Everything Is Concrete

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S1: This ad free podcast is part of your Slate plus membership. Hello and welcome to the Everything Is Concrete episode of Sleep Money, Your Guide to the Business and Finance News of the Week. I’m Felix Salmon Axios. I’m here with Stacy-Marie Ishmael. Hello. And we are here with Emily Peck of Fundrise. You have a job Emily

S2: have a job. Felix and Stacy-Marie besides this one

S3: contributing to those good jobs numbers.

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S2: I have a new job. I am the new content director at Fundrise and I’m going to be launching something that people will want to read possibly in the future.

S1: Stay tuned. Are you one of the 850000 jobs that were created in June?

S2: No, I’m sadly not one of those. I started in May, actually, but I kind of I kept it quiet for, oh, the kind of like a soft launch. I didn’t want to bring the news to anyone until I was sure that I was into it, but I’m into it.

S1: Congratulations on the Fundrise job Emily. We have all manner of fun things. This week. I get to whip out a bunch of the random pile of concrete and brutalism statistics that I’ve had sitting around in the base of my skull for years. And I knew it would come in handy one day. And there’s a news hook now with a tragic news hook has to be said, definitely Florida. So we are going to talk about concrete. We are going to talk about AirBnB and if they’re evil when they became evil. But yeah, we are going to kick off by talking about Robinhood, which is another company which seems maybe less than good. So all of that coming up. And there is a lot of positive fun slate plus action in Slate plus segment on donuts. So get your slate. Plus membership only gives you an introductory dollar. It’s cheaper than the donut. So check that out on Slate money. So let’s start with Robinhood people, the big news is that they filed to go public. Well, we knew they’d already filed to go public, but there is one that respects this is public. We know all of their financials. And the most salient financial that I think we should be talking about is 70 million dollars, which is the latest fine that they had to pay to FINRA, the regulator who came out with this amazing document, which I highly recommend you all read, just detailing the astonishing amount of incompetence that they displayed in terms of not being able to tell people how much money they had in terms of costing people money, because they said you’ve got a margin call even though they didn’t have a margin call in terms of allowing people to open accounts, even when their Social Security number belonged to a dead person, like they just don’t rise to the level of basic competence that you would expect from a broker dealer. And yet here they are. They’re going public and they’re going to be worth a gazillion dollars. Explain, Stacey.

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S3: Well, the gazillion dollars parts or the fact that the fine was only 70 million dollars, even though that is the largest fine in FINRA history is like Sloup rest. Come on, Emily, please.

S2: This company is going public that says it’s worth a lot of money because it’s got an incredible publicity. If you look in the S-1, they spent a lot of money on marketing like billions of dollars, tons. And the crisis, the GameStop crisis, if you will remember back when there was like a frenzy around trading that stock, Robinhood had to shut down a few times because they didn’t have enough money essentially to clear the trades fast enough. That seemed like it was terrible for them, like it was a PR crisis for this company. But if you look at the numbers, it was actually a huge boon for them. They got one million new downloads of the Robinhood app from that crisis and like a huge bump in revenue, like it turned out to be great. So I feel like the company is just it has like a lot of PR around it and a lot of momentum around other stuff like meum stocks and crypto and all these other things that people are very excited about right now. And that’s why it’s going to make a lot of money. And the fact that investors actually probably shouldn’t trust this company based on the the FINRA document you just talked about, Felix is not somehow hurting it right now because everything’s going up.

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S1: So there’s two different types of investors that I think we should distinguish here, although they were about to become the same. The first is the 31 million investors who have accounts on Robinhood and who use it to trade stocks. And when I say 31 million, I mean 18 million, which it turns out that 13 million of the 31 million don’t even have any money in their account. And of the people who do have money in their account, the average account size is two hundred and forty dollars. So Robinhood has done an amazingly good job of being the place you put sort of fun money to buy dogecoin or to make a sort of lottery tickets. Dyle bet on GameStop or Bed, Bath and Beyond, whatever the meme stock of the moment is, and that has helped drive a bunch of revenues for it. But then the big question is, what does that mean for the other set of investors, which is the people who are going to be buying stock in Robinhood is Robinhood itself a sustainably profitable company that people are going to be like, yeah, this is the next generation of brokerage, it’s going to be the new Morgan Stanley or something like that. Or is it some weird game of fide flash in the pan that people are going to look back on and say, Oh, remember, Robinhood? It was a bit like Zynga,

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S3: I think, to your point on that. And one of the reasons that I am so bemused by these fines is because it’s like less than 10 percent of the revenue that Robinhood is made on selling order flow to mega institutional investors like Citadel. Right. I think I’ve seen estimates ranging from 500 million to 700 million is like the amount of revenue that they’re making on selling trading data to mega institutional investors who are then using that to do their own Leichtfried analysis, etc., both in equities and in options. And if you think Felix to your point that one of the things they did is democratize finance, which means more people trading, which means more order flow, which means more things to sell to Citadel, then yeah, it does look like if I’m an investor in Robinhood, that seems to be a good story.

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S1: Let me just be very clear about payment for order flow for a minute here, because there’s two different ways and they kind of get conflated here. The Citadel and other high frequency traders make money off Robinhood. The Robinhood makes money. Well, that’s one way that Robinhood makes money from Citadel, which is that they get a bunch of orders from their current. And then they basically get Citadel to execute those orders, if I buy a share of stock on Robinhood, in fact, it’s Citadel who gives me that share and I wind up giving Citadel the money for the share. And Citadel makes money off like the bid offer spread. Basically, they buy shares for a tiny fraction of a penny lower than they sell them for. And that spread is where they make money. And Citadel is willing to pay really quite, very low spreads for that order flow because it knows that Robinhood traders and this is a technical term are morons. And so if in the normal market, if you’re in the New York Stock Exchange and someone’s like putting in orders to buy and putting in orders to sell, you’re worried that person is smarter than you and you are worried about taking the other side of that trade because you know that they could be very smart and you could be the sucker when the order flow is Robinhood traders and your citadel, one of the biggest and most sophisticated traders in the world, you are not worried that the person on the other side of the trade from you is smarter than you. And so you get to just make money all day, every day by by filling those orders and taking the other side of that trade. And in return for all of that money you’re getting, what Citadel does is it kicks back some of its profits to Robinhood, and that’s how Robinhood makes its

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S3: money, 40 million dollars in 2020, just over 40 million.

S1: And so that’s just the way that trading works on Robinhood. That’s how they can do trades for free. Then the other part that Stacey was talking about is the data part, which is kind of the same thing. It’s hard to separate it. But the idea there is when Citadel sees all of this order flow, they’re not just taking the other side of those trades. They’re also seeing lots and lots of data about what is retail doing, what are the stock traders doing? They can see patterns in how these people trade and they can use those patterns to make money in their own proprietary trading. And that’s just like an extra level of potential profit that Citadel can make over and above the simple trading profits of taking the other side of the Robinhood trades. But that’s not like a separate thing that’s kind of built into just buying the order flow.

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S2: So nothing you just said undermines. I think Robinhood is here to stay. Yeah, they have a way of making money and it seems to work and people like using it. And as we’ll talk about maybe later in the show, maybe not. Convenience and ease of use are very important to people when using company stuff like they don’t care how bad or good the company is or even if the company assumes you’re a moron and that’s how it’s able to make money by assuming you’re not a sophisticated trader like people like using this product. And the number I was thinking of before was the fact that the company spent one hundred and two million dollars on marketing and Q1 twenty twenty one. That’s just like an astonishing amount of money to sell itself to people. And I, I feel like it’s working. And my question, I guess, going forward regarding FINRA and the incompetence revealed by that document is like, can they fix that? Because if they can or

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S1: do they need to like what is the incentive if all they’re going to do is get a 70 million dollar fine now and then? And if this is working so well for them, what is their incentive to fix that? Nine times out of ten when people use the word disruption in the discourse, I hate it. And I’m like, that’s not actually disruption. But I think that Robinhood is one of the few cases where it actually fits the bill of what a disruptive technology is, which is that it does what the old technology did at a much lower quality, but at a much, much lower price. So like the iPod say, disrupted high fives. The quality of music that you got listening to your iPod was lower than the quality of music you would get on an old high five. But it was so much cheaper and so much more convenient. That didn’t matter. And so no one listens to high fives anymore. Now they just listen to iPods, which, of course, now built into their phones. This is exactly the same as that. What you used to get with old school brokerage’s was very high quality execution and high prices and very user unfriendly and kind of clunky. And what you have with Robinhood is a fun game. You can play on your phone while you’re standing in the checkout line or just like on the subway or whatever. And it’s so easy and it’s so convenient that you just do it and it’s giving you lots of notifications about what Saddam was down and you get to play around. And it’s not really investing as like old people like myself like to think of it as, oh, you took money away and then it slowly compounds over decades and then you’re rich. It’s this game where you’re like. I made 30 bucks today and, oh, no, I lost 40 bucks yesterday, and

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S3: it’s gambling,

S1: it is gambling. But the interesting thing about it is it’s positive expectation gambling. Right. Most people who’ve been gambling on Robinhood have actually made money

S3: and then won. At least one person killed himself. Right. And I think this is the flip side of disruption. And that’s why I’ve heard people compare Robinhood to Facebook and the idea that, like, move fast and break things is all fun and games until it’s like a life and death situation where one of the things that FINRA specifically cited in the fine was the fact that you had this. I think he was 20 years old and he was Alex Curran’s a trader who killed himself because the Robinhood portfolio showed him that he was down seven hundred and thirty thousand dollars, which he absolutely was not. And then he was like frantically trying to get in touch with them, could not get in touch with them and committed suicide as a result of that. And Robinhood has now I think they’ve settled with the family. But that to me is part of the necessity of friction in some of these environments. It’s because one of the other things that Robinhood was told about was like, hey, you knew that there were people who specifically said, I have a low risk tolerance. And you were like, would you like to engage in this wildly risky trade? So they are knowingly they will argue unintentionally, but they have been taking advantage, I think, of that instincts of gambling and that impulse of this is fun and this is a game. And I don’t think 70 million dollars is enough of a consequence for that kind of behavior.

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S1: Definitely not. And if you look at the FINRA document, which is really very damning, what Robinhood did was they consistently underplayed the risks involved. They would say things like if you buy this kind of option, then you can’t lose more than you spent on the auction when that was

S3: not true at all.

S1: There are certain types of options where that is true, right? If you buy Put’s or because the worst thing that happens is that that put or that call goes to zero and you can’t lose more than that. But they were also allowing a bunch of option trades where you really could lose much more than you originally spent. And they lied about that and they lied about lots of things. And they were not good at making sure the options traders had the requisite level of sophistication. And when I say not good, I mean, they were absolutely terrible, negligent, and they seem to be making noises that they have fixed things, but they made noises that they had fixed things in twenty nineteen when they got a fine, and then in 2020 when they got a fine and then twenty, twenty one when they got fined and every time they get fined they say oh yes are bad. But yeah we fixed it now and then it never seems to get fixed. And I have zero faith that the culture really is capable of including the requisite level of just we are in charge of looking after people’s money and we need to take that super seriously.

S2: Yeah, these people don’t they don’t you when you give someone your money, you really need to be able to trust them. And I feel like with Robinhood it’s fun money like you were saying, Felix. So the need for trust is lower than, say, like, here’s all my money to save for retirement. Please have more for me at the end of this journey to sixty five or something as opposed to like here’s some of my money, I’m going to put it on Dogecoin and let’s see what happens. We like you don’t need as much trust. At some point this boom has to end and then Robinhood is going to need more trust if it wants to like make it through when things aren’t so rosy and shiny. So that’s like a big question, I think is what happens when things start to turn downwards to this company? Because then I don’t think the fact that you can’t trust Robinhood as much as like somewhere staid and boring, like my Vangard or something, that’s going to be really crucial and important.

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S1: And the other thing that we need to remember about Robinhood is because it doesn’t make any money from balances, it only makes money from trading. It has a strong financial incentive to maximize the amount that every single customer is trading. Now, we know from decades and decades of very quantitative research on this that if you are an investor, the more that you trade, the worse you do. The trading is the single worst thing you can do with a portfolio. And if you never touched your portfolio, you will massively outperform someone who’s constantly trading that portfolio. And so you have a complete misalignment of interests between Robinhood and its customers. Its customers have a financial interest, at least over the medium to long term in not trading. Well, Robinhood has a financial interest in persuading them to trade, and I just don’t know how Robinhood can ever be remotely admirable company so long as that conflict is there, which is completely at the heart of its business model.

S3: Yeah, it’s. I remember when I was a full time finance reporter, like one of the phrases I wrote the most was settled without admitting wrongdoing and just the idea that these fines are treated by these companies as a cost of doing business and not really a disincentive or to put it another way, an incentive to change anything about their model.

S1: We haven’t even got to the apology stage yet. Great. You know how like Mark Zuckerberg will, like, come out with an apology and saying, oh, yeah, this was really bad. I’m sorry, I’ll do much better going forward. And this is the 18th time he does it. Vlad Teneriffe, who’s the CEO of Robinhood, who’s highly visible and is constantly in the news, did he come out and say, oh, yeah, no, we’re really sorry about all of these bad things. We did know they just came out with a statement saying, we’re glad to have put this behind us and now we’re going to move on.

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S2: They file. I mean, the S-1 came out the next day or two days after the fear of it. They were just like, oh, good, this is an excuse for us to go public.

S3: We’re in the news. It was wild. All marketing, it’s all marketing.

S2: I mean, like I said before, I like the bad PR they got and the spring was good for them. Probably the FINRA thing was good too.

S1: There is no bad PR every time there’s a massive outage and no one can trade on Robinhood. Yeah, find more customers every time the Robinhood shuts down trading the game’s up yet, but yeah, we’ll see how how it trades. The interesting thing is the Robinhood is going to be allocating a huge amount of its stock in the IPO to its own customers. And the one thing you can generally say about retail and meem investors and Robinhood investors in general is they’re not what you would call value investors. Right. They look at names and they’re like, hey, this is a great name. It’s going up. I’m going to buy it. Right. And so even if there’s no value in that, even if it’s just dogecoin and it’s a joke, so long as it’s going up, it’s a good investment. And to be fair, a lot of very sophisticated institutional investors do that, too, right? It’s called momentum trading. It works very well. It’s one of the most profitable strategies in the stock market by what’s going up. And it keeps on going up and you make money. And so I think a lot of certainly the initial trade, but quite possibly going on for months or years in Robinhood is going to be Robinhood own customers. Just saying, I like Robinhood, it’s fine, I’m going to buy the stock more or less, regardless of whether it’s even profitable. And so trying to put a price on that setting the IPO price for the underwriters is going to be super hard because on some level, for a lot of the people buying the stock, it doesn’t really matter what the price is. All you care about is, is it a good name? Is it going up?

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S2: Nothing matters.

S3: The emotional connection, the idea of you can build this with us works on a lot of people. I remember reporting on a woman who was trying to get more women to invest, and her pitch was in part, instead of buying the handbag by the company that makes the handbag. And it was this whole idea of if there’s a service that you’re using, if there’s a company that you’re really loyal to, like you should be an equity investor, you should be a shareholder, you should have a say in their decision making. As we know, many organizations increasingly structure that even if you are a shareholder, you have no say in decision making. But it’s still a good story, whether it’s because this is a good name or I feel like I like what they’re doing, those are both on their side.

S1: All right. I’m going into my safari right now, my Web browser. I’m typing in Robinhood dual class share structure because I didn’t look that one up. And guess what? Here we go. I didn’t know, but I knew

S3: they have one, don’t they?

S1: Yeah, they do. Robinhood you said three. It does not have it. No, I’m sorry guys. It does not have a dual class three structure. It has a three class share structure.

S2: ABC baby.

S1: It has a zero voting class C shares. It has no class A stock with one vote per share and it has class feedstock with ten votes per share. Of course, the founders and the insiders get to control the company even if they have a minority of economics. This is absolutely standard. With a lot of unicorns going public. It is officially a system that will prevent Robinhood from ever becoming part of the S&P. Five hundred. But they don’t care about that kind of old school thing. They just want to control the company. Yeah, they have a zero vote share class, which come on people.

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S2: Is that the shares they give to their customers?

S1: No, I think the shares they give to their customers are going to be the same as the shares they give to the institutional investors. I’m not entirely sure what the class shares are going to be used for, but it’s probably going to be things like stock based compensation. They’ll be using it for acquisitions, that kind of stuff.

S3: Wild.

S2: What is that noise?

S1: What is that noise?

S3: That is my goddamn building starting construction out of nowhere. Oh, good.

S2: Speaking of construction.

S1: Speaking of construction. Yeah. Let me tell you guys a story which is a true story about. A magnificent brutalist apartment building that I live in. We discovered that there were bits of the magnificent Brutalist apartment building that I live in that were at risk of falling off. And in order to fix this, we needed to put up a whole bunch of sidewalk sheds and get a bunch of people to sort of come down on gantries and drill into the building and drill out the concrete that was at risk of falling off and scrape off whatever might be happening with the rebar and then put a new concrete. And I can tell you from firsthand experience over the past year or two that being inside a concrete building when people are drilling into the outside of the building is one of the loudest and most unpleasant things that you can go through. It just no matter where you are in the building, you can be like 15 storeys away from where the drilling is happening. And it sounds like it’s happening inside your skull. It is really horrible. Now, I am a massive fan of brutalism. I am a massive fan of concrete buildings. From an architectural point of view, I think that in many ways concrete technology has really enabled modernity. There is almost no conceiving of what modern life could be without reinforced concrete. Virtually everything that we see around us is made of reinforced concrete, and to imagine life without it is basically to imagine life. In the 19th century. You almost can’t have life without concrete everything. When you look at what the government is talking about with its infrastructure bill, infrastructure is a fancy word, which basically means concrete. It’s dams are concrete, roads are concrete, bridges are concrete, hospitals and concrete levees are concrete, you name it. It’s made of concrete. Everywhere around us is concrete and it’s all made in the same way, which is by pouring cement basically over this thing called steel. And concrete is one of the most magnificent making materials in the world. The pantheon in Rome is three thousand years old and is stronger now than it was when it was built. And it can last forever. But modern concrete has a lifespan of about 50 to 100 years because of that steel in the middle of it, which rusts inevitably. And when it rusts, it expands to up to seven times its original size. That basically causes all of the concrete to start what’s known as spooling. It starts falling off and you lose a lot of structural strength and it basically dies. And this is a multi trillion dollar problem that we are only just beginning to face up to with tragedies like we just saw in Surfside in Florida.

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S2: So there you go. That is why Felix has been talking five minutes straight about concrete and rebar because of the terrible news from Miami that a concrete building collapsed. And after reading Felix piece on concrete and axios and watching this news story, this tragedy unfolds. I’m left thinking, why the hell are we building buildings that only last fifty years in a country where we take care of nothing ever? And how many more buildings are going to fall down? That’s my question.

S3: I put some of those questions to an architect friend of mine. His name is Andrew Ball and he specializes in tropical architecture. He works he’s a program director at the Caribbean School of Architecture in Jamaica. And he essentially said concrete is really fun for architects and it’s very cost effective. Right. And so to Felix this point, the kinds of structures that you can build from a, you know, strength perspective up to not necessarily including 50 years at a time from a how much is how expensive is this going to be relative to other materials that we can use? There’s flexibility in making it more accommodating in hot temperatures. It’s very popular in lots of tropical countries as a result of that. But the downsides are everything that you’ll have just described. It’s porous, which is one of the problems that happened in Florida. It’s expensive to repair. We didn’t talk about the fact that those repairs kick up a lot of dust and cement. Dust is a major trigger for asthma and other kinds of allergies. Every part of the this looks really cool, but here’s the downside. Like it gets worse as time goes on. And he and other architects like him are really thinking about alternatives to concrete. There’s one that they’re talking about, which is called Hemp Cretz, which is made from, you guessed it, hemp that tries to maintain some of that flexibility and some of what architects and engineers appreciate about it with fewer of the environmental downsides. But to your point, Emily, every week is infrastructure week in the US and no weak is infrastructure weak in the U.S. So it’s not a good place to be.

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S1: The big picture here is the infrastructure weak in the U.S. If and when this infrastructure bill gets passed, you can easily spend one point two trillion dollars just on repairing concrete things in the public sector, the roads,

S3: public sector, not even your

S1: part. The private sector buildings are a whole other kettle of fish and the amount. Have money that it costs to repair concrete buildings can be significantly more than it cost to build them in the first place. So that is a huge bill which is coming due right around now for millions of people who live in basically any apartment block because there’s almost no apartments that aren’t built with concrete. Stacey, to your point. Are there ways of building with concrete that don’t fall apart after 50 years? Hell, yes. There’s this wonderful stuff called bronzed aluminum. Oh, yes, you can use instead of steel as rebar, which doesn’t rust bullion. You could there were plastics you can use instead of rebar that don’t rust or I mean, in a bunch of different applications. You know, what you can do is not use any rebar at all. This is like mind blown, but the Romans built amazing constructions that are still standing thousands of years later. And the reason they’re still standing is because they don’t have any rebar in them. And if all you’re doing is placing the concrete under compression and there’s no tension involved, then it’s fine. You don’t need the rebar. But but architects will know if you have concrete, you need rebar, you need tensile strength. It’s like sometimes you don’t need tensile strength. There are ways of using concrete steps. You’re absolutely right. That is just impossible to resist the convenience of it because it’s so local. Right. There’s nowhere on the planet that doesn’t have a lock. All you need to do basically is crush up rocks, combine them with cement and there’s your concrete. Right. One of the things I love so much about concrete architecture is that it’s always got a sense of place. It always is like the color of the concrete always reflects the color of the local rock. Like sometimes here in Japan it tends to be more the concrete. In Boston, it tends to be coarser, that kind of thing. And that’s just a great way of feeling connected to your local environment. But yes, we should not be building things with a 50 to 100 year time span. We should be building things with 200, 300, 400 year time because that’s how long buildings last. And come on, people like the thing that just always astonishes me is how slow the construction is to adopt any kind of new technology. The amount of productivity gains in the construction industry has basically been zero over the past 50 years. Everyone else has been getting better. We are still using the same techniques to build apartment buildings now that we were 50 years ago or even 100 years ago. In the case of people like Frank Lloyd Wright, who are building really interesting concrete buildings, like if you look at how people are building them today, have we learned from the mistakes that Franklin was making?

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S2: Not really. I’m confused because you you just said that we should go back to the Romans and then said it’s bad that we haven’t updated the way we do the building. But the Romans by reverse by my long time ago. So.

S1: So you basically. Right. So this is how it works, right. The Romans had it completely nailed the whole thing about concrete construction. They understood how to make concrete. They got it completely right. Then around 100 years ago, around the time of Frank Lloyd Wright, we invented this whole new thing called rebar, reinforced concrete. And it was absolute magic. It is impossible to overstate how the entire history of modernity is based on this complete coincidence that if you place steel inside concrete, it turns out that when on hot days, steel expands on cold days, steel contracts. Right. And so you would think you can’t do that because what would happen is that on a hot day, the steel would expand and the concrete would crack and that would be the end of that. It turns out, by complete coincidence, concrete expands and contracts at exactly the same rate that steel does. And that coincidence makes reinforced concrete possible. And it is complete magic. It is one of those things that like when people realize this, their minds were blown and they said, oh, my God, we can build everything anywhere out of reinforced concrete. And we don’t need to worry about the heating and cooling of that construction like causing it to break. And so they just did it and they did everything that way for the past 100 years. And what they didn’t realize is that even though the heating and cooling isn’t going to cause the concrete to crack, concrete always has cracks. There’s always tiny little micro cracks and water is going to get in there and the steel is going to rust. And no one thought about what’s going to happen when that steel rests

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S3: because it’s no longer their problem at that point.

S2: Why aren’t there more building collapses?

S1: Oh, there are. Remember the Morandi Bridge in Genoa? This happens all the time. A huge job of every single local authority in the world is going around concrete buildings, inspecting them, saying, guys, this thing is really weak. You need to go in and spend millions of dollars to repair it. And then what happens is what happened to my building and what Stacey was talking about, which is all of the dust and. Noise of literally drilling out the damaged concrete, getting into the rebar, reinforcing the rebar, pouring new concrete to replace the stuff you drilled out, it’s dirty, it’s messy, it’s much less dirty and much less messy than breaking

S3: the whole building down.

S1: Yeah, it is a very important part of green architecture. You need to be able to rebuild these things because demolishing and rebuilding with something new is way less environmentally friendly. It’s kind of ironic, but like the really dirty, noisy stuff is actually what green development looks like.

S2: And will climate change make all this harder to keep up with and repair? Because isn’t that in Miami part of what was happening that the sea levels rising in Miami? Climate change is making everything worse. Bigger storms, better rain. I don’t know what a it is not a correct thing to say. And I’m sorry.

S1: Surfside in Florida had a lot of storm surges, as does South Florida. And what you get with a storm surge is you get the saltwater coming up and lapping around the concrete buildings and saltwater is more corrosive than rainwater. So, yeah, at the margin, if you’re getting storm surges of saltwater, that’s bad. That said, I wouldn’t put climate change as one of the top reasons why the South Side building collapsed. The top reason why the South Side building collapsed, honestly, was that when it was built back in like the early 80s, it was just built by a bunch of cowboys who were throwing apartment buildings up with no care at all, just doing it as cheaply and quickly as they could, because this is what the Florida economy is, is building condos and building them cheap, selling them expensive rinse and repeat. There’s a bunch of very shoddily built condo construction in South Florida. They built them badly. And that changes from location to location.

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S3: To your point, Emily about climate change and to Felix his earlier note about the rate of change in construction architecture. That is one of the things that is driving the conversation forward because it’s getting more and more expensive to retrofit existing buildings with things that make it climate resilient versus the cost of building new things that are more adaptable at the get go. Obviously, we’re talking 15, 20, 30 year cycles here, like you don’t suddenly change the landscape of an entire town or a planning area overnight. But from the architects and the civil engineers that I’ve been talking to, they see the both the public and the investor response to climate change or in some cases like hurricanes and wildfires as something that they need to be factoring in to at least new construction.

S1: And it’s absolutely true that if you look at the lifetime cost of construction, concrete, as we’ve been talking about, starts looking a hell of a lot more expensive. The upfront cost is low. But then if you just need to come along and spend just as much money all over again to fix it all in 40 or 50 years, suddenly that that seems like a false economy. And the smart thing to do is maybe spend a little bit more now so that you save all of those extra expenses down the road. But we are human and it’s not us who’s going to have to be paying in 50 years time. We’re all going to be dead. Right. And so as we leave, they children

S3: trying to survive 50 years, you know,

S1: so so this is a real problem with Congress. One of the reasons why it’s so popular is that given the choice between spending more now and less in seventy five years and spending less now and more in seventy five years, we generally choose the latter option and the civil engineers will be like, but we are building on 100 year timeframe. And on that time frame it’s cheaper to do this and everyone else. But how much more money do I need to borrow? Fuck off. I’m doing the cheap thing.

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S2: Yeah. And as Stacy pointed out before, I mean, the people building the buildings don’t care what happens in 50 years. Like they’re out piece, like they’re not in it for the long term. Right.

S3: Asynchronous responsibilities,

S2: kind of wild. Like whoever built that Miami building. I mean, they’re not probably going to even get in trouble or,

S3: you know, I haven’t seen that name in most reporting. That’s one of the things that’s interesting to me is like like who who built this thing, who

S1: put a flat deck under a swimming pool. Come on. This is basic stuff.

S2: It’s so awful. Oh.

S3: Oh, speaking of awful oh, gosh, let’s talk about AirBnB.

S1: This is just a terrible downward spiral of this episode, terrible Robinhood terrible country, and then terrible Emily be like, oh, my God, we’re going to have to be cheerful for this last segment because otherwise we’re just going to have utter misery in this entire episode. But Emily, why is AirBnB terrible this week and always?

S3: Well, actually,

S2: a couple of weeks ago, there is a great story in Bloomberg BusinessWeek about AirBnB and the Yelda is the company has quietly been paying people off to cover up when really bad stuff happens and AirBnB rentals. The lead anecdote in the piece is about a woman who came to New York City for New Year’s Eve and rented a place in Times Square and was sexually assaulted in her AirBnB. And the company paid millions of dollars to keep that.

S1: Seven million.

S2: Yes, seven million. Thank you. To keep the story out of the news and keep the woman quiet. They have a whole crisis team that comes in headed by a former member of the Obama administration that swoops in and kind of like starts doing all the covering up is the woman who was sexually assaulted to stay in a hotel flies and her mother then flies them both back home. Just make sure everything’s nice and tidy and quiet. But the longer term thing that could have been fixed and the reason this woman or the way she was sexually assaulted was there was a key to the AirBnB that the owner of the apartment kept in like a local bodega. And every time someone new came and rented the AirBnB, it was the same key. So along the way, someone got a hold of that key and used it to break into the apartment. AirBnB could make it so that all the AirBnB is have to use some other kind of mechanism to enter a building. Like you can have a code to get in smart lock, but they’re not doing that. And I thought that was sort of shocking. It was like they’d rather pay to cover up an incident like this than to fix the long term infrastructure that could make it less likely that it happens.

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S3: Even one note about Chris Lehane. He was in the Clinton administration of the Obama administration. Oh, thank you. Thank you. About AirBnB.

S1: There’s a bunch of interesting things about this story. But the thing that you really touched on there is this idea that AirBnB has become this highly professionalized way for people to make money. And instead of being this sort of hippy friendly, people can stay in each other’s houses kind of thing. Right now, what you’re doing is why shouldn’t they be saying if you’re renting out your house, then you need to install a bunch of, like, lock technology so that blah, blah, blah, like, it’s a very long way from the place that AirBnB was that it was founded. But it’s a realistic view. It’s where we are like AirBnB is moving into this very professionalized space. And the thing that really struck me about the story is that the the AirBnB really was concentrating on the way in which this particular case was an outlier. For one thing, the AirBnB itself, the rental was illegal. It was happening in New York City when for a rental period of less than 30 days when New York City banned Airbnb rentals of less than 30 days, it was already sort of happening in an illegal manner. And then the really big thing was that the woman who got assaulted was not the woman who rented the AirBnB that was her friend. And so the woman who got assaulted had not signed that enormous list of terms and conditions that everyone always signs when they rented AirBnB. If she had done, then she would have basically waived her right to sue AirBnB. But because she didn’t, she hadn’t waived it. And so they knew that they were in legal jeopardy. So she was like a complete outlier. Most people who get sexually assaulted in an Airbnb are not sexually assaulted in an illegal AirBnB. And also they signed the terms and conditions. And those people, they often get no settlement at all or much, much more

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S2: when they sign away their right to sue AirBnB in the terms of service, which requires them to go to arbitration, not just arbitration, confidential arbitration, meaning you can’t talk about it. So that means we don’t really know the extent of this problem. Like maybe it’s not. Maybe it’s very vanishingly rare that people are sexually assaulted in their Airbnb years. But we couldn’t possibly know because these cases don’t ever come to light because they’re automatically hushed up. Like the BusinessWeek piece said, only one such case has appeared in the court system in the US. It’s impossible to know what’s going on, and it’s sort of impossible to think about creating policies or laws to help prevent this kind of thing from happening because. When everything’s silence, it’s impossible to get any sense of the scope of the situation, so you can’t even fix the problem or even identify it really.

S1: One of the things that I’ve definitely noticed among my own peer group is switching back to hotels from AirBnB is

S3: definitely

S1: that there was this period of, oh, my God, AirBnB, this is so cool. It’s like, you know, you get much more space. It’s so much more convenient when you’re traveling with children. You get to stay in the much broader range of types of places. And it felt really good for a while. But then AirBnB seems to have systematically eroded a lot of the goodwill that was at one point associated with the brand and especially with its pricing structure, that they do this sort of bait and switch of light. You get to stay in this AirBnB for ninety nine dollars a night and then you stay there for two nights and it turns out to be five hundred dollars because of all of the taxes and fees and cleaning fees and other surcharges that they put on top. And you’re like, wait, hang on. You know, this is not the kind of pro consumer behavior that I would like from, you know, I need to I need to sort of into the app with the feeling of mistrust and worry about how much this is all going to cost and what is my experience going to be. And I think a lot of people have had one or two very bad AirBnB experiences. And while there are certainly good ones as well, bad ones can be really bad and people don’t want to take that risk.

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S3: There’s also something about the predictability of hotels, which is very helpful. That was definitely a period. And the AirBnB encourage this or they will like making all these appeals to business travelers. And so especially in cases where there was a time when I was going back and forth between New York and London for work, and I didn’t need to be staying somewhere for 30 days or more like the AirBnB corporate option was very attractive. But you would get there and the key wouldn’t be where the key was supposed to be. Or the thing that they said was actually a bedroom was like a closet with maybe a couch in it. And I think that’s unreliability of experience. Plus all of those fees has a really negative effect on people’s end user experience, in addition to kind of the horror stories that you hear on an on an ongoing basis, despite the efforts of this team.

S2: Yeah, and to build on that Felix around this really interesting newsletter that makes the point that this AirBnB story, which was excellent, great reporting, didn’t get nearly as much outrage or interest as individual anecdotes about, you know, high Airbnb fears or people getting ripped off in various ways by AirBnB years as part of a broader phenomenon, which is that consumers really care mostly about price and convenience. And if even if you tell them all this bad stuff, horror stories about companies, Amazon workers peeing in bottles and like collapsing or, you know, AirBnB covering up crimes, people will live with that. Consumers will live with that. But if you start raising prices or taking longer to deliver stuff to them, then they’re going to revolt. That’s really what’s most important. And you can see it with Robinhood do it. Convenience trumps a lot of other stuff. That’s what is important to us. Apparently, the other

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S1: part of the AirBnB backlash, of course, comes from neighbors. But no one likes living next door to a party house where a bunch of parties, certainly next to a party house or just anyone where you have no idea who’s living next door to you because you don’t know who your neighbor is, because it changes from day to day and week to week, especially when the rent is too damn high and people feel like they are being priced out of where they want to live by mercenary people who are buying up houses not to rent out to people who want to live there, but just to rent out an Airbnb and monetize tourism. And this causes huge fights in every small town in America, pretty much as they all want to start introducing laws saying, like, you can’t AirBnB your house. You can only do under certain circumstances that we can never have more than so many different places available, you know, because it does change a community.

S2: Yeah, that reminds me, I did a story a few years ago about New Orleans and AirBnB. Yeah. And balloons shaped like penises were involved because I visited this one.

S1: I mean, this is New Orleans, after all. Yeah.

S2: I visited this one block. I think it was in Tremé or I don’t remember the exact neighborhood, but it was a very like it was New Orleans, a very culturally rich neighborhood that had just been totally changed by AirBnB like almost every house on the block. I had someone who still lived there point out like, that’s a pretty house. That’s an AirBnB house. That’s an AirBnB you. And this nice family I talked to, they were like the day that we were broken was when my six year old looked out the window and he was like, what is with that balloon? And she was like, and it was the penis balloon because it was a bachelorette party taking place in the house across the street. And the people that were able to stay in the neighborhood because they had a huge turnover, because everyone wanted to AirBnB their homes. The people who were left there were just you know, their neighbors were now young 20 somethings with rolly bags and they were all very upset about it.

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S1: Yeah, or talk to anyone in Barcelona or talk to anyone.

S3: This is the kind of the classic example of, you know, The New Yorker had a story about this, I think, a couple of years ago, where was something like there’s five times the number of visitors staying in Airbnb is than are staying in hotels in Barcelona. And you think about kind of like the economic incentives and where those revenues go versus where they would go for hotels and how that gets pulled back into local ownership or not. It’s challenging, but of course, everybody has very good press and very good lobbyists and still persist in appearing as a convenient option.

S2: So, yeah, and they’re a big pandemic’s success story, too, because people didn’t want to stay in hotels for a long time and perceived AirBnB as a safer.

S1: I’m just going to jump in here and say 93 billion dollars. That’s the market cap of AirBnB doing just fine.

S2: So they shouldn’t they won’t be mad at us about this very negative segment.

S3: I think a lot of people will be mad at us, which is totally fine.

S2: Send your notes straight to Stacy-Marie.

S3: I mean, we all get them.

S1: OK, I think it’s time for a numbers round, I’ll start. Why not? One hundred and fifty million dollars is the amount of money that David Geffen has given the Yale School of Drama. This money is going to be used to make it tuition free. Carville the drama students at Yale no longer have to pay tuition, thanks to David Geffen. A hundred and fifty million dollars. There are two hundred students per year at Yale School of Drama. It’s a graduate course. I think it’s three years. So now they don’t need to pay tuition, which is may or may not be a good use of one hundred and fifty million dollars for those two hundred students. I’m sure they’re thankful.

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S2: Yeah. What do we think of this? I don’t I don’t know. I think it’s the best. Yale is

S1: the top of the list of institutions that need one hundred deals,

S3: not hurting for money.

S2: Sternau kids who go to Yale probably going to be OK even if they do major in drama

S3: but do love arts. So big fan of more people graduating with this and

S2: that and going into the idea.

S1: Art, the best case that I heard for this gift was that if you graduate from Yale Drama School with a bunch of student debt and then you move to New York to try and make it on Broadway and you get the opportunity to appear in some like off Broadway show on East Fourth Street or something that doesn’t really pay. You can afford to appear in that show because you need to do your job as a waiter instead in order to make money to pay your rent. But maybe if you don’t have student loans, you can afford to appear in that show and then you will be a more successful actor. I mean, I can see that, but I can also see that this is a maybe a sort of tenuous justification for spending one hundred and fifty million dollars.

S3: Hey, if you got to give it to some art students, I think it’s fine.

S2: I’m OK with this. I judge it fine.

S3: We have we have deemed this acceptable as very judgmental.

S1: But of course, it’s he’s not really giving it to the students. Right. There’s two things going on. No. One is that he’s throwing it into an endowment. So it’s all going to a bunch of hedge funds. And then, like, you know, they take it, you know, and then you can really doing is buying the naming rights. Oh, of course. That’s what I mean. I mean, he’s now going to be the David Geffen School of Drama at Yale. And I feel like if what you’re doing is buying naming rights to a drama school, then at the very least that shouldn’t be considered a charitable donation. That’s just a purchase.

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S2: Well, it’s better than spending money on Quimby, right. David Geffen also do that, naming rights.

S3: So you’re arguing naming rights is licensing?

S1: Basically, yeah. Oh, are they taxed that way? No, it’s all charitable donations.

S3: It is tax code. Fascinating. Somehow we always find a way to get taxes in here. Incredible.

S1: Stacey, what’s your number?

S3: My number is twenty percent and 20 percent. According to this Wall Street Journal story that I was reading represents the number of jobs posted on the website Zipora Cruiser, which is a big jobs hosting sites that have signing bonuses attached to them across all categories. Right. So not just like fancy media and tech people, it’s like, hey, logistics, health care, food service. There was a story about a Burger King that’s like we’re going to give you a 1500 dollar signing bonus. And that is up from two percent of jobs advertised in March. So, you know, it’s like that is if for me, a pretty significant indicator, again, around this idea of who has power in labor right now. And it’s labor a bit. And I thought that was really interesting.

S2: I’m so excited about that. I love

S1: it. It’s a very interesting way of paying new employees more without having to pay existing employees.

S3: Yes. This is the Amazon factory worker versus corporate question.

S1: Well, it’s also just a question of if you have a bunch of workers making fifteen dollars an hour and you realize that no one’s going to work for you for less than seventeen dollars an hour, like you can hire new people at seventeen dollars an hour. But that’s not going to go down well with all the people who have been there already for a while and they’re making fifteen. So in order to move to seventeen, it’s not just paying the new people. Seventeen, you need to pay everyone seventeen. And that gets very expensive, very fast. But if you pay the new people fifty and give them five thousand dollars signing bonuses, then they think, oh this is effectively seventeen dollars now and the people who are working there don’t feel quite as hard done by and they don’t feel like it’s as unfair.

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S2: That’s a good point. It’s like when they do that thing with rent, when they give you a month free and they say effectively that means your rent is blah blah blah. And you’re always kind of like it doesn’t, though. It really just doesn’t Emily also. No, very important. No Felix Stacy-Marie I want.

S1: No, Emily, it’s

S2: very important, it’s twelve hundred and that is the number approximate number of bowling balls that went up in New York City’s main recycling plant every year.

S3: I found this bowling ball.

S2: It’s a lot of bowling balls,

S1: bowling balls recyclable,

S2: no Felix. But people think they are and they send them to recycling. And the people at the recycling plants are like bowling balls coming down the chute. Larry Craig, I learned about this in a really fun piece by Eleanor Cummins on kerbs, which really, really gets into it. She does for the bowling ball what Felix Salmon has done for concrete in this episode of late Monday. She gets really deep into it and explains how they’re made. Very complicated. Incredible. I have bowling balls that don’t last very long. I learned this was the cheaper bowling balls actually last longer, but none of the bowling balls can be recycled. So don’t put them in your recycling.

S1: Can they be refurbished?

S2: Maybe. Unclear to me that was not the takeaway I got from this piece.

S3: What’s the rebar equivalent for a bowling ball?

S1: Yeah, I feel like if I buy a bowling ball, which I will never do, but if I buy a bowling ball, I’m going to buy a second hand bowling ball and then fix it up in my fixing up. I have no idea what I’m talking about.

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S2: The thing is, with the professional bowling balls, apparently they pick up a lot of oils on their way down the lane so you can only use them a few times and then their integrity is shot. So I don’t know how much refurbishing. Send us your email, but I don’t know Felix if

S1: you be like, yeah, I need I need to reintroduce integrity to this is my startup idea. I’m going to I’m going to refurbish professional grade bowling balls. This is anyone who wants to give me a, you know, series a billion dollars slate money at Slate dot com Felix.

S2: Have you ever bowled. That’s my question.

S1: I’m not sure I’ve ever done it.

S3: So that is a fair response. I think that is a fair response. I cannot call people are like bowling and karaoke and like absolutely not on both of those fronts. It’s just not happening really so hard for us to know.

S2: OK, I’ve obviously bowled well. I mean, I spent a lot of time in sleepaway camps as a child and whenever it rains and sleep away camp, the kids get on the bus. We’re bowling, you know,

S1: thank you, Emily, for having a good number because we needed some levity in this podcast. I think that’s where we shall. And except for you, lovely people who listen to Slate. Plus, we will try and make that a bit. Jerry, too, thanks for listening. Thanks for sending the emails to sleep money and sleep dotcom. Thanks to Jessamine Molli for producing. And we will be back on Tuesday with Slate money goes to the movies, all about a movie which is all about a great form of entertainment, which is a circle, not a bowling ball. However, it is a hula hoop. Am I allowed to give that away yet?

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S3: It’s a lesser

S1: sport. It’s a hula hoop. The movie is The Hudsucker Proxy. We’re talking about that with Catherine Bell. And then we’ll be back on Saturday with another regular episode of Money. OK, sleepless folks, because we promised you something happy. We’re going to do donuts. Well, how do you spell doughnut?

S3: Stacey D and UTI as ticker symbol for Krispy Kreme.

S1: And how do you spell Krispy FramingEmail for that?

S2: You should spell it croi spy CRM e but for some reason it’s

S1: S.A.M. even

S2: whatever spelling who can say, but for some reason they spell it with Keres Felix and it’s always bothered me if I’m being totally honest with you, I don’t like it. I don’t like when they do this. Yes. Yes.

S3: But what happens in the Krispy Kreme IPO? However, our feelings about Ticker’s and spelling quit.

S1: So Krispy Kreme. Well, so what happened in the Krispy Kreme IPO is that it skyrocketed and then it fell down to earth and then it filed for bankruptcy protection. But that was, what, like 15 years ago or something.

S3: So this is IPO 2.0.

S1: And and so now it came out of bankruptcy. It was owned by its creditors and now its creditors have sold it onto the stock market in another IPO. And now history is repeating itself. Everyone’s like doughnuts and their creditors

S2: with a K..

S1: And the creditors with a K a loving it because the stock is worth. How much is the stock WAC?

S3: Twenty one dollars at the close yesterday

S1: and it went public at 14 or so. I don’t know, but it’s 17, 17, I think 17. Yeah, Krispy Kreme. People are instead of spending money on doughnuts, they’re spending money on doughnuts, shares. I think we should have a quick sleep plus poll. There are three of us here, so we’re going to have a majority one way or another. Stacey, what would you rather have? Twenty one dollars of Krispy Kreme doughnuts or a single stock of Krispy Kreme stock?

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S3: Single stock of Krispy Kreme Emily, 21 doughnuts.

S2: I always want twenty one.

S1: Yes. Stacy, you’re outvoted here in money, OK?

S3: I am going to track how much money, how many donuts my walnut Krispy Kreme share will buy me in twelve months. Bring it on.

S1: Yeah. No, I do not believe in delayed gratification. I want my donut now. The first thing I did this is true story. When I got my the first shot of my vaccine until I went at you, I went to the second shot vaccine. The first shot was up in the Bronx and there wasn’t a Krispy Kreme up there. But the second shot was in Manhattan and there was a Krispy Kreme across the street. And I want my free doughnut. And they gave me free dinner. It was awesome.

S2: Was it warm? Didn’t their head of a whole thing where if the lights on the doughnuts are warm? I think that’s very cool, even though they don’t spell their name right.

S3: When I lived in California, you could go to a Krispy Kreme where they were like making the donuts and depending on where they were and if the lights were on, you can get them hot off the cream press or whatever it’s called.

S2: Well, here’s another question. And this may be particularly for Felix, because we know that you like certain foods you have, like food, things, anchovies.

S1: I love anchovies.

S2: Sure. Would you prefer a fancier donut to a Krispy Kreme, which is more like a commodity donut if we’re really being right?

S1: I mean, so the good donut, obviously, as an English person. Oh, no one spelt with like a G h in the middle, they don’t. It’s not you and you come on. But they have jam in the middle.

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S2: Mm hmm.

S1: Jam and they don’t have a hole in the middle. They have jam in the middle. And by the way, as an English person is jam, it’s not jelly.

S3: Those are two functionally different things. First of all,

S1: anyway, there’s something sweet and red and highly artificial in the middle of your donut, and that is the perfect doughnut. And I have a wonderful doughnut place just around the corner for me in Manhattan called Donut Plant, who makes very good jelly donuts. I do insist on calling it jelly donuts, even though it’s jam and that is a better donut. But those donuts are insanely expensive. They’re like dollars each or something.

S2: I like a democratized doughnut. Unlike the Robinhood slogan about democratizing the stock market like Krispy Kreme. I mean, they kind of democratize doughnuts in a good way. I think, you

S1: know what my favorite donut was. Now, Stacy, you might remember this from your New York days. Remember Schillers. Look at the restaurant down the street.

S3: All right, Schillers.

S1: And you remember that donuts. I would give those away for me, right? They would just give you a dozen donuts were lovely. They were quite small. Yeah. That was the perfect doughnut right there.

S2: OK, so are there conclusions to be drawn about Krispy Krims IPO then?

S3: Well, ask me in twelve months when I’m like buying a bunch of donuts for my my twenty. You want everyone shares exactly.

S1: Stacy-Marie your job right now is to open up a Robinhood account by one share of Krispy Kreme and then we’ll liquidate it all in the year and go out for donuts.

S3: I’m going to need to expense this back. So we’ll check it 100

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S1: percent in June, Thomas will pay for your

S2: listening

S1: test. This is the test.

S2: Wait, why did they go bankrupt the last time and how do we know it’s not going to happen again? Sorry, that’s a very serious question. As opposed to this other. Do you know? I don’t know. I think they overexpanded as why they they went bankrupt last time.

S1: The reason everyone goes bankrupt is always the same, which is they had too much debt.

S2: It’s not that they bought Time Warner or something.

S3: Anything is possible these days, frankly.

S1: Yeah, we will follow Krispy Kreme and see whether it outperforms BuzzFeed. Anyway, that’s it. Thank you for listening to sleep less and enjoy some doughnuts. It’s the 4th of July weekend. It’s a good weekend for the.