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Overstock.com CEO Patrick Byrne on Jim Cramer, Carolina Liar, and Mark Cuban's IQ

2 years ago

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If you're fascinated by successful entrepreneurs, you should meet Overstock.com founder and CEO Patrick Byrne. Named to BusinessWeek's list of the 25 most influential people in e-business, Byrne could be content to sit by the pool and watch the checks come in. Instead, he works at least 10 hours a day at Overstock, and then spends hours supporting political causes such as school vouchers -- as well as challenging the practice of naked short selling and the state of financial journalism. I recently had a chance to interview him.

Tell us about your blog and about how you got started as a blogger.

Well, I think of myself as writing an online reference book called DeepCapture.com. People can tune in and learn about an issue: the capture of our nation's capital market exchanges, SROs, regulators, congressional oversight.

What does DeepCapture stand for?

Public choice economists speak of "regulatory capture," that is, the idea that certain regulators are set up to protect society from certain industries, but often become captured by those industries. DeepCapture is a hypothesis that the capture does not just stop with the regulator (in this case, the SEC), but continues up and down the line.

Dallas Mavericks' owner (and billionaire entrepreneur) Mark Cuban has gotten in trouble with his blogging. Any fears that your blogs might cause you trouble?

Cuban is living proof that even the billionaires' club has an IQ bell curve. Gates defines one end, Cuban the other. I'll let you decide which is which. The only trouble my blogging may cause is that much of it concerns organized crime and its infiltration of Wall Street.

Along those lines, you've gone after Jim Cramer -- whom you called a "criminal" -- as well as financier and philanthropist Michael Milken. What about these guys troubles you?

Thirty years ago a network of dirty players moved in on Wall Street. One of the main characters in that network is Mike Milken. The network gradually co-opted a constellation of journalists who made their careers shilling for that network of dirty players. There are reporters whose entire career, every story, can be traced back to a trading position of one of these hedge funds. That constellation of journalists centers on Jim Cramer. He is, in fact, the intersection of the dirty Wall Street players and their journalistic shills. Jim admitted as much in a videotape that was not supposed to get public, but which I put up on DeepCapture, and to which I pointed the attention of some folks at "The Daily Show," who used it in their confrontation with Jim Cramer.

You've referred to financial journalists as "pawns" and have been denied entry to the Society of American Business Editors and Writers. Tell us more about how you think financial journalism is failing.

There are two dynamics to note. The first is that the hedge fund beat is covered by 20 journalists at most. Of them, less than a dozen are the real names. They have grown inappropriately close to their hedge fund sources: they lazily rely on them as sources instead of getting their own story ideas; they play poker with them; they even, at times, travel together. As a result, they end up simply "talking the book" of these hedge funds. . . . The second dynamic is that mainstream journalism is by nature conformist.

You've said before that vouchers and school choice are the solution to our nation's fundamental problems. Why is that?

In the long run, the only two systems that really matter are our capital market and our education system. Currently our government education system spends 38 percent more than the average OECD [Organization for Economic Co-operation and Development] countries, and produces an output ranked around 21-25 in the OECD, depending on what you look at. That is our future. If we cannot fix that, all the other social issues with which we concern ourselves seem derivative. But if we could fix it, many of our social ills would wash out over the space of a generation.

Most conservatives would applaud you on that, yet you reject the "conservative" label.

I would not have rejected it once, but its meaning has gotten muddied. The long and short of it is, I am a Yankee Republican: Government should pave the streets, hire some cops to patrol them, and stay off my porch. That's all I want from government. The statists have always been wanting to find new jobs for the government to do, rather than to focus on doing well the ones it should do. Somewhere along the line the conservatives began doing the same. They just picked a different set of jobs. So that puts me at odds with most so-called conservatives. I believe war is the biggest of all Big Government programs. I believe in re-legalizing drugs, both from the pernicious consequences of the failed "War on Drugs" (we cannot keep drugs out of our prisons, so what makes us think we can police them out of our cities?) and as a matter of principle (the government does not own me: I own me). I believe in equal rights for gays, although I think as a tactical matter they should perhaps settle for civil unions now, give society a decade to adjust, then come back for marriage later. The best solution of all would be to just have the state start recognizing civil unions on the grounds that the state should not be in the marriage business any more than they should be in the First Communion business. And so on. Somewhere along the way my belief in limited government put me at odds with most folks who call themselves conservative today.

Back to business, Overstock.com has survived when many .com's have crashed. What's the secret?

We tried to run it like we were building an old-fashioned billion-dollar business, not a New Economy billion-dollar business. We run the company as if there is no public market, and we are just trying to build real value.

At what point will companies like yours begin making real profits? Why hasn't the business model of .com's led to profits?

Entrepreneurs generally care most about operating cash flow. We have been spitting out cash for some years. Right now, our trailing 12 months cash flow is +16 million. So the rest is fine tuning from here.

Your latest ad features the band Carolina Liar, and their new song, "Show Me What I'm Looking For." Usually songs have to age a bit before they become ads. How did you decide to go after a band that is just now breaking big on MTV?

Carolina Liar is a good friend of Overstock.com. They stopped by our offices during their radio tour and did a performance for our employees. The group and the song just seemed like a good fit.

Tagged: Overstock.com, Patrick Byrne, PatrickByrne

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