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- [00:00]
A
Foreign. And welcome to the Compliance Is a Journey episode of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Stacy Marie Ishmael.
- [00:26]
B
Hello.
- [00:27]
A
I'm here with Emily Peck of Fundrise.
- [00:30]
C
Hello.
- [00:31]
A
Hello, Emily. What are we gonna talk about this week? Are we gonna talk about compliance?
- [00:36]
C
Yes. And it is a journey, Felix. That is the conclusion we have come to. And this will work on many levels as listeners will come to understand when they listen to our episode.
- [00:46]
A
We are talking about the big new executive order that was signed by President Biden this week about cracking down on big business and monopolies and trying to give consumers more power. We are talking about the finance sector and regulatory arbitrage and fintechs and crypto. We are talking about China and its approach to regulation and whether that's just mind blowing or interesting or dangerous. We also have a Slate plus segment on the four day work week in which I talk about how little I work this week. I hope my bosses aren't listening. They're not going to spring for a Slate plus membership. Right? But you guys did. It's only a buck introductory offer, $1 sign up. Find out how little Felix Salmon worked this week. It's. I blame them.
- [01:32]
C
And if he has a job next week and.
- [01:34]
A
Yeah, and, and next week you never know, I might just be Felix Salmon rather than Felix Salmon of Axios. We will see. It's all coming up anyway on Slate Money. So the big news of this week was a massive executive order coming out of the White House, which, Stacey, you said the word that immediately sprang to mind was omnibus, which is not the Clapham omnibus where the man sits atop. And we're meant to explain the news to him. This is an American omnibus, which is just a bust that is so enormous, includes everything from hearing aids to railroads to hospitals to bank accounts to everything. So, Emily, as the best explainer here, can you just give us the tldr? Like, what is going on here? What is this executive order trying to achieve?
- [02:31]
C
So the TLDR is that companies have gotten too big and too consolidated and it's hurting American consumers and competitiveness. So the Biden administration on Friday issued an executive order that basically covers, like you said, everything from hearing AIDS to railroads, 72 initiatives covering 12 different agencies and setting out. It's not law. Right. It's an eo. Just saying to agencies like, let's do better, let's look at mergers more closely. Let's create rules so people have more choice. When picking Internet service providers, let's change the rules. So drug companies aren't like price gouging, just like all over the map. And with the ultimate goal being to do something like FDR did or his other, the other Roosevelt and kind of like break up these companies, reduce the amount of power they wield over American consumers. And the Biden administration had one stat claiming that Americans spend $5,000 a year extra because companies are too big. And I'm not exactly sure how they came up with that number actually, but there you go.
- [03:34]
A
Basically the thing that struck me is that if you're like me, if you're, if you, or like Stacy, if you're a foreigner and you come to this country and you say, wait, that costs how much? That's ridiculous. Like, it's probably in this bill, in this EO somewhere.
- [03:49]
B
Internet was what, how many millions of dollars I'm gonna have?
- [03:52]
A
Exactly. Like when people come to America and they're like, you know, my insulin has sud, it Suddenly costs like 10 times what it would where I come from, or my Internet service comes cost 10 times what it would, or my hearing aid costs 10 times what it would, or my, you know, overdraft fees in my bank cost 10 times what they would like. All of those things that we foreigners come to this country and we're like, you know, isn't America the land of like maximum competition where prices get driven down to the, to near their marginal cost? It turns out that it isn't. And a lot of the reason that it isn't is because there has been lobbying by big business to allow various carve outs, you know, which explains things like drug prices being so much higher in the United States. And this EO really is a marker in the ground from the White House basically saying we are going to try and be pro consumer in across however many 12 different agencies. Stacey, do you think they have a chance in hell if this actually working?
- [04:54]
B
Well, I think there are some agencies that as we've talked about, like the FTC and others are like, hell yeah, we're in, we're going to, we're going to, we're going to try to do this.
- [05:02]
A
Well, the FTC has a fabulous new chair, but again, we don't know what the staff is going to do. We don't know how the judges are going to enforce those rulings.
- [05:09]
B
When you have something that's like, okay, we're going to talk about family farmers and we're going to talk about right to repair in kind of the same thing, I can Just see that a bunch of staffers in these places, like, woke up this morning just crying, trying to figure out how they should be interpreting and understanding what to do next.
- [05:28]
A
I mean, it is amazing that if you buy a tractor in America, like, you don't own the tractor, you're like licensing the IP of the tractor.
- [05:37]
B
If you buy some weird way, in some cases, you're licensing the seeds.
- [05:42]
A
Going in and trying to fix your seed is hard. Like, intuitively you should be able to go in and try and fix your tractor. But in fact, like, when you buy the tractor, you sign the contract basically saying the only person who's allowed to fix the tractor is the manufacturer, who can charge more, basically whatever they want.
- [05:58]
C
I guess the question I have about all this is like, how much can the Biden administration really do without laws? These are EOs we've seen over the past, since the Obama administration. What you call it, like ping pong eos. Right? Obama says this, then Trump said this, then Biden overturned his executive orders. Like, how effective can this possibly be long term? I say not very probably.
- [06:25]
A
Or how effective can it even be short term? Like, for instance, you know, if you look at the ping ponging EOs on, on the dreamers, you know, on DACA, you know, Biden's was effective. So Obama's was effective for as long as Obama was in power. And then Trump gets into power and puts through a new eo, and then Trump's as effective for as long as Trump is in power. And I don't think anyone wants that.
- [06:46]
C
And the courts, as we've seen recently, the government's crackdown on Facebook was overturned in the courts. Right. Like, even if some is effective, I.
- [06:56]
A
Mean, I think, honestly, I'm less worried about that in this case. Trump CEOs were notoriously badly drafted and the courts would just take one look at them and go, this makes no sense. This is illegal. And strike them down. Obama's generally weren't. And I suspect that one of the reasons, you know, we're six months into Biden's term and we're just getting this now, like, this isn't one of those EOs that he does in his first 10 days or even his first hundred days, that there's a lot of, like, very careful drafting going on here, and it's being very narrowly crafted to avoid precisely that, to avoid judges striking it down. And what's more, because it's in 72 different areas, if a judge strikes down One of the 72, the other 71 still stand.
- [07:43]
B
I Think one of the other things though, about the courts, and we definitely saw this with the Trump administrations, while even before you get to the point of strike down, like the act of litigation can be a forestalling effect. Right. And I remember it was maybe 48 hours after Biden was elected, Ken Paxton, who's the Attorney General here in Texas, was like, we're just going to get right back into the business of suing the US Government. And I think that is one of the risks with executive orders is even if they might work or for whatever value of work for that four year term, it does provoke a lot of different kinds of litigation, which can have a chilling effect on the implementation in a lot of cases. And you absolutely saw that on uncertainty with so many of the immigration EOs where folks would start to implement them kind of in fits and starts. And the people on the other end of those things were like, I don't care if this is going through the courts or not. All I know is I'm not allowed to get on this plane right now.
- [08:39]
C
Yeah, I mean, legislation would be far more effective.
- [08:42]
A
Okay, so I want to talk about the legislation aspect here because I think there's this incredibly strong sort of status quo bias in the way that America is run. And you're right, if you have legislation, it becomes part of the law and it becomes much harder to circumvent. But the reason why, the implicit reason why we're doing this all by EO and not by legislation is because Biden doesn't think he can get the votes in the Senate to support all of this. So that's interesting. Who are these Democrats in the Senate who wouldn't be on board with this? And the answer is basically anyone who's beholden to large campaign contributors or anything like that, like the, the lobby, the big lobbyists are going to be up in arms about virtually all of this. But by the same token, I feel like if he can get a bunch of this into force, and if people suddenly like wake up in a year or two's time and they have choice in their Internet service provider or their hearing aids have become cheaper or something like that, it actually becomes surprisingly difficult to overturn this. This is the lesson of the way that Obama expanded Medicaid. Right. You can. Once you've done something which is consumer friendly, even the Republicans find it difficult to roll it back.
- [10:02]
C
That's definitely the case with Obamacare. Which was a law.
- [10:06]
A
Which was a law. Good point.
- [10:08]
C
That, you know, got to stick around long enough that consumers benefited from it. You know, it took years for that to happen. And brutal fights. If he had tried to change healthcare with an eo, I don't think you would get the same result.
- [10:21]
A
Let's talk specifically about finance, because this is slate money. Why not? One of the things that the EO does is it looks at banks. And, you know, as Stacey and I can attest, you know, when you come to America from a foreign country and you try and open a bank account or understand how banks work credit, Stacey.
- [10:39]
B
Is like, shaking my head.
- [10:40]
A
And raging Stacey is shaking her head. She's like, none of this makes any sense. I am in the process of moving banks right now and it has taken six months and it is not over yet. It is a crazy system. It is very difficult to see any kind of real competition between banks in this country. What are they competing on? How do they compete? But the idea is really they just spend a huge amount of money on customer acquisition and then you're stuck. And there's all of these, like, weird statistics about how people are more likely to get divorced than they are to change their bank and that kind of stuff. So. So the EO has this idea that banks have to allow you to download your entire transaction history and move it across to a new bank, which feels to me incredibly weak. Right. That's really not the problem. You know, what I really want is European style open banking, where if I have a direct debit, say, or something which comes out of my account on a monthly basis or something like that, that belongs to me rather than my bank account number. So that if I move from one bank to another bank, it just automatically follows me from one bank to a new bank. But I feel like that kind of utopia is barely even imaginable in this country.
- [11:57]
B
I mean, one of the wildest things for me when I moved here, there were many wild things. So this is specifically about banking, was the notion that if I had a Citibank account, I could only withdraw money from Citibank ATMs. And what? Because in the UK you're like, there's a cash point. I don't care what brand it is, if it doesn't look super dodgy, I can get my money. There's no fees. It's totally fine.
- [12:19]
C
Wait, really? There's no fees?
- [12:21]
A
Correct.
- [12:22]
C
So you could. Wow. Yeah, that's. Wow.
- [12:26]
B
Yeah. When you say it out loud, you're like, wait, hold on, what? Or you know, things like, Felix, to your point about direct debits, just like even sending money to someone. I've always been so Fascinated by the fact that, that so much of fintech, which I know we'll talk about, is just in response to how difficult institutional lenders have made it to move money around. You know, it's like, okay, let me figure out.
- [12:48]
A
Why does PayPal exist? Why does Venmo exist? Why does like cash app exist? It's all because the banks make it incredibly difficult to move money. Isn't that their job? No, their job apparently, according to them, is to just hold on to money and make sure you don't move it. So, yeah, absolutely. And can I just like have a quick whine about overdrafts, which I remember this vividly when I moved here. You know, sometimes you go negative on your bank account and this is a thing that happens. It has happened to me more than once. And there are sort of, you know, neo banks, like prepaid debit card type things where you're just simply not allowed to do that. Whatever transaction that you're trying to put forward just gets declined rather than you going negative. But in a lot of bank accounts, in most like grown up bank accounts, they'll be like, no, you're a valued customer. You clearly want to make this transaction. You have minus $35 in your bank account right now. So then what happens, right? In the UK or in any normal sensible banking system, if you have minus $35 in your bank account and then you deposit $100 into the bank account, what, you wind up with 65, $65 in your bank account. In America? No, in America, what happens is you have minus $35 in your bank account. So suddenly now you have this $35 loan account that you owe the bank. You deposit $100. Your checking account now has $100 in it. And at some point you need to proactively take some of that $100 and use it to pay off the $35 which otherwise sits there as a debt. How does that make any sense?
- [14:27]
B
It's even worse.
- [14:28]
C
Well, that's how the bank makes money because it's charging you interest and fees on the $35, but then they also.
- [14:33]
B
Charge you like a $35 fee. So that initial $35 overdraft turns into like negative 70. So effectively your $100 becomes $30 because you have these compounding fees. And that's kind of, you know, that's one of the things. There was a line in the EO about the fact that, like, bank closures and other things disproportionately harm certain communities and the people that these things harm the most are people who are like that. $35 is the difference between me being able to pay a bill and me not being able to pay a bill. And suddenly you're in a debt spiral.
- [15:06]
A
So apropos your comment, Emily, about I wish this was law and not an eo. There is actually a law of the land called Dodd Frank which actually did address this. It is illegal under Dodd Frank for banks to opt people into these terrible overdraft fees where they have to pay $35 whenever they go overdraft. In order for someone to be charged a $35 overdraft fee, they have to proactively opt into it and say, yeah, I want that. I want that service of paying $35 for an overdraft. And when Dodd Frank was passed, this was generally considered to be a revolutionary, fantastic law that would basically put paid to overdraft fees as a major source of income for the banks. And that was going to be the end of that. And it didn't happen. For reasons that I do not understand, the banks just kind of said okay and managed to persuade all of their customers to, you know, opt in. Even when the customers didn't really, I guess, understand what they were opting into or they were sold it. In a weird way, DodgeFrank really did try to fix this. And one of the great disappointments I think of Dodge Rank was that it really didn't.
- [16:23]
C
I mean, maybe it's because people need overdraft. Like I remember the days of you owe $35 and you have $100 and you have to volunteer to pay off the $35 and all that. And like I needed that overdraft because I knew I was going to be negative before, you know, two days before my.
- [16:38]
B
But it was the.
- [16:39]
C
So I could understand why people would opt in. Even though it's a terrible service, it's going to cost you a lot of money. Like you need the money so you opt in. Could that be part of it?
- [16:48]
B
Well, there, there are lots of different ways to think about this, right? One is, you know, providing an overdraft facility on a non fee basis in subject to, for example, okay, if you have other deposits in, we'll treat this in the way that Felix describes, which is you as a valued customer. We've seen your transaction history and this has absolutely happened to me. Like one of the reasons you go into overdrafts is because they're sitting on a deposit that is just not clearing. And so you're in this situation where you have a pending incoming amount of money that could cover that. So, you know, I think the spirit of Dodd Frank was not to not allow people to have flexibility in terms of accessing cash when they needed it, but to make it less punitive for them to do so of that particular provision.
- [17:31]
A
And let's be clear about this too. Like, there is this product which is almost universal in American banks called the savings account. And there are a lot of people who have checking accounts and savings accounts and banks will charge you 35, happily charge you $35 fees, you know, 25 weeks a year for going overdrawn just on your checking account. Even if you have more than enough money to cover that debit in your savings account, like, they have your money, they have more than they know you are good for it because they have your money. But no. So this kind of thing, you know, I feel like Dodd Frank tried valiantly to fix and failed. Now we have an EO which is instructing the CFPB to do various things about downloading transaction history. I don't think that's going to be particularly effective. If you talk to the fintech utopians, they will tell you that all of these neobanks. Oh, let's talk about neobanks, let's talk about neobanks. There are, I think at last count, about 8,000 of these things. They all are basically exactly the same. Almost none of them, with the exception of Varo, are actual banks. Congratulations, Varo, on actually becoming a bank. But all of them, like chime and aspiration and N26 and all the rest of that, like they, they all basically are exactly the same. There are this little layer of pretty app on top of like a Bancorp bank account or one or two other banks do this. And there is no overdraft at all. I mean, a few of them will let you dip down for a minute, but it's, it's very, it's very small. And it basically acts to a first approximation, like a prepaid debit card. You put money in, you can spend money on your debit card in however you want to spend it, like at stores or on Venmo or anywhere else. And then just like with a prepaid debit card, you can't go below zero. Your transaction has just declined. These banks have found millions and millions of customers, although it's not entirely clear how many of those customers use those banks as their primary bank account. But they are worth billions of dollars. China's apparently worth $14.5 billion at the most recent valuation. And I've heard A lot of people basically say these are revolutionary. Neobanks have revolutionized banking in Brazil, they can do it in America. So like trust Silicon Valley to solve this problem for us.
- [19:58]
B
Simple.
- [19:59]
A
So, Stacey, I know we've talked on this show before about the sad demise of simple, which was the first of these banks got bought by a big Spanish bank and then got killed. But do you think that there is any hope that NeoBank will be the white knight here?
- [20:13]
B
Well, not based on what Chime is being accused of right now. If we were to extrapolate across 8,000 other things from a sample size of.
- [20:21]
A
One, what is Chime being accused of?
- [20:24]
B
Music well, both ProPublica and Ars Technica have published a couple of stories about this, talking about the fact that Chime has been summarily closing bank accounts, or I'm doing the scare quotes around bank closing accounts for their customers with very short notice and making it very difficult for folks to get their money back and saying, well, it's because we're worried about, you know, fraud, we're worried about people claiming benefits that they didn't have access to. And there's virtually no recourse for these folks because as you said, they're not a bank, right?
- [20:56]
A
And so, well, even if they were a bank, like there's no.
- [20:59]
B
It's pretty hard. It's pretty hard.
- [21:00]
A
A friend of mine went through something very similar with Citibank and trying to get a straight answer out of them was extremely hard. The thing with Chime is that it just seems to be much more common at Chime than it is at like.
- [21:13]
B
The big four banks, especially in the past several months. So they, you know, I think the lead anecdote was in the ProPublica stories about this guy who was trying to buy lunch and he like knew he had $10,000 in his account and his transaction got declined and he checked his phone. They were like, haha, we've closed your account. Peace. With sort of no ability to do anything about it. And you know, if you think about the risk tolerance of a lot of these neobanks, which is not to say that we want traditional lenders to be like Wild Westy. They're dealing with different sets of things, right? Like they don't have as much straight up disintermediate access to the other parts of the banking infrastructure in terms of deposits, you know, the size and scale of deposits, different kinds of assets. Nobody's got a savings account in a neo bank that can allow them to do a little bit more of this liquidity. Management and they're also, also their incentives are really different. You know, again, I'm not saying that your traditional bank is like in it for the customer, but it is unclear to me what the real value proposition is of some of these neobanks other than like, look, we're a really interesting place for front end engineers to get a job.
- [22:22]
A
I can explain that one. It's very similar. This is actually a lot of neo banking is, you're going to love this regulatory arbitrage. Just like all of Fintech, it goes back to Dodd Frank again, Dodd Frank put a cap on what's known as debit interchange. And if you're a relatively big bank, basically the amount of money you can make from swipe fees when people use your debit card is very low because it doesn't cost the banks anything to make those transactions. And Dodge Frank basically said if it doesn't cost you anything, you can't charge merchants a huge fee for this thing that doesn't cost you anything. However, in Dodd Frank there was a carve out for small banks and the neobanks are all very careful to make sure that they are small banks and not big banks. And so what that means is they can charge much more for debit interchange than the big banks can. So their incentive is very much to get you to transact as often as possible and to make as many purchases as possible on your debit card because that's how they make their money, that's their revenue stream.
- [23:23]
B
And Felix, just to confirm, like debit interchange fees aren't consumer facing.
- [23:27]
A
Correct.
- [23:28]
B
So they're making money from the providers of those transactions. It's like this is kind of getting caught up in the debate around like why Costco kicked Amex to the curb because the transaction fees for them were so high.
- [23:39]
A
Exactly. But this is exactly the same as the fundamental tension at Robinhood. Right. Robinhood is quote unquote free, but it makes money on every transaction by selling that transaction to someone else, basically. And so Robinhood's incentives are very much to get its customers to transact as much as possible because the more they transact, the more money it makes. And that's true of neobanks as well. And that's actually not particularly true of big old fashioned banks like Wells Fargo which incidentally this week came out and said we're just going to stop on the whole personal line of credit. They're like, yeah, loans, yeah. I don't think loans is really a core part of what banks do. We're just going to do, like, checking accounts. But if you want to come to us and ask, you know, a nice little credit line to make sure that, you know, if I do wind up having to go overdrawn for a week or two, like I have the ability to do that now, they just closed all of them overnight. The great irony, of course, is that Wells Fargo a couple years ago, as we all vividly remember, got in huge trouble for opening products that its customers didn't want. Now they're closing products that its customers do want. Well done, Wells Fargo.
- [24:50]
C
Just to back up a little bit, I think there's just a regulation problem with fintech, right? Like, banks are pretty well regulated in the US and fintechs are not. I spoke to someone familiar with regulation, and the TLDR is regulation of fintechs and crypto as well as. I don't know if we'll get into that, but it's all a mess. Like, it's kind of Wild Westy. And the end result is that consumers don't benefit. And then with banks, they are pretty well regulated, but somehow consumers still don't benefit. So I'm not sure about how to work that out in my head because in my little liberal brain, I'm like, well, regulate fintech more. So neobanks like Chime don't have so many forced closure complaints. And, you know, Wells Fargo has half the complaints. So clearly, if they were better regulated or more experienced, it would all be fine. But it's so much more complicated than that in terms of consumers.
- [25:41]
A
You're absolutely right. The fintech is all about regulatory arbitrage, and they're doing a very good job of not being regulated. And the first thing I always do when I meet with a FinTech CEO is I say, who's your primary regulator? And they're like, we work very closely with all of our regulators, but they never actually answer the question. There was this amazing letter that came out this week from the CEO of Binance, which is this massive cryptocurrency exchange, which is probably the most valuable cryptocurrency company in the world, and no one even knows where it's based. It certainly has no primary regulator. Every so often people are like, we think it might be based in the Cayman Islands, but we're not entirely sure. And the letter basically came out, and this was my favorite quote. I put it in my newsletter this week, quote, compliance is a journey is what he said.
- [26:29]
C
You know what?
- [26:30]
A
Compliance is not a journey compliance, but.
- [26:33]
C
It is for crypto. Compliance for sure is a journey because the regulators in the US don't have a consistent way to get crypto companies to comply. There's no clarity, as far as I can see, about how to treat crypto.
- [26:47]
A
Binance managed to solve this problem by like literally not operating in the United States. You can't open a Binance account if you're an American. You have to open an account of something called Binance us. It's, you know, there's a lot of weirdness going on there. But yeah, I mean, can either of you two name the primary crypto regulator in the United States?
- [27:06]
B
Absolutely not.
- [27:07]
C
No. But I can tell you that the CEO of Binance US used to be running the Office of the Comptroller of the Currency.
- [27:14]
B
Oh, the occ? Yeah, my fave regulator.
- [27:18]
A
So the answer to the question is, obviously there isn't one. It's this mishmash of the occ, the cftc, the SEC, and a huge number of state payment regulators and on and on and on. And what you find actually is that certain companies have just put enormous amounts of money into trying to navigate this regulatory thicket in America. And those companies are Coinbase and Circle, which just announced it was going public. But even then, I talked to the Circle people a few weeks ago and I asked them the same question. I was like, who is your primary regulator? And they just kind of shrugged. They're like, we have so many regulators, we try and work with all of them. But like, it's hard for them. I'm not saying it's easy for them. I'm not saying there are regulations which, like, they just need to follow. So maybe you're right, Emily. Maybe compliance is a journey. But I think what we are seeing with Chime and with other teething pains at places like Robinhood to be charitable, is that they are just growing incredibly fast and it is basically impossible to scale compliance. Like it's software, you know, compliance is difficult.
- [28:28]
C
Can I say one more thing which is like this Biden EO today, there's a lot in it about tech and antitrust and going back and looking at mergers through the rear view. The government's, federal government's playing big time catch up in this massive industry that's so powerful now. And 10 years ago they had a chance to get their hands around social media to really regulate and figure out how to deal with these new players, but they didn't. And now you see the same thing happening with crypto and Fintech, which is like, compliance is a journey. These agencies don't have a plan yet. Yet there are Billions of trillions of dollars at stake in these new areas. And by the time these agencies figure out their plan, it's going to be the same thing. These companies will be massive, impossible to unwind. It's like you see it playing out. This EO is backwards looking with tech. There's nothing in there about crypto or any of the things where it's really talking about. There's just some weird thing about having your banking information downloaded to you, like who cares? So it's sort of interesting to watch how slow regulation and the government kind of moves on this stuff and how fast business can move at the beginning and how that first mover kind of advantage really solidifies a lot of stuff that becomes so problematic down the road.
- [29:47]
A
And what we're seeing right now, the other news of the week is that Robinhood put out a filing saying they were going to pay another eight figure fine for crypto stuff to the New York State regulator. But you know, this is a cost of doing business for companies like Robinhood. You know, like Robinhood is going public at what people are saying could be a $30 billion valuation if they need to pay a $15 million fine to become a big player in crypto. And if options and crypto are the two places where they're really going to be making money and stocks is just their kind of loss leader to get people to play around in options and cryp crypto then paying $15 million to New York State once in a while is cheap to get into that market.
- [30:30]
B
Right?
- [30:31]
C
Well, you know, you were saying before about if you pass certain laws that are pro consumer, consumers start to really like them and you can't unwind them like Obamacare. It's kind of the same thing with these companies. You know, people like Robinhood now they've gotten this really big foothold. People don't seem to care that they do this shady stuff and get fined either. Like it just gets harder as these companies get bigger and stickier. It gets harder to really do anything but slap these little fines on them.
- [30:57]
B
This is one of the more interesting critiques of regulatory frameworks, especially regulatory frameworks that lean rules based is they're very inefficient, they're backwards looking, they're always catching up and they're generally the people who are trying to enforce them are under resourced compared with the people. It's like, you know, Fox hen house situation, there's the revolving door. And also if consumers like the thing, is it really bad for them? Right, right. And I think it's like, if people are telling you with their money that I'm okay with these abuses in the warehouses of some of the major E commerce retailers, I'm okay with people committing suicide because certain engineers can't get their like, displays together about how much your balance actually is, then is there really a need for regulation? Because, you know, then surely people should be complaining more.
- [31:50]
A
Right?
- [31:50]
B
Like that. That's one. There's a compilation of several of the arguments that are out there about this.
- [31:56]
A
So Stacey, I want to pick up on that idea of the difficulty of structuring a rules based regulatory regime and say, well, okay, there's an obvious alternative, right, which we're seeing principles. No, well, which is basically have a regime where there is no checks and balances and where the people in charge can just wake up one morning and say, no, wait, you're all illegal and we're breaking you all up. And of course, China is clearly upset now at the billionaires and, you know, powerful capitalists who have sprung up. How many times have we heard from Jack Ma in the past couple of years? And Diddy, the big ride sharing, ride hailing company, went public in New York using the same technique that Alibaba used to go public in New York and lots of other Chinese companies have used, which is something called a vie Don't Ask, which is based in the Cayman Islands.
- [32:55]
C
Again, just read Matt Levine on that.
- [32:56]
B
Always read Matt Levine on anything.
- [32:58]
A
Always read Matt Levine. But the idea is, and I remember when Alibaba went public, everyone was like, are people really going to buy shares in some Cayman Islands shell company and kid themselves that they actually own part of the real Chinese company? And the answer turned out to be, yes, they are. And so once Alibaba proved that people were willing to do that, a whole bunch of other people, including Diddy, did that. And now the Chinese have come out and said, you know what, this was always illegal under Chinese law. And now we're going to start cracking down on it. There was, I think a cosmetics company. What was keep. I can't remember that they pulled their IPO because they decided that they're also Chinese. And they're like, actually, yeah, no, regulators have said they don't want people to do this anymore. Obviously, famously the ant IPO was pulled. That was the big financial services giant in China because the regime was like, yeah, we don't like you being this big. We want to break you up. We don't want you to be this powerful. China doesn't need to faff around with EOs. Where everyone's, is this going to work or not? China can just do whatever it likes.
- [33:59]
C
Yeah, it's Goldilocks, right? It's like the US Is the porridge is too hot and China is too cold. No one's getting it just right. Maybe Europe, I don't know. But yeah, I couldn't help but think, look, China is worried that these big tech companies. One worry it apparently has is they have too much consumer data because China wants the data right? So it can control its population, not because they want Chinese people to have freedom from anyway. So they think maybe this is one thing. They think these companies are too big, these CEOs are too powerful. So boom, they crack the whip and regulation in place. And it's so striking to compare to the US where it's just, just. It seems like the US government is just helpless in the face of billionaire CEOs and rich companies. Like, we're enamored of or enamored of.
- [34:46]
B
Depends on the day.
- [34:47]
C
And it's interesting because back a few years ago, the US would complain that China helped these CEOs and these companies get big and they were coddling them and it wasn't fair. That's what the US Does. That's like our game. So it's sort of interesting that everything is a little topsy turvy in this space and neither seems to be getting it quite right.
- [35:05]
B
I mean, the national champions argument has always been so interesting to me. The idea that, and like in France, you have specifically protected categories of industries where they're like, no, don't come for these people. They're very French and we must support them at all costs. And that seems to be acceptable in certain contexts. And to your point, Emily, it sort of falls in and out of favor. I think what's one of the things that's been interesting about the China story is kind of to extrapolate from you, is there are going to be some people who look at this and be like, maybe that's how we should approach regulation. Right. So Felix's point, it's okay if all of these fancy rules and all these principles aren't working. Maybe we just go with the full smackdown and we, like, pull everything from every app store. It's been good. Goodbye. And I sort of worry about that oscillation between extremes.
- [35:50]
C
Another thing that Felix said in his newsletter that I wanted to ask him about was Felix said these three words that I was surprised that he would say, which is, quote, we were wrong. He says that we were wrong about how, I guess People used to say that capitalism and free markets in China would make China more democratic, less authoritarian. And now it seems clear that's not what's happening. Capitalism is not beating authoritarianism. It's kind of the opposite. The politics is winning over the money. Right. And so I wanted Felix to talk about how he was wrong because love.
- [36:23]
B
When Felix was wrong.
- [36:24]
A
And it's so. I mean, what's the word? Prime example of this is Hong Kong. Right. The conventional wisdom, which I absolutely bought into, was that China would never risk killing the golden goose that was Hong Kong, that Hong Kong had all of these freedoms and was clearly able to do a bunch of things that mainland China companies were not able to do. It was very important for China to have Hong Kong as part of its orbit of influence. And even if it was going to sort of take over Hong Kong in a slightly more aggressive way than people anticipated and violate the 1990s, 1967 agreement, ultimately it, you know, enlightened self interest would force China to leave Hong Kong more or less alone. And, boy, were we wrong about that. Right. Like, they just completely cracked down is now more or less indistinguishable from mainland China in terms of what the Chinese can do in terms of arresting people for any or no reason. There's no democracy. There's no pretense of democracy. The freedom of information is getting, you know, cracked down on. The big American Internet giants, Facebook, Google, Amazon, they all have written this letter basically saying, yeah, if you carry on like this, we're just going to have to stop offering services in Hong Kong. You know, Hong Kong, on that point foreseeable in the very near future? Well, I mean, okay, so here's the question, Stacey. Do you think in five years time, if you open up a web browser on your phone in Hong Kong, if you're like a normal Chinese person, you open up a web browser on your phone and you type in in Tiananmen Square. Do you think you're going to get all of the information or not?
- [37:59]
B
Oh, absolutely not. But I think that's distinct from offering services because Apple, as an example, has continued to offer services in mainland China. They are services that have, shall we describe them charitably, as contingencies and clauses that are specific to the mainland. But it has not been true for tech companies that they are unwilling to concede. Right. And so I find this rhetoric laughable.
- [38:26]
A
You're absolutely right. In terms of Facebook, I think Facebook would love to be in China, but China bans Facebook, so they can't be. And Facebook has made peace with that. There was a point at which Facebook was saying, we're going to try very hard to cooperate with the Chinese government and do whatever we can to get into China. It's the biggest market in the world. And then China made it very clear they didn't actually want Facebook. It wasn't going to happen. Happened. So then Facebook suddenly discovered virtue, and they were like, oh, well, I mean, we would never be in China, but of course they would be if they were allowed to be. What's clear is that China is very aggressively cracking down on any kind of foreign presence, corporate presence at all in China. Right. Apple's still there, but Apple is kind of an outlier. It's not easy to come up with any other foreign companies that are big in China. And this whole question about, like, companies listing on the New York Stock Exchange, it's related to that. Like, the Chinese don't like it because it means foreigners are owning Chinese companies, and they don't like that.
- [39:19]
B
I mean, American politicians don't like it either.
- [39:22]
A
And yeah, Marco Rubio doesn't like it either. But if you think about, there was a time when Nike and Starbucks, there was a couple of American companies who were like, making a big deal about growing in China. We're hearing less about that these days. The only foreign companies that really seem still to be doing well in China that I can think of, LVMH and amaz.
- [39:42]
B
Other than that, Microsoft has a pretty decent penetration and presence there, and they've done that with a lot of concessions. Right? So like Bing search results, major concessions, the kinds of things that will get your LinkedIn profile blocked in China. Major concessions. And so, yeah, absolutely, on the luxury front. But I also think that certain types of tech companies that continue to persist there are partly because those services haven't been replicated locally yet. And I think that yet is going to be the more interesting question.
- [40:12]
A
Right. But the big tie, to answer Emily's initial question about what were we wrong about? There's this amazing tide of international global finance, right, where you have hundreds of trillions of dollars sloshing around the planet trying to work out where it can be put to best use. And it's impossible to fight back that tide. Right? You just like. Like every country is at mercy of these enormous international capital flows, and you just need to work out how to deal with them. You can't just refuse them. And that's what we all thought, except for it turns out that China has successfully basically refused them. They're like, we don't actually have any interest in this. We're going to make it very difficult for foreign capital to come into the country. And they've been surprisingly successful at that. And yeah, there are definitely examples of, of American and European investors who've made money in China. It does happen, but it's not easy and it's not common. And China seems to be making it quite explicit that they want it to become even more difficult and less common going forwards.
- [41:15]
C
Part of me is like, all right, I mean, you don't have to do capitalism, but when countries are doing the capitalism and taking part in the tide of monies that Felix was talking about, they tend to get along better. That's the whole cell. That's the cell.
- [41:31]
B
Let's not get into like the cooperative liberal democracy theory of international relations because we don't have three hours.
- [41:39]
C
I mean, that was the sad.
- [41:40]
A
This is the golden arches theory. You should get Tom Friedman on this show to explain why no two countries for the McDonald's have ever gone golden.
- [41:50]
C
I mean, isn't it better if Chinese companies and American companies are all mixed up together or international cooperation? Is it not better?
- [41:59]
A
I am addicted to TikTok. I love being able to use TikTok on my phone. And so, yeah, I love access to Chinese companies.
- [42:06]
C
There you go. Perfect. And I like the cheap stuff that I can buy. I think I like it. I don't know where anything comes from anymore, but that stuff's great, right? Or maybe not.
- [42:14]
A
If you bought a bicycle anytime in the past, you know, few decades for anything less than like thousand dollars, it was probably Chinese and it was a good bicycle. Bicycles are good quality these days.
- [42:25]
C
I don't know if it definitely seems like not a good thing that China is kind of like tightening up up and cracking down on human rights and the US will have less leverage to. Not that Stacy, I feel like, is just seething. Everything I'm saying is terrible, but it seems better to cooperate but than not.
- [42:43]
B
No, I don't think everything everybody's saying is terrible. Of the many groups of people who were unpersuaded by the enlightened self interest arguments about Hong Kong is people from former colonies of other major powers. And I count myself among those because, you know, there was a period, maybe I would say seven to 10 years ago when there were all of these articles, including in places like the ft, that talked about sort of like Chinese influence in Africa and Chinese influence in the Caribbean and how that was a proxy war, you know, that, you know, China was kind of using its economic leverage in other parts of the world to build up different types of coalitions in preparation for the inevitable conflict, et cetera, et cetera. But sort of just going back deeper than that, that most countries that have ever had influence over another country don't fully let go. Right. And you think about US interference in the Caribbean, which still persists to this day, is sort of, for me, one of the clearest countervailing examples of the idea that some sort of, well, we couldn't possibly, because we said X has ever been true in the long term.
- [43:51]
C
So what you're saying is it doesn't matter if the US and China are having good trading relations. Capitalist, yay. Doesn't matter.
- [44:01]
B
There is always a risk. And at some points, the risk is more pronounced that whatever the tenuous agreements that held up, whatever the version of peace is that we're talking about will just evaporate under conditions that are unclear. If you think back two years, when we woke up in the week of New Year's and we were like, huh, is there going to be a war with Iran? And the fact that was so viscerally on the table surprised a lot of people who kind of believed in this idea that no, there's nuclear deterrence, et cetera, et cetera. But I have, and this was controversial in my undergraduate international relations class, I was definitely always more on the side of realism about how countries will use both economic and political power to assert whatever dominance they decide they need at any given time.
- [44:51]
A
And military power.
- [44:52]
B
Absolutely.
- [44:53]
A
I mean, which is of course like the elephant in the room here, which we are not going to try and resolve. But is the one big question overhanging all of this is like, what's going to happen to Taiwan?
- [45:05]
B
Yeah. And on that note, and on that.
- [45:08]
A
Note, we will move on to a numbers round because I don't think any of us want want to answer that question in this episode.
- [45:15]
B
I will not be.
- [45:17]
A
Yeah. Emily, do you have a number?
- [45:19]
C
Yes, I have a number. It is 19%. 19% of women polled in a Morning Consult poll said they had no desire to ever return to the office, versus 7% of men. And I thought this was super interesting. The same poll also found a big gap between Gen X and all the other generations. I don't know. People still let me talk about generations, but so like Gen X, women were the most likely to say they don't want to return to the office. And I learned this from Walt Hickey's great newsletter, which highlighted it. And Walt Hickey said, you know, he pointed out about the Office air conditioning, you know, famously for men, not women, but men. And that's kind of tongue in cheek. I don't think it's about the air conditioning. I think it's about Gen X. Women have, like, a lot of caregiving responsibilities, and it's probably easier for them to stay and work from home long term. It also said almost half of workers have gone back to work. 48%.
- [46:18]
B
What was the low in terms of people who traditionally worked in offices who weren't in offices at the height of the pandemic, what was the low?
- [46:24]
C
I don't know. Good question.
- [46:26]
B
Walt Hickey, if you know the answers to this, please slate money at, you know, slate.com Emily I'm subscribing to Numlock now. You're an. You're a newsletter influencer.
- [46:34]
C
It's really good. If you're like, if you need a number, just look at Walt Hickey's newsletter. And there's so many. It's really great.
- [46:40]
B
Ultimate life hack.
- [46:41]
C
It's a great cheat.
- [46:42]
A
I have a related number which is 56.7%. That is the proportion of individuals who were employed in February 2020 pre pandemic and who are unemployed now who would be willing to return to their previous position, their previous job at the same pay and the same hours. Basically. If you, if you're like that job you had in February 2020, that exact job which you lost in the pandemic, if I offered you that exact job tomorrow, would you take it? The answer is only about half of people would take that job.
- [47:25]
C
Yeah. Why is that surprising then?
- [47:28]
A
We are also seeing. This is also related to the massive uptick in people who say that they're retired, which has seen this huge rise during the pandemic and is continuing to rise. The big question facing the economy, I think, right now is like, where are the humans going to come from to fill all of the jobs that need to be done? Because there's a huge number. There are literally millions of humans out there who used to be working up until February 2020 and are really showing no interest in going back into the workforce.
- [48:01]
C
Oh, you're saying the 56% should be far higher. People should all want to go back to their old.
- [48:05]
A
Well, I'm not saying all, but I'm saying 56 is a pretty low number. Right. Like, if you have a job, you presumably have the job because you. You want to have the job on some level, or you need to have the job, and then if you lose that job, you're sad. And then if you're offered that job back. You're like, happy, but no, it doesn't work that way.
- [48:21]
C
I don't want my old job back either.
- [48:27]
B
La la la la la.
- [48:28]
A
Stacy, you've had many jobs.
- [48:30]
B
I have had many jobs.
- [48:32]
A
Is there any of your previous jobs that you would go back to if you were?
- [48:36]
B
I'm going to jump into my number, which is nice.
- [48:41]
C
Very diploma.
- [48:43]
B
100 million. And that is the amount. Did I pick this number just so I could say this neck phrase?
- [48:50]
A
Yes.
- [48:50]
B
This is the amount raised by a company called Inc. Which is a video startup.
- [48:58]
A
Wait, Stacy, what's the name of this company? I mean, I know that we've had a long series of companies without vowels, but normally you just kind of insert an implicit vowel. This just has. This doesn't even have any implicit vowels styles.
- [49:12]
B
None. Straight up. Mm. Emphasis on them. And they are a video startup from the founder and former CEO of Evernote, which various of our listeners are probably familiar with. They were started off as a note taking app and then got very into Scope creep. But yeah, so has raised $100 million in order to, you know, like, revolutionize video. So that's what's up. Everybody should be a video startup, apparently.
- [49:44]
A
Okay, on which delicious note, we're going to wrap up Slate money for this week. Thank you for listening. Thank you to Jessamyn Molly for producing. We're gonna have a Slate plus segment.
- [49:54]
C
On Four Day Work Week.
- [49:58]
A
The Four Day Work Week.
- [49:59]
C
Yeah.
- [50:00]
A
There's a study in Iceland and if we're not in Iceland, at least we can talk about Iceland. So we're gonna talk about that on Slate Plus. Otherwise, guys, thanks for listening and we'll be back on Tuesday with a Slate Money Goes to the Movies. Really, really fun episode. I can recommend this one. This is the Fountainhead. You have, well, as much time as you like, really, to go out and find the Fountainhead and stream it and watch it. This is the original with Gary Cooper from 1948. And you do not need to listen to the Slate Money Goes the Movies episode immediately when it comes out on Tuesday, if you can't watch the movie between now and then. But I would highly recommend watching the movie and then listening to the episode because we have the one and only Michael Beirut talking about it. Emily.
- [50:44]
C
Yes, Felix?
- [50:44]
A
How fun was that episode?
- [50:45]
C
It was so fun. Michael Beirut knows so much about the Fountainhead. It was astonishing. It was really astonishing. He was just deeply familiar with the subject matter and not in like, a weird way, like some, like, you know, politicians that are, like, Fountainhead Stans or anything like that. He had a very clear eyed view, I think, of the town. And the film is crazy and fun to watch. So yeah, it's gonna be a good episode.
- [51:08]
A
It's a fun episode. We can recommend the movie. We can recommend the episode if you're like an architecture geek or a design geek. Listen, it's Michael Beirut, you know, self recommending. Anyway, we will be back on Tuesday with that and then on next Saturday with yet another sleep money.