You are a free subscriber to Me and the Money Printer. To upgrade to paid and receive the daily Capital Wave Report - which features our Red-Green market signals, subscribe here. An Important Book Arrived Last WeekAndrew Ross Sorkin just published a piece that should be required reading for anyone who thinks "this time is different..."
Dear Fellow Traveler, CNBC and DealBook’s Andrew Ross Sorkin just published a piece that should be required reading for anyone who thinks “this time is different.” The headline could have been “How Wall Street Learned to Stop Worrying and Love Retail Bagholders Again.” Sorkin is the author of the incredible tome Too Big to Fail, which traced the origins of the 2008 Financial Crisis with a depth of reporting that is rare. You might have seen the HBO adaptation, which contains one of the funniest scenes in movie history. Sorkin followed that book up with the economic history book 1929: Inside the Greatest Crash in Wall Street History… and How It Shattered a Nation. I’m a bit behind… because I reread Too Big to Fail last week… I’ve ordered two copies of the new book… which was released last Tuesday. In a complementary article in the New York Times Magazine from the day before release, Sorkin traced a direct line from Charles Mitchell’s 1920s pitch to today’s crypto evangelists and private equity pushers promising to “democratize” finance for “the little guy.” Same playbook, different century. If history is any guide… and these parallels are striking… the seeds for the next crisis (not one fueled by a pandemic or trade policy…) are already planted. When that arrives? Well… that’s why we research what we research… Meet the Players: Then and NowAs Sorkin notes, Charles Mitchell was the swaggering CEO of National City Bank (now Citigroup) in the 1920s. Mitchell pioneered the radical notion that financial products should be marketed and sold as casually as retail goods.
As Sorkin documents, Mitchell revolutionized Wall Street by transforming investment banking from a gentleman’s club into a mass-market enterprise. His National City Bank pioneered door-to-door securities sales and newspaper advertising campaigns that would make modern fintech bros jealous. He made finance a consumer product, complete with aggressive sales tactics and promises that everyone could get rich. Of course… his empire collapsed after 1929. Mitchell had even attempted a massive stock buying spree to inject confidence into the system after the initial crash. He made a very similar mistake to several different “value investors” who couldn’t see just how bad the 2008 crisis was either. And those same people will likely make the same mistake when the bill comes due on the next crisis… That said, Mitchell’s marketing playbook lives on - from widespread speculation on mortgage securities to private credit and opaque alternatives today… This all comes at a time that we’re deregulating… cutting back on the Dodd-Frank Act and pushing through the Genius Act, which alters the structure of modern finance. The man who embodies Mitchell’s playbook is Vlad Tenev, CEO of Robinhood. Robinhood is a trading app whose name was specifically chosen to signal that finance should belong to the masses. Tenev turned stock trading into something people do on smartphones while waiting for coffee. Now he wants to go further… He wants to sell “private company tokens” that give retail investors exposure to companies like SpaceX and OpenAI without the companies actually going public. What could go wrong? Well… everything. Both men share the same pitch. They believed that sophisticated investments should be available to ordinary people, not just the wealthy. But both wrap complex, risky products in simple, appealing packages. The Goldman Sachs Master Class in Financial AlchemySorkin’s research reveals the terrifying complexity of 1929’s investment trusts, particularly Goldman Sachs Investment Trust. He describes it as a ‘Russian nesting doll’ of debt - a structure where Goldman’s trust invested in other trusts (including ones Goldman itself created), each layer borrowing more money to amplify returns. The numbers tell the story. Shares peaked above $300, then crashed to under $2 by 1932. But here’s what Sorkin’s analysis reveals that should terrify modern investors - today’s private credit and leveraged crypto products use remarkably similar structures. We’ve just given them new names and wrapped them in apps. What made these trusts so dangerous wasn’t just the leverage… it was the opacity. Investors couldn’t see through the layers to understand their actual exposure. Sound familiar? Try asking Apollo or Blackstone for a clear picture of what’s really inside their private credit funds. Complex financial structures marketed to retail investors as “safe” and “professional” often hide enormous risks that only become apparent when everything falls apart. The Democratization ScamTenev’s pitch sounds noble: “Only the biggest companies can go public, which limits opportunities for the little guy.” But this ignores why those limitations exist. The “accredited investor” rules were created after 1929 to protect ordinary people from exactly what Mitchell and Goldman were doing. To invest in private markets, you need $1 million in net worth (excluding your home) or $200,000+ annual income. The idea is that only people who can afford to lose money should be exposed to these risks. Now Wall Street wants to tear down those protections in the name of “access” and “democratization.” They’re packaging illiquid, opaque investments for 401(k) plans and retail investors who can’t afford losses. Sorkin nails the fundamental deception here - giving people access to complex investments without requiring proper disclosure isn’t democratization, it’s predation. The Private Credit Time BombPrivate credit has exploded from a niche strategy to a $2 trillion industry. We’ve written extensively about the risks. But as Sorkin notes, these are loans made by investment firms (like Apollo or KKR) instead of traditional banks. These firms raise money from investors, then lend it directly to companies that need capital. The appeal is higher returns than government bonds. The risk is that these loans aren’t regulated like bank loans, the borrowers are often riskier companies, and the lenders can mark the loans at whatever value they choose. Again, this is all outside traditional banking oversight. The pattern Sorkin identifies is unmistakable… Every major crisis begins with leverage hidden in the system’s shadows. In 1929, it was margin loans for stock purchases. In 2008, it was subprime mortgages. Today, it’s private credit. Of course, as I’ve noted, global debt is almost $340 trillion, while the amount of money that is used to actually refinance all that debt is somewhere around $185 trillion, according to CrossBorder Capital. The bulk of the refinancing capacity comes from the shadow banking side of the markets… all of it unregulated. A Federal Reserve study that Sorkin highlights warns that banks still have indirect exposure to private credit risk through lending facilities and structured products. And as I’ve discussed, the Bank for International Settlements warned in April (with few people paying attention) that the Fed has largely lost its independence because it must account for everything happening in Tokyo, Brussels, and London… When private credit starts defaulting, the losses won’t stay contained… and the Federal Reserve will have to be the lender of last resort… which is a serious problem. But before that happens, defaults in private credit would spread through the banking system just like subprime mortgages did. Oh well… right? Yolo! And democratization!!! The Liquidity Trap in ActionThe BREIT crisis that Sorkin examines offers a preview of coming attractions. When Blackstone’s flagship fund hit redemption limits in late 2022, too many investors tried to get their money out simultaneously. You’ll recall that crisis came when there was a major problem with higher interest rates and a meltdown in England’s pension system (The GILT Crisis). The BREIT fund could only process 5% of redemption requests each quarter, so investors had to wait months to access their own money. The fund worked exactly as designed. But for investors who thought they were buying something liquid, it felt like a trap. Now imagine this dynamic spreading to 401(k) plans. Workers think they’re buying stakes in exciting startups and getting better returns than boring index funds. The truth is that they’re just funding Wall Street fee machines with money they can’t access when they need it most in crisis... The Pattern RecognitionMitchell’s approach in the 1920s was to identify a mass market, promise sophisticated returns, package complex products, collect fees upfront, and let someone else deal with consequences. Tenev’s approach today is to identify a mass market, promise sophisticated returns, package complex products, collect fees upfront, and let someone else deal with consequences. The innovation isn’t in the products. It’s clearly in the marketing. Instead of Mitchell’s Bankers Club lunch, pointing at the city below, we get TikTok videos and Instagram ads promising financial freedom through apps. Instead of investment trusts layered with leverage, we get “semiliquid” private equity vehicles and double-leveraged crypto ETFs that promise twice Bitcoin’s daily moves. If this article previews Sorkin’s new book, it’s going to be essential reading. But here’s what will need more analysis… The role of central bank enablement. Every one of these cycles has been turbocharged by monetary authorities who refuse to let markets clear naturally. The Fed’s balance sheet, the BOJ’s equity purchases, the ECB’s negative rates… They’ve all created a permission structure for leverage that didn’t exist in Mitchell’s day. Hopefully, Sorkin will note this in his book… as I’ll be looking for it closely… We’re not just repeating 1929. We’re repeating it on steroids, with central banks explicitly backstopping the speculation. When this unwinds, it won’t just be about private credit or crypto leverage. It’ll be about the entire fiat monetary system that enabled it. The real lesson isn’t just about avoiding the next Mitchell or Tenev. It’s about recognizing that our entire financial system now depends on these cycles of speculation and bailout. The music has been playing for 17 years with constant rescues. Meanwhile, the people pushing “access” and “democratization” aren’t trying to help you get rich. They’re passing the bag on a lot of this stuff… all while collecting huge fees… That’s the real goal here… They’re trying to get rich off you while socializing the inevitable losses. When Robinhood, BlackRock, and Apollo are all singing the same “opportunities for the little guy” song that Charles Mitchell sang in the 1920s, you should probably assume they’re not doing it for your benefit. And reminding people of that is very damn important… Stay positive, Garrett Baldwin About Me and the Money Printer Me and the Money Printer is a daily publication covering the financial markets through three critical equations. We track liquidity (money in the financial system), momentum (where money is moving in the system), and insider buying (where Smart Money at companies is moving their money). Combining these elements with a deep understanding of central banking and how the global system works has allowed us to navigate financial cycles and boost our probability of success as investors and traders. This insight is based on roughly 17 years of intensive academic work at four universities, extensive collaboration with market experts, and the joy of trial and error in research. You can take a free look at our worldview and thesis right here. Disclaimer Nothing in this email should be considered personalized financial advice. While we may answer your general customer questions, we are not licensed under securities laws to guide your investment situation. Do not consider any communication between you and Florida Republic employees as financial advice. The communication in this letter is for information and educational purposes unless otherwise strictly worded as a recommendation. Model portfolios are tracked to showcase a variety of academic, fundamental, and technical tools, and insight is provided to help readers gain knowledge and experience. Readers should not trade if they cannot handle a loss and should not trade more than they can afford to lose. There are large amounts of risk in the equity markets. Consider consulting with a professional before making decisions with your money.
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