Joe Rogan - Matt Taibbi Explains the 2008 Financial Crisis

No, well, you get compared to him a lot. And one way I really saw that comparison was your brilliant coverage of the financial crisis. And what was the mechanisms behind the scene of the financial crisis. And I became a really big fan of your work reading that. Because that, I think you covered that as well, if not better than anybody. Oh, well, thanks. Yeah, I mean, so I knew nothing about, I couldn't even balance my checkbook when they assigned me to that story. And I had to start basically from square one. And I was calling people and saying things like, can you tell me something about something that I'll understand? You know, I was cold calling investment banks and literally saying that. And I finally got a guy to have lunch with me. And he said, your problem is that you're trying to understand this as an economic story. Once you look at it as a crime story, you'll get it. And from that point forward, I totally felt like I started to understand the whole mechanism, the subprime mortgage scam. It really was a scam. It's really just a massive corporatized version of selling oregano as weed, basically. They took stuff that is incredibly worthless, highly risky mortgage loans. Right? You know, they would give out loans to everybody with a pulse. Whether you had a job or not, whether you were a citizen or not, didn't matter. One thing was to get the loan, immediately sell it off, chop it up, turn it into securities. And then they used this highly advanced sort of mathematical trick to turn all that sort of mortgage hamburger into AAA rated securities. So you'd have like a junk rated mortgage, like the riskiest loan in existence, something that was so toxic that companies like Country Ride wouldn't want to hold onto it for more than a week because they were afraid the stuff would blow up. And then they would sell it off to like a pension fund or an insurance company in the form of a AAA rated security, which is as safe as a US Treasury bond. So it was a scam. Again, the metaphor of taking baby powder and selling it as Coke or whatever, that's exactly what it was. They just took worthless shit and sold it as something that was gold. And they did it for years and years and years and years. And they knew that this gigantic, huge bubble of risk and disaster was just accumulating and that someday it was going to all explode and cascade and ruin the economy. But everybody was trying to time it right and bet on when that would happen and make their money before that Judgment Day came. And it was fascinating. Once I started to learn about it, it was just such an amazingly disgusting, fascinating story that it was just hard not to get into it. A crime story. Think of it as a crime story. Yeah, no, absolutely. One guy gave me a book. It was called Famous Con artists in History. It was like this little tome. It's smaller than the smallest paperback. And it was the biography of this guy, Victor Lustig was his name. He was famous because he sold the Eiffel Tower twice. And he had this scam that he called, I think it was called the Hungarian box. I'll have to go back and look. But basically what he would do is he would get on a boat in New York and he had this sort of beautiful mahogany box with a crank on it that had two holes in it. And he would show all the guests that he would put a blank piece of paper in one end, turn a crank, and a $100 bill would come out the other end. And he convinced them all that it was a machine that made money. And everybody would offer him an increasing amount of money for this invention. And he wouldn't sell it until the last day when he would sell it for $40,000 or $50,000. And then he would disappear and jump off the boat in France and never be seen again. People would... There it is. Yeah, there it is. What's it called? Wow. Yeah, there it is. But that's exactly what the mortgage... Is that his picture? Yeah. Let me see his face. It's in the middle there. Look at that fucking creep. Look at him. Wow. That is crazy. So yeah, it was obviously fake. But that's what the mortgage scam was. They were taking basically blank paper, these subprime loans that belong to janitors who were going to foreclose within 10 minutes. And they were telling people that, oh, we have this new mathematical process that actually makes this stuff really safe. And you can put it in your college endowment. You can put in your pension fund. And so all these people whose retirement monies were based on securities were buying all this shit that they thought was AAA rated. And that's how they woke up in 2008, 2009. And they found their 401ks were wiped out by 40% or whatever it was. It's my neighbor. Really? Did that happen to him? Yeah. My neighbor bought this plot of land and had this dream to build his dream house. And he would go by the plot of land. And he was always cleaning it up and getting ready. And I was talking to him. And then boom, 2008 happened. He lost everything. And he would still go by that plot of land and clean it up. And he and I would talk about it. And they just told me he lost everything. Yeah. So it's never going to happen, huh? Yeah. No, I think he died. He eventually got really sick and they took him out of his house and brought him somewhere. But I think he's dead now. But yeah, his story was awful, awful to hear. This guy who was in his 60s, who had got this piece of land with a nice view. And it was like, this is where I'm going to build my dream house. And he had all this money prepared for it. All this money saved away. And he was ready to rock and roll. And then boom, it all went out. It just drained out. Somebody put a hole in the bottom of the boat and everything went to the bottom of the ocean. Yeah. And then he probably got ripped off twice because his tax dollars went to go bail out the guys who, you know, because some of the banks got stuck holding some of this shit. And rather than eat the losses like your friend did, they got the federal reserve to buy it from them, you know, or the treasury. And how the fuck did they get away with giving the CEOs bonuses? During that time? Yeah. Giant bonuses during the time where they had to be bailed out by the taxpayers. Yeah, that was another scam. So they were, if you looked at the fine print of all the bailouts, it basically said that you had to repay the money by X time before you could start paying people exorbitant amounts of money again. But a lot of those conditions were never really followed. And the conditions of repayment were kind of glossed over. And the companies that were supposed to be able to pass these things called stress tests, which demonstrated that they were back on solid footing again before they paid people bonuses. But the stress tests were all fudged. And I mean, there was crime and corruption and illegality basically in every direction during that whole period and not just in the government, but in all of these companies as well. Yeah, but fascinating to follow. Yeah. What was it like covering that? I mean, how long did you spend working on that? Seven years probably. Jesus Christ. Yeah. Well, because one of the things that I found that was really interesting was I did my first story about this and I got this incredible reaction because it turns out that the financial press, there is nobody in the financial press who writes for ordinary people. Like it's basically what I was doing was a translation job. I was trying to basically take what had happened and explain it in a way that a person who knew nothing about finance would be able to understand. And it turns out that nobody is doing that. So all these people who had questions about it, who wanted to know what had happened to their money or why did my house get foreclosed on or what's the prime mortgage or anything, there was nobody else doing that work. So I had lots of it to do and it was really interesting and I just kept doing it. Wow. That had to be depressing. Yeah, of course. Of course. I mean, most investigative reporting is depressing. But particularly that because a lot of it was old people that went with it. Oh my God. Old people, minorities. I mean, I did one story about a bank in Maryland. Well, it's a national bank. It's a bank that I wouldn't be surprised that a lot of people listening have their accounts at this bank. They had to pay a settlement to the government because they were intentionally targeting elderly black people to sell subprime mortgages to and they called them mud people. And there were all these toxic emails going back and forth about how stupid they were and how they'll buy anything, et cetera, et cetera. In the emails they called them mud people? Yeah, yeah. And so they had to pay a settlement to the government. But the racial component of that crash was something that I didn't really clue into until late but that was a big part of it too. A lot of it involved these mortgage lenders going into particularly lower middle class black neighborhoods and knocking on doors where there'd be an elderly person at home and saying, hey, would you like to refi your mortgage and you'll have a little bit of extra spending money this month, right? And the person won't know anything about finance and they'll sign this refinance deal that allows them to save a little bit of money each month not knowing that they had just converted their fixed mortgage into a floating mortgage and that as soon as the interest rates changed, you'd have people who went from paying $900 a month to paying $7,000 a month, right? And suddenly they're out in the street and the company that sold them the loan is long gone by then. They're not holding it. As soon as they got her name on the dotted line, they sold it off to a bank in New York who in turn again chopped it up into hamburger and sold it probably to your pension fund or whatever. So there's nobody she can complain to and yeah, that stuff was really depressing. What was it feeling like of having very little understanding about finance and then immersing yourself in it? Yeah, it was fascinating. And then realizing that this is the underlying structure that our society is run on, that our money is established through. This is how we sell houses and loans and this is what we're doing? Yeah, no, it was fascinating because before that I was mostly covering elections, right? And again, if you cover elections, it's incredibly boring and you never hear anything of substance and it's not terribly complicated. And the Democrat says that we want to help the middle class and the Republican says we want to protect family values and that's pretty much the extent of the intellectual challenge in terms of covering that stuff. And I always thought to myself, politics in America must be a lot more complicated than this, right? There's some other hidden thing where it's incredibly complex and diabolical and the real machinations of power must be visible somewhere. And I think that you find that when you start looking into how Wall Street works, how money works, how central banking works, how the concentration of wealth works, I mean, basically the subprime scheme was an effort to pull the remaining savings out of the population, right? It just wasn't, in the old days, investment banks made their money by lending money to companies who would build factories and they would make stuff and sell it around the world and everybody would make money and even the population would benefit from it. But that manufacturing economy, it's all gone. It's overseas. So you have this financialized economy and they have no normal beneficial way to make money and all they can really do is look to see where is their money and how can we get it? And most people had money in their houses, right? The accumulated savings of most people, whatever was left after the internet crash in the 90s, was in real estate. And this was the scam by which they took the wealth that was left in the pockets of ordinary people and transferred it to nine people in Manhattan, basically. That's why you have, you know, when we talk about wealth inequality now, right, it being a huge factor that, you know, the top 95, I'm sorry, the top 1% of the population owns 90% of the wealth in the country, whatever it is, that's a consequence of schemes like this where they're just, they're finding out where people have a little bit of money and they're systematically coming up with scams to move it from there to here. With no consequence? No, with no consequence. And that was the other part of the story that I ended up having to cover later, which was, you know, the last time they tried something like this, like during the SNL crisis, which was also sort of a giant fraud scheme also that involved real estate lending and, you know, but the government after that actually, you know, indicted 1800 people, they put 800 people in jail, they put a lot of, you know, serious influential people on the dock after that. Nobody, nobody went to jail after this stuff. And there was, and people think that, well, they didn't do anything that was technically illegal. No, bullshit. There was lots of stuff that was brazenly criminally illegal. I mean, they committed fraud on a broad scale, but some of these companies were into the things that were even worse than that. I mean, you take HSBC, HSBC admitted to laundering $850 million for a pair of Central and South American drug cartels, including the Sinaloa cartel, right, which is suspected in thousands of murders, like. And, you know, they, they admitted to this activity, they agreed to a deferred prosecution agreement with the government where nobody did a day in jail, no individual had to pull out a dime out of their own pockets to pay. The shareholders ponied up $1.9 million, but some of that was tax deductible, which means we paid some of that fine. And the only real punishment with any teeth is that some of the executives had to partially defer their bonuses for five years. So laundering $850 million for narco terrorists gets you a total walk. You know, that tells you basically everything you need to know about, you know, do we prosecute white collar crime in this country? Basically no. I mean, that's the answer, ultimately, that you find out. And there was paperwork that showed they knew it was from the cartels. Oh, yeah. They if you if you look at the the agreement and you can watch the there's there's a there's a video of of Loretta Lynch and Lanny Brewer, because this is before Loretta Lynch was attorney general, but she was she was basically the head of this deal. They talked about the fact that the HSBC branches, because most of this was done in Mexico, H-MEX, which was the subsidiary company, they had special teller windows built to fit cash boxes that the drug cartels were bringing into the bank. So basically, you've seen these seen the same scarface where the guys come in with duffel bags of cash to the bank. Yeah. Right. And you know, that's like a montage. You know, there's that song. It is in the background. Same thing. These guys would come into the bank. They would slide in these boxes of cash one after the other. And that's admitted activity. The bank signed off on this. They, you know, it's not like they're contesting it. They're not saying we neither admit nor deny. It's it's part of the deal. So and they agreed to the amount everything. So yeah, it was a $1.9 billion settlement. But you know, it's not like it came out of the pockets of the people who did it. And it's not like any of the people who did it are in jail. It's just, you know, a thing that happened. And you know, that's five weeks of profit for the bank. So what what the fuck? They don't care. Right. Did you see the documentary and inside job? Yeah. Yeah. We covered a lot of the same territory. Yeah. Yeah. That was a sobering documentary where they're talking to the very people that caused the financial crisis and realizing that these people were economics professors that eventually got these jobs, really lucrative jobs with banks and how they finagled this system and made it so it looked like these things were appropriate. Yeah. No, I talked to some of the some of the things that they invented that made this the crash possible sounded like good ideas. Like they they came up with this thing called the credit default swap. Right. And I won't bore you with what that is exactly. But basically, it's a kind of insurance where it's basically a bet. It's hard to explain. But it's a way of quasi insuring a product without having to pony up a lot of money. And the it's it's called the derivative. Right. And these instruments are completely unregulated. Can I put this a credit default swap is like you and I betting on whether or not a third person's house is going to burn in a fire. Right. Like the old school insurance said that it had to be your house in order for you to get insurance on it. This new form of quasi insurance said that two totally disinterested parties could have an interest in a third thing that happens. So it's basically gambling. And on the one hand, it allowed people to create a whole lot of capital, which allowed them to lend more money, which theoretically allowed people to buy more houses. But in reality, it just created the system where all these people had bets that were back and forth on all these properties. So that's one of the reasons why the when the crash happened when when all those mortgages started to fail, it wasn't just the failures of those properties. It was all these people who were betting on whether or not these people could could pay their mortgages. They started to lose money. And then there were people who had bets on that who started to lose money. And it's like this cascading whirlpool of shit that happened. And again, it just started out as an idea to just create more money to lend to lend. And it turned into this nightmare mechanical scenario that just that created losses, you know, in this almost apocalyptic fashion. And a lot of them had no idea that that was going to be the eventuality. Wow. Yeah, it's it's it's crazy. It's definitely crazy stuff. As a person who didn't really follow finance before, how much has that affected your life now, like the way you look at things? I definitely pay a lot more attention to the fine print when I enter into any financial contract. I think about where I do my banking. But the reality is, you just don't have a whole lot of choice in this country anyway. I mean, it's like everything else. There's only a few companies left. So almost every bank that's out there where you can have a bank account and a mortgage is a bank that I've written about some massive scandal before. So that's that's a problem. But yeah, I worry about it all the time. I have friends in finance who call me and they they tell me that, you know, that things are incredibly unsafe and that this that and the other could could happen. And so I have an anxiety level about things that I never had before. But apart from that, yeah, I mean, that's a natural consequence of having to spend seven years looking at all these horror stories. That's great. It's crazy you spent that much time on it. Do you see any other bubbles coming up? Yeah, people talk about that all the time. There's a lot of a lot of negative press about subprime auto loans, for instance, which is it's not exactly the same, but it's it's a similar thing. I mean, the same basic scam of taking loans, chopping them up and then repackaging them as something that's more valuable than the original loan. You can do that with anything, any kind of credit. You can do it with credit cards. You can do it with aircraft loans. You can do it with with car loans. You can do it with with home mortgages. And so the the mechanism of taking things that are are toxic and risky and making them look like AAA is still is still part of the economy. And it's everywhere. The plus side of that is that there is more credit available. You know, almost anybody can get a credit card or even if you've had screwed up credit, you can get a car. You know, I mean, there's this put us on this endless cycle of build up bubble collapse, build up bubble collapse, rebounding collapse again. Absolutely. I mean, I think that's that's that's why you have to be nervous about the you know, the skyrocketing stock exchange. Yeah, because we've had a fight. Yeah, I mean, you should be right. Do you have are you heavily invested? I've got some in there. I just did when when the whole when Trump was saying the economy has never been better. Look at the stock market, stock markets killing it all these days and then it'll have a bad day. And you're like, okay, well, I thought we're doing great. Like what's going on with this bad day? Can you not control these bad days? Right? Like what's happening here? Right. If you're if you're in control of the good days, you're also in control of the bad days. Right? Yeah, of course. Of course. It just it seems it seems super suspicious. Yeah. And in the old days, you'd have a lot of confidence that well, the stock market always eventually goes up. So yeah, there's going to be bad days, but it'll go back up. But the problem is the underlying economy in America just isn't all that hot, you know, like, like, what do we really make in this country? What what where where's the floor? Right? Like we have we have some industries that sort of perform well. But if you know, periodically, we go through these bubbles that are based on nothing more than enthusiasm. You know, in the 90s, it was the the tech bubble, right, where people like Alan Greenspan would say things like, well, we have a new paradigm in economics, right? So it doesn't matter whether a company hasn't shown any ability to make money or, you know, has no reasonable profit and loss statements. It's just if it's a good idea, the stock is sound and everybody should invest in it and the stock market is going to continually go up. So don't worry about it. Of course, that doesn't happen. And everybody blows up, everybody loses their shirt. But what do they do? The Fed lowers interest rates, basically allows Wall Street to recapitalize, drink itself sober and they plunge into the next the next madness, which is mortgages. And once again, you have Alan Greenspan saying, hey, you know, real estate is a great bet. It's you know, it's going to continually ascend. People should use their homes as ATM machines, you know, you should you should consider refinancing your house so that you can get a little bit extra cash. And this was actually the message they sent to America. And again, it creates this artificial mania where the economy is stoked artificially to gigantic dimensions, but it's not based on anything. And so when when it crashes, when you finally get like any Ponzi scheme, it you know, it depends it depends on more new investors coming in than old investors leaving, right? So there's always going to be that moment when suddenly we don't have as many new ones as old ones. And the instant that happens, it all goes kaboom, right? And that's what happened with with the subprime market. There was a moment in time where the they just couldn't keep it going anymore. They couldn't find any more new suckers to get to sell mortgages to. And the mania ended and it all went splat. And then it was amplified by the fact that we have this system now of people betting on credit that is legal, which creates more losses out of thin air. So yeah, I'm terrified every time I see this the stock market go up. What's it based on? Is it based on our economy actually doing well? I don't know. I don't think so. You know, I'm sorry. I look like I'm scaring you a little bit. You definitely are scaring me. But I think that's good. I think I need to be scared. I tend to take these things and just, you know, I have financial advisors. I let them handle money. When I hear things like this, I just go, Jesus. I get terrified when I hear about really smart people getting scammed. Like yesterday, we were talking about theranos. Do you know that blood testing company that turned out to be total horseshit? No, I didn't hear about this. Oh, it's a great story. It's a story of one of those things where you find someone who you hope exists and you build them up. There was this woman. She looked like Steve Jobs. She wore a black turtleneck in every photo. And she was the richest ever self-made woman. She was worth $4 billion. She had built this company called theranos right out of college. She was like 19 when she started the company. It was a blood testing company that just required a small prick of your blood to do complicated blood analysis for diseases and things along those lines. Turns out it didn't work at all. And they faked a bunch of shit and widespread fraud. A lot of people got their blood tested. It turned out to be they were at risk for all these diseases. Warren Buffett invested $100 million, I think in 125. Betsy DeVos, more than $100 million. All these super wealthy people got scammed. Wow. Yeah. When you find out that really wealthy people that do this for a living, Warren Buffett does that for a living, that he can get scammed out of $125 million. Right. Right. Yeah. And Warren Buffett, his mantra is supposed to be picking the absolute long-term investment. Right? So he's not like a Stevie Cohen type who just looks at the tape and tries to time it just right so you can make an investment for 10 seconds and come out with a ... If he's investing in a company and even he can be fooled, that's pretty terrible. But look at Enron. Enron was another example of the world's best financial analyst were looking at this company for a decade. And the results were completely ridiculous. It should have been obvious to any layperson that these profit numbers couldn't possibly be real. And it wasn't until one of those guys, I think it was Jim Chano, who was sort of a famous short seller, sort of said, hey, wait a minute. There's something up here. But people continually invested in these companies. There's just not a whole lot of oversight that goes on with Wall Street. And I think that's a major lesson of the last 20 years is that there's just not a lot of eyes on crime in this area. Another example is ... I'm sorry. Who's the guy who scammed all the rich people? Bernie Madoff. Bernie Madoff. Yeah, I was going to bring him up. He's the most egregious example, right? Yeah. There are other people who did similar things. But this guy didn't even make investments. You know what I mean? He was literally just sort of taking money. When someone cashed out, he would ... Who's that little girl? Little Tay. Little Tay. Yeah, exactly. He had a big pile of cash, and he would take some in and throw some out. But if the SEC had had at any time just looked at his books and said, what are you invested in? It all would have ... That whole house of cards would have fallen. He didn't invest in anything? No, he wasn't making trades. He wasn't doing anything. And there are a bunch of stories like this. There's a great book called The Octopus, which is about somebody who did a Madoff-like scam and other hedge fund, where same thing, they weren't really making trades. They were just sort of creating phony profit and loss statements and creating records that look like trades that they could tell their investors about. But they weren't actually doing anything. So if anybody, any expert at any time had just poked their nose into this person's books, they would have seen it in 10 seconds. That's the amazing thing about this. Not to get back to my drug-dealing book, but this is one of the things that he says, which is that you can be in a poor black neighborhood, and a couple of kids will be on a cell phone talking about selling $10 worth of weed, and they'll be picked up by cops within 20 minutes or something like that. Now, somebody like Bernie Madoff can commit $100 million frauds year after year after year and not even take any effort to try to cover it up all that well and get away with it. Well, Bernie's big crime was that he ripped off rich people. Yeah, absolutely. If he had done the exact same thing to poor people. What he did was just too easy to call what he did a crime versus what you were talking about with these financial institutions. Right, and loans. Yeah, if he had laundered it through a slightly more legitimate process, he would have gotten out flying. But one of the things that a lot of these guys, these scam artists get into it thinking that they're actually going to be real hedge funds and that they have some stock picking system that's actually going to make all their clients money. One of the things they find out is that, A, they suck. They're not outperforming the market, and they're not that smart. B, that their clients can't tell if they just make up the numbers. So there are a number of cases of people who start out trying to be legitimate and trying to be real investment advisors, but they just end up turning into Bernie Madoff types because it's just easy. There aren't that many people watching for it, and that's kind of scary too. Well, it seems like there's so many people doing it. How could there be enough people watching it? When you think about how many investment firms there are and how many different people that are involved and trading, how could anybody be watching all of it? Right, yeah, no. But even so, even if you take that into consideration, then the number of eyes that are on this world is ridiculously low. Take AIG, right? AIG was one of the world's largest companies. Before it crashed, it had like 180,000 employees. It took advantage of this weird loophole that allows financial companies to essentially choose their own regulator. Because AIG had a thrift or a savings loan, that's basically the same thing. They chose to be regulated by the OTS, which is the Office of Thrift Supervision, which is this tiny, tiny little office in Washington that oversees basically savings and loan operations. And in the OTS, this is actually true, they had exactly one insurance expert on staff. So essentially, the world's largest insurance company was being regulated by a government office that only had one person who really understood insurance. And even that person wouldn't have understood the part of the company that blew up, which was essentially an investment bank within the insurance company that was creating these sort of highly advanced, sort of derivative operations that they just would not have been able to understand that stuff. So the government just does not place a lot of resources into keeping an eye on even the most basic things. And when you compare that to law enforcement and other areas, how many people do we have worrying about bank robberies in this country or drugs, right? How many people are being watched because they're marijuana dealers in other states? It dwarfs the number of people who are watching for economic crimes. Yeah. One person. Yeah. I just love the name of it, Office of Thrift Supervision. Yeah, yeah, yeah, exactly. I'm not even sure it exists anymore. I think it was merged into some other, because there used to be the OCC, the Officer of the Comptroller of the Currency. And I think they created a new regulator out of all that after the crash. But yeah, AIG shows its regulator and its regulator was totally overmatched, couldn't understand shit. And that's one of the reasons why the company blew up. The company also blew up because it was run by insurance people who didn't understand. AIG was basically Wall Street's bookie. All these people were betting, all these investment banks were betting on whether or not mortgages were going to fail or not. And AIG was selling the product that they could use to make those bets. Essentially they were taking on insurance on packets of mortgages. So if they exploded, you would get a payout, right? It's like buying an insurance policy on your neighbor's house. If it goes up in flames, you get paid. AIG was selling a product that allowed banks essentially to buy insurance on houses, on mortgages. And if people foreclosed, if the mortgages failed or pools of mortgages failed, if you bought that kind of insurance, you got these huge payouts. So people were betting against mortgages, basically. And AIG was taking all this book. The heads of the company were old school insurance executives and just didn't understand this sort of newfangled, complicated form of insurance. And so they would look at the numbers that they were being given, and even they didn't get it. They didn't understand how exposed they were. And so when all the bets started going the wrong way, suddenly they're being asked to pay out billions of dollars. And they're like, wait, where is this coming from? So even the companies were kind of clueless about the shit that was going on. It turns out. Jesus.