Dave Smith and Robbie the Fire Bernstein dissect the 2023 banking collapse, arguing that government bailouts for Silicon Valley Bank and Signature Bank effectively nationalized deposits while socializing losses. They contend Janet Yellen's refusal to admit these were bailouts has federalized the U.S. financial system, incentivizing banker greed through toxic asset guarantees. The discussion pivots to political distractions, where Smith mocks President Biden's fabricated 1962 story about gay marriage and criticizes his comments on Florida's transgender laws as ignorant. Ultimately, the episode suggests that economic corruption and identity politics are intertwined, with the hosts viewing current social narratives as deliberate diversions from systemic financial fraud. [Automatically generated summary]
Transcriber: nvidia/parakeet-tdt-0.6b-v2, sat-12l-sm, and large-v3-turbo
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Welcome to the New Episode00:01:44
Fill her up.
You are listening to the Gash Digital Network.
We need to roll back the state.
We spy on all of our own citizens.
Our prisons are flooded with nonviolent drug offenders.
If you want to know who America's next enemy is, look at who we're funding right now.
Every single one of these problems are a result of government being way too big.
You're listening to part of the problem on the Gash Digital Network.
Here's your host, Dave Smith.
What's up, everybody?
Welcome to a brand new episode of Part of the Problem.
I'm Dave Smith, Libertarian Tupac.
He's Robbie the Fire Bernstein, the king of the caulks, COVID Jesus.
What's up, brother?
How you feeling today?
Dude, that was a hell of a weekend out in the middle of nowhere, Potts Town.
Potts Town.
It's not exactly the center of industry, but there were some good people, good people who came out there.
Yeah, we had a great time.
Thank you to everybody who came out to Pottstown, Pennsylvania.
And of course, next stop will be Providence, Rhode Island, the Comedy Connection, a bunch of live stand-up shows and a live part of the problem podcast.
Rob will be up there for the podcast, but I got Chris Vega joining me for all the stand-up shows.
And then we got a bunch more stuff coming up over the spring and summer.
So go to comicdave Smith.com to grab tickets for that.
Anything you want to plug, Rob?
End of the month, got my comedy gig at Steamboat.
It's after the day of skiing.
Just to clarify, it's not on the mountain.
Got my weekly Wednesday show and summer porch tour dates coming soon.
Email me.
Got porches.
Rob'snewsroom at gmail.com.
I can't believe, I mean, it's snowing outside right now, but you really, it's almost porch.
It's almost porch season.
Can't believe it.
The Cost of Bailing Out Banks00:08:49
How many years has it been now?
Is this your fourth year?
Of porch tour?
I think this might be the fourth year of porch tour.
It's been going on and getting bigger and bigger, bigger and bigger porches.
Hell yeah.
Rob, at the beginning, it was basically just steps.
It was just outdoors.
It was just backyards.
Now we're hitting the big leagues.
Yeah, there you go.
All right.
So obviously the huge thing going on right now is the state of the financial sector, which is, you know, we talked about this a little bit on the live podcast the other day.
I did a stream with Clint Russell the other day where we got into this a little bit more in depth.
There's been some developments since then.
And me and you haven't really sat down.
It's a little different than a live podcast at a comedy club where we're, you know, joking around and stuff.
But I wanted to talk about this a little bit more.
Maybe just kind of even like going over what really led to all of this and why the banking system is in such bad shape.
But let's just start with what's updated since the SBB bank kind of collapsed and was quasi.
Well, they were bailed out.
Yeah.
It was bailed out.
It's wiped out.
It's a little quasi about that.
Yeah, they were going to wipe out the stockholders, but functionally, it's been bailed out.
Yes.
Yes.
And also, you know, there's something about it where there's something that's really like amazing where, you know, you'll have banks like they're trying to brag on this one in a sense that, no, look, we're bailing out the depositors as if like, oh, it's not, you know, because what they're all very concerned about basically is that one of the most unpopular things the government can do is bail out banks, as the former Treasury Secretary spoke about.
We're going to hear from him in a little bit.
But it's, this is, I mean, this, this thing led to like uprisings last time.
You know what I mean?
Like it was really, and really undermined people's trust in the political class.
It's, if you ask me, one of the silver linings of banker bailouts.
And so they're trying to call this anything else.
And so when they put it like, oh, no, it's not, this isn't like what you guys remember before.
This isn't, you know, executives flying in first class to testify in Washington, D.C.
This isn't, oh, you get your bonuses for $20 million.
And you know what I mean?
We're not bailing them out.
We're just bailing out the depositors.
The problem is that it's like, and even the whole concept of the FDIC, right, was that it's like, well, we're going to protect the little guys.
But SVB was not little guys.
That's not what we're talking about here.
You're talking about Silicon Valley companies worth $200 million with $200 million in the bank.
That's who they're talking about bailing out here.
So it's still, even in this situation, it's like they're trying to almost like present it as if it's like, no, we're just making sure someone can get their 60 bucks out of their checking account or something like that.
And that's just not what this bank was.
Well, they're sharing up the depositors because they don't want runs on other banks.
So they actually, they fix the signal.
It's a constant Haas's situation here where if the banking system fails, it's a signal to the fact that the whole thing is fictional and then prices are going to start coming down across the board.
Money's not going to be available.
You're going to see massive collapses.
And they have to fix these signals.
So the signal that needs to be fixed now is that all the banks on their balance sheets, I'm assuming because this bank did, so I'm assuming that all the other banks have the same problem, was that when interest rates were low, they were buying long-term debt and they also had their mortgage-backed securities.
So as interest rates go up, those are now worth less than they were.
That's just basic finance.
If I own a 2% bond, interest rates go up to 4%, I got to mark down my bond.
So now if all this collateral is coming off the bank balance sheets at the same time that people are, we don't even need to go there.
If that money's coming off the balance sheets, there's going to be less money in the system.
Plain and simple.
You're going to see a contraction.
And now the Fed looked at this and realized, oh, we can't have banks marking down these assets because that's going to expose the fact that there isn't as much money in the system as supposed to be in the system.
It's very simple.
It's a fraudulent system with high prices because there's a fictional amount of money that's floating around that's propping up asset prices.
Look, I try to break it down.
Yeah, you're exactly right.
And I try to break it down like this is whenever I can.
Use the like desert island examples just to kind of like understand economics, right?
So like if you, if you're trapped on a desert island with five of us, you know what I mean?
And the only thing we have on the island, the only thing we have on the island is like, I have a printing press and some paper.
And I'm like, I'll, you know, I'll print the currency and then lend it to the rest of you guys.
That's our entire, like, that's it.
And you were like, and just keep in mind, interest rates are just the price of money, right?
So let's say whatever everyone else is doing some jobs, they're, they're fishing or, you know, picking fruit or someone's trying to build a little shelter, get a fire going, whatever, you know?
If you could say like that will actually make us, in a sense, wealthier, right?
Like, okay, we have something to eat now.
We have some warmth now.
We have some shelter now, right?
And if I just go and then let's say like, you know, the things aren't going good, we're still in really bad shape because there's only us on the island.
And I go, don't worry, I have a solution.
I'm going to print a ton of money and I'm going to lend it to all you guys for nothing.
Doesn't that really like help?
Aren't we all a lot?
You realize it makes no difference.
It's meaningless.
There's no amount of money you could print that makes you wealthier because what we need is stuff.
What we need is production.
That becomes very obvious in like in the most primitive economy, right?
So now when you're in a very advanced economy, like say the United States of America in 2008, and what we did as a response to the great recession was bring interest rates down to zero, where we kept them for 13 years, something like that, and just print a ton of money and a lot of government spending.
Well, in the same fundamentally, you still added nothing to the economy, just like on your desert island.
You did nothing.
You're just papering over a problem.
However, in this situation where you have this currency that is legal tender and we do have all of this stuff that's produced, it can make it seem like you're actually creating wealth because you can, okay, there's all this new money in the system.
And if you get that money, you can actually buy assets with it and all this.
But the fundamentals are still the same.
You didn't produce any more wealth.
You didn't produce any more assets.
You didn't produce any more value.
And when the interest rates finally start to come up, because they can't stay low forever, and it was insane for us to like, it will be, if the world isn't destroyed and there's any honest history written about this, the 13-year period where we kept interest rates at zero will be looked back at as the most like just madness.
How did they not see that this would end in disaster?
And so now as interest rates are coming back up, and this is the way like Mises kind of would have explained it, is that then the things get exposed.
All the things that weren't real to begin with, all this fake wealth starts getting exposed.
I think the analogy that Mises used was that he said when you mess with the interest rate signals, it's like messing with, he used the analogy of building a house and it's messing with what, like the builder, how many bricks there are.
Like it's like he's thinking there's a different amount of bricks than there are.
And that's fine when you start building the house until you start getting toward the end and realize you don't have as many bricks as you need.
And then you realize the whole thing doesn't work.
You know what I mean?
Like your entire project was, and that's what starts happening.
That is essentially the essence of what's going on here.
That as the interest rates are going up, all of these things are starting to be exposed.
And of course, what everybody I think would probably be in agreement on, just about everybody, would be that if there wasn't this government intervention now, now this is the defense of it, is that, yeah, it would expose the entire system.
It would expose the entire system.
Now, that'll be their justification for that's why the government has to step in.
But the truth is that just like, as this is kind of proving in a way, just like stepping in in 2008, we just kicked the can down the road.
You just kicked the can down the road.
It's really like analogous to if you're an alcoholic and, you know, like or like a heroin addict or something like that, and your answer to waking up feeling like crap is to do more heroin.
You're like, okay, that might take care of the problem in the short term.
But obviously you're just, you're making it that much worse for the next day.
Now you're going to wake up with double the heroin hangover, which I've heard is rough.
Kicking the Can Down the Road00:02:56
You know what I'm saying?
So it's like, yeah, you can bail out the system again, but all this phony money, it doesn't do anything.
It doesn't fix the real problem.
I just thought of this example in my head.
It's like if you're on a bus and the bus is driving the wrong way.
And at some point, the bus driver figures out that he's driving the wrong way.
But in each town, you kind of stop for a bath and break.
People rebuy their tickets.
And he realizes if he lets everyone know that they're driving the wrong way, they're not going to buy tickets at the next town.
When they realize they have to backtrack, they're going to figure out a different option.
So what we're doing instead of correcting is we're pretending like we're going the right way so that people will continue to buy tickets and stay on the bus.
Yes, and it's not going to work long term.
That's a really good, really good analogy.
I like that a lot.
And so, and their justification is almost like, well, look, if we try to turn the bus around now, then everyone's going to realize we were going the wrong way and no one will buy a ticket.
And then that's a disaster.
And you're like, yeah, but they're going to realize eventually and they're just going to be that much further from where they're trying to go.
Like, yeah, I like that.
I like that a lot.
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So, okay, so let's just cover a little bit more of what's going on.
Well, just to explain the actual bailout here, so they fixed the signals.
So the first signal that they fixed was, it's amazing.
People get an education.
Oh, all my money's not at the bank.
And if that bank just went under, what might happen to my money?
So they fixed signal number one by saying, hey, even if you got above $250,000, we want you to feel secure in your bank.
We got you.
You don't have to worry about...
So essentially, I mean, all the banks have been socialized because at this point, there's no reason for the federal deposit insurance.
There's nothing.
Just your money is insured by the taxpayer at any bank at any given point in time.
They're telling you that.
They're also going to the banks and saying, listen, we can't formally bail you guys out anymore.
We can't buy your distressed assets.
We can't just send cash your way.
But you know what we can do?
If you've got any assets, instead of marking them down, we'll just lend you that money for what the full asset value is going to be.
Essentially, the Fed is just going to absorb the losses on the bonds that these banks were buying.
They got a bailout.
And SVB is the weak player that failed first.
And they realized, oh, we better shore up this signal because otherwise the entire system is going to collapse.
And so they just figured out how to do it.
Yeah.
No, I think that's exactly right.
And it's really something that it's like, you know, even having, so the Fed buys up these toxic assets, which are a huge part of the, you know, the process in the 2008 crash.
And it's like, great, now they're on the taxpayer.
And the truth is that, you know, it's, I remember someone arguing this with Ron Paul, I think, or not even arguing, but just kind of like trying to figure it out because they just all know nothing in like the corporate press.
I think he was on like Morning Joe or something like that.
And they're like, they're like, but you're saying the Fed shouldn't have bought up those assets, but a lot of them went to zero.
And they're like, and Ron Paul was like, yeah, well, that's good information.
That's information that they're worthless.
So like, why should we put that on the taxpayer?
And of course, it's like, there's just no way.
And, you know, there's no way to avoid this.
There's no way.
Like you could say, like, okay, don't mark down these assets or just sell them at face value to the Federal Reserve.
But the reason they were being marked down still exists, whether you mark them down or not.
They're being marked down because they're less valuable.
That's just part, like that's part of the game with the rising interest rates that you're going to see that.
There's so many instruments that were surviving based off that zero interest rate environment that just aren't going to be able to survive the higher interest rates go up.
And so now, and this is something that we talked about on the show quite a bit, that the thing about price inflation getting out of control was that it actually, it looked like the Fed was finally boxed in to a corner now.
Because now inflation's on everybody's mind and it's so bad that they're feeling it.
So now you're like, you start raising interest rates to signal that you're doing something about inflation, but you do that and you're going to pop this bubble.
And so they did that and they're starting to pop this bubble.
Now what's their next move?
You know, are they going to drastically bring interest rates back down?
That'd probably be my guess.
But what's that going to look like in terms of price inflation?
That's, you know, they're just in a, they've painted themselves into an awful corner where there's no good solution.
And no matter what they do, they're screwing people over.
So I guess anyway, following that, there was another bank, another bank failure.
What's the name?
I'm sorry, I'm blanking on it.
What was the other bank that went down?
Synchronous something?
Jesus.
Why am I breaking it?
Anyway, this was, we've had, I think the second.
Signature.
That's right.
So they were the second and third biggest bank failures in modern American history.
I think maybe in American history.
So this is a big deal.
And then, of course, the bank stocks have been not doing very good.
The signature bank failure seems a little shady, though.
Yeah.
So just I don't know.
I don't have a great explanation for why signature bank was closed.
I can give you some of my conspiracy thoughts, but I'm curious if maybe you actually read.
No, I really, honestly, I don't know much about this bank, but I know it was a bigger, it was a bigger bank than I initially realized.
All right.
So here's what it seems happened with signature.
You see a bank failure.
What's the first thing they're going to say?
It's an issue of regulations.
We're not regulating enough.
And if there was a new culprit that you could point your fingers at, it would be crypto.
You'd go, listen, what happened in our financial sector is we've got this unregulated thing called crypto.
This is why we can't have unregulated things.
And they'll spend some sort of a story for why it's this new technology and this unregulated asset.
They're already speaking to the fact that Trump rolled back some regulation as if that's why SVB failed.
Now, what's fun about Signature Bank is that one of the guys on the board is actually Barney Frank, the guy who wrote Dodd-Frank.
And apparently they seized the bank from them on Sunday.
This is according to Barney Frank.
So either way, there's a weird government story here that you got some preferred player who wrote the regulation for banks and now he's still able to work at a bank.
That's a little goofy.
Or you've got a story that they're one of the banks that are more favorable to crypto and government's going to start cramping down on crypto because from what I understand, Signature Bank did not actually experience a failure prior to the Fed seizing it on the basis that...
Yeah, the Fed shut it down.
The Fed shut it down on the basis that there was risk, which that also seems unfair.
Like, firstly, there's a goofy game even being played on bank runs where it's like, all of a sudden, your bank is considered solvent until everyone shows up and asks for their money, and then it's considered insolvent.
It was always insolvent.
It's just as insolvent after the bank run as it was before the bank run.
But it's since we formalized the fact that everyone showed up that we actually closed.
Like, that's stupid.
You might as well keep it open and pay people off as the mortgages come in or just give them the haircut of, hey, here's your payout schedule at 90%.
It doesn't make sense to just go, hey, game's over, but it certainly doesn't make sense to close the bank formally before the actual bank run even happens.
Yeah, no, 100%.
Yeah, there's something very shady about that.
And it seems like if that's the standard, you could pick almost any of these and just let them know.
Hey, this one, we're scared about this one, so we're just going to close it.
Yeah.
Yeah.
So, sorry.
Now, the other thing is that other bank stocks have been really tanking.
Last I saw, I think it was First Republic Bank was down like 60-something percent.
This is another huge bank.
It was a bank with like hundreds of billions of dollars in assets.
So we're still kind of in the process now of figuring out how effective this bailout was at stopping the contagion from spreading around.
I don't think that's exactly.
I wouldn't even, can I just state it a little bit differently?
It's not even, will the bailout remove the contagion?
It's that we have a system that is built off of fake and inflated credit.
And so if the Fed is stopped pumping money into the system, things are naturally going to come down.
So really the gamble is if you're an investor anywhere, well, is the Fed going to step in and keep artificial, are they going to continue to inflate the prices so that this is not going to drop down in value?
And so that's what everyone's waiting to see.
Does the Fed put still exist?
Are we going to go back to quantitative easing?
Are we going to go back to lower interest rates?
Are they going to lend directly?
Which also means that nobody's actually sitting around and trying to make good evaluations of where to place capital.
We're all playing a game of, oh, is the Fed going to give me free money?
Yeah.
Yeah.
That is essentially the game.
That is, I mean, that's literally the game that they're in.
So, yeah, there's anyway, it's a little bit of a wild time, but I think there's really no question that this is huge.
Like, this is a big moment in the history of American finance.
And one way or the other, it's like if the Fed, if the Fed does the right thing, which is to not bail out these banks, that's going to be a lot of short-term pain.
And if the Fed does what they're probably going to do, in my opinion, which is just whatever is necessary to protect the big banks, which I think is going to be another round of like quantitative easing or call it whatever you want to, we're going to experience a lot more pain in the long run and probably not even that long of a run.
And there's just going to be, I think, a lot more kind of a lot more craziness in the country.
And it's, it's, you know, I, so Tucker Carlson had a segment last night.
It was really fantastic.
He's really was like, it was so interesting that he really broke down kind of exactly like how the response to the great recession has led to this, how insane the whole banking system is, how it's all about the Federal Reserve and that, you know, it's really, really terrific segment.
Highly recommend people go check that out.
And then he made another point that I really loved, where he kind of started connecting that 13-year period of 0% interest rates to all the insane things that happened during that period.
And, you know, like one of the major themes that I've talked about a lot on this show has been like the, you know, wokeism as a tactic, as a divide and conquer strategy, which really like it is crazy that there's wokeism as we know it today did not exist before the fallout from the Great Recession.
Like it was, it really started.
I mean, like, I'm not saying there was nowhere in like some weird lefty on a college campus was talking about some of this stuff, but it was not like mainstreamed the way it was.
it's really hard for like people to like Barack Obama, the liberal progressive hero won in 2008, like very vocally saying that marriage is between a man and a woman and that it would be an attack on Christianity to have anything else.
I mean, the idea, if you had asked him like, is it offensive to say boys are boys and girls are girls or something like that would have just been like, what?
Like that was insane back then.
That stuff didn't really start rising up until around 2011, 2012.
And it really like ramped up in that period, in those years.
And so the point that I've made a lot was that, you know, like basically this was all a distraction.
It's, it's, when you have these huge banker bailouts and you have the worst economy in nearly 100 years, not to mention all the failed wars and all this stuff going on and everything, just the blatant corruption of the establishment that leads to these like mass uprisings on the left and the right.
You have the Tea Party movement and Occupy Wall Street both started over the same thing.
I mean, the Tea Party movement was started over those early Ron Paul rallies, and then it was a response to TARP and Occupy Wall Street was all a response to the banker bailouts.
Like it was all, they were all mad at the same thing.
And I think that was really dangerous to the establishment.
It's like, it's not a coincidence that right as soon as like there's these huge mass populist movements who wanted to talk about how corrupt the banking system is, that every powerful person in this country decided we really need to have a national conversation about chicks with dicks.
Like that's just, they decided that's what everything has to be about now.
And look, I got to say, it was, it was somewhat effective.
But there's a lot of areas where you see this, you know, like I always talk about the, you know, the gay pride parade has like these Bank of America floats in them.
And they're just like, all of a sudden banks got really interested in social justice or whatever, you know.
But the point Tucker was making was kind of similar, but a little bit different.
And it kind of reminded me of a point that Guy Swan made when he was on our show, where he was talking about like when the money's corrupted in a culture, everything's corrupted.
Tucker was talking about how like how truly stupid our leadership became in this zero interest rate environment.
And there's something to it.
It's like how you were just saying, like when the whole game is just getting free money from the Fed and no one actually has to do anything or produce anything or have any like impressive results that all of a sudden just everyone was getting, I saw a clip just this week of Khair Jean-Pre and she's up and they're talking about like the budget.
And it's in the middle of this crazy financial moment and she's just bragging about how like her and she there were three women up there.
It was like Biden's budget director and her and one other lady and she just spent a whole period bragging about how they're all the first women of color who have ever done this.
Like just this totally like narcissistic, like vapid nothing of celebrating, isn't it great that we're up here and we look like this and we're just really, we all had to fight really hard to get here.
And you're like, lady, like we are teetering on economic collapse.
This is what you're talking about.
And it's just so, it's like, wow, we got so insane with this.
And of course, anyone here is like, we'd all agree that like, yeah, there shouldn't be barriers to someone if they're the best person for the job based on their race or sex or whatever.
But like at a time like this, you're like, I just want to know it's the best person for the job.
I'm not really interested to know like that it's like, oh, it's the best person for the job.
And they look the way we want them to look.
It's just so bizarre.
It's really interesting to me, like the connection there between monetary policy and everything else.
Like the way that it actually, there's something about like destroying a nation's currency that destroys their soul.
It's like they're all really connected.
Anyway, it was a great piece by Tucker Carlson the other night.
I don't know.
Any other thoughts on what you think is going on or what's going on?
If things blow up, you don't care that, well, it was a black lesbian.
So at least we had a black lesbian in there.
Who cares if we all have no money and have to forge for food and kill our neighbors and look for loose auto parts to repair your car?
There was a black lesbian.
We got a black lesbian into a position of power.
Yeah, you're not like dying on an operating room changing table and go, at least.
I was such a good person that I let a Native American trans person perform the surgery.
You know, you're just like, I wish I had the best surgeon.
Yeah.
Okay.
All right.
So I did want to play on this topic.
I did want to play.
There was an interview with the former Treasury Secretary that I thought was pretty interesting and kind of discussing all these ideas.
So let's play from that.
Economic Time Preference Explained00:12:28
Because one thing that I'm hearing from the Treasury Department is that this is not a bailout in their view.
But for regular people, it kind of looks like one.
What do you think?
Well, the term bailout is obviously a loaded one and it's in the eye of the beholder.
You know, it's like one person sees something and thinks it's a catastrophe.
Another person sees the same thing and thinks it's a small accident.
But the main point here is that the rescues of 2008 and 2009, which we all remember so vividly, became ferociously unpopular.
I mean, one of the most unpopular things that the federal government has done in 50 or 100 years, many people since they led to, you know, the growth of the Tea Party and the growth of the MAGA movement and so forth.
And therefore, the administration today doesn't want to get within 100 miles of that term bailout.
Now, what the authorities did over the weekend was absolutely profound.
They guaranteed the deposits, all of them, at Silicon Valley Bank.
And what that really means, and they won't say this, and I'll come back to that.
What that really means is that they have guaranteed the entire deposit base of the U.S. financial system, the entire deposit base.
Why?
Because you can't guarantee all the deposits at Silicon Valley Bank.
And then the next day, say the depositors say at First Republic, sorry, yours aren't guaranteed.
Of course they are.
And so this is a breathtaking step, which effectively nationalizes or federalizes the deposit base of the U.S. financial system.
We can cut it off there.
I mean, basically, that's it.
This is from the former Treasury Secretary.
So there it is right there.
And he's not wrong about what he's saying.
I mean, it is pretty funny, his little duck rider goes, I don't know, you know, we don't really like this term bailout.
It's in the eye of the beholder.
And then he referred to him as rescues, which is a nicer.
If you were trying to sell the policy, I would advise you call it rescues.
Like you're just like, this is just like my pitbull.
I just rescued a couple banks.
What did you do?
Did you buy a purebreed bank?
I prefer a rescue.
All right.
But aside from that, it goes, yeah, we've effectively guaranteed all deposits in the United States of America and have essentially, as he says, effectively nationalized the banks.
That is pretty profound.
That's a big deal.
I'd like to point something out that I'm just realizing in my head.
Sure.
How do you blow free money?
And I want to explain what the banks did here, just so everyone understands just how greedy these people are.
So firstly, they got a massive bailout at this top of, I mean, for the last 10 years, they've been basically getting bailouts, but they got a huge influx of money directly when they realized the last time bailouts wouldn't be popular at the beginning of COVID.
They sent a huge amount of money to the banks.
Then they also sent all of us personal checks so that no one would yell about the fact that they were getting free money.
Right.
I don't even remember the specifics of that bailout, but let's just look at all the other money that went into the system with PPE loans and everything else and realizing that now the banks were flush with an enormous amount of cash.
And so what do they do with that enormous amount of cash?
Well, the problem is some of it, well, some of it was just parked back at the Fed with the reverse repo and they were literally just getting free interest on the money that was handed to them.
Some of it they put into long-term treasuries or mortgage-backed securities, which I don't even really understand.
Okay.
If they then just let that sit, I'm putting this deal in my head and I could have this wrong.
If they then just let that sit, the interest rate is still free money to them.
It's only when they go out and they lend above basically those deposits that they end up with the shortfall if bonds come down in value.
So in other words, if the Fed comes along and they insert, let's just say a trillion dollars, or let's keep the money simple.
Let's go, they insert a million dollars into JP Morgan Chase and they go, all right, we're going to buy a long-term interest bond at 2%, right?
Now, let's just say that the bonds then go up the next year to 4%.
So fine, I guess on that bond, they're losing, you know, now $200 a year for every year that they're holding it versus the current coupon rate.
But if they didn't then go and lend out that free money to somebody else, they're still making a free, it's not a problem on their books.
They're still just making a free 2% every year on the money that was handed to them.
So what I'm pointing out is the fact, like the greed of these people to have looked at all the money that they had last year, both to say, okay, we need to put this into the bonds and then also, I guess, lend out the money against holding that bond.
That's where you just get really stupid and greedy.
It's like do one or the other.
You know what I mean?
You don't have to be like fully fully marginalized up to the fucking guilds and trying to soak every piece of interest rate out of the system you can.
Look, you're absolutely right about that.
And so that's exactly right.
You cannot overstate how greedy and corrupt and like profoundly short-sighted this whole strategy has been.
And there's something about that too.
You think about kind of like what's known in economics as time preference.
Right.
But which is, which is really the whole essence of civilization.
All of civilization can be reduced to like deferring gratification to having a low time preference.
That it's kind of like all of civilization is basically about from the very beginning.
Like if you think going from like hunter-gatherer cultures to living in a civilization, it's all about making a decision that we're going to start doing things today for benefits later.
Like we're going to start working right now.
We won't get the, you know, like we're going to have to do really hard work that will pay off in six months.
We're going to have to build things that'll pay off in a year.
We're going to have, like, that's what it's all about.
And there is some connection to like interest rates and their effect on time preference.
Like when you have high interest rates, it incentivizes people to save.
You know, so like you save money because you're getting good interest on saving money and it discourages people to borrow from borrowing money.
And those are, if you look at them through the lens of time preference, like when you're saving money, you are by nate, by like definition, you are foregoing on present consumption for consumption in the future.
Like you're like, I will not consume right now so that I'll have more to consume in the future.
And when you're borrowing money, you're saying I'm consuming like my future assets right now.
And so there's just something, again, just an interesting connection that during these zero rate interest environments, all of these people are like only thinking about, well, what will make us more money this year?
I think this has to be planned.
You know why?
Because if I'm working at a bank and I'm flushed with cash and they go, all right, we're going to buy long-term bonds so that we can see some yield.
Someone's got to be saying, well, what happens if they raise interest rates?
And they go, all right, well, we're the biggest and most sophisticated bank.
Why don't we call a Powell before we start making decisions that might disrupt the entire system?
And Powell goes, either, well, I'm not going to raise interest rates or you have Tilkir to raise interest rates or he goes, well, we're not going to raise interest rates.
And they go, fine, well, then we can't buy bonds.
And then Powell goes, well, the only way I can kind of keep the interest rates low is if there's demand for this.
So I need you guys to go out and buy the bonds with all the money I'm handing you.
And they go, well, if we do that, what's going to happen when the interest rate goes up and we have to mark these things down?
I failed out of finance.
I'm not a genius.
I did not make a Wall Street career out of this.
I'm telling you that this is telegraph.
But if you were in that room, you could be in the back and just go.
Yeah, I would, I would be asking these questions.
Quick question.
Right.
What about what happens?
And then you would just stress test.
Well, what happens if we had to write down it a 1% or 2% or 3% or a 4%?
It's literally like it's if you were playing musical chairs and they pulled one of the chair away away and like everyone's walking down in a circle and they go, don't worry, there's going to be chairs for everyone.
I'm like, I'm pretty sure once this song stops, there's going to be like someone won't have a chair.
Like that, doesn't that seem likely?
So here's what probably happens.
They kind of tell these people they got to buy bonds.
There's a wink and a nod that when things go to shit, they're going to step in.
And the weaker players, I guess, have to follow what the bigger players are doing because they can't be the only ones who aren't.
You know, if all the big players are going out and they're buying long-term bonds, I guess you got to have to do the same.
But that's where it gets weird on who gets screwed and who doesn't.
Yeah, I will say, this isn't exactly pushing back against what you're saying.
I'm just making the point that like, it's like I've known people who are in finance and like some really successful people in finance.
And I remember having conversations with them like at the very beginning of the like the recession in 2008.
But I'm talking about like 2009, 2010, 2011, like when it was still, we were like living in that, you know, the fallout from all of it.
And right around this time, I had really gotten into economics and understanding central banking and all of this stuff.
You know, I'd become a libertarian.
And so I'd kind of be talking to a lot of these guys and kind of like grilling them about this.
Like, wait a minute, what's really going on here?
Because I'm pretty sure this is a disaster.
And you just don't ever underestimate how insulated people can get in their little worlds.
And like, especially when their little world comes with a lot of like status and money.
Like they're around people who are making like real money and have real status and have this whole culture built up around it.
Because I remember like asking some of these guys about like, you know, like what like they didn't even know what the Federal Reserve was.
They just kind of knew it was like the thing that was going to give them the signal.
They're just like, oh, well, if the Fed does this, then we know this.
And if they do this, then we know that.
And I'm like, yeah, but isn't this like a whole crazy system?
Like, what's the long-term effect of this and this?
And they really, it's almost like they just don't even think about that.
They just go, no, no, no, dude, like this is capitalism.
So like if I'm making money, that means I'm making everyone richer.
That means we're good.
That means like that is kind of the extent of, they have this almost like very, I don't know, like what, what a, what a communist would caricature a capitalist as like type of attitude where they're just kind of like, no, no, no, like this is capitalism.
So like if we're making money, that means everyone's getting richer.
You know, like they just really don't.
And I just, I think that there are, when there are things in that environment that will make you money this year, there is a tendency to just be like, yeah, dude, but I'm going to be like, everyone's going to be giving me an atta boy because I just got the bottom line up.
And that's going to be so, you know what I mean?
And like, it is amazing how blind people can get to the long-term like consequences when all of the incentives are pushing them in that direction.
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Cruel Conversations with Joe Biden00:06:35
Let's move on because I know you have to go.
You got to go catch a train in not too long.
Okay, we got a little bit more time.
All right.
So Joe Biden, on a lighter note, he's not just destroying the economy or failing to help it.
And okay, look, we take some shots here at Joe Biden, but let's give him credit where credit is due.
He has been cool with the gays since 1912.
All right.
Joe Biden here reflects on when he first decided that gays were all right.
Back when I was having my hair touched in pools.
Let's play it.
Every auntie and uncle that I have is beyond disappointed that there hasn't been a wedding yet.
But Cardi B is going to marry us, apparently officiate our wedding, which would be nice.
But my question for you, Mr. President, is you codified support for same-sex marriage and interracial marriages like ours.
I'm curious what your evolution was like on marriage equality and what the federal government might be able to do to protect LGBTQ Americans, especially trans kids who are dealing with all these regressive state laws that are popping up right now.
I can remember exactly where my epiphany was.
I hadn't thought much about it, to tell you the truth.
And I was a senior in high school and my dad was dropping me off.
I remember about to get out of the car and I looked to my right and two well-dressed men in suits kissed each other.
I mean, they gave each other a kiss.
And then one went, looked like he was heading to the DuPont building, one looked like he had to the Hercules Corporation building.
And I'll never forget, I turned and looked at my dad.
He said, Joey, it's simple.
They love each other.
It's simple.
No, I'm not joking.
It's simple.
They love each other.
And it's never been, it's never been, it's just that simple.
It doesn't matter whether it's, whether it's same-sex or a heterosexual couple.
You should be able to be married.
What is the problem?
So listen to your auntie and your uncle get married.
Do it now, don't wait.
Uh, transgender kids is a really harder day thing.
What's going on in Florida is, as my mother would say, close to sinful.
I mean, it's just terrible what they're doing.
It's not like, you know, a kid wakes up one morning and says, you know, I decided I want to become a man or I want to become a woman or I want to change.
I mean what, what?
What are they thinking about here?
They're human beings.
They love, they have feelings, they have inclinations that are I mean.
It just to me is, I don't know.
It's cruel and the way we do it is we make sure we pass legislation like we passed.
Let's end it there, okay.
What is genuinely cruel is just making Joe Biden have this conversation like just making a guy his age pretend to be like with it.
It with social justice is just so.
First of all, I don't, even in the park, so that's my high five.
The kid from the White Castle movies is gay.
I didn't realize that.
Was he always gay or did he just become gay?
Because I always thought he was just a straight dude trying to find a White Castle revamp.
There you go listen.
Whatever, he smoked too much weed.
I'm not judging, I did.
I liked that movie uh, but uh yeah, I thought it was hilarious.
Uh anyway uh, Joe Biden, like it's just, it's all so incredibly awkward.
First off, he's lying through his teeth.
This story never happened.
This is what Joe Biden makes up stories.
This is his thing.
A lot of politicians do this.
He's particularly bad at it.
That you can.
You're just.
It's just very obvious.
It's not even plausible that this story is real.
Um, like what are you talking about?
Your dad, who was supposed to be some like working class dude from Pennsylvania in 1962, saw two men in suits kissing and was like son.
It's totally cool.
No, that didn't.
None of that happened um.
Second of all, it's like Joe Biden wasn't on record for supporting gay marriage until uh uh 2011 2012, it was something like that.
So he's like, I figured this out in the 60s because well, you were in the Senate in the 70s.
What?
This never came up.
He kept that in his back pocket for quite a while.
Uh, he also tells you he's not joking.
He's got a habit of doing this, telling you he's not joking after saying something that's clearly not a joke.
Um, but it's still.
I just love how he's like.
Uh, there's something about older people like, even when they're trying to be down with social justice, they still just speak in a way.
That's not the way you you know what I mean like it's almost like a thing.
Like he's like, and they were in suit and ties, they were totally normal, they weren't not even with their hairs all long and they weren't even smoking the reefer.
A couple suit and ties going to work who'd have thought?
And they're gay, you know, looks like it could happen to anybody it's.
It's like if you were trying to prove you're not, you're not racist, and you would talk about and I knew this black guy and he could read.
This guy could read just like me.
Or you would read a book.
He could read a book too.
You know, like you're actually like Just revealing all these inner prejudices that are so weird, they're just so outdated, but it's all just that.
And then, when he's got to talk about trans kids, and like, just you, you know, listen, I'm sorry, no one Joe Biden's age is actually really cool with trans kids.
You just know it.
It's just no, no one who like grew up in the culture that he grew up in is like is not privately like, wait, what?
What the hell are you talking about?
Is it for him to just be there?
Oh, yes, they'll wake up one day and decide they want to be the boy or the girl.
They're human beings with feelings and inclinations.
Like, what, what on earth are you talking about?
God damn, it's just hilariously painful to watch.
Just an old, like, borderline, senile man who's telling lies, made-up stories, and just can't even keep track of it.
It's amazing, though, how much all these celebrities just let him off the hook.
Like, you know what I mean?
They could like the obvious follow-up question to that would just be like, but you didn't start supporting gay marriage till like Obama's second term.
So that's kind of weird.
Kind of weird that that's how it happened.
Catching Up on YouTube00:00:40
All right.
All right, listen, we're going to cut this one a little bit short because Rob does have to run, but we'll be back with a brand new episode tomorrow.
Go check out if you're not watching this on YouTube, if you're listening to it on other platforms, on the podcast apps or whatever.
I did a live stream with Clint Russell the other day about all this stuff with the financial sector, and it's up on YouTube.
It wasn't like a podcast episode, but you can go watch it up on my YouTube channel.
So check that out.
And yeah, comicdavesmith.com for all the ticket links.
Podcastmerch.com to go grab some merch.
If you want to support the show that way, go check it out.