NerdWallet's Smart Money Podcast - How the 2008 Financial Crisis Changed Wall Street (The Big Short Companion Podcast from Against the Rules)

Episode Date: December 18, 2025

Learn how Wall Street has changed since the 2008 financial crisis in this Smart Money special presentation of Against the Rules: The Big Short Companion. Michael Lewis’ best-selling book The Big Short is now 15 years old, and the Oscar-winning movie based on it was released a decade ago. To mark the occasion, Lewis has narrated a new audiobook of The Big Short, and on The Big Short Companion from Against the Rules, he and co-host Lidia Jean Kott look back on how the 2008 financial crisis still affects the world today. In this episode, Lewis calls Bloomberg’s Matt Levine for help making sense of Wall Street’s hangover from the crash described in The Big Short. They talk about Bitcoin, bank regulation, and new forms of risk-taking — all ways Wall Street has changed since the crisis. Find The Big Short Companion from Against the Rules wherever you get podcasts and The Big Short audiobook wherever you get audiobooks. Want us to review your budget? Fill out this form — completely anonymously if you want — and we might feature your budget in a future segment! https://docs.google.com/forms/d/e/1FAIpQLScK53yAufsc4v5UpghhVfxtk2MoyooHzlSIRBnRxUPl3hKBig/viewform?usp=header To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend. Learn more about your ad choices. Visit megaphone.fm/adchoices

Guess what? NerdWallet is giving away $100,000 a day for 25 days in December. Yep, it's the debt-free December sweepstakes and I only have 30 seconds to tell you about it because, well, we're spending the budget on helping people pay off debt instead of on this ad. Now, here's the deal. Every day from December 1st through the 25th, one person will get $100,000 from NerdWallet. You can enter for free at nerdwallet.com slash debt-free December or in the nerd wallet app. All right, that's my time, because when nerd wallet gives away millions, we can only afford 30 seconds to talk about it. One more time if you missed it, that's nerdwollet.com slash debt-free December or enter in

the free nerd wallet app. And good luck. Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles. And I'm Elizabeth Ayola. Today we're doing things a bit differently and bringing you an episode of another podcast we think that you'll enjoy, especially if you're familiar with The Big Short. You've probably heard of The Big Short, which was a best-selling book by Michael Lewis, and then that became an Oscar-winning movie. It chronicles the 2008 stock market crash and the outsiders who saw it coming bet against

the system and made a lot of money. A lot has changed since Michael Lewis. Lewis wrote the book, but some things like what it means to bet against the market and who really pays for an unchecked financial system are as relevant as ever. Now, 15 years after the book came out and 10 years after the movie was released, Lewis is releasing a new audiobook version of the Big Short and a special companion series on this popular podcast against the rules. And we're sharing an episode from that companion series today. Fair warning, you'll probably love this episode if you've read the book or seen the movie. But if you're not familiar with the Big Short, then you might feel a little lost. So here's what to expect. On the big short companion series,

Michael Lewis gets into the legacy of the book, the movie, and the financial crisis of 2008, catching up with the director of the movie Adam McKay, as well as some of the real-life characters who were depicted by the likes of Ryan Gosling, Steve Carell, and Jeremy Strong. Michael also calls up journalists, economists, and historians to make sense of the crisis and how it's still affecting the world today. In the episode you're about to hear, Michael is joined by former investment baker and journalist Michael Levine, who talks about Bitcoin, bank regulation, and new forms of risk-taking. Always Wall Street has changed since the crisis. If you enjoy this episode, you can look for the Big Short Companion series on the Against the Rules podcast, available wherever you get your podcasts.

And get the new audiobook version of the Big Short on Audible or Spotify at Pushkin.com slash Big Short or wherever you get your audiobooks. I'm Michael Lewis. And I'm Lydia Jean-Cott. This is the big short companion podcast on Against the Rules. And today's episode is all about the financial consequences of the 2008 recession. Michael, when you said you wanted to do this episode, what consequences were you thinking about? You know, the things, all kinds of things sort of popped to mind when you look at how Wall Street is now versus how Wall Street was and say, 2007. You can see that, like, the big investment banks, Morgan Stanley Goldman Sachs, are far

or less prestigious to work for. They're not getting first cut of the college graduates. You can see that a whole new set of institutions, Jane Street, Citadel, jump trading, have arisen to take risk that previously were in the investment banks. It's like the risk. Who gets to take the risk has changed? And the banks just generally have been removed from the process. That's, that's Like one thing. Another thing is, like, Bitcoin is a response, or it seems to have been a response. The guy who created it, we know and knows who he actually is, but who calls himself Satoshi, made it very clear that it was a response to the mistrust he felt on the back end of the financial crisis.

I just wanted to isolate the financial consequences and talk to someone who knows more about this than I do. See what we thought. Matt Levine, like Matt Levine, from the moment he appeared on the scene and started writing his Bloomberg column, I thought, thank God, he's paying attention to this so I don't have to. Like, thank God that I can just like, I mean, I could come back in and dip into Wall Street every now and then for big narratives, but that I don't have to monitor it in the same way because he basically does it for me. You can just read Matt Levine.

I can just read Matt Levine. And he cares so much more about it than I do. Like, he cares so much more about the intricacies of finance. The only time I cared as much about finance as Matt Levine was when I was actually working in it. And then I was engrossed. But since then, I have a hard time caring sometimes. He makes me care about it. But I know he's also like, if it's interesting, he will find it and point it out.

And so I can be a little lazy about it. I'm just going to use his energy to get them across to you. I'm really excited to hear that conversation. Matt Levine is a columnist for Bloomberg opinion. and host of the newsletter and podcast Money Stuff. His conversation with Michael Lewis is coming right up. First off, where were you during the financial crisis? What were you doing?

Okay, so when you say during the financial crisis, I was on vacation when Lehman filed, and it's such a cliche, but my cousin was getting married in Northern California, and I was in Napa, actually, the day that Lehman filed. And I woke up and I looked at my phone or my Blackberry or whatever. And I saw that Lehman had filed and I was stunned and I did the thing that everyone talks about, which is I went outside to get coffee and everyone was walking around

being completely normal. And I had the thought of like, what, like, do you not understand that the world just ended? Because I was, you know, during the financial crisis, I was working at Goldman as an investment banker. So you were at Goldman in a job. in investment banking, all this was going down. And when it, so when it is going down, at any point, do you start to think, oh, my, my, I might not have a job?

Of course. You did have, you did have a thought. Of course. How could you not? No, it's wild. I mean, there were definitely rounds of layoffs. You know, I was pretty fatalistic that, you know, either I'd get laid off or I wouldn't. People on my desk got laid off.

I did not get laid off. Did you at any point think Goldman's not going to survive? You know. I was not sophisticated enough to have that thought. Over time, I have come to understand how leveraged these institutions are and were and how little of a shove it takes to push investment banks into bankruptcy and how close we were in the scheme of things to, like, Lehman and Bear. I was on a desk.

We did, like, convertible bond deals, and we did not do a deal for six or nine months. We had a master file where you, it was like a spreadsheet where every time anyone the market did a deal in our sector, we would like write in the details of the deal. And it was blank from, I want to say, something like September of 2008 through March or April of 2009 was just blank. Like no deals happened in the market. And so I spent six months doing nothing. And I did not, you know, take long lunches or have vacation. I just sat at my desk and panicked and tried to get deals to happen and no deals happened. Did you get a bonus at the end of 09? I must have. I must have. Yeah, I did. You know, I was down a lot from the previous year,

but we didn't get zeroed. Yeah. Did you ever find yourself on the other end of Wall Street hate? Not like personally. You know, I think that like Occupy Wall Street occurred around the end of my time at Goldman. I think it occurred a little after I left and I would go and be interested in it. But, like, I could see on TV hate for Goldman, but, like, I never personally experienced it. And I kind of was like, I don't know, there was a sense that it was a little bit cool to be at a place that everyone hated so much. It's like, I felt like, oh, yeah, look at us. Everyone hates us. You know who also feels like that? People who work at the IRS. There's an incredible esprit of core because they know everybody hates them.

And they think what they're doing is virtuous, but they know everybody hates them, and it somehow brings them together. I don't want to say that what we were doing was like, you know, virtuous, virtuous, but it was fine. You know, Lloyd Blankyne says. We were doing God's work. I want to hear your thoughts about the consequences in the financial industry of the crisis. What came out of it that's still with us?

Well, the thing that I personally experienced the most, that I'm personally most interested in perhaps is just a shift in who does stuff in the financial industry. I mean, when I was at Goldman, Goldman was in many ways, like the place to be, right? It was the place that sort of generated all the hedge fund managers that, like, did a lot of the exciting deals that was sort of the center of Wall Street. And after the financial crisis, the power really shifted away from the investment banks for a bunch of reasons, you know, largely regulatory. Like largely, you know, one, all the biggest investment banks like Goldman became or were bought by banks. So they became banks and they regulated as banks. and two like you know they'd almost blown up and so everyone kind of understood both regulators but also like the banks themselves and the shareholders understood they couldn't be as as levered and as sort of short-term funded as they had been in 2007 and so the banks got much more careful about their balance sheets and they could do fewer trades but also the regulators kind of prohibited them from doing a lot of the prop trading that was the the way that places like goldman made outsized profits and also the way they

attracted and retained and trained risk takers. And that kind of ended. And the result is that a lot of the sort of high-end action that occurred at the investment banks ended up at what are, you know, the big, like today are big hedge funds or the big kind of, you know, they call them alternative asset managers, like in my day they called them private equity firms. But like, you know, the like Apollos and KKRs and Blackstone's got a lot more important because a lot of the, you know, of the kind of like aggressive go anywhere balance sheet financing that the banks used to do the banks are afraid to do now and these big institutions with their kind of longer term balance sheets can do that now and so like I don't want to say no one wants to work at Goldman anymore

I still have a fondness for Goldman people still want to work at Goldman but it's definitely like the prestige locations on Wall Street have shifted to the big hedge funds the big asset managers the big high frequency trading firms. These are all places that are kind of like closer to the center of the action because they can take more risk and the banks took so much risk in 2008 that they can't do it anymore. We all decided that these places shouldn't be doing that kind of thing because the risk gets socialized if they screw it up. Yeah, you know, it's, it's, I've become, when I was a banker, I was like, what are you talking about? Prop trade didn't cause the financial crisis. And as I get older, I become more sympathetic to the regulatory changes. I think one,

the risk gets socialized if they screw it up. But then also they're so levered. Like banking is a business model, but also investment banking as it was practiced by the big investment banks in 2007 is such a levered business model where you have like a thin sliver of equity and a lot of very short term deposits or demand funding that can dry up overnight. And if you get anything wrong, like you vanish and you like leave a crater in the market. When like the private credit firms are doing weird loans that, you know, 20 years ago would have been done by Goldman SSG. Like, those private credit firms have long-term financing from like, you know, annuities. And they just, they're not runable. Like, they won't blow up overnight. Right. So there's

a lot of stuff like that. They don't have depositors. Yeah, they don't have depositors. And Goldman didn't have depositors in 2007 either. But like, they had, you know, like overnight repo funding. And it was a really risky business model. And I think people realized that, and this is like, the story of every financial crisis is like you find a way to get a lot of short-term information and sensitive financing against, you know, risky stuff that you're up to and then you blow up. But I think like all in all, the system right now feels less blow-upable than it was in 2007 because there is less of that short-term financing against like whatever people are up to. When we come back from the break, Matt Levine and I talk about another consequence of the

financial crisis, Bitcoin. I'm back with Bloomberg Opinion Colonist, Matt Levine. All right, so the first financial consequences is this kind of mini-status revolution on Wall Street, where the people who were the top dogs are no longer the top dogs because the risks moved out of those firms and into other places, and the status goes to where the risk is being taken. And that's a status revolution, it's also, like, substantively... You get a better financial model. I think so.

It's debatable, but I think so, yeah. Well, what would be the other side? I mean, if you have Apollo and Aries and these places who have long-term funding against their long-term loans, that does seem like a more stable thing than what Goldman was doing or even what Citibank was doing. The main thing that you hear on the other side is that people call those shadow banks, right? The banks are very carefully supervised, not always successfully, but there's a lot of, At least somebody's watching them. There's a regulator who's watching the bank and telling them, don't make that loan, that's too risky, right?

Or, like, in theory, that's happening. With the private credit firms, they can kind of do what they want because they're much more lightly regulated because they don't have the crazy banking funding model because they're not too big to fail because they're not, you know, their losses aren't socialized. And then, you know, people do worry that leverage is creeping back into the system because it has a habit of doing that, right? Private credit firms do get leverage from banks. So, like, it's kind of circulating back into the banking system. And, you know, when you move away from, like, private credit, like, some of the stuff that banks used to do, you know, I read about the basis trade, which is you buy treasury bonds and you sell treasury futures, and it's a very, very, very low risk trade because those are almost the same thing, but they're not quite the same thing. And so people lever that trade up, you know, 30 or 100 times. And that used to be a thing that banks do. And now it's a thing that, like, you know, the citadels and millenniums of the world do. And, you know, people definitely look around. And and say these things are much more lightly regulated than the old banks were and they're running it 100 times leverage that seems risky right like and there are occasions where the basis trade

kind of blows up and you know their academic saying the fed should have to step in when that happens and so it's you know there's in the long run you know you say that like you socialize the risk when when the banks blow up but like I'm not sure that was what people thought in like 2006 I'm not sure people thought that, you know, JPMorgan and the Citigroup had deposit insurance and FedEx and everything, but like Morgan Stanley and Goldman and Lehman and Bear were investment banks. They were kind of more lightly regulated things. And then it turns out that when they all blow up, the sort of rational thing to do is to

socialize the losses, right? But that was not obvious. It's just what happened. And so you can imagine that happening again with, you know, if the big hedge funds that have become so central to the financial system find a way to blow themselves. up, like, will those losses get socialized? Maybe. When I asked you what the financial consequences are of the crisis, and you said the big when you were focusing on was, I didn't think you were going to say what you did say.

I thought you were going to say Bitcoin. Yeah, I mean, Bitcoin is, it's hard for me to know how directly Bitcoin is a consequence of the financial crisis. I mean, it's certainly the case that, like, the Bitcoin white paper references the financial crisis, that it seems like the pseudonymous Satoshi Nakamoto was, you know, upset by the leverage in the banking system and by the socialization of losses in the banking system and wanted a financial system that didn't look like that, that wasn't fractional reserve banking, that wasn't risky, that wasn't based on, you know, powerful intermediaries who, like, got government support, but that was peer-to-peer and decentralized and safe, right? And I think that resonated with a lot of people.

there's a like countercultural element to crypto and Bitcoin where people got into it in part because they didn't trust the banking system. But I don't want to overstate that because crypto quickly replicated a lot of the elements of the levered fractional reserve, risky financial system, as you well know, right? I mean, like if you look at the career arc of Sam Bankman Fried, like no part of what he was doing was a reaction to the risky financial system and traditional finance, right? Everything he was doing was recreating that system

with crypto. One of the many ironies of crypto is that it seems to be borne out of mistrust of institutions and intermediaries, and then it goes and recreates institutions and intermediaries. It requires even more trust than the thing that it's replacing.

Because there's like, you know, a thousand people who are like, oh, I love this thing because it doesn't, you know, replaces trust in intermediaries. And then there's like millions more people are like, I like this thing because it went up, right? And then that's like much more, you know, relevant. And then so then you have, you can build a system around that.

And so if people like it because it goes up, then like offer them leverage, right? Like offer them, you know, trusted intermediary. And so I think that there is this like, like cultural connection between crypto and this trust in the financial system. But that is only a very small part of the actual phenomenon of crypto. The crypto winter that, you know, kind of began in the summer before the fall of FTCX and ended with the fall of FDX really recreates 2008. Like really like beat for beat is like this is what happens when you over lever something, you know, like it stops going up.

And so then there's nothing, you know, holding it up because it's super over levered and, you know, there's no regulation and there's a lot of non-transparency about what is backing all of that leverage. I said to you the beginning, like, I was not sophisticated enough to understand the risk that Goldman was in when I was at Goldman. Like, I witnessed the financial crisis from inside of Goldman, but I didn't, like, understand it because I was just like, working my job, you know? But then as I became a financial journalist, I became more of a student of the 2008 crisis. And it was so useful and interesting to watch the crypto crisis play out because it truly just relearned the lessons of 2008. And, like, one thing you learn is that it's all the

same thing, right? Like, a financial crisis is they all look the same, right? But a difference is that in the crypto crisis, that there is no government to come in. Oh, yeah. For a while, there was Sam Bankman for it, right? I mean, like, it was truly like people in crypto were like, well, there's no government, there's no Fed, but there is FTX. Right. So there isn't that backstop. But like, but also, you know, the other big difference is that the reason there's that backstop in 2008 is that there is a widespread and I think pretty justified fear that like a collapse of, you know, the investment banks, the banking system, like that subsector of the economy could have like real consequences for the real economy because the banks are the lenders that

kind of like, you know, juice economic growth. Like one day maybe crypto will be that important to the economy, but like it wasn't, it's not yet, right? So there's no government bailout because it didn't matter, right? Like all of crypto could go to zero and nothing outside of crypto would be affected by that. You think that's still true now? I think that is 90% true now. I think that crypto people are working very, very hard to change that, right? I mean, you look at like the integration of stable coins into the traditional financial system.

You look at, you know, the crypto treasury companies, like there's this race to integrate crypto into the real financial system. Some of that is because the more you integrated into the real financial system. the more it goes up, right, today. But some of it is, like, the more you integrate it into the real financial system, the better your odds of getting a bailout if something goes wrong. You could have, like, a broad view of crypto that's like, crypto is finding the sort of last sucker to buy your crypto assets.

And, like, the U.S. taxpayer being the last sucker is like a really good backstop. That would be sarcasm in case you didn't pick up on it. When we return, we talk about the lessons we should have learned, but didn't from 2008. Guess what? NerdWallet is giving away $100,000 a day for 25 days in December. Yep, it's the debt-free December sweepstakes, and I only have 30 seconds to tell you about it because, well, we're spending the budget on helping people pay off debt instead of on this ad. Now, here's the deal. Every day from December the 1st through the 25th, one person will get $100,000 from NER. nerd wallet. You can enter for free at nerdwollet.com slash debt-free December or in the nerd wallet app. All right, that's my time because when nerd wallet gives away millions, we can only afford

30 seconds to talk about it. One more time if you missed it, that's nerdwallet.com slash debt-free December or enter in the free nerd wallet app. And good luck. What lessons do you think we should have learned from the financial crisis that maybe we didn't? I do think that, you know, I have a very conventional view of what happened and what financial crises are, which is that it's short-term information and sensitive leverage on stuff that you think is safe is the dangerous thing, right? Say that again in really plain English. The problem is when you, you, a bank, whoever, buys stuff that they think is pretty safe, they buy AAA-rated mortgage bonds

or whatever, right? And they're like, well, this stuff is really safe. So we can fund it by borrowing overnight against it. We can like take bank deposits and use it to buy 30-year AAA mortgages because like they're so safe, right? That is like the source of all financial crisis. Sometimes it's literally bank deposits, right? That's what a run on a bank is. But in 2008, it's mostly the Goldman's and Lehman's and Bears of the world who are not really taking bank deposits, but who are borrowing very short-term in capital markets. And they're thinking, well, we have a big, diversified pool of good assets. We're good traders. So it's pretty safe for us to borrow short-term to fund these long-term assets. And then you lose confidence. And that short-term

funding goes away. You have to sell all your assets and you can't sell them or you can only sell them at deeply discounted prices. And then you go from saying how great you are and how much money you're making to being bankrupt in hours, you know, or days. Like it's an extremely fast catastrophe. So there is, there is a distinction to be made in this story between the case where the assets actually are safe and people are misperceiving them as unsafe. And when they're actually actually not good at all and people are correct to think that they're not worth what you paid for them. But in the moment, it's very hard for you to, you know, or you can't like really satisfy people that everything that you own is good. But so, right, like the lesson to be is very straightforward,

which is that runable, you know, short term debt is the thing that causes financial crisis. Can people take their money out, right? It's not the asset side, right? And so people worry a lot about risky stuff, risky stuff is fine. If everyone knows it's risky stuff, right? What's bad is when you're buying AAA stuff that you think is good, that might really be good, right? I mean, like, what's bad is that, you know, there's market market losses and you have short-term funding and you get blown up. So to me, the thing that, like, the number one lesson to take away is worry about short-term funding. And I think, like, regulators definitely took that lesson. And banks are now much more, we've got to have much more capital.

They're much more liquidity. They're much less short-term funded. But the crypto world didn't learn that lesson, you know. And like there are a lot of other places where, you know, like the reason the regional banking crisis was the sort of successor to the financial crisis is that the regional banks had short-term funding, right? I mean, they had deposits, right? I think people didn't appreciate, despite how obvious it seems, people didn't appreciate

how short-term the funding of a regional bank actually was. But, like, nowadays, people are much more worried about the asset side, and they're much more worried about, ooh, private credit is investing in risky stuff. And I think that's, like, the wrong place to be looking. If you're looking for the next crisis, where do you think the right place to look at this? Oh, I don't know. I don't want to be a crisis longer. I do think that, I want to be clear, I'm not saying this is where the next crisis is.

But I do think that the big hedge funds are really interesting, right? The big four, like the multi-strategy hedge funds, they do a lot of the businesses that banks used to do. They're very levered. And they have this profile of like they're quite safe, right? Like they have a good, they have like high sharp ratios. They're good at like, you know, steadily grinding out profits by doing highly levered trades where they're essentially getting paid to take the other side of the market and to provide liquidity to the market. They're very well risk managed. They're very smart. They are the places that train up the best risk takers now in a way that like 20 years ago, that was the banks, right? So all this stuff like, I'm not,

saying they're going to have a crisis tomorrow. I'm saying like, that's where a crisis would be, right? They're huge. They're like, you know, they're central to the market. They're highly levered. And all these people, banks, hedge funds, everyone has learned, you know, they were at Goldman in 2007. Like, they've learned these lessons, right? But, you know, you keep turning the dial a little bit more towards risk. And then, like, there's some chance of things going wrong. So what else, anything else popped in mind when I say financial consequences of the crisis? Consumer Financial Protection Bureau. I mean, that's over. I don't know.

I would put that in the category. That's like a broad sociological consequence of the financial crisis is that the big banks lost status. Now you can go to Congress and say, banks should not be able to charge, you know, over to our fees. And everyone's like, oh, yeah, those banks, they suck, right? And so it's easier to regulate banks, just generally, right? Like banks have less of a ability to get what they want. I think that is broadly a consequence of the crisis. When you look at like the CFPB's mandate, I mean, there's nothing to, there's nothing,

almost nothing to do with the financial crisis. There is this nexus of giving people mortgages they can't afford is both a bad consumer banking practice and a, you know, contributor to the financial crisis, right? So like there's that, that's an important overlap. But most of what the CFPB is doing is like fining banks for doing things that probably improve the stability of the banking system by extracting money from consumers. right? I mean, the CIPB is a consequence of the crisis in the sense that people were mad at banks. And so it was a lot more tenable to do things to regulate or punish banks. But that just sort of

ended for political reasons. So I wanted to pick your brain on just this subject. And I think it sounds like I picked your brain clean unless there's something else you would like to say. I'm a little interested in stable coins. I mean like stable coins are sort of a way to take risk out of the financial system. Like instead of having your money at a bank which could invest it in weird stuff, you have your money in this thing, a stable coin that basically invested in treasury bills, right? One thing that I write about a lot is that banking has become narrower. And what that means is that on the one hand, the institutions that do risky investing are now increasingly funded with like long-term locked-up equity type funding. So like private credit firms raise equity

to make loans, right, rather than using deposits. And then on the On the other side, the depository stuff is invested in safer, shorter term stuff. And so, like, classically, that's money market funds where, like, you put money in money market fund, they put it in, like, treasury bills, you get interest, and instead of them lending out your money long term, they're just doing something very safe with it. And increasingly, like, stable coins are becoming that, right? And so, like, this is, like, a crypto incursion into the traditional financial system, but also people, also a lot of people, politicians, crypto people, really.

really like it, right? Because it does seem like a safer and more direct way to hold your money than holding it in a bank, which might be making, you know, buying mortgage screes with it. I will tell you who doesn't like it. My impression is that who doesn't like it is the Fed, right? Because like the Fed likes the traditional banking system, right? They like the ability to transmit monetary policy through bank reserves, right? Right. There is this worry that like we're undermining the banking system by moving a lot of what would have been deposits into something else, money market funds and stable coins. There's an article in Bloomberg about how stable coins are potentially an existential threat to regional banks. Because like regional banks,

they get deposits from like, you know, companies depositing your paycheck and then they use that to like run their business making loans. And if stable coins become a good payment mechanism and companies are just saying, I'll give you a stable coin instead of like a direct deposit in your bank account, then like JP Morgan will be fine. Like they'll do a stable coin. It'll be fine, right? But like a lot of regional banks are going to have trouble because the banking system for so long was this sort of sleight of hand of like we take deposits that you think are super safe and we use them to make risky investments. And if that's going away, then it's an existential crisis for some number of banks. And is that going away because of 2008? Like a little bit.

You can draw that line, right? Like, the mistrust in the banks and, like, the understanding that banks take risks with your money, like, was sort of, like, you know, brought back to the forefront by the 2008 crisis. And so, so some of, like, the staple coin stuff and the narrower banking stuff really is downstream of that. I mean, I had never heard the term narrow banking until 2008, right? Like, it became a thing after 2008. People said, this whole system of, you know, we take short-term money and we use it to make risky bets. it just became a lot more suspicious.

Can you imagine a world where there are no banks? People imagine a world where there are no banks all the time. I mean, not exactly, right? They imagine a world where your deposits live in stable coins. In stable coins, in treasury bills, in reserves at the Fed, right? In U.S. dollar, you know, digital currency where, like, you don't have to have a bank. You just, your money, like, the Fed keeps track of your account for you, you know? And then how do you get a mortgage?

Well, you know, like, the Lending Club gives you a mortgage. or like, you know, a private credit firm gives you a mortgage or an insurance company gives you a mortgage. Apollo gives you a mortgage. One thing that Apollo does is they run annuities, right? And an annuity is like, we'll give you, you know, a fixed cash flow for 30 years. Like, that's the other side of a mortgage, right? It makes total sense for Apollo to say, we're going to make mortgages on one side and we're going to do annuities on the other side and they're going to cross perfectly, right? So it's, I think it's pretty easy to imagine a world without banks. It's just, it's very hard to imagine the transition, right? Like, like to go from the world of banks to a world without bank.

so it's going to be really, would be really, you know, difficult for a lot of people. But if it happens, and if that's the path we're on, and that narrow banking is just a step on the path to no banks, people will tell the story how it all may have kind of just started with the financial crisis. I think if that happened, I put a very low problem about it happening. But if it happened, yes, I think clearly the financial crisis would be the great catalyst for it. Because, like, by the way, I mentioned stable coins. Like, stable coins grow out of Bitcoin, right?

Bitcoin grows out of the financial crisis, right? The sort of like great flourishing of mistrust in the financial system can lead to a lot of consequences. And I think we're like, you know, partly down the road to those consequences. That was Bloomberg Opinion columnist Matt Levine. Next week, we're wrapping up this big short companion series by talking with two people whose political careers got their starts with a financial crisis. Because the crisis changed more than just finance. It changed politics, too. Against the Rules, the Big Short Companion is hosted by Michael Lewis.

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