“If you ever sit down at a poker table and in 15 minutes you haven’t figured out who the pigeon is, you’re the pigeon.” – Charlie Munger
“When a true genius appears, you can know him by this sign: all the dunces are in a confederacy against him.” – Jonathan Swift
Over recent weeks a number of friends and acquaintances have worriedly written me to ask, “Are you alright?” Apparently, they imagine I am in distress to have the yuck-yucks going after me again, just as they did in 2005-2008. It is time for some philosophy, some history, and some poker.
Wittgenstein observed, “If a lion could speak, we could not understand it.” By this he was pointing out that the worldview of a lion is likely so different from that of a human, that even without a language barrier we would be unintelligible to each other. In the same way, while the well-wishing concern of so many is touching and I thank them for it, their concern suggests to me that (our years of acquaintance notwithstanding) our worldviews remain far apart.
Let us re-calibrate with some history, then turn to a poker metaphor. Perhaps then your touching concern will be allayed, and you will enjoy the dunce-show as much as I am.
SOME HISTORY: The A, B, and Cs of Settlement
- On October 23, 2008, with the financial world in such disarray that senior figures from both parties were appearing on television and speaking soberly of the possible collapse of civilization, the United States Congress summoned Alan Greenspan. At the heart of his testimony was a key sentence, an unimportant part of which drew much attention from the Left, an important part of which drew the attention of the rest of the commentariat, and the crucial part of which drew almost no attention at all.
The unimportant part: The Left jumped on this first part of the sentence: “There are additional regulatory changes that this breakdown of the central pillar of competitive markets requires in order to return to stability…. ” This was a straw man argument (as the Left’s criticism of markets generally is). Being at heart government absolutists, they imagine departures from their statist orthodoxy as “market fundamentalism,” and Greenspan’s statement that markets need government to enforce rules to be a renunciation of that fundamentalism. Given that in fact even hard-core Ayn Randian anarcho-libertarians endorse the role of the government in preventing force and fraud, and Greenspan’s reference to “fraud, settlement, and securitization” referred to fraud in two and maybe three ways, this was a straw man argument unworthy of serious reply.
The important part: sophisticated commentators addressed what Greenspan meant by “fraud” (Bernie Madoff) and “securitization” (Collateralized Debt Obligations and Mortgage Backed Securities), and how these destabilized the market. Much of this reporting was serious and able.
The crucial part of Greenspan’s statement drew the least attention, as one would expect from an obedient financial press whose complacency in the face of ample data-filled warning (including from this site) permitted 2008 happen in the first place. That was Greenspan’s use of the word, “settlement”. The subject drew a tremendous amount of attention from regulators: for example, security regulators from the G-20 gathered on an emergency basis in Washington, DC to discuss settlement and the systemic ramifications of slop therein, how the slop got there, how to plug the slop, and so. Their scurrying drew reporting from the media about the occurrence of such meetings, and all the sturm-und-drang of the meetings, but oddly little journalism was done about what was revealed from such meetings, and what the import of it all was.
B) In the summer of 2017, several pension funds filed a massive lawsuit against the major prime brokers of Wall Street. In what should be the first trillion-dollar lawsuit in American history, they alleged that the prime brokers and their hedge fund clients had profited illegitimately due to slop in the settlement system, which permitted the brokers’ securities lending desks to extract money from the pension funds of America.
C) By February 2005 I had figured out all of the preceding points. I understood that our settlement system permitted far more slop than the public understood, I recognized that the existence of the settlement slop was allowing the prime brokers and their dirtiest hedge fund clients to loot American pension funds, and I recognized that the settlement slop was going to crash the system.
By way of proof that that I knew (long before that 2017 pension fund lawsuit) that our sloppy settlement system was permitting the pension funds of America to be looted, here is a page from a November 2005 Fortune. The call-out quote was included to show how whacky I was, but in retrospect, does nothing but amplify the glow of my prescience within a 2005 magazine gone dark with Newspeak.
By way of proof that I understood that settlement slop was going to crash the system long before Greenspan linked the settlement system to the 2008 crisis, please familiarize yourself with this 1.5 page introduction to this website, or this presentation (DeepCapture: The Movie) I gave to 1,000 hedge funds, both from October 2007 (and both drawing together information I had already been publishing since late 2004). Or else, simply watch this three minute video of clips from TV appearances between 2005-2007 where I predicted it quite precisely.
My 2005-2008 experience reshaped my worldview regarding the oligarchy and its press agents (a.k.a. “the financial journalism industry”). As I have said elsewhere, until then I had what looks to me now as a touching naivete about the USA, in that I thought it worked like The Pelican Brief. In that film, intrepid heroine Julie Roberts stumbles across mischief, researches it carefully, puts all the pieces together, writes it up, takes it to Denzel Washington at The Washington Post, and he handles everything from there. The truth gets published, good guys with badges and guns swoop in to arrest the miscreants, and Julia gets a touching goodbye from Denzel before the DOJ whisks her away in a private jet to a safety at which we are left only to guess.
In the summer of 2005 I learned that this is not how the USA really works. Why? Because I went public that summer about how the flaws in Wall Street’s settlement system were letting prosper a network of hedge funds exemplified (and in some sense centered on) Steve Cohen’s SAC, along with the prime brokers that serviced them (Goldman Sachs), all at the expense of the pension funds of America, and that this settlement slop threatened the stability of the US capital market, and that the SEC was providing the public inadequate protection due to its inappropriately close relationship with Wall Street. To my chagrin, Julia Roberts did not show up to help. Nor did Denzel Washington. Instead, the oligarchy’s media ran photoshopped pictures of me with UFOs coming out of my head while they went to work to distort, discredit, and grind into mincemeat my claims, my evidence, my explanations.
It was startling, but it was more intellectually interesting than distressing. It was like playing five card stud with a bunch of halfwits , showing two pair aces-over-jacks, in the hole holding an ace (hence, a full-house), seeing that each of them had showing four of a suit, thus knowing that no one else could possibly win… but then watching them try to bluff me out of the pot. Around and around we went, with one of them raising and me calling, then another raising and me calling, over and over around the table. They giggled, they chortled, they laughed, they yuck-yucked, they high-fived each other in triumph over the pigeon at the table, they had the grandest time at my expense that any journalists ever imagined having.
There was just one thing they forgot. They forgot that they were playing poker, and eventually, the cards were going to have the last word.
In a life that has had a lot of great times, that period stands out as particularly rewarding. It is so well-documented within this site that it is not worth revisiting, beyond my summarizing the prongs of their “reasoning” as follows:
- “Byrne’s crazy. Don’t you think he’s crazy? Well we think he’s crazy! Next up: another guest to tell you Byrne is crazy!” This was “The CNBC attack” (so-named because CNBC devoted three days to it in 2005).
- “I’m laughing at Byrne. We’re all laughing at Byrne. If you agree with Byrne we’ll laugh at you, too!” That was Fortune, the Wall Street Journal, and the New York Times’ “reasoning”.
- “Byrne said ‘naked’! Yuck-yuck-yuck.” – This Beavis-and-Butthead attack was joined in by all.
Absurd as that may sound, as far as the intellectual content of their replies, that was none. That was all they had. This site is replete with examples and our deconstruction thereof, so I will limit myself to a few references. Joe Nocera of the New York Times went after me in a way that a then-editor of Columbia Journalism Review described as, “like something out of 19th century yellow journalism.” After a year or two of it, a fine and honest reporter at the New York Times, Bob Tedeschi, interviewing me regarding an unrelated matter (Worldstock, as I recall), told me, “Patrick, I don’t want to get into the newsroom politics too much, but I want you to know that the word we use here within the New York Times is, ‘surreal’. We say that it is ‘surreal’ that we are working at The New York Times while it is publishing these Nocera pieces.” Other friendly and honest journalists at the New York Times let me know they shared Tedeschi’s embarrassment.
I certainly thought I was correct when I started, but after months of their yuck-yucking I knew I was correct. I had been looking forward to examining their counter-arguments, and perhaps discovering flaws in my reasoning (which would have relieved me more than it would have disturbed me), but since none of them were willing to respond with data or rational argument, I grew increasingly confident that I was playing poker with a bunch of four-flushers.
Smart people saw the same thing. For example, one day I was walking with Stanford’s President Donald Kennedy (along with Justice Sandra Day O’Connor), when he said, “Patrick, this past year I did not know whether what you’ve been saying about Wall Street was true. But I’ve been watching the press go after you, and I have never seen anything like this in my life. That piece the New York Times published about you last Saturday is ….. Well, it tells me the fix is in. You must be on to something.” Justice O’Connor nodded along with him, chuckling.
If I made a miscalculation, it was in imagining that everyone would see the transparency of the scheme and the gibberish for what it was. Or if not everyone, then anyone with a higher-than-room-temperature IQ. Instead, I learned (or rather, re-learned) something I first noticed in 8th grade: there are indeed a lot of impressionable low-character people in the world, and more than anything they fear being laughed at. The fact that journalists were talking about how crazy I was, and mocking me, and laughing to each other about me, and encouraging other people to laugh, and reporting on how people were laughing and saying I was wrong and crazy, was all it took to convince a lot of people that I was wrong and crazy. It baffled me: people who had known me for 30 years, and who should have known better, were contacting me with deep concern in their voice, trying to talk me back to sanity.
I learned that I could stump them with a simple question that had not previously occurred to them: “What makes you think that I am wrong and the Wall Street choagies are right, rather than thinking that I am right, and the Wall Street choagies are wrong?” That stumped every single one of them. Moreover, their answers generally showed that the possibility had not even occurred to them, and thus revealed that the habits of a rational mind (reason, data, and theoretical understanding) were foreign to them. It was one of those special moments that I got to see the world through the eyes of such people, and discovered that people, impressive people, people who work in professional jobs with big titles and responsibilities, people who are allowed out in public without adult supervision, often could not even grok my question without my posing it a few different ways.
That is when I came to see the world as including a great many of what are now called “NPCs”. The term derives from a reddit post that appeared last October, postulating that there are a limited number of human souls (not nearly as many as there are living humans), and thus many walk among us who lack souls, and with that, robust internal dialogue. They present like the “Non-Player Characters” of video games: for example, the bum in Grand Theft Auto who, when you bump into him, says, “Hey watch it buddy!” (or perhaps one of another four lines he has been programmed to regurgitate) . No matter how many times you walk around the block and come back to bump into him , he utters “Hey, watch it buddy!” The reddit post postulated that, like such video game characters, NPCs walk around among us simply regurgitating 4-5 lines with which they have been programmed.
The NPC meme hit the nail on the head so precisely that its rapid spread exceeded all memes that came before it, and it became the most successful meme ever introduced. For that reason, social media platforms devoted to mind-control had to ban the meme on the grounds that it was “dehumanizing” (this, while others on their platforms kick “Nazi!” and “Racist!” accusations around like they are hacky-sacks).
So from 2005-2008 I kept at it, enjoying the experience of having so much vituperation slung at me, having my own private chuckles as I watched the pot build. Apparently frustrated by my refusal to fold, the oligarchy escalated, then escalated again. Their press lickspittles slid more and more credibility-chips into the pot. NY Post (for folks who move their lips when they read People magazine), Fortune (something of an in-house press organ of the oligarchy), Wall Street Journal (who should have checked with their hero Milton Friedman before he passed), New York Times (of course)… It was among the most enlightening periods of my life.
At times the cockiness of my opponents did briefly concern me. I used to wonder if behind the scenes there was a genius at work orchestrating it all, someone who was walking me into a trap I was not anticipating. Listening to and reading the yuck-yucks chortle away, I thought, This is too easy. Surely they cannot be this dumb. Surely I missed something. I rechecked my data and reasoning frequently, but the result always came out the same: slop in the settlement system was going to vapor-lock Wall Street.
Rather than back down, I doubled down. I was so confident that under stress our national capital market’s settlement system would crack (as Greenspan later highlighted in his testimony) that I became insomniac. One sleepness midnight in May, 2006 after reading a particularly NPC article in some financial publication (Financial Times, perhaps, which is something of a nitwit British version of the Wall Street Journal but more statist), I had an idea. The next day I took all the spare cash I could muster ($6 million) to Switzerland, and found a bank who would facilitate not only the purchase and storage of physical gold on my behalf, but who would facilitate a deeply out-of-the-money option on the price of gold, good for 36 months, but one that would pay off big if that crisis came within those months.
In the process, I discovered getting an account at a Swiss bank is something like I imagine joining a country club would be (as Machiavelli summarized, “Heaven for the climate, Hell for the company”). It turns out that before opening an account at a Swiss bank, the partners of the bank expect to take you out to lunch and dinner a few times to sniff you up and down. If you smell like crime, or malfeasance, or Russian, they tell you, “No Monsieur, go open your account in Lichtenstein. Go open your account in Monaco.”
In my case, however, they opened the account in approximately 1/4 the time they told me was normal. Given the amount of vilification I was receiving in the USA, that struck me as odd, as the Swiss are all about respectability, and mine was being savaged in the American press. I wondered if their alacrity flowed simply from me showing them I knew how to eat with the proper fork, but that turned out not to be the reason. Once I had been admitted to their club (that is to say, once the account was open and the gold bets made), they asked me to stay for one more swanky dinner with senior partners. This time they used their dinner with me to pry me for information about the American capital markets. Only then did they let me know, “Monsieur, the truth is that for a year we have been reading about and discussing you. We want to know, what is going on in the United States? Your financial system is cracking. We see it every day, we see that stock purchased in America for our European clients is not settling properly, and when we ask American prime brokers about it they give us explanations that we know are lies. It gets worse every month. Your own press seems to be covering it up. It is not making sense. It is like we are living in a basement apartment above a subway system and” (grabbing the arms of his chair in the restaurant and quaking as he spoke) “feeling the whole building shaking. Everyone who is part of the financial system feels it. How can this being going on within the United States of America?”
I explained to them the stack of observations that I was at the time documenting in essays on a message board within the marketplace tab on Overstock’s website. 16 months later I stood in front of 1,000 hedge funds and put those thoughts together in a speech I called, “Deep Capture” (see “DeepCapture: The Movie” above). The next week I pulled those message board posts together into a website I created for the purpose: this website. So in brief, my answer to the Swiss was, “Deep Capture”.
After I launched this website, the intensity of the attacks picked up. The same acquaintances from my past who are worriedly contacting me now began contacting me in force then, concerned about my mental state. It was clear they thought the vacuous chortling and yuck-yucking must be getting to me; even more oddly, it was convincing to them. I explained to them that I had data, I had economists, I had ex-DOJ and ex-SEC attorneys on staff, I had insiders in the big banks and whistle-blowers across the system, I had distraught Swiss bankers, all confirming to me that I was correct. As a result, the calumny being directed at me was delicious.
Many “friends” ditched me around that time, for which I felt blessed. Who gets an event in life that lets one filter from one’s friends those whose affection is determined by public opinion?
September 2008 came and my gold bet paid off $23 million. I paid my taxes (after all, “I didn’t build that”) then took every penny of the rest and put it into my mitzvah (a Hebrew word meaning, “an obligatory good deed”, such as the 10 Big Ones: it brings credit to the Jews that they have a word for that, for in most cultures “good deeds” are supererogatory). Whenever I began to question the energy and money I was putting into exposing Wall Street riff-raff, and all the lawyers, lobbyists, detectives, informants, and hackers I had to employ to do so, I thought of that $23 million as “found money” born of the midnight whisper of a muse, sent by the Gods in the expectation that I would use it to proper purpose: defending the project they started in Athens 2,400 years ago.
Also satisfying was the payoff on the credibility bet. Some was private, such as when a funny AP reporter named “Paul” called me on September 16, 2008 to say, “Well, there’s ‘vindication’ and then there’s ‘Patrick Byrne vindication.’” Much was public, such as when Charles Gasparino, a serious and honest financial journalist, both noted my prescience in his book on the 2008 crisis and later mocked his co-stars on CNBC, saying, “Patrick Byrne was Right All Along”. A Wall Street Journal piece appeared in the last week of 2008, where the writer had the class to include me in a list of the five people who deserved credit for seeing it coming (the others included Nassim Taleb and Nouriel Rabini): “2008 Lookback: Best Calls of the Year”:
“5. Patrick Byrne Gets His Due. The quixotic chairman of Overstock.com, one of the more colorful chief executives around, has been pounding the table on naked short-selling for years. This year, the Securities and Exchange Commission finally looked into it and issued stringent rulings. Now, it wasn’t enough that a brokerage shorting a stock knew of the availability of shares to be borrowed – they had to deliver them on time as well, and if they didn’t, they’d be barred from engaging in another short-sale unless the shares had been borrowed already. Of course, Mr. Byrne’s company’s stock still fell 25% on the year, but never mind.”
But the NPCs were mute, without apology, as one would expect of those of not just low character, but no character at all. Jim Cramer explicitly refused to discuss me on CNBC while his own co-hosts chided him. Herb Greenberg fell silent, though he once obsessed over me to the point he devoted a column to the subject of how quickly or slowly I answered his emails (ignoring the fact that some days I travel and some days I don’t). Bethany McLean, exposed for her perfidy in such pieces as “Professor William Black Flunks Bethany McLean for Giving Hall Passes to Goldman Sachs” and “Bethany McLean: your benefit of the doubt is hereby revoked” , sniffed that covering me was not worth taking the risk that I would write about her any more (though she offered no rebuttal to those pieces, which included emails of hers obtained in a New Jersey courthouse that every news organization in New York read: one noted journalist later described Bethany’s emails as, “a disgrace to journalism”).
The pot I won included a Cone of Silence that descended on me. Major financial news organizations, from the editors of Fortune, Financial Times, Wall Street Journal, New York Times, and so on, had bet every ounce of their credibility against me. They had permitted their hedge fund choagies to run amok, violating the most basic principles of journalistic ethics, decency, and fair play, all on the assumption that I could not endure it nor do anything about it. But I kept calling their raises, and eventually they had gotten in so deep they finally slid their car keys into the pot.
But as I said, at the end of a hand of poker, cards talk and bullshit walks. This site proved so far ahead of its time that in 2008 and 2009 it was named the Best Business Investigative Journalism and the best place to learn about corruption in America (see details in header). We had Senators and Congressional committees calling us, asking is to supply data and analysis for events affecting firms within their states. Congress had a televised hearing on “capture” where one could see in their hands printouts of essays from this site from which they read.
The yuck-yucks who had spent three years high-fiving each other in anticipation of me folding my cards, instead slunk away from the table with hats pulled low over their foreheads.
Three weeks ago I publicly claimed that the Russian scandal and Clinton investigation are going to turn out to have been political espionage conducted by a Deep State against our republic. The weeks since then have shown that the institutional memory of the mainstream media has waned. Apparently, they have forgotten the public spanking I gave them a decade ago. Or perhaps they do remember it, and see this as their chance to win back the credibility they lost to me then. Whatever the reason, in the last few weeks NPC’s have written yuck-yuck articles in Financial Times, Bloomberg, and Forbes. More may be on the way.
It would seem the yuck-yucks want a rematch. For them I have this to say: Come get some. Bring your “A” game. I won your credibility last time, and (per a 2018 Gallup poll) only 20-23% of the public trust newspapers and television news (just under their trust in Big Business and Organized labor, roughly tied with their trust in the criminal court system, and above only their trust of the US Congress). So with what little you have left, please go all in. Seriously. You claim I walked away from our last game with your car keys, so you went out and bought a Porsche? Bet it: slide those keys into the pot. While you’re at it, bet the deed to your house. Bet the deed to your vacation home. Bet your kids’ college fund. For that matter, bet your kids. Don’t stop there: bet your wives, your girlfriends your mistresses. Slide them all into the pot.
I’ll give you my answer ahead of time: I call. And I feel it only gentlemanly to tell you that I do, in fact, have four aces. As I claimed on TV, I was in fact involved in the Russian and Clinton investigations, and I promise, it was all political espionage conducted by the Deep State against our republic. The Russian narrative you have been spewing (and the Clinton matters about which you have been living in denial) are going to blow up in your faces. A scandal is coming that makes Watergate look like a tea party, and many people whose names you know (and some you don’t) are going to be arrested and go to jail. And then, our country’s DOJ will have liberated our republic from the deep state which captured it.
But I’m likely bluffing. You turned out to be the pigeons last time, but maybe you’ll win big this time. Your dunce strategies will likely get me to fold. So bet large. It’s your big chance to get well. Don’t miss it.