Enron 2

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Speaker 1: Hello. Welcome to the Enron to episode of Sleep Money, Your Guide to the Business and Finance News of the Week in which the guy who was in charge of dealing with bankrupt Enron then became the guy who is now in charge of dealing with bankrupt FTX. His letter came out this week and I am going to talk about it. I am Felix Salmon of access. I am going to talk about it with Elizabeth Spiers. Hello. And also Emily Peck of Axios.

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Speaker 2: Hello.

Speaker 1: We’re going to talk about all of the other parallels. Lehman Brothers, We were Uber. I know there was lots of. Parallels in terms of business history of businesses going bust and trying to wonder, like, what were the implications of that and what could the implications of the FTX collapse be? We are going to talk about Joan Didion estate sale. We have a slate plus on Elon Musk and the way he’s tweeting all of his CEO decisions. Is that a good idea? Find out on slate. Money.

Speaker 1: Okay, So for the second week running, we have to talk about FTX and SBF because there has been so much more news than we had last week. And I guess the place where we should start is probably the first day in motion in bankruptcy court in Delaware, which didn’t get filed on the first day like it normally does. It took about a week for John Ray, who’s the new CEO of FTX, to even file the motion, saying like, This is why we’re bust. And the TLDR is basically because it was a complete shit show. There was no accounting. There was no recordkeeping. Money just disappeared. No one knows where the money is. And, you know, this is the guy who was in charge of Enron and he’s like, Enron doesn’t even come close to how much of a shit show FTX is.

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Speaker 2: Right? He said, Never in my career have I seen such a complete failure of corporate controls. Devastating.

Speaker 3: Yeah. I don’t think I fully internalized how bad it was until I saw the quote unquote balance sheet that the oft published from SBF, that this is not a balance sheet, it’s something, but.

Speaker 1: It was an Excel spreadsheet with some numbers scribbled on it and a couple of like notes to self. And yeah, and that was what he was going out to potential rescuers with saying, hey, you know, we have $8 billion worth of magic beans, so can you lend against them? And everyone was like, No, we can’t. And where’s the actual money that people put in? But then the other thing we should mention was this absolutely wild interview that SBF gave to Kelsey Piper of Fox, where he was like, Yeah, basically we kind of didn’t have a bank account FTX So people would wire money to our hedge fund. And then we never really kept track of it. And then the money just kind of disappeared and, I don’t know, shrug like what?

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Speaker 3: It was basically like the customer deposits were just in this big pile of money and we didn’t segregate them and we don’t know what was what. And some of it went to elevator. And who knows?

Speaker 1: What we did learn is that $1 billion that Sam Bankman-fried, you know, the guy who’s like, I can live on $60,000 a year. And my job is to just give away all of my wealth that he took a personal $1 billion loan from Alameda.

Speaker 3: That’s just astonishing.

Speaker 2: So I guess my question is now, as all of this becomes untangled, is how much of this was sloppy incompetence? Because it does seem clear that there was sloppy incompetence.

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Speaker 1: There was a level of sloppy incompetence that was unprecedented in, you know, multibillion dollar companies. I think we can say relatively safely that never had a multibillion dollar company been run this sort of sloppily and incompetently, partly because most multibillion dollar as most multibillion dollar companies get that way by like, you know, growing and and, you know, evolving and developing layers of management and stuff. And FTX just never did that.

Speaker 2: Right. And so we know that there was incompetence and sloppiness. But then the other question is, how much was self-dealing fraud? How nefarious was this? That’s the question I have.

Speaker 1: Well, when you’re dealing with other people’s money, which is what they were doing, you know, other people were exchanging on FTX other people were, you know, investing money in FTX equity and all of that kind of stuff. Then sloppiness is fraud. Like, you know, the sloppiness is the fraud.

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Speaker 1: I guess you can ask, you know, to what degree was it malign intent and to what degree was it just like, oh shit, we thought we were on top of it and we turned out not to be, but they didn’t even really think they were on top of it. And, you know, as as Matt Levine pointed out in his column, like, you know, on one level, apparently there were only like four or five people who knew about the the secret transfers between FTX and Alameda. But on the other on another level, like everyone who worked there knew how just batch it. It was how there was no way your department, no real accounting department, how you know, expenses would be approved by emoji and that kind of thing.

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Speaker 3: No board oversight, apparently.

Speaker 1: Well, there was no board.

Speaker 3: There was a an interview with a It wasn’t an interview. It was a profile on Sequoia’s site with SBF in the early days of their funding that was just completely, you know, fawning. And the person who wrote it just talked about SBF having this kind of magic aura that everybody wanted to be around. And they took the piece down because in retrospect it looks awful. But when you consider that that’s that’s a big part of how the thing got funded in the first place is just, you know, funding entrepreneurs off of vibes. It’s not totally surprising that, you know, he ended up where where he ended up, I think.

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Speaker 1: Well, I mean, let’s be clear about this. That piece was published in September. It wasn’t a long time ago. It published pretty recently. And. Sequoia. You know, we’re funding a very fast growing company, which was making, you know, 40% profit margins on 100% growth, on $250 million of revenue, whatever. Like there were real there was real money in there and there was, you know, the business model made sense.

Speaker 1: Now. Obviously they didn’t require. Audited income statements and balance sheets because there were no audited income statements and balance sheets. And obviously with hindsight, they should have done. But what they thought was that they were funding like a genuine normal business. And I think on some level they just kind of assumed that because he had so much respect on Capitol Hill, because he had all of these, as you say, like, you know, fawning coverage in the press and all the rest of it, that he wouldn’t just.

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Speaker 2: Steal money from people and use it to be stealing stuff.

Speaker 1: Right? Exactly.

Speaker 2: Like that is what we’re talking about, to be clear.

Speaker 1: I think the idea that it was a complete fraud probably just didn’t occur to them because he felt and this is this is something that he went on to say in that amazing Volks interview. Was that the way that he persuaded people that he wasn’t a complete fraud was by using a shibboleth? And I love this word. It’s one of my favorite words. And a shibboleth is basically a word which basically shows that you’re part of the crowd. And if you pick your shibboleths correctly, then people will trust you. And the shibboleth that he used was this thing called effective altruism. And he talked so much about effective altruism that people trusted him because he used the right words. And then he came out to voters and said, yeah, I didn’t actually necessarily believe in any of it, but it was a great way of getting people to trust me.

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Speaker 2: Did people trust him because of his stance on philanthropy or did they trust him because it looked like this company was making tons of money like people? You cannot discount people’s. Willingness to fall for someone who says or is a billionaire and. Engender that person with sort of trust or a belief that they’re a genius or whatever. As soon as you have you crossed that billionaire line, you’ve suddenly gotten yourself credibility.

Speaker 1: Right. And one of the interesting things about SBF is that he was that rare, you know, entrepreneurial Silicon Valley billionaire type who was making tons of money, at least ostensibly, you know, according to the accounts that he was showing Sequoia. If you look at most high flying Silicon Valley billionaire types, whether it’s, you know, Adam Newman or Travis Kalanick or Elon Musk, you know, the way they become billionaires is by losing lots of money.

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Speaker 1: Right. And they’re like, we need lots of funding. Give us funding, ever increasing valuations. I own a percentage of the company, so I’m a billionaire on paper, my company is losing money, but we are investing it all in payroll and growth and blah, blah, blah. And then the company will be worth lots of money in the future. So FTX was weirdly was a weird outlier in that respect. And he was SBF was coming out and basically saying. I’m already profitable, you know, and I’m making billions of dollars on my own without you. And you want, like, in on this? Mm hmm. I guess no one stopped to ask. Well, why do you need the money, then?

Speaker 2: Because he’s stealing it. I mean, to be sure, I think.

Speaker 3: He also went to I guess he also went to great lengths to kind of brand himself as somebody who wasn’t a materialist. You know, he said he could live on 60 days a year. He was sleeping on a beanbag in the office.

Speaker 1: He was sleeping on a beanbag in his $40 million bohemian bohemian apartment. I mean, this is the other thing. He had a massive portfolio of Bahamas real estate. We are pretty sure, as I say, he also borrowed personally $1 billion from Alameda Research, his his hedge fund. Now, you know, that’s $1,000,000,000 that he didn’t spend on like yachts. It $1,000,000,000 that he spent on, you know, venture investments and that kind of stuff. But still, he was living a very glamorous life. It’s a bit unclear whether he was flying commercial or private. I haven’t quite been able to get to the bottom of that one, but he was certainly pedaling around on stage with Tony Blair and Bill Clinton. And, you know, he was certainly getting the kind of respect from the world. You know, the magazine covers the conferences and all the rest of it. The. Were the kind of things that he would buy if those things were things you could buy.

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Speaker 3: Yeah. And, you know, to go back to the effective altruism point, you know, that was a little bit of a cover for anything that he wanted to do that seemed a little bonkers. He could sort of frame it as long term ism.

Speaker 3: Or maybe we should explain what effective altruism is.

Speaker 1: Yeah, I’m not sure about that. I mean, maybe so. Okay, so like we’ve talked a little bit about this on on the podcast before, and I’m sure we will again. But broadly, the idea behind effective altruism is the idea that you can go out and make the world a better place by, you know, say, going to medical school and becoming a doctor and learning how to save people’s lives and then jetting off to Uganda and saving people’s lives and you’ll be like, Great, I have saved lives. That’s that’s me being, you know, behaving ethically. Or alternatively, you could do good in the world by, you know, going to business school, going to a hedge fund, taking, making $1,000,000,000, and then giving that billion dollars to an organization which can save lives at a rate of $5,000 a life and then, boom, you’ve saved, you know, 20,000 lives rather than one life. And so, like, that’s 20,000 times better to do that.

Speaker 3: And this this seems like a very self-serving rationale for hoarding absurd amounts of wealth.

Speaker 1: Well, no, it’s it’s a rationale for giving away lots of wealth. It’s certainly not a rationale for hoarding it. Right. There’s nothing in the. Which says you should hold anything.

Speaker 3: Yeah, but you have to accumulate.

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Speaker 2: It’s a rationale for earning and accumulating an unreasonable.

Speaker 1: So so there’s earned to of money. So there’s two different there’s two different ways of looking at this. Right. One is, you know, you work for Jane Street Capital, which is this big hedge fund that SBF used to work for, and they pay you lots of money because, you know, you make lots of money at your job. And then what you do is you just give away that money as soon as you make it and you’re living on your $60,000 a year or whatever it is. There is nothing in the air which says you should hoard or retain any of that money.

Speaker 1: The alternative is that rather than maximising your income, you try and maximize your wealth accumulation. And so what you do then is you start investing money. In something like, you know, I’m starting a company called FTX, or I’m going to sponsor a sports arena in Miami because somehow that’s going to be plus, you know, plus expected value. And the amount of money I get back from sponsoring that arena is going to be greater than the amount I spend on sponsoring the arena. So then in the long term, that’s going to be better for saving lives down the road.

Speaker 1: And that’s where it gets a little bit dubious, because at that point, you’re, you know, you’re making a tradeoff. You’re like, do I spend this money now on saving lives or do I hold on to it and try and invest it and make it even bigger and then use that bigger amount to save lives? And the way the SBF thought about this, which was very explicit and he said this in interview after interview, was basically, if I have like positive expected value to my investments, I should always because he has this linear utility function, which we won’t go into, but I will always take that bet, even if the investments only have like a 1% chance of paying off. So if I have a 99% chance of going to zero, but I have a 1% chance of making $5 trillion, I will take that 1% chance. And so 99% of the time I will go to zero.

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Speaker 1: But in the grand scheme of things, I am I am making money in some kind of like if I look at all of the 100 possible universes that I’m in or something, it all becomes very weird and theoretical. And I think honestly he is wound up basically doing possibly, possibly mortal damage to the entire AeÉ program because like people realize now that it just winds up in these absurd outcomes.

Speaker 2: Is that a bad thing? I mean, when I hear about effective altruism and I think this is the second time or honestly, the third time, Felix, that you’ve had to explain it to me. I think this is dumb. People should do good. In the worlds themselves. They shouldn’t excuse doing bad, which often is what they wind up doing to accumulate billions of dollars. No, I mean, a very road they’re going to get.

Speaker 1: Yeah, but that’s that’s a little bit of a straw man. Right. So the air crowd is has always been very clear that this is not some kind of utilitarian. Ends justify the means thing. But it is. But no, no one never made that argument.

Speaker 2: But the argument is make a lot of money so you can give it away. And making a bit of money is typically in involves not really doing much good at all, in fact, often doing not good. So yeah, the ends justify the means that’s baked into that strategy. I don’t see how it’s not.

Speaker 3: In terms of isolated decision making. It is ends justify the means a lot of times. Because the other premise of E is that, you know, you can actually evaluate what matters long term versus, you know, short term costs. So if a few people die right now, it’s fine If you know, you’re saving lives over the course of the next hundred years. And there’s a kind of arrogance to that. I think there’s a reason why it appeals to a lot of near reactionary types and, you know, Silicon Valley, because it presumes that you can have a class of elites who can determine all of these things and really evaluate on a top down basis what’s worth it and what isn’t.

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Speaker 2: It’s kind of like how they manage their businesses by saying it’s all about the future. Like, yeah, I’m not making money now, but I will be someday. Like, Yeah, we’re not changing the world now, but we will someday. Like, yeah, what we’re doing now is important. Some day it’s like, just get in the now, guys.

Speaker 1: So, so there’s a few different things to unpack here. The first thing is the. Long term ism and effective altruism are two different things. Long term ism is one flavor of effective altruism. There are other flavors of effective altruism which are not long termist and are much more short termist and saying like, we just want to save the maximum number of lives that we can today. And an outfit like Give well would be a good example of that. And they do not do that kind of thing where they’re like, it’s okay if you know. We could if we failed to save a life today, as long as we do managed to save three lives tomorrow. They generally reject that kind of thinking. So I think the damage to long term ism is greater than the damage to E more generally. So that’s the first thing.

Speaker 1: The second thing, Emily, I think, is just the. If you come to E.A. with the if you come at this whole concept with the idea that making money is intrinsically harmful and that you need to sort of make up for that intrinsic harm by then giving it away, you are not going to adopt it. I think everyone who does this, everyone who does this earn to give kind of.

Speaker 1: Strategy. On some level, it has managed to convince themselves that the way they’re making money is not intrinsically harmful and might actually be a good thing. Right? So I don’t think you have people out there in the world who are saying, well, what I’m doing is bad, but I will make up for it by doing good things with the money. And I think what you have is people out there in the world saying, what I’m doing is good and, you know, my wonderful crypto utopia where everyone winds up dealing in cryptocurrency is ultimately going to be a good thing. And then on top of that good thing, I’m also going to take the money I make and make the world a better place that way, too. And it’s like a win win, right?

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Speaker 2: I guess that that’s what the bigger picture kind of bothers me. It’s like these guys that run these companies or found these companies talk about their philanthropy and like their side gigs doing good. But when you have a big company and you have employees and investors and backers, like your first priority should be doing the ethical and right thing with that business, you know?

Speaker 1: Absolutely. Absolutely. And this is and this is something that SBF has come out on Twitter a lot and said is like, you know, my first priority is now is to my customers. My first priority is to get my customers their money back. But the fact is that the way that he was running the business and the way that he was taking enormous risks with his customers money while he was running the business and the way that he grew by taking these huge risks was. Clear evidence that he didn’t really believe that he you know, and there was some other thing that he was maximizing be on late the safety of his customers.

Speaker 2: Right. And and to be clear, like, I don’t think like founding and running a company is like doing harm in the world like could be a very good thing to, you know, invent something new. Change people’s lives, employ a lot of people, create jobs. That’s all good stuff. Like, I guess I object to the use of altruism, philanthropy, whatever as PR for yourself. I think. I guess I’m just rich.

Speaker 1: Right? And that’s. And that’s what he was talking about. The shibboleth. Yeah, exactly.

Speaker 3: There’s also a kind of line of rhetoric and tech that doesn’t really exist in other industries where everything you’re doing ostensibly you’re doing to make the world a better place or save the world or whatever. You’d never hear that coming from somebody who starts a private equity fund or somebody at a different.

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Speaker 1: You would be surprised, actually. I mean, like, seriously, we’ll go we, you know.

Speaker 2: Grab Anna Semansky from old slave money.

Speaker 1: She’s exactly. Oh, listen, listen to to, you know, Sebastian MALLABY, who just has a whole, you know, just released a whole book, basically talking about how like the entire wealth of the planet and the reason why we’re so bad, you know, so well off is is because of the amazing genius of Silicon Valley and venture capital. Like these arguments do get made on a regular basis.

Speaker 3: Yeah, about tech and, you know, VC, I just don’t I can’t think of another industry where where people use that rhetoric as often as they do and about literally every single product they develop.

Speaker 1: But I mean, but there’s a case to be made, right? That no matter how much money, you know, Larry Page and Sergey Brin give away, the their impact on the world is always going to be like the fact that they created Google and creating Google has made the world immeasurably better place. Yes, in many ways. Yeah.

Speaker 3: I’m not saying that. I don’t think that tech companies can change the world for the positive. I’m saying that, you know, the rhetoric sort of goes from things like Google to your casual gaming app that you spend, you know, on the subway playing. There’s it’s so broad that it’s almost meaningless now.

Speaker 1: But no, I think I think to your point, like we have we part of the tech clash has been. To put Silicon Valley a little bit on the back foot, a little bit on the defensive. Right. And it’s no coincidence, I think, that you see this uptick in highly visible philanthropy from Silicon Valley, whether it’s from someone like Dustin Moskovitz, someone like SBF. Or even, you know, someone like with her, like Buterin, who who started Ethereum, even sees the founder of finance who said he’s going to give away 99% of his wealth. Right. Like, they all say it and they say it. I think precisely because there is this tech clash and people don’t believe that technology makes the world is necessarily something that makes the world a better place.

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Speaker 3: Also, you know, wealthy business people have been using philanthropy to launder sketchy business practices for centuries. You know, you read all the books about Jp morgan and Andrew Carnegie. I mean, this is not a.

Speaker 1: Yeah, I mean, it was that’s that’s interesting because it tends to be sequential. Like you start off as a robber baron and then you become a philanthropist or, you know, you start off like inventing dynamite and then you create the Nobel Prize. So whereas these ones, it’s more simultaneous.

Speaker 2: Hmm.

Speaker 3: Maybe they’re just more forward looking. They know what’s coming. So.

Speaker 1: But we should talk about the broader context here of corporate scandals and collapses, because, Emily, we’ve been talking about this quite a lot. There have been so many parallels. Yes. And what we have seen in previous collapses has been significant consequences. When Enron collapsed, we end up we ended up with like Sarbanes-Oxley and a massive change to the way that public companies work. When Lehman Brothers collapsed, we ended up with Dodd-Frank and a massive change to the way that global financial regulation worked. And like, you know, Basel three, which I still to this day maintain, is by far the most important consequence of the financial crisis.

Speaker 1: In in this case, there’s a very interesting piece in in the f t this week basically saying like the the best thing we can do in the light of the FTX collapse is let crypto crash and burn light, let it burn down to the ground and go to zero. Because if you regulate it, that’s just going to make people trust it more. And trusting crypto is just inherently a really bad idea.

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Speaker 2: Oh, interesting. Yeah. I’ve been waiting to see is this. It seems like there are two kinds of corporate or financial collapses. There’s like ones that change the laws, like the ones you mentioned. Felix Lehman, Enron. Sometimes they also change the culture. I think both of those account for that too. And now with FTX, it seems like it’s going to change the culture around crypto. Maybe, you know, not for the die hards and the true believers, but for the people that kind of went crazy with it for a time. And then the follow up follow on question is, does it change the regulation piece? And I hadn’t heard that that that’s an interesting argument. Don’t regulate it. Let it just fall apart because it was walled off enough that you don’t need to you don’t know exactly that.

Speaker 1: There’s no there’s no real systemic effects. This is the most kind of the most interesting thing to the collapse of FTX, right. Is that obviously the equity investors in FTX that like venture funds, they often lose all of the money they invest in the company. If they lose all the money they invest in FTX, it’s kind of no harm, no foul. You know, the biggest bond with Sequoia, they’re like, Yeah, that fund that invested in FTX, it’s still up a gazillion percent. So like, we don’t care. So those guys are fine. The and then you have the people who had money on the FTX exchange and who lost money. And on some level, yeah, they were crypto speculators almost by definition. You don’t trade on FTX unless you’re a crypto speculator. Very few of them were anything other than that. And and they lose their money and they learn their lesson and some of them retreat out of crypto with their tails between their legs.

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Speaker 1: And crypto generally is down and like this is a good opportunity to just let people realize how a completely unregulated parallel financial structure is broadly a very bad idea, where people can lose their money and coming in and trying to regulate it is just going to make people think, well, now it’s regulated. They can have more confidence in it.

Speaker 3: Don’t you think, though, there’s going to be some policy demand for regulation now that, you know, these stories are sort of becoming more mainstream and people understand what’s happening? Just because we’re talking about retail investors, I.

Speaker 1: Feel like when not I feel like the number of retail investors in FTX is tiny.

Speaker 2: That’s what I was thinking. Like in the case of Enron, that company had 20,000 employees. They all lost their jobs. So did everyone at the accounting firm associated with that scandal, Arthur Andersen. All these people lost their jobs and a lot of them lost their entire retirement savings. And they were all over the media with Lehman Brothers. I mean, we all saw the pictures of the people leaving the offices with their boxes and whatnot. Also at the same time, like the whole economy collapsed and a lot of people lost their homes and it was very visible. And the pain for regular people was just it was tangible and invisible and widely publicized. And so far with this scandal, that is the element I really have yet to see. I mean, it’s possible it’s happening and I’m not seeing it, but I think.

Speaker 3: It’s it’s too new, like, particularly if there is a contagion effect through the rest of the ecosystem. I feel like those stories are going to come out.

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Speaker 2: But like when helium this or Celsius, one of these other crypto businesses went under recently, there was it was like an a lawsuit, there was a filing and a lot of people were quoted in there saying, you know, I lost my savings, this, that, But it didn’t get the kind of attention I’m talking about with these other with these other financial collapses. And I think that’s a big difference.

Speaker 1: So the the really big thing here is the. If you lose money that you have put at risk, that’s fine. If you lose money that you consider to be safe, then that’s not fine. Yeah. The thing that we considered to be safe is like my paycheck, right? I go into work every day at Enron, and then one day I’m fired. And what’s more, Enron forced me to put my entire 401k into Enron stock. And so I’ve lost not only my paycheck, but also my 401k, and that’s terrible. And then on top of that, you know, there are these massive liabilities. And like, you know, people across California wound up paying thousands of extra dollars for energy because and because Enron was manipulating the energy market in California. And that’s real harm done to real people with real money that they couldn’t afford to lose.

Speaker 1: Yeah. What we saw in Celsius was just a little baby hint of some people who were putting, you know, dollars into Celsius and Celsius was promising a dollar return. We’ll give you 15% return on your dollars. And they were going, Oh, great. Okay. And then it all evaporated. And they said, That’s bad and I’ve lost my life savings. But there were relatively few people. Who thought that crypto was a great way to just make interest on dollars, right? The reason why people get into crypto is because they want to get rich by buying coins that go up in value. That is by definition risk capital. We have seen bitcoin and ether and all the rest of them go up a lot and go down a lot. We know that risky. Everyone who buys them knows best knows that they’re taking a risk. That is not like your life savings, that is not your reliable paycheck that you’re putting at risk is certainly not your house.

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Speaker 1: Exactly. The there’s nothing sort of there’s no sort of bait and switch in terms of we told you this was risk free and safe and then it turned out to be, you know, House of Cards, you know, a little bit of that with Celsius. But, you know, certainly not with FTX, which always, you know, or generally the crypto ads that we saw at the Super Bowl, you know, with Matt Damon and saying like fortune favors the bold or whatever. Right. The idea was go out and take risks. Right? That was always the idea. And so long as people are going out and taking risks, the harm of those risks failing is much lower.

Speaker 2: So I made a list of other questions to ask so you can determine if your financial collapse has legs or not.

Speaker 1: I love it.

Speaker 2: And the one was, of course, does a scandal affect real people? Then does the scandal come right before a recession? Then that’s good. Your scandal has legs if there’s a recession to it. Does the scandal lead to books? That’s a regular scandal. Everyone writes a book about everything now, so that doesn’t really count. But does the scandal lead to a movie? That’s a systemic scandal, probably, especially if it’s, you know, a big hit movie. If you’ve got I don’t know. I don’t know. Red Star would be maybe a Brad Pitt. Yeah. And is there one at least one colorful character that people know about as a household name? Then you’ve got something with legs as well. Is SPF that colorful character? I’m not sure. I asked them. Like normal friends of mine and no one knew who he was.

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Speaker 3: Michael Lewis has been embedded with Serbia for six months. I feel like that alone.

Speaker 1: And he’s selling the movie rights. So there’s going to be a movie.

Speaker 2: Yes. But not every Michael Lewis character becomes a character. Like not everyone is like a moneyball. Like there are the Flash boys. I don’t think any.

Speaker 1: Yeah, I can either of you name the CEO of IPX. No, you can’t.

Speaker 2: Right. So I think with FTX were kind of like some of these questions remain unanswered. We’ll have to see. To be determined if this. If this thing, you know, goes far.

Speaker 1: I think also it’s just impossible to disentangle FTX from the broader crypto collapse, which has been going on for many months now. And it’s pretty obvious that the proximate cause of the FTX collapse was the decline in crypto values, right? Alamy This started taking directional bets. They lost a lot of money that way. They also bailed out Voyager and lost a bunch of money that way. People started pulling their their money out. And of course, you know, with any kind of bank run, that’s always what causes the problem becomes self-fulfilling. And so, yeah, I think a lot of this is not, you know, the FTX in that sense is maybe more of a symptom of the. Overextension and subsequent collapse of the crypto market is a major cause of it.

Speaker 2: Yes, but that can be systemic. That’s that’s Lehman like.

Speaker 1: That is also Lehman isn’t. Yeah.

Speaker 2: It’s like a symptom. But and it also.

Speaker 1: The one we have mentioned is LTCM. Right. Which was the other big hedge fund that went bust and that was very similar to Alameda in the way it was taking like these bets. There was a lot of leverage in there. And then the thing we learned with LTCM was like, number one, when push comes to shove, there is the New York Fed and they will have an emergency meeting and they will try and make sure that the financial system can withstand the ripple effects of a major part of the hedge fund, part of the economy, like going bust, right? There is no New York Fed in crypto and that’s hurting everyone right now.

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Speaker 1: Mm hmm. But then the other thing is it just reminded people of, you know, the importance of controls and risk management and all of those kind of things. And maybe FTX will do that. Maybe. Maybe, like anyone left in crypto, will be a little bit more careful. But like, you know, this is one of these worlds where. You. The way to maximize your success is by finding the friendliest offshore jurisdiction and taking as much risk as possible. So I just, you know, if you’re competing against those guys, right, this is what all of the American crypto companies always complain about. They’re like, we are competing with two hands tied behind our back. Given all of this, you know, U.S. regulation, everyone else in the Bahamas or Hong Kong or Dubai is going to eat our lunch. And they do. And so it’s basically impossible to have like a successful crypto exchange that is based in the United States because there is regulation here.

Speaker 3: Well, it’s funny, there’s Binance has been making some noise about becoming a kind of Sudafed for crypto. And the idea is that they have a separate fund that’s used to bail out companies like FTX, which to me just sounds ludicrous.

Speaker 1: But yeah, I mean, what they look to FTX for a hot minute and then gave up its. Yeah I mean the interesting thing now is Genesis which is Barry. So that’s one of both of its companies. There’s there’s this weird web of companies Genesis digital currency group Gbtc see all of these kind of things, they seem to be having a lot of trouble right now. That trouble is feeding through into Gemini, which is a different company, which is run by the Winklevoss I.

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Speaker 1: And what we’re beginning to see now is real ripple effects into the United States that up until the FTX U.S. bankruptcy seemed like it was relatively ringfenced. And if you had your money in an American crypto company, you’re okay. Now it looks like a bunch of people who had their money in American crypto companies and not okay. You know, Genesis has suspended withdrawals and that kind of stuff. And so yeah, that could be the other next big shoe to drop is like the American retail investors get hurt again, like these are American retail investors in crypto. These are not, you know, normal middle class people with life savings. But that could similarly just put off, you know, everyone of the entire asset class, which would not be a bad thing, to be clear.

Speaker 2: Yeah. Meanwhile, though, Bitcoin prices, I think are holding up okay. Like, I think it’s this stuff isn’t going to go away. So it probably should be more regulated in the United States at least. And maybe ultimately the stuff doesn’t go away. People keep investing in it, although not at the scale we saw over the past couple of years. And, you know, and those global places that.

Speaker 1: Like.

Speaker 2: They go under because they’re not regulated and it’s kind of messy.

Speaker 1: Yeah, I just I just don’t like the word investment here. Right. The word invest in investment kind of means you’re taking money and you’re investing it into some project that pays some kind of returns. And you know, the best we can hope for in that out in that kind of world that you’re sketching out there is that people take their dollars and they hand them over to Coinbase or Robinhood or Cash App or one of those places, the Office Crypto, and they like convert this into Bitcoin.

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Speaker 1: And then they. And then it gets converted into bitcoin or ether or whatever. Right. Mm hmm. Shiba inu coin. And then what? That’s not an investment. They’re just sitting on a dumb coin. Right? We had a whole season of sleep money called Sleep Money swag. We talked about these things, you know, wine, gold, cars, sneakers, that kind of thing. Which people buy in the hope that they go up in value. And you’re like, that’s not an investment. You know, that’s that’s just like you’re you’re speculating on collectibles and and like and using the investment word for that as though you’re actually there’s some kind of intrinsic value I think is is.

Speaker 2: What are you.

Speaker 1: Dangerous?

Speaker 3: What are your criteria for something constituting an investment? Because I think the early days of Bitcoin and people would talk about it like that a little bit or, you know, as a hedge against inflation or, you know, some kind of proxy for.

Speaker 1: Well, I mean, it’s clearly not a hedge against inflation. You know, the minute inflation arrives, like it falls off a cliff.

Speaker 3: I’m saying this is the rationale that a lot of people used. So how do you distinguish between what you describe as, you know, something you put money into with the idea that it’s going up, but it’s a collectible versus an investment investment.

Speaker 1: Just cash flows. Like if you’re investing in something that has future cash flows associated with it, then that’s an investment. You’re you’re basically buying those future cash flows if you buy a bond and that will pay you interest in the future. In principle, if you buy a stock, there will be like dividends in the future. You know, at least they will at least you own something which, you know, makes money or loses money. But there were cash flows associated with it. If you buy a house, you can rent it out. These things count as investments.

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Speaker 2: But Felix, isn’t there so much of finance even setting aside crypto that isn’t investments like you’re saying, That’s a lot of bets and, and derivatives and things like that that aren’t really investing in anything. So like.

Speaker 1: But yes, but that’s that, but that’s, but that’s exactly my point. Right. People don’t say I’m investing in derivatives. Right.

Speaker 2: Okay, fine.

Speaker 1: Derivatives are as the.

Speaker 2: Index here.

Speaker 1: Bets. And it’s a very important distinction. Derivatives are zero sum game. If I just buy a pile of puts and calls, I will wind up losing my money in, you know, over the long term because, you know, because there’s no growth. Like if the economy grows, the puts and calls don’t do anything right. They this is just a zero sum bet on just making. There is. Yeah. It’s like going to my local weekly poker game. Like there’s the money can slosh around from one person to another, but the total amount of money cannot grow. Mm hmm. So that’s not an investment. That’s just a bet.

Speaker 2: Okay, It’s not an investment, but it could still become part of the financial system long term, which is comprised of both investments and gambling that looks sophisticated.

Speaker 1: Well, the idea the idea behind sophisticated gambling is it serves a purpose, right? You know, if you’re if you’re a farmer and you’re growing wheat and you want to, you know, hedge against the wheat price fall and you buy one of those puts to make sure that you get paid off. If the wheat right feels like the put is not is useful to you, it has utility. It’s just it’s just not the business you’re in. The business you’re in is growing wheat.

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Speaker 2: Gotcha. We’ve never talked about my oil contract, but that’s okay. That’s my my gambling, I guess, or my future oil contract. My futures trading. It’s. Is it my futures trading? I just people who get oil in the northeast where I am, you can you can like, contract for a certain price that you agree to pay every month. And that’s either a good deal or a bad deal. You know, the price of oil could come down and then I could look like my futures deal is bad or the price of oil could go up. And I look like a genius right now. I look like a genius, by the way.

Speaker 1: You always look after me.

Speaker 2: And of course. But yeah, so that I realized recently I was a futures trader, not a future trader. Yeah.

Speaker 1: If you. If you lock in the price today, you pay, you know, you’re basically entering into a derivatives deal. Yeah. Look at you, Emily Peck. Derivatives dealer? Yeah.

Speaker 2: Tell your friends.

Speaker 1: Talking of geniuses. Emily, tell us why Joan Didion is in the news this week.

Speaker 2: I’ll try the Joan Didion estate sale. Felix is why Joan Didion is in the news this week. Her stuff was sold at really high prices. Two sets of blank notebooks sold for $11,000 each. Her sunglass collection went for $27,000.

Speaker 1: No, no, no. That was just one pair of sunglasses.

Speaker 2: Oh, you’re right. One. I’m sorry. One pair of sunglasses went for $27,000. It was this sort of beautifully curated estate sale that a lot of people were paying attention to.

Speaker 1: Explain to me, Elizabeth, why. People would pay $7,000 for a bunch of shells and stones from the beach just because those shells and the stones in the beach happened to belong to Joan Didion. And also, tell me what you going to do with those shells and sandals on the beach once you’ve bought them?

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Speaker 3: Yeah, this is just pure sentimentality. This is people putting a value on a writer who I think throughout her life was deemed, you know, the sort of essence of cool and has an incredible body of work. So I don’t think anybody’s buying these things with the idea that they’re going to appreciate or that they even need to be, you know, preserved for history. I think the kind of people who can afford to buy the shells and the pebbles for $10,000 are the people who are going to display at their home somewhere and show it to people. And and, you know, a lot of them are probably aspiring writers or, you know, publishing adjacent. And I think that it’s a kind of normal estate sale. It’s really built around her legacy and the extent to which people feel strongly about her.

Speaker 2: Yeah, it’s kind of like in succession when one of the brothers buys Napoleon’s penis.

Speaker 1: Right. And so and so. Yeah, but this is it. This is this is clearly a consumption right. And and we’re coming to that time of the year when I’m going to be flying down to Miami and going to Miami and appearing on a panel. And one of the things that we’re going to talk about is. Oh, you know, is it a consumption good or is it an investment? And it can be both. And we talked about this on the show with Julia Halperin, and we kind of came up with a dividing line of $500,000 is like below $500,000. It’s a consumption good and above $500,000. And it starts to become an investment or at least something that you can expect to hold its value, and that will go up or down in value. But you can always expect to resell somewhere. In the case of Joan Didion, everything that sold sold for significantly less than that $500,000 range. But this is very much in the consumption that no.

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Speaker 1: One, I think you’re absolutely right. And no one that was was buying those notebooks, thinking I’ll be able to flip these notebooks to a future Joan Didion stand. And I think actually a lot of people really, you know, felt a bunch of tailwind just in the knowledge that the money would end up going to Joan Didion and favorite charities. You know, it was like it was a charitable donation on some level.

Speaker 2: Meanwhile, I was when we were reading stories for this segment, I was reminded of the Elizabeth Wurtzel estate sale, which also happened recently. Elizabeth Wurtzel is like a Gen-X writer. She wrote What’s the book? Prozac Nation, right? Yeah. In the nineties it was a big bestseller. But then after that, she wasn’t as successful as obviously as Joan Didion and Corey Sica at New York Magazine, went to her estate sale or watched the estate sale, and it was like the exact opposite of the Joan Didion estate sale. You know, things went for very little money, her her notebooks and pens and pencils, like $29 or something like that couldn’t be more different. And I was thinking it’s just sort of a signifier of how writers of Joan Didion’s era and generation were perceived versus like our generation of right.

Speaker 1: I feel I feel like it’s actually much more a function of like who your executives are, right? Joan Didion was part of this very grand family with, you know, various different guns floating around. And and they did a very good job, as you say, of curating it, taking it to a relatively respectable auction house in Hudson, New York, getting a bunch of press around it, making it cool, making it notable. Where is Elizabeth Wurtzel you that she was maybe kind of divorced? No one was entirely clear. She was kind of estranged from most of her family. No one was there kind of saying like, we can make a thing out of this. And that was just a bunch of random bits and pieces that needed to get sold off and then just wound up getting liquidated. And a lot of it is, is is marketing. Frank Yeah.

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Speaker 2: That’s so that’s the point. It’s all about marketing how much money any of this stuff gets in the way. It looks at the the day of the sale.

Speaker 1: And you just, you just need to build up the hype, as Taylor Swift will tell you. Just make sure that you get everyone wanting to buy the same thing at the same time. And you can sell 2 million tickets in an hour.

Speaker 2: That’s incredibly generous then for Elizabeth Wurtzel that she didn’t, you know, commerce, that her death wasn’t commercialized and her estate sale wasn’t commercialized. It’s like a stick in the finger to the man. I don’t know.

Speaker 3: Yeah, I think some of her people around her were kind of pissed off that it wasn’t advertised, because I think there were people who, you know, knew her who wanted to pick up some of her stuff and they didn’t know about it, which is kind of sad.

Speaker 2: That is Emily’s thing is a good thing, right?

Speaker 1: Emily, do you do you want your death to be commercialized? Is that how you would like to go?

Speaker 2: Yeah. Yeah. I want my snow globe collection to be displayed prominently and tastefully and fetch many hundreds of dollars.

Speaker 1: Just think this isn’t just any old snow Globes collection. It’s Emily Peck’s snow globe collection. And that has to be, what, something. Um, let’s have a numbers round. Elizabeth, you have a number this week?

Speaker 3: Yeah. 20%. And that’s the amount. The amount by which home sales in Florida have gone down. If you’re looking at coastal states where the land is less than six foot above sea level and the sort of points to people, you know, being climate refugees and deciding that particularly they’re not going to retire down there in places where there’s those houses might be affected by climate. But Florida housing generally has gone up. So this is the the one trend that sort of points to climate change as a driver for real estate shifts.

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Speaker 2: Yeah, And I think you can’t get insurance on those houses, too. Yeah.

Speaker 1: Getting insurance is almost impossible. My number is also a price change number. But this one that’s positive, it’s plus 23%, which is the amount that New York City taxi fares are going up. If you hail a yellow cab in New York City, thanks to the Taxi and Limousine Commission, the fare you pay will be will now be 23% more than it was, you know, a week ago. This sounds like terrible inflation, but it turns out that this is the first fare hike in a decade. And I think that over the course of a decade, probably it’s worth it. I do worry that this is going to be a little bit more of a death knell for yellow cabs, though, because people were seeking them out because they were so much cheaper. They were significantly cheaper than Uber and Lyft, and now they won’t be any more. So people are more likely to revert to the apps.

Speaker 2: I’m not a trend person, but I like just hailing a cab. It’s super easy if you’re in like Manhattan, which I realize is only one small, tiny place, one big, small. I don’t know. Anyway, I’ll tell you someone.

Speaker 1: As someone who’s lived in Manhattan for 25 years, I can tell you that it has never been harder to hail a cab.

Speaker 2: Every time I’ve been in. Fine. I don’t want to argue about this.

Speaker 1: But, you know, Emily, I mean, lives a charmed existence.

Speaker 2: I don’t know.

Speaker 1: And you can. You can hail.

Speaker 2: Cabs. I’ve been able to hail cabs. No problem. And I prefer to like taking out my phone outside on the sidewalk and, like, fiddling around. It’s so much easier to just, like, wave your hand at someone.

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Speaker 1: What’s your number?

Speaker 2: Uh oh. My number is 60,000. That is the approximate number of conduct.

Speaker 2: Train conductors and engineers who are voting as to whether or not to ratify a labor contract that was hammered out a few months ago by the Biden administration. Remember when we talked about a rail strike a while back, It still could happen. And on Monday, we’ll learn if these 60,000 conductors and engineers voted in favor of this contract or not. And if even if it’s not, then the prospect of a strike is back on the table.

Speaker 1: So voting no doesn’t mean you’re voting for a strike, but it kind of makes the strike more likely.

Speaker 2: Yes. So you vote no and then usually you agree to some kind of like quiet period where you promise not to strike and then that quiet period ends and then you can go out on strike. It doesn’t mean you’re going to, but it it you can.

Speaker 1: And this is and this is just a single sort of overarching vote with all 60,000 members, and they all get the same equal vote. And it’s all if whatever the majority chooses is what ends up happening.

Speaker 2: Oh, no, it’s really bananas. There there are about 100,000 of these railroad workers and they’re in 12 different unions, which is crazy. Already three unions have voted no. But the two unions announcing their votes on Monday represent more than half of all the workers so and so a B, two votes announced. So they’d have to vote yes in a majority of each of the votes.

Speaker 1: And then if those two unions that represent the majority of the workers vote. Yes. Mm hmm. Does that decrease the chances that like the three unions that voted no, will wind up going on strike? Yeah.

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Speaker 2: I think so, yes. Because they’re. Thank you, workers. You’re welcome.

Speaker 1: Thank you, Emily Peck official labor market correspondent of both Axios and Slate Money. That was very informative and helpful that we have a slate plus coming up on e-learning things and would be things. Thank you very much to Anna Phillips for producing. Thank you for emailing us on Slate Money at Slate.com and we will be back next week with a fantastic Slate money with our very favorite guests, all about money and class. Well, coming up, three women.

Speaker 1: Elizabeth, you have a theory about Twitter. What is your theory about Twitter?

Speaker 3: I’m not sure I have a theory specifically about Twitter. But it’s interesting, You know, this week, Yuan’s most recent managerial decision was to give everybody an ultimatum, saying that if they were not prepared to be super hardcore as Twitter employees, that they could just leave. And he gave them a 5 p.m. Monday deadline. And not surprisingly, a lot of them just said, okay, I’m leaving. And so now the status of Twitter generally is is further imperiled.

Speaker 3: But what I find sort of interesting about this and this goes back to a little bit of what we were talking about earlier in the episode around big public scandals, is that both Iran and SBF have somehow continued to post through all of this chaos. And so we’re just watching these managerial decisions get made in real time. And, you know, ten years ago, I feel like if you found out about a financial scandal, it would be because there was some reporting or short seller would bring it up or a whistleblower or there would be some regulatory enforcement. And now you just watch SBF and Elon publicly announce exactly what they’re doing and probably against the advice of their lawyers.

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Speaker 2: Yeah, I think that’s that’s really true. I mean, and it changes the perception of the crisis, especially with Twitter, because, I mean, to me, like when someone takes a company private or takes over a company, a lot of the stuff Elon Musk is doing does typically happen. I’ve been at companies that have gotten bought out or whatever, and a lot of people get fired and it’s a little bit chaotic and there’s a lot of angry people talking behind the back of the new owner, doing all the things that are happening out in public view now with Twitter. So I sort of wonder like. Elon Musk gets a lot of criticism, but in a lot of ways he’s just pulling out a playbook that is actually pretty typical and familiar in a lot of ways. But the difference is how it’s just all out there in public and there’s no trying to hide it or anything.

Speaker 3: I feel like it’s worse. There’s a you know, he tweeted something last week about firing all of the product people because he thought the engineers could do everything. And to me, that’s that’s a sign that maybe he’s he’s out overseas.

Speaker 2: Yeah. I mean.

Speaker 1: I don’t think you’re going to get a lot of pushback if you say, like literally everyone agrees that he’s you know, I mean, he’s he’s done an incredible job of destroying, you know, a huge part of the Twitter infrastructure much more quickly than anyone anticipated with massive negative consequences, the exodus of advertisers. And therefore, revenue has been way bigger than anyone anticipated. He was like coming in to increase revenue and instead use decreased revenue. The institutional knowledge has disappeared. A lot of like just the important, you know, people keeping the lights on basically have left. People are saying that tweet, it’s going to die and it’s all his fault. And that is probably true on both counts.

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Speaker 1: And and yeah, I do think I do think that this whole idea that the the the you tweet all of your everything that you’re thinking as you’re thinking, it is a very long thing and it’s kind of an SBF thing as well. But it’s definitely any lone thing And he was you know, he’s always loved that instant feedback he gets that that dopamine he gets from having all of that interaction on Twitter and and he might be killing the company, but boy, is he going out in a blaze of glory if he does.

Speaker 3: I think he’s the problem is that he assumes everybody else uses Twitter exactly the way he uses Twitter.

Speaker 1: I think he has bigger problems than that.

Speaker 2: But you think like some of it, Some of the stuff is kind of normal stuff that’s like dressed up in his own nuttiness.

Speaker 1: That’s there’s nothing normal about what he’s doing. Like, are there other people who buy companies and then fire people? Yes. But they normally, like, work out what who’s doing what before they fire people.

Speaker 2: I guess. But but.

Speaker 3: And.

Speaker 1: They don’t. And they don’t do things where, like the people who are most likely to be able to find another good job easily and therefore are the most valuable employees are the ones who you try and give the greatest incentive to leave.

Speaker 3: Yeah.

Speaker 2: Okay. But Twitter’s still working. As of this taping, it’s still working, right?

Speaker 3: True.

Speaker 1: But some. Some of it is working. Some of it, like a lot of weird things are breaking. The two factor authentication started breaking a lot this week. I’ve definitely seen a bunch of tweets where I’ve tried to open things. I can’t send things like.

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Speaker 3: He shut off 80% of the microservices without really knowing what they were. And so what’s going to happen is, you know, the servers don’t stop, so everything will keep chugging along and then things will break slowly and there won’t be anybody to repair them. And that’s how it all.

Speaker 1: And it will happen quickly. Like these things, once they break, you know, those cracks get much bigger, much more quickly. You need to be able you need to have the stuff to fix things as they break, because once they’re broken for a while, they become much harder to fix.

Speaker 2: Yeah, that sounds right. As a homeowner, I feel I feel what you’re saying there, but I don’t know, maybe it’s just that human need for stability. I still am like, Oh, it’ll be fine. Even as, like, everything’s. I’m like the dog with the fire behind me and the meme, I’m like, It’s fine. This is fine. I can’t believe that it’s really going to go away. There’s no good alternative. Not going back to Facebook.

Speaker 1: Well, better to do it and do it.

Speaker 3: As a veteran of Geocities and MySpace and Tumblr and whatever else, you know, I think I think we’ll we’ll be fine. Longer term, well, it’ll just be another platform that emerges.

Speaker 2: If you say so, Elizabeth. I believe you. Maybe you should run Twitter.

Speaker 3: No.

Speaker 2: Okay.

Speaker 1: That’s it. That’s it for us.