A run on the dollar, stagflation, and an election on the line—Part 3 wraps up the series with President Nixon’s shocking announcement to shut the gold window… a move that changed the monetary system forever and signaled the beginning of the end for the perception of gold as money. We meet John Connally, the swaggering Democratic governor of Texas who rode in the car with JFK when he was shot, and later became Nixon’s Treasury Secretary. He was the political closer tasked with averting a global monetary crisis and more importantly, securing Nixon’s re-election in 1972.

In the summer of 1971—with inflation rising, unemployment hovering near 6%, and foreign central banks suggesting they might convert dollars into gold—Connally, only months into the job, worked with Paul Volcker and others on a plan to fix the economy.

During an intense weekend at Camp David, Connally orchestrated consensus around a plan that included wage and price controls, a 10% universal tariff on imports, and most importantly, the suspension of dollar-gold conversion. These policies were sold as temporary and forced a global realignment.

At 8:00 p.m. ET on Sunday, August 15, 1971, Nixon announced the New Economic Policy to the world and kicked off a series of events that led to the monetary system we have today.

Chapters

(00:20) Connally’s 4 No’s Speech

(02:00) Gradualism & Stagflation

(04:26) Whispers of Global Monetary Crisis

(05:52) The Nixon Doctrine

(07:30) Introducing John Connally Jr.

(14:18) How Connally Gets on Nixon’s Radar

(15:47) Moving Away from Gradualism

(17:27) The Potential for a Run on the Dollar

(24:50) Camp David Economic Meetings Coordinated by Connally

(30:05) The British Allegedly Want to Redeem $3 Billion in Gold

(33:07) Policy Change Decisions at Camp David

(39:23) Nixon’s Speech Shutting Gold Window

(40:15) The Immediate Domestic Reaction of the Speech

(42:39) The Foreign Reaction to the Speech

(46:08) Smithsonian Agreement in December 1971

(47:56) By March of 1973 Bretton Woods Is Dead

(49:30) Why Did We Not Have Another Bretton Woods Agreement?

(52:10) Similarities and Differences to What’s Happening Today

References

Three Days at Camp David: How a Secret Meeting in 1971 Transformed the Global Economy by Jeffrey E. Garten (link)

Nixon's Economy: Booms, Busts, Dollars, and Votes by Allen J. Matusow (link)

https://wtfhappenedin1971.com/

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com

On the journey towards President Nixon’s fateful decision on August 15th, 1971 to suspend dollar-gold convertibility—a decision that would forever change the global economy—we meet William McChesney Martin Jr, the longest-serving Fed chairman in history and arguably the most consequential economic US policy maker since Alexander Hamilton.

After negotiating Fed independence as an Assistant Treasury Secretary with the 1951 Fed-Treasury Accord, President Truman appointed Martin as chairman of the Fed. For two decades, Martin fought to establish Fed independence while pursuing the long-term interests of the US—fighting inflation, defending the dollar, and facing off against five presidents.

While he navigated the demands of a booming economy at home, Martin coordinated with US allies to stabilize exchange rates and grow world trade—all while balancing the needs of Cold War military spending, allied foreign aid, and private capital outflows.

We trace the mounting pressure from the late 1950s gold spike through Vietnam-era deficits as Martin tries to hold the line with rate hikes, diplomacy, and sheer credibility among global central bankers. It’s the story of a principled broker navigating guns-and-butter politics while the world loses faith in dollar-gold convertibility—and according to his own assessment, he was almost successful too… almost.

Chapters

(00:47) Introduction

(03:33) William McChesney Martin Jr.

(09:14) The 1951 Fed-Treasury Accord

(12:42) Truman Appoints Martin as Fed Chairman

(13:34) Eisenhower Presidency Reinforces Fed Independence

(17:00) Comparing Growth & Productivity during This Period to Today

(18:41) Gold Drain and Military Spending

(22:51) Price of Gold Breaks $35/oz

(26:52) The JFK Years: More Military Spending & Tensions with France

(34:12) Bretton Woods and Inflation

(36:36) Central Bank Swap Lines

(41:05) Confrontation at LBJ’s Ranch

(44:53) The Circularity of Dollar Strength and Military Spending

(56:40) Bill Martin’s Legacy and State of the Fed as Nixon Takes Office

References

Chairman of the Fed: William McChesney Martin Jr. and the Creation of the Modern American Financial System by Robert P. Bremner

Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971 by Francis J. Gavin

https://wtfhappenedin1971.com/

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com

Gold, power, war, and spies—this series has it all. On August 15th 1971, President Nixon announced that he was suspending the dollar’s convertibility into gold. This announcement upended the Bretton Woods monetary system and set the world on a course towards floating exchange rates with the US dollar as a fiat reserve currency for world trade—a system that is under significant pressure today.

In the first episode of the series, we tell the story of how an ambitious, little-known American technocrat—Harry Dexter White—went toe-to-toe with the world-famous John Maynard Keynes to rewrite the rules of global finance.

Bretton Woods wasn’t just a conference. It put the US dollar at the center of a new monetary order, backed by roughly two-thirds of the world’s gold and America’s unrivaled economic power after World War II. Delegates representing 44 nations agreed to fixed exchange rates, created the IMF and World Bank, and made the dollar “as good as gold.”

We trace how global leaders were traumatized by the economic chaos following World War I—trade wars, currency collapses, and the Great Depression. Against this backdrop, we explore how White moves from the periphery of academic economics to play a central role in FDR’s Treasury. From there he outmaneuvers John Maynard Keynes and secures American primacy, despite also moonlighting as a Soviet spy.

This episode covers the genesis of a system every president from Truman to Nixon would struggle to defend—and the traces of which still shape the world economy today.

Chapters:

(00:18) Introduction

(03:47) Background on Harry Dexter White

(6:29) Economic Backdrop Leading to Bretton Woods

(12:58) Barter Trade vs. Free Trade

(15:22) Background on John Maynard Keynes

(18:06) Keynes and White Meet in London

(20:02) Harry Dexter White, from Periphery to Center

(24:13) White Gets to Work on New Monetary System

(32:24) US Leverage over the UK

(37:32) The Build Up to Bretton Woods

(41:54) Harry Dexter White’s Triumph at Bretton Woods

(46:59) The Aftermath for White and Keynes

(48:01) Reflections on White’s Soviet Espionage

(55:16) Questions for Today’s Global Trade & Monetary System

References:

The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order by Benn Steil

https://wtfhappenedin1971.com/

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com

In Part 2: The Banking Crisis, we pick up where Part 1: The Housing Bubble leaves off—with financial institutions all over the world holding mortgage-backed securities as housing prices start to collapse at the end of 2006.

In this episode, we tell the story of a financial system that became addicted to mortgage products and complacent about their risk.

We cover the basics of banking—how short-term funding and long-term lending creates fragility in normal times, and outright panic in a crisis. We explore how credit default swaps, collateralized debt obligations, and the repo market works—and how they failed. We show how these complex, opaque instruments amplified risk, created false confidence, and turned mortgage losses into a global banking crisis.

It’s the story of how flawed incentives, complicated models, and unregulated derivatives brought down some of the most storied institutions in finance like Bear Stearns, Lehman Brothers, Merrill Lynch, AIG, Fannie Mae and Freddie Mac.

And we walk through the harrowing events of 2007-2009—from emergency bailouts to catastrophic bankruptcies—that left deep scars on the financial system, the economy, and public trust.

Part 1 was about the fuel. Part 2 is about the fire.

Chapters:

(01:09) The Housing Bubble

(08:57) Basics of Banking

(20:42) Innovation with Credit Default Swaps

(33:24) The Rise & Evolution of Collateralized Debt Obligations, CDOs

(49:59) CDO Manager Incentives

(52:09) Lack of Regulation

(58:27) First Round of Failures in 2007

(01:02:05) Repo Market Freezes

(01:07:23) More Failures in 2007

(01:14:13) Banking Crisis in 2008 & Bail Outs

(01:35:57) 2008 Presidential Election & The Crisis Aftermath

References:

The Great American Housing Bubble: What Went Wrong and How We Can Protect Ourselves in the Future by Adam J. Levitin, Susan M. Wachter

All the Devils Are Here: The Hidden History of the Financial Crisis by Bethany McLean and Joe Nocera

Panic: The Betrayal of Capitalism by Wall Street and Washington by Andrew Redleaf and Richard Vigilante

The Big Short: Inside the Doomsday Machine by Michael Lewis (book, movie)

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry Paulson

Too Big to Fail by Andrew Ross Sorkin (book, movie)

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze (Amazon)

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

The Courage to Act: A Memoir of a Crisis and Its Aftermath by Ben Bernanke

Firefighting: The Financial Crisis and Its Lessons by Ben Bernanke, Hank Paulson, and Timothy Geithner

The Rise and Fall of Bear Stearns by Alan Greenberg and Mark Singer

PBS Frontline Documentary: The Warning

PBS Frontline Documentary: Money, Power and Wall Street

Lectures by Ben Bernanke at Georgetown (link)

Warren Buffett on Derivatives (2002 Shareholder Letter)

Warren Buffett Interview with Andrew Ross Sorkin (Ten Year Anniversary Special from CNBC)

Reports by the Financial Crisis Inquiry Commission (main report, HHT dissent, Wallison dissent)

Tower of Basel: The Shadowy History of the Secret Bank That Runs the World by Adam LeBor

Greenspan, Snow Congressional Hearing in October 2008 (transcripts, video excerpt)

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com

In this episode, we tell the story of the modern mortgage market, how Wall Street financialized it, and how easy credit inflated one of the biggest bubbles in American history. A bubble that, when it finally popped, nearly brought down the entire global financial system.

The housing bubble left scars, changed institutions, and shaped the economy we live in today. It’s impossible to understand the social and economic forces in the 2010s and 2020s without first studying the Global Financial Crisis. At the root of the crisis was a nation-wide housing bubble.

In Part 1 of this two-part series, we cover how The New Deal completely restructured the US mortgage industry. We discuss how homeownership became a critical part of the American dream fueled by an abundance of credit and bipartisan support for homeownership—especially after World War II.

We touch on the evolution of mortgages—from local banks that relied on personal relationships to global giants driven by the forces of globalization and financial deregulation in the 1980s and 1990s.

By the early 2000s, homeownership was at record highs. Credit was cheap. Profits at mortgage originators and banks were at record levels. At the center of the boom was the mortgage market and the flawed assumption that housing prices never go down.

Chapters:

(01:28) Setting the Scene

(03:17) Market Backdrop

(10:39) History of Mortgages, Fannie, and Freddie

(24:11) Mortgage-Backed Securities (MBS)

(30:40) MBS and Rating Agencies

(43:31) Collateralized Mortgage Obligations and Flaws in the Mortgage Market

(51:24) Mortgage Originators and Subprime

(56:08) The Global Savings Glut, Interest Rates, and Commodity Supercycle

(01:06:56) Mortgage Originators Get Big

(01:14:41) Fed Policy and Interest Rates

(01:19:00) Explosive Growth in Subprime

(01:26:20) The Housing Bubble Inflates

(01:33:53) State of the Market at the End of 2006

References:

The Great American Housing Bubble: What Went Wrong and How We Can Protect Ourselves in the Future by Adam J. Levitin, Susan M. Wachter

All the Devils Are Here: The Hidden History of the Financial Crisis by Bethany McLean and Joe Nocera

Panic: The Betrayal of Capitalism by Wall Street and Washington by Andrew Redleaf and Richard Vigilante

The Big Short: Inside the Doomsday Machine by Michael Lewis (and the movie)

On the Brink: Inside the Race to Stop the Collapse of the Global Financial System by Henry Paulson

Too Big to Fail by Andrew Ross Sorkin (and the movie)

Crashed: How a Decade of Financial Crises Changed the World by Adam Tooze

Fool's Gold: How the Bold Dream of a Small Tribe at J.P. Morgan Was Corrupted by Wall Street Greed and Unleashed a Catastrophe by Gillian Tett

The Courage to Act: A Memoir of a Crisis and Its Aftermath by Ben Bernanke

Firefighting: The Financial Crisis and Its Lessons by Ben Bernanke, Hank Paulson, and Timothy Geithner

The Rise and Fall of Bear Stearns by Alan Greenberg and Mark Singer

PBS Frontline Documentary: The Warning

PBS Frontline Documentary: Money, Power and Wall Street

Lectures by Ben Bernanke at Georgetown (link)

Warren Buffett on Derivatives (2002 Shareholder Letter)

Warren Buffett Interview with Andrew Ross Sorkin (Ten Year Anniversary Special from CNBC)

Reports by the Financial Crisis Inquiry Commission (main report, HHT dissent, Wallison dissent)

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com

In the 1990s, the personal computer and the internet combined to transform the global economy. The dot-com boom built on the promise of the World Wide Web led to one of the longest economic expansions on record. From the Netscape IPO in 1995 to its peak in early 2000, the Nasdaq skyrocketed over 800%. By 2002, it came tumbling down erasing nearly $5 trillion in market value.

The boom turned into a crash that permanently changed how Wall Street operates, wiped out scores old and new companies, restructured the power structures of Silicon Valley, and revolutionized the global economy. Most importantly, there are elements of the dot-com story that rhyme with today's AI boom.

Chapters:

(01:09) Market Backdrop

(12:51) Technology Backdrop

(21:31) Birth of Dot Com

(43:45) Setting the Stage on Wall Street

(01:01:13) The Crash before the Crash

(01:10:59) Euphoric Markets

(01:23:51) The Bubble Pops

(01:45:30) The Aftermath

References:

Origins of the Crash

Dot.con

The New New Thing

Technological Revolutions and Financial Capital

Stocks for the Long Run

The Rise and Fall of American Growth

The Fabulous Decade

Capital Account

Mr. Buffett on the Stock Market

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.backtestpodcast.com