. I I would worry about something else. I would worry about when you define yourself as a writer uh which pe which young people will do. They think that being a writer means all you do is write. And in fact, I think even novelists and even poets that they benefit hugely from having other kinds of experiences. Like think how hard it would have been for me to write this book if I had not worked on Wall Street. >> Yeah. >> You know, I was able to write this book because I'd spent three years at Solomon Brothers and it now it doesn't have to it can be almost anything. You can be like a long shoreman. You can do what you can be anything. But just having real world experiences, having jobs, doing stuff uh informs the writing. And I think that's the that's the big mistake young people think when they think I'm going to be a writer is they don't it relieves them of the obligation of interacting with the world and all the material comes from the interaction with the world. >> All your books have focused you tell the story through the character's eyes. That's how unique and that that makes it unique. >> That's that's correct. And you know all the stories I could tell you a story in every case that the reason I was able to get into the story is some life experience I had that led me to it uh or led me to be able to connect with the people it was about that if that you know the fact I played baseball really mattered when I showed I mean I never talked about it because nobody wants to hear about your high school baseball career but but it really mattered with Moneyball like so having the experiences are it's really important in to accessing the stories. >> John, >> yep, a bunch bunch more coming in. Does the US dollar still have a future as the reserve currency or could alternatives like a brick system topple it and trigger a US debt crisis? >> We'll go back to Porter because I know he's going to say this is why we love gold so much. Yeah, Porter. >> Well, you know, the there I think there's two people keep talking about I think the reserve currency. Well, I think it's you got to split it between the reserve asset, right? What what does central banks own and they're owning more and more gold and less and less dollars like used >> that's true? >> You know, and and yeah, it used to be like I want to say like 60% US dollars and now that's down to like 30 I'm wrong, but it's something like that, >> right? But but but everything in the world is is of course priced off of dollars, right? Oil, copper, you know, everything's in dollar, you know? That's the reserve currency of the world. So I don't know I I >> it's why the China Brazil connection with energy. That's why it scares the US Treasury so much. If the bricks were to start their own pro currency or whatever it might be, it's more bas won't be based on dollars. It could be one. >> The funny thing is is the three of us see more and more risks building in the system right now. Um I knowled >> overruled. I know it's a bull market and stocks are an all-time high, but like it feels it feels darker than >> short argument over >> there. There are >> there are more reasons to be nervous than and and they're getting into that is and this gets back to fiscal dominance, excess leverage. Like you say to yourself, governments can't spend in excess of what they're bringing in by 5% 6% every year in perpetuity. just doesn't work. Right. >> Right. Yet it's working. Right. So shut up, Vinnie. It's working. >> But we find alternative things. So yeah, eventually they're they're slowly eroding the the purchasing value of the dollar. It's just a debasement story. >> John, you got one for Michael there. >> I want to make one comment. I actually thought that I was really fascinated about what Michael said earlier. And you know, rarely do you hear anyone say, "Oh, I don't think a has a threat at all." And but thinking about it and he answered it very eloquently, but we seems to me that we invest like Michael writes. >> Yes. You know, >> I was saying that. Yes. >> You know, and and it's going against the crowd or or doing something very different, right? And I say it to my kids all the time, you know, if you want to be, you know, average, you know, like this just do what everyone else does, right? But but to be really great, you got to really think differently and think outside the box. And and that's what Michael does. like you know the the the you know as real world experiences which is amazing. It's an it's an amazing comment. There's another way to say this about your investing and probably about my writing process in I think what gets people in the way in the way of people having original lives is fear that that that you have a you get interested in something and you look around you say well nobody else is interesting interested in this uh so I shouldn't be interested I'm out I'm out here on my own and you can cultivate a muscle and I bet this is true as an investor as well as a writer and writers you would think writers would not have this problem, but they all have this problem. They all want to write about the same thing. They're afraid of they're afraid of taking an extreme interest in something other people are not interested in or taking a different kind of interest in in a a thing that everybody's agreed what the interest is. And the muscle is when you feel get that feeling like I'm out here on a limb. It's a good feeling, not a bad feeling. >> It's like you got to cultivate that that sense like I okay, this is this is I this is this is where the gold is. The gold is where nobody else is. And um you don't want to be go kind of be willy-nilly about it. You don't want but if it's like something genuine gets you to a place where you're kind of oh all by yourself and don't get scared and retreat from that place because you got there for you got there the right way. >> Yeah. >> Uh and it's um so I tell you you you tell your kids this. I tell my kids that too. Like go with it. It's okay that nobody else is doing it. So, John, I'm gonna um take over the question, which I know this was asked by a lot of people. >> First time, long time. >> I had I had this question myself. Uh and I've already said that Michael's my favorite author and the like. So, that said, um in Ode of the Godfather, you have to answer for Santino Michael, right? That's from The Godfather. Um >> let's let's talk let's talk about Sam Ben. Yeah. Right. And and so when and and I know a lot of people were big fans of yours were upset. I saw you knowing that you're a character builder. >> Mhm. >> Must have fell in love with this guy one way or another. He he must have fascinated you. >> How do you feel about post what has happened >> on SPF? Dude, just curious of what your afterthoughts are that it's still alive and fresh. So this first thing I let me just you know this probably but let me just say it all over again that so I I when I meet SPF I don't meet him because I think he's gonna I'm going to write about him. I meet him because Brad Katsyama from Flash Boys who you introduced me to. >> Yep. >> Calls me and says will you meet this guy? I just want to know what you think of him. And when I heard we this when I heard what he was up to and got kind of a little bit of a sense of him I thought I just want to watch. I don't know what this is. I just want to watch. Um I do this a lot. Like I get interested in things and you just don't know where they're going to go. And I got myself in a position where I was a fly on the wall and got to watch. I don't sit down. I don't tell my publisher I have a book or sit down to write it until after it FTX has collapsed. So that I had my ending. Like I didn't know where it was going. It was and and what was really clear when I sat down to write is that the world had m had formed an opinion of him. Well, they'd formed many opinions of him. Everybody everybody loved him at one point and then everybody hated him. >> And this is this is the world we live in though. It's a world of ex of extreme unmodulated opinion and people get anchored in the opinion and outrage goes with the opinion and you can't you can't you can't you can't think about him as a human being anymore. I saw how nuanced and complicated a character he was and I thought a this is going to be so much fun to write. I'm going to be I'm going to be leaning against a grain. This is about taking a different interest than other people take. >> I'm going to paint him as a human being because I'm going to paint him in the way that everybody who actually knows him would recognize rather than the people who are commenting him about him on Twitter uh view him. And I'm going to make the reader live with the discomfort of like you could kind of like this guy. Uh, not everybody did, but you know, he was pretty brutal to his girlfriend and he's there reasons not to like him. But you you had a choice as a reader. And I knew I I before I before before it came out, it came out the day after the trial started. I said to my then uh 15-year-old son, Walker, I said, "I'm about to go on a trip. The book is about to come out and it's going to be really nasty. I see how nasty the world is towards him right now. And that's going to be redirected towards me. And he says, I say, "You have to swear to me." And I swear I made him swear to me, you're not going to go on social media and look and see what's happening. >> I get to New York. I leave him in back in California. I come to New York. This is before the book has come out. It's a day before the book has come out. Nobody has a copy. It's been embargoed. So it it is but I've given an interview to 60 Minutes which which and the interview makes it seem like well it does it as I feel I feel very mixed about the whole thing and I think there's you know it's more complicated. I I I think I said on 60 Minutes I thought everybody's going to get their money back which they have >> and more >> and more but but whatever um that he didn't he hadn't just vaporized it. Yes, he'd taken it but he hadn't just vaporized it. So anyway, I get a I I get a call from my son and he says, "This is awful." He says, "Everybody's saying all this awful stuff about you." And I said, "You swore you weren't going to go on the social media." He said, "No, I can't." I He was crying. And uh I said I said, "I promise you this book, 20 years from now, people are going to love this book. It's going to just take a little while. It's we're dealing with it's an envir it's an irrational, noisy environment. And just just trust me on this. I know this this story better than anybody. I know him better than anybody knows him and this is who he is. It is and it's interesting that it makes people upset that I have described it this way. So the next day I get in the car to go do the first wave of publicity the TV and the publicist is waiting for me and she says I got some good news and I got some bad news. She said the good news is that uh that you after having 30 zerostar reviews on Amazon by people who could not have read the book because the book is not available. So this is what's going on, right? It's think about this. People are human beings are going on Amazon to review a book they have not they couldn't could not have read. So just think about what that that means. So she says she says after 30 zero star reviews you got your first five star review. It was really great. And she said the bad news is it's by Walker Lewis. >> Such a great and Walker it's you can go see this review. She said um it go it's like Lewis's best book ever. All the critics are wrong. And and he leaves it. He leaves his name on it. It wasn't even This is Walker Lewis and I >> it's amazing. >> So anyway, it was I was it was you know I I've made people upset with books before. This is >> nothing like this one. >> Moneyball was like it. Moneyball was like it. You didn't because to you Moneyball was this great story that was an analogy. The baseball people were >> Oh, the old times. >> Oh yeah. Yeah. Yeah. Yeah. >> Everybody. It wasn't the old-timers. It was everybody. Everybody else in baseball thought they were made a fool of. And it was it was angry beyond belief. It was so bad that I could not watch ESPN games because they'd be trashing me or the book or whatever. It was you could I mean routinely you turn it on, Joe Morgan would be saying something nasty. And I So it was just I've had this before. It's fine. Um and it eventually it goes away. But this is what books are for. Yeah. It's to make to challenge you a bit. And and if I was doing it from a position of like an idiot who knew nothing, well, I wouldn't do it. I spent a year and a half interviewing everybody around this guy, watching this guy in action. I did not know he had taken the customer deposits and bunch of venture capital investments, but neither did the 2,000 venture capitalists who invent invest in invested with him. I mean, there was no way to know. >> How was his anthropic investment? >> Oh, >> I mean, it's unbelievable. >> Well, so this is so here's an example. I think the what's interesting about this story there are a million things that are interesting more interesting about this story than Sam Bankman Freed used the customer's deposits in a way he shouldn't have it's I can see how he got his how he got himself in into that stupid idiotic uh you know criminal place. Um, but when John Ray, who is running the bankruptcy and is in charge of disposing of these assets to get customer assets back, one of the first things he says to me when I sit down with him is that all this stuff he bought with his money is worthless. He just blew up the customer's money. And he said, for example, look at this thing. There's this thing called Anthropic. It's nothing. It's a piece of paper. It's worth zero. This was he Sam McFre owned 20% of an anthropic. What was his latest mark? 90 billion. >> Yeah. Some crazy number. You know, you could have paid back everybody with just that. >> Yeah. And somebody owns that. Somebody got that in. >> Somebody got they got they they got I don't they got it in that they managed not to sell that. They did get some a decent return for that. But he like all the Salana coins all the in that pile of supposedly worth assets is a big chunk of SpaceX and he which he didn't John Ray did not know he owned. He because he owned it. I knew he owned it because I knew that Sam had given money to Michael Keeus who had specifically because Keus was friends with Elon because he got and and and enabled him to make this investment. It was that I find far more shocking than than the than the behavior of a single 31-year-old. um the behavior of the entire bankruptcy system for example or the behavior of the entire crypto world or the behavior of Wall Street and VCs in the presence of something that happens to be going up that it seemed to me like the systematic stuff that I always thought Sam Bankman Freed is a is a he's a lens on the world like you can learn a lot about the world just moving through the world with him both up and down and the the world of course doesn't want to be learned about it doesn't it's an unflattering lens both ways with politicians who took money from him, the VCs who didn't investigate him, the the heads of Wall Street firms who wanted to be his best friend, the other crypto people who worshiped him, all that stuff, they wanted forgotten. So that one of the reasons there was so much anger is that people were covering themselves by being angry. They would they wanted you to forget that they'd been sucking up to him for the last three years. >> All right, John, you got a couple more in there? Yeah, guys, I know we only have three minutes left because um we have to get going, but this is a good probably final question before you guys wrap up. Michael, will there be a big short sequel due to either AI or crypto? That comes from Tim. You know, I think my hosts are better equipped to answer that question than I am, but my my instinct has been since the big short and since, as Porter pointed out, the the just the the moving of all these debts from the private sector into the public sector. My instinct has been that the next financial crisis arises out of the government. >> Absolutely. >> And that and so that's one of the reasons I've turned my attention to the government is because of that. So I I think um it may not it's going to be a different kind of book because it's sort of like the financial sector will not be won't won't be at center stage. It will be Washington that's at center stage. Uh but yeah, I think something's coming. I don't know what I don't know how. That's why I was asking you tell me the story of how it happened. >> Well, I was going to channel my inner Danny because only Danny, God bless him, will come up to you and go, I got your next >> right. >> It worked once. >> It worked. It worked once. >> Nobody has ever done that to me. And you did it right flash. >> And so I well we've been talking about it before here just studying and researching and saying the government is going to be a treasure trove >> for all your next few books. So for example I was thinking >> probably top three top five worst things in this country right now is our healthcare system. >> Yeah. >> Right. >> There's got to be some character in there that's trying to do the right thing that you find fascinating. Right. and get keeps getting stonewalled to try and fix the system but can't for a variety of host of reasons. Like there's got to be so much in the government that's so like so every time I tell people I'm going back into the government for another book I get these glazed looks back at me like they much me rather rather me write about like sports gambling but it is amazing the quality of the material right now in the government. You are right. That is why the next book I'm doing is is about the government. And it's it's a little trickier making it dance on the page than making Wall Street dance on the page. But it can be done. And there there actually are great characters. They're huge stakes. You know, the stakes are enormous. But it does seem from a distance like this big black box. Uh and getting inside the box is a little trickier. So, so I I actually think that, you know, maybe it's not the United States, but if you go back to your like Iceland example, it's going to be because the US can print money better than anyone can print money, but I don't know, France is in a really bad place, but you know, Canada's not there's a lot of countries that are not in good places either. So, it's probably going to be some big sovereign that's has, you know, been doing the same things that the US is doing that gets in trouble. That that that's that that's what >> that's an interesting thought. that it's sort of but but that and the fact that that I mean it's a bit this this rhymes with the financial crisis. I was shocked when when Washington does what it does in the back end of the financial crisis and the Treasury market rallies. It's because when it gets really shitty, everybody comes here >> and and it's not like we catch a cold and everybody else gets pneumonia. So that that's that that's an interesting idea that it starts somewhere or it's somewhere else. That's the problem or something like that. You know, >> I'm hoping for a sports gambling book at some point. I'm sure that's that'll come at some point. Um for sure. And I know you're you did Against the Rules last year with sports gambling. And normally when you invest that much time and energy, something always comes. >> It's an interesting subject. >> And Against the Rules is now the relaunch of the big short part, well, not part two, but re revisiting this part two. So Michael, can't thank you enough for coming on live. What are we doing for the Friday night dirty? Everyone in the space, thank you for for attending here. And you know, you can subscribe. Sorry we didn't get to all the questions. If you send them to us, maybe I'll email Michael from time to time and get some answers to some questions, but you're a really busy guy. Michael, thanks so much for coming on. Thanks for having me. Great seeing you.
Michael Lewis Q&A with Danny Moses, Vincent Daniel & Porter Collins
Summary
Transcript
I'm Danny Moses, host of the On the Tape podcast. As many of you know, from time to time, I have my former partners and friends, Porter Collins and Vincent Daniel join me on the pod. When they do, we normally call that segment, what are we doing? Well, in late August, the three of us got together and we launched what are we doing? Contrarians at the gate on Substack. And within that Substack, we launched a podcast called the Friday Night Dirty. And last Friday, we had our friend and best-selling author of The Big Short, Michael Lewis, join us, where we reminisced about the past, talked about the current state of the markets, and took live Q&A from our Substack members. While I had Michael Lewis as a guest on the tape several months ago, I think you'll find this conversation even more entertaining. So, please enjoy this episode of the What Are We Doing Friday Night Dirty. And if you like what you heard, please go in the show notes and subscribe to our Substack. All right, welcome to a very special edition of the Friday Night Dirty. Friday Night Dirty brought to you by the What Are We Doing Crew. I got Vincent Daniel. Next, we got Porter, Parts Unknown, and very special guest here, bestselling author Michael Lewis and friend friend from the Big Short and friend from everywhere else. Michael, thank you for coming in here. >> It's a it's a gas to be here. >> Well, we're going to get into your reason that you're here. I know you're going to be here again in a few weeks and we just reconnected recently because the Big Short anniversary, the movie, the book, everything going on here. But why don't we start kind of with that is that uh it's been 15 years since the book. >> It's been 10 years since the movie, right? And uh give us a little flavor for what you're doing now to kind of repromote this and why and why we reconnected recently. >> So it starts with the accident of the audio rights coming back to me. And I didn't actually read the book in the first place. And and in in just the last couple years, Pushkin, my podcast company, has gotten really good at doing audio books. So they're not just books, they're kind of like dramatic experiences. So he thought, I'll read it and we'll do it that way. And the reason so, so we had the rights is what got me thinking about this. And the reason to do it was that I have felt, I don't know how you guys feel about this. I have felt like that we're still living with that event, the the financial crisis that they're that you can point to a lot of things that are going on in the world now and say it goes back to that. And um including Donald Trump. So I thought what we'll do is we'll release the wereed the book. people can listen to it or not, but we'll do um like a podcast season on the side of it just looking at consequences of the basically consequences of the financial crisis, re thinking about the financial crisis again. So, to that end, as you know, I had some of my characters on and there's an episode with you three and there's another episode with Steve Eisman and Greg Litman, uh who was sort of at the the spider at the center of the web, uh way back when. Um but then there are other things. I mean, the first episode is with Adam McKay, the movie maker, because I was I was I mean, one, more people have seen the movie than read the book, but but two, it I was so interested and you must be too in how he took that and turned it into a movie. I never I mean, I never imagined. >> Do you remember one of the first things we said? So, we meet Adam McKay and the first thing I think it was Porter or Danny said and said, "How the hell are you going to make this thing into a movie that's going to sell?" I said that >> like and just and he goes, "I'm gonna throw a lot of eye candy at this thing." Right. And sure as [ __ ] he did and and it worked. God bless him. >> I remember when you called us and you said they're going to make this movie. I don't know how. >> Yeah. >> But they're going to make it a movie. And you told us that. So >> I read this when I read his script. I thought, "Oh, I can kind of see it now, but only kind of." And it was it was it's it was such an improbable thing. I mean, it's it is it's amazing how well it turned out given how hard it was to do. Think about what even writing it as a book. I can remember thinking they're just real big obstacles here. Get getting people at the center of the whole thing was was a device so diabolically complicated. It was almost inexplicable. >> Was there anything in the book that you wish got translated better or didn't translate well into the movie? Because we know the things that were fact and fiction that happened, you know, the movie versus the book. The alligator chasing Porter and I, things like that. He just obviously took fourth wall stuff with people. Was there anything that you would have done differently or anything? You know, it's funny. You know, a movie script is 8,000 words and a book is 100,000 words. So, they obviously had to leave at least 92,000 words out. And but when I looked at it, I did not think, "Oh, they should have put that in." I think, you know, it's funny. The book ends with you guys. Yeah. >> Sitting on the steps of St. Patrick's Cathedral just watching the chaos. I can remember like nobody in the taxi cabs. the streets qu you know Leman had just exploded you know and and you all sitting there thinking these people don't know what's about to happen to them I thought that was a I might have ended the movie with that like I ended the book I can't remember how they ended the movie ended the movie with a kind of essay I think right >> the only person going to jail was some >> that's right that's right and the movie and this get so and I thought what attracted me to it was I didn't come to it with a lot of outrage I mean I worked on Wall Street I that I I came I didn't I was I was shocked by the stupidity of the big institutions but it was more like aed by the stupidity. It wasn't like oh I can't believe they'll do bad things to their customers. That that that was I didn't have any of that problem. So for me it was just story. It was like an filled with great characters. You all were some of them. Um for McKay it was anger. I mean, he he the movie is much angrier than the book, and he he really I think he had to work to suppress his his political the political uh sort of op-ed that he wanted to write. Uh and and he didn't suppress it that much, but it, you know, he had to suppress it for the sake of the story. I didn't have that much going that going on. So, when I watched it, I did think, well, is it the tone is different here? Not only is it funnier, I mean, or it's overtly comic in places. Um, but it but it's it's also it's got this overt political purpose that the book really didn't have, >> right? Which is >> but Michael, we were definitely angry, right? That that that was a big thing about you know our group. I mean they they called uh you know how is America's angriest hedge fund like >> so you were angry I wasn't angry. >> Yes. That's different, right? I mean the characters all had different attitudes towards the thing. Yes, you were angry. I wasn't sitting there. I wasn't angry. I wasn't That's not Wasn't I wasn't sitting there. I was de I mean, I hate to say this. I was delighted like it was like because I was just thinking of the material. >> I was thinking, "Oh, this is going to be so much fun to write." >> I remember you calling it the sequel to Liars Poker or the book end. >> The book end it still feels like the book end of Liars Poker, right? Yeah. And and and and in fact, in in fact, it isn't. There's never an end to Wall Street. So, that's is a little it's not the end of Wall Street. Um but this business of taking the investment banks and turning them into public corporations where all this risk could be taken but if it went wrong the shareholders everybody else paid for it right the mis the misalignment of the incentives that started with Solomon brothers going public you know whenever it was 81 and was clearly not a bright idea but and and in fact gave rise to the material I had for liars poker. It ends in 2008 and now I mean yes we have Goldman Sachs and Morgan Stanley still exist but what's going on inside them is much less interesting. the risk the interesting risk takingaking has all been kind of squeezed out into other places right sort of like a Jane Street they're they're they're of tertiary importance these these in the in of are tertiary interest in the risk-taking world you know Aries and Apollo and they're taking one side of their business and Jane Street and Jump and all the rest are taking another side of their business and yeah they make money maybe they make lots of money but it isn't where the best and the brightest want to go anymore >> it is amazing how since the global financial crisis what we're still dealing obviously with the after effects the with the debt on the government's balance sheet, the debt at the Federal Reserve and stuff they're still carrying. We still have the moral hazard issue. We still have all the same issues. We've never really dealt with it, right? Really haven't cleared quote all those assets. >> You watch this more closely than I do. But what is left on the balance sheet of the Federal Reserve? >> A lot of US treasuries, a lot of mortgage back securities. >> They still own mortgage bonds. >> Yeah. Like two two trillion. >> They still have that. >> Not taking it off, >> right? Not the super exotic stuff, but but they have NBS securities. which when you think about it, they're artificially yield curve control as they call it, right? So, you're keeping rates low because you need to because we just had >> wonder what the yield curve would look like if they dumped everything. >> Well, they've tried and they tapered, you know, so they they tried that for a period of time. It's 6.6 trillion though, still at this point. It was 100 billion before the financial crisis. >> You know, it's interesting how that institution has morphed. It's just changed. Yeah. You go back, you go back to the Great Depression and it existed, but it was so it was scared of its own shadow. It wouldn't even it wouldn't even inject a lot of money into the economy just to to to prop up the economy in a banking crisis. And now I mean it got so bold. It it knew I think Bernanki this is we do have an episode in the in the uh podcast series along with the the big short audio book that but that is just on the Federal Reserve and there's an economist young economist named Emmy Nakamura who's um you know she's a whisbang monetary economist at Pal who who is is a is a Fed watcher um and she she said in the course of the conversation that Bernani said he was aware he was gambling with the Fed's independence that it was it was such a bold step they were taking that the political consequences the endgame might be no fed independence and here we are right I mean it isn't >> it isn't for the same reason exactly it isn't that but but it it did it it it probably did um undermine uh kind of the public trust of the institution uh in a way that makes it a little bit more likely Trump can just take it uh anyway >> yeah so we have a ton questions. We're going to mix them in here from our studio audience, so to speak. So, John Lieberman, uh, Ghost, the voice, uh, why don't you come in here and ask a question and identify maybe who's asking it if that's okay. >> Yes, gentlemen, we have questions lining up and lining up for Michael and for the guys. We'll start with Gary Webb. Gary asks, "Do you guys believe that sharply higher loan modifications will be a precursor to rising delinquencies and defaults? So that is a question for you all but it's an interesting question >> because that's in private more in the private markets that we're seeing all these modifications. Porter you want to give that one a shot because all they're doing is extending and pretending right the loan mods. So >> you know it dep I mean we've seen the loan mods throughout every different crisis right it's in08 they they modded you know over the last 10 years they've modded everything. So do I think that's new? No I don't think that's new at all. It's just extending and pretending. Well, Michael, where you asked where the risk has gone, it's in private equity to a degree and now they want to send all this product to retail investors and so we got to keep modifying so it still looks good. So it holds its value and loans are picking payment in kind instead of paying interest. And by the way, they charge fees on payment in kind, which is incredible. Um, so that's where the risk lies in the system, but it's not in the banking system, so people aren't as concerned. But Vinnie has a thesis for when when it does happen, what's going to happen, Ben? >> Well, they're gonna bail him out. >> They're gonna bail him out. The problem is is that because our pension capital, endowment capital, the big capitalism now fully invested in private equity, >> it's too big to fail. So, you know better than anyone because you write about it all the time. Where's the regulatory arbitrage? That's where the that's where the smart money is going to heat seek. That's right. That's where they are. The Jane Streets, the private equities and the like. They get too big. >> When you think private equity, what institutions you think? You think about Apollo? >> I think Apollo Blackstone, right? and and those guys and and to and KKR and to me if and when the [ __ ] hits the fan, they're going to call their friends in DC and say these pensions would ATMs are not going to open up Monday morning >> and they need a bailout and it's going to happen. >> But the I mean I think the problem is our biggest risk our biggest the three of us all see the biggest risk out there is the government. It's a $ 37 trillion issue and it's and it's and it's the the the reason for what's going on in the economy, right? They they have to fund everything short. There's so much debt. We've transferred all that debt from the from the, you know, public companies through COVID through now. It's all sitting, you know, and at the US government. And the question is is, you know, who's going to buy that debt? You know, the Chinese aren't really going to buy it. The Japanese probably aren't going to buy it. And so I think they're going to print the money. >> So what So I want you to tell me a story that ends in a financial crisis. Like how does it start? Is it some sort of auction failure? Is it a what happens? Is it >> at some point inflation that they can't disguise, right, is going to rear its ugly head again, right? >> Fed raises rates >> and the Fed has to tighten liquidity and raise rates, >> right? which creates raises the the debt service payments >> which creates the spiral. Right. Right. Because right now the the unknown that people don't really appreciate in my opinion >> is how freaking levered the capital market system is. >> Right. No one buys treasuries just to buy treasuries on an unlevered basis. They do basis trades at 50 to 100 to one. >> I I buy treasuries. >> I do. God bless you. >> Well, not at 50 times leverage. >> No, no, just by yourself. Do you buy bills or do you buy bonds? >> Just bills. >> That's okay. Yeah. No one's buying the long duration bonds. Oh, right. But if for the people who buying long duration, someone has to buy them, right? >> Silicon Valley tried it. How did that work out for you? Yeah. >> But so they're levered 50 to1 so they can make a small spread. Right. >> If all of a sudden volatility creeps up, right, because rates are rising, right? You create sort of a spiral. >> So So that's the way I >> I don't want to ruin your podcast, but the other thing I want to hear, I want to hear you tell me the story of how a crisis starts in the private equity system in in the private equity business. like what happens it loan fail failure to repay loans to priv these private equity lenders >> I think there's a about 99% correlation right in those markets to a lot of they're all the same you know to a degree right so if you know whatever the loan to value is debt to IBID do coverage and things like that without getting too wonky but a lot of them might be in the same industry but what it'll take will be one large asset that either fails or something that it turns >> some asset class >> an asset class or a particular asset It's so big that the correlation of it would make means that the other bonds themselves also need to get marked down that are in the same sector maybe >> and then you have this kind of one one time event because you you know you hear about from time to time >> currency goes one way someone gets carried out right nickel goes below you know get people get carried out like things happen it'll take one of those instances where some big fund is like and then it's like what else does that fund own it has nothing to do you know so you think blackstone a no etc., whatever it is, you think they're too big to fail now. >> Yes. >> Yes. >> Yeah. They're the new banking system. >> It's really interesting. >> Well, think about where a lot of the Washington appointees are coming from now. Black Rockck, >> Blackstone, >> it's at Carlilele. It's no longer >> Well, it is still Goldman and JP Morgan, but but private equity has sort of moved in. The way I think it'll happen is in order for private equity to work, the investors, the LPs need distributions to come back. So you sort of create it's a bit of a I don't want to call it a pyramid scheme, but there but there is a function of hey, I'm making money off my prior investments. I'll invest in fund 25 while you're giving me money from fund 15. Right? >> If all of a sudden the money from fund 15 no longer comes in the door, right? >> I'm not doing fund 25. Not going to do it. Right? And once you do that, then you say, "Well, there's no price discovery." And when do the pensioners say, "I'm not getting any distributions." Right? That's way I think this All right, >> gentlemen. I'm going to jump in if you don't mind. Sorry, Porter. Porter's mouth is moving. We're going to come to Porter in a minute, but let's kind of do a lightning round because we literally have north of about 40 questions. Everybody has questions for all four of you. I'm going to start with two for Michael. The first is uh fifth risk has changed exponentially. Your thoughts and then tangentially Michael reflecting 10 years later what's the lesson that you learned from the big short which wasn't obvious when you wrote the book. >> So I'm not sure I understand what what the question was with >> fifth risk is rearing its head again. >> Yes. And I'm going back in and writing another book. Uh I mean the f the first time I mean when I think about Trump and the government the first time I think you know he didn't think he was going to win. He was the dog who caught the bus and and he didn't arrive thinking he with any kind of plan to run the government. And in fact and what got me interested in the story in the first place again I'm like a story machine. I'm not looking for like to make political points, but in this case, I thought it was wild that this person who had zero experience running anything like a government was being handed the biggest institution on the planet. And he the first thing he does right after he's elected is fire his transition team, the 525 people who are supposed to go in and learn what the hell's going on. I think it provided him with some information. Like if you if I said you're president, you'd panic, right? What the hell is it? What is it? I got to run this thing. What is it? What's in the Department of Agriculture? I have no idea. What are they doing? And that he and then he turns to Chris Christie after he fires these people and says, Chris, we're so smart. We can learn what they do in an hour. And I thought, well, that was just like a literary opportunity. I could go in and get all the briefings that they would have gotten from people who were sitting there with like finger sandwiches and diet cokes waiting to meet with somebody. And then I start when I started at like the first among the first meetings I took, I would call the people who were waiting to do it and nobody was showing up was with the people who ran the nuclear arsenal in the department of energy and it was like I was the first one who showed up to hear the briefing. That's just wild, right? So that's Trump won is that the fifth risk is that it's like what happens? What is like using his neglect as an excuse to figure out what the government does picking just a few departments? I think now he's come in with a plan. It's not his plan, but but it is a very detailed plan and it's a radical plan and it's to dismantle the federal government and reshape it as a purely partisan political thing. It's like a weapon to weaponize it and and that means something completely different. Negle neglect is different from you know malicious. Do you think this shutdown that we have now versus the last time that you know the amount of people that are there trying to run the essential services that are supposed to these agencies it's we're going to see some issues obviously potentially at some of these agencies just because they're not as deep as they were. Doge came at the beginning of the year and so >> no the big the big difference between the two shutdowns you're right he's now this is a this is like a book end with his first shutdown is that the first shutdown he didn't really it didn't there he wasn't he his mind had not gone to because the people around him their mind had not gone down it got gotten to what can we use this for and um in this case they're talking about f actually using it fire uh uh like lots and lots of these people who are just who were furoughed and um So it will have a that that's a radically different act. >> The the same people will be on the job like the people at the airport who make sure you're not Yeah. Yeah. Yeah. The TSA people will still be there that they'll be but they won't be being paid, >> right? So you it's a question of like when they start calling in sick and uh I mean you'll see a degradation of services and who knows how long it will last. That that's not the big thing. The big thing is disruption of long-term projects that you don't even see. Uh that that's that's the big thing and the price is very it's very hard to measure the price >> but anyway it's the once again I mean just as a matter of story the material is unbelievable. Yeah. >> So so that the second question was about the big short >> what happened. So the it's so I would say the big the single biggest lesson that I got out of the big short and it affected my life was the power of incentives like what people did inside Morgan Stanley Mel Lynch City Bank uh that was catastrophically stupid putting their institutions at you know mortal risk because they were actually paid to do it and that if you pay people to do stupid stuff they'll do stupid stuff. So I that I I don't know if I ever told you guys this, but after I wrote the book, I went to my publisher and I said, "Do you do realize that my incentives are not we our incentives are not aligned. You give me a big advance uh mostly with authors like you never see another nickel. You get, you know, you're not actually you don't have an equity stake in the book and my incentive is to is to um maximize revenues because I just get a percentage of the cover price and you're trying to make profits." I said, "I've just seen the power of incentives. let's sit down and figure out how to align our incentives. And ever since then, I've owned half the books and I don't take advance. And it and it was because of this book. It was because I said, I've got to be so care if if if this can happen to those people, it can happen to me. Like you got to be so careful what your incentives are because you will you'll be led by them. >> Yeah. >> Yeah. It's like guys that run big funds that run10 billion dollars and they're clipping a 2% management fee. >> Yeah. So, they're going to make the money regardless. Question is, what is their incentive to create an incentive fee? All right, John, we'll take another question. I think Porter's going to have one also. Sorry. >> Yep. Don would like to know, "How has fiscal dominance changed the way equities are priced?" >> It's probably a Porter question if you want to do that. >> Seems like whenever there's substance, Porter has to answer it. >> Yes. >> Well, our friend Luke Roman fiscal dominance. Yeah. >> The fiscal dominance, the fiscal dominance thing is basically just what we're we're talking about before is that the government has has basically crowded out everything, right? And now we're running you know 6% budget deficits and you know every you know everything post I would say COVID to me when when we were running or actually the first Trump when he when he started doing uh you know tax cuts and deficit uh deficit funding um and and tax cuts, right? And so why we why were we doing that? Why were we giving tax cuts and running a deficit at the same time? It makes no [ __ ] sense, right? It's just stupidity just to I I don't know why. >> That's why we love gold so much. Yeah. >> You're just you're just you're just stealing from the government essentially. And um you know, and we've been running deficits ever since. And and I don't think we can get out of it, right? That's the thing. It's like, you know, >> inflation. Actually, the irony is you need to inflate all assets to get out of it. That's the >> no matter what administration, they have to run deficits. They can't they I mean, remember when when Biden was running like what is he doing? Why is he running a se 8% budget deficits? makes no sense. And sure enough, Trump comes in. He tries to do Doge for about 30 seconds and and and flipped. >> So So can I ask a question? Yeah. >> Because we're this we haven't been together. I know. >> I mean, we have not been together all together in a very long time. >> And I don't think I've ever got to ask you >> what it was like I have two questions. What it was like being written about by me. >> When I showed up in your office, I was amazed you all let me in. It was really nice you let me in. If you would not let me in and I never would have read written the book because you were the first people who on the right side of the bed who I actually encountered and you you three and and Eisman it kind of explained to me what was going on in my you know my brain exploded. Um was it uncomfortable >> having me around? Was it were you when was after every time I left were you all going in a room and saying what the [ __ ] are we doing talking to him? Uh were you upset with the book? What? I'm curious. I want to hear your take. >> Do you want to give it a crack first, Ben? >> No. First off, you called me on page 10. I don't know how I know that exactly. You called me young, fit, and handsome. So after that, everything everything was fair game. I, you know, and I'm just going to testament to you. >> You are my favorite author. So So the fact that you were writing our story, >> right? I I was I was >> Well, that's that's got to be weird. >> That was ar like I and I couldn't believe that like he's going to write about us. This this guy's going to write about us. So, we I was I'll speak for myself. I was more than happy to provide you the story that I felt like we were in the right. We tried to do like yes, we made a lot of money, but we tried to do the right thing. So, for me, yeah, >> I wasn't that uh upset about or or thinking like what am I doing here? If you remember it came, you came in through Meredith Whitney. That's right. So, it was already pre-screened, but to Vinnie's point, you were one of our heroes. I mean, you written about Wall Street and I think >> from Liars Poker, we had that same thought process and mentality about Wall Street anyway, right? So we had seen a bunch of stuff and I think we were excited and what you did with maybe didn't know it but you were providing information to us by the questions that you were asking us because if you're asking certain questions it made us think about why would Michael ask that question like how much risk is really in this system or and then you would go off and come back and you go off and come back and I remember each of us would meet with you separately right >> we rarely would the four of us sit down with you a lot of independence whatever and so you would go and you' be like to us is that someone I should talk to I'm like yeah let me know what they let me let me know what they're about um but no but I think you actually so we there was a trust factor from the very beginning and when you wrote the article first remember um >> y >> Vanity Fair >> no it was portfolio magazine >> portfolio magazine sorry um and then the book came out obviously after that but it was already over by the time you written the book right >> um but no it was uh and Porter might want to opine on it but >> well you know I I explained this to Michael on the podcast the other day but you know I was the youngest guy in the team and maybe it's because of my waspy conservatism or whatever. You know, I was the most nervous about any of this stuff. You know, talking, you know, Wasper to told to never talk about money. And you know, when you know, my grandfather who who was who I was very close with, you know, I forget it was after he read the book or after he watched the movie. And he he goes to me, well, why are we celebrating here? You know, like yeah, you guys, you know, saw this coming, but like everyone lost their jobs and everyone, you know, got got destroyed. Like this is this is a horrible story. like and so >> so you gave it all to charity. That's what put it away all the way. Yeah. Yeah. Yeah. Exactly. >> Which is >> I did start a foundation. Yeah. >> Yeah. I know you did. I know you. All right, John. >> So, I got one more question. Yes. And that is like the movie. I haven't re I want to hear what the effects of the movie on your lives has been. >> Yeah. Um well, >> you go first. >> Find out about my testicle. That was that was from Adam McCay. Thanks for that. Uh Porter likes to wear pants that are cut too short with no socks when he wears loafers. We got that. And then Vinnie with his blackberry on his side and chewing gum contest, you know, consist. So, a lot of the movie for me was like I felt like the three of us were sitting on the desk like we were. They did an incredible job, you know, doing that. But, uh, >> but how does it rip it? I've never had anybody make a movie. >> We were still managing money when, you know, during that time period. So, we tried to not let it really didn't really go to our heads at all. We enjoyed it. We enjoyed the I think the the fun about it, but we never took it serious. to attract a lot of attention to you >> if you mention the movie like when you're with people >> like they are kind of apprehensive of talking to you about it right um >> but once they're like can I talk about the movie I'm like yeah I'm never going to bring it up but bring it right like like um and I remember I was at a and of course I was fortunately played by Jeremy Strong who is blown up and is a superstar now and I was at a dinner like one of these Wall Street dinners and and I just started going off on somebody on the other side, right? And because he he made one of these stupid Wall Street comments with too much confidence and I was like and I was like, "Did you actually speak to the person or is this just a [ __ ] opinion?" >> Right? And and I just started going and there was about four really good. So I think someone brought in models and and the four really good-looking people goes, "I know that character, right?" Like like Jeremy nailed you, right? like and so like [ __ ] like that of every once in a while comes up. >> Yeah. >> Um which is really funny. >> Yeah. >> I don't what what the only >> Go ahead Porter. >> I think it [ __ ] us up for a little while because you know we were we were known as the big short guys. So we so for there was a period of call it five six years and also we were still dealing with the you know the crisis and our head was still in the crisis. We it was hard for us to be bullish because we were the big short guys. So, how can we possibly be bullish, >> right? >> And so, I think it [ __ ] with our heads for I would say a good three, four years. Thankfully, you know, I didn't have to do therapy, but I did my own therapy and I I've cured myself. So, it's good. >> The problem is people like, so what do you like now or what do you hate now and what do you know that? And we explain right place, right time, right product to express a trade, but people forget it wasn't that trade. It was that trade was part of it. We had a short book, an equity book that we did well. We had a long equity book that did well. So it wasn't that was just an extra tool that provided it. So uh >> anyway anyway all right John next curiosity. >> All right we have a lot of financial and investment questions but here's one for Michael uh because Rick Weekes has been super patient here and Rick is asking on behalf of his daughter Michael. What advice would you give to a young writer or wouldbe editor trying to build a career who's very concerned about adverse disruption coming from AI? >> Oh, I don't know. So, I I have a couple of thoughts about this. The the the um the my first my first step here is to say ignore it. Um, I just don't think that AI is going to generate it. I don't feel threatened by it. Yeah. I I And I tell you, and I don't feel threatened by it for a couple reasons. One is I think it's going to be a long time before like AI can tell a good joke, a good original joke. Like it's it it's not what it does. AI is going to generate the kind of intelligence it generates. It's kind of intelligence that codes computers. And I think it's it's going to be less good at kind of creative acts. The other thing is if you were doing if if she's the kind of writer that I am where you're going out into the world and finding stuff and trying to make sense of it, the AI only knows what it knows. Like it only knows if it had tried to write the big short. >> Yeah. >> It wouldn't before I wrote the big short um it would it wouldn't have known you. It wouldn't have kn it wouldn't have known any of the character. It wouldn't have had any material. So that that that the the I think the exciting thing is going out into the world, finding things people don't know about, finding people that people don't know about and organizing um the people in the situations into stories that make sense of the world. And that is that's implying that you're you're gathering material that just it just isn't available to the to the to the machine. Now after afterwards it may be able to take your thing and do something with it that replicates it or undermines the marketability of it or whatever but the creation of it is still it requires a human being interacting with human beings. Uh so I I just wouldn't worry about it. I I would worry about something else. I would worry about when you define yourself as a writer uh which pe which young people will do. They think that being a writer means all you do is write. And in fact, I think even novelists and even poets that they benefit hugely from having other kinds of experiences. Like think how hard it would have been for me to write this book if I had not worked on Wall Street. >> Yeah. >> You know, I was able to write this book because I'd spent three years at Solomon Brothers and it now it doesn't have to it can be almost anything. You can be like a long shoreman. You can do what you can be anything. But just having real world experiences, having jobs, doing stuff uh informs the writing. And I think that's the that's the big mistake young people think when they think I'm going to be a writer is they don't it relieves them of the obligation of interacting with the world and all the material comes from the interaction with the world. >> All your books have focused you tell the story through the character's eyes. That's how unique and that that makes it unique. >> That's that's correct. And you know all the stories I could tell you a story in every case that the reason I was able to get into the story is some life experience I had that led me to it uh or led me to be able to connect with the people it was about that if that you know the fact I played baseball really mattered when I showed I mean I never talked about it because nobody wants to hear about your high school baseball career but but it really mattered with Moneyball like so having the experiences are it's really important in to accessing the stories. >> John, >> yep, a bunch bunch more coming in. Does the US dollar still have a future as the reserve currency or could alternatives like a brick system topple it and trigger a US debt crisis? >> We'll go back to Porter because I know he's going to say this is why we love gold so much. Yeah, Porter. >> Well, you know, the there I think there's two people keep talking about I think the reserve currency. Well, I think it's you got to split it between the reserve asset, right? What what does central banks own and they're owning more and more gold and less and less dollars like used >> that's true? >> You know, and and yeah, it used to be like I want to say like 60% US dollars and now that's down to like 30 I'm wrong, but it's something like that, >> right? But but but everything in the world is is of course priced off of dollars, right? Oil, copper, you know, everything's in dollar, you know? That's the reserve currency of the world. So I don't know I I >> it's why the China Brazil connection with energy. That's why it scares the US Treasury so much. If the bricks were to start their own pro currency or whatever it might be, it's more bas won't be based on dollars. It could be one. >> The funny thing is is the three of us see more and more risks building in the system right now. Um I knowled >> overruled. I know it's a bull market and stocks are an all-time high, but like it feels it feels darker than >> short argument over >> there. There are >> there are more reasons to be nervous than and and they're getting into that is and this gets back to fiscal dominance, excess leverage. Like you say to yourself, governments can't spend in excess of what they're bringing in by 5% 6% every year in perpetuity. just doesn't work. Right. >> Right. Yet it's working. Right. So shut up, Vinnie. It's working. >> But we find alternative things. So yeah, eventually they're they're slowly eroding the the purchasing value of the dollar. It's just a debasement story. >> John, you got one for Michael there. >> I want to make one comment. I actually thought that I was really fascinated about what Michael said earlier. And you know, rarely do you hear anyone say, "Oh, I don't think a has a threat at all." And but thinking about it and he answered it very eloquently, but we seems to me that we invest like Michael writes. >> Yes. You know, >> I was saying that. Yes. >> You know, and and it's going against the crowd or or doing something very different, right? And I say it to my kids all the time, you know, if you want to be, you know, average, you know, like this just do what everyone else does, right? But but to be really great, you got to really think differently and think outside the box. And and that's what Michael does. like you know the the the you know as real world experiences which is amazing. It's an it's an amazing comment. There's another way to say this about your investing and probably about my writing process in I think what gets people in the way in the way of people having original lives is fear that that that you have a you get interested in something and you look around you say well nobody else is interesting interested in this uh so I shouldn't be interested I'm out I'm out here on my own and you can cultivate a muscle and I bet this is true as an investor as well as a writer and writers you would think writers would not have this problem, but they all have this problem. They all want to write about the same thing. They're afraid of they're afraid of taking an extreme interest in something other people are not interested in or taking a different kind of interest in in a a thing that everybody's agreed what the interest is. And the muscle is when you feel get that feeling like I'm out here on a limb. It's a good feeling, not a bad feeling. >> It's like you got to cultivate that that sense like I okay, this is this is I this is this is where the gold is. The gold is where nobody else is. And um you don't want to be go kind of be willy-nilly about it. You don't want but if it's like something genuine gets you to a place where you're kind of oh all by yourself and don't get scared and retreat from that place because you got there for you got there the right way. >> Yeah. >> Uh and it's um so I tell you you you tell your kids this. I tell my kids that too. Like go with it. It's okay that nobody else is doing it. So, John, I'm gonna um take over the question, which I know this was asked by a lot of people. >> First time, long time. >> I had I had this question myself. Uh and I've already said that Michael's my favorite author and the like. So, that said, um in Ode of the Godfather, you have to answer for Santino Michael, right? That's from The Godfather. Um >> let's let's talk let's talk about Sam Ben. Yeah. Right. And and so when and and I know a lot of people were big fans of yours were upset. I saw you knowing that you're a character builder. >> Mhm. >> Must have fell in love with this guy one way or another. He he must have fascinated you. >> How do you feel about post what has happened >> on SPF? Dude, just curious of what your afterthoughts are that it's still alive and fresh. So this first thing I let me just you know this probably but let me just say it all over again that so I I when I meet SPF I don't meet him because I think he's gonna I'm going to write about him. I meet him because Brad Katsyama from Flash Boys who you introduced me to. >> Yep. >> Calls me and says will you meet this guy? I just want to know what you think of him. And when I heard we this when I heard what he was up to and got kind of a little bit of a sense of him I thought I just want to watch. I don't know what this is. I just want to watch. Um I do this a lot. Like I get interested in things and you just don't know where they're going to go. And I got myself in a position where I was a fly on the wall and got to watch. I don't sit down. I don't tell my publisher I have a book or sit down to write it until after it FTX has collapsed. So that I had my ending. Like I didn't know where it was going. It was and and what was really clear when I sat down to write is that the world had m had formed an opinion of him. Well, they'd formed many opinions of him. Everybody everybody loved him at one point and then everybody hated him. >> And this is this is the world we live in though. It's a world of ex of extreme unmodulated opinion and people get anchored in the opinion and outrage goes with the opinion and you can't you can't you can't you can't think about him as a human being anymore. I saw how nuanced and complicated a character he was and I thought a this is going to be so much fun to write. I'm going to be I'm going to be leaning against a grain. This is about taking a different interest than other people take. >> I'm going to paint him as a human being because I'm going to paint him in the way that everybody who actually knows him would recognize rather than the people who are commenting him about him on Twitter uh view him. And I'm going to make the reader live with the discomfort of like you could kind of like this guy. Uh, not everybody did, but you know, he was pretty brutal to his girlfriend and he's there reasons not to like him. But you you had a choice as a reader. And I knew I I before I before before it came out, it came out the day after the trial started. I said to my then uh 15-year-old son, Walker, I said, "I'm about to go on a trip. The book is about to come out and it's going to be really nasty. I see how nasty the world is towards him right now. And that's going to be redirected towards me. And he says, I say, "You have to swear to me." And I swear I made him swear to me, you're not going to go on social media and look and see what's happening. >> I get to New York. I leave him in back in California. I come to New York. This is before the book has come out. It's a day before the book has come out. Nobody has a copy. It's been embargoed. So it it is but I've given an interview to 60 Minutes which which and the interview makes it seem like well it does it as I feel I feel very mixed about the whole thing and I think there's you know it's more complicated. I I I think I said on 60 Minutes I thought everybody's going to get their money back which they have >> and more >> and more but but whatever um that he didn't he hadn't just vaporized it. Yes, he'd taken it but he hadn't just vaporized it. So anyway, I get a I I get a call from my son and he says, "This is awful." He says, "Everybody's saying all this awful stuff about you." And I said, "You swore you weren't going to go on the social media." He said, "No, I can't." I He was crying. And uh I said I said, "I promise you this book, 20 years from now, people are going to love this book. It's going to just take a little while. It's we're dealing with it's an envir it's an irrational, noisy environment. And just just trust me on this. I know this this story better than anybody. I know him better than anybody knows him and this is who he is. It is and it's interesting that it makes people upset that I have described it this way. So the next day I get in the car to go do the first wave of publicity the TV and the publicist is waiting for me and she says I got some good news and I got some bad news. She said the good news is that uh that you after having 30 zerostar reviews on Amazon by people who could not have read the book because the book is not available. So this is what's going on, right? It's think about this. People are human beings are going on Amazon to review a book they have not they couldn't could not have read. So just think about what that that means. So she says she says after 30 zero star reviews you got your first five star review. It was really great. And she said the bad news is it's by Walker Lewis. >> Such a great and Walker it's you can go see this review. She said um it go it's like Lewis's best book ever. All the critics are wrong. And and he leaves it. He leaves his name on it. It wasn't even This is Walker Lewis and I >> it's amazing. >> So anyway, it was I was it was you know I I've made people upset with books before. This is >> nothing like this one. >> Moneyball was like it. Moneyball was like it. You didn't because to you Moneyball was this great story that was an analogy. The baseball people were >> Oh, the old times. >> Oh yeah. Yeah. Yeah. Yeah. >> Everybody. It wasn't the old-timers. It was everybody. Everybody else in baseball thought they were made a fool of. And it was it was angry beyond belief. It was so bad that I could not watch ESPN games because they'd be trashing me or the book or whatever. It was you could I mean routinely you turn it on, Joe Morgan would be saying something nasty. And I So it was just I've had this before. It's fine. Um and it eventually it goes away. But this is what books are for. Yeah. It's to make to challenge you a bit. And and if I was doing it from a position of like an idiot who knew nothing, well, I wouldn't do it. I spent a year and a half interviewing everybody around this guy, watching this guy in action. I did not know he had taken the customer deposits and bunch of venture capital investments, but neither did the 2,000 venture capitalists who invent invest in invested with him. I mean, there was no way to know. >> How was his anthropic investment? >> Oh, >> I mean, it's unbelievable. >> Well, so this is so here's an example. I think the what's interesting about this story there are a million things that are interesting more interesting about this story than Sam Bankman Freed used the customer's deposits in a way he shouldn't have it's I can see how he got his how he got himself in into that stupid idiotic uh you know criminal place. Um, but when John Ray, who is running the bankruptcy and is in charge of disposing of these assets to get customer assets back, one of the first things he says to me when I sit down with him is that all this stuff he bought with his money is worthless. He just blew up the customer's money. And he said, for example, look at this thing. There's this thing called Anthropic. It's nothing. It's a piece of paper. It's worth zero. This was he Sam McFre owned 20% of an anthropic. What was his latest mark? 90 billion. >> Yeah. Some crazy number. You know, you could have paid back everybody with just that. >> Yeah. And somebody owns that. Somebody got that in. >> Somebody got they got they they got I don't they got it in that they managed not to sell that. They did get some a decent return for that. But he like all the Salana coins all the in that pile of supposedly worth assets is a big chunk of SpaceX and he which he didn't John Ray did not know he owned. He because he owned it. I knew he owned it because I knew that Sam had given money to Michael Keeus who had specifically because Keus was friends with Elon because he got and and and enabled him to make this investment. It was that I find far more shocking than than the than the behavior of a single 31-year-old. um the behavior of the entire bankruptcy system for example or the behavior of the entire crypto world or the behavior of Wall Street and VCs in the presence of something that happens to be going up that it seemed to me like the systematic stuff that I always thought Sam Bankman Freed is a is a he's a lens on the world like you can learn a lot about the world just moving through the world with him both up and down and the the world of course doesn't want to be learned about it doesn't it's an unflattering lens both ways with politicians who took money from him, the VCs who didn't investigate him, the the heads of Wall Street firms who wanted to be his best friend, the other crypto people who worshiped him, all that stuff, they wanted forgotten. So that one of the reasons there was so much anger is that people were covering themselves by being angry. They would they wanted you to forget that they'd been sucking up to him for the last three years. >> All right, John, you got a couple more in there? Yeah, guys, I know we only have three minutes left because um we have to get going, but this is a good probably final question before you guys wrap up. Michael, will there be a big short sequel due to either AI or crypto? That comes from Tim. You know, I think my hosts are better equipped to answer that question than I am, but my my instinct has been since the big short and since, as Porter pointed out, the the just the the moving of all these debts from the private sector into the public sector. My instinct has been that the next financial crisis arises out of the government. >> Absolutely. >> And that and so that's one of the reasons I've turned my attention to the government is because of that. So I I think um it may not it's going to be a different kind of book because it's sort of like the financial sector will not be won't won't be at center stage. It will be Washington that's at center stage. Uh but yeah, I think something's coming. I don't know what I don't know how. That's why I was asking you tell me the story of how it happened. >> Well, I was going to channel my inner Danny because only Danny, God bless him, will come up to you and go, I got your next >> right. >> It worked once. >> It worked. It worked once. >> Nobody has ever done that to me. And you did it right flash. >> And so I well we've been talking about it before here just studying and researching and saying the government is going to be a treasure trove >> for all your next few books. So for example I was thinking >> probably top three top five worst things in this country right now is our healthcare system. >> Yeah. >> Right. >> There's got to be some character in there that's trying to do the right thing that you find fascinating. Right. and get keeps getting stonewalled to try and fix the system but can't for a variety of host of reasons. Like there's got to be so much in the government that's so like so every time I tell people I'm going back into the government for another book I get these glazed looks back at me like they much me rather rather me write about like sports gambling but it is amazing the quality of the material right now in the government. You are right. That is why the next book I'm doing is is about the government. And it's it's a little trickier making it dance on the page than making Wall Street dance on the page. But it can be done. And there there actually are great characters. They're huge stakes. You know, the stakes are enormous. But it does seem from a distance like this big black box. Uh and getting inside the box is a little trickier. So, so I I actually think that, you know, maybe it's not the United States, but if you go back to your like Iceland example, it's going to be because the US can print money better than anyone can print money, but I don't know, France is in a really bad place, but you know, Canada's not there's a lot of countries that are not in good places either. So, it's probably going to be some big sovereign that's has, you know, been doing the same things that the US is doing that gets in trouble. That that that's that that's what >> that's an interesting thought. that it's sort of but but that and the fact that that I mean it's a bit this this rhymes with the financial crisis. I was shocked when when Washington does what it does in the back end of the financial crisis and the Treasury market rallies. It's because when it gets really shitty, everybody comes here >> and and it's not like we catch a cold and everybody else gets pneumonia. So that that's that that's an interesting idea that it starts somewhere or it's somewhere else. That's the problem or something like that. You know, >> I'm hoping for a sports gambling book at some point. I'm sure that's that'll come at some point. Um for sure. And I know you're you did Against the Rules last year with sports gambling. And normally when you invest that much time and energy, something always comes. >> It's an interesting subject. >> And Against the Rules is now the relaunch of the big short part, well, not part two, but re revisiting this part two. So Michael, can't thank you enough for coming on live. What are we doing for the Friday night dirty? Everyone in the space, thank you for for attending here. And you know, you can subscribe. Sorry we didn't get to all the questions. If you send them to us, maybe I'll email Michael from time to time and get some answers to some questions, but you're a really busy guy. Michael, thanks so much for coming on. Thanks for having me. Great seeing you.