Razzle-Dazzle to Juke the Algos

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S1: This ad free podcast is part of your Slate plus membership.

S2: Hello and welcome to the Razzle Dazzle to Juk the Algos edition of Slate Money, your guide to the Business and Finance news of Oh my God, what a long week this has been.

S3: My name is Felix Salmon. I’m from Axios. I’m here with Anna Shamansky of Breakingviews. Hello. And Emily Peck of Huff Post. Hello. And believe it or not, it has been less than a week since Trump’s tax returns were released. There has been a lot that has happened since then, but we are trying to keep up and catch up with the news. So we are going to talk about Trump’s tax returns. Yes, we are also aware that he has covid. So we are going to mention that as well. We are going to talk about. Coinbase and politics in the work force and whether CEOs can or should allow their companies to take political positions, we are going to talk about spoofing and JPMorgan and the record fine that they had to pay for market manipulation. That happened this week in case you missed it, which it really we are not going to judge you if you did, because it was a crazy week. We are going to talk about Palant here as well in the slate. Plus, that is now a public company and it is worth twenty odd billion dollars and it has never made any money. And we’re going to go into that whole can of worms. All of that coming up on slate money. OK, so by popular demand, we are going to talk about Donald Trump on this podcast. You may have heard a small little news drop that Donald Trump is covid positive. It’s weird. I don’t know whether that actually has much in the way of implications for business and finance news, but the crazy thing is that about eight million years ago, 14 news cycles ago, long before the debate and everything else, there was this huge scoop from The New York Times. So they got all of his tax returns like the past 18 years. And there’s a whole bunch of news in there. And so we are here to remind you about that, because that hadn’t even happened last week. And so now we have not only a positive president, but also one who we know in the first two years of his presidency paid a really weirdly, curiously specific number of 750 dollars in federal income tax and both of those years. And he spent zero for like 11 years in the previous 18 or something. Emily, what, if anything, is important here?

S4: I think there are two kind of takeaways from this investigation to emphasize this is an incredible investigation. And the reporters at the Times are amazing. And I bow down to them for not only combing through eight years of tax returns, but turning them into a story that makes sense. And you can and you can think deeply about. I think the two takeaways are first. OK, Donald Trump, it looks like, doesn’t make a lot of money doing business stuff, like despite his selling himself as a businessman, he, in fact has done a pretty bad job running businesses. But also he maybe is doing a little tax fraud as well. Like we don’t know for sure how much of the business losses are are real or just paper losses where he’s basically just getting away with writing off a lot of stuff while still living the life of a rich person.

S3: What we do know is that he wrote of seventy two point nine million dollars of post financial crisis losses, which are under audit, and that if that audit decides that he wasn’t able to write off seventy two point nine dollars million, which is a very good reason why he might not be able to write it off, which is related to him retaining a stake in the entity that apparently he wrote down to zero, then he would need to pay that back and he wouldn’t have been able to, you know, hold that against the taxes, which he did in all of the years when he paid zero. So we do have a big potential write off that might well end up being disallowed.

S4: Yeah, and there’s a little other dodgy things like writing off his daughter, Ivanka Trump, as a consultant when she seems to clearly be an employee of the organization or writing off seventy thousand dollars and hair costs, which may or may not be a little inflated, that are sort of fun to talk about. But I don’t know what their utility is to talk about.

S3: Yeah, I don’t really buy the consultant thing. Like, you can pay people, as you know, in whatever way you like. As far as I can tell, you can pay them as an employee. You can also pay them as a consultant. You can pay them as it is however you pay them, it’s income for them and it’s an expense for you. I’m not quite sure why people glommed onto that one.

S1: Well, I don’t think you can pay someone as a consultant then an employee at the same time, which is why perhaps one of the things that may have been happening there to me, what’s most interesting about this, No. One, is it just beyond Donald Trump. It just shows you problems with our tax code, because a lot of what he did here almost certainly was legal. And how much money he did or didn’t lose is very hard to tell because real estate developers often don’t show a tremendous amount of profit because obviously because of depreciation, they’re able to show a lower income and then because they do have this flexibility to write off all of these things and say that their business expenses and whether they are or not is very questionable.

S3: The one thing I will jump in and say is that Donald Trump made a big deal about taking full use of depreciation in the 2016 election. And he’s like, I love depreciation. Depreciation. It’s great means I get to pay less taxes. Now that we’ve actually seen his tax returns, it looks like the overwhelming majority of the deductions he’s taking are not depreciation. And, well, it’s definitely a very big deal for real estate investments in general. It looks like much less of a big deal for Donald Trump in particular, especially since most of his income seems to be not real estate related. It seems to be coming from like The Apprentice and stuff like that.

S1: Well, but the years he was at The Apprentice, those were the years he did show profits. Those were the years that he was then later able to use losses against.

S4: One thing that I feel like is confused, as some people are looking at this to say, like Trump is broke because, you know, he didn’t pay taxes and he showed all these losses and he owes something along the lines of like 400 million dollars. But I don’t think anyone can really say Trump is broke. Josh Barro had a good take in New York magazine.

S3: Just saying, like, this guy’s obviously lives like a wealthy person and he has assets that are valuable even if he is, you know, people well, people can definitely people can definitely argue about how much is his Scottish golf course worth, how much is the, you know, the Trump Hotel in Washington worth? And and you can have a sort of argument about that. But the fact is that the people who have lent him four hundred million dollars against those assets of more than 400 million dollars, like 400 million, I think is how much he’s personally guaranteed. Right. But the people who have lent him money against those assets clearly feel that the assets are worth more than they’ve lent him. And we have no idea what his net worth is, is basically impossible to calculate. But I have seen nothing in this reporting to suggest that his net worth is zero negative or anywhere near zero. It’s probably hundreds of millions of dollars.

S1: Yeah, I would say that he’s this is a the classic insolvency versus illiquidity issue. He’s definitely not insolvent. His assets are worth more than his liabilities. However, if he does have to come up with, say, one hundred million dollars, if this tax rebate is shown to have been inaccurate, he may struggle to come up with that because these are highly illiquid assets. And also this is not exactly the world’s greatest. Time to be selling potentially hotels or golf courses, but that coming just borrow it from his son in law.

S4: That’s why him being the president is such a coup for him, because who’s going to turn him down? What bank wants to be on his wrong side? He’s proven, as we’ve discussed ad nauseum on the podcast, that he picks favorites and deals. And if you’re on his on the wrong side of Trump, like you don’t get you don’t get the deal, you get investigated, etc.. So he’s not going to have problems with the loans.

S3: There was a long series of like paragraphs in the New York Times article about, you know, these loans are coming due within the next four years and they’re worth hundreds of millions of dollars, which raises the question of would his lenders try to foreclose on a sitting president if he’s still president? And the answer is, of course, they wouldn’t like they would just roll those loans over. There’s zero chance they would try to foreclose on the sitting president.

S1: That’s completely accurate. But that in itself is problematic because when you have private banks that essentially have the president like over a barrel like that, that’s that’s less than ideal in a non authoritarian democracy, if that is what we still have.

S4: Yes, that is less than ideal. And clearly, he’s never going to have problems paying off these loans.

S3: I feel like I can almost get rolling, rolling over the loans. I mean, he might have difficulty paying them off, but he would have no difficulty like extending and pretending, as we like to say on this show, that it’s not like just think about even if he leaves office X, presidents make lots of money.

S4: It’s like he’s not going to have any problems. It’s going to be a repeat for him of the money he was able to make off The Apprentice, which apparently is the real money the man has ever earned.

S3: I’m not sure about that. I think ex presidents make a lot of money by like the standards of normal people or senators or governors or whatever it is the presidents normally used to be before they were president. I don’t think they make a lot of money by the standards of you know, I I declared an income in nine figures last year. Like, I don’t think any president has made that much money. And I don’t think that like Donald Trump going out on the speaking circuit, like half a million dollars a pop is going to move the needle if he has to pay back four hundred dollars million.

S1: I would think he’s not going to go on this to see him speak. Agreed. But he’s not going to go on the speaking circuit. He if he manages to survive covid, he is going to probably start like Trump TV. I mean, he is clearly this enormous star within a not insignificant percentage of our population. I think he will be able to, like, mint it off of that.

S4: I think, unfortunately, until you get until he gets, like, arrested, I think the times well, that may be sooner in the way they described how he milked The Apprentice for, like, every dime possible, like he made like five hundred thousand dollars shilling for Oreos and over a million dollars advertising a mattress for Certa. I mean, I feel like no one will milk the presidency for every dollar possible, like this man will like we know that’s what will happen. Just going to add that.

S3: But I just feel I suspect that he’s certainly going to want to, but I’m not sure whether he’ll be able to and not just because, you know, he he might be under indictment, but also because back in The Apprentice days, like what The Apprentice did, what Jessica did was turn him into this avatar of successful businessman Rich. And you want to be like this guy kind of person, which is why people like Oreos and Certa were like, we want his Halo brand name associated with us. Can you imagine Oreo asserted like post 2020 saying, oh, yeah, we really want the Halo brand name of Trump associated with our brand. I just can’t imagine any brand.

S1: One thing that I agree with you on that I think, though, that he probably wouldn’t be saying, taking the same tack that he did in The Apprentice days, he would be going much more into the kind of Fox News creating his own, like, media empire that I would I would imagine would be what his next plan would be, whether or not that was the plan.

S3: That was the plan in twenty sixteen, by all accounts, that he expected to lose and he expected to turn his fame from the election into a new TV network. And we just saw a new news TV network launch in Great Britain with money from Discovery, chaired by Andrew Neil. So like a new news TV network is something that is definitely possible in principle. And I’m sure there are people out there who might be willing to fund the costs, but like how much they would pay Trump to do it and whether it would be hundreds of millions of dollars, I don’t know. It is weird, though, to remember this just I just remembered this, that Al Gore, when he lost the election, started. A news TV network, current TV, and he didn’t make a lot of money when he founded it, but he made a lot of money when he sold it to Al Jazeera to get back a little bit to taxes.

S4: I’m curious what you to think. I feel like there’s these arguments like like Anna kind of said before, this is what the tax system lets people do. And Trump was only kind of like doing what America lets you do. And then there’s a counter argument that’s like even though it’s still he should have some, like Jimmy Carter gave more money than he even owed. And there’s like a moral or ethical argument to the amount of taxes you pay. Like, do you guys think that’s it?

S3: So there’s definitely a voluntary nature to the 750. Right. Like, if you can write your taxes down to seven hundred and fifty, you can write your taxes down to zero. There was there was a sort of weird like optics thing going on there where people were like, well, we ought to pay something. And somehow they decided that the amount they ought to pay was seven hundred and fifty. And you can see that they did that because it was curiously exactly the same in two successive years. So, yeah, I think and what’s more, he actually paid estimated taxes of like four or five million dollars, I think, in those two years, and then just kept those sort of on deposit at Treasury to use against future tax bills. So. It is largely up to him, I think, at this point, looking at these numbers, how much he would have paid and he could have paid more and he could have actually paid less. And, you know, as you say, Jimmy Carter paid more because he felt that that was fair. And clearly, Donald Trump isn’t someone who thinks that way, although I’m still curious why he decided to pay seven hundred and fifty dollars rather than just zero.

S1: I think that you can’t say that Trump is in any way justified because of what our tax code is. It’s not to give him a free pass. But going back to this idea of the kind of morality of paying taxes, you cannot have a tax system that is based on people being moral because people are not moral, especially when it comes to their money. I don’t care what people say. Most people simply aren’t. So the key is not to say like, well, should we just have slightly better people? It’s to say, no, you need a system that doesn’t allow you to do this or at least makes it a lot harder.

S3: And the thing which we really need to mention here is that, you know, Trump is under audit, as he has said for a long time. And it turns out that’s true, but. Most rich people, even rich people with very large deductions are not under audit, and Congress has reduced the amount of money going to the IRS to conduct audits for years and years. And that is money that pays for itself like 100 times over. It’s the easiest way of spending money to make money that you can possibly do is just give the IRS more money to catch tax evasion. And the fact that Congress hasn’t done that is always an utter astonishment to me. But once you’re under audit, it’s very difficult to get out from under audit without having to pay a massive penalty, like there’s always some mistake they can find.

S1: And I also think there should be more focus put on these enormous returns, because apparently there is like literally like a committee in Congress that anything over two million dollar refund they have to actually look at, which I feel like that’s money very well spent because obviously, like one seventy million dollar return is going to be a lot more worthwhile than a bunch of little piddly returns. So to me, like it’s partly just also an allocation of resources of like, what are you looking at? Granted, these are a lot harder when you’re dealing with very wealthy people who also can stash money around the world. It does make it a lot harder, but you also have a lot more benefit than just going after poor people for piddling amounts of money.

S4: And that’s what the IRS, I think ProPublica has has reported this. But the IRS is more likely to audit the poor people getting the IRS’s income tax credit than they are to audit the rich people who are getting these big returns or not paying enough money because it’s easier. That’s really upsetting.

S3: Other big news of the week that I mean, this is a great week to bury news for the other big news of this week was a 920 million dollar fine for JP Morgan. And whenever big banks get big fines like it’s happened so frequently over the past few years, that kind of we roll our eyes and move on. But this is enormous. And what they were doing and what they were found guilty of doing is market manipulation. And explain to us, please, like market manipulation. It sounds bad. Is it bad? And is it so bad that banks should be fined a billion dollars for doing it?

S1: So it’s not good, it’s it’s not good for a number of reasons, I would say one of the major reasons is that it does affect faith in the markets overall. And while I know some people may think that that’s a silly thing to care about, I do think that’s important. Number two, it has to do with creating a culture of impunity. It’s a little bit like the kind of broken windows idea that, like if you allow some of these kind of lower level offenses and just allow people to simply get away with them and just a slap on the wrist, then that creates the idea that you can essentially do anything at these firms.

S3: It’s not the SEC who did this. It’s the CFTC. This is an interesting distinction because if you read the various press releases that went out from the CFTC when they announced this fine, they were kind of rude about the SEC and they were saying, you know, basically the way it works is that the FCC governs the stock exchange, the CFTC governs commodities and futures exchanges. What JPMorgan was doing here was spoofing, which you can do in futures and in stocks, which is why you put in orders that aren’t real, orders that you don’t ever intend to fail, just to kind of fool the rest of the market about where the supply and demand is. And the CFTC was they found JP Morgan guilty. And it was a long investigation. The the people who were doing it were arrested like two years ago on this one. So they’ve been examining this for a very long time. And they were like after all of this time. They found J.P. Morgan guilty, but JP Morgan wouldn’t admit guilt unless they were simultaneously allowed to continue to, you know, run their business in terms of issuing stocks and bonds on behalf of issuer’s companies. And under the law, if the CFTC finds J.P. Morgan guilty of this, then automatically JP Morgan isn’t allowed to do that anymore. They basically they go out of business. Essentially, their entire investment bank goes out of business. And so JP Morgan will never admit it unless they can get a letter saying, don’t worry, you can continue to do that. The CFTC is not allowed to give that letter. Only the S.E.C. can give that letter. And so there’s this weird way that they have to cooperate. And the CFTC was coming out and basically saying, we’re not getting the cooperation we need from the S.E.C., which is totally crazy. And it just proves what we all knew in the wake of the financial crisis, which is that it’s ludicrous that these two organizations are separate. They should be one organization. And the only reason they’re not one organization is because the House Agriculture Committee wants to feel important in the House Agriculture Committee. Is the committee in charge of the CFTC? It is so ludicrous. But that’s all by the by Emily. What do you make of this thing?

S4: Well, first of all, spoofing is when you place an order for a thing and then you just to juice the price of it and then you take the order back.

S1: I feel we should say that because more or less, yeah, it can be either a buy or sell it or it doesn’t.

S4: And at JPMorgan, this was just the way the traders worked. And there was a great quote in Bloomberg from one of the traders saying because he had just done the spoofing and he said it’s a little razzle dazzle to juke the algos, which I thought was fun. I always like the banker chitchat. What I think is I mean, it’s hard for any news to kind of break through right now, as we just discussed, a bombshell that everyone’s forgotten about already and a nine hundred and twenty million dollar fine that JPMorgan had to pay for doing bad stuff you would think would be like headlining stuff. But I think people are so inured to banks behaving badly that I’m not sure why this matters. But then my other question kind of is like, who is the victim here?

S1: Yeah, that’s that’s a good question, because the victim is essentially high frequency traders. And that’s why it’s not the kind of crime that is going to create a lot of people, you know, with pitchforks in the street on behalf of high frequency traders.

S3: So I got a question on Twitter saying, like, how many people lost their life savings because of this? And I think that’s really zero zero zero people lost their life savings because of it. It was it is very close to being a victimless crime in that the. People who entered into the trades at the prices that they paid were all extremely sophisticated investors, unlike commodities and futures exchanges, who were perfectly willing to enter into a trade at that price. And if they didn’t want to enter into a trade at that price and they didn’t have to. And one of the weirdnesses about this whole thing is that part of the nine hundred and twenty million, it’s like two hundred odd million, which is going into a JPMorgan victims restitution fund. How are they going to find these victims who would like I just imagine, like Ken Griffin sitting in his two hundred million dollar apartment somewhere saying, oh, I’m a victim, I need some of that money, like, oh, come on, people. It’s not like as says, the real harm here is to the general trust in price discovery in the markets and in market transparency. And it is good that people sort of cracking down and trying to make these things as honest and transparent as possible. But by the same token, these HFT, who were ostensibly the victims, they’re the problem here, right? They’re the people who are frontrunning, who are making it difficult for large orders to get placed, who are making the markets a very dangerous place for big investors to operate in. And that is not going away. And really what JPMorgan was doing, I mean, you can definitely make the other side, you know, to defend what they did, not saying they weren’t guilty, but I understand why they did what they did. They basically had a sort of what you might call a VW blackbox. Right. What they what they wanted to do is they wanted to execute an order at the best possible price. And the way you work out what the best possible price is, is you look at something called VoIP, which is volume weighted, average price. How much how much can you get for this block of, you know, whatever it is you want to buy or sell? And they and they put that order into a black box and the black box basically does a whole bunch of weird stuff in terms of what how much of the order does it show any one time? Where does it put the orders in, what prices to choose, what timing? How long does it take to try and execute the order? All of these variables and one of the things that can do is put in orders on the other side at the same time. And this is actually a you know, people have been doing this for years. Spoofing is never really going to go away. And the reason they did it was just to try and outsmart the FDA a little bit and try and get the price, the best price they could get, best execution for their order. And it was illegal and they shouldn’t have done it. But you can you can definitely see why they did it.

S4: Yeah, I don’t think it’s a big deal, I guess.

S3: Well, I mean, the nine hundred and twenty million dollars is a big deal. Maybe it’s not a big deal for JP Morgan for this type of thing.

S1: It is that it is a decently big deal.

S4: OK, but yeah, I guess I can’t I know I’m supposed to be the one who gets outraged about banks and stuff on this podcast, but I’m having a hard time with this one.

S3: Emily, let’s talk about Coinbase. OK, Coinbase is a huge Bitcoin company. There are lots of Bitcoin companies out there. There are lots of fintech companies you love to talk about. Block Jane out there. A lot of them are worth a fair amount of money. A lot of them are worth money just because they own a bunch of bitcoins, which. But if you put that to one side and you just how much it’s like the enterprise value of the business worth, how much is it worth as a business rather than just because you’re sitting on the pile of bitcoins, then I would probably go out and say the Coinbase is the most valuable Bitcoin company in the world and they are run by a libertarian who has interesting ideas about Black Lives Matter. And I and I wish that the viewers could see the Emily Peck eye roll that I just saw on the zoom.

S4: I mean, this guy really stepped in it. I’m not sure I’ve ever seen a controversy. This it’s such as what do they what are the kids call it? A cell phone. So and please stop me if I have this wrong, because I was reading about it and it’s such so many twists and turns. I am not sure I have everyone nailed down so far. But the CEO of Coinbase, whose name is Brian, we don’t know.

S3: OK, Brian, I think it’s Brian.

S5: It’s probably Brian. Brian Armstrong. OK, yeah.

S4: I guess I’d become fed up with his employees talking about politics and wrote a very long, very long blog post that it takes. It kind of rambles to the point when you it’s one of these pieces of writing where you have to read it to understand what it’s saying, because it’s not saying what it’s saying kind of right.

S3: But if you’re an employee, you understand what he’s talking about. If you’re not an employee, the first time I read it, I’m like, what the hell is he talking about? And was only after my colleague here was like, you realized there was a bunch of walkouts, this company that I started realizing what it was talking about.

S4: Yeah. So there are walkouts at the company. Like a lot of companies right now, the protests and Black Lives Matter have shaken up things internally. And this guy, Brian Armstrong, basically writes a blog post saying, like, we don’t talk about politics at work and that’s just not who we are. We at work. We focus on work. And if you don’t like it, you can leave and basically offered fairly generous severance packages to employees who didn’t agree.

S3: Do I have that pretty that’s that’s pretty much right. And the interesting thing about this is that, like in the context of everyone, whether it’s, you know, in Silicon Valley or even on Wall Street with Bank of America and Goldman Sachs and everyone else talking about how woak they are and how important it is to reiterate that black lives matter and putting deposits into communities of color and all of this kind of thing. This is the first major company to take the opposite tack and say, like, I am not going to sign on to this kind of movement. And I’m you know, I’m perfectly happy to agree that. Black people should be treated the same way as white people in my company, but as far as making a broader statement about Black Lives Matter and systemic racism in the country as a whole. That’s not who we are. And so this was definitely sort of out of consensus position to take and the reaction from the rest of Silicon Valley and especially like the startup community in Silicon Valley and VCs was rapturous applause. They loved it. There were a few who didn’t like Dick Costolo. The former CEO of Twitter famously said that it was terrible and you can’t really separate society from business like that. But overwhelmingly, everyone was like, finally, someone has had the guts to come out and say this.

S4: It’s pretty, it’s just these companies are mostly made up of white people and don’t want to get involved in politics and fail to understand for their employees of color, a movement like Black Lives Matter isn’t simply politics. This thing you can shunt to the side and focus on work. This is sort of this is a personal issue for four people. And to come out so clearly and say, you can’t talk about this personal issue that you’re hurting from at work, I think was just wild. But at the same time, there have been all these companies coming out and saying Black lives matter. And then when you dig in, not even a lot, you realize, no, they don’t matter to you, like Wells Fargo last week or the week before, kind of stepped in it where the CEO had told his his employees that he was just having trouble. He thinks black lives matter, but it’s really hard to find black talent these days. And like the public statements, I could see why companies are feeling really confused because they’re being asked and pushed to make these public statements that they don’t really live true to in their practices and in their culture. So it is kind of a minefield. So I would understand why companies don’t want to do that really, because they make the statement and then everyone says, but you have no black employees, but there are no black people on your board. Like, why are you saying Black Lives Matter? Doesn’t make any sense. So I could understand a company being like, you know, we’re not going to say anything because that just opens us up for attack. So that’s fine. But then to do what this guy did and come out so strongly to be like, we’re not going to say anything, you’re not going to say anything, I think that took it too far to the other side. Right.

S1: The only thing I would say is that I know Facebook also, I think a few weeks ago came out and said that on some of their internal channels, they weren’t going to have people being able to speak about sensitive political topics. And I will say, I do think it’s not totally unreasonable to say that if an individual wants to talk with another individual who they work with about anything in their life, of course they should be allowed to do that in their you know, however, on official work channels, do you potentially want to reduce the political tension, especially at this moment? I don’t think that that’s unreasonable.

S3: That part of it, at least one of the things that is obvious here is that this is an issue which. Companies like to think of as not being political, like there were a lot of companies who like to say, like we don’t take a political position, we are not Republican or Democrat. We just want to support our employees of all races and Black Lives Matter. And that’s not a political statement. That’s just a statement of fact. And, you know, and I think that what this Coinbase thing has really shown is that if you are a company who comes out and says Black Lives matter very loudly, then, yeah, come on, let’s be honest about it. That is a political statement, even though it shouldn’t be.

S1: And we are at a very odd time right now in terms of how companies are expected to take political stances in a way that just simply was never the case in the past. I’m not necessarily saying that’s a bad thing, but it is very new and I don’t think companies have any idea how to navigate this.

S3: So, Anna, how do you what do you think about Brian in his blog post? Like Interm, if you had to give him like a letter grade for how he’s trying to navigate this, what letter grade would you give him and something this sensitive?

S1: I’m not going to give a letter, grade number one. But on the one hand, it comes off as extraordinarily entitled because you do have this very wealthy white man speaking mostly to white men saying, I don’t want to have a political stance. I don’t think anybody should be talking about these topics. And, of course, it’s a lot easier when you are in that position. However, I don’t necessarily think that it’s wrong if a company doesn’t want to take any political stance. And yes, it’s true that not taking a political stance also then kind of becomes a political stance. So that’s that’s complicated. But I don’t know if a lot of these companies taking political stances actually does anything it might not.

S3: I think I think the the subtext here, which is which is important, is that he did take a political stance. Everyone understood when the walkouts happened. Everyone understood when he wrote this blog post that he what he is always has been and probably always will be a sort of meritocratic libertarian, which is a very standard sort of political place to be in Silicon Valley. And the meritocratic libertarians in the VC community all stood up and applauded him. And if it is political to say that Black Lives Matter, then it is also equally political to be a meritocratic libertarian. And you can agree with the merits of meritocratic libertarian. So you can disagree with them. But that is itself a political stance. And so it is. Let’s not kid ourselves that he’s drawing a line between being political and not being political. He’s just being political in a different way.

S1: Yes, and that’s true. And I agree I agree with you on that.

S4: I think Black Lives Matter is only a political statement because people who oppose Black Lives Matter have made it so. And I think that people who oppose saying Black Lives Matter are typically racist. And I think for black people, the statement Black Lives Matter is personal, it’s not political, and it affects them in their daily lives 24 hours a day when they walk outside in this country. And I feel like at a time during George Floyds murder, it was important for people to say, for people like this Armstrong fellow who has employees that obviously care about Black Lives Matter thing, and we’re asking him to say this simple thing and he refused to say it. That’s deeply strange. And like, if you want to be a good manager of a company, you should care about all your employees, even if it’s Silicon Valley and you only have one percent of your employees who are actually people of color, whatever the percentages at Coinbase. And it should be said that after you wrote the blog post, he got on Twitter and said Black Lives Matter. So eventually. Something happened within him where he kind of like figured out the right path, right?

S3: Yeah, he tried he tried to make this weird distinction, saying, like, I personally believe the Black Lives Matter, but I’m not going to say that as CEO. I’m just going to say it as a person and like, come on, who are you kidding?

S4: And then I also wanted to add that my colleague, Zach Carter, made this point on Twitter. And I’m curious what you guys think, but he also tried to argue that, like, cryptocurrency was about bringing equality to the world or something.

S3: Cryptocurrency, to be clear, being being the most unequal economy the world has ever created in the history of civilization, like the Gini ratio of Bitcoin is crazy. Like, yeah, you have the top 0.01 percent of holders controlling like 80 percent of the Bitcoin or something. It is like anyone who’s trying to get themselves. The Bitcoin is a force for, you know, democracy and to authoritarianism. Like I’ve been hearing this for a decade now and I’ve never seen any evidence of it. OK, let’s have a numbers round, I’m going to start I think my number is sixteen point six percent. That is the case fatality rate for Americans who get covered in their 70s. Basically, if you get if you’re an American and you get covered in your 70s, then you have a sixteen point six percent chance of dying from it. The number is lower. If you don’t have any other sort of previous health conditions, it’s higher. If you do if you’re obese, it’s lower. If you’re a woman, it’s higher if you’re a man, it’s lower if you get it now compared to like if you got it early, then it was deadly. There’s a lot of different ways of slicing and dicing it, but the big picture is roughly a one in eight chance.

S4: Do they splice the number by income level or race or anything like that?

S3: Because you would imagine someone who gets really good health care, you’re more likely to live if you’re white, you’re more likely to live if you have access to good health care. And actually, to be fair, everyone has access to better health care now than they did, you know, in March and April when no one really knew how to treat this. So, yeah, it’s it’s hard to generalize. It is if you are in your 70s and you get this disease, it is a very, very serious disease. There’s no two ways about it. How many do you have?

S4: No, I have a number, I feel Anna will hate it, but here I go. My number is eight thousand. That is the number of births in the US that were prevented by strict car seat regular.

S5: Oh, I love the twenty seventeen. Why do I hate you?

S4: Well because these two professors, one from MIT and one from Boston College, this paper this week where they looked at the effect of car seat regulations on the burgers.

S1: It’s a stupid study, that’s why.

S4: And they posit that the stricter car seat regulations lead families to have less than three children, because when you have three young children, you have to have three car seats. You can’t have that in a car. So crossing from two to three children is like a big investment just in terms of the transportation. So they claim to control. They look at states with a little more relaxed car seat regulations compared to ones with stricter ones. And yes, they came up with this number for eight thousand in twenty seventeen and then three hundred fifty thousand births prevented overall from car seats. And look, I don’t know I don’t know if I believe it, but I do a little bit believe it because car seats are kind of a pain. And I could it is you can’t have three in the back of of a regular kind of car. And they only looked at places where cars. Ah, you know, car dependent locations versus non car dependent locations that they compared those to. Anna Emily.

S5: Have you ever had a conversation with someone or they’ve been like, you know, are we going to have that third child? You know, everything seems OK, but I don’t know. The car seat. The car seat, ma’am. Like the car seat, maybe indicative of the additional expense of the child to do it. But I’m sorry. That’s ridiculous.

S4: Like in New York City, for example, the jump from two bedroom apartment to a three bedroom apartment is a really big there’s a chasm and it does prevent people from having another child because it’s like impossible to to get the real estate.

S5: And a car is not dissimilar, Anna. OK, maybe we’re together.

S3: Maybe we need to get that Matt Yglesias on this show, after all, to talk about all of the obstacles to having children in this country. And what’s your number?

S1: My number and Felix, you will like this is three hundred and twenty nine point eight billion dollars. Is this leveraged bonds?

S5: It is high yield.

S1: This is like this is the number that I think you wanted me to say last week, which which was so as of, I think, September. Twenty third, the U.S. issuance of high yield debt that was the most ever, which was about three hundred and thirty billion dollars, which. You would think would be surprising in a year where we’ve had one of our biggest economic contractions, but in fact it is absolutely not surprising because the Fed essentially runs the debt markets because of its stated support. If it is pretty fascinating, if you look at, like the date the Fed first said it would buy corporate debt and look at how the markets responded and even look at how it hasn’t actually bought very much high yield, that it’s bought very little corporate debt at all. But the fact that it can has just massively supported price.

S3: And I think the other thing that’s happened is that a bunch of companies got downgraded as a result of the pandemic. They became what’s known as fallen angels, and they kept on issuing not as many as we know, as many as we thought there would be. But it’s enough to, like, boost the total the you know, it’s not super leveraged companies trying to issue as much as possible. It’s just like the same companies. We’ve always been issuing that, continuing to issue that, but just with a lower credit rating on their debt.

S1: And now, I mean, to a certain extent, I mean, yes, there’ve been some fallen angels and they’ve been some fairly large companies. But a lot of this are I would argue that that is not the main issue.

S3: No, you’re right. They’re the main issue is the Fed. Well, we can agree on that one. I think that’s it for us this week. Thank you so much for listening to Late Money. Thanks to Jasmine Molly for producing in Seaplane Motor Studios in Brooklyn.

S2: Do keep the emails coming. Sleep money at Slate dot com. And we will talk to you next week on sleep money.

S3: So let’s talk about Palant here, which is now a public company, finally, 16, 17 years after it was founded with a very early investment, a series of early investments by the CIA and the venture capital, In-Q-Tel. It is now a multibillion dollar company. Based, as far as we can tell, still on more or less the same idea, right, that it does spying for people or it helps it helps data analytics. It helps spies spy using big data.

S1: Yeah, it’s major contracts are with the governments and the military. So, yes, Palantir did become a publicly traded company through a direct listing. And one it kind of goes back, you could say a little bit to our discussion previously about the differences between IPOs, facts, direct listings and the success or lack thereof. Palantir definitely came out much higher than its reference price, although then proceeded to drop from the, I think around 10.

S3: So let’s just not talk about reference prices, though, completely pointless things which everyone should always ignore. OK, but I mean, they are a thing that exists. They like the idea that you can judge a direct listing by like where does the stock trade in relation to a quote unquote reference price, which is not a price that anyone has ever paid for the stock. It’s just the number that someone invented. Like, no, you the whole point about a direct listing is that you don’t have it just starts trading. It started trading somewhere around eleven dollars thereabouts. It’s now somewhere around nine dollars or thereabouts. That’s how much the stock is worth. The direct listing shows how much the stock is worth on the basis of. You know, who wants to buy and sell at these levels and it turns out the stock is worth significantly, but not a lot less than it was worth in the private rounds in twenty, fifteen, twenty six.

S1: So it’s pretty it’s pretty much in the range of her. It was in the private route. It’s a little tricky right now to also say exactly where the price will go, because on the first day where there was a glitch with Morgan Stanley and so a lot of the insiders who these employees who should have been able to sell their shares weren’t able to. So they also think that’s maybe why you also have a little bit more a little bit more selling the day after. We’ll see. I mean, I agree with you that I think for the most part, it seems like it was a relatively successful direct listing in the sense of what a direct listing is supposed to do, whether it was successful or not for Palantir is a is a separate issue. But whether this company should be worth twenty twenty two billion dollars is another question. It’s the type of company that’s actually incredibly hard to value because they don’t have many clients. They are very, very concentrated. And so if you lose like one client, that’s a significant percentage of your revenue. It’s different than a lot of just like a software company or something that’s going to have many, many, many clients. So Palantir is a is an odd business. It’s an odd business going public. I think that. It’s difficult to say exactly what’s going to happen moving forward, but. I think there aren’t a lot of overly positive stories on this stock because you have a lot of concerns about people with the police and with the government using some of these services. And again, when you have a very concentrated number of clients, that means you are very vulnerable. What are the concerns? What do you mean? Well, if you have if you have people potentially you have either police forces or potentially the government using data mining. And I don’t know I’m not entirely sure exactly what all of the things that Palantir is doing with this data are. But there are concerns, there are privacy concerns or concerns about racial profiling, not necessarily that you can point to any of these with Palant here, but it is. A risk within this type of industry, within what Palanker actually does.

S3: I mean, I certainly think that, you know, in relation to a company like Coinbase where people like that run by a bunch of libertarian tech growers and we don’t like them and don’t want to invest in them, if you’re like, you know, lefties, socially responsible investor or something, Pawlenty clearly worse, right? That yes. You know, it’s run by Peter Thiel, for Christ’s sake, or not run by. But certainly he’s the biggest shareholder, biggest individual shareholder in it. And Peter Thiel is. Way off to one extreme in terms of libertarianism, he’s also still on the board of Facebook. It’s worth mentioning and one of the interesting things about the Palins here about me is they used the Jobs Act to. Be less transparent than most public companies are about their internals, about they’re an emerging growth company, even though they’re 16 years old, and so that means they don’t need to say quite as much as most companies do about various aspects of their business and their shareholders. So we don’t know how much of a shareholding the CIA still has, for instance. And In-Q-Tel, the CIA investment is nowhere mentioned in the IPO prospectus or S-1. So, yeah, it’s it’s like a weird company for someone to want to be a shareholder in, especially given that it has never shown a profit ever in its entire history.

S1: And although, let’s be fair, like few have a stake.

S3: No, I think most companies that are 60 years old, if you’ve never shown that profit after 16 years, then something is kind of going wrong. No, I mean, at this stage, in the sense of where we are right now and companies going public, it’s kind of amazing, though, that where we are right now is a place where you can be a 16 year old company that has never made money and still be worth, you know, 20 billion dollars. I don’t think we’ve ever been there in history. We say it’s just it was always historically unthinkable that a company could be that old and still losing money and still worth a fortune.

S1: Yeah, it’s just because you have too much capital chasing, too few good opportunities. And so money just gets poured in. Anything that seems like it has the possibility of making revenue. And if you can make a growth story out of it, people will invest in it.

S3: It’s hard to make a growth story out of poverty as easy to make your growth story out of a which is the other company that existed this week. But apparently it actually isn’t growing that first.

S4: I know I feel like I understand not nothing I’ve heard you to say so far has made me more deeply understand what this company is about or does or what they’re so secretive.

S3: No one really knows. That’s that’s the weird thing, right?

S4: It’s also some way a secretive company goes public. It seems almost like I’m being made fun of or something like one of the interesting transparent acts.

S3: One of the interesting things about Palantir is that for many years they kept salaries at one hundred and forty thousand dollars a year, which by Silicon Valley Bay Area standards is not an enormous amount of money. And it can be quite difficult to make rent for someone with a family. And it’s certainly much less than you could get paid by Google or Facebook or Twitter or anyone else, you know, and the way that they made up for it was by giving employees like a whopping great slug’s of equity, which is all well and good, so long as there’s a way of being able to sell the equity at some point. And the way you make them able to sell their equity at some point is by going public. If they’re not public, then you have to allow people just to sell their equity privately on private secondary exchanges. And if you look at the amount of money the employees were getting privately on secondary exchanges for their Palantir stock, it was way lower than Palantir itself was selling equity to investors, like while Pawlenty was selling equity at eleven point thirty eight a share, private employees in Palantir as recently as this August. Sold for as low as four dollars and 17 cents a share. It was a it was like a huge problem there that people employees couldn’t monetize the equity that they were given. And so now that there is a public market in the stock, that’s why they had to go public. Yeah, it’s certainly not because they or they well, that’s not why they don’t have any money. They’re not making any money. They don’t need profits to pay their employees.

S5: So, yeah, exactly. And it’s not necessarily a Ponzi scheme, but it’s not probably a good investment for anybody else. And I think this actually changed.

S1: But I know at one point early on, they were also offering these like basically the owners would have these variable super voting shares where no matter how little of a percentage of the company they actually owned, they would always control like at least 50 percent of the company. Oh, that’s still in the. Yeah, that’s still that’s still the thing. That’s still variables. Those are still in there. Yeah. I mean, it’s which is is a pretty extreme even by Silicon Valley standards.

S3: Peter Thiel and David Karp and I think maybe one or two other people will always control the company no matter how little stock they own.

S1: But yeah. And this to me, that’s crazy. So, like, I know and honestly, Emily, I think I think your response and this entire conversation shows you that, like, I don’t know, there are some problems right now with the way the public markets are operating, just assuming what a public market is supposed to be when you have a company like this that is not giving you information that the actual shareholders will not be able to control the company, it does really raise the question of, OK, like what are the public markets doing besides allowing some people to cash out?