- 10 hours ago
The financial journalist discusses his new book about the Wall Street crash of 1929, and the mounting concerns about an A.I. bubble.
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00:00Andrew, just after Donald Trump's tariff policy went into effect, he privately admitted that his economic plan could bring about a recession.
00:09Privately.
00:09But what he really wanted to do was avoid a depression.
00:12Talk about how the Great Depression not only defined the 30s, but shaped American politics for generations even today.
00:20Well, look, we had a crash in 1929 that was ultimately the first domino, if you will.
00:27And then in a series of horrible policy choices that led to 25% unemployment in 1932, 9,000 banks going out of business by 1933.
00:39But really a shift in terms of how people even thought about investing.
00:43Some investors were generationally scarred, never even touched the stock market ever again.
00:48By the way, the 1920s is really what changed the way we live now insofar as, you know, what we're living through today, which oftentimes feels like a bubble.
00:59And this euphoric moment is so similar to the 20s because, you know, we had automobiles, we had telecommunications, we had radio.
01:08People thought RCA was the NVIDIA of its time.
01:11So are we sleepwalking into disaster?
01:14I read this extraordinary narrative of yours about the Depression and all these kind of well-meaning, intelligent, status giants, wealthy people who had actual millions of dollars.
01:28There were some with billions.
01:30And they all thought they were doing the right thing or that they could shove the disaster down the road.
01:38And then, as Hemingway tells us, little by little, then all at once, the disaster comes.
01:44On my birthday, I should say, October 29th.
01:46I think we are invariably headed towards some kind of correction, if not worse.
01:53And if you look at where our economy is today, given all the spending that's going on in artificial intelligence, somewhat indiscriminately, I would add, at valuations that are, you know, shocking, the rubber will meet the road at some point.
02:10Because it always does or because now uniquely it's going to hit the road?
02:13Because it always does, but it always does when you have a confluence of things happening at the same time.
02:20You have this remarkable euphoria around a technology that's going to change the world.
02:23And invariably, it likely will.
02:25AI.
02:26AI.
02:27But the economics of that technology changing the world may not all happen at one time.
02:35And so you have a remarkable period of spending, but not necessarily, you know, the revenue and profits on the other end to make it all work.
02:44And then, more importantly, you have a remarkable amount of leverage in the system.
02:48Every financial crisis, if I learned anything from covering 1929, covering 2008, it is leverage.
02:54It is people borrowing to make all of this happen.
02:56And right now, we are beginning to see a remarkable period of borrowing to make the economics of AI work.
03:05Map out the specifics and the scale of what's been going on.
03:08Why is the stock market over 45,000?
03:11What's the scale of the leveraging that's going on?
03:14Why are we in such peril?
03:15Who's doing the borrowing?
03:16Some of the big tech companies, whether it's Google or Meta or Amazon, they're all investing right now in NVIDIA chips and other data centers.
03:29And they have real cash, and they're making real money.
03:32By the way, they're now spending virtually, in some cases, in Meta's case, almost all the money that they're bringing in on these data centers.
03:40But increasingly, what's happening is there's a whole subset of companies that are emerging around this, so real estate companies, energy companies.
03:50By the way, energy to power these data centers, huge, huge.
03:54How are they doing that?
03:55They're taking out extraordinary loans to build out the energy sort of requirements to make all of this happen.
04:03A lot of where the leverage lies is in all of the real estate companies, construction companies, energy companies that are building the future, if you will.
04:14The question is the people who are supposed to be paying for it may not be able to.
04:18So OpenAI just made a $100 billion commitment to NVIDIA.
04:24It doesn't have $100 billion to commit.
04:26So what's happened here?
04:28NVIDIA said, you know what?
04:30We'll finance you.
04:31So effectively, NVIDIA is giving OpenAI the money that OpenAI is going to give back to NVIDIA.
04:37Are you suggesting that's a scam?
04:39Are you suggesting that the timing of the way leverage works and being paid back is such that it causes these disruptions, depressions possibly, or corrections more optimistically?
04:52If you get to a terrible moment, it's the leverage which sucks the confidence out of the system because it's not just that there's a correction in the system.
05:01Meaning it's not just that some of these stocks fall by 20 or 30 percent.
05:05It's that if you're leveraged, you owe three and four times that.
05:10And you can't come back.
05:11And you can't come back.
05:12Is that where we are?
05:12I think that's where we are probably right now.
05:16The question that I have in my mind is I'm not sure we fully know where all the leverage is today.
05:23I don't know what that means.
05:23So historically, companies and even individuals took loans largely from banks.
05:32They disclosed what those loans looked like.
05:35The Federal Reserve knew what those loans looked like.
05:38Today, most loans are not coming from the banks anymore.
05:43They're coming from what's called the shadow banking system.
05:46They're coming from what's called private credit funds.
05:48Explain both of those things.
05:49Okay, so historically, you go to the bank, we give them our cash, and then they would take that cash and they would loan it out to a company that wants to go buy NVIDIA chips.
05:59In the private credit business, let's say David Remick decides he's starting a private credit fund.
06:06He's going to – you're going to go around to some pension funds and say, give me a billion dollars for the next 10 years.
06:13You give me the billion dollars for 10 years.
06:15I'll give you back your billion dollars plus plus.
06:19So arguably, you would then take that billion dollars and then loan it out to somebody and they would go buy the chips.
06:27There's no disclosure around it.
06:29We don't know about these funds.
06:30We don't know what's in them.
06:31We don't know how they're being valued or carried at any given moment.
06:36And the truth is that this private credit universe is connected back to the banks because so many of the banks help lever them up.
06:45If people can't pay their loan back, you could have a real credit crunch.
06:52I would bet some huge proportion of the people listening to this are out in the world.
06:57I can't deal.
07:00I can't understand.
07:00It's too much.
07:02All I know is I've got a 401k.
07:04Right.
07:04And the market's at 45,000 or whatever it is, which is great.
07:09It keeps going up and up and up.
07:11So no worries.
07:12And along comes Andrew Ross Sorkin telling me, you better worry, but I don't know how to wrap my head around it.
07:17Well, so here's the problem.
07:18And I try to wrap my head around this.
07:20If you look over the past 100 years, the truth is that it has been much more profitable to be a professional optimist than a professional skeptic.
07:32We're in it for the long run.
07:33Well, look, Charles Merrill, who founded Merrill Lynch back in 1928, told people to get out of the market.
07:39Now, you might think that was a brilliant thought, except for the fact that from the beginning of 1928 to September of 1929, the stock market went up 90 percent.
07:48It's not just knowing that there's going to be, you know, a correction of some sort or a crash.
07:55It's getting the timing right and knowing when to get on, off and on the train again.
08:01Your story about the Great Depression centers on a single bank merger that went wrong, and that really helped to fuel the crash.
08:09Right now, we're talking about NVIDIA all the time.
08:12All the time.
08:13How much of our economic fate is in the hands of the narrative of NVIDIA's destiny?
08:20Oh, I think hugely so.
08:22Jason Furman, who's an economist at Harvard, just did a fascinating report where he said if you were to eliminate all of the spending on data centers, effectively all the money that's going to NVIDIA, if you will, the United States would have a growth rate of about 0.1 percent.
08:39Call it flat.
08:41Yeah.
08:41That's just a demonstration of how much our future, to some degree, is dependent on it, and also how much, perhaps, this AI bubble or growth rate is masking or papering over some of the other problems in our economy.
09:00There's an argument to be made that AI is going to be here, just like radio was in the late 20s.
09:06By the way, here we are on the equivalent of radio right now.
09:08But we have nicer microphones.
09:10We have nicer microphones.
09:11You look at, similarly, the internet, late 90s.
09:15It wasn't that when the dot-com bubble burst, it wasn't that the internet was broken.
09:21It was just that the economics got out of whack.
09:24And now we have, you know, a robust world that's based largely on the internet.
09:31Yeah.
09:31And I imagine something similar is going to happen in the world of AI.
09:36Are you bullish on AI?
09:38Some people say that – McKinsey, for example.
09:41McKinsey said nearly 80 percent of companies using AI found it had no significant impact on their bottom line.
09:48I think currently, in this moment, it hasn't had the sort of transformative effect that people are talking about.
09:57Do I think over time it will?
09:59Yes, I do.
10:00I'm gleaning this conclusion from what we're talking about so far.
10:04A, we're in a bubble, but nevertheless, you should stay in the market.
10:10And B, you're heavily invested in AI because you think that's going to turn out just fine.
10:17Well, first of all, I'm not invested in any of these things because the truth is, as a journalist who works at the New York Times and CNBC, I am not allowed to buy individual stocks.
10:27So you stay in a fund or something?
10:28All I own is mutual funds and the like just to be 100 percent clear because I want to be an independent actor.
10:35And then I think that everybody needs to think through, you know, when and if you need cash.
10:41And if you need cash and you think in the next couple of years you're going to need cash, you would like to think that you have some –
10:47Have some access to that.
10:49I don't like to give, you know, financial advice, but that's the truth.
10:53If you have 30 years from now and you don't need the money, I'd like to believe that 30 years will be better 30 years from now than today.
11:02And by the way, if I didn't think that, it wouldn't be fun to be alive.
11:06No.
11:07No, it wouldn't.
11:08But when you look at the situation that you lay out in terms of debt, in terms of AI, in terms of financial policy, we haven't even gotten to tariffs yet.
11:17How big is the bubble?
11:18How ready is it to burst and how would that look?
11:21Well, the question in my mind is this could continue on for many, many years before it bursts.
11:28It doesn't have to burst tomorrow.
11:31In fact, I would argue that it's likely that there's going to be a whole number of iterations of continued growth for some period of time.
11:40I mean, right now, these big large language model companies are investing almost religiously at this point.
11:47I mean, if you really ask them to sort of pencil out the math, most of them truly can't do it or are using very aggressive projections and effectively say, look, it's a tradeoff.
11:58One alternative is that we don't invest enough and we don't want to be behind.
12:04And the other is maybe we'll invest too much, but some prefer to think that that's the better path.
12:10What troubles you the most?
12:11We're trying to prop up industries and parts of our economy through tariffs that economically naturally shouldn't be propped up.
12:28However, there's some real questions about what you would do otherwise.
12:31If we didn't have tariffs on cars, for example, in America, we probably wouldn't have a car industry right now.
12:38That the Chinese car industry is so superior.
12:42BYD cars, which are EVs, electric vehicles in China, are the gold standard.
12:49They are better than our cars.
12:51They are cheaper than our cars.
12:52And I think if most Americans had an opportunity to sit in the back of one of those cars, they would say, what is going on here?
12:59People, including, by the way, Elon Musk, who makes Teslas, would tell you that those are remarkable cars.
13:04He's made the argument that without tariffs, we would have a real problem.
13:08You may say, we want to have an automobile industry.
13:12But we've decided there are certain industries we want to support and other industries that we don't.
13:16There's a real question mark just long term about what we're doing.
13:20We're also obviously moving to a services economy.
13:22And by the way, the more this goes back to AI, the greater we have a services economy and the greater you think that that can potentially be under threat from AI, what do we have?
13:33I sometimes, I watch you on television, read you in the New York Times, and I try to imagine the sheer number of financial and business elites that stream in front of you on a given day and in a given year.
13:44And you know everybody.
13:46You go to Davos.
13:47These people are, over time, comfortable with you.
13:51I want to get a sense of what they are talking about, not on the record, when they think about Donald Trump's tariff policy.
14:00Now, obviously, not everybody thinks the same thing.
14:04Maybe the Overton window is shifting.
14:06I think in general, they started by saying this was a terrible, terrible idea.
14:11I mean, I know people who are, who talk privately about, you know, shipping certain products from the United States out of the United States to other places and back into the United States.
14:21I mean, people are moving stuff around for reasons that make no sense, almost, it seems irrational, except that, you know, you can lower your tariff fee by doing sort of crazy things.
14:32Right. So how did the Overton window shift?
14:34There's a sense, irrespective of what you think the Supreme Court is going to do, that tariffs are now here to stay, that the world is moving in this direction of breaking globalization.
14:48And that if the rest of the world is splintering, and by the way, we may be leading some of that splintering, that the next decade or two decades likely mean the tariffs are going to be here.
15:00And I think some of them are starting to accept that as a, as a fate.
15:05And then, and this maybe goes to the, the Overton window portion of it, they start to get supportive of it, or at least when they're, as they're trying to get their head around it, they're trying to rationalize why this could somehow be a good thing.
15:18They start to say to themselves, okay, maybe we're actually going to create our own automobile industry and that will create resilience.
15:25And maybe we're going to create a better pharmaceutical industry.
15:28I mean, I'm not arguing these are, these are the right paths.
15:32I'm just suggesting that I think some of these people who historically were against these things seem to almost be softening over time a little bit around them.
15:42I think it's inarguable that one of the reasons that Donald Trump, ironically maybe, came to office is that he sensed radical income inequality.
15:53And he had a vocabulary to play on it.
15:58No matter what you think of the sincerity of it, he knew how to speak to it better than the Democrats who had their own billionaire donors, by the way.
16:08Is that cracking up?
16:10That sense among working people that maybe that support, that faith in Donald Trump to help working people is fading.
16:21Well, I think some of the polls would suggest that there's real anxiety about what's happening in the economy.
16:27And so I think a lot of parts of the economy that the president during his campaign said that he was going to fix has gone unfixed.
16:36And so the question is, you know, where are we going to be in the midterms and where will we be in 2028?
16:43I don't necessarily look at this, what took place on Election Day and say to myself that this was all a repudiation of Trump, of Trumpism.
16:55Because I think you look at some of those states and it's limited evidence.
16:58It's limited evidence at this point.
17:00It's not clear to me that the vote for Mondami, for Mondami, for example, was a repudiation of Trump.
17:07As opposed to if you had voted for Cuomo.
17:10You see a lot of some of the wealthiest people in America troop through your television studio.
17:16You report on them.
17:17Do they care much about radical income inequality, which is just hugely different than even the period that you were writing about in the 1920s and 30s?
17:30Do they care about it?
17:31That's a great question.
17:35I think that they tell themselves that they care about it.
17:38I don't know ultimately how thoughtful they are being about how to end inequality.
17:47And I think that they believe that capitalism with a capital C is the answer.
17:55But wasn't capitalism and big capitalists a little different?
17:58Not to be naive about this.
18:00But I read your book and nobody rented out the city of Venice for their wedding.
18:05Right.
18:06The conspicuous consumption was infinitely more modest, no matter how outlandish.
18:16The Great Gatsby existed in reality for certain.
18:20But this business of the skybox view of life, it was not nearly what it is today.
18:27And doesn't anybody in that class have any sense that this could come to a terrible end one way or another?
18:37I think they think about it and then try not to think about it.
18:40I'm being as straight with you as I possibly can.
18:43Because the sweet meats are too delicious.
18:45Because they ultimately believe that ending inequality is also ending – is an end to their – potentially an end to their affluence.
18:58It's funny.
18:59For all the talk about increasing the size of the pie, I think they also recognize that there might only be one size of the pie.
19:08And who is taking which piece is the question.
19:12But they don't sense the resentment, much less hatred.
19:15Oh, I think that they – oh, I think that they clearly get the resentment and the hatred.
19:20By the way, most of these people feel very alone in that way.
19:25I see you wiping a tear away from the corner of your eye.
19:27No, I'm not.
19:28I'm just suggesting that I think when you think about these people at the very top, I actually think they're very cognizant of the resentment.
19:39But I don't think –
19:40Are they – we had – the President of the United States just had a great Gatsby night.
19:46Right.
19:47It's almost like rubbing it in the face of the people that he at least pretends to be the champion of.
19:55This seems to be a lack of self-knowledge all around.
19:58Certain people have taken a position that they just don't care.
20:02Is there any relationship in your mind after doing this book and working on it so hard and for so long, is there any relationship between a Herbert Hoover figure and anyone now, whether it's Donald Trump or what have you?
20:14Well, look, Herbert Hoover, oddly, there were sort of Trump-isms about them.
20:20Herbert Hoover implemented tariffs in 1930.
20:24Smoot-Hawley tariffs.
20:25Why did he do that?
20:26He did that because in 1928 when he was running for president, he was desperate to get farmers to vote for him.
20:32It's actually very similar to what Trump was doing.
20:34And one of your banker characters refers to it as asinine.
20:38As asinine.
20:39They thought it was a terrible idea.
20:40But here he was in 28 trying to get the farmers to vote for him and he says, I'm going to put tariffs in place.
20:45We get to 1930 and he thinks, I need to make good on the pledge.
20:49One of the things that I'm fascinated by is the transition of power between Hoover and Roosevelt.
20:54Hoover desperately, after he lost the election, wanted to rescue the banks.
21:00He wanted to bail out the banks.
21:01And he was secretly actually trying to talk to Roosevelt to get him to help him do this before he became the president.
21:09And, of course, Roosevelt wanted to have nothing to do with him because he wanted to start with a clean slate and didn't want to be connected to these things.
21:18And I think about that a lot because if you go back and think about the crisis in 2008, there was the transition from Bush to Obama.
21:29And it was critical.
21:30It was actually super important that they were talking to each other and, frankly, trying to help each other.
21:36And I continue to wonder in this polarized world that we live in.
21:40That's possible.
21:41If, in fact, we ever get to a crisis and we are in a transition, is it going to look like 2008, Obama and Bush?
21:51Or is it going to look like Biden and Trump?
21:54Who are the responsible people in charge in Washington today in the administration?
22:00Who do you have faith in, if any?
22:02I like to believe that Scott Besson is one of the adults in the room.
22:08The president's maybe worst impulses seem to be improved when Scott Besson gets in the room.
22:13Interestingly, I've been surprised that actually if there's any governor over this president thus far, it seems that it may very well be the markets.
22:21You know, if you think about it, after the tariffs were first announced back in April, it was the bond market that really, you know, went wild and forced his hand.
22:31And he really did sort of downshift.
22:33Similarly, even just a couple of weeks ago, he had announced these 100 percent tariffs on China.
22:38The equity market went crazy.
22:40And he downshifted again.
22:42Who can control or govern this president?
22:45Are there any guardrails?
22:47It very well could be that the market is his guardrail.
22:51One of my colleagues, John Cassidy, recently published a book about a history of the critics of capitalism.
22:56From Adam Smith, in fact, who in some ways was a critic of capitalism as well as a creator of it, all the way to the present day.
23:03If you look at polls of young people, you see that the word capitalism loses out to the word socialism.
23:11What does that mean?
23:14I think what it means is that people don't think that they can get ahead in this world.
23:21And that right now, I mean, Mom Dami, I think, has done a great job of describing it as an affordability crisis.
23:27But I think it's so much more.
23:28I think it's about what the American dream even is.
23:33And whether you think you can do better than your parents did.
23:36Or even the same.
23:37Or even the same.
23:38I think prior to the 1920s, the American dream really was this sort of Horatio Alger story, this sort of rags to riches opportunity.
23:48And in the 1920s, they thought the only way in was this lottery ticket.
23:53And the truth is most people who buy a lottery ticket lose.
23:57And that was the truth in the 20s of the stock market.
24:00And I think right now, if you go on your iPhone and you go into TikTok or Instagram, what's being sold on the scroll of the American dream, whatever that is, is very much this lottery ticket get rich quick fantasy.
24:16It is not this idea that, you know, if you do all the right things, if you go to school and you work hard.
24:22You get a split level.
24:24It's going to work out.
24:25Yeah.
24:25It's not clear to me that breaking up the big tech companies necessarily or taxing the wealthy per se.
24:35Not even a little bit?
24:37Well, I have a view.
24:38Or changing the tax code?
24:39So I desperately think that there's things that are terribly mistaken about the tax code.
24:45Before you even have to think about a wealth tax, I think there are so much low-hanging fruit in the system that, frankly, would probably raise even more money than a wealth tax.
24:57So the estate tax has to be fixed.
25:01The idea that people can transfer extraordinary amounts of money to their heirs right now.
25:07And dodging all taxation.
25:08And dodging all sorts of taxation.
25:09I mean, the capital gains tax.
25:11We have a lower capital gains tax ostensibly to incentivize investment.
25:17That's always been the idea.
25:18But the wealthiest people in the world are still going to invest if there is a higher tax on their capital gains.
25:28Because where else are they going to put their money?
25:30Some of the things going on in real estate.
25:32I mean, the reason why the real estate industry, which Trump has lived in for as long as he has, it's extraordinary.
25:39Some of the ways you're able to dodge taxes in that space by effectively depreciating assets at a time when the value of those assets continue to go up.
25:50I would even think about a tax on philanthropy.
25:55I know people think that this is completely wild and crazy.
25:58But most people who are giving their money to philanthropy today that are wealthy get a break.
26:04Get a huge break.
26:05And it means that all of us are subsidizing their philanthropy.
26:09They're particularized philanthropy.
26:10They're particularized philanthropy.
26:13Warren Buffett has made $100 plus billion.
26:17All of that money will never get touched or taxed in any way because he is moving it into charity.
26:25He's taking those shares.
26:26He's never selling them.
26:27So he determines its fate.
26:29And he determines its fate.
26:31I would think it would not be completely crazy to say, you know what?
26:35Every year, if you want to give away $5 million of shares without any taxes, sure.
26:41Go with God.
26:41Yeah.
26:42But after that, you have to sell the shares.
26:45Right.
26:45The government gets to collect the tax.
26:47And you can then take that money, if you'd like, and donate it to a charity.
26:53Now, by the way, the nonprofit world thinks what I'm saying is horrible.
26:59Presidents of libraries and symphony halls and all kinds of things.
27:03And hospitals and all sorts of things that are well-meaning.
27:05Sure.
27:05And I don't want to take away from it.
27:07But the truth is, there's a lot of money that effectively, because of all of these maneuvers, goes untouched.
27:15Finally, Andrew, some people sell out of the market when it gets volatile, no matter what people are telling them to do.
27:21I've heard of hedge fund managers investing in gold.
27:24Yes.
27:25You've done extensive research into what people did before and during the stock market crash of 1929.
27:30I know you'll be a little ootsy about answering such a question, but what's the Andrew Ross Sorkin investment strategy right now?
27:39What does your investment portfolio look like these days?
27:42Or did you stay, for journalistic reasons, agnostic?
27:46For journalistic reasons, I try to be agnostic myself.
27:49But, you know, if you're my parents who are retired, they're in the late 70s, early 80s, I wouldn't want them to be fully invested in this moment.
28:00You want them to have enough cash?
28:01I'd want them to have 10 or 20 percent of whatever they have in something that's, quote-unquote, liquid.
28:09Right.
28:09So that if something bad happens in the stock market—
28:12Is that because of now or because of always, because of their age?
28:16Well, probably a combination of both.
28:18But I think in this particular moment, I think it's probably a little bit more acute, given how out of balance it does seem the stock market is historically.
28:27And if you're in your 40s or 50s?
28:28Because if you're in your 40s or 50s and you don't think you're going to need the money, if you really don't think you're going to need the money—and by the way, I'm in my 40s.
28:35I'm in my late 40s.
28:37I have kids.
28:38I have responsibilities and things.
28:39I think you could probably let it ride a little bit longer.
28:44But, again, you know, I'm pretty cautious.
28:49So I like to have a little bit under the mattress.
28:54Having said that, as I've said, you know, I'm a journalist.
28:59I'm a professional skeptic.
29:00It has paid a lot more to be a professional optimist.
29:03And that is the hardest part about this.
29:05Andrew Ross Serkin, thank you.
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