CW 688 FBF - A Heist in the Federal Reserve with Matthew Quirk NY Times Best-Selling Author of ‘Hacking the Fed’, ‘500’ & ‘The Directive’

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Our great podcasts, visit hartmanmedia.com hey, this is Jason Hartman. Thank you so much for joining me. Do you know what day it is? Yes. It is Flashback Friday where you hear the best of the Creating wealth show and you hear some good prior episodes, some good review. Remember, we've got almost 500 episodes out. And you know what? ITunes doesn't even hold them all. If you're an itunes listener, if you are listening on Stitcher. Thank you for joining us. So we want to bring you some good review stuff. Now, what's interesting about Flashback Friday? It's a little scary for me. I got to be very, very candid with you on that because you, the listener, you get the chance to hold my feet to the fire. Did I make any predictions? Was I right? Was I wrong? I've been right about a lot of things, but I've been wrong about a but. It's Flashback Friday and we will give you the uncensored best of the Creating wealth show with a prior episode. So let's dive in. Here we go. Remember, this is not current. It's Flashback Friday.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Thank you so much for joining me today. And today we're going to talk about hacking the Fed. We're going to talk with Matthew Quirk, whose latest project is entitled the Directive. And I think you'll find this to be very interesting and frankly, rather scary how something like this could happen or does happen all the time. Maybe we'll see what Matthew says about that and talk about something that affects all of us. It's pervasive. I mean, the Federal Reserve is such an incredibly powerful entity. Literally, it touches almost everybody on earth. That's how powerful our central bank is. And certainly if the Fed doesn't touch every single one of the 7 billion people or so on Earth combined with the cartel of all the other central banks, you've pretty much got the planet covered here, except for few lost tribes that don't participate in the economy. But there's, there's hardly any of those anymore. And I would, I would argue that it even affects them. No one is unaffected because you can't be completely isolated anymore in today's interconnected world. It's just not possible. Before we do that, though, we're going to talk about 1984. And no, I'm not talking about the Orwellian version of 1984, although it's an auspicious year to pick for what I am going to talk about because so much of society has become rather Orwell.

Have you noticed that there's a camera everywhere looking at you nowadays? Have you heard about the NSA? Of course you have. So we'll talk about 1984, but not Orwell's 1984 in just a moment here. But first I want to just tell you about some of our upcoming episodes. Next episode number 397 will be Forbes writer Rich Karlgard, and he'll be talking about the soft edge and what's going on at Forbes and the economy and so forth. And then398, Zach Bessonnet, some good advice from Bass people. That's an interesting interview. And then 399 will be bill Cheney with John Hancock Financial and we're going to talk about the economy and some interesting stuff there and how it impacts investors. And then number 400, our 10th episode for episode 400 will be Dan Millman, author of the Way of the Peaceful Warrior. Such a famous book, millions and millions of copies sold in many, many languages. And a great movie, I must say. It's funny how you always hear the intellectual snobs say, well, the book was. Every time a book is turned into a movie. And with this one, I don't know, look it up on your Netflix queue and order a copy of the Peaceful Warrior movie because it is excellent, I must say. Remember, you're listening to Flashback Friday. Our new episodes are published every Monday and Wednesday. 401 it'll be just yours truly with a guest possibly. And then number 402, Christopher Barnett. We're going to about the future and how that impacts us, especially about 3D printing and computers. And it's amazing tonight I saw the movie, Lucy. Have you seen that movie, Lucy? I don't think it was any great movie by any means. But I will say that the subject matter was Quite interesting. And I'm noticing there's a lot out about increasing the power of the mind and about technology in the future and all of us becoming superheroes. And we had Steven Kotler on the show, the co author of Abundance the Future Is Better Than youn Think. The. The book he co authored with Peter Diamantis. And he's out with a new book entitled the Rise of Superman that is about the subject of flow. And he documents it pretty well. A subject that really I don't know if too many people have ever covered. Oh gosh, forgive me, I'm gonna butcher this name. But there's a book entitled flow from maybe 15 years ago by Csikszentmihalyi. Believe that as a Czech. It talks about being in this state where you have superpowers where you don't think about things, they just come to you because of flow. You know, Steven Kotler's new book is pretty interesting. I invited him back on the show. We didn't schedule a date yet. But that's what that movie Lucy is about. And if you remember, there was another movie, it wasn't too famous. What was it called about that, that super drug. Oh gosh, I'll think of it later. You know, one of our listeners, I'm sure, I'm sure you guys have remembered this movie. Anyway, it's on Netflix also and it's just about bec superpowered and the power of the mind and the incredible power that is so untapped within us. So interesting stuff there. And the future is just gonna be, I mean, amazing. There is amazing stuff going on right now. I think we are at the point of massive, massive amounts of convergence in technology. And as I've said before, I credit a lot of this to the smartphone revolution. Of course originally launched by Apple and the iPhone, but many other great smartphones have come along then, you know, I think we're going to be seeing an iWatch here pretty soon. And you know, wearable computers, Google Glass never quite caught on one of the cars that I'm looking at thinking of buying a new car here actually has Google Glass integration. So Google Glass integrates with the car and of course the car can be turned on and off and you can set the temperature in the car with your mobile app on your smartphone. The car practically is driving itself now. And I've talked many times about self driving cars and what I think just an amazing, amazing revolution. It's going to impact real estate pretty significantly. I've mentioned it before but you know, when I went to Cleveland recently to meet my mom before her surgery at the Cleveland Clinic. Just a few weeks back, I considered driving to Cleveland and I looked it up on Google Maps and it takes 31 hours, which in my opinion is way too long to be driving. But I'll tell you, if I had a self driving car, I would think quite differently about that. Think about what that means for expensive real estate areas where real estate is really expensive. If transportation becomes automatic, if you can just get in a car and sleep or rest or meditate or do yoga or work on your laptop or read a book or play with your dog, that changes everything. And the only condition, I mean the self driving car is upon us. Nowadays these cars pretty much drive themselves on the highway with laser assisted cruise control and braking and lane departure systems that will keep the car in the lane. It's amazing. And of course Google has developed the car that will drive on surface streets. So it's an incredible time. But think about what this means, like do you really have to live in an expensive place like LA or Orange county or San Diego or San Francisco? It's nice, but the economics change. I mean, are the economics really there? If you can just live in an outlying area and jump in your self driving car and be there in 45 minutes and if other cars are self driving, really that could massively reduce, if not eliminate traffic. And I remember when I was a little kid reading about how self driving cars would make it so that you could drive or the, I should say the car could drive miles an hour, one foot distance from the car in front of you, from that car's bumper because all the cars would operate together in a network fashion. So you know, the old rule is, and well, it's the current rule still folks, it's the current rule is that you should have one car length for every 10 miles per hour of speed. So if you're going 80 miles an hour, you should be eight cars behind the car in front of you in order to stop quickly enough and react quickly enough. That's the minimum distance distance. Of course, more distance is even safer. But if, if the cars are all computerized, I don't just mean some cars, you know, maybe your car is a self driving car, but the other cars aren't self driving. But when they all get to the point where they're all self driving and they're all tied into a network and they're networked together so the cars become incredibly smart where your car is talking to the car in front of it and the car behind it and all the other cars in its area. Wow. I mean, incredible what you could do. You could virtually eliminate the concept of traffic. Look at the roads are big enough to handle a lot more traffic. Problem is that when one car slows down or changes lanes, it messes everybody else up because the cars aren't acting in a network fashion. And of course, when an accident happens, that really fouls things up. Amazing things. And I know there are spooky and ominous sides to this. I get it completely. You know, cars, like any electronic device, can be hacked. You know, people will hack your car and maybe they'll drive you off a cliff. I don't know. You know, I'm sure we're going to have some ugly stuff go on. Of course, it has very ominous things when it comes to the government and the disgusting spying that's going on with the NSA and so forth, and how the government will be hacking into our cars and so forth, and hopefully liberty and freedom will win that war. But, you know, that remains to be seen. But in either case, when it comes to economics and when it comes to investing, so many things are an absolute disaster. It really looks like the only way out of this mess, only way out is to inflate our way out of the debt because we are spending so much more than we are taking in as a country. And when you look at the gross domestic product, the gdp, and you look at that compared to population increase and the rate of inflation, we have negative gdp. The economy is getting smaller, not larger, when you look at it in real terms with the proper adjustments. So that's leaving a lot of people out. And what will happen with robotic technology now? There are many people who I think, by the way, are very wrong. I think they may be right. For short bursts of time during transition phases, these people think robotics will cause massive unemployment and massive civil unrest because they will displace many workers. I remember reading predictions back from the early 70s when they talked about how technology and computers and automation would basically make it so people only had to work three days a week. Well, you see how wrong that prediction was, right? We're all working more than ever. And the boundary between work and play or work and rest, it's all been totally blurred because we're so connected now with technology. In fact, most of us, at least yours truly. But I think there's a lot of people here have become rather addicted to being connected. I mean, I like being connected. I don't know about you. I find it pleasurable to be connected, frankly. You know, when I Want to know something? I want to just look it up. I want to know about it if I hear a word. I want to know if I hear about a concept or an idea or want to look up personality or someone who's making news for one reason or another. I want to look it up right then. I don't want to be unconnected. This whole idea of being on a desert island and being disconnected and unplugging, I kind of don't get it. I personally think life is about learning and growing and experience. And part of that, a big part of that learning comes from being connected to the most incredible knowledge base we've ever had in human history. And that is, of course, the Internet that Al Gore jokingly, of course, invented. Al Gore likes to take credit for that. Of course, Mr. Hypocrite. Al Gore, one of the biggest hypocrites, I think I know. But anyway, I digress. Okay, so let's look at 1984 before we go to our guest today. 1984. Why did I pick this year? Well, it's somewhat arbitrary, but I think it's kind of interesting. It's the Orwellian year, so it's a good year to pick in 1984. Let's look at a few things that were going on. Let's look at some things that were making news, and let's look at the prices of things and let's compare them today and let's talk about how that impacts you as an Investor. Well, in 1984, after 37 weeks, Thriller was knocked off the top album list by Footloose. Remember Footloose? That was about my adult hometown of Orange County, California, where fun is almost illegal. The town of Footloose, where you can't dance because dancing is illegal. Just a reminder, you're listening to Flashback Friday. Our new episodes are published every Monday and every Wednesday.

That same year, IBM released Ms. DOS. Remember, DOS? D O S stands for Disk Operating System version 3.0. Kathy Sullivan became the first US woman to walk in space. And the Vietnam Veterans Memorial was finally completed. Wow, that took a long time, didn't it? Check out some other things here. Great Britain agreed to return Hong Kong to the People's Republic of China under the condition that Hong Kong maintains its capital system. Well, China's a pretty capitalist country, so, you know, forget about that communist label. They're pretty capitalistic if you ask me. Okay, so of course the late, great Ronald Reagan was. Was re elected. He defeated Walter Mondale. Mondale. What an unimpressive guy he was, huh?

And check this out. In the world of technology, which we all thought was incredible back then, Sony manufactured the world's first portable one piece CD player. Yes, the CD Walkman. And I remember when I got one of those, and I was so excited because it wasn't a tape. The sound was so much better. And I could go skateboarding or rollerblading. Rollerblading used to be kind of in back then. Isn't it funny how these sports go in and out of style? That one went away. At least I think it did. I don't know. And I could listen to my CD player. Now, of course, it's quite a bit better. You can listen to my podcast on your ipod or your smartphone. Cosby show was a big deal. Family Ties was a big deal. And Knott's Landing was a big deal in 1984. And in sports, U.S. world Series champions, the Detroit Tigers, U.S. open. For golf, that was a good old fuzzy Zoller. And pro football champion was the LA Raiders, okay? And now, you know, LA can't even get unified enough to have a football team. Let's look at the money side of this, okay? Let's look at some cost of living stuff from 1984. And I'll bet you most of our listeners remember 1984, okay? Because I'd say our average listener was probably born, I'm gonna say, in the 70s, but I don't really know. I mean, all of You People in 164 countries who are listening to my show, you know, we don't really have much in the way of statistics on you. We would love to have that. You know, when you become clients of ours and you're buying investment properties through us, then we get to know you a little better. But empirical, cold, hard stats, boy, we'd love to have more of that. Okay, so check this out. Cost of living in 1980. A new house would cost you $86,730, while the average income, get this, was 21,599 per year. The typical new car would cost you $8,700. The average rent was $350 per month. Now, wait a second. You must be thinking, hey, Jason, let's apply some of your numbers back to 1984, okay? The average house was $87,000. We'll round it off. So at a 1% RV ratio, how much should you get every month from that house? Well, you should get $870, right? But the average rent was only $350 per month. So either this survey is really Weighted by looking at expensive markets. Because that's about the same picture you have in Los Angeles.

Almost the exact same picture in an overpriced market like la. And I'm only picking on LA because I grew up there. There are many other overpriced, nonsensical markets around the country, but I'll pick on LA because I grew up there. And I remember when my mother bought her first house in Los Angeles that she still owns. It's on Kelton Avenue. I lived in that house for a while. And I remember she paid $62,500 for that two bedroom, one bath, crappy house that was probably built in the 40s or maybe, maybe the 50s. Probably the 40s. I think she bought it from a guy named Jerry for $62,500. And she still owns that house today. And get this, this is going to be really instructive because that house is worth somewhere in the neighborhood of $800,000 today. And I don't know exactly what it rents for, but I, I'm, I think it rents for $3,300 per month. You know, why does mom still own that house? The depreciation schedule has run out completely because she's owned it for more than 27.5 years. The RV ratio is terrible. Well, you know, old dogs, they don't want to learn new tricks, right? And mom is getting it slowly. And we've talked about mom many times and she's been on the show and this is an ongoing debate that we have. But you know, again, having a lot of equity in your real estate makes you a bad manager. Why does it do that? Because the debt is not there. It doesn't put the pressure on you to really get the, get the high rents out of your properties and get high good RV ratios. But isn't it that interesting that that house is worth 10 times, just about 10 times the 1984 house, and the rent is about 10 times the average rent back in 1984. It's like almost an exact 10x equation, but the equation still doesn't work. The tuition to Harvard University. Harvard. Let's pack the car. And Havid Yad. I love that Boston accent. Ever go out drinking with a person from New England and get them to say pak the ka and Havid Yad? You know, it's, it's really fun. Just try that out sometime. The average tuition to Harvard was $9,000 per year. And a movie ticket, get this, a movie ticket was only $2.50. Gasoline was $1.10. Per gallon and postage stamp was 20 cents. That was 1984. Okay. Now, at the Creating wealth conference at the Creating wealth seminar, which, by the way, we have another one coming up in Beautiful. And I'm going to say it really is very beautiful, Little Rock, Arkansas, at the end of September. And we've got several of you signing up for that. And by the way, many of you have been asking about the hotel. We have an awesome hotel. It's only one year old and it is so swanky. I just really like this hotel. And you'll get all the hotel information. We got a special room block, $119 per night for the hotel. Breakfast is included, by the way. And so we're going to be having breakfast together. Not on Saturday. You'll do breakfast on your own on Saturday. And then we'll start the Creating wealth boot camp at 9am and what is that? September 27th. I believe it's the last weekend of September. Anyway, on Sunday we'll meet for breakfast together before we get on the bus and go tour distressed properties and good investments that you can make. And of course, we'll have lunch together on Saturday and dinner on Saturday night. And we're picking some nice restaurants for you on that right now, so be sure to join us for that. It'll be a lot of fun and very, very educational in terms of food. And, you know, I don't shop for many of those things, so I can't really give you a metric on the price, but coffee was $2.40 per pound. I pay 2 bucks a cup at Starbucks. Bacon was $1.55 per pound, eggs were 58 cents per dozen, and a loaf of bread was 93 cents. So, so that's just totally, totally amazing. In that chart, you know the. About. In the Creating wealth boot camp, right? Well, in that chart that I famously talk about all the time, which is really, really instructive about investing. I'm going to share some numbers. Since we're talking about 1984. Get this. In that chart, I talk about the 1972 dollar. And this is where I talk about how as income property investors, we basically get paid to borrow money because we're arbitraging inflation and we're arbitraging debt service. Remember, arbitrage means, in my simpleton definition, exploiting the differences in things, okay? So we want to arbitrage as much as we can in life because we want to exploit unnatural differences in the marketplace, okay? Where things just get out of whack sometimes and don't make much sense. And we can arbitrage things. So we arbitrage inflation when we borrow money against commodities like income, property, because that's a commodity. It's made of raw commodity materials that are traded globally, not attached to the dollar. Then in addition to that, we take the debt on that proper, and we don't pay our own debts when we're real estate investors. No way. That's, that's not a good plan. We outsource our debts to people called tenants. The tenants pay our debts for us. Okay, so in this example, in 1972, a dollar was worth a dollar. By 1984, that same dollar was only worth 40 cents. But get this. From 1984 into 2001, that dollar got cut almost in half again, because by 2001, from 1984, it was only worth 20, 24 cents. And when you look at the things I just shared about 1984 and the prices, you can see how incredibly real inflation is and how incredibly real the, the debasement of our currency really is. This is the ultimate, it's part of the ultimate investing equation that I talk about frequently. Okay? And we'll go into that in detail at the Creating wealth boot camp in Little Rock at the end of September. So please do register for that Jason hartman.com click on events. After you register, you will be emailed all the hotel information and stuff like that so you can get in on that great room block. That's the thing we want to do. We want to arbitrage this stuff, exploit the differences, take advantage of that. And it is a phenomenal, phenomenal strategy. So as we talk about the debasement of currency and we ask ourselves, well, what happens if the currency isn't debased? What happens if inflation doesn't happen? Well, first of all, I think that is highly, highly, highly, highly unlikely. But maybe that unlikely event will be the event that happens. Maybe we will have stagnation. And I don't want to say stagflation, just stagnation, because stagflation means a stagnant economy with inflation. That was the Jimmy Carter doomsday economy. It was, it was pretty rotten. Okay, but stagnation, where nothing happens, everything just kind of stays even keel. Or maybe we'll have deflation. Well, it's easy to talk about examples of getting paid to borrow and so forth with inflation. But if we have deflation, literally, investors will have almost no place to find yield. They're certainly not likely to find it in the stock market. They are likely to find it in a Bank account, because your bank account actually the value of the dollar will increase during deflation and your money will appreciate. In essence, anything with intrinsic value will become more valuable. Okay, intrinsic value, things always become more valuable, but not exactly so you could say, well, the dollar has intrinsic value. And then the gold bugs will argue and they'll say, well, the dollar's not backed by anything. Don't you know, it's just paper and ink. Yeah, they're kind of right, but they really only understand a part of the argument. They don't get the holistic picture because the DOL is really backed by the military. The dollar is backed by aircraft carriers, battleships, nuclear submarines, fighter jets. The dollar is pretty well backed if you ask me. Okay? And it's awfully hard for anybody to steal that stuff. They could steal your gold, but they're not going to steal your whole military. So the dollar is backed by something. And only a fool would think otherwise. If we have the deflationary environment, which again is highly unlikely, but say that it happens, well then, okay, fine, you just get yield, you just get cash flow. That's what you get from your income, property investment and you get tax benefits. Not as good as the inflationary environment will actually create tons of wealth for people following my plan. But I could be wrong. That's the disclaimer I always make. Maybe we will have deflation, but the investment wealth works either way. It works in an inflationary environment and a deflationary environment as long as you're investing for cash flow, for income. And that's why we call it Income Property Creating Wealth Bootcamp. Register for that@jasonhartman.com, click on Events and you'll also get a property tour thrown in with it and a bunch of great talking and coaching together as we share several meals together as well. And by the way, many of you have been asking, well, when does the tour end? We will conclude the tour by about 4:35 o'clock on Sunday afternoon. So if you're looking to schedule flights, you can come in anytime on Friday. We don't have any group event on Friday or anything like that. Come in Friday at your leisure and check into your room and relax for a big day ahead on Saturday from 9 to 6. And then we have dinner together that night as well. And by the way, you won't pull out your wallet for any of this. All the meals are on us and we'll have a great feast. Lunch for you on Sunday as well will conclude by Sunday at about 4:30 or 5:00 clock. Okay, so that's the information on that. Let's talk with Mr. Quirk. Let's talk about the Fed. Let's talk about hacking the Fed. And I think you'll find this very interesting. Here he is. It's my pleasure to welcome Matthew Quirk to the show. He is author of the best selling book the 500 and also author of the new book entitled the Directive. And that's about our first friends at the Federal Reserve. Matthew, welcome. How are you?

I'm doing great. How are you?

Good, good. Well, this is a fascinating book you've written and really an interesting topic. It's a thriller, it's a novel, but it's based on some factual things that actually went down at the Fed. Why don't you just kind of dive in and tell us about it and tell us how it starts off.

The reporting part came from the fact that I wanted to do a really great heist book. And the heist is really all about the loot. I was casting about for one of the biggest targets and I thought it would be especially great if I could find a. That not only had a huge scale, but affected all of us. So often in a heist, the jewelry's insured and you say, well, why do I really care about this? And if you're looking at the landscape, pretty easy to come across the Fed, the Federal Reserve bank of New York because it has about $300 billion of gold in the basement. And what I didn't know until I started researching this was that the $300 billion, even though that's a ton of money, the real money is upstairs because there's the trading desk on the ninth floor that executes the Federal Reserve's policy for the ENT when it wants to speed up or slow down the economy. And they have a balance sheet worth $4 trillion. So as I learned more and more about this, grew to be fascinated by this desk, I realized I had a great target for a heist. And that is what brought me to the Fed and made that the subject of the book.

Fascinating. The real money is in the electronic money, Right? It's funny if you really think about it, that's such an oxymoron, right? Because everybody says, well, the Fed prints, they make fake money, they create it out of thin air. It's fiat.

But you know, when you're looking to, I guess, hack the Fed and to steal from the Fed, you go to the trading desk rather than the gold in the basement. Huh?

Absolutely. And it's interesting, you talked about Printing money. Because that's what I thought the government did if it wanted to stimulate the economy. And, you know, in fact, what you have is only about 20 or 30% of the monetary supply is actual paper currency. The rest is digital. And when the government wants to, say, beat up the economy, they'll make a decision. They made a decision today here in Washington. And then send a thing called the Directive, which is basically the playbook for the American economy, to this desk at the Federal Reserve bank of New York. It's an actual trading desk. It trades with about 20 major banks. And when people say the government is printing money, really what happens is the guys on that desk will go out into the markets and buy back government IOUs. And then the banks will suddenly have more money on their balance sheet. This is all digital. And then they can loan more. And when we talk about the government printing money, it's really this desk trading back and forth with the big banks and letting them loan more money. The idea for my book is what if you could steal the direction before anyone had them and then get ahead of those traders?

It sounds almost like the high frequency trading scandal that was on 60 Minutes so recently you probably caught that. And that was fascinating. And then I read the book Flash Boys shortly thereafter. It's really, really similar to that. Right. I mean, that's basically how it would be done. Instead you do it with currency creation and the money is lent into existence, which may even sound somewhat simple to say, but that's a really hard thing to get your head around it. It took me years to really understand that, and I'm not sure if I still do. It's such a weird idea.

Absolutely. And one funny thing that happens when I tell people about the book, I explain how the desk works and talk about the desk, and that's what they call it on Wall Street. It's really called the system open market account, which isn't as fun. Everyone calls at the desk and I explain how it works and that that's why the Federal Reserve note the dollars in their pocket have value and why your money is worth more or less on a given day. And they think, great conspiracy thriller. And I say, well, I haven't gotten to the conspiracy part. That's actually how the government works and controls the monetary supply. So it was really fascinating research. And, you know, the plot of this book is related to the high frequency traders. The HFT guys are trying to, if we all started at the same starting line, sprint faster than everyone else. And the idea of this book is what if somebody could get a long.

Head start, what happens when they do? So they can get a long head start, right? That's the answer. They can do it, yes.

And one of the really interesting things, I talk to a lot of people in the financial services industry and people at the Fed, and if you could get this information, and I should talk later, there's evidence that people do actually get these head starts. You would then trade on macroeconomic data. And unlike an insider trading scenario where you bought XYZ Corporation and the next day it went up 50%, in that case, the SEC would know you had inside information. If you bet on very broad economic data, it's much easier to hide because everyone has an opinion about interest rates, gold futures. So it would actually, if you could get the data, be a prime target for insider trading because the movements of the markets are so broad that it would be easy to camouflage your actions.

So no one would really know. So what happened? These hackers that really were the, I guess, the inspiration for the book, did they get away with it? How much did they make?

You know, the book, you have to have a dramatic thing. It's a thriller and it's a really fun cinematic book. As I was doing the research for the book, I came across, it's actually a new study where researchers at a business school, they tracked the movement of gold futures around major announcements by the Federal Open Market Committee, which are the sort of most important announcement that governments make. It's related to stimulus and interest rates and size of the monetary supply. And they found that the markets, of course, factor in those decisions, but they factor them in 15 minutes before they're made public. These researchers, looking over the numbers found that it appears to be that there are leaks from the press facilities. The press gets the information about 20 minutes before the public statement. And looking at the data, it seemed like that information was leaking out early. And they estimated that over the course of their study period, profits as high as $256 million had been made.

Unbelievable. A quarter of a billion dollars. Wow.

And there's nothing better when you write a whole book and then you turn around and do some homework and realize, oh, this appears to be a stranger than fiction thing.

Unbelievable. Wow. Tell us more about this part about the social engineering and the lock and the hacking that was used for this. That's fascinating.

So I started to write the book, and I think we've all seen the same movies. When you start to write a heist book, you have a guy in a turtleneck, you have James Caan. With a big thermal lance. You do all kinds of cliched Hollywood, right? And I used to be a reporter for the Atlantic Monthly. I'm actually borrowing a friend's office at the Atlantic right now. And I started reporting how you would actually break into the Fed and pull this kind of job. And it was really fascinating because there's a group of people now, they're mainly called Red Team security experts, and they are hired by the government or corporation to break into their facilities. They're given a letter, it's called a get out of jail free card, from the CEO or the agency head. They're told, come get us. And then they try to get in. And they actually know how you would break into a building in this day and age. It was really fascinating because I had so many cliches in my mind of what a heist would look like. And a large part of their repertoire is social engineering and hacking trick, which are the social. Social engineering is basically a version of a con game. And my main character comes from a family of con men. So it was this really terrific finding that a real 21st century heist would be right in the wheelhouse of my main character. So I had a lot of fun learning about those techniques. And I learned to pick locks myself. And I even went to the Fed and cased it myself. And I was able to get up to a high floor. I was a little blown away by how well the techniques worked.

You cased the Fed. Did you pick a lockdown at the Fed?

I did not, no. I really didn't want to get arrested. It was one of those lucky things. They have a tour, which I recommend for anyone who's interested in anything about gold or money or the Fed, because the tour is fascinating. They let you into the gold vault, and it has the coolest vault. The vault door weighs, I think, 90 tons. And it's just a huge disc. And you walk through the middle of it, and at night, they turn. The whole thing has sort of a hallway tunneled through it. But when I first got there, they waved me through their very, very impressive security out front. And then once I was inside, they have these things called man trap, and they're basically a higher security version of a turnstile. So I said, okay, you know, this is a very tough place to crack. And I was in the frame of mind of my main character, which is always really fun to get out from behind the computer and then pretend you're your main guy. You're breaking into a place after the X ray machines and the Metal detectors. I get inside, and one of the guards. The Federal Reserve has its own police force, just waves me through the mantras with a gun. Group of employees. And then I was on the elevator. The elevator doesn't have a key like a lot of regular office buildings have. And an employee turned to me and said, what floor? And I said, oh, nine. The one that I knew the desk was on. And then they said, sure. And all of a sudden the employees got off and I was rising towards my target. It was one of those moments where at first I said, oh, wow, this is so cool. These techniques work. And then I said, oh, goodness, you know, I could go to jail for this. So I just dug my head out and then. And then went back to where I was supposed to be. But it was really fun to case it in person. And to see that the main premise of social engineering trick looking like you belong and getting people to sort of trust that you should be there, is actually quite effective.

Kevin Mitnick is probably the guy who popularized that whole idea of social engineering. That's where I first heard of it. It's just unbelievable what these guys do. You know, they do these, you know, now after their prison time, I mean, there's a whole, like a little cottage industry. These people out there, I guess after their stint in prison for getting busted for doing their stuff, they become security. Security consultants. They become the good guys. And then they go out and they do this for companies who want to be penetrated or broken into. It's just amazing how easy it is really, when you hear these stories. I mean, you know, for these high security companies to be just totally hacked, even the Federal Reserve, you would think that's the most powerful central bank on the planet. You know, the most powerful entity really the human race has ever known. In know, it's even vulnerable. Unbelievable.

Yeah, Their tricks are amazing. Kevin Mitnick is the godfather of it, and I love his books.

I'd love to interview him. I got to get him on the show. Yeah.

And these guys, you know, it's their job. And it's really fun because they have one foot in the hacker world, right? One guy who I know who is one of the best lock pickers out there. His name is Deviant, and he gave me all this great advice for the book. And, you know, they all have. They go to DEF CON and they do their hacker stuff, and then they all also. Many of them have security companies. And it's just great that there's someone you can call who actually knows how to break into stuff. It's so fun for a book to get the real world reporting in there and for me as a former journalist to go back and pick up the phone and talk to people.

Do you have any revelations that you want people to hear just about the Fed, like philosophy on the Fed or what do you think of what they do? We kind of, at the beginning of the talk today, we talked about how money is lent into existence and this type of stuff. That's probably not really your focus in the book, but sure you have some thoughts about it and most people say it's a big scam, but do you think it has its place in society or is it a big scam perpetrated by the Rothschilds and the other banking families for the last couple hundred years?

The answer is both, really.

Both at the same time.

Fascinating doing the reporting for it because the Fed on its own website has Q and A section and it says, is it true that a secretive coterie of bankers founded the Fed? And they say, not really, but so going back and learning the history was fascinating. Where JP Morgan had to personally bail out the country, and then he decided that maybe that should be formalized and we should have a Federal Reserve System. And you and your readers, I'm sure, know all the Jekyll island stuff.

Yep. Had G. Edward Griffin on the show twice now.

Okay. Yeah. And it was absolutely fascinating. And then you see how the Fed actually works. And I have a lot of respect for those guys because they aren't ignorant dictating interest rates. They're actually going and buying and selling back and forth to keep the economy where they want it to be. It was just fascinating to learn how much of it, because of the origins of the Fed, had to be done through the private banking system. And then also when I was reporting to find out how closely the Fed has to work with those banks to sort of keep the economy on an even keel.

I would argue that free market can do that job. I mean, one of the stated goals, goals to sell our government on the Fed back in what, 1915, was that would end these ups and downs, this roller coasters in the economy, this roller coaster pattern. And we've had nothing but boom and bust since then. You know, it's just, I guess really neither of us could argue the point if we were on opposite sides because nobody really knows. You know, it's kind of like that old idea in economics is, you know, you can't hear the dogs that don't get to bark. And so, you know, it's only speculative. What would have happened otherwise.

I love the novel writing because I get to get out into the real world and bring up real issues. And if you read the book, obviously there's some skullduggery. And if you look at everything that's happened since the 2008 crash, I think most people now agree there hasn't been a lot of culpability and we can all find different things that should have been done differently. So it's nice to reach out to real world issues in the book. But also at the end of the day, it's a thriller novel, so it's nice to bring that reality in and also just bring it into this really fast paced story. I try to bring the politics in, but not soapbox too much in the book.

Right. Anything else you want to share? Thoughts on the future of the Fed? Anything more about the hacking of the Fed? One. One thing I would say is does the threat of another attack, I mean, we don't even know if one is going on right now, you know, because like it's a macro game, so it's very hard to track. As you mentioned, it's not like insider trading in the stock market where you can probably just watch the transactions and figure it out that someone's doing something wrong and then investigate. When you do the macro stuff, it's really hard to know does this pose a threat to the economy, to the listeners?

If you look at what the Fed has done as far as security, last fall there was some suspicious trading in gold. Time to I think, I can't remember now if it was the September or October statement and then the Fed finally tightened its lockup, which is where the press gets that advance information. And you know, going back to earlier in our conversation, that may be the source of these leaks that appear to be moving markets before the news becomes public. So it was really fascinating for me to learn about those things. And the government has actually, it seems, been doing a bit of a cat and mouse with people who are trying to get that data early because there have been investigations at the Department of Labor, at the Energy Information Administration. So the Fed has tightened up its procedures in the lockup. But if you look at the record, I'm not 100% confident that the government IT guys can outpace the banks or whoever is trying to get the information faster. There's just too much at stake and it's too lucrative. So I'm a really boring guy and I don't try to, on breaking news or anything, get ahead of the investors who are above me in the food chain.

Matthew, give out your website and tell people where they can find the book.

My website is www.matthewquirk. q u I r k dot com. It's just my name and the book is the Directive. It's in stores and Barnes and Noble and Amazon and Indie Bound. Anywhere you can buy books, you can find it. It's a fun thriller about my character who's a former con man gone honest. And it's also about all these neat inside information about the festival that we've been talking about.

Well, Matthew Quirk, thank you so much for joining us today. This is really fascinating and definitely somewhat scary. Not that we just have to be concerned now about inflation and all the stuff the Fed does to manipulate the money supply and so forth, which we've alluded to, but also the threat of that system being hacked and maybe it affecting all of us. So it's quite fascinating. Quite a fascinating topic. Thank you for enlightening. Thanks for joining us today.

Oh, thanks for having me. And you know, thrills. That's my job, so hopefully I could keep people on the edge of their seat.

Most definitely.

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