Apocalyptic Vibes

Summary

Slate Money Podcast Summary

Episode Title: Apocalyptic Vibes
Date: June 29, 2019
Hosts: Felix Salmon (Axios), Emily Peck (Huffington Post), Anna Shymansky

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Overview

This episode of Slate Money, titled "Apocalyptic Vibes," takes a frank and sometimes bleak look at key business and finance stories of the week. The hosts discuss the legacy and departure of Apple's iconic designer Jony Ive, protests at Wayfair over detention center sales, Bank of America's move away from private prison financing, and the risk of instability in the Chinese banking sector after the takeover of Baoshang Bank. The episode's tone is witty, sharp, and openly skeptical about the current trajectory of business, economics, and corporate ethics.

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Key Discussion Points & Insights

1. Jony Ive Leaves Apple: End of an Era (00:33–11:46)

• Jony Ive’s Departure:
  Jony Ive, Apple’s legendary design head and Steve Jobs’ close collaborator, announced his exit to start his own firm (“LoveFrom”), with Apple as an early client. Despite suggestions otherwise, the hosts view this as a significant split.

• Ive’s Legacy:

  • Credited with iconic Apple product designs: iMac, iPod, iPhone, Apple Watch, AirPods, and Apple Park.
  • "He made Apple look like Apple. Like the reason when I say Apple and you think of the ipod, the imac, the iPhone... that’s him." – Emily (03:30)
  • Brought collaboration and excellence to Apple’s design team, making design central to the company’s success.
  • Criticism: Public sometimes overlooks that big design comes from collaborative teams, not a single “cult of personality.”
  • Uncertainty about Apple’s future design leadership—should another superstar be hired or will Apple promote from within?

  “It’s unlikely that Jony Ive was going to design something as iconic at Apple in the future as he has in the past.” – Felix (06:06)

• Tidbits & Humor:

  • Jony Ive is one of GQ’s “100 most powerful bald men.” (10:01)
  • Amusement over an old photo of a be-mustached Ive; playful banter about baldness and personal style. (11:07)

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2. Wayfair Walkout & Corporate Ethics in the Trump Era (11:46–21:11)

• Wayfair Walkout:
  Employees walked out after discovering the company was supplying furniture for detention centers holding migrant children, pushing the question of corporate responsibility.

  • Hosts debate whether supplying beds to such centers is moral complicity or basic human decency.

  "Wayfair is a furniture company, and they were selling, like, beds for children in these...concentration camps. You can call them whatever you like, but, like, that's good. I mean, they should have beds." – Felix (12:55)

  • Wayfair’s response—first neutral, then a Red Cross donation—seen as "tone deaf and stupid."

• Employee Activism:

  • Tech and “platform” company workers now expect ethical corporate behavior and want input.
  • Separating personal ethics from work is increasingly hard:

    "You can't separate yourself as a citizen and a political being from your job." – Emily (15:47)

• Corporate Political Stances:

  • Companies like Bank of America announce they’ll stop financing private prisons.
    • Motivation: Changing consumer/employee expectations, reputational risk, and possibly “cheap virtue” for an unpopular sector.
    • Hosts note a rising “liberal/conservative divide” among brands. (19:12)
  • Companies increasingly dragged into political debates—Nike, Chick-fil-A, Hobby Lobby, etc.

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3. Baoshang Bank Takeover & Chinese Liquidity Risks (21:11–31:17)

• Baoshang Bank Collapse:

  • A midsize Chinese commercial bank was publicly taken over by regulators, sending shockwaves through China's interbank lending market.
  • Triggered fear among larger banks and a credit squeeze for mid-tier and smaller banks.

    "Its failure caused a certain ripple effect. The big Chinese banks...started going, we actually don't know what's going on under the hood of these medium sized banks." – Felix (21:56)

• Shadow Banking & Systemic Risk:
  Anna dives into shadow banking, off-balance sheet lending, and the illusion of healthy bank balance sheets:

  • Off-book lending inflates apparent bank health but conceals real risk.
  • False sense of security among investors and the market due to implicit government bailouts.

  "That is the type of behavior that causes bubbles and causes crises because people think that there's no actual risk." – Anna (25:06)

• China’s Economic Vulnerability:

  • Specter of 2008 financial crisis-style reckoning due to excessive, poorly scrutinized lending.
  • Existing discourse about China (from US politicians) misses the true nature of the financial risk.

  "At no point in history have we ever had a financial system where you can just create this level of debt without there being some type of consequence." – Anna (28:50)

• Global Implications:

  • Discussion references Richard Vague’s book on crises and the limits of debt expansion.
  • Anna underscores that no one fully knows how China will engineer a “soft landing.”

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4. Numbers Round & Miscellaneous Segments (31:17–34:51)

• San Francisco Bans E-Cigarettes:

  • Emily: "Six" — months San Francisco merchants have to remove e-cigarettes, despite being JUUL's hometown. (31:21)
  • Debate on whether kids will just switch to cigarettes.

• Olive Oil Brand Loyalty:

  • Felix: "90%" of consumers can’t name their olive oil brand.

  "It's just there’s a brand that we are more or less loyal to... I can’t think of a single other thing where the product is used that much and that frequently...without any kind of branding or loyalty." – Felix (32:57)

• Austrian Century Bonds:

  • Anna: "1.2%" — yield on a 100-year Austrian government bond. (33:27)
  • Reflects the unusual and “apocalyptic” state of global fixed income markets, with $13T in negative-yielding sovereign debt (34:19).
  • Emily jokes: “I feel like I’m getting apocalyptic vibe from this whole episode, honestly...” (34:31)

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Notable Quotes & Memorable Moments

• On Apple without Ive:
  “It’s designed by committee. Apple’s going to be destroyed.” – Anna, on fears about post-Ive design (05:53)
• On Wayfair's dilemma:
  “You can totally take sides and say, we are against putting children in cages. I think that's a fairly safe [bet].” – Felix (13:48)
• On the rise of employee activism:
  “A company…has to also care about its employees. When your employees come together to say they care very, very deeply about something…how your company reacts…is going to be a key part of how they feel about working for you.” – Felix (16:02)
• On China’s economic risks:
  “That’s how systems eventually collapse is because you’re not actually creating genuine wealth.” – Anna (27:13)
• On negative-yielding bonds:
  “It’s just another indication of how we are in such a weird economic place…” – Anna (33:57)

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Timestamps for Important Segments

• Introduction & Episode Overview: 00:10–01:33
• Jony Ive/Apple Segment: 01:33–11:46
• Wayfair / Private Prisons / Corporate Ethics: 11:46–21:11
• Baoshang Bank/China Financial Stability: 21:11–31:17
• Numbers Round (E-cigs, Olive Oil, Bonds): 31:17–34:51

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Tone & Style

The show is irreverent, skeptical, and driven by the hosts' distinct personalities. They balance serious economic analysis with dry wit and cultural commentary, making each segment accessible to listeners with and without financial expertise.

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For Listeners

If you missed this episode, expect candid, sometimes darkly funny conversations revealing the contradictions and failures of modern capitalism, global finance, and corporate ethics. You’ll come away with insight into Apple’s turning point, the dilemmas of companies entangled with “controversial” clients, and why China’s banking system is the quiet risk few politicians discuss.

Transcript

[A]

Hello and welcome to the Apocalyptic Vibes edition of Slate Money, your guide to the business and finance news of the week. We have come off a big week of democratic debates where I was getting lots of love vibes from Marianne Williamson. You're not going to be getting getting love vibes from Slate Money this week. If you want love vibes, go to the Marianne Williamson website because it's awesome. Otherwise, hang out here on Slate Money where we are going to talk about less lovely things like private prisons and how the private sector should be supporting such things or even sending beds to concentration camps. We're going to talk about Chinese liquidity because yes, we are going there. We do wonk out about things like Chinese liquidity once in a while. There was a bank which went bust, which you probably haven't heard of, but we are going to talk about that and we are going to talk about Sir Jonathan. I've the greatest designer of England, although he lives in a large house in San Francisco and he has quit his job and that is such big news. It was like how many pages of the fd.

[B]

It was a six part series.

[A]

In any case, I should introduce myself. My name is Felix Salmon of Axios. I'm here with Emily Peck of the Huffington Post.

[C]

Hello.

[A]

And with Anna Shymansky.

[B]

Hello.

[A]

And we are going to elucidate private prisons. Wayfair, Bao, Shang, Jony. I've. And much more coming up on Slate Money. Let's start with Jony. I've the most famous employee of Apple with the possible exception of Tim Cook and certainly less famous than Steve Jobs, but he was Steve Jobs protege and Steve Jobs made his name by building these incredibly designed products. And the guy who designed the incredibly designed products was Jony I've and he seems to have decided that he wants to, I guess move out more into the real world and extend his wingspan a little bit. And so after Apple park is now finished officially, he's going off on his own and starting up his new shop.

[C]

Yeah, it's called Love from and it's not exactly clear what it will do. We only know that Apple is going to be a client. So it's not that he's moving too far away from Cupertino.

[A]

I mean, Jon Gruber of Dering Weibel, who is one of the best Apple bloggers out there, reckons that, yeah, they'll make certain noises about Apple is still going to be a client and Johnny's still going to work for Apple. But if you don't work for Apple, you don't work for Apple and this is likely to be a pretty big split. Right.

[B]

And also, I mean Apple has made it fairly clear that they're moving away from hardware. So I think that probably also is part of what's happening here.

[A]

Yeah, so part of what Jony I've did was he took software design under his remit not that long ago, just before iOS 7 came out and he created the new operating system for the phone and then moved on to the Mac. But the reviews he got, I guess it's fair to say, for his software design were not as glowing as the reviews he generally got for his hardware design.

[C]

Yeah, this was the man who made the Times said it in their piece, he made Apple look like Apple. Like the reason when I say Apple and you think of the ipod, the imac, the iPhone and you think of their very distinctive look, that's him.

[A]

He rescued Apple when it came back from the dead with that, you know, blue bulbous imax. Yes, that was Jony I've.

[C]

It pushed the company to profitability essentially in 1998 and he was just sort of like toiling away in obscurity, it should be said, before Steve Jobs came back to the company and then Jobs sort of like rediscovered him and then together they forged this new world in which tech products weren't just beige boxes, they were actually good looking objects that people would actually want to buy.

[B]

Yeah, I just would say like, I mean obviously this man is a genius designer, in no way want to take anything away from him. But I find it interesting in the discussion of him, this idea as though he did things himself in a way.

[A]

That it's kind of more impressive if he didn't though it's kind of more impressive in a company the size of Apple if you manage to run a team of basically the best designers in the world who no one's ever heard of and managed to get them to do incredibly great work across a huge range of different types of product. And especially in the computer industry where the great thing that he did was design computers. And no one really outside Apple has ever been very good at designing computers. And the computers are now coming in all manner of interesting shapes and sizes like AirPods which you can't walk down the street certainly in New York without seeing 50,000 pairs of AirPods. Those are computers, they live in your ears, you know, the Apple Watch, which is increasingly ubiquitous, is a computer. And so he completely redesigned the form factor and the size and the shape and the design of computers. And when you do that, you're doing a Bunch of unbelievably sophisticated electronic engineering. You're not just like scribbling on a piece of paper going, what will look good? And if he can create a department that can do that, I think that's in many ways more impressive than just being, you know, the genius designer and in an atelier somewhere.

[B]

I actually completely agree with you. But what is interesting is that when kind of Tim Cook had come out and said like, well, no, we actually have brilliant designers, we have brilliant people who are working across the company together. That's how we create things. I then saw these articles that were like, it's designed by committee. Apple's gonn be destroyed.

[C]

Interesting. I mean, I feel like it's a shift away. It's like Jobs is gone and now that I've's gone, it's like the cult of personality that was Apple is really dead.

[B]

It does seem like the end of an era in some way.

[A]

It's certainly the end of an era. And it's unlikely that Jony I've was going to design something as iconic at Apple in the future as he has in the past. Between the ipod, the, you know, Titanium G4, Power Mac, some of the other sort of greatest hits, and of course the iPhone, which weirdly, I kind of feel is not one of his greatest hits. It's a design object. It's okay, but there are better ones.

[B]

But as an object that has changed history, I feel like it's pretty much up there.

[C]

It's hard to top.

[A]

And then finally, of course, Apple park itself, which is this incredible design object, which we have to say, again, was a very collaborative thing, which he did with Norman Foster, who's no slouch on the design front himself. And he's been working with Mark Newson as well recently, who's another great industrial designer and who's also joining him in love for arm. And so I think that does show how open he is to collaboration.

[C]

So I guess the question going forward is what's going to happen to Apple without this sort of iconic designer? Anna mentioned they're moving to services. Like, what's going to happen?

[A]

Gruber had this interesting piece and he basically said it's a bad idea for Apple to not have a chief design officer, that Apple is so associated with design more than probably any other company in the world, with the possible exception of like Bang and Olufsen or something like that, that you need design to be right up there in the C suite at all times. And right now it's not. There's a weird Org chart that doesn't make sense where two different designers are reporting up to the chief operating officer. I wouldn't be at all surprised if Apple didn't do a little bit like it did with Angela Ahrens in retail and try to hire some like big name designer to come in as chief Design officer. The only reason why I think that would be hard is because no one outside Apple has done what Jony I have has done. You can't just take a random industrial designer and to really be able to grok the complexities of how do you fit a computer into a tiny AirPod or you know, how do you design a new Power Mag?

[B]

And I think you're 100% right about all of that. But I do wonder also if you know, when he was brought on he also was not, you know, this incredibly well known person and so. And he.

[A]

No he wasn't. And he was brought on 30 years ago and he lived and breathed Apple for decades and that's how he managed to become the sort of polymath that he did become.

[B]

And I just wonder though, if you're trying to say if Apple is going to be able to move on because they can't just keep doing exactly what they've been doing and maintain their position. They have to change.

[A]

I think they can. I mean I, I would have hoped, I would have hoped that after 30 years the Jony I've would have built a very deep bench and there would have been someone internally within Apple who could quite easily step in and take over for him. And if he didn't, that's you know, the same mistake that Steve Jobs made of like I am irreplaceable and you know, that's something that Tim Cook should have worried about long before now a little bit.

[B]

Still have this problem though of this kind of cult of personality. And I only just think about this because when I was looking up a number of articles on him, the FT had a six part series about him leaving and I was like, I don't think they had a six part series. When Angela Merkel said she wasn't going to be running again, I was like, it's a bit much.

[C]

I mean the iPhone is I think maybe the most successful product of all time. Right. The most profitable, the most ubiquitous, the most game changing. It's a revolutionary product. It's hard to point to something else quite like it. So I mean it doesn't shock me that the FT went all in on it.

[A]

Yeah. Also the FT had the exclusive and they had a lot of time to put a package together and let's just, you know, come back. The FT is an English newspaper and Sir Jonathan I've is like this great English hero.

[C]

He's also one of 100 of the most powerful bald men in the world according to, I believe GQ magazine.

[A]

Wait, he's in the top 100 most powerful bald men?

[B]

We all know who number one is. That's a big list.

[A]

Is that DJ Diesel number one?

[C]

There's a lot of bald men with power in this world. So I mean it's not easy to get on that list, right?

[B]

Bezos has to be number one, right?

[C]

I believe so. I'm gonna be honest, I didn't look at the list.

[A]

There is a great photograph which I pulled up from Mike Murphy at Quartz of Jony I've in 1984, which is absolutely astonishing and I would highly recommend that you look at it if I'm going to actually try and see if I can get it to come up on the screen of the podcast as you're listening right now, because it's one of my things we do. It's not a thing that we do, but I feel like we're going to try this time or at the very least we're going to have a link in the show notes and you get to see the photograph of Jony I've back in the 80s because it's amazing. Okay, I'm gonna show Emily the photograph.

[C]

Oh my. That's not real.

[A]

That's real.

[C]

He looks like something out of like a, like an ABC sitcom from 1986.

[A]

All right, Anna, that can't be true.

[C]

That's wrong. That's not right. I don't believe that.

[B]

That's quite a stash.

[C]

We have to put a link to that in the show page.

[A]

No one is gonna believe that. The thing that men generally have a very difficult time understanding is they nearly always look better when they're bald.

[C]

Yeah, I think you're right. Controversial take, but perhaps correct. Also I found out that he had a commute of 90 minutes every day to Apple.

[A]

So Jony, I've bought himself this massive, very old fashioned like Victorian townhouse in San Francisco and decorated it in a surprisingly old fashioned way. Like everyone considers him to be all clean and minimalist and steel and glass and stuff. But he has a kind of like old fashioned wood paneled side to him as well, which is super interesting. And once he moved into San Francisco, yeah, the commute was long, although I don't think he did the commute every day. I think he sometimes worked out of the San Francisco office. Let's move on to Wayfair and private prisons. Anna, what's the news here?

[B]

So this past week, we had employees at Wayfair who were staging a walkout because Wayfair had been selling furniture to one of the detention centers that obviously are in the news quite a bit right now. And then on top of that, we also had bank of America come out saying that they are no longer going to be financing private prisons.

[C]

Right. So the two pieces of news combined sort of raise questions again about what kind of obligation do prisoners, private companies have to be ethical and how are they supposed to navigate politics in the Trump era?

[A]

I think that's a big difference between these two. I think that on an ethical level, private prisons are kind of icky. And on the other hand, Wayfair is a furniture company, and they were selling, like, beds for children in these, you know, I mean, concentration camps. You can call them whatever you like, but, like, that's good. I mean, they should have beds.

[B]

Yeah. This is where it's like, it actually does get really dicey because you're like, on the one hand, it does seem like, well, you don't want people just be sleeping on the floor. But then on the other hand, you're like, right, but then you're making money off of these people suffering. But then you're like, but then would you just give them for free? There's not a lot of great solutions here.

[C]

Yeah, why not give them for free? After their employees complained, Wayfair at first was like, we do business with whoever. We can't. We can't take sides. Which was not the right thing to say.

[A]

Yeah, that's the sides.

[C]

That's the wrong side here.

[A]

You can totally take sides and say, we are against putting children in cages. I think that's a fairly safe.

[C]

And this is a company that pulled advertising from Laura Ingraham's show on Fox after she said, I don't know what, she did, something insulting to some Parkland kid or something. So they have taken sides before. So it's not unprecedented. So then after there was more pushback, the company then said they would donate money to the Red Cross, which, like, is nice, but doesn't really confront the issue at hand, which is like profiting off of detention camps for children.

[A]

The Red Cross is such a weird organization. Like, the. The Red Cross certainly has a role to play in terms of, like, doing confidential reports into Abu Ghraib, you know, and going in there and deciding whether people are being well treated or not. But I don't think it's doing that with these detention camps. And if it's not doing that with these detention camps, then it's just, you know, you're giving it to the Red Cross, which is a charity we've talked a lot about on Slate Money and is generally a very bad charity. And we won't reprise all the reasons why, but just go Google Red Cross, ProPublica and you'll find out.

[C]

Yeah. And I feel like the story, also the Wayfair part of the story, it's just like another example of how these like tech companies and the employees at tech companies have sort of higher expectations for their employer than you traditionally.

[A]

Is Wayfair a tech company?

[C]

I'm going with, it's kind of like a tech startup kind of a company. Like they have a website in the spectrum. If we work can be a tech company, then I don't see why Wayfair can't be a tech company. Well, but I think only a website, right?

[B]

Isn't it? But I mean, outside of just tech companies, I do think maybe it's just because politics in the kind of Trump era has just become this kind of all encompassing, almost like spectator sport for people, that it's not surprising that more people, both employees and customers, are now going to be holding companies accountable in a way that they may not have done in the past.

[C]

Right. I think that, I think it was the CEO who said something like, you have to take your citizenship issues outside of work. And it's like you can't separate yourself as a citizen and a political being from your job.

[A]

I do think the Wayfair's reaction to its employees discomfort with this contract was unbelievably tone deaf and stupid. A company, you know, obviously has a bunch of stakeholders, to use the trendy Davos term, and it cares about its customers and it cares about its shareholders and it has to also care about its employees. And when your employees come together to say that they care very, very deeply about something which is very close to them, and how your company reacts to that issue is going to be a really key part of how they feel about working for you and how they feel about their employer, then you have to take that seriously. And you don't want to be on the defensive immediately and say, wait, no, everything we've been doing is right. I'm right and you're wrong. That's just like the worst possible way for a CEO to interact with his employees.

[B]

I think that's right. And I think this is going to be something that CEOs are increasingly going to have to understand how to do, because I think this is not going to be something that's going to go away. I think also as you increasingly have companies having more power and also as you increasingly have our Congress not doing anything, so then you have companies stepping in and doing climate change things that you're going to have companies having to have stances in a way that they didn't in the past.

[C]

Yeah, we've seen this over and over again since Trump was elected. There was like Nordstrom was pressured not to sell Ivanka clothes anymore and there was some issue with New Balance. I don't even remember what it was. L.L. bean had problems. It's hard to see.

[A]

What's interesting to me is that there has occasionally been attempted backlashes to corporations taking stances. I remember when there was that brief spate of, you know, Trumpists who were complaining about Nike when it supported William.

[B]

Kaepernick and they were burning their own shoes that they bought. I'll show them.

[A]

And of course like that, that, you know, in hindsight, Nike's support for Kaepnick was brilliant and it did it no harm at all. It's. It is interesting to me that nearly all of these corporate actions come from a broadly sort of liberal based. But I guess that's how it works.

[B]

And that, although I think that does raise an interesting question though, is I think like most of us thus far, like, we, we support a lot of what these, either the employees are pushing for or in the case of Nike, what, what Nike was doing. But if you did have companies who came out, like, say you had a company in a conservative state that didn't work.

[A]

Well, you do. I mean, Chick Fil a is a good example, or Hobby Lobby or. We've talked about these companies in the past. And the question with them is less like, yeah, I think they actually do a reasonably good job of keeping their employees on board. And their employee base is similarly religious or conservative or whatever, and their customers are happy with it. And then if some liberal elite is unhappy with it, that's okay. And similarly, if the liberal elite starts trying to boycott Chick Fil A, it does no harm to the company.

[B]

I mean, that's fair. It is interesting, though, to think if we're going to get to a point where it's like, now we have the liberal and conservative companies going to.

[A]

I mean, we really do. And, and it's interesting to me that bank of America is coming, you know, based in Charlotte is coming out and taking this kind of first move of position on private prisons.

[B]

That doesn't surprise me too much, though. I be. In terms of who actually, like, are in the leadership.

[A]

Brian Moynihan, I mean, like, I just.

[B]

Feel that often you have people who went to all of the same elite schools.

[A]

Ryan Moynihan, I mean, like, he is the least liberal person I can think of.

[B]

That's, I'm saying, just in general, it's one person, I feel like important person. But in a lot of these institutions, you often find a lot of people who are more socially liberal than I think people might think. So this doesn't surprise me. Yeah, perhaps they also.

[A]

You also find, like, you know, a steady stream of people going from Goldman Sachs to, you know, Republican and especially the Trump administration. Like, it works both ways.

[B]

It's true. But I also think that when you're talking about something like bank of America, you're also. You're not talking about a Chick Fil A. You're not talking about, you know, a corporation that fundamentally can do well serving, you know, one segment of America. Bank of America is a little different. Like, their customers is a much more broad base.

[A]

So why would they, why would they make. Why would they do this? Why would they try and identify themselves with liberal coalition?

[C]

I think it's because people don't like banks generally. So banks are looking for ways to signal to their customers and that they're like, they're not bad. You know what I mean? Like, this is like a cheap. A cheap way of being. Like, we're actually quite moral. Everyone.

[A]

Maybe they just felt that, like, private prisons as an industry were going to be, like, pretty unprofitable and they decided to make a virtue out of necessity.

[B]

I'm kind of laughing, though, because one of the first banks that really came out against private prisons was Wells Fargo. We're not so bad.

[C]

We're not going to do the private prison thing. We're not totally awful.

[A]

As I always say. Send in your emails. We take requests. Marcus Rati, thank you very much for asking us about Bao Shang, which we would not have talked about were it not for your email. Anna, who or what is a Bell Shang?

[B]

So this is a bank that a few weeks ago was taken over by the Chinese government because it was going to default on some of its debts. And this is a significant issue, not necessarily just because of this one particular bank. While this is the first time that the Chinese government has officially taken over one of these commercial banks in the past 20 years, the Chinese Government has done other things kind of like this in the past, but it's never been quite this public.

[A]

So one of the things that the failure of Bao Shang did, and this had about $90 billion of assets, it wasn't absolutely enormous, but it's still $90 billion of assets. One of the things that its failure caused a certain ripple effect. The big Chinese banks, the really big Chinese banks with like a trillion dollars of assets, they started going, we actually don't know what's going on under the hood of these medium sized banks. And so we're going to make it harder for them to borrow from us. And the interbank lending market did kind of seize up a little bit.

[B]

Yeah, a little bit. And you did have some actual spikes in the rates for a lot of these smaller banks which are much more dependent on this interbank wholesale financing. Now that in itself I actually think is the more interesting part and I think is related to a larger issue that we saw also this past week where the kind of China beige book data came out and on the one hand seemed to show that like, oh, actually there was some improvement this last quarter in China. However, it seems that a lot of that improvement was because of this increase in lending and increase in leverage and also increase in the proportion of lending that is represented by the kind of shadow banking. Now shadow banking just means when you have financial institutions that are non banks, they're not regulated as banks that are engaging in credit intermediation. They're.

[A]

But this was, but this would not include Bao Shang. Bao Shang was like a bank bank.

[B]

Bougie was a bank bank. No, but this is actually important.

[A]

No. And this is interesting because Bao Shang was not only a bank bank and you know, fully visible to regulators, but it also, according to all of its reports, was a perfectly healthy bank.

[B]

But this is actually, this is actually, it's a very good question because the shadow banking sector in China is a little bit different than when we talk about it in other places. People often say it should more be like in the shadow of banks sector because banks themselves are the kind of direct players actually in shadow banking because what happens is they issue products, they issue like wealth management products. There are multiple types of wealth management products. But one in particular what they do is they issue it, okay, this is basically like people, people in corporations will buy these and then they can get a higher rate of interest. So then the proceeds that they get from that they will then funnel into the shadow banking sector. They will funnel to trusts, they will funnel to also their kind of wealth management arms, they do this partly, they're able to then kind of get some of these things off of their balance sheet. And then what ends up happening is that these trusts, these wealth management arms, will then use those proceeds to invest in the bond market and to prop up the corporate bond market.

[A]

So all of this seems to me to be pretty risk free. If what I'm doing is I'm managing money on behalf of, you know, if I'm just managing other people's money and I'm promising them a high return, but if it's a low return then they lose money and if it's high return and they make money, I as a bank don't seem to be bearing a lot of risk here. What caused Bao Shang or like what's the risk to the banking sector there? If the bond investments go bad then like don't just the investors lose some money?

[B]

Well no, because these banks essentially have liabilities that they're not actually showing on their balance sheet.

[A]

So are they promising a fixed rate of return to investors?

[B]

Yes. Now it's not technically guaranteed as other types of wealth management, but fundamentally yes, they are guaranteeing. And what a lot of investors think is that, well, even though it's not like an official guarantee, people think the government's going to step in, which in this case they did and they're going to make everything okay. That's very dangerous. That is the type of behavior that causes bubbles and causes crises because people think that there's no actual risk. And another thing that I think is significant, if you're talking about the kind of shadow banking and then that's relationship to the actual banking system is another thing that we see is you have banks, they take loans and then they shift those into again these other trusts, other vehicles that they create. And then those vehicles then essentially kind of issue them the returns back. And so then the bank is booking them as receivables. Now this may be getting wonky, but.

[A]

The point of this, very wonky, I'm not following.

[B]

The point of this is that you have loans, you have loans. These are risky loans. That's the other issue is that this money in the shadow banking sector is going to the riskier parts of the market. This should be on these banks balance sheets as often riskier loans or non performing loans where you don't have the people who you're giving the money to. They're not paying back their loans, but they're not showing that on their balance sheet. Instead they're just showing like that they have These receivables coming in as a result, a lot of the ratios we have that are based on things like non performing loans make these institutions look healthier than they actually are. Because this is a way of the official banking system to take the risk it has and to push it into the shadows so that the actual banking system looks healthier than it is. And that's why you can have an instance where a bank can appear healthy, but it actually isn't.

[C]

So is this like, is Bioshang like China's Lehman moment?

[B]

Not at this stage. I mean, but the reason I think this is important is that when you're talking about credit being funneled into an economy, it can be funneled into an economy in a way that is creating productive goods, creating genuine wealth. And that's, that's a good thing. However, if what you're having is you're having the government saying we need to generate higher GDP numbers. And so we're going to basically push all of these banks to just keep, you know, creating these products, pushing this money out there. And it's not necessarily going towards anything productive. That is not creating wealth. All that is doing is creating paper wealth and it's creating debt, it's creating more leverage. That is dangerous. That's how systems eventually collapse is because you're not actually creating genuine wealth. There's nothing real there. So there's moving money around.

[C]

In the, there are Democratic debates this week, and in the first night of Democratic debates, one of the questions was what is the biggest threat to the world essentially? And at least a couple of the 10 candidates just like said, China, and hearing about what you're talking about, it seems like there is some kind of risk coming out of China right now. But it is worth pointing out that that risk is 100%, not what politicians talk about when they talk about China.

[B]

Right. I feel like often you have politicians talking, whether you're talking about Trump or whether you're talking about the Democrats talking about a, say like magic China.

[C]

Yeah.

[B]

Where a land where no, no economic rules exist. And often, you know, you'll hear, you know, intelligent, reasonable people say that, you know, well, you know, you have state owned banks, they're giving money to state owned enterprises. Ultimately, this is all a lot of domestic borrowing. It's in Renminbi. Like, you know, it's fine, the government can take care of it, it's fine. But when you're starting to create the types of imbalances that we've been seeing for the past, I mean, especially the past few Years, at no point in history have we ever had a financial system where you can just create this level of debt without there being some type of consequence.

[A]

Richard Vague has a new book out about this. Like how all crises are caused by just excessive lending. And yeah, China is the poster child for a large amount of lending without a huge amount of underwriting. And the thing that I kept on thinking about when Anna was talking about the Chinese banks was all of those off balance sheet vehicles that we heard about in 2007 and 2008, where the AAA rated subsidiaries, which suddenly turned out to be not so triple A rated after all, at places like Citigroup, and then they had to take them onto their balance sheet and that cost them tens of billions of dollars. These things do tend to have a reckoning, right?

[B]

Because ultimately there are basic laws of economics where there, you know, there, there has to be some type of foundation for wealth that is being created. And when potentially you're just having money being shuffled off to either just be moved around or to be, you know, building bridges to nowhere, you're not then going to be actually generating anything. You're just generating debt. And I also think it's important that, you know, we talk about the amount of debt that Chinese consumers also have, primarily because of mortgages or you have this like completely inflated housing prices. And that's another question. If things start to slow down, then all of a sudden you have wealth declining in those houses. I mean, we've seen when we had a little bit of that and you had people like riding, I mean, outside of these, you know, real estate offices that you've now had this period of time where we've had a type of growth, rapid growth we've never seen. And fundamentally, no one really knows how this ends. Nobody knows if there's like the quote, unquote, soft landing where they transition into a more sustainable period of growth. But I think a lot of people now are questioning that also because I think we all disagree with the way Trump is handling China. But the one thing is that I do think it has really altered the way the rest of the world while moving forward handle China, because I think it's very clear now that, that China has vulnerabilities and if you push them, they're going to have to play ball. That I think there's been this kind of idea that you, you really can't do that much, that China again is almost this like magical force. And I think we're seeing that that's not really the case. And I feel like you know, hopefully Trump will, you know, no longer be in office in a few years. But I think regardless, the relationship between the west and China has changed.

[A]

Let's have a numbers round.

[C]

Okay.

[A]

Emily, do you have a number?

[C]

Yeah, yeah, I have a number. It's. It's six. That is the number of months that merchants in San Francisco have to get rid of all their E cigarettes because the city has banned them, even though they are the hometown of the most successful E cigarette company there is.

[B]

Juul.

[C]

They don't care. They ban them. And I don't know, sort of interesting, they're not banning cigarettes, which Josh Barrow in New York magazine was like, what about cigarettes? How about ban those?

[B]

You could get cancer, but not popcorn lung.

[A]

I do think that there's, I mean, there's a rationale for that, which is that it's much the children. Yeah. Think of the children. No, but it's true. Like, the people who smoke cigarettes are cigarette smokers. The people who.

[B]

That is true.

[A]

Cigarette smokers, you know, tend to be older and they're dying off largely because they have lung cancer, but also because they're just getting older. And the last thing you want to do is create a whole new generation of nicotine addicted Americans. And the way you stop that from happening, I mean, I guess the question is, is there any evidence that the teens, in the absence of Juul, are going to just start, you know, moving on to Marlboro Reds instead? And that's the big question.

[C]

Yeah, that's the big question, exactly.

[A]

My number is 90%, which is a little thing I'm getting into on Twitter right now about olive oil. And it turns out that 90% of consumers cannot name the olive oil brand they use at home. I count myself among that.

[C]

I am the 90%.

[A]

And it's kind of interesting because it's something we all have in our kitchens. We all use quite. I use tons of it. And for any other item that we use that much of, it's just there's a brand that we are more or less loyal to when we use. It's almost unthinkable to think. I can't think of a single other thing where the product is used that much and that frequently. And I'm that, you know, without any kind of branding or loyalty. So that's a good point. That's kind of interesting to me.

[B]

Yeah, fair enough.

[A]

Anna.

[B]

My number is 1.2%. That is the yield on the Austrian century bond.

[A]

Why more century bonds?

[C]

That is an Anna number after the.

[A]

Argentine century bond went so well, let's.

[B]

Try, let's try another one.

[A]

Austrian one.

[B]

Well, Austria actually had one two year, another one two years ago, obviously still out there, which was. The yield was 2.1%, which. That's a pretty significant decline and it just shows you we are.

[A]

So did they reopen it or did they issue it?

[B]

No, it's a new one. It's a new one.

[A]

Why wouldn't you just reopen the old one?

[B]

There are a number of reasons why, but to me this is just like. It's just another indication of how we are just in such a weird economic place where there's.

[A]

So just to be clear, this bond will mature in 21:19 in 100 years.

[B]

Time and your coupon is 1.2%. It's just an indication that we have so much negative yielding debt out there, which is weird.

[A]

$13 trillion of debt in the world have negative yield.

[B]

And then also if you look at like the average duration on a lot of these bond portfolios, it's just so much higher than in the past. It's bonkers.

[C]

I feel like I'm getting like apocalyptic vibe from this whole episode. Honestly, between the China conversation and now this, I just.

[A]

Are we gonna feeling blue? Should we have a Slate plus segment about something more happy and upbeat?

[C]

Well, I mean, we're gonna do billionaires.

[A]

Billionaires.

[C]

The billionaires will save us.

[A]

The billionaires will save us. Yes. In Slate plus we will talk about how the billionaires will save us. If you are not a Slate plus listener, then thank you for subscribing. Thank you to Sleep Money and keep the emails coming on [e-mail]. many thanks to Jessamine Molly for producing and we will talk to you next week on Slate Money.