Matt Levine Live at Bloomberg HQ

Conversations with Tyler is produced by the Mercatus Center at George Mason University, bridging the gap between academic ideas and real-world problems. Learn more at mercatus.org. And for more conversations, including videos, transcripts, and upcoming dates, visit conversationswithtyler.com. I thought we would start with Matt Levine's greatest hits, and then let Matt, having been a classics major, we'd move on to the Latin classics and maybe tie the two together a bit. So just to think about derivatives markets, you've worked in that sector. By some measures, derivatives are over a quadrillion in value outstanding. But there's another way you can measure the net positions and turn it into zero. So what's the right way to think about how large derivative markets are and what's the risk associated with that size?

The right way to think about it in the way that you would do it at a, you know, if you were actually working in the derivatives market is to sort of think about the risk exposures of it. So like if you have an interest rate swap, the right way to think about it is the DVO1 or, you know, like the, The right way to think about an equity swap is the delta of it. So often you see these quadrillion-dollar numbers, they're a quadrillion-dollar notional of short-term interest rate swaps where the idea that you could lose a quadrillion dollars on it is quite low. The risk of that is quite low. The systemic question, I don't know the answer to. How risky are derivatives in general is, I think, a sort of There was a time when it was derivatives are weapons of mass destruction and I think obviously there's a sense in which that came true. But I worked in equity derivatives and total return swaps didn't blow up the world. I mean, it's like a specific set of exposures to specific risks were bad and were perhaps magnified by the ability to make zero-sum bets on them. But the idea that the notion of derivatives is somehow itself a risk factor was never super compelling to me.

—and there's a certain centralization of risk with derivatives. So you put a lot of risk into a clearinghouse. Maybe you can bail out the clearinghouse if you have to more efficiently than individual investors, but that also increases moral hazard. At the margin, do you think we've centralized derivatives risk too much or too little?

I think we're still sort of in, you know, we're like a little bit in early phases of doing it, but like, I think we've, you know, I'm among those who are a little skeptical of the notion of centralizing derivatives risk into clearinghouse, right? Like, it seems to me that a clearinghouse has more moral hazard than a bank, right? Like a clearinghouse A clearinghouse is often a sort of member association where you're ultimately relying on the members for your capitalization and for your protection against blowing up. Whereas a bank, if you're on a desk— obviously banks have a lot of moral hazard and the sort of notion that banks have moral hazard is a lesson that has been learned and probably overlearned from the financial crisis. But if you're on a desk, you don't want to lose a lot of money. If you're a clearinghouse, concerns about losing a lot of money are a little more attenuated, I think.

Does your experience with derivatives make you feel better or worse about CryptoKitties being priced at 117,000 K per pop? Are they just a derivative? Crypto— I don't really understand. Is a CryptoKitty a derivative on Ether? In the sort of, you know, in the— Is there a fact of the matter?

Yeah, I mean, like, sure. Like, in the naive sense of like, did it come from Ether? Sure. Like, I think that like, All those markets are so immature. I think of derivatives markets as being a sort of mark of maturity and of the ability to sort of understand what exposures exist in some instrument or in some economic reality and then say, "Well, we're going to pick these exposures and hedge them out and we're going to pick these exposures and magnify them and we're going to have the ability to kind of fine-tune all of our exposures because we've been doing this for a long time. We've been trading currencies or equities or whatever for a long time." There's the beginning of a thing that you could call a derivatives market in cryptocurrency, but it's not that. It's the opposite of that. No one knows what Ether is in a sense. And so the idea that you're fine-tuning your exposures to it is just not— CryptoKitties are the opposite of that. They're making your exposures weirder and more complicated.

We have a good idea of how to price most futures and options, but when it comes to pricing, say Bitcoin or other crypto assets, What do you think is the best model we have, however bad they may all be, for thinking about what that value should be?

I actually think it's— you've said it, which is like there's some like a pool of world financial wealth and then there's— you pick a random small number and you say that percentage of world financial wealth should be Bitcoin, right? So people used to, and I was like sort of persuaded by the notion that you could use like a currency model and say, well, you know, like the amount of transactions that you do with Bitcoin is this and the velocity is that. This is the total value of Bitcoin there should be. But I'm no longer persuaded by that because I don't think that Bitcoin is particularly— I don't think that people's claims for Bitcoin now are that it's a currency, right? That it's a store of value. And it's a store of value that isn't tethered to anything else. And so it's just a question of how much— there's some percentage of people's wealth is in gold. Well, if they'd shifted half of that to Bitcoin, Bitcoin would be worth X. That I think is the bad but best available model. I think there are other cryptocurrencies, you could imagine a currency model where you say, well, how much file storage— how big is the file storage market? And then what would the velocity of a Filecoin be? But I'm not sure that you could answer that because I think that the intuitions that you'd have around velocity of money are not necessarily the right intuitions for velocity of a token that you use to spend on files.

And how well Bitcoin does as a hedge or store of value relative to gold, I mean, what variables do you think of when you try to figure that out? You're trying to project 10, 20 years in the future, crypto assets competing against gold or maybe even stores of fine art as held in warehouses. What does that depend upon? Is it transactions uses? Do they matter at all anymore? Will the dominant crypto asset be one that people also use to buy things or will those two functions be totally separate? I don't know.

I mean, like, you know, I was talking to someone today who argued that if Bitcoin hadn't been invented and if the white paper had been out there but if people hadn't started using Bitcoin, what would have made more sense to happen first would be the useful, the utility tokens would come first because you can explain, well, you use Filecoin to buy file storage or you use whatever to buy whatever. Whereas with Bitcoin, it's just you can use it to buy anything, but there's no tethered store of value to it. You could imagine a world where all the ICOs work and where all of the coins that you use to buy useful things work and then Bitcoin is is less, you know, doesn't have— because it doesn't have a sort of obvious utility value, loses value. But I don't know, I don't buy that. I think that, like, I think that people's desire to use 100 different currencies to do 100 different activities is probably overrated by the crypto community. And I think that, like, Bitcoin's first mover advantage and, uh, and popularity's fame has the potential to entrench it. I mean, to answer your first question, like, I have no idea what variables you'd look at, but I think it's if Bitcoin stays above, you know, X thousand dollars for a year, then that just increases its likelihood of staying above X thousand dollars for another year. And eventually it just, you know, by force of repetition becomes a store of value.

Since almost every store issues gift certificates, and this seems to be a profitable activity, can we not imagine a future where almost every business issues cryptocurrency in some form. Maybe the velocity or volume will be low, but there'll be a cryptocurrency for every business and an ICO, just like now we have gift certificates. And this is perfectly fine. We shouldn't think it's weird. The real question is, why not more CryptoKitties? I've never heard of CryptoDoggy. I've never heard of a CryptoTurtle, right? Yes? No? No store— You want a CryptoDoggy?

No store like quintuples its market value by issuing gift certificates, right? I mean, like the reason— like the crypto frenzy is not— if If this were a story of gift certificates, I think it would be a lot less interesting. I mean, if you say, oh, look, it's true that people don't want 100 currencies, but they use gift certificates, which is not— I don't know how much people use those gift certificates every day. But if that's the story, then I suppose it's true, but that's a sad outcome for like a let the 1,000 cryptocurrencies bloom if it's just Starbucks accepts Starbucks tokens.

Would you rather I give you a Ponzi coin or a banana coin, a banana coin being connected to an organic bananas blockchain drawing upon banana supply in Laos?

I think I would take the— well, I'm tempted to say, like, if I'm answering, like, I'm tempted to say I would take the Ponzi coin because I suspect that neither— I think that they're probably equally connected to, like, a viable blockchain in Laos, and at least the Ponzi coin, like, says it on the tin, but I want to be careful with that because the reason I take either of them is to resell them. And clearly the frenzy of saying that you have a utility, saying that there's a blockchain somewhere, probably does increase the resale value in the extremely short term in which I'd be holding these coins.

We're in New York, we have Uber, we have taxis, they compete against each other. There at least appears to be a long history of the taxi sector being somewhat of a natural monopoly. What's the final equilibrium? In New York City and elsewhere. And does the company Uber have positive value given that right now it's losing money per ride, right? Chinese investors are subsidizing us at the margin. If the price goes up, I would prefer to shift back to taxis. How do you think about that market?

As a consumer, you know, I really like Uber. And I think that Uber addressed some technological failings in the taxi, just in terms of like being able to hail Ubers without going out on the street and waiting for them and being able to hail them around the world rather than— Hailing taxis in New York is nice, but it's nice to have an app on your phone where you can do it wherever you go. So as a consumer, I'm a big fan of Uber. And I think that— Are taxis a natural monopoly? I mean, there's certainly a seeker of regulatory rents in New York that it is— To some extent, by Uber's rhetoric about kind of breaking down There's clearly some, some taxi protective regulation that is not pro-consumer, and to the extent Uber is fighting against that, you know, they make a good case for their flagrant disregard for the law. Um, you know, and the big question is they continue to be subsidized by investors, and what is the long-term outcome of that? And I don't know. I think that probably— I mean, like, their bet is that the long-term outcome of that is self-driving cars and that they have some sort of advantage in being the provider of the self-driving car app, which I'm not sure if that is super compelling because it seems to me it's hard to build a self-driving car. It's relatively easy to build a routing app to send the self-driving car to you. And so if Tesla or Apple or whoever build the best self-driving car, I'll just download Tesla's app. So it's a risk for Uber. But like, you know, as a, as a strategy, bootstrapping by getting a $70 billion market cap and then spending a lot of money to be the leader in self-driving cars is not Crazy strategy, right? I mean, they built from an app to being a $70 billion company.

So the, the so-called moat for the company, it starts with the app, but over time it shifts to owning a fleet of self-driving cars? Maybe. Maybe.

I mean, it doesn't seem like a routing app is that great a moat.

Let me ask you a very Matt Levine—

It's not bad, right? Because it's a network effect. Sure. Like around the world, but it's not a—

But the network of drivers that'll work for Lyft and Uber, that doesn't seem like much of a moat. Consumers will stick with Uber insofar as they're happy, but they're probably not intrinsically that loyal to Uber.

Yeah, you need someone else to get significant name recognition. So like if, you know, Apple builds a self-driving car and Apple, you know, Apple builds a driving app or a ride-hailing app, then it can take on Uber pretty quickly. I think if, uh, you know, if, if some random interloper comes, it's harder.

But let me ask you a very Matt Levine question. Are you worried that people aren't worried enough? So if we look at markets and security prices, there are plenty of signs that volatility has been quite low. By some measures, it hasn't been this low for 50 years. The world seems slightly unusual, not only the CryptoKitties, there are other strange features of our country and world. And is this decline in volatility, is it driven by investors getting smarter, by more ETFs, fewer shares out there to trade, by more indexing? Foreign investors with nowhere else to go? What's your best hypothesis?

As a general background answer to that, I'm such a— in my personal life, I'm such an efficient markets guy. The answer to the question, are you worried that people aren't worried enough about anything, is I'm not because I sort of assume that there is a giant pool of people who are smarter than I am and they're coming to a reasonable conclusion.

They're reading you, of course, and thinking, what does Matt Levine say?

But so in general, if people are like, our stock price is too high, as well as the VIX too low, I'm like, ah, if it was too high, it'd be lower. And the volatility thing, look, it's a thing that I find incredibly weird because I think like you, I find the world right now incredibly weird and one wants to explain it. And I don't know the right explanation. The explanation that I sort of like is that prices of financial assets have somewhat decoupled from human emotion about the world that is not financial assets. And why would that be? I would love it to be a story, and I think there's probably some argument for it to be a story of markets have become more technological. There's famously markets, stock prices overreacted to news as measured by subsequent dividend changes forever. Eventually that's an anomaly that someone will exploit. Eventually you'll build a thing that reacts correctly to news. I don't think that's a wholly compelling thesis. I think that what I'd like the story to be is that financial markets have gotten smarter and they react less to news. And so even though the news is noisier, they react less to that noisy news because it turns out not to affect asset prices in as noisy a way as you'd think by just watching TV. I think that there is something compelling to that because we actually have seen smart people build smart things that do a good job of making investing decisions. And so you'd sort of expect over time, as people build more rational investing tools, investing would become more rational. The good counterargument to that is that investing is not a sort of technological problem in the world that can be solved. It's an interpersonal fight. Trading in particular is a attempt to be better than someone else. And so you can never make trading more rational because as you get better, someone else gets better and the residue will ultimately still be your human biases. But I don't know, I'm biased towards the view that we have gotten smarter at decoupling our emotional reactions to the news from financial asset prices. And part of that is just Whether or not that's true globally, there's like a local sense in which like the first day of Trump's election, everyone panicked and then he said another crazy thing and then he said another. And there's just like eventually you tune it out, right? And that's a form of this thing of reacting less to financial assets, reacting less to sort of human reactions to the news.

There are 3 sets of market prices that bug me. One is Bitcoin and other crypto assets. Another is all the negative real yields on government securities. And sometimes even negative nominal yields. And then there's blue chip stocks being so high. Could it be those three are part of the same general phenomenon, namely that good stores of value are relatively scarce compared to growing global wealth and that money flows to each of those that has nowhere else to go? They all look high. They're going to stay high. It's a sign of our paucity of insurance markets and other ways of protecting wealth. And in some ways it's a pessimistic sign. So the price can be permanently high and we should be worried about our own inability to deal with risk. Yes or no? Sure.

I mean, it's a sort of transmuted story of the financial crisis of the supply of low-risk assets was insufficient to meet the demand. And so people built things that were low-risk financial assets that turned out to be risky. Right? Bitcoin can replace CDOs maybe. Like, there's a lot of money chasing assets that are good stores of value.

Investors who index, again, a Matt Levine question. First, how worried are you about the spread of indexing? But also, if you think of indexing as somewhat endogenous, so if more market research is needed, you would expect fewer people to index because there's a higher return to learning something. Tyler Cowen. So the flow of funds in and out of indexing, how rational or efficient a process do you think that is at the end of the day? And as we move more and more to indexing, how will this affect securities markets? Please address any combination of those you care to.

So the thing that I like is that US public markets, the companies that are in— there are fewer companies, they're older, they're bigger, they're more profitable. And so that's a sort of interesting fact about the composition of markets. And one sort of straightforward thing to take away from that is that in a world like that, it makes sense to index more, right? In a world where you can't find the next Facebook in public markets, in a world where all companies are kind of the same, they're kind of established, they're profitable, the spread between companies is sort of narrower, the returns to the stock picking are going to be a little lower and it's more rational to index. And then the next question is, which side of it is causal. I think there's probably some story you could tell about the rise of indexing and the focus on cost in investing generally leading to a real focus on scale in investing. When investment funds are trying to operate at enormous scale, the attractiveness of a $100 million IPO is lower. The attractiveness of a weird company that doesn't fit into the index is lower. So you have the rise of indexing driving the sort of phenomenon of companies— of there being fewer and larger and more profitable public companies. And so you have a feedback loop in that sense.

I feel like I've trailed away a little from your question, but, um, some activities are what we might call nerdy and others are not. So country and western music is not very nerdy. There are plenty of bars, say, in Lower Manhattan that are not very nerdy. Finance has become pretty nerdy. What makes an activity nerdy? Has finance become pretty nerdy?

I don't know. So I think that what makes an activity nerdy, I think there are two clusters of factors. One is having some sort of academic barrier where you have to be smart to do it or you have to learn something to do it. And the other traditionally is unpopularity. You're a nerd because you're not cool. I think that what's happened with finance, finance in the last 10 years has become nerdier in the academic sense. It's just the threshold to be hired on a trading floor in the days of Liars Poker was like you needed to be like a fun guy to hang out with and maybe have gone to high school, right? And like, and now it's like you need a PhD in physics, right? And so, um, and so like, like in that sense it's become nerdier. But like, there's also like, I think of tech as having, you know, computer programming when I was like a kid was quite nerdy because it was academic. But also people are like, why are you doing that? Like, go play sports, right? Whereas now I think computer, you know, you see enough like Mark Zuckerberg stories and it's like computer programming is like the way to become a billionaire who like controls controls the world's, not just power, but controls the world's social relationships. And finance is that weird point where in New York, if you go out to the club, there are a lot of finance people there. It doesn't have quite the nerdy, the sort of pure nerdiness component.

And has finance become less unpopular just because of passage of time since the crisis, or is it in part because tech is now so unpopular with the media and some intellectuals, that it's taken over that pride of place and finance is pushed to the side and we can be ignored a bit, maybe like highly skilled carpenters, but nerdier.

I think there is some of that. I was taking a broader view of your question. I think finance was unpopular in the sense of just niche. And then it became extremely central to the world in 2005, and then it became extremely unpopular. And I think extremely unpopular is almost as good as popular in terms of not being nerdy. If you're a villain, you're not a nerd. But no, I think there is some of that. Like, you know, the world, the world is, you know, I say memories are short in finance, but it's actually been 10 years since the crisis. Like the world, you know, there's, there's some reason for the world to have found new things to be interested in.

Here's a question from a reader, and I quote, are there huge bets being made on Wall Street now that could end in something like the CDO MBS financial crisis debacle?

Maybe that I don't know about. I think that my general impression is that the reform of financial regulation since the financial crisis has had a lot of its intended effects. And one of those is that systemically important financial institutions, by some reasonable definition, probably aren't making huge directional bets on things, huge levered directional bets on things that aren't sort of traditional banking products anyway. So you never know what someone's getting up to, but I'd be surprised if there are huge levered directional bets existing at regulated financial institutions.

Do you have a single biggest worry, however tiny, tiny, tiny it may be? I don't think I do.

I mean, I don't think I do. The thing that I find weirdest is the lack of volatility in the face of a very strange and volatile world, but I've reconciled myself to that. If you were running the division of— But this is my efficient markets like optimism, where like I just, you know, I just, I assume that if someone, if something bad was happening, it would happen.

But efficient markets is also pessimism, right? It's harder to make the world better than it already is because you can't see past what others are seeing very easily.

Sure, it's inefficient markets like conservatism or something.

Right. If you're running the Division of Enforcement at the SEC right now, what would you be telling your people to concentrate on?

Well, like ICO frauds.

They're all informed investors, right? Grandmas in this country are not buying ICOs so much. Let them lose their money to each other or not?

I just have an aesthetic objection to ICO frauds. No, I think if you're the Division of Enforcement at the SEC, your number one priority is protecting uninformed retail investors from Well, very high on your list is protecting uninformed retail investors from fraud. Also pretty high on your list is protecting dumb retail investors from egregious frauds that undermine, that just make you look bad. There's a sort of like, you don't really want to be the country where people are committing fraud and running pump-and-dump groups and talking about it and having articles written about it and high-fiving each other. It doesn't seem to encouraged confidence in the markets. And the other thing that, like, you know, as the SEC Division of Enforcement, you might consider is, like, larger, more systemic things than retail fraud. And I've gone back and forth on this. Like, I think that the grandmas losing their pensions to boiler room operators in Florida, like, is a very clear harm. I think, you know, there's a lot of interest in, among regulators, in, like, the people lying to their customers about large structured credit trades because those are bigger trades and you can get bigger penalties because you're defrauding a bank or whatever. I think that you have to weigh the bigness of the potential harm and the overall size of the transaction with how morally and aesthetically abhorrent the transactions are. I think that person defrauding the grandma in the boiler room is very clearly doing something wrong. I think there's a lot of gray area behavior in institutional bond markets that has gotten a lot of focus because it is gray area. So it's more interesting to bring a case if you're an enforcement, if you're a prosecutor or an enforcer and it's institutional. So it's just sort of a sexier thing to deal with than retail fraud in Florida. But in some ways it's less bang for your buck because you are kind of just like tweaking the rules in a market that is essentially among informed investors who kind of take care of themselves.

Now, like you, I'm mostly an efficient markets guy, but when I look at initial public offerings, I'm very baffled because investment banks take such a huge cut. If you needed to argue, well, they need the cut because they talk up the security and in the absence of their efforts, no one would be interested and it's worth it. Maybe that argument works, but it seems somewhat to stand in tension. With an efficient markets hypothesis, which suggests the thing will find its appropriate level without any particular investor having to talk it up. And furthermore, attempts to get around the current mainstream system of IPOs have not always been successful. Auctions have been tried, Israel has tried other methods, Spotify is giving it a go. We'll, we'll get further data, but they're not obviously doing better. But how do you reconcile IPOs in their current form continuing the investment banks taking such a huge cut and some version of efficient markets hypothesis actually making sense? Do you see what I'm asking? Yeah.

I mean, how do I reconcile? One version of efficient markets is that in the absence of news, the price yesterday is going to be the price today or whatever. There's some sort of continuity of prices. And the IPO is a huge discontinuity. I mean, you don't have a price and then you have a price. And so you'd sort of If your notion of efficient markets is a sort of straight line of the price not moving very much or of the price instantly incorporating information, it's not unintuitive that you'd have a big squiggle at the start, that you wouldn't really know what the price is for 3 days and then you would. And so I don't think it's unusual that the first trade of a stock would not be the price that it settles to in a week, but then the second week would be pretty close to the first.

But that the direction is so predictable though, that's odd. The pop, right? The direction.

Sure. But that's like what's happening. One thing that's happening is that the banks are doing the thing that create— they're doing the work they're getting paid for, which is going out to a bunch of buyers and talking about the stock and sort of trying to generate a price. And that work is sort of non-efficient markets work, right? It's like M&A work where there's no sort visible price and you're sort of negotiating one-off with big investors. And then once they have that price, they sell it for less. I mean, that's not really true, but intuitively what's happening is that once they have that price, they sell it for less for a variety of reasons. The stories for it are, I think, somewhat compelling. I mean, it's like you want a pop because you want the early investors to be rewarded for taking a leap of faith in the company. That's maybe a little silly in a giant IPO, but it's not that silly in a tiny IPO where there's some hair on it and where it's a small company and you have to give someone some expectation of returns to get interested. I think that work before the pop, that figuring out what the thing is worth and selling it to investors and doing research and everything, that's what the banks are getting paid for. The pop is not the same thing as the bank's fee. The bank is doing work to try to get to a reasonable price and then they're selling it for 15% less than price. The other thing about the pop is that investors in the IPO have an interest in the stock going up. The sellers in the IPO have no interest in the stock going down. It's bad for them. It's bad for them for a variety of reasons, the main one being that they are keeping most of the stock and they don't want the stock to go down. And so when you have that set of dynamics, no one is sad when the stock goes up, everyone's sad if the stock goes down. Why would you overprice it?

Now, Matt speaks Latin and he was a classics major as an undergraduate at Harvard. I don't really speak Latin. You once told me that law was easier than classics. What did you mean by that?

I mean, they're both like sort of, you know, like the activity that you do in your academic job as an undergraduate or law student is like sort of sitting around analyzing dense texts. But like in law, they're mostly in English, right? So like, that's a big— it's just very straightforward. Like, if you're not raised speaking ancient Greek, it is much easier to read read even a 19th century legal decision than to read Thucydides. I don't know. Law is so just embedded in our society. You grow up watching Law Order or whatever, right? It is very much part of the fabric of how we live. Whereas reading Greek poetry when I was in college was an extremely niche activity. And so required a little bit more investment to just come up to any familiarity with it.

Now, I brought my copy of Horace's Epistles to this conversation.

Sure. It's been terrifying me all day.

And I actually think of a lot of your Bloomberg writings as being a kind of modernized Horace. So you read Horace, there's a preoccupation with wealth, with law, there's a humor in it, the way he segues from one topic to another. There are even mixed feelings on how the pursuit of wealth would translate into happiness. The length of a lot of Horace's letters is actually about the same as the length of some of your Bloomberg columns. So this little quiz here, I'm going to read a few sentences and you need to tell me, were they written by Horace or were they written by Matt Levine? This had better be easy.

Are you going to read them in Latin or?

In English. Here's the first one. I store up and organize material so that I may be able to draw upon it before long. Horace or Matt? I'm gonna say Horace. That's Horace, very good, from the Ars Poetica. And he's trying to tell you he doesn't speak Latin. That was in English. That was in English. What is to prevent one from telling the truth as he laughs? Horace? Horace, okay, very good, 2 for 2. No, you're not. Here's another quote: "Football player derivatives are the best derivatives." Horace? 3 for 3. And finally, quote: "In laboring to be concise, I become obscure." Wow.

I mean, Horace, but thumbs up Horace.

Thumbs up Horace.

I feel like when you're an undergraduate classics major, you read Horace and Catullus are sort of paired with each other. And Catullus is the sort of hotheaded young romantic who wrote sort of quasi-pornographic love poems. And Horace is the sort of older, wiser, backed away from the world. The famous Horace love poems are sort of more cynical and more at a remove from the world. And that's something I also admire and attempt to emulate in my own work, to be a little— I tell people I'm an opinion columnist and I don't have any opinions. I try to be a little less— a little more removed from the passionate engagement.

As is often the case in some of the Latin classics. Oh, yeah. What's the best thing you've read or reread in Latin in the last 5 years?

I don't read a lot of Latin in the last 5 years. I mean, the answer honestly is, and the answer is because I don't read a lot, is Horace Odes 1.5 is the sort of famous, uh, crisp multa gracilis te pura in rosa. It's the sort of most famous world-weary renunciatory Horatian love poem. It's good stuff.

What do Latin speakers and readers get about ancient Rome that non-Latin speakers miss?

I don't have a substantive answer. What you get is a sort of sense of— what I took from a classical education is this sense of direct engagement with humans who lived 2,000 years ago, of being able to— Cicero's letters are a sort of classic piece of Latin literature because Cicero is this sort of famous stern orator who these very serious law court speeches. But then he also has a lot of letters that have come down to us. And some of them are sort of for publicity and some of them are much more personal, but they're all at least ostensibly personal. And you get the sense of this actual human who's this sort of famous figure and this famous lawmaker, but you experience his consciousness more directly in his language. And that to me was just sort of the weird and interesting part of being a classics major was just being able to to sit with people from 2,000 years ago and see how many of their concerns are similar and see how many of their concerns are so different and so weird in a pretty direct way.

Now, as you might know, in every conversation with Tyler, there's a middle segment called Underrated vs. Overrated. I toss something out, you tell me if it's underrated or overrated. You're always free to pass, of course. And the first one is writing in Legalise, underrated or overrated?

You know, under— like, I mean, it's not great, but like underrated, I would say. Like, I think that like in general people— like, I don't know what that means, but like in general people are like too quick to, to, to criticize jargon and legalese and all these things, right? I mean, like there's often a set of technical meanings that are just easier and more efficient to use when you're using the jargon of a field. I think aesthetic criticisms of legalese are often overblown. That said, I've read some really bad legal writing and some mixed feelings, but I'd say under.

Legal realism, overrated or underrated?

It feels like it's gone from the academy and it's gone from— it's not something that people talk about in daily life. To me, it explains everything. So I'd say under.

Buffy the Vampire Slayer. Tyler Cowen.

Oh my God, underrated. I mean, you know, well, like highly rated, but like, um, but comparative, like among the most important American cultural products and not rated that way. What makes it special? What makes it— it's, you know, like part of it is like, you know, you go back and watch it and it's not as good as you think because like it has had such an influence on later things that, that like the— it's, it's shockiness has been attenuated. Part of it is just its influence on subsequent television, but it's a perfect example of dealing very intelligently with serious themes in a way that on its surface and particularly in its title is silly, right? And so, and is not presented as serious, which I think is obviously something that I often aspire to do, but I also think it's just something that the internet aspires to do. I think a lot of just sort of modern internet culture has that sort of vein of using colloquial language and being casual, but attempting to address more serious issues. And I think Buffy didn't invent that, but Buffy is such a cultural touchstone for some of that approach.

Harkening back to the Romans, Virgil's magnum opus, the Aeneid. Overrated? Yeah, sure.

Overrated. I told you, when I was in college, I did a summer program in Rome run by Father Reginald Foster, who was the Latin secretary to the Pope. And he's a Carmelite friar from Wisconsin. And he would have a program for whoever wants to come, would come and read and speak Latin. We read some gorgeous passage of Avid and he concluded and he said, "Isn't that nice? Isn't that better than Virgil? Virgil is gray and wicked." I was always biased against Virgil after that. This is not true, but he's a propagandist and he's sort of like a— I don't know. What's the most underrated neighborhood of New York City? I was saying I don't have an answer to that because I've only lived in extremely highly rated neighborhoods. I live in Park Slope now, which some magazine a few years ago declared the best neighborhood in America. Which like it would be hard to imagine. It may be better yet. I don't know, other like Park Slope adjacent neighborhoods, like Gowanus. Maybe I'd say Gowanus is underrated. It's like a great like food destination. It's like got great like industrial chic architecture. Sure, Gowanus.

Footnotes, overrated or underrated?

Underrated, but like fairly rated now. I don't know, people have come around on footnotes.

A lot of footnotes started in medieval times as commentary on the Latin classics, of course. Including Horace.

Sure. I mean, right, like the, the, you know, the notion of like a sort of like, like intertextuality, or like, you know, like, like having multiple lines of the text, like having a main line and having asides, is a sort of valuable notion, and one that I think has been like kind of valorized by internet writing in a way, right? Like, I think it's just easier to have links, you have The notion of having a single narrative with no distractions and having that be the sort of highest achievement of writing is, I think, a little diminished by the internet and therefore footnotes have become more appropriately valued.

What financial stories or issues do you think are not getting enough coverage and why?

It's hard for me to answer questions like that because I'm such a creature of coverage. I wake up and I read the news and I write about it. So I rarely take a step back. I don't know. The thing that I would like to read and hear more about is— I came to this from a bank and I think banks are interesting objects. Banks and hedge funds are not perfect substitutes for each other. Banks do something interesting and there's a lot about it, but I'd be interested in seeing more because I don't feel like I have a good answer on what will happen to banks. We're in the early days of what seems to be pretty wholesale financial deregulation. Obviously, banks in 2006 were different places from what they are now. One possibility is they'll go back to doing exactly what they did in 2006. Another possibility is they'll go back to doing something precisely analogous to that, but in totally different instruments and ways and whatever, but will be similarly freewheeling, fascinating, dangerous places. Another possibility is that something like a switch has been effectively flipped in the culture and they won't go back. I just don't know. And I'd love to see— I think that banks have become very boring. I think the coverage of what banks are doing to be more interesting has kind of— things have moved on to more interesting places. There's a million articles about Bitcoin. And it's possible that banks will be becoming more interesting. And I don't have a handle on the ways in which they're doing that.

Bloomberg aside, who would you say is underfollowed as a writer, not counting our colleagues?

I always want to pass on these.

I just forget people. Avid once wrote, "In our leisure, we reveal what kind of people we are." Do you agree?

I guess. Yeah, sure. I mean, right. In my leisure, I read the internet and do crossword puzzles and hang out with my daughter. I'm pretty boring in my leisure, which is probably accurate.

You once wrote— I think this was a speculation rather than a definitive pronouncement, but you wrote—

Everything is.

"I think more and more about how all of Western culture is a footnote to Iliad Book 9." What did you mean?

I have a sort of idiosyncratic take on Book 9 of the Iliad. The Iliad is the story of Achilles is the great warrior on the Greek side in the Trojan War. And he gets mad at some slight and he goes back to his tent to sulk and the Greeks start losing. And so then they send emissaries to his tent to say, "Please come back." And he says, "No." And then the Greeks start losing some more and he eventually comes back and he gets killed. And that's basically the story of The Iliad. And in Book 9 is where they send the emissaries to say, "Please come back." And he says, "No." And he gives this speech, this response that is weird, where he says, effectively, the prophecy is that if I If I go back to fight here, I will die here and my name will be immortal. And if I go home, I don't go back to fight, I'll go home and live a long life and will be forgotten. And he chooses to go back and be forgotten. And then later he changes his mind because his friend gets killed. And this like crux point of the Iliad is this like really existential, almost like examination of like, you know, this Greek warrior in this heroic culture that, that clearly valorizes heroism and deathless fame and everything, and who is canonically the most famous heroic warrior and the one with the most deathless fame, he's the one who says, "Nah, I'd rather go back and live a long life on my farm." And the forcing of that choice is the central point of the highest work of Greek art, prefigures a lot of existentialist and sort of thought in the future, I think.

What makes Nabokov's Pnin an interesting novel?

You've been reading my secret Tumblr, which I will not put a link up to. It's just very Nabokovian. It's just a bunch of— he's just this great aesthete of sort of almost pointless pleasure in writing. And so there's this scene that I love where Pnin, the absent-minded professor character is heartbroken after a run-in with his ex-wife. And he's dejectedly walking through the park on the way home and he's pondering the meaning of life. And Bakhtin says something like he's almost come upon a sort of solution to one of the great mysteries of life. And then he's interrupted by a squirrel who runs up on a water fountain and demands that he help the squirrel drink from the water fountain. And so he He helps the squirrel and then he moves on. It's this just random interlude of just gorgeous writing and bizarre scenery and just random pileup of weird delightfulness with no point that I find very appealing.

If we think about mergers and acquisitions, one of the standard results in the empirical finance literature is that acquiring firms do fairly poorly. That is, acquisitions don't seem to pay off. Yet, of course, acquisitions persist, and you've done M&A work in your life. How do you think about this process? If it doesn't pay off, is it about empire building? Is it about winner's curse? Do you somehow not trust the data? You would challenge the interpretation of the result? Or how good are acquisitions for the acquiring firm, and what goes wrong?

So I wouldn't challenge the data. I mean, to me, it's a similar story to active management in some ways. The fact that M&A is bad doesn't mean that your merger will be bad. And so there's a sort of— so one, there's obviously a bias towards empire building. And then two, you don't say that. You're not like, "Well, I'd like to have a bigger company to run." What you say is, "This merger will be good," and you believe it. And the data is not overwhelming that all mergers are bad. The data is like, on average, they're a little bad. And so you say, "Here are the reasons why we are better, right? And so everyone can say that and 49% of them will be right. And you throw in some empire building and people want to do stuff. I think it's very similar to the active management story. You want to do stuff. You see an active manager who seems smart, has a good rating, right? You see a charismatic banker or charismatic corporate development guy or whatever and you want to do some stuff and then you can persuade yourself that you're in the 49%.

"The Shad Johnson agreement. Should the SEC and CFTC be independent agencies or should they be combined into one?" I don't have a strong view on that.

I mean, I don't see a compelling difference among them, but I also, if you combine them, there'd be departments for commodities and departments for equities. And if you split off the SEC into the equities and the bond department tomorrow, I'm not sure what the institutional dynamics are that matter very much. I suspect that most of the time the agencies are roughly on board with each other in a sort of broadly how much regulation should there be sort of perspective. Obviously there are times that there aren't. The CFTC fighting against derivatives in the early 2000s is a famous example of that. But I think in general, I'm not sure what the dynamics are where it matters that much one way or the other.

Is American financial regulation too federalistic and too fragmented or not?

In my experience, the existence of state financial regulation was only a weird footnote, but I think in general it is almost certainly too federalistic and fragmented. And the particular— the example that was not core to my experience as a person in finance is insurance regulation. It's very clearly too state-based and fragmented. Gamable. And I think that there are probably some securities cases that are similar, but the insurance regulation is kind of the big one. And then you could argue that corporate law should be federalized, though I don't think that there's a huge case for that just because in practice corporate law is a creature of Delaware. And so it's essentially, there's only one corporate law anyway.

And what's the most overrated neighborhood in New York City? I don't know. Pass. Why is William Gaddis an interesting writer?

Why is William Gaddis an interesting writer? Because he's part of that, like, he's part of like the, I don't know, there's like a period of like interesting modernist experimentation that sort of, I feel like the peak of it was like from like Joyce through like, you know, mid-'50s or something. And I think Gaddis is the sort of like most contemporary, like weird writer, like weird kind of like mid-century esoteric.

Yeah. You know, I sometimes like to say, Matt Levine, only you can do what you do. So my final question is about what I call the Matt Levine production function. So, so many days in the week, early in the morning typically, you have produced something that is perfectly clear and lucid and witty and informative and original. So many days over the course of a year, more than anyone else I know, spanning law, economics, finance, history, other things. So there are many facets of your day and your work routines, but if you had to explain to someone what is the Matt Levine production function, what is it you would draw our attention to?

I think like a lot of people, a lot of it is panic. And I'm just sort of like, you know, like I tell you, you know, I, um, I, at various points thought of being a law professor. I thought of being a classics professor and I never could write papers. Like I turned in my final paper in law school, like 2 weeks after graduation. And When I thought about leaving my job as a banker to become a blogger, my girlfriend, now wife, was like, "Remember how you didn't write your papers in law school? Are you sure you want to do this?" And what I think is people have their proper metabolism for producing stuff. And for me, I wouldn't say it's easy. It's incredibly difficult, but it is reliable that I can produce something in a panic every day. Whereas I think if I had to produce something every week, and I have some experience with this, I have to produce something every week, I do it about every 3 weeks. So that's one thing is just the sort of drive of panic. The other thing is I try to be pretty ruthlessly focused on places where I have an advantage or where I can add value. One nice thing about working at Bloomberg is that There's like, if I don't write about something, someone else will write about it. So I don't ever write about things because someone needs to write about it. If I write about it, it's because I have something to say about it. And that I think is a rare and valuable flexibility to have. My beat is not— I'm not doing things because I have to do them. Those are main things. I mean, the other thing that I have is I worked on this weird derivatives desk at a bank where I was as an investment banker. So I covered corporate clients and I went to meet with corporate clients with coverage bankers who did M&A, but I was also selling them equity derivatives products, which were booked against our trading desk and where we were acting as a principal. And I was also underwriting convertible bonds. So I was seeing a lot of different sides of a bank and exposed to a lot of different ways of being in finance. I mean, the life of an investment banker is very different from the life of a vol trader and I was sort of to some extent bridging those lives, which was helpful. The other thing I was doing is I was explaining fairly complicated products to smart people who did not know anything about them. And so you'd go to a CFO and be like, "What you want to do is an uncapped collared ASB with variable maturity." And they'd be like— And then you'd have to explain to them not what the thing was because they don't care what the set of legal documents are, but what the economic intuitions behind it are. And so explaining economic intuitions to a smart person about a thing that is complicated is, I think, valuable in my current job. The other thing that was valuable about that is that the economic intuitions I was explaining to the CFO were not necessarily the economic intuitions that we had. We were doing the trade for something, for some exposure that we wanted or some set of payoffs that we got, and they were doing the trade for some other set of payoffs. And it wasn't like we were betting against them. It was like we had sort of two overlapping set of interests in the trade. And so having some awareness of that is useful in sort of looking at complicated financial things that different people can be getting something different and complicated out of a trade that that is not necessarily described in the public documents for that trade.

Matt Levine, only you can do what you do, and thank you for the conversation. Thank you. We now do have some time for questions. I will call on you. A mic will come to you. Please note, these are questions, not speeches. The goal is to hear from Matt Levine. I will cut you off if need be. So questions for Matt? There's one right here.

Thanks a lot. I just had it on the topic of efficient markets and crypto assets. I wonder if you think it's possible that the prices of many of these assets are far too high now, and if that might be because the risks of buying and the risks of selling are very different, and whether in particular whether there's other assets like, say, binary options or something that might result in more accurate lower prices. I'll preface by saying in general, I'm an efficient markets believer. I never want to be like, "Oh, these cryptos are too highly valued and they're all going to crash to zero," because what do I know? That said, do I think that there are some, let's say, technical reasons that a lot of crypto assets are too highly valued? I do think that there are some obvious limits to arbitrage. One is that there's a perception that it's hard to short a lot of crypto assets. Some people tell me that's not true and you can borrow Bitcoin, no problem. But there is a perception that it's hard to short them. Even if it's easy to borrow them, you have— it's always more dangerous to short something super volatile than to be long something super volatile. The other thing that I don't really understand about Bitcoin is exchange withdrawal limits that make it seem like there are a lot of places where you can buy Bitcoin and then not sell them, never mind shorting, but where it is very easy to put as much money as you want into an exchange to buy as many Bitcoins as you want, but selling those Bitcoins and taking your cash out is a more complicated and lengthier process. I don't know if that's true at all exchanges, but it's clearly true at some exchanges. So yeah, I mean, I think there are some technical factors that probably lead to Bitcoin overvaluation. Can technical things solve that? Maybe. I mean, the spread between futures and cash has converged, which suggests that there is some price discovery going on in the futures market and maybe it is being helpful in Bitcoin. I've never heard an argument that binary options make pricing more efficient in any asset class, but who knows?

Next question is here in the front, if you could bring the mic.

My question for you, Matt, is how do you avoid writing on political topics when it feels like that's what the whole rest of the world is talking about? Or does an editor just kind of strike the paragraphs right before posting? No, quite the opposite. My God. Sometimes I strike the paragraphs right before posting, but not often. I don't know. I think it's actually pretty easy to avoid writing what everyone else is writing about. As I said to Tyler, my interest is in places where I have an advantage. And it seems to me that even if I write a really good take on Trump, it will only be the 50th best take on Trump of the 12,000 written that morning. Whereas if I write about Kodak Coin, I'll be only one of 20 people writing about Kodak Coin. If I write about gaming of FERC regulations, I might be alone. You don't want to only write about total esoterica, but I think it's really easy to figure that people are full up on Trump news and want something else. And I think that's empirically true because people, when I do occasionally write about political news, people email me like, "Man, your newsletter is such a nice relief from political news. I'm so mad that you wrote about Trump today." Front row, there's a question. We're in Midtown where there's an extreme clustering of the finance industry, an industry where rarely do we actually need to meet each other. Do you think that will grow, continue, decay? I guess it'll decay. I worked as an investment banker and there is something in high-dollar sales about people really believe in in-person meetings. And I experienced it where I'd go to a meeting where a colleague would dial in and you could tell how much better my experience was in the room than her experience was on the phone. So I think that on the one hand, to the extent that trading consists of computers trading with each other, it does seem somewhat unnecessary that we all sit within 10 blocks of each other. On the other hand, to the extent that finance is the business of M&A and of very high-dollar sales businesses, I'm not sure that it's as amenable to fragmentation as you might think.

3 rows back, this question in the middle.

Apologies for another crypto question, but to me, the fact that Bitcoin took off, some would say because it has a fixed supply, has made me question even how much low and stable inflation has political costs. So my question would be, how has the rise of crypto changed your mind about some of your beliefs around finance and economics? It's hard.

I mean, in some ways, I think it is probably at the margin weakened my general view of myself as an efficient market fundamentalist. I mean, it just feels so weird. It feels so weird and it feels so like when you say that you believe in efficient markets, one aspect of that is believing in that markets incorporate fundamental information in some way. That's whatever Bitcoin is doing. It's not that. So it is just weird on that basis. Beyond that, I don't know. I mean, this is not a good answer, but I'm used to believing in a financial system where it's not just a series of actors, but where there is a sort of sociological set of connections between the banks do this and the prime brokers do this and the hedge funds do this and the retail investors do that. And there's this very sort of structured system. And Bitcoin really is just spike that kind of is totally unrelated to that system and that has nonetheless had a pretty big impact and also had a pretty big impact on that system where all the actors in that system are recalibrating themselves. So that's just a weird— I wouldn't have guessed that ex-Bitcoin, if you had said, can some fintech new entrant disrupt banking or whatever, I'd have been like, eh, it's really hard. There are a lot of relationships already. And Bitcoin is a pretty good argument that something big can disrupt the financial system. Next question.

Yes, here. Thank you.

If we were to look at the most frequent words used on this stage, I'm guessing that weird would be probably one of the most popular.

So what's your framework for deciding whether something is weird?

I don't know that I have one. I mean, it's just like sort of like if it matches with my sort of prior intuitions. I mean, it's— I like weird. So when I use weird, it's often just a sort of synonym for interesting. And it's just like my own I wouldn't say I have a framework. What I would say is that whatever set of biases I have to find things interesting and weird and funny and quirky, I just write about it and that seems to have resonated with some audience. But I'm not sure that I can articulate what that framework is. Next question.

Hi, what's a rule that should be amended or repealed?

I should always be prepared for these things. I don't know. I'm going to give a weird one, which is— this is not an answer to your question, but I've been thinking a lot recently about Regulation FD, which is the rule that says that companies can't disclose material nonpublic information to one investor unless they've simultaneously disclosed it to all of their investors. Seems like a very straightforward fairness rule. And the weird aspect of it is that companies meet constantly with their investors and their investors are very excited to meet with them and want research analysts to set up these meetings. There's a whole economy of these meetings and yet they're never disclosing material nonpublic information. And then the investors leave those meetings and go trade and it's like, well, they didn't learn anything in those meetings. It's just a striking set of facts. And what I think is striking about it is that it's clearly how the world should work, that companies should talk to the people who own them, Those people should be able to ask questions and propose and say, "Hey, you should really be doing this," and then watch the executive's reactions. And yet at the same time, the law says you can't do it. So I don't know how I would amend it, but I think that there is a tension between the existence of this rule that on its face you would think would prohibit substantive meetings between companies and their investors and the lived practice of finance in which companies meet with their investors and have investor relations departments and are owned by those investors and have fiduciary duties to those investors. It would be strange if they never met with them, but it's also strange that they do meet with them because this law, this rule exists that you would think would cast a shadow on those meetings.

Next question.

You write pretty frequently on information security and hacks. Are we as worried as we should be about that? And non sequitur, have we reached peak beard? I was noticing when we were backstage that Shipley and we both have beards. I guess we're at My beard is cyclical. My beard runs from like end of December through like spring. I suppose we're at the peak of my own beard cycle. I have no expertise in information security. It seems overwhelmingly likely to me that we're not worried enough about hacks because when I occasionally read people who are experts, they're like, "The world will end and you will die horribly because you don't change your password." and they're probably telling the truth and I don't change my password. So I'm certain that the answer to your question is we're not sufficiently worried about hacks. I mean, you know, there was a story today, I just saw the headline that someone conducted a successful jackpot attack on a US ATM, which means that you do the thing where you somehow get the ATM to give you all of the money that was in the ATM. And that seems like a good hack. And like, I always read about bank hacks and they're like, well, they hacked this bank and they got some email addresses and now they're sending them spam. And I'm like, that doesn't seem like a very good hack. But in some timeframe, they'll get the money, right? And then that'll be really bad, right? Not just because they'll take money from a bank, but that our whole world exists on a series of computers. And if you hack one of those computers that is central to the world and our identity and our financial lives, this is really bad. And they're stealing the email addresses, right? They're hacking the ATMs.

Last question.

In Democracy in America, Tocqueville called lawyers America's priests of Egypt because both professions are the only interpreters of an occult science, which I take to mean that they're both responsible for explaining enough of their systems that people retain their faith in them, but not so much that people lose their faith or they put themselves out of a job. I'm wondering if you could put that same mantle on financiers or on financial journalists and if you think the sector as a whole has achieved sort of an efficient sweet spot in the extent to which its mysteries are understood by the American public. Softball question.

Sure, yeah, but I think that's true of a lot of sectors actually. I mean, I think we just live in a specialized economy where if you ask Are financiers like a priesthood because they explain just enough to maintain a mystery? Yeah, but Facebook way more so. I think that we live in a specialized economy and everyone is sort of angling for that notion that what they do is complicated and mysterious and important and you can sort of get a glimpse of it, but I need to maintain the secrets. I do think finance is high up in the sweet spot where people think it's very complicated and they need to defer to a priest. But I also think that finance has come down a bit where now people think, "Ah, it's complicated, we need to ban it," or "Ah, it's complicated and we need to radically simplify and get rid of leverage rules and add simplified leverage rules," and all these things that suggest that the general public does not believe the mystique. They find it confusing but not in an awe-inspiring way. It's true of lawyers too.

Matt Levine, thank you very much. Two announcements. First, you all should subscribe to Conversations with Tyler. There are also chats with Malcolm Gladwell, Steven Pinker, Cliff Asness, Kareem Abdul-Jabbar, Martina Navratilova to come, David Brooks to come. And thank you all again. And Matt, great job. Thanks for listening to Conversations with Tyler. You can subscribe to the podcast in iTunes, Stitcher, or your favorite podcast app. And if you like this podcast, please consider rating it on iTunes and leaving a review. This helps other people find the show.