Matthew Quirk is the author of the best-selling book, ”The 500″ and author of the new book on the Fed, “The Directive,” which centers on a conspiracy plot at the Federal Reserve. Quirk joins the podcast to break down how realistic this plot could be today.
Quirk spent a year working with red team security experts, hackers, lock pickers, social engineers, and sources inside the Fed to map out what a true-to-life 21st century heist would look like at the most powerful bank in capitalism. He shares the loopholes within the Fed’s security system and gives his guesstimate on the best chance someone has in hacking the Fed.
(0:50) Intro portion of the show
(12:52) Looking at 1984
(19:47) Upcoming Creating Wealth Seminar in Little Rock, Arkansas
(27:27) Introducing Matthew Quirk
(37:18) Discussion of social engineering
(38:55) General thoughts on the role of the Fed
(41:49) Security & The Fed
(43:24) Closing comments
Find out more about Matthew Quirk at www.matthewquirk.com.
ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth Show. This is your host, Jason Hartman; thank you so much for joining me today. This is episode #396. It’s 396. And today we’re going to talk about Hacking the Fed. We’re going to talk with Matthew Quirk, whose latest project is entitled The Directive, and I think you’ll find this to be very interesting, and frankly, rather scary how something like this could happen, or does happen all the time, maybe. We’ll see what Matthew says about that. And talk about something that affects all of us. It’s pervasive. I mean the Federal Reserve is such an incredibly powerful entity; literally, it touches almost everybody on earth. That’s how powerful our central bank is. And certainly, if the Fed doesn’t touch every single one of the seven billion people or so on earth, combined with the cartel of all the other central banks, you’ve pretty much got the planet covered here. Except for a few lost tribes that don’t participate in the economy. But there’s hardly any of those anymore. And I would argue that it even affects them. No one is unaffected. Because you can’t be completely isolated anymore in today’s interconnected world. It’s just not possible.
Before we do that, though, we’re gonna talk about 1984. And no, I’m not talking about the Orwellian version of 1984. Although it’s an auspicious year to pick, for what I am going to talk about. Because so much of society has become rather Orwellian. Have you noticed that there’s a camera everywhere looking at you nowadays? Have you heard about the NSA? Of course you have. And so, we’ll talk about 1984, but not Orwell’s 1984, in just a moment here.
But first, I want to just tell you about some of our upcoming episodes. Next episode, #397, will be Forbes writer Rich Karlgaard, and he’ll be talking about the Soft Edge, and what’s going on at Forbes, and the economy, and so forth. And then 398, Zac Bissonnette, some good advice from bad people. That’s an interesting interview. And then 399 will be Bill Cheney, with John Hancock Financial, and we’re gonna talk about the economy, and some interesting stuff there, and how it impacts investors. And then, #400, our 10th episode, for episode 400, will be Dan Millman, author of The Way of the Peaceful Warrior. Such a famous book. Millions and millions of copies sold in many, many languages, and a great movie, I must say. It’s funny how you always hear the intellectual snobs say, well, the book was better, every time a book is turned into a movie. And with this one, I don’t know. Look it up on your Netflix queue, and order a copy of the Peaceful Warrior movie, because it is excellent. I must say.
401, it’ll be just yours truly, with a guest, possibly. And then #402, Christopher Barnett, we’re going to talk about the future, and how that impacts us, especially about 3D printing and computers and it’s amazing, tonight I saw the movie Lucy. Have you seen that movie, Lucy? I don’t think it was any great movie by any means. But, I will say that the subject matter was quite interesting, and I’m noticing there’s a lot out about increasing the power of the mind. And about technology, and the future, and all of us becoming superheroes. And we had Steven Kotler on the show, the coauthor of Abundance: The Future Is Better Than You Think. The book he coauthored with Peter Diamandis. And he’s out with a new book entitled The Rise of Superman, that is about the subject of flow. And he documents it pretty well, a subject that really, I don’t know if too many people have ever covered—oh, gosh, forgive me, I’m gonna butcher this name, but there’s a book entitled Flow, from maybe 15 years ago, by Csikszentmihalyi. I believe that is a Czech author. And it talks about being in the state where you have superpowers. Where you don’t think about things; they just come to you because of flow.
You know, Steven Kotler’s new book is pretty interesting. I invited him back on the show. We didn’t schedule a date yet, but that’s what that movie Lucy is about. And if you remember, there was another movie, it wasn’t too famous. What was it called, about that super drug—oh, gosh, I’ll think of it later. You know, one of our listeners, I’m sure you guys remember this movie. Anyway, it’s on Netflix also, and it’s just about becoming super powered, and the power of the mind, and the incredible power that is so untapped within us. So, interesting stuff there. And the future is just gonna be—I mean, amazing. There’s amazing stuff going on right now. I think we are at the point of massive, massive amounts of convergence in technology. And as I’ve said before, I credit a lot of this to the smart phone revolution.
Of course, originally launched by Apple. And the iPhone. But many other great smart phones have come along since then. You know, I think we’re gonna be seeing an iWatch here pretty soon. And you know, wearable computers. Google Glass never quite caught on. One of the cars that I’m looking at, thinking of buying a new car here, actually has Google Glass integration. So, Google Glass integrates with the car, and of course, the car can be turned on and off, and you can set the temperature in the car with your mobile app on your smart phone. The car practically is driving itself now. And I’ve talked many times about self-driving cars, and what I think, just an amazing, amazing revolution. It’s going to impact real estate pretty significantly. I’ve mentioned it before.
But you know, when I went to Cleveland recently to meet my mom before her surgery at the Cleveland clinic, just a few weeks back, I considered driving to Cleveland. And I looked it up on Google Maps, and it takes 31 hours, which in my opinion is way too long to be driving. But I’ll tell you, if I had a self-driving car, I would think quite differently about that. Think about what that means for expensive real estate. Areas where real estate is really expensive. If transportation becomes automatic? If you can just get in a car, and sleep? Or rest, or meditate, or do yoga? Or work on your laptop, or read a book, or play with your dog, that changes everything. And the only condition—I mean, the self-driving car is upon us. Nowadays these cars pretty much drive themselves on the highway, with laser-assisted cruise control, and braking, and lane departure systems that will keep the car in the lane—it’s amazing. And of course, Google has developed the car that will drive on surface streets. So, it’s an incredible time.
But think about what this means. Like, do you really have to live in an expensive place like LA, or Orange County, or San Diego, or San Francisco? It’s nice. But the economics change. I mean, are the economics really there, if you can just live in an outlying area and jump in your self-driving car and be there in 45 minutes? And if other cars are self-driving, really that could massively reduce, if not eliminate, traffic. Now, I remember when I was a little kid, reading about how self-driving cars would make it so that you could drive—or, I should say, the car could drive—80 miles an hour, one foot distance from the car in front of you. From that car’s bumper. Because all the cars would operate together in a network fashion. So, you know, the old rule is—well, it’s the current rule still, folks. It’s the current rule. Is that you should have one car length for every 10 miles per hour of speed. So if you’re going 80 miles an hour, you should be 8 cars behind the car in front of you in order to stop quickly enough and react quickly enough. That’s the minimum distance. Of course more distance is even safer. But if the cars are all computerized—I don’t just mean some cars. Maybe your car is a self-driving car, but the other cars aren’t self-driving. But when they get to the point where they’re all self-driving, and they’re all tied into a network, and their networked together, so the cars become incredibly smart, where your car is talking to the car in front of it, and the car behind it. And all the other cars in its area? Wow. I mean, incredible, what you could do. you could virtually eliminate the concept of traffic.
Look it. The roads are big enough to handle a lot more traffic. Problem is, that when one car slows down, or changes lanes, it messes everybody else up, because the cars aren’t acting in a network fashion. And of course, when an accident happens, that really fouls things up. Amazing things. And I know there are spooky and ominous sides to this. I get it. Completely. Cars, like any electronic device, can be hacked. People will hack your car, and maybe they’ll drive you off a cliff. I don’t know. I’m sure we’re going to have some ugly stuff go on. Of course, it has very ominous things when it comes to the government, and the disgusting spying that’s going on with the NSA and so forth, and how the government will be hacking into our cars, and so forth. And hopefully liberty and freedom will win that war, but you know, that remains to be seen.
But in either case, when it comes to economics, and when it comes to investing, so many things are an absolute disaster. It really looks like the only way out of this mess, only way out is to inflate our way out of the debt, because we are spending so much more than we are taking in as a country. And when you look at the gross domestic product, the GDP, and you look at that compared to population increase and the rate of inflation, we have negative GDP. The economy is getting smaller, not larger, when you look at it in real terms, with the proper adjustments. So, that’s leaving a lot of people out. And what will happen with robotic technology—now, there are many people who I think, by the way, are very wrong. I think they may be right for short bursts of time during transition phases. These people thing robotics will cause massive unemployment and massive civil unrest, because they will displace many workers.
I remember reading predictions back from the early 70s, when they talked about how technology and computers and automation would basically make it so people only had to work three days a week. Well, you see how wrong that prediction was, right? We’re all working more than ever. And the boundary between work and play, or work and rest, it’s all been totally blurred, because we’re so connected now with technology. In fact, most of us, at least yours truly, but I think there’s a lot of people here, have become rather addicted to being connected.
I mean, I like being connected. I don’t know about you. I find it pleasurable to be connected, frankly. You know? When I want to know something, I want to just look it up! I want to know about it. if I hear a word I want to know, if I hear about a concept, or an idea, or want to look up a personality, or someone who’s making news for one reason or another—I want to look it up right then. I don’t want to be unconnected.
This whole idea of being on a desert island and being disconnected and unplugging, I kind of don’t get it. I personally think life is about learning and growing and experiencing, and part of that—a big part of that learning, comes from being connected to the most incredible knowledge base we’ve ever had in human history. And that is, of course, the Internet that Al Gore, jokingly, of course, invented. Al Gore likes to take credit for that, of course. Mr. Hypocrite Al Gore, one of the biggest hypocrites I think I know. But anyway, I digress.
Looking at 1984
JASON HARTMAN: Okay. So, let’s look at 1984, before we go to our guest today. 1984. Why did I pick this year? Well, it’s somewhat arbitrary, but I think it’s kind of interesting. It’s the Orwellian year, so I think it’s a good year to pick. In 1984, let’s look at a few things that were going on. Let’s look at some things that were making news, and let’s look at the prices of things, and let’s compare them today, and let’s talk about how that impacts you as an investor. Well, in 1984, after 37 weeks, Thriller was knocked off the top album list by Footloose. Remember Footloose? That was about my adult hometown of Orange County, California! Where fun is almost illegal. The town of Footloose! Where you can’t dance, because dancing is illegal.
That same year, IBM released MS DOS. Remember DOS? DOS stands for Disc Operating System, version 3.0. Cathy Sullivan became the first US woman to walk in space, and the Vietnam veterans memorial was finally completed. Wow. That took a long time, didn’t it? Check out some other things here. Great Britain agreed to return Hong Kong to the People’s Republic of China, under the condition that Hong Kong maintains its capitalist system. Well, China’s a pretty capitalist country. So, forget about that communist label. They’re pretty capitalistic, if you ask me.
Okay, so of course the late great Ronald Reagan was reelected. He defeated Walter Mondale. Mondale, what an unimpressive guy he was, huh? And check this out in the word of technology, which we all thought was incredible back then. Sony manufactured the world’s first portable one piece CD player. Yes: the CD Walkman. And I remember when I got one of those and I was so excited, because it wasn’t a tape. The sound was so much better, and I could go skateboarding, or rollerblading—rollerblading used to be kind of in back then. Isn’t it funny how these sports go in and out of style? That one went away. At least I think it did, I don’t know. And I could listen to my CD player. Now, of course, it’s quite a bit better. You can listen to my podcast on your iPod, or your smart phone. Cosby Show was a big deal, Family Ties was a big deal, and Knots Landing was a big deal, in 1984. And in sports, US World Series champions, the Detroit Tigers. US Open, for golf, that was good old Fuzzy Zoeller. And pro football champion was the LA Raiders. Okay, and now, you know, LA can’t even get unified enough to have a football team.
Let’s look at the money side of this, okay? Let’s look at some cost of living stuff from 1984. And I’ll bet you most of our listeners remember 1984. Okay? Because I’d say our average listener was probably born, I’m gonna say in the 70s. But I don’t really know. I mean, all of you people in 164 countries who are listening to my show—you know, we don’t really have much in the way of statistics on you. We would love to have that. You know, when you become clients of ours, and you’re buying investment properties through us, then we get to know you a little better. But empirical, cold, hard stats—boy, we’d love to have more of that.
Okay, so check this out. Cost of living in 1984. A new house would cost you $86,730, while the average income—get this—was $21,599 per year. The typical new car would cost you $8700. The average rent was $350 per month. Now, wait a second, you must be thinking. Hey Jason, let’s apply some of your numbers back to 1984. Okay. The average house was $87,000. We’ll round it off. So at a 1% RV ratio, how much should you get every month from that house? Well, you should get $870, right? But the average rent was only $350 per month! So, either, this survey is really weighted by looking at expensive markets because that’s about the same picture you have in Los Angeles today. In fact, it’s almost the exact same picture. In an overpriced market like LA—and I’m only picking on LA because I grew up there. There are many other overpriced nonsensical markets around the country.
But I’ll pick on LA because I grew up there, and I remember when my mother bought her first house in Los Angeles that she still owns. It’s on Kelton Avenue. I lived in that house for a while. And I remember she paid $62,500 for that two bedroom one bath crappy house that was probably built in the 40s, or maybe the 50s. Probably the 40s, I think. And she bought it from a guy named Jerry, for $62,500. And she still owns that house today, and get this—this is gonna be really instructive. Because that house is worth somewhere in the neighborhood of $800,000 today. And I don’t know exactly what it rents for, but I’m—I think it rents for $3300 per month. You know, why does mom still own that house? The depreciation schedule has run out completely. Because she’s owned it for more than 27.5 years. The RV ratio is terrible.
Well, you know, old dogs, they don’t want to learn new tricks, right? And mom is getting it slowly. And we’ve talked about mom many times, and she’s been on the show, and this is an ongoing debate that we have. But, you know, again, having a lot of equity in your real estate makes you a bad manager. Why does it do that? Because the debt is not there. It doesn’t put the pressure on you to really get the high rents out of your properties, and get high, good RV ratios. But isn’t that interesting, that that house is worth 10 times—just about 10 times the 1984 house, and the rent is about 10 times the average rent back in 1984! It’s like almost an exact 10x equation. But the equation still doesn’t work.
The tuition to Harvard University—Hahvahd. Let’s pahk the cah in Hahvahd Yahd. I love that Boston accent. Ever go out drinking with a person from New England, and get them to say pahk the cah in Hahvahd Yahd. You know? It’s really fun. Just try that out sometime. The average tuition to Harvard was $9000 per year, and a movie ticket—get this. A movie ticket was only $2.50. Gasoline was a $1.10 per gallon. And a first class postage stamp was 20 cents. That was 1984, okay?
Upcoming Creating Wealth Seminar in Little Rock, Arkansas
JASON HARTMAN: Now. At the Creating Wealth Conference, at the Creating Wealth Seminar, which, by the way, we have another one coming up in beautiful—and I’m going to say it really is very beautiful—Little Rock, Arkansas, at the end of September. And we’ve got several of you signing up for that. And by the way, many of you have been asking about the hotel. We have an awesome hotel. It’s only one year old, and it is so swanky, I just really like this hotel. And you’ll get all the hotel information, we got a special room block, $119 per night for the hotel, breakfast is included, by the way, and so, we’re gonna be having breakfast together. Not on Saturday. You’ll do breakfast on your own on Saturday, and then we’ll start the Creating Wealth Boot Camp at 9AM, and, what is that, September 27th, I believe? It’s the last weekend of September. Anyway, on Sunday we’ll meet for breakfast together before we get on the bus and go tour distressed properties, and good investments that you can make. And of course, we’ll have lunch together on Saturday, and dinner together on Saturday night, and we’re picking some nice restaurants for you on that right now. So be sure to join us for that. It’ll be a lot of fun, and very, very educational. In terms of food, and you know, I don’t shop for many of those things, so I can’t really give you a metric on a price, but coffee was $2.40 per pound. I pay two bucks a cup at Starbucks. Bacon was $1.55 per pound. Eggs were 58 cents per dozen. And a loaf of bread was 93 cents. So, that’s just totally, totally amazing.
In that chart, you know the one that I talk about in the Creating Wealth Boot Camp, right? Well, in that chart that I famously talk about all the time, which is really, really instructive about investing, I’m gonna share some numbers. Since we’re talking about 1984, get this. In that chart, I talk about the 1972 dollar, and this is where I talk about how, as income property investors, we basically get paid to borrow money. Because we’re arbitraging inflation, and we’re arbitraging debt service. Remember, arbitrage means, in my simpleton definition, it means exploiting the differences in things, okay? So, we want to arbitrage as much as we can in life, because we want to exploit unnatural differences in the marketplace, okay? Where things just get out of whack sometimes, and don’t make much sense, and we can arbitrage things. So, we arbitrage inflation, when we borrow money against commodities like income property. Because that’s a commodity. It’s made of raw commodity materials that are traded globally, not attached to the dollar. Then, in addition to that, we take the debt on that property, and we don’t pay our own debts when we’re real estate investors. No way. That’s not a good plan. We outsource our debts to people called tenants. The tenants pay our debts for us, okay?
So, in this example, in 1972, a dollar was worth a dollar. By 1984, that same dollar was only worth 40 cents. But get this. From 1984 into 2001, that dollar got cut almost in half again. Because by 2001, from 1984, it was only worth 24 cents. And when you look at the things I just shared about 1984 and the prices, you can see how incredibly real inflation is. And how incredibly real the debasement of our currency really is. This is the ultimate—it’s part of the ultimate investing equation that I talk about frequently, okay? And we’ll go into that in detail at the Creating Wealth Boot Camp in Little Rock at the end of September. So, please do register for that. JasonHartman.com. Click on events. After you register, you will be emailed all the hotel information and stuff like that, so you can get in on that great room block.
That’s the thing we want to do. We want to arbitrage this stuff. Exploit the differences, take advantage of that, and it is a phenomenal, phenomenal strategy. So, as we talk about the debasement of currency, and we ask ourselves, well, what happens if the currency isn’t debased? What happens if inflation doesn’t happen? Well, first of all, I think that is highly, highly, highly, highly, unlikely. But, maybe that unlikely event will be the event that happens. Maybe we will have stagnation—and I don’t want to stay stagflation. Just stagnation. Because stagflation means a stagnant economy with inflation. That was the jimmy Carter just doomsday economy. It was pretty rotten, okay? But stagnation, where nothing happens. Everything just kind of stays even keel. Or, maybe we’ll have deflation. Well, it’s easy to talk about examples of getting paid to borrow and so forth with inflation.
But if we have deflation, literally investors will have almost no place to find yield. They’re certainly not likely to find it in the stock market. They are likely to find it in a bank account, because your bank account actually, the value of the dollar will increase during deflation. And your money will appreciate, in essence. Anything with intrinsic value will become more valuable. Okay? Intrinsic valued things always become more valuable. But, not exactly. So, you could say, well, the dollar has intrinsic value. And then the gold bugs will all argue, and they’ll say, well the dollar’s not backed by anything. Don’t you know it’s just paper and ink? Yeah, they’re kind of right, but they really only understand a part of the argument. They don’t get the holistic picture. Because the dollar is really backed by the military. The dollar is backed by aircraft carriers, battleships, nuclear submarines, fighter jets—the dollar is pretty well backed, if you ask me, okay? And it’s awfully hard for anybody to steal that stuff. They could steal your gold. But they’re not going to steal your whole military. So, the dollar is backed by something, and only a fool would think otherwise.
If we have the deflationary environment, which again, is highly unlikely, but say that it happens—well, then, okay. Fine. You just get yield. You just get cash flow. That’s what you get from your income property investment. And you get tax benefits. Not as good as the inflationary environment, will actually create tons of wealth for people following my plan. But I could be wrong. That’s the disclaimer I always make. Maybe we will have deflation. But the investment works either way. it works in an inflationary environment, and a deflationary environment, as long as you’re investing for cash flow, for income, and that’s why we call it income property.
Creating Wealth Boot Camp, register for that at JasonHartman.com, click on events, and you’ll also get a property tour thrown in with it, and a bunch of great talking and coaching together as we share several meals together as well. And by the way, many of you have been asking, well, when does the tour end? We will conclude the tour by about 4:30, 5:00, on Sunday afternoon. So, if you’re looking to schedule flights, you can come in any time on Friday. We don’t have any group event on Friday or anything like that. Come in Friday at your leisure, and check into your room, and relax for a big day ahead on Saturday from 9-6, and then we have dinner together that night as well, and by the way, you won’t pull out your wallet for any of this; all the meals are on us, and we’ll have a great themed lunch for you on Sunday as well. We’ll conclude by Sunday at about 4:30 or 5:00, okay?
So that’s the information on that. Let’s talk with Mr. Quirk. Let’s talk about the Fed, let’s talk about Hacking the Fed, and I think you’ll find this very interesting. Here he is.
Introducing Matthew Quirk
JASON HARTMAN: It’s my pleasure to welcome Matthew Quirk to the show! He is author of the bestselling book The 500, and also author of the new book, entitled The Directive. And that’s about our friends at the Federal Reserve. Matthew, welcome, how are you?
MATTHEW QUIRK: I’m doing great, how are you?
JASON HARTMAN: Good, good. Well, this is a fascinating book you’ve written, and really an interesting topic. It’s a thriller, it’s a novel, but it’s based on some factual things that actually went down at the Fed. Why don’t you just kind of dive in and tell us about it, and tell us how it starts off?
MATTHEW QUIRK: The reporting part came from the fact that I wanted to do a really great heist book, and the heist is really all about the loot. I was casting about for one of the biggest targets, and I thought it would be especially great if I could find a target that not only had a huge scale, but affected all of us. This isn’t often in a heist; the jewelry is insured, and you say, well, why do I really care about this. And if you’re looking at the landscape, pretty easy to come across the Fed. The Federal Reserve Bank of New York. Because it has about $300 billion of gold in the basement, and what I didn’t know until I started researching this, was that the $300 billion, even though that’s a ton of money, the real money is upstairs. Because there’s the trading desk on the 9th floor that executes the Federal Reserve’s policy for the entire government, when it wants to speed up or slow down the economy. And they have a balance sheet worth $4 trillion. So as I learned more and more about this, I grew to be fascinated by this desk, I realized I had a great target for a heist. And that is what brought me to the Fed, and made that the subject of the book.
JASON HARTMAN: Fascinating. The real money is in the electronic money, right? It’s funny that such a—if you really think about it, that’s such an oxymoron, right? Because everybody says, well, the Fed prints—you know, they make fake money, they create it out of thin air, it’s fiat money. And so—but you know, when you’re looking to I guess hack the Fed, and to steal from the Fed, you go to the trading desk, rather than the gold in the basement, huh?
MATTHEW QUIRK: Absolutely. And it’s interesting you talked about printing money, because that’s what I thought the government did if it wanted to stimulate the economy. And you know, in fact what you have is, only about 20 or 30% of the monetary supply is actual paper currency. The rest is digital. And when the government wants to, say, beat up the economy, they’ll make a decision. They made a decision today here in Washington. And then send a thing called the directive, which is basically the playbook for the American economy, to this desk at the Federal Reserve Bank of New York. It’s an actual trading desk. It trades with about 20 major banks. And when people say the government is printing money, really what happens is, the guys on that desk will go out into the market and buy back government IOUs, and then the banks will suddenly have more money on their balance sheet. It’s all digital. And then they can loan more. And when we talk about the government printing money, it’s really this desk trading back and forth with the big banks, and letting them loan more money. The idea from my book—it’s, what if you could steal the directions before anyone had them, and then get ahead of those traders?
JASON HARTMAN: It sounds almost like the high frequency trading scandal that was on 60 Minutes so recently. You probably caught that. And that was fascinating. And then I read the book Flash Boys shortly thereafter. It’s really similar to that, right? I mean, that’s basically how it would be done. Instead you’d do it with currency creation, and the money is lent into existence. Which may even sound somewhat simple to say, but that’s a really hard thing to get your head around. It took me years to really understand that. And I’m not sure if I still do. It’s such a weird idea.
MATTHEW QUIRK: Absolutely. And one funny thing that happens when I tell people about the book—I explain how the desk works, and talk about the desk. And that’s what they call it on Wall Street. It’s really called the system open market account, which isn’t as fun. But everyone calls it the desk, and I explain how it works, and that that’s why the Federal Reserve note, the dollars in their pocket, have value, and why your money is worth more or less on a given day. And they think, great, conspiracy thriller. And I say, I haven’t gotten to the conspiracy part. That’s actually how the government works, and controls the monetary supply. So it was really fascinating research. And you know, the plot of this book is related to the high frequency traders. The HFT guys are trying to—if we all started at the same starting line, sprint faster than everyone else. And the idea of this book is, what if somebody could get a long head start?
JASON HARTMAN: What happens when they do? So, they can get a long head start, right? That’s the answer. They can do it.
MATTHEW QUIRK: Yes. And one of the really interesting things, I talk to a lot of people in the financial services industry, and people at the Fed, and if you could get this information, and I should talk later—there’s evidence that people do actually get these head starts. You would then trade in macroeconomic data, and unlike an insider trading scenario where you bought xyz corporation and the next day it went up 50%—in that case, the FCC would know you have inside information. If you bet on very broad economic data, it’s much easier to hide. Because everyone has an opinion about interest rates, gold futures. So it would actually, if you could get the data, be a prime target for insider trading, because the movements of the markets are so broad that it would be easier to camouflage your actions.
JASON HARTMAN: So no one would really know. So what happened? These hackers that were really, I guess, the inspiration for the book—did they get away with it? How much did they make?
MATTHEW QUIRK: You know, the book, you have to have a dramatic thing. It’s a thriller. And it’s a really fun cinematic book. As I was doing the research for the book, I came across—it’s actually a new study, where researchers at a business school, they tracked the movement of the gold futures around major announcements by the Federal Open Markets Committee, which are the sort of most important announcements the government makes. It’s related to stimulus, and interest rates, and the size of the monetary supply, and they found that the markets of course factor in those decisions. But they factor them in 15 minutes before they’re made public. These researchers looking over the numbers found that it appears to be that there are leaks from the press facilities. The press gets the information about 20 minutes before the public statement. And looking at the data, it seemed like that information was leaking out early. And they estimated that over the course of their study period, profits as high as $256 million had been made.
JASON HARTMAN: Unbelievable. A quarter of a billion dollars? Wow. Yeah.
MATTHEW QUIRK: And there’s nothing better when you write a whole book, and then you turn around to do some homework and realize, oh, this appears to be a stranger than fiction thing.
JASON HARTMAN: Unbelievable. Wow. Tell us more about this part about the social engineering and the lock picking and the hacking that was used for this. That’s fascinating.
MATTHEW QUIRK: So, I started to write the book, and I think we’ve all seen the same movies. When you start to write a heist book, you have a guy in a turtleneck, we have James Caan, with a big thermal lance. You do all kind of clichéd Hollywood…and I used to be a reporter for the Atlantic Monthly. I’m actually borrowing a friend’s office at the Atlantic right now. And I started reporting how you would actually break into the Fed, and pull this kind of job. And it was really fascinating, because there’s a group of people—now they’re mainly called red team security experts—and they are hired by the government or corporation to break into their facilities. They’re given a letter, it’s called a get out of jail free card from the CEO, or the agency head. They’re told, come get us, and then they try to get in. And they actually know how you would break into a building in this day and age. It’s really fascinating, because I had so many clichés in my mind of what a heist would look like, and a large part of their repertoire is social engineering and hacking tricks, which are—the social engineering, it’s basically a version of a con game. And my main character comes from a family of conmen. So it’s this really terrific finding that a real 21st century heist would be right in the wheelhouse of my main character. So I had a lot of fun learning about those techniques, and I learned to pick locks myself, and I even went to the Fed and cased it myself, and I was able to get up to a high floor. I was a little blown away by how well the techniques worked.
JASON HARTMAN: You cased the Fed? Did you pick a lock at the Fed?
MATTHEW QUIRK: I did not, no. I really didn’t want to get arrested. It was one of those lucky things. They have a tour, which I recommend for anyone who’s interested in anything about gold or money or the Fed, because the tour is fascinating. They let you into the gold vaults, and they have the coolest vaults. The vault door weighs I think 90 tons, and it’s just a huge disc. And you walk through the middle of it. And at night, they turn the whole thing, it has sort of a hallway tunneled through it. But when I first got there, they waved me through their very, very impressive security out front. And then once I was inside, they have these things called mantraps. And they’re basically a higher security version of a turnstile. So I said, okay. This is a very tough place to crack. And I was in the frame of mind of my main character, which is always really fun. To get out from behind the computer, and pretend you’re your main guy, and you’re breaking into a place. After the X-ray machine and the metal detectors, I get inside, and one of the guards, the Federal Reserve has its own police force, just waves me through the mantraps with a group of employees. And then I was on the elevator. The elevator doesn’t have a key, like a lot of regular office buildings have. And an employee turned to me and said, what floor. And I said, oh, 9. The one that I knew the desk was on. And they said, sure. And all of a sudden the employees got off, and I was rising towards my target. It was one of those moments where first I said, oh, wow. This is so cool. These techniques work. And then I said, oh goodness, I could go to jail for this. So I just stuck my head out, and then went back to where I was supposed to be. But it was really fun, to case it in person, and to see that the main premise of the social engineering trick, looking like you belong, and getting people to trust that you should be there, is actually quite effective.
Discussion of social engineering
JASON HARTMAN: Kevin Mitnick is probably the guy who popularized that whole idea of social engineering, that’s where I first heard of it. It’s just unbelievable what these guys do! You know, they do these—and now, after their prison time—I mean, there’s a whole, like a little cottage industry, these people out there, I guess, after their stint in prison, for getting busted for doing their stuff, they become security consultants. They become the good guys. And then they go out, and they do this for companies who want to be penetrated or broken into. It’s just amazing how easy it is, really, when you hear these stories. I mean, for these high security companies to be just totally hacked! Even the Federal Reserve! You would think that’s the most powerful central bank on the planet. But, you know, the most powerful entity, really the human race has even known. You know? It’s even vulnerable. Unbelievable.
MATTHEW QUIRK: Yeah, their tricks are amazing. Kevin Mitnick is the godfather of it, and I love his books.
JASON HARTMAN: I’d love to interview him. I gotta get him on the show.
MATTHEW QUIRK: Yeah! And these guys—you know, it’s their job, and it’s really fun, because they have one foot in the hacker world. One guy who I know who is one of the best lock pickers out there, his name is Deviant. And he gave me all this great advice for the book, and you know, they all have—they go to DEFCON, and they do their hacker stuff, and they all also, many of them also have security companies. And it’s just great that there’s someone you can call, who actually knows how to break into stuff.
JASON HARTMAN: Right.
MATTHEW QUIRK: It’s so fun for a book, to get the real world reporting in there, and for me, as a former journalist, to go back and pick up the phone and talk to people.
General thoughts on the role of the Fed
JASON HARTMAN: Do you have any revelations that you want people to hear, just about the Fed, like philosophy on the Fed, or you know, what you think of what they do? You know, we kind of, at the beginning of the talk today, we talked about how money is lent into existence, and this type of stuff, that’s probably not really your focus in the book, but I’m sure you have some thoughts about it, and most people say it’s a big scam. But, do you think it has its place in society, or is it a big scam perpetrated by the Rothschilds and the other banking families for the last couple hundred years?
MATTHEW QUIRK: The answer is both, really.
JASON HARTMAN: Both at the same time?
MATTHEW QUIRK: It was fascinating doing the reporting for it, because the Fed, on its own website, has a Q&A section. And it says, is it true that a secretive [unintelligible] of bankers founded the Fed? And they say, not really. But—so, going back and learning the history was fascinating, where JP Morgan had to personally bail out the country, and then he decided that maybe that should be formalized, and we should have a Federal Reserve System. And you and your readers I’m sure know all of the Jekyll Island stuff.
JASON HARTMAN: Yep, had G. Edward Griffin on the show twice now.
MATTHEW QUIRK: Okay, yeah. And it was absolutely fascinating. And you see how the Fed actually works. And I have a lot of respect for those guys, because they aren’t dictating interest rates. They’re actually going and buying and selling back and forth to keep the economy where they want it to be. It was just fascinating to learn how much of it—because of the origins of the Fed—had to be done through the private banking system. And then also when I was reporting, to find out how closely the Fed has to work with those banks to sort of keep the economy on an even keel.
JASON HARTMAN: I would argue that free market can do that job. I mean, one of the stated goals to sell our government on the Fed, back in what, 1915? Was that it would end these ups and downs, these roller coasters in the economy, this roller coaster pattern. And we’ve had nothing but boom and bust since then, you know? It’s just—I guess, really, neither of us could argue the point if we were on opposite sides, because nobody really knows. You know? It’s kind of like an old idea in economics, is, you know, you can’t hear the dogs that don’t get to bark. And so, it’s only speculative, what would have happened otherwise.
MATTHEW QUIRK: I love the novel writing. Because I get to get out into the real world, and bring up real issues. And if you read the book, obviously there’s some skullduggery, and if you look at everything that’s happened since the 2008 crash, I think most people now agree there hasn’t been a lot of culpability, and we can all find different things that should have been done differently. So, it’s nice to reach out to real world issues in the book. But also, at the end of the day, it’s a thriller novel. So, it’s nice to bring that reality in, and also just to bring in to this really fast paced story. I try to bring the politics in, but not soapbox too much in the book.
Security & The Fed
JASON HARTMAN: Right. Anything else you want to share? Thoughts on the future on the Fed, anything more about the hacking of the Fed? One thing I would say is, does the [unintelligible] another attack? I mean, we don’t even know if one is going on right now! You know? Because, like, it’s a macro game, so it’s very hard to track, as you mentioned. It’s not like insider trading in the stock market, where you can probably just watch the transactions, and figure it out, that someone’s doing something wrong, and then investigate; when you do the macro stuff, it’s really hard to know. Does this pose a threat to the economy, to the listeners?
MATTHEW QUIRK: If you look at what the Fed has done, as far as security, last fall there was some suspicious trading in gold. Tied to, I think, I can’t remember now if it was the September or October statement. And then the Fed finally tightened it to lock up, which is where the press gets that advance information. And you know, going back to earlier in our conversation, that may be the source of these leaks that appeared to be moving markets before the news becomes public. So, it was really fascinating for me to learn about those things. And the government has actually, it seems, been doing a bit of a cat and mouse with people who have been trying to get that data early. Because there have been investigations at the Department of Labor, at the Energy Information Administration. So, the Fed has tightened up its procedures in the lockup. But if you look at the record, I’m not 100% confident that the government IT guys can outpace the banks, or whoever is trying to get the information faster. There’s just too much at stake, and it’s too lucrative. I know, I’m a really boring guy, and I don’t try to, on breaking news or anything, get ahead of the investors who are above me in the food chain.
JASON HARTMAN: Matthew, give out your website, and tell people where they can find the book.
MATTHEW QUIRK: My website is www.MatthewQuirk.com. It’s just my name. And the book is The Directive; it’s in stores, and Barnes and Noble, and Amazon, and IndieBound; anywhere you buy books you can find it. It’s a fun thriller, it’s about my character’s a former conman gone honest, and it’s also about all these neat inside information about the Fed we’ve been talking about.
JASON HARTMAN: Well Matthew Quirk, thank you so much for joining us today. This is really fascinating, and definitely somewhat scary. Not that we just have to be concerned now about inflation and all the stuff the Fed does to manipulate the money supply and so forth, which we’ve alluded to, but also the threat of that system being hacked! And maybe it affecting all of us. So, it’s quite fascinating. Quite a fascinating topic. Thank you for enlightening us today.
MATTHEW QUIRK: Thanks for having me. And you know, thrills. That’s my job. So, hopefully I could keep people on the edge of their seats.
JASON HARTMAN: Most definitely.
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Transcribed by David
The Jason Hartman Team
Episode: CW 396: A Heist in the Federal Reserve with Matthew Quirk NY Times Best-Selling Author of ‘Hacking the Fed’, ‘500’ & 'The Directive'
Guest: Matthew Quirk
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