TRIGGERnometry - How Commodities Markets Cause War & Chaos - Rupert Russell

Episode Date: May 2, 2022

Rupert Russell is a writer and filmmaker who has made two award-winning documentaries and authored Price Wars: Adventures in the Financial Apocalypse. Join our exclusive TRIGGERnometry community on Locals! https://triggernometry.locals.com/ OR Support TRIGGERnometry Here: https://www.subscribestar.com/triggernometry https://www.patreon.com/triggerpod Bitcoin: bc1qm6vvhduc6s3rvy8u76sllmrfpynfv94qw8p8d5 Buy Merch Here: https://www.triggerpod.co.uk/shop/​​​ Advertise on TRIGGERnometry: [e-mail] Join the Mailing List: https://www.triggerpod.co.uk/sign-up/​​​ Find TRIGGERnometry on Social Media:  https://twitter.com/triggerpod​​​ https://www.facebook.com/triggerpod​​​ https://www.instagram.com/triggerpod​​​ About TRIGGERnometry:  Stand-up comedians Konstantin Kisin (@konstantinkisin) and Francis Foster (@francisjfoster) make sense of politics, economics, free speech, AI, drug policy and WW3 with the help of presidential advisors, renowned economists, award-winning journalists, controversial writers, leading scientists and notorious comedians. Learn more about your ad choices. Visit megaphone.fm/adchoices

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the Alaskillian revolutions, the civil war in Syria, Brexit, the rise of Trump, the rise of right-wing populism, the collapse of Venezuela, the US border crisis, the war in Ukraine, the complete destruction of cities such as Mosul, and not just that, but also things like spikes in civil spikes in walls, such as in Somalia, even the so-called climate, at wars in Kenya. And so just by looking at these numbers, I found that I could tell a story, a kind of a new story of if you like, a kind of a global butterfly effect.

Hello and welcome to Trigonometry. I'm Francis Foster. I'm Constantine Kishol. And this is a show for you if you want honest conversations with fascinating people. Our brilliant guest today is the author of Price Wars, How Chaotic Markets Are Creating a Chaotic World. Rupert Russell, welcome to Trigonometry. Thanks for having me. It's great to have you on the show. Tell everybody a little bit about who you are, how are you where you are. What has been the journey through life that brings you to be sitting here talking to us? Sure.

So my first career was in academia. I from here, but I went to the States for around 10 years. I did a PhD sociology. And I was frustrated with academia because there's lots of great ideas, lots of interesting things going on, great research. But I found it very insular. It was sort of academics talking to other academics. and if you even suggested doing things that were so-called popular, that was seen as taboo and not something you wanted to even talk about

if you were interested in getting tenure track and then tenure, etc. One does not talk to the plebs. Precisely, that was what was communicated to me repeatedly. Well, now you're here and you're doing it. That is what I wanted, so this is a goal achieved. So I wanted to finish those. So I finished my PhD and I decided I wanted to take some fascinating, ideas I come across. And one of those ideas was from my advisor, Orlando Patterson, who had done some

incredible research on the idea of freedom, looked at the origins of freedom in slave societies, looked at how freedom had spread through Western culture over the centuries, but also how Americans viewed freedom. He had commissioned an enormous survey research to sort of see what Americans thought. And I thought this was a really fun topic to delve into. The Iraq war was nearly a decade old at this point around 2013-14. So I thought, why not make a film about freedom? What is freedom? What does it mean different parts of the world?

When people say they're fighting for freedom, what do they even mean? And so the film ended up being a kind of a survey. So I wasn't interested in asking people to define freedom. I was interested in people who said they were fighting for freedom. And it's like, okay, what do you do? So in Japan, that was people who were fighting for the right to dance. Dancing could have been banned in nightclubs in much of Japan.

And so there was, when I went to Tokyo, I noticed this because you used to see signs on the side of the wall that said no dancing. We thought it was some kind of ironic hipster thing. And then they were like, no, no, no, you actually can't dance here. And it's a nightclub as a DJ and everyone has to stand still. And so we did a story on the kind of movement to sort of campaign people to dance. We also did some more weightier things like the first wave of the umbrella revolution in Hong Kong, 2014. We went to Tunisia to look at the aftermath of the Arab Spring. what happens when you've so-called gained freedom, right, in that country,

which at the time was seen as the kind of success case of the Arab Spring, revolutions with this stuff on Black Lives Matter and so forth. And what we found during this was that it didn't matter if you're in East Asia, the Middle East, America, freedom was very much tied up with the fight for rights and the fight for democracy. Of course, there's like in the details things may differ, but on the whole, people want to be able to say what they want to say, they want to be able to vote, they want to be treated like an adult, they don't want to live underneath a corrupt regime.

We found these all be pretty universal things that people wanted. And then, of course, so we was sort of identifying what was driving that was a drive towards a liberalism. At the time, there was a big discourse around the drive towards a liberal democracy or other people called it electoral authoritarianism. There's a bunch of different jargon around it. But we didn't identify why this. was happening. And this became more urgent as kind of time went on. So Trump wins the United States,

Brexit happens in the UK, there's a right-wing populist turn in Europe. So as we were finishing the film, we sort of identified this trend, and described it with these wonderful characters, and I've been gone to lots of protest movements, and I got tear gas at Donald Trump's inauguration, but I think the Y was missing. And so that brought me on to this project, which is looking at the tumult of the last decade, the 2010s. And what I kind of identified as being a key causal factor in this was prices, right? Prices are international, they're global. That is why you can tell a global story about global trends,

because the economy is essentially global. And it's not global in the sense that it's kind of amorphous and diffuse and we're all sort of trading in this sort of big global market. It's global in a very specific sense, in the sense that the price for traded goods such as wheat, oil, natural gas, now even things like coal we're hearing about in the news. These all have one price around the world or one kind of gold price. And this price may differ region to region depending on literally moving it,

transportation costs, things like that. But there's one price, and this price is kind of set quite literally at the exchanges, the London Metal Exchange. In London, we've been hearing about nickel price is going haywire, but also in Chicago, the Chicago Mercantile Exchange. And so what I so found was that if you just looked at a handful of these prices over the last 10 years, you could actually tell a story that linked together, the Alispring Revolutions, the civil war in Syria, Brexit, the rise of Trump, the rise of right-wing populism, the collapse of Venezuela,

the U.S. border crisis, the war in Ukraine, the complete destruction of cities such as Mosul, are not just that, but also things like spikes in civil spikes in wars such as in. Somalia, even the so-called climate walls in Kenya. And so just by looking at these numbers, I found that I could tell a story, a kind of a new story of a global butterfly effect that had been happening through these prices. They're all visible.

We see them every day. But they have been moving in, I would say, quite volatile and sometimes mysterious ways. And what had ended up happening was it created enormous shocks globally. So when the price of food or oil in particular, the only ones, but those in particular move violently, either up or down, creates enormous instability.

And the way you can think about it is like a Pandora's box, right? So it's not that the prices are like literally driving tanks or they're literally impoverishing people, it's that they're kind of creating fractures in the society, politically, socially, economically. And from that, it allows a kind of Pandora's box to sort of open, of course. ISIS is probably the worst, but maybe the most prescient right now is Vladimir Putin. And so the way that I kind of described this was where I kind of thought about

due to geopolitics by the end of it was that we like to tell kind of monster stories, right? And this will, for viewers, this will differ who you may think the monsters are, but for some non-controversial examples, we could pick Putin, ISIS, for example. That would be the too big ones, maybe Xi in China, maybe, you know, Maduro in Venezuela.

And, you know, there's a lot of psychologizing that goes on, what's Putin really thinking about what ISIS's true ideology. And that's fair enough, I think there's nothing wrong with that, but I'm definitely not a Kremlinologist. I don't know what some Putin's had. I don't really think anybody really knows apart from Putin. But we could, I think it's also fair to assume, just for argument's sake, that it's nefarious, right? We can kind of assume that ISIS wants to dominate its neighbors. Putin wants to dominate its neighbors. But these people are just made of flesh and bone, right? So it's not literally Putin driving a tank.

He's not literally Godzilla marching down to a border and destroying it. It's all enabled by not just the economy, but in particular, for those two cases, in particular, oil and gas. And that these people get strengthened when oil and gas prices are high. So the way that I sort of began to see it was that the global economy and the commodity markets in particular kind of create an architecture, a kind of labyrinth around the world. And for the most part, these monsters tend to be contained.

So, you know, Putin may have been wanting to invade Ukraine over the last seven years, for example, right? He started the conflict 2014. And it's been interesting that there hasn't been much happening, right? When I was there in 2018, you know, it was some old news. It was five, six years. There were still trenches being dug out. Everybody was hoping it would end, but nobody kind of knew why. And so it's like, well, why didn't you do it?

And the argument of the book is it's because the low oil. prices in that seven-year period essentially encaged him, right? And you can kind of tell the story about how you have these price changes or price shocks, and they're constantly opening and closing gates around the world. And when they open, we get these monsters, they go and kind of roam around, they create enormous destruction, and then the economic conditions may change, and then they kind of get closed up again. So the argument that I sort of arrived at was that we have this sort of invisible architecture, kind of all around us,

and that's what's been driving the kind of order and chaos of the last 12, 14 years now. So you talked about oil prices, and that sort of makes sense when people who profit from the sale of oil and gas have more money, they're more able to execute plans

that they otherwise would have done, but they didn't have the money and the sort of confidence in the future to execute. What about food prices? Because that's obviously becoming a big conversation particularly now, only because people in the West are suddenly starting to realize that food prices also affect them, right? Yeah, precisely. So we've had two major food price spikes in the last 20 or so years. So one was 2008, one was 2010. And it sort of looks like double dip like this, right? And this is an index created by the UN, called the UN Food Price Index.

And what you see is as soon as these prices start going up and got a long story, essentially doubling in both these periods to where they had been previously. You essentially see, especially when you get to the peaks, enormous riots breaking out everywhere. So essentially what ends up happening in 2008, half the global is called the global food crisis. The UN declares this. Food prices essentially double. 155 million people are pushed into extreme poverty. You see a surge in protests and riots and a few governments get deposed.

We then have the financial crisis happens essentially immediately. It was already starting, but it becomes kind of global recession. by 2009. This creates another wave of poverty and hunger throughout the world. And then 2010 is almost like if you like the third hit. So food prices then surge for a second time and it becomes like a third stressor. And this is when you begin to see, you know, not just riots and revolutions in the Middle East, but actually globally amongst a lot of food import as you begin to see this. And it's not difficult to understand why, right? We don't need to be mechanistic about it either. it's not just that people, you know, can't afford food or can't afford to eat

and therefore they go out to protest. In many of these countries, there's a kind of, they call like a ruling bargain or like a social contract, right? And often so to take the Tunisia case, you know, there's a kind of an idea that, okay, yes, then the dictator Ben Ali and his family, and they go off and have nice, you know, trip to Santropay, and we kind of know they're stealing some money, they've got the nice yachts and they've got the nice palaces.

But in return for this, there has to be a guarantee, a guarantee that life is livable. And that is usually expressed itself through a combination of bread prices, controls, that is, and a sort of a wage or minimum income level, essentially. And it's a combination of these things. And this states back to the end of the Second World War. So when the colonial powers collapsed, the new revolutionary governments come in, say, India or Egypt, so Tunisia.

And they say, all right, it's part of kicking out the colonizers. We're going to guarantee your life is livable. And of course, they may be a bit autocratic. But there's this social contract. And so we're going to be the dictator in charge. Our family is going to profit. But in exchange, you're going to get stability. You're going to get security if you don't speak out against the regime and blah, blah, blah.

And most importantly, you're going to get a stable, predictable income and you'll be able to buy food with it. And that's the deal. Yeah, that's right. So it's also, the way I put it, it's sustenance. It's about 35% to 40% of most chlororic intake in the Middle East is from wheat, bread, and so forth. But it's also symbol. So it also is a symbol of this ruling contract, ruling but bargain. And that's why it's so combustible.

So when you look at, for example, the photographs of these Aztec people are holding bread, right? So in Syria, you see Lanziol walking and they're holding a bread. The same as in Yemen. In Tunisia, there's photographs of people holding back. gets, you know, it's kind of guns at the police. So bread takes on a kind of dual function. But it's also similar here, right? So not all prices are as politically important. In America, in particular, you know, gas prices have enormous outsized political effects. And of course, housing as well was to be a third one of which house prices were kind of obsessed with. So it's not

necessarily the most important prices are the ones that get picked up. Of course, there's lots of crisis that go into our living standard, but politically some kind of tend to get emphasized. It's very, very interesting talking about this, talking about food prices, because this is something that has affected me directly. You mentioned Venezuela. That's where my mother's from. So I've seen what happens when food prices spiral, when you get hyperinflation. You talk about hyperinflation in Venezuela in your book. Let's discuss a little bit about that. What effect does hyperinflation have on society

and what effect does it have on ordinary people? God, that is a big question. I will... The effect it has on society is it creates... turns life into a sort of topsy-turvy, Escher-like labyrinth. So I'll tell you two stories. So one is what hyperinflation looks like.

So if you're standing in Caracas, It looks like, you know, could be any South American city, I guess. It all set at least of in LA. It looks a bit like LA. You've got kind of concrete, brutalist buildings. There's some mountain. There's some palm trees. There's street vendors selling fruit and so forth.

And everything kind of looks, you know, pretty pleasant. And you wouldn't know this place was necessarily in the midst of like one of the most brutal economic catastrophes, maybe in history. But then you start looking closer and it's all in the details. So, for example, my translator says, He does go, look at that lemonade guy, so he takes me over. And there's a guy with a white lemonade stand. And he's just got, you know, bucket of lemonade that he's made. And he's got a little picture.

He's going to put it in glasses. Glasses people to come and buy on the streets. It's hot. And he's then got the prices. And he was doing something. So it turned out, and I look closer, he was writing. And he's writing a new price. And he sort of cuts out with some scissors.

And then he was taking it and putting it on the front. And then the front is papiam asashi. So he's just sticking prices on top of prices all day. And that's what he'll do throughout the day. So he knows that prices are going to double by the afternoon. This is what economists call inflation's expectations. So that's what everyone always freaks out about. Because once it gets built in, no one has to tell him.

He's not like, I don't know, looking at the newspaper to see what inflation is. He just knows they're going to double by the afternoon. So you get this. So you get this. The self-reinforcing, basically. Exactly. Become self-reinforcing. And it becomes sort of built into the society.

One person I spoke to, I'll just give you his his, his, his, his, his, his, story. His name was Octavio, and he was a middle-class kind of normal middle-class guy. He was super into playing video games. And when the crisis really got going, he couldn't afford to eat. Now, what happened in Venezuela when I was there, people would talk about, is that most jobs that you would expect to get minimum wage, right? And the way that they talk about it is, for the month. So they would say, okay, you're going to get so many boulevars for the month. That was, when I was there, a bus fare for one day, right? So a job makes completely no sense, because your month's wages you would spend just getting to the job in the morning of one day.

So your kind of regular economy is completely useless to you. It's a negative sum to participate in it. And so what he did is he just basically did nothing. He lay on his bed and he said, I'm just going to get up once a day to drink a glass of water. And he held up these huge t-shirts. I mean, they were literally like parachutes. Like, you know, he was a fat guy. He was a big guy in the kind of before times. And he just shrank.

And you saw him and he just looked like, so did you photographs just a different person. And he was just like completely emaciated. He just lost like kilo after kilo after kilo, starving. And he said, he eventually realized that from his previous life playing World of Warcraft, that he could make money playing World of Warcraft

and by money means dollars really. So there's a thing called farming, people who don't know, where you can essentially do the boring bits of the game for essentially, often it's Americans, but it could be people in Britain as well. You're chopping virtual, wood, collecting virtual, blah, blah, blah, and then you can sell it to people

who can't be bothered to do themselves. He took over their avatars to do that as far as I understood how it works. And they would pay him a dollar a day. And he said to me, this is amazing. earn as much as a lawyer or a doctor in Venezuela. But then once he goes, when he gets those dollars and he converts them into Bolivar,

becomes a race against time, right? Because the Lemonade guy, they're immediately losing value every single moment he has it. And you're also in a place with extreme shortages. So he would be running from supermarket to supermarket looking for canned goods because he doesn't have the money

to pay the electricity for a fridge. So he'd want to get rice, tuna fish. And the first supermarket you may go to me. Have tuna fish. You have to go to the next one. And then by the third one, you can't afford it. Right? So when I say it's this sort of Escher-like labyrinth,

these people live in these worlds that are literally turned upside down. And in his case, it was like, you know, he was in the video game. It's like it becomes a video game that you can't win, you know, in the sense that the architecture around you is just completely shifting and it just completely debases your life, you know, to living a life that almost isn't worth worth living. And that also affects the world as a whole because I know for a fact that Venezuela has,

I think the largest migrant population in the world. 5.5 million people have left Venezuela. And obviously they're all going to go somewhere. And the reality is that most of them will go if they can the West. This episode is brought to you by Netflix's remarkably bright creatures. What if a Pacific octopus held the key to a mystery that could heal your heart? Well, that's Tova's reality. An elderly widow working at an aquarium.

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She had three kids. One was in Spain. One was in Peru. And the third one, she was sending. And she was just like, this is my life now, right? I'm a single mom, and now I have to spend Mother's Day alone. I can't, there's no, there's no future for me, because I've just got, my whole family has been sort of completely, completely fragmented. And, but again, that affects, you know, the neighboring countries, which in turn affects their economies.

And the worrying thing is, is, it's unsustainable. We, surely we can't keep having this because then there's going to create problems in other economies. other economies and it's going to destabilize their populations as well. Well, that's why the way in which I was thinking about this in the book was it's why chaotic markets create a chaotic world, right? So if you're constantly creating instability in the world, right, whether, so I also looked at, you know, collapsing coffee prices, sending hundreds of thousands of Guatemala migrants, this is 2018 to the US border, right? Whether it's volatile food prices in Africa sending people to Europe, right?

you're right, this is causing a lot of instability. Is it unsustainable? I don't know. We haven't reached the limit. We don't know what is sustainable and is unsustainable. Is it disturbing? Does it create disorder? Absolutely. Right. This is, it's definitely disorder making. But I think the other way that we may want to think about this is, you know, who benefits from this, right? Are there people who profit from there being a border crisis? Or are people who profit from migrant flows? And the other question is, is, are the people who are causing the chaos I think we haven't touched on yet? A lot of the book looks at the nature of these markets.

I was about to ask you about that, yeah. And, you know, how did they, how are they impacted by this? So what I'm trying to do in the book is pull together these things that all seem quite disparate, right? So you've got US border crisis, Central America, climate change, coffee production, speculation. And what I'm trying to do is drawing all these lines between, like, yes, like when we hear headlines about migrants crossing the boat coming to Britain,

we don't hear the story necessarily of where they've come. And even if we do, we don't necessarily hear why those wars have started. Who is giving them weapons? Yemen would be a nice example of that, right? Maybe Britain stopped selling Saudi Arabia billions of dollars of arms export every single year. Maybe there's people on those boats wouldn't be here because their houses wouldn't have been blown up by Saudi bombers, right? So what I'm trying to do in this book is to tell the story of the last 10,

years and draw all of these connections so that we go behind the headlines of the immediate tragedies, which obviously we need to do something about, to where it kind of all started, the very source of the chaos itself. So, well, let's do that then because you're talking about the volatility and food and energy prices, essentially. Yeah, yeah. And one of the things that human beings came up with a certain time ago to deal with the fact that farmers producing crops were struggling to get a fair price for the product because it all arrives at

once and it has to be sold quickly, whereas human beings invented this great thing, which we now call derivatives, right, a way of managing future risks and managing prices. And initially it was attached to the actual product. But then it evolves. You talk to us, explain to people who have no idea about how financial markets work, all of that from the beginning. Well, in ancient Greece, I think modern derivative markets, especially in the States, come from Chicago, right? So, as you said, mid-19th century, Chicago, it's bang in the center of the Midwest.

It's where they grow all the wheat, other crops, other agriculture. And the farmers would take there that you have the harvest, you take everything to Chicago. And there's a problem, right? There's massive oversupply in Chicago. And so it becomes worthless. So, you know, economics 101. supply goes up, price goes down, and so it's more profitable as to dump it into Lake Michigan, right?

Because at least you might maintain some kind of a semblance price. And so what was sort of one of the innovations that came up with to run these markets effectively was futures, right? It can sound a bit confusing, but essentially it just means you agree on a price for a future date. So it's like saying, you know, I'm going to come and deliver so many bushels of wheat to Chicago in May. And there's a price for what's called a May contract,

or June contract, or a July contract. And so it means that the farmers aren't all coming to Chicago at one in one go, and it means that they can kind of stagger it out. So it gives the farmer security. They know when they plant those seeds and do whatever you do to grow wheat, I'm not going to spell on this, farm it, I guess. Get your 19th century combine harvester out. You know that you've got a guaranteed, a guaranteed price.

Now, the problem with that system, at least, when it very first started, it's true and true now as well. But the problem is that there might not be someone to buy that July contract, right? So people, ordinary consumers, say, you're a hotel, a bakery, a restaurant, whoever it may be back then, they might not want to be thinking about buying something a year, a year in advance. And so that's kind of where speculators came in, right? And so the idea was that it could be another person could come in and they could say,

okay, I'm going to guarantee that price for you. Here's a contract. Here's a piece of paper. This is what derivatives are. it's a paper derived from the, has its value derived from the bushel of wheat. And I'm going to do that. And then when it then comes around to July,

that hotel owner may say, well, actually, I do need some wheat now, right? And then you can then sell that onto the hotel ground. So there to provide what kind of is called liquidity. It just means literally the grease in the wheels to get the whole kind of machine working and to kind of make sure the farmers always have something to sell to and at the same time, the bakers always have a steady supply of wheat

that they can kind of buy for. And in that system, it should be said that the speculator in the middle is playing an important role because they're taking on a risk by promising to give you a certain price for your wheat a few months or a few years even down the line. They're taking on a risk. The price of wheat may go down. The price of wheat may go up. The demand for wheat may go down. The demand for wheat may go up. So they're playing a useful role in that situation. Okay. Yeah, exactly. And they would also get a discount for that called the risk premium. Right? So they perform this role. and they get a discount, and that's kind of where they would make their money.

But since then, the world has moved on. Almost immediately it's disaster, right? So this kind of idea of being a risk mitigation system turns into a gambling system, right? Because gambling and risk is essentially the same thing, right? So people don't often, it can be conceptually hard to think about this, but imagine, like, you get fire insurance out on your house. It's essentially a bet about whether your house is going to burn down, right? you're kind of gambling on this,

and you and the insurance company take opposing sides of this bet, just as in these contracts, you have opposing sides as well, right? And, you know, because before this system, you know, imagine trying to speculate on the price of wheat, why you would have to, like,

get a farm with a big storage thing. You'd have to get it all in there. You have to make sure nobody nicked it. Nobody burned it down that it was kept. The rats didn't need to be. The rats didn't need it. It's a complete pain in the art. right? So this would

be a problem, right? This is true for anything. Whereas what's so, the magic of derivatives is saying, well, actually we can bet on the prices of these things without having to go through the rigmarole of actually storing these things and so forth. It becomes a number on a piece of paper. It becomes, exactly.

So we sort of, that's, this is the thing about risk and gambling is that this is that there's such a great promise here for peace and order. I have to say it does actually eventually work. They actually do figure it out. So throughout the later parts of the 19th century in the early 20th century, you have all kinds of speculative manias that happen. I mean, it's not every year, but there'll be somebody will kind of come in

and try and corner the market for pork bellies or wheat or whatever it may be butter, and they'll kind of come in, they'll try and buy up the supply and send the price up. Eventually, this gets so out of control that Roosevelt comes in and regulates it. One of the most important regulations that comes in is they essentially limit the amount of speculation, right? they say, okay, speculators are important, we still want you around, you have this important function to keep the market kind of ticking over and take on risk, and we're going to limit you to about 20% of the market. So in the jargon they call it open interest. And it's incredibly successful, right? You know, it has to, I want to stress that, right, from the Roosevelt era through to

the end of the 20th century to 2000, commodity prices are actually pretty stable unless there's a global mega-shock, right? So the obvious example. would be in the 70s, the OPEC embargoes or the Iranian 1979 revolution where you see these huge oil price spikes. But by 1983, four oil prices sort of stabilize. You non-OPEC producers come in, the US starts making more in the UK. We have North Sea oil, right? So the supply gets diversified, the power of OPEC comes down.

And markets are actually pretty good at performing this function, right? So if prices go up a little bit, that's a signal to the market. You'd start shoving some more supply in here and vice versa. If they kind of dip down, then it's like we should scale back production. And so from around 1984 to 2004, markets are ticking over, right? We have actual real global shocks in this period, collapse of the Soviet Union, the Gulf War,

Bush's invasion of Iraq, the rise of the Asian Tigers, right? There was a lot going on in the collapse of communism. There's a lot going on in terms of real world volatility. But, you know, to the market's credit, they actually respond in a kind of way we would want them to, in a kind of rational way, finding new supply, moving it around. The First Gulf War creates a very short super spike. And Bush's war in 2003 is actually barely registers in the oil prices.

It's actually incredible to think now with what's happening to oil prices. In 2003, there's some... because the sort of the market anticipated that Bush would keep all the oil flowing, they didn't, the market, the prices didn't spike at all. And actually, Osam bin Laden gives a really angry interview to CNN and goes, it's an absolute disaster, oil should be $100 a barrel. It was one of his big complaints about the US. He believed that the US was kind of bribing Saudi to keep the oil price low

and starving Muslims of their deserved oil riches. And so he was really angry about this. But then what we see, around 2005, 6 is this new era of kind of commodity price, volatility. Why does that happen? It's a controversial question, and you'll get a lot of different

answers from different people. But from what I ended up speaking to a lot of traders on background, as well as some Nobel prize-winning economists, it seemed to me that the driver was simply this regulatory change in 2000, right? This to me seemed like the most plausible reason,

as I said. It wasn't like the period before, was super, well, didn't have real world volatility it did, the markets operated correctly. But in 2000, there was a bill called the Commodity Futures Modernization Act. And what it was really about was a whole new set of derivatives, right? So you and your, you as may have heard of credit default swaps, those lovely things that are the main character in the big short, which were sort of derivatives that allowed you to bet on housing, essentially, right? And that was really what was being created in the 1990s, right? there were these, all this housing,

collateralization, assets. They were essentially turning lots of different things in the real world of which housing became the most important. So you were no longer, and in some ways the real thing was that you were no longer betting even on something which had a physical connection. You were quite often betting on a bet that someone else had made as well, weren't you?

With some of these derivatives. That's absolutely true. And a part of what happened, I think, the way to think about it is terms of scale, right? So there's always a kind of fictional nature to these contracts always ever since the beginning. That's not necessarily what's dangerous about them. I think what I found was that the danger and the volatility comes from two sources. So one source is just simply the scale. So in that Roosevelt era of kind of peace and stability that I like to see it as, the speculators were limited to 20%. So you've got a function in the market, it's important, but we're going to like the physical traders, people who actually grow wheat, buy wheat, turn it into bread. they're really going to dominate the market, and they're going to dominate price, because they should know, right? They're the ones who are actually buying, selling it to consumers. Post-2000, as I said, what they were really trying to focus on was essentially protect

these new housing derivatives and others from any kind of regulation. And commodities were almost like an afterthought, right? So commodities kind of get tacked in on this, of like, okay, well, since we're doing all derivatives, he might as well just bring in oil and metals to go with it. And then the speculators in those markets can kind of grow to 18, 90%. And so the original sort of Milton Friedman idea of why markets are gray or Hayak, right, these are your neoliberal sort of economist philosophers, is what they'll say is they'll say, well,

why markets are great because they're decentralized, and you've got ordinary people on the ground, whether you're a farmer or whether you're a hairdresser or whatever it may be, whatever your occupation is, you know your business better than anybody else, and you're dealing with supply and demand. on a direct way, and that's why prices are great, right? Because you don't have some central committee sitting in Moscow or Washington, D.C. or London,

telling everyone how the economy should work, right? There's no commissars in the market. But ironically, what this new financialized market was, actually resembles that a lot more, right? Because suddenly you've got people who had dominated the market, 80, 90%, who don't farm, right? Don't know what a bag of sugar might even look like, may have never even seen one, right? don't even know what the difference between different kinds of crude oil may be.

Maybe they do, maybe they don't. It doesn't really even matter. But these people are kind of dominating, and these are people who are living in Singapore, Hong Kong, London, New York. And suddenly it's their ideas and their expectations that end up driving it. And the thing about this is that when you've got these small groups of people who all talk to one another, they're very vulnerable to narratives, stories, right? And you'll see this in the financial press all the time, right?

You'll see this in Bloomberg, the Financial Times. You'll see, you know, there'll be a new story about, just to take recent examples, they'll be like, right, all the Russian oils embargoed, and then you'll see the oil price literally jumped $30 a barrel, right? Which is, like, completely crazy. I had speculators talk to me about an event in 2014 when ISIS moved into Mosul.

It was headline news, the oil jumped $5 a barrel. That was conceded as unprecedented volatility, and that was, what, seven, eight years ago, now we're jumping $30 a barrel. And it's not just human beings. It's also algorithms. It's traders. It's algorithms reading the news that are reading those headlines

before the human beings even seen them. And then the next day, you might have a headline that goes, no, actually, it's fine. India's going to buy Russia's oil or China's going to buy it. And then the price kind of collapses again. So what you have is in the economics jargon you cause positive feedback. So you end up happening is whether it's AI, whether it's human beings,

whether it's trend followers, whether it's index investors. Whoever I spoke to you, what it ended up being was that you have these overreactions. So when there's a story of scarcity in the future, this sends the price higher than it might be, and like vice versa.

And so that's really what we're kind of seeing in the last couple of weeks. The other thing that's, what other thing that's dangerous about these derivatives is you have this kind of volatility side where things are swinging up and down. The other side is you often may hear this idea of explosions, right? So when Buffett said, derivative's weapons of mass destruction,

that's something slightly different where he's talking about derivative contracts that are hundreds of pages of long, right? So when you're selling wheat and oil, on the whole, not always, but on the whole, you're dealing with a standardized contract, right? Everyone knows what it is, but everyone in the market, whether you've got an oil tanker, or you're an oil man, or you're a hedge fund trader,

we know what this means. You're going to get so many barrels of oil on this, date for this price. Those kinds of, the other derivatives, these sort of new ones that were coming up in the 1990s, were hundreds of pages long. 100 pages long, no one understood them. Nobody understood how they really even operated. And what often would happen is that sort of buried in them somewhere there were these clauses that would detonate, right? So you sort of see this in the big short, right? I think it's Chris Bale's character, forgotten his thing it says. I've just discovered that if these, you know, it's an derivative, it's an asset, if it's 8% default, the whole.

thing blows up. And he was autistic, right? Because he actually read it and all the other characters are going, you actually read this stuff, right? So those are the, I'll let you go back to you. So those are the two ways in which he's a sort of destructive and my book really kind of focuses on the former, which is the market overreacting to news, creating, creating completely unnecessary volatility. To me, it just highlights, and I'm going to look at, because I'm not an economist whilst I've been following everything you're saying, my question is very much about the human element of this and societal. You have these tiny fraction of people,

percentage of people, this tiny part of society, which dictates to everybody else, what kind of society they're going to be in, prices. Isn't that just phenomenally dangerous? Well, I think it has been very dangerous, yes. I mean, again, it's interesting when I went back and I read, you know, the original Hayak and the original Milton Friedman,

their promise of markets, and this is, of course, during the Cold War, right? Their promise of, like, a global capitalist marketplace was decentralization. That was the whole idea. It was, you know, Friedman hated central bankers. He wanted to replace the Federal Reserve with a computer. He wanted to abolish the IMF. I mean, he really genuinely didn't like technocrats and being told what to do. But then I think it's one of the great ironies is that what neoliberalism turned into, I think,

by the end of the 1990s was something quite different to what they had in mind, right? Which was to be dominated by finance. And by finance, I mean banks, hedge funds, other... It could be university endowments, it could be pension funds, asset managers.

And these people kind of begin to dominating markets in ways that wasn't really anticipated. Friedman writes a really interesting article, I think it's in 1962, where he's opposed to central bank independence, right? And the reason why he's opposed to it is he goes, well, who's going to staff the central banks? It's going to be other bankers.

And they're just going to govern in the interest of bankers. And Friedman's whole MO was, I don't want any interest group running the market. Again, he wants to decentralize. He isn't actually entirely consistent later in his life. He kind of comes around to Greenspan. But that's also why he spends a lot of time trying to make sure that the Federal Reserve is run by a computer, because he anticipates that when central banks or other institutions get staffed by people, they're going to pick people from finance and those people are going to want to help to expand the financial markets. And essentially what you've ended up with today is, you know, BlackRock, huge asset manager, I think has $20 trillion underneath asset management, right?

Just for reference, I think US GDP is $24, $25 trillion. So you've got one fund in control of the amount of money, which is nearly the size of the US economy, right? This is, we are almost in, like, we're back to the Kremlin, right? We're back to a commissar in charge of hospitals, schools, veterinary clinics, restaurants. I mean, you name it, these asset managers own it. And so I think it's one of the great ironies is that of the kind of neoliberal project is they've kind of created, recreated the very beast they were trying to slay. Hey, Constantine, do you like trigonometry?

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It's $7 a month which is five pounds if you live in the civilised world. Join our locals community using the link in the description and help us make comedy great again. And one of the things, sorry for us, is just to follow up on this point about how this, and I know people listening and watching might think this is sort of abstract economic stuff, but it really isn't, and I invite them to stick with us. So we started out by talking about volatility in prices of food and oil and gas and so on, and then we started talking about derivatives and how that is making prices less stable and making them more unstable. And would I be right in thinking that Bill Clinton in

particular was one of the people who removed many of the regulations that were keeping this under control. Absolutely, that's right. So Clinton's ultimately the guy who signs the Commodity Futures Modernization Act in 2000. That bill had been spearheaded by Greenspan. So Greenspan and Larry Summers, who is then the Treasury Secretary as well, who now Larry Summers has been resurrected now. It's back in the public debate. These were the guys who really kind of spearheaded this, and there was this very famous reported line. I go into this in the book, but essentially what happened was there was a famous kind of battle of the bureaucrats, right? There was Brooks Lee Bourne, who was head of the CFTC,

that regulates essentially commodities, which is where derivatives in the US regulatory system fall under. And there have been a few of these kind of detonations. So Procter & Gamble in the 1990s had lost, I think, maybe tens of millions, hundreds of millions, in derivative bets. They just didn't understand. They thought they were buying insurance for something, and it kind of blew up in ways, created losses they didn't realize.

The same was true for Orange County. And so Brooksley-Born, who's the regulator of derivatives through the commodity markets, which is where they all derive in the US system, so hang on the minute, maybe we should like look into this whole trillions of dollars in bets on stuff, like maybe there's something we should look at. And the Washington Post reported an apparent phone call that Larry Summers, who was then the Undersecretary of the Treasury, made to Brookly Bourne. And he said, I've got 13 bankers in my office.

and if they say you go along with releasing a report that asks this question, we're going to have a US financial crisis bigger than World War II. Brooksley-Born goes ahead and releases this. It was a report really. It was like a white paper inviting people to comment on regulations. And there was no global financial crisis, right? And instead what happened was there was a whole lot of really spearheaded by Greenspan, a lot of kind of internal Washington wrangling.

They have a big committee hearing in which they kind of, kind of humiliate her, all these guys kind of gang gang, gang up on her. She ends up being pushed out. And then Larry Summers and Greenspan, I think two others, end up writing this report that ends up becoming the thing that deregulates it. And of course, it's the biggest irony that, you know, this ends up causing genuinely the biggest financial crisis since World War II, right? It was actually not doing what Brooks de Bourne said that led to the whole housing market in

US economy exploding. And it happens very quickly. Once they take the breaks off the economy, it happens within literally a few years. Yeah, absolutely. Because it had already been growing, right? So in the 1990s, it'd already been growing, but it was in this sort of regulatory gray area. And of course, that's not great, right? You don't want to build a trillion-dollar business in a gray area.

And so 2000, that act, again, it was very much focused on these new derivatives like housing, but also betting on things like currencies, government debt and things like that. And commodities were kind of almost like an afterthought to that process. but of course hugely important as well. How much of a part did, dare I say, corruption play? Because you've got these politicians, they know that the Glass-Speagel Act is there to protect people. It's there to protect society.

We brought it in, now correct me if I'm wrong, after the last Great Depression in the 1930s. And they're doing this at the behest of banks, asset managers. Is there something nefarious going on there? Or did they genuinely think that this would be a good move? I think there's a lot of motivated reasoning going on, for sure. You know, in that case, in particular, a lot of this was also being driven by Bob Rudin, right? So he was like one of the big guys in Clinton's economic team.

He was also like a mentor to Lawrence Summers and others. And, you know, they, when they repealed Glass Eagle, they said this is like the Citibank merger act. I think I could be wrong on the details here. I haven't looked at this for a while, but, you know, lo and behold, who goes and gets a $10 million job after this, you know, Bob Rudin, right? So I think there was definitely always the problem of rotating doors. There's absolutely no doubt between that when you're looking at who's staffing the regulatory agencies, who's in the banks.

And again, this is what Milton Friedman anticipates in 1962. This is like the great irony, right? He absolutely says, right, once you start having these big institutions that are really got their fingers in the markets, if you staff them with bankers, they're going to start governing in the interest of bankers. And that was even a comment made by an appointee. I've got, the name is split my mind right now, but there was an appointee that Bill Clinton made,

like under Greenspan at the Federal Reserve. And he's a lifelong academic. He had no interest in being a banker. Didn't, wasn't a banker before, wasn't a banker after. But he also kind of said it's quite human, right? like even if you even like him, he's like, you didn't want that career, he didn't want that payday. But he said it's like you're being marked by the market

as a central banker. You put out in a statement, maybe you pull a policy lever, maybe it's interest votes, anything else, and you get instant response from the market. And it's like it can be difficult to not pay attention to that, right? You're constantly being graded

and it's just human nature to want good marks, right? You want the stock market to like you. You want to say something at the Federal Reserve and see the stock market sort of go up. But it also encourages a sense of short-termism, to short-termism, doesn't it? Because like you said, you want the stock market to go up. But you don't think about the stock market two or three years

or five or ten years down the line. You're thinking about the stock market now. It creates an immediacy in the way you think. It absolutely does. And Greenspan was constantly sort of criticized because the ultimate expression of this logic was talked about during Greenspan, and on Wall Street, they called it the Greenspan put option,

which essentially meant that whenever the stock market went down, Greenspan would cut interest rates and throw fuel on the fire. And he sort of criticised for fueling the tech bubble of the 1990s and then the housing bubble, housing bubble of the 2000s. What I wanted to do in my book, though, was to sort of take a, to look outside the United States. Because, of course, what's happening in the United States impacts the globe, right? The stock market's important, but to be honest,

holders of US stocks are either US citizens or other US entities, whereas the Chicago Merson Trout Exchange has an absolute global impact, right? To the price that people are paying for food and fuel globally is an absolutely outweighted impact by that. And also the Federal Reserve, right? So these sort of things all kind of, because commodities are denominated in dollars, right? A lot of petrodollars get recycled in the US financial system. And so what actually happens is you have the US decisions that are made internally to the US for US reasons have these kind of global ripple ripple effects. And that's kind of what the book wants to explore. It's saying, yes, okay, there was the housing bubble, there was an explosion of housing derivatives, there was the global

financial crisis. And that's a story that's now well, well known. We have various Hollywood movies, there's lots of books. But there was other detonations as well, and the price of food and oil that didn't stop in 2008. They kept going throughout the decades, and they're happening again right now. now. And these were kind of global events. And as you said at the beginning, we're not talking about them because it wasn't considered a crisis in Europe or the US at the time. And what I wanted to do to the book. And I go on this kind of gonzo adventure, lots of kind of war zones I really shouldn't have been in or Caracas, was to kind of really highlight that. Like that story with the video game. It was like, what does it mean to live in one of these places? In Venezuela,

that happened because the oil prices collapsed in 2014. That was the first reason. And then secondly, of course, enormous sanctions put on the regime in 2017 by Trump. Was Venezuela mismanaged before? Sure it was, but was it mismanaged so much worse than these oil economies? I mean, I don't think so. All right. So, look, the story, the narrative of this conversation is essentially this. Commodity prices, that is food, oil, gas, etc., cause instability.

Volatility of those prices fluctuate. random changes that are significant, et cetera, cause instability of one form of another. If dictators who sell oil suddenly can get a better price for the oil, they're much more likely to execute their expansionist plans. And likewise, if food prices spike, then people in poorer countries are likely to protest, rebel, overthrow the government, et cetera, which causes instability. A second piece is that that instability and that volatility, in particularly in recent years, is caused by the fact that we've taken some irresponsible deregulation has happened

in the last 20, 20 years, particularly, which has facilitated that. And so we've deregulated that is causing instability, it's causing war. What the hell do we do about it? This is a really great question, and it's incredibly urgent, right, because commodity prices are surging again. We could be looking at another global food crisis with the instability that comes with it. I also, you know, we've been talking about things been happening 10 years ago.

It's important to remember, I think, you know, in Kazakhstan in January, the government was deposed over fuel prices doubling, right? This isn't even like, literally like a month and a half old, right? This is something which happened, which happened this year. So you've got, of course, the human suffering element, you've got the political stability element, as you mentioned.

You've then got this war element, which, and of course, these things, of course, begin to cascade with each other. they tend to feed into each other the most immediate thing in the current crisis would be, you know, make sure we get food to people because there's two separate issues here

which get confused. So one is global prices, right? And as we mentioned, that there's a way in which prices in reality you can sort of diverge from each other. I interview Robert Schiller. He's the great economist of fubbles

and he was essentially explaining to me as how all price movements are the result of stories. right. Friedman and other, you know, pro-market people would say, well, they're the good stories, are the rational stories, because if you've got a crappy story, you know, you'll lose out, right? If you go and bet on a two-legged horse, right, bad for you, you're going to be kicked out of that market. You're not going to last very long. So Schiller's argument is that's not quite the case in reality. The kind of bad stories have a way of persisting. And if you're in on the bad story first,

you can still kind of, you can still kind of make money out of it. Two examples of that would be 2008, 2010. So 2008, there's a global food crisis. That year, in the year previously, had seen more food

ever produced in history. 2010, there were wildfires across Russia. There was, again, in the financial press, you can go look at this stuff up, right?

In the archives, there was always kind of hysteria of global shortages of wheat, but the US that year had a bumper crop. Again, more food was produced

in 2010 than the year in history. But prices doubled nevertheless, right? Because it was those stories that got factored into prices. And sure, the price does come down when the new information comes out,

the market self-corrects. But as Cain said, in the long run, we're all dead, right? So the short term really matters in a lot of these places, especially for people who are spending most of their income on food or is calling it like a living on the edge of chaos, right? You just need a little nudge maybe to kind of push you over. And I think that's really important because what we're seeing right now, and each of these markets is slightly different, oil gas, and food, so I don't want to love them altogether necessarily, but maybe for expediency I will, is that it's not quite clear that especially for oil and wheat, we are seeing shortages yet, right? So, Russian oil are still being pumped, is still being sold, Russian natural gas is still

flowing into Europe. In fact, it's now higher than it was before the war. The fears over Ukrainian in the wheat and actually some Russian wheat not getting out as exports, to particularly the Middle East and sub-Saharan Africa they desperately need. That chink in the supply chain hasn't actually broken yet. It will do, but of course it's not coming out on like a daily basis, right? It's not quite how it works. Not only that the Chinese and the US have gargantuan reserves, right? So it's not like that's the only wheat we have is stuck in Ukraine if we don't get that.

And so I think what we need to do is separate these two issues out. One is we need to make sure there's price stability. And there's some really interesting work being done now on a kind of, you say price controls and people's like heads explode, but like there are ways to kind of regulate prices. I mean, of course, electricity prices and things like that are regulated in Britain other countries anyway, right? We can have some regulation of prices to kind of restore sanity.

This is, by the way, really normal for wartime, right? World War II and so forth. Like you can't have markets. Markets can't synthesize this information, right? Like the Japanese bomb, Pearl Harbor. Oh, no, there's no more food, we're all going to lose the next. day, Roosevelt says something. The information environment is too uncertain, right, for prices to really do their job of, like, helping us organize the economy. So I definitely think we need to

make sure that the volatility is reduced, whether that's deeper regulations on restoring the Roosevelt era things, or maybe some new inventions I'm sort of reading about. But that is almost secondary to this need for the physical markets, right? The markets aren't functioning correctly. They don't during war time, that's completely normal. And we need to remember that the state needs to ship, sorry, the state needs to step in, right? Biden, the US, they need to get those reserves and

they're to put them on boats, they need to send them to places like Libya, Syria, Yemen, even Bangladesh. These are all countries that are normally dependent on Ukrainian wheat and we just need to get it to them. The US, by the way, has had a long history of doing this. So during the Cold War, it was a big part of their Cold War strategy was to basically give either cheap or massively subsidized bread to Middle Eastern countries to kind of stop them from deciding with the Soviet Union. And during the oil crisis of the 70s, you know, Kissinger would call

them up the Egyptians and the Syrians. They'd be like, we're going to cut up all your food unless you do what we want. And they told them to go to hell, but that's another story. So when we're talking about a Marshall Plan, we need this right now with food, right? We really, really, really can't wait. We need to start talking about physical markets, physical bushels of wheat, we need to get them on physical boats and we need to send them there. We can't just leave it to the market

to do it because, you know, there's quite simply just too much uncertainty, right? Like, why would you want to necessarily if you're a private investor or a private merchant want to get involved in this because the war could end tomorrow, the war could end in three years? And we can't expect the private sector

to do this. And so Europe and the US really needs to step and make sure we don't have another global food crisis this year. Okay, but that's the short term. What about the structural issue, which is the deregulation that we've had, is going to keep causing price instability? What do we need to do to fix that?

Sure, so we need to go back to some version of the Roosevelt era, of Roosevelt rules for short. We need to basically anchor these markets, assuming there's peace. I'm just assume there's a ceasefire tomorrow. We're back to the wonderful days of 2021 that was so, like, amazing. Let's go back to that.

beautiful era of last year when we were all happy and rainbow smiles and so forth. Rainbow smiles behind Mars. Yeah, behind Mars, exactly. So it's very good of that. I mean, that's just, it's just a complete no-brainer, right? We need to basically anchor markets in the real world. Look, markets

are amazing things. I'm not going to deny this, right? Like, I'm not an anti-market person. When markets operate, they're incredible engines of stability and trade, and you know, these are great things. the state cannot control markets this large for the most part. But the thing that I also learned from another Nobel Prize willing economist, Joseph Digglitz-Way interviewed,

is that markets need very specific conditions to operate correctly, right? So there's a kind of a sense you might read when you read the more sort of pro-market. I dialogues that, you know, markets are kind of natural inventions that kind of you put, mankind on Desert Island and you kind of came back in a year, you'd find a kind of beautiful free market and it would only be if some kind of evil government state got established that it would all sort of go wrong, interference and so forth. I actually have seen those kinds of anarchic markets in Venezuela and Iraq and they are just, it's feudalism, right? It's just the guy with guns is the person who actually kind of controls this and you can kind of see a kind of

markets operating outside the state and they're really not pretty, pretty things. So what you need is you need a kind of estate architecture to make sure that markets are grounded in reality. I suppose that's the message of my book, right? It's saying like, sure, we can have prices, prices can coordinate markets,

we can have this decentralized world, but they really should be dominated by people who are involved in the physical production of this. Just in the same way with the hospital, right? You know, you go to the hospital, and you would want the people who are making the decisions about your care to be doctors, nurses, other people with professional degrees, you don't necessarily want it to be a hedge fund in Singapore, right,

who's bought the hospital and is now deciding. But that is actually the reality of a lot of private hospitals and nursing homes in the UK, right? We had this huge boom and bust of restaurants when restaurants like Batisari-Barrie or Byronberger or whatever got bought up by private equity, massive expansions. Again, it wasn't rooted in the real world, right? There was money flowing in, looking for yield.

It wasn't people making rational decisions about the UK restaurant market. These weren't like chefs going, oh, I know what we need. We'd another Bidenberger in this suburb of London. It was no, it was a template copied and pasted by these different funds. And it destroyed much of the UK restaurant industry, right? Because you had massive over-expansion, events went up, the business model collapses, and now thousands of people are unemployed. And I suppose the message, the sort of,

The positive message I book is that, you know, we don't need to go back that far, right? I'm not giving you a history about the prehistory of civilization, and it was all wonderful back in the stone ages, and we all lived in lives of abundance. Why not go back to the Go-Go-80s? Was that that terrible for finance, you know? Was that that terrible to go back to that era? And I think that's, that would be a huge step in the right direction, is just to go back to the 90s and the 1980s, which again wasn't even that long ago. Rupert, isn't the problem as well that we've got these institutions that are too big to fail? And you've been talking about institutions like Black Rock, mentioning these huge sums. And I started to get anxious.

I go, well, if that goes, you know, like Lehman Brothers, what effect is that going to have on society? It's a really great question because I think the Lehman Brothers' debacle was actually a turning point rather than something that we should fear. So Lehman Brothers, I think, in kind of sort of central banking law is the biggest mistake they ever made in living memory, right? Was letting Lehman Brothers fail. Because the way in which these markets were, as I mentioned, that all about narratives, part of narrative is confidence, right? And to keep everything kind of going, everyone's got to believe there's something happening tomorrow, right?

That's kind of how it has to work. And so when Lehman Brothers goes down, the confidence collapsed and then the entire financial system is threatened, not just because you're going to be. going to get all kinds of different domino effects, right? So imagine building the most complicated eight-dimensional jenga thing that you could imagine, right? Leibn Brothers was pulling out one of those things and the whole thing goes down. And I think what the central banks learnt was not ever let that happen again. 2020 March, pandemic is really hitting, right? You're seeing the first kind of shutdowns.

Again, radical uncertainty. Markets don't know how to respond. you get what they call this dash for cash globally. How is dollars stored? They're stored in US treasuries because you get a yield from it, right? So it's as good as money. That's why people love holding US treasuries.

It's as good as cash, but you get money every year. And so there was this huge sell-off in the US trade treasury market. Now, unbeknownst the most people, there were all sorts of hedge funds playing all kinds of bets and they were essentially arbitraging different kinds of prices between treasuries, right?

there was futures, treasuries, prices, and don't need to understand the mechanics of this, but basically there was a whole bunch of trading that was happening, highly leveraged around these US treasuries, and because there was this sort of shock event of a sell-off of the US treasuries, which underneath normal circumstances never happened, suddenly this whole kind of system goes, hey, why, why it's these hedge funds,

can't pay their collateral calls, the bank stock calling in the loans, and again, you get, like, one of these jenga things where you pull the piece up. And Jerome Powell, the chair of the Federal Reserve, is basically prints a trillion dollars, right? So he basically, they press a button on the computer, Federal Reserve, trillion dollars of the US Treasury's peers, and suddenly the whole system kind of keeps going. There was no Lehman Brothers moment.

I think when you look at what the central banks think about and talk about, they're trying always to identify where that may come from. So one that they're very much interested at the moment is climate change, right? So another interesting thing when you think about the real world and the financial world and the relationship to it, when we talk about like a housing crisis or the housing bubble in America, it's not that the houses that disappeared, right? Right, it was like a little physical thing that happened that they built houses and they just suddenly like sell on fire or something and then they had no more houses to sell.

It was really internal to the market of finance and how these things have been turned into assets and how that had been baked into the financial system. What we could see, though, so imagine how terrible it was without any houses being destroyed, Now imagine rising sea levels, right? And suddenly you've got big portions of Miami underwater. All those prices go to zero. What's going to happen to the banks that lent the money for the mortgages for this? Well, all those banks are going to fail.

And then immediately you have a ripple effect. And this is just, let's just take just Miami, right? You have a ripple effect that could destroy the entire US financial system. And this is, they're kind of gaming it out like war games. You know, there's a lot of kind of what ifs. Like, well, what if sea levels rose by this amount? What if there was a storm that destroyed US crops? What happened to the banks that lend the money for those crops?

So everything kind of all arrows point back to finance because they're the ones lending everybody the money. And essentially what they've ended up doing is a bit like what Jerome Powell is doing, is essentially printing money and shoring it up because they don't want to have a rerun of the financial crisis. The risk from that is, of course, the classic risk that's why they did leave Leban Brothers fail

is that it's this moral hazard thing, right? If you're Black Rock and you're just going, okay, we're too big to fail. We know that if we have, you know, huge investments in X or Y, you know, we're going to get bailed out or there's going to be some kind of insurance. And they're actually asking for this, by the way, right? So there's a big piece of finance that wants central banks to essentially guarantee their green investments. So it's a bet of, you know, heads I win, tails I win, right? That's kind of what they want to sort of make the investments. Yeah, it seems like a good idea.

Take the risk kind of gambling. I'm sure that will work very well. Listen, I wish we had more time, but it's been a very interesting conversation and probably the beginning of one rather than the end of one, to be honest, because this is going to get more and more important, I feel, as things go on. So thanks for coming on. A Price Wars, how chaotic markets create a chaotic world is a really fascinating read. I recommend people check it out. Thanks for coming on. We're going to ask you a couple of questions from our locals-only supporters, the only they get to see.

But before we do that, we as always have one more question for you. Which is what's the one thing we're not talking about, but we really should be? Well, I'm going to piggyback on what I've already said at the beginning and say we're not looking enough at mazes. So I encourage everybody to watch loads of horror movies because they're great templates for thinking about the world, right? You load up Twitter or whatever. It feels like a kind of horror feed, at least, like doom scrolling, what it might be.

And you do want a lot of people to be killed with a chainsaw that are on there as well. Well, I'm not going to say what I want to see, but maybe that. Because that would be illegal. Nail guns for me, I love, and you reach for the nail gun. That's always a good scene. Is that we've adopted the tropes of a horror movie, right? So that's, it's Putin is the monster, what's he really thinking? Has he gone mad for two years in the pandemic, reading crazy Russian historians?

Maybe he hasn't, I don't know, right? So we like to kind of, monsters are fun, they're grotesque, they've got great personalities. We can kind of read the tea leaves into them. But the key to every great monster movie is the maze, right? Because imagine alien just takes place in a big spaceship that's just like a basketball court, right? It's not going to last very long, is it? Right, you know, she's just,

who's going to be there and the aliens is going to come and just kill her, right? No, you've got to create a maze. You've got to create barriers and structures so that you've got a chase and it's exciting. And you could think about the shining, right? You've got Jack Nicholson, right? not just running around the hotel corridors, but he literally goes into a labyrinth, right?

That's the final scene that Kubrick has, running around a literal maze, which is a callback to the Maya Tour in the maze, right, in Greek Greek mythology. Or zombie movies, Dawn and the Dead, it all takes place in a mall, you've got to kind of run around the mall. And I think that's what gets obscured in the news, is we don't look enough at the kind of structures, is like what is constraining these monsters

and also what's enabling them. And I think ultimately that's the, that's what's going to help us, us keep them encaged. It's not saying what is it the Putin wants or what is it that Putin will accept or trying to get inside his head because to be honest, I think it's a fool's errand. I mean, who actually knows this apart from himself. But we know that his power comes from structure, right? We know what that structure is. It's based largely in the commodity markets and that's really what we can do. And I think we could take that. That's just one current example,

but you could apply that across the board to sort of whenever you're seeing a kind of horror in the news, which part of the world it's coming from is to always think about what is the maze here, what is the what is the architecture of opportunity and constraint? How has this been allowed to happen? Why is it happening now?

And why hasn't it happened in the past? And I think it's a then which we then begin to understand like why these monsters have emerged. Perfect. Rupert Russell, thank you so much for coming on. Thanks much for having me. If people want to find your book or they want to find you online, where is the best place to do that? Well, you can just, wherever you are,

just look for Price Wars, how chaotic markets are creating chaotic world, and I'm on Twitter as well on Rupert-Ur-Ur-Skull. Fantastic stuff. Fantastic. Thank you guys for watching and listening. We'll see you very soon. Another brilliant episode like this one, or a show, all of which go out at 7pm UK time.

And for those of you who like your trigonometry on the go, it's also available as a podcast. Take care and see you soon, guys. Who is behind the Commodity? traders are there actions directed solely by the profit motive or are there for example government actors influencing their choice of which commanding markets to destabilize