One Horse at a Time: A Mailbag Episode

Summary

Money Stuff: The Podcast
Episode: One Horse at a Time: A Mailbag Episode
Release Date: April 18, 2025
Host/Author: Matt Levine and Katie Greifeld

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Introduction: Celebrating the First Year with Mailbag

In this special one-year anniversary episode of Money Stuff: The Podcast, hosts Matt Levine and Katie Greifeld delve into a series of listener-submitted questions. This mailbag format allows the dynamic duo to address diverse financial topics, ranging from the potential IPO of law firms to the intricacies of private credit marketplaces. The episode blends Matt's deep financial expertise with Katie's insightful journalistic perspective, creating an engaging and informative experience for both regular listeners and newcomers alike.

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1. The Possibility of Law Firms Going Public

Listener: Mark
Timestamp: [02:14]

Mark poses an intriguing question about the future of law firms: "Do you think we'll see a law firm do an IPO for itself in the next few years? That is, will retail investors be able to trade shares in K&L, E, or Paul Weiss in five years?"

Discussion Highlights:

• Legal Ethics and Ownership Restrictions: Matt explains that in the U.S., legal ethics historically prohibit non-lawyers from owning law firms, ensuring that lawyers maintain fiduciary duties solely to their clients. "US legal ethics suggests that it's unethical for law firms to be owned by non-lawyers." [02:33]

• Changing Landscape: Some states are beginning to allow outside ownership, hinting at a gradual shift that might make law firm IPOs feasible in the future. "That's changing a little bit. You see a few states allow outside ownership of law firms." [02:33]

• Business Model Viability: Matt discusses the unique nature of law firms, emphasizing their reliance on the expertise and continuity of their lawyers. The potential fragility of such a business structure poses challenges for public trading. "Law firms are pretty fragile businesses and if a law firm runs into trouble, it's very easy for it to break up because some law firm's main business stops working and it's not making money." [04:20]

• Comparison to Hedge Funds: Katie draws parallels between law firms and publicly listed hedge funds, noting the "key man risk" inherent in both structures. "There's a lot of key man risk there." [05:43]

Notable Quotes:

• Matt Levine: "I don't know that it's a great idea for the law firms." [06:36]
• Katie Greifeld: "I wish there were publicly listed law firms just because I think it would be interesting to see how they trade and how they move as a group." [06:25]

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2. Private Credit and the Shift to Marketplaces

Listener: Will
Timestamp: [10:30]

Will raises a complex question regarding the evolution of private credit: "I have a question about private credit moving to marketplaces. It strikes me that the underlying companies with this type of debt, like private equity portfolio companies, have little interest in their debt trading."

Discussion Highlights:

• Value of Relationships in Private Credit: Matt agrees with Will, highlighting the importance of long-term relationships between borrowers and lenders in private credit. "Private credit to borrowers is you will have a long term relationship with your lenders who will be nice and won't sell your debt to distressed debt vultures." [11:12]

• Existing Structures and Challenges: Current quasi-marketplaces for LP stakes and private credit funds differ from direct debt trading. Matt mentions Apollo's initiative to set up a trading desk as an example of emerging marketplace activities. "Apollo is setting up a trading desk, right?" [12:06]

• Borrower Constraints: Borrowers often include clauses that restrict the transfer of debt, limiting the appetite for a fully open marketplace. "The borrowers have a lot of leverage, it does seem hard to be like we're going to have total free tradability where anyone can buy your loans because that is the thing that the borrowers don't want." [14:19]

Notable Quotes:

• Matt Levine: "At some level, if you go to a borrower and you say in exchange for not having a warm personal relationship with you for the rest of time, we'll charge you 50 basis points less, some borrowers will say yes to that." [13:57]
• Katie Greifeld: "We want this in your 401k." [13:55]

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3. ETFs and the Economics of Selling S&P Futures

Listener: Max
Timestamp: [15:30]

Max, a molecular biologist, inquires about the feasibility of an ETF that sells S&P futures options: "This seems like a great place for an ETF. Could an ETF do this while still being liquid and tradable?"

Discussion Highlights:

• The Basis Trade Explained: Matt elucidates the basis trade related to S&P 500 futures, where entities provide funding by buying stocks and selling futures, aiming to earn high cash returns. "It's lending balance sheet to provide people with access to stocks." [15:09]

• Challenges for ETFs: The complexity and potential impermanence of such trades make it difficult to structure an ETF around them. Matt compares it to the failed Box ETF, which engaged in unconventional option trades. "It's a little weird to set up an ETF that will do this trade for years." [17:09]

• Potential for Innovation: While speculative, there’s encouragement that innovative financial products could emerge to capitalize on such trading opportunities. "It's a little tempting to be like, there should be a weird cash trade ETF." [18:12]

Notable Quotes:

• Matt Levine: "Have I said what a BDC is? It doesn't matter." [26:34]
• Katie Greifeld: "I have an answer to the question that wasn't asked. There's all these... There's been a lot of interest in Texas lately from the ETF community." [24:44]

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4. Monetizing the Option to Declare Personal Bankruptcy

Listener: Sal
Timestamp: [20:30]

Sal explores the theoretical value of bankruptcy as a financial option: "What is the value of the option to declare personal bankruptcy and how would you monetize it?"

Discussion Highlights:

• Limited Value at Youth: Matt argues that bankruptcy holds minimal value for 18-year-olds due to the limited assets they possess. "The option value is very low because you can't get that much money when you're 18." [20:44]

• Risks and Legal Constraints: Utilizing bankruptcy as a strategic financial tool is fraught with legal hurdles and personal repercussions, making it an unattractive monetization strategy. "I think that it is pretty hard to monetize the option to declare personal bankruptcy." [22:12]

• Student Loans Exception: An exception exists with student loans, which are not dischargeable in bankruptcy, preventing the exploitation of bankruptcy as a safety net. "The one huge exception to that is student loans because they're not dischargeable in bankruptcy." [22:11]

Notable Quotes:

• Matt Levine: "But if you declare bankruptcy, then you don't have to pay the money back." [20:44]
• Katie Greifeld: "And we can talk about that in our next Mailbag episode, possibly, or even." [22:48]

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5. Creative Naming: ETFs and Horses

Listener: John
Timestamp: [23:01]

John playfully asks about naming conventions: "Some time ago, Katie quipped that she might name a kid Xanadu someday. I feel like Katie would be more likely to name kids hers or other people's after ETF tickers. What about horses names?"

Discussion Highlights:

• Humorous Exchange: Katie and Matt engage in a light-hearted debate about the practicality and personal significance of naming children or horses after ETF tickers. "You're not going to cheat on your horse with a robot horse." [08:44]

• Alternative Suggestions: Katie suggests alternative creative names inspired by ETF discussions and regional themes, such as "YHAW for Yeehaw." [24:28]

• BDC ETF Insight: Matt mentions the existence of BDC ETFs, highlighting an example with VanEck, and discusses the broader spectrum of private credit. "I have said that BDCs are the publicly traded form of private credit." [25:44]

Notable Quotes:

• Katie Greifeld: "I have a lot of children's names that I love." [23:28]
• Matt Levine: "There's millions of them. Yeah." [26:14]

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Closing Remarks: Reflecting on the Journey

As the episode draws to a close, Matt and Katie reminisce about the podcast's milestone. They acknowledge the one-year mark with a mix of nostalgia and humor, expressing gratitude to listeners for their engagement and support.

Notable Quotes:

• Katie Greifeld: "Happy anniversary. It was actually last week's episode which we recorded today." [26:55]
• Matt Levine: "We won the bet. Now it's over." [27:01]

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Conclusion: A Year of Insightful Conversations

This anniversary mailbag episode of Money Stuff: The Podcast exemplifies the rich, informative, and engaging content that fans have come to expect. From dissecting complex financial instruments to entertaining discussions on creative naming, Matt Levine and Katie Greifeld offer a comprehensive exploration of money-related topics. Their ability to simplify intricate subjects while infusing humor makes this episode a must-listen for anyone interested in the multifaceted world of finance.

For more episodes and to subscribe, visit the Money Stuff newsletter on Bloomberg.com or follow Katie Greifeld on Bloomberg Television’s Open Interest.

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Notable Moments in the Episode:

• [02:14] Introduction of Mark’s question about law firms IPOing.
• [10:30] Will’s inquiry into private credit marketplaces.
• [15:30] Max’s question on the viability of an ETF trading S&P futures.
• [20:30] Sal’s exploration of monetizing bankruptcy options.
• [23:01] John’s playful question on naming conventions.
• [26:55] Hosts reflect on the podcast’s first anniversary.

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Note: Timestamps correspond to the podcast’s transcript and are included to highlight where notable discussions occur.

Transcript

[Katie Greifeld]

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[Matt Levine]

Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television. And today, Mailbag.

[Matt Levine]

I didn't even sing that. All right.

[Katie Greifeld]

I said it. Don't worry about it.

[Matt Levine]

Yeah, yeah, I actually sang it. That's what everyone. That's what everyone wants.

[Katie Greifeld]

Got a lot of great questions.

[Matt Levine]

Got a lot of great questions. Thanks for sending us your questions. They really tide us over in periods where I am on vacation.

[Katie Greifeld]

It's also nice when you're.

[Matt Levine]

When Kibby's on vacation.

[Katie Greifeld]

Yeah, that's true. It's nice because I don't think we really solicited people for questions this time around.

[Matt Levine]

We always solicit them.

[Katie Greifeld]

Yeah, but like, not like, hey, we're recording.

[Matt Levine]

Consider this a standing solicitation.

[Katie Greifeld]

True.

[Matt Levine]

Anytime you have a question, send it to us. And periodically, we'll put them in a batch and think about answering them.

[Katie Greifeld]

Yeah. So shall we start off with Mark?

[Matt Levine]

Sure. Let's start off with Mark. Mailbag.

[Katie Greifeld]

Mailbag. Mark asks, do you think we'll see a law firm do an IPO for itself in the next few years? That is, will retail investors be able to trade shares in K and E or Paul Weiss in five years? From a business model perspective, would a public company structure even make sense? I'm sure they'd at least get the disclosures, right? That's funny.

[Matt Levine]

Mark, are you sure? I worked at a law firm. I wouldn't be sure. So there are law firm IPAs in other countries I think including in the UK you can trade shares of law firms. In the US it has historically been prohibited because US legal ethics suggests that it's unethical for law firms to be owned by non lawyers. This is in part for genuine ethical reasons. Like you want lawyers to have fiduciary duties only to their clients and not to their shareholders. And in part for like guild protectionism reasons where like you want lawyers to control their own terms of employment. That's changing a little bit. You see a few states allow outside ownership of law firms and yeah, we might see law firm IPOs in a few years. I don't know. I think of a law firm as being not like a super capital intensive business where most of what a law firm is is lawyers. And so on the one hand that means that you don't need to go to public markets to raise hundreds of millions of dollars to fund AI research because you're just like, you're just doing deals and lost stuff, getting paid by the deal. So there's not a lot of long term investment that only pays off years later. That's not entirely true. Right. And I've written a little bit about the litigation finance market. And one thing that litigation finances is law firms that take on incredibly complicated, very long term consumer class actions where they invest a lot of resources over years and don't get paid and then five years later they win some massive verdict and get paid a billion dollars. Right. Like that sort of investment is a little bit hard to do when you're just like some lawyers who need to make a living and so they get outside investors for that. And it's not like share ownership, right. It's like a sort of special financing vehicle. But you could imagine doing that in IPO form where you like just have a publicly traded law firm that can make long term investments and also just like, you know, there's some level of long term investments that you would make if acquiring a new team that does some kind of work, right. And like you're hoping for it to pay off in the long term. The other problem with law firms is like, because they are just people, they can leave, right? It'd be funny to like be a law firm and go public and then sell your shares and collect money and then go leave and start another law firm and do it again. There's not a ton of stuff there other than the lawyers, right. There's some franchise value in the name, but probably less so than there is at a big investment bank and you don't have as much capital intensive business. So if you just leave, you can capture most of the value that you've previously sold to investors. And you see that where law firms. Law firms are pretty fragile businesses and if a law firm runs into trouble, it's very easy for it to break up because some law firm it's main business stops working and it's not making money. The people who the M and A team who are really good can just go somewhere else. And it's not that jarring for them to leave. They don't lose a lot of franchise value. So it's a little bit of a fragile business to take public. But people do it elsewhere.

[Katie Greifeld]

It kind of reminds me of publicly listed hedge funds. There's a lot of key man risk there.

[Matt Levine]

Yeah, right. There's a lot of key man risk and it's the same thing where the assets walk out the door or whatever. But hedge funds are still better because the hedge fund has long term contractual relationships with its investors. Now there might be key man provisions and that law firms don't really have that. Law firms do things by engagements most of the time, often don't have long term contracts with their customers and so anyone can leave and take the clients with them.

[Katie Greifeld]

Yeah, well, I wish that there were publicly listed law firms just because I think it would be interesting to see how they trade and how they move as a group.

[Matt Levine]

There'd be a lot of information in law firm stock prices now as law firms are under attack and so forth. But yeah, I don't know that it's a great idea for the law firms.

[Katie Greifeld]

Well, it was a great question, Mark.

[Matt Levine]

Thanks Mark.

[Katie Greifeld]

Yeah.

[Matt Levine]

Also from Mark, I assume the same Mark for Katie. Would you buy a cyber horse? Kawasaki just announced one Google Kawasaki Corleo and it looks absolutely wild.

[Katie Greifeld]

I love that all your questions are real. All my questions are.

[Matt Levine]

All your questions are horse related.

[Katie Greifeld]

I do appreciate the question, Mark. I can tell that you're not an equestrian. Not to sound neither a lawyer nor an equestrian. Not to sound too much like a horse girl, it does look awesome. I did see the video. It looks like a lot of fun. But having a horse is about much more than just riding it. About your relationship with your horse. And I actually really value that. My childhood pony is named Batman. He's still with us, but he is very much retired. He's only a couple years younger than I am. I haven't been able to ride him since 2020. He's been out of commission And I bought the course that I currently ride, whose name is Gus. I bought him as a three year old in 21, the summer of 2021. But there was a solid he year there where I was just driving out to the barn to hang out with Batman. Literally just hang out with him, which is a lot of driving and a lot of time, but it's a relationship. So I would not buy a cyber horse. I like my.

[Matt Levine]

You wouldn't drive it to the barn to hang out with your Kawasaki Cyber Horse?

[Katie Greifeld]

No, I just put that in the garage.

[Matt Levine]

Would you buy the cyber horse for riding when you can't get to the barn?

[Katie Greifeld]

No.

[Matt Levine]

Like an exercise bike when you can't get outside?

[Katie Greifeld]

I don't think so. No, I don't really think so. It's not like I like if I go for a long time without horseback riding. Obviously I miss it because it's fun, but it's like you don't need the.

[Matt Levine]

Horse treadmill in your apartment.

[Katie Greifeld]

If I'm on vacation with my parents, for example, my parents pull a horse.

[Matt Levine]

Out of the suitcase.

[Katie Greifeld]

But people go on rides, trail rides and stuff. I like having one dance partner. I don't really crave to ride any horses.

[Matt Levine]

You're not gonna cheat on your horse with a robot horse.

[Katie Greifeld]

It's weird. It's like a. It's a long term relationship. Batman has been in my life Since I was 11 and I like to just have one horse, one relationship at a time. So I probably wouldn't buy a cyber horse. But thank you for the question mark. Anyway, moving swiftly along, I feel like I shared part of my soul.

[Will]

This podcast is sponsored by IQ Bar. I've got good news and bad news. Here's the bad news. Most protein bars are packed with sugar and unpronounceable ingredients. The good news? There's a better option. I'm Will and I created IQ Bar plant protein bars to empower doers like you with clean, delicious, low sugar, brain and body fuel. IQ bars are packed with 12 grams of protein, brain nutrients like magnesium and Lion's Mane and Zero Weird Stuff. And right now you can get 20% off all IQ Bar products plus free shipping. Try our delicious IQ Bar Sampler Pack with seven plant protein bars, four hydration mixes and four enhanced coffee sticks. Clean ingredients, amazing taste and you'll love how you feel. Refuel smarter, hydrate harder, Caffeinate larger with IQ Bar. Go to eatiqbar.com and enter code BAR20. To get 20% off all IQ Bar products plus free shipping. Again, go to eatiqbar.com and Enter code BAR20.

[Katie Greifeld]

Mailbag Mailbag. This one comes from Will. He says. Love the podcast. I have a question about private credit moving to marketplaces. It strikes me that the underlying companies with this type of debt, like private equity portfolio companies, have little interest in their debt trading. I worked at a PE fund and now work at a portfolio company. And a lot of the value from lenders is that you are a repeat client with a relationship in case you want to change the agreement, for example, or example do acquisitions or are under duress. We have debt in our debt documents that debt holders are not allowed to transfer their debt without our permission, which I imagine is a pretty standard term given the negotiating leverage hot demand for lenders to issue more private credit. Why would a firm be okay with their debt trading? With these dynamics, it seems pretty unlikely that private credit would materially move to a marketplace.

[Matt Levine]

I think that's absolutely right that a lot of the value proposition of private credit to borrowers is you will have a long term relationship with your lenders who will be nice and won't sell your debt to distressed debt vultures. I'm not sure that that would prevent a marketplace from developing. So first of all, one thing we've seen is quasi marketplaces for LP stakes and private credit funds, which is a different thing. Instead of actually you're debt trading, you're still facing as a borrower, you're still facing the same private credit fund, but the ultimate owners of that fund can shift a little bit. So that's not quite the same thing as a private credit marketplace, but it does give the LPs some ability to get liquidity and some ability to get like marks. But like, I don't know, even within like the private credit like loans themselves actually trading, you know, Apollo is setting up a trading desk, right?

[Katie Greifeld]

Yeah.

[Matt Levine]

I think that one thing that is possible is to have some sort of marketplace where you have like the borrowers have some ability to limit who can buy their bonds. Right. And you see a little bit of this in like the broadly syndicated loan market where like there's approved lists of who can buy the loans. But you could have a thing where you know, the marketplace says, you know, each borrower can specify who's allowed to buy their loans or like can specify who's not allowed to buy their loans. So like they don't get bad distressed vultures. But one thing is that like private credit is kind of new and hasn't seen like distress cycles. And like some of the talk about like private Credit is nicer to companies that run into distress. Like, you can imagine a world where there's like a broad downturn and that stops being true because it sort of stops being true for everyone at once. And similarly, you can imagine a world where private credit funds need to sell and they all need to sell. And so there's some amount of leverage for them to be like, look, we got to have ability to trade and where some more trading springs up. But I agree that in a dynamic where there's a real huge demand for paper and the borrowers have a lot of leverage, it does seem hard to be like we're going to have total free tradability where anyone can buy your loans because that is the thing that the borrowers don't want.

[Katie Greifeld]

Yeah, it's interesting. Apollo is on one end of the spectrum and then you have Blue Owl on maybe the opposite end because they think private credit should stay private. They're not setting up a marketplace. I believe they're on the record saying that.

[Matt Levine]

Yeah, I think everyone will talk about relationships are really important and being a buy and hold investor is really important. But at the same time, Apollo is like getting this to retail investors is really important because it'll.

[Katie Greifeld]

We want this in your 401k.

[Matt Levine]

Yeah. And ultimately the pitch of that has to be we can get better rates if there's more liquidity and more a broader audience for it. Right. At some level, if you go to a borrower and you say in exchange for not having a warm personal relationship with you for the rest of time will charge you 50 basis points less, some borrowers will say yes to that. Right?

[Katie Greifeld]

Yeah, I like that. Will brought his own personal experience to the question as well. Great question, Will. Shall we move along to Max? Max, regarding Matt's story on equity funding costs, increasing costs of S and P futures, this seems like a great place for an ETF. I think the ETFs that sell zero day options are very fun and sell S and P futures, then collecting the spreads does seem to rhyme with this in some way. Could an ETF do this while still being liquid and tradable? Does this already exist in the form of covered call ETFs or is selling futures different in some way? P.S. i'm a molecular biologist, not a finance person, so sorry, this question is totally obvious. Two exclamation points. That was charming, Max.

[Matt Levine]

So I love this. So we talked on the podcast last week about the basis trade. Yeah, this is the basis trade for S&P 500 futures. The trade here is that people want to buy S&P 500 futures to basically get levered exposure to the S and P. And it is hard for them to do that because nobody or banks don't want to use their balance sheet to buy the S and P and sell futures against it. So someone needs to provide the funding to buy the S and P, buy the actual stocks and then sell the futures to people who want to buy the futures. Who should provide that? Well, one answer is money market funds. Basically that trade, it's not a stock trade, it's just a cash trade. It's lending balance sheet to provide people with access to stocks. So you buy stocks, you sell stock futures, you have no risk, you're just providing funding. And if as has been the case, that funding is expensive because banks don't want to do it and there's a lot of demand for these futures, then you can get paid a lot for providing that funding. And the reason it's like no one wants to do it and it's expensive is just kind of a weird trade, right? If you are a money market fund, someone can come to you and be like, look, what you should do is you should buy the S and P and sell S and P futures and you'll get paid a very high cash return for that. And you can get at any time you want. It's like a money market investment. You'd say, no, it's not a money market investment. I'm not allowed to buy stocks, I'm not allowed to sell futures. None of this is allowed. And so money market funds don't do it. And I wrote about this because there was a story about some long. Only fund managers who have some ability to be pretty tactical are like, yeah, we're doing that instead of buying treasury bills or doing repo or whatever, we are buying the S and P and selling futures and we're getting paid 10% instead of 4%. But not a lot are doing that. And so the question here is why not an etf? And it reminds me of, do you remember the ETF called Box?

[Katie Greifeld]

How could I forget?

[Matt Levine]

So this is the same thing, right? Box is like a crazy trade where it's like they buy and sell options to get cash returns and have no equity risk and also they think get really good tax treatment, although that is highly debated. But this is the same thing, right? It's like Box is like, basically there is demand for lending in the options market and we are going to be the lender into the options market. We're not buying options, selling Options. We're not doing any options trades. I mean, we are, but like, not to do options trades. We're doing them just to be a lender into the options market. Because the options market will pay more for cash than like treasury repo markets will. And this is the same thing. It's like the S&P 500 futures market right now will pay for cash. So someone should set up a ETF that will provide that cash. I think the reason there's not an ETF for there's probably one launching next week. But like, I think the reason there's not an ETF is like, it is not at all clear that this is a permanent trade. This can go away at any time. And so it's a little weird to set up an ETF that will do this trade for years.

[Katie Greifeld]

If like natural, a flash in the pan.

[Matt Levine]

Yeah, it's a little tempting to be like, there should be a weird cash trade etf. You could have an ETF that's like, we're a money market etf, but we're not constrained to a regular money market instruments. We can do anything that's like a short term cash investment. And When S&P 500 futures basis is wide, we'll do that trade. And when something else works, we'll do something else.

[Katie Greifeld]

Well, I mean, I hear what you're saying, that it's hard to know if this is permanent. To that point, I'm really surprised that there isn't a Treasury basis trade etf, not that, because I think it should exist because there's so many opportunistic filers.

[Matt Levine]

That trade is we borrow 100 times our net asset value to buy Treasuries. You can't do that in etf.

[Katie Greifeld]

There's some issuers that I talk to often. I wouldn't put it past them now.

[Matt Levine]

I would put it past them, but you're not allowed to do that.

[Katie Greifeld]

I'll see.

[Matt Levine]

I feel like you're foreshadowing an actual baseless trade etf.

[Katie Greifeld]

Max, Great question. Good luck with the biology.

[Will]

This podcast is sponsored by IQ Bar. I've got good news and bad news. Here's the bad news. Most protein bars are packed with sugar and unpronounceable ingredients. The good news? There's a better option. I'm Will and I created IQ Bar plant protein bars to empower doers like you with clean, delicious, low sugar brain and body fuel. IQ bars are packed with 12 grams of protein, brain nutrients like magnesium and Lion's Mane and Zero. Weird stuff. And right now you can get 20% off all IQ Bar products, plus free shipping. Try our delicious IQ Bar Sampler Pack with seven plant protein bars, four hydration mixes and four enhanced coffee sticks. Clean ingredients, amazing taste and you'll love how you feel. Refuel smarter, Hydrate harder. Caffeinate larger with IQ Bar. Go to eatiqbar.com and enter code BAR20. To get 20% off all IQ Bar products plus free shipping. Again, go to eatiqbar.com and Enter code BAR20.

[Matt Levine]

Mailbag.

[Katie Greifeld]

Mailbag. All right, Sal. Sal has a question. Sal asks, what is the value of the option to declare personal bankruptcy and how would you monetize it? Could an investor recruit a bunch of 18 year olds to take levered risks?

[Matt Levine]

I feel like the option value is very low because you can't get that much money when you're 18. The question is in general, if you borrow money, you have to pay it back. And so if you borrow money to buy lottery tickets and you lose all the money, then you're in trouble because you have to pay back all the money and your lottery tickets didn't pan out. But if you declare bankruptcy, then you don't have to pay the money back. This is the theory, right? You effectively construct your financial life like a call option where if everything works out, you get all the upside and if it doesn't work out, you don't get any of the downside because you declare bankruptcy and move on. Now there are several problems with this. One is declaring bankruptcy is in some ways a downside.

[Katie Greifeld]

Right?

[Matt Levine]

You don't necessarily want to declare bankruptcy. And the reason that sal asks about 18 year olds is that if you're 46 and have a house, you probably don't want to declare bankruptcy. You probably get to keep your house, but that's not legal advice. But your life will get worse if you declare personal bankruptcy. Whereas if you're 18, your life may not get significantly worse if if you declare personal bankruptcy. But that's why they won't lend you money. You can only borrow so much money when you're 18 because they know that this option exists. And the one huge exception to that is student loans because they're not dischargeable in bankruptcy. Yeah, you can borrow hundreds of thousands of dollars as an 18 year old to go to college, not because that's a particularly good credit risk, but because you're not allowed to get rid of that debt.

[Katie Greifeld]

Yikes.

[Matt Levine]

Yeah. And then the other part of the question is, could an investor recruit a bunch of 18 year olds to take levered risks even if you could do that and you structured a deal with them, someone would find you. They'd be like, this wasn't really an 18 year old borrowing this money. This was you, the investor, borrowing the money. And they'd try to look through it and get you to pay it back. So I think that it is pretty hard to monetize the option to declare personal bankruptcy. But one reason I wanted to asked this question on the show, I'm sure we will get emails from people who are like, this is how I monetize the option to declare personal bankruptcy.

[Katie Greifeld]

It's beautiful. And we can talk about that in our next Mailbag episode, possibly, or even.

[Matt Levine]

In the next regular episode.

[Katie Greifeld]

That's true. That's true. The possibilities are limitless.

[Matt Levine]

Mailbag.

[Katie Greifeld]

Mailbag.

[Matt Levine]

Here's a question from John on the podcast. Some time ago, Katie quipped that she might name a kid Xanadu someday. I feel like Katie would be more likely to name kids hers or other people's after ETF tickers. What? ETF tickers would be the best children's names. What about horses names? I don't know that we have an answer to this question, but it was a funny question.

[Katie Greifeld]

John, I'm not sure if I like the way your brain works, but what.

[Matt Levine]

Do we know about Katie? Horses ETFs.

[Katie Greifeld]

Yeah. So no, I don't think I would. No one's asking me to name their children. I actually have a lot of children's names that I love.

[Matt Levine]

Okay. They don't have to be ETFs, just.

[Katie Greifeld]

John Corrado is a name that I would love to unleash at some point. I love the name Corrado so much. It's like an old Italian name made famous by the Sopranos. I feel like you can't name just a kid your first name Corrado anymore. You don't really hear it. But if you put John in front of it, then he becomes J.C. john Corrado. I love that.

[Matt Levine]

It's like a really well thought out answer.

[Katie Greifeld]

I think about this a lot. And then I have a lot of ladies names that I like, I guess girls names in terms of ETF tickers. There are some fun ETF tickers out there. None that I would name a child or a horse after. I'm sure there's a Gus Ticker out there. And if not, maybe there should be. I love the name Gus for a horse. For a horse. For a kid too. But it'd be weird to name your child after your horse. Probably.

[Matt Levine]

Yeah.

[Katie Greifeld]

I feel like certain husbands might take issue with that.

[Matt Levine]

Plus there'd be like the uncertainty when you referred to Gus.

[Katie Greifeld]

Yeah, that's true. At first I thought this question was, you know, what is an ETF ticker that you think should exist? Which is not this question.

[Matt Levine]

No.

[Katie Greifeld]

But I have an answer to the question that wasn't asked. There's all these. Not all these, but there's been a lot of interest in Texas lately from the ETF community. BlackRock filed for a Texas equity ETF a few weeks back and it wasn't listed with a ticker. The ticker, y'all is already taken. I think Y H A W would be cute like. Yeehaw. Yeah. So, Larry Fink, friend of the show, if you're listening, there you have it. Melba mailbag. Neil rounding us out, listening to Friday's Money Stuff got me to wondering, why not just split the difference and put a bunch of different BDCs into an ETF? All the exposure to private credit and the BDC assets, all the shiny exchange traded wrapper that the kids today enjoy. Something for Matt, something for Katie. Neil Rather, listeners know us so well, Neil, I like how your brain works.

[Matt Levine]

This definitely exists. There's one minute of Googling Found me Bizd, which is the VanEck BDC Income ETF, which is in fact an ETF of BDCs for all I know. There's millions of them. Yeah. I have said that BDCs are the publicly traded form of private credit. And so you don't need the convolutions of putting private credit into an ETF because you can just have a BDC. There's like some limits on that. Like BDCs are not like the full spectrum of private credit. Right. They're like sort of designed for small and medium enterprises.

[Katie Greifeld]

Yeah.

[Matt Levine]

So it's like not exactly the same as saying every private credit fund could be wrapped in public form as a BDC, but many can and are. And there are BDCs for a lot of the big private credit funds and you can ETF them if you want.

[Katie Greifeld]

Yeah.

[Matt Levine]

Should I say. No, never mind. I was going to say, have I said what a BDC is? It doesn't matter.

[Katie Greifeld]

Well, I don't use anything I don't use.

[Matt Levine]

Listened this far.

[Katie Greifeld]

That's true.

[Matt Levine]

What's an ETF?

[Katie Greifeld]

1 minute 37 of the mailbag episode for the Money Stuff podcast.

[Matt Levine]

We're on like year.

[Katie Greifeld]

Oh my God.

[Matt Levine]

Yeah, it's like the anniversary. Happy anniversary, dude.

[Katie Greifeld]

Happy anniversary. It was actually last week's episode which we recorded today.

[Matt Levine]

Yeah, we're recording them simultaneously. So we just passed that back in, man.

[Katie Greifeld]

April 12th. Wow.

[Matt Levine]

Yeah. Between last week's episode and this week's episode, Money Stuff, the podcast turned one.

[Katie Greifeld]

Yeah, it is crazy that it's been that long.

[Matt Levine]

Now it's over.

[Katie Greifeld]

You've listened to the last episode.

[Matt Levine]

We're in a year.

[Katie Greifeld]

Have a good life.

[Matt Levine]

We won the bet. Now it's over. And that was the Money Stuff Podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodloomburg.net Ask us a question and we might answer it on air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

[Katie Greifeld]

Our theme music was composed by Blake.

[Matt Levine]

Maples, Brendan Frances Newdom is our executive.

[Katie Greifeld]

Producer and Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

[Will]

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