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Matt Levine on Money and Stuff · Masters in Business

• 0:02
  Speaker 1: This is Master's in Business with very rid holds on
• 0:06
  Speaker 1: Bloomberg Radio.
• 0:08
  Speaker 2: This week on the podcast, I have an extra special guest.
• 0:12
  Speaker 2: Matt Levine, writes the Money Stuff daily newsletter for Bloomberg.
• 0:16
  Speaker 2: Matt has become this fascinating character in the world of
• 0:21
  Speaker 2: Wall Street research and analysis and commentary. He brings an
• 0:26
  Speaker 2: unusual background as both an m and a attorney and
• 0:30
  Speaker 2: a derivative specialist at two of the best firms in
• 0:33
  Speaker 2: the world for those spaces, and so he has this
• 0:37
  Speaker 2: unique way of taking these very complicated, sophisticated ideas and
• 0:43
  Speaker 2: making them both accessible and amusing to both finance professionals
• 0:50
  Speaker 2: and lay people. Nobody in the world writes about markets, finance, derivatives,
• 0:56
  Speaker 2: hedge funds, you name it, the way Matt does, and
• 1:00
  Speaker 2: and it's why he has such an amazing following. Over
• 1:02
  Speaker 2: three hundred thousand people get his daily missive. I found
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  Speaker 2: this conversation to be really intriguing, and I think you
• 1:09
  Speaker 2: will as well. With no further ado, my conversation with
• 1:14
  Speaker 2: Money Stuffs, Matt Levine.
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  Speaker 1: Thanks for having me. I walked all the way across
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  Speaker 1: this floor to get here.
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  Speaker 2: Not easy right to not easy to get to the broadcast.
• 1:22
  Speaker 1: Weirdly, I went upstairs and then came downstairs.
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  Speaker 2: That's right, So let's talk. This is really the only
• 1:28
  Speaker 2: kind of odd question I'm going to ask, and everything
• 1:30
  Speaker 2: else is all very career oriented, so hopefully this isn't
• 1:33
  Speaker 2: too embarrassing. But let's ask this. So you're undergrad at Harvard,
• 1:37
  Speaker 2: where you majored in classics, and you list your activities
• 1:42
  Speaker 2: as quad whiffle ball and tequila Tuesday, which doesn't strike
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  Speaker 2: me as you take it very seriously. You were valed
• 1:50
  Speaker 2: victorian Harvard. You never mentioned your Ivy League education.
• 1:56
  Speaker 1: You're quoting my LinkedIn, which probably my proud of social media,
• 2:00
  Speaker 1: since is my LinkedIn is I would like to think
• 2:03
  Speaker 1: a little bit funny, And yes I was. I was.
• 2:07
  Speaker 1: I was, I believe, the co commissioner of quadwiffle wall very,
• 2:11
  Speaker 1: which is neither like prestigious, neither prestigious nor nor athletic
• 2:16
  Speaker 1: nor organizationally impressive.
• 2:19
  Speaker 2: But I had to dig that up. I had to
• 2:21
  Speaker 2: dig up that you evalid Victorian.
• 2:23
  Speaker 1: I wasn't really Validictori, you were not. I didn't give
• 2:26
  Speaker 1: a speech.
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  Speaker 2: I like, okay, so you you were. You just didn't
• 2:31
  Speaker 2: accept the.
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  Speaker 1: No, no, no, there's there's not a thing called valedictoria and
• 2:34
  Speaker 1: I want a prize.
• 2:35
  Speaker 2: For So where where is this coming from? You? Not
• 2:38
  Speaker 2: the first time you've heard no.
• 2:39
  Speaker 1: No, no, I did win a prize for having the
• 2:41
  Speaker 1: highest GPI. So there's like a technical sense, but not
• 2:45
  Speaker 1: the most technical sets. That was not the validatory Yeah, editory.
• 2:48
  Speaker 2: I never hear you talk about the Ivy League. You
• 2:50
  Speaker 2: go to law school at Yale. It's almost as if
• 2:53
  Speaker 2: you're embarrassed by the whole bruhaha around the IVS.
• 2:59
  Speaker 1: Uh. I don't know, it's like a little embarrassing to say.
• 3:03
  Speaker 2: That you, Well, the old joke is right.
• 3:06
  Speaker 1: How do you tell someone however, they'll tell you.
• 3:08
  Speaker 2: They'll tell you, But you're the exception to that rule.
• 3:11
  Speaker 1: There are a lot of exceptions, but I do I
• 3:12
  Speaker 1: will say that like in my in my column, I
• 3:15
  Speaker 1: fairly regularly have occasion to disclose that I worked at
• 3:19
  Speaker 1: Goldban because I'm often writing about Goldman and it feels
• 3:21
  Speaker 1: like somehow dishonest not to mention that I worked at Golvin.
• 3:25
  Speaker 1: So I get a lot of my bragging in that
• 3:26
  Speaker 1: way because because it used to be and it's less
• 3:29
  Speaker 1: true now, it used to be that like there is
• 3:30
  Speaker 1: a lot of like you could be like, oh, I
• 3:32
  Speaker 1: worked at Golvin. I was like, oh, you worked at Goldvin.
• 3:34
  Speaker 1: Now like that's a little tarnished, but there's still some good.
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  Speaker 2: All right. So you go to Yale law school, you're
• 3:39
  Speaker 2: on the Law of You given your current career as
• 3:42
  Speaker 2: a writer, did you did you publish a lore of
• 3:45
  Speaker 2: you artcle?
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  Speaker 1: You know? I did? I published it what it's called
• 3:48
  Speaker 1: the Comments, like a very short one about this great
• 3:51
  Speaker 1: tax law case with this guy who like won the
• 3:54
  Speaker 1: lottery and then wanted to get his lottery winnings treated
• 3:57
  Speaker 1: as capital gains. He lost, But I thought that was
• 3:59
  Speaker 1: so funny, and then it had nothing to do with
• 4:02
  Speaker 1: like anything I did for the next like seven years
• 4:05
  Speaker 1: after law school. But it's like, you know, like it
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  Speaker 1: could have been a money stuff section, Like it was
• 4:10
  Speaker 1: pretty close to what I.
• 4:10
  Speaker 2: Do now very much. So, so we'll skip you teaching
• 4:14
  Speaker 2: Latin because my brain can't wrap my head around.
• 4:16
  Speaker 1: That that was fun. It's pretty bad.
• 4:19
  Speaker 2: So you say, I know, I'll become an M and
• 4:23
  Speaker 2: a attorney at Walktail Lipton, perhaps the most infamous M
• 4:27
  Speaker 2: and a law shop.
• 4:29
  Speaker 1: Yeah, I mean, like the normal thing to do with
• 4:31
  Speaker 1: a classics degree is conclude that you should not continue
• 4:34
  Speaker 1: to be a class assistan and therefore go to law school.
• 4:37
  Speaker 1: So that was pretty pretty straight forward decision. But yeah,
• 4:39
  Speaker 1: then I went to walked out afterwards because it seemed
• 4:43
  Speaker 1: like because like, you know, you're you're a law student,
• 4:47
  Speaker 1: you don't know what a law firm is. And then
• 4:49
  Speaker 1: like you can spend your second year summer at a
• 4:52
  Speaker 1: law firm, and if you spend your second year summer
• 4:55
  Speaker 1: at most law firms, they take you out to fancy
• 4:56
  Speaker 1: lunches at the end of the summer, not knowing what
• 4:58
  Speaker 1: a law firm is. But if you go to walk tell,
• 5:00
  Speaker 1: they just put you to work, and so you end
• 5:01
  Speaker 1: the summer knowing what a lot from us. And I
• 5:02
  Speaker 1: was like, I might as well find out.
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  Speaker 2: So I imagine it's endless hours focused on minutia.
• 5:08
  Speaker 1: What was your experience, Like, there's some of that, but
• 5:12
  Speaker 1: like you have to like like, yeah, you're like writing
• 5:16
  Speaker 1: merger agreements and then the other side is marking up
• 5:18
  Speaker 1: the merger agreement, and like you're arguing over commas and stuff,
• 5:22
  Speaker 1: and I love that. I thought that was really fun.
• 5:23
  Speaker 1: So I was very interested in that stuff. But there's
• 5:25
  Speaker 1: also a lot of like at way Tel. You know,
• 5:28
  Speaker 1: I was at Wachtel in two thousand and five to
• 5:30
  Speaker 1: two thousand and seven, so really mirror the peak of
• 5:34
  Speaker 1: a big merger's boom. And so I saw a lot
• 5:36
  Speaker 1: of deals and it was very much you know, I
• 5:40
  Speaker 1: read Barbarians at the Gate when I was like in
• 5:41
  Speaker 1: high school or whatever, and I was like, this seems cool.
• 5:44
  Speaker 1: And then you had to an MNA law fram being
• 5:46
  Speaker 1: like I'm gonna do like like MNA stuff, and like
• 5:50
  Speaker 1: it really did. I tell people like there's this time
• 5:52
  Speaker 1: when we you know, we had like two sets of
• 5:54
  Speaker 1: bidders for some company, Like I'm in conference rooms on
• 5:57
  Speaker 1: different floors and they'd be like, you know, uh uh,
• 6:02
  Speaker 1: they'd be like, this is our final effert, but don't
• 6:04
  Speaker 1: shop to the other side. And we're like, h We'll
• 6:06
  Speaker 1: go to the bathroom, shop to the other side. It's real,
• 6:09
  Speaker 1: like you know, like the sort of like high drama
• 6:11
  Speaker 1: of of of like the highest drama in finances and
• 6:15
  Speaker 1: like big ticket M and A and as a junior
• 6:18
  Speaker 1: m and a lawyer like I was, you know, doing
• 6:20
  Speaker 1: a lot of marketing up mergergrounds, but I was also
• 6:22
  Speaker 1: like kind of exposed to the highdrama like I was
• 6:24
  Speaker 1: in like these board meetings I was in, like I
• 6:25
  Speaker 1: got to see a lot of cool stuff.
• 6:27
  Speaker 2: So how do you how do you shift from m
• 6:30
  Speaker 2: and a legal work to structuring derivatives at Goldman?
• 6:35
  Speaker 1: Uh So I worked in this very weird desk at
• 6:38
  Speaker 1: Goldman that uh it was corporate equity derivatives. And so
• 6:43
  Speaker 1: the thing we were doing was sort of solving like
• 6:50
  Speaker 1: often securities law or tax or accounting problems for people
• 6:56
  Speaker 1: with like derivatives. So like a component of it was
• 6:59
  Speaker 1: like the standard deriv his math right, and so like
• 7:01
  Speaker 1: you know, I got there and I learned through it
• 7:02
  Speaker 1: as math right. But a component of it was also
• 7:05
  Speaker 1: like thinking through all these like legal and regulatory and
• 7:08
  Speaker 1: quasi legal regimes, like the you know, like the counting standards.
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  Speaker 1: And I said that everyone on that desk was a
• 7:14
  Speaker 1: good lawyer. Some of us had a lot of degrees,
• 7:16
  Speaker 1: but like the other people, the people who didn't have
• 7:17
  Speaker 1: a lot agrees, who just like were Goldman lifers, were
• 7:19
  Speaker 1: like would have been really good lawyers because it was
• 7:21
  Speaker 1: a very like, you know sort of there was a
• 7:26
  Speaker 1: practice that was like spotting issues and sort of thinking
• 7:29
  Speaker 1: through rules and thinking like how we could get through
• 7:31
  Speaker 1: the rules in a way that advantage us. In addition
• 7:33
  Speaker 1: to like sort of standard financi stuff.
• 7:35
  Speaker 2: Seems very legalistic. What led you to leap from Walcktail Goldman?
• 7:40
  Speaker 2: Was it the hours? Really?
• 7:42
  Speaker 1: I tell people I'm the only person who went to
• 7:44
  Speaker 1: Goldman for the hours.
• 7:45
  Speaker 2: I was for lowering your billable work week.
• 7:49
  Speaker 1: Yeah, I was working. I loved walktaut. I thought it
• 7:51
  Speaker 1: was really fascinating and interesting. But it was you know,
• 7:55
  Speaker 1: it's like notoriously the hardest working law firm, and this
• 7:58
  Speaker 1: was in like a big m and a boom, and
• 8:00
  Speaker 1: so I was just working all the time. And I
• 8:02
  Speaker 1: got a call from a guy who actually had left,
• 8:03
  Speaker 1: walked out and gone to Goldman, and he said, do
• 8:06
  Speaker 1: you want a job here? And I said, is it
• 8:08
  Speaker 1: better than this job? And he said, it's a little
• 8:10
  Speaker 1: better than this job. And I was like, walk me
• 8:11
  Speaker 1: through your week, and he like walked me through. I
• 8:13
  Speaker 1: was like, yeah, that's a little better than this job.
• 8:15
  Speaker 1: So I left for the hours.
• 8:16
  Speaker 2: So you stay at Goldman for a couple of years.
• 8:19
  Speaker 1: For four years, the longest I've been at a job
• 8:21
  Speaker 1: until this job.
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  Speaker 2: So you're there right into the teeth of the financial crisis.
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  Speaker 2: What was that.
• 8:30
  Speaker 1: Like I was just telling someone a friend is going
• 8:33
  Speaker 1: to Sonoma for a vacation, and I was like, I remember,
• 8:37
  Speaker 1: I like woke up in Napa. I took this vacation
• 8:40
  Speaker 1: where you know, I was worried I wouldn't be able
• 8:43
  Speaker 1: to go because with this deal going, and I wrote
• 8:44
  Speaker 1: this long memo to people being like, this is what's
• 8:47
  Speaker 1: going to happen if the deal goes because I was
• 8:49
  Speaker 1: trying to be a responsible citizen at the desk, and
• 8:51
  Speaker 1: then by the time I got to Napa, I was like,
• 8:52
  Speaker 1: I don't think this deal is going to go. And
• 8:54
  Speaker 1: then I woke up in lehmanhead filed, and you know
• 8:58
  Speaker 1: it's like this is a cliche and in finance says this,
• 9:00
  Speaker 1: but like I remember walking around the day Lehman had
• 9:03
  Speaker 1: filed in Napa looking at people who are being normal
• 9:07
  Speaker 1: and thinking, how are you not freaking out? Because like
• 9:11
  Speaker 1: I was freaking out, you know I was. It seemed
• 9:14
  Speaker 1: like the end of the world. But no, it's wild.
• 9:17
  Speaker 1: I Like the thing that I think back on now
• 9:20
  Speaker 1: a lot is what did I do because there was
• 9:26
  Speaker 1: you know, we had this we had this spreadsheet of
• 9:27
  Speaker 1: just like every deal that that like one thing. One
• 9:31
  Speaker 1: aspect of what I did in my job was convertible
• 9:33
  Speaker 1: bond underwriting, and so I had the spadsheet of every
• 9:35
  Speaker 1: convertible bond deal that we or anyone else in the
• 9:38
  Speaker 1: market did. And it stopped in like September of two
• 9:41
  Speaker 1: thousand and eight, and it restarted in I want to say,
• 9:43
  Speaker 1: March of two thousand and nine, but like only a
• 9:45
  Speaker 1: little bit. And so for six months there were no deals,
• 9:50
  Speaker 1: Like we did not like print any revenue, We did
• 9:52
  Speaker 1: not do any deals. And I don't like, I didn't
• 9:55
  Speaker 1: take six months off, Like I came into the office
• 9:56
  Speaker 1: every day, I didn't leave early. I didn't like take
• 9:58
  Speaker 1: long lunches. I don't know what I was doing for
• 10:00
  Speaker 1: six months. I think it was just like sort of
• 10:02
  Speaker 1: walking around panicking, but like you know, like scraping sticks
• 10:06
  Speaker 1: together and like trying to find deals to do. But
• 10:08
  Speaker 1: like we didn't do anything, Like we could have just
• 10:10
  Speaker 1: taken the six months off. And I think back on
• 10:11
  Speaker 1: that time and think, you know, it wouldn't have been
• 10:14
  Speaker 1: nice if we're just not gone to work, But no,
• 10:16
  Speaker 1: it was. It was a scary time, and it was
• 10:18
  Speaker 1: you know, there were there were like a number of layoffs.
• 10:21
  Speaker 1: You know, there were a couple of rounds of layoffs,
• 10:23
  Speaker 1: and you know, within my first two years at goldbun
• 10:25
  Speaker 1: and I didn't get laid off, and I was like, oh, okay,
• 10:27
  Speaker 1: I'm probably safe for a while.
• 10:28
  Speaker 2: You said about that job, I felt both that the
• 10:31
  Speaker 2: job was bad and I was bad at it.
• 10:35
  Speaker 1: Over time, I mean, I I liked, I like learned
• 10:39
  Speaker 1: a lot from that job, and it's like really helped
• 10:41
  Speaker 1: me to what I do today because it really touched
• 10:45
  Speaker 1: on a lot of elements of the bank. You know.
• 10:47
  Speaker 1: It was all this like structuring and like tax and
• 10:49
  Speaker 1: legal and accounting stuff. It was derivatives math. It was
• 10:53
  Speaker 1: like working with the traders on like risk management. It
• 10:55
  Speaker 1: was underwriting, you know, it was like doing investment banking
• 10:57
  Speaker 1: and underwriting public offerings. It was dealing with like the
• 11:01
  Speaker 1: sort of guts of the bank and like new product
• 11:03
  Speaker 1: development and capital and balance sheet. So I learned a lot,
• 11:06
  Speaker 1: but like early on, I was really learning a lot
• 11:08
  Speaker 1: because I was sort of like building stuff and learning
• 11:11
  Speaker 1: how to like build you know, like learning how to
• 11:15
  Speaker 1: use Excel and just like sort of just kind of
• 11:19
  Speaker 1: like figuring out all this stuff. And then over time
• 11:22
  Speaker 1: the job more says you get more senior into just
• 11:24
  Speaker 1: like getting on planes and flying around and giving market
• 11:27
  Speaker 1: updates to corporate treasures, and that I found less fulfilling.
• 11:32
  Speaker 1: I was learning less and I was bad at that,
• 11:34
  Speaker 1: Like I was good at the like sitting in the
• 11:35
  Speaker 1: lab during up to Rhotis, I was okay with that,
• 11:37
  Speaker 1: but like I was bad at the like getting on
• 11:40
  Speaker 1: planes and sweet talking corporate treasures, and so over time
• 11:43
  Speaker 1: it was a less and less good fit for me.
• 11:45
  Speaker 2: So what inspired the pivot to writing.
• 11:50
  Speaker 1: I don't have a good answer. I like could always
• 11:52
  Speaker 1: vaguely imagined myself as a writer without doing anything about it,
• 11:56
  Speaker 1: and I really I didn't want to be a corporate
• 12:00
  Speaker 1: equity to ride as a banker anymore. And you know,
• 12:03
  Speaker 1: in general, when you have jobs like these, it's very
• 12:05
  Speaker 1: hard to find a new job because you're working all
• 12:07
  Speaker 1: the time. And so my plan was actually to quit
• 12:10
  Speaker 1: and not do anything and figure out what my next
• 12:13
  Speaker 1: step was. And I like went to my very nice
• 12:15
  Speaker 1: boss and I was like, I'm quitting, and he said,
• 12:17
  Speaker 1: what are you going to do it? And I was like, nothing,
• 12:18
  Speaker 1: I'm going to figure out my next step. And he's like, well,
• 12:20
  Speaker 1: don't quit now, like take some time off and figure out,
• 12:22
  Speaker 1: and you know, it's very sweet, like like sort of
• 12:25
  Speaker 1: thoughtful response. And then he was like, we'll give you
• 12:28
  Speaker 1: a bunch of time off, but for now, go back
• 12:30
  Speaker 1: to your desk. And so I went back to my
• 12:31
  Speaker 1: desk and I worked for like three more weeks, and
• 12:33
  Speaker 1: then I saw the deal breaker, the great like comedic
• 12:37
  Speaker 1: financial blog was hiring, and so I shot it in
• 12:39
  Speaker 1: an application and they hired me, and I was like, Okay,
• 12:41
  Speaker 1: I'm gone. But there was really very little thought to it.
• 12:44
  Speaker 1: You know. I had not been like blogging on the side,
• 12:47
  Speaker 1: or like practicing at night or anything like that. It's
• 12:50
  Speaker 1: just like I had this vague itch that I was
• 12:51
  Speaker 1: going to be a writer. I was at a point
• 12:53
  Speaker 1: in my life where I was very willing to gamble,
• 12:56
  Speaker 1: you know. I was, I didn't have kids. I had
• 13:00
  Speaker 1: saved a bunch of money at Goldman in part because
• 13:01
  Speaker 1: I really did think I was going to take time
• 13:03
  Speaker 1: off and figure out what my next thing was. And
• 13:05
  Speaker 1: so it felt like a fairly lowist time to take
• 13:08
  Speaker 1: a gamble on something that would pay a lot less
• 13:10
  Speaker 1: and uh, and that I didn't know that i'd be
• 13:13
  Speaker 1: good at, you know, but I figure i'd give it
• 13:14
  Speaker 1: a shot.
• 13:14
  Speaker 2: So making a lot of money at an investment bank
• 13:19
  Speaker 2: that you leave to take a much lower paid job
• 13:23
  Speaker 2: as a writer sounds a little parallel to Michael Lewis
• 13:27
  Speaker 2: and Salomon Brothers. Ever, think about that as as someone
• 13:33
  Speaker 2: who blaze that trail before you.
• 13:34
  Speaker 1: Oh, of course, I mean I wouldn't like go around
• 13:37
  Speaker 1: saying that because like, you know what, you know what
• 13:39
  Speaker 1: I mean, like, yeah, eleven, You're not gonna leave Goldman
• 13:42
  Speaker 1: and be like I'm going to go be Michael Lewis, right,
• 13:44
  Speaker 1: because like that's a little that's a little implausible. But no,
• 13:47
  Speaker 1: I mean, of course, like and I don't think I
• 13:49
  Speaker 1: even thought about it at the time. I just like
• 13:50
  Speaker 1: it's just like in the background of what you think of,
• 13:52
  Speaker 1: like how you perceive the possibilities of like the financial
• 13:55
  Speaker 1: writing world. But yeah, no, I actually talked. I was
• 13:59
  Speaker 1: on his pod the other week and I talked about that,
• 14:02
  Speaker 1: you know, we talked about that exact point. Yeah, in
• 14:04
  Speaker 1: some ways there were parallels between his career.
• 14:07
  Speaker 2: Really really intriguing. So let's talk about some of your
• 14:10
  Speaker 2: favorite subjects. Everything is securities, fraud.
• 14:14
  Speaker 1: Explain if a bad thing happens at a public company
• 14:17
  Speaker 1: public company, does a bad thing. This is ceo sexually
• 14:19
  Speaker 1: harassed to someone. If the company gets hacked, if it's polluting.
• 14:23
  Speaker 1: Usually what happens is like the stock drops, and when
• 14:26
  Speaker 1: the stock drops, the shareholders and sometimes even the sec
• 14:29
  Speaker 1: will sue the company saying, essentially, you didn't tell us
• 14:33
  Speaker 1: about this bad thing, and then when it came out,
• 14:35
  Speaker 1: the stock drop, so we bought the stock before at
• 14:38
  Speaker 1: this inflated price because we were deceived. You were lying
• 14:41
  Speaker 1: to us. You were saying that you had a code
• 14:43
  Speaker 1: of ethics, but then your CEO is sexually asking people,
• 14:46
  Speaker 1: or you were saying that you like were careful at
• 14:49
  Speaker 1: the environment, but you were like dumping pollution, or you
• 14:52
  Speaker 1: were saying that you like used good passwords, but used
• 14:54
  Speaker 1: bad passwords and you got hacked. Right, So, anytime like
• 14:57
  Speaker 1: a bad thing happens and the stock goes down, there
• 15:00
  Speaker 1: will be a lawsuit of over securities, fraud and interesting
• 15:03
  Speaker 1: because like often the bad thing has like diffuse victims
• 15:08
  Speaker 1: or unclear victims, or it's unclear how to quantify the harm. So,
• 15:11
  Speaker 1: like you have a sexual harassment scandal, there will be
• 15:13
  Speaker 1: some number of people at the company who are victims
• 15:16
  Speaker 1: of that, and they will have different stories if they
• 15:18
  Speaker 1: were to sue, you need a lawyer to kind of
• 15:20
  Speaker 1: get all of their stories. And then like the company
• 15:22
  Speaker 1: would say, well, these stories are different, and like you know,
• 15:24
  Speaker 1: will argue them separately, and like how do you quantify
• 15:27
  Speaker 1: their damages? And it's it's kind of a mess. Whereas
• 15:29
  Speaker 1: if the stock goes down by a billion dollars, then
• 15:32
  Speaker 1: like some securities lawyer will say, well, the shareholders lost
• 15:35
  Speaker 1: a billion dollars, will bring a very straightforward class action
• 15:37
  Speaker 1: on you half the shaholders. And so you see these
• 15:39
  Speaker 1: cases where like the company pays a big securities settlement
• 15:43
  Speaker 1: because like it's not that like the shareholders of the
• 15:46
  Speaker 1: company are the most direct or the most harmed to
• 15:49
  Speaker 1: victims of whatever the bad thing is, But they're the
• 15:52
  Speaker 1: easiest victims, right, They're the easiest victims for a plaintiffs
• 15:55
  Speaker 1: lawyer to like round up, file a class action on
• 15:58
  Speaker 1: behalf of quantify their damages, settle it for ten cents
• 16:01
  Speaker 1: on the dollar. And so it's just like a fascinating
• 16:04
  Speaker 1: development in American securities law, where like there are so
• 16:06
  Speaker 1: many bad things get litigated as securities fraud because it's
• 16:10
  Speaker 1: like an easy way to litigate.
• 16:11
  Speaker 2: It and let's do the related topic, is everything insider trading?
• 16:16
  Speaker 2: Because if you're selling stock as an insider and there's
• 16:19
  Speaker 2: some everything is securities fraud going on, seems that that
• 16:23
  Speaker 2: would naturally follow one follow the other.
• 16:25
  Speaker 1: Yeah, and I've read about that. Yeah, I mean, like
• 16:27
  Speaker 1: you can. Definitely it is unusual for like a CEO
• 16:30
  Speaker 1: to like get arrested for selling stock while he was,
• 16:34
  Speaker 1: you know, doing sexual harassment or whatever, but like it's
• 16:36
  Speaker 1: not unheard of, and there are private lawsuits that do
• 16:39
  Speaker 1: sort of express exactly that theory that everything is also
• 16:41
  Speaker 1: insider trading.
• 16:42
  Speaker 2: So you wrote a lot about all the meme stocks.
• 16:46
  Speaker 2: What was your biggest takeaway from that era.
• 16:49
  Speaker 1: I was struck by, like the ability of retail investors
• 16:53
  Speaker 1: collectively to move stock wises right, Like I was not
• 16:56
  Speaker 1: expecting that, I was. I mean, I think people confidently
• 16:58
  Speaker 1: declared it on Reddit and I was like, sure, but
• 17:00
  Speaker 1: it's retail. And then like, in fact, these stocks went
• 17:04
  Speaker 1: up and stayed up for very long periods through like
• 17:07
  Speaker 1: the actions of retail investors and like people creating gamma
• 17:11
  Speaker 1: squeezes by buying options, And I was like, yeah, sure,
• 17:14
  Speaker 1: like that works in theory, that's not really gonna work,
• 17:15
  Speaker 1: and they kind of did work. The other takeaway that
• 17:17
  Speaker 1: I think is interesting is like just from the corporate
• 17:19
  Speaker 1: finance side, I think like there are some companies where
• 17:23
  Speaker 1: they were like, we're going to make our investor relations
• 17:25
  Speaker 1: and corporate finance strategy be about retail investors. And I
• 17:29
  Speaker 1: think that that was never a thing that people did
• 17:31
  Speaker 1: for you know, the last like twenty or thirty years,
• 17:34
  Speaker 1: because you know, everyone sort of understood that the money
• 17:37
  Speaker 1: was in was in institutional investors, and like there's not
• 17:39
  Speaker 1: an efficient way to reach and like rely on retail
• 17:43
  Speaker 1: investors for funding. And in the meme slack craze, AMC
• 17:46
  Speaker 1: very early on was like, oh yeah, we can do that,
• 17:48
  Speaker 1: Like we can we can raise money, we can do
• 17:50
  Speaker 1: tons of at the market offerings to retail investors. We
• 17:53
  Speaker 1: can offer popcorn to our shareholders to keep our stock
• 17:56
  Speaker 1: price up, and we can like really, you know, do
• 17:59
  Speaker 1: our financing in rehail markets by being a memestock. And
• 18:02
  Speaker 1: I think like the way to do memestock investor relations
• 18:05
  Speaker 1: like had to be kind of invented on the fly,
• 18:07
  Speaker 1: and it's fascinating the way people did it now. I
• 18:09
  Speaker 1: don't think it's like permanent, right if you're a CEO.
• 18:12
  Speaker 1: Now you can't be like, let's become a memestock and
• 18:14
  Speaker 1: rely on retail investors because I think it's like it's
• 18:16
  Speaker 1: always been a crapshoot, and you know, it's much less
• 18:19
  Speaker 1: common than it was two years ago. But I think
• 18:21
  Speaker 1: it was like a fascinating like lesson from that.
• 18:23
  Speaker 2: And some of these companies managed when the stock price
• 18:26
  Speaker 2: went went meteoric. We're able to do secondaries, We're able
• 18:29
  Speaker 2: to do refinancings. They took me full advantage.
• 18:32
  Speaker 1: AMC, like you know, was like recapitalized, like filing going
• 18:36
  Speaker 1: concern warnings like we're going to go bankrupty, you know,
• 18:39
  Speaker 1: we run movie theaters in a pandemic. We have all
• 18:41
  Speaker 1: this debt. And then they just refinanced their debt and
• 18:43
  Speaker 1: like and you know, bought a lot of it down
• 18:45
  Speaker 1: because they could sell stock at very high prices. They
• 18:48
  Speaker 1: had an asset that was not you know, that was
• 18:50
  Speaker 1: a very untraditional you know, like we have this ability
• 18:54
  Speaker 1: to tap retail investors to refinance, and they played it
• 18:57
  Speaker 1: really fascinatingly.
• 18:58
  Speaker 2: Yeah, and it seems like it was clearly not the
• 19:01
  Speaker 2: sort of thing buy and hold investors want to play with.
• 19:04
  Speaker 2: Off the highs. Most of these stocks are down. The
• 19:07
  Speaker 2: meme stocks are down seventy eighty ninety plus percent. They've
• 19:10
  Speaker 2: all gotten taken a big hit.
• 19:12
  Speaker 1: Yeah, I mean it was. It lasted much longer than
• 19:14
  Speaker 1: I expected, but it didn't last forever.
• 19:16
  Speaker 2: Let's talk about another subject that you come back to regularly,
• 19:20
  Speaker 2: which is the philosophy of active versus passive investing. It
• 19:25
  Speaker 2: seems like active managers, who have been underperforming according to
• 19:31
  Speaker 2: the academics for a long time, are constantly throwing novel
• 19:36
  Speaker 2: new theories at the passive worlds, trying to take them
• 19:40
  Speaker 2: down a notch. You cover this on a regular basis,
• 19:43
  Speaker 2: tell us a little bit about that space.
• 19:45
  Speaker 1: So my favorite part of it is not really about
• 19:48
  Speaker 1: active passive. My favorite part is right now, is this
• 19:51
  Speaker 1: notion that like, owning all of the companies is bad.
• 19:56
  Speaker 2: Owning all the companies in a sector because you're an
• 19:59
  Speaker 2: index investor somehow leads to price fixing.
• 20:02
  Speaker 1: So's the That's like the starting point of it. But
• 20:05
  Speaker 1: I think it's like a bigger theory than that, right,
• 20:07
  Speaker 1: I mean, I think it's that, And sometimes my headline
• 20:09
  Speaker 1: is sometimes like should index ones be illegal?
• 20:11
  Speaker 2: Right?
• 20:12
  Speaker 1: The basic idea is that if all of the companies
• 20:15
  Speaker 1: in a sector, or all of the companies in the
• 20:18
  Speaker 1: country or in the world, you know, all the company
• 20:20
  Speaker 1: if they are all owned by twelve people. Right. John Coates,
• 20:24
  Speaker 1: the Harvard law professor, has a book out called The
• 20:26
  Speaker 1: Problem of Twelve where he's like, yeah, there's like twelve
• 20:28
  Speaker 1: people and the people are like, you know, the people
• 20:31
  Speaker 1: who run Black Rock, Vanguard, you know, State Street, but
• 20:34
  Speaker 1: also like Fidelity, Right, Like, this is not really a
• 20:36
  Speaker 1: passive question. This is a very large diversified investor question. Right.
• 20:40
  Speaker 1: If like twelve people control you know, fifty one percent
• 20:43
  Speaker 1: of the stock in all of the companies, then it
• 20:46
  Speaker 1: sort of stands to reason that those people will want
• 20:50
  Speaker 1: stuff to happen that is broadly good for all of
• 20:52
  Speaker 1: their companies, rather than for one company to compete against
• 20:55
  Speaker 1: another company, and that the CEOs of those companies who
• 20:59
  Speaker 1: are for douce shares for these shaolders will think like, yeah,
• 21:02
  Speaker 1: I got to do what is right for these shareolders.
• 21:04
  Speaker 1: And so that happens in a lot of ways, and
• 21:05
  Speaker 1: the alleged to happen in a lot of ways. And
• 21:08
  Speaker 1: like the starting point for all of this is some
• 21:10
  Speaker 1: papers that people published about price fixing. Like the idea
• 21:13
  Speaker 1: is that if all of the airlines are owned by
• 21:16
  Speaker 1: the same dozen investors, then the airlines will not compete
• 21:19
  Speaker 1: hard on price, and like they will try to divvy
• 21:21
  Speaker 1: up roots in a way that keeps prices high. Because
• 21:24
  Speaker 1: if you compete on price, you're essentially, you know, mostly
• 21:27
  Speaker 1: taking a dollar away from your competitor, and like that
• 21:29
  Speaker 1: dollar ends up in the hands of your shareholders anyway.
• 21:32
  Speaker 1: So why would you compete. Why wouldn't you just try
• 21:34
  Speaker 1: to grow the pie for everyone? And it's like super controversial,
• 21:37
  Speaker 1: and like the empirical evidence where it is not super clear, and.
• 21:39
  Speaker 2: Like especially focusing on airlines as opposed to tech or
• 21:42
  Speaker 2: industrials or they cherry pick that sector, which kind of
• 21:45
  Speaker 2: reveals how bankrupt the argument is. But keep going, like.
• 21:50
  Speaker 1: They are fascinating stories about like this is not in
• 21:52
  Speaker 1: public companies, this is not the problem as well. But
• 21:54
  Speaker 1: like ride sharing startups, like soft Bank was financing all
• 21:57
  Speaker 1: these ride sharing startups and then like the kind of
• 21:59
  Speaker 1: didn't feeding against each other, and they kind of like
• 22:01
  Speaker 1: divvate up the world, you know, and it's like, well, yeah,
• 22:03
  Speaker 1: they're like subsidiaries of SoftBank, right, And if you think
• 22:06
  Speaker 1: about the world as being like all companies are subsidiaries
• 22:09
  Speaker 1: of black Rock, then it's just like an interesting analytical framework.
• 22:13
  Speaker 2: But you but you need that leap, which is inally
• 22:18
  Speaker 2: the part that nobody talks about is, hey, we're running
• 22:21
  Speaker 2: a ten trillion dollar company. I know, let's put that
• 22:24
  Speaker 2: at risk to reduce competition in the airline section. Okay,
• 22:28
  Speaker 2: but such an absurd argument.
• 22:30
  Speaker 1: Okay, But but like here's where it is universally accepted
• 22:33
  Speaker 1: to be true, which is ESG think about like what
• 22:36
  Speaker 1: black Rock is, right, Like, they don't really gain from
• 22:40
  Speaker 1: one company like improving its competitive position against another company,
• 22:43
  Speaker 1: because they own all the companies.
• 22:44
  Speaker 2: What they get, that's their business. Their business is to
• 22:47
  Speaker 2: own all the companies, and they gain when they run
• 22:49
  Speaker 2: that business better.
• 22:50
  Speaker 1: Yes, and so like broadly speaking, competition is good for
• 22:54
  Speaker 1: them because like competition sort of you know, does ultimately
• 22:57
  Speaker 1: grow the pie. But like there are places, and like
• 22:59
  Speaker 1: the place that I think is sort of obvious is
• 23:01
  Speaker 1: like Blackrock has and they do less of this now
• 23:03
  Speaker 1: because of political pressures, but they have put up papers
• 23:07
  Speaker 1: and they put out you know, strongly worded letters to
• 23:09
  Speaker 1: CEOs saying you need to take climate risk seriously because
• 23:13
  Speaker 1: climate risk is a systemic risk that affects all of
• 23:15
  Speaker 1: our companies, and like that strikes me as straight forwardly true.
• 23:19
  Speaker 1: And Blackrock is saying, you know, we have to care
• 23:22
  Speaker 1: about not just like year to year bottom line of
• 23:25
  Speaker 1: these companies. We have to care about like the systemic,
• 23:27
  Speaker 1: like long run sustainability of like the entire capitalist system.
• 23:31
  Speaker 2: Which by the way, is their way of doing business.
• 23:33
  Speaker 2: Vanguard hasn't done that, statement hasn't done that. Yeah, I agree,
• 23:37
  Speaker 2: And the competition amongst the three of those is why
• 23:40
  Speaker 2: there's no real price fixing. If I don't think it's
• 23:43
  Speaker 2: going the other way.
• 23:44
  Speaker 1: I don't want to argue for like there's price fixing
• 23:46
  Speaker 1: in airlines because of Blackrock, But I do think that, like,
• 23:50
  Speaker 1: if you are a broadly diversified, enormous asset manager, you
• 23:53
  Speaker 1: do have to think about your portfolio primarily in systemic
• 23:58
  Speaker 1: ways and not in like competitive decisions that your individual
• 24:01
  Speaker 1: companies are making. And if you're thinking about your portfolio
• 24:04
  Speaker 1: systemically like that creates different incentives for you and for
• 24:08
  Speaker 1: your portfolio companies managers. Then if they all had shareholders
• 24:12
  Speaker 1: who only owned their company and they were just trying
• 24:14
  Speaker 1: to maximize their company's share all sorts of like ESG
• 24:18
  Speaker 1: stuff is about externalities, right, It's about a company saying,
• 24:21
  Speaker 1: we can make more money by doing bad stuff that
• 24:24
  Speaker 1: causes externalities to other companies, but we're not going to
• 24:27
  Speaker 1: do that. I think part of why they're not going
• 24:28
  Speaker 1: to do that is because like their shareholders absorb those externalities, right,
• 24:32
  Speaker 1: and like that's like the simplest form of the story, right,
• 24:34
  Speaker 1: and like then you can be like, well, one thing
• 24:36
  Speaker 1: that causes externalities is like airlines cutting prices, and like
• 24:38
  Speaker 1: that seems bad, and stopping them from doing that it
• 24:40
  Speaker 1: seems bad. Another thing that causes externalities is like pollution,
• 24:44
  Speaker 1: and stopping them from doing that is good. Right, Like
• 24:45
  Speaker 1: there's all sorts of things, and some of them are
• 24:47
  Speaker 1: good and some of them are bad. But like this
• 24:49
  Speaker 1: notion that like a systemic shareholder is doing systemic stewardship
• 24:54
  Speaker 1: and that it wants its companies to act in a
• 24:56
  Speaker 1: way that benefits all of its portfolio rather than just
• 24:58
  Speaker 1: that one company, I think like makes total intuitive sense.
• 25:01
  Speaker 1: And then like you're gonna have questions about the individual cases.
• 25:03
  Speaker 2: So I wanted to bring it up because you bring
• 25:06
  Speaker 2: it up every couple of months, there's always some crazy
• 25:10
  Speaker 2: law review article or some wacky that that are at
• 25:14
  Speaker 2: the outer limits of how the world really works, how
• 25:19
  Speaker 2: how indexing works, and how big asset managers like black
• 25:22
  Speaker 2: Rocker vangor to state street work. But if we pretend
• 25:26
  Speaker 2: that they're colluding, well maybe index funds are illegal.
• 25:29
  Speaker 1: I don't really think they should be illegal. But there
• 25:32
  Speaker 1: are people, and I I've made fun of the people
• 25:33
  Speaker 1: who like really strongly believe they should be illegal.
• 25:35
  Speaker 2: Now do they really believe that or are they just
• 25:37
  Speaker 2: hired by active managers to push them facility because I
• 25:43
  Speaker 2: ideal going on, hey push the fish.
• 25:46
  Speaker 1: I don't think most of them even believe that index
• 25:47
  Speaker 1: fund should be leg I think they I think that,
• 25:49
  Speaker 1: like me, they find they find this like an interesting
• 25:52
  Speaker 1: sort of theoretical point. And I agree with you that
• 25:55
  Speaker 1: like a lot of them feel like empirically sort of
• 25:57
  Speaker 1: pushing the limits of what is plausible, but like there's
• 26:01
  Speaker 1: some nub of it that like just seems uncontroversially true,
• 26:04
  Speaker 1: and then it's just about like sort of figuring out
• 26:06
  Speaker 1: like what the like, how to frame it and understand.
• 26:09
  Speaker 2: It, where's the line how far you could take it?
• 26:11
  Speaker 1: Right?
• 26:11
  Speaker 2: Last topic that you talk about on a regular basis derivatives,
• 26:15
  Speaker 2: high frequency trading, hedge funds, and down and short selling.
• 26:19
  Speaker 2: Let's talk a little bit about SPACs, which you covered
• 26:22
  Speaker 2: pretty aggressively during the SPAC frenzy over the past couple
• 26:26
  Speaker 2: of years. Yeah, it's over, it's done, right, Are you
• 26:29
  Speaker 2: going to see this again or is this another another
• 26:31
  Speaker 2: ten years have to go by before this pops up again?
• 26:33
  Speaker 2: Because you remember mid two thousand SPACs were a thing
• 26:36
  Speaker 2: as well.
• 26:37
  Speaker 1: Right, there was a long period where SPACs were like
• 26:39
  Speaker 1: a known technology but like notoriously shady, and then in
• 26:43
  Speaker 1: like the recent boom, they became kind of like mainstream
• 26:46
  Speaker 1: and popular. I don't know if they'll go back to
• 26:48
  Speaker 1: being like a notoriously shady thing. I think it's a
• 26:51
  Speaker 1: plausible tool, right, I think that, like you know, before
• 26:54
  Speaker 1: SPACs there is a bit of a boom and direct
• 26:56
  Speaker 1: listings US and that's still.
• 26:58
  Speaker 2: Kicking around, been talking about that forever.
• 27:01
  Speaker 1: You'll still see an occasional direct listing. Like that's just
• 27:03
  Speaker 1: like a technology that like someone built and that was
• 27:07
  Speaker 1: it's kind of domesticated and is now part of the toolbox.
• 27:09
  Speaker 1: I think SPACs are different because like you can't just
• 27:11
  Speaker 1: like go to a company and be like, well you
• 27:12
  Speaker 1: can do an IPO, you can do a spec because
• 27:14
  Speaker 1: you need to have a pre existing spack lying around. Right.
• 27:17
  Speaker 1: The spack experience, you know, was very lucrative for spack
• 27:20
  Speaker 1: sponsors for you know, the first half of that boom,
• 27:23
  Speaker 1: and then more and more sponsors got into it and
• 27:25
  Speaker 1: a lot of them ended up stuck and like with spacks,
• 27:28
  Speaker 1: that will expire and they will eat a million dollars
• 27:30
  Speaker 1: or whatever of setup costs and feel burned. So I
• 27:33
  Speaker 1: think that you'll be less likely to see people starting
• 27:35
  Speaker 1: spacks like on spack as it were, and trying to
• 27:38
  Speaker 1: you know, find a deal. So I don't know, I
• 27:40
  Speaker 1: think it will kind of dissipate. But there's still stuff.
• 27:43
  Speaker 1: I mean, like I really like Bill Ackman's spark, you
• 27:46
  Speaker 1: know his like ah, his spack where you don't raise
• 27:48
  Speaker 1: the fund first. Like that solves like a number of issues.
• 27:51
  Speaker 1: But one issue that it solves is like it's not
• 27:53
  Speaker 1: as risky for the sponsor upfront, right, like because you
• 27:56
  Speaker 1: said up the thing and it's like, well, you have
• 27:57
  Speaker 1: as long as you need and like you're not raising
• 27:59
  Speaker 1: a specific amount money you have, like you know, you
• 28:01
  Speaker 1: can raise as much moneys you want and so it's
• 28:03
  Speaker 1: like a tool where like seven years from now, a
• 28:06
  Speaker 1: bank can go to a company and be like, well
• 28:07
  Speaker 1: you can go pupic with an IPO. You can do
• 28:09
  Speaker 1: a direct listing, or you can call it Bill Blackman
• 28:10
  Speaker 1: and see if he's got a sparkling around, right, And
• 28:13
  Speaker 1: so there's something as a technology. It's interesting, but like
• 28:16
  Speaker 1: because it needs to be set up in advance, like
• 28:18
  Speaker 1: it's possible that like there mostly go away.
• 28:21
  Speaker 2: Any other topics that you've been looking at lately that
• 28:24
  Speaker 2: are going to become regulars, and I'm holding crypto to
• 28:27
  Speaker 2: be its own, you.
• 28:28
  Speaker 1: Know, crypto, You're right, like crypto was a regular topic
• 28:30
  Speaker 1: and it still is, but you know, a large subset
• 28:33
  Speaker 1: of my readers or second it I mean crypto was
• 28:35
  Speaker 1: fascinating because lake Elon Musk, it was a laboratory for
• 28:38
  Speaker 1: understanding financial concepts, right, Like people who were like kind
• 28:40
  Speaker 1: of rebuilding the financial system from scratch, and so you
• 28:43
  Speaker 1: could have like great discussions about like what is margin lending?
• 28:46
  Speaker 1: Right because like crypto exchanges were like thinking of new
• 28:48
  Speaker 1: ways to do it.
• 28:49
  Speaker 2: Right.
• 28:49
  Speaker 1: The retrenchment of crypto has been has meant that there's
• 28:51
  Speaker 1: just like much less of that there's much less like
• 28:53
  Speaker 1: interesting financial experiments in crypto, because like crypto is just
• 28:56
  Speaker 1: like there's just less new stuff happening in crypto. The
• 28:59
  Speaker 1: thing that, like, that's been on my mind a lot
• 29:01
  Speaker 1: recently because of the open AI saga. It's just AI, right, Like,
• 29:04
  Speaker 1: I just like the influence of large language models and
• 29:07
  Speaker 1: other sort of AI tools in finance. It's still kind
• 29:10
  Speaker 1: of early days, but you're just like, oh, is an
• 29:12
  Speaker 1: article about how AI tools are being used, you know,
• 29:16
  Speaker 1: to do new stuff, to like take over jobs from humans,
• 29:19
  Speaker 1: to like find new ways to do things in finance.
• 29:22
  Speaker 1: And I think that's like, you know, obviously going to
• 29:23
  Speaker 1: be a central theme.
• 29:25
  Speaker 2: All right, so let's let's talk about a few of
• 29:26
  Speaker 2: your other favorite topics. I just love the way you
• 29:30
  Speaker 2: put this quote. I have to say, nobody makes being
• 29:34
  Speaker 2: a billionaire look like less fun than Elon Musk. He's
• 29:37
  Speaker 2: the richest person in the world. Exclamation point. He decided
• 29:41
  Speaker 2: to buy his favorite toy and to make it more
• 29:43
  Speaker 2: closely aligned with his tastes. So he did that, and
• 29:46
  Speaker 2: it worked, and yet it seems to make him more
• 29:49
  Speaker 2: miserable every day. So when when the Twitter acquisition was
• 29:54
  Speaker 2: early days, it was front page with you all the time.
• 29:58
  Speaker 2: It was top of mind. Tell us a little bit
• 30:01
  Speaker 2: about why you find it so fascinating to write about
• 30:05
  Speaker 2: Elon Musk.
• 30:06
  Speaker 1: So, in terms of like my professional interests, I'm really
• 30:08
  Speaker 1: interested in like kind of financial stuff, and Elon Musk
• 30:12
  Speaker 1: is a fascinating like financial guy because he really rethinks everything.
• 30:18
  Speaker 1: And I think, like his biggest supporters would say this,
• 30:23
  Speaker 1: he really rethinks everything from first principles, and that's kind
• 30:27
  Speaker 1: of a terrible way to do almost everything in like
• 30:30
  Speaker 1: regulated financial markets. And so like, I write a lot
• 30:33
  Speaker 1: of like imagined dialogue for Elon Musk, and a lot
• 30:36
  Speaker 1: of it is like Elon calling his lawyers and saying,
• 30:39
  Speaker 1: why can't I pretend I'm going to take Tesla private
• 30:42
  Speaker 1: or whatever, and his lawyers being like, you can't do that.
• 30:45
  Speaker 1: And I think, you know, you read stories where you're
• 30:48
  Speaker 1: like at space X, they're like, well, the laws of
• 30:49
  Speaker 1: physics don't allow you to do whatever you're doing. Right
• 30:52
  Speaker 1: in like the laws of like financial markets and the
• 30:56
  Speaker 1: laws of the sec everything's like a little grayer, you know,
• 30:58
  Speaker 1: it's a little bit less clear what's allowed and what's
• 31:00
  Speaker 1: not allowed. And so he's constantly pushing up against what's allowed.
• 31:04
  Speaker 1: So he's always doing weird stuff that one is funny,
• 31:08
  Speaker 1: and then two that kind of illuminates how these mechanisms work, right.
• 31:12
  Speaker 1: I mean I wrote so much about his acquisition of
• 31:15
  Speaker 1: Twitter because I you know, I was an M and
• 31:17
  Speaker 1: A lawyer, and I have written over the you know,
• 31:19
  Speaker 1: twelve years of my career in financial journalism there have
• 31:23
  Speaker 1: been M and A deals where like there's been some
• 31:26
  Speaker 1: dispute about whether some deal had to close, and like
• 31:28
  Speaker 1: where you could be like, oh, this is how merger
• 31:30
  Speaker 1: are going to work, this is how remedies work in
• 31:31
  Speaker 1: merger disputes, right, But I didn't do a lot of
• 31:33
  Speaker 1: that because people find it kind of boring, right, and you're, yeah, yeah,
• 31:36
  Speaker 1: like merger dispute remedies in in merger contracts, and then
• 31:40
  Speaker 1: Elon Musk makes it like hilarious front page News. I'm like,
• 31:43
  Speaker 1: I can write about merger disputes and you often don't
• 31:45
  Speaker 1: see those mechanics because usually people just kind of do
• 31:48
  Speaker 1: the expected thing. And Elon Musk is like, no, I'm
• 31:51
  Speaker 1: going to test every like pressure point of how mergers work.
• 31:55
  Speaker 1: It turns out they do work, right, Like we might
• 31:58
  Speaker 1: have been wrong, right, we might have like all done
• 32:00
  Speaker 1: merger argreements in ways that were vulnerable to Elon Musk
• 32:04
  Speaker 1: finding flaws in them, but in fact it held up,
• 32:06
  Speaker 1: you know, And there's just like a lot of stuff
• 32:09
  Speaker 1: like that. There's a lot of you know, he like
• 32:11
  Speaker 1: pushes the boundaries of what he can get away with.
• 32:13
  Speaker 1: He does weird things and sort of pushes people to
• 32:16
  Speaker 1: acquiesce to them, and sometimes they do and sometimes they don't.
• 32:19
  Speaker 1: It's always just like illuminating about how finance and how
• 32:21
  Speaker 1: the law works.
• 32:22
  Speaker 2: I love this description. Nobody has been penalized more in
• 32:26
  Speaker 2: history for their inability to manage their impulse control.
• 32:31
  Speaker 1: Well, you know, like in like dollar terms, but like
• 32:35
  Speaker 1: you know, other people have been penalized worse, like in
• 32:38
  Speaker 1: terms of their own utility. Like he's had to pay
• 32:40
  Speaker 1: a lot of money for his inability to resist Twitter,
• 32:43
  Speaker 1: but like I mean still quite rich.
• 32:44
  Speaker 2: Right, that's that's forty four billion dollars. I always wondered
• 32:48
  Speaker 2: why he didn't just write the billion dollar breakup of FEEB.
• 32:51
  Speaker 1: Well, this is this is what we're telling about. Like
• 32:53
  Speaker 1: he couldn't do that. That wasn't how it worked. The
• 32:56
  Speaker 1: merger agreement isn't that simple. It had a specific performance
• 32:59
  Speaker 1: Clauset said, you can't walk away for by writing a
• 33:02
  Speaker 1: billion dollar breakup fee. The breakup fee is payable and
• 33:04
  Speaker 1: specific circumstances where you're sort of allowed to walk away.
• 33:07
  Speaker 1: But he was not allowed to walk away by writing
• 33:09
  Speaker 1: by paying a billion dollar fee.
• 33:11
  Speaker 2: Who is advising him to waive due diligence? I recall
• 33:15
  Speaker 2: you wrote about that.
• 33:16
  Speaker 1: Well, he so I actually think that in hostile public
• 33:19
  Speaker 1: company m and A, it is not that uncommon to
• 33:21
  Speaker 1: not do due diligence, right, And that's how hostile m and
• 33:23
  Speaker 1: A works, Like you don't talk to the management, We'll
• 33:26
  Speaker 1: talk to you, and you're like, I'm gonna put in
• 33:27
  Speaker 1: a bid anyway. These days, normally the hostile deals sort
• 33:33
  Speaker 1: of end up going quasi friendly and like you get
• 33:35
  Speaker 1: to do some due diligence. But like, I mean, the
• 33:37
  Speaker 1: reasoning is Twitter's financials and you know, it's business were
• 33:42
  Speaker 1: all fairly well known publicly, and there was no information
• 33:47
  Speaker 1: that he didn't have that was relevant to his bid,
• 33:49
  Speaker 1: so like he had all the information he needed. Like
• 33:51
  Speaker 1: what happened is like, first of all, he was kind
• 33:53
  Speaker 1: of overpaying, you know generally, but more importantly, like kind
• 33:57
  Speaker 1: of the market tanked, right, between when he and the
• 34:00
  Speaker 1: deal and when it closed, the waiving due diligence was
• 34:03
  Speaker 1: not the problem there, right, Like, like he he was
• 34:06
  Speaker 1: buying a very well known public company and he knew
• 34:11
  Speaker 1: what he needed to know about it.
• 34:12
  Speaker 2: So your your headline for that story was Musk lost
• 34:17
  Speaker 2: interest in pretending to buy Twitter, which is kind of vibral.
• 34:20
  Speaker 2: Well that's what I thought at the time, right, ironic
• 34:22
  Speaker 2: because he ends up being forced to buy Twitter because
• 34:25
  Speaker 2: he made a firm offer. Yeah, which raises a big question.
• 34:29
  Speaker 2: How could you be the wealthiest person in the world
• 34:32
  Speaker 2: and not have one or two lawyers and accounts on
• 34:36
  Speaker 2: staff that say, hey, genius, you're going to be forty
• 34:39
  Speaker 2: five billion in the hole if you don't stop this,
• 34:42
  Speaker 2: Like nobody says note him.
• 34:44
  Speaker 1: Well, there's two points right before he signed the deal, Like,
• 34:47
  Speaker 1: I think that, Like there are a lot of people
• 34:49
  Speaker 1: signing a public company merger agreement is sort of different
• 34:51
  Speaker 1: from like signing a letter of intent to buy at computer.
• 34:54
  Speaker 1: Like I think that, like he might have some experience
• 34:57
  Speaker 1: in doing deals where like you sign a piece of
• 34:59
  Speaker 1: paper that is not a final binding commitment, right, whereas
• 35:02
  Speaker 1: in a public company merger, like it doesn't really work
• 35:04
  Speaker 1: that way. You sign a piece of paper, your pretty
• 35:05
  Speaker 1: committed it done. I think it's possible that he had
• 35:08
  Speaker 1: lawyers who told him that and he didn't listen. I
• 35:10
  Speaker 1: think it's also possible that it did not occur to
• 35:12
  Speaker 1: a lawyer to say, when you signed the definitive merger agreement,
• 35:14
  Speaker 1: that's a definitive merger group.
• 35:16
  Speaker 2: Right.
• 35:16
  Speaker 1: Think it might have been like the lawyer might have
• 35:18
  Speaker 1: assumed that was obvious right after he signed the deal.
• 35:21
  Speaker 1: The reporting on this suggests that he did that. His
• 35:24
  Speaker 1: lawyers did tell him, you know, you signed a binding deal,
• 35:27
  Speaker 1: but I think that they probably accurately told him he
• 35:29
  Speaker 1: had some chance of winning.
• 35:31
  Speaker 2: Not exactly the same.
• 35:34
  Speaker 1: He was like, let's roll the dice. Man like, I
• 35:36
  Speaker 1: don't think he minds going up against long odds.
• 35:39
  Speaker 2: Really really interesting stuff. Let's talk a little bit about
• 35:42
  Speaker 2: how money stuff got started before it was the most
• 35:46
  Speaker 2: red item on Wall Street? How did it begin? Tell
• 35:50
  Speaker 2: us a little bit about the background.
• 35:51
  Speaker 1: You know, I don't. I don't really know. It's sort
• 35:53
  Speaker 1: of like accrewed in stages. So I was blogging at
• 35:55
  Speaker 1: del Bicker for a while, you know, writing like you know,
• 35:59
  Speaker 1: one to three blog posts today about the financial industry
• 36:02
  Speaker 1: back when people wrote blog posts. And then I came
• 36:06
  Speaker 1: to Bloomberg and they sort of it was at a
• 36:08
  Speaker 1: time when they were sort of thing, you do the
• 36:09
  Speaker 1: same thing. You know, you'll blog a couple of times
• 36:12
  Speaker 1: a day, and like many blogs like deal Breaker, like
• 36:15
  Speaker 1: some other financial blogs, you know, there's this notion that
• 36:18
  Speaker 1: in the morning you just sent out a roundup of links,
• 36:20
  Speaker 1: and so it became like my morning link round up
• 36:23
  Speaker 1: was like a couple of paragraphs about four stories, right,
• 36:27
  Speaker 1: And at some point I was like, I want this
• 36:30
  Speaker 1: link wrap to be an email that goes to your inbox.
• 36:34
  Speaker 1: I didn't like do a lot of thinking and market
• 36:36
  Speaker 1: research about this. I think I was mostly inspired by
• 36:39
  Speaker 1: this great media newsletter called Today in Tabs by Rusty
• 36:42
  Speaker 1: Foster that was like hilarious and uh.
• 36:44
  Speaker 2: Just very like stylish still still around.
• 36:46
  Speaker 1: Still around. Yeah, it's like gone through different direction day
• 36:49
  Speaker 1: Today and Tabs that's great and.
• 36:51
  Speaker 2: Back in the pre substat days.
• 36:53
  Speaker 1: Yeah, this was fourteen something like that. And so I
• 36:58
  Speaker 1: was like, I'm gonna make this an email newsletter and
• 37:00
  Speaker 1: everyone was, you know, Bloomberger was like sure, whatever, h
• 37:03
  Speaker 1: And I don't know.
• 37:04
  Speaker 2: Exactly that's precisely what they said sure.
• 37:06
  Speaker 1: There was a kind of like real thinking about it,
• 37:09
  Speaker 1: and we were like, we should give it a name.
• 37:12
  Speaker 1: And I do think that Tim O'Brien, now the head
• 37:15
  Speaker 1: of Bloomberg Opinion, came up with the name money Stuff,
• 37:19
  Speaker 1: but he thinks it was me. But any any case,
• 37:20
  Speaker 1: someone came up with the name money stuff wi I,
• 37:22
  Speaker 1: which I adore and.
• 37:23
  Speaker 2: Is like, cause it's so it's so perfectly ambiguous and generic. Yeah,
• 37:29
  Speaker 2: and yet it's so winking at the same time.
• 37:34
  Speaker 1: One of my editors once called my tone and headlines
• 37:37
  Speaker 1: blandly sarcastic, and I think I think of money Stuff
• 37:41
  Speaker 1: as being blandly sarcastic. But so we came with the name,
• 37:43
  Speaker 1: which is which was great. But then like you know,
• 37:45
  Speaker 1: I started sending out it's an email, and then like
• 37:48
  Speaker 1: over time, more of my work went into the email,
• 37:50
  Speaker 1: and it got longer and frankly got later in the day,
• 37:52
  Speaker 1: and less of my work went into the standalone blog
• 37:54
  Speaker 1: post until I realized, like I had this audience on email,
• 37:57
  Speaker 1: it would be obscene for me to write a long,
• 38:01
  Speaker 1: good post and put it up on Bloomberg and not
• 38:03
  Speaker 1: send it to my email subscribers. So instead the email
• 38:05
  Speaker 1: is gonna be the whole thing, and like, if I
• 38:07
  Speaker 1: have something good, I'm gonna put it in the email,
• 38:08
  Speaker 1: you know. And so I no longer write like standalone
• 38:11
  Speaker 1: blog posts, and the word blog has sort of vanished
• 38:15
  Speaker 1: from the Internet, but I still kind of think of
• 38:17
  Speaker 1: myself as a blogger. It was such a good strategic
• 38:20
  Speaker 1: decision to like capture this audience and people who expect
• 38:23
  Speaker 1: to hear from you each day, who know your name
• 38:25
  Speaker 1: or get an email from your name, rather than like,
• 38:27
  Speaker 1: you know, a column that they don't necessarily look at
• 38:29
  Speaker 1: the pieline, who expect it every day, who feel some
• 38:33
  Speaker 1: sort of like parasocial relationship with you, where they're like,
• 38:35
  Speaker 1: were there in some sense in correspondence with you, rather
• 38:38
  Speaker 1: than just like reading some stuff on the internet.
• 38:40
  Speaker 2: So let's talk a little bit about your audience. And
• 38:43
  Speaker 2: I have a few quotes I've pulled from the Internet.
• 38:47
  Speaker 2: Matt's one of the best writers today chronicling the ironies, paradoxes,
• 38:51
  Speaker 2: and absurdities of modern business and finance. That that's Jim
• 38:55
  Speaker 2: Chanos of Kinnicos Associates. His work is some of the
• 38:58
  Speaker 2: most sophistic analysis of what's really happening on Wall Street
• 39:03
  Speaker 2: says Bill Ackman. These are some pretty big hitters blowing
• 39:07
  Speaker 2: kisses your way. What's it like to know that your
• 39:11
  Speaker 2: daily email is being read by some pretty big Wall
• 39:15
  Speaker 2: Street titans.
• 39:16
  Speaker 1: I try not to think about it too much because,
• 39:19
  Speaker 1: like sometimes you write about.
• 39:20
  Speaker 2: Them when you when you write something, do you know
• 39:23
  Speaker 2: this is going to be read by them? Is that
• 39:24
  Speaker 2: in the back of your head?
• 39:25
  Speaker 1: The thing is that, like the tone of the email
• 39:27
  Speaker 1: is so like it is written for like me and
• 39:29
  Speaker 1: my friends. You know. It's like I used to think
• 39:31
  Speaker 1: of my audience as being like the analysts on my desk,
• 39:34
  Speaker 1: who are like sort of like young people who know
• 39:36
  Speaker 1: a little that finance play. You can still explain a
• 39:38
  Speaker 1: lot of things to them. I no longer really think
• 39:40
  Speaker 1: about that way, but I still think of it as like,
• 39:42
  Speaker 1: like the audience is to like to make myself laugh.
• 39:44
  Speaker 1: I don't think of it as being like Bill Ackman's
• 39:46
  Speaker 1: going to see this, you know.
• 39:47
  Speaker 2: The New York Times described your analyzes as humor with
• 39:51
  Speaker 2: a nerdy, confident tone. Sounds like you're writing for your
• 39:55
  Speaker 2: buds on the in the analysts room.
• 39:57
  Speaker 1: Yeah a little bit. Yeah.
• 39:59
  Speaker 2: So so so let's talk a little bit about some
• 40:02
  Speaker 2: of that nerdiness. What's with the endless humorous footnotes?
• 40:08
  Speaker 1: I don't know, Like it's just like it's a tick
• 40:11
  Speaker 1: that started a deal breaker and then I sort of
• 40:13
  Speaker 1: brought it over because like people complain if I don't
• 40:15
  Speaker 1: have footnotes that you know, It's like an email newsletter
• 40:17
  Speaker 1: is a very linear thing, but like sometimes there are
• 40:20
  Speaker 1: like digressions that you want to have and the best
• 40:22
  Speaker 1: way to do that is in a footnote and you
• 40:23
  Speaker 1: have some rudimentary HTML that allows you to jump back
• 40:27
  Speaker 1: and forth. Although in an email newsletter it's like pretty rudimentary.
• 40:30
  Speaker 1: As it's gone on longer, like you know, the audience
• 40:32
  Speaker 1: has broadened, right, and so it's not like I'm literally
• 40:35
  Speaker 1: writing for, like, you know, an audience of analysts at
• 40:39
  Speaker 1: a bank. I'm writing for a kind of range of audiences.
• 40:42
  Speaker 1: And there are times when I will say something general
• 40:46
  Speaker 1: and straightforward in the text, and then I'll be like,
• 40:49
  Speaker 1: I know you're going to complain about this, So in
• 40:51
  Speaker 1: the footnote I'll be like, this is like not quite right,
• 40:53
  Speaker 1: and here's why, you know, And I try to like
• 40:55
  Speaker 1: be like not in the direction of like a sort
• 40:57
  Speaker 1: of deeper understanding with that necessarily cluttering up the description
• 41:00
  Speaker 1: of the text. But there's other things too. Some of
• 41:01
  Speaker 1: things there are just like funny jokes that are that
• 41:03
  Speaker 1: are distracting in the text, and so I'll put a
• 41:05
  Speaker 1: joke on the phoot.
• 41:06
  Speaker 2: So, so you mentioned the audience, how often do you
• 41:08
  Speaker 2: hear from them? How often are readers hitting you up
• 41:11
  Speaker 2: with emails?
• 41:12
  Speaker 1: I often get emails from people who are very much
• 41:14
  Speaker 1: on my wavelength, right, So I wrote recently about this
• 41:18
  Speaker 1: like trading mistake by a power company that led to
• 41:22
  Speaker 1: finish electric prices being negative, and so there are like
• 41:25
  Speaker 1: these news stories about like finish people running their saunas
• 41:28
  Speaker 1: all night to like to make money because they're getting
• 41:30
  Speaker 1: paid to run their saunas, and so many people emailed
• 41:33
  Speaker 1: at me about that, being like, oh, here's the time
• 41:35
  Speaker 1: that my electric presses were negative, and I, you know,
• 41:37
  Speaker 1: like that. It's like when I write about like weird trades,
• 41:40
  Speaker 1: I have enough of an audience who does weird trades
• 41:43
  Speaker 1: and who like think about this in the same way
• 41:45
  Speaker 1: that they'll be like, oh, here's a weird trade. I
• 41:47
  Speaker 1: did that. It's hilarious and like I always love those,
• 41:49
  Speaker 1: and so I often am able to like, if I
• 41:51
  Speaker 1: write about something weird, I will have like then a
• 41:53
  Speaker 1: week of follow ups of readers corresponding and saying being like,
• 41:57
  Speaker 1: here's an even weirder story.
• 41:58
  Speaker 2: You know, I have a vivid ruck election when oil
• 42:00
  Speaker 2: prices went negative and your headline was something along the
• 42:04
  Speaker 2: lines of there's no place to store oil. It's smelly,
• 42:08
  Speaker 2: it's it's dangerous, it's this, it's that, and so we'll
• 42:11
  Speaker 2: pay you to take this oil off our hands. You
• 42:14
  Speaker 2: you probably affected, certainly my understanding what was going on
• 42:19
  Speaker 2: with negative oil prices, but I bet a whole lot
• 42:22
  Speaker 2: of other people as well.
• 42:23
  Speaker 1: Thanks. That's the goal, Like I like to, you know,
• 42:26
  Speaker 1: the best things are like things were like there's some
• 42:29
  Speaker 1: weird story, and like the headliness like, oh, here's a
• 42:31
  Speaker 1: weird thing, and I can be like, here's like a
• 42:33
  Speaker 1: sort of intuitive conceptual framework for understanding that weird thing.
• 42:36
  Speaker 1: You know, here's like how to think about that weird thing.
• 42:39
  Speaker 1: But that's always like super satisfying to do.
• 42:41
  Speaker 2: But it's a little more than that. I'm going to
• 42:43
  Speaker 2: quote the New York Times on that he makes readers
• 42:46
  Speaker 2: feel in on the savage joke that is late capitalism,
• 42:51
  Speaker 2: and the Times was referring to what I thought was
• 42:54
  Speaker 2: a pretty hilarious acronym that's about thirty letters wrong long
• 43:00
  Speaker 2: about a city group shared downside protection derivative that you
• 43:05
  Speaker 2: decided to abbreviate, and it was a really really funny
• 43:10
  Speaker 2: tongue in chic line.
• 43:12
  Speaker 1: I think there's like a sort of standard mode in
• 43:14
  Speaker 1: financial journalism of like you look at like stuff that
• 43:16
  Speaker 1: banks do and you're like, this is really bad, and
• 43:19
  Speaker 1: then like my mode is I often find it really funny.
• 43:21
  Speaker 1: And I think that resonates with a lot of readers
• 43:23
  Speaker 1: in different ways, sometimes because they work in capital in
• 43:26
  Speaker 1: finance and also find it funny, sometimes because they don't
• 43:30
  Speaker 1: work in finance and find it funny. You know. I
• 43:32
  Speaker 1: have a lot of readers these days who work, like
• 43:34
  Speaker 1: broadly speaking, in tech, and like what they are interested
• 43:37
  Speaker 1: in is not like specifically descriptions of finance, but like
• 43:41
  Speaker 1: this like sort of like system z, like nerdy algorithmic
• 43:45
  Speaker 1: way of thinking about the world, and so like, I
• 43:47
  Speaker 1: have a lot of tech readers who are sort of like,
• 43:49
  Speaker 1: I like your style. I don't really care about finance,
• 43:50
  Speaker 1: but I think this is like a explanation of finance
• 43:52
  Speaker 1: that resonates with tech people. I have a lot of
• 43:54
  Speaker 1: readers who are like very strong critics of banks and
• 43:57
  Speaker 1: of finance, and who like what I do because sort
• 44:01
  Speaker 1: of neutrally explanatory and tries to get at what's actually
• 44:05
  Speaker 1: going on and how people are in the industry are
• 44:07
  Speaker 1: actually thinking about things. And the people who are like
• 44:10
  Speaker 1: strong critics of banking often find that useful. Right, will
• 44:14
  Speaker 1: as supposed to just be like, oh oh, banks are evil.
• 44:16
  Speaker 2: Right, You're critical without seeking to be critical in a
• 44:21
  Speaker 2: way that once you understand the absurdity of certain situations,
• 44:26
  Speaker 2: it can help.
• 44:26
  Speaker 1: But be critical, I work from them opinion. I joke
• 44:30
  Speaker 1: that I'm an opinion columnist without any opinions. That's not
• 44:32
  Speaker 1: really true, but like I'm not, like, it is not
• 44:35
  Speaker 1: high on my list to be like this is bad
• 44:37
  Speaker 1: or this is good, right, Like, it's always like this
• 44:39
  Speaker 1: is interesting, right, Like, look at this interesting thing. Let's
• 44:41
  Speaker 1: try to understand it. Yeah, I definitely think that a
• 44:44
  Speaker 1: lot of readers come away being like, you have explained
• 44:46
  Speaker 1: this thing, and now I think it's much worse. But
• 44:49
  Speaker 1: like that's not always my goal, you know.
• 44:51
  Speaker 2: That's that's hilarious. So let's talk a little bit about
• 44:54
  Speaker 2: a somewhat infamous podcast you did with Sam Banking Freed
• 44:59
  Speaker 2: and FTX on odd lots a good year before or
• 45:02
  Speaker 2: so before it crashed. What was your sense of FTX
• 45:07
  Speaker 2: at the time.
• 45:08
  Speaker 1: I've no story that makes me look good. I thought
• 45:09
  Speaker 1: FTX was really interesting. I thought FTX seemed like a
• 45:12
  Speaker 1: well run crypto exchange that seemed to be printing a
• 45:14
  Speaker 1: lot of money, and that had interesting, you know, aggressive
• 45:18
  Speaker 1: ideas for how to change the structure of derivatives, margining,
• 45:22
  Speaker 1: and what's your endgame as a crypto exchange. I thought
• 45:25
  Speaker 1: that Sam Bankmin Freed had a like reasonably clever endgame,
• 45:28
  Speaker 1: which is like he was going to consume the regular
• 45:32
  Speaker 1: financial system. He was going to be a place where
• 45:35
  Speaker 1: you could like tokenize stocks and run a crypto exchange
• 45:38
  Speaker 1: that gradually became like the main financial exchange for the world. Right.
• 45:41
  Speaker 1: I don't want to say it like I thought that
• 45:42
  Speaker 1: plan was inevitable, but I thought that was like, that's
• 45:45
  Speaker 1: a better plan for your crypto exchange than like, well,
• 45:48
  Speaker 1: crypto will take you know, all of like financial life
• 45:51
  Speaker 1: will be in bitcoin. Right. I thought he had like
• 45:52
  Speaker 1: a pretty good idea for like how we're going to
• 45:54
  Speaker 1: be a you know, enormous company.
• 45:56
  Speaker 2: Well, well, he clearly came up with a better mechanism
• 46:00
  Speaker 2: for extending credit and liquidating portfolios that were in the
• 46:04
  Speaker 2: red then other exchanges had. He just kept building FTX
• 46:10
  Speaker 2: and kept focusing on being the biggest, baddest crypto trading
• 46:15
  Speaker 2: platform and crypto exchange that could have been wildly successful.
• 46:19
  Speaker 2: It certainly looked like he was printing money for a while.
• 46:22
  Speaker 2: It turned out there were some com mingling funds and
• 46:25
  Speaker 2: other issues there.
• 46:26
  Speaker 1: Yeah, I think it's interesting to ask if he was
• 46:30
  Speaker 1: doing what he said he was doing, was that a
• 46:31
  Speaker 1: good idea, because I was like, yeah, that sounds like interesting.
• 46:34
  Speaker 1: I don't know. He was very much about like we're
• 46:36
  Speaker 1: going to have an automated margining system where we're never
• 46:39
  Speaker 1: going to call you for margin calls. We're just going
• 46:40
  Speaker 1: to blow you out if you fall below a certain level.
• 46:42
  Speaker 1: It's going to be all twenty four to seven mark
• 46:44
  Speaker 1: to market. It's going to be much less subjective. And
• 46:47
  Speaker 1: he was talking about this at a time when like
• 46:49
  Speaker 1: the London Metals Exchange had had this like sort of
• 46:51
  Speaker 1: semi scandalous problem where like this big trader accumulated this
• 46:55
  Speaker 1: huge deaf as a position and like he couldn't meet
• 46:57
  Speaker 1: margin calls and they couldn't do anything about it because like,
• 47:00
  Speaker 1: if you know, they would have like blown up the exchange.
• 47:03
  Speaker 1: So they just sort of like pause trading for a week.
• 47:05
  Speaker 1: And it just looked bad, right, And it's like, oh yeah,
• 47:07
  Speaker 1: this like system of like subjectively doing margin calls and
• 47:10
  Speaker 1: like doing margin calls once a day, and if like
• 47:12
  Speaker 1: if it's moved too far, then like you're like, oh no,
• 47:15
  Speaker 1: it's too big to fail. That the SBF endorsed system
• 47:18
  Speaker 1: of like we're going to do everything automated. You know,
• 47:21
  Speaker 1: you're like, oh yeah, I see the appeal of that.
• 47:23
  Speaker 1: I don't know that it was a good idea. I
• 47:24
  Speaker 1: think that like there are obvious downsides to it too,
• 47:28
  Speaker 1: But like what brought FTX down was not any of
• 47:30
  Speaker 1: those downsides, because like what was in fact happening was
• 47:32
  Speaker 1: that he had simply exempted his own big hedge fund
• 47:35
  Speaker 1: from the automated margining rules and it accumulated a vastly
• 47:39
  Speaker 1: bigger deficit position than like the London Metals Exchange guy did,
• 47:43
  Speaker 1: and then it did in fact blow up the exchange
• 47:45
  Speaker 1: and take customer money down with it. The thing he
• 47:47
  Speaker 1: said he wasn't doing was what caused them to blow up.
• 47:50
  Speaker 1: But as far as I know, FTX was printing money,
• 47:52
  Speaker 1: Like the exchange was very valuable in terms of it
• 47:55
  Speaker 1: made a lot of revenue, and some of what they
• 47:57
  Speaker 1: did was just they overspent that revenue. And then what
• 48:00
  Speaker 1: they did was like they had this affiliated hedge fund
• 48:02
  Speaker 1: that you know, lost bajillions of dollars, right and because
• 48:06
  Speaker 1: it was just taking enormous margin loans from the exchange,
• 48:08
  Speaker 1: when it lost the bajillions of dollars, it took the
• 48:10
  Speaker 1: exchange down with it. But the exchange itself is very profitable.
• 48:13
  Speaker 1: And one thing you could say, like there was a
• 48:15
  Speaker 1: time I think like over the summer when like they
• 48:17
  Speaker 1: considered shutting down Alameda the hedge fund, and you do
• 48:21
  Speaker 1: look back and say, like could they have managed to
• 48:23
  Speaker 1: do that in a way that you know, it was
• 48:25
  Speaker 1: like embarrassing it whatever, you know, like lost money, but
• 48:28
  Speaker 1: that left FTX intact and then FTX could continue printing
• 48:31
  Speaker 1: money and maybe I don't know, like maybe they had
• 48:33
  Speaker 1: already gone too far by that point. The other thing
• 48:35
  Speaker 1: is like there is a theory that one reason that
• 48:38
  Speaker 1: FTX was printing so much money was that it was
• 48:41
  Speaker 1: a very good trading experience for customers because Alameda was
• 48:44
  Speaker 1: on the other side of a lot of trades, and
• 48:46
  Speaker 1: Alameda was losing money on all these customers. So you'd
• 48:48
  Speaker 1: go to FTX, you'd trade, you'd make money. You're like, oh,
• 48:49
  Speaker 1: this is great, I'll come back right. But it was
• 48:51
  Speaker 1: all sort of like an indirect Ponzi scheme, where like
• 48:53
  Speaker 1: you were making money from Alameda and Alameda was stealing
• 48:55
  Speaker 1: it from you. I don't think that's really true, I think,
• 48:58
  Speaker 1: but I think there's like a element of truth of that.
• 49:00
  Speaker 1: I don't think that's like what mainly explains FTX. Like
• 49:03
  Speaker 1: I think FTX was a good business and now Alimita
• 49:05
  Speaker 1: was like a hilariously bad business, and like they were interminkled.
• 49:09
  Speaker 2: So last summer, you write this giant piece in Business
• 49:13
  Speaker 2: Week about Crypto. Essentially you were that entire issue of
• 49:19
  Speaker 2: Business Week. Tell us about what led to that massive
• 49:23
  Speaker 2: piece and what the thinking was that had you say,
• 49:26
  Speaker 2: I know, I'm going to take over Business Week for
• 49:29
  Speaker 2: a week and write about nothing but crypto.
• 49:32
  Speaker 1: Joel Weber, the editor of Business Week, came to me
• 49:33
  Speaker 1: and it was like, hey, do you remember what is code?
• 49:35
  Speaker 1: So what is code? Is Paul Forth, this great computer programmer,
• 49:38
  Speaker 1: wrote a Business Week issue took over the entire issue
• 49:40
  Speaker 1: of Business Week to write a thing called what is Code?
• 49:43
  Speaker 1: I was trying to explain computer programming to a like
• 49:46
  Speaker 1: I get sophisticated business audience, but not coders, right, And
• 49:49
  Speaker 1: it was just like this really fabulous, like just piece
• 49:51
  Speaker 1: of writing and explaining and thinking. And I loved it
• 49:54
  Speaker 1: when it came out, and Joel came to me, is like,
• 49:56
  Speaker 1: remember what is code? We'd like to do that for Crypto,
• 49:58
  Speaker 1: and I was like, I found it appealing because I
• 50:02
  Speaker 1: like to write long and I was like, I have
• 50:04
  Speaker 1: a whole magazine. Two. Crypto felt to me like a
• 50:07
  Speaker 1: big enough subject to warrant a whole magazine, but a
• 50:09
  Speaker 1: small enough subject that you could like almost do all
• 50:12
  Speaker 1: of it, Like I didn't do all of it, but
• 50:14
  Speaker 1: you can almost like sort of start at the most
• 50:16
  Speaker 1: basic building block intuitions and build up to a full
• 50:20
  Speaker 1: understanding of the entire Crypto universe in the space of
• 50:22
  Speaker 1: like forty thousand words. And that just seemed like a
• 50:24
  Speaker 1: really interesting, like just technical challenge to be like take
• 50:27
  Speaker 1: a reader from nothing to like not like some vague intuitions,
• 50:30
  Speaker 1: but like a detailed understanding of like all the stuff
• 50:33
  Speaker 1: that matters in crypto that felt really interesting. But also
• 50:36
  Speaker 1: like in my day job, I was often writing about crypto,
• 50:39
  Speaker 1: and you have this question of where to start, right,
• 50:41
  Speaker 1: do I explain what a blockchain is in order to
• 50:43
  Speaker 1: like make a joke about this, like you know, crypto
• 50:46
  Speaker 1: exchange that got hacked, right, And so the idea of
• 50:49
  Speaker 1: writing this this magazine piece is partly like selfishly for me,
• 50:52
  Speaker 1: I could be like, I've explained what a blockchain is
• 50:54
  Speaker 1: over there, so I can just tell you about this
• 50:56
  Speaker 1: thing that got hacked, right. So it felt like a useful,
• 50:58
  Speaker 1: like like reference piece for me to do from then on. Oh.
• 51:02
  Speaker 1: The other thing that I was thinking at the time,
• 51:03
  Speaker 1: to be honest, is that Joel came to me and
• 51:06
  Speaker 1: like in June or whatever, and I was like, summer's
• 51:09
  Speaker 1: always slow. Let me be so bored writing my newsletter every day.
• 51:12
  Speaker 1: I'm not gonna have enough to write about, so why
• 51:14
  Speaker 1: don't I take some time off from the newsletter to
• 51:15
  Speaker 1: write this long thing. And then of course that was
• 51:17
  Speaker 1: the summer of Elon and Twitter and so like I
• 51:19
  Speaker 1: was like, oh damn, And so then yeah, like that's
• 51:22
  Speaker 1: that was that was kind of the motivation for it.
• 51:24
  Speaker 1: My my biggest regret is that, you know, this is
• 51:27
  Speaker 1: really directly inspired by Paul Ford's What Is Code? And
• 51:30
  Speaker 1: the Joel sort of like working title was like what
• 51:32
  Speaker 1: is Crypto? And I was like we should call it
• 51:34
  Speaker 1: what was Crypto? And we were like that's too mean,
• 51:37
  Speaker 1: We're not gonna do it. And then it came out
• 51:39
  Speaker 1: and like, I don't know they'd come out in October
• 51:40
  Speaker 1: of twenty twenty two. It came out like, you know,
• 51:43
  Speaker 1: like two weeks before I have to Exitxploded. And had
• 51:46
  Speaker 1: we called it what was Crypto? You were like, what
• 51:48
  Speaker 1: about all the awards? Man, that what a great title
• 51:51
  Speaker 1: that would have been, and we just like we didn't
• 51:53
  Speaker 1: have the courage or conviction, so we didn't call it
• 51:54
  Speaker 1: what was Crypto?
• 51:55
  Speaker 2: Well, this leads me to a sort of curve ball
• 51:58
  Speaker 2: question that was almost the book. When is the Matt
• 52:01
  Speaker 2: Levine book?
• 52:02
  Speaker 1: Yeah? When I write it, I don't know. I mean, like,
• 52:04
  Speaker 1: I like, there's they're sure there'll be a book. I
• 52:07
  Speaker 1: want to do a book, but like I I really
• 52:09
  Speaker 1: like my day job.
• 52:10
  Speaker 2: A lot, and it goes to get in the way.
• 52:12
  Speaker 1: Yeah, like involves writing a lot of words, so like
• 52:15
  Speaker 1: I don't have any more words to go when I
• 52:16
  Speaker 1: go home at night. But I really like that my my,
• 52:18
  Speaker 1: you know, I like the day job, but like, I
• 52:21
  Speaker 1: don't know, I found that what was crypto exercise really
• 52:24
  Speaker 1: fun and I would like to do something like that
• 52:26
  Speaker 1: for you know, not crypto.
• 52:27
  Speaker 2: All right, well, we only have you for another ten
• 52:29
  Speaker 2: or so minutes, so let's jump to our favorite questions
• 52:32
  Speaker 2: that we ask all our guests, starting with what are
• 52:35
  Speaker 2: you streaming these days? Tell us what you're either watching
• 52:38
  Speaker 2: on Netflix or listening to In terms of podcasts, what's
• 52:41
  Speaker 2: keeping you entertained.
• 52:42
  Speaker 1: I don't really watch television. I have like a lot
• 52:45
  Speaker 1: of children's television in my life, so streaming a lot
• 52:47
  Speaker 1: of Eleanor Wonders Why, a lot of Frozen two things
• 52:52
  Speaker 1: like that. I used to listen to weirder podcasts. Now
• 52:56
  Speaker 1: I listened to like the long form podcast I love.
• 52:58
  Speaker 1: I love song Exploder, the like yeah music podcast that's great.
• 53:02
  Speaker 1: Yeah in PoCA, like I find myself like long form
• 53:05
  Speaker 1: is the same thing, right, Like it's like people who
• 53:07
  Speaker 1: are really good at something explaining like at a like
• 53:10
  Speaker 1: a like a truly like mechanical specific level, like how
• 53:13
  Speaker 1: they do what they do. It's like always satisfying and
• 53:15
  Speaker 1: like how they do what they do, and also like
• 53:16
  Speaker 1: they're sort of psychological traumas as they do it. I
• 53:19
  Speaker 1: find it very useful.
• 53:20
  Speaker 2: Tell us about your mentors who helped shape your career.
• 53:23
  Speaker 1: The person who I most think of that way, it
• 53:27
  Speaker 1: was just like, yeah, my first job out of law
• 53:29
  Speaker 1: school was clerking for a judge, right, And like that's
• 53:31
  Speaker 1: a very weird job, right, like because it's it's like
• 53:34
  Speaker 1: you and like two other people with like cloking for
• 53:37
  Speaker 1: one sort of powerful figure. And I clerked for this judge,
• 53:41
  Speaker 1: Ed Becker in Philadelphia, who was like one of the
• 53:43
  Speaker 1: great judges. Like he was you know, brilliant, highly respected,
• 53:47
  Speaker 1: but also like a mensh a nice guy, a guy
• 53:50
  Speaker 1: who like in your interview would be like I have
• 53:52
  Speaker 1: a zero deference policy and like really meant it and
• 53:55
  Speaker 1: like wanted to hear from his clerks and like wanted
• 53:57
  Speaker 1: to hear your opinions, and who just like had like
• 54:00
  Speaker 1: a work ethic and a just an ethic that was
• 54:03
  Speaker 1: really inspiring. Like he went, in doubt, do it the
• 54:05
  Speaker 1: right way, and like he just like that's how he
• 54:07
  Speaker 1: lived his life, you know, like he really like wasn't
• 54:09
  Speaker 1: interested in short cuts or like he was just like
• 54:11
  Speaker 1: he wanted to get things right, and that was just
• 54:14
  Speaker 1: very inspiring to see, like, you know, in my earliest
• 54:16
  Speaker 1: career to be like, oh yeah, this is a guy
• 54:18
  Speaker 1: who like has been doing it forever and has a
• 54:20
  Speaker 1: lot of accolades, but who is just like totally focused
• 54:23
  Speaker 1: on doing the right thing.
• 54:24
  Speaker 2: Let's talk about books. What are some of your favorites
• 54:26
  Speaker 2: and what are you reading right now.
• 54:28
  Speaker 1: I never have a favorite book. I'm like, I read
• 54:30
  Speaker 1: a lot. I feel like having a favorite book is
• 54:33
  Speaker 1: like I have too many books to have a favorite.
• 54:35
  Speaker 1: But like the finance e books that like when people
• 54:38
  Speaker 1: are like what should I read? Knowing nothing, the books
• 54:41
  Speaker 1: I recommend are Liar's Poker Barbarians at the Gate, which
• 54:43
  Speaker 1: I already mentioned right Like, it's just like I read
• 54:46
  Speaker 1: it at a formative age and I was like, oh yeah,
• 54:47
  Speaker 1: this finance stuff is cool. And the other one that
• 54:50
  Speaker 1: I love is a diary of a very bad year.
• 54:53
  Speaker 1: It was put out by like N plus one the magazine.
• 54:55
  Speaker 1: It's it's Keith Gassing. There's a N plus one utter
• 54:58
  Speaker 1: interviewing this anonymous hedge fund manager over the course of
• 55:01
  Speaker 1: like two thousand and seven to two thousand and nine.
• 55:02
  Speaker 1: He's just like a series of long interviews with this
• 55:05
  Speaker 1: hedge fund manager talks about the financial crisis, but also
• 55:08
  Speaker 1: just about like what it's like to run a hedge fund.
• 55:09
  Speaker 1: He's just like very thoughtful and it gives you a
• 55:11
  Speaker 1: sort of real flavor for like what finance is like,
• 55:14
  Speaker 1: but also like what it is like to think about
• 55:15
  Speaker 1: at a high level, and like like what the mindset
• 55:18
  Speaker 1: is of someone who's very good at this. What am
• 55:19
  Speaker 1: I reading now? I'm reading a book called a Nansi's Gold,
• 55:24
  Speaker 1: which is about this con man in Ghana in like
• 55:27
  Speaker 1: the seventies and eighties who was running a Nigerian prince scamp.
• 55:31
  Speaker 2: If I have all this money waiting for me, if
• 55:33
  Speaker 2: you sat me exactly, I'll split it with you.
• 55:36
  Speaker 1: His version of the scam was that the first president
• 55:39
  Speaker 1: of an independent Ghana had spirited hundreds of millions of
• 55:42
  Speaker 1: dollars out of the country as and then was then deposed,
• 55:46
  Speaker 1: and the money was in trust in a bank in Switzerland.
• 55:48
  Speaker 1: He was going to get the money back and use
• 55:50
  Speaker 1: it for the benefit of Ghana, but he just needed
• 55:52
  Speaker 1: investors to whatever fill out the formalities, and so it's
• 55:56
  Speaker 1: like this is just fascinating story of I love cons right,
• 55:58
  Speaker 1: I love like financial frauds. And what to me is
• 56:02
  Speaker 1: so incredible about this story is just that it lasted
• 56:07
  Speaker 1: for decades because like the problem with this is is
• 56:10
  Speaker 1: you're like, I need money, and in two months, I
• 56:13
  Speaker 1: will get all this money and I'll pay you back tenfold.
• 56:15
  Speaker 1: And then you do that for twenty years, and like
• 56:17
  Speaker 1: your investor, you have like investors who stick with you
• 56:19
  Speaker 1: for twenty years, and like the like the just the
• 56:22
  Speaker 1: charisma and like the ability to get those you know,
• 56:25
  Speaker 1: probably some of a return in two months, and then
• 56:27
  Speaker 1: twenty years later they're still waiting for it. It's crazy.
• 56:29
  Speaker 2: So our final two questions, what sort of advice would
• 56:32
  Speaker 2: you give to a recent college grad interested in a
• 56:35
  Speaker 2: career in m and a derivative structuring or financial writing.
• 56:41
  Speaker 1: Well, it depends on which of those three things. So
• 56:45
  Speaker 1: if you're interested in career and financi're writing, I recommend
• 56:47
  Speaker 1: a career in finance first, because I do think it
• 56:49
  Speaker 1: is really helpful to have subject matter knowledge and also
• 56:52
  Speaker 1: just like sort of cultural knowledge of like what it
• 56:53
  Speaker 1: feels like to work at a bank or whatever. You know.
• 56:55
  Speaker 1: I would not be where I am today if I
• 56:57
  Speaker 1: had like pursued this, you know, like I came to
• 57:00
  Speaker 1: this in a haphazard way after having several other careers.
• 57:03
  Speaker 2: First subject matter of expertise matters.
• 57:05
  Speaker 1: Yeah, it's just like it's I find it like I'm
• 57:07
  Speaker 1: very glad that I did not try to be a
• 57:09
  Speaker 1: writer when I was twenty two. If you want to
• 57:12
  Speaker 1: be interrivatives the advice I sometimes I don't want to
• 57:14
  Speaker 1: say I regret that I have. But a dumb thing
• 57:16
  Speaker 1: I did was like when I left law, I was like,
• 57:18
  Speaker 1: I want to be in finance, and so I'm going
• 57:20
  Speaker 1: to take the first like finance job I get right,
• 57:23
  Speaker 1: And finance is like this enormous, you know, varied industry
• 57:27
  Speaker 1: where there are a lot of different roles, and like
• 57:29
  Speaker 1: if you are essentially like a math person and a tinkerer,
• 57:33
  Speaker 1: like you will want different roles than if you're like
• 57:36
  Speaker 1: a people person and a salesman, you know, and so
• 57:38
  Speaker 1: there's a lot of like, uh, it's hard to know
• 57:41
  Speaker 1: in advance what you'll be good at, but like it's
• 57:44
  Speaker 1: important to know yourself and sort of understand what roles
• 57:46
  Speaker 1: exist and try to find a role that matches your
• 57:49
  Speaker 1: characteristics rather than just like be in finance generally. The
• 57:53
  Speaker 1: other piece of advice I love to give young people
• 57:55
  Speaker 1: is like, like I did a very standard career path,
• 57:58
  Speaker 1: Like I went to college, went to a fancy college.
• 58:01
  Speaker 1: I went to a fancy law school. I went to
• 58:03
  Speaker 1: a fancy law firm, and then it was like two
• 58:04
  Speaker 1: thousand and seven, so like, if you're a fancy corporate lawyer,
• 58:07
  Speaker 1: you want to be an investmentker. So I went to
• 58:08
  Speaker 1: a fancy investment back. Right, everything very standard until I
• 58:11
  Speaker 1: was like, you know, in my early thirties, and then
• 58:13
  Speaker 1: I was like I'm going to quit for deal Ricker.
• 58:15
  Speaker 1: And that was a big change. Right. I tell people,
• 58:17
  Speaker 1: I've made one career decision in my life, right, like
• 58:19
  Speaker 1: everything was set for me and then I went to
• 58:21
  Speaker 1: deal Ricker. And I think that if you are, like,
• 58:24
  Speaker 1: you know, if you're a lot of like young people
• 58:26
  Speaker 1: like looking you know, like an analyst job at Goldban,
• 58:28
  Speaker 1: like you've been on this prestige seeking career path that
• 58:32
  Speaker 1: is very set for you. My advice is like, that's good.
• 58:34
  Speaker 1: Do that, and like there's some point at which you
• 58:37
  Speaker 1: have to jump off that like standard career prestige path
• 58:40
  Speaker 1: and you have to just kind of like know when
• 58:41
  Speaker 1: that point is, and like be really calibrated to where
• 58:43
  Speaker 1: that point is, because there are people who are miserable
• 58:45
  Speaker 1: law firm partners because they stayed on that path too
• 58:47
  Speaker 1: long and they were like I'm gonna do the expected
• 58:49
  Speaker 1: thing and do the expected thing, like oh no, I'm
• 58:51
  Speaker 1: trapped in this thing. I can't do anything else. I
• 58:53
  Speaker 1: need the money, and like I don't like it, right,
• 58:55
  Speaker 1: And then there are people who jump off too early
• 58:57
  Speaker 1: and they're like I don't need to like pursue these
• 59:00
  Speaker 1: hard jobs. I can just like go be a poet.
• 59:02
  Speaker 1: And then like they're not happy either, right, And like
• 59:03
  Speaker 1: there's some like optimally calibrated point where you can like
• 59:06
  Speaker 1: the like optionality and prestige of the standard path and
• 59:09
  Speaker 1: then like exercise your optionality and like do the thing
• 59:12
  Speaker 1: you actually want to do. And it's not immediately, but
• 59:14
  Speaker 1: it's not like never.
• 59:15
  Speaker 2: You know, you seem to have exercised that optionality.
• 59:18
  Speaker 1: Yeah, I mean my timing was great and like, you know, accidentally,
• 59:21
  Speaker 1: but like I do think that like people in these
• 59:24
  Speaker 1: jobs think of themselves as a carering optionality and like
• 59:27
  Speaker 1: eventually that starts to decay.
• 59:28
  Speaker 2: So our final question, what do you know about the
• 59:31
  Speaker 2: world of finance today you wish you knew twenty five
• 59:34
  Speaker 2: or so years ago when you were first getting started.
• 59:37
  Speaker 1: This is a mixed bag because like, I love what
• 59:39
  Speaker 1: I do now, and it is so fortuitous that I
• 59:42
  Speaker 1: landed here, and like, there are a lot of ways
• 59:45
  Speaker 1: that I could have been luckier early and then been
• 59:48
  Speaker 1: sadder overall, because I would have found a really good
• 59:52
  Speaker 1: job early on that really fit me, and then it
• 59:55
  Speaker 1: wouldn't fit me quite as well as this one, but
• 59:56
  Speaker 1: I would stay at it. But I do think that,
• 59:58
  Speaker 1: like what I said earlier, like I didn't know anything
• 1:00:01
  Speaker 1: about like what the different types of jobs were, and
• 1:00:03
  Speaker 1: I thought finance was this undifferentiated like world where like
• 1:00:07
  Speaker 1: it's all like you know, the same spreadsheets or whatever.
• 1:00:11
  Speaker 1: And I think had I known better, like what I
• 1:00:13
  Speaker 1: was good at and like what kind of jobs there were,
• 1:00:16
  Speaker 1: I might have like more intentionally pursued jobs in finance
• 1:00:18
  Speaker 1: and I might have gotten rich. But I might have
• 1:00:22
  Speaker 1: been like you know, miserable and overworked. So I don't know,
• 1:00:25
  Speaker 1: I mean, I don't know anything now.
• 1:00:26
  Speaker 2: It all worked out in the end. Thanks Matt for
• 1:00:29
  Speaker 2: being so generous with your time. We have been speaking
• 1:00:32
  Speaker 2: with Matt Levine. He is the author of Bloomberg's Money
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