Slate Money — "Compliance Is a Journey" (July 10, 2021)

Host: Felix Salmon
Co-hosts: Stacy Marie Ishmael, Emily Peck

Overview:

This episode centers on the new Biden executive order targeting big business, monopolies, and pro-consumer reforms, with a sharp focus on regulation (or lack thereof) across US finance, fintech, crypto, and a comparison with China's more forceful approach. The hosts explore the friction between executive action and legislation, the peculiar challenges of the American financial system, the regulatory mess surrounding fintech and crypto, and what lessons (if any) can be gleaned from China’s recent clampdowns on its tech giants.

Key Discussion Points & Insights

1. The Biden Executive Order: Pro-Consumer Push

[00:45–10:06]

• Scope & Intent:

  • Felix introduces the executive order as a sweeping, "omnibus" measure addressing everything from hearing aids and railroads to ISPs and drug prices.
  • Emily explains its goal: "Companies have gotten too big and too consolidated and it's hurting American consumers and competitiveness... 72 initiatives covering 12 different agencies... not law, just an EO saying to agencies – let’s do better." (Emily, 02:30)

• Why EOs, Not Laws?

  • The hosts clarify that, while EOs can be overturned or ping-ponged (as seen from Obama to Trump to Biden), legislation would be far more durable but is stymied by political realities and lobbying.
  • "If you have legislation, it becomes part of the law and it becomes much harder to circumvent... But Biden doesn’t think he can get the votes in the Senate to support all of this." (Felix, 08:42)

• Effectiveness & Limits:

  • Stacy points to the immense implementation challenge ("I can just see staffers in these agencies waking up this morning just crying, trying to figure out how they should be interpreting... what to do next." (Stacy, 05:09) and courts/litigation acting as a brake on impact.

2. Why American Finance Feels Broken

[10:20–17:31]

• Banking Frustrations (Especially for Immigrants):

  • Hosts share culture shock stories when dealing with American banks: difficult account switching, limited ATM access, arcane direct debit rules.
    • "Banks... just spend a huge amount of money on customer acquisition and then you're stuck... people are more likely to get divorced than to change their bank." (Felix, 10:40)
    • "If I had a Citibank account, I could only withdraw money from Citibank ATMs. What? In the UK... there's a cash point... If it doesn't look super dodgy, I can get my money. No fees." (Stacy, 11:56)

• The Overdraft Fee Scandal:

  • US banks routinely trap customers with steep overdraft fees—despite years-old Dodd-Frank attempts to address this.
    • "It is illegal under Dodd-Frank for banks to opt people into these terrible overdraft fees... and that was going to be the end of that. And it didn’t happen." (Felix, 15:05)
    • "That initial $35 overdraft turns into like negative 70..." (Stacy, 14:32)
  • Emily notes: “I needed that overdraft... even though it’s a terrible service, it’s going to cost you a lot... you need the money so you opt in.” (Emily, 16:23)

3. Fintech and Neobanks: Solution or Mirage?

[17:31–24:49]

• Neobank Surge (and Skepticism):

  • Many “neobanks” are essentially pretty apps overlaid on an account at an old-school bank; only a few, like Varo, are actual banks.
  • "They all are basically exactly the same... acts... like a prepaid debit card... you can't go below zero." (Felix, 19:41)
  • Chime is cited as a case: facing allegations of summarily closing customer accounts, reflecting how fintechs can be even less accountable than traditional banks.
    • "Chime has been summarily closing bank accounts... with very short notice and making it very difficult for folks to get their money back... there's virtually no recourse..." (Stacy, 20:23)

• Regulatory Arbitrage:

  • The core business model: exploiting gaps between fragmented US bank and payment regulation.
    • "Who's your primary regulator?" Felix asks fintech CEOs. "They never actually answer the question." (Felix, 25:40)

4. The Crypto & Compliance 'Journey'

[25:40–31:55]

• The Binance 'Compliance is a Journey' Moment:

  • Felix’s favorite quote from Binance’s CEO: "Compliance is a journey." (Felix, 26:29)
  • "Compliance is not a journey!" Felix retorts.
  • Emily observes: "Compliance for sure is a journey because the regulators in the US don't have a consistent way to get crypto companies to comply." (Emily, 26:33)
  • There is no single crypto regulator in the US—“a mishmash of the OCC, the CFTC, the SEC, and a huge number of state payment regulators...” (Felix, 27:17)

• Agencies Playing Catch-Up:

  • "These agencies don't have a plan yet. Yet there are billions or trillions of dollars at stake... By the time these agencies figure out their plan... these companies will be massive, impossible to unwind." (Emily, 28:28)

• Regulatory Fines as 'Cost of Doing Business':

  • Robinhood’s new eight-figure New York fine gets a shrug:
    • "Paying $15 million to New York State once in a while is cheap to get into that market." (Felix, 30:30)
    • "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." (Emily, 30:56)
  • Stacy critiques the regulatory lag: "They're always catching up... under-resourced... Fox-hen house situation, revolving door..." (Stacy, 31:49)

5. China’s “Principles-Based” Clampdown vs. US “Rules-Based” Gridlock

[31:55–43:51]

• The Chinese Approach:

  • No equivalent of ping-ponging EOs—when the Party wants to act, it can:
    • "China can just do whatever it likes." (Felix, 33:58)
  • China’s crackdown isn’t about consumer empowerment—it’s about keeping the Party in control:
    • "China wants the data right? So it can control its population, not because they want Chinese people to have freedom..." (Emily, 33:58)

• Comparison with US Frustrations:

  • The US seems "helpless in the face of billionaire CEOs and rich companies." (Emily, 34:45)
  • Stacy warns against romanticizing Chinese authoritarian regulatory efficiency: "There are going to be people who look at this and be like, maybe that's how we should approach regulation... I sort of worry about that oscillation between extremes." (Stacy, 35:05)

• Were We Wrong About Capitalism Beating Authoritarianism?

  • Felix reflects on his old—and now repudiated—belief that more capitalism in China would mean more democracy (see: Hong Kong):
    • "Boy, were we wrong about that... They just completely cracked down." (Felix, 36:23)
  • Stacy injects Realpolitik: "Most countries that have ever had influence over another country don't fully let go..." (Stacy, 42:42)

Notable Quotes & Memorable Moments

• "Compliance is a journey." – Binance CEO, cited by Felix (26:29)
• "If you buy a tractor in America, you don't own the tractor. You're like licensing the IP of the tractor." — Felix, on the absurdities of US consumer restrictions (05:27)
• "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... I can just see staffers...crying, trying to figure out how they should be interpreting and understanding what to do next." — Stacy, on the EO's breadth (05:09)
• "Who's your primary regulator?" Felix asks fintech CEOs. "They never actually answer the question." (25:40)
• "People are more likely to get divorced than they are to change their bank..." — Felix, on banking inertia (10:40)
• "If people are telling you with their money that I'm okay with these abuses... is there really a need for regulation?" — Stacy, on regulatory dilemmas when consumers keep voting with their feet (31:49)
• "It seems like the US government is just helpless in the face of billionaire CEOs and rich companies." – Emily (34:45)
• "We were wrong." — Felix (36:23), admitting the failure of expectations that capitalism would moderate Chinese politics

Important Segment Timestamps

• 00:45–03:34 — Executive order explained: scope, intent, consumer impact
• 05:09 — Agencies’ daunting challenge implementing EO
• 10:20–11:56 — Culture-shock in US banking; consumer-unfriendly features
• 14:26–15:31 — Overdraft fee mechanism and failure of Dodd Frank
• 19:58–21:13 — Neobank critique; Chime’s customer closures
• 22:22–23:39 — Fintech, regulatory arbitrage, and revenue engines
• 26:29 — "Compliance is a journey" (Binance CEO)
• 31:55 — Regulatory lag and China’s alternative
• 35:05 — Dangers of swinging between regulatory extremes
• 36:23–39:42 — Admitting the West’s miscalculation on China/Hong Kong
• 42:42–44:51 — Realist view of international relations; limits of economic cooperation

Concluding Tone

The episode is brisk, wry, and forthright—often marked by a mix of exasperation, bemusement, and skepticism at both American gridlock and Chinese autocracy, peppered with the hosts’ personal stories and sharp, sometimes self-deprecating humor. The hosts do not present easy solutions, but highlight the complexity and contradictions inherent in modern finance and regulation—forewarning that compliance (or reform) is truly a journey, with no clear endpoint in sight.