Bitcoins and Gravy Episode #53: Patrick Byrne Speaks! (Transcript)
Episode notes and comments page :
https://letstalkbitcoin.com/blog/post/bitcoins-and-gravy-53-patrick-byrne-speaks
Professional transcription provided by a fan and consultant of the show, who can be found at : http://www.diaryofafreelancetranscriptionist.com
John Barrett (Announcer) : Welcome to "Bitcoins and Gravy", Episode 53. At the time of this recording, Bitcoins are trading at $229.00. And everyone's favorite, the LTBCoin, is trading at $0.000242 US dollars. Mmm....Mmm...Mmmm. Now that's gravy.
[intro music]
John : Welcome to "Bitcoins and Gravy", and thanks for joining me today as I podcast from East Nashville, Tennessee, with my trusty Siberian Husky, Maxwell, by my side. Say hello, Maxwell.
Max : Grrrr....
John : I'm just your everyday Bitcoin enthusiast, who loves talking with people about Bitcoin, and sharing what I learn with you - the listeners - here at the dawn of the "Age of Digital Currencies". If you've been here before, welcome back. If this is your first time, welcome to the show.
[intro music concludes]
John : On today's show I am honored to be speaking with a modern day American patriot - Mr. Patrick Byrne -the CEO of www.overstock.com . Patrick teaches us about public education in the United States, and how it is sadly broken on many levels, with more money often going to the administration, than to our teachers and our students. How sad, right? Patrick also tells us the truth about the SEC - the Securities and Exchange Commission. He talks to us about mobsters on Wall Street, and the crooked games they've all but perfected to rob this country blind. And, of course, he tells us about his project to create the stock market of the future, where - with any luck - we'' have a level and fair playing field.
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John : On today's show I am honored to be speaking with a very successful entrepreneur, a well known pioneer in e-commerce, and - in my opinion - a true American here, who has shown great bravery in speaking out againt crime on Wall Street, and injustices on main street. Patrick Byrne, welcome to "Bitcoins and Gravy".
Patrick Byrne : John, it's an honor to be on your show.
John : Oh, yes sir. And, you know, I just learned today that you are from Indiana, which makes you a Hoosier. Is that true?
Patrick : Yeah, I was born in Fort Wayne in 1962.
John : Nice, man. Well, I was born in West Lafayette, Indiana in 1963, when my parents were attending Purdue University. But I was raised in Indianapolis. So we have two Hoosiers here talking. This may be a first on "Bitcoins and Gravy" - I'm not sure - but ---
Patrick : You'll probably have to speed this up for everybody else. [laughter]
John : Oh, that's nice. So you live in Salt Lake City now. Is that right?
Patrick : Yes, I do. Sandy.
John : Yeah, my brother lives out there. He's been there the better part of 20 years, and he loves it. Let me ask you, did they ever move that industrial section out of the city? I know that winter, in particular, can be bad there in terms of air pollution.
Patrick : You know, they didn't. And to be honest, it's kind of funny. It's making environmentalists out of the Republicans here. Utah is generally a Republican state. No comments. No judging or applause. I'm just stating a fact. Generally Republicans, and of course, largely Latter Day Saint. And Republicans have not always been at the forefront of the environmental cause. But now that the Salt Lake Valley -- Utah is a fabulous place to live - great outdoors, great national parks, state parks. But now the Salt Lake Bowl has this effect called inversion, every winter, when the [?] spill, the valley will fill up, and you think you're in Mexico City, or Beijing - the air pollution is so bad until you get some precipitation - and suddenly these good, stout, Republican Utahans are starting to realizing that they should be environmentalists.
John : Wow, that's great. I guess that disproves the old adage, "You can't teach an old dog a new trick." Also, you often hear it said that, "Necessity is the mother of invention." I've always said, "No, it's desperation is the mother of invention." But, okay, so let's see, Patrick. You are a champion of education. You are also known as the "Scourge of Wall Street", because you have fought long and hard against the corruption there on Wall Street -- the very obvious corruption, I might add. And, of course, as the CEO of Overstock.com you also accept Bitcoin for your products. I know you have many more projects underway, so I will pass it over to you, sir, and I will put the ball in your court.
Patrick : Well, I'd love to talk to your -- you're hitting my three favorite subjects : education, Wall Street, and the "Crypto Revolution". Not only am I the "Scourge of Wall Street" - as Wired magazine calls me, and quite true. In 2007 I was called the most hated man on Wall Street - which I am quite proud of, and they can carve on my tomb stone, that in 2007 I was "The Most Hated Man on Wall Street." But also, you can go today to the Nea.org web site - the teacher's union is the National Education Association. And the NEA web site has a list of -- you know how much unions hate Wall Mart, for example. Or how they're all down on Wall Mart. They have a list on the NEA web site of "public enemies of the United States", or like, "public enemy #1". Well, if you look on the list, Wall Mart is number two. I'm number one. So, I'm the most hated man by the teacher's union, and I'm the most hated man on Wall Street. And that's a life well lived I think.
John : Absolutely.
Patrick : Let me stop by -- and by the way, I love teachers. I love teachers. Teachers are sacred, but the teachers' union isn't sacred. Let me start with education and Wall Street. The two propellers on the ship of state, that move any country forward -- any civilization, I think -- are really it's means of acquiring human capital - or creating human capital - and its means of marrying human capital to financial capital.
John : Okay.
Patrick : And the way those are done in the United States, by and large - the way we create human capital is the government school system. And the way we marry it to financial capital is Wall Street. So that means that the school system and Wall Street are the two things that we have to get right. Now everything else you've got to -- I mean, there's other things you have to do. You've got to protect the borders, you've got to have rule of law, and courts - and things like that - and police. But the two things that propel society are education and Wall Street. And both of those systems are broken. The way to fix education is to recognize that what we have is a "top-down model". You know, behind that local high school that you know and love, there's all these levels you don't see. There's the district, the county, the state and the federal - and they absorb huge amounts of the funding. And suppose you were talking to some Soviet Apparatchik hack from 1980... 1975, who was defending the Soviet agricultural system, and just saying what a shame it is that they've had 70 years of bad harvest since they collectivized everything.
John : Mmm...Hmm.
Patrick : But they were saying, "Well, we're going to fix it, because we're going to get smarter people in [Moscow?]. You know, the Soviet agricultural system worked by the folks in Moscow giving orders, down a chain of command, to some farmer in Siberia, who was getting told what he should grow, and when he should plant, and stuff like that. And suppose that some apparatchik was saying, "Well, we're going to improve the system by getting bigger computers in Moscow, and smarter people in Moscow, and better rules." And you were trying to convince him, "You know, maybe the solution is you should stop having it be "top-down". Have it be grassroots. Have the decisions made where the information is." And that would just, sort of, blow fuses in the person's mind. But we have the same issue here. We have an education system that is largely driven from the top - either the federal, or the state, or the county, of the district. And the truth is that it should be driven from the bottom up. And the way that you do that is you give every family a voucher. We're spending about $16,000 a year per student now in public schools in America - $16,000 per student. Give anyone who wants it a voucher for $8,000. So, the government would save so much money. We could balance our checkbooks easily if about 30% of kids took that deal. We'd balance all of the state checkbooks. But secondly, you'd have a much better education system. You'd have people voting with their feet, and you'd have all kinds of innovation in the school system that you can't do now within this, kind of, Soviet-style, "top-down", guild system that we now have. So that's the way you fix the first propeller, of education. You give vouchers.
John : You know, you talk about education, and Soviet-style, and it makes me think of a time when Hitler and Stalin and Mussolini worked to revamp the educational systems in their countries, to serve their purposes. Is it possible that that “top-down” system is specifically aimed at dumbing kids down?
Patrick : Well, it is specifically aimed at indoctrination. And if you don’t believe that, look into the roots of the public history of education in the United States… Horace Man. There were a bunch of elitist Bostonians, basically, who really were afraid of the “Catholic Wave” – the Catholics and the Jews washing up on American shores, basically. The public schools system was developed as a way of indoctrinating, and preventing kids from learning their parents’ values by indoctrinating them into a new set of values. So it’s very much associated with the anti-Catholic and anti-Jewish sentiment of the late 19th century. And to this day, they are muted about it, but behind closed doors – or in less public places – some of the arguments people have against vouchers – against giving parents choice – is that they would lose their ability to indoctrinate. And what is their ability to indoctrinate? As Milton Friedman used to say, “A socialist education system will teach socialist values, and a free-market education system will teach free values.” The fact that we have government running the school system means that the school system indoctrinates children, in really a very pro-government worldview.
John : You know, I’m probably naïve in some ways, but I was shocked when my little nieces came home from school – I was visiting them - and they were giving me the same curriculum. They’re telling me – I’m asking, “What are you learning here? What are you learning…?” They’re telling me the exact same curriculum that I was learning back in 1973, and I’m thinking, “My God! This is ridiculous!” Because, well, because some of what they’re learning is patently ridiculous.
Patrick : Well, there’s not an industry in America where there’s been less innovation than education. It’s beginning to happen around the edges. But basically how most kids go to school today, if you took somebody in a time machine, from 1880, and put them in a classroom today, they would immediately recognize it for exactly what it was. Where that’s not the case with just about any other job you can think of- they’ve changed tremendously, because there’s innovation. And there is so little innovation, because ultimately there is not choice. You need choice, and the first step towards choice is what some places, like Oakland, are doing. And some states have this now, I guess, where you can go to any public school you want, and your funding goes with you. So you get some choice. It’s like Henry Ford saying, “You can have any color you want, as long as it’s black.” [laughter]. But that’s some choice. The next step towards choice is charter schools. So, I support charter schools. I think it’s a great idea. But it’s still choice within the narrow range that the apparatchiks get to define for the parents. Real, full choice is you give them the vouchers, and then you start having all kinds of educational entrepreneurs spring up and teach kinds. And I think that you’d have – over a decade – it would just launch America. It would propel us so much if we could go to that system.
John : I agree. And, you know, talking about choices, I’ve got a friend who’s a social worker on the south side of Chicago. She’s been doing that for years. She loves it. But it’s also a huge stress on her life, and she’s experienced burnout in the last year, and she’s trying to come back from that. But talk about no choices. You’re talking about going into almost a policing situation – a battling situation – where teachers are battling the administration, and then they’re also having to battle the students, but they’re having to protect the students from things that are going on in the school, that are set up by the administration. I mean, it’s just a bad situation, in some of the bigger cities in particular.
John : Yeah, and I feel – I love the teachers – I feel [?]. Here’s something – so the teachers’ union hates me, because a guild always wants to protect its monopoly, and that’s why the NEA has me as “public enemy #1”, and Wall Mart is #2. I think that’s hilarious, and it’s right up on their web site now. But I have great feel for the teachers. And the way that I try to get teachers on my side is to point out to teachers [that] teachers, on average – there’s about $400,000 going into the system now for every teacher. But I don’t think very many teachers are making $400,000. Teachers make, on average, about $55,000. Then if you add benefits – this is according to the National Labor Board – if you add benefits, it’s probably about $65,000. If you add the cost of a classroom, and heating, and lighting, and cleaning, and so forth. You know, you’d be hard-pressed to identify $100,000 of cost to actually put a teacher in a classroom, in front of kids.
John : Right.
Patrick : So there’s $100,000 of the cost. Where did the other $300,000 go? So when I make that point to teachers, they often realize that I’m not the enemy. I’m on their side. You could have teachers making a hundred, two hundred – I mean, great teacher could be making two hundred thousand – there’s $400,000 of funding in the system for every actual teacher. And they’re not seeing the money. The money is going all of these levels that people don’t think about.
John : Yeah, where is that money going? Is it primarily going into administration?
Patrick : Administration within the school system. Lots of bells and whistles. About half of it is being eaten up outside the classroom. Like I say, you have federal, state, county and district. Find your local school district headquarters and go look. You might find that there is some $25 million office building you never knew about, and it’s just there to oversee some high schools, etc. Why do we even need that? Why do we need the state? Why do we need…? There’s just all of these levels of bureaucracy. Now when you go to attack it, they’ll trot out their local high school teachers and say, ”Oh, this guy doesn’t like teachers!” No man, I love teachers! The local high school teacher is just the prop for them. What they’re really defending are these layers of bureaucracy that they don’t want there to be any accountability for.
John : How sad to think that there are actually adults that would collude in such a manner that would hurt our children. Honestly, that’s unforgivable.
Patrick : The president of the American Federation for Teachers, I guess, in 1985, said to a group of teachers – or union members – that, “I’ll start worrying about kids when they start paying union dues.”
John : Hmm.
Patrick : And even governor Cuomo, of New York, just said like last week – he’s come out and he’s getting all of this. I can’t believe we’re finally getting a democratic politician saying this stuff, because they’ve been so beholden to the teachers’ union. But Andrew Cuomo came out and lit into the teachers’ union over the weekend, and he’s making a lot of these same points. So, boy, I really respect the heck out of governor Cuomo for having the courage to do that to his own base.
John : Wow, that’s great. And, you know, we do see things that give me hope. Like a few years back when the teachers of Chicago rallied and took to the streets and basically slapped Rahm Emanuel down. My friend was there marching with the teachers, and she said it was a beautiful thing to see. So there is hope. But yeah, I love hearing that about Cuomo. I hadn’t heard that. I should probably keep up on that a little bit more.
Alright, well let’s see, I once read that you had taken out a full-page advertisement in the Washington Post wherein you talked about “Naked Short Selling” as “stealing from widows, retirees, and other small investors.” So there’s that, and then I’ve heard you speak about knowing that the SEC has colluded with organized crime. And, of course, you were angry and brave enough to broadcast that fact out to the world. I have to say, this reminds me of Eliot Ness busting bootleggers during prohibition, but on a much more dangerous scale. I mean, there were organized crime bosses, and their underlings, who were trying to kill Eliot Ness and others, right? Of course, I have a great deal of respect for any American hero, like Garrison Keillor, when he spoke out against the wars in the Middle East a few years back, and got a lot of flack for it. I have a lot of respect for American heroes, and so I can’t help but, kind of, worry about you and your safety. And I’m certain that you’ve had those same feelings yourself.
Patrick : Well, my theory has always been, “If they blow me up, I win.” That’s one of the reasons I got so public, and out there. I did get death threats some years ago, and I made a choice to get out there, go over the top, get as public as possible, so that if they blow me up I win. In 2002 we went public, and when you’re a public company CEO you’re out there mingling, with hedge funds, and prime brokers, and regulators, journalists, and expert network systems. It started becoming clear to me, very quickly, that there was a bunch of criminality going on. It was quite well-known. And, I mean, it was well-known within the hedge fund community, how the game was being played. There was a constellation of dirty hedge funds, centered on a guy named Steven Cohen – a constellation of about 15 hedge funds. And they were all working together, to some degree. They had a similar system of getting inside information – it was called the “expert network system”. And they would both trade on inside information, and creating – in a sense – inside information, by rigging the market. And that there were ways to actually rig the market – not in big companies, but in smaller companies, you can actually do things to manipulate the market. And I gathered a lot of evidence of this, and then started bringing it to people like the SEC. I mean, I went to the SEC and explained the whole “going public”, what was going on within the IPO system, and some of the things that had been told to me – when we were going public – by bankers who wanted to take us public. Promises that were made, and overtures that were made – absolutely criminal things. I started telling the SEC, and I got not action. I went to the Senate Banking Committee, and House Financial Services. And I went to some prominent journalists on Wall Street. And what I learned was they were all, kind of, in bed together . And these big hedge funds – and Steven Cohen being the worst – nobody wanted to touch. They would go after little guys nobody wanted to touch. In fact, the hedge funds, and their law firms, were hiring people out of the SEC.
John : Hmm.
Patrick : There’s a tradition in Wall Street, and I don’t know if I’ve ever said this publicly. But there’s, kind of, an ethic in Wall Street, that if an Eliot Ness rises up in the SEC – somebody with leadership ability. It isn’t brains, but somebody with leadership ability. They get poached. And the idea is that all the bankers and hedge funds know to do this. The idea is to leave behind, kind of, a managerial “grey goo” at the SEC, that’s incapable of getting out of its own way. So if anybody shows up with any real talent, they get poached. They get offered, you know, “a million eight” dollars a year to go join some law firm that’s representing Goldman Sachs. So what gets left behind is largely a “grey goo”. Now I like the woman who’s running the SEC now, and I think the SEC is better than it was six or seven years ago. But I still think the SEC should be just made part of the DOJ.
John : Mmm Hmm.
Patrick : But that’s a subject for a different day. So, then when I was, sort of, pulling on the thread of, “Who are these hedge funds who are doing this? And how are they manipulating the market?” it became very clear that there’s really quite a blurry line between organized crime and the hedge fund community. And some hedge fund people have absolute, out-and-out, deep organized crime backgrounds. For example, Michael Steinheardt, his father, Sol Steinheardt, was the largest mafia fence in America.[He] worked for the Genovese family. Was sentenced to 10 years in “Sing Sing”, and it was called by Frank Hogan – as the prosecutor at the trial – “This is the largest mafia fence in America.” While he was in Sing Sing he sent his son through Wharton. His son came out of Wharton, in 1967, and started, basically, the first hedge fund called “Steinhardt, Fine, & Berkowitz”.
John : Wow.
Patrick : As he later disclosed – but only because I was about to disclose this, I believe – his money, his funding, came from his dad’s associates. He used to get sacks of cash. His dad’s mob associates. In the 1970s the mafia moved into Wall Street. And Michael Steinheardt was really the point of that – the tip of the sphere of that. I know a lot about Steinheardt. For example, Steinheardt was very close friends – financier buddies – with a guy named Mark Rich. Mark Rich got caught – he is a billionaire… was a billionaire, he died a couple of years ago – got caught trading with Iran and Libya, and had to flee the United States in the early 80s, and lived out his days in Zug, Switzerland. And Steinheardt tried to get Mark Rich pardoned. Steinheardt was the guy who got Bill Clinton – it was a very controversial pardon on the last day of Clinton’s presidency – and they pardoned Mark Rich for a bunch of his stuff. But some things they couldn’t pardon him for – tax evasion and stuff. But Steinheardt himself got dinged by the DOJ for manipulating U.S. Treasury instruments. He had to sign a lifetime consent decree – and pay, I think, a $70 million fine. So the DOJ said this guy is not allowed to touch the security of the United States government. Well, that’s because Steinheardt is a market cheat. He knows how to rig the market. And Steinheardt has an absolute background – I mean, he’s acknowledged that, through the 70s, his funding was coming out of the mafia. It was coming from his dad’s mob associates.
John : Hmm.
Patrick : So this idea – and I know that people roll their eyes [at] the idea that the mafia is on Wall Street. Go Google a couple of things. Google “Operation Uptick”, the largest FBI arrest of the mafia in history, happened 13 years ago. They swooped in on Wall Street and picked up 120 mafiosis around Wall Street. If you’ve seen that movie “The Wolf of Wall Street” with Leonardo Dicaprio, the one, sort of, angle they left out is [that] those kind of shops – which are called “boiler rooms” – are mob. Wherever you see those kinds of shops, that’s the mafia. And the Gambino and the Genovese family have, sort of, a background in the “boiler room” operations. There was a man on the “FBI Most Wanted List” – the godfather of Russian organized crime – his name is Semion Mogilevich. The guy is one of the poorest human beings in the world. He’s been involved in slavery, in gun-running, drug running - everything in the world. The thing that actually landed him on the FBI “Most Wanted” list was when he got involved in market manipulation, with a Philadelphia company called YBM Magnex. He’s the godfather of Russian organized crime. And I’ll give you two more examples. Admiral Dennis Blair, who was the first Director of National Intelligence, his last speech to Congress in 2009, he talked about this grave danger faced by the United States, that transnational organized crime has worked its way into Wall Street. I’ll also mention that in July of 2011, our president, Barack Obama, signed an executive order declaring an emergency, that transnational organized crime has infiltrated our financial system.
Johm : Hmm.
Patrick : I’ve been saying this since about 2004, publicly. People think that, “You watched “The Godfather” too many times.” But I can tell you, from swimming around in Wall Street, I started picking up that there was very serious organized crime involvement. And in particular – and this leads to our Bitcoin subject –the place of infiltration, or the place that’s most dangerous, is the settlement system. Now, I have a web site called “Deep Capture”) ( www.deepcature.com ), where I’ve got investigative journalists, and we write about hedge funds, and stuff. And we trace hundreds and hundreds of pages of connections between well-known hedge funds and organized crime. There’s all sorts of deep connections over the years. Michael Milken - the criminal from the 80s – what he did was basically take an organized crime technique, called a “bust out”, and move it into the world off high finance. Again, that’s not me saying that. That’s the FDIC, the federal government – the indictment. They’re the ones who said, “This guy took the techniques of organized crime into high finance.” Well, if you look at his associations, he turns out to be all “mobbed up”. And again, some of the same “Fat Tony Salerno’s” – who was the boss of the Genovese family. There’s all of these deep connections between organized crime and the worst – or richest – elements on Wall Street – including Steven Cohen. And Steven Cohen got dinged in the last couple of years with $1.8 billion fines, and a criminal indictment against his firm, and such. So, there are all kinds of brokerages on Wall Street that, sort of, go under some DOJ indictment for being a front for organized crime. There’s been all kinds of brokerage houses – and again, it’s all been written about at www.deepcapture.com . There’s one notorious “bad boy firm” called “Spear, Leeds & Kellogg”, or something. And they were a notorious “bad boy” firm, for really being at the very edge of the law. They got bought, about 10 years ago, and became known as “Goldman Sachs Execution and Clearing”. So at the core of Goldman Sachs, there is a subsidiary that has a really dubious, shady history – and a bunch of really nefarious market-manipulating activities. And so you can’t think of Wall Street as a bunch of “white shoe guys” with Harvard MBAs. They may be “white shoe”, and they may have MBAs, but there is a real organized, criminal element involved in Wall Street.
John : What shocks me, I guess, is “Why is it that we don’t hear about this often?” You know, why don’t we hear about this on the news. Why don’t we have films coming out that will address this, and go into great detail about the organized crime. Why are we not seeing this – if nothing else – in Hollywood? I don’t understand that. That doesn’t make sense to me.
Patrick : Well, you know, here there was this movie “The Wolf Of Wall Street”, which was about a “boiler room”, and it left out this whole angle. That the “boiler room” shops – that are typically out on Long Island, and they’re typically organized crime. You know, strip joints, in America, are basically mobbed up. That’s an industry that – if you walk into a nice strip joint, or a high-end strip joint – you know it’s mobbed up. So here’s this movie about the “Wolf of Wall Street”, that just left out that whole angle. I’ll tell you, there’s a reporter at Forbes named Nathan Vardi, who wrote something in 2007 called “Sewer Pipes” (http://www.forbes.com/forbes/2007/0212/064.html ). And it was about a hedge fund, and a guy named “Corey Ribotsky” – a Russian guy at a hedge fund called, I think, “N.I.R.”. And they were involved in a certain type of financing on Wall Street that was notorious “mobbed up”. And he all but said that – eh, he probably did say it – that this was a corner of Wall Street that was pretty much [a] purely organized crime operation. I had lunch with that reporter once, and he said, “You know, Patrick, even in the United States there are limits to where a journalist can go when he talks about organized crime. And I, Nathan Vardi, am right at the limit. You are way, way over that limit.”
John : [laughter] Oh man. So there’s you speaking up about it, and then he wrote that article. But nobody else speaking up about it? Is it just purely fear that somebody in Hollywood wouldn’t want to put a movie out there, because they wouldn’t be able to get it funded? Or they wouldn’t be able to get it distributed? Or they would get too much flack for it? I just don’t understand that.
Patrick : Well, I didn’t understand it either, until I realized the system is captured all the way down. Everybody is in everybody’s pocket. Nobody cares. Those highfalutin hedge funds and the prime brokers are in it together. And in 2005, when I came out and said, “Look, the SEC is not protecting the United States. It’s actually in the pocket of Wall Street. It’s called a “captured regulator”. I had the New York Post run photo-shopped photos of me with UFOs coming out of my head . Like, “Crazy! Crazy! What a conspiracy theorist! He thinks that the SEC is in bed with Wall Street? Conspiracy theorist!” You know? Whenever you hear somebody say, “Oh, conspiracy theorist!” you’ve got to put your hand on your wallet. Now, I think, anybody – unless you’re living under a rock - you get that the SEC is a lapdog of Wall Street. Historically, it has not protected America. It has been in bed with Wall Street. But boy, if you said that 10 years ago, people thought you were crazy.
John : Wow, you know, so when you get a newspaper, or a news outlet, saying you’re a conspiracy theorist, just like you said, “Watch your wallet.” Right? Because it’s a fair bet that they are in some way colluding, right? I mean, that’s what it sounds like to me.
Patrick : Right. And in this case there’s about half a dozen reporters with a hedge fund beat on Wall Street. Certainly this was the case up to ’08. There were half a dozen reporters on the hedge fund beat, and they set the tone. So, I absolutely think some of them were in the pocket. And I know I can name the names of – I know how bad the bad ones were : Herb Greenberg, Bethany Mclean, Roddy Boyd, Joe Nocera, Carol Remond. Absolutely! Well, Carol Remond – we’ve disclosed this – Carol Remond was sharing an email account at Yahoo, with a hedge fund. And they were cooperating on spreading rumors on message boards. So, you have an award-winning, Dow Jones reporter, who was secretly sharing a Yahoo account. We revealed this, and some journalist wrote about it. Didn’t name Carol Remond, but we explained that we had gotten access to this email account – this Yahoo account. We were able to document that it was being signed onto by a hedge fund called “Rocker Partners”, based in New Jersey, run by a guy named David Rocker - David Rocker was the protégé of Michael Steinheardt. And shared with Carol Remond, who was an award-winning Dow Jones reporter, and they were conspiring together in this account, and they were spreading all of these rumors from this account. So you have a reporter cooperating with a hedge fund.
Oh, here’s an interesting angle I left out. Michael Steinheardt had this very aggressive trading style, based on getting inside information by the large fees he paid. So, I have a cousin who actually covered Michael Steinheardt. He’s told me that Michael Steinheardt once called him and said, “Hey, you came out with this downgrade on GM [or IBM or something]. Why didn’t I know about this 10 minutes in advance?” And my cousin said, “Come on, Mr. Steinheardt. You know I can’t do that.” And Steinhearrdt says, “Look at what I pay you! I pay you $5 million a month in commissions! You tell me you can’t give me that [information?]?” “Fancy information”, he called it. So he had this very aggressive style, based on inside information. Steinheardt had two proteges. One was a guy named David Rocker – who I ended up, sort of, tangling with, and so forth. The other was a woman named Karen Backfish, [who] was his head trader, and his protégé. Karen Backfish married a fellow named Jim Kramer. And Jim Kramer disclosed, in his early books, how everything he learned he learned from his wife, Karen Backfish. Now Kramer downplays his connection to Steinheardt, but the truth is that the two years he worked in Steinheardt’s office – two doors down from Michael Steinheardt - they were very close.
John : Hmm. [31:25]
Patrick : So when you see Jim Kramer – and that whole crew, like Herb Greenberg, Jim Kramer crew - is produced by… Warren Buffett says, “If you ever sit down at a poker table, and in 15 minutes you haven’t figured out who the pigeon is, it’s because you’re the pigeon.”
John : [laughter]
Patrick : If you’re getting your information from Jim Kramer, or really anybody on CNBC, there is a fax machine in the offices of CNBC where the hedge funds fax their “in” to the journalists. And the journalists take the faxes, and then go on air and say what they’re told to say - which means that those hedge funds have a very special edge on the market. If you know what journalists are going to be saying in an hour, or 10 minutes, you can trade ahead of it. And they use a fax machine because email leaves traces – faxes don’t leave traces. So, if you’re getting your information from CNBC, you are the pigeon. It’s a hedge fund infomercial. You’re just getting information that hedge funds want you to have so they can go front-run it.
John : Man, that’s amazing stuff. I think a lot of people would listen to what you’re saying and they would think, “This is like a movie, or something! This is unbelievable!” And I would simply say, “Well, yeah. Truth is – reality is stranger than fiction.” Right? I mean, we do live in a world where historically – going back to the beginning of time – people have colluded. People have conspired to take down governments, to set up military coops. I mean, this is the reality of what happens on this planet. And it is so funny to me – and so sad –that you have people who, somehow, have come to believe that things like this could never happen in America. They have this “Disney” sort of view of the world.
Patrick : Oh, wake up, sunshine. Wake up – anyone listening to this who thinks that. I’ve been in the belly of the beast. I’ve been in the belly of the beast for over 10 years. I didn’t start off this way. I got hereby ’04… ’05. I had it all figured out. I had it all mapped out. I was out there saying, “Look, there’s this criminal gang on Wall Street, centered on Steven Cohen. They’re trading on inside information. They’ve bought off the SEC. They’re creating systemic risk. The system is going to crack. All kinds of predictions I made came true, including the whole network that I was talking about. It’s been rolled up. The Feds have gone after and indicted, and arrested 200 people. About 80 or 90 have been put in jail, for all the kinds of practices that I was talking about in 2005, that everybody was making fun of me, and saying, “How could that be?” Well, there’s been like 80 people put in jail for their involvement in these “expert network systems”.
John : Wow. You know, that makes me feel good, because there are some times when I feel like everybody’s been captured. No one is doing their job. No one is here to help us. No one is here to stop these criminals. But from what you’re saying, there are people actually doing their jobs. That’s great news, right?
Patrick : The only people who are – in my view – are the FBI. The only people who are, that I trust. I don’t trust the DOJ. I’m not a fan of the FBI. I try to keep my distance from all federal authorities. I’ve got to mention that as I started this stuff, I started getting warnings that, “Byrne, if you keep on doing this, you’re going to become the object of a federal investigation.” And I said, “What are you talking about? This isn’t Paraguay. You don’t get retaliation from the government.” And they’re like, “Oh, you just wait and see.” Sure enough, I became the object of six federal investigations over the last decade.
John : Wow.
Patrick : Every one goes nowhere, or is de minimis. They get rolled up. They get dropped. They have to give me a letter that says, “Okay. We found nothing.” And then six months later they start a new one on something else. So I keep my distance from the Feds by a country mile. However, all that said, the only ones who are doing their job, I think, are the FBI. Which is why I think – you know, the SEC was a compromise. Can I give you a little bit of history? Really important history?
John : Absolutely.
Patrick : Franklin Roosevelt said that of all the reforms he tried to make in America, the reform of Wall Street was the most hard-fought. He wanted to set up a division within the DOJ that would police Wall Street, and arrest people. And Wall Street pushed back… with all their might. Will Rogers said something funny…”Them Wall Street boys are sure puttin’ up a fuss about having a cop stationed on their street corner.” Which should have told them something. Well, they ended up with a compromise, and the compromise was to be a civil commission that had no real crime-fighting authority. It was just a civil commission that would study Wall Street, and file law suits on behalf of the public when they saw some egregious activity. And that commission was called the “Security and Exchange Commission”. But it’s a pure compromise. It has no real – they’re the “meter maids”. They’re the meter maids. The only thing that scares the gangsters are orange jumpsuits. The gangsters are not scared of meter maids. So that’s why I think the SEC should be unplugged and moved into the DOJ, and be part of the DOJ – you know, have real teeth.
John : Sound like it would be a good move, right?
Patrick : I’ll tell you another good move. I believe in capital punishment, in extreme cases. And here’s one. When you’re talking about this sort of systemic fraud that has risked taking down our country, I think they ought to start hanging the bankers. Put some gallows up, and start hanging people like Bernie Madoff.
John : I agree completely.
Patrick : And don’t stop until you get to Lloyd Blankfein. Just joking Lloyd [?]
John : [laughter] Oh, that’s funny.
Patrick : Yeah, I mean I can go on and on about Goldman. It’s crazy. You know the crazy deal that Goldman got? It’s the only bank that got this special deal in 2008. They got to move their derivative – they had to suddenly become a bank, in order to justify getting bailed out by the federal government. So they did this rushed – all these guys suddenly became banks. But Goldman got to move its entire derivative book into the subsidiary that was insured by the FDIC. It’s the only one who got that deal. And you may have heard at the end of last year, as Congress was on its way out. Did you hear about the “Citibank Deal”. Congress did this thing that offended a bunch of people. They basically let all the banks do that – move their derivatives into the [?]? That was just letting the rest of the banking system catch up with the deal Goldman got in 2008.
John : Man, that’s so sad.
Patrick : And who gave them that? Hank Paulson, the former chairman of Goldman. I mean, the incestuous relationship between Washington and Goldman Sachs is disgusting. And this is where republics go to die. This is what happens with republics. They get hijacked, and it becomes an oligarchy.
John : So how do you think it’s going to play out. And how do you think that Bitcoin can play a part in this? Or digital currencies?
Patrick : Well, it’s going to play out, I think – I had some hope that our president was going to confront this. He got snowed, and didn’t do it. Nothing has been fixed. All we have is Novocaine. We’ve had big Novocaine injections, and I think that something 2008-like, or worse, is on the way. And nothing has fundamentally been fixed. Crypto actually has a role both in preventing a deep crisis, and – if a crisis occurs – making it survivable. See, what I got so obsessed about in the last decade, was that the systems – I became aware that the systems of property, the systems for exchanging property that we just take for granted – these back office systems - actually have quite a bit more slop in them then you might imagine. And there’s daisy-chains of contractual rights where you think… For example, you may think you own some stock in some American company – some publicly traded company. If you have a 401k you think you own some stock. You really don’t. You don’t own any stock. There’s one company, called [“CD and Company”?], that actually has all of the property rights in all of the stock. Then there’s a corporation called the “DTCC” which has contractual rights against it. Then brokers have contractual right against the DTCC. Then another ring of brokers has contractual rights against the first ring. And then you have contractual rights from your broker. If you read the fine print of your brokerage statement, you’ll find you actually don’t own stock. What you own are basically like IOU’s from somebody who has IOUs from somebody who has IOUs. So these daisy-chains of IOUs against the guy who actually owns it all.
John : Wow.
Patrick : So, that has played a role in just about every scandal you’ve heard about in the last six or seven years. Because those daisy-chains get rubbery, and the systems are losing track of who owns what. It played a role in the mortgage-backed security crisis. It played a role in naked short selling, and the things they had to fix [in] 2008 when the wheels started to come off. And why I think that crypto – like Bitcoin and the blockchain… You see, it isn’t Bitcoin itself that I’m so enamoured of. It’s the blockchain, and that technology.
John : Mmm Hmm.
Patrick : Because it means we can eliminate – we can actually go back to having real ownership. You will actually have direct ownership in what you think you own. And it isn’t just, “You have contractual right against some company, that has a contractual right against some company…” You could actually get back to real one-to-one ownership. And if that happens, I think it is going to take so much slop out of the system. The good thing is that it’s going to take all the slop out of the system. The bad thing is it’s going to exposure how much slop there is. And if it is as bad a Ponzi Scheme as I think it is, and so much has been drained – has been embezzled from the system – that there’s far more people who think they own things, than there is the actual underlying ownership. And this comes up in “naked short-selling”. It turns out there’s brokerages that might have a thousand shares of a stock, but they’re telling five different clients they each own those thousand shares. It’s “Fractional Reserve Banking” without reserve requirements. And so it’s going to exposure – as it gets adopted – it’s going to exposure this tremendous, sort of, bezel within the system. So the bad news is it’s going to make it impossible to keep the Ponzi Scheme afloat anymore, but the good news is that it’s going to make impossible to keep the Ponzi Scheme afloat anymore.
John : Ha…ha…ha. Wow. Yeah, that’s heavy stuff. And it sounds to me like there’s the possibility –over the next couple of years, or certainly, over the next decade – of a lot of people losing a lot of their wealth – their family wealth, their investments. Whether it’s 401ks or what-have-you. And that’s pretty scary.
Patrick : Oh, it’s very scary. But the truth is that what’s happened is that you’ve already lost it. America’s already lost it. There was a great economist, John Maynard Keynes – some of us like him for other reasons – but he used to speak about “the bezel”. And the bezel was, if you could, sort of, freeze time, and suddenly understand what there was in the financial system, and then what everybody thought they owned in the financial system, there was an enormous difference. And that difference is the amount that had been embezzled, over time, out of the financial system. He called that amount “the bezel”. I think the bezel could be bigger than anything that can be filled in. It could be a “black hole” that no matter how much they try to throw into it – how many trillions… I do know that the systems have lost track of who owns what. And you just hope that the music, and the game of “musical chairs”, doesn’t stop. So I think that they’ve already lost it. I think that the system’s just been looted, and the best we can hope for is to replace it – or to adopt a robust system that is secure from these kinds of predators. And that system has finally come along, and it’s the blockchain. It’s crypto. There’s all these centralized institutions we’ve had to trust, which have proven to be untrustworthy. And we no longer need the centralized institutions. We can go to peer-to-peer, direct, consensual exchange through the blockchain. It’s so world-historical what it does for us.
John : Right, that we can utilize that public ledger that is indelible, right?
Patrick : Right. And transparent.
John : Yes, And transparent. Which is so important. But you were also working on a project to start an exchange, if I’m not mistaken. Is that right? Something to replace Wall Street?
Patrick : Yeah. It’s a blockchain-based version of Wall Street. So you would actually - - companies would be able to issue stock, and you wouldn’t have custodians holding your stock, and lying to you, and telling five different people that they owned it. You would actually have direct ownership in the stock you thought you did - just like the old time paper stock – but it couldn’t be forged. We call if Project Medici, and we’ll be having some announcements, I hope, this year, about its progress. And we’re making pretty good progress.
John : Okay. And do you feel like you’re getting a lot of flack from people who would not want Medici to exist?
Patrick : Well, it’s kind of hard to stop it. The way we’re doing it, it’s hard to stop it. And surprisingly – and I have to say I’m, kind of, humbled by this – the Washington regulators have, at least, sent signs that they’re willing to work with us, and sprinkle their regulatory “holy water” on this, and make it legal. We’re trying to play this right down the middle. We’re trying to build a system that meets all the needs of Washington. And Washington has legitimate needs. They don’t want there to be money laundering. They want there to be KYC – “Know Your Customer”, AML – “Anti Money Laundering”. They want -- any system that is developed to have certain features. Well, we can develop all of those features within a crypto-based system. So we want to accommodate the regulators. And so far, I’m pleasantly surprised to learn that the regulators are, at least, making the noises that they’re going to be adults to work with, and not just try to block this. Now, I think Wall Street, when they really figure out – when they see what we’re building – they’re going to understand. I mean, this has the potential to put them in the “buggy whip” business.
And it’s funny, I speak at conferences, and sometimes Wall Street people come up and say to me things like, “You know, we know that in 10 years our whole system – as we know it – is going to be disintermediated. And we’re all trying to figure out what you guys in the crypto movement are doing. But I’ve specifically been told, on a number of occasions, that “We understand that within 10 years the whole world, as we know it, will be done.”
John : Wow. That’s a beautiful thought.
Patrick : Yeah. And it couldn’t have happened to nicer guys.
John : [45:09] [laughter] . Oh, I completely agree with you. That’s a great thought, and that’s a great way to end the interview, with an optimistic thought for the future. Well Patrick, it’s been great talking with you about these important issues with you today. And I have to just ask you a question. I watched a video of you doing a card trick a while back, and I have to say I was blown away by it. You went through an entire deck of cards, and somehow you memorized the order of these cards. Then you were able to recall each card, in order, before they were turned over. And you did this in front of an audience of – I don’t know, there were 20 or so young people in the room. I have to ask you where that was, and of course, how did you do that?
Patrick : Well, that was at our company – just a meeting [where] we were killing some time. And if you want to know the trick, the trick is that there’s no trick. If you go on YouTube, look for my name, and say, “deck of cards” (https://www.youtube.com/watch?v=5S9cjzlQLq8 ) you’ll see that video up there. And the trick is it’s not a trick.
John : The trick is that it’s not a trick. So you can do that again, obviously.
Patrick : I can do that any time I want. I can probably recite that deck from a couple of years ago. Believe me, I’m missing a whole bunch of critical human functions and faculties, and such. I’m looked at as eccentric by those close to me, but I’ve made up for it in other ways.
John : Hey man, that’s really cool. I too am missing some things that I wish that I had. But I will say that just speaking with you, and the times that I’ve listened to you on YouTube videos, and some of the conferences that you’ve spoken at, and a lot of your writing I’ve read. I’m very impressed by how much you really seem to care about this country. And, you know, there’s a lot of lip service given to this country, and there are a lot of people who will say one thing and do another thing. But you are one of the few people I listen to who is doing what you say you are going to do, you’re able to do a lot, you’re out there doing it, and you’re doing it to serve your country so much more than some of these other folks that other people consider heroes. I consider you a true American hero. And I do not say that to flatter you. I say that to thank you.
Patrick : Well, that’s very kind of you John. I figure I’m the last guy in America who has an excuse to take a dive. Hey, I’ll show you one other trick. You said you were born in 1963?
John : Yes, sir.
Patrick : Tell me, what’s your birthday in 1963.
John : October 15th.
Patrick : Uh…that was a Tuesday. October 15th, 1963 was a Tuesday, and it was four weeks before Kennedy was shot.
John : That is exactly right.
Patrick : Look it up on www.timeanddate.com . Do you know if you were born on a Tuesday?
John : I know for a fact that I was born on a Tuesday.
Patrick : Well how about that? “Man skills” like that? Can you believe I’m 52, and never been married, with “man skills” like that?
John : Hey, I’m 51, right – born in ’63… you were born in ’62. I am 51. I’ve never been married. And I say two things when people ask me – in shock, you know, I’m here in the “Bible belt” – “You’ve never been married? Why not?” You know, they have their theories. And I say, “Well, it’s a two-sided coin. On the one hand, if I never get married, and meet the love of my life, and have a family of my own, it will be the greatest, single disappointment of my life.” On the other side of the coin, I can say with great relief, ”I’ve never been captured.”
Patrick : [laughter] Well, I’ve got a different answer. My answer is, “I never found one who would have me.” So I have an easier answer, and it’s amazing. If there’s ever a woman out there who needs a guy who can do “mental magic” like that – math skills – and memorize a deck of cards, they know where to call.
John : Well, you’re a “Jack Of All Trades” in many ways, and I am too. I don’t know if I’m on the same level as you, although I know I fix a mean lamp, and I’m a pretty good woodworker. But I would say that you are definitely a good catch, and I think that I’m definitely a good catch. I just don’t know. It seems like there is some cosmic force that has some play in this whole thing. But I say, don’t give up hope, because I believe there is a wonderful woman out for you, and for me as well.
Patrick : Well, best of luck. I’ll lay my money on you before I lay it on me. Best of luck, John.
John : Hey, you too. Nice talking with you Patrick.
Patrick : Bye, bye.
[segway music]
John : I know some of you may think that I am a nerd, but I have for you a “magic word”. And today, the magic word is “criminal”, “C – R – I – M – I – N – A – L”. As in the sentence, “ Wouldn’t it be nice if we could take every criminal on Wall Street, and hang them for their crimes.”
[laughter and applause]
[“The Bitcoin Blues” song music with lyrics]
John : Thank you very much folks. [laughter] It is always great to be back here in Amsterdam, yes. I love this city. I love the feel of it. I love the energy. I love the fact that you’ve all had so much to drink that I’m sure you’ll enjoy the performance this evening. [laughter] But seriously, folks, I wrote this song as a response to all of the stupid things I’ve done when it comes to Bitcoin, over the past three years. All of my regrets that I have, and all of the times that I have legitimately had the Bitcoin Blues. So now present to you “The Bitcoin Blues”…
“Wasted all my time, back in '09, I should have been mining blocks,
Now all I've got’s a Dogecoin rig, and holes in my Alpaca socks.
I got them low-down Bitcoin Blues, I'm cryin’,
Hear the low-down Bitcoin news, I ain't lying to you.
Low-down Bitcoin Blues, I'm dyin’ honey,
Low-down Bitcoin Blues.
BTC convention came to my hometown at last,
I had to sell my only bitcoin, just to buy a two-day pass.
I got them low-down Bitcoin Blues, I'm cryin’,
Hear the low-down Bitcoin news, I ain't lying to you.
Low-down Bitcoin Blues, I'm dyin’ honey,
Low-down Bitcoin Blues.
[whistling]
…Young lady, I really hope that’s your brother you’re sitting next to, because I finally got up the courage to ask you on a date after the show…
Took a trip to China . . . town for Beef Chow Mein to go,
Fortune cookie told me "We no taking Bitcoin anymore."
I got them low-down Bitcoin Blues, I'm cryin’,
Hear the low-down Bitcoin news, I ain't lying to you.
Low-down Bitcoin Blues, I’m dyin’ honey,
Low-down Bitcoin Blues.
Went uptown to see my CPA for some advice,
He told me death and taxes son, and then just roll Satoshi Dice.
I got them low-down Bitcoin Blues, I'm cryin’,
Hear the low-down Bitcoin news, I ain't lying to you,
Low-down Bitcoin Blues, Im dyin’ honey,
Low down Bitcoin Blues.”
[whistling outro]
John : Thank you very much.
[applause]
John : And, as I promised, a little update on the tickets I won from “Coin Telegraph” ( www.cointelegraph.com ). I’m still waiting to hear back from Maria Jones, or anyone over there at Coin Telegraph. “Hello, Coin Telegraph… Can you hear me… dee… dee... dee…dee… dee. ..dee… Come in, Coin Telegraph… dee… dee... dee…dee… dee. ..dee… Come in, Coin Telegraph.” I just know that the tickets I won, to the Texas Bitcoin Conference” are sitting in a drawer there is Maria’s desk. But rumor has it that Maria is on an extended vacation in the Netherlands, and can’t be reached at the moment. Maria, I hope that you’re enjoying your vacation, and [that] when you get back you give me a shout, and I can get those tickets I won.
[outro music]
John : I’d like to thank my guest on today’s show, Mr. Patrick Byrne. Patrick, thank you so much, sir, for your service to the United States of America. Patrick is one of the very few people I’ve ever met, who was willing to stand up to organized crime, and to stand up and fight for our public schools, which are in dire straits. What an absolute travesty that our public school administrators would put their own selfish interests over the interests of our teachers and our children. Shame on you, you low-lives, [for] doing harm to the lives and the minds of our children. Never forget that there is room for you at the gallows.
If you’ve enjoyed the show today, please take a minute to leave a comment on Let’s Talk Bitcoin in the comments section, right there below the show notes :
https://letstalkbitcoin.com/blog/post/bitcoins-and-gravy-53-patrick-byrne-speaks
You can also leave a message on Soundcloud :
https://soundcloud.com/bitcoins-and-gravy/episode-53-patrick-byrne-speaks
or do the old fashioned thing and send me an email.
And, of course, Bitcoin and Litecoin tips are always appreciated by the hardworking writers and podcasters in the Bitcoin world. Many of work as volunteers, and sure could use those tips. You can send me $5 or 5 cents, and I will be just as happy knowing that this podcast put a smile on your face, or made your day a little bit better.
Signing off now from East Nashville, Tennessee. I’m your host John Barrett, with my trusty companion Maxwell by my side. Say goodbye Maxwell.
Maxwell : Grrrr…..
John : Y’all be good to each other out there now. And remember, the only thing necessary for the triumph of evil is for good men and women to do nothing.
[show outro music]
[music and lyrics to “Ode to Satoshi” song]
John Barrett : Now climb aboard y’all! This train is bound for glory… and there’s plenty of room for all…
“Well Satoshi Nakamoto, that's a name I love to say,
And we don't know much about him, but he came to save the day.
When he wrote about the way things are,
And the way things ought to be,
He gave us all a protocol this world had never seen.
Oh Bitcoin! As you're going into the old Blockchain,
Oh Bitcoin! I know you're going to reign, gonna’ reign,
Till everybody knows, everybody knows,
Till everybody knows your name.
[guitar instrumental]
Down the road it will be told about the Death of Old Mt. Gox,
About traders trading alter coins, and miners mining blocks.
But them good old boys back in Illinois,
And on down through Tennessee,
See they don't care to be a millionaire,
They're just wanting to be free.
Oh Bitcoin! As you're going into the old Blockchain,
Oh Bitcoin! I know you're going to reign, gonna’ reign,
Till everybody knows, everybody knows,
Till everybody knows your name.
[instrumental interlude]
From the ghettos of Calcutta, to the halls of Parliament,
While the bankers count our money out for every government.
Oh, Bitcoin flies on through the skies of virtuality,
A promise to deliver us from age-old tyranny.
Oh Bitcoin! As you're going into the old Blockchain,
Oh Bitcoin! I know you're going to reign, gonna’ reign,
Till everybody knows, everybody knows,
Till everybody knows your name.
Till everybody knows, everybody knows,
Till everybody knows your -- "Give me some Exposure" --
Everybody knows your name.
Singing,
Oh Lord, pass me some more,
Oh Lord, before I have to go.
Oh Lord, pass me some more,
Oh Lord . . . before I have to . . .
Go . . .
[instrumental finale]
[applause]
John : Oh-ho! Thank you East Nashville! Y’all be good to each other out there, ya’ hear?
[Segway music]
[end of transcript]
