0:00Before we get into the deep stuff, let's just talk, let's give some basics or some things I
0:03want to do, inquire from the others. Walk me through the Santa Fe Institute. What was it about
0:08the time at the math? And this was in the late 90s. So they're not going to hear me on this part,
0:15right? We're going to do it both ways? It will not be on the video, but we do have you recorded.
0:20Fine. Remember, when you're answering on these questions, I'm not in the shot,
0:25and they're never going to hear my voice. So a little bit, you got to repeat that.
0:28Yeah. In your answer, you got to repeat what my question was.
0:34Santa Fe Institute. Why, when you're at the top of your game of Wall Street, do you decide to finance,
0:40which was at the time, or in Dell, or become the donor or sponsor, however you want to say it,
0:45for what was considered the most cutting-edge group of mathematicians in the world? Action.
0:53So Santa Fe Institute in the late 80s, early 90s. I was interested, I was on the board of Rockefeller.
1:01So that starts, Rockefeller University, formed by John D. Rockefeller to sort of give back to the
1:07community. It's east side of Manhattan, except it was old. It was sort of old-fashioned. They were
1:14talking about medicine, and medicine by itself was, again, subject to the ideas of science.
1:21They were trying to use science to find cures for disease. And I said, no, we need to do something
1:28different. We need to start interdisciplinary work. In most-
1:34How did a schmuck like you get on the board of Rockefeller? What year was that?
1:38I don't remember. I think, 89 or 91.
1:41So that's one of the most prestigious research places in the world, correct?
1:45Okay. How did a guy like you get on the board of Rockefeller? A blue-blood, internationally known,
1:51internationally known, hard research, Nobel Prize winners all over the place. How did they pick
1:57a guy like you, a trader from, or basically some guy from Bear Stearns?
2:04Good question. So I was asked to be on the board of Rockefeller. And I think it was,
2:08I was on the board of Rockefeller. There was a money manager who said,
2:13Rockefeller needs someone with financial expertise because the university is growing. And there's lots
2:20of new things. You have to, again, we go back to the original discussion the last time.
2:25And up until the mid-80s or sort of early mid-70s, the most important thing was your name. If you
2:33were Rockefeller, you already were considered to be brilliant. If you were a head of General Motors,
2:37it was your reputation. It was who you knew, who your family was, what was your character.
2:45And then in the mid-70s, basically, if you remember, you probably had a calculator. It was
2:51very advanced in those days to have a Texas Instrument calculator, where it could, by putting
2:56in the numbers, it would multiply for you to do square roots. And that was the first thing. Everyone
3:01who had a calculator was already advanced on Wall Street. A simple calculator, almost like your
3:06accountant. The most important parts of business were really now going to calculations. So it's not
3:15only mathematics, but things that could be calculated. Reputation couldn't be calculated. I could give
3:22you, are you a 10 on a reputation scale, an 8? What does it mean to have a measurement of your
3:26reputation? We'll get to that later. But people, places like Rockefeller needed someone to say,
3:33look, we're entering a different world where numbers and the numbers of companies, portfolio
3:39management was going to be balanced. It was going to be statistical. Jeffrey, could you come on the
3:44board? Potentially sit on the finance committee, Nancy Kissinger and a bunch of other people.
3:51And David Rockefeller and I got along very well. He was just, he was this unbelievable human being.
4:00Respectful to everyone. He introduced his driver as his colleague, not his driver. He would never say,
4:06this is my driver. He said, it's my colleague. And David started to explain to me world politics.
4:15So David would say, Jeffrey, money is going to be sort of the most important things. People don't
4:21understand money. You seem to have this knack for money. I said to David, tell me about your life. What
4:27was the worst and the best part of your life? So David said, when I grew up, everyone knew I was a
4:35Rockefeller. They didn't know that my father told me he would not leave me a dime. No money. But every
4:42time we went out to eat, me and my five friends in school, they would leave me the bill. They would
4:47expect me to pick up the check because I was a Rockefeller. And he said, I was chairman of Chase Bank.
4:54And he said, I remember like it was yesterday, one of the headlines in Time magazine said,
4:59David, please fire yourself. So he thought that there was a world that existed that would be a
5:10combination of both politics and business and leadership. What do I mean? He formed something
5:18called the Trilateral Commission. The Trilateral Commission is some spooky stuff. People said it
5:25was some of the people that, the Illuminati, there's some mystery about it. People that ran the world.
5:32It was politicians. But David said, most countries, the politicians get elected for four years or
5:40eight years. Separate from the royal families in England or in the Middle East, someone's there for
5:46four years and then they're not there anymore. The most important people to have stability and
5:52consistency would be businessmen. So he formed this Trilateral Commission of businessmen and politicians
6:01from three major continents. So it was the North Americans, the Europeans and the Asians.
6:08So he said to me, would you like to be on the Trilateral Commission?
6:12Now, I was 30 years old, 32 years old. I said, great. And he said, well, you have to fill out
6:20this application so they have your bio. And I looked at the list of people and it was
6:27Bill Clinton, former president of the United States, Paul Volcker, every great leader in America,
6:36the Asians, the Japanese, and with a very long description of their history. And they asked me
6:44to fill in what I would like to have written. And I wrote Jeffrey Epstein, comma, just a good kid,
6:51which I thought was funny. Nobody else did.
6:55So in answer to your question, at that time, I recognized around the world that monies and
7:01currencies were not really well understood. But again, it was only numbers. So numbers,
7:10numbers, and I'll get to the fact that it was bad thinking. It's numbers are very good.
7:16Or most people, or most people, even on the Trilateral Commission, when you meet most people,
7:20do you find most leaders financially illiterate, economically illiterate?
7:29Again, most political leaders don't come out of a background of finance. Most political leaders
7:35come out of a background of being popular. So in some of the countries, except in the African
7:41countries, for example, they might have been a military person. They were a general.
7:45In some of the African countries, they might have been a disc jockey. Or in our country,
7:49they would have been an actor. The knowledge of money isn't, they don't have expertise,
7:55they have no degrees in finance. They really, and this is one of the major problems.
7:59So many world leaders who don't really have a financial underpinning make fundamental errors
8:18when it comes to money on a country or institutional level. Let me give you an example.
8:24If you, Mr. Bannon, if I said your assets increased last year, you'd say, well, that sounds pretty good.
8:37And I'd say, what does that mean to you? You'd say, well, I have more money, I guess. I'm wealthier.
8:43I'd say, yes. And if you had, if your debt increased, would you feel wealthier or poorer?
8:53You'd say, well, I don't want to have increased debt. I don't like the idea of that sound, increased debt.
9:00Now, that and world leaders understand when their assets go up, they feel better.
9:07However, institutions like banks, things that people don't really understand are financial
9:14underpinnings of banks. When I say your bank, Mr. Bannon, you have the Bannon Bank,
9:23you doubled your assets. Sounds good. But what does it really mean? It means people owe you more money.
9:33You don't have any more money. What? Yeah. A bank's assets are how much it is owed by other people.
9:44That's crazy. So if the bank goes from a $2 billion of assets to $10 billion, it means people owe it an
9:56additional $8 billion, but their assets have gone up. So the terminology of assets and liabilities is
10:05different for banks. It's not natural. And what most people, and you ask questions about world leaders,
10:10as many people, I think your old boss Mercer understood, there's a fundamental part of money,
10:18which is called fractionalized banking. And fractionalized banking is something that finance
10:24people understand. And the people on the street, and when I say people on the street, that's where
10:28I was when I started on Wall Street, would find it impossible to believe. Impossible.
10:35Why? Bannon Bank, I give you $1. Just one single dollar. In our system of banking,
10:50I would say, okay, Steve, I gave you $1. How much could you lend out to your friends?
10:56And your natural reaction would be, probably something less than $1, because I want to keep
11:00something in my pocket. The way our system works is if I, you as a bank are holding my dollar,
11:09you can lend out an additional $8 or $9. No, it's impossible. I only have a dollar, Jeffrey.
11:18We have something called fractionalized reserves. If you have one, you can lend out nine.
11:24That's the way our system works. And so not only do world leaders not understand banking,
11:29but the man on the street, my father who worked in the park department, it would be beyond his
11:34imagination that people could lend out more money than they actually had in their pocket.
11:42Well, how did this, in understanding that, when you get on something like the trilateral
11:49commission, you're on the board at Rockefeller, which is the most advanced research. You get brought
11:52into the trilateral, which is the elite of the elite. How, since you're only, at that time,
11:5930-something years old, eight years from teaching at Dalton, right?
12:04You're a Dalton. Ten years. Ten years teaching at Dalton.
12:08Walk us through, I mean, put us in the room. Walk me through exactly what it felt like. What
12:13it felt like being on the board at Rockefeller. You got these Nobel laureates, and you're sitting
12:18there making decisions, and you start to meet these people at Rockefeller. And you start to meet these
12:22people at the trilateral commission. What did it feel like?
12:24That's a great question. That's what I'm in the business of asking.
12:30Yeah. What did it feel like meeting some of these people, like Kissinger or Rockefeller?
12:35And those are two extraordinary people. But in general, I think the question, the people on Wall
12:42Street, I tell the story. One of the first days when I was on Wall Street, someone said to me,
12:47would you like to buy ATV? And I was looking in the brochure, and I couldn't figure out what stock
12:56had a symbol of ATV. And when I finally said, well, I can't find it. And they said, what's the
13:04matter with you? Do you want to buy ATV? Which is, he was selling hot televisions, stolen televisions from
13:13the floor of the American Stock Exchange, referred to in common parlance as televisions fell off the
13:19truck. So I knew what that phrase meant from Coney Island. But what I found was most people,
13:28in business, in normal life, or in the world leaders, don't really understand money. It is
13:36something they think about. They have a sense of what it is. They certainly want more of it.
13:43But they also make statements like, we want more money, but we don't want more debt,
13:47which just shows a misunderstanding of what money at its core really is. So they don't,
13:52most people don't, they want to make it, they want to save it. But to understand it intimately is not a
13:59normal characteristic. At the, at the, the first trilateral or something?
14:09Yeah, you're good. Just, just give me an approximate. You, you joined the
14:13trilateral commission. I think it might be 90. And we'll be able to show the, we'll pull down the
14:17the chart of where your name was. But just give me roughly when it was. I think it could be 90.
14:22I don't remember. Let's say early 90s. Yes. When you got on the trilateral commission
14:26and had the first, where was the, do you remember the first meeting was? It was in Tokyo.
14:30In Tokyo. And at what hotel? I would like to say the Hilton, but it's probably not.
14:35And it's a three-day, four-day? It could be a three-day event.
14:39Walk me through the whole thing. It starts with a dinner. Take me, just walk me through it.
14:42It was boring. I can't, I... You couldn't possibly think it was boring. It's
14:46bullshit. It was boring. You had to be stars in your eyes. No.
14:49Did you fly over privately? Yes, but it wasn't my plane.
14:54So it didn't count? No.
14:55No. You fly over. Yes. And who were the first, like when you first met those leaders,
15:03you had to be wowed. No. You're 10 years out of Coney Island.
15:07No, I'm not wowed by people of position. I'm wowed by people of great ideas. And I don't care if it's
15:14the bus driver. I don't care if it's the student I had who has teeth coming out in every direction.
15:20But these guys have to have great ideas. They're the leaders of the three great continents of the world,
15:23North America, Europe, and Japan. No, many of these world leaders become world leaders
15:29because they're popular and they were able to get votes or they were able to convince people to vote
15:33for them. I learned later. Many of them were just good at what they did in terms of politics. World
15:44leaders are politicians in general. They're not scientists. They're not intellectuals. They're not
15:49great thinkers. They're great politicians. At the first Trilateral Commission meeting that you remember
15:55in Tokyo sometime in the early 90s, do you remember what were the big issues of the day that they were
16:01talking about and what did you think about it? Yeah. In fact, it was funny because they were talking
16:05about inflation. And they were worried that what would happen—how do you control inflation?
16:11inflation? And as a mathematician, I didn't understand the concept. I don't understand the
16:17concept today. How is that possible? Well, when you talk about most things to do with money,
16:25they're really—money is meant to be local. It's U.S. dollars. Then I understand what it means.
16:31If inflation—it means my dollar today inflates and it doesn't buy as much as it did a couple of years ago.
16:42The price—the prices go up. I don't have—it seems that everything is great. But in fact,
16:48my dollar is shrinking in value. If you—and you're the financial
16:53genius here. I'm just a lowly M&A guy. Sure. If you let me finish the thought.
17:00Go ahead. So if you're in America, you start to—you can feel inflation. You have salaries gone up,
17:06but you don't buy as—can't buy the same car. In fact, it starts to feel weird because the value—
17:11That's why I wanted to answer the question then. This is my point. Sure.
17:13The central—the people who live and breathe this, the central banks, have been haunted by the
17:18specter of inflation since the late 70s. Yes.
17:21First off, tell our audience, how did that happen? The two great—the two great financial events
17:31in the 20th century—I'm not going to get to the 21st—were the great inflation in Europe after World
17:38War I, the great depression, the hyperinflation in Germany that led to the rise of Hitler, and then
17:45this inflation in the mid-70s. What was—before you go over, explain inflation. Why is this
17:50specter of inflation always the central thing in central bankers' minds?
17:56Because it goes back to this—the first concept I said, the weird concept of fractionalized reserves.
18:01The system is not well understood. It will—most systems, in fact, are not well understood. We
18:08don't know how our digestive system— Oh, stop. This is impossible.
18:11I understand. This is impossible. The most—the world banking system, the world currency system,
18:16the world monetary system— Yes.
18:17has to be so well understood by the Greenspans of the world, and the Bernanke's of the world, and the—and
18:25you, right? The currency traders, the guys making billion dollar bets every day, the legendary guy
18:35on Wall Street in the late 90s, the Sallan Brothers. Louis Ranieri? No, the guy that wrote the money—
18:42Michael Lewis? Lares Polka? Yeah, Lares Polka. Who's that about, that great trader?
18:49The guy that ran the desk.
18:51That eventually ran the hedge fund that went long-term capital.
18:57I want to say I don't remember.
19:00But those guys have to understand the system perfectly.
19:02No, they don't understand the system.
19:04They understand the local part of the system.
19:06So, for example, why is not only inflation, most bankers are terrified if the public understood
19:13the bank really doesn't have their money at any one time.
19:18One of the things during the Depression, there were runs on the bank.
19:22The reason the banks don't keep much money in the actual bank is they assume that not everyone's
19:27going to want their money on the same day.
19:29So, that's not really the fear of inflation.
19:31The fear is a run on the bank.
19:34Everybody wants to take out something that doesn't really exist.
19:39Inflation is tied to interest rates.
19:42It's a more complicated example.
19:44But when your money doesn't buy the same amount of product this year that it did last year,
19:50if it buys less and less, like it happened, you used the term hyperinflation.
19:54There's certain countries that are not managed well, like in Africa at the current, a hundred
20:01billion dollar bill, a hundred billion dollar bill in Zimbabwe is worth one American cent.
20:11That's the perfect example of hyperinflation.
20:15It goes up, it doubles every day.
20:18So, people are afraid that their value in the system starts to break down.
20:23But, so if I said to you, does your doctor understand your body system?
20:29You'd say, well I hope so, because I want them to keep me healthy.
20:34But, you could have a kidney infection, you could have a heart attack, you could have a broken knee.
20:39There's lots of pieces of this system.
20:41And in fact, when you ask the question, very few doctors understand your entire body.
20:47There's a specialist for your knee, there's a specialist for your polynoidal cyst, there's a specialist for your head.
20:52And now we have specialists in different areas.
20:55So, I'm going to get to your first question about Santa Fe Institute.
20:59The world economy and your body are both comprised of little systems interacting with each other and making one big system.
21:10You expect, this is what's stunning for all the little guys out there, the populist movement, the little guys that haven't had a pay raise in 30 years.
21:19They think that these elites, you know, have everything.
21:23The guys in the room making the decisions, the party of Davos guys.
21:27You're sitting there, you don't think many people today really understand the complexity and really all the moving pieces and how they interconnected the world's financial system.
21:37No, the nice, not only don't they understand the complexity and that goes back to Santa Fe Institute was an attempt of trying to see if there was a way to mathematize,
21:48formula rise or algorithmically understand what the term complexity means.
21:53That's, that goes back to the original question.
21:56Complex systems are complex by definition, but there's not necessarily, it's not one level of complexity.
22:04We might say, well, our fingers are complex, the movements, the muscles of our hands, but it's not as complex as the blood system.
22:12Now I have a circulatory system.
22:14I have systems on top of systems.
22:17So that there's no one group or person that really understands the way the body works.
22:23There's no one group that understands the way the financial systems work.
22:28You might understand U.S. bond market.
22:31Now you've asked about the trade of long-term capital.
22:33That was a bond fund, very small part of this very complex system.
22:40So the goal of the Santa Fe Institute was to see, is there a way to get in, somehow understand how complex systems interact?
22:50Fast forward, Steve, to today, where Google and these other engine companies, the other tech companies, are trying to build artificial intelligence.
23:05The strangest thing that they found, one of the strangest things, is that the systems that they designed, this artificial intelligence,
23:12which a lot of people have heard about, is they designed a bunch of systems.
23:17They're called neural nets, terms simply taken out of brain work, neurons in the brain.
23:24Nets, because they actually look like a net.
23:27They put in some inputs.
23:30The computers work, spit out an answer.
23:34Sounds normal to you, because you're thinking about that calculator you had in 1976 on your desk.
23:41When you ask the person who designed the system, how did it come to that answer?
23:47How did your neural net, can you show me the calculations?
23:52They say, no, we don't know.
23:55We don't know how the thing we designed actually came up with that answer.
24:01That's pretty strange.
24:03They take the same neural net now, and they put it in front of a video game.
24:07No learning, nothing.
24:09To the computer, they say, sit in front of your video game and learn how to play.
24:14It seems the computer learns better than any human in history, faster than any human in history, beats any human in history.
24:24But when you ask the designer how did it do it, no one knows.
24:31So that's the first little touch of things that we already have gotten to a place where we don't understand it, and we built it.
24:38On Sunday afternoon, September 14th, 2008, where were you?
24:53It was the night they put Lehman Brothers in bankruptcy in London.
25:01So the financial crisis of 2008 happened when you were in jail?
25:05Oh, this is going to be so amazing.
25:07This is going to be so amazing.
25:10I take it you didn't have your Wall Street Journal dropped off to you in the morning in your Financial Times?
25:16How did you hear about the...
25:17How did you hear about...
25:19Because I want to...
25:20I forgot about this, but yes.
25:22I'm trying to get...
25:23This is going to be amazing.
25:25Let's go back and do that again.
25:28Sunday afternoon, because I want to find out about people, the geniuses understanding the complexity of the financial system.
25:36Because I think the best example we have is the financial crisis, the crash of 2008.
25:41Sunday afternoon, September 14th, I think it was, 2008, is when they were working feverishly in Midtown Manhattan at the Lehman Brothers offices and at various law firms around town.
25:52And with the Secretary of Treasury and the Federal Reserve, what they were going to do with Lehman, they decided they weren't going to save it.
25:57And so they prepared to put it into bankruptcy at the opening of the market in London the next day.
26:05How did you hear about what was going to happen to Lehman Brothers and what did you immediately think when you heard that it was going to be put into bankruptcy?
26:12I'm glad you asked that question.
26:15I was in solitary confinement September 14th.
26:22And again, some of the public stories about the wonderful time I had in jail and my work release, which didn't come until months after.
26:32I'd been there since June in an 8x10 cell with a bed in the back, a six-foot bed in the back, a chrome sink with a toilet attached to it, and a little piece of metal sticking out that was supposed to act as a table.
26:49Now, since I was in jail, there were no books.
26:54No library, but you're in jail.
26:57No, I was in jail, not prison.
27:00So in jail, I was in a place that was called the Special Housing Unit, which is for the roughest, toughest, meanest people.
27:08They had put me there, they said, for my own protection.
27:13So I was in an 8x10 cell with a little slit in the door where they would serve my food on a tray about nine inches by four inches.
27:24And then as soon as I finished eating, they would take the tray and close it down.
27:28And one of the guards said, do you understand there's Wall Street's crashing?
27:34I'm worried about my pension fund.
27:39And I said, sorry, Wall Street's crashing?
27:43And he said, there's some crisis and some companies are going bankrupt.
27:49I said, are you sure?
27:51And he said, yeah, it's all over the papers.
27:53We're all terrified we're going to lose our life savings because we have either a 401k or our pension funds.
27:59We don't know anything about money.
28:00Mr. Epstein, can you tell us, like, what's going on?
28:03Am I going to be able to afford my children's education?
28:06Am I going to be bankrupt at this company called Lehman Brothers?
28:10And there's another company in the front page today called Bear Stearns.
28:22Because that's the company I was a partner in.
28:26And in fact, that was a company I had a very large investment in.
28:30So, as a great story, I didn't have my Wall Street Journal, but in the early mornings, you're allowed to make two phone calls, collect.
28:43And when you pick up the phone, you can dial a number, and when the person picks up, they say, you're getting a call from the Palm Beach County jail.
28:53Will you accept reverse charges?
28:56And the person either says yes, and the call goes through, or the person says no.
29:02The person I had called was Jimmy Cain, the president of Bear Stearns.
29:08And I said, tell me what's going on.
29:11And so my knowledge of the financial crisis happened with Jimmy, who was at the center of the storm, telling me about what Lehman had gone under.
29:21And they were trying to figure out a way, should they bail out Bear Stearns?
29:26Did it strike you at the time of the mess you had made of your life to be in a situation that you're one of the greatest financial minds in the world, looked at by world leaders and asked their, you know, your thinking by the most prominent and important people in the world.
29:48And here you are in solitary confinement, you can't even, you can't even, you got to make a collect call to somebody.
29:55Did it strike you at the time, how, how all the threads of your life had come together and, and, and put you in a position or you had put yourself in that position?
30:08So it never struck you when you had to make a collect, your one collect call, one of your two, 50% of your collect calls that day, you call the president or the head of the CEO of Bear Stearns.
30:22The biggest financial event in your life is taking place, of which one, every important person in the world would be seeking your opinion.
30:35Number two would be a, a once in a lifetime opportunity to apply your craft.
30:42Number three, it would be a once in a lifetime opportunity to make money if you were smart and obviously you're smart.
30:47You're telling me here, truthfully, that it never hit you at all of how you'd ended up in a place where you had to make a collect phone call from a jail cell that was six by nine
31:02with a steel bed and your food being passed into, into a slot.
31:07The question you want to ask is who was the other call to?
31:12Who was the other call to?
31:13The other call was to my friend at J.P. Morgan, who was then, I didn't know at the time, trying to buy Bear Stearns.
31:20So at one point, I had two phones.
31:23It was difficult because they're afraid people are going to hang themselves with the phone cord.
31:28So they don't actually come together when they're pretty short.
31:30So I was actually going between two phones, talking to Bear Stearns and J.P. Morgan at the same time.
31:35So I found it amusing.
31:37And it never struck you about how to end up in a situation like this?
31:43No, that would probably mean I would be too self-aware.
31:45You can't possibly expect me to believe this.
31:54You're telling me that during that day, you never had a moment.
31:58You sat there and go, what the fuck have I done with my life that I'm in a six by nine jail cell
32:04when I should be on a trading desk or I should be in my $250 million, you know,
32:10the greatest townhouse in New York City taking calls from the king of Saudi Arabia, the president of China,
32:17the head of Russia, the president of the United States to save the world's population from a financial debacle.
32:25You're honestly expecting me to believe that that never happened.
32:28You're suggesting I was somewhat depressed and how could this happen to me?
32:32I'm not saying depressed.
32:34I'm saying a moment of awareness of how could I get myself into this situation.
32:37No, I would just say how strange that this happens.
32:43I'm wearing a jumpsuit and flip flops.
32:46What color was a jumpsuit?
32:52I noticed I don't see you in a lot of brown.
32:55Brown jumpsuit and flip flops.
32:58With no access to books, no access to newspapers, no access to anything.
33:02No access to anything.
33:03You had lived on information.
33:04Except my Almond Joy bars.
33:05I had extra Almond Joy bars.
33:07Did you eat Almond Joy bars and things like that because you were afraid of what the cooks did to your food?
33:14Is that because that you were in for the crimes that you were in for?
33:20It was just because...
33:22Because you're wealthy?
33:24How did you know that?
33:26Well, people would constantly...
33:28If I was passing by or I'd have to go for my medical, people would either ask to borrow money or make some other types of comments about...
33:37What were the comments?
33:39At the beginning, what were the comments?
33:41It serves you fucking rich guys right that you're here next to me.
33:45There was nothing about your crimes?
33:48So, all this rumor you hear all the time about people in prison that commit the type of crimes you commit, that you're saying in your personal thing is not true?
34:00It was all because you were rich?
34:02And it was all because they wanted to borrow money?
34:08They get advice to go long?
34:11You're telling me...
34:12Is this time to buy?
34:13You're telling me in solitary confinement they're interested in going long?
34:18They wanted to know what stocks...
34:20What does that say about human nature?
34:22Well, I think that people find... One of the reasons they wanted to keep me in solitary confinement was they were afraid that everybody would want to know which stocks to buy.
34:30But what happened was after this crisis, now it's on the front page of every newspaper...
34:36I don't want to lose this day.
34:38When you first heard that, did you...
34:43Bear Stearns had been kicked into bankruptcy, what, six months before?
34:48Since the same time.
34:49This is part of the same deal.
34:54Oh, they saved Bear Stearns and didn't save Lehman Brothers.
34:58Six months before they had bailed out Bear Stearns.
35:00But Bear Stearns was still a zombie.
35:03A shell of its former self.
35:06But they had, quote unquote, saved it.
35:08Why did they make the decision, in your mind, why did Hank Paulson in Bernanke...
35:13What's this concept of moral hazard?
35:16Explain to the audience what moral hazard is.
35:18And why did they save Bear Stearns six months before?
35:21And why did the smartest guys in the room decide not to save Lehman Brothers?
35:29It's a good question.
35:30The real issue is, I'd have to go back, when you have these systems, to the way your doctor
35:36responds to any type of emergency in your body.
35:40They might decide to save your kidneys and let your gallbladder go, because the gallbladder
35:45is less important to your overall system.
35:48People, if at that time, even if it's not that long ago, the boogeyman was, when said, well,
35:59what really happened?
36:00Jeffrey, what really happened?
36:01What is this financial crisis?
36:03And, you know, some of the progressives and the right wing blame it on the banks.
36:08It was the banks' fault.
36:10And it's the fault of this very esoteric, unknown concept of derivatives.
36:17It was really the derivatives that caused this financial crisis, because the derivatives
36:23got somehow out of control, and like in the Mickey Mouse...
36:27And that was the way you started your financial...
36:30Your road to a bayonair went right through derivatives.
36:35But derivatives were not the cause.
36:38The derivatives were not the cause at all.
36:41It's like saying your hair was the cause of your heart attack, because it was on the
36:46top of your head when you fell down.
36:47So what was the cause?
36:50Let me say, there's no one specific cause.
36:55There's a system collapses.
36:58Many times when they have to make your death certificate, when you say, well, what did
37:04They'll say heart failure.
37:05But if you say, what was the cause of his heart failure?
37:08Well, he had blood pressure.
37:11He had all these other problems.
37:13But you say, no, no, no.
37:14We need a word on your death certificate.
37:17Did he die from brain damage?
37:19Did he die from heart failure?
37:21That's the financial crisis.
37:22Many people said, well, what caused it?
37:25He wrote, like on its death certificate, derivatives.
37:28But derivatives were not a fundamental...
37:32Derivatives are not a fundamental cause of anything.
37:36Was it Sunday or Monday?
37:37I take it was Monday morning when you made your two collect calls and you're talking to
37:40Bear Stearns on one hand and Morgan Stanley on the other.
37:47That was Monday morning.
37:48Being one of the financial geniuses in the world.
37:56Did you understand what Lehman Brothers is going into bankruptcy, the domino effect that
38:01by Thursday the financial system would be under such extremis that if it didn't have a trillion
38:07dollar cash infusion in the United States, it might collapse?
38:11Did you know that at the time?
38:12Did you view that at the time?
38:18Again, I don't want to bore you or the audience with the idea of it's a medical procedure,
38:24but you had system failures.
38:27So you'd recognize that...
38:29If I said to you, did you realize when your father was on the ground and he was clutching
38:32his chest and he couldn't breathe, it was a bad situation and he could die.
38:38That's how I saw it.
38:41Did you immediately think about the commercial paper mark?
38:43I mean, the mechanical triggers that actually had to... you had to blow through these circuit
38:49Did you know the circuits?
38:50Did you understand the circuits?
38:52Or did you have a concept of the circuits that were going to get blown through?
38:56But only because of an analogy to a body.
38:58And in fact, from my telephones against the wall with my little metal wires, because
39:04the next day I talked to another person in Washington about the issues of what I thought
39:10And I made the same discussion about the...
39:11They were at the Treasury Department?
39:14So in a six by nine cell in...
39:18The phones were outside the cell.
39:20In Palm Beach County, California?
39:22West Palm Beach, Florida.
39:23West Palm Beach, Florida.
39:24West Palm Beach, Florida.
39:25That's what the juice diet.
39:26West Palm Beach, Florida.
39:27West Palm Beach, Florida.
39:28West Palm Beach, Florida.
39:29West Palm Beach, Florida.
39:30You're making a call to Washington, D.C. to talk to some deputy secretary of the Treasury.
39:37Someone in Treasury.
39:38Someone in Treasury.
39:39Someone in Treasury.
39:41And that does not...
39:43The night before, before you go to bed, it doesn't dawn on you at all.
39:48You never have a moment of self-reflection that, how did I end up on this metal cot when
39:53I should be at the center of things?
39:55No, I had a telephone.
39:56So I said, I can talk to...
39:58It makes no difference where I am, in fact.
40:00I'm still talking to the same person if I was at my home in Palm Beach.
40:03But I'm here in jail.
40:04What's the difference in your home in Palm Beach?
40:05I can dial my own phone.
40:07No, but you can also make a thousand phone calls.
40:10Here you've got to make one, and he's got to take...
40:12Think how much better that was.
40:13I had to decide who was the right person to call.
40:15That was unusual for me, because I would have called 20 people before.
40:18And what was the advice you gave you?
40:20I said, you have a sick patient, and it's very much like a sick patient in the emergency room.
40:26You can't think about it like your car.
40:29People in normal walks of life think about money and things as a machine.
40:34And unfortunately, so if your car breaks, cars are always easy to fix.
40:39My jets, my cars, if it breaks, I know it can be fixed because it simply follows the same pattern.
40:46If this part breaks, you replace the part, and the thing works again.
40:49People and the financial system are not machines.
40:54They can't be fixed the same way.
40:56You can't simply put some more juice into the commercial paper market,
41:01and that's like replacing the carburetor on the car.
41:04It's much more, I have a patient who can't breathe, has a stomach problem, can't see,
41:09looks bleeding at the same time.
41:12I have to think about it as a system.
41:15Where's the most logical place?
41:17What's the most dangerous place?
41:19If your heart stopped, we have to start your heart again.
41:21If the, in the equivalent to the money market, why do I have to start your heart again?
41:30I need to get your blood flowing.
41:32If your blood stops, you're dead.
41:36If liquidity, which is the equivalent of blood in the financial system, dries up.
41:44Once liquidity is basically cash, putting cash into the system.
41:47Forget about what it is.
41:49Liquidity is liquidity.
41:50Liquidity is liquidity.
41:51It allows the system, it's the blood of the system.
41:53You need to pump blood hard into the body of the economy to keep it flowing.
42:00And if you, especially when you're worried about someone dying, you're not going to be worried
42:04about the niceties of, well, you got the shirt dirty and there was some damage.
42:08Pump in that blood, keep that heart pumping.
42:10When you talked to the person in Treasury on Tuesday the 16th, did you get a feeling, as
42:15you were sitting in your 6x9 jail cell in West Palm Beach, Florida, that they were on top of things?
42:23No, you can't, it's impossible to be on top of things.
42:27There's no such thing.
42:29It's again, the doctor watching the patient die, you hopefully have some confidence that
42:34he's seen it before.
42:36He recognizes that there are some steps he has to take first before he bandages the guy's
42:41finger or worries about what shoes he has on.
42:44So you hope that the people in charge, your doctors who are working on the emergency patient
42:48have enough experience and frankly judgment to try to keep the patient alive.
42:54Did you think that they had those things, patience and judgment?
42:59They had pretty good judgment and you needed a lot of luck, just like in the dead patient.
43:04You need to, hopefully you put that blood in and it's not too late.
43:08And you maybe, you make some mistakes, but you have to know you're going to have to give it a shock.
43:12In the run up to the September crash of 2008, I guess you weren't occupied with finance.
43:17That whole summer, how long had you been in jail?
43:20I went to jail June 30th.
43:22So the entire summer.
43:24Before you went into jail, you were still very active in the financial markets.
43:28When you say active, you trade currencies every day, you trade stocks every day.
43:32When people, someone like you, you give advice to people to trade stocks or trade currencies.
43:38I don't trade every day.
43:40I think that's, like Woody Allen said, you can't beat the bank.
43:45So I try to pick my spots.
43:48You know, George Soros picked his spot when the pound collapsed.
43:51This would have been a great money-making opportunity that passed me by when I was in jail, but that's not how I think.
43:57In the run up to that, in the spring of 2008, were you, that's when Bear Stearns got in problems, I think, in the spring of 2008.
44:04And they decided to bail it out.
44:06Did the Bear Stearns guys talk to you for advice at that time, the big crisis in Bear Stearns?
44:12You see, again, unbeknownst to most people, and it's easy to blame people for the financial crisis, like you'd blame someone for giving your father the drink before he had his heart attack.
44:25But what really happened, the real enemy of the finance system was Bill Clinton.
44:35And if you ask me what and who caused the financial crisis, I would tell you it was Bill Clinton.
44:41Because of what Bob Rubin and he did to the financial, deregulate the financial system?
44:47Because the last time we had our 60-minute interview, you talked to me about home ownership.
44:56And you asked me whether everyone should own a home.
44:59And I told you no, it's too risky.
45:02So the financial collapse of 2008 is because of hardworking African-Americans, Hispanics, and whites
45:10who wanted to have an ownership stake in the society that all rests on their shoulders.
45:17They're the culprits.
45:22I didn't say they were the culprits.
45:23I was pretty clear it was Bill Clinton.
45:26Why was it Bill Clinton?
45:28Because Bill Clinton wanted to get votes from those people.
45:31And he sold them the idea that instead of renting a house, and historically the values of houses
45:40had gone up and he said, you guys in these local communities who haven't been able to
45:45afford a house before, I'm going to show you a way.
45:49I'm going to give you a way because I'm sure I'll get your vote.
45:54That you can own a house because I want your vote.
46:00So what we're going to do is I'm going to let you buy a house, Mr. Bannon.
46:05When you really, you're right on the border maybe, or not even on the border, your credit
46:16And it's not my fault.
46:18It's not Bill Clinton's fault.
46:20But whatever happens, at the moment your credit score or whatever it is, your credit's
46:27Now, normally, you come to me and you want to borrow money.
46:34And I say, I'm sorry, Mr. Bannon.
46:36I can't lend you money because your credit score is not up to where it needs to be.
46:44Hopefully, if you work harder and clean up some of your problems, it will be.
46:48But no, what I say to you is, I'm going to figure out a way to lend you, lend you, not
46:56I'm going to lend you money anyway, though you don't have a good credit score.
47:01And don't worry, I'm going to get rid of the term that you don't have bad credit.
47:08Bad credit sounds pejorative.
47:10You don't want to be a person.
47:12Yes, sounds judgmental.
47:14So, what we're going to do is we're going to call your credit situation subprime.
47:24Nobody knows what that means.
47:28That means prime is good credit.
47:33Less than good credit.
47:38So, we'll call it something that people really won't follow.
47:42And we'll tell you what.
47:44We're going to have people lend you money, though you are a subprime borrower.
47:51And I will figure out some government agencies to guarantee your loan.
47:58Though I don't think you're a good risk.
48:01So, the banks say, no, no, no.
48:05Initially, the banks say, sorry, this is too risky, Mr. President, for us.
48:12We're in the business of managing risk.
48:16It's the hard-working people's money sitting in our bank.
48:20We can't lend to people whose credit is not prime.
48:23You're asking us to lend to people who are subprime.
48:26And he says, here's the key, if you don't, Mr. Bannon, I'm going to make sure the Justice Department charges you with discriminatory lending.
48:40Because you refuse to lend to my subprimers.
48:46In business terms, you should never lend to.
48:49But what we'll do is we're going to, I'm going to form an agency called Fannie Mae and Ginnie Mae.
48:55Just another agency names.
48:57They'll guarantee your loan.
49:02You don't have to pay it back anymore.
49:05Even though you, and maybe you don't even have to work as hard anymore.
49:09That's probably a harsh statement.
49:11So, these players, these two big firms, Fannie Mae and Ginnie, will guarantee the fact that that bank will receive its money.
49:21Now, the bank says, wow, best deal in history.
49:25I refuse to lend to Mr. Bannon, but now he has the big brother, his Uncle Sam.
49:31He went to his Uncle Sam, and Uncle Sam says, I'm guaranteeing it.
49:35The bank says, I want everybody.
49:38Give me as many people as you can give me.
49:41Because Uncle Sam is the best credit in the world.
49:45Not only, it's the United States government.
49:48We'll take as much subprime as we can handle.
49:54Because it's the best investment for the moment.
49:58It's a strange investment because it has politics that has inserted its way into the numbers.
50:05Politics doesn't belong in the markets.
50:08But now we're going to have, I want the votes.
50:11We'll make guarantees that you who can't get a house normally will be able to get a house from the bank.
50:17The bank says, this is the best deal in history.
50:20We will package 100, 300, 1,000 of you subprimers, and we'll sell it off to somebody else.
50:28And the whole system becomes mired in subprime mortgages.
50:34That becomes the issue.
50:36What do you mean mired?
50:38Is this too much supply?
50:40Is this a supply-demand problem?
50:41Do you get too much supply?
50:43It's a very good question.
50:45What does too much supply mean?
50:48Well, then you get the people, go back to your first question to me, government leaders.
50:56Government leaders know if they're good, and they can do mathematics, they can balance their checkbooks.
51:05So certain people in Congress said, well, how do you value these subprime mortgages?
51:12The banks say, we've been valuing them the same way we've always valued them for the past 20 years.
51:20The accounting firms, there's something in this country called gap accounting, which is a standard type of accounting.
51:29And we account for them the same way we've always accounted for them.
51:32If we paid $1,000 for your mortgage last night, when we put it on our books today, we're going to say its value is $1,000.
51:51That's what I paid for it last night.
51:54The Congress people said, that's not really a good answer, you know.
52:00That doesn't give us confidence that you know what you're doing.
52:05Because what happens if you have to sell it tomorrow morning?
52:10If something's happened and you have to sell it.
52:14Remember, there's kinds of stress tests.
52:16Would you be able to value it at what you paid for it the day before?
52:23And Wall Street says, that's not the way you can think about this.
52:27We always value things at the cost from the day before.
52:31And they change the accounting method.
52:34In essence, to say, not what it was worth yesterday, but if I have to sell, what would it be worth?
52:44So what happens is, every bank now has to value something they bought yesterday at lower than they paid.
52:53Never before in 20 years did they have to do this.
52:56So something they bought at $1,000, on their books was $1,000, is now $990.
53:03That starts to—you ask the question about what did I start to think about.
53:09Something's $1,000 at $990, this person now has to value it at $980.
53:13When did you first start to get nervous, understanding Bill Clinton and all this?
53:19Did you change glasses?
53:28We're going to have all kinds of changes.
53:31When did you get a feeling?
53:34Did you ever anticipate, before it happened, something like 2008 could happen?
53:43It's the word—I can beat it to death, is that it's very much like a—what I expect—anticipate,
53:53I'll have a heart attack tomorrow.
53:57Was 2008 a heart attack or a stroke debilitating?
54:01It's a better—I don't—it was both.
54:08But why was it both?
54:10Because, in fact, as I said, the blood was getting dried up in the system, and the head,
54:15which is sort of the central bank, wasn't working.
54:18So, to some extent, it was a combination.
54:21Did you see that building up over time?
54:23It's always been lurking in the background.
54:26I mean, if you have an older parent, would you say it's possible—did you anticipate
54:32them having a heart attack today?
54:35You hope things are going to go better, and maybe they'll fix it up.
54:37The system was getting too complex, and it wasn't based on derivatives.
54:42Because what people keep forgetting, and as I was just explaining, Wall Street—in many
54:49professions, including Wall Street—Wall Street makes it sound complicated.
54:54They don't want the little guy to understand what they do, because they make so much money,
54:58and they don't do very much.
55:00So, they couch it in words, like derivative and stock options, and commodity futures,
55:07and different types of contracts.
55:10It's all fairly—everyone is capable of understanding it.
55:14It is not complicated.
55:16But Wall Street, because they make so much money from doing fairly simple things,
55:20needs to make it more complicated than it really is.
55:25So, we had a very big recession in the early 90s, based upon real estate and Japan basically
55:35Let's again, you had a recession in the 90s.
55:38I don't know what it's based upon.
55:40It's always interesting to look back and say—separate from there's certain triggers,
55:45like in the 70s, there was a—
55:47What do you think it was based upon, the 90s downturn?
55:49Clearly, there was a huge downturn.
55:51No, I just—I know there was a downturn.
55:53That's what I know for sure.
55:58Everything else is sort of speculation about why did he have that—
56:01I understand that, but there's some speculation that has 0% probability of being true,
56:06and there's others that have 90%.
56:09In the range, when you look at the range of alternatives of what could have caused it in 90,
56:16and what I'm trying to do is get you all the way up to 2008.
56:19Look, you're the smartest guy in the room, right?
56:23Do you think there's anybody in the world today?
56:27This is going to be a bad question.
56:29No, but do you think anybody in the world today—the Alan Greenspans, the Bernanke's,
56:34is there any central banker you know, any partner of any Wall Street firm, any guy running a trading desk?
56:40I would take it that would be, or anybody at Larry Fink at BlackRock, Steve Schwartzman at Blackstone.
56:47The top 100 financial guys, and let's throw in a couple of Nobel economists, and let's throw in the best professors at Wharton, at Harvard, at Stanford.
56:57Do you think that there's anybody that understands money or understands the world's financial system as good as you?
57:08But it doesn't come to the top of the head?
57:12Now, now that—okay, now that I've gotten that, no, now that I've gotten that, let's go back to 1990.
57:17And that arc from 90—from the fall of the Berlin Wall to 2008.
57:22We had—we started with the implosion in Tokyo of the Japanese economy, Japanese financial markets.
57:30We had the huge run-up in internet stocks, right?
57:34We had the implosion of that in 2000.
57:37The bankruptcy of Drexel Burnham in 90.
57:44Implosion of Japan, huge run-up in equity markets for the internet.
57:49Implosion of the internet in 2000, 10 years later, roughly.
57:53And then this run-up through the Iraq War and all that, the run-up to 2008.
57:56Every 10 years, it seems like, we're in some sort of—10 years before the 1990s was the 70s.
58:05You sound like an astrologer.
58:08I'm just—I'm usually a mathematician.
58:10It just seems to me a pattern of every 10 years.
58:13That's exactly right.
58:15Because people like to see patterns.
58:16People like to see patterns where there are none.
58:18So a pattern of a financial crisis every 10 years is just in my mind.
58:24Long-term capital that had to be bailed out back in the late 90s when everybody panicked.
58:30And that wasn't a big—that bailout today would look small.
58:32And it was $5 billion or it was $30 billion.
58:36People—businesses fail all the time.
58:38But they—long-term capital, the Federal Reserve stepped in.
58:42But I'm saying they—things—people go bad.
58:45Things go bad all the time.
58:48The local—you're correct.
58:49The audience that's watching this, the little guys, they go bankrupt all the time and nobody gives a shit.
58:55They're a little guy.
58:56But when long-term capital management goes bankrupt or Bear Stearns goes bankrupt or Lehman Brothers goes bankrupt, people care because—
59:02You know, it's an unfair characterization.
59:04Why do you say that?
59:05Because, again, it's the complexity of the situation.
59:08If you think about the—you have a complex system.
59:12Now, in fact, the little guy is my finger.
59:16And Bear Stearns is your heart.
59:19The banking system is my heart.
59:21The system—I can't risk my—because remember, it's not only my—
59:24Okay, so you haven't been able to name—
59:29I was trying to hang—I wanted to see if the hang on worked.
59:30You haven't been able to—you're not good enough yet.
59:33You're like junior wizard trying to do it.
59:35You haven't—you haven't—I'll say, since we can't name another guy that's as good as you—
59:40There may be a couple out there.
59:41You're not bragging.
59:43It had to be some time—please tell me there was some time before you went to jail and basically got cut off from daily information in the summer of 2008 that you started to get very nervous.
59:59That this complex system, that something was deeply wrong.
1:00:04First, let's go back.
1:00:05When I say no one understands the system better than I do, it doesn't mean I understand—
1:00:09You always sound like a doctor.
1:00:10You're afraid he's going to get sued for giving a thing.
1:00:14You're not taking on any liability.
1:00:15There's no contingent liability here for your answers.
1:00:19But the word understand is the problem.
1:00:21I don't understand the system.
1:00:22So that's—I don't understand the financial system.
1:00:25Why not sit here and tell me—we just went through—I'll go through again.
1:00:29The hedge fund managers, the money managers, the central bankers, the commercial bankers, the heads of the investment banks, the heads of all the trading desks, the top economists, and I'll throw in the business school lectures at Stanford.
1:00:41Of all the top 200, 250, you can't name it at the top of your head.
1:00:45The guys are at least at your level.
1:00:47You have to understand it somewhat.
1:00:52We all don't understand it.
1:00:54No one understands it.
1:00:58That's part of the problem.
1:01:00It's impossible to understand.
1:01:02That word understand simply means if this happens here, that will happen there.
1:01:09Understanding means it's predictable.
1:01:11It's not predictable.
1:01:12That's the problem.
1:01:13It's very—in complex systems, that was the fascination.
1:01:17Is there a way to tease out some level of predictability?
1:01:21In fact, you would ask the question, it's a great question, which was, was it a stroke or a heart attack?
1:01:27Now, most people don't know that before they were going to have a stroke, they had a stroke.
1:01:32They just have a stroke.
1:01:34Do they understand why?
1:01:36In hindsight, you go back and you can make lots of explanations that might sound good.
1:01:41And if you're talking to the working man, you're using language that he'll never understand.
1:01:47So he—just like going to his doctor, he says he has a gastrointestinal problem with diverticulitis,
1:01:53as opposed to saying, you had a stomach ache, you ate bad food.
1:01:57People don't like to say it in normal, every-man terms.
1:02:00The system had a stroke, but we don't know why.
1:02:03But you just—okay.
1:02:05Hard-working people, and there's a great social benefit, would you not agree, with having people having ownership in the system?
1:02:14When you say ownership in the system, it doesn't mean—
1:02:21Flip over your phone, too, because I don't want anyone to see you on your phone.
1:02:26Yeah, who knows what the fuck comes over my phone.
1:02:29Which one has sent you?
1:02:31I can't even get—I can't not believe I've got the magic moment when you're in fucking prison or jail, wherever the fuck it is, in solitary.
1:02:38Now, there's a funny part to that we missed, which is said—
1:02:41The funny part is what you asked me—
1:02:42Is there anything funnier than that?
1:02:45For black humor, it's—
1:02:47I don't make any black comments.
1:02:49Uh, you asked me what I was wearing.
1:02:52You're too wrapped up in the Me Too movement.
1:02:55So I was wearing a brown jumper and a brown pair of pants given to me by the jail with the word trustee on the back.
1:03:05Because you had qualified to be a trustee?
1:03:07Well, the funny part was it was spelled T-R-U-S-T-Y. So I wasn't really sure. I'd been a trustee in many different operations, but it was the first time it was actually printed on my back and spelled incorrectly.
1:03:22You probably had a higher level of being a trustee at that than you had at all the boards that you were trustees, right?
1:03:30Because the trustee meant you get two devices to clean your toilet as opposed to one.
1:03:37Yeah, but it also meant that you had some sort of personal fiduciary own responsibility for oneself, right?
1:03:45Well, that's where being a trustee is. That's where they give you two.
1:03:48Yes, you get two cleaners. I was a trustee in the jail because I was able to teach some of the kids to help them get their GED. So that's how they gave me a trustee jot.
1:04:02There's no time. I got to go back to this because I'm like a dog with a bone in this thing.
1:04:10You can't. There's something deeply fucked up with you.
1:04:16At least something.
1:04:17Well, we know there are things deeply fucked up that you will get through in this film.
1:04:22But you cannot possibly have to sit there knowing that you came from nowhere, knowing that you went to the very top of what is considered outside of science and maybe physics,
1:04:33the thing people most admire because it's like alchemy, understanding high finance.
1:04:40To sit there in what will be the defining financial crisis of our time, like Black Friday and Black Monday, whatever it was in the Great Depression,
1:04:52and be there at that exact moment, triggered in part by a firm that you used to be a partner in and knew intimately well
1:05:01and it created much of your initial net worth because of, and know that you couldn't, someone who lives on a phone, right?
1:05:10Because you do live on a phone, right?
1:05:13You had to make collect, just two collect calls.
1:05:16You cannot tell me sometime during that day, you did not have that conversation with yourself of how the fuck did I do this to myself,
1:05:24to put myself in West Palm Beach in a six by nine cell with a metal fucking bed with a brown shirt that said trustee spelled wrong.
1:05:32Did I find it amazing that I was there?
1:05:37I don't want to say, it's not funny.
1:05:38Oh, I thought it was.
1:05:42It was incredible.
1:05:43Incredible in what way?
1:05:44Incredible like how do I do this to myself?
1:05:47It's as incredible as me sitting here in this house.
1:05:51They are both just two sides of the coin.
1:05:55That's how I think about it.
1:05:57That my life today is incredible.
1:05:59Do you consider yourself a stoic?
1:06:02I consider myself a hermit.
1:06:08Stoics are not very happy.
1:06:11Being a hermit then, being in that six by nine cell, being in the cell qua the cell was not the problem, right?
1:06:20What was the problem?
1:06:23Eating the Almond Joy bars.
1:06:25Because you couldn't eat the food?
1:06:33But remember, my life is-
1:06:35Did that ever strike you that I can't eat the food because somebody might have done something to it?
1:06:40I got to live off an Almond Joy bar?
1:06:42One a day or two a day or whatever.
1:06:44How many ever sneak in a day?
1:06:48Your one Almond Joy bar, it did not hit you at some time?
1:06:53How the fuck did I do this?
1:06:56Let's go back to the spring of 2008.
1:07:01Were you so wrapped up in your personal issues at the time, you were not spending enough time in the financial markets?
1:07:05Or were you deeply involved in the financial markets like you normally were?
1:07:10So we're saying that the smartest guy in the room didn't see it coming?
1:07:16No, of course not.
1:07:17No, of course not.
1:07:18The bankruptcy of Bear Stearns, you just thought it was a Bear Stearns problem.
1:07:22You didn't see it as systemic.
1:07:24I know you keep hopping on it, but it's not-
1:07:26Because you're a mathematician who understands systems.
1:07:28It seems that anybody that understands that they had a systemic problem, you would at least be the first on the early search radar.
1:07:35If you're not going to see it, then I'm really afraid.
1:07:39Because that means that I always assume there's at least a set of guys out there that have some sort of sense that something's not right.
1:07:48Imagine the guy who has a stroke or had the heart attack.
1:07:53When you ask him, did you feel funny the day before?
1:07:57He's going to tell you, yeah, I didn't feel right.
1:07:59Something was off.
1:08:00I didn't feel right.
1:08:01My stomach was right.
1:08:03I felt a little dizzy.
1:08:04I felt a little weak.
1:08:06But if you asked him the day before, do you think you're going to have a heart attack tomorrow?
1:08:10He'd say, no, I just feel a little weak.
1:08:12I'm a little dizzy.
1:08:15So these systems, and that's the issue of complexity.
1:08:19What complexity says is that, in fact, everything seems to go along, and people have seen it.
1:08:24One of the great examples of complex systems is sand dunes.
1:08:30In fact, the sand keeps building up.
1:08:33People have seen some—and all of a sudden, one more sand drop, and all the sand starts running down the hills.
1:08:42That's the way I see the financial markets.
1:08:44But you funded Santa Fe in the early 90s or late 80s?
1:08:48I believe it was the early 90s.
1:08:49I can get back to you.
1:08:50But early 90s, Santa Fe was funded for the study of complexity theory.
1:08:56It was study—so let's back up.
1:09:00So why did I buy a ranch in New Mexico in 1993?
1:09:03So that gives you some sense.
1:09:05So I would have funded it in 1990.
1:09:08Los Alamos, which was the high-energy lab up in New Mexico, was losing all its scientists.
1:09:16And Los Alamos, it was where Oppenheimer and where a lot of the nuclear weapons program, the bomb—
1:09:22That's where the Manhattan Project.
1:09:24Manhattan Project was at Los Alamos, and you bought your property out in New Mexico to be near that?
1:09:29Yes, because the scientists were going to be—they cut the funding for high-energy physics.
1:09:35But the people who worked in Los Alamos would still be in the Santa Fe area.
1:09:39They cut that because the end of the—this was the Cold War dividend, right?
1:09:42I don't remember exactly why.
1:09:44It was because, again, people thought that physics and high-energy physics really wasn't that important.
1:09:49Because that was about nuclear weapons.
1:09:51No, it was because they were trying—they decided it was maybe not right.
1:09:55This was the same time that Murray Gelman came up with the term quark, Q-U-A-R-K.
1:10:01He picked it out of an old poem, the word quark.
1:10:05But it was something—it was mysterious.
1:10:07So they were starting to understand in the 90s that in our world of the physics world,
1:10:13there was things that were just unexplainable.
1:10:16They called it strange things.
1:10:18You gave it a name.
1:10:19You gave it some characteristics.
1:10:21You called it—it had charm.
1:10:23It was one of the terms.
1:10:27But nobody really—no one, Mr. Bannon, understood what it was, just like the financial system.
1:10:35And you wanted to investigate that?
1:10:37I wanted to see if we could build tools so others smarter than me could help investigate it.
1:10:43And that was the beginning of your concept of the Santa Fe Institute?
1:10:47And Santa Fe Institute was founded to do study in this type of—
1:10:51Can you—can these areas of strange things be described by some form of mathematics?
1:10:58So that's what I'm trying to get at.
1:11:02The foundational thought, the organizing principle of Santa Fe in the high physics lab at Los Alamos,
1:11:12which had created the headquarters of Manhattan and the Trinity Project, right?
1:11:18So you're talking about the elite—the high priest—
1:11:23The high priest of physics, some subset of that is also mathematics.
1:11:26Yes, they're both similar.
1:11:28For Jacked Out, one of the tools you want to do is to make sure that in this complex system, the finance system—
1:11:35I'm doing a lot of this for philanthropy and a lot for the good of mankind—
1:11:38but also to be able to understand this complex system, the most complex outside of maybe our body of the financial world.
1:11:46Did they create tools, or were you smarter than the mid-aughts 15 years later than you had been then because of work that was done at Santa Fe?
1:12:01But in fact, most of the money—most of my philanthropy in the area of,
1:12:05can you describe things that appear to be unexplainable by mathematics?
1:12:12And can you fund people who have new ideas?
1:12:15And unfortunately, when someone thinks they've been able to—there was a man, Stuart Kaufman—
1:12:21when they think that, okay, I figured out how to be able to predict the unpredictable,
1:12:26what appears to other people to be unpredictable.
1:12:28But my system—in those days it was called genetic algorithms—can predict what things will happen,
1:12:35and they all want to make money.
1:12:36So they use their systems to try to figure out—they know they have figured out the way to make money
1:12:43because they figured out the unexplainable.
1:12:45They try, they go bankrupt, and we start again.
1:12:48So with a cold view, what I've come to realize is that the attempt to mathematize,
1:12:55formularize, or what in your prior work to understand what really is, in today's world,
1:13:03still unexplainable is impossible.
1:13:08The—your first head of Santa Fe was Christopher—
1:13:15Langdon, from Australia.
1:13:16But Murray Gelman was the—
1:13:17Murray Gelman was the—
1:13:20Yes, yes, he was the rock.
1:13:21He was a Nobel Prize winner?
1:13:24And a wonderful guy.
1:13:25He came out and helped us with the Biosphere 2 project.
1:13:28He came with Chris Langdon.
1:13:31Chris Langdon was the operator, the day-to-day guy.
1:13:33Chris was doing artificial life.
1:13:35Murray tried to lead his own artificial life.
1:13:38When Chris came to Biosphere 2 for the—for the first big conference we had in 1994,
1:13:46he was one of the most impressive guys there among all the world's elite.
1:13:50Kew Gardens, the Lawrence Livermore lab, the—the labs at Sandia.
1:13:55You know, all the—all the major universities.
1:13:59All the big earth observatories.
1:14:02What set Langdon apart, I thought, and the reason I invited Santa Fe to be part of it,
1:14:07was Langdon actually made a presentation that everything—and he was making this to scientists,
1:14:12a lot of marine biologists, a lot of people that were just beginning—Wally Broker and
1:14:15people who were just beginning the study of climate change, at that time called global
1:14:19warming—that he made this compelling presentation that everything's really mathematics.
1:14:26It's all just back to math.
1:14:28And you have to—all these experiments you do, you're not—one of the reasons they're
1:14:31not considered by the high priest in physics as being real experiments is that they don't
1:14:38have a mathematical basis to it, and everything has a mathematical basis to it.
1:14:42Langdon seemed like a radical visionary.
1:14:47What happened to that concept?
1:14:48You go back 350 years.
1:14:53So you have Isaac Newton, you have Leibniz.
1:14:58From move forward, you have people like Heisenberg and Goodell.
1:15:03And what every one of those mathematicians and philosophers came to understand is that there's
1:15:11something with—there's numbers can describe certain things, approximate certain things.
1:15:18But in fact, trying to put measurements and numbers on other things that are really unexplainable
1:15:28So 300 years ago, they said that unexplainable realm was God.
1:15:35And people who attempted, in fact, to explain the unexplainable, who said, yes, I understand
1:15:42the unexplainable, were charlatans.
1:15:45They were the occults.
1:15:46They were the astrologers.
1:15:48They were the conmen.
1:15:52Well, no, Alchemists was in fact—they believed that there was a way to transmute one metal
1:15:59In fact, they always wanted to see if they can create gold.
1:16:01There's no reason, if you think about it, they recognized that one metal is different
1:16:07than another metal because it has some additional pieces to it.
1:16:10It has additional neutrons or protons or electrons.
1:16:14So because they thought it was a machine, that they believed it was a machine, if I can take
1:16:21five protons and add five, that gives me ten, I should be able to get gold.
1:16:25Move everything around inside these systems, the molecules, transmute one molecule into another.
1:16:32And if this molecule I've transmuted it into is gold, I'm a rich man.
1:16:36It's back to money.
1:16:37But there's something strange happens.
1:16:42Isaac Newton says, this is really weird.
1:16:46If I want to push a ball on the table, I have to touch it.
1:16:51Maybe I have to blow on it.
1:16:53But I actually have to push one side of the ball or the book to move that side.
1:16:59I'm pushing here, and obviously this thing is what appears to us humans to be solid,
1:17:05so it moves as one thing.
1:17:07But the only way to get something to move was to touch it or put a force against it.
1:17:13Okay, it seems to make sense.
1:17:15Everybody has that experience.
1:17:16You know, I want to lift a glass, I lift it.
1:17:18If I want to push a ball, I push it.
1:17:20If I want to pull a ball, I pull it.
1:17:22But he recognized when the ball fell off the table, it went in a different direction.
1:17:31How is that possible?
1:17:33Nobody pushed the ball down.
1:17:36And he said, this is crazy.
1:17:38Why did the ball go down?
1:17:44So, someone's pushing the ball.
1:17:47Because I know, I am confident that the only thing that gets something to move is with a force that pushes.
1:17:53So there's a force that's pushing the ball down.
1:17:56In fact, he called it gravity.
1:18:01He measured how fast it was pulled, but never was able to explain why it happened.
1:18:13Everybody says, well, why did the ball fall to the ground?
1:18:15Because gravity took it.
1:18:16But what's gravity?
1:18:17That's, as Feynman would say, that's the name of the thing.
1:18:20We have no idea what it is.
1:18:23This goes to Santa Fe.
1:18:25They were trying to put, explain the unexplainable.
1:18:29Can we measure, can we figure out a way to predict the stock markets using these types of chaos complexity?
1:18:37Before we get there, let's walk back through it.
1:18:40Let's go back to Newton.
1:18:42Pre-Newton, and then Newton.
1:18:44What did Newton solve that for millennia up to Newton had not been solved?
1:18:50Then I want to go forward all the way to Santa Fe and what they were trying to solve.
1:18:53Let's start with just two or three of the basic guys, but let's go with Newton.
1:18:56What, pre-Newton, it was what, and then why is Newton such a...
1:19:02And such a, in the, I think mathematically they told me one time, I've seen there's been 115 billion people, roughly, that have lived on the earth.
1:19:12And of that 115 billion, Newton...
1:19:14Are you sure that's a number? That sounds very high.
1:19:16We only have seven now.
1:19:18I think in the history of the earth, I think, I'll pull up the stat for you, but I think it's 115 billion people, they figured.
1:19:25That probably is inflation, that's why you should...
1:19:27Have lived through the earth.
1:19:30But he's one of the handful of the most important.
1:19:32What did he solve for?
1:19:35Why is he so important for how we live today?
1:19:37And then we want to go through Leibniz and the other, three other major ones that get us to Santa Fe.
1:19:43Well, it's a long journey.
1:19:45This is the heart of what we're trying to do.
1:19:48Let me take a bit of a detour just a second.
1:19:52What, if you, if you went to high school and the last year in your high school, you took calculus.
1:19:58So Isaac Newton sort of invents calculus.
1:20:01Well, that sounds, invents, you know, mathematicians...
1:20:04To torture seniors in high school before they graduate.
1:20:07Yes, but obviously, no, yes, the answer is yes.
1:20:09Certain people can't, could never do calculus.
1:20:12Why is it, why is calculus so, why is that the dividing line between, you know, to me, people who can handle that and can go on to do certain things and people just hit the wall.
1:20:25Even if they know math, it seems to me that there's, that calculus is the thing that changes, it bridges.
1:20:33That's because it's about the, about the theory of change and the theory of how things change?
1:20:39It's a great question.
1:20:41But in fact, what calculus does is it's, it's somewhat philosophical.
1:20:45That's why mathematics is, you know, they used to, Newton wasn't a mathematician.
1:20:50He was called a geometer.
1:20:51That's what they used to call themselves.
1:20:53They understood geometry and numbers.
1:20:56But there was, there's an old conundrum where it says if, during Pythagoras days, Zeno's paradox, it's called,
1:21:08where they said, well, if I take, if the wall is two feet away from me and I take one step that's halfway to the wall, that'll be one foot away.
1:21:17And if I take another step that's half again, that'll be half a foot away and then a quarter of a foot, I could walk forever but never touch the wall.
1:21:25Doesn't sound realistic, doesn't make any sense in our real lives of the physical.
1:21:31But what Newton understood is many problems were like that.
1:21:35Many things approached the wall, or in his, in calculus, approached the limit, but never really reached it.
1:21:44So he said, it's okay, you don't have to reach it.
1:21:47We can do lots of the mathematics as if it was so close it was almost there.
1:21:53And we could do lots of mathematics almost being at the limit.
1:21:58And this is really important, Steve, for today.
1:22:01Because most of the science up until today was things that are starting to approach the limit.
1:22:09You were taught in high school that if you had one divided by zero, if you remember your high school algebra,
1:22:22you were told, what's the answer to that? Is there an answer to one divided by zero?
1:22:27No, if you were in high school, I'd say, stay away from it, it's the boogeyman.
1:22:32You could write it down as it's undefined.
1:22:36It's not able to be determined.
1:22:39There's a bunch of things.
1:22:42But in fact, one divided by zero is a strange things happen.
1:22:46It's a world of the strange.
1:22:48And what I'll explain to you after is that when you get one divided by zero, you get into a world we don't know what happens.
1:22:56The answer is it's not explainable.
1:22:58We can call it things like undetermined.
1:23:01We can have a convention to say it's X, Y, or Z.
1:23:05But in real life, we don't know what happens when you are actually at the limit.
1:23:11Newton thought the same concept is that the limits were God.
1:23:17You got close to God, but you can never be God.
1:23:20He had this sort of religious interpretation.
1:23:22Okay, I want to go back to Newton.
1:23:24Why is Newton such a big dividing line in mankind's history?
1:23:29What is it about Newton?
1:23:30What is it about what he's trying to solve?
1:23:32What did they not know beforehand?
1:23:34Because we live to a degree in a Newtonian universe, although I realized later some sub-particle atomic physics, but at least for a while it was Newtonian.
1:23:45So what's the dividing line?
1:23:46Why is he so important?
1:23:48Why is he an inflection point in mankind's movement from the swamp to the stars?
1:23:53That's a great question.
1:23:55The stars were by Kepler.
1:23:57What Newton starts to allow us to do is to make accurate predictions, remember that we've talked about that with money, about the things in our physical world.
1:24:09How cars, he didn't have cars, how horse carriages moved, how bowling balls moved, how pool table balls moved.
1:24:21Have people tried to solve that before Newton?
1:24:24Have people tried it?
1:24:25Heraclitus or Plotinus, Pythagoras, had these greats that we hear about, had they tried to solve the same problem?
1:24:33Not the same problem.
1:24:34They tried to, again, what Pythagoras does, he starts to figure out these relationships in triangles, for example.
1:24:42Everyone knows the a squared plus b squared is equal to c squared.
1:24:45That Pythagorean theorem, which basically says these shapes in a triangle, each side of the triangle, has a fixed relationship with the other two sides.
1:25:00He knew, again, but it was all numbers.
1:25:02This was a system of things in the physical world, and Pythagoras says we can start putting numbers on things that help you predict how they will behave.
1:25:12You can add two triangles and make a square, some different shapes.
1:25:17They were looking at geometric forms.
1:25:19Newton says, well, I want to know how planets move.
1:25:23I want to know how things around me move.
1:25:25Can we find formulas?
1:25:27Can I find formulas that explain what I see in the physical world, how physical things interact and how they describe one another?
1:25:39Again, the fact that two things, two solid masses, for some very strange unknown reason, unknown today, attract one another, no matter what they are.
1:25:52People have seen the experiment.
1:25:53People have seen the experiment.
1:25:54You hang something, two little metal balls from a string.
1:25:57They move towards each other.
1:26:00In fact, they move towards each other was very specific.
1:26:06So when you drop the ball to the floor of this room, Newton says, in fact, the room came up a bit to meet the ball.
1:26:20It's imperceptible.
1:26:21You can't really perceive that motion, but they attracted each other with certain ratios.
1:26:25So he started to be able to measure things in the physical world.
1:26:29And that was great advances.
1:26:32It also, you know, you want it to move very quickly.
1:26:36Unfortunately, most people, especially in the 20th century, 19th century, said, well, like Newton, let's measure everything.
1:26:43Let's measure people's behavior.
1:26:48Let's measure their psychology.
1:26:50Let's measure their health.
1:26:51You go to the—we could have my blood test.
1:26:54Let's measure everything.
1:26:55We measure Wall Street.
1:26:56Their voting habits.
1:26:57Measure, measure, measure.
1:26:59Can we put a number on how much I care for my wife?
1:27:02Could I put a number on how I feel?
1:27:06And we tried—unfortunately, we tried to mathematize the finer things in life,
1:27:14and then recognized that there was things that unfortunately just fall outside.
1:27:20Everyone—Schrodinger wrote a very famous book about what is life.
1:27:25He was trying to figure out a way.
1:27:27Can he describe the difference formulaically between things that are alive and things that are dead?
1:27:36The things that are alive in my world are miracles, not magic.
1:27:41Magic has a bad connotation trying to hide things.
1:27:44You don't believe in the spirit or the soul?
1:27:46That's what animates people is your spirit or your soul.
1:27:49But have you ever seen someone die?
1:27:51When they die, their spirit leaves.
1:27:52Their soul leaves.
1:27:55There's no question to you about that.
1:27:57There's no question to you that there is some animating life force within us that leaves
1:28:04In fact, I refer to the soul.
1:28:06There's obviously a certain—the questions in the past, even during—
1:28:10Because people would normally think you were soulless, so—
1:28:15But have you talk about you actually believe in it and have done some thinking about it
1:28:19is pretty shocking in its own right, isn't it?
1:28:22Well, again, mathematics—Leibniz and Leibniz thought—
1:28:27You know Newton was at Cambridge, and he was the head of the math department, right?
1:28:30He's a professor, essentially.
1:28:32But Leibniz—was Leibniz a German professor?
1:28:35But what Leibniz said is the soul is so strange because God took chemicals, which is simply
1:28:44the material, like tables, and he somehow made this material able to have a thought.
1:28:51How strange is that?
1:28:53Not only does it have a soul, but some way it was put together that this material substance
1:29:03So, when you say to me, it's obvious to everyone that there's such a thing as a soul.
1:29:09Now, if you're part of the charlatanville, you'll try to explain it to people.
1:29:14The soul, I describe, is the dark matter of the brain.
1:29:19Why is it dark matter?
1:29:21Because in high-energy physics nowadays, you hear terms of dark matter, dark energy.
1:29:27Again, terminology—complicated terminology.
1:29:30Why is it dark matter?
1:29:31Because we can't see it.
1:29:33What do you mean you can't see it?
1:29:35Well, somehow we see something moving towards this area of darkness.
1:29:40Something—I can see this thing.
1:29:43This appears to me to be empty.
1:29:46But I see it being drawn this way.
1:29:50So, I say, well, I know if this were matter, that would follow that equation.
1:29:55If this was solid, it would explain the way this particle moves.
1:30:01But I can't see anything here.
1:30:04So, I'll just call it dark matter.
1:30:06And I'll say, I don't know what it is, but it behaves as if there was something there.
1:30:11The soul is obvious to everyone that there's something different between things that are alive and things that are not alive.
1:30:19But we have no idea what it is.
1:30:21It's currently unexplainable.
1:30:23I believe we need an entirely different system of analysis to try to figure out—
1:30:32With Newton, you know, with all his alchemical studies and things he worked on on the spiritual side,
1:30:41Leibniz had just talked about the soul.
1:30:43Schroeder talked about what it was like.
1:30:45If a modern scientist or someone that you funded at MIT or Harvard or one of these things talked in those types of terms,
1:30:52they would be considered to be a wingnut today, wouldn't they?
1:30:55They would not be on the path for tenure, right?
1:31:00Unless they were in the philosophy department.
1:31:03This is exactly my point.
1:31:04We're talking about three of the greatest mathematicians in mankind's history that have really changed mankind.
1:31:10Talking like this.
1:31:12How did we get to a situation where they could not be in the mathematics department or working in high-energy physics?
1:31:23It's an easy answer.
1:31:24Newton was a combination of mathematician or geometry then and philosopher.
1:31:29And as time went on, those disciplines seemed to move apart.
1:31:34We had philosophy—some of the philosophers can't do math and some of the mathematicians.
1:31:38And again, mathematicians often break into two categories.
1:31:41People that solve problems.
1:31:43Those are more like geometrists in the old days, just problem solvers.
1:31:47And then there's thinkers, theoreticians.
1:31:50They're more like the old movement towards philosophy.
1:31:54But neither one of those two groups have been able to figure out why something is alive as opposed to something that's not alive.
1:32:02No one's been able to describe what the soul is, but we all know it exists.
1:32:06And I think what we need is a new—science is a bad word.
1:32:14I think science only describes the things we already know about the physical world.
1:32:19In fact, there's an argument that the physical world that we see has been created out of our systems of mathematics.
1:32:28Mathematics—everyone knows mathematics describes the physical world much greater than it should.
1:32:35Unless you—my view—the physical world really comes out of conscious beings that have mathematics.
1:32:43So they create it.
1:32:44This table appears to you and I to be solid.
1:32:48To a bat, because we have light that's bouncing off the table into our eyes.
1:32:57If instead of eyes that responded to wavelengths of visual light, our eyes responded to radio waves, the radio frequencies—it's not different.
1:33:10It's the same type of frequency as light with different speeds.
1:33:15The table's invisible.
1:33:18We know that our phone works in this room.
1:33:21So the waves are coming through the windows.
1:33:24The waves are coming through the walls.
1:33:26So the walls are invisible to that type of radiation, that type of energy.
1:33:32The walls aren't—I can see them because my eyes, a physical system, determines that the walls are there.
1:33:42You—with Murray Gelsman—
1:33:46You founded—or the original donor and had the idea of Santa Fe Institute.
1:33:52In 10 or 15 years later, that effort to study the complexity of systems, mathematically—
1:34:02It was essentially a failure.
1:34:03It was a total failure.
1:34:07It's the failure of science because, in fact, if—to some extent, science doesn't describe romance.
1:34:14I don't know why I'm attracted to somebody.
1:34:17I don't know—people are attracted to each other and some—everyone has the same feeling.
1:34:21They've seen someone walk in the room and they say, oh, that person gives me a creepy feeling.
1:34:27Science has tried to describe—science doesn't describe what creepy feelings means.
1:34:31They just know it's a creepy feeling.
1:34:34I think women, as I said the last time, have an intuitive sense.
1:34:40What is intuitive?
1:34:41They have intuition.
1:34:42They have feelings.
1:34:43And they're able to deal in the realm of things that men, especially men like myself, find unexplainable.
1:34:52They have great—women have intuition.
1:34:56Men see things a bit differently.
1:34:58Men want to measure everything.
1:35:00Women are not really that interested in measuring.
1:35:05In what you're saying in macro terms, you actually think science, mathematics, maybe ultimately technology is moving to that more intuitive—
1:35:15I think science and math are old-fashioned.
1:35:18And unfortunately, people are still taught that they have to learn algebra in school and certain things in school as opposed to learning to have an emotional—
1:35:30Is this what Larry Summers was trying to get at?
1:35:32Maybe he didn't say it perfectly enough.
1:35:35But what he was trying to get to in that system—the systems we study today, the way mathematics is either taught or understood,
1:35:43that women just haven't gotten up to the highest realms of engineering or physics or mathematics because of that.
1:35:49And you're actually implying that there's either a new branch of science or we've hit an inflection point like in Newton.
1:35:55Newton took mankind in a different direction because he was able to measure.
1:36:01Then you had subatomic, you know, non-Newtonian physics later.
1:36:05Are you saying that you think there's another developing field that's coming up that may take us, I don't know, how many decades to get our hands around,
1:36:13but that that's what's evolving out of this?
1:36:17In fact, I think that mathematics—it's not the end of science.
1:36:22Every year someone says it's the end of—we can't discover everything.
1:36:25There's lots to discover with a relationship to the physical world, but we know a lot already.
1:36:30In respect to the unexplainable world, we almost know nothing.
1:36:35Women, again, sense it.
1:36:37And instead of Larry Summers—I won't digress too much—but Howard Gardner early on said,
1:36:45there's not one form of intelligence.
1:36:48It's not mathematical intelligence.
1:36:50There's emotional intelligence.
1:36:52There's kinesthetic intelligence.
1:36:54You know, there's this argument that I reject that black people are less intelligent than white people.
1:37:02We know, for example, that if I was in the forest and I had to run from the lion or figure out a way not to be eaten,
1:37:12and my competition is a local African, I'm the one who's getting eaten because they have the intelligence to deal with their local environment.
1:37:23So it's just different.
1:37:26But there's many differences amongst different types of people.
1:37:29And so people have different intelligences, and they excel in some intelligences usually, and less so in others.
1:37:37When did it come to—because the world of high finance is a world of pure reason, or is it a lot of emotion and gut checks on trading desks and central banks when these decisions get made?
1:37:52Is it that high church, like the high church of science of high energy physics, or is it as much emotion that comes in as much as the mathematics and the reason?
1:38:03That's a great question.
1:38:05I think if you talk to really experienced and successful traders and you ask them how they know what's going on, they can't give you an answer.
1:38:17They can feel the way the market's moving.
1:38:19They can feel the way the stock's moving.
1:38:21And these are not very well-defined terms.
1:38:24It's difficult to put in mathematics terms, how did I feel it?
1:38:28You could look back and make guesses what I was seeing.
1:38:31But great traders feel it and then act on their feelings.
1:38:36That's the difference.
1:38:38Many people feel it but are afraid because they want a mathematical justification before they take that next step.
1:38:45When you first got on the trading desk at Bear Stearns in the late 70s or mid-70s, were you shocked by how little actual understanding of mathematics that the traders comprehended?
1:38:56Again, we had a Texas Instrument Calculator.
1:38:59Most stockbrokers, especially before 1975, if they were good stockbrokers, could add.
1:39:07If you could multiply, you were already in the top 15% of stockbrokers.
1:39:11Stockbrokers simply meant that there's a great story.
1:39:16When I went to the first person, I had no money.
1:39:19And I said, how much money do you make a year?
1:39:22And he said, $400,000.
1:39:25I said, impossible.
1:39:27I'm making $10,000.
1:39:29That's probably more than your family had made in his entire existence.
1:39:33And he makes it in a year.
1:39:34I said, what do you do?
1:39:36And he said, it's too complicated for you to understand, which is what the main thrust of Wall Street people, they want to tell you it's too complicated.
1:39:47Because if you understood that that person was simply, he had a brother-in-law, in fact, in this case, who ran the pension fund at General Motors.
1:39:55His brother-in-law would call him and say, buy 1,000 IBM.
1:39:58He'd hang up the phone.
1:39:59He'd write it out on a ticket and walk it to a window.
1:40:03That was his entire skill set.
1:40:06Write what my brother-in-law says.
1:40:08Walk it to a ticket window.
1:40:09Give me an example, when you were on the trading desk in the early days of Bear Stearns, of a time that you felt either complete uncertainty or you saw total panic.
1:40:20Where people, something was happening that people couldn't foretell and that they were like in an airplane cockpit where it's going wrong.
1:40:28Walk us through that.
1:40:30In 1978, I think it was, across the news wires, there had been a collapse of the currency in Thailand.
1:40:41The currency, on the other side of the world, had no relationship to me.
1:40:45I wasn't sure where Thailand was.
1:40:48But the fact that a currency, a country's money, had all of a sudden dropped tremendously in value affected the rest of the world's markets.
1:41:00And people panicked because they'd never seen that before.
1:41:05A very small part of a very complex system had a shock throughout the whole system.
1:41:11So prices on Park Avenue apartments, the bond markets, the stock markets, every started to gyrate.
1:41:17You know, there's an old mathematical expression that if a butterfly wings in Mexico make the wrong turn, it spins out and eventually, by the time it gets to Canada, it turns into a tornado.
1:41:31So these are part of complex systems.
1:41:34So, yeah, Wall Street in certain parts.
1:41:37Santa Fe Institute was supposed to actually come up with a formula for that, for the butterfly wings.
1:41:42Why, in 15 years, did you reach the end of at least that experiment?
1:41:46Every attempt to—that's why it's so exciting now.
1:41:51Because we—I think certain people are starting to realize that there's so many things that are unexplainable that we have to think about them differently.
1:42:04Music is a great example.
1:42:06Just a—it's a common man's example.
1:42:10You know when you hear a certain song, it makes you feel a certain way.
1:42:16How does it do that?
1:42:20We can't mathematize it.
1:42:21And even that music, Steve, nowadays we compress music.
1:42:26When you have a violin, it's compressed onto your iPhone.
1:42:31So what does compression mean?
1:42:33I'm taking lots of information and I'm cutting it into lots of pieces and squishing it together.
1:42:39And when I squish it or compress it, I have to take out lots of pieces, but I say that they're not very important pieces.
1:42:47It's those pieces that we take out when we compress data, to me, are the most interesting parts of life.
1:42:57You just said a while ago, part of this new search for science may go back to when people were actually talking about a soul,
1:43:04and you said there's no doubt in your mind that there is a soul.
1:43:06Describe for me what you mean by that.
1:43:08What do you mean by soul?
1:43:09What do you mean by soul?
1:43:10What do you mean soul different than the physical analog body that we're seeing on film right now?
1:43:16It's difficult to describe in words.
1:43:18I mean, I'm not a poet.
1:43:20Poems get a little closer to what that really means.
1:43:24But even the concept of what is life becomes complicated when you deal with plants and seeds.
1:43:32Is a seed alive? I don't know.
1:43:35Certain people would say, no, it's dead.
1:43:37When you're a banana, one of my favorite examples is the banana that's sitting on the countertop in your kitchen today.
1:43:44Is it alive or dead?
1:43:46What do you think about human life?
1:43:47Tell me about human life.
1:43:48Your banana is alive.
1:43:50That banana is breathing.
1:43:53You say, that's impossible, Jeffrey.
1:43:55Is the banana conscious?
1:43:57All these words...
1:43:59These are words...
1:44:00Everyone's trying to fit very complicated concepts into a very small box called conscious or alive.
1:44:09These don't fit in that way.
1:44:11So if you put your banana in a bag and put another fruit in with it, the fruit ripens faster because the banana breathes with it.
1:44:21We don't understand most of those things.
1:44:23So you asked the question.
1:44:25You talk about the life.
1:44:26What about human life?
1:44:28Tell me, what do you think human life is?
1:44:35When I say miracle, I can't explain it and I make no attempt to explain it at the moment.
1:44:40We don't know how to think about it.
1:44:44Again, another one of the Feynman quotes when he was talking about quantum physics.
1:44:47He said, anyone, Jeffrey, who says they understand quantum physics and quantum mechanics and quantum behavior, you know they're lying.
1:44:57Let's talk about it.
1:44:58That's post-Newtonian.
1:45:00What's the difference?
1:45:01Who founded quantum mechanics?
1:45:03Why is quantum mechanics taking Newtonian physics and taking it to the next level?
1:45:08It forms a much broader category.
1:45:11Let's go back to this desk.
1:45:13You used the thing of Newton using this desk.
1:45:17Why can't Newton's theory explain everything?
1:45:20Why did subatomic quantum mechanics or quantum physics have to come in to explain this?
1:45:25So let's go right back to square one.
1:45:29Why is it called quantum physics?
1:45:32So quanta is a word that simply means packet, small amount.
1:45:37So it's quantized.
1:45:39So we recognized, when we recognized that this table appears, appears, another very complicated word, solid to us.
1:45:48It's really made up of molecules or atoms.
1:45:54We've given lots of names to what some of the behaviors...
1:45:57If you were in school, when you and I were in school in the 50s, the model was a little center thing in the middle and electron went around and around it.
1:46:07It was seen as a ball that went around and around it.
1:46:10And as we started to look at, say, well, let's see what this ball looks like.
1:46:14I want to be able to examine that little thing called an electron.
1:46:18We found that there was nothing there.
1:46:20There wasn't the thing.
1:46:22It was simply a cloud of energy that we can call an electron.
1:46:29So we already started to see mysterious things as we go into very super small quantities.
1:46:37So quantum physics started to go into the very small and very small distances.
1:46:44We see things that we can't explain.
1:46:47We just cannot explain.
1:46:48How am I doing on time?
1:46:53And to summarize...
1:46:57Let's go back to human life.
1:46:59When do you think human life starts?
1:47:01So you see, this is the question.
1:47:06You're asking me to measure something again.
1:47:10It can't be measured.
1:47:11You just hate making commitments.
1:47:13That's why I'm not married.
1:47:15I'm peeling this onion back a layer at a time.
1:47:19All your bullshit in Happy Target, can't be measured, can't be measured, or anything like that, is that to say measure makes...
1:47:25It's a commitment.
1:47:26You don't even like a commitment when you answer a question.
1:47:29It's the same in golf.
1:47:30Commit to the shot.
1:47:31I don't know what it means to be measured.
1:47:34You do know what it means to be measured.
1:47:36You're one of the leading currency traders, hedge fund guys or stock market financial wizards.
1:47:41You're in the high priesthood of high finance.
1:47:43You certainly know how to measure.
1:47:44That's why you're a billionaire.
1:47:46Any other answer besides that is total and complete bullshit.
1:47:50I know very few things.
1:47:52You know things to be measured.
1:47:55You measure every day.
1:47:56You weigh and measure every day.
1:47:58You weigh and measure people.
1:47:59You weigh and measure leaders.
1:48:00You weigh and measure economies.
1:48:02You weigh and measure politics.
1:48:03It's a very good...
1:48:04You weigh and measure...
1:48:07Your whole life, in fact, is measuring.
1:48:10So, what you've now done is a great thing.
1:48:14Is you've used the word measure, a mathematic term, in the common vernacular and abused it.
1:48:20So, I don't even recognize what it means.
1:48:22It's so abusive to my field.
1:48:28In mathematics, measure means what specifically?
1:48:32There's no specific...
1:48:34It's an approximation or giving something a number.
1:48:40We're not asking you to go to the ninth decimal point.
1:48:42Oh, you didn't say that before.
1:48:44No, you're not going to the ninth decimal point.
1:48:46What if I say measure how tall are you?
1:48:48You'd say, in your case, six foot.
1:48:51But is it six foot one inch?
1:48:55Between 5'11 and six feet.
1:48:59So, the question is...
1:49:00I want an accurate...
1:49:02I got Zeno's paradox.
1:49:03I don't even know what it means to measure you.
1:49:05Am I measuring the top of your hair?
1:49:06The top of your skull?
1:49:12You're being rabbinical.
1:49:14I shaved my beard off.
1:49:15I used to be rabbinical.
1:49:17My point is, isn't that what...
1:49:18Isn't that going through the Torah where you're parsing every definition?
1:49:24However we broadly define measure, your life literally is about measurement.
1:49:29It's about putting numbers on things so that I can try my best.
1:49:34But that's measured.
1:49:35You can call it whatever you like.
1:49:36If that makes you feel better...
1:49:37Well, what do you know?
1:49:38I want to make you happy.
1:49:39No, I want to make you happy.
1:49:40Because it's probably related back to your scientific inquiry.
1:49:45People don't say...
1:49:46A number is a complicated thing.
1:49:48When did you come to this...
1:49:49When did you come to this...
1:49:50When did you come to this aha moment?
1:49:53When it was in your solitary confinement, when the biggest financial crisis in world history
1:49:58was going on in your seven by nine jail cell with your metal bed and your two brushes
1:50:04because you were a trustee with the brown uniform on, trustee spelled wrong.
1:50:09Is that the moment of clarity that you had about science and Newtonian physics and everything
1:50:15that we can measure is really not going to be the way we go forward.
1:50:18It's going to be some more...
1:50:19Much more esoteric, emotional intelligence thing.
1:50:25Was that your moment of clarity?
1:50:26I wish it was because it would make such a great story for this interview.
1:50:31It's the fact that I lead such a privileged life to come across so...
1:50:35But when did you...
1:50:36If it didn't happen then, when did it happen?
1:50:38Or did it happen before then?
1:50:39I was going to hopefully get to the...
1:50:41I'm in a privileged position to have some of the world's smartest people come to my house
1:50:45and tell me what they think about different subjects.
1:50:48And I finally realized that the thing that they had most in common was there was this area,
1:50:55this area, no matter how smart they were, that when I asked them the questions they said
1:51:02they'd have to resort to a 500 or 1,000-year-old response to that question, which was, I don't know.
1:51:11You know who else found that out?
1:51:17That's what Socrates kept doing, right?
1:51:20Socrates kept asking all the experts.
1:51:23He would go through, you know, question after question after question and realize at the end,
1:51:28they didn't really know, they really didn't basically understand what they were talking about.
1:51:32And one of the things that people won't enjoy, it turns out that potentially one of the bad things to teach children
1:51:43Writing, reading, and arithmetic was supposed to be, everyone was supposed to be taught.
1:51:47But writing forces you into a very narrow channel of thinking.
1:51:51You have to write in a certain form, in a certain way, in a certain linear pattern.
1:51:57So your thinking becomes somewhat narrow.
1:52:00The reason I brought up writing is one of the recent discoveries of mine
1:52:04with respect to Socrates, Plato, and Aristotle is they never wrote anything.
1:52:08They spoke, and people around who could write wrote.
1:52:14Socrates could think.
1:52:18Jesus of Nazareth was the same way, right?
1:52:20Never wrote anything.
1:52:22I thought he was a carpenter.
1:52:24He was a carpenter.
1:52:25Didn't he need, like, a little carpenter?
1:52:27No, I don't want to get that.
1:52:29At least his written record.
1:52:33Thank you for having me to your house.
1:52:43When did that, the beginning of that...
1:52:46Was there any one aha moment in all these great thinkers?
1:52:50Did it happen before 2008?
1:52:52That came up over, I know, many years.
1:52:54But when did you actually realize, hey, something new has got to be developed?
1:52:59Yeah, that's great.
1:53:01Because, again, I'm privileged enough to have people around me who've given lots of philanthropic gifts to institutions of higher learning.
1:53:11And when I said, the impact, how do you judge the impact of your giving?
1:53:18And we sat down and said, no really new ideas have come out.
1:53:24And I realized that, of course, it hasn't come out because we've been looking at using science and mathematics and it's the wrong tool.
1:53:33Institutions that are set up and try to put forward knowledge and understanding and truth, should they take your money?
1:53:48Derek Bach at Harvard said, taking money for good causes is a good thing.
1:53:54So if Hitler took all the gold out of the teeth of the Jews and said, I want to give this to Heidelberg University to fund the Leibniz chairs so that I can study high energy physics, Derek Bach would say that was fine?
1:54:09Again, these questions are questions where good people on both sides, like your Charlottesville, could differ.
1:54:19I don't know the answer to those questions.
1:54:21So tell us, give us the two answers.
1:54:24The one answer why it shouldn't be and then the one answer.
1:54:27Derek Bach says, I'll essentially take cash from anybody because I've got so many projects, so many good guys, and this is the way I'll do it.
1:54:33So I'm indifferent to where the cash comes from.
1:54:36And if I've got good guys, I'm the producer who says these are good people and this is good research, okay, I'll take the cash from any source, including you.
1:54:47What's the other argument?
1:54:48Let me give you that I know in my case.
1:54:51Is your money dirty money?
1:54:54I just asked a question.
1:54:55Is your money dirty money?
1:54:59Why is it not dirty money?
1:55:01Because I earned it.
1:55:04But you earned it.
1:55:05I earned it legally.
1:55:06We went back to this before.
1:55:09Advising the worst people in the world, right?
1:55:14That do enormous bad things.
1:55:17And just to make more money.
1:55:19So instead of asking me the question, should you take the money?
1:55:24Because I think it's a legitimate question.
1:55:26You think it's a legitimate question?
1:55:29Because I think about, I think you have, ethics is always a complicated subject, but I can tell you that with the money I gave to help try to eradicate polio in Pakistan and India.
1:55:42Instead of asking me whether that money was, should be given to these children for vaccines, I think you might want to ask their mothers who received the vaccine, who know their child now won't get polio.
1:55:56And ask them if Epstein should have helped these people with their money.
1:56:02Is that a fair question?
1:56:04You're a mathematician.
1:56:05We walked into that clinic where they're giving that money out to these people that are in the most dire straits of poverty and sickness and told them that the money was coming from a, what are you, class three sexual predator?
1:56:20Tier one is the highest and worst?
1:56:22No, I'm the lowest.
1:56:23You're the lowest.
1:56:24Tier one, you're the lowest, but a criminal.
1:56:28That the money came from them.
1:56:29What percentage of people do you estimate, I understand you don't like probabilities, do you estimate, would say, I don't care, I want the money for my children?
1:56:37I would say, everyone said, I want the money for my children.
1:56:40Did they know where the money came from?
1:56:42I think if you told them, if I told them the devil himself said, I'm going to exchange some dollars for your child's life.
1:56:51Do you think you're the devil himself?
1:56:53No, but I do have a good mirror.
1:56:56It's a serious question.
1:56:59Do you think you're the devil himself?
1:57:02Why would you say that?
1:57:03Because you have all the attributes.
1:57:04You're incredibly smart.
1:57:05You remember, the devil is somebody who knows.
1:57:08The devil's brilliant.
1:57:09You read Milton's Paradise Lost.
1:57:11No, the devil scares me.
1:57:13Satan is the, he is the, he is at the number one or two archangel.
1:57:22And the reason he goes to hell and leads the rebellion is because he can't be the top guy.
1:57:28And his thing is, I'd rather, I'd rather reign in hell than serve in heaven.
1:57:32I saw that in a movie once called American Dharma.
1:57:35I don't remember who said it.