The Chris Voss Show - The Chris Voss Show Podcast – 200 Years of American Financial Panics: Crashes, Recessions, Depressions, and the Technology that Will Change It All by Thomas P. Vartanian

Episode Date: June 3, 2021

200 Years of American Financial Panics: Crashes, Recessions, Depressions, and the Technology that Will Change It All by Thomas P. Vartanian From 1819 to COVID-19, 200 Years of American Financial Panics offers a comprehensive historical account of financial panics in America. Through a meticulous dissection of historical events and the benefit of his experience handling many of the country’s largest bank failures, Thomas P. Vartanian reveals why so many more devastating financial crises have occurred in America than nearly every other country in the world. Vartanian provides extensive evidence of how the collision of policy-driven government actions and profit-oriented business performance have disrupted market equilibrium and made the U.S. system of financial oversight less effective and more susceptible to missing the signs of future financial crises, including policies that: imposed tariffs and chartered dozens of poorly regulated, uncapitalized state banks that facilitated panics in the 19th century; created ambivalence over whether gold, silver or paper money should be the preeminent form of payment, creating the perfect conditions for the depression of 1893; kept interest rates low to assist the central banks in England, Germany and France, allowing an overheated U.S. stock market to shift into overdrive and crash in 1929; planted the seeds of the S&L crisis more than twenty years before when Congress imposed artificial limits on deposit interest rates and the states capped mortgage interest rates to increase homeownership; pressured banks in the 1990’s to increase mortgage lending to increase home ownership while the Fed engaged in loose monetary policies, adding fuel to the greatest economic crisis since the Great Depression. 200 Years of American Financial Panics dissects financial crises in a way not attempted before, concluding that the pyramid of governmental oversight intended to foster economic safety and stability has been turned on its head to its detriment. Vartanian provides readers with a unique list of practical solutions. Most importantly, his analysis of financial technology, from artificial intelligence and Big Data to cryptocurrencies and quantum computing, forecasts how financial markets and government regulation will change. 200 Years of American Financial Panics is a must read for anyone that wants to understand their money, financial markets, and how they are going to change in the future. About Thomas P. Vartanian Thomas P. Vartanian is the Executive Director of the Program on Financial Regulation & Technology at George Mason University's Antonin Scalia Law School, where he is also a Professor of Law. Before joining Scalia Law School, he chaired the Financial Institution's practices at two international law firms, Dechert LLP and Fried Frank LLP, through four financial crises. Both as a regulator and private practitioner, he has been involved in 30 of the 50 largest bank failures in American history, developing a deep understanding of the causes of financial collapses. He has been described by clients in Chambers as "one of the best financial services lawyers in America." Mr. Vartanian served in the Reagan Administration as General Counsel of the Federal Home Loan Bank Board and the FSLIC, where he authorized the receivership, sale, or liquidation of hundreds of failed institutions in the S&L crisis, including the first national and cross-industry financial institution combinations in the country. Prior to that, he served in the Carter Administration in the Office of the Comptroller of the Currency as Special Assistant to the Chief Counsel. Mr. Vartanian is a futurist and expert in financial technology. He was Chairman of the American Bar Association's Cyberspace Law Committee between 1998 and 2002, where he chaired an international task force of lawyers from twenty countries which issued a seminal report on the novel issues created at that time by doi...

You wanted the best. You've got the best podcast, the hottest podcast in the world. The Chris Voss Show, the preeminent podcast with guests so smart you may experience serious brain bleed. Get ready, get ready, strap yourself in. Keep your hands, arms and legs inside the vehicle at all times. Because you're about to go on a monster education roller coaster with your brain now here's your host chris voss hi folks this is voss here from the chris voss show.com the chris voss show.com hey we're coming here with another great podcast oh my god it's another one there's 800 of them. Go watch them all on the Chris Voss or listen to them on the Chris Voss show. There's so many podcasts. You could just go through a

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Today we have, I know you're going to be surprised by this, only the 800th time, a brilliant, amazing, thoughtful author on the show. He's going to be sharing with you his insight, his valuable insight that he probably spent tens of, or hundreds of hours, hundreds of thousands of hours in this case, learning the knowledge that he's going to impart to us over the course of up to an hour. And I think you're going to love it. And this episode is brought to you by our sponsor, ifi-audio.com, and their Micro-iDSD Signature. It's a top-of-the-range desktop transportable DAC and headphone app

that will supercharge your headphones. It has two Brown-Burr DAC chips in it and will decode high-res audio and MQA files. We're using it in the studio right now. I've loved my experience with it so far. It just makes everything sound so much more richer and better and takes things to the next level. IFI Audio is an award-winning audio tech company with one aim in mind, to improve your music enjoyment of quality sound, eradicate noise, distortion, and hiss from your listening experience. Check out their new incredible lineup of DACs and audio enhancement devices at ifi-audio.com. His name is Thomas

Vartanian. He is the author of the new book that came out May 15th, 2021. 200 years of American financial panics, crashes, recessions, depressions, and technology that will change it all. It sounds like my love life, actually. Welcome to the show, Thomas. How are you doing? Good. Thanks a lot. And I have one question. Am I really podcast 801? No, you're in the 700s. We're almost there. I'm rounding up just a little bit. So, you know, we're close. But welcome to the show. Give us your plugs where people can find you on the interwebs. Yeah, you can find me. It's very easy.

ThomasVartanian.com. I've got a website. Talks about the book. Talks about me and my 45 years in financial services. As well as my baseball team and my band. You have to pick what you want to be interested in. There you go. So give us an arcing over your new book and what's inside of it. Yeah. So the book is basically the past, present, and the future of financial health in the United States. And there are a few things that sort of

pricked my curiosity. First, I was in the Reagan administration handling the savings and loan crisis. And that sort of led me to be focused on financial crises, as well as my practice as a lawyer. I started in 1976 with the largest bank failure in the country. And I ended in 2018 with the largest bank failure in the country, Washington Mutual. So that was the great bookends of my career. And the one thing that concerned me about everything I had read about financial crisis in this country was that it was always pinned to the robber barons, the bankers, the corporate guys. And to some extent, that's true. But it is not the whole story, as I've found out from my own career and researching the other hundred or so years that I wasn't alive for. And the bottom line is this. If we're going to fix financial crisis in

the future, and we need to because we have more financial crisis than every other country in the world but one, Argentina. So we got to fix that problem. And if we're going to fix that problem, we have to know the causes. And one of the causes has been government policies. We have to admit that. We have to understand that politicians like to tinker with the economy. And we have to understand that in the long term, that causes and creates or facilitates financial crisis. And that's why I wrote the book, because I thought after handling the savings and loan

crisis, it was largely created by the Congress and the state legislatures in this country. And that's the message I wanted to balance out. It's not just robber barons. It's not just bankers. It's government policy conflating with all these things and the oligarchs and some of these robber barons you talk about who are lobbying for those changes? No, in fact, it's been just the opposite. I'll give you a few examples. The Great Depression, the savings and loan crisis, 2008. All of those crises suffered in part because Congress wanted to increase home ownership in America.

And so they said, for example, in the savings and loan crisis, we're going to cap what savings and loans can pay to their depositors so they can charge less for mortgages. And that put them in a position where they were forced to pay depositors 5.5% and get from mortgages on a 30-year fixed rate basis, 7.5%. That locked them into a 2% spread, which worked until in the Reagan administration, rates hit 21%. And then what do you do in that kind of economic vice? In the latest crisis, in the 2008 crisis, that again, the Clinton and Bush administrations decided we need 8 million more homeowners in this country. A terrific, well-intentioned goal, right? To have 8 million more homeowners, 8 million more people invested in the country, invested in the future of the

country because of their home. The problem is that when you try to force feed that into the economy, you're effectively requiring the banks to lower their standards to make mortgage loans. Because where do you get that other $8 million, 8 million mortgages? It's not from the top of the credit system. It's from the bottom of the credit score system. And so that resulted in all of subprime mortgages being made because the government said, look, we have to have more of this. And sure, the bankers want to make more money. The people who sell washing machines want to sell more washing machine. The investment bankers want to securitize more mortgages. Everybody makes out when the government gives that signal and says, go ahead.

And then correct me if the sad part of this, of these fallouts is the robber barons usually get bailed out. It's the average American who takes it on the chin, isn't that true? Yeah, and more or less that's correct. And interestingly enough, Chris, that has had a really perverse impact on the marketplace. There's another terrific book out in February of last year, and I don't know if you did anything on it, but it's called The Rise of Carry. And one of the conclusions from that book is that since the Fed has bailed out the markets in each of the last major financial crisis, savings and loan crisis, the 2008 crisis, the markets expect that bailout. And what does that do? That perverts their risk analysis. So if you're getting paid a lot of compensation for taking a lot of risk every year,

and at the end of 10 years, when that risk explodes, the government's going to bail you out. What are you going to do? You're going to take that risk and get that high compensation in return for that. So the Fed and the Treasury have got to figure out how to bring market discipline back into the market because the big institutional investors, the big investment banks, the large bank, they understand that the larger risk you take, the more likely it is you get bailed out. Yeah. Wasn't it the Frank Dodd legislature that really pushed the 2008 crisis over the cliff? No, it was Dodd-Frank was passed as a result of the 2008 crisis. Oh, wasn't there one that he was involved in before that started it, though?

Grimly, it was in 1999. I think so. Dodd-Frank was in 2010. And the Dodd-Frank Act was passed in reaction to that crisis. And it had some good parts to it and some preventative medicine was created by it. But the problem was, it's 2,500 pages of legislation, probably 2,000 pages of which, if not more, we didn't need. But we just, it just, because there's a theory that the Congress, I think, lives by and most people who don't understand financial services live by. And that is the more regulation, the better. Right. The more regulation we create, the safer these banks have to be. And what I found from doing all this research and living through 50 years of the financial crisis in this country is that's not true.

Because the more regulation you have, the more distortion you're putting into the marketplace, and the more likely it is after some amount of years, the market's going to erupt in some aberration you never anticipated. Is there a healthy balance? Are basically the politicians putting too much of their fingers on the scale? Or should they be leaving it off the scale? There's something to to say about rampant out of control capitalism. Where's the healthy balance? Yeah, now there's got to be a healthy balance. There's a group who would say we don't need financial regulation and there's a group that would say we need much more financial regulation. I don't think either of those parties are correct. I think we need financial regulation because if you give your money to somebody else to take care of, somebody's got to be watching.

That's somebody else. What we've learned in the history of civilization is anybody who's playing with somebody else's money needs supervision. So there's a need for regulation. The question has been whether that regulation has been smart. And it hasn't been smart. It has been clumsy. It it hasn't been smart. It has been clumsy. It has been influenced by politics just because a politician, all well-intentioned, decides, gee, I think the people need this. It doesn't mean that writing a statute and writing regulations to

do it is going to get it done in the way it needs to be done or that it should be done. One of the problems here, Chris, and this is really shocking to me, you raised the question about whether there's too much political intervention in the economy or not enough. And as I say, I think it's not smart enough intervention in the economy. But here's the problem. The problem is we never do a costfit analysis. We never do an economic impact statement about the impact of all this legislation on the economy. So the Dodd-Frank Act, as you suggested, passed in 2010. Nobody before the act was passed, during its discussion about being passed, or since it was passed in 2010, has done a cost-benefit analysis of its effect on the economy. For all we knew, it could have had a massive detrimental effect

on the economy. Now, I don't think it has, but that's not the way to write major legislation in this country affecting the economy of this country. It's just not the way to run the largest economy in the country. Yeah, it's really interesting. How do you feel about the Federal Reserve? Some people feel that, I don't know, there's a lot of different opinions on the Federal Reserve. I know the Federal Reserve flooded the markets to stabilize our stock markets when the coronavirus hit. How do you feel about the Federal Reserve and its role in our markets? Yeah, so that's another great question of balance, right? So the Federal Reserve Board was established in 1913. They weren't really in place in an effective way yet when the Great

Depression hit the country. And they were protagonists, if you will, or antagonists in the Great Depression. But since then, in the savings loan crisis, the Great Recession of 2008, and the COVID crisis, I think they found their balance mostly. And that is, there's a lot of books out there, as I found when I was doing all this research, that really say that central banks pervert the marketplace, they overplay their hand, they cause financial crises, so on and so forth. Again, I think a balance is necessary. In my career since the 1970s, the Fed has been instrumental in balancing markets and in bailing out the markets and preventing them from crashing. Now, as I said, the negative aspect of that is if you bail out the market over and over again,

nobody thinks it will fail, and therefore you remove market discipline from the process. But I think what has happened, and this happened, I think, in the savings and loan crisis. I remember a meeting with Paul Volcker in the savings and loan crisis. We went over there to ask him to open up the Federal Reserve window to the failing savings and loans so they could have liquidity. And the Fed was terrific about that. But it was in those meetings, we figured out that the Fed had gotten enamored with its ability to manipulate interest rates in the economy to do other things. And Paul Volcker decided the most important thing at that point was to raise rates up to 21% to stop inflation. He wanted to stop inflation. Now, the collateral effect of that was to raise rates up to 21% to stop inflation. He wanted to stop inflation.

Now, the collateral effect of that was to take out the savings and loan industry and some farmers and some other manufacturers, because they couldn't operate in that high-risk environment. But fast forward to 2008, the Fed basically, with the help of the Treasury, bailed out the economy. Now, the question is, is the medicine worth worse than the disease? Because the aftermath of all of that is an enormous amount of cash in the economy, an enormous balance sheet of the Fed since 2008. Before 2008, the Fed had $800 billion on its balance sheet of securities. Today, that number is $8 trillion.

Wow. $8 trillion. All right. So between the money that's been flooded into the economy and the amount of the growth of the Fed's balance sheet, we have an economy that I would call a managed economy. It is not really a managed economy. It is not really a real economy. It's got the Fed at the helm sort of steering. And the question becomes, are they oversteering? Is there too much manipulation and management of the economy? And again, it comes back to that word you mentioned before, it's balance. And for some reason,

we just can't seem to keep the balance either with what Congress is doing or the Fed is doing. We're just ping-ponging back and forth, really, when it comes down to it. Yeah, I think that's right. I'll give you one more example. So after the 2008 crisis, in 2012, when everybody, I think, decided it was more or less over. The Fed's balance sheet was $4.5 trillion. They had $4.5 trillion of mostly mortgage-backed securities they had bought to keep the market irrigated. You would think that after that, the Fed would get rid of that portfolio, right? In effect, cede it back to the marketplace and stepped back from controlling the market. They tried. And by 2020, when the COVID crisis hit in March, it had only been able to shed itself

of about $2 trillion of that portfolio. It still had $2 trillion left, right? 10 years only shed $2 trillion. So here we are now with an $8 trillion balance sheet at the Fed. How long is it going to take them to shed that balance sheet? And add the following factor to it. Because of COVID, because of all these crises, 24% of the dollars in circulation have been created in the last year. Wow. That's crazy, man.

That's a lot of flooding. That's a lot of flooding. That's a lot of velocity, economic velocity for everybody to soak up. Yeah. And they still want to spend a couple trillion more, which I don't know if I'm against or not. We're already seeing inflation in our markets, partially because no one's been producing any goods for the last year and a half, or there hasn't been a lot of production because everyone's been on lockdown. So we're seeing inflation because of low inventories. We went into this

with a housing low inventory that was already in the marketplace. And it just kind of keeps getting worse. In fact, I was just reading today from one of my vendors that we review products with, they're having trouble getting products out now to sell because there's a chip shortage for the different materials they use to make the chips. I've seen some people screaming that we're about to enter hyperinflation. Maybe our rates will be 21%. What's your feeling on where we're going over the next couple of years? I think we're building a bubble. I lived through the savings and loan crisis. I saw the bubble. And the funny thing about building a bubble economically, and that is most people don't see it

and most people don't want to see it. It's like going up the rollercoaster. First upturn, everybody's going up and up and it's terrific and everybody's screaming. And you don't know when you're going to hit the top and you hit the top and all of a sudden you drop like a rock, right? That goes, that's what's going on in the economy

because in the economy, with all these dollars being produced, that means there's a lot of dollars to be made, right? Credit standards get reduced because there's so many credit dollars available. Look what's going on in the housing market. I think most housing markets in this country are seeing a tremendous boom. I know my daughter bought and sold a house in Tampa over the last year. And the difference between the buy a year ago and the sell a year later was astronomical. We say to yourself, how can markets move at that velocity without building

a bubble? That's what's happening. We are building the bubble. And I think we may see some prosperity as the markets get rejuvenated after COVID in the rest of this year. But the problem is, as it always is and always has been over this last 200 years, it's not the short-term game we're playing. It's the long-term. And in the long-term, what we're doing is we're distorting the economy in so many different ways that we're creating an environment where there's a lot of financial IEDs out there waiting for a trigger to explode them. And we never know what the trigger is, but there always is one. Yeah. I would agree with you. You cover 200 years in your book of our financial history. I think it's interesting the parallels that in the 1918 crisis of the Spanish flu epidemic,

pandemic, we went through the same thing and we came out of it. You had the roaring 20s. Everyone's spending money like it's going out of style. And then we have the Great Depression. Do you see a lot of similarities to that from what we're going to be going through now? Absolutely. Absolutely. And two weeks ago, I read an article that was really bone chilling because the similarities are just phenomenal.

In 1918, we had the Spanish flu, right? In 2020, almost a hundred years later, we had COVID. And so you start with global epidemics, right? In the 1920s, we had mom and pops getting into the stock market. The largest proportion of non-institutional investment in the stock market was in the Great Depression. And we are hitting those numbers again with every Joe and mom and pop getting into the stock market, if not through their IRAs, through various different ways and day trading and things like that. So the stock market is moving. The real estate markets are hyperactive as they were in the 20s when most of the major landmarks in this country were built, the Chrysler Building, the Empire State Building, one after another. And lastly, put aside all what we talked about already about all the money

flushed into the economy over the last year or even more. Lastly, this is the article I saw in the paper that got me thinking about the similarities to the Great Depression. One of the things that triggered the Great Depression was a play in the copper market as copper prices escalated. Why? Because all the telephone lines had to be laid in this country. The country had to be electrified because copper was needed. Guess what's now soaring again in the marketplace because of infrastructure? The price of copper. Wow.

So that's the last shoe you have to look at and say, the similarities here are just too startling not to take notice of them. I've had a lot of companies have suffered over the last year. And then to see, for example, the company who sent me the email today talking about this Silicon chip crisis that's now come about is they're trying to, they've tried to survive the coronavirus of the last year with low sales. And now everyone's, Hey, the world's open. We can sell everything. We can start moving. And it seems like we've survived this very differently than the 2008 market where everyone's got some money packed away. Well, not everybody, there's still some people that are hurting, but a lot of people have still got money and the jobs held out a little

bit. It didn't get as quite as bad as 2008, I think. But the problem is a lot of these companies, if you can't, if you have product, but you can't get the materials to sell that product, you're not going to make sales, which is going to extend how horrible this last year has been. Does that sound like a good analogy? Yeah. Now, you're putting your finger on a critical developing problem in this country, which I think is going to play a role in the next financial crisis. And that is we're losing control of our future. Just take the chip issue for the moment.

You've got a country that was the prime mordial innovator in technology and manufacturer of chips, no longer making chips and relying upon countries like China and other places for the chips. The other problem that's going on, and this sort of relates to the political issues that are out there, and that is politics raises money off of certain issues that are sexy. And sometimes the real issues go unheralded and untaken care of. And that's what's going on.

So I'll give you an example. Silicon chips, they are made from rare earth metals. Rare earth metals are very important in technology and everything that's going on. Who controls now 70% of the rare earth minerals in the world? China. They've bought up property in Africa and South America, and they are focusing on being the controlling party of rare earth minerals. And so if they're controlling those rare earth minerals, they're controlling the number of chips that are available in the market. They're controlling the products that are available in the market.

And we can't sit here and let all of those levers be taken from us and just be a consuming nation. Because at some point, somebody is going to start pulling those levers in a direction we don't want to be pulled. Yeah, they've built a huge Navy, largest Navy in the world now, I think. And they're willing to push their way around and they can say, hey, we're not going to use chips, and then you're not going to be able to run your warships, and then we can do whatever we want. You made me realize something that just hit me too. If you're producing countries that, you know, here in America, we're like, we're coming back with having the vaccines, but there's still a lot of other countries that are struggling and aren't producing. And if you're sourcing stuff from say India, and especially where their job market is probably

wiped out. And a lot of people, I don't know, I don't know how much they've been hurt by the, by the COVID, but just watching the crisis there with COVID has been alarming. It's basically going to cost more to make these goods. We're already seeing lumber is an all-time high. Well, you're going to have lumber to build houses, and those houses are going to become more astronomical. I think the last crisis I saw, I think what it was is the ecoterrorists had increased lumber costs by 40% back in the 80s or 90s or something like that. The guys who were going out to lumber and they were doing stuff to sabotage the lumber industry, they'd increase prices of lumber by 40%. That gets passed on to consumers.

And then we're already seeing wage pressure right now, which might be good. I don't know. Wages stay dormant for so long that we're seeing a lot of wage pressures where companies can't get people to work for a low wage. They've got to pay a higher wage. But there's some companies with business models right now that can't make it through that curve where you've got to pay people more and you're still charging old prices and no one will pay the new prices.

And it's going to be survival of the fittest, basically. Yeah, no, I think that's right. It's hard to see all of the long-term factors and dynamics that are unfolding without being concerned about where we're going. In the short term, again, we might be okay. There might be a resurgence in the economy as the airlines, the hotels, everybody comes back. That's going to be a short-lived event because we're going to have to live with the long-term dynamics here that we're building, both in terms of inflationary costs, both in terms of the money that's being thrown out into the economy, in terms of what China is doing. China has already said it's going to dominate the field of artificial intelligence

by 2030. So there are some long-term factors out there that are really going to have an impact on us financially. And one of the things I say in the book is that technology is a part of the solution and it's part of the threat. And you can use technology to solve some of these problems. But the problem is if technology is used maliciously against the financial services maliciously against the financial services business, against the economy, against this generally, that's going to be an unbelievably difficult challenge to deal with in the future if we are not prepared. And the problem is, we are not prepared. It's as simple as I can say it. And we are letting, unfortunately, we are

letting our preemptive strength, particularly in the technology area, to be taken away by other countries. And that's not a good thing long term because technological power turns into financial power affects democracy generally at the end of the day. Let me ask you this, speaking of technology, what do you think about Bitcoin and crypto and all the things that are going right now? I was always a day trader stock investor where, you know, you knew that there was a price to earnings ratio or at least an asset value of a company. The stock fell. The company was still worth something as long as it didn't file bankruptcy. There's the only value that's tied to Bitcoin is demand and scarcity or these are the cryptocurrencies. And I've had a bunch

of friends that they've all jumped in just like they did to the housing market when it was highly speculative and they've thrown in all their savings. And then recently with some of the crashes, a couple of them, I don't know if they've gotten wiped out, but they certainly are crying. How do you see that being a factor maybe in the coming years? Yeah. So that's a mixed bag because the crypto mania is basically being in the roller coaster going up the hill. Everybody sees upwards, ever upwards and more and more profits. And I think most people who live through as many financial crises as I have and then read about the rest over the last 200 years would say something without any intrinsic value has got to have an explosion somewhere and not in a good way. And you can read about the tulip scandal in the 17th century in Holland. Same sort of thing happened that people were investing their life savings in tulip holes

only because that was the phase at the moment. Now, that said, let me tell you what the benefit of crypto is, I think, in the long run. In the long run, I don't think it's going to be the crypto product or the crypto coin that is the great contributor to human civilization. I think it's the networks that are being built. I think the crypto that is built on blockchain networks are building enormously new vehicles to deliver services, financial and otherwise. And those are what are going to survive and those are what are going to change commerce in America. And interestingly enough, if you know anything about the blockchain application that most of the cryptos use, it's a peer-to-peer evaluation system, right? There's no financial intermediary. So the

saying yes or no are acting as the traffic cop in the intersection, as in most payment systems. It's a peer-to-peer validation system. Everybody on the computer who's got that program, who's involved, has to say yay or nay to the creation of a new Bitcoin or the transfer of that Bitcoin based upon the history that's chained together of that particular coin. What does that tell you? What it tells you is if that peer-to-peer validation system becomes predominant in commerce throughout this world, it changes what financial institutions do. It changes the role they play. And they have to be thinking about that in the future because that's a lot of income that they can lose acting as traffic cops in the payment

systems and the securities business if blockchain applications supersede what they do. So that's another dynamic change that's happening. But I don't think we're thinking enough about in terms of the impacts on the economy in the future. If we move to a blockchain economy, I think a lot of countries are concerned about this because the value of the stock in the country is the currency. And if it were replaced by a globalist blockchain where there's no regulations by the Federal Reserve, there's no printing of money that you can take and do to manipulate your economy. China has done a lot of manipulation of their economy for so many years by faking their GDP, essentially. And so it'd be harder to get away with that stuff, wouldn't it? Yeah, look, it changes all the dynamics dramatically.

And number one is trust and confidence in the system, right? You can equate a dollar to a crypto coin because it's not linked to gold anymore. It's not tied to gold, but its intrinsic value is confidence in the United States economy. You can't say that about a Bitcoin, right? So when you go to a global cryptocurrency type of economy, there's no underlying confidence in any one party, country, or central bank that's going to come to the rescue if something happens. That's a big missing feature, which is why I think we never end up in that direction at the end of the day.

But there are countries out there, China, Iran, North Korea, who really do want to see a global cryptocurrency in place. Why? Because if you can eliminate the dollar as the global reserve currency in place. Why? Because if you can eliminate the dollar as the global reserve currency in the world, you can eliminate the United States' ability to provide sanctions and mete out sanctions to countries. And so lots of countries would like to see that ability

disappear and make the United States less of the world's traffic cop by using sanctions to do it. There you go. And then different economic sanctions as well. So if you want to put tariffs on something, I suppose you could still in the way you'd sell things, maybe, I don't know. Yeah, it gets much harder and it changes all the dynamics that we're used to because now most trade around the world is done with the global reserve currency, which is the dollar. That's been reducing over the last 20 years. I think we're down to now about less than 70% of transactions are in the global reserve dollar. But it's still, the yuan from China is only used in 4% of transactions. So that's clearly nowhere near in terms of overtaking the United States in the dollar.

But there are people, there are countries out there that have a lot more patience than Americans, right? And they'll wait a long time to try to create a new mechanism that undercuts the one that they don't like or the one that's dominated by U.S. economic and monetary policy. The Chinese play, what, a hundred-year game or something like that? A thousand-year game? Yeah, Right. They play 3d chess when we're just eating the checkers over here going, these are tasty. Yeah. And the other problem, and I've read a lot about this recently and thought a lot about it. It's like anything else getting to the top is one challenge. Staying on the top is another challenge. Right. And so when you're on the top, you've got all these

countries that are hungry and all these people that are hungry chasing at you and following after you. And the guy on the top is fat, dumb, and happy and says, look, I'm on the top. And that is a problem that we have got to deal with as a country in terms of being fat, dumb, and happy at the top of the pyramid. Because if we do, we're not going to be there very well. Well, it worked well for the Roman Empire and Great Britain when the sun didn't set anywhere on the empire. It worked out good for them. It's never worked for any country forever. That's true.

That's true. Empires always fall. And usually when you become that fat slug that you're just like, ah, my belly's full. I'll just sit here and kick back. People aren't hungry enough. People aren't dynamic enough. People aren't running fast enough like the people who are following you. Yep. There you go. Or the cops that are chasing you. That's usually my thing. According to research, what does it suggest to

you about the next financial crisis? Do we have a depression? Do we have hyperinflation where I'm going to be living in Venezuela or something for a while? Or what's going to go on? Yeah, I'll say one thing that I know for sure. That is, we will have another financial panic. Jesus. How do I know that? We've had 10 in the last 200 years. After the Federal Reserve Board was created in 1913, there was a cacophony of statements by senators, congressmen, and even presidents of the United States saying, we will never again have a financial crisis in this country because the Federal Reserve Board has been created.

God bless America. So watch for the period between 1935 and 1979. We have had a crisis just about every 20 years in this country. And we've now had two financial crises within 10 years of each other. Obviously, one caused by COVID, which is an unanticipated event. But the one thing I know is that we are going to continue to have financial crisis. Number two, those financial crises will in some part be facilitated by government policies, Fed shoving money into the economy, the Fed's balance sheet being $8 trillion, monetary policy, interest rates low, interest rates high. And what that's doing now is creating the possibility of inflation,

an enormous amount of credit and liquidity in the system that has to go somewhere, has to be invested somewhere, has to be lent out someplace. And all of that creates these financial risk pockets in the economy, leverage lending, student lending, mortgage-backed securities, real estate, commercial real estate. They're all out there and they're all these pockets of financial risk. And the question becomes, as I said before, what is the trigger that sets them all off? We've never really been able to predict before any of these things. And the bottom line of my book is knowing that all these financial IEDs are out there,

why aren't we using technology to be more predictive? Why aren't we using artificial intelligence and big data at the government level of regulation to say, you know what, we see these three things happening. Here's what we ought to be thinking about in the regulatory world. And one of the things I say in the book, and I explain, is how technology and artificial intelligence may have averted the 2008 financial crisis. Oh, wow. Because I was there. I was representing investment banks.

I was representing financial institutions. And you could see what was happening. And I know in my heart that if the regulators had the information that technology could have provided, they would have seen that as one of the scenarios. Now, would they have acted? That's another question. How would they have acted? That's another question. How would they have acted? That's another question. But I think they would have had the information to give them a view of the future long before it happened, and they could

have taken action. The problem is we don't have that kind of intelligence, big data or artificial intelligence running in a financial system that we have to give us that predictive knowledge. Is it up to the Fed to establish that and get that knowledge going? Or is it up to politicians? It's up to both. Congress has to fund it and the regulators have to go ahead and do it. But there's an interesting problem with the regulators doing it. And it goes to the fundamental way that we regulate financial services in this country. So banks and financial services companies are regulated by the Fed and OCC, the Office of the Control of the Currency, the FDIC, host of federal and state agencies. Where do those federal and state agencies get their funding? They get them from assessments that they charge the institutions

they regulate. They are not funded by taxpayer dollars. Somebody will say to JP Morgan, to Jamie Dimon, it's going to cost you a million dollars for us to regulate you this year. You pay us a million dollars over the year. That's the way they get their assessments to run the regulatory system. So for the regulatory system to upgrade its technology and go to a full-blown artificial intelligence, big data algorithm running system, that's going to cost an enormous amount of money, right? And so the regulators that have to say to the institutions, we'd like to raise your assessments so that we can get all these technology toys to regulate you better and closer.

And the institutions are going to go, wait a minute, I don't want to be regulated by you. I'll go to the state and be regulated by the state because we have a dual system. You can choose either federal or state. Oh, really? Yeah. So in effect, the system undoes itself because we can't get the funding. We can't get the resources to do it.

Even if the Fed, FDIC, OCC wanted to do it, it is problematic unless there's somebody leading that charge. And we have idiot politicians, not all of them, but we have some real idiot politicians. If you watch the interviews with the Google executives, these guys don't even know what a basic Google search is or how technology works or a phone works. Some of the things that they were talking about and asking the questions of Mark Zuckerberg and I forget the CEO of Google's name, but you saw some of the questions they were asking. You're just like, are you out of your freaking mind? Like, how are you this dumb? And you're a politician. You can say that a lot of the crisis we're going to suffer from

is by some idiot who was running the country at the beginning of this crisis, who took it as a joke and was more concerned about the financial aspects than the health aspects. And if he would have been more concerned about the health aspects of it, we wouldn't be in the financial quandary that we're in and probably, I don't know, have less of a bubble. Although I think we would have some sort of bubble, but yeah, it's going to be interesting how this bubble is going to pop and what's going to happen. People are still struggling. People need to get back to work, but then companies can't sell stuff because they can't get product to manufacture and resell. And you got housing going through the roof. Rents are going to go through the roof along with housing. So whether you're buying or trying to move around the country, whatever the case may be,

everything's getting, everything's getting more expensive, but you don't have as much money in your pocket. And even if you do, then it's just a, it's a weird cyclical bubble that's being expanded right now and where it's going to pop, take everybody out is going to be really interesting or how big it's going to get before it pops. How about that? Yeah. Yeah. Look there, you're exactly right. And the thing is, there are solutions. There are solutions to all these problems. We've just got to be smart about it. And just for example, to go to the political question you just raised, I was in the government for eight years, and I've been in Washington for 45 years. It's unfair to think that your congressman or senator is going to be an expert in every issue

that comes up in Congress. But the point is, they have to have access to good, solid, rigorous analysis to make decisions apart. And I don't think that's happening. I don't think it's happening in a bipartisan way, producing up the kinds of information we need to make good decisions. And what happens is we end up with political whiplash as we go from a Republican to a Democratic in administration and back and forth. And the government regulators change from Republican appointed to Democratic appointed. You can't run a business, and I've seen this from my client, you can't run a business tacking back and forth strategically based on the political

winds that are going on. You plan a business course as an individual and as business, and when the rules change every four years or every eight years, and you have to go from here all the way to the other spectrum, that's an awful tough burden and challenge to put on businesses and individuals. And unfortunately, that's what we have. We have this sort of political whiplash going back and forth that affects businesses and the economy in ways that are not good. Yeah, it's crazy. It's crazy to see where we're going. And I don't know, the hyperinflation part of it really freaks me out. That's really been tripping me out lately and thinking about it and then seeing stuff like, oh, we can't get chips and

no, we can't get this. And it's going to take us a while just to get supply chains really fully running and operational when you think about all the different parts that have to go into them. And then countries like India, that's a part of a supply chain sort of area. They're going through their own crisis. They certainly can't open up and operate like normal in other countries. So this has been really eye-opening, Thomas. It's going to be really interesting to see how we come out of this. Any last thoughts on the book as we go out? I think what I hope the book will do is start a dialogue about how we deal with financial crisis in the future. Forget the ones in the past.

We only can learn from them. We can't change them. And what I hope we'll take away from this is that two things need to change for us to really ensure our financial future. Number one is we have to do rigorous analysis to take politics out of the decision as much as possible. And that is difficult. In this polarized country that we live in today, that's going to be very difficult. But that's an absolute has to happen. Second of all, we've got to learn to use technology to protect ourselves against future crisis. And we can do it. We've got the ability, we've got the data, we've got the expertise. We just need to go out and do it. And if we do it. We've got the ability, we've got the data, we've got the expertise.

We just need to go out and do it. And if we do it, I think we can either avoid future financial crisis, push them out farther and change the timeline, or make the ones that occur less severe. And if we can do that, it's worth everything we have to pay to change the system. Most definitely. And hopefully we can survive this. The children's, the debt load for the deficit is crazy, man. Just crazy. So I appreciate you coming by the show today with us, Thomas. Give us your plugs so people can find you on the interwebs as we go out.

Yeah, I'm on thomasvartanian.com. P-H-O-M-A-S-V-A-R-T-A-N-I-A-N.com. You can see my book. You can learn a little bit about the book. You can see my baseball team, my band. You want to hire the band. We're all there on the same website. There you go.

There you go. So thank you very much for coming by the show, Thomas. We certainly appreciate you coming by and spending time. Thanks a lot. It's been great fun. Thank you very much, sir. 200 years of American financial panics, crashes, recessions, depressions, and the technology that will change it all. Be sure to check it out, order up on Amazon or wherever

fine books are sold. Thanks for tuning in. Be good to each other and we'll see you guys next time.