Everything Is Market Manipulation

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S1: Hello and welcome to the Everything is market manipulation episode of Slate Money. Your Guide to the Business and Finance News of the Week. We have a jam packed episode this week. I can tell you I am Felix Salmon of Axios. I’m joined by my colleague Emily Peck.

S2: Hello.

S1: We are here in the Slate studios in downtown Brooklyn, New York, with Elizabeth Spiers. Hi. Hello. We’re all together, so this is going to make the show even better. But mostly this is a good show because. Oh, my God. How much we have to talk about? We have to talk about Phil Wang and Archegos and he have been charged with crimes. We have to talk about.

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S2: Felix is getting very animated.

S1: I’m getting animated.

S2: Animated.

S1: Animated. We’re talking about animation. We have to talk about Disney because they don’t have any gay characters. But somehow they got into trouble with Florida. And now we get to explain what that has to do with municipal bonds. Oh, my God. It’s my favorite thing in the world. That is coming up. And some guy bought a company. So we’re going to have to talk about that as well. But, you know, Emily is rolling her eyes. She’s like, oh, god, we do apologize for talking about that man three weeks in a row and we will stop now and the slate plus on tipping. Well, coming up on Slate Money. So now that we are all together in person, we get to talk about my favorite subject, which is the Ready Creek Improvement District.

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S2: Now, tell people what that means because no one will know.

S1: The Ready Creek Improvement District was set up in 1967 when Walt Disney decided that Disneyland in California was not big enough, so he was going to build a whole new one. And he scoured all of the possible places in America because he wasn’t quite as global back then. To find out where he was going to do Disneyland to the sequel. And he found it in a swamp in Florida somewhere. And as part of the deal that he did with the Florida government, they set up this thing called the Ready Creek Improvement District, which is this large chunk of land upon which he then built Disney World. A whole bunch of hotels, Epcot, you name it, Hulk and caboodle. And basically what it did was it allowed Disney to control the municipal infrastructure of where he was building. It was a swamp. He built the municipal.

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S2: Did drain the swamp.

S1: He pretty much drain the swamp. But from that point on, Disney has had complete control, basically, of the municipality within which it sits. And if you look at, say, what happens in Anaheim, which is an actual town, there’s a constant tension between Disney and Anaheim. And everyone constantly criticizes Anaheim for being too friendly to Disney in the Ready Creek Improvement District. This is not really an issue because Disney pays all of the taxes and it spends all of the taxes. But it does have this really interesting thing that it’s one of the highest taxed. Municipalities in Florida. Because Disney wants really good roads and really good sewerage and really good municipal infrastructure. And so it pays huge taxes to itself to be able to provide those things. And then and then what it does, which is, of course, because everything is it arbitrage? It issues tax free municipal municipal bonds to help invest in all of this infrastructure. So Ready Creek Improvement District has like $1,000,000,000 of bonds outstanding, all of which are serviced with the tax revenues that Ready Creek charges to Disney, even though Eddy Creek, to most intents and purposes, is Disney. Are you with me so far?

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S2: Disney pays taxes essentially to itself.

S1: And it gets to borrow money tax free. If you buy a municipal bond, you don’t need to pay income tax on the interest payments. And so that means it can borrow money at very low interest rates.

S2: Wow. So this is a good deal for Disney because it gets to do what it wants. It doesn’t have to, like, beg to build this or that. It can just do stuff. It doesn’t have to pass environmental checks from the state. Not that I imagine Florida has like the highest of standards.

S1: But but it doesn’t have like a bunch of NIMBYs on the council saying, oh, you want to build a new roller coaster that’s too high and it’s going to be too noisy and I’m going to object.

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S2: Right.

S3: It’s not subject to the craziness of normal Florida infrastructure.

S2: Exactly. So but then all of this comes crashing down like a house of cards because of the don’t say gay as its known legislation which passes in Florida. And I guess what was it probably can explain this better than I. But the law basically says schoolteachers can’t talk about sexuality at all and everyone hates this law. That’s not everyone. A lot of Disney workers hate the law because it’s discriminatory against gay people, because there’s like a lot of situations where to be an edge case. Maybe there’s a third grade teacher is getting married and she’s getting married to a woman and she can’t talk about it because that would like.

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S1: Be saying gays be.

S2: Saying gay. And the enforcement mechanism for the law is kind of like the Texas abortion ban, where like parents can call you in and report you. I mean, it’s terrible.

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S1: It’s a bad.

S3: Law. So it’s not very clear, you know, what what the desired enforcement is or, you know, where the gray areas are. There was somebody who wrote a letter in a way that I saw somebody refer to is something like aggressive compliance, where basically a teacher said, you know, we’re reading this story to third graders and it involves a mom and a dad and a heterosexual couple. And since that implies, you know, based on the language of the bill that we’re we’re talking about sexuality, then I’m sorry, I can’t read any of these books to your children.

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S1: So in any case, like if we talk about Ron DeSantis is the governor of Florida, he does everything in a very. Performative kind of way. He is not legislating carefully for optimal legislation. He’s passing these crazy laws like don’t say gay. And then because Disney objected to don’t think he passed a law saying, I’m going to abolish the Reedy Creek Improvement District, it’s just going to disappear in 2023. He spent I’m going to guess. 5 minutes. Unlike trying to think this through, he’s.

S3: Just running for president early. This is what he is doing. And he knows that some of this stuff isn’t really going to be feasible in the execution.

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S1: So but this means that we now get to gloriously, no doubt about being confident and and ready. So you have $1,000,000,000 of bonds outstanding from Greek. If Reedy Greek disappears, what happens to those bonds? Under most readings of Florida law. What happens to those bonds is that they get basically absorbed into the debt of the local counties. The local counties have no ability to absorb that debt. And they have it has to be repeated much, much lower tax rates than Disney does. Disney taxes itself at a very high rate. So they get to have super high quality infrastructure. Everyone else in Florida is like we like low taxes. And so this is going to be a problem because suddenly all of these relatively poor Florida counties with relatively low tax rates are going to have to service $1,000,000,000 of debt and or Florida itself, under the terms of the 1967 law, creating the Ready Creek Improvement District is going to have to pay off the entire billion dollar that before it can dissolve. Ready? So on one hand. Disney loses a large degree of self-determination. On the other hand, it’s basically a free gift of $4 billion from Florida. So I don’t know which one. Like Disney probably would like to keep things as they are, but if if someone’s coming along to them with $1,000,000,000 check, they’re probably not going to turn up their nose.

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S2: Yeah. I mean, I have the sense I’ve been reading the Wall Street Journal reporting on this, which has been pretty good. And I guess the situation now is Disney is behind the scenes, kind of trying to negotiate its way out of this mess. And like you kind of feel like they will and this probably somehow goes away would be my guess. Neither neither of the outcomes you just said will happen and somehow things will just be okay. That’s my theory. I think there’s other implications here because. Over the past decade or so, companies have gotten more socially active. Let’s say they’ve taken more stances on issues, especially around LGBTQ issues. There was those bathroom bills a few years ago.

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S1: In Carolina, right? Yeah.

S2: And another think in Indiana. And Salesforce took a big stand on those. And companies backed down and employees of these companies to have a certain expectations for the kinds of positions and stances that we take.

S1: So, yeah, we should talk about what happened internally at Disney. Mm hmm. Because Disney has always been a very sort of gay friendly place, obviously, you know, very creative company. Has the famous gay days at Disney World have been going on for decades. And it’s. Employees were like, This is terrible. You need to protest. And there was something about the sort of inherent cautiousness of Bob JPEG, the new CEO of Disney, who was like, yes, we should protest, but maybe not too loudly or something, and we don’t want to piss off the Floridians too much. And it wound up backfiring so badly that he wound up going way off in the opposite direction and being, you know, just very like kind of bellowing in a tone deaf kind of way that just really pissed off Ron DeSantis even more than Bob Iger would have done, who was the consummate politician, who would have been much better at keeping his gay employees happy while also not creating an unnecessary fire in Florida?

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S3: Well, I think it’s important to understand that Disney when when the average American kind of looks at Disney, they think of a specific Disney product, not necessarily the corporate entity. And for a lot of people, you know, as a native of kind of redneck, conservative Alabama, they think Disney, they think of children’s animation products. And there is a big discrepancy between the way Disney at the corporate level talks about things like LGBTQ issues and what they actually put out. You know, when they’ve tried to put, for instance, a gay character or even even sort of in a secondary way into an animated feature, there’s been huge backlash and they sort of refrain from doing it. And so there’s a lot of hedging, you know, where the corporate level, they can say, you know, we are family friendly in this way to all families. But then what the average person and the people sort of driving this culture or backlash on the right, see from Disney is this very specific children’s product. And that’s part of where the backlash was coming from. You know, they’re not thinking of Disney as a large company or a conglomerate that owns a million different things. They really associate it with that one thing, you.

S1: Know, as the resident redneck kid. Can you explain exactly like the sequence of events here, the don’t say gay law get signed in Florida and it becomes this flashpoint. Then how does Disney react? And then what is the reaction of the local Florida redneck rednecks to the Disney reaction? Like what woke me through that?

S3: I think the the initial reaction, the backlash to the don’t say gay law was coming from Disney employees. It was it coming from Disney executive management who are still quietly donating to the politicians who voted for it. But once the employees were very vocal about it, it gave, you know, people who are at the forefront of the culture or a flashpoint to work with because they knew that, you know, a huge part of their constituency consists of the conservatives who, again, think of Disney as a purveyor of children’s animated movies.

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S1: Mm hmm. So then Bob Chapek comes out with an official, a corporate executive statement saying, we think this is a terrible law.

S3: His first statement was really wishy washy and made it sound like they had not really decided to pull back on donations. And then the employee backlash, you know, got more intense and then the national coverage got more intense. And so then you can’t really have it both ways because you’re being scrutinized by everybody simultaneously. So you just have to take a position.

S1: So he gets backed into a corner and he takes the position and then what happens? Explain what happens then. Like, why does Florida and Ron DeSantis feel that they need to make an example of him and destroy his improvement district?

S3: It’s performative. I mean, DeSantis has, you know, is developing a kind of brand for himself because he does want to run for president and he wants to be in that kind of Trumpy corner. So picking a fight with Disney is is huge for him. It’s, you know, lots of earned media. It puts him in the forefront of these issues. I don’t think that it’s strategic. I mean, why would you beat up on a company that that, you know, is responsible for so much of your state’s revenue?

S1: So, I mean, I want to also talk a little bit about this whole question of. Corporations owning and controlling municipal infrastructure and just the infrastructure of the country. It seems to me to be much more problematic in Anaheim than it is in Florida, because in Florida it really is just as near the any kind of externalities that they have on the local community is tiny because the entire district is them. And then insofar as there is more of a local community as other, you know, entertainment parks from Universal Studios or SeaWorld or whatever. Right. So so it’s hard to find a bunch of locals who are like, oh, I really hate Disney because it’s the local economy. In Anaheim. In Anaheim is different. There are like local people who aren’t particularly Reg. You have nothing to do with Disney who wind up having to just go along with whatever Disney wants because Disney controls things in a kind of undemocratic way. In principle, I think I’m probably in favor of the idea that corporations shouldn’t own municipalities, that you shouldn’t have these kind of districts that are controlled by corporations. But also this idea of just coming in and dissolving them seems equally silly.

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S2: It’s all really bananas because all the lines are getting crossed in strange ways you have on the Internet you have leftists and liberals kind of defending Disney because clearly, like whether or not it was right in the first place to let a corporation run a town, essentially it’s like set to the side. We know that you can’t have the government retaliating against a corporation for taking a stand because. That’s seems like going against the free speech principles of corporations, which all of a sudden, like people on the left are like companies are people too. And it’s like what is happening.

S3: There is a Democrat and I’m blanking on who it was. You referred to it as authoritarian socialism under Sanders this part, which is mind boggling.

S2: Yeah, because we all lived around.

S1: The real authoritarian socialism. If you want to see this in practice, it’s just down the road in celebration of Florida. Right. Which is a whole town that was built by Disney is like the perfect, you know, cookie tin town with incredible restrictions in terms of laws about what you can do to anything. And it’s all built by like Michael Graves and these architects. And it’s, you know, it’s very Truman Show. But as far as I can tell, the price is in celebration. It’s still you know, there’s still a premium over the surrounding area. People want to pay more to live there.

S2: Well, I mean, it sounds like dizzying knows how to run stuff. And I mean, I don’t know that Florida is known for being good at running stuff.

S3: Maybe they’re also just people who really do want to live in Stepford, you know, existence. And Disney is good at manufacturing that.

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S2: So yeah, but what’s interesting to me now is like so Ron DeSantis is against a woke corporation. And like after Citigroup made its abortion announcement with Texas, you know, Texas politicians were suddenly against woke banks. Like what is happening? Like are Republicans turning against business? Because for as long as I’ve been alive, they’ve been the party of big business that aligned with big business. But has I can’t believe I’m saying, has big business gone too far with its social stances? I don’t think so. I’m one of the people that are out there, you know, like saying like, yeah, Disney is supporting its LGBTQ employees, but at the same time it doesn’t really have any like gay characters and its movies and like what is happening. Like they haven’t really gone that far out on limbs. These companies, they make these like greenwashing statements that are now being taken really seriously by Republican politicians and right wing politicians who are now pushing back on like this, very like milquetoast social activism the companies have been doing.

S3: It’s really well, I don’t think it’s just the Republicans pushing these lines are dumb about it. I don’t think that they actually believe that corporations are suddenly more ideological than they used to be. But it’s it’s sort of the only way for them to protest the fact that corporations increasingly understand that their business interests lie in being more inclusive and, you know, doing things to protect their employees, including women and minorities. And those things are directly aligned with what they need to do as companies. So the only way for Republicans to really protested is to suggest that it’s just an ideological choice and it’s caving to pressure from the left.

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S2: But they’re setting themselves up as like anti-corporate. I guess Republicans have always kind of walk that line. And Donald Trump was quite good at it of saying like he’s against big business interests or whatever, at the same time being completely for big business as well.

S1: I think. Not always. I mean, since Trump. Right. You would you wouldn’t have had like Mitt Romney coming out against big business.

S2: Right. Right. So it is feels like a new thing.

S3: Republican libertarianism has always been full of kind of hypocritical lines. You know, there’s a lot of we would like to tell you what to do with, you know, your body, your property, etc., while also maintaining that corporations can do whatever they want. So I think Republican voters are just accustomed to these constant contradictions in terms of what the party in theory believes and what they actually sort of do in practice, which is usually just oppositional or whatever.

S1: Democrats, I feel like there is a kind of barbell strategy there, right? That you use the. The corporate donations that you get in return for low corporate tax rates to. Build up your party and the base while the base of your party, you know, you have a party whose base is CEOs. You need. You need like red meat for the base. And then you pick. Well, the Trump base. Yeah. Okay.

S2: Well, it just seems like I don’t know how you can be your mind.

S1: Good looking for intellectual consistency, haven’t you?

S2: My mind is just breaking on this a little bit lately. I just I’ve been getting a lot of press releases in my inbox from, like, groups that are saying, like calling Citigroup woke or or Blackstone, you know, woke. And what is happening, like, I just it’s scrambling my brain a little bit.

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S1: The one person who is 100% definitely certainly not woke. Is Elon Musk.

S2: That’s good. Good job.

S1: Who came out this week, you know, with a bunch of extremely explicitly political tweets. You know, he’s like, I used to I used to be a support supporter of Obama. But now the left has gone way too far to the left. And now I don’t like them anymore. And they’ve gone completely crazy. And he’s aligning himself with not just the right, but the super, super, super far right, like Tim Paul, who is this like completely batshit right wing YouTube.

S3: Tweeting at Ben SHAPIRO yesterday. Yeah, it’s depressing.

S1: And so he’s he’s he’s aligning himself with the with the, you know, basically the ultra right this point, which is a super interesting progression for a guy that everyone always used to think of as kind of benignly, sort of, you know, Silicon Valley mainstream, which isn’t necessarily liberal, but it’s definitely a blue state. You know.

S2: I don’t know, man, he he was wasn’t his partner, Peter Thiel. Didn’t they do PayPal together?

S1: They did so.

S2: So the better to me.

S1: So yeah the the that you can kind of see the Peter Thiel aspect of the Musk of Elon Musk sort of coming out more. They famous they famously have this kind of frenemy relationship. They, you know, has spent a lot of time together. They don’t love each other, but they don’t, you know. But yeah, he seems to be moving in that direction into the kind of libertarian direction that certainly the premise upon which he is buying Twitter. And that is the other news of the week which we do need to talk about, which is that officially the Twitter board has accepted Elon Musk’s offer. This was always possible. I never thought it would happen. I was like, They’re never going to do it. They went and did it. I think one of the reasons they did it was just because we did see this across the board, pretty much selloff in tech stocks. So Facebook went down a lot. Amazon went down. The app went down. There’s just like this broad weakness. PayPal, you name it, have all gone down. And so. The Twitter board realized that if. Elon sort of picked up his ball and walked away. Then the Twitter stock would not just drop back to where it was before he came along, but it would drop a lot further than that. And so the amount they were going to lose in terms of shareholder value was going to be really huge. They’re going to lose like half the value of the bid. So and they couldn’t come up with a credible plan to say, well, actually, if we stay in charge, we’re going to make the company worth more than $50, $54 a share. So they felt like they had to say yes. And now. Eli is going to have to find the money to buy it. This is going to be fascinating. He sold about eight and a half billion dollars worth of Tesla stock this week. He needs 21 billion and he’s going to have to pay capital gains taxes on that eight and a half billion. So where the rest of that 21 billion is going to come from? Any guesses, Elizabeth?

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S3: No idea. I wrote about it for The Times this week and I referred to him as the dog that caught the car because I genuinely believe that’s what happened. I don’t think that he really fully thought through this or expected that it would end up this way. So. Also, you know, Tesla stock fell on the news. That’s going to affect him.

S1: Though, that suddenly that certainly makes it harder for him to. You know. Raise cash by selling his Tesla stock because he’s pledged nearly all of the rest of his Tesla stock at this point maxed out.

S3: I don’t know if.

S1: Or it’s all collateral for various loans that he’s taking out so he can get it from Tesla. Maybe he’s going to find someone to buy a large chunk of SpaceX stock from him.

S2: I mean, people are still saying there are still takes floating around. One from Reuters Breakingviews that argues he’s just going to back out. He’s going to. I think there’s $1,000,000,000 penalty. Right. If if the deal breaks. Yeah, he can.

S1: He can effectively like technically he can’t. But in reality he can just walk away and say, fuck it. And his $1,000,000,000. It was a good excuse for him to sell eight and a half billion dollars worth of Tesla stock at a crazy valuations and now he’s you know dynastic be wealthy for the rest of his life no matter what happens to Tesla. Yeah it well it cost him is a bunch of capital gains tax and $1,000,000,000 breakup fee genius. Right. I mean, I, I am sympathetic to that view. I think there really is a non-negligible chance of the deal falling apart.

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S2: And so trading the stock is just the stock is still trading as though it’s not going to happen.

S1: Well, now that stock is trading as though it is going to happen, right? The stock is trading at $49 a share, which is a lot closer to 54 than it is to wherever it would be trading if this deal wasn’t on the table.

S2: I know, but I still wouldn’t buy it, even though it looks like you would make five bucks if you did.

S1: Yeah. We don’t know when the deal’s going to close. You don’t know? You know, there’s. There’s a bunch of uncertainty that. Yeah, I mean, the stock price, you know, if you look at the merger subs. It’s definitely not saying there’s 100% chance of the deal happening, but neither is it saying there’s a less than 50% chance of saying, you know, if you look at the probability that saying that probably like a 90% chance.

S3: Okay. So he’s so erratic. I mean, how do you evaluate probability? With regard to Musk, he’s not a normal CEO is.

S2: I’m just a can I just say like this is the third week in a row we’ve talked about this man, the company. The company. I mean, it’s very important to media. It’s very important as a platform for politicians and businesspeople such as Elon Musk and for us who are all on there all the time. Sorry, but like three weeks in a row, my God. Like I am I’m like feeling kind of upset actually this week that he has taken over the conversation in such a total way. And really it’s not important like the company, isn’t it? Twitter to be looks at a stock chart this week that showed Twitter’s stock price since it went public. And it’s basically like a flat line going across like this is not even that interesting of a company has been kind of poorly run the whole time. Elon Musk is just a marketer to my mind. He’s really, really good at getting everyone talking about him, including Slate Money three weeks in a row. I’m really sorry to the listeners. It’s just. I just needed to interject with that. Okay.

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S1: Yeah. Okay. So number one, apologies. We will try not to talk about Elon next week. Number two, if you want much more talk about Elon, just go listen to my podcast with Ezra Klein that came out on Friday and that’s going to be your Elon for the day. Number three, if you have questions about poison pills, we’ll answer that and then we’ll move on. The question that we got from was like, what was the point of the poison pill and why wasn’t it triggered? And the answer is, well, the poison pill was option value for the board. That allowed the board to say no if they wanted to say no, and they allowed the board to protect themselves from a hostile bid by Elon if he was so minded, if the board, on the other hand, after considering decided actually this is about as good, the offer as we’re going to get is uneconomic because Elan is a crazy person. They don’t need to implement the poison pill. They can just agree to sell the company to him.

S2: Should we talk about what Elizabeth’s piece said? Have we talked about it in the past three weeks, what Elon Musk could potentially do to Twitter that will make it worse for people and raise the level of harassment, especially against women.

S1: And we don’t know is the answer. And there are a lot of constraints that Elon Musk isn’t thinking about right now, including European Union law, about what you can and can’t have on platforms, and also which is the other one, which is huge. Apple’s App Store. If Elon allows all manner of crazy activity to happen on Twitter, Apple will pull Twitter from the App Store. It will. There’s no doubt about that.

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S3: Also, it just makes the whole thing, you know, less brand safe for advertisers. And that’s their primary revenue stream.

S1: Yeah, but like, he’s going to make it all up with Bitcoin.

S2: So, wait, you got give him ideas. You guys are are power users, I would say of Twitter more than me, even, I would say. And what would it take to get you to quit Twitter, Felix? Go ahead.

S1: Oh, I. I have been moving off Twitter. I have to say, I use it much less than they did even a year ago. And I feel good about that. And it’s something you can win yourself off. And if Apple took Twitter off the App Store, that would help.

S3: Yeah, I think if everybody that I actually go to Twitter to read leaves, I’ll leave. I can’t imagine me personally leaving because of, you know, harassment and confrontation, argumentation, because I’m I’m an argument person and I enjoy that. So. But, yes, if there’s nothing of value on the platform because all the smart people have left and why bother?

S2: And it is notable and some people have pointed this out in the past week, but Twitter has gotten better since the bad old days of 2016. Like they improved their moderation quite a bit, actually.

S1: Well, specifically, it’s gotten better since January 2021 when they took Trump.

S2: Yeah.

S1: And that was a visible user.

S3: Base went up 21% or they they increased the user base by 21% after Trump left.

S1: But the one thing we can all agree on is the number one. Elon Musk will allow Trump back onto the platform. And at number two, even though Trump has said to Fox News that he will not join the platform because he’s focused on sending truth on the truth, he will join the platform.

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S3: Of course he will. Yeah.

S2: Well, I mean, you’re wrong about Elon Musk buying Twitter, so you could be wrong about this, too.

S1: I it is true. I’ve been wrong about many things. But what we have to talk about, but in the case of this, is this is like huge people. He’s been indicted. He was arrested. He was, what, like $500 million bail or something? Or $100 million bail. So this is the hedge fund manager who famously blew up because he got massively levered long and things like Viacom. Turns out he was controlling like half the free float in half and a bunch of these dogs. And he was buying buying them. They would go up because he was buying them and then he would use the profits from the stock going up to buy more, rinse and repeat. And he just went up and up and up and up. And then as these things, they want to do it all. They crashed more or less overnight. He lost all of his money. A bunch of banks, including Credit Suisse, lost a bunch of money. And, you know, let this be a lesson to you. Young budding traders don’t do that. But what’s fascinating. Is the now he’s being criminally charged and they’re saying this was criminal behavior and you should go to jail for it. So, Elizabeth, as the as the banker here, do you think what he did was criminal?

S3: So here’s what I’m confused about. So in the indictment there, there are kind of they say you did some crimes, but you basically did two crimes. One is that you manipulated the market by buying up, you know, excessive amounts of specific stocks and then continuing to do it in order to raise the price. It’s not clear to me that that was actually market manipulation. To me, that just sounds like the kind of or except in maybe a michael Lewis sense where everything is market manipulation. But the other thing was in the indictment mentioned that he had lied to counterparties about his positions. And that to me seems very straightforward. You cannot do that. But in terms of, you know, taking the positions he did and buying them up, that’s what he had a reputation for doing. And Tiger, you know, he would he would just take a handful of stocks. He would create huge, long positions in them. And then he would stick with them with this sort of almost religious conviction.

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S1: The actual religious conviction, because he’s famously devout Christian. This is the thing. Right. And you probably read the complaint a little bit more carefully than I have. But was there any actual meat in terms of the allegations about him lying to his counterparties? Was there like a lot of like black and white? He said this. And in fact, that was a full that was false. No, there was.

S3: I read somewhere that the banks kind of coordinated and met and sort of discovered that way that he was lying to them about the positions he had elsewhere.

S1: Right. So this this is the this is the claim is that he would borrow a bunch of money against a Viacom stock from Credit Suisse and they’d be like, you have a really big position in Credit Suisse. Do you, you know, have a similar position in Viacom stock with any other prime broker? And he’d be like, no. And and so but I couldn’t quite find and I maybe it was just because I wasn’t looking hard enough. I couldn’t quite find anything in the complaint where they had the communication from him to Credit Suisse or anyone else saying, No, I don’t have that position anywhere else. But they were like they they claimed that he lied. I just didn’t see the actual lies.

S3: Yeah, I didn’t get all the way through the complaint. So maybe it’s in there somewhere. I would assume they have it documented somewhere. You know, it would seem odd to just speculate that that’s what he was doing.

S1: And then the other part, as you say, is like he was very open about the fact that the stock was going up because he was buying it. But then every single institutional investor in the world is well aware that if they come in and buy billions of dollars worth of relatively illiquid, you know, stocks and get a significant, significant percentage of the free float, then that’s going to drive the price up. That’s how markets work, right? And so, yeah, I’m kind of with Elizabeth on this one that it’s like just because you know that your activity is changing the price does not mean that you’re manipulating the market.

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S3: There is one little thing he texted somebody and who noted that one of his stocks was going up and he said, Yeah, that’s because I’m buying it haha and then had an emoji. But the thing is you can read the text one of two ways. Like either he’s just observing what is happening and what you would expect to happen or you know, the SEC seems to be reading it as, you know, implying some kind of intent, like I’m buying it up in order to drive it up.

S1: Right?

S2: But I guess what I’m confused about because Felix, you said he was buying up the stock, but the way I read it, he was buying swaps. So he didn’t technically like he didn’t have to report to the in any filing that he owns a big.

S1: Well, I mean as we as as we saw with Elon, you’re not allowed to buy more than a certain percentage of any company before like you have to run into rules about like, well what if you want do a takeover bid of it. And so he he basically used all of his prime brokers, Credit Suisse and others to buy stock on his behalf. And so really, it was like Credit Suisse and all these other people who were buying the stock, but all of the economic risk and all of the economic exposure was on him.

S2: Right. And it seems like there’s like a regulatory solution here, not a litigation solution like you should. The same rules should apply, like if you have a big lot of swaps and and that represents a big chunk of stock that you would normally have to report. Just because it swaps does mean you wouldn’t have to report them. I don’t understand. Like, that just seems like a loophole to me like that. That should be the answer, you know, instead of.

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S3: Yeah, yeah.

S1: The difference is that he couldn’t vote the stock, right? He didn’t he didn’t have he didn’t have control of the stock in terms of, you know, being able to make changes to the board and that kind of thing.

S2: Right. But he still had enough control that it was effectively like he was manipulating the stock price because he had.

S1: So the stock price was going up. Well, we’re like manipulating in such a weird way, right? Because the way that the FCC looks at this is basically and the thing that moves the price of the stock is market manipulation, you know, and on the other hand, everything moves the price of the stock. So everything is market manipulation. So I feel like, you know. This this criminal complaint is let’s just say it’s aggressive. I don’t know what the outcome is going to be, but it is famously extremely difficult to prosecute white collar crimes. And just looking at the client and we don’t know what the evidence is going to be in court. But looking at the complaint. I think this is going to be hard to prosecute and there’s a very good chance he’ll be found not guilty.

S2: And the other piece of the complaint where like the guy lied to the banks when they asked me, are you doing this other places? And he was like, Totally not. And they’re like, okay, cool. Like the banks probably should have known better, don’t we think?

S1: Like banks?

S2: Should Secretary Madoff be kind of stupid?

S1: I mean, yeah, the credit squeeze comes out of this looking much worse. And Bill Wang does, you know, like the risk controls at the banks. It’s up to the bank. They’re grownups, right? They their risk officers should be on top of this. And they can’t base their entire lending protocol on the basis of like, well, I met the guy in the pub and he said, like, he wasn’t doing this anywhere else.

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S2: Yeah, like, if you give me a mortgage based on nothing and I or give me a mortgage based on me saying like, I’m a millionaire, and then it turns out I’m not like, that’s on you.

S1: Well, more to the point. More to the point, if you go along to a bank and take out a mortgage for 80% of the value of your house, and then you go along to another bank and also try to say, take out another mortgage for 80% of the value of your house. The other bank is going to do a title search and is going to realize there’s already a lead on the house and they going to be like, You’re not allowed to do that.

S2: They won’t just ask me. You don’t have anything else going on. And that’s fine. Yeah, this is on them. What?

S3: Apparently, when they realized this was happening, Goldman ran screaming immediately, and the rest of them, I guess, just thought that they would fix it somehow. But then they got so told.

S1: So yeah, what happened was that there was a big conference call with all the Prime Brokers.

S2: Fund.

S1: And Credit Suisse was the most exposed and it was straight out of margin call the movie. And basically Goldman Sachs realized exactly what was going on and they basically said, okay. Whoever dumps their stock fastest is going to be able to get out of this without suffering billion dollar losses. And whoever is left to the exits is going to wind up losing a ton of money. And so we’re just going to dump stock right now and all of the other banks. Hold on. Hold on. If none of us sell and we all just hold on to it and we all agree not to sell, then maybe none of us need to take losses. Because if none of us are selling, then the stock won’t go down. And Goldman is like Sia.

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S2: Like the worst musical chairs ever or something.

S1: It was it was like pure prisoner’s dilemma. Hugh Goldman, like, you know, Gary Cohn was very proud that day. I don’t think he was still there at the time, but he would have been proud. The ghost of Gary Cohn was walking the corridors of Goldman Sachs.

S2: I mean, it makes you think Goldman knows what the fuck it’s doing.

S1: They kind.

S2: Of.

S1: Know one note, like they’re not a complete clown show.

S2: We’re not in.

S1: One MDB.

S2: Communal banking. Like we’re not a big team.

S1: Trevor. Numbers round. Okay. What’s your number?

S2: 4.5%.

S1: Okay.

S2: That is the increase in the employment cost index, which was released on Friday morning. In other words, this is year over year. So people got a 4.5% raise on average.

S1: I look, I love the way that we’re framing raises as employment cost.

S2: Well, that’s because a number of companies report this number and they say, how much are you spending on your people? You know, and they they have like a big number. And then the the they do kind of like shenanigans with it to figure out what kind of workers are going.

S1: The the the Fed really cares about this because it is one of the core drivers of inflation, because we are all human. And most humans, at least the ones I know and certainly myself, have this ability when they get paid more money to spend more money. You know, that’s just how it works. We all have this idea before we get a raise that, well, actually, I’m living okay right now. And if I get a raise and I’ll be able to save that money and like 5% of people can do that. Yes, but the rest of us just like more money. Great. And then we buy toys.

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S2: Well, the reason I’m interested in this 4.5% number is because it is what was inflation year over year, like.

S1: Eight and a half.

S2: And a half percent. So see the difference there? Prices have gone up eight and a half percent and your pay has only gone up four and a half percent. So guess what happened to people? They’re losing money year over year. Yet everyone is talking about not everyone. The econ nerd world is talking about the hot labour market and how workers have so much power now and like that is actually all true. But at the same time, they are making a little bit less money. So I don’t know. Just put that out there. Bad vibes, I guess.

S1: Bad vibes. My number is 43%, which is the percentage of smokers in America who smoke menthol cigarettes, which is way higher than they would have anticipated.

S2: Wow, it is. Yeah, it is very high.

S1: So basically more than two out of five cigarette smokers in America, menthols and. For black smokers, it’s over 80%. I mention this because the Biden administration is now moving forward with banning menthol cigarettes. We don’t know exactly when it’s going to happen or even whether it’s going to happen, because there will, of course, be court cases. But it’s an interesting move.

S2: They’ve been trying to do it for two decades, The Wall Street Journal reported. So this is a 20 years in the making kind of thing. And I guess menthol cigarettes are are worse for you than even regular cigarettes.

S3: There’s there’s a hope that.

S1: They’re harder to quit and they’re more addictive.

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S3: I part of the rationale is supposedly that they want to sort of stop younger people from starting smoking and menthols. But when you think about the which generation is smoking menthols, it’s it’s definitely not the 18 to 34 hours that my bio mom smokes menthols and she’s 73 and Hispanic. I think they should be regulating vaping, I guess if if that were really though.

S1: So what do you think will happen if they if they do get banned? What’s your what’s your bio mom? I’m going to do.

S3: She’ll just move to whatever the strongest Marlboro version of cigarette.

S1: Is. She won’t just move to, like, a mint vape.

S3: I don’t know. I don’t think so. Not her style.

S1: Well, if your number.

S3: My number is 80,000, that’s the number of seats in the new stadium that was just built in Doha for the World Cup. And this this just strikes me as one of the many ways in which Qatar is now enormously wealthy, more so than, you know, it has been in the last year because of the war in Ukraine and oil prices. So there was another number that I forgot to write down that was just the the amount of GDP divided by the number of people in Qatar. And it’s just insanely high.

S1: This is Qatari GDP per capita. Yeah. Yeah. Now, the stadium in Doha is. They have little air conditioning units underneath every single seat to make sure that you don’t just boil lot.

S2: Is it outdoor? It’s outdoor.

S1: It has like a solar parasol type thing to try and keep a little bit of shade in there. But, yeah, it’s it’s just way too hot to play football in the desert. Come on, people. But, yeah, on that note, I think we’ll wrap up the main slate money. We had lots of fun being in the studio. I hope you guys enjoyed it. We are coming back on Tuesday with the final episode of Like Money Goes to the Movies this season. And of course, because it’s the final one we needed to bring back, Taffy brought it to Agnes. She is going to be talking to us about Bonfire of the Vanities.

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S2: You guys should watch it, although it’s quite bad. But. But Taffy doesn’t think so.

S1: So she starts off saying it’s good, and then she kind of like walks that opinion back a bit. So yeah, that’s on Tuesday. Otherwise, thank you for listening. Keep the emails coming on the slate running of Playbill.com. Thank you to Jane Arraf for keeping the wheels on this bus. And we will be back next Saturday with another sleep money. Elizabeth, what is your. Overarching theory of tipping.

S3: My theory of tipping is that there’s a sort of backlash to tipping right now because of partly because of inflation. You know, people feel like prices are going up anyway and they resent this kind of automatic electronic tipping that you see now in coffee shops and things where you swipe your card and then somebody, you know, turns the screen around and says, 20%, 25%, 30%. So there’s a feeling that, first of all, what you’re expected is going up progressively, but also that people are asking for tips and situations where maybe ten years ago you wouldn’t expect to have to pay a tip. My feeling is that you should tip in every case. But I also for the Peter column we have at Slate, which is more about the ethics of money, we get a lot of letters from people who want to talk about the ethics of tipping. You know, what are you supposed to do if you get bad service or are you still obligated to tip? I think we get as many questions about tipping as we do cheque splitting in restaurants. But that’s that’s the sort of just of the person. But right now.

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S1: Yeah, I mean, sometimes it is just deeply annoying. When I used to go to my. Local coffee shop and buy a £1 bag of coffee or 12 ounce bank of coffee. That was that was the original Shrinkflation. Do you remember when all of the £1 bags of coffee became 12 ounce bags of coffee and they kept the price the same? I think I see. You know, I would I would go into my coffee shop and buy a 12 ounce bag of coffee and it would cost, you know, $17 or something.

S2: 17. That’s suppertime. Oh, my God. Okay.

S1: And and then I and then they would be like, here’s your, you know, credit card square screen thing. Would you like to tip 20% on your $17.12 ounce bag of corn?

S2: My God.

S1: No, I would not. I think that that sometimes is a point at which you do not tip like there always is a point at which even like the most generous tip is draw the line and say, no, I am not going to tip on my $17 bag of coffee.

S3: Yeah, I’m a pushover. I tip anyway, but I do think it is completely reasonable not to tip in a bag.

S2: You would open those. So the problem with tipping like pulled back broadly is that waitresses, waiters, they’re making a tipped minimum wage, which in some states is $2.13 an hour, which is ridiculous. Obviously, that’s not even a wage. That’s no money. You’re making no money. You’re completely dependent on customers to pay you. And that sets you up for all kinds of horrors sexual harassment, racial discrimination. It’s it’s it’s a mess. So there’s that that category. And in that category, waiters, people making the tipped minimum wage, you got to tip because, like, otherwise, these people don’t get paid money and it’s really bad and fine. But then there’s the question of people who are not making the at minimum wage, who are just selling Felix’s overpriced coffee. Maybe they don’t have to. You don’t have to tip those people. But then the counterargument there would be like but they’re working so hard and the pandemic and mass and their jobs got so much harder and like, what’s the big deal?

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S3: Felix looks wholly unsympathetic.

S1: I do. I do. Tip on my coffee. I will tip the bag for the coffee. Yes, but 20% of $17 is not above. No, and above. And and hopefully I am the person picking the coffee up from the shelf and putting it in my bag. They are doing literally zero work.

S2: That’s fine. That’s that’s fine. I think there’s extremes and that would be the extreme. Like you don’t have to pay.

S1: But it is it is creeping into realms of the economy that it never existed in the past. Like we are not just talking about waiters in restaurants anymore. We are talking about, you know, I remember when. New York City taxicabs first started accepting credit cards, and the cab drivers hated it because it made it harder for them to evade taxes. But then eventually they loved it because their tips were so much bigger. Because it’s just tipping on a credit card is just numbers, you know, tipping with cash. You feel like you are actually parting with cash. And so wherever you use a credit card these days, you are asked to tip. I mean, not wherever, but it’s increasingly common in a bunch of situations that you never saw it before.

S2: It’s just like pay for. A lot of these people who get tips is very low and it’s a bad system and it shouldn’t be that low. And unfortunately, it falls on customers to kind of like subsidize that pay. And it stinks, I guess. But like.

S1: But then again, there are a huge number. Like if you look at the jobs in America that pay for. Pay less than $15 an hour, you know, that crappy meatpacking jobs or whatever, those are on.

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S2: Tip. That’s true. I don’t know what to tell you about that. I have to say, the service jobs that you can, too. You probably should tip those people because they’re probably underpaid.

S3: Yeah, I also just. During the pandemic, I think people got accustomed to doing it. Because you’re supporting local businesses, too. Even if it’s your $17 a bag coffee place.

S2: You’re going to the email on that.

S1: You guys have no idea how much people have learned that that they can charge for coffee. It is insane.

S2: I mean, actually, the $17 a bag coffee is cheaper than buying one cup at a time. At a time of that coffee, that would be like what? Like not even for cups of whatever that fancy coffee is so, so good. But I don’t know, man. Is it really that good? It’s a separate topic.

S1: What you see. No, actually, what happened was that that store closed down in the pandemic. And so now I get it direct from the roastery in upstate New York and I get it in £5 bags and it’s actually a bargain.

S2: Do you have to pay shipping instead of shipping?

S1: If you buy a £5 bag, they will give you free shipping as well.

S2: Okay. But even though people did tip more during the pandemic from the reading I was doing, tips went down for most workers because there was just less foot traffic coming in. So it wasn’t like anyone was living the high life on the explosion, explosion and in tips in the pandemic. It’s a so I’d say bad system and we just have to live with it. And at least we’re not the ones doing.

S1: The work like capitalism, thankfully plus.