YouSaid · the spoken record

Brad DeLong

lines on the record: 35
first: 2022-12-05
most recent: 2022-12-05
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“Should I check out Welcome me back and keep doing what you're doing because you've been an amazingly, you've been actually killing it.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“One Well, it's called the South Sea Bubble because the South Sea Company originally was supposed to be a trading company sending out ships to the South Seas. And they only switched to their bank to their British government debt business model later on. I don't want to say it's everything. I do want to say that in the South Sea bubble, it's a lot of commercial and colonization enterprises rather than purely financial manipulation, although I'd say making the British government debt fungible and marketable is a little bit more than a financial manipulation. But yes, it's that the South Sea Company had a story. And once it becomes clear that stories attract money, then the returns to having a story are quite high. And lots of people will say, I can make up a story too.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“It certainly seems to. It certainly seems to situations in which people thinking they're not getting what they deserve, while other people around them are getting much more than they deserve because they are managing to work the system in some way. Makes people think working the system somehow has got to be a successful strategy because look at all these other people who are managing to do it. And that makes people rather easy prey for a whole bunch of social engineering projects.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“A bunch of people pointing out that if you gamble on the stock market, there are actual companies you're gambling on that have actual profits and that the S&P earnings yield is what, 4.5% now? So there are 4.5 cents coming into the system every year for each dollar that's in the system as opposed to crypto, where nothing's coming in And where there are hopes for the future, it's that someday when someone actually finds a Web3 use case, they're going to want to build their web And no one has ever explained to me why anyone in the future. Would ever who has a Web3 use case would ever want to give away a lot of the value to today's holders of Bitcoin or Ethereum? Yeah, that's a great point.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And also, it's nice to not be in the free money business that if someone running a Ponzi scheme has to show someone 5% of real profits every year, or actually pay out 5% on values every year, it's much harder to keep it going than if the Treasury rate is zero and you don't have to pay out anything. Every year, but just send them a statement saying their balance has grown.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And green spin is supposed to be said there are lenders who want to lend, there are borrowers who want to borrow. All of them have their congressmen on speed dial. I'm going to get in the middle of them and tell them you can't do this deal and then get ground into absolute dust up on Capitol Hill. You know, I can't do that. I have to sit back and then try to clean up the mess afterwards. And hope that I can. That's definitely a piece of it. And also, regulators are likely to be grabbed by the same currents of thought that make them think this is the next new big thing as anyone else and are unlikely to get in the way. But if you do have regulators, right, cutting down on leverage, making leverage really difficult is, I think, a very important thing to do.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“This is the probably mythical story about what Alan Greenspan told Fed governed, the late Fed governed of the latent Ed Gramlich in the early 2000s when Gramlich said you need to do something about subprime.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Be grabbed and given away to one of their creditors and not actually be part of an ongoing forward looking business. You know, that is where there are things to be done. In addition, they are kind of clearing the financial rubble away so that the financial system of loaning and borrowing and enterprising can start again. But as I see it, there's no system of loaning and borrowing. There's no enterprising underneath the loaning and borrowing. There are computer programmers looking for Web3 use cases. But they don't really need crypto assets to do this. And it's unclear how trading crypto assets helps discover those Web3 use cases.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Know, I mean, the money was gone, the money was never really there in some sense. Wealth is trust that there is going to be an enterprise there in the future that is going to be doing something of value. And once the crash is over, there's no such thing. All you can do is hope to get back whatever some of the money that the people who bailed out relatively early managed to squirrel away. When they said, I've been a fool, but here comes a greater fool, let me hand this risk off to them. With things like the housing crisis of 2008 and 2010, there were lots of things you could do in terms of settling who is actually going to bear the debts, who is going to eat the losses as fast as possible, so that then the economy can get going again. And people don't find themselves hindered by the fact that you worry that if you make a loan to them, your loan will then...”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, the lender of last resort is mostly Kindleberger wearing his Keynesian macroeconomist hat. And it's very much lend freely at a penalty rate on collateral that is good in normal times to systemically important institutions in order to build a firewall between what's going on in finance and the real economy of people kind of with jobs making things. As to what should be actually done with the speculative assets themselves.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“It's a common story. I don't exactly know how common it actually is. In terms of how much money actually gets taken up and gets wound up someplace else relatively far away where other people cannot reach you. In Britain in the 1800s and before when they actually had debtors prison, it was significantly more than since, and it's not clear to what extent it's worth getting away with our ill-gotten gains and to what extent it's simply that we do not want to have to spend our lives incarcerated in the Marshall Sea prison because we're never getting out of this.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Particular bad patch. And then things kind of snowball after that. If you want to be a rich person and live a rich life, you moderate your bets according to what's called the Kelly criterion, right? You value, you won't take a bet that involves a 50% chance of losing half your money unless the upside more than doubles gives you a 50% chance of more than doubling your money. And the problem with Sam Bankman Fried and Company is that they'd been listening to these philosophers who were telling them that they should make any positive net present value bet whatsoever. And if you do that, if you make much riskier bets than the Kelly criterion, then you wind up bankrupt with very high probability and extraordinarily filthy rich with very low probability. But still, positive expected value. And then the question is, what do you have the moral fiber to do or not do in all those cases where bankruptcy is stereotyped?”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, first, there's one stage in which you think, well, gee, there's a hiccup, but we can recover. And then, gee, that didn't work. Now the question is do we start doing something that we really shouldn't, thinking that we will probably recover and then we can paper it over. And then there comes a stage where this is going down and do we try to grab for everything we can at the moment in order to flee to France or to kind of position ourselves better for future negotiations. That's rarely an immediate once and for all decision. It's something that happens gradually and then suddenly I'm sure that Sam Bankman Fried did not set out to steal $8 billion from FTX and lose some of it in trading in Alameda and perhaps secrete some of it someplace else and places we do not know since the accounting messed up. But he did start out thinking that money from FTX could be very useful in getting Alameda over this.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“So we can use them as our core reserves, and they're paying us 15 basis points more than real AAA assets are. And it was the fact that debt that was held by guys who were leveraged 40 to 1 as their core reserves that made Simple crash of an asset into an enormous interlinked chain of bankruptcies were at the bottom no one is sure is they're solvent because everyone has so much counterparty risk they do not understand that everyone pulls into their shells and sells what they can and otherwise hunkers down We don't think that's going to happen outside the crypto sphere right now We really do not think so.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“The unemployment rate only goes up by one percentage point and comes back down fairly quickly. By contrast, I remember March of 2008 and we were doing our rough back of the envelope calculations about the subprime collapse and we concluded that there was about 500 billion dollars of mortgages that weren't going to be paid off. And that's one-eighth the size of the dot-com crash. And yet that one-eighth as large loss created a crisis that pushed the unemployment up by 6%. And it took us a full decade to get back to full employment after that for lots of reasons. But the huge difference was that the people who had been investing in subprime when they shouldn't be were the major money setter banks who were saying, aha, here's a chance for us to do some regulatory arbitrage.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, the dot com bubble crashed when the dot-com bubble crashed, it took down four trillion dollars of wealth that people thought they had. But because it had all been equity And the investors of the dot com bubble who went broke weren't highly leveraged.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And as the late Richard Blum says, after a while, if you see lots of people around you who have become fabulously rich by making stupid investments, you begin to think making stupid investments is a good business model. It really does unhinge. Everyone, especially because. Economists are always wrong in always thinking that bubbles and such will crash before they do And so it hangs on and it hangs on and it hangs on far beyond the point at which the sober. And then there comes the point when economists began saying, well, maybe gee, this time it is different, at which case you'd better sell quickly.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, an old teacher Charlie Kendallberger had a very nice line about this. There's nothing that deranges you more than watching a friend become rich.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“They said we have bonds that are currently yielding 6% in the market. We can issue consoles that will yield 4%. We can earn 50% on the value of the British government debt if we manage to get this deal done and cream off at least a third of that from themselves. They were really, really true believers. But of course, once they have salted the market, lots and lots and lots of other people come in with Other opportunities, people who are significantly less true believer ish and sufficiently more. People are willing to give other people money for badly thought out business plans. I too can come up with a badly thought out business plan and then I'll be off to France before anyone actually asks for their money back.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“On a wallet to the FT's site, so I never bid on it at all. You get a particular number that says it gives you some kind of special claim on a particular picture of a monkey that everyone has on their desktop. It's very unclear Usually, there is real money there. There is actually a pot of gold at the end of the rainbow. But it was never too clear what the pot of gold was supposed to be in crypto.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And then we had a decade of dark fiber in which transferring bits across the United States was essentially free, and that nourished the growth of the internet. That is, the collective losses of investors in telecom during the dot-com bubble was a social gift in terms that it produced a huge amount of telecommunications infrastructure that all of us in the first decade of the 21st century benefited from massively. In the case of the South Sea bubble, you got the British bond mark. that rich British people could move their money from land to commercial enterprises into government debt and out again swiftly and easily and so have more options and more peace of mind. But in the crypto bubble, what do you get? I wanted to bid on the Financial Times NFT FTX Tombstone, but could not connect my wallet.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“But at the end United States has three railroads from New York to Chicago, and everyone who wants to move goods or people from New York to Chicago and back is enormously blessed by this. Joe Stiglitz says something similar about the dot com bubble, that MCI Worldcom was saying it was making huge amounts of fortunes by building out fiber everywhere. It was lying in its accounting, but lots of other people followed it.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Mostly there is a story about a life-changing and very profitable technology underneath there that is in the end driving the thing that we are going to build a railroad from New York to Chicago. And then we are going to collect a huge amount of money because we own the railroad from New York to Chicago. But then it turns out that there actually is a lot of money that wants to do this and there is not one railroad, but there are three railroads from New York to Chicago. And each of them has high fixed but very low variable costs. So each of them has an incentive to undercut the others. And so none of the railroads can ever make any money because whenever anyone jacks up their rates, one of the other two undercuts it. And so all the railroads go smash with their equity going to zero and their bonds going to very steep discounts.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, yes, yes, yes. And there's a very nice South Sea bubble book by Tom Levinson called Money for Nothing, which I think everyone should read along with Sequoia Capitals thesis on why we're investing so much in Sam Bankman Reed and why you should invest in them too. That everyone should read this”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And get Parliament to push out some of its competitors, to rule that some of its competitors would in fact be illegal in order to concentrate demand for bubble-like assets in the shares of the South Sea Company, which were still trading on a when issued basis and wanting to push them up to the sky. But that caused enough selling and enough loss of value elsewhere that people began to question the value of the South Sea Company stock as well. And once people start saying maybe this isn't actually as good, maybe I am the greatest fool, then the thing is over.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“It's very hard to tell what the trigger is. John Kenneth Galbraith used to say that there's this thing called the bezel, which is the money that the early adopters who have now sold out have known they've won, but the money that the people, the greater fools, do not yet know that they have lost. It looks like the trigger was the South Sea Company actually attempting to flex its political muscles.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“It is a very good idea. In the end, it was actually executed, but it was executed by the Bank of England, and not by the South Sea Company, which is one reason why the Bank of England still has its very large financial temple on threadneedle street, while there is no physical sign of the South Sea Company anywhere in this fallen sublunary sphere.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“But alas, 160 years too early for anyone to actually want to live in Chicago where the wind comes howling in from Lake Michigan and where I was last weekend where it was 15 degrees.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, and you know, where's the place where you drag a canoe across three miles to get from the Mississippi to the Great Lakes? You know what that's now called? Chicago”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And it's also a huge number of copycats with all kinds of things, some of which are public, some of which are not, some of which are promises that we will have a business model at some point in the future, some of which are totally blue sky and incapable of realization in less than a century. And some of them are ideas that actually worked out in the very long run, like the South Sea Bubble Company that wanted to send out an expedition to establish a trading post at the closest place where the Great Lakes meet the Mississippi River, where you just have to kind of drag a canoe across three miles. The Mississippi River turned out to be important.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, indeed. Yes, indeed. That it's not just what the original Bitcoin and Ethereum people saying we're going to have a whole new form of money. It's also that you're getting in on the ground floor of what's going to be a truly remarkable financial transformation. It's also going to be that we understand how to work the political system to make it work for us.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“And the proprietors of the South Seed Company said, We're going to get fabulously rich here because we're going to create this enormous liquidity premium in the British national debt, which has not previously existed. And we're going to skim off a third of that liquidity value for us and our financers and for you, Mr. Member of Parliament, if you will help grease our bills go through the House of Commons so we can actually do this. Enormous bubble followed by enormous crash, source of the Sir Isaac Newton, quote, I can calculate the motions of heavenly bodies, but I cannot calculate the madness of crowds.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“It conjures up the South Sea bubble of the early 1700s. You see, Great Britain had gone all in in its wars with France starting in 1689 and had issued many, many metric F tons of debt during it. It was a country of 6 million fighting a country of 20 million and winning and piling up debt issue after debt issue after debt issue. But all of them were on different terms. None of them were tradable. And along comes the South Sea Corporation with the idea that we are going to create a different form of money. We are going to buy up all of the British national debt. We are going to consolidate it. We are going to take all the different securities and mesh them together. And then we are going to sell equal identical shares of all of the consolidated debts. And because we're selling one product, it's going to be tradable. It's going to be clear what it is because it's just a particular slice of the total debt.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“But overwhelmingly, over the past three, well, five years or so, as long as Odlot's been running, it's been very much a parasocial relationship in which I listened to Joe and Tracy, and then I argue with them voluably in my shower until my wife tells them to shut up. And so it's great to be here, great to be here actually for reals here in the metaverse.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source
“Thank you very, very much for inviting me. Now, it's true that I actually have been in the same room when Joe with the past, and I have actually spoken words out of my mouth that have caused vibration to the air, that have gone into his ears. And he has talked back, although that was a decade ago.”
2022-12-05 · Odd Lots · Brad DeLong on the FTX Collapse and the South Sea Bubble · IDENTIFIED FROM THE TRANSCRIPT · source