TRIGGERnometry - How Commodities Markets Cause War & Chaos

00:00:00.000 If you just looked at a handful of these prices over the last 10 years,

00:00:04.780 you could actually tell a story that linked together the Arab Spring revolutions,

00:00:10.740 the civil war in Syria, Brexit, the rise of Trump, the rise of right-wing populism,

00:00:15.660 the collapse of Venezuela, the US border crisis, the war in Ukraine,

00:00:20.140 the complete destruction of cities such as Mosul.

00:00:23.120 And not just that, but also things like spikes in civil, spikes in wars such as in Somalia,

00:00:28.480 even the so-called climate wars in Kenya.

00:00:31.540 And so just by looking at these numbers, I found that I could tell a story,

00:00:35.860 a kind of a new story of, if you like, a kind of a global butterfly effect.

00:00:44.940 Hello and welcome to Trigonometry. I'm Francis Foster.

00:00:49.200 I'm Constantine Kissen.

00:00:50.520 And this is a show for you if you want honest conversations with fascinating people.

00:00:55.820 Our brilliant guest today is the author of Price Wars,

00:00:58.960 How Chaotic Markets Are Creating a Chaotic World.

00:01:02.140 Rupert Russell, welcome to Trigonometry.

00:01:03.680 Thanks for having me.

00:01:04.740 It's great to have you on the show. Tell everybody a little bit about who you are,

00:01:08.260 how are you, where you are, what has been the journey through life

00:01:10.380 that brings you to be sitting here talking to us?

00:01:12.600 Sure. So my first career was in academia.

00:01:16.240 I formed here, but I went to the States for around 10 years.

00:01:20.340 I did a PhD, sociology.

00:01:23.580 And I was frustrated with academia because there's lots of great ideas,

00:01:26.820 lots of interesting things going on, great research.

00:01:29.080 But I found it very insular.

00:01:30.700 It was sort of academics talking to other academics.

00:01:32.740 And if you even suggested doing things that were so-called popular,

00:01:37.400 that was like seen as taboo and not something you wanted to even talk about

00:01:42.420 if you were interested in getting tenure track and then tenure, etc.

00:01:45.340 One does not talk to the plebs.

00:01:47.580 Precisely. That was what was communicated to me repeatedly.

00:01:51.560 Well, now you're here and you're doing it.

00:01:54.060 That is what I wanted. So this is the goal achieved.

00:01:56.680 So I wanted to finish those.

00:01:58.720 So I finished my PhD and I decided I wanted to take some fascinating ideas I come across.

00:02:03.900 And one of those ideas was from my advisor, Orlando Patterson,

00:02:06.880 who had done some incredible research on the idea of freedom.

00:02:11.220 Looked at the origins of freedom in slave societies,

00:02:13.700 looked at how freedom had spread through Western culture over the centuries,

00:02:17.920 but also how Americans viewed freedom.

00:02:20.480 He had commissioned enormous sort of survey research to sort of see what Americans thought.

00:02:25.020 And I thought this was a really fun topic to delve into.

00:02:29.520 The Iraq war was nearly a decade old at this point.

00:02:32.180 This is around 2013-14.

00:02:35.120 So I thought, why not make a film about freedom?

00:02:36.600 What is freedom?

00:02:38.000 What does it mean in different parts of the world?

00:02:39.720 When people say they're fighting for freedom, what do they even mean?

00:02:42.280 And so the film ended up being a kind of a survey.

00:02:46.520 So the practice of freedom.

00:02:48.500 So I wasn't interested in asking people to define freedom.

00:02:50.600 I was interested in people who said they were fighting for freedom.

00:02:52.700 And it's like, okay, what do you do?

00:02:53.880 So in Japan, that was people who were fighting for the right to dance.

00:02:59.420 Dancing could have been banned in nightclubs in much of Japan.

00:03:02.360 And so there was, when I went to Tokyo,

00:03:04.340 I noticed this because you used to see signs on the side of the wall that said no dancing.

00:03:07.760 And we thought it was some kind of ironic hipster thing.

00:03:09.960 And then they were like, no, no, no, you actually can't dance here.

00:03:12.760 And it's a nightclub as a DJ and everyone has to stand still.

00:03:16.240 And so we did a story on the kind of movement to sort of campaign for people to dance.

00:03:20.140 We also did some more weightier things like the first wave of the Umbrella Revolution in Hong Kong 2014.

00:03:26.660 We went to Tunisia to look at the aftermath of the Arab Spring,

00:03:29.440 what happens when you've so-called gained freedom, right, in that country,

00:03:34.320 which at the time was seen as the kind of success case of the Arab Spring revolutions,

00:03:38.540 with this stuff on Black Lives Matter and so forth.

00:03:41.000 And what we found during this was that it didn't matter if you're in East Asia,

00:03:46.620 the Middle East, America,

00:03:48.740 freedom was very much tied up with the fight for rights and the fight for democracy.

00:03:52.900 Of course, there's like, in the details, things may differ.

00:03:57.000 But on the whole, people want to be able to say what they want to say.

00:03:59.300 They want to be able to vote.

00:04:00.160 They want to be able to be treated like an adult.

00:04:02.300 They don't want to live underneath a corrupt regime.

00:04:04.360 We found these all to be pretty universal things that people wanted.

00:04:09.760 And then, of course, so we were sort of identifying what was driving that

00:04:13.820 was a drive towards a liberalism.

00:04:15.520 At the time, there was a big discourse around the drive towards a liberal democracy

00:04:18.560 or other people called it electoral authoritarianism.

00:04:22.000 There's a bunch of different judge argument around it.

00:04:25.520 But we didn't identify why this was happening.

00:04:29.920 And this became more urgent as kind of time went on.

00:04:32.600 So Trump wins the United States.

00:04:35.340 Brexit happens in the UK.

00:04:36.720 There's a right-wing populist turn in Europe.

00:04:40.260 So as we were finishing the film, we sort of identified this trend

00:04:43.060 and described it with these wonderful characters

00:04:46.820 and having gone to lots of pro-protest movements.

00:04:48.560 And I got tear gassed at Donald Trump's inauguration.

00:04:51.220 But I think the why was missing.

00:04:53.520 And so that brought me onto this project,

00:04:55.180 which is looking at the tumult of the last decade, the 2010s.

00:05:00.920 And what I kind of identified as being a key causal factor in this was prices, right?

00:05:05.800 Prices are international.

00:05:07.300 They're global.

00:05:08.480 That is why you can tell a global story about global trends,

00:05:11.780 because the economy is essentially global.

00:05:14.300 And it's not global in the sense that it's kind of amorphous and diffuse

00:05:17.860 and we're all sort of trading in this sort of big global market.

00:05:21.240 It's global in a very specific sense,

00:05:23.240 in the sense that the price for traded goods such as wheat, oil, natural gas,

00:05:29.560 now even things like coal we're hearing about in the news,

00:05:32.220 these all have one price around the world or one kind of gold price.

00:05:35.620 And this price may differ region to region,

00:05:38.360 depending on literally moving it, transportation costs, things like that.

00:05:42.780 But there's one price, and this price is kind of set quite literally at the exchanges,

00:05:46.900 the London Metal Exchange.

00:05:48.040 In London, we've been hearing about nickel prices going haywire,

00:05:51.000 but also in Chicago, the Chicago Mercantile Exchange.

00:05:55.480 And so what I found was that if you just looked at a handful of these prices over the last 10 years,

00:06:02.840 you could actually tell a story that linked together the Arab Spring revolutions,

00:06:08.440 the civil war in Syria, Brexit, the rise of Trump, the rise of right-wing populism,

00:06:13.360 the collapse of Venezuela, the US border crisis, the war in Ukraine,

00:06:17.880 the complete destruction of cities such as Mosul,

00:06:20.460 are not just that, but also things like spikes in civil, spikes in wars such as in Somalia,

00:06:26.700 even the so-called climate wars in Kenya.

00:06:29.240 And so just by looking at these numbers, I found that I could tell a story,

00:06:33.580 a kind of a new story of, if you like, a kind of a global butterfly effect

00:06:36.820 that had been happening through these prices.

00:06:39.100 They're all visible. We see them every day.

00:06:41.380 But they have been moving in, I would say, quite volatile and sometimes mysterious ways.

00:06:47.020 And what had ended up happening was they created enormous shocks globally.

00:06:50.140 So when the price of food or oil in particular, the only ones,

00:06:53.600 but those in particular move violently either up or down,

00:06:56.900 creates enormous instability.

00:06:59.000 And the way you can think about it is like a Pandora's box, right?

00:07:02.500 So it's not that the prices are like literally driving tanks

00:07:05.700 or they're literally impoverishing people.

00:07:07.660 It's that they're kind of creating fractures in the society,

00:07:10.860 politically, socially, economically.

00:07:13.160 And from that, it allows a kind of Pandora's box to sort of open.

00:07:17.080 Of course, ISIS is probably the worst, but maybe the most prescient right now is Vladimir Putin.

00:07:24.300 And so the way that I kind of described this was,

00:07:27.320 the way that I kind of thought about geopolitics by the end of it

00:07:31.240 was that we like to tell kind of monster stories, right?

00:07:34.060 And this will, viewers, this will differ who you may think the monsters are,

00:07:38.260 but for some non-controversial examples, we could pick Putin, ISIS, for example,

00:07:42.920 would be the two big ones, maybe Xi in China, maybe, you know, Maduro in Venezuela.

00:07:49.620 And, you know, there's a lot of psychologizing that goes on.

00:07:53.920 What's Putin really thinking about?

00:07:55.900 What's ISIS's true ideology?

00:07:58.480 And that's fair enough.

00:07:59.420 There's nothing wrong with that, but I'm definitely not a Kremlinologist.

00:08:02.340 I don't know what some Putin's had.

00:08:03.780 I don't really think anybody really knows apart from Putin.

00:08:06.580 But we could, I think it's also fair to assume, just for argument's sake, that it's nefarious, right?

00:08:11.680 We can kind of assume that ISIS wants to dominate its neighbors.

00:08:14.680 Putin wants to dominate its neighbors.

00:08:16.720 But these people are just made of flesh and bone, right?

00:08:19.960 So it's not literally Putin driving a tank.

00:08:22.060 He's not literally Godzilla marching down to a border and destroying it.

00:08:26.100 But it's all enabled by not just the economy, but in particular, for those two cases in particular, oil and gas, right?

00:08:34.460 And that these people get strengthened when oil and gas prices are high.

00:08:37.960 So the way that I sort of began to see it was that the global economy and the commodity markets in particular

00:08:43.600 kind of create an architecture, a kind of labyrinth around the world.

00:08:48.560 And for the most part, these monsters tend to be contained.

00:08:51.960 So, you know, Putin may have been wanting to invade Ukraine over the last seven years, for example, right?

00:08:56.980 He started the conflict in 2014.

00:08:59.300 And it's been interesting that there hasn't been much happening, right?

00:09:02.700 When I was there in 2018, you know, it was some old news.

00:09:06.080 It was five, six years.

00:09:07.320 There were still trenches being dug out.

00:09:09.020 Everybody was hoping it would end, but nobody kind of knew why.

00:09:13.260 And so it's like, well, why didn't you do it?

00:09:15.140 And the argument of the book is it's because the low oil prices in that seven-year period essentially encaged him, right?

00:09:21.180 And you can kind of tell the story about how you have these price changes or price shocks,

00:09:26.200 and they're constantly opening and closing gates around the world.

00:09:29.280 And when they open, we get these monsters.

00:09:31.160 They go and kind of roam around.

00:09:32.620 They create enormous destruction.

00:09:34.600 And then the economic conditions may change, and then they kind of get closed up again.

00:09:38.340 So the argument that I sort of arrived at was that we have this sort of invisible architecture kind of all around us,

00:09:47.780 and that's what's been driving the kind of order and chaos of the last 12, 14 years now.

00:09:53.840 So you talked about oil prices, and that sort of makes sense.

00:09:57.640 When people who profit from the sale of oil and gas have more money,

00:10:02.040 they're more able to execute plans that they otherwise would have done,

00:10:06.360 but they didn't have the money and the sort of confidence in the future to execute.

00:10:11.760 What about food prices?

00:10:13.320 Because that's obviously becoming a big conversation, particularly now,

00:10:17.660 only because people in the West are suddenly starting to realize that food prices also affect them, right?

00:10:22.560 Yeah, precisely.

00:10:23.800 So we've had two major food price spikes in the last 20 or so years.

00:10:28.740 So one was 2008, one was 2010.

00:10:32.800 And it sort of looks like a kind of double dip like this, right?

00:10:35.840 And this is an index created by the UN, called the UN Food Price Index.

00:10:40.660 And what you see is as soon as these prices start going up,

00:10:44.900 and got a long story short, essentially doubling in both these periods to where they had been previously,

00:10:49.920 you essentially see, especially when you get to the peaks, enormous riots breaking out everywhere.

00:10:55.440 So essentially what ends up happening in 2008, half the global, it's called the global food crisis,

00:10:59.720 the UN declares this, food prices essentially double, 155 million people are pushed into extreme poverty,

00:11:06.360 and you see a surge in protests and riots, and a few governments get deposed.

00:11:11.220 We then have the financial crisis happen essentially immediately.

00:11:13.840 It was already starting, but it becomes kind of a global recession by 2009.

00:11:18.300 This creates another wave of poverty and hunger throughout the world.

00:11:22.020 And then 2010 is almost like, if you like, the third hit.

00:11:24.940 So food prices then surge for a second time, and it becomes like a third stressor.

00:11:30.820 And this is when you begin to see, you know, not just riots and revolutions in the Middle East,

00:11:35.960 but actually globally amongst a lot of food importers, you begin to see this.

00:11:39.620 And it's not difficult to understand why, right?

00:11:42.480 We don't need to be mechanistic about it either.

00:11:45.180 It's not just that people, you know, can't afford food or can't afford to eat,

00:11:49.920 and therefore they go out to protest.

00:11:52.600 In many of these countries, there's a kind of, they call it like a ruling bargain,

00:11:58.400 or like a social contract, right?

00:12:00.340 And often so, just take the Tunisia case, you know, there's a kind of,

00:12:03.740 an idea that, okay, yes, then the dictator Ben Ali and his family may go off and have nice,

00:12:11.100 you know, trips to Saint-Tropez, and they, we kind of know they're stealing some money,

00:12:14.900 and they've got the nice yachts, and they've got the nice palaces.

00:12:17.220 But in return for this, there has to be a guarantee, a guarantee that life is livable.

00:12:23.600 And that is usually expressed itself through a combination of bread prices,

00:12:28.940 controls, that is, and sort of a wage or minimum income level, essentially.

00:12:33.920 And it's a combination of these things.

00:12:35.620 And this dates back to the end of the Second World War.

00:12:37.700 So when the colonial powers collapse, the new revolutionary governments come in,

00:12:42.020 in say, India or Egypt, or Tunisia, and they say, all right,

00:12:46.520 as part of kicking out the colonizers, we're going to guarantee your life is livable.

00:12:51.260 And, of course, they may be a bit autocratic, but there's this social contract.

00:12:55.520 And so we're going to be the dictator in charge.

00:12:59.540 Our family is going to profit.

00:13:01.100 But in exchange, you're going to get stability.

00:13:04.000 You're going to get security if you don't speak out against the regime and blah, blah, blah.

00:13:07.940 And most importantly, you're going to get a stable, predictable income,

00:13:11.400 and you'll be able to buy food with it.

00:13:13.500 And that's the deal.

00:13:14.820 Yeah, that's right.

00:13:15.700 So it's also, the way I put it, it's sustenance.

00:13:18.260 It's about 35%, 40%, 40% of most caloric intake in the Middle East is from wheat, bread, and so forth.

00:13:25.520 But it's also a symbol, right?

00:13:26.960 So it also is a symbol of this ruling contract, ruling by bargain.

00:13:31.960 And that's why it's so combustible.

00:13:33.700 So when you look at, for example, the photographs of these Aspen photos, people are holding bread, right?

00:13:37.280 So in Syria, you see lines of people walking and they're holding up bread, the same as in Yemen.

00:13:42.320 In Tunisia, there's photographs of people holding baguettes, you know, as kind of guns at the police.

00:13:46.640 So bread takes on a kind of dual function.

00:13:49.360 But it's also similar here, right?

00:13:51.400 So not all prices are as politically important.

00:13:54.640 In America in particular, you know, gas prices have enormous outsized political effects.

00:14:00.440 And of course, housing as well would sort of be a third one of which house prices were kind of obsessed with.

00:14:06.800 So it's not necessarily the most important prices are the ones that get picked up.

00:14:11.720 Of course, there's lots of prices that go into our living standard.

00:14:14.540 But politically, some kind of tend to get emphasized.

00:14:19.720 It's very, very interesting talking about this, talking about food prices,

00:14:24.700 because this is something that has affected me directly.

00:14:28.720 You mentioned Venezuela, that's where my mother's from.

00:14:31.740 So I've seen what happens when food prices spiral, when you get hyperinflation.

00:14:38.700 You talk about hyperinflation in Venezuela in your book.

00:14:42.660 Let's discuss a little bit about that.

00:14:44.660 What effect does hyperinflation have on society?

00:14:47.540 And what effect does it have on ordinary people?

00:14:51.340 God, that is a big question.

00:14:52.600 I will, the effect it has on society is it turns life into a sort of topsy-turvy, Escher-like labyrinth.

00:15:03.220 So I'll tell you two stories.

00:15:07.160 So one is what hyperinflation looks like.

00:15:09.240 So if you're standing in Caracas, it looks like, you know, could be any South American city, I guess.

00:15:15.740 It also, at least in LA, it looks a bit like LA.

00:15:17.500 Yeah, you've got kind of concrete, brutalist buildings, there's some mountains, there's some palm trees,

00:15:21.980 there's street vendors selling fruit and so forth, and everything kind of looks, you know, pretty pleasant.

00:15:29.020 And you wouldn't know this place was necessarily in the midst of, like,

00:15:32.140 one of the most brutal economic catastrophes, maybe, in history.

00:15:35.780 But then you start looking closer, and it's all in the details.

00:15:38.780 So, for example, my translator said, look at that lemonade guy.

00:15:42.900 So he takes me over, and there's a guy with a white lemonade stand.

00:15:48.000 And he's just got, you know, a bucket of lemonade that he's made, and he's got a little picture,

00:15:51.540 and he's going to put it in glasses, glasses he pulled to come and buy on the street because it's hot.

00:15:55.520 And he's then got the prices.

00:15:57.320 And he was doing something.

00:15:59.100 So it turned out, and I looked closer, he was writing.

00:16:01.500 And he's writing a new price, and he sort of cuts out with some scissors,

00:16:04.100 and then he was taking it and putting it on the front.

00:16:05.960 And then the front is papier-mâché.

00:16:07.300 So he's just sticking prices on top of prices all day.

00:16:11.120 And that's what he'll do throughout the day.

00:16:12.860 So he knows that prices are going to double by the afternoon, right?

00:16:16.020 This is what economists call inflation's expectations.

00:16:18.200 So that's what everyone always freaks out about, because once it gets built in,

00:16:21.860 no one has to tell him.

00:16:23.240 He's not, like, I don't know, looking at the newspaper to see what inflation is.

00:16:26.580 He just knows they're going to double by the afternoon.

00:16:29.440 So you get this...

00:16:32.520 It's self-reinforcing, basically.

00:16:33.920 Exactly.

00:16:34.300 And it becomes self-reinforcing, and it becomes sort of built into the society.

00:16:38.620 One person I spoke to, I'll just give you his story.

00:16:41.560 His name was Octavio.

00:16:43.000 And he was a middle-class kind of, nor middle-class guy.

00:16:48.880 He was super into playing video games.

00:16:50.640 And when the crisis really got going, he couldn't afford to eat.

00:16:58.260 Now, what happened in Venezuela when I was there, people would talk about,

00:17:02.260 is that most jobs that you would expect to get minimum wage, right?

00:17:09.480 And the way that they talk about it is it's for the month.

00:17:11.900 So they would say, okay, you're going to get so many bolivars for the month.

00:17:15.080 That was, when I was there, a bus fare for one day, right?

00:17:20.280 So a job makes completely no sense, because your month's wages you would spend

00:17:24.340 just getting to the job in the morning of one day.

00:17:26.960 So your kind of regular economy is completely useless to you.

00:17:31.140 It's a negative sum to participate in it.

00:17:35.400 And so what he did is he just basically did nothing.

00:17:38.420 He lay on his bed and he said, I'm just going to get up once a day to drink a glass of water.

00:17:44.080 And he held up these huge T-shirts.

00:17:46.600 I mean, they were literally like parachutes.

00:17:48.160 Like, you know, he was a fat guy.

00:17:49.700 He was a big guy in the kind of before times.

00:17:53.440 And he just shrank.

00:17:55.040 And you saw him and he just looked like, so do you photograph, just a different person.

00:17:58.960 And he was just like completely emaciated.

00:18:00.900 He just lost like kilo after kilo after kilo, starving.

00:18:04.680 And he said he eventually realized that from his previous life playing World of Warcraft,

00:18:11.500 that he could make money playing World of Warcraft.

00:18:14.480 And by money means dollars, really.

00:18:16.200 So there's a thing called farming.

00:18:17.480 People who don't know where you can essentially do the boring bits of the game

00:18:21.000 for essentially, often it's Americans, but it could be people in Britain as well.

00:18:26.700 You're chopping virtual wood, collecting virtual, blah, blah, blah.

00:18:30.120 And then you can sell it to people who can't be bothered to do it themselves.

00:18:32.780 He took over their avatars to do that, as far as I understood how it works.

00:18:37.200 And they would pay him a dollar a day.

00:18:39.360 And he said to me, this is amazing.

00:18:41.120 I earn as much as a lawyer or a doctor in Venezuela.

00:18:43.860 But then once he goes, when he gets those dollars and he converts them into bolivars,

00:18:48.060 it becomes a race against time, right?

00:18:49.360 Because the lemonade guy, they're immediately losing value every single moment he has it.

00:18:53.300 And you're also in a place with extreme shortages.

00:18:55.720 So he would be running from supermarket to supermarket looking for canned goods

00:18:59.480 because he doesn't have the money to pay the electricity for a fridge.

00:19:03.320 So he'd want to get rice, tuna fish in the first supermarket you may go to.

00:19:07.080 You don't have tuna fish.

00:19:07.900 You have to go to the next one.

00:19:08.620 And then by the third one, you can't afford it, right?

00:19:10.920 So when I say it, it's this sort of Escher-like labyrinth.

00:19:14.200 These people live in these worlds that are literally turned upside down.

00:19:17.100 And in his case, it was like, you know, he was in the video game.

00:19:21.440 It's like it becomes a video game that you can't win, you know,

00:19:24.400 in the sense that the architecture around you is just completely shifting

00:19:27.900 and it just completely debases your life, you know,

00:19:30.580 to living a life that almost isn't worth living.

00:19:34.180 And that also affects the world as a whole because I know for a fact that Venezuela has,

00:19:39.020 I think, the largest migrant population in the world.

00:19:42.180 5.5 million people have left Venezuela.

00:19:44.380 And obviously, they're all going to go somewhere.

00:19:46.400 And the reality is, is that most of them will go, if they can, the West.

00:19:51.760 Hey, Francis, do you go on the internet to look at naughty stuff?

00:19:56.260 Yeah.

00:19:57.080 Is it stuff that you'd be embarrassed to show your friends?

00:20:00.320 Yeah.

00:20:00.860 Is it stuff that would get you cancelled?

00:20:02.840 Yeah.

00:20:03.560 Well, next time you decide to be naughty and watch more trigonometry,

00:20:07.380 you need to use ExpressVPN.

00:20:09.760 It doesn't matter, mate, because I use incognito mode.

00:20:13.760 It doesn't matter what mode you use or how many times you clear your browsing history.

00:20:19.060 Your internet service provider can still see every single website you've ever visited.

00:20:25.100 That's why even when you're at home, you should never go online without using ExpressVPN.

00:20:29.720 My career is finished!

00:20:31.680 There, there, you'll have to leave trigonometry, can't be helped.

00:20:35.760 Anyway, it doesn't matter who your internet service provider is.

00:20:39.140 ISPs in the US can legally sell your information to ad companies.

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00:21:57.460 I think most Venezuelans have gone to neighboring countries.

00:22:00.940 So I interviewed a woman who were just putting her last kid on the bus.

00:22:06.320 I think it was to Ecuador.

00:22:07.220 She had three kids.

00:22:08.320 One was in Spain, one was in Peru, and the third one she was sending Ecuador.

00:22:13.600 And she was just like, this is my life now, right?

00:22:15.540 I'm a single mom, and now I have to spend my other's day alone.

00:22:18.760 I can't, there's no future for me because I've just got,

00:22:21.460 my whole family has been sort of completely, completely fragmented.

00:22:24.920 And, but again, that affects, you know, the neighboring countries, which in turn affects

00:22:30.740 their economies.

00:22:32.520 And the worrying thing is, is it's unsustainable.

00:22:37.560 We, surely we can't keep having this because then there's going to create problems in other

00:22:42.620 economies and it's going to destabilize their, their populations as well.

00:22:46.880 Well, that's why the way in which I was thinking about this in the book was it's why chaotic

00:22:52.560 markets create a chaotic world, right?

00:22:54.600 So if you're constantly creating instability in the world, right?

00:22:58.500 Whether, so I also looked at, you know, collapsing coffee prices, sending hundreds of thousands

00:23:02.840 of Guatemala migrants since 2018 to the US border, right?

00:23:06.520 Whether it's volatile food prices in Africa, sending people to, to Europe, right?

00:23:12.260 You're right, this like, you're right, this is causing a lot of instability.

00:23:16.200 Is it unsustainable?

00:23:17.860 I don't know, right?

00:23:18.620 We don't, we haven't, we haven't reached the limit.

00:23:20.660 We don't know what is sustainable and is, and is unsustainable.

00:23:23.800 Is it disturbing?

00:23:24.940 Does it create disorder?

00:23:26.240 Absolutely, right?

00:23:27.200 This is, it's definitely disorder making, but I think that, I think the other way that

00:23:31.820 we may want to think about this is, you know, who benefits from this, right?

00:23:35.660 Are there people who profit from there being a border crisis?

00:23:38.340 Are there people who profit from migrant flows?

00:23:40.680 And the other question is, is, is are there people who are causing the chaos?

00:23:45.440 I think we haven't touched on yet.

00:23:46.740 A lot of the book looks at the nature of these markets.

00:23:49.260 I was about to ask you about that, yeah.

00:23:50.860 And, you know, how did they, how are they impacted by this?

00:23:54.320 So what I'm trying to do in the book is pull together these things that all seem quite disparate,

00:23:59.020 right?

00:23:59.300 So you've got US border crisis, Central America, climate change, coffee production, speculation.

00:24:05.100 And what I'm, what I'm trying to do is, is drawing all these lines between like, yes,

00:24:10.060 like when, when we hear headlines about migrants crossing the boat, coming to Britain, we don't

00:24:14.860 hear the story necessarily of where they've come.

00:24:17.500 And even if we do, we don't necessarily hear why those wars have started, who's giving them

00:24:22.600 weapons.

00:24:23.260 Yemen would be a nice example of that, right?

00:24:25.140 Maybe Britain stopped selling Saudi Arabia billions of dollars of arms export every single

00:24:29.940 year.

00:24:30.260 Maybe those people on those boats wouldn't be here because their houses wouldn't have

00:24:33.400 been blown up by Saudi bombers, right?

00:24:35.800 So what I'm trying to do in this book is to tell the story of the last 10 years and draw

00:24:41.080 all of these connections so that we go behind the headlines of the immediate tragedies, which

00:24:47.080 is, which obviously we need to do something about, to where it kind of all started, the

00:24:50.600 very source of the chaos itself.

00:24:51.860 So, well, let's do that then, because you're talking about the volatility and food and energy

00:24:59.000 prices, essentially.

00:25:01.320 And one of the things that human beings came up with a certain time ago to deal with the

00:25:06.440 fact that farmers producing crops were struggling to get a fair price for the product because

00:25:13.320 it all arrives at once and it has to be sold quickly, was human beings invented this great

00:25:17.880 thing, which we now call derivatives, right?

00:25:19.640 A way of managing future risks and managing prices.

00:25:22.900 And initially it was attached to the actual product, but then it evolves.

00:25:30.240 You talk to us, explain to people who have no idea about how financial markets work, all

00:25:35.120 of that from the beginning.

00:25:36.420 Okay.

00:25:37.420 Well, in ancient Greece, I think modern derivative markets, especially in the States, come from

00:25:44.580 Chicago, right?

00:25:45.760 So as you said, mid-19th century Chicago, it's bang in the center of the Midwest.

00:25:50.540 It's where they grow all the wheat, other crops, other agriculture.

00:25:54.560 And the farmers would take that, you have the harvest, you take everything to Chicago.

00:25:59.840 And there's a problem, right?

00:26:00.960 There's massive oversupply in Chicago.

00:26:02.720 And so it becomes worthless.

00:26:04.340 So, you know, economics 101, supply goes up, price goes down.

00:26:08.060 And so it's more profitable just to dump it into Lake Michigan, right?

00:26:10.860 Because at least you might maintain some kind of assembly and price.

00:26:14.940 And so what was sort of one of the innovations that came up with to sort of run these markets

00:26:18.660 effectively was futures, right?

00:26:21.100 It can sound a bit confusing, but essentially it just means you agree on a price for a future

00:26:27.320 date.

00:26:27.900 So it's like saying, you know, I'm going to come and deliver so many bushels of wheat to

00:26:33.180 Chicago in May.

00:26:35.360 And there's a price for what's called a May contract or June contract or July contract.

00:26:39.340 And so it means that the farmers aren't all coming to Chicago in one go.

00:26:45.220 And it means that they can kind of stagger it out.

00:26:47.460 So it gives the farmers security.

00:26:49.160 They know when they plant those seeds and do whatever you do to grow wheat.

00:26:53.660 I'm not going to spell on this.

00:26:54.760 Farm it, I guess.

00:26:55.860 Get your 19th century combine harvester out.

00:26:59.240 You know that you've got a guaranteed price.

00:27:02.180 Now, the problem with that system, at least when it very first started, and it's true and

00:27:07.380 true now as well, but the problem is, is that there might not be someone to buy that July

00:27:10.720 contract, right?

00:27:11.660 So people, ordinary consumers say, or a hotel, a bakery, a restaurant, whoever it may be

00:27:16.440 back then, you know, they might not want to be thinking about buying something a year

00:27:20.420 out in advance.

00:27:21.300 And so that's kind of where speculators came in, right?

00:27:23.120 And so the idea was that it could be another person could come in and they could say,

00:27:27.140 okay, I'm going to guarantee that price for you.

00:27:28.780 Here's a contract.

00:27:29.540 Here's a piece of paper, right?

00:27:30.760 This is what derivatives are.

00:27:31.800 So it's a paper derived from the, has its value derived from the bushels of wheat.

00:27:36.460 And I'm going to do that.

00:27:37.640 And then when it then comes around to July, that hotel owner may say, oh, actually, I

00:27:41.520 do need some wheat now, right?

00:27:43.020 And then you can then sell that onto the, onto the hotel client.

00:27:46.420 So they're to provide what economists call liquidity.

00:27:48.700 It just means literally the, the grease in the wheels to get the whole kind of machine

00:27:53.600 working and to kind of make sure the farmers always have something to sell to.

00:27:57.100 And at the same time, the bakers always have a steady supply of, of wheat that they can

00:28:00.680 kind of buy from.

00:28:01.440 And in that system, it should be said that the speculator in the middle is playing an

00:28:05.320 important role because they're taking on a risk.

00:28:08.000 That's right.

00:28:08.480 By promising to give you a certain price for your wheat a few months or a few years, even

00:28:13.760 down the line, they're taking on a risk.

00:28:16.080 The price of wheat may go down.

00:28:17.520 The price of wheat may go up.

00:28:18.640 The demand for wheat may go down.

00:28:20.100 The demand for wheat may go up.

00:28:21.660 So they're playing a useful role in that situation.

00:28:24.780 Okay.

00:28:25.020 Yeah, exactly.

00:28:25.680 And they would also get a discount for that called the risk premium, right?

00:28:29.240 So, so they, they, they perform this role and they get a discount and that's kind of

00:28:33.400 where they would, where they would make, make, make their money.

00:28:36.080 But since then, the world has moved on.

00:28:38.360 Almost, almost immediately it's disaster, right?

00:28:40.560 So this kind of idea of being a risk mitigation system turns into a gambling system, right?

00:28:47.500 Because gambling and risk is essentially the same thing, right?

00:28:51.460 So people don't often, it can be conceptually hard to think about this, but imagine like

00:28:55.380 you get fire insurance out on your house.

00:28:58.180 It's essentially a bet about whether your house is going to burn down, right?

00:29:00.880 You're kind of gambling on this and you and the insurance company take opposing sides

00:29:05.460 of this bet, just as in these contracts, you have opposing sides as well, right?

00:29:10.760 And, you know, because before this system, you know, imagine trying to speculate on the,

00:29:17.420 what on the, on the price of wheat, right? You would have to like get a farm with a big

00:29:21.920 storage thing. You'd have to get it all in there. You have to make sure nobody nicked

00:29:25.680 it. Nobody burned it down, that it was kept.

00:29:27.740 The rats didn't eat it.

00:29:28.640 The rats didn't eat it. It's a complete pain in the arse, right? So this is, this would,

00:29:32.920 this would be a problem, right? This is true for anything. Whereas what's so,

00:29:35.980 the magic of derivatives is saying, well, actually we can bet on the prices of these things

00:29:40.720 without having to go through the rigmarole of actually storing these things and so forth.

00:29:45.820 It becomes a number on a piece of paper.

00:29:47.500 It becomes, exactly. So we sort of, that's, this is the thing about risk and gambling is

00:29:52.400 that this, is that there's such a great promise here for peace and order. I have to say it

00:29:56.600 does actually eventually work. They actually do figure it out. So the, the, throughout the sort

00:30:01.440 of later parts, the 19th century and the early 20th century, you have all kinds of speculative

00:30:05.700 manias that happen. I mean, it's not every year, but there'll be, somebody will kind of come in

00:30:09.720 and try and corner the market for pork bellies or wheat or whatever it may be, butter,

00:30:13.900 and they'll kind of come in, they'll try and buy up the supply and send the price up. And

00:30:17.880 eventually this gets so out of control that Roosevelt comes in and regulates it.

00:30:23.820 And one of the most important regulations that comes in is they essentially limit the amount

00:30:27.960 of speculation, right? So they say, okay, speculators, you're important. We still want

00:30:32.980 you around. You have this important function to keep the market kind of ticking over and take

00:30:36.920 on risk. And we're going to limit you to about 20% of the market. So in the jargon,

00:30:41.020 they call it open interest. And it's incredibly successful, right? You know, it has to, I want

00:30:46.040 to stress that, right, from the Roosevelt era through to the end of the 20th century to 2000,

00:30:52.140 commodity prices are actually pretty stable, unless there's a global mega shock, right? So

00:30:57.860 the obvious examples would be in the 70s, the OPEC embargoes or the Iranian 1979 revolution,

00:31:04.140 where you see these huge oil price spikes. But by 1983, four, oil prices sort of stabilise.

00:31:12.780 You non-OPEC producers come in, the US starts making more. In the UK, we have North Sea oil,

00:31:18.420 right? So the supply gets diversified, the power of OPEC comes down. And markets are actually pretty

00:31:24.700 good at performing this function, right? So if prices go up a little bit, that's a signal to the

00:31:30.060 market, you need to start shoving some more supply in here, and vice versa, if they kind of dip down,

00:31:34.240 then it's like, we should scale back production. And so from around 1984 to 2004, markets are,

00:31:44.700 you know, ticking over, right? We have actual real global shocks in this period, collapse of the

00:31:50.280 Soviet Union, the Gulf War, Bush's invasion of Iraq, the rise of the Asian tigers, right? There was a lot

00:31:56.800 going on in the collapse of communism, there's a lot going on in terms of real world volatility.

00:32:02.080 But, you know, to the market's credit, they actually respond in a kind of way we would want

00:32:05.840 them to, in a kind of rational way, finding new supply, moving it around. The first Gulf War creates

00:32:10.520 a very short super spike. And Bush's war in 2003 is actually barely registers in the oil price. It's

00:32:18.580 actually incredible to think now with what's happening to oil prices. In 2003, there's been some,

00:32:24.000 the, because the sort of the market anticipated that Bush would keep all the oil flowing. They

00:32:30.480 didn't, the market, the prices didn't, didn't spike at all. And actually, Osam bin Laden gives a really

00:32:35.940 angry interview to CNN and goes, it's an absolute disaster. Oil should be $100 a barrel. It was one of

00:32:41.800 his like big complaints about the US. He believed that the US was kind of bribing Saudi to keep the oil

00:32:47.020 price low and starving Muslims of their deserved oil riches. And so he was, he was really angry about this.

00:32:54.000 But then what we see around 2005, six, is this new era of kind of commodity price volatility.

00:33:02.320 Why does that happen?

00:33:03.860 It's a controversial question. And you will get a lot of different answers from different people.

00:33:08.600 But from what I ended up speaking to a lot of traders on background, as well as some Nobel

00:33:14.460 prize winning economists, it seemed to me that the driver was simply this, this regulatory change in

00:33:19.720 2000, right? This to me seemed like the most plausible reason, as I said, it wasn't like the period before

00:33:24.840 was super, well, it didn't have real world volatility, it did, the markets operated correctly. But in 2000,

00:33:30.680 there was a bill called the Commodity Futures Modernization Act. And what it was really about was a whole new

00:33:37.640 set of derivatives, right? So you and your viewers may have heard of credit default swaps, those lovely things

00:33:44.360 that are the main character in the big short, which were sort of derivatives that allowed you to bet on

00:33:49.400 housing, essentially, right? And that was really what was being created in the 1990s, right? There were

00:33:53.960 these, all this housing, collateralization, assets, they were essentially turning lots of different

00:33:59.060 things in the real world of which housing became the most important.

00:34:02.900 So you were no longer, and in some ways, the real thing was that you were no longer betting,

00:34:07.560 even on something to which had a physical connection, you were quite often betting on a bet,

00:34:12.120 that someone else had made as well, weren't you? With some of these derivatives?

00:34:16.100 That's absolutely true. And a part of what happened, I think, the way to think about it is

00:34:22.400 in terms of scale, right? So there's always a kind of fictional nature to these contracts,

00:34:26.640 always, ever since the beginning. That's not necessarily what's dangerous about them.

00:34:31.900 I think what I found was that the danger and the volatility comes from two sources.

00:34:37.760 So one source is just simply the scale. So in that Roosevelt era,

00:34:41.060 of kind of peace and stability that I like to see it as, the speculators were limited to 20%.

00:34:46.000 So you've got to function in the market, it's important, but we're going to let the physical

00:34:49.220 traders, people who actually, you know, grow wheat, buy wheat, turn it into bread, etc.

00:34:53.720 They're really going to dominate the market, and they're going to dominate price, because

00:34:57.260 they should know, right? They're the ones who are actually buying and selling it to consumers.

00:35:01.500 Post-2000, as I said, what they were really trying to focus on was essentially protect

00:35:06.760 these new housing derivatives and others from any kind of regulation. And commodities were

00:35:12.140 almost like an afterthought, right? So commodities kind of get tacked in on this of like, okay,

00:35:16.040 well, since we're doing all derivatives, you might as well just bring in oil and metals to go with it.

00:35:21.340 And then the speculators in those markets can kind of grow to 80%, 90%.

00:35:25.700 And so the original sort of Milton Friedman idea of why markets are gray or Hayek, right,

00:35:33.720 these are your neoliberal sort of economist philosophers, is what they'll say is they'll say,

00:35:39.260 well, the reason why markets are great is because they're decentralized. And you've got ordinary

00:35:42.380 people on the ground, whether you're a farmer, or whether you're a hairdresser, or whatever it may

00:35:46.360 be, whatever your occupation is, you know your business better than anybody else. And you're dealing

00:35:50.160 with supply and demand in a direct way. And that's why prices are great, right? Because you don't have

00:35:55.280 some central committee sitting in Moscow or Washington DC or London, telling everyone how

00:36:00.680 the economy should work, right? There's no commissars in the market. But ironically, what

00:36:05.160 this new financialized market was actually resembles that a lot more, right? Because suddenly you've got

00:36:10.640 people who are dominating the market, 80%, 90%, who don't farm, right? Don't know what a bag of sugar

00:36:16.580 might even look like, may have never even seen one, right? Don't even know what the difference between

00:36:20.740 different kinds of crude oil may be. Maybe they do, maybe they don't. It doesn't really even matter.

00:36:24.760 But these people are kind of dominating. And these are people who are living in Singapore, Hong Kong,

00:36:28.920 London, New York. And suddenly, it's their ideas and their expectations that end up driving it.

00:36:35.720 And the thing about this is that when you've got these small groups of

00:36:39.860 people who all talk to one another, they're very vulnerable to narratives, stories, right? And you'll

00:36:48.840 see this in the financial press all the time, right? You'll see this in Bloomberg, the Financial Times,

00:36:52.940 you'll see, you know, there'll be a new story about, just to take recent examples, they'll be like,

00:36:59.620 right, all the Russian oil's embargoed. And then you'll see the oil price literally jump $30 a

00:37:04.840 barrel, right? Which is like, completely crazy. I had speculators talk to me about an event in 2014

00:37:10.180 when ISIS moved into Mosul. It was headline news, the oil jumped $5 a barrel. That was conceded as

00:37:15.520 unprecedented volatility. And that was what, seven, eight years ago? Now we're jumping $30 a barrel.

00:37:20.420 And it's not just human beings, it's also algorithms, it's traders, it's algorithms reading

00:37:25.820 the news that are reading those headlines before the human beings even seen them. And then the next

00:37:30.200 day, you might have a headline that goes, no, actually, it's fine. India's going to buy Russia's

00:37:33.920 oil or China's going to buy it. And then the price kind of collapses again. And so what you have

00:37:37.640 is in the economics jargon, you cause positive feedback, right? So you end up having is whether

00:37:43.880 it's AI, whether it's human beings, whether it's trend followers, whether it's index investors,

00:37:49.720 whoever I spoke to, what it ended up being was that you have these overreactions. So when there's a

00:37:56.280 story of scarcity in the future, this sends the price higher than it might be and like, and like

00:38:01.440 vice versa. And so that's really what we're kind of seeing in the last, in the last couple of weeks.

00:38:06.500 The other thing that's dangerous about these derivatives is you have this kind of volatility

00:38:15.120 side where things can swing up and down. The other side is you often might hear this idea of

00:38:18.720 explosions, right? So when Buffett said derivatives, weapons of mass destruction, that's something

00:38:23.200 slightly different where he's talking about derivative contracts that are hundreds of pages

00:38:30.640 of long, right? So when you're selling wheat and oil, on the whole, not always, but on the whole,

00:38:35.200 you're dealing with a standardized contract, right? Everyone knows what it is, right? Everyone in

00:38:38.240 the market, whether you've got an oil tanker or you're an oil man or you're a hedge fund trader,

00:38:42.980 we know what this means. You're going to get so many barrels of oil on this date for this price.

00:38:48.100 Those kinds of, the other derivatives, these sort of new ones that were coming up in the 1990s,

00:38:54.300 were hundreds of pages of long, hundreds of pages of long. No one understood them. Nobody understood

00:38:58.500 how they really even operated. And what often would happen is that sort of buried in them somewhere,

00:39:03.980 there were these clauses that would detonate, right? So is this, you sort of see this in the

00:39:08.100 big short, right? I think it's Chris Bale's character, I've forgotten whose thing it says.

00:39:11.500 I've just discovered that if these, you know, it's an derivative, it's an asset. If it's 8% default,

00:39:16.340 the whole thing blows up. It was, and he was autistic, right? Because he actually read it and all the

00:39:20.280 other characters are going, you actually read this stuff, right? So those are the, I'll let you go back

00:39:24.760 to you. So those are the two ways in which these are sort of destructive. And my book really kind of

00:39:29.300 focuses on the former, which is the market overreacting to news, creating, creating completely

00:39:35.220 unnecessary volatility.

00:39:37.160 To me, it just highlights, and I'm going to look at, because I'm not an economist, whilst I've been

00:39:41.000 following everything you're saying, my question is very much about the human element of this.

00:39:46.020 It's a societal. You have these tiny fraction of people, percentage of people, this tiny part of

00:39:52.940 society, which dictates to everybody else, what kind of society they're going to be in, prices.

00:40:00.640 Isn't that just phenomenally dangerous?

00:40:04.240 Well, I think it has been very dangerous, yes. I mean, again, it's interesting when I went back and

00:40:10.540 I read, you know, the original Hayek and the original Milton Friedman, their promise of markets,

00:40:17.720 and this is, of course, during the Cold War, right? So their promise of like, a global capitalist,

00:40:22.200 this marketplace was decentralization. That was the whole idea. It was, you know, Friedman

00:40:27.300 hated central bankers. He wanted to replace the Federal Reserve with a computer. He wanted to

00:40:33.320 abolish the IMF. I mean, he really genuinely didn't like technocrats and being told what to do.

00:40:38.120 But then I think it's one of the great ironies is that what neoliberalism turned into, I think,

00:40:44.180 by the end of the 1990s was this something quite different to what they had in mind, right? Which was

00:40:49.900 dominated by finance. And by finance, I mean banks, hedge funds, others, where it could be

00:40:56.000 university endowments, it could be pension funds, asset managers. And these people kind of

00:41:02.740 begin sort of dominating markets in ways that wasn't really anticipated.

00:41:07.780 Friedman writes a really interesting article, I think it's in 1962, where he's opposed to central

00:41:11.560 bank independence, right? And the reason why he's opposed to it is he goes, well, who's going to

00:41:15.660 staff the central banks? It's going to be other bankers. And they're just going to govern in the

00:41:19.880 interest of bankers. And Friedman's whole MO was, I don't want any interest group running the market.

00:41:25.700 Again, he wants to decentralize. He isn't actually entirely consistent later in his life,

00:41:32.600 he kind of comes around to Greenspan. But that's also why he spends a lot of time trying to make sure

00:41:36.480 that the Federal Reserve is run by a computer. Because he anticipates that when central banks or other

00:41:42.180 institutions get staffed by people, they're going to pick people from finance, and those people are

00:41:47.420 going to want to help to expand the financial markets. And essentially, what you've ended up

00:41:52.900 with today is, you know, BlackRock, huge asset manager, I think has $20 trillion underneath asset

00:42:02.160 management, right? Just for reference, I think US GDP is 24, 25 trillion. So you've got one fund

00:42:10.600 in control of the amount of money, which is nearly the size of the US economy, right? This is we are

00:42:16.560 almost in like, we're back to the Kremlin, right? We're back to a commissar in charge of hospitals,

00:42:23.320 schools, veterinary clinics, restaurants, I mean, you name it, these asset managers own it. And so I

00:42:29.480 think it's one of the great ironies is that of the kind of neoliberal project is they've kind of

00:42:34.720 created, recreated the very beast they were trying to slay.

00:42:38.680 Hey, Konstantin, do you like trigonometry?

00:42:42.680 Of course, what's not to love? Incredible interviews, hilarious raw shows, plus we're going to start doing

00:42:49.120 weekly satirical comedy like the ones that we used to put out.

00:42:52.680 I'm Konstantin Kishin, and you may remember me from my stint hosting a kids TV show on Al Jazeera.

00:42:58.720 And I'm Francis Foster, a man who looks like a cross between Louis Theroux and a beaver.

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00:44:06.720 And one of the things, sorry, Francis, just to follow up on this point about how this...

00:44:11.480 And I know people listening and watching might think this is sort of abstract economic stuff,

00:44:15.380 but it really isn't. And I invite them to stick with us.

00:44:18.700 So we started out by talking about volatility in prices of food and oil and gas and so on.

00:44:24.800 And then we started talking about derivatives and how that is making prices less stable

00:44:29.900 and making them more unstable. And would I be right in thinking that Bill Clinton in particular

00:44:35.260 was one of the people who removed many of the regulations that were keeping this under control?

00:44:42.120 Absolutely, that's right. So Clinton's ultimately the guy who signed the Commodity Futures Modernization Act in 2000.

00:44:48.280 That bill had been spearheaded by Greenspan.

00:44:51.400 So Greenspan and Larry Summers, who was then the Treasury Secretary as well,

00:44:55.100 who now Larry Summers has been resurrected now. It's back in the public debate.

00:44:59.900 These were the guys who really kind of spearheaded this.

00:45:02.840 And there was this very famous reported line.

00:45:05.920 And I go into this in the book, but essentially what happened was there was a famous kind of battle of the bureaucrats, right?

00:45:12.760 There was Brooksley Bourne, who was head of the CFTC, that regulates essentially commodities,

00:45:17.220 which is where derivatives in the US regulatory system fall under.

00:45:20.700 And there have been a few of these kind of detonations.

00:45:23.880 So Procter & Gamble in the 1990s had lost, I think, maybe tens of millions, hundreds of millions in derivative bets.

00:45:29.480 They just didn't understand. They thought they were buying insurance for something,

00:45:33.040 and it kind of blew up in ways, created losses they didn't realize.

00:45:36.360 The same was true for Orange County.

00:45:38.320 And so Brooksley Bourne, who's the regulator of derivatives through the commodity markets,

00:45:43.740 which is where they all derive in the US system,

00:45:47.420 says, hang on a minute, maybe we should look into this whole trillions of dollars in bets on stuff.

00:45:52.520 Like, maybe there's something we should look at.

00:45:54.640 And the Washington Post reported an apparent phone call that Larry Summers,

00:46:00.620 who was then the Undersecretary of the Treasury, made to Brooksley Bourne.

00:46:03.440 And he said, I've got 13 bankers in my office,

00:46:05.860 and if they say you go along with releasing a report that asks this question,

00:46:09.820 we're going to have a US financial crisis bigger than World War II.

00:46:15.160 Brooksley Bourne goes ahead and releases this.

00:46:17.000 It wasn't a report, really.

00:46:17.920 It was like a white paper inviting people to comment on regulations.

00:46:22.020 And there was no global financial crisis, right?

00:46:24.680 And instead, what happened was there was a whole lot of really spearheaded by Greenspan,

00:46:28.560 a lot of kind of internal Washington wrangling.

00:46:32.640 They have a big committee hearing in which they kind of humiliate her.

00:46:36.980 All these guys kind of gang, gang, gang, gang up on her.

00:46:39.800 She ends up being pushed out.

00:46:41.840 And then Larry Summers and Greenspan, I think two others,

00:46:45.420 end up writing this report that ends up becoming the thing that deregulates it.

00:46:49.320 And of course, it's the biggest irony that, you know,

00:46:51.640 this ends up causing genuinely the biggest financial crisis since World War II, right?

00:46:56.140 It was actually not doing what Brooksley Bourne said

00:46:59.340 that led to the whole housing market and US economy exploding.

00:47:03.340 And it happens very quickly.

00:47:04.800 Once they take the brakes off the economy,

00:47:06.600 it happens within literally a few years.

00:47:08.800 Yeah, absolutely.

00:47:10.000 Because it had already been growing, right?

00:47:12.060 So in the 1990s, it had already been growing,

00:47:14.200 but it was in this sort of regulatory grey area.

00:47:17.640 And of course, that's not great, right?

00:47:19.140 You don't want to build a trillion dollar business in a grey area.

00:47:21.660 And so 2000, that act, again, it was very much focused on these new derivatives like housing,

00:47:26.640 but also betting on things like currencies, government debt and things like that.

00:47:30.020 And commodities were kind of almost like an afterthought to that process,

00:47:33.240 but of course, hugely important as well.

00:47:35.000 Now, how much of a part did, dare I say, corruption play?

00:47:40.300 Because you've got these politicians,

00:47:43.200 they know that the Glass-Spiegel Act is there to protect people.

00:47:47.460 It's there to protect society.

00:47:49.180 We brought it in, now correct me if I'm wrong,

00:47:51.280 after the last Great Depression in the 1930s.

00:47:54.760 And they're doing this at the behest of banks, asset managers.

00:47:58.100 Is there something nefarious going on there?

00:47:59.880 Or did they genuinely think that this would be a good move?

00:48:02.140 Um, I think there's a lot of motivated reasoning going on, for sure.

00:48:11.760 You know, in that case, in particular,

00:48:14.100 a lot of this was also being driven by Bob Rudin, right?

00:48:16.960 So he was like one of the big guys in Clinton's economic team.

00:48:20.660 He was also like a mentor to Lawrence Summers and others.

00:48:26.540 And, you know, when they repealed Glass-Steagall,

00:48:29.640 they said this is like the Citibank Merger Act, I think.

00:48:32.220 I could be wrong on the details here.

00:48:34.540 I haven't looked at this for a while.

00:48:35.800 But, you know, lo and behold,

00:48:37.820 who goes and gets a $10 million job after this?

00:48:40.640 You know, Bob Rudin, right?

00:48:42.140 So I think there was definitely always the problem of rotating doors.

00:48:47.640 There's absolutely no doubt between that

00:48:49.440 when you're looking at who's staffing the regulatory agencies,

00:48:52.100 who's in the banks.

00:48:52.820 And again, this is what Milton Friedman anticipated in 1962.

00:48:56.100 This is like the great irony, right?

00:48:57.900 He absolutely says, right,

00:48:59.380 once you start having these big institutions

00:49:01.220 that have really got their fingers in the markets,

00:49:03.840 if you staff them with bankers, you know,

00:49:05.820 they're going to start governing in the interest of bankers.

00:49:08.860 And that was even a comment made by an appointee.

00:49:14.740 I've got, his name has split my mind right now,

00:49:16.620 but there was an appointee that Bill Clinton made,

00:49:20.320 like under Greenspan at the Federal Reserve.

00:49:22.240 And he's a lifelong academic.

00:49:23.940 He had no interest in being a banker,

00:49:26.560 wasn't a banker before, wasn't a banker after.

00:49:29.280 But he also kind of said, it's quite human, right?

00:49:33.540 Like even if you, even like him,

00:49:35.240 he's like, you didn't want that career.

00:49:36.620 He didn't want that payday.

00:49:38.200 But he said, it's like,

00:49:38.940 you're being marked by the markets as a central banker.

00:49:42.300 You put out in a statement,

00:49:43.940 you, maybe you pull a policy lever,

00:49:45.540 maybe it's interest rates, anything else,

00:49:46.740 and you get instant response from the market, right?

00:49:49.920 And it's like, it can be difficult to not pay attention to that, right?

00:49:53.140 You're constantly being graded.

00:49:54.980 And it's just human nature to want good marks, right?

00:49:57.920 You want the stock market to like you.

00:49:59.800 You want to say something at the Federal Reserve

00:50:01.660 and see the stock market sort of go up.

00:50:06.080 But it also encourages a sense of short-termism,

00:50:08.660 short-termism, doesn't it?

00:50:10.400 Because like you said, you want the stock market to go up,

00:50:12.560 but you don't think about the stock market two or three years

00:50:14.880 or five or 10 years down the line.

00:50:17.360 You're thinking about the stock market now.

00:50:19.180 It creates an immediacy in the way you think.

00:50:22.960 It absolutely does.

00:50:23.940 And Greenspan was constantly sort of criticized

00:50:26.140 because the ultimate expression of this logic

00:50:29.740 was talked about during Greenspan.

00:50:32.820 And on Wall Street, they called it the Greenspan put option,

00:50:35.160 which essentially meant that whenever the stock market went down,

00:50:38.240 Greenspan would cut interest rates and throw fuel on the fire.

00:50:41.180 And he sort of criticized for fueling the tech bubble of the 1990s

00:50:45.320 and then the housing bubble, housing bubble of the 2000s.

00:50:47.980 What I wanted to do in my book, though, was to look outside the United States.

00:50:54.280 Because, of course, what's happening in the United States impacts the globe, right?

00:50:57.240 The stock market's important, but to be honest,

00:50:59.660 most holders of US stocks are either US citizens or other US entities.

00:51:03.720 Whereas the Chicago-Merson total exchange has an absolute global impact, right?

00:51:09.860 To the price that people are paying for food and fuel globally

00:51:12.660 is an absolutely outweighed impact by that.

00:51:18.800 And also the Federal Reserve, right?

00:51:20.040 So these sort of things all kind of,

00:51:21.480 because commodities are denominated in dollars, right?

00:51:24.540 A lot of petrodollars get recycled in the US financial system.

00:51:27.700 And so what actually happens is you have the US decisions that are made internally to the US

00:51:33.200 for US reasons have these kind of global ripple effects.

00:51:37.040 And that's kind of what the book wants to explore.

00:51:39.240 It's saying, yes, okay, there was the housing bubble.

00:51:43.300 There was an explosion of housing derivatives.

00:51:45.100 There was the global financial crisis.

00:51:46.300 And that's a story that's now well, well known.

00:51:49.060 We have various Hollywood movies.

00:51:50.680 There's lots of books.

00:51:51.940 But there was other detonations as well.

00:51:53.900 And the price of food and oil that didn't stop in 2008.

00:51:56.520 They kept going throughout the decades.

00:51:57.860 And they're happening again right now.

00:51:59.680 And these were kind of global events.

00:52:01.540 And as you said at the beginning, we're not talking about them

00:52:03.780 because it wasn't considered a crisis in Europe or the US at the time.

00:52:08.220 And what I wanted to do with the book,

00:52:09.540 and I go on this kind of gonzo adventure

00:52:11.580 to lots of kind of war zones I really shouldn't have been in or Caracas,

00:52:14.640 was to kind of really highlight that,

00:52:16.040 like that story with the video game.

00:52:17.420 It was like, what does it mean to live in one of these places?

00:52:20.240 In Venezuela, that happened because the oil prices collapsed in 2014.

00:52:24.320 That was the first reason.

00:52:25.420 And then secondly, of course,

00:52:27.340 enormous sanctions put on the regime in 2017 by Trump.

00:52:33.400 Was Venezuela mismanaged before?

00:52:36.420 Sure it was.

00:52:37.060 But was it, you know, mismanaged so much worse than these oil economies?

00:52:41.020 I mean, I don't think so.

00:52:42.800 All right.

00:52:43.020 So, look, the story, the narrative of this conversation is essentially this.

00:52:47.660 Commodity prices, that is food, oil, gas, et cetera,

00:52:51.820 cause instability, volatility of those prices,

00:52:55.880 fluctuations, random changes that are significant, et cetera,

00:52:58.980 cause instability of one form or another.

00:53:01.240 If dictators who sell oil suddenly can get a better price for the oil,

00:53:05.840 they're much more likely to execute their expansionist plans.

00:53:09.860 And likewise, if food prices spike, then people in poorer countries are likely to protest,

00:53:16.220 rebel, overthrow the government, et cetera, which causes instability.

00:53:19.660 A second piece is that that instability and that volatility,

00:53:24.080 in particularly in recent years, is caused by the fact that we've taken some irresponsible deregulation

00:53:31.400 that's happened in the last 20 years particularly, which has facilitated that.

00:53:36.620 And so we've deregulated that as causing instability, it's causing war.

00:53:41.520 What the hell do we do about it?

00:53:43.580 This is a really great question, and it's incredibly urgent, right?

00:53:46.480 Because commodity prices are surging again.

00:53:49.180 We could be looking at another global food crisis with the instability that comes with it.

00:53:53.180 And I also, you know, we've been talking about things that have been happening 10 years ago.

00:53:57.740 It's important to remember, I think, you know, in Kazakhstan in January,

00:54:00.600 the government was deposed over food price, sorry, fuel prices doubling, right?

00:54:04.900 This isn't even like, this is literally like a month and a half old, right?

00:54:08.240 This is something which happened, which happened this year.

00:54:10.660 So you've got, of course, the human suffering element.

00:54:14.000 You've got the political stability element, as you mentioned.

00:54:17.180 You've then got this war element, which is,

00:54:19.220 and of course, these things, of course, begin to cascade with each other.

00:54:21.880 They tend to feed into each other.

00:54:24.620 The most immediate thing in the current crisis would be, you know,

00:54:29.600 make sure we get food to people, because there's two separate issues here, which get confused.

00:54:35.020 So one is global prices, right?

00:54:37.240 And as we mentioned, that there's a way in which prices in reality can sort of diverge from each other.

00:54:43.080 I interviewed Robert Schiller.

00:54:44.160 He's the great economist of bubbles.

00:54:45.940 And he was essentially explaining to me is how all price movements are the result of stories.

00:54:51.880 Right?

00:54:53.200 Friedman and other, you know, pro-market people would say, well, they're the good stories.

00:54:56.760 They're the rational stories.

00:54:57.680 Because if you've got a crappy story, you know, you'll lose out, right?

00:55:00.420 If you go and bet on a two-legged horse, right?

00:55:04.040 Bad for you.

00:55:04.640 You're going to be kicked out of that market.

00:55:06.520 You're not going to last very long.

00:55:08.280 So Schiller's argument is that's not quite the case in reality.

00:55:11.920 The kind of bad stories have a way of persisting.

00:55:14.320 And if you're in on the bad story first, you can still kind of, you can still kind of make money out of it.

00:55:19.320 Two examples of that would be 2008, 2010.

00:55:23.520 So 2008, there's a global food crisis.

00:55:28.160 That year and the year previously had seen more food ever produced in history.

00:55:31.620 2010, there were wildfires across Russia.

00:55:35.600 There was, again, the financial press.

00:55:37.200 You can go and look this stuff up, right?

00:55:38.740 In the archives, there was always kind of hysteria of global shortages of wheat.

00:55:42.840 But the U.S. that year had a bumper crop.

00:55:44.980 Again, more food was produced in 2010 than the year in history.

00:55:48.280 But prices doubled nevertheless, right?

00:55:50.060 Because it was those stories that got factored into prices.

00:55:52.540 And sure, the price does come down when the new information comes out.

00:55:56.740 The market self-corrects.

00:55:58.440 But as Cain said, in the long run, we're all dead, right?

00:56:01.900 So the short term really matters in a lot of these places,

00:56:04.960 especially for people who are spending most of their income on food

00:56:08.120 or calling it like a living on the edge of chaos, right?

00:56:11.000 You just need a little nudge maybe to kind of push you over.

00:56:15.420 And I think that's really important because what we're seeing right now,

00:56:18.880 and each of these markets is slightly different, oil, gas, and food.

00:56:22.000 So I don't want to lump them all together necessarily,

00:56:25.120 but maybe for expediency I will,

00:56:27.520 is that it's not quite clear that especially for oil and wheat,

00:56:31.280 we are seeing shortages yet, right?

00:56:33.980 So Russian oil is still being pumped, it's still being sold.

00:56:36.980 Russian natural gas is still flowing into Europe.

00:56:39.180 In fact, it's now higher than it was before the war.

00:56:43.460 The fears over Ukrainian wheat and actually some Russian wheat

00:56:47.020 not getting out as exports to particularly the Middle East

00:56:50.820 and sub-Saharan Africa they desperately need.

00:56:54.740 That chink in the supply chain hasn't actually broken yet.

00:56:57.880 It will do, but of course it's not coming out on like a daily basis, right?

00:57:02.380 It's not quite how it works.

00:57:03.780 Not only that, the Chinese and the US have gargantuan reserves, right?

00:57:08.160 So it's not like that's the only wheat we have is stuck in Ukraine

00:57:11.320 if we don't get that.

00:57:13.020 And so I think what we need to do is separate these two issues out.

00:57:15.860 One is we need to make sure that there's price stability.

00:57:20.580 And there's some really interesting work being done now on a kind of,

00:57:25.020 you say price controls, people's like heads explode.

00:57:27.660 But like there are ways to kind of regulate prices.

00:57:30.260 I mean, of course, electricity prices and things like that

00:57:32.200 are regulated in Britain and other countries anyway, right?

00:57:34.420 We can have some regulation of prices to kind of restore sanity.

00:57:37.880 This is, by the way, really normal for wartime, right?

00:57:41.300 World War II and so forth.

00:57:42.560 Like you can't have markets.

00:57:44.100 Markets can't synthesize this information, right?

00:57:46.060 Like the Japanese bomb Pearl Harbor.

00:57:47.700 Oh no, there's no more voodoo we're going to lose the next day.

00:57:50.780 Roosevelt says something.

00:57:52.580 The information environment is too uncertain, right?

00:57:55.240 For prices to really do their job of like helping us organize the economy.

00:57:59.320 So I definitely think we need to make sure that the volatility is reduced,

00:58:03.320 whether that's deeper regulations on restoring the Roosevelt era things,

00:58:08.580 or maybe some new inventions I'm sort of reading about.

00:58:12.600 But that is almost secondary to this need for the physical markets, right?

00:58:17.380 The markets aren't functioning correctly.

00:58:20.280 They don't during wartime.

00:58:21.560 That's completely normal.

00:58:23.000 And we need to remember that the state needs to ship.

00:58:25.140 The state needs to, sorry, the state needs to step in, right?

00:58:30.160 Biden, the US, they need to get those reserves somewhere.

00:58:32.660 They need to put them on boats.

00:58:33.780 They need to send them to places like Libya, Syria, Yemen, even Bangladesh.

00:58:39.580 These are all countries that are normally dependent on Ukrainian wheat.

00:58:43.440 And we just need to get it to them.

00:58:45.120 The US, by the way, has had a long history of doing this.

00:58:48.180 So during the Cold War, it was a big part of their Cold War strategy

00:58:52.340 was to basically give either cheap or massively subsidized bread

00:58:56.980 to Middle Eastern countries to kind of stop them from siding with the Soviet Union.

00:59:01.280 And during the oil crisis of the 70s, you know, Kissinger would call them up,

00:59:05.560 the Egyptians and the Syrians.

00:59:06.780 They'd be like, we're going to cut off all your food unless you do what we want.

00:59:09.000 And they told them to go to hell.

00:59:09.980 But that's another story.

00:59:11.260 So when we're talking about a Marshall Plan,

00:59:14.400 we need this right now with food, right?

00:59:16.980 We really, really, really can't wait.

00:59:19.000 We need to start talking about physical markets,

00:59:22.080 physical bushels of wheat.

00:59:23.180 We need to get them on physical boats.

00:59:24.560 And we need to send them there.

00:59:26.640 We can't just leave it to the market to do it.

00:59:28.860 Because, you know, there's quite simply, there's too much uncertainty, right?

00:59:32.820 Like, why would you want to necessarily,

00:59:34.820 if you're a private investor or a private merchant,

00:59:37.240 want to get involved in this?

00:59:38.580 Because the war could end tomorrow.

00:59:40.040 The war could end in three years.

00:59:41.620 And we can't expect the private sector to do this.

00:59:45.320 And so Europe and the US really need to step in

00:59:48.320 and make sure we don't have another global food crisis.

00:59:50.720 Okay, but that's the short term.

00:59:52.480 What about the structural issue,

00:59:53.900 which is the deregulation that we've had

00:59:57.220 is going to keep causing price instability.

00:59:59.640 What do we need to do to fix that?

01:00:01.560 Sure.

01:00:01.820 So we need to go back to some version of the Roosevelt era,

01:00:05.660 of Roosevelt rules for short.

01:00:07.140 We need to basically anchor these markets,

01:00:08.740 assuming there's peace plan, right?

01:00:09.900 Let's just assume there's a ceasefire tomorrow.

01:00:11.800 We're back to the wonderful days of 2021

01:00:14.520 that was so, like, amazing.

01:00:16.720 Let's go back to that beautiful era of last year

01:00:20.220 where we were all happy and rainbow smiles and so forth.

01:00:23.520 Rainbow smiles behind Mars.

01:00:25.180 Yeah, behind Mars, exactly.

01:00:27.280 So it's very good at that.

01:00:28.320 I mean, that's just, it's just a complete no-brainer, right?

01:00:30.520 We need to basically anchor markets in, like, the real world.

01:00:33.460 Look, markets are amazing things.

01:00:35.300 I'm not going to deny this, right?

01:00:36.840 Like, I'm not an anti-market person.

01:00:38.620 When markets operate,

01:00:40.600 they're incredible engines of stability and trade.

01:00:45.980 And, you know, these are great things.

01:00:47.540 The state cannot control markets this large for the most part.

01:00:51.400 But the thing that I also learned

01:00:55.740 from another Nobel Prize-winning economist,

01:00:58.440 Joseph Stiglitz, who I interviewed,

01:01:00.220 is that markets need very specific conditions

01:01:03.020 to operate correctly, right?

01:01:05.000 So there's a kind of a sense you might read

01:01:07.900 when you read the more sort of pro-market ideologues

01:01:12.480 that, you know, markets are kind of natural inventions

01:01:15.440 that kind of you put mankind on desert island

01:01:18.940 and you kind of came back in a year,

01:01:20.660 you'd find a kind of beautiful free market.

01:01:22.460 And it would only be if some kind of evil government state

01:01:24.920 got established that it would all sort of go wrong,

01:01:27.120 interference and so forth.

01:01:28.760 I actually have seen those kinds of anarchic markets

01:01:31.500 in Venezuela and Iraq,

01:01:33.280 and they are just, it's feudalism, right?

01:01:35.540 It's just the guy with guns is the person

01:01:37.420 who actually kind of controls this.

01:01:39.360 And you can kind of see a kind of markets operating

01:01:42.760 outside the state,

01:01:44.140 and they're really not pretty, pretty things.

01:01:46.360 So what you need is you need a kind of estate architecture

01:01:51.120 to make sure that markets are grounded in reality.

01:01:53.720 I suppose that's the message of my book, right?

01:01:55.500 It's saying like, sure, we can have prices,

01:01:58.100 prices can coordinate markets,

01:01:59.520 we can have this decentralized world,

01:02:01.240 but they really should be dominated

01:02:02.960 by people who are involved

01:02:05.680 in the physical production of this.

01:02:07.320 Just in the same way with the hospital, right?

01:02:09.220 We, you know, you go to the hospital

01:02:10.780 and you would want the people

01:02:12.320 who are making the decisions about your care

01:02:14.140 to be doctors, nurses, other people

01:02:16.640 with professional degrees.

01:02:17.820 You don't necessarily want it to be

01:02:19.480 a hedge fund in Singapore, right?

01:02:21.320 Who's bought the hospital and is now deciding.

01:02:23.400 But that is actually the reality

01:02:24.460 of a lot of private hospitals

01:02:25.600 and nursing homes in the UK, right?

01:02:29.880 We had this huge boom and bust of restaurants

01:02:32.000 when restaurants like Patisserie Valerie

01:02:34.340 or Byron Burger or whatever

01:02:35.740 got bought up by private equity,

01:02:37.540 massive expansions.

01:02:38.600 Again, it wasn't rooted in the real world, right?

01:02:40.220 This was money flowing in, looking for yield.

01:02:43.000 It wasn't people making rational decisions

01:02:46.160 about the UK health, sorry, UK restaurant market.

01:02:49.020 These weren't like chefs going,

01:02:50.860 oh, I know what we need.

01:02:51.600 We now they need another Byron Burger

01:02:53.480 in this suburb of London.

01:02:55.400 It was, no, it was a template copied and pasted

01:02:57.900 by these different funds.

01:02:59.180 And it destroyed much of the UK restaurant industry, right?

01:03:01.940 Because you had massive overexpansion,

01:03:03.360 vents went up, the business model collapses,

01:03:05.660 and now thousands of people are unemployed.

01:03:07.360 And I suppose that the message,

01:03:09.360 the sort of, the positive message I book is,

01:03:11.480 is that, you know, we don't need to go back that far, right?

01:03:14.760 It's not, I'm not giving you a history

01:03:16.560 about the prehistory of civilization

01:03:18.320 and it was all wonderful back in the Stone Ages

01:03:21.500 and we all lived in lives of abundance.

01:03:24.100 Why not go back to the go-go 80s?

01:03:26.220 Was that that terrible for finance, you know?

01:03:28.720 Was that that terrible to go back to that era?

01:03:32.920 And I think that's, that's,

01:03:34.160 that would be a huge step in the right direction

01:03:36.260 is just to go back to the 90s and the 1980s,

01:03:38.580 which again, wasn't even that long ago.

01:03:40.740 Rupert, isn't the problem as well

01:03:42.600 that we've got these institutions

01:03:43.880 that are too big to fail?

01:03:45.200 And you've been talking about institutions

01:03:46.860 like BlackRock,

01:03:48.100 mentioning these huge sums.

01:03:50.440 And I've started to get anxious.

01:03:52.160 I go, well, if that goes,

01:03:54.660 you know, like Lehman Brothers,

01:03:56.540 what effect is that going to have on society?

01:03:59.540 It's a really great question

01:04:01.020 because I think the Lehman Brothers debacle

01:04:04.980 was actually a turning point

01:04:07.100 rather than something that we should fear.

01:04:10.580 So Lehman Brothers, I think,

01:04:12.560 in kind of sort of central banking law

01:04:15.940 is the biggest mistake they ever made

01:04:17.720 in living memory, right?

01:04:18.860 Was letting Lehman Brothers fail.

01:04:20.620 Because the way in which these markets work,

01:04:22.460 as I mentioned,

01:04:23.040 that all about narratives,

01:04:24.360 part of narrative is confidence, right?

01:04:26.720 And to keep everything kind of going,

01:04:28.900 everyone's got to believe

01:04:29.880 there's something happening tomorrow, right?

01:04:31.500 That's kind of how it has to work.

01:04:32.640 And so when Lehman Brothers goes down,

01:04:34.840 the confidence collapsed

01:04:35.860 and then the entire financial system

01:04:37.700 is threatened,

01:04:39.500 not just because you're going to get,

01:04:40.560 you're going to get

01:04:41.000 all kinds of different kind of domino effects, right?

01:04:43.640 So imagine building the most complicated

01:04:45.640 eight-dimensional Jenga thing

01:04:48.780 that you could imagine, right?

01:04:50.080 Lehman Brothers was pulling out

01:04:51.280 one of those things

01:04:52.080 and the whole thing goes down.

01:04:53.580 And I think what the central banks learned

01:04:55.840 was not to ever let that happen again.

01:05:00.200 2020 March,

01:05:02.100 pandemic is really hitting, right?

01:05:04.360 You're seeing the first kind of shutdowns.

01:05:06.020 Again, radical uncertainty.

01:05:08.020 Markets don't know how to respond.

01:05:09.920 You get what they call this dash for cash,

01:05:11.720 globally, globally, globally.

01:05:12.880 How is dollars stored?

01:05:15.060 They're stored in US treasuries

01:05:16.180 because you get a yield from it, right?

01:05:17.620 So it's as good as money.

01:05:18.920 That's why people love holding US treasuries.

01:05:21.860 It's as good as cash,

01:05:22.600 but you get money every year.

01:05:23.600 And so there was this huge sell-off

01:05:27.880 in the US treasury market.

01:05:29.180 Now, unbeknownst to most people,

01:05:31.060 there were all sorts of hedge funds

01:05:32.280 playing all kinds of bets

01:05:33.460 and they were essentially arbitraging

01:05:35.360 different kinds of prices between treasuries, right?

01:05:39.000 There was futures, treasuries, prices.

01:05:41.240 Don't need to understand the mechanics of this,

01:05:43.140 but basically there was a whole bunch of trading

01:05:45.780 that was happening,

01:05:47.060 highly leveraged around these US treasuries.

01:05:49.360 And because there was this sort of shock event

01:05:51.340 of a sell-off of US treasuries,

01:05:52.840 which underneath normal circumstances

01:05:54.100 never happened.

01:05:55.360 Suddenly this whole kind of system goes,

01:05:57.060 hey, why?

01:05:57.500 Why?

01:05:57.660 So these hedge funds can't pay the collateral calls,

01:05:59.520 the banks start calling in the loans.

01:06:00.900 And again, you get like one of these Jenga things

01:06:03.480 where you pull the piece up.

01:06:05.140 And Jerome Powell,

01:06:06.980 the chair of the Federal Reserve,

01:06:09.080 just basically prints a trillion dollars, right?

01:06:10.960 So he basically,

01:06:11.720 they press a button on the computer,

01:06:12.880 Federal Reserve,

01:06:13.720 trillion dollars of US treasuries appears,

01:06:15.540 and suddenly the whole system kind of keeps going.

01:06:19.960 There was no Lehman Brothers moment.

01:06:22.760 I think when you look at what the central banks

01:06:25.420 think about and talk about,

01:06:27.360 they're trying always to identify

01:06:29.640 where that may come from.

01:06:32.100 So one that they're very much interested in at the moment

01:06:34.940 is climate change, right?

01:06:37.340 So another interesting thing

01:06:39.340 when you think about the real world

01:06:40.620 and the financial world,

01:06:41.540 the relationship to it,

01:06:42.460 when we talk about like a housing crisis

01:06:44.240 or the housing bubble in America,

01:06:46.180 it's not that the houses just disappeared, right?

01:06:48.660 Right, there's like a little physical thing

01:06:50.240 that happened that they built houses

01:06:51.500 and they just suddenly like set on fire or something

01:06:53.400 and then they had no more houses to sell.

01:06:55.000 It was really internal to the market of finance

01:06:57.240 and how these things have been turned into assets

01:06:59.140 and how that had been baked into the financial system.

01:07:02.080 What we could see though,

01:07:03.740 so imagine how terrible it was

01:07:05.260 without any houses being destroyed.

01:07:06.980 Now imagine rising sea levels, right?

01:07:09.000 And suddenly you've got big portions of Miami

01:07:12.080 underwater.

01:07:13.160 All those prices go to zero.

01:07:14.780 What's going to happen to the banks

01:07:15.880 that lent the money for the mortgages for this?

01:07:17.640 Well, all those banks are going to fail.

01:07:18.940 Well, what's going to happen?

01:07:19.640 And then immediately you have a ripple effect.

01:07:21.900 And this is just,

01:07:22.700 let's just take just Miami, right?

01:07:24.760 You have a ripple effect

01:07:25.840 that could destroy the entire US financial system.

01:07:28.800 And this is,

01:07:29.400 they're kind of gaming it out like war games.

01:07:31.780 You know, there's a lot of kind of what ifs,

01:07:33.140 like, well, what if sea levels rose by this amount?

01:07:35.360 What if there was a storm that destroyed US crops?

01:07:38.860 What happened to the banks

01:07:39.940 that lend the money for those crops, right?

01:07:42.080 So everything kind of,

01:07:43.560 all arrows point back to finance

01:07:45.360 because they're the ones lending everybody the money.

01:07:47.560 And essentially what they've ended up doing

01:07:49.340 is a bit like what Jerome Powell is doing,

01:07:51.160 is essentially printing money and shoring it up

01:07:54.160 because they don't want to have a rerun

01:07:55.940 of the financial crisis.

01:07:57.440 The risk from that is, of course,

01:07:59.440 the classic risk that's why they did

01:08:01.240 leave and brothers fail,

01:08:02.700 is that it's this moral hazard thing, right?

01:08:04.680 If you're BlackRock and you're just going,

01:08:05.920 okay, we're too big to fail,

01:08:07.260 do whatever you want.

01:08:07.800 And we know that if we have,

01:08:09.280 you know, huge investments in X or Y,

01:08:11.740 you know, we're going to get bailed out

01:08:13.900 or there's going to be some kind of insurance.

01:08:15.840 And they're actually asking for this, by the way, right?

01:08:17.500 So there's a big piece of finance

01:08:18.880 that wants central banks

01:08:20.240 to essentially guarantee their green investments.

01:08:22.340 So it's a bet of, you know,

01:08:24.980 heads I win, tails I win, right?

01:08:26.560 That's kind of what they want

01:08:27.500 to sort of make the investments.

01:08:28.280 Yeah, it seems like a good idea.

01:08:29.380 Take the risk kind of gambling.

01:08:30.600 I'm sure that will work very well.

01:08:32.780 Listen, I wish we had more time,

01:08:34.640 but it's been a very interesting conversation

01:08:36.460 and probably the beginning of one

01:08:39.120 rather than the end of one, to be honest,

01:08:40.640 because this is going to get more and more important,

01:08:43.440 I feel, as things go on.

01:08:45.660 So thanks for coming on.

01:08:46.820 A Price Wars, How Chaotic Markets Create a Chaotic World.

01:08:50.140 It's a really fascinating read.

01:08:51.360 I recommend people check it out.

01:08:53.460 Thanks for coming on.

01:08:54.380 We're going to ask you a couple of questions

01:08:55.860 from our locals-only supporters

01:08:57.580 that only they get to see.

01:08:59.640 But before we do that,

01:09:00.580 we, as always, have one more question for you.

01:09:02.460 Which is, what's the one thing we're not talking about,

01:09:04.600 but we really should be?

01:09:06.000 Well, I'm going to piggyback on what I've already said

01:09:08.020 at the beginning and say we're not looking enough at mazes.

01:09:11.040 So I encourage everybody to watch loads of horror movies

01:09:13.880 because they're great templates

01:09:15.320 for thinking about the world, right?

01:09:16.860 You load up Twitter or whatever.

01:09:19.220 It feels like a kind of horror feed, at least,

01:09:22.020 like doom scrolling, what it might be.

01:09:24.380 But I think-

01:09:24.740 And you do want a lot of people to be killed

01:09:26.220 with a chainsaw on there as well.

01:09:28.600 Well, I'm not going to say what I want to see,

01:09:30.860 but maybe that's-

01:09:32.100 Because that would be illegal.

01:09:33.220 Nail guns for me, I love.

01:09:34.680 And you reach for the nail gun.

01:09:35.920 That's always a good scene.

01:09:36.820 Is that we've adopted the tropes of a horror movie, right?

01:09:41.180 So that's-

01:09:41.980 It's Putin is the monster.

01:09:43.320 What's he really thinking?

01:09:44.440 Has he gone mad for two years in the pandemic

01:09:46.960 reading crazy Russian historians?

01:09:49.920 Maybe he has, maybe he hasn't.

01:09:51.000 I don't know, right?

01:09:51.840 Right?

01:09:52.040 So we like to kind of-

01:09:53.340 Monsters are fun.

01:09:54.720 They're grotesque.

01:09:55.620 They've got great personalities.

01:09:57.480 We can kind of read the tea leaves into them.

01:10:00.740 But the key to every great monster movie

01:10:03.240 is the maze, right?

01:10:04.800 Because imagine Alien just takes place

01:10:08.000 in a big spaceship

01:10:08.880 that's just like a basketball court, right?

01:10:11.220 It's not going to last very long, is it, right?

01:10:12.920 You know, she's just-

01:10:13.940 Ripley's going to be there

01:10:14.680 and the alien's just going to come

01:10:15.860 and just kill her, right?

01:10:16.620 No, you've got to create a maze.

01:10:18.260 You've got to create barriers and structures

01:10:20.960 so that you've got to chase and it's exciting.

01:10:23.000 And you could think about The Shining, right?

01:10:25.820 You've got Jack Nicholson, right?

01:10:27.640 Not just running around the hotel corridors,

01:10:29.760 but he literally goes into a labyrinth, right?

01:10:31.560 That's the final scene that Kubrick has,

01:10:33.400 running around a literal maze,

01:10:34.940 which is a callback to the Minotaur in the maze,

01:10:37.700 right, in Greek mythology.

01:10:39.180 Or zombie movies, Dawn of the Dead,

01:10:40.960 all takes place in a mall.

01:10:42.300 You've got to kind of run around the mall.

01:10:44.380 And I think that's what gets obscured in the news

01:10:46.480 is we don't look enough at the kind of structures.

01:10:49.760 It's like what is constraining these monsters

01:10:52.240 and also what's enabling them.

01:10:54.020 And I think ultimately that's the,

01:10:55.600 that's what's going to help us keep them engaged.

01:11:00.280 It's not saying what is it that Putin wants

01:11:02.780 or what is it that Putin will accept

01:11:04.380 or trying to get inside his head.

01:11:05.900 Because to be honest, I think it's a fool's errand.

01:11:07.940 I mean, who actually knows this apart from himself?

01:11:10.620 But we know that his power comes from structure, right?

01:11:13.460 We know what that structure is.

01:11:16.460 It's based largely in the commodity markets.

01:11:19.620 And that's really what we can do.

01:11:21.540 And I think we could take that,

01:11:22.900 that's just one current example,

01:11:24.200 but you could apply that across the board

01:11:26.060 to sort of whenever you're seeing a kind of horror

01:11:28.540 in the news, which part of the world it's coming from,

01:11:31.560 is to always think about what is the maze here?

01:11:33.840 What is the, what is the architecture

01:11:35.900 of opportunity and constraint?

01:11:37.540 How has this been allowed to happen?

01:11:39.060 Why is it happening now?

01:11:40.540 And why hasn't it happened in the past?

01:11:42.680 And I think it's from then which we then begin

01:11:44.480 to understand like why these monsters have emerged.

01:11:47.820 Perfect. Rupert Russell,

01:11:48.840 thank you so much for coming on.

01:11:49.940 Thanks so much for having me.

01:11:50.620 Yeah, if people want to find your book

01:11:52.360 or they want to find you online,

01:11:53.540 where is the best place to do that?

01:11:55.660 Well, you can just, wherever you are,

01:11:57.080 just look for Price Wars,

01:11:58.480 How Chaotic Markets are Creating a Chaotic World.

01:12:01.240 And I'm on Twitter as well on Rupert underscore Russell.

01:12:04.620 Fantastic stuff.

01:12:05.740 Fantastic.

01:12:06.360 Thank you guys for watching and listening.

01:12:08.300 We'll see you very soon

01:12:09.160 with another brilliant episode like this one

01:12:11.220 or our show, all of which go out at 7pm UK time.

01:12:14.140 And for those of you who like your trigonometry on the go,

01:12:16.560 it's also available as a podcast.

01:12:18.560 Take care and see you soon, guys.

01:12:21.440 Who is behind the commodity traders?

01:12:24.360 Are there actions directed solely by the profit motive

01:12:27.200 or are there, for example, government actors

01:12:29.460 influencing their choice of which commodity markets

01:12:31.740 to destabilize?

TRIGGERnometry - May 02, 2022

How Commodities Markets Cause War & Chaos - Rupert Russell

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