Matt Taibi on Subprime: Where is Money (Houses) and how do we Get It?

the Joe Rogan experience no well it you
00:05
get compared to him a lot and one in one
00:09
way I really saw that comparison was
00:11
your brilliant coverage of the financial
00:13
crisis and what was the the mechanisms
00:16
behind the scene of the financial crisis
00:18
and that I became a really big fan of
00:20
your work reading that because the that
00:23
I I think you covered that as well if
00:25
not better than anybody
00:26
oh well thanks yeah I mean so I I knew
00:31
nothing about any I couldn’t even
00:32
balance my checkbook when they assign me
00:34
to that story and and I had to start
00:38
basically from square one and I was
00:41
calling people and saying things like
00:44
can you tell me something about
00:45
something that I’ll understand you know
00:47
it’s real cold calling investment banks
00:49
and literally saying that and I finally
00:51
got a guy to have lunch with me and he
00:56
said your problem is that you’re trying
00:59
to understand this as an economic story
01:01
once you look at it as a crime story
01:04
you’ll get it and and from that point
01:08
forward I I totally I felt like like I
01:11
started to understand the whole
01:13
mechanism in the subprime mortgage scam
01:16
it really was a scam it’s really it’s
01:18
really just a massive corporatized
01:21
version of like selling oregano as weed
01:26
basically they they took stuff that
01:30
these is incredibly worthless highly
01:33
risky mortgage loans right you know they
01:36
would give out loans to everybody with a
01:38
pulse you know whether you had a job or
01:41
not whether you were a citizen or not
01:43
didn’t matter poor thing was to get the
01:45
loan immediately sell it off chop it up
01:48
turn it into securities and then they
01:50
used this highly advanced sort of
01:54
mathematical trick to turn all that sort
01:58
of mortgage hamburger into triple-a
02:00
rated securities so you’d have like a
02:02
you know a junk rated mortgage like the
02:05
riskiest loan in existence something
02:10
that was so toxic that
02:12
country companies like country or I
02:14
wouldn’t want to hold on to it for more
02:15
than a week because they were afraid it
02:17
would that the stuff would blow up and
02:18
then they would sell it off to like a
02:21
pension fund or you know an insurance
02:24
company in the form of a triple-a rated
02:27
security which you know is as safe as a
02:31
US Treasury bond so it was a scam McGann
02:35
and the the the the metaphor of you know
02:39
baby power taking baby powder and
02:42
selling it as coke or whatever that
02:44
that’s exactly what it was they just
02:45
took worthless shit and sold it as
02:47
something that was that was gold and
02:49
they got they did it for years and years
02:52
and years and years and they they knew
02:54
that this gigantic huge bubble of risk
02:58
and disaster was just accumulating and
03:02
that someday it was going to all explode
03:04
and cascade and and and ruin the economy
03:07
but everybody was trying to time it
03:10
right and and bet on when that would
03:14
happen and make their money before that
03:16
that Judgment Day came and it was it was
03:20
fascinating what’s it once I started to
03:22
learn about it it was just such a an
03:23
amazingly disgusting fascinating story
03:27
that it was just hard not to not to get
03:30
into it a crime story yeah think of it
03:33
as a crime story yeah no absolutely I
03:36
even got one guy gave me a book it was
03:42
called famous famous con artists in
03:45
history right it was like this little
03:47
tome it’s smaller than like the smallest
03:49
paperback and it was the biography of
03:53
this guy Victor Lustig was his name he
03:56
was famous because he sold the Eiffel
03:58
Tower twice alright and he he had this
04:05
this scam that he called I think it was
04:09
called the the the Hungarian box I’ll
04:14
have to go back and look but basically
04:15
what he would do is he would get on a
04:18
boat in New York and he had this sort of
04:24
beautiful mahogany box with
04:25
ranked on it that had two holes in it
04:27
and he would show all the guests that he
04:30
would put a blank piece of paper in one
04:32
and turn a crank and $100 bill would
04:35
come out the other end and he convinced
04:39
them all that it was a machine that made
04:41
money and everybody would offer him an
04:45
increasing amount of money for this
04:47
invention and he wouldn’t sell it until
04:51
the last day when he would sell it for a
04:54
you know forty or fifty thousand dollars
04:55
and then he would disappear and jump off
04:56
the boat and in France and never be seen
04:58
again people would yeah there it is
05:00
what’s it called yeah but but that’s
05:08
exactly what the Mortons picture let me
05:10
see his face
05:13
look at that fucking creep
05:15
[Laughter]
05:16
Wow let me see that box again Wow that
05:22
is crazy
05:23
so there yes so it was obviously fake
05:26
and and and but that’s what the mortgage
05:28
scam was they they they were taking
05:32
basically blank paper these these
05:35
subprime loans that belong to jander’s
05:38
who were gonna foreclose within ten
05:41
minutes all right and they were telling
05:45
people that oh we have this new
05:47
mathematical process that allows that
05:49
actually makes this stuff really safe
05:51
and you can put it in your in your
05:56
College endowment you can put in your
05:58
pension fund and so all these people you
06:01
know whose retirement monies were based
06:04
on securities we’re buying all this shit
06:08
that they thought was was triple-a rated
06:11
and that’s that’s how they woke up and
06:12
you know and in 2008-2009 and they found
06:14
their 401ks or were you know wiped out
06:19
by 40 percent or whatever it was my
06:20
neighbor really did I happen to him my
06:23
neighbor bought this plot of land and
06:24
had this dream to build his dream house
06:27
and he would go buy the plot of land and
06:30
he was always cleaning up and getting
06:31
ready and I was talking to him and then
06:33
boom 2008 happened he lost everything
06:37
and he would still go buy that plot
06:40
and cleanup and he and I would talk
06:42
about it and they just told me lost
06:44
everything
06:45
yeah so it’s never gonna happen huh yeah
06:47
no I think he I think he died he
06:51
eventually got really sick and they took
06:53
him out of his house and brought him
06:55
somewhere but I think he’s dead now but
06:57
yeah his his story was awful awful to
07:01
hear this guy who was in his 60s who had
07:04
got this piece of land with a nice view
07:06
and it’s like this is where I’m gonna
07:07
build my dream house and he had all this
07:10
money prepared for it all this money
07:11
saved away and he was ready to rock and
07:14
roll and then boom mmm it all went out
07:17
they just drained out somebody put a
07:19
hole in the bottom of the boat and
07:20
everything everything went to the bottom
07:23
of the ocean yeah and then he’d probably
07:25
got ripped off twice because his tax
07:26
dollars went to go bail out the guys who
07:28
you know you know who because some of
07:31
the some of the banks got stuck holding
07:32
some of this shit and rather than eat
07:35
the losses like your your friend did
07:37
they got the Federal Reserve to buy it
07:40
from them ya know and and you know or or
07:44
the Treasury how the fuck did they get
07:47
away with giving the CEOs bonuses during
07:51
that time yeah a giant bonuses during
07:53
the time where they they had to be
07:55
bailed out by the taxpayers yeah that
07:57
was another scam like so they were if
08:01
you looked at the fine print of all the
08:02
bailouts it’s basically said that you
08:05
had to repay the money by us by X time
08:08
before you could start paying people
08:10
exorbitant amounts of money again but a
08:14
lot of those a lot of those conditions
08:16
were never really followed and you know
08:19
the the conditions of repayment were
08:22
kind of glossed over and the the the
08:27
companies that they were supposed to be
08:28
able to pass these things called stress
08:30
tests which demonstrated that they were
08:33
back on solid footing again before they
08:35
paid people bonuses but the stress tests
08:39
were all fledged and you know I mean the
08:41
there were there was crime and
08:44
corruption a legality basically in every
08:46
direction during that whole period and
08:48
and
08:49
not just in the government but in in all
08:52
these companies as well geez yeah but
08:55
fascinating to follow yeah what was it
08:58
like covering that I mean how long did
09:00
you spend working on that seven years
09:03
probably yeah yeah well because one of
09:06
the things that I thought no that was
09:07
really interesting was I did my first
09:13
story about this and I got this
09:16
incredible reaction because it turns out
09:19
that the financial press there is nobody
09:21
in the financial press who writes for
09:23
ordinary people like it’s basically what
09:26
I was doing was a translation job I was
09:27
trying to basically take what had
09:30
happened and explain it in a way that a
09:33
person who knew nothing about finance
09:35
would be able to understand and it turns
09:38
out that nobody is doing that so all
09:42
these people who had questions about it
09:44
who who wanted to know what had happened
09:46
to their money or why don’t why didn’t
09:49
my house get foreclosed on or what it
09:50
you know what’s what’s a subprime
09:52
mortgage or anything you know there was
09:57
nobody else doing that work so I had
09:59
lots of it to do and it was really
10:01
interesting and I just kept doing it
10:04
that had to be depressing yeah oh yeah
10:07
of course
10:07
of course I mean most most investigative
10:10
reporting is depressing particularly
10:14
that because you mean a lot of it was
10:16
old people that oh my god old people
10:19
minorities I mean I did one story about
10:22
a bank in Maryland well it’s a National
10:29
Bank it’s it’s a bank that you know I
10:31
wouldn’t be surprised that a lot of
10:34
people listening how have their accounts
10:35
at this Bank they had to pay settlement
10:39
to the government because they were
10:42
intentionally targeting elderly black
10:45
people to sell subprime mortgages to and
10:50
they called the mud people
10:51
and there were all these these like
10:53
toxic emails going back and forth about
10:55
how stupid they were and how they’ll buy
10:57
anything etc etc the emails they call
11:00
them mud pee
11:01
yeah yeah and so they had to pay a
11:03
settlement to the government and but you
11:06
know the racial component of the of that
11:08
crash was something that I didn’t really
11:10
clue into until late but that was a big
11:12
part of it too
11:13
it was you know a lot of it involved
11:18
these mortgage lenders going into
11:22
particularly like lower middle-class
11:24
black neighborhoods and knocking on
11:27
doors where there’d be like an elderly
11:29
person at home and saying hey would you
11:31
like to refi your mortgage and you’ll
11:34
have a little bit of extra spending
11:35
money this month right and the person
11:40
won’t know anything about finance and
11:42
they’ll still sign this refinance deal
11:44
that allows them to save a little bit of
11:46
money each month not knowing that they
11:49
had just converted their fixed mortgage
11:51
into a floating mortgage and that is
11:53
seeing the interest rates changed you
11:56
know you’d have people who went from
11:58
paying $900 a month to paying $7,000 a
12:02
month right and suddenly they’re out in
12:04
the street and and you know the the
12:08
company that sold them the loan is long
12:10
gone by then they they’re not holding it
12:12
they as soon as they got her name on the
12:15
dotted line they sold it off to a bank
12:17
in New York who in turn again chopped it
12:20
up into hamburger and sold it probably
12:21
to you our pension fund or who or
12:23
whatever so there’s nobody she’d give a
12:25
complain to and you know yeah that stuff
12:27
was really depressing what was a feeling
12:29
like of having very little understanding
12:31
about finance and then immersing
12:33
yourself in it and now is vac sizing
12:36
that this is the underlying structure
12:38
that our society is Rhon that our money
12:41
is established through like this is this
12:43
is how we we sell houses and loans and
12:47
this is what we’re doing yes yeah no it
12:50
was it was fascinating I because before
12:52
that I was mostly covering like
12:56
elections right and again if you cover
12:58
elections it’s incredibly boring and you
13:01
never hear anything of substance and
13:03
it’s not terribly complicated and you
13:05
know one one the the Democrat says that
13:08
you know we want to help the middle
13:10
class and the Republican says we want to
13:11
protect America Family Values and that’s
13:13
pretty much the extent of the end
13:15
a challenge in terms of covering that
13:17
stuff and I always thought to myself you
13:20
know politics in America must be a lot
13:22
more complicated than this right there
13:23
must be some other hidden thing where
13:28
it’s incredibly complex and diabolical
13:30
and and you know the the real match
13:33
additions of power must be visible
13:35
somewhere and I think that you find that
13:40
when you when you start looking into how
Wall Street works how money works how
central banking works how you know how
the concentration of wealth works
I mean basically the subprime scheme was
an effort to pull the remaining savings
out of the population right it just
wasn’t you know in the old days
investment banks made their money by
lending money to companies who would
build factories and they would make
stuff and sell it around the world and
everybody would make money and never you
know even even the population would
would would benefit from it but that
manufacturing economy it’s all gone it’s
so four C’s so you have this
financialized the economy and they have
no normal beneficial way to make money
and all that all they can really do is
look to see where is their money and how
can we get it and most people had money
in their houses right like the the
14:42
accumulated savings of most people
14:43
whatever was left after the internet
14:46
crash in the 90s was in real estate and
14:50
that this was the scam by which they
14:54
took the wealth that was left in the
14:58
pockets of ordinary people and
14:59
transferred it to you know nine people
15:03
in Manhattan basically I mean that’s why
15:05
you have you know we told them when we
15:07
talk about wealth inequality now right
15:10
being a huge factor that you know the
15:13
top 95 I’m sorry the top 1% of the
15:19
population owns ninety percent of the
15:21
wealth in the country whatever it is
15:23
that’s a consequence of schemes like
15:25
this where they’re just there
15:28
they’re finding out where people have a
15:30
little bit of money and they’re
15:32
systematically coming up with scams to
15:34
move it from there to here with no
15:37
consequence no with no consequence and
15:39
that was the other part of the story
15:40
that I ended up having to cover later
15:42
which was you know the last time they
15:45
tried something like this like during
15:47
the SNL crisis which was also sort of a
15:51
giant fraud scheme also that involved
15:53
real estate lending and you know but
15:56
that the government after that actually
15:58
you know indicted 1800 people they put
16:01
800 people in jail they put a lot of you
16:04
know serious influential people on the
16:06
dock after that nobody nobody went to
16:11
jail after the stuff and there was and
16:13
people think that well they didn’t do
16:16
anything that was technically illegal no
16:17
bullshit there there was lots of stuff
16:19
that was that was brazenly criminally
16:23
illegal I mean they they committed fraud
16:25
on a broad scale but some of these
16:27
companies were into the things that were
even worse than that I mean you take
HSBC HSBC admitted to laundering 850
million dollars for a pair of Central
and South American drug cartels
including the Sinaloa cartel right which
is suspected in thousands of murders
like and you know they they admitted to
this activity they agreed to a deferred
prosecution agreement with the
government where nobody did a day in
jail no individual had to pull out a
dime out of their own pockets to pay the
shareholders pointed up 1.9 million
dollars but some of that was tax
deductible which means we paid some of
that fine and and the only real
punishment with any teeth is that some
of the executives had to partially defer
their bonuses for five years so
laundering 850 million dollars for narco
terrorists gets you a total walk you
know that tells you basically everything
you need to know about do we prosecute
white-collar crime in this country
basically no you know I mean that’s the
answer
ultimately that you find out and there
was paperwork that showed they knew it
was from the cartels oh yeah they if you
if you look at the the agreement and you
can watch the thirst there’s there’s a
video of of Loretta Lynch and lanny
18:00
breuer because this is before laura
18:02
Loretta Lynch was Attorney General but
18:03
she was she was basically the head of
18:07
this deal they talked about the fact
18:10
that the HSBC branches because most of
18:13
this was done in Mexico hmx which was
18:17
the subsidiary company they had special
18:20
teller windows built to fit cash boxes
18:24
that the drug cartels were bringing into
18:26
the bank so basically you’ve seen the
18:29
scene the scene in Scarface where the
18:31
guys come in with duffel bags of cash to
18:33
the bank right and you know that’s like
18:35
a montage you know there’s that that
18:37
song I forget what song it is in the
18:38
background same thing these guys would
18:40
come into the the bank they would slide
18:44
in these boxes of cash one after the
18:46
other and that’s admitted activity the
18:49
banks signed off on this they’d you know
18:50
it’s not like they’re contesting it
18:52
they’re not saying we neither admitted
18:53
nor denied it’s it’s part of the deal so
18:57
and in they agreed to the amount
18:59
everything so yeah it was a one point
19:04
nine billion dollar settlement but you
19:06
know it’s not like it came out of the
19:07
pockets of the people who did it and
19:09
it’s not like any of the people who did
19:11
it are in jail it’s just you know a
19:13
thing that happened and you know that’s
19:16
five weeks of profit for the bank so
19:18
what what the fuck they don’t care right
19:21
did you see the documentary an inside
19:24
job yeah yep we’ve covered a lot of the
19:27
same territory yeah yeah that was a
19:29
sobering documentary where they’re
19:31
talking to the very people that caused
19:33
the financial crisis mm-hm and and
19:35
realizing that these people were
19:37
economics professors that eventually got
19:39
these jobs really lucrative jobs with
19:42
banks and how they finagled this system
19:45
and made it so it looked like these
19:47
things were appropriate ya know I talked
19:50
to the
19:50
some of the some of the things that they
19:53
invented that made this the crash
19:54
possible sounded like good ideas like
19:58
they they came up with this thing called
20:00
the credit default swap all right and I
20:02
won’t bore you with what that is exactly
20:05
but basically it’s a kind of insurance
20:08
where it’s it’s basically a bet it’s
20:12
hard to explain but it’s a way of quasi
20:19
insuring a product without having to
20:22
pony up a lot of money and the it’s it’s
20:27
called the derivative right and these
20:31
instruments are completely unregulated
20:35
can I put the secret default swap is
20:37
like you and I betting on whether or not
20:43
a third person’s house is going to burn
20:48
in a fire right like the old-school
20:50
insurance said that it had to be your
20:53
house in order for you to get insurance
20:55
on it this new form of quasi insurance
21:00
said that two totally disinterested
21:01
parties could have an interest in a
21:03
third thing that happens so it’s
21:06
basically gambling and on the one hand
21:11
it allowed people to create a whole lot
21:15
of capital which allowed them to lend
21:16
more money which theoretically allowed
21:18
people to buy more houses but in reality
21:21
it just created the system where all
21:23
these people had bets that were back and
21:25
forth on on all these properties that’s
21:27
one of the reasons why the when the
21:30
crash happened when when all those
21:31
mortgages started to fail it wasn’t just
21:34
the failures of those properties it was
21:36
all these people who were betting on
21:37
whether or not these people could could
21:39
pay their mortgages they started to lose
21:42
money and then there were people who had
21:43
bets on that who started to lose money
21:45
and it’s like this cascading whirlpool
21:47
of shit that happened and again it just
21:51
it started out as an idea to just create
21:53
more money to lend to lend and it turned
21:56
into this nightmare mechanical scenario
22:00
that just that created losses
22:03
you know in this almost apocalyptic
22:05
fashion and a lot of them had no idea
22:08
but that that was going to be the
22:10
eventualities
22:14
yeah it’s great it’s definitely crazy
22:17
stuff as a person who didn’t really
22:19
follow finance before how much does that
22:21
affected your life now like the way you
22:24
look at things I definitely pay a lot
22:26
more attention to the fine print when I
22:30
enter into any financial contract I
22:34
think about where I do my banking but
22:38
the reality is you just don’t have a
22:40
whole lot of choice in this country
22:41
anyway I mean it’s like everything else
22:43
there’s only a few companies left so
22:47
almost every bank that’s out there where
22:51
you can have a bank account in a
22:52
mortgage is is a bank that I’ve written
22:55
about some massive scandal before so
22:58
that that’s that’s a problem but yeah I
23:03
worry about it all the time I mean I
23:04
have friends in finance who call me and
23:07
they they tell me that you know that the
23:11
things that are incredibly unsafe and
23:13
that this that and the other could could
23:14
could happen and so I have an anxiety
23:17
level about things that I never had
23:18
before but apart from that yeah I mean
23:22
that’s a natural consequence of having
23:26
to spend 7 years looking at all these
23:29
horror stories that’s great it’s crazy
23:31
you spent their lunch time on it do you
23:34
see any other bubbles coming up
23:36
yeah people talk about that all the time
23:40
there’s a lot of a lot of negative press
23:45
about subprime auto loans for instance
23:48
which is it’s not exactly the same but
23:52
it’s it’s a similar thing I mean the
23:53
same basic scam of taking loans chopping
24:00
them up and then repackaging them as
24:02
something that’s more valuable than the
24:04
original loan you can do that with
24:06
anything any kind of credit you can do
24:08
it with credit cards you can do it with
24:09
aircraft loans you can do it with with
24:11
car loans you can do it with with home
24:13
mortgages
24:15
and so the the mechanism of taking
24:18
things that are are toxic and risky and
24:22
making them look like triple-a is still
24:25
is still part of the economy and it’s
24:30
everywhere the plus side of that is that
24:33
there’s more credit available you know
24:36
almost anybody can get a credit card or
24:38
even if you’ve had screwed up credit you
24:39
can get a car you know I mean there’s
24:42
this put us on this like endless cycle
24:44
of build-up bubble collapse build-up
24:46
bubble collapse rebounding collapse
24:49
again absolutely I mean I think that’s
24:51
that’s that’s why I can’t you have to be
24:55
nervous about the you know the
24:57
skyrocketing stock exchange because we
25:01
verified yeah I mean you should be right
25:03
do you are you heavily invested in and
25:05
I’ve got some in there I just did when
25:07
when the whole you know when Trump was
25:09
saying the economy has never been better
25:10
look at the stock market stock market’s
25:12
killing it always do and then it’ll have
25:14
a bad day and okay well I thought we’re
25:16
doing great like what’s going on with
25:18
this bad day can you not control these
25:19
bad days right like what’s happening
25:21
here right if you’re if you’re in
25:23
control the good days you’re also in
25:24
control the bad days right yeah of
25:26
course of course it just it seems it
25:29
seems super suspicious yeah and and in
25:32
the old days you’d have a lot of
25:34
confidence that well the stock market
25:37
always eventually goes up so yeah
25:40
there’s gonna be bad days but it’ll go
25:42
back but the problem is the underlying
25:43
economy in America it just isn’t all
25:46
that hot you know like we’re like what
25:48
do we really make in this country what
25:50
what we’re where’s the floor right like
25:53
we have we have some industries that
25:55
sort of perform well but if you know
25:58
periodically we go through these bubbles
26:00
that are based on nothing more than
26:01
enthusiasm you know in the 90s it was
26:04
the the tech bubble right where people
26:08
like Alan Greenspan would say things
26:10
like well we have a new paradigm in
26:11
economics right so it doesn’t matter
26:15
whether a company hasn’t shown any
26:17
ability to make money or
26:21
you know has no reasonable profit and
26:25
loss statements it’s just if it’s a good
26:27
idea that the stock is sound and
26:30
everybody should invest in it and the
26:32
stock market is going to continually go
26:34
go up so don’t worry about it of course
26:37
that doesn’t happen everybody but it
26:39
blows up everybody loses their shirt but
26:41
what what do they do the Fed lowers
26:44
interest rates basically allows Wall
26:46
Street to recapitalize drink itself
26:49
sober and they plunge into the next the
26:52
next madness which is mortgages and once
26:55
again you have Alan Greenspan saying hey
26:58
you know real estate is a great bet it’s
27:01
you know it’s going to continually
27:02
ascend people should use their homes as
27:05
ATM machines you know you should you
27:08
should consider refinancing your house
27:10
so that you can get a little bit of
27:11
extra cash and and this is this was
27:14
actually the message they sent to
27:15
America and again it creates as
27:17
artificial mania
27:19
where the economy is stoked artificially
27:23
to gigantic dimensions but it’s not
27:27
based on anything and so when when it
27:30
crashes when you finally get like any
27:33
Ponzi scheme it you know it depends it
27:36
depends on more new investors coming in
27:38
than old investors leaving right so
27:40
there’s always going to be that moment
27:42
when suddenly we don’t have as many new
27:45
ones as old ones and the instant that
27:47
happens it all goes kaboom right and
27:50
that’s what happened with with the
27:53
subprime market there was a moment in
27:55
time where they they just couldn’t keep
27:58
it going anymore they couldn’t find any
28:00
more new suckers though to get to sell
28:03
mortgages to and the mania ended and all
28:06
went splat and then it was amplified by
28:08
the fact that we have this system now of
28:11
people betting on credit that is legal
28:16
which creates more losses out of thin
28:19
air so yeah I’m terrified every time I
28:22
see this the stock market go up what’s
28:25
it based on is it based on our economy
28:27
actually doing well I don’t know I don’t
28:29
think so
28:30
you know I’m sorry I’m look like I’m
28:33
scaring you a little bit you’re
28:34
definitely scaring but I think that’s
28:36
good I think I need to be scared I tend
28:39
to take these things and just you know I
28:41
have financial advisors I let them
28:43
handle money right when I hear things
28:45
like this I just got Jesus well I I get
28:48
terrified when I hear about really smart
28:49
people getting scammed like yesterday we
28:52
were talking about theranos do you know
28:54
that a blood testing company that turned
28:57
out to be total horseshit no I didn’t
28:59
hear about this oh it’s great story it’s
29:01
it’s a story of one of those things
29:03
where you you find someone who you hope
29:06
exists and you build them up there was
29:08
this woman she looked like Steve Jobs
29:11
she wore a black turtleneck in every
29:13
photo and she was the richest ever
29:18
self-made woman she was worth four
29:21
billion dollars she had built this
29:23
company called theranos right out of
29:25
college she was like 19 when she started
29:28
the company it was a blood-testing
29:30
company that just required a small prick
29:32
of your blood to do complicated blood
29:34
analysis for diseases and things along
29:36
those lines
29:36
turns out it didn’t work at all mmm and
29:38
they faked a bunch of shit I’d spread
29:42
fraud a lot of people got their blood
29:44
tested it turned out to be you know they
29:46
were at risk for all these diseases and
29:48
warren buffett invested a hundred
29:51
million dollars I think 125 Betsy DeVos
29:54
more than 100 million dollars like all
29:56
these super wealthy people got scammed
29:59
Wow yeah when you find out that really
30:01
wealthy people write that do this for a
30:04
living
30:05
yeah Buffett does that for a living
30:07
right that he can get scammed out of a
30:09
hundred and twenty five million dollars
30:12
right right yeah and and Warren Buffett
30:15
his his mantra is supposed to be picking
30:20
the the absolute long term investment
30:25
right so it’s not he’s not like a stevie
30:28
colon type who just looks at the tape
30:30
and tries to time it just right so you
30:32
know you can you can make an investment
30:35
for ten seconds and come out with it
30:37
with a you know
30:38
if he if he’s investing in a company and
30:40
a and even he can be fooled that’s
30:43
that’s pretty terrible but look at Enron
30:45
I mean Enron was was another example of
30:47
the world’s best financial analysts
30:49
we’re looking at this company for a
30:51
decade and the the results were
30:56
completely ridiculous like it should
30:58
have been obvious to any layperson that
31:00
that these profit numbers couldn’t
31:03
possibly be real and it wasn’t until one
31:08
of those guys I think it was Jim Chanos
31:11
it was sort of a famous short seller I
31:13
mean I sort of said hey wait a minute
31:15
that there’s something up here but
31:19
people continually invested in these
31:21
companies and there’s just not a whole
31:22
lot of oversight that goes on with with
31:27
Wall Street and I think that’s that’s a
31:29
major lesson of you know the last 20
31:33
years is that is that there’s just not a
31:36
lot of eyes on on crime and in this area
31:39
another example is I’m sorry the the
31:43
who’s the guy scammed all the rich
31:44
people really made up Bernie Madoff yeah
31:46
I was gonna bring him up yes the most
31:47
egregious example right yeah yeah I mean
31:49
there are other there are other people
31:51
who did similar things but this guy
31:54
didn’t even make investments right you
31:56
know what I mean
31:57
like he he was literally just sort of
31:59
taking money and you know when someone
32:01
cashed out he would you know it was like
32:04
who’s that little girl throwing he had a
32:09
big you know pile of cash and you know
32:11
he would who take some man and throw
32:13
some out but if the SEC it had at any
32:16
time just looked at his books and said
32:19
what are you invested in it all would
32:23
have you know that whole house of cards
32:25
would have fallen and invest in anything
32:27
no and he wasn’t he wasn’t making trades
32:29
he wasn’t doing anything you know and
32:32
and there are a bunch of stories like
32:35
this there’s a great book called the
32:38
octopus which is about as somebody who
32:39
did a Madoff like scam another hedge
32:42
fund where same thing they weren’t
32:45
really making trades they were just sort
32:46
of creating phony profit and loss
32:48
statements and
32:50
and and creating records that look like
32:53
trades they could they could tell their
32:55
investors about but they weren’t
32:56
actually doing anything so if anybody
32:58
any expert at any time had just poke
33:03
their nose in into this person’s books
33:06
they would have seen it in ten seconds
33:07
that’s the mean that’s the amazing thing
33:09
about this you know not not to get back
33:12
to you know my my drug-dealing book but
33:15
this is one of the things that he says
33:16
which is that you know you can be in a
33:20
you know in a poor black neighborhood
33:22
and a couple of kids will be on a cell
33:25
phone and talking about selling ten
33:27
dollars worth of weed and they’ll be
33:29
picked up by cops you know within 20
33:33
minutes or something like that
33:34
meanwhile you know somebody like you
33:37
know Bernie Madoff can commit 100
33:41
million dollar frauds year after year
33:43
after year and not even do any to take
33:46
any effort to try to cover it up all
33:48
that well and get away with it well
33:50
Bernie’s big crime was that he ripped
33:52
off rich people yeah absolutely
33:54
if he had done the exact same thing to
33:56
poor people but he did was just it was
33:58
just too easy to call what he did a
34:00
crime versus what you were talking about
34:02
with these financial institutions right
34:05
yeah yeah if he if he had long if he
34:07
laundered it through a slightly more
34:09
legitimate process he he would have
34:11
gotten out flattened but the one of the
34:13
things that a lot of these guys these
34:15
scam artists get into it thinking that
34:18
they’re actually gonna be real hedge
34:20
funds and that they they have some stock
34:23
picking system that’s actually going to
34:25
make all their clients money and one of
34:27
the things they find out is that a they
34:29
suck they they they’re not outperforming
34:31
the market and they’re not that smart
34:33
but be that their clients can’t tell if
34:36
they just make up the numbers so there
34:39
there are a number of cases of people
34:41
who start out trying to be legitimate
34:43
and trying to be really real investment
34:46
advisors but they just end up turning it
34:49
to Bernie Madoff types because it’s just
34:52
easy there’s no there aren’t that many
34:54
people watching for it and
34:56
you know that that’s kind of scary too
34:58
well it seems like there’s so many
35:01
people doing it how could there be
35:04
enough people watching it right about
35:06
how many investment firms there are and
35:08
how many different people that are
35:09
involved in trading how could anybody be
35:12
watching all of it right yeah no there
35:15
but even even so even if you take that
35:20
into consideration then the number of
35:22
eyes that are that are on this world is
35:24
is ridiculously low electic take AIG all
35:28
right AIG was one of the world’s largest
35:31
companies at before before it crashed it
35:35
had like a hundred eighty thousand
35:36
employees it was it took advantage of
35:41
this weird loophole that allows
35:42
financial companies to essentially
35:45
choose their own regulator so because
35:48
because AIG had a thrift or Savings and
35:53
Loan that’s basically the same thing
35:54
they chose to be regulated by the OTS
35:59
which is the office of Thrift
36:01
Supervision
36:02
which is this tiny tiny little you know
36:07
office in Washington that oversees
36:10
basically Savings and Loan operations
36:12
and in in the OTS this is this is
36:16
actually true the they had exactly one
36:19
insurance expert on staff so essentially
36:22
with the world’s largest insurance
36:23
company was being regulated by a
36:27
government office that only had one
36:29
person who really understood insurance
36:31
and and even and even that person
36:33
wouldn’t have understood the the part of
36:37
the company that blew up which was
36:39
essentially an investment bank within
36:42
the insurance company that was creating
36:44
these sort of highly advanced sort of
36:46
derivative operations that know that
36:50
they just would not have been able to
36:51
understand that stuff so there the
36:55
government just does not place a lot of
36:58
resources into you know keeping an eye
37:01
on even the most basic things and when
37:04
you compare that to law enforcement in
37:06
other areas you know
37:08
is how many how many people do we have
37:11
you know worrying about back bank
37:13
robberies in this country or drugs right
37:16
or you know how many people are being
37:19
watched because their marijuana dealers
37:21
in other states I mean it dwarfs the
37:24
number of people who are watching for
37:25
economic crimes yeah one person yeah I
37:30
just love the the name of it office of
37:33
Thrift Supervision yeah sure it exists
37:36
anymore I think it was it was merged
37:39
into some other because there used to be
37:42
the OCC the officer of the Comptroller
37:44
of the currency and I think they created
37:47
a new regulator at out of all that after
37:49
the crash but but yeah and I chose its
37:53
regulator and its regulator you know was
37:56
totally overmatched didn’t couldn’t
37:58
understand shit and that’s one of the
38:00
reasons why the company blew up the
38:02
company also blew up because it was run
38:04
by insurance people who didn’t
38:07
understand the idea was basically Wall
38:11
Street’s bookie all these people were
38:12
betting all these investment banks were
38:14
betting on whether or not mortgages were
38:16
gonna fail or not and AIG was selling
38:19
the product that they could use to make
38:23
those bets essentially or they were
38:24
taking on insurance on packets of
38:27
mortgages so if they exploded you would
38:30
get a payout right it was it’s like it’s
38:33
like buying an insurance policy on your
38:35
neighbor’s house if it goes up in flames
38:37
you get paid on it you got paid AIG was
38:39
selling a product that allowed banks
38:41
essentially to buy insurance on on
38:44
houses on mortgages and if the if people
38:48
foreclosed if the mortgage has failed or
38:52
pools of mortgages failed if you if you
38:56
bought that kind of insurance you got
38:57
these huge payouts so people were
38:59
betting against mortgages basically and
39:02
AIG was taking all this book and but the
39:06
the heads of the company were oldschool
39:08
insurance executives who just didn’t
39:10
understand this sort of newfangled
39:15
complicated form of insurance and so
39:18
they would look at the numbers they were
39:20
being given and even they didn’t get it
39:21
didn’t they didn’t understand how how
39:24
exposed they were and so and all the
39:27
bets started going the wrong way
39:28
suddenly they’re being asked to pay out
39:30
billions of dollars and they’re like
39:33
wait where is this coming from so even
39:36
the companies were kind of clueless
39:38
about the shit that was going on it
39:40
turns out
39:46
[Applause]

The Big Short Billionaire Michael Lewis Missed (w/ Raoul Pal and Jeff Greene)

Billionaire real estate investor Jeff Greene built his fortune with a lifetime of hustle and no partners. In this interview with Raoul Pal, Greene explains how he transformed himself from a traveling circus ticket salesman to an investment titan putting on billion-dollar credit default swap trades. What began as a hedge turned into the trade of a lifetime when Greene astutely observed that shorting mortgage backed securities was a no-doubter in his first foray with derivatives. Greene also touches on his unique career path, his market outlook for a handful of asset classes, and the philanthropic endeavors that now dominate his focus. Filmed on January 23, in West Palm Beach, Florida.

Transcript

00:01
RAOUL PAL: Jeff, it’s great to be here in Palm Beach and to get you onto Real Vision.
00:06
Just chatting off camera, we’ve got a lot of friends in common we didn’t.
00:09
You’ve got a fascinating story and I think people would love to hear the story of how
00:15
you start your career, how you got into real estate, but even starting before then, you
00:19
as a student, going to university.
00:21
Talk us through a bit about that.
00:22
JEFF GREENE: Well, I don’t know where to begin.
00:23
I grew up, I was born in Worcester, Massachusetts, which is a city about 40 miles from Boston.
00:29
My dad was a textile machinery dealer, which meant you sold these giant machines that were
00:34
longer than this room, they could be 100 feet long, to mills and parts of that also and
00:39
they did it very well.
00:40
We’re a middle class family in like cute little house with a backyard and my mom was pretty
00:45
much a stay at home mom.
00:46
Then in the late ’60s, all the textile mills got unionized in New England and they moved
00:51
to the south.
00:52
My dad lost his livelihood because he didn’t have mills to call and that’s all he’d done.
00:56
He had all this money in this business.
00:58
He had a warehouse with parts and materials.
01:01
My parents picked up and moved to West Palm Beach, actually.
01:05
My dad bought a small rubber stamp business.
01:07
He never really got on his feet again.
01:09
For me, I was just a junior in high school when they moved here, but I was really still
01:16
in junior high school and when our financial fortunes went the wrong way.
01:21
I had to work my way through college, and I had some financial struggles, which probably
01:25
made me hungrier than ever to do well.
01:27
RAOUL PAL: How did you pay your way through university?
01:29
There’s a bit of a story about that, because you went to Harvard, didn’t you?
01:31
JEFF GREENE: Well, I went to college at Johns Hopkins University in Baltimore.
01:35
It’s interesting.
01:36
I applied for scholarships, and I got scholarships and student loans.
01:41
That paid some of my costs and then also, I had been an exchange student in Israel in
01:46
high school.
01:47
I learned to speak Hebrew fluently.
01:48
I taught Hebrew school three days a week.
01:50
I had to ride the bus in Baltimore and I had to change three changes.
01:55
Two transfers.
01:56
Three bus rides to go out there to teach Hebrew school on Tuesday and Thursday.
02:00
Then I rode out with another Hopkins student on Sunday.
02:03
Then I had another job where I checked IDs outside the gym, it was called work study.
02:08
It was a government funded program where you get paid a buck 50 an hour when you’re supposed
02:12
to be able to do your studying while you check the IDs, which you do.
02:15
Then I also, when I came down here to visit my parents, I worked with the Breakers Hotel
02:19
here in Palm Beach.
02:21
I was a busboy, and then a waiter in the main dining room, and I just slogged along and
02:27
made it through college.
02:28
I finished Johns Hopkins in two and a half years, not because I was such a genius.
02:33
I think it was because it was working so hard.
02:35
It wasn’t really a fun college one.
02:37
RAOUL PAL: Then after that, where did your career go?
02:41
JEFF GREENE: Well, so then what happened is I was down here one summer in West Palm Beach.
02:44
I was working at the Breakers, not making any money because who’s here in the summer?
02:47
Nobody, so no tips.
02:49
I signed out of the local papers, had telephone sales and I went to [indiscernible], it was
02:54
to sell circus tickets for the local Riviera Beach Fraternal Order of Police which is a
02:58
nonprofit Police Organization and it’s at $2.50 an hour or commission.
03:04
Well, minimum wage was a $1.60 in 1972.
03:07
$2.50 an hour, you can make 100 bucks a week.
03:10
Tuition at Johns Hopkins in those days was 2700 a year so if I work for 12 weeks, I’ll
03:16
make 1200 bucks.
03:17
Not so bad.
03:18
High stress on these tickets.
03:19
I’ve noticed that I’m selling more than everyone else, if I feel like I’m selling more than
03:22
everyone else in the room so I said to the guy at the end of the day, how much would
03:26
I’ve made on commission?
03:27
He said $93.
03:28
I’ll take commission.
03:29
Instead of making $20, I made 93.
03:31
Anyway, I ended up doing this all through college.
03:36
Wherever I had a break, I then would go on the road and run a telemarketing office for
03:41
the circus.
03:42
After I finished at Hopkins, I went on the road to run these telemarketing operations
03:48
for fundraising circus from Sarasota, Florida, and I would roll into little towns all around
03:55
the country like Bluefield, West Virginia, tangy, you never would have heard of.
04:00
[Indiscernible] 20,000, 30,000.
04:03
Then I had a Pontiac Grand Am.
04:06
I had my clothes on a bar across the backseat, loaded with laundry detergent in the trunk
04:10
to go to the laundromat.
04:12
I would roll into town, check into the Motel 6 or Days-in or whatever it was.
04:18
I set up an office, sell the circus tickets, hire local people.
04:23
I did this.
04:24
It was a lonely life.
04:25
I finished college before I turned 20 so I was just 20 years old, 21, 22 all by myself
04:32
like a traveling salesman in these little towns.
04:34
Forget having a girlfriend, you couldn’t even have friends because you’re always seeing
04:38
different people.
04:39
You’re always on the move.
04:41
I did this and I saved up and I worked so hard.
04:43
I saved up $100,000 in the mid-70s.
04:46
It was just from working, I worked nonstop.
04:50
I lived on nothing.
04:52
I saved every penny because I was determined after what I’d been through going through
04:56
working my way through college, never to be broke again.
05:01
My dad, actually, it’s worse than not losing his livelihood, he actually lost his life.
05:06
When I finished Harvard Business School in 1979, in May, my dad didn’t make it to graduation
05:11
because he was having heart issues.
05:13
He died two months later with a massive heart attack at the age of 51.
05:16
I really believe it was because of the stress of not just losing his life, losing his dignity
05:22
and his sense of worth.
05:25
It puts me in touch today very much and that’s probably one of the reasons I’ve gotten involved
05:29
so much in philanthropically, and politically because I’ve really saw firsthand how somebody
05:38
can get broken when there are economic reality changes.
05:43
Anyway, so I saved up all this money, go back Harvard Business School, I had $100,000 in
05:50
the bank.
05:51
Never had bought any real estate because how could I?
05:53
I was in a different city every two weeks.
05:55
RAOUL PAL: Living out of the car.
05:56
JEFF GREENE: Sorry?
05:57
RAOUL PAL: Living out of the car.
05:58
JEFF GREENE: More or less.
05:59
I did have stuff stored.
06:00
I’d never had an apartment.
06:01
I had stuff stored at my parents’ house, my aunt’s house.
06:04
I was living out of my car more.
06:06
When people say that you think I wasn’t sleeping in my car, but that was my base.
06:10
My Pontiac Grand Am.
06:12
Now, a lot of people I knew had invested in real estate.
06:16
It’s interesting.
06:17
I got into Harvard Business School.
06:19
I didn’t get into the good housing complex, so just field apartments because there was
06:23
a waiting list.
06:24
A friend of mine from Hopkins said, who would have started off with those first so I said
06:28
what do I do?
06:29
He said, well, what you can do is why don’t you go buy one of these three-deckers?
06:33
What’s that?
06:34
It’s like a three family house built in the late 1800s.
06:37
You can live in one, rent out the other two and at the end of the time, you think you’re
06:40
probably going to sell and get your money back and live rent free and I said that’s
06:44
interesting.
06:45
I was set by to discuss– a friend who was broker, also been to the business school and
06:49
who I still know actually.
06:54
I bought a three-decker, and lived in one and the market was so undervalued in 1977
07:00
when I bought this, I could see I was saying, I bought it for $37,000, 7000 down, so that
07:06
would happen as I got approved for the housing.
07:09
I said, what’ll it make me if I rent all three, how does this investment work and by every
07:14
measure I looked at, I was going to end up after my mortgage payment, making $2200 a
07:19
year on my separate thousand dollar investment.
07:21
If that’s a 30% return, I said I got to get more of these.
07:27
While I’m at Harvard Business School, I accumulated 18 properties.
07:30
I bought them.
07:31
RAOUL PAL: You were just buying them out of the cashflow of each property?
07:34
JEFF GREENE: No, I had my hundred thousand.
07:35
RAOUL PAL: Out of school.
07:37
JEFF GREENE: For the first one I wanted when that was perfect, so I’m saying I can’t be
07:41
like dealing with repairs when I’m at Harvard Business School.
07:45
Who’s going to do this work?
07:47
Then I started getting comfortable doing remodeling and for the time I was done, I was buying
07:52
junkie buildings, fixing them up and anyway, that became the beginning of my real estate
07:57
career.
07:58
As it turns out, the market was so undervalued.
08:00
That property I bought for 37,000, I sold three years later for 185,000.
08:06
Another property bought for 38,000, right near the Cambridge line, and somewhat sold
08:14
it for 3380, 330 to 380.
08:15
RAOUL PAL: Is that when interest rates started coming down that suddenly the price of property
08:18
exploded?
08:19
Around ’81, ’82?
08:20
JEFF GREENE: I think you’re right.
08:24
That’s when Reagan was just– RAOUL PAL: Yeah, that’s right.
08:28
Reagan just cut in, there’s the Reagan-Thatcher years, interest rate just peaked and just
08:32
started to come by– JEFF GREENE: The late ’70s, so yeah, so before whatever it was,
08:37
the market just exploded and my 100,000– by the time I finished Harvard Business School,
08:41
I had a million dollar net worth.
08:42
Then I was off to the races.
08:44
It’s interesting because people often– RAOUL PAL: You didn’t use your Harvard education
08:46
at all?
08:47
JEFF GREENE: I always use my Harvard education.
08:51
RAOUL PAL: You leave Harvard, you’ve made a million bucks and I guess you decided real
08:55
estate’s the business you want to be in.
08:56
JEFF GREENE: I fell into it.
08:58
What happened is I decided to move to California.
09:01
I had a great aunt and some cousins there so I moved to LA after I finished at the business
09:06
school and thought I’d do real estate but the prices in LA were very different than
09:10
they were in Boston.
09:11
Boston was– it was before the tech booms and the biotech booms and Boston was a little
09:16
bit sleepy in the early ’80s.
09:19
Slow growth.
09:22
Even after things had started to appreciate, you could still put down when you buy an apartment
09:26
building, you put down 20%, 30% you’d make a nice return on your cashflow 5%, 10%.
09:32
I go to LA and you buy a building, it’s okay, here’s what you do.
09:35
You put 30% down and you’ll lose cashflow.
09:38
Because basically in LA, you are buying the futures because everything was perceived to
09:41
be going like that, and I just didn’t get it.
09:44
I did some other things.
09:45
I bought actually 50% of a clothing manufacturing company, did that for 14 months.
09:52
RAOUL PAL: Why?
09:53
JEFF GREENE: I just finished Harvard Business School, I had to do something for my career.
09:58
I looked at buildings, they all just seemed outrageously expensive, didn’t fit the format.
10:02
I was used to cashflow real estate.
10:06
I just couldn’t figure it out.
10:07
I think, to tell you the truth, I’d taken a class, a business school by small businesses.
10:11
The way you find a small business is you do business brokers, go talk to local accountants.
10:16
What my cousin had was a textile salesman.
10:21
I said, let me go see your accountant.
10:23
Well, the only companies the accountant knows is textile and garment companies.
10:26
He said, well, I got this guy who has half of– he has a company, he’s just fired his
10:31
partner, he’s looking for someone like you to come in and help run the business.
10:37
I bought half of this company, and it was very successful 14 months.
10:42
I hated every minute of it.
10:43
It wasn’t my cup of tea.
10:45
I was thrilled and I’m showing up in my– at the time, Brooks Brothers suits and buttoned
10:49
down shirts and ties and these guys who were working there, gold chains around their necks
10:55
and they were in these spray on printed shirts that just it was aggressive, tough screaming
11:01
and yelling.
11:02
It wasn’t what I was planning on doing with my newly minted Harvard MBA.
11:05
Anyway, I got out, made some money and then I started doing real estate deals and started
11:10
buying.
11:11
I figured out the LA market, started buying properties and had a nice run up till early
11:16
’90s when I participated in the crash like most developers and investors.
11:20
RAOUL PAL: When you said you figured out LA property markets, does that mean you just
11:24
went into the momentum trade and realize it was all about price gains and not about–
11:28
JEFF GREENE: Yeah, I realized that you’re not going to make your cashflow in year one,
11:32
you’ll get your cash flow in year three or four and that’s how it was priced and just
11:36
I started doing things that way and sure enough, you bought one or two so I bought like an
11:40
eight-unit building, a seven-unit building.
11:42
Then you’re seeing there, as the rents go up and I started saying, now, I get this.
11:48
By the time I get to a– that was the starting like in ’82-’83 and by ’91, ’92, ’93, I had
11:55
about 100 million dollar real estate portfolio.
11:57
I never had investors or partners, but I had a lot of debt.
12:01
That’s how I built it.
12:03
I probably had debt on at maybe, I don’t know, 65 million, which is 35% equity, had been
12:10
refinanced and did grow aggressively, and then the market dropped and all the sudden,
12:16
somebody– ’92, ’93, ’94.
12:18
By ’94, my $35 million net worth was like minus $15 million.
12:24
RAOUL PAL: Did that terrify you?
12:27
How did you think about debt from then?
12:28
JEFF GREENE: It was tough, because basically, from my papers and snow shoveling jobs, my
12:34
whole life in business had been straight up.
12:39
The truth is let’s finish Harvard Business School at 24.
12:42
I have a million dollars.
12:44
I’m thinking I’m a genius.
12:45
I’m bored, and people call you, you must be– you’re really boy wonder, you think I’m really
12:49
a smart guy here and basically, I had never been– had not been married.
12:54
I had girlfriends, but I had been single, all I really had was my career, to tell you
12:58
the truth, to hang my hat on.
13:00
In 1994, I was just turning 40 years old and basically, everything I had worked for was
13:08
all of a sudden that and it was traumatic.
13:11
It was a tough few years.
13:12
It was a tough few years, because I’m thinking like I could actually very easily be liquidated
13:18
out back to zero and have nothing at all to show flow for what I’ve been doing in my whole
13:23
career.
13:24
I got good education, but what would it have gotten me?
13:26
RAOUL PAL: How did that affect you psychologically at the time?
13:28
JEFF GREENE: It’s tough.
13:30
It’s interesting, I still– RAOUL PAL: You can’t take risk so easily when you’re thinking
13:33
like that.
13:34
JEFF GREENE: It’s interesting.
13:37
I’ve always been a fundamental– believe in the fundamentals like the way I invest, where
13:41
I do everything and I try to focus on long term and not let noise bother me.
13:46
I knew why that market had happened.
13:50
I understood it very clearly.
13:54
It’s a longer story, but the government empowered savings and loans and then try to allow them
13:59
to make crazy loans.
14:01
Basically, because what happened and if you will remember back, interest rates started
14:06
going up, SNL is having their books, all these fixed rate loans, and they were all in trouble
14:11
so the government said, okay, you want to be able to pay 8% for CDs, we’ll let you do
14:16
anything.
14:17
People were buying McDonald’s franchise with the SNL funds and they will make 100% construction
14:23
loans.
14:24
Of course, you’re going to have this crazy froth in the market.
14:27
I didn’t really feel I would like that.
14:29
Then nothing that I had done, it was the government that did it, and it happened and so when it’s
14:35
so good, I plotted through it.
14:37
I kept renegotiating with lenders.
14:39
Lucky for me, I had one main lender, called Glendale Federal Savings, they were the sixth
14:43
largest SNL in the country and believe it or not– RAOUL PAL: They stayed solvent?
14:48
JEFF GREENE: Barely.
14:49
They had $200 million in capital.
14:51
I owed them like 69 or 59, give or take.
14:53
RAOUL PAL: Okay, so you were too big to fail.
14:55
JEFF GREENE: It’s crazy because they were like, it’s almost a $20 billion SNL, my little
15:00
thing was enough to push them over the hump so they kept working with me and I was– look,
15:04
I was very persistent.
15:05
I’d give them a building, they would cut loans in other buildings.
15:08
We just work together and kept restructuring a few times, then eventually by probably ’95-’96,
15:16
my net worth was zero again, like all my loans equaled my values.
15:21
Then I got lucky and I said, look, I sold one property.
15:23
I had a property on Sunset Boulevard, a nice house at a very nice part of LA, 40-unit building.
15:29
It probably was worth $4 million.
15:32
The loan was for $4 million, but the Getty Museum needed housing for the new faculty.
15:35
They were just finishing the new Getty Museum.
15:38
They had looked at some other land I had, I called them up and I said, how about this
15:42
building?
15:43
I sold it for $6 million, so I get 2 million bucks cash.
15:47
Now, most people having been through what I was, they would have taken that 2 million.
15:52
I said, I’m not going to risk this ever again, but I didn’t.
15:56
I went I bought three new buildings immediately.
15:59
I bought them from the RTC.
16:01
I bought an office building for $30 and cents– RAOUL PAL: I just want to get back a little
16:04
bit.
16:05
How do you– the psychology of doing that.
16:07
Taking a loss or getting close to having to realize a big loss is actually quite hard
16:11
thing to do.
16:12
Trading, investing and I run a hedge fund.
16:14
I know what that’s like, how did you distance yourself from that?
16:17
Let’s do it again.
16:19
You thought you had nothing to lose anyway?
16:21
JEFF GREENE: No, no, I just felt that– I really felt that I understood why this had
16:26
happened.
16:27
I felt that this was a crisis that was brought on by the savings loan excesses and that the
16:34
RTC and the government had it very badly.
16:36
I don’t know if you remember it, the Resolution Trust Corporation.
16:40
They just took everything and liquidated and they caused a lot more havoc than would have
16:44
otherwise been in the market.
16:46
I could see that’s why my properties were dropping in value to those levels, not because
16:50
people were leaving LA or didn’t want to live there anymore.
16:53
I have a chance now to buy these properties at barely pennies on the dollar.
16:58
I snapped up an office building at 30 bucks a foot, that was like eight years old, it
17:02
was what it costs $200 a foot to build then.
17:04
Then I bought another 65-unit apartment building for 2.7 million.
17:10
All townhouses and I’m thinking there’s no way you can lose money on these deals.
17:14
Sure enough, they all like tripled in value.
17:17
Then I was able to get those stabilizes, or refinanced.
17:23
I just started going and buying and honestly, I’d say that my recovery in the late ’90s
17:30
was really relationship oriented.
17:31
I’ve always been very relationship oriented.
17:33
I had one bank that I worked with a lot.
17:37
I figured out what they needed, they figured out what they need to do with me, and they
17:41
were my lender, and I started buying properties very aggressively at very cheap prices.
17:47
RAOUL PAL: All in LA?
17:48
JEFF GREENE: All in LA.
17:49
I was buying apartment buildings, because what you had was you had in this SNL period,
17:54
you had people who had built all these new buildings.
17:58
Hundreds and hundreds, if you drive to LA today, you’d still see these late ’80s, they’re
18:03
four-stories.
18:04
That’s the zoning over two levels of parking.
18:08
Wood frame, stucco.
18:09
They all look the same.
18:10
Basically, these buildings, what happened is moms and pops would have them or people
18:16
would not own them.
18:17
They were shell shocked because they went through rents– because they have a building.
18:22
They may be got it in say, and I’m just guessing they built it maybe in, I don’t know, 1987,
18:27
’88, ’89.
18:28
That’s when the big build– now, this RTC gets the building next door and cuts the rents
18:32
by 40% so now, you cut your rents by 40%.
18:35
By the time you get to ’96, you’re just so happy to have tenants.
18:39
No one’s raising rents, rents are way below market.
18:42
You go into buildings, you just buy them, we clean them up a little bit.
18:45
Change the entire rent roll to market and then refinance and buy more and so I got this
18:51
going again through great broker relationships, lending relationships, and I got up to 8000
18:56
units by 2005.
18:57
RAOUL PAL: 8000 units?
18:59
JEFF GREENE: Yeah, and over a billion dollars’ worth of real estate.
19:01
RAOUL PAL: All in LA.
19:03
JEFF GREENE: All in LA.
19:04
RAOUL PAL: Talk me through the next phase then.
19:07
2005, you’ve now got half of LA, it sounds like.
19:10
JEFF GREENE: It was a great run.
19:12
I’m freaking out, and my debt was probably I’m guessing 500 million.
19:16
I’ve said I’ve gone from minus 15 million to positive 500 million net worth, but I know
19:22
that stuff can happen and even things that you have nothing to do with like the SNL crisis.
19:28
I’m thinking what had happened was the value’s gotten so high because after the dot-com bust,
19:35
interest rates were cut to the lowest since World War II.
19:38
As a result, cap rates on apartment buildings got very low and I’m thinking like, this may
19:44
not be sustainable.
19:45
What can I do?
19:48
As this is happening in like ’04, ’05, I’d go and I’d sell five or six buildings, get
19:52
some cash, then I think, yeah, I’d do an exchange and buy more buildings.
19:56
I’m thinking there’s got to be some hedge because I’m reading about all this stuff on
20:00
Wall Street.
20:01
RAOUL PAL: Which year are we talking about now?
20:03
JEFF GREENE: This is ’06.
20:04
There’s got to be some way rather than just selling buildings and paying and getting nervous
20:08
then buying new ones.
20:09
There’s got to be some way to get a hedge so if the value of the buildings drop, I won’t
20:15
lose as much money.
20:18
I go to talk to Goldman Sachs, JP Morgan, they said, well, you can short the SNL stock
20:24
because if the market collapses, those will drop.
20:25
Then I think, well, if you do that, what happens if the one that you short gets taken over
20:30
or something.
20:32
Then I went to see a very old friend of mine, John Paulson, who was a very close friend.
20:36
I called him up, and I said any ideas on this, he said, come see me and work on something
20:42
you may like, so I went to his office and he showed me how– he said, I’m shorting subprime.
20:47
Subprime?
20:48
What does that mean?
20:49
Well, I’m using derivatives.
20:50
What’s a derivative?
20:51
Well, you use credit deposit?
20:53
What’s a credit deposit?
20:54
Then he shows me some slides.
20:57
I get the idea.
20:58
Housing prices are not going to go up, are going to drop and people won’t be able to
21:03
pay the mortgages and the bonds will default, but these are very complicated instruments.
21:08
I didn’t really know exactly how you get from giving your money to this up to putting your
21:13
money up to you make a profit because the way these bonds work, they were very complex.
21:21
I remember saying, I said JP, can I do this on my own because now, we’re friends and I
21:24
may be– and he said, no, you won’t be able to because you have to sign this.
21:29
It’s an institutional trade.
21:34
His fund wasn’t ready for several months, anyway.
21:36
This is like in March or April of ’06.
21:38
I went back to LA and went to Berlin.
21:40
Then I called up all my bankers, and they told me, absolutely not, you can’t do this.
21:44
I hustled SIP, and I’ve pushed them in then I got approved to do this trade.
21:50
Initially, I went short $650 million worth of subprime mortgage backed securities with
21:57
JP Morgan and Merrill Lynch.
21:59
RAOUL PAL: You then sit it out for a bit, because nothing happens.
22:03
It gets marks against everybody.
22:05
JEFF GREENE: Yeah, a little bit.
22:06
It went down a little bit, and then I went to JP, sent me his fund, finally said, I’d
22:11
like to go in your fund now.
22:13
I told him, I’d done every email, I told him my I’d done some trades, and he got upset
22:17
that I’d done the trades.
22:18
RAOUL PAL: Without him?
22:19
JEFF GREENE: Yeah, but I still wanted to go to his fund.
22:21
We’re still friends now.
22:22
I think it was I should have probably told him I was doing it when I did it.
22:27
I’d say, I just did it.
22:29
I figured he’s running up, at the time, he had $5 or $6 billion in a matter I think,
22:32
he’s got a big business and I’m just doing a relatively small amount of this in the overall
22:37
scheme of things but, and I’d said I should have told him and I couldn’t, I think it caused
22:41
a problem between us for a while, but nevertheless, I ended up doing that.
22:45
The fund dropped in the summer a little bit and then so I was down.
22:53
Then it went up and then it went down again the next January for some reason.
22:56
RAOUL PAL: Have the housing prices have a tipping over at this point?
22:59
JEFF GREENE: Housing prices with– all the fundamentals of housing were going like this,
23:03
the punt’s going like that by January, it made no sense.
23:06
I said I want to do more of this.
23:07
I caught up and I was able to do another 400 million of the short and so I had 1,000,000,050
23:13
on at that point.
23:14
I was going to do more truthfully but by the time I got approved for more at one of the
23:19
two banks, it already started to deteriorate, the prices already dropped against.
23:24
I had this in them.
23:26
Then I just gradually started closing out that trade in, I’d say, 2008 and it was a
23:34
very profitable trade.
23:36
It turns it wasn’t a hedge at all.
23:37
That’s the craziest thing and I knew when I went and started, the more time I spent
23:41
on this trade, it’s faster I realized that this is not a hedge because apartment buildings
23:46
values were a function of rents and interest rates, lower interest rates provide low cap
23:52
rates and high and stable rent markets, people want to buy buildings with stable rental markets,
23:59
but I looked at it, I knew it was an incredible trade because I’m thinking this doesn’t make
24:02
any sense.
24:03
There’s no way that these bonds are getting repaid.
24:06
That’s why I stepped right up and I did over a billion dollars in this stuff.
24:12
RAOUL PAL: That was a hell of an initiation to the world of derivatives.
24:15
JEFF GREENE: Yeah, pretty lucky.
24:17
It could have gone wrong.
24:18
RAOUL PAL: It could have gone wrong.
24:20
There again, in the end, they’re not very expensive trade.
24:23
The good thing is they were relatively cheap to put on but the punt was so ridiculous if
24:28
you get them right.
24:29
JEFF GREENE: Yeah.
24:30
Well, I think I had to put up I think to 5% which made sense because basically I was doing
24:33
it 1.3 over.
24:35
Here’s the problem.
24:37
The problem with this trade is I was very lonely doing this trade.
24:41
I’d never been on– I’m going up against the biggest banks on Wall Street effectively.
24:45
I don’t know anything about the stuff.
24:47
I’m thinking about– am I missing something?
24:49
Just seems all seemed too good to be true.
24:51
I would talk to my smart friends, like my close friends from Harvard Business School
24:56
and some other friends who are on Wall Street.
25:00
I’d say, what do you think of this?
25:02
They would go talk to their advisors.
25:04
Interestingly enough, a lot of very smart people would come back and said, the problem
25:07
is just really stupid that you’re basically agreeing to pay the spread for 30 years on
25:14
these margins.
25:15
If no one pays off the loans, you’ll pay for 30, but that’s completely nonsensical, because
25:20
even normal loans get refinanced and as an average duration of any bond, any pool of
25:26
loans.
25:27
In this case, I focused every– I don’t know if you have seen how these loans business
25:34
is like, so basically, there was one type of loan, it was called a 2/28 loan.
25:41
I would try to find bonds at 80% of this.
25:45
What that meant was for two years, the rate’s fixed at some very low rate, maybe it might
25:49
have been at, in those days, at 6% for a subprime loan, and then in month 25, it can go up to
25:59
300 basis points, then 100 basis points every six months till it peaks at 600 basis point
26:03
increase.
26:04
It means after three and a half years, it’s a good chance that these loans are going up
26:08
6% to 12%.
26:09
On top of that, a number of the loans of the pools that I shorted went from interest only
26:15
to amortizing.
26:16
Imagine you have a 6% interest rate loan, three and a half years later, you’re amortizing
26:21
it at 12%.
26:23
Of course, nobody can afford.
26:25
The only way out is if housing prices keep getting higher and you can refinance, but
26:31
when I did this trade, only 11% of buyers in California could qualify for the median
26:37
priced home loan, means 89% couldn’t qualify.
26:42
Who is going to possibly push prizes for a lift?
26:45
Nobody.
26:46
That’s exactly what happened.
26:47
RAOUL PAL: You get through the housing crisis pretty well, and the value of your real estate
26:51
portfolio didn’t really suffer?
26:53
I guess single family homes got really killed in that.
26:55
JEFF GREENE: Yeah, everything dropped, I’d say, but apartment rents dropped 15%, 20%
27:00
in LA and the value’s the same.
27:03
The thing about LA, it’s a very supply constrained market.
27:07
Even in the worst crash, it never really that bad.
27:09
It was bad in the early ’90s.
27:10
There was such an enormous overbuilding, there wasn’t any overbuilding going into 2000 into
27:15
this crash.
27:16
There was no overbuilding at all of apartment buildings.
27:19
It was a very tight market.
27:21
Of course, people, the economy get bad so rents dropped a little bit.
27:24
It was no big deal, then they came back immediately.
27:28
RAOUL PAL: Then after that housing crisis, and that was the financial crisis, what opportunities
27:34
did you see?
27:35
Because a guy like you sounds like you would have been looking for opportunities in there.
27:37
JEFF GREENE: Well, it’s interesting.
27:39
What happened was I’d never been married.
27:41
I met my wife in the summer of ’06.
27:43
’06 had a pretty good, spring, summer when I did subprime short in April, I met my wife
27:48
in June.
27:49
That’s a pretty good period and I’d never been married.
27:51
RAOUL PAL: Mike Tyson’s party, is it?
27:53
JEFF GREENE: Mike was actually on a boat I owned in Sag Harbor for his 40th birthday.
27:59
I’m like a guy who likes to really figure things out and really plan things out, that
28:04
are going to happen, I don’t know, like depend on random circumstances.
28:06
I don’t go to Vegas and place bets on things.
28:10
I’m really pretty mathematical serious.
28:13
Meanwhile, how do I met my wife?
28:15
I’m having a crazy party for Mike’s 40th birthday.
28:19
Friends of mine go get a DJ.
28:21
DJ says, can I bring a few hot chicks?
28:24
Walked in with the DJ.
28:26
It ended up that’s the mother of my three children, go figure it out.
28:31
You know the plans you have, they sometimes are funny.
28:34
Anyway, so what happened is, so I met my wife that summer, summer ’06, and then we ended
28:42
up getting married in September of ’07, and she’d been living on the East Coast and in
28:47
truth, I knew I was cashing out the subprime debt anyway and I was thinking, you know what,
28:51
I’m going to have 100– I could save 100 million dollars in state income tax if I live in Florida
28:57
versus California.
28:59
The point is I was only in LA three or four months a year, because I was on my boat a
29:02
lot, traveling, so it wasn’t like I was– had kids in school.
29:07
I was only there part time, so I said, and I was already in Florida a month and a half
29:10
a year because I had my boat or something and I went, let’s spend a couple more months
29:13
in Florida, one month in LA and I’ll save 100 million dollars and I’m not doing anything
29:18
illegal, everybody gets that’s the law.
29:20
We end up moving to Florida, getting a place in Miami and this is in early ’08.
29:28
At that point, everything was a mess.
29:31
RAOUL PAL: Miami got murdered in that.
29:33
JEFF GREENE: Interesting enough, well, you couldn’t get anything in Miami because what
29:36
happened is I’d be driving around and I’m giving up, I’ve got like, I’m a real estate
29:40
guy, who truthfully never had any money.
29:43
You don’t go from zero to eight to a billion dollars with a real estate with no investors,
29:48
and no partners and have cash in the bank.
29:49
You do that by you refinance a building, 15 minutes later, that build money is due to
29:54
buy another building.
29:55
It’s like literally you got enough money to pay for lunch but not much else.
29:59
I’m cash poor, asset rich my whole life because I was always moving around.
30:05
Now all of a sudden, I’m sitting with either a million dollars of cash and the real estate
30:10
market has collapsed and everything’s– I’m thinking like, wow, this could really be a
30:15
lot of fun for me, instead of being like all my peers, struggling, I’m just the guy with
30:19
the money.
30:20
What a great reversal that was.
30:21
RAOUL PAL: Somebody told me once very early my career, he said, listen, there’s one piece
30:25
of advice.
30:26
He who has cashed in the recession is king, and it’s so true because then you’ve got the
30:30
opportunity that nobody else has got.
30:31
JEFF GREENE: Anyone else– it’s not saying that like I didn’t need to make more money.
30:34
It’s really more that also, it’s just so much more relaxing years I have in liquidity.
30:40
Just in general, even forgetting opportunity, just not having– it’s nice to build a business
30:45
and grow, and not have partners or investors to worry about, but it’s stressful constantly
30:50
trying to move things around and depending on loans and refis.
30:56
It was certainly like I saw in Miami, I’m there and I’m driving around like some– I’m
31:01
a deal junkie and I’m a serial entrepreneur, I’m looking around and I see all these big
31:04
buildings with all these low lights on and I see all these empty lots next to the big
31:09
buildings.
31:10
I think, how do I get some of these and nothing’s available because it’s early ’08, and they’re
31:15
in the bank portfolios, nobody’s sure what’s happening.
31:19
Then, but we moved here in December of ’09 to Palm Beach.
31:24
By the time we moved here, it was just the time I’d say like 2010 when the property started
31:32
getting sorted out, the lender started getting control of them and they were starting to
31:36
liquidate them.
31:38
I started buying here very aggressively.
31:39
I bought this hotel.
31:40
I bought the note here and foreclosed on it.
31:43
This hotel, I think it cost the former owner, it was over 100 million dollars, I bought
31:48
the note for 41 million from UBS and all kinds of fractured condos and land and it was really,
31:58
there’s a lot of opportunities in this market.
32:01
Originally, I was coming here just thinking, okay, I’m living here in Palm Beach, I’ll
32:05
do a few things to make some money.
32:08
I thought they’ve really great values.
32:10
I didn’t really necessarily think it was a great place to do deals, that it was a good
32:14
place to do deals.
32:15
Then the more time I spent here, realize this is just a great place to live, a great place
32:20
to invest, a great place to develop.
32:22
I was able to snap up all these great opportunities.
32:24
RAOUL PAL: Then the whole hedge fund industry moves here.
32:28
The whole of Greenwich turns up here, and that’s going to help you, the hotel, and of
32:31
the neo taxes and the big move here.
32:34
JEFF GREENE: I don’t think it’s as big as people think.
32:36
As soon as you talk to people in business, first of all, hedge fund people, how many
32:41
do they employ?
32:43
First of all, the kinds of hedge funds that come here, the little ones are on office,
32:47
they have a satellite office.
32:48
RAOUL PAL: Yeah, because people like Paul come here and it’s just him, he stays in his
32:51
office and he didn’t bring any employees then.
32:52
JEFF GREENE: No, of course not, because everyone says us, from these big business developments
32:57
had said, we’ve got all these hedge funds to move.
33:00
People and hedge funds, first of all, if you have a hedge fund in New York City, you’ve
33:03
got mature, serious people, have wives and parents living there and kids in school and
33:10
country clubs.
33:11
They’re not just going to, hey, guys, let’s all moved to Palm Beach, okay, we’ll all just
33:14
go there.
33:15
RAOUL PAL: It’s only the founders and the owners who come down here.
33:16
JEFF GREENE: Of course.
33:18
It’s hard to come here because they still have to keep their presence because people,
33:23
it’s not that that people don’t like, it’s a great quality of life but people have commitments,
33:27
not everybody don’t just going to pick up and moved and uproot themselves.
33:30
You really haven’t seen that.
33:32
On top of that, those aren’t the kinds of companies that employ large numbers of people
33:37
like LA, you got like Snapchat, they open an office, and they employ– they have 200
33:42
people, rent 100,000 a year in one office.
33:45
Google, when those kinds of companies come into New York where I’m building a building
33:49
and about two blocks away, Google’s building a saying jobs terminal, you’re talking about
33:54
6500 jobs and I read the average pay is over $100,000.
33:59
That’s what moves as an economy here.
34:01
We haven’t really seen that.
34:02
RAOUL PAL: Talk to me about the New York real estate market, because I’ve been talking to
34:06
a few people.
34:07
Just the Real Vision offices are in New York and I’m there every two weeks, and there has
34:15
been one of the largest buildups of New York real estate, I think in history, has gone
34:20
in the last four years.
34:21
What do you about all of that?
34:23
What’s in your radar?
34:24
JEFF GREENE: I wish I had another deal I do.
34:28
I’ve just finished a 25-story building.
34:31
It’s when I started doing this, it seemed like a great idea.
34:35
The problem with real estate developers is one developer has a successful building.
34:41
It does really well and then there’s no regulation how many others can do it.
34:45
Then 15 other developers are hired to do the same building and everyone thinks, well, I’ve
34:49
got a better architect, I’ve got a better view.
34:52
I’m a smarter developer.
34:54
Then you end up with 20 buildings, and there really were enough buyers for just the first
34:58
one.
34:59
I think in New York, that’s what have happened.
35:03
For me, look, I don’t use construction loans.
35:05
I don’t have investors.
35:06
I don’t have EB-5 money.
35:07
I don’t have limited partners.
35:09
I try to just do enough, that kind of development that I can afford to pay for with my own cashflow
35:14
and I’ll make it through this cycle.
35:15
I think it could be a long cycle.
35:16
The good thing about the building I’m building, lucky for me, is it’s in an area called Hudson
35:21
Square, which is a little– not Hudson Yards, but Hudson Square, which is a tiny pocket,
35:27
just below the West Village, above Tribeca, between Soho and the river so it’s really
35:32
a five-minute walk to West Village, Tribeca, Soho or the river and that was great because
35:37
you’re in the middle of everything.
35:39
What’s even greater is ABC Disney just in that is building right now.
35:43
The whole operation one block from my building on the same street, it’ll be ready in a few
35:47
years and then Google’s building St. John’s Terminal two blocks away.
35:53
We’re going to have 15,000 new jobs within two blocks.
35:56
That’s very lucky.
35:57
I think that I have to figure out how I’m going to make it till when we’re done in about
36:01
six months till three years from now when the neighborhood really comes into it, but
36:05
New York’s– you know what, you can’t bet against New York because isn’t even as bad
36:08
as it is.
36:10
Just those two projects in my neighborhood are going to have 15,000 jobs and I realized
36:16
the ABC people were working up in the Upper West Side, but those buildings solve a steam
36:21
bottom and they’re going to rebuild them into something.
36:24
New York is like it’s the greatest city in the world.
36:30
It’s our biggest city.
36:32
If you want to do certain things, you want the talent and the resource.
36:37
You want the infrastructure, that’s where you’re going to go.
36:42
Eventually, we’ll figure out a way to get past this cycle, I’m sure and all this real
36:46
estate, they will just– RAOUL PAL: How are you thinking of the real estate market overall
36:49
now?
36:51
I know you’re mainly focused here in Florida, I guess, for most of your investments and
36:54
some in New York, what are you thinking now?
36:57
What’s your senses?
36:58
Because you had amazing timing in 2006-’07.
37:01
JEFF GREENE: Look, I think there’s different kinds of real estate obviously.
37:06
Right now, I’m building a 300,000 industrial building here in West Palm Beach.
37:10
I feel very positive about that, because the movement is clearly towards more industrial
37:14
because everybody’s ordering on their computers and getting it delivered by Walmart or Amazon
37:19
so there’s tremendous demand for industrial space.
37:23
It depends on the category, I would say that the values of things like apartment buildings
37:28
that are in the three to four cap rates, and based on rents which have already gone up
37:33
for the most part a lot, seem pretty high.
37:37
It feels like we’re in an asset bubble in almost every category to be honest with you
37:41
and I think stocks are at an all-time high, bonds low, interest rates are low.
37:47
Those are all close to a high.
37:49
Real estate’s close to a high, and it’s interesting, everyone just seems to be very optimistic.
37:55
I just had lunch with someone today from Merrill Lynch, he was telling me how he thinks all
38:00
the smart people, they were just going to be fine because rates are low.
38:04
When everybody thinks things are going to be fine, that means everybody’s already in
and you’re not going to be so fine.

38:09
RAOUL PAL: That’s one of the things that struck me about Nome Goldsman, who we talked about
38:15
before.
38:16
Nome, he’s had to say he’s had had a sense of some of this.
38:21
His whole, he went over the hedge fund business and a lot of real estate and he ends up buying
38:26
fast food, businesses and frozen food.
38:30
He bought a huge chain of Burger King.
38:33
He built the largest frozen foods business in Europe, just looking for that anticyclical,
38:41
smooth thing.
38:42
It feels like it’s the time to be cautious when nobody else is.
38:48
JEFF GREENE: Yeah, but interesting enough, look, the other side of this, everybody’s
38:50
been saying that now for a long time.
38:53
RAOUL PAL: Yeah.
38:54
It’s been going on.
38:55
JEFF GREENE: People are sitting on a lot of liquidity, stay in the loop of liquidity,
38:58
though is coming from this– you’ve had a rigged economy for 10 years, where basically
39:02
with artificial– you have the central bank balance sheets adding, I don’t know what,
39:08
$15 trillion globally to their balance sheets, and you have rates held artificially at zero
39:14
for almost for a decade and now, again, very low and negative in Europe.
39:20
It obviously cause distortions in the market now.
39:22
I think everyone’s used to the distortions and figures the distortions will keep on going,
39:27
so everything will be just fine.
39:30
Who knows?
39:31
I don’t know if that’s going to– RAOUL PAL: What about the community here?
39:33
There’s a lot of hedge fund managers, a lot of people, entrepreneurs who’ve made a lot
39:35
of wealth, is their sense starting to shift?
39:39
Because some people I know are sensing shift and others are saying, no, still full on,
39:48
aggressive risk taking mode.
39:49
What do you think the mood is here?
39:51
JEFF GREENE: Everybody talks, everybody says you got to be cautious, but I think everybody
is also thinking I can’t– cash is trash.
We got to buy things.

Look, one of my biggest holdings is Apple.
40:04
It’s sitting at 1.3 trillion market cap, I get it.
40:09
It’s no longer a device company.
40:11
It’s now a platform that everyone’s on.
40:14
It’s now the telephone company when I was a kid, everybody has to have one and we’ll
40:18
keep getting them and buying these services.
40:21
The question is, what’s the value of that?
40:23
Is the value, is it more than 1.3 trillion?
40:27
If it’s less than 1.3 trillion, stabilize them, we’re all going to lose money in today’s
40:30
stock price.
40:31
I don’t really, obviously, if you could show me that earnings are going to keep growing
40:37
from today’s levels at that company and they’re going to be making– I guess they’re going
40:42
to have to make 100 billion dollars a year to trade at 13 times earnings, which is what
40:49
you’d want to be at some point, maybe not today.
40:52
It’s a lot of money to make, even a global company with the monopolistic platform like
40:56
the iPhone.
40:59
Who knows where these things are going?
41:00
That’s been real estate to me.
41:01
It definitely feels that a lot of good news are already out there.
41:07
Rents have gone up a lot.
41:09
Unemployment rate’s very low.
41:12
Just to be– I guess the question is how real is this global economy and how much of is
it rigged?

That’s the question.
41:17
If it’s real, and it can get a snide, you can do, we can rig things, but then the rig
41:21
timing can lead to real– RAOUL PAL: Well, the question is does rigging last?
41:26
What fragility is it building?
41:28
It’s like you talked about the SNL crisis.
41:30
That was a rigged situation where the SNLs were just because of the government irresponsible
41:36
of what they’re doing.
41:38
We’re seeing the central bank’s irresponsible with how money’s being thrown around the economy.
41:43
JEFF GREENE: Well, yeah, so no.
41:46
Look, if that’s the issue, like who knows?
41:48
The reality is, I can tell you this, up until two or three years ago, if we had employees
41:54
who in any way, were a substandard, giving us a hard time you’d said, bye-bye.
41:59
There’s another one waiting right now, starting about two years ago probably when Trump became
42:03
president, not because of Trump, I’m saying but at that time in the cycle, the way labor
42:07
market changed dramatically, all of a sudden, carpenters who are making 35 an hour are making
50 an hour and you can’t even get them.

All of a sudden, in hotel, workers that were making 10 an hour, make 15 an hour and wage
didn’t go up 3%, they went up 20%, 30%, 40%.
42:23
Pilots, I have a plane and my pilot salaries went up 30%, 40%, just like that.
42:29
What’s happened is all that liquidity has now led to increased wages.
42:33
Now if that’s just starting to happen, maybe we are more mid-cycle and then maybe we’re
not late cycle
because it– RAOUL PAL: If it filters through that is, because people
42:41
can raise prices in the hotel or whatever.
42:44
JEFF GREENE: It is filtering through because everyone’s making more money and Donald Trump,
42:48
lucky for him, gets to take credit for it.
42:51
Whoever the president at the time, he’s the custodian of the economy.
42:58
That’s what seems to be happening.
42:59
Now, I can’t tell you like it does– what’s the consumer debt levels, I don’t know that
they’re necessarily overextended.
A lot of people are refinancing their homes no with lower rates, their 401ks were on all-time
high, they’re going to spend money, it’s going to keep this economy moving.

What is an economy anyway?
An economy is it’s a perception and so that’s why people are so confused, because you look
at the reality of all this funding money voodoo stuff going on, and you think, is it real,
but then you think at the end of the day, if everybody believes it’s real and they’re
out spending money, it becomes real.

43:38
RAOUL PAL: Outside of Apple and real estate, what do you invest in?
43:41
Do you have gold, do you think about gold?
43:43
JEFF GREENE: I don’t really, I don’t own gold.
43:45
Because we have a lot of real estate, which is a hard asset, we have a nice art collection,
43:50
which is a hard asset.
43:52
I’ve other, Alibaba is a big possession of mine, Google’s a big position of mine.
43:56
I tend to lay down to one of those tech stocks.
44:00
I have to own the banks and others, too.
44:03
I have a lot of liquidity right now to me, honestly.
44:06
A big chunk of money sitting in a lot of them in these bank prefers that I know are going
44:11
to get taken out because they’re about to roll into very high spread preferreds.
44:19
I’m sitting on a lot of money making 1.7% to 2%.
44:24
I’m happy with it.
44:25
I’m thinking like you know what, when things that move– I often look at a time in the
44:29
cycle, I’d say is morally, if you had to make one bet, it’s two choices.
44:33
Things are going to be 20% higher than today or 20% lower than today a year from now, two
44:37
years from now.
44:38
I think most smart people would say the better chance, they’ll be 20% lower because of where
44:43
we are.
44:44
I’m happy to sit in market, plenty of liquidity.
44:47
Look, everyone’s different.
44:49
If I were 25 years old, maybe I’d filter.
44:51
I’m 65 years old, I’m not assuming and if I have any trouble, I’d be worried but I’ve
44:55
already had that.
44:56
I’m basically just being cautious and I’m ready to have the liquidity available.
45:00
If there’s great opportunities, fine, if not, then I can live fine on my assets and make
45:05
2%.
45:06
RAOUL PAL: Talk to me about your other interests, the institute you set up.
45:09
JEFF GREENE: That was set up because five or six years ago, I could see that a country
45:16
that was solving its inner world, that was solving its problems only with monetary policy,
45:22
was going to leave behind a lot of people and I could see it happening.
45:24
You could see that those were the assets– RAOUL PAL: Is this when you were involved
45:27
in politics as well at the time, or?
45:29
JEFF GREENE: No, I’ve been involved in politics a few times, I actually have lost.
45:32
It’s funny, people say that you learn a lot more from your mistakes than in your successes
45:37
so I must be an expert on politics then because I’ve lost three, three out of three.
45:40
Obviously, I must really be smart in that space.
45:45
I think that you could just see because I could see that wages– I could see as owning
businesses that wages were not going up at all.

45:53
All of this with assets, saw our value’s going up, because with low interest rates, real
45:58
estate prices go up, stock prices go up, bond prices go up, those were the assets who’re
getting richer, those with labor were not getting richer, were struggling.

46:06
I said, this is unsustainable.
46:11
On top of that, with what was happening with technology and AI and machine learning and
46:17
how that was driving people out of the worst workforce and would cause some big disruptions.
46:23
We started a nonprofit and we’ve had some really stimulating conferences, in which we
46:28
brought together some very smart people with Ray Kurzweil, a Tom Friedman, and Larry Summers
46:33
and Tony Blair, and David Cameron’s been here and they’ve all come right to this hotel and
46:38
we’ve had some talk in the old education.
46:41
The list goes on, super smart people convening together to really talk about the future of
46:47
work.
46:48
Again, as I said earlier in this interview, I have a personal experience with what can
46:56
happen to somebody when their work life changes because of my dad.
47:01
I’m very sensitive to that.
47:03
I have friends, honestly, who were highly educated, who have been marginalized and lost
47:07
their jobs and never gotten jobs again.
47:10
If you lose your job and you’re in your 60s, you really got to go get retrained to become
47:16
a welder.
47:17
Of course, you can’t do that.
47:19
I really think that we are going to have a lot of disruptions and we have a lot of work
47:22
to do.
47:23
We talked about that.
47:24
We talked about education.
47:25
I don’t know if you know that we started a school in West Palm Beach.
47:29
We basically were– I have three young boys and we were frustrated with the private and
47:33
public school options so we started the Green School.
47:37
If you ever hear and want to see it, we have to take you by, it’s up to just under 130
47:42
kids, pre-K to eighth grade.
47:44
That school really embodies what I’m talking about and that we want our children to develop
47:50
a love of learning because we realized that kids today were going to going to graduate
47:55
15 years now or five years from now may have five, six, seven,10 career changes and they
48:01
may have to constantly learn and relearn, they can’t hate learning, they have to love
48:06
learning because they may have to learn new skill sets throughout their lives.
48:10
We’ve also have a focus on getting kids digitally influenced.
48:12
They start doing coding in kindergarten like kid coding exercises all the way to building
48:17
robots in the fifth and sixth grade.
48:20
We have enough emphasis teaching the whole child so we have met mindfulness and yoga
48:25
and dance and art.
48:26
We’ve really tried to create– and it’s a nonprofit school.
48:31
My wife and I funded it 100% ourselves.
48:35
We give financial aid so kids pay what they can’t afford what the computer says they can’t
48:41
afford to pay.
48:42
It’s 30%, 40% get financial aid and it’s been very fulfilling for us, as you can probably
48:49
see from our [indiscernible].
48:50
RAOUL PAL: Yeah.
48:51
How do you think we’re going to resolve this rich/poor divide?
48:56
Because it is not getting better.
48:58
Yes, there’s some marginal wage growth, late cycle wage growth that we talked about, but
at a structural level, we’ve still got a huge problem.

49:07
The Fed injecting more liquidity and stock prices exploding higher and your Apple shares
49:11
got 35%.
49:12
JEFF GREENE: Apple’s doubled in the last year.
49:15
RAOUL PAL: Yeah, doesn’t help the average guy.
49:19
How do you see that resolving?
49:20
You’re getting all these people together, they’re talking about it.
49:23
Are they talking about it?
49:24
Is somebody thinking, because you’ve got Trump on one side, you got Bernie Sanders on the
49:29
other.
49:30
That’s how split this is becoming.
49:31
Someone’s got to find a solution somewhere.
49:34
Because if not– JEFF GREENE: We know that the Bernie Sanders socialism doesn’t work.
49:39
As they say, certainly in socialism, the poor will be richer, but you’re not going to make
49:46
the poor richer by making the rich poorer.
49:49
Basically, to me, I think the first thing is education.
49:52
That’s like the absolute no brainer.
49:55
Right now in this country, 14% of Americans are illiterate.
49:59
Now, if you’re illiterate, it’s not an issue.
50:02
It’s not about an income gap.
50:04
It’s about a possibility of you moving forward, it’s virtually impossible.
50:09
We’ve really failed in our education in this country.
50:11
I think that’s the first thing.
50:14
I think that– because you can’t even be as happy if you’re not educated.
50:18
Even if we created a society that people talk about where you have this, you have unlimited
50:26
resources, people only have to work 20 hours a week because you figure out a way to make
50:30
your food more efficiently and your housing, your 3D printing houses don’t need people
50:34
to do stuff.
50:36
If you’re not educated, how are you going to spend your life?
50:39
You can only have opiates, so you’re going to do drugs and drink?
50:42
I think being educated gives you the opportunity and I’m like to do better but to enjoy and
50:47
to thrive in your life.
50:49
I think that there are great examples of successful educational improvements in American.
50:55
States like Massachusetts and New Jersey actually has gone from 35 to three in the country in
51:00
public education by doing a few simple things.
51:02
Two years of pre-K for every child, because like in a lot of the states in the country,
51:07
these kids don’t even get any preschool education at all hardly.
51:11
Then they show up at kindergarten and they have a multi-million word vocabulary deficit.
51:17
You start behind, you stay behind, and I think we’re really failing our children in this
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country.
51:22
That’s the first order of visit.
51:23
If I was president of states, that would be my number one priority.
51:27
Get our kids educated competitively, because if they’re educated then at least we can compete
51:31
with whatever there is in the world.
51:34
Then how do you deal with solving the issue of jobs where we want people to feel good
51:41
about their upward mobility?
51:43
A lot of that, to me is a function of where we are in our cycle.
51:47
People don’t talk about this much, but my grandparents, like most people my age came
51:52
from Eastern Europe or another country.
51:55
Most definitely they were poor, everyone was poor.
51:57
Nobody came with any money.
51:58
They came with a shirt on their back and a dream.
52:01
The only dream my grandparents has probably that my parents will be able to have on their
52:05
table, nothing more than that.
52:06
There’s more than they had when they were in Eastern Europe and maybe a place to sleep
52:11
that was safe and clean.
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Then what did my parents want for their kids?
52:16
They wanted their kids to be able to have every opportunity to follow the other Americans
52:19
who’ve been in for generations.
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They fought hard and worked hard so we can go to good schools, and we had great public
52:25
schools as kids and great, great colleges.
52:27
What do we want for our kids and as it goes forward what?
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The level expectation keeps getting higher and higher, and no one talks about that, but
52:36
from my grandparents’ generation to my kids’ generation, their level of expectation is
52:41
much, much greater for the kids.
52:43
Meanwhile, what’s happened is when my grandparents, after two world wars, we destroyed the industrial
52:49
complex of our competitors.
52:51
We were this global superpower with unlimited numbers of jobs and opportunities when people’s
52:57
expectations were here.
52:59
Now, we’re in a very globally competitive economy where we have to fight with much hungrier
53:05
countries around the world and their explanations are here.
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You say, well, how do you fulfill their expectations?
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It’s a lot harder.
53:13
I think the first thing is get our kids educated so they can be competitive globally.
53:18
Then just try to figure this all out, but it’s going to be a tough challenge.
53:23
I think it’s something– it’s the issue of our time.
53:25
The issue of our time.
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RAOUL PAL: Yeah, I think it is.
53:29
I think politics remain pretty volatile until we figure out some of this stuff.
53:33
I think that seems to be a part of our future that we’re dealing with and it’s across all
53:38
the Western world and a lot of it is transition of the baby boomers, your typical, the baby
53:43
boomer, generation of the baby boomers.
53:46
That generation and the impossibility for the younger people to better afford even the
53:50
housing.
53:51
JEFF GREENE: I really believe we’ll figure it out.
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It’s interesting.
53:55
Whenever I get pessimistic, I always think of our friend, Warren Buffett.
53:58
Warren Buffett, we’ve got to know, he’s members of the Giving Pledge, and we’re sitting around
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a table with them in recent June and, or in late May, we’re talking and somebody said,
54:05
Warren, has it ever been this bad?
54:09
The antagonism and the divisiveness, and he said, these are two things that I have lived
54:15
through for 15 presidents, 14 I invested with.
54:18
He said, seven Republicans, seven Democrats, and there’s no place in America.
54:23
The whole world wants to come here.
54:25
Don’t bet against America.
54:26
Then he said something else, he said, I’m 88 years old, three of my lifetimes, which
54:31
is 264 years, in three of my lifetimes ago, there was nothing here.
54:36
It was dirt roads, and Indians and cowboys driving around and riding around the horses.
54:40
Look at what this system has done here.
54:43
Look what we’ve built.
54:45
In the same, you could say the same for the European countries and the whole Western world,
54:49
and so in the end of the day.
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RAOUL PAL: It’ll figure itself out.
54:52
JEFF GREENE: Yeah, the ship will start to drift a little bit, but we always ride it
54:56
and I think we’ll figure out these issues and this system works.
55:00
If we just stay with our system, there’ll always be people like me who are aggressive
55:05
entrepreneurs, are trying to create and build things.
55:07
There’ll be other people who are more mellow and just want to make a living.
55:11
There’ll be other people who are creative and artists, and they’ll be like you who are
55:14
trying to build your journalism, your media business.
55:22
I think we’ll get through this just fine.
55:24
That’s my view.
55:25
I don’t know.
55:26
RAOUL PAL: Jeff, that’s a perfect way to end.
55:27
Thank you ever so much for giving an optimistic ending amongst all that.
55:30
JEFF GREENE: I really believe it.
55:31
RAOUL PAL: Thank you.
55:32
Thank you.

Washington as Land Speculator: Library of Congress

In 1752 Washington made his first land purchase, 1,459 acres along Bullskin Creek in Frederick County, Virginia. This act inaugurated the second and more profitable phase of his cartographic career, in which he assumed the role of land speculator. Over the next half century Washington would continue to seek out, purchase, patent, and eventually settle numerous properties. His will, executed in 1800, lists 52,194 acres to be sold or distributed in Virginia, Pennsylvania, Maryland, New York, Kentucky, and the Ohio Valley. In addition to these properties, Washington also held title to lots in the Virginia cities of Winchester, Bath (now Berkeley Springs, West Virginia), and Alexandria, and in the newly formed City of Washington.

In 1758 Washington left military service and returned to civilian life and in January 1759 married Martha Custis, a wealthy widow. No sooner had the couple settled at Mount Vernon, which had become Washington’s home, than he begin to expand the estate. In 1760 a neighbor, William Clifton, approached Washington with an offer to sell a 1,806-acre tract on the northern border of the estate, and the two men settled on a price of £1,150 sterling. Shortly afterwards, however, Clifton agreed to sell the same tract of land to another neighbor, Thomson Mason, for a slightly higher price. Despite Clifton’s original agreement and a series of angry letters, Washington eventually paid £1,250 sterling to secure the land for himself.11 The area became the Washingtons’ River Farm.

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Western Lands and the Bounty of War

Washington’s lifelong interest in land speculation is illustrated in the fight over bounty lands promised to the veterans of the Virginia Regiment who fought with him in the French and Indian War. In this episode Washington acted on behalf of his fellow veterans as well as vigorously, sometimes aggressively, in staking out his own land claims.

In 1754, Lieutenant Governor Dinwiddie issued a proclamation designed to encourage enlistment in the local militia for the war against the French. In addition to their pay, those who enlisted in Lieutenant Colonel George Washington’s fledgling Virginia Regiment were offered a share in two hundred thousand acres west of the Ohio River. Unfortunately for the men who fought under Washington in the Braddock and Forbes expeditions against the enemy at Fort Duquesne, they were not to see these bounty lands until more than twenty years had passed, during which time Washington led the struggle to secure their title.

At first, the formal conclusion in 1763 of the worldwide war between Britain and France, of which the French and Indian War had been a part, aroused hope that the land would be quickly granted. These expectations were overshadowed by the Royal Proclamation of 1763 which (among other provisions) forbade colonial governors from issuing land grants west of the Allegheny Mountains. Yet Washington chose to forge ahead, as evinced by a September 1767 letter to William Crawford, a Pennsylvania surveyor:

. . . I can never look upon the Proclamation in any other light (but this I say between ourselves) than as a temporary expedient to quiet the minds of the Indians. It must fall, of course, in a few years, especially when those Indians consent to our occupying those lands. Any person who neglects hunting out good lands, and in some measure marking and distinguishing them for his own, in order to keep others from settling them will never regain it. If you will be at the trouble of seeking out the lands, I will take upon me the part of securing them, as soon as there is a possibility of doing it and will, moreover, be at all the cost and charges surveying and patenting the same . . . . By this time it be easy for you to discover that my plan is to secure a good deal of land. You will consequently come in for a handsome quantity.12

Washington was clearly willing to take considerable risks in seeking out choice land for himself. In the same letter, however, he warned Crawford “to keep the whole matter a secret, rather than give the alarm to others or allow himself to be censured for the opinion I have given in respect to the King’s Proclamation.” He concluded by offering Crawford an alibi should his behavior be called into question. “All of this can be carried on by silent management and can be carried out by you under the guise of hunting game, which you may, I presume, effectually do, at the same time you are in pursuit of land. When this is fully discovered advise me of it, and if there appears a possibility of succeeding, I will have the land surveyed to keep others off and leave the rest to time and my own assiduity.” In fact, the letter marked the beginning of a very profitable fifteen-year partnership. Less than two weeks after he had received it, Crawford informed Washington about several tracts in the vicinity of Fort Pitt, and the two men continued to collaborate until Crawford’s death in 1782.