Memelord Takeover

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Larry Summers, Felix Salmon: This ad free podcast is part of your sleep plus membership.

Larry Summers, Felix Salmon: Hello. And welcome to the Meme Lords. Take over an episode of Sleep Money. Your Guide to the Business and Finance News of the Week. I’m Felix Salmon of Axios. I’m here with Emily Peck of Axios.

Emily Peck: Hello.

Larry Summers, Felix Salmon: Hello with Elizabeth Spiers. Hello and guys, we have the perfect guest on for this week. Welcome Matt Levine.

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Speaker 3: Hi. Thanks for having.

Larry Summers, Felix Salmon: Me. Matt Levine. You need no introduction, but introduce yourself anyway. Who are you?

Speaker 3: I am a columnist for Bloomberg Opinion. I write a daily ish newsletter called Money Stuff. Recently it’s been Elon Musk stuff and I just published a long article. I’m feeling very Businessweek about crypto.

Larry Summers, Felix Salmon: Which is awesome. Everyone should read it, go out, buy it in print if you can because it looks beautiful in print.

Speaker 3: This copy is going to be scarce.

Emily Peck: Collector’s items should make them into nfts obviously.

Larry Summers, Felix Salmon: Please don’t make that.

Speaker 3: You’re the 40th person to make that joke this week.

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Emily Peck: First to do it on Slate Money.

Speaker 3: That’s true.

Larry Summers, Felix Salmon: We’re going to talk about that article. Obviously, we have so much to talk about. We’re going to talk about the cryptos. We’re going to talk about Credit Suisse, which is breaking itself up. We are, of course, going to talk about Elon Musk buying Twitter, which is now official. It has happened. Twitter is now owned by Elon Musk. It is a fun show. You’re in love. It is all coming up on Slate. Money.

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Larry Summers, Felix Salmon: Okay, so, Matt, it finally fucking happened.

Speaker 3: I know. I was not expecting it to have happened by now. Recording on Friday morning. I figured it would be like I figured it’d be 20, but you know exactly.

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Larry Summers, Felix Salmon: He would. He would do the deal at 420 on Friday. In fact, he did it a day early on Thursday. Yeah.

Speaker 3: Not what I predicted.

Larry Summers, Felix Salmon: He was he was unusually swift. And then by Thursday evening. The top three executives of Twitter had all been fired. And Twitter is as of this recording and as of listening to this podcast now wholly owned by Memelord.

Speaker 3: I mean, it does make sense that like the person who values using Twitter the highest would now own Twitter. I mean, that doesn’t really make sense, but like makes a kind of sense.

Larry Summers, Felix Salmon: Like Twitter. Using using Twitter is free. Owning Twitter costs, you know, $44 billion. It’s like $54.4 billion plus a three bank account gets you into Twitter. I mean, Twitter account gets you into Twitter.

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Speaker 3: But he’s very, very rich. And like, don’t you have things that you find annoying about Twitter that you’re like, I would change this. Right. Like, if you just owned it, you could just do it. So that was my original thesis of this deal. Is he just like, you know, he, like, wanted an edit button. He’s like, I’m going to pay $44 billion for an edit button.

Larry Summers, Felix Salmon: Which I guess. So this is one of my questions for you is like. He agreed to pay $44 billion. Then it rapidly became obvious that he was overpaying. He tried to get out of the deal. He wound up doing the deal in the end. One of my theories all along was that the reason he kind of wanted to get out of the deal was because he didn’t have that much money. Once the margin loan fell through and he had to come up with like $33 billion of equity and he only managed to find 7 billion from friends and family, that’s like a non-trivial amount of cash even for Elon, but he seems to have found it.

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Emily Peck: Yeah. Matt, what do we know about where he found the money that under couch cushion from?

Speaker 3: So we don’t fully know. I mean, most of it presumably comes from selling stock in Tesla either in recent months, you know, sort of around the time he signed the deal or earlier where, you know, just, you know, putting money in the bank or conceivably even last week, like there’s some speculation he might have done something. I’m sorry, last week, this week, which would be disclosed next week if he had, in fact, sold any.

Speaker 3: Some of the money came from friends and family. It’s not clear how much you know. And back when the deal was on, he disclosed $7 billion of commitments from, you know, venture capitalists and Saudis and his buddies. But it’s not clear that all of those came through. And it seems pretty clear that he got other money, too, like other rich people kicked in some money. That has been sort of reported but has not yet been disclosed. And I don’t know if it ever will be right, Like there’s no real obligation to disclose it anymore. I assume that the number that he got in equity investors was kind of around $7 billion, but it could have been more could mean less.

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Larry Summers, Felix Salmon: My my favorite theory, which I don’t actually believe, but it would be amazing was that he paid for a huge chunk of Twitter with Dogecoin, which there was this massive Dogecoin whale wallet, which at one point had like over $20 billion in it, and it’s now been all sold off. I was looking at it and all of those Dogecoin had been sold in the total profit in that wallet was about nine and a half billion dollars. And the total amount of money that the person who owned the wallet or the institution that owned the wallet put in was like over 350 million they spent on Dogecoin. So like, that wasn’t just someone who got lucky, you know, that was a very rich person or a very rich institution buying all that dogecoin and then selling it all in absolutely enormous profit. Was that Elon? Probably not. Would be very funny if it was.

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Speaker 3: That would be amazing. That would be a great way to buy Twitter with your Dogecoin profits.

Emily Peck: And so I feel like for a while now, going forward, there’s going to be a lot of like conspiracy theories theorizing going on about who Elon is really beholden to with Twitter and and, and why it’ll matter and all that. But aren’t there just some banks too kind of behind the scenes? Yeah.

Larry Summers, Felix Salmon: Twitter is now a highly leveraged company. He needs to pay. What is it like one and a half billion dollars a year and just an interest expense, which is more than Twitter’s free cash flow. So good luck with that.

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Emily Peck: So usually these things kind of all end in disaster, not not for Elon Musk, but just for the company itself. It’s just the layoffs, the cost cutting, the blah, blah, blah. It all ends and kind of the bankruptcy court or something.

Larry Summers, Felix Salmon: So this is this is something that which you’ve written about, and I love this so much is basically what happens if. Twitter defaults on its debt. Are the banks going to come after Elon for, you know, they’re going to try and foreclose on Twitter? Or do they value their relationship with Elon too much to do that?

Speaker 3: So so Twitter has a lot of cash, but it’s a weird deal in that like ordinarily you do an LBO, you use the cash on the balance sheet to pay some of the price and you operate on very thin margins like this one. Twitter is keeping a lot of cash, so it’s not going to go bankrupt like next year if it doesn’t have enough cash flow to pay interest, it’s got some cushion. What happens if it stops paying interest? I don’t know. I mean, I would love to see it because I think that so some of the weird dynamics here are like the client is Elon Musk and you don’t want to if you’re the blender, you don’t want to annoy the richest person in the world, not only because he’s a good client, but also because he is very irritating in litigation and you don’t want to get involved with that if you foreclose. The thing that you own is Twitter with like Elon Musk being mad at you and do you want that?

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Speaker 3: And the other thing the other issue is that right as of now, the banks are making noises that they’re not selling the debts. Ordinarily you doing LBO banks underwrite the debt and they sell it to, you know, the sort of investors who buy LBO debt. And if the company falls into distress, that debt migrates to the hands of the distressed that investors of the world who are very much in the business of like fighting tooth and nail to take over companies and try to extract value from them. Right now, the debt is is supposedly being held by his relationship. Banks like Morgan Stanley, who are not in the business of fighting to the death with Elon Musk to take over the company that he owns. So I don’t know. My gut is that there will not actually be a problem servicing this debt. And if there is, the banks will do a lot to make things easier. Rather than try to take Twitter from an angry U on musk because that just doesn’t seem very fun.

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Larry Summers, Felix Salmon: They will. Well, you know, what’s it called? DeLay and.

Speaker 3: Extend and pretend.

Larry Summers, Felix Salmon: And they’ll just kind of roll over the debt in one way or another, rather than force it to to a crunch point that makes sense. And it also makes sense to me from Elon’s perspective. If he’s already put $20 billion into this company or more. You know, what’s another one.

Speaker 3: Right? Like, he could just pay the interest out of his own pocket, essentially. And it seems crazy to throw out all this money.

Emily Peck: I kind of I’m starting to think that Elon Musk is going to turn Twitter around, like.

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Speaker 3: Yeah, I’m very optimistic.

Emily Peck: Well, first.

Speaker 3: Of all, you.

Emily Peck: Know, like his his purchase has has made all the shareholders lots of money. The 5420 was good for them. So that seems good.

Larry Summers, Felix Salmon: The the exiting exiting CEO, Parag Aggarwal, he’s exiting with a large swag bag of cash.

Emily Peck: Yeah, he was fired at night time, but who cares? He’s like a big ol millionaire now. Like, so I mean, and and now Kanye is back as of Friday morning onto Twitter.

Larry Summers, Felix Salmon: Where he never actually left.

Emily Peck: Oh, okay. So he’s there. I don’t know. More people are going to be there, like rubbernecking, the train crash or just checking it out? I think so. That’ll be good, right? It’s an advertising business. You want more users, they’re going to show up because they’re excited about Elon. People say they’re quitting, but they’re saying it on Twitter.

Larry Summers, Felix Salmon: You know, you know who is posting meme on Twitter on Friday morning, although he did delete it quite quickly. Larry Summers I’m not make he posted a Pokemon mean as a meme as a reply to Paul Krugman which is very I’m Larry Summers but you have to remember that Larry is on the board of Square, which is Jack Dorsey’s company. Jack Dorsey is BFF with Elon Musk. You know, these circles are tiny.

Emily Peck: Yeah, it’s a popular place to be. And I don’t think that’s changing. I think it’s going to become more popular now that the billionaire owns the playground. Everyone’s going to want to show up and play. So maybe it’s all going to be good.

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Speaker 4: I think it depends on whether he turns it into a cesspool that becomes kind of unsustainable for certain people.

Larry Summers, Felix Salmon: And then what.

Speaker 4: I think they leave, you know?

Larry Summers, Felix Salmon: Right. Is that is that bad? I mean, you know, if if the you know, if the woke snowflakes leave, is is is Ellen going to cry?

Speaker 4: Well, it depends on what it does to the business and how many of them live.

Emily Peck: Again, I’ll say I’ve read a lot of people talking about leaving Twitter on Twitter today. So that kind of tells you what you need to know about that.

Speaker 3: Yeah, I don’t think anyone’s going to leave if like Donald Trump comes back. But I think that like, if in fact, he cuts like, you know, moderation to the bone and it just becomes all crypto spammers, then people will leave. But, you know, he has said that he he bought it to get rid of the crypto spammers. So it’s a little unclear what he’s actually going to do. My sense is that there will be some marginal right wing decisions, but like the basic feel of a product won’t change that much and so people won’t actually get. But what do I know?

Larry Summers, Felix Salmon: Well, I mean, you do them quite a lot. You have been written about writing about almost nothing else for about a year now. But but we should I mean, we should actually talk about what the other thing that you, you know, manage to toss off in your spare time, which was 40,000 words of explanation of crypto like. Yeah. That took you that took you a couple of months. Right. You’re not a complete robot. Who can do that overnight.

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Speaker 3: No, I did not do that overnight. And it sort of started in the so like over the summer because I was like, well, summer’s always slow. What am I going to have to write about? I might as well take some time off to write about crypto. And then, you know.

Larry Summers, Felix Salmon: So, so this is, this is the second great Businessweek take of pull forward that the first one on code you’ve done the second one on crypto. The idea is that it’s like a timeless issue that you can keep on your bookshelf and refer to as a sort of reference thing that if you want to understand what crypto is, just read this and you will understand. And I think you did that unbelievably well with great brio.

Speaker 3: And obviously that’s a gamble when you’re like it’s a timeless reference and this thing that’s existed for ten years and then crashed.

Larry Summers, Felix Salmon: One of the interesting things about crypto to me is, is how slowly it actually evolves. A lot of people like to compare it to, you know, crypto is like the early days of the Internet, but the fact is that crypto has been developing much more slowly than the early days of the Internet. You know that if you go back and read the piece I wrote in 2013 about Bitcoin, some of it’s out of date. Most of it kind of isn’t, you know, and and I think honestly, the what you wrote about the broad structure of crypto, how it works, why it exists, is going to be true and it’s going to be like basically not out of date for at least a couple of years.

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Speaker 3: I hope so. I mean, like the. The risk that we talked about for it being out of date was like. You know, Crypto classroom, sort of like a 3 trillion US market cap to a 1 trillion US market cap like over this year. Like if it went much further down, then people like, I don’t need a business I guess on this, you know, trivial on that subject.

Larry Summers, Felix Salmon: So yes it that that one was interesting. Like, is that the reason why Businessweek devoted an entire issue of this, why you devoted your entire summer to writing it, is just because there is a metric ton of money in this, and therefore it is important.

Speaker 3: I’ve always been kind of like an efficient markets guy, and I’m like, if like enough smart people are investing their money in it, like there’s like, who am I to say there’s nothing there, right? I spent a lot of time talking about specific crypto things being like, Wow, there’s nothing there. But like, yeah, as a, as a sort of rough indicator of like, importance and interest, the fact that there’s a ton of money in it is interesting. And frankly, if it’s like not important, then the fact that there’s a ton of money in it is even more interesting.

Emily Peck: Yeah, that’s the difference between Felix you writing about it in 2013 and Matt writing about it in 2022 is like crypto is here.

Larry Summers, Felix Salmon: Well, I mean, when I wrote about it in 2013, the news peg was, Oh my God, the market cap of bitcoin has just passed $1,000,000,000. This is completely insane. And it’s like it just blew everybody’s mind that this weird crypto thing could be worth $1,000,000,000 now.

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Speaker 3: And now people are paying $9 Billion in Dogecoin for Twitter.

Larry Summers, Felix Salmon: Well, exactly. Now, like literally you couldn’t have a Dogecoin wallet was 21. One person can have those going well it was $2,021 billion. And kind of that’s accepted as normal.

Emily Peck: And you know the thing, it’s accepted as normal now. It’s part of the system.

Larry Summers, Felix Salmon: It’s part of the background noise. Yeah.

Emily Peck: Right. Matt Now it looks like it’s not going away. There’s been a big crash. There has been crypto winter, but I think you say in the piece like seems to be sticking around. It’s worth doing the big story.

Speaker 3: Yeah, I mean, that’s my sense. Like people, you know like it is, is now sort of like a through the cycle thing where like obviously a lot a lot, a lot of activity in crypto like, you know, a year ago is like people very naively betting that these lines always go up but are. Then they went down a lot and know people are still around and people are still, you know, investing in it. And people are still like, you know, building projects and stuff. And so there’s still like there’s still something there even after like the the sort of worst of the speculative frenzy came.

Larry Summers, Felix Salmon: Although, you know, the big message of your piece is that there’s not much there there beyond purely sort of self-referential financial speculation. The amount of real there that is is way lower than all the people I was talking to in 2013 would have predicted at this point.

Speaker 3: I agree with that. Yeah, I agree. I thought. Right. I mean, when you were talking about like if they’re moving more slowly than the internet, like, like. I think that there is a hypothetical, you know, even as of a year ago that was like this is as much of a general purpose technology as the Internet. This will transform every aspect of our lives. And I think that, like where I come to in the piece is that this is like a much more narrow purpose technology, and it’s like a financial technology. And as a person who writes about finance, I think that’s interesting. And I think there are valuable things you can do with financial technology. But like, it’s not going to change every aspect of your life the way like, you know, having all of the world’s information in your pocket does.

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Emily Peck: Yeah, that’s what was really interesting about your piece. You were like, We had a real world for a long time, and then the financial system kind of grew along with it, and that’s the financial system and the that we kind of know and think is real. And now we have this like Internet world and there’s this crypto system growing along alongside it. And then I was kind of thinking like, yeah, we don’t I mean, we do need the financial system and all the bankers and stuff, but they’re kind of just like soul sucking. We don’t really need the real world as much.

Speaker 3: And your words, not mine.

Emily Peck: Right, right. Not yours.

Speaker 3: I love the fact that.

Emily Peck: They’re all great. Obviously, they’re. They’re. We need them to have our homes and our turn. The lights on. The small businesses, of course.

Speaker 3: Yeah. No, I mean, like, in all seriousness, I think that, like. Like the financial system operates in the background of, like the real economy and like, adds incremental value. And like, you know, I used to sell derivatives and I was like, you know, like companies are building cures for cancer. And the way they can do that is by selling convertible bonds. And I think hedge those, get rid of ones. I think there’s a truth to that. And I think like, you know, building a better financial system is not a trivial goal. Um, and, and can potentially like be good for the world, but not in a way that like you feel every day in your, in your ordinary life.

Larry Summers, Felix Salmon: But this is to be clear. The other side of that bet when you’re saying like it’s not actually being part of our day to day life, you are taking the other side of the bet that Mark Zuckerberg is taking. Right. With his massive pivot to.

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Speaker 3: Well, sort of I mean, like. Yeah, like sort of like you can there’s like a f the concept of the metaverse and the concept of like crypto and web3 are like, entangled with each other, but it’s not, they’re not like, identical, right? I mean, like, Mark Zuckerberg is not saying the things that crypto people love to say about, like, you know, owning your own information and sort of like having portable like NFT. Is that, that like track your attributes in the metaverse. Mark Zuckerberg is like come to our you know walled garden product and like use our metaverse like those are different like, like his metaverse is not like all that you know built around crypto true believer ideas.

Larry Summers, Felix Salmon: Did you think.

Speaker 3: Also like yeah I think he’ll be taking the other side of the bat.

Larry Summers, Felix Salmon: But yeah but do you do you think it’s possible that the Mark Zuckerberg Metaverse could become what Mark Zuckerberg seems to think it will become without crypto more broadly becoming an important part of day to day life for most of us?

Speaker 3: Yeah, I think it could. I mean, I think that like, you know, like the Internet exists and then you build these like walled garden, you know, Facebook products on top of it. Right? And like, I think that too, Mark Zuckerberg, that bet is like something like a some sort of metaverse will exist and he wants to kind of build the walled garden first, right? I’m not sure he put it that way. And I’m not sure I’m even right about how I’m characterizing him because like, I don’t know what he’s thinking.

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Speaker 3: But like, it seems to me that, like, the Facebook bet is on. We need to own the next, like walled garden of like the Internet or whatever succeeds the Internet. And maybe that will work. And the, you know, a better product will be the the sort of place where everyone goes to have meetings and like walk around without legs. And maybe, in fact, it’ll be a more, you know, diverse like, you know, competitive metaverse in which crypto will serve some function to sort of like link between bits of the metaverse. I think talking about all this like just feels very abstract because like, you know, the Mark Zuckerberg metaverse is like, you know, 2018 logging on at night and it’s just not like the I don’t I don’t I don’t really know what that vision is. But yeah.

Larry Summers, Felix Salmon: I mean, in the early days, prior vision was, was Libra, wasn’t it. He tried to create his own.

Speaker 3: Oh, yeah. No, I mean, like I, I’m, I’m sort of speculating about Facebooks, belief in walled gardens, and obviously they have talked about crypto and they have hired crypto people. But like Libra, it was also like, you know, it’s a crypto project. It’s like a little bit owned by Facebook, but they wouldn’t say that. But it’s like it has elements of centralization that are that that don’t necessarily fit with like the sort of classic crypto ethos.

Larry Summers, Felix Salmon: So so I want to come in here and do a little pivot and just basically say that the reason Libra failed, which I think is generally accepted, is that it ran straight into a wall of regulators who wanted absolutely nothing to do with it, and they were like, Fuck off. And then and then all of the big companies like Stripe and MasterCard and everyone who had initially bought into it were like, We are going to piss off our regulators. So they left. And then there was. And then and then it was empty and it died.

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Larry Summers, Felix Salmon: And one of the themes sort of I would say like behind your story, it’s not like super explicit in your story, but you touch on it from time to time is that a huge amount of crypto activity is basically just regulatory arbitrage. It’s people trying to do financial things without having to get regulated by existing financial regulators. And isn’t that bad.

Speaker 3: Um, so yeah, and, and I mean, I think it’s one thing that I read about a lot is that like, there are, there are like two ways to be regulated in crypto. One is like you’re a big existing company like Facebook and you’re like, I have an idea for a really safe, well regulated crypto product like this stablecoin that I want to issue called Libra. And then you go to a regulator and like, here is my proposal that’s, you know, put together by the top lawyers who all used to work for the regulator. And the regulator says, absolutely not, get out here, and then you don’t do it right. And the other way to do it is like you’re a teen in like, you know, a not extradition country and you just program it and do it and you do whatever you want and like you make, you know, completely ridiculous promises of 18% save interest and then like, you, like lose everyone’s money and then you don’t get in trouble with regulators because, like, they don’t they haven’t talked to you. Right?

Speaker 3: The crypto is like it’s not even a regulatory arbitrage. It’s like it’s like almost a blind spot and it’s so new and busy that the regulators are spending a lot of time dealing with the sort of the people who want to be regulated. The people come in to talk to them and they go, don’t come in to talk to them and don’t want to be regulated, just aren’t regulated because it’s like too early to regulate them. So that seems bad otherwise. I mean, like so, yes, like a lot of what I write about is that like. The Crypto reinvented shadow banking in a way that is incredibly unregulated and like much worse thought out than like, you know, the shadow banking of 27. And so the things blew up in ways that are just comical and and like astonishing.

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Speaker 3: If you lived through 2008 and you’re like, how did how did people let you do that again? But I also think that like. I don’t know. Like you see the sort of interactions between the crypto people on the SCC and I think like I am sympathetic to the crypto people’s belief that like modern sort of existing securities regulation and frankly existing banking regulation is a little bit, you know, stands in the way of innovation in a way that is probably bad in some ways.

Larry Summers, Felix Salmon: Crypto financial innovation, I mean, the famous the famous thing from Paul Volcker was the only good financial innovation in the past 20 years has been the ATM. I would add exactly one. Other innovation, which was good to that list, which is the index fund. But basically, I think financial innovation is broadly bad.

Speaker 3: Yeah, I don’t know. I mean, like a financial innovation that I like is like Venmo, you know? And I think that like, like speeding up the payment system in like traditional finance has been sort of, you know, pressured by crypto where like crypto sort of tells the story of like, I can just send you money on my phone right now without having to, you know, write you a check and wait three days. And I think there’s been some some of that pressure from crypto. Yeah.

Larry Summers, Felix Salmon: If in my mind, Venmo in my mind, Venmo is not financial innovation. I have to say this in my mind. In my mind, Venmo is is just a failure of the U.S. Central bank to build a decent payment system.

Speaker 3: I agree. And like and crypto puts pressure on that failure and to try to fix it and and is arguably, you know, in some ways better than even the fix system. But I also think like I like I just like financial innovation like I think that, you know, having more cool financial markets is cool. And I realize that nobody no normal people agree with me. But like a lot of people in finance agree with me.

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Emily Peck: On one thing related to what you guys are talking about that I thought was striking about your piece was how crypto kind of piggybacks on the trust that everyone has in the regular financial institutions exemplified by Celsius, which people gave their money to knowing it wasn’t a bank but kind of believing it was anyway. Yeah. So even as it’s not regulated, it’s kind of like piggyback.

Larry Summers, Felix Salmon: I love I love that whole thing in your piece about trust, because there’s such a deep paradox in the crypto world and the whole edifice is built on mistrust and like we can transact with each other without knowing who each other, without trusting each other at all. And it’s a trustless ecosystem. And isn’t this great for reasons?

Larry Summers, Felix Salmon: And then the minute that it becomes, you know, I mean, basically around 2013 when I wrote my piece, that was when you started having people like Coinbase come along and say, like, trust us, we will look after your crypto for you and we will actually be better at looking after it than you will if you try and keep it on your laptop, which is true. And, and then everyone just started trusting institutions all over again. But they were unregulated institutions that probably didn’t deserve that trust. And now that Coinbase is a publicly listed company that, you know, managed to get FCC approval to go public, which still kind of surprises me, I think people trust it even more. And I, I want to ask you, like, is that trust misplaced?

Speaker 3: I, I, my impression is that Coinbase tries to be a sort of compliant, good citizen kind of public company. Right. And I don’t know, I don’t think, like, my my gut is that trusting in Coinbase is not too much, you know, more misplaced than like trusting, you know, Tesla to take your deposit and deliver your Tesla. Is it more misplaced than trusting a bank? Like potentially banks are like more regulated than crypto exchanges, but it’s all the same. You know, like, like these guys are trying to do the right thing.

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Larry Summers, Felix Salmon: But but, but clearly it’s it was a very bad mistake to trust Celsius is crazy.

Speaker 3: I mean, Celsius is like.

Larry Summers, Felix Salmon: Right. So there is there is this kind of caveat emptor thing. Oh, yeah. Right. Like if I if I walk up to a bank on the high street and I deposit $1,000, I don’t need to know anything about the bank. That’s an information insensitive, you know, product. And I know that that thousand dollars is safe. If I walk up to Coinbase and give them $2,000, I need to know something about Coinbase in order to be able to say I can trust you. And if I go up to Celsius about and give them $1,000, I need to know something about Celsius. You know, actually this is risky.

Speaker 4: I mean, how sophisticated do we think the retail crypto investors are though? And if it if it has the veneer of traditional banking or, you know, it seems to have the same taxonomy, maybe that’s where the trust comes from, even if you’re not.

Speaker 3: Really I mean, I think the answer is not sophisticated. I think you’re right. I think that, you know, as I said, like. People have just sort of like imported over like their sort of instincts about trusting banks to things like Celsius that are just like the opposite of banks. And like Celsius says don’t trust the banks, you don’t trust anyone. Trust us, you know. And then like people do for no reason at all, and they lose their money.

Speaker 3: No, I mean, I think that like in crypto, there there are definitely like there is a there are sophisticated people who sort of live in the defi like decentralized finance world and who try to minimize trust and maximize like your own ability to audit the code and whatever. And to do that, you have to be sophisticated and kind of a hobbyist, right? Like that has to be fun for you because it is you’re not going to audit the code if you’re just like a sort of regular retail investor. And then like on the other side, there is like the regular retail investor crowd in the centralized finance crowd and they’re like. For it to work. It’s just going to have to be more regulated, right? There’s just going to have to be some sort of. And obviously, there’s interest from the FCC and there’s interest to some extent from banking regulators. But I think there has to be some sort of like regulatory framework that will make it so that you are not just blindly picking the platform that has the best font. And then you are, you know, it is all your money. The other thing is that like I think, you know.

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Larry Summers, Felix Salmon: You pick the platform that has the cutest dog and then you.

Speaker 3: And I think the other thing in is like, I think people have like, like there’s like a very libertarian ethos, right? I think like even in traditional finance, you know, ten years ago, you could have people who were like libertarians would say, we don’t need regulation rep like market based reputational, like issues. Solve all of this, right? Like a bank that isn’t careful with your money will get a bad reputation and therefore no one will put their deposits and like sounds like sort of like implausible and it sounds impossible and good and it is implausible and crypto, right? But like, I think that like, I think that there is a belief in the crypto world that reputation and like market incentives solves a lot of this. Obviously it didn’t for Celsius and Voyager.

Larry Summers, Felix Salmon: I love the number one thing I loved the most about your piece is when you talk about this incredible, well, word that’s used in the crypto world to refer to reputation which is so.

Speaker 3: Yeah. I mean, I wouldn’t say that that’s like the word for reputation, but I think that’s like a, a proposal from, from a few sort of crypto thinkers, including Vitalik Buterin to like have some sort of like persistent, uh, identity thing that is sort of bound up in crypto tokens on the blockchain and they refer to it as soul bound tokens and you have a soul and it’s just like it’s a, it’s like, it’s an endlessly fun thing to write about because it’s like, like they say in their paper, they’re like a musician could issue a song from his soul and like, that sounds so good, you know? And it’s like, it’s like a, you know, defined the technical term about the blockchain. Like, Oh yeah, a song from your soul.

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Emily Peck: Can I say one more thing about the metaverse? Just to go back for a second?

Larry Summers, Felix Salmon: Please do.

Emily Peck: I’m here to say I live in the metaverse.

Larry Summers, Felix Salmon: Felix Wow.

Emily Peck: You live in the metaverse Felix I wake up every day and I in the real world and I have my coffee. Then I go and I open my laptop and for the next eight or more hours, I’m in the laptop, I’m in Slack, I’m on Twitter, I’m in my email a little bit, living my digital life online all freakin day. And I think that happens to everyone on steroids in the pandemic and helped make crypto a bigger deal, helped make all this stuff a bigger deal. And I think, like it makes sense what Mark Zuckerberg is doing. I mean, no one wants to live in his walled garden, as Matt calls it, but like if you think we don’t already live in a metaverse, you are incorrect. You are.

Larry Summers, Felix Salmon: Incorrect. As as I as I said in the introduction to my news that it’s day two places where I have lived a large part of my life just got taken over by a Gen X gazillionaire. One of them was the United Kingdom with Rishi Sunak and the other one is Twitter.

Larry Summers, Felix Salmon: Yep. And I have lived a lot of my life in and on Twitter and that is that is true and I managed to do that very easily and very well without any crypto. And I think and I think this is important, right? Your point is absolutely true that we do have very vibrant, very important digital lives and we spend huge amounts of time in investing in our digital personae and with the, you know, avatars and all of this kind of stuff. And you don’t need crypto for any of it. It is completely unnecessary. So. And you until that point, you probably don’t need crypto for the Facebook metaverse thing, either horizon or whatever it’s called. Right. So what is the point of crypto at that point?

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Emily Peck: I think it’s to add if to the end of your your name.

Larry Summers, Felix Salmon: Congratulations on your thought youth account.

Speaker 3: Oh yeah, I couldn’t get Matt Levine. So unless those got it, I think they like to squat on it for like, for me, but I don’t think it’s like another Matt Levine but I don’t know.

Larry Summers, Felix Salmon: I want to talk one last thing because there was big news. They. We were talking about trusting banks. This is a big thing. There are. Depending on how you count roughly nine bulge bracket banks in the world. And one of them came out this week and said, we are breaking ourselves up and we’re not going to be a bulge bracket bank anymore. This is like a voluntary breakup. Have you ever seen that before?

Speaker 3: I feel like all of the European Poles bracket banks have been saying things like that for years. That’s right. I think there has been I mean, this is a particularly this is a particularly real one. But I think there’s been sort of a retreat from universal banking by some of the big European, you know, universal banks where they’re like, we were in a special has a little bit more, but.

Larry Summers, Felix Salmon: This is a big one. The news is that Credit Suisse, which really is a big universal bank, was right to be it bought a massive U.S. investment bank called First Boston in 1990. It has a huge wealth management arm, of course, because it’s Swiss and and it does basically everything. Everyone came out this week and said we are breaking us up into four parts. We’re selling off a large chunk of, you know, financial innovation, securitization stuff to Apollo. We are setting up a bad bank with like emerging markets and stuff where we don’t really want any of that business and we’re just going to run it down.

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Larry Summers, Felix Salmon: And then we are going to basically split the rest of it in two. We’re going to have the asset management and the sales and trading in one part, and then we can take all of the real investment banking, investment banking stuff, give it to Michael Klein, let him spin it off as this resuscitated first Boston name. And it’s going to be a boutique. It’s going to be like Jefferies or Evercore or something like that. Like definitely not bulge bracket, which is. Something which you it’s it’s something which you do if you are a sort of some of the parts investment banker like Michael Klein and you’re like if you add up the value of all the component parts of Credit Suisse, they’re worth much more than the whole thing as a whole. So what we do is we split it up into its parts, sell them all off individually and create value that way. You only do that when the share price is in the toilet, which it is, and it fell even further this week.

Emily Peck: So.

Larry Summers, Felix Salmon: So so yeah.

Larry Summers, Felix Salmon: So, Matt, Emily has a question for you, which is like, why should we care?

Emily Peck: Yeah, that was the only what I said I wrote down was matter to the normals. Like I didn’t even know Credit Suisse was an option when I’m when I was choosing a bank whenever it was.

Larry Summers, Felix Salmon: Well, I mean, it’s not for you. It is in Switzerland.

Speaker 3: I don’t think it is. You’re not Swiss.

Emily Peck: Okay, So. Yeah. So why should normals care?

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Speaker 3: It is if you’re if you’re like a rich of right.

Emily Peck: If you need a wealth manager, which, I mean.

Speaker 3: Why should you care?

Emily Peck: Yeah. Why should people care about Credit Suisse breaking up? What does it tell us about I know the future of big banks? Or why do European banks not want to be big anymore? I don’t know. Or does it.

Speaker 3: Not? Not person to ask? I think I think, you know, Credit Suisse has had a string of scandals. I think, you know, to the point about trusting banks, it it is like it’s hard to run a big bank, you know? And like, I was thinking, Felix, you’re talking about like the the sum of the parts. Like I think that the view is and I wrote about this this week, there was a widespread view that these parts add value to each other, right? That like being a wealth manager helps you. An investment banking, being an investment bank helps you to sales and trading all these things, you know, sort of send business to each other and the businesses work best together. And so the thing is worth more than the sum of its parts.

Speaker 3: And now Credit Suisse is worth less than the sum of its parts. And the reason for that is that, like these businesses also, like bring danger to each other. Like if you have a trading business and the trading business loses a ton of money, then like your investment bankers don’t get paid, right? If you have a wealth management business and the wealth management business is like a betting some light frauds by like selling some like Greensill notes to its clients, Then like the investor bankers don’t get paid like everything is is like kind of like the worst business is what controls the narrative and also like the profits of the company. And so they’re splitting them off so that, like the worse business is less likely to affect the other businesses.

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Speaker 3: I don’t know. I mean, like one thing it tells you about is like the sort of like risky and scandalous nature of banking, even, you know, whatever it is, like, you know, 14 years past the 2008 crisis where like, it is just it is hard to kind of get all the engines going together so that you can have a big bank where everything is adding value to everything else. And it is you know, banks are sort of still in my long term retreat from ambition, which in some ways like, you know, I, I used to write this a lot, like the sort of broad, like regulatory goal after 2008 was to make banking boring again, to make it so that it just wasn’t that fun to be an investment banker. Because if you’re having too much fun in investment banking, you’re probably creating a lot of risk somewhere. And I don’t know, like this is like one more like kind of victory for that, that outlook. This is one more place where, like banks are continue to be forced to be more boring and sort of take less risk and be less ambitious.

Larry Summers, Felix Salmon: I think that’s right. And, you know, as you say, even the American banks like Citigroup are shrinking and being much less ambitious. And it’s been a long time since anyone used the word like global financial supermarket. And in a non ironic sense, you know, like we are going to be able to bank anyone anywhere in the world and give them any product they need and like, just be all things to all people. That was a real vision, you know, 20 years ago and a bunch of banks put a bunch of money into trying to realize that vision. And now I think the number of banks with that vision is exactly zero.

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Speaker 3: Yeah, I mean, my old employer, Goldman Sachs, I spent a few years recently ginning up a retail business which. You know, it’s like the least. Sexy, risky form of like expanding your your approach to banking. Right? It’s like, it’s like we’re going to get people’s savings accounts, right? Like, that’s not that’s not like, that’s not like this sort of like swashbuckling derivative trading that that I, I remember then. But also, like, they’re sort of retreating from that ambition anyway that like both.

Larry Summers, Felix Salmon: As as as one of New York foremost golden sexologists. What do you place the probability that they will ever actually release this long awaited checking account?

Speaker 3: I don’t know.

Larry Summers, Felix Salmon: There’s a band called Marcus, which. Which which included up until about a couple of weeks ago, it included things like the Apple card and now it’s now the Apple card has been spun off into a different division. And now it’s just like these savings accounts, which are unbelievably boring.

Speaker 3: They’re really boring. I have one. I like.

Emily Peck: This one.

Speaker 3: Yeah. I don’t know how they’d get into checking accounts. Like they getting like, I think, you know, then you’re like a real retail banker. Then you gotta, like.

Emily Peck: Then Elizabeth Warren’s getting mad at you because you’re overdraft fees.

Speaker 3: Right. You’re like you. They charge run over it. I feel like you’re done. I can’t do that. You can’t charge overdraft fees if you’re going to act.

Larry Summers, Felix Salmon: Yeah, I can guarantee you that if Goldman Sachs ever launches a checking account, they will not have overdraft fees.

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Speaker 3: There are some article about them doing consumer loans and like, not foreclosing on them because they’re like, we can’t go into collections or Goldman Sachs.

Larry Summers, Felix Salmon: Exactly.

Larry Summers, Felix Salmon: We should have a numbers round. Elizabeth, you have a number?

Speaker 4: Yeah, my number is 1200. And it’s the number of times you toggle between apps or most people toggle between apps during the day. For me, that sounds low. I feel like it’s like four times that so much.

Larry Summers, Felix Salmon: Emily.

Emily Peck: Okay, My number.

Larry Summers, Felix Salmon: Oh, Excited about this.

Emily Peck: I’m so excited about my number. I’ve been thinking about it for like, two weeks. My number is 40. That’s how many years ago Halloween was almost cancelled. Dun, dun dun, dun. This is because I don’t know if you guys will remember this, but I’m. I guess I’m old now. So in 1982, in September, a lot of people died because Tylenol was tampered with in the United States, in the Chicago area. Someone opened up these capsules of Tylenol, put cyanide in them, and all these people died, I think like seven people. And it was like a huge panic and scare. And Johnson and Johnson, which makes Tylenol and was the top selling painkiller of that time tanked. It was a massive corporate scandal. They had to recall all the Tylenol. It was wild. Now, why am I telling you about this when it’s about Halloween?

Larry Summers, Felix Salmon: Because it’s there’s something about razorblades in apples. Yes.

Speaker 3: Fentanyl in candy.

Emily Peck: Yes. So people have always low key, like freaked out about Halloween sadism, I think it’s called, where like, people are like everyone’s tampering with the candy. But it really reached like a total fever pitch in 1982, 40 years ago. That’s my number. People were like, they can mess with the Tylenol, they can mess with anything. They can mess with our food. Don’t What are they going to do to the babies? The children keep the kids home and like several towns, even canceled trick or treating. And I remember because 1982 I was like, prime trick or treat age. And I remember like after that year, like and this could be I’m conflating with my age and growing up, but like, trick or treating was not the same for a really long time. Like, far fewer kids would go out because there was so much fear over the candy getting messed with, which it never gets messed with. It’s just rumors.

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Speaker 4: Yeah. The police department, my hometown, used to X-ray people’s candy because.

Speaker 3: I have a fentanyl test kit for my candies this year.

Emily Peck: You don’t have to worry. You can eat all the little mini snickers you want. You don’t have to X-ray them or open them or anything. It’s going to be it’s going to be okay.

Larry Summers, Felix Salmon: People go out on Monday and enjoy trick or treating because it’s safe.

Emily Peck: And so is and and I think so is Tylenol. Now. They don’t make capsules anymore. And their comeback from that scandal is like tort in the business.

Larry Summers, Felix Salmon: I can I can tell you with 100% certainty that I have never died after taking Tylenol.

Speaker 3: I don’t.

Emily Peck: Know. That’s true. He’s alive. I see him right now.

Larry Summers, Felix Salmon: My number is 2.6%, which is a number which I feel maybe kind of got lost in the noise this week a little bit, But that was a reasonably decently healthy GDP growth in the third quarter, which came out this week. All of the people talking about we’re in a recession like kind of no, we grew by 2.6% in the third quarter, like it very odd to be in a recession and grow at the same time. But yeah, just like, you know, worth noting.

Emily Peck: But isn’t there like don’t people didn’t people write things that were like if you look under the hood though, it’s actually because imports were down and if you look at the housing numbers they were really terrible. So.

Larry Summers, Felix Salmon: Well, I mean, on the one hand, housing is terrible. Housing contracted at like a 26% rate or something in the third quarter. But that just shows how healthy everything else is. If you if you can if you can eke out a 2.6% growth rate, even with housing imploding as much as it did, that’s pretty good. All right, Matt. Take us home.

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Speaker 3: My number is 1.5 billion. Which is the amount? $1.2 billion. That’s the amount that Forbes estimated. Kanye West’s. Yes. Fortune went down this week. Oh.

Larry Summers, Felix Salmon: Because I love wealth estimates. Yes.

Speaker 3: When an anti-Semitic tirade and got his Adidas contract canceled and.

Larry Summers, Felix Salmon: Which, by the way, he had been trying to get out of already unilaterally because he didn’t like the way they were dealing with him, like the Hulk. Yeah. Thank you for this number. I appreciate it.

Speaker 3: Yeah.

Speaker 3: You and I think have both written a lot about like how celebrity net worths get calculated. And as I wrote this week, that there’s there’s like a crossover point where like at some point your net worth is kind of your bank account. And then when you get big enough, your net worth is like Forbes is estimate of your future earnings. And here, you know, he didn’t lose any money, but he lost a stream of future earnings that was, you know, in like the $150 million a year area. And so that got capitalized into a $1.5 billion number. So he was a billionaire. And now that has gone away and he’s no longer a billionaire.

Larry Summers, Felix Salmon: And to the question of like, how did Elon pay for Twitter, you know. There’s so much talk about how much money is Elon Musk worth, as though we know and we have no idea. We just we know some things like how many shares of Tesla he owns. But there’s a lot of things we don’t know, like how many Dogecoin he owns and a lot of it is just made up. But yeah, I do need to quote. Kanye West on Instagram because he’s on all of the socials still. Put this post up on Instagram saying, Ari Emanuel, I lost $2 billion in one day and I’m still alive. So Kanye believes that he lost $2 billion in one day. I think I.

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Speaker 3: Am. He did write him. He lost this. You know, he lost $2 billion a year for 20 years. Let I make sure it’s not untrue.

Larry Summers, Felix Salmon: Huh? Yeah, like families and celebrity net worth estimates. Matt, thank you for coming on. It’s been the a privilege for all of us. It’s awesome to have you on the show here for having me and everyone else. Thanks for listening is. Next week we have another great special guest. Rana Foroohar is the great columnist for the Financial Times who has a new book out called Homecoming All about Post Global Economics and send any questions on how to save money. Afraid they’ll come and we’ll ask her. So that’s that’s the thesis that’s always talked about next week when we will see you back here on sleep money.

Emily Peck: Can I ask you, how did you learn so much about Crypto? Like, where did you turn to figure it all out? Because it seems like you did that.

Larry Summers, Felix Salmon: There was there was that one footnote where you’re like, Oh, yeah. And I went out with a bunch of DFA guys. But you actually did report the story.

Speaker 3: I talked to a few people like, I don’t want to over overstate my reporting like, I like I did do like a little tour of like people who are like, Hey, do you want to do that? Like, sure. I guess it’s like I’m really like a big if you want to understand like credit default swaps, like you can read like is the documents that first of all are written to be off putting. And secondly, you’re like, you know is that will charge you like $800 for them if you have a crypto like everything is on white paper online, you know, like they’re trying to get people to learn about crypto. Often they’re terrible writers, which is why I can get paid to do this. But like, so those are not like the type Buterin is like, you know, really interesting, like. Generative writer where like you’ll read a Reddit post and people will build an industry from it. But no, I mean, a lot of a lot of stuff is kind of available because a lot of things are sort of designed to be like open access. And so they have like, you know, documentation that explains them.

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Larry Summers, Felix Salmon: One of the things that I got a lot after writing my big piece on Bitcoin in 2013 was the reason you hate Bitcoin so much is because you don’t understand it. And if you really understood it, then you would like it. And my retort to that was always I spent a bunch of time like reading Satoshi papers and trying to understand it and I am not that dumb. And if after all of this amount of effort and writing 7000 words on Bitcoin, I still don’t understand that that’s a problem with Bitcoin.

Larry Summers, Felix Salmon: But I feel that we’ve reached a point now and I think literally your article marks that point at which the you don’t understand this retort just. No, you can’t do that anywhere you go. It’s impossible for someone to read Matt Levine 40,000 words on Crypto and say, Well, he just doesn’t understand it, because you clearly do. And yeah.

Speaker 3: I think that that you don’t understand rejection is very frustrating because, like, people like, know the value of Bitcoin is in this brilliant technology that you don’t understand. It’s like it’s just like it can’t be true, right? Like the value can’t be from the technology. It can’t be like the cryptography is so elegant that it’s worth $1,000,000,000,000, right? It has to be the same reason that everything is valuable. It’s like social acceptance if people want to buy it. Right?

Speaker 3: And so, like, I think that there is like people who have put in the effort to understand, like the tech, the the sort of technical aspects of it want to believe that that’s where it gets its value from, but in fact it gets its value from people buying it. Right. And like Dogecoin is not a brilliant technical innovation, although people sometimes argue that, no, there’s some good stuff in Dogecoin, but basically like Dogecoin is like it’s a good joke. And so it went up to like, you know, billions of dollars. And I think that that’s like increasing the lesson of crypto is that like it is like a financial and economic technology more than I mean, it’s also a. Like, you know, cryptographic technology. But like the thing that is driving it now is it’s economics rather than like, you know, cryptography.

Larry Summers, Felix Salmon: Right. And you actually say in your piece at one point, I think that like cryptographers get very cross at the fact that everyone calls it crypto.

Speaker 3: Yeah. I mean, I don’t know, but like some of them on Twitter do. Yeah.

Larry Summers, Felix Salmon: Excellent. Thanks, Matt.

Speaker 3: All right. Thank you.

Emily Peck: Thank you. Bye, Sleepless.