Rare Jeffrey Epstein Interview Subtitles Download with Steve Bannon

Before we get into the deep stuff, let's

just talk. Let's give some basics or

some things I want to do inquiry from

the others. Walk me through the Santa Fe

Institute. What What was it about

the time of the math? And this was in

the late 90s. So, they're not going to

hear me on this part, right? We'll do it

both ways.

>> It will not be on the video, but we do

have you recorded.

>> Fine. Remember, when you're answering

the qu on these questions, I'm not in

the shot and they're never going to hear

my voice. So, a little bit. You got to

repeat the in your answer, you got to

repeat what my question was.

>> Oh, I love it.

>> Okay.

>> Um, Santa Fe Institute, why when you're

at the top of your game on Wall Street,

do you decide to finance which was at

the time or endow or become the donor

sponsor, however you want to say it, for

what was considered the most cutting

edge group of mathematicians in the

world action. So s Santa Fe Institute in

the late 80s early 90s. I was interested

as I was on the board of Rockefeller. So

that starts Rockefeller University

formed by John D. Rockefeller to sort of

give back to the community. It's east

side of Manhattan except it was old. It

was sort of old-fashioned. They were

talking about medicine and medicine by

itself was again subject to the ideas of

science. They were trying to find use

science to find cures for disease.

And I said, "No, we need to do something

different. We need to start

interdisciplinary work in most."

>> How did a schmuck like you get on the

board of Rockefeller? What year was

that?

>> I don't remember late I think ' 89 or '

91.

>> So that's one of the most prestigious

research places in the world. Correct.

>> Yes.

>> Okay. How did a guy like you get on the

board of Rock, a blueblood,

internationally known, internationally

known uh hard research Nobel Prize

winners all over the place. How do they

pick a a guy like you, a trader from or

basically some guy from Bear Sterns?

Good question. So, I was asked to be on

the board of Rockefeller and I think it

was right I was on the board of

Rockefeller. Uh there was a money

manager who said Rockefeller needs

someone with financial expertise because

the university is growing and there's

lots of new things. You have to again we

go back to the the original discussion

the last time in up until the mid 80s or

sort of early se mid70s the most

important thing was your name. If you

were Rockefeller you already were

considered to be brilliant. If you were

head of General Motors it was your

reputation. And it was who you knew, who

your family was, what was your

character. And then in the mid70s,

basically, if you remember, you probably

had a calculator. It was very advanced

in those days to have a Texas Instrument

calculator where it could by putting in

the numbers, it would multiply for you,

do square roots, and that was the first

and everyone who had a calculator was

already advanced on Wall Street. A

simple almost like your accountant.

The most important parts of business

were really now going to calculations.

So it's not only mathematics, but it's

things that could be calculated.

Reputation couldn't be calculated. I

could give you, are you a 10 on a

reputation scale, an eight? What does it

mean to have a measurement of your

reputation?

We'll get to that later. But people

places like Rockefeller needed someone

to say look we are entering a different

world where numbers and the numbers of

companies portfolio management was going

to be balanced. It was going to be

statistical. Jeffrey could you come on

the board

potentially sit on the finance committee

nancy Kissinger and a bunch of other

people. And David Rockefeller and I got

along very well. He was just he was this

unbelievable human being.

respectful to everyone. He introduced

his driver as his colleague, not his

driver. He would never say, "This is my

driver." He said, "It's my colleague."

And David started to explain to me

world politics.

So David would say, "Jeffrey, money is

going to be sort of the most important

things. People don't understand money.

You seem to have this knack for money."

I said to David, tell me about your

life. What was the worst and the best

part of your life?

So David said, "When I grew up, everyone

knew I was a Rockefeller."

They didn't know that my father told me

he would not leave me a dime,

no money. But every time we went out to

eat, me and my five friends at school,

they would leave me the bill. They would

expect me to pick up the check because I

was a Rockefeller. And he said, "I was

chairman of Chase Bank." And he said, 'I

remember like it was yesterday, one of

the headlines in Time magazine said,

'David, please fire yourself.

So he thought that there was a a world

that existed in that would be a

combination of both politics and

business

and leadership. What do I mean? He

formed something called the trilateral

commission.

The trilateral commission is some spooky

stuff. People said it was something the

people that the Illuminati there some

mystery about it. People that ran the

world.

It was politicians. But David said most

countries the politicians get elected

for four years or eight years separate

from the royal families in England or in

the Middle East. Someone's there for

four years and then they're not there

anymore. the most important people to

have stability and consistency would be

businessmen. So he formed this

trilateral commission of businessmen

and politicians from three major

continents. So it was the North

Americans, the Europeans and the Asians.

So he said to me, would you like to be

on the trilateral commission? Now I was

30 years old, 32 years old. I said,

great. and he said, "Well, you have to

fill out this application so they have

your bio." And I looked at the list of

people, and it was Bill Clinton, former

president of the United States,

um Paul Vulkar,

every great leader in America, the

Asians, the Japanese,

and with a a very long

description of their history. And they

asked me to fill in what I would like to

have written. and I wrote Jeffrey

Epstein,

just a good kid, which I thought was

funny. Nobody else did.

Um, so in answer to your question, at

that time I recognized around the world

that monies and currencies

were not really well understood, but

again, it was only numbers.

So numbers and I'll get to the fact that

it was bad thinking. It's numbers are

very good. Are most people are most

people you meet even on trilateral

commission when you meet most people do

you find most leaders financially

illiterate

>> economically illiterate

most again most political leaders don't

come out of a background of finance most

political leaders come out of a

background of being popular so in some

of the countries in some the African

countries for example they might have

been a military person they were a

general in some of the African countries

They might have been a disc jockey or in

our country they would have been an

actor.

The knowledge of money isn't they don't

have expertise. They have no degrees in

finance. They really what and this is

one of the major problems.

Their expertise if they have any

financial knowledge is of their own

checking account or bank account and

filling in their own taxes.

So many world leaders who don't really

have a financial underpinning make

fundamental errors when it comes to

money on a country or institutional

level. Let me give you an example.

If you Mr. Bannon

if I said your assets increased last

year

you'd say that's well that sounds pretty

good. And I said what does that mean to

you? You'd say, "Well, I have more

money." I guess I'm I'm wealthier and

say, "Yes."

And if you had if your debt increased,

would you would you feel wealthier or

poorer? You say, "Well, I don't want to

have increased debt. I don't like the

idea of that sound increased debt."

Now, that and world leaders understand

when their assets go up, they feel

better.

However, institutions like banks, things

that people don't really understand are

financial underpinnings of banks.

When I say your bank, Mr. Bannon, you

have the Bannon bank, you doubled your

assets.

Sounds good. But what does it really

mean?

It means people owe you more money. You

don't have any money. More money.

What? Yeah. A bank's assets

are how much it is owed by other people.

That's crazy. So if the bank went goes

from a $2 billion of assets to 10

billion, it means people owe it an

additional $8 billion and they but their

assets have gone up.

So the terminology of assets and

liabilities is different for banks. It's

not natural. And what most people and

you ask questions about world leaders,

there's many people I think your old

boss Mercer understood. There's a

fundamental part of money which is

called fractionalized banking.

And fractionalized banking is something

that finance people understand. And the

people on the street, and when I say

people on the street, that's where I was

when I started on Wall Street, would

find it impossible to believe.

Impossible.

Why?

Bang and bank, I give you

$1.

Just one single dollar.

In our system of banking, I would say,

"Okay, Steve, I gave you a dollar. How

much could you lend out to your friends?

And your natural reaction would be

probably something less than a dollar

because I want to keep something in my

pocket.

The way our system works is if I you as

a bank are holding my dollar,

you can lend out an additional eight or

nine dollars.

No, it's impossible. I only have a

dollar. carefree.

We have something called fractionalized

reserves, which is if you have one, you

can lend out nine. That's the way our

system works. And so, not only do world

leaders not understand banking, but the

man on the street, my father, who worked

in the park department, it it would be

beyond his imagination that people could

lend out more money than they actually

had in their pocket.

Next question. Well, how how did this in

in in understanding that when you get on

something like the trilateral

commission, you're on the board at

Rockefeller, which is the most advanced

research, you get brought into the to

the trilateral, which is the elite of

the elite.

>> How since you're only at that time

>> 30 something,

eight years from teaching at Dalton,

right? You're adult 10 years teaching at

Dalton.

>> Yes.

>> Walk us through I mean, put us in the

room. walk walk me through exactly what

it felt like what it felt like being on

the board at Rockefeller. You got these

Nobel laureates and you're sitting there

making decisions and you start to meet

these people at Rockerfeller and you

start to meet these people that are

trilateral commission. What what did it

feel like?

>> That's a great question. So what did it

feel like?

>> That's I'm in the business of asking.

What does it feel like meeting some of

these people like Kissinger or

Rockefeller and those are two

extraordinary people and but in general

I think the question the people on Wall

Street I tell the story the first day

one of the first days when I was in Wall

Street someone said to me would you like

to buy ATV

and I could I was looking in the

brochure and I I couldn't figure out

what stock had a symbol of ATV. V.

And when I finally said, "Well, I I

can't find it." And they said, "What the

what's the matter with you?"

Do you want to buy a TV? Which is he he

was selling hot televisions, stolen

televisions from the floor of the

American Stock Exchange referred to in

common policies, the televisions fell

off the truck. That's so I knew what

that phrase meant from Coney Island.

But what I found was most people what be

it in business in normal life or in the

world leaders don't really understand

money. It is something they think about.

They have a sense of what it is. They

certainly want more of it. But they also

make statements like we want more money

but we don't want more debt. Which just

shows a misunderstanding of what money

at its core really is. So they don't

most people don't they want to make it

they want to save it but to understand

it in intimately is is not a normal

characteristic

>> at the at the the first trilateral

>> or something.

>> Yeah. Yeah. Good.

>> Just just give me approximate you you

joined the tri letter

>> commission. It might be

>> and we'll be able to show the the we'll

pull down the the chart of where your

name was but just give me roughly when

it was. I think it could be 90. I don't

remember.

>> Let's say early 90s.

>> Yes.

>> When you got on the trilateral

commission

>> and had the fir where was the do you

remember the first meeting was?

>> It was in Tokyo.

>> In Tokyo and in what hotel?

>> I would like to say the Hilton but it's

probably not.

>> Um and it's a three-day 4 day. Give me

some three-day event and

>> walk me through the whole thing. Starts

with a dinner. Good. Take me Just walk

me through it.

>> It was boring. I can't I

>> You couldn't possibly think it was

boring. It's [ __ ] It was boring.

You had to be stars in your eyes.

>> No. Do you fly over privately?

>> Um, yes, but it wasn't my plane.

>> So, it didn't count.

>> No.

>> Um,

you you fly over?

>> Yes.

>> And

>> and it was

>> Who who were the first like when you

first met those leaders, you had to be

wowed?

>> No.

>> You're 10 years out of Coney Island.

>> No, I'm not wowed by people of position.

I'm wowed by people of great ideas. And

I don't care if it's the bus driver. I

don't care if it's the student I had who

has teeth strict coming out.

>> Well, these guys have to have great

ideas. The leaders of the three great

continents of the world, North America,

Europe, and the and and Japan.

>> No, many of these world leaders become

world leaders because they're popular

and they were able to get votes or they

were able to convince people to vote for

them. I learned later um many of them

were just

like good at what they did in terms of

politics. Remember, world leaders are

politicians in general. They're not

scientists. They're not intellectuals.

They're not great thinkers. They're

great politicians. At the at the first

trilateral commission meeting that you

remember in Tokyo in sometime in the

early 90s. Do you remember what were the

big issues of the day that they were

talking about and what did you think

about it?

>> Yeah. In fact, it was funny because they

they were talking about inflation and

they were worried that what would happen

they how do you control inflation

and I as a mathematician I didn't

understand the concept I don't

understand the concept today

use how's that possible well when you

talk about most things to do with money

they really money is meant to be local

it's US dollars then I understand what

it means if inflation it means my dollar

today

inflates and it doesn't buy as much as

it did a couple of years ago. The price

the prices go up. I don't have as it

seems that everything is great, but in

fact my dollar is shrinking in value.

>> If if you and you're the financial

genius here. I'm just a I'm just a lowly

M&A guy.

>> Um if you let me if you let me finish

the thought. Go ahead. So if if you're

in America, you start to you can feel

inflation. Your salaries gone up, but

you don't buy as can't buy the same car.

In fact, it starts to feel weird because

the value

>> that's why I want to answer the question

then. That's my point.

>> Sure.

>> The the central the people who live and

breathe this the central banks have been

haunted by the spectre of inflation

since the late 70s.

>> Yes.

>> First off, tell our audience how did

that happen? The two great uh the two

great financial events

in the 20th century, I'm not going to

get to the 21st, were the the the the um

the great inflation in Europe after

World War I, the the Great Depression,

the hyperinflation in Germany that led

to the rise of Hitler, and then this

inflation in the mid70s. What was before

you go explain inflation? Why is why is

a spectre of inflation always the

central thing in central bankers minds

>> because it goes back to this the first

concept I said the weird concept of

fractionalized reserves.

The system is not well understood and

will most systems in fact are not well

understood. We don't know how our

digestive system

>> stop this is impossible. This is

impossible. The most the most the world

banking system, the world currency

system, the world monetary system has to

be so well understood by the green spans

of the world and the Bernanes of the

world and the and the and you uh right

the the currency traders, the the the

the guys making billion dollar bets

every day, the the legendary guy on Wall

Street in the late 90s, Solomon

Brothers, um

>> Lineri,

the guy that wrote money. Uh,

>> Michael Wes Poker.

>> Yeah, Liars Poker. Who's that about that

great trader?

>> Lou Reieri.

>> No, the guy that ran the desk that

eventually ran the the hedge fund that

went long-term capital.

>> Ah, yes. I don't remember.

>> Who's the guy?

>> I want to say I don't remember. I'm

sorry.

>> Lutiner is big. But those guys have to

understand the system perfectly.

>> No, they don't understand the system.

They understand the local part of the

system. So, for example, why is not only

inflation? Most bankers are terrified to

if the public understood that the bank

really doesn't have their money at any

one time. There's one of the things

during the depression there were runs on

the bank. The reason the banks don't

keep much money in the actual bank is

they assume that not everyone's going to

want their money on the same day. So

that's not really the fear of inflation.

The fear is a run on the bank. Everybody

wants to take out something that doesn't

really exist.

Inflation is tied to interest rates.

It's a more complicated example. But

when your money doesn't buy the same

amount of product this year that it did

last year, if it buys less and less like

it happened, you use the term

hyperinflation.

There's h certain countries that are not

managed well like in Africa at the

current a$undred

billion dollar bill a hundred billion

dollar bill in Zimbabwe

is worth one American cent

that's the perfect example of

hyperinflation

it goes up it doubles every day so

people are afraid that their value and

the system starts to break down but so

if I said to Does your doctor

understand your body system?

You'd say, "Well, I hope so because I

want him to keep me healthy."

But you could have a kidney infection.

You could have a heart attack. You could

have a broken knee. There's lots of

pieces of this system. And in fact, when

you ask the question, very few doctors

understand your entire body. There's a

specialist for your knee. There's a

specialist for your polyoidal cyst.

There's a specialist for your head. And

now we have specialists in different

areas. So in and I'm going to get to

your first question about Santa Fe

Institute. The world economy and your

body

are both comprised of little systems

interacting with each other and making

one big

>> system. You you you this is what's

stunning for all the little guys out

there, the populist movement, the little

guys that that haven't had a pay raise

in in 30 years. They think that these

elites,

you know, have everything. The the guys

in the room making the decisions, the

the the party of Davos guys. You're

sitting there. You don't think many

people today really understand the

complexity and really all the moving

pieces and how they interconnect of the

world's financial system. No, the nice

not only don't they understand the

complexity and that's goes back Santa Fe

Institute was an attempt of trying to

see if there was a way to mathematize,

formulize or algorithmically understand

what the term complexity means. That's

that goes back to the original question.

Complex systems are complex by

definition, but there's not necessarily

it's not one level of complexity. As we

might say, well, our fingers are

complex, the movements, the muscles of

our hands, but it's not as complex as

the blood system. Now, I have a

circulatory system. I have systems on

top of systems. So, that there's no one

group of or person that really

understands the way the body works.

There's no one group that understands

the way the financial systems work. You

might understand US bond markets. Now

you've asked about the trader long-term

capital that was a bond fund very small

part of this very complex system. So the

goal of the Santa Fe Institute was to

see is there a way to get in somehow

understand how complex systems interact.

Fast forward, Steve, to

today where Google and these other um

engine companies, the other tech

companies are trying to build artificial

intelligence.

The strangest thing that they found, one

of the strangest things is that the

systems that they design, this

artificial intelligence, which a lot of

people have heard about, is they design

a bunch of systems. They're called

neural nets.

terms simply taken out of brain work.

Neur neurons in the brain nets because

they actually look like a net. They put

in some inputs. The computers work spit

out an answer. Sounds normal to you.

It's because you're thinking about that

calculator you had in 1976 on your desk.

When you ask the person who designed the

system, how did it come to that answer?

How did your neural net can you show me

the calculations? They say no, we don't

know. We don't know how the thing we

designed

actually came up with that answer.

That's pretty strange.

They take the same neural net now and

they put it in front of a video game.

No, no learning, nothing. They said to

the computer they say sit in front of

the your video game and learn how to

play.

It seems the computer learns better than

any human in history, faster than any

human in history, beats any human in

history. But when you ask the designer

how did it do it, no one knows. It just

did it. So 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

on Sunday afternoon.

September 14th, 2008. Where were you?

>> Sorry.

>> It was the night they put Lehman

Brothers in bankruptcy in London.

>> I was in jail.

>> Seriously?

>> Yes.

>> So, the financial crisis of 2008

happened when you were in jail? Yes.

>> Oh, this is going to be so amazing.

>> This is going to be so amazing. Um, I

take it you couldn't you didn't have

your Wall Street Journal dropped off to

you in the morning, your Financial

Times.

>> No.

>> How did you hear about the How did you

hear about Because I want the I'm

>> I forgot about this, but yes,

>> I'm trying to get this is going to be

amazing. This is Let's go back and do

that again. uh um Sunday afternoon

because I want to find out about

people the geniuses understanding the

complexity of the financial system

because I think the best example we have

is the financial crisis of the crash of

2008.

Sunday 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 and with the secretary of treasury

about in the Federal Reserve what

they're going to do with Leman. They

decided they weren't going to save it

and so they prepared to put it into

bankruptcy at the open of the market in

London the next day.

How did you hear about what was going to

happen to Leman Brothers and what did

you immediately think when you heard

there was going to be put into

bankruptcy?

I'm glad you asked that question.

I was in solitary confinement

September 14th

and unbe again some of the public

stories about the wonderful time I had

in jail and my work release which didn't

come till months after I'd been there

since June in an 8x10 cell with a bed in

the back a sixoot bed in the back a

uh chrome sink with toilet attached to

to it and a little piece of metal

sticking out that was supposed to act as

a table. Now, since I was in jail, there

were no books.

Why? There's no library. No library, but

you're in jail. No, I was in jail, not

prison. So, in jail, I was in a place

called the special housing unit, which

is for the roughest, toughest, meanest

people.

They had put me there, they said, for my

own protection.

So I was in a 8 by10 cell with a little

slit in the door where they would serve

my food on a a tray about 9 in x 4 in.

And then soon as I finished eating, they

take the tray and close it down. And one

of the guards said, "Do you understand?

There's a cr there's Wall Street's

crashing. I'm I'm worried about my

pension fund. What should I do?"

And I said, "Sorry, Wall Street's

crashing. what's happened? And he said,

this some crisis and some companies are

going bankrupt. I said, are you sure?

And he said, yeah, it's all over the

papers. Everybody's ter we're all

terrified. We're going to lose our life

savings because we have either a 401k or

our pension funds. We don't know

anything about money. Mr. Epstein, can

you tell us like what's going on? Am I

going to am I going to be able to afford

my children's education? Am I going to

be bankrupt like this company called

Lehman Brothers?

And there's another company in the front

page today

called Bear Sterns.

Oh, no. I said, why? Because that's the

company I was a partner in. And in fact,

that was a company I had a very large

investment in.

So, as a great story,

I I didn't have my Wall Street Journal,

but in the early mornings, you're

allowed to make two phone calls.

Collect. And when you 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. Will you accept reverse

charges?"

And the person either says yes and they

call goes through or the person says no.

The person I had called was Jimmy Kaine

the president of Bear Sterns

and I said tell me what's going on.

And so that 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 and

they were trying to figure out a way

should they bail out Bear Sterns

the um

did 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 ers and uh

ask their you know uh your thinking by

the most prominent and important people

in the world and here you are in

solitary confinement. You can't even you

can't even you got to make a collect

call to somebody. Did did it did it

strike you at the time how

how all the threads of your life had

come together and and and and put you in

a position or you had put yourself in

that position.

>> No.

So 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 Sterns the

biggest financial

event in your life is taking place

of which one

every important person in the world

would be seeking your opinion number two

would be a uh a once in a-lifetime

opportunity to apply your craft. Number

three, it would be a once in a lifetime

opportunity to make money if you were

smart. And obviously you're smart.

You'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 6 by9 with a steel bed and

your food being passed into through a

slot. The question you want to ask is

who was the other call to? Okay.

>> Who was the other call to?

>> The other call was to my friend at JP

Morgan

who was then I didn't know it at the

time trying to buy Bear Sterns. So at

one point I had two phones. It was

difficult because they're afraid people

are going to hang themselves with the

phone cord. So they don't actually come

together and they're pretty short. So I

was actually going between two phones

talking to Burns and JP Morgan at the

same time. So, I found it amusing

>> and it never struck you about how to end

up in a situation like this.

>> No, that would be probably means I would

be too self-aware.

>> You can't possibly expect me to believe

this.

>> I know. I don't believe it. It's even

you're telling me that and during that

day

>> you never had a moment you sat there and

go what the [ __ ] have I done with my

life that I'm in a 6x9 jail cell when I

should be on a trading desk or I should

be in my $250 million uh you know

greatest townhouse in New York City

taking calls from the king of Saudi

Arabia, the president of China, the head

of Russia, the president of the United

States to uh save uh the world's

population from a financial debacle.

You're honestly expect me to believe

that you that never happened?

>> You're suggesting I was from somewhat

depressed and how how could this

happened to me? I

>> I'm not saying depressed. I'm saying a

moment of awareness of how could I get

myself into this situation?

>> No, I would just say how strange that

this happens. Just it's strange.

I'm wearing a jumpsuit and flip and

flip-flops.

>> What color was the jumpsuit?

>> Brown.

>> Brown. Brown jumpsuit.

>> Yes.

>> I notice I don't see you in a lot of

brown.

>> No.

>> Brown jumpsuit and flip flops.

>> Flip flops. Yes.

>> With no access to books, no access to

newspapers.

>> No access to anything.

>> You had lived on information

>> except my Almond Joy bars. I has extra

Almond Joy bars.

>> Did you eat Almond Joy bars and things

like that because you're afraid of what

the the cooks did to your food?

>> Yes.

>> Is that because of of that you were in

for the crimes that you were in for? No,

it was just be in fact I was

>> because you're wealthy.

>> Yes.

>> How did it how did you know that?

>> Well, people people would constantly

come if I was passing by or have to go

for my medical, people would either ask

to borrow money or make some other types

of comments about

>> in the beginning.

>> What were the comments

>> at the beginning? What were the

comments?

>> It it serves you [ __ ] rich guys right

that you're here next to me.

>> There was nothing about your crimes.

>> No. So all this rumor you hear all the

time uh about people in prison that

commit the type of crimes you commit

that's you're saying in your personal

thing is not true.

>> No.

>> It was all because you were rich.

>> Yes.

>> And it was all because they wanted to

borrow money.

>> Well get advice.

>> Yes.

>> What they get advice to to go long to go

long? You're telling me to buy? You're

telling me in solitary confinement

they're they're they're interested in

going long. Yeah, they wanted to know

what

>> what does that say about human nature?

>> Well, what I think the people find one

of the reasons they wanted to keep me in

solitary confinement was they're afraid

that everybody would want to know which

stocks to buy and but what happened was

after this crisis now it's on the front

page of every

>> I don't want to leave lose this day.

>> Sorry. Sorry. When you first heard that,

did you

>> Was it Bear Bear Sterns had been kicked

into bankruptcy what 6 months before?

>> No, no, this is the same time. This is

part of the same deal.

>> I thought I thought No, no. Bear Sterns

they said the Bear Sterns they Oh, they

saved Bear Sterns and didn't save uh

Leman Brothers. That's six months before

they had bailed out Bear Sterns. But

Bear Sterns was still a zombie.

>> A what? For a shell of its former self.

>> A former self. But they had quote

unquote saved it. They admit why did

they make the decision in your mind? Why

did Hank Pollson and Bernani this what's

this concept of moral hazard? Explain to

the audience what moral hazard is and

why why did they save Bear Stern six

months before and why did the smartest

guys in the room decide not to save

Lynon Brothers?

It's a good question. The real issue is

is I'd have to go back when you have

these systems to the way your doctor

responds to any type of emergency in

your body. If they might decide to save

your kidneys and let your gallbladder go

because the gallbladder is less

important to your overall system. it

people if at that time

even it's it's not that long ago the

boogeyman

was when said what really happened

Jeffrey what really happened why what is

this financial crisis and you know the

some of the progressives and the

right-wing blame it on the banks it was

the bank's fault and it's the fault of

this very esoteric unknown concept of

derivatives

It was really the derivatives that

caused this financial crisis because the

derivatives got somehow out of control

and like the in the Mickey Mouse

>> and that was the way you started your

financial your financial your your road

to a billionaire went right through

derivatives.

>> Yes. But it's but derivatives were not

the cause. Derivatives were not the

cause at all.

Um, it's like saying your hair was the

cause of your heart attack because it

was on top of your head.

>> What was the cause?

>> There isn't,

let me say, there's no one specific

cause. There's a system collapses. So,

when many times when they have to make

your death certificate

when you say, well, what did he die

from? They'll say heart failure. But if

you say, what was the cause of his heart

failure? Well, he had low blood

pressure. His sugar was high. He was

diabetic. He had all these other

problems. But he said, "No, no, no. We

need a word on your death certificate.

Did he die from brain damage? Did he die

from heart failure?" That's the

financial crisis. Many said people said,

"Well, what caused it?" They wrote like

on its death certificate derivatives.

But derivatives were not a fundamental

derivatives are not a fundamental cause

of anything.

>> On the So the was it Sunday or Monday? I

can take it was Monday morning when you

made your two collect calls and you're

talking to Bear Sterns on one hand and

Morgan Stanley the other.

>> JP Morgan.

>> JP Morgan. Did you

>> That was Monday morning. Did you Jeffrey

uh

being one of the financial geniuses in

the world? Did you understand what

Lehman Brothers is going into

bankruptcy, the domino effect that by

Thursday the financial system would be

under such extremists that if it didn't

have a trillion dollar cash infusion in

the United States, it might collapse?

Did you know that at the time? Did you

view that at the time?

>> Yes,

>> you did.

>> Yeah.

>> Why? Again, I I I don't want to bore you

or the audience with the the idea of

it's a medical procedure, but you had

system failures. So, you'd recognize

that if I said to you, "Did you realize

when your father was on the ground and

he was clutching his chest and he

couldn't breathe?" Uh it was a bad

situation. He he could die. That's how I

saw it.

>> Did you Did you know did you immediately

think about the commercial paper market?

I mean the the mechanical triggers that

actually had to you had to blow through

these circuit boards. Did you know the

circuits? Did you understand the

circuits or did you have a concept of

the circuits that were going to get

blown through? Yes, but only because of

an analogy to a body. And in fact, from

my se my telephones against the wall

with my little metal wires because the

next day I talked to another person in

Washington about the issues of what I

thought was happening and I made the

same discussion about the

>> they were at the Treasury Department.

>> Yes.

>> So in a in a 6x9 cell in

>> the phones were outside the cell

>> in Connie in in in Palm Beach County,

California.

>> West Palm Beach, Florida.

>> West Palm Beach, Florida. your juice

diet.

>> West Palm Beach, Florida. West Palm

Beach, Florida. West Palm Beach,

Florida. Uh you're making a call to

Washington DC to talk to some deputy

deputy secretary Treasury.

>> Someone in Treasury,

>> right? Someone in Treasury,

>> right?

>> And that does not

the night before before you go to bed,

it doesn't dawn on you at all. You never

have a moment of self-reflection that

how did I end up on this metal cot when

I should be at the center of things?

>> No, I had a telephone. So, I've said I

can talk to it makes no difference where

I am. In fact, I'm still talking to the

same person if I was at my home in Palm

Beach, but I'm here in jail.

>> Home in Palm Beach.

>> I can dial my own phone.

>> That's that's [ __ ] No, but you can

also make a thousand phone calls here.

You got to make one and he's got to take

>> Think how much better that was. I had to

decide who is the right person to call.

That was unusual for me cuz I would have

called 20 people.

>> And what was this? What was the advice

you gave?

>> I said we have you have a sick patient

and it's very much like a sick patient

in the emergency room. Don't you can't

think about it like your car. People in

normal walks of life think about money

and things as a machine. And

unfortunately, so if your car breaks,

cars are always easy to fix.

my jets, my cars, if it breaks, I know

it can be fixed because it simply

follows the same pattern. If this part

breaks, you replace the part and the

thing works again. People

and the financial system are not

machines. They can't be fixed the same

way. You can't simply take out the B,

put some more juice into the commercial

paper market, and that's like replacing

the carburetor on the car. It's much

more I have a patient who can't breathe,

has a stomach problem, can't see, has

looks bleeding at the same time. What do

I do first? I have to think about it as

a system. Where's the most logical

place? What's the most dangerous place?

If your heart stopped, we have to start

your heart again. If the in the

equivalent to the money market,

why do I have to start your heart again?

I need to get your blood flowing. If

your blood stops

the you're dead. If liquidity

which is the equivalent of blood in the

financial system

dries up.

>> What's liquidity is basically cash

putting cash into the system.

>> Forget about what it is.

>> Okay.

>> Liquidity is liquidity. It allows the

system. It's the blood of the system.

You need to pump blood hard into the

body of the economy to keep it flowing.

And if you if you're especially when

you're worried about someone dying,

you're not going to be worried about the

nicities of well, you got the shirt

dirty and there was some damage. Pump in

that blood. Keep that.

>> When you talked to to the person in

treasury on Tuesday the 16th, did you

get a feeling as you were sitting in

your 6x9 jail cell in West Palm Beach,

Florida, that they were on top of

things?

>> No, you can't. It's impossible to be on

top of things. There's no such thing.

It's again the doctor watching the

patient die. You hopefully have some

confidence that he's seen it before. He

recognizes that there are some steps he

has to take first before he bandages the

guy's finger or worries about what shoes

he has on. So you hope that the people

in charge, your doctors who are working

on the emergency patient have enough

experience and frankly judgment to try

to keep the patient alive. Did you think

that they did you think that they

>> had those things? Patience and judgment.

>> They had pretty good judgment and you

needed a lot of luck. Just like in the

dead patient, you need to hopefully you

put that blood in and it's not too late.

And you maybe you make some mistakes,

but you have to know you're going to

have to give it a shock.

>> In the run-up to uh the September crash

of 2008. Yeah.

>> I guess you weren't occupied with

finance that whole summer. How long had

you been in jail?

>> I got went to jail June 30th.

>> So the entire summer? Yes.

>> Before you went into jail, you were

still very active in the financial

markets.

>> Yes.

>> When I say active, you trade currencies

every day. You trade stocks every day.

When when people someone like you or

give you give advice to people to trade

stocks or trade currencies?

>> I I don't trade every day. I think

that's like Woody Allen said, it's you

can't beat the bank. So, I I try to pick

my spots. You know, George Soros picked

his spot in the when the pound

collapsed. This would have been a great

money-making opportunity that passed me

by when I was in jail, but that's not

how I think.

>> In the run-up to that, in the spring of

2008, were you that's when Bear Sterns

got in problems, I think, in in the

spring of 2008 and they decided to bail

it out.

>> Did the Bear Sterns guys talk to you for

advice at that time when the the big

crisis in Bear Sterns?

>> No. The see again unbeknownst to most

people

and it's easy to blame people for the

financial crisis like you'd blame the

someone for giving your father the drink

before he had his heart attack.

But what really happened

the real enemy of the finance system was

Bill Clinton. And if if you ask me what

and who caused the financial crisis, I

would tell you it was Bill Clinton.

because of what Bob Rubin and he did to

the financial deregulate the financial

system.

>> No,

because as of the last time we had our

60-minute interview, you talked to me

about home ownership

and you asked me whether everyone should

own a home and I told you no, it's too

risky.

So the financial collapse of 2008 is

because of hardworking

African-Americans, Hispanics, and and

and and whites who wanted to have a

piece have a ownership stake in in in

the society that all rest on their

shoulders. They're the culprits.

>> No, not at all.

>> Okay. Then

>> I didn't I didn't say they were the I

was pretty clear it was Bill Clinton.

>> Okay.

>> Why was it Bill Clinton? because Bill

Clinton wanted to get votes from those

people and he sold them the idea that

instead of renting in a house and

historically the values of houses has

gone up and he said you guys in these

local communities who haven't been able

to afford a house before,

I'm going to show you a way. I'm going

to give you away because I'm sure you

I'll get your vote

that you can own a house because I want

your vote. So, what we're going to do is

I'm going to let you buy a house, Mr.

Bannon. When you really

you it's you're right on the border

maybe or not even on the border. You

your credit is not good. Okay, let's

let's be honest. And it's not my fault

or it's not Bill Clinton's fault, but

whatever happens at the moment your

credit score or whatever it is, your

credit's not good.

Now, normally you come to me and you're

a want to borrow money. I'm a bank

and I say, "I'm sorry, Mr. Bannon. I

can't lend you money

because your credit score is not up to

where it needs to be. Hopefully, if you

work harder and clean up some of your

problems, it will be.

But no, what I say to you is I'm going

to figure out a way to lend you lend

you, not give you. I'm going to lend you

money anyway, though you don't have a

good credit score.

And don't worry, I'm going to get a rid

of the term that you don't have bad

credit. Bad credit sounds projorative.

You don't want to be a person.

>> Sounds judgmental. Yeah, it sounds

judgmental.

So, what we're going to do is we're

going to call your credit situation.

Subprime.

Oh, nobody knows what that means.

Subprime.

That means prime is good credit.

Subprime

is not good credit. Less than good

credit. So, we'll call it something that

people really won't follow. And we'll

tell you what, we're going to have

people lend you money though you are a

subprime

borrower

and I

will figure out some government agencies

to guarantee your loan though I don't

think you're a good risk.

So the banks say no no no we don't want

initially the bank said sorry this is

too risky Mr. president for us.

We're in the business of managing risk.

It's not our money. It's the hardworking

people's money sitting in our bank. We

can't lend to people whose credit is not

prime. You're asking us to lend to

people who are subprime.

And he says, here's the key.

If you don't, Mr. Bannon, I am going to

make sure the Justice Department charges

you with discriminatory lending.

because you refuse to lend to my

subprimers.

In business terms, you should never lend

to. But what we'll do is we're going to

I'm going to form an agency called Fanny

May and Jinny May. Just another agency

names. They'll guarantee your loan. So

don't worry.

Don't worry. You don't have to pay it

back anymore.

Even though you and maybe you don't even

have to work as hard anymore. That's

that's probably a harsh statement, but

these players, these two big firms,

Fanny M will guarantee the fact that

that bank will receive its money.

Now the bank says, "Wow, best deal in

history.

I refuse to lend to Mr. Bannon, but now

he has the big brother, uncle, his uncle

Sam." He went to his uncle Sam, and

Uncle Sam says, "I'm guaranteeing it."

The bank says,"I want everybody. Give me

as many people as you can give me

because Uncle Sam is the best credit in

the the world. Not only it's the United

States government. We'll take it all.

We'll take as much subprime

as we can handle because it's the best

investment for the moment. It's a

strange investment because it has

politics that has inserted its way into

the numbers.

politics doesn't belong in the in the

markets. But now we're going to have I

want the votes. We'll make guarantees

that you who can't get a house normally

will be able to get a house from the

bank. The bank says this is the best

deal in history. We will package

a 100, 300, a thousand of you subprimers

and we'll sell it off to somebody else.

And the whole system becomes mired in

subprime mortgages. That's becomes the

>> What do you mean mired?

>> This is too much supply. It's a supply

demand problem. You got too much supply.

>> No, it it's a very good question. What

does too much supply mean? Well, then

you get to people go back to your first

question to me.

Government leaders.

Government leaders know if they're good

if and they can do mathematics, they can

balance their checkbooks. So certain

people in Congress said, "Well, how do

you value these subprime mortgages?"

The banks say, "We've we've been valuing

them the same way we've always valued

them for the past 20 years." the

accounting firms. There's something in

in this country called GAAP accounting,

which is a a standard type of

accounting.

And we account for them the same way

we've always accounted for them. If 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.

Makes sense. I paid for it last. What's

its value?

It's $1,000. That's what I paid for it

last night. No, the Congress people said

that's not really a good answer. You

know, that does that doesn't give us

confidence that you know what you're

doing because

what happens if you have to sell it

tomorrow morning?

If I you there's a something's happened

and you have to sell it. Remember

there's kinds of stress tests. would you

be able to value it at what you paid for

it the day before?

And Wall Street says that's not the way

you can think about this. This is crazy.

We always value things at the cost from

the day before. And they changed the

accounting method. In essence, to say

not what it was worth yesterday, but if

I have to sell,

what would it be worth?

That's impossible. So what happens is

every bank now has to value something

they bought yesterday at lower than they

paid.

Never before in 20 years did they have

to do this.

So something they bought at a,000 on

their books was a,000 is now 990.

That starts to you asked the question

about what did I start to think about?

Something's a,000 and 990. This person

now has to value it at 980. When did you

first start to get nervous understanding

Bill Clinton in all this? Did you change

glasses?

>> Yes.

>> Okay.

>> I changed shirt.

>> I saw that black.

>> Um,

>> are you okay with the

>> Yeah, great. I think we're going to have

all kind of changes.

>> I'm experimenting. Okay.

>> Um,

when did you get a feeling? Did you ever

anticipate

before it happened something like 2008

could happen?

>> No.

How could that be?

Because anticipated

to death is that it's very much like a

would I expect anticipate I'll have a

heart attack tomorrow? Unlikely.

>> Was 2008 a heart attack or stroke?

Debilitating.

>> Um it's a better um

I don't to it was both.

But why was it both? because in fact as

I said the blood was getting dried up in

the system and the head which is sort of

the central bank wasn't working.

So to some extent it was a combination

it was did you see that building up over

time?

>> It's it's always been lurking in the

background. I mean if if you have an

older parent would you say it's possible

did you anticipate him having the heart

attack today? No. You hope things are

going to go better and maybe they'll fix

it up. um the system was getting too

complex and it wasn't based on

derivatives because what people keep

forgetting and as I was just explaining

Wall Street and W in many professions

including Wall Street, Wall Street makes

it sound complicated. They don't want

the little guy to understand what they

do because they make so much money and

they don't do very much. So they they

couch it in words like derivative and

stock options and commodity futures and

different types of contracts. It's all

fairly everyone is capable of

understanding it. It is not complicated.

But Wall Street because they make so

much money from doing fairly simple

things needs to make it more complicated

than it really is.

the we had a a very big recession in the

early 90s based upon real estate and and

and Japan basically imploding.

>> Let's again you had a recession in the

'9s. I don't know what it's based upon.

It it's always interesting to look back

and say separate from there's certain

triggers like there in the 70s there was

a

>> what what do you think it was based upon

the 90s downturn? It's clearly there was

a huge downturn. No, I I just I know

there was a downturn. That's what I know

for sure.

>> That's a fact. What

>> everything else is sort of speculation

about why why did he have that?

>> I understand that, but there's some

speculation that has 0% probability of

being true and there's others that have

90%. In in the r in the range when you

look at the range of alternatives of

what could have caused it of in 90 and

what I'm trying to do is get you all the

way up to 2008. Look, you're the

smartest guy in the room, right? You

know that.

>> Do you think there's anybody in the

world today?

>> Oops. That's this is going to be a bad

question.

>> No, no, but do you s do you think

anybody in the world today, the Allen

Greenspans, the Bernanis, any C is there

any central banker, you know, any

partner of any Wall Street firm, any guy

running a trading desk, and I would take

it that would be or anybody at a Larry

Frink at Black Rockck, uh Steve

Schwarzman at at Blackstone, the top

hundred

financial guys and let's throw in a

couple of Nobel economists and let's

throw in the best professors at the at

Wharton and at Harvard at Stanford. Do

you think that there's anybody that

understands money or understands the

world's financial system as good as you?

>> There must be.

>> But it doesn't come to the top of the

head.

>> No.

>> Okay, fine. Now,

>> now that now that Okay, now that I've

gotten that, no, now that I've gotten

that, let's go back to 1990 and that arc

from 90 from the fall of the Berlin Wall

to 2008.

>> Good.

>> We had we started with the the implosion

in Tokyo of the Japanese economy,

Japanese financial markets. We had the

huge runup in in internet stocks, right?

We had the exp implosion of that in

2000.

uh the um you know the the the

bankruptcy of bar of of Drexel Burnham

in 90

>> implosion of Japan huge runup in equity

markets for the internet implosion the

internet 2000 10 years later roughly

>> and then this runup through the Iraq war

and all that the runup to 2008 every 10

years it seems like we're in some sort

of

10 years before the 1990s was the was

the 70 am I

>> you sound like an astrologer Okay.

>> And not a financial

>> I'm just a mathematician. It just seems

to me a pattern of every 10 years.

>> That's that's misleading. That's exactly

right. Because people like to see

patterns. People like to see patterns

where there are none.

>> So a pattern of a financial crisis every

10 years is just in my mind.

>> Yes.

>> Long-term capital. Long-term capital

that had to be bailed out back in the

late 90s when everybody panicked. And

that wasn't a big that bailout today

would look small and was it $5 billion

or was $30 billion.

>> People businesses fail all the time,

>> but they long-term capital and the

Federal Reserve stepped in.

>> But I'm saying they f things people go

bad. Things go bad all the time.

>> Yes. The the the local you're correct.

The audiences watching this, the little

guys, they go bankrupt all the time and

nobody gives a [ __ ] You know why?

They're little guy. But when long-term

capital management goes bankrupt or Bear

Sterns goes bankrupt or Leman Brothers

goes bankrupt, people care because it

>> No, it's a it's an unfair

characterization.

>> Why do you say that?

>> Because again, it's the complexity of

the situation. If you think about the

think you have a complex system, you

have your body. Now, in fact, the little

guy is my finger.

This this is

>> Bear Sterns is your heart.

>> That's correct. The banking system is my

heart. the system. I can't risk my my

because remember it's not only my

>> You haven't been able to name. You

haven't hang on. No, hang on.

>> I was trying to hang I wanted to see if

the hang on.

>> No, you haven't been able. You're not

good enough yet. You're like junior

junior wizard trying to do it. You you

haven't you haven't say since we can't

name another guy that's as as as good as

you. There may be a couple out there.

You're not you're not bragging. You're

you're humble.

>> It had to be some time. Please tell me

there was some time before you went to

jail and and and basically got cut off

from daily information in the summer of

2008

um that you started to get very nervous

that this complex system that something

was deeply wrong.

>> Okay, first let's go back. When I say no

one understands the system better than I

do, it doesn't mean I understand.

>> You always sound like a doctor you're

afraid is going to get sued for giving a

a thing. You're not you're not taking on

any liability. There's no contingent

liability here for you.

>> No, no, no. But the word understand is

the problem. I don't understand the

system.

>> So that's I don't understand the

financial system.

>> Please stop. You cannot sit here and

tell me what we just went through. I'll

go through again the 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

uh economist, and I'll throw in the

business school lectures of Stanford. Of

all the top 200, 250, you can't name off

the top of your head, the guys are at

least at your level. You have to

understand it somewhat. No, sorry. We

all don't understand it. No one

understands it. It's a miracle.

It's this this that's part of the

problem. It's impossible to understand.

That word understand simply means if

this happens here, that will happen

there. It's predictable. Understanding

means it's predictable. It's not

predictable. That's the problem. It's

very in complex systems that was the

fascination. Is there a way to tease out

some level of predictability?

>> So,

>> in fact, you ask you would ask the

question, it's a great question which

was was it a stroke or a heart attack?

Now, most people don't know that before

they were going to have a stroke they

had a stroke. Did they

just have a stroke? Do did they

understand why? In hindsight, you go

back and you can make lots of

explanations. It might sound good. And

if you're talking to the the working

man, you're using language that he'll

never understand. It's complex. So he

just like going to his doctor, he says

he has a gastrointestinal problem or he

has diverticulitis as opposed to saying

you had a stomach ache. You ate bad

food. People don't like to say it in

normal everyman terms. The system had a

stroke, but we don't know why.

>> But you just Okay. hardworking people

and and there's a great social benefit

would you not agree

with having people having ownership in

the system

>> when you say ownership in the system it

doesn't mean

>> let's start over

flip over your phone too because I don't

want anyone to see on your phone

>> so maybe flip it down or something

>> yeah who knows what the [ __ ] comes up

with that

>> that's correct

>> we don't want to send you

>> KSA

>> I can't even get I can't not believe

I've got the magic moment when you're in

[ __ ] prison or jail, wherever the

[ __ ] it is, solitary.

>> Now, there's a funny part to that we

missed, which is said,

>> go ahead. Can you tell it?

>> The funny part of this is what you asked

me.

>> Is there anything funnier than that?

>> For black humor, it's

>> I don't I don't make any black comments.

Sorry. Uh, you asked me what I was

wearing.

>> That's right. You're too wrapped up in

the Me Too movement.

>> Yes. So, 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

>> cuz you you had qualified to be a

trustee.

>> Well, the funny part was it was spelled

trust s y so I wasn't really sure.

Uh I 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.

probably had a higher level of of being

a trustee at at that than you had at all

the all the boards that you were

trustees, right?

>> Yes. Because as the trustee meant you

get two um devices to clean your toilet

as opposed to one.

>> Yeah. But it also meant that you you had

some sort of personal fiduciary

own responsibility for oneself right

>> in the jail. You mean

>> well that's what being a trustee is.

That's why they give you two.

>> Yes. you get two cleaners.

I was a trustee in the jail because I

was able to teach some of the kids from

TR to help them get their GED. So that's

how they gave me a trustee jot.

>> There's no time I got to go back to this

because it's it's I'm like a dog with a

bone in this thing.

>> Yes.

>> You can't

There's something deeply [ __ ] up with

you.

>> At least something. Well, we know there

are things deeply [ __ ] up with this

you will get through in this film, but

>> you cannot possibly have 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, the thing people most

admire because it's like alchemy,

understanding high finance.

to sit there in what will be the

defining financial crisis

of our time like like Black Friday and

or Black Monday whatever it was in the

Great Depression and be there at that

exact moment

triggered in part by a firm that you

used to be a partner in and knew

intimately well and it created much of

your initial net worth because of and

know that you couldn't someone who lives

on a phone

>> right yes because you do live on a phone

right

>> correct

You had to make collect just two collect

calls. You cannot tell me sometime

during that day. You did not have that

conversation with yourself of how the

[ __ ] did I do this to myself to put

myself in West Palm Beach in a 6x9 cell

with a metal [ __ ] bed with a brown

shirt that said trustee spelled wrong.

>> So did I find it amazing that I was

there? That's a big

>> not amazing. I don't want to say it was

not funny. I thought

>> I wasn't funny. Right. Not amazing.

>> It was incredible.

>> Inc. Incredible in what way?

>> Incredible. Like, how do I do this to

myself?

>> No, it's as incredible as me sitting

here in this house.

>> They are both just two sides of the

coin.

That's how I think about it. That my

life today is incredible.

>> Do you consider yourself a stoic?

>> No. I consider myself a hermit.

Stoics are not very happy.

you being a hermit then being in that

6x9 cell being in the cell qua the cell

was not the problem right

>> correct

what was the problem

the eating the almond joy bars

>> because you couldn't eat the food

>> no right

and but remember my my life is

>> did that ever strike you that I got to I

can't eat the food because of I might

have done something to it. I got to eat.

I got to live off an Almond Joy bar. One

a day or two a day or whatever. How many

ever sneak in a day?

>> No sneaking in.

>> Your one Almond Joy bar. Did that not It

did not hit you at some time. How the

[ __ ] did I do this?

>> No.

>> Let's go back to the spring of of 2008.

Were you so wrapped up in your personal

issues at the time you were not spending

enough time on the financial markets or

were you deeply involved in the

financial markets like you normally

were?

>> No, I normally I was involved.

>> And you and you so we're saying that the

smartest guy in the room didn't see it

coming.

>> No, of course not.

>> The bankruptcy of Bear Sterns you just

thought was a Bear Sterns problem.

>> You didn't see it as systemic.

>> I I know you keep hopping on it, but

it's it's not

>> because you're a mathematician

understands systems. It seems anybody

understands that they had a systemic

problem, you at least be the first on

the early search radar.

>> If if you're not going to see it, then

then you're then I'm really afraid

because that means that 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.

Imagine

the guy who has a a stroke or had the

heart attack. When you ask him, "Did did

you feel funny the day before?"

He's going to tell you, "Yeah, I didn't

feel right. Something was off. I didn't

feel right. I had a my my stomach was

right. I felt a little dizzy. I felt a

little weak." But if you asked him that

day before, do you think you're going to

have a heart attack tomorrow? He'd say,

"No, I just feel a little weak. I'm a

little dizzy. My stomach hurts." So the

these systems and that's the issue of

complexity. What complexity says is that

in fact this everything seems to go

along and people have seen it. One of

the great examples of complex systems is

sand dunes.

In fact, the sand keeps building up.

People have seen some and all of a

sudden one more sand drop and the thing

start all the sand starts running down

the hills. That's the way I see the

financial market.

>> But you funded uh Santa Fe in the early

90s or late 80s?

>> I believe it was early 90s. I can get

back to

>> but but early 90s Santa Fe was funded

for the study of complexity theory.

>> It was study was math. So let's let's

back up. So why did I buy a ranch in New

Mexico 1993? So that's gives you some

sense. So I would have funded it in

1990.

Uh Los Alamos which was the high energy

lab up in New Mexico was losing all its

scientists. in Los Alamos. It was where

Oenheimer and where the where the a lot

of the the nuclear weapons program the

bomb

>> that's where the Manhattan project

>> Manhattan project was Los Alamos. And

you bought your property out in New

Mexico to be near that.

>> Yes. Because the scientists were going

to be they cut the funding for high

energy physics. But the people who

worked in Los Alamos would still be in

the Santa Fe area.

>> They cut that because the end of the

this was the Cold War dividend, right?

>> I don't remember exactly why. It was

because again people thought there was

that physics and high energy physics

really wasn't that important

>> because that was about nuclear weapons.

>> No, it was because they were trying they

decided was maybe not right. This was

the same time that Murray Galman came up

with the term quark qu

he picked it out of a old poem the word

quark but it was something it was

mysterious. So they were starting to

understand in the 90s that the in the

our world of the physical world there

was things that were just unexplainable.

They called it strange things. You gave

it a name. You gave it some

characteristics. You called it it had

charm was one of the terms. It had a

charm. It had a flavor. It had a color.

But nobody really no one Mr. Bannon

understood what it was

just like the financial system. And you

wanted to investigate that.

>> I I wanted to see if we could build

tools so others smarter than me could

help investigate it.

>> And that was the beginning of your

concept of the Santa Fe Institute.

>> Yes.

>> And Santa Fe Institute was founded to do

study in this type of

>> can you can these areas of strange

things be described by some form of

mathematics?

>> So that's what I'm trying to get at. the

the the the foundational thought, the

organizing principle

>> of Santa Fe in the high physics lab at

um at Los Alamos which had created the

been the the headquarters of Manhattan

and the Trinity project, right? The

bomb.

>> Yes.

>> So you're talking about the the elite

the high priest

>> of physics.

>> Of physics.

>> Yes, sir.

>> Which high priest of physics some subset

of that is also mathematics.

>> Yes. They're both similar.

>> Project out. One of the tools you want

to do is to make sure that in this

complex system, the finance system, I'm

doing a lot of this for philanthropy and

a lot for the good of mankind, but also

to be able to understand this complex

system, the most complex outside of

maybe our body of of the financial

world.

>> Yes.

>> Did they create tools or were you a were

you smarter in than the mid as 15 years

later than you had been then because of

work that was done at Santa Fe?

>> No. That was it was great. But in fact,

most of the money, most of my

philanthropy in the area of can you

describe things that appear to be

unexplainable

by mathematics

and can can you fund people who have new

ideas and unfortunately when someone

thinks they've been able to there was a

man Steuart Calfman when they think that

okay I figured out how to be able to

predict the unpredictable what appears

to other people to be unpredictable but

my system in those days was called

genetic algorithms can predict the what

things will happen then they all want to

make money so they use their systems to

try to figure out they know they have

figured out the way to make money

because they figured out the

unexplainable they try they go bankrupt

and we start again so in with a cold

view what I've come to realize is that

the the attempt to mathematize formulize

or what in your prior work to understand

What really is in today's world still

unexplainable

is impossible. They're miracles.

>> The uh your first head of Santa Fe was

Christopher

>> Langden, I think.

>> Langden from from Austral

the the the rock.

>> Yes. He was the rock. He was a Nobel

Prize winner. Yes.

>> Yes. And and a wonderful guy. He came

out and helped us with the bias for two

project. He came with Chris Landon.

Yeah. Chris Landon was the operating the

day.

>> Chris was doing artificial life. Murray

tried to lead his own artificial life.

>> Yes.

>> When Chris came to Biosphere 2 for the

for the first um big conference we had

in 1994, he was one of the most

impressive guys there among all the

world's elite. Q Gardens, the Lawrence

Livermore Lab, the the the labs at

Sandia, um you know, all the all the

major universities, Lamont Dy, uh all

the big earth observatories, Woods Hole.

What set Langden apart, I thought, and

the reason I invited Santa Fe to be part

of it was Langden actually made a

presentation that everything and he was

making this to scientists, a lot of

marine biologists, a lot of people that

just beginning, Wally Broker and people

were just beginning the study of climate

change at that time called global

warming.

that he made this compelling

presentation that everything's really

mathematics.

>> It's all just back to math

>> and you have to all these experiments

you do you're not one of the reasons

they're not considered by the high

priest in physics as being real

experiments is that they don't have a

mathematical basis to it and everything

has a mathematical basis to it. Langdon

seemed like a radical visionary.

What happened to that concept?

You go back 350 years.

So you have Isaac Newton, you have

Linets.

From move forward you have people like

Heisenberg and Gdell Girdle. And what

every one of those mathematicians

and philosophers came to understand is

that there's something with there's

numbers can describe certain things

approximate certain things.

But in fact trying to put measurements

and numbers on other things that are

really unexplainable

is folly.

It's so 300 years ago they said that

unexplainable realm was God.

And people who attempted in fact to

explain the unexplainable who said yes I

understand the unexplainable

were charlatans. They were the occults.

They were the astrologers.

They were the conmen.

>> Alchemist.

>> Yes. Well, no. Alchemist was in fact

they believed that there was a way to

transmute one metal into another. In

fact, they always wanted to see if they

can create gold. There's no reason if

you think about it. They recognized that

one metal

is different than another metal because

it has some additional pieces to it. Has

additional neur neutrons or protons or

electrons. So because they thought it

was a machine, they believed it was a

machine. If I can take five protons and

add five, that gives me 10, I should be

able to get gold to move everything

around inside these systems, the

molecules transmute

one molecule into another. And if this

molecule I've transmuted it into is

gold, I'm a rich man. It's back to

money. But this something strange

happens.

Isaac Newton says, "This is really

weird. If if I want to push a ball on

the table, I have to touch it. I could

maybe I have to blow on it, but I

actually have to push one side of the

ball or the book to move that side. I'm

pushing here." And obviously the this

thing is what appears to us humans to be

solid. So it moves as one thing. But the

only way to get something to move was to

touch it or put a force against it.

Okay, seems to make sense. Everybody has

that experience. I want to lift a glass,

I lift it. If I want to push a ball, I

push it. If I want to pull a ball, I

pull it. But he recognized when the ball

fell off the table, fell off the table,

it went in a different direction. How's

that possible? Nobody pushed the ball

down. And he said, "This is crazy. Why

did the ball go down? I didn't push it.

I just let it go."

So someone's pushing the ball because I

know I am confident that the only thing

that gets something to move is with a

force that pushes. So there's a force

that's pushing the ball down. In fact,

he never he called it gravity. He

measured how fast it was pulled, but

never was able to explain why it

happened. How is it? What is gravity?

It's this. Everybody says, "Well, why

did the ball fall to the ground?"

Because gravity took it. But what's

gravity? That's, as Fineman would say,

that's the name of the thing. We have no

idea what it is.

This goes to Santa Fe. They were trying

to put explain the unexplainable. Can we

measure? Can we figure out a way to

predict the stock markets

using these types of chaos complexity?

>> Before we get there, let's walk back

through. Let's let's go let's let's go

back to Newton.

>> Sure.

>> Pre-N Newton and then Newton. What did

Newton solve that for millennia up to

Newton had not been solved. Then I want

to go forward all the way to Santa Fe.

What they were trying to solve. Let's

start with just two or three of the

basic guys. But let's go with Newton.

What pre- Newton it was what? And then

why is Newton such a

>> a genius

>> in such a in in the I think

mathematically they told me one time or

I've seen there's been 115 billion

people roughly that have lived on the

earth. Uh and of that 115 billion new

>> are you sure that's a number? That

sounds very high. We only have seven

now.

>> I I think in the history of the earth I

think I I'll I'll pull I'll pull up the

the stat for you but I think it's 115

billion people. They figure

>> that probably is inflation. That's why

have lived through have lived through

the have lived on earth but he's one of

the handful of the most important

>> what did he solve for why is he so

important for how we live today and then

we want to go through lienets and the

other two or three other major ones to

get us to Santa Fe

>> well that's a long it's a long journey

>> it's this is the heart of the this is

the heart of what we're trying to do

>> let me take a bit of a detour second

>> what if you if you went to high school

and the last year in your high school

You took calculus.

So Isaac Newton sort of invents

calculus. Well, that sounds advent, you

know, mathematicians

>> to torture to torture seniors in high

school before they graduate.

>> Yes, but obviously no. Yes, the answer

is yes. Certain people can't could never

do calculus. Uh

>> why why 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 even if

they know math it seems to me that

there's that that that calculus is the

is the thing that changes it it it it

bridges that's because it's about the

the about the theory of change and the

theory of how things change. It it's a

great question. But in fact, what

calculus does is it's it's somewhat

philosophical. That's why mathematics is

is you know they used to Newton wasn't a

mathematician. He was called a geometer.

That's what they used to call

themselves. They understood geometry and

and numbers. But there was an there's an

old

conundrum

uh where it says if and during

Pythagoras days Zeno's paradox it's

called where 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 and if I take

another step that's half again that'll

be a half a foot away then a quarter of

a foot. I could walk forever but never

touch the wall.

Doesn't sound realist. Doesn't make any

sense in our real lives of the physical.

But what Newton understood is many

problems were like that. Many things

approached the wall or in his in

calculus approached the limit

but never really reached it. So he said

it's okay. You don't have to reach it.

We can do lots of the mathematics as if

it was so close it was almost there.

And we could do lots of mathematics

almost being at the limit. And this is

really important, Steve, for today

because most of the science up until

today

was things that starting to approach the

limit.

this. You were taught in high school

that if you had 1 divided by 0.

If you remember your high school

algebra, you were told, "What's the

answer to that?" Is there an answer to

one divided by 0? No. If you were in

high school, it's like stay away from

it's the boogeyman. Uh you could write

it down as it's undefined.

It's not able to be determined.

that there's a bunch of things

but in fact one divided by zero is a

strange things happen. It's a world of

the strange. And 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. The answer is

it's not explainable. We can give it we

can call it things like undetermined.

This is what we can give have a

convention to say it it's x y or z. But

in real life we don't know what happens

when you are actually at the limit.

So that's an Newton thought the same

concept is that the limits were Philip

God. You got close to God but you can

never be God. He had this sort of

religious interpretation.

>> Okay, I want to go back to Newton. Why

is Newton such a big dividing line in

mankind's history? What is it about

Newton? What is about what he trying to

solve? What did they not know

beforehand? And what the because we live

to a degree in a non Newtonian universe

although I realized later sub sub

particle atomic physics but at least for

a while it was Newtonian. So what's the

dividing line? Why is he so important?

Why is he an inflection point in

mankind's

movement from the swamp to the stars?

>> It's a great question. The stars were by

Kepler. What what Newton starts to allow

us to do is to make prediction accurate

predictions. Remember that we've got

talked about that with money about the

things in our physical world. How cars

he didn't have cars then how horse

carriages moved how things how bowling

balls moved. How pool cues and pool

excuse me pool table balls

>> had people tried to solve that before

Newton?

Heracitis or or or you know Platinus

Pythagoras had had these great that we

hear about had they try to solve the

same problem not the same problem they

try to again what Pythagoras does he

starts to figure out this relationships

in triangles for example everyone knows

the A square plus B square is equal to C

square that Pythagorean theorem which is

basically says these shapes in a

triangle each side of the triangle

has a fixed relationship with the other

two sides.

That's strange. He knew again, but it

was all numbers. This was a 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. You can add two

triangles and make a square. Some

different shapes. They were looking at

geometric forms. Newton says, "Well, I

want to know how planets move. I want to

know how things around me move. Can we

find formulas? Can I find formulas that

explain what I see in the physical

world? How physical things interact and

how they describe one another." Again,

that the fact that two things, two solid

masses, for some very strange unknown

reason, unknown today, attract one

another. No matter what they are, people

have seen the experiment you hang of

something, two little metal balls from a

string,

they move towards each other. In fact,

there's a they move towards each other

was a very I'm very specific. So 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. The room moved.

It's impercept. You he can't really

perceive that motion, but they attracted

each other with certain ratios. So he

started to be able to measure things in

the physical world and that was

great advances. It also now you wanted

to move I move very quickly.

Unfortunately most people especially in

the 20th century 19th century said well

like Newton let's measure everything.

Let's measure

people's behavior. Let's measure their

psychology. Let's measure their health.

You go to the we could have my blood

test. Let's measure everything. Measure

Wall Street their voting habits.

>> Measure. Measure. Measure. Can we put a

number on how much I care for my wife?

Can I put a number on how I feel?

And we tried unfortunately we ma tried

to mathematize the the finer things in

life and then recognized that there was

things that unfortunately just fall

outside. Everyone Schroinger wrote a

very famous book about what is life? He

was trying to figure out a way. Can he

describe the difference formulaically

between things that are alive and things

that are dead? The answer is no. The

things that are alive in my world are

miracles, not magic. Magic has a bad

connotation.

>> You don't believe in You don't believe

in the spirit or the soul. That's what

animates people is your spirit or your

soul. That's what But you've have you

ever seen someone die? When they die,

their spirit leaves.

>> Their soul leaves. No question. So in

fact

>> there's no question to you about that.

>> No question.

>> There's no question to you that there is

some animating life force within us that

leaves when you're dead.

>> Yes. In fact I refer to the soul this

obviously a certain the questions in the

past even during

>> people would normally think you were

soulless. So thank you to have you no

but have you talk about you actually

believe in it and have done some

thinking about it is pretty shocking in

its own right isn't it? Well again

mathemat

said

>> you know Newton was at Cambridge and he

was the head of the math department

right he's a professor essentially

>> but linenets who was lineness a German

professor

>> yes but what linenets said is

the soul is so strange because God took

chemicals which is simply the material

like tables and he somehow made this

material able to have a thought. How

strange is that? Not only does it it

have a soul, but this some way it was

put together that this material

substance can is able to think. So when

you say to me, it's obvious to everyone

that there's such a thing as a soul.

Now, if you're part of the

charlatanville, you'll try to explain it

to people. The soul I describe is the

dark matter of the brain. Why is it dark

matter? Because in high energy physics

nowadays, you hear terms of dark matter,

dark energy. Again, terminology,

complicated term. Why is it dark matter?

Because we can't see it. That's all.

What? What do you mean you can't see it?

Well, somehow we see something moving

towards this area of darkness. Something

I can see this thing. This appears to me

to be empty. It's just black. But I see

it being drawn. this way. So I say,

well, I know if this were matter, that

would follow that equation. If this was

solid, it it would explain the way this

particle moves,

but I can't see anything here. So I'll

just call it dark matter. And we'll say,

I don't know what it is, but it behaves

as if there was something there. The

soul is obvious to everyone

that there's something different between

things that are alive and things that

are not alive. But we have no idea what

it is. It's currently unexplainable. I

believe we need an entirely different

system of analysis to try to figure out.

But sorry no with Newton you know with

all his alchemic study alche alch

chemical studies and and and and things

he worked on spiritual side libnets that

just talked about the soul Schroeder

talk about what is life if a modern

scientist or someone that you funded at

MIT or Harvard or one of these things

talked in those types of terms they

would be considered to be a wing nut

today wouldn't they would not be they

would not be on the path uh for tenure

Right?

>> Unless they were in the philosophy

department. That

>> this is exactly my point. We're talking

about three of the greatest

mathematicians in mankind's history that

have really changed mankind talking like

this. What happened? How do we get to a

situation where they could not be in the

high physics, you know, they could not

be in the mathemat in the mathematics

department or working in high energy

physics.

>> Good. It's an easy answer.

Newton was a combination of

mathematician or geometry then and

philosopher and as time went on that

those disciplines seemed to move apart.

We had philosophy who some of the

philosophers can't do math and some of

the mathematicians and again

mathematicians often break into two

categories. People that solve problems

those are more like geometries in the

old days just problem solvers and then

there's thinkers theoreticians. They're

more like the old movement towards

philosophy. But neither one of those two

groups have been able to figure out why

something is alive as opposed to

something that's not alive. No one's

been able to describe what the soul is,

but we all know it exists.

And my I I think um what we need is a

new science is a bad word. I I think

science only describes the things we

already know about the physical world.

In fact, there's an argument that the

physical world that we see has been

created out of our systems to be of

mathematics.

Mathematics, everyone knows mathematics

describes the physical world much

greater than it should unless you my

view the physical world really comes out

of conscious beings that have

mathematics. So they create it. This

table appears to you and I to be solid

to a bat it or if because we have light

that's bouncing off the table into my

our eyes. It appears solid. If instead

of eyes that responded to wavelengths of

visual light, our eyes responded to

radio waves,

the radio frequencies. It's not

different. It's the same type of

frequency as light with different um

speeds. The table's invisible. We know

that we our phone works in this room. So

the waves are coming through the

windows. The waves are coming through

the walls. So the walls are invisible to

that type of radiation, that type of

energy. The walls are I can see them

because my eyes

a physical system determines that the

walls are there.

>> You

with with Murray Gel you founded or with

the original donor and what had the idea

of Santa Fe Institute

in 10 or 15 years later that effort to

study the complexity of systems

mathematically.

>> Yes.

It's a total failure. Yes.

>> A total failure.

>> Total failure.

>> Why is that? It

>> it's the failure of science because in

fact if to some extent science doesn't

describe romance. I don't know why I'm

attracted to somebody. I don't know

people are attracted to each other and

some everyone has the same feeling.

They've seen someone walk in the room

and they say, "Oh, that person gives me

the a creepy feeling."

Science has tried to describe. Science

doesn't describe what creepy feelings

means. They just know it's a creepy

feeling. I think women, as I said the

last time,

have an intuitive sense. What is

intuitive? They have intuition. They

have feelings. And they're able to deal

in the realm of things that men,

especially men like myself, find

unexplainable. They have great women

have intuition.

Men see things a bit differently. They

men want to measure everything. Women

are not really that interested in

measuring.

In in what you're saying in macro terms,

you actually think science,

mathematics, maybe ultimately technology

is moving to that more intuitive.

I think science and math are

old-fashioned

and unfortunately people are still

taught that they have to learn algebra

in school and certain things in school

as opposed to learning to um give have

>> this is this what Larry Summers was

trying to get at maybe didn't say it

perfectly enough but what he was trying

to get to in that system the systems we

study today the way mathematics is

either taught or understood that women

just haven't gotten up to the highest

realms of engineering or physics or

mathematics because of that and you're

you're actually implying that there's a

either new branch of science or we've

hit an inflection point like a Newton

that's going to go in a Newton took

mankind in a different direction because

he was able to measure then you hit

subatomic you know non-Newtonian physics

later are 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

but that that's what's evolving out of

this.

>> Yes. Yeah. In In fact, I think that

mathematics it's not the end of science.

Every year someone says it's the end of

we can't discover it everything. There's

lots to discover with relationship to

the physical world, but we know a lot

already with in respect to the

unexplainable world. We almost know

nothing. Women again sense it. And

instead of Larry Summers, I just I won't

digress too much, but Howard Gardner

early on said there's not one form of

intelligence. It's not mathematical

intelligence. There's emotional

intelligence that there's kinesthetic

intelligence. You know, there there's

this argument that I reject that black

people are less intelligent than white

people. It's not true.

We know, for example, that if you if I

was in a in the forest and I had to run

from the lion or figure out a way not to

be eaten and my com competition is a

local African, I'm going to I'm the one

who's getting eaten because they have

the intelligence to deal with their

local environment.

So, it's just different. It's not

better, it's not worse, but there's many

differences amongst different types of

people. And so people have different

intelligences and they excel in some

intelligences usually and less so in

others.

>> When did it come to because the world of

high finance is a world of pure reason

or is it is it a lot of emotion and gut

checks and and and you know on trading

desk and central banks when these

decisions get made? Is it is it that

high church like the high church of

science of of high energy physics or is

it as much emotion that comes in as as

much as the mathematics and the reason?

>> It's a great question. I 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. They don't know.

They feel it. They can feel the way the

market's moving. They can feel the way

the stock's moving. And that these are

not very well-defined terms. It's not

it's difficult to put in mathematics

terms how did I feel it? You could look

back and make guesses what I was seeing.

But great traders feel it and then act

on their feelings. That's the

difference. Many people feel it but are

afraid because they want a mathematical

justification before they take that next

step. When you first got on the trading

desk at Bear Sterns in the late '7s or

mid70s, were you shocked by how little

actual understanding of mathematics that

the traders comprehended? Yeah. Again,

we had a Texas Instrument calculator.

Most most stock brokers in the

especially before 1975, if they were

good stock brokers, could add. That's

about it. They could multip if you could

multiply, you were already in the top

15% of stock brokers. Stock broker

simply meant I there's a great there's a

story when I went to to the first person

I I had no money and I said how much

money do you make a year

and he said $400,000

said impossible I'm I'm making $10,000

>> that's probably more in your family he

had made in his entire existence

>> yes and he makes it in a year I said