Emily Pack (3:20)

Yes, we should say that Texas had a freeze in 2011, and they had trouble delivering power then, which was 10 years ago. And at the time, people were saying, hey, probably should winterize your system a little bit better. Maybe this will happen again. You want to be prepared. And they did not prepare. So it's not quite accurate, I think, to say that this was totally out of nowhere, never happened before. Like, the intensity of this, I think, is. Is worse. But they've had cold snaps before, and it's reasonable to think they should have been prepared for this.

Felix Hammond (3:53)

It's certainly the case that they might not have had a five sigma event before, but, like, they've had four sigma events before. And anyone can extrapolate. You know, you have to kind of. It's very easy to foresee that things could be worse in the future than they have been in the past.

Anna Shymansky (4:07)

Yeah, yeah. Although I will say that I think that it's a little simplistic to say, well, they just should have prepared for this. And yes, whenever there is an extreme event, we all say that. And it's understandable, especially when you have people literally dying or freezing inside of their apartments. But this really comes down to the fact that people have to balance how much do you want to pay versus what is the risk? And the reality is that did a lot of people in Texas want their rates to go up to pay for something that was maybe gonna happen once every 10 years? Now we can say now that maybe now they did. Was it reasonable five years ago that they might not want to. It may have been reasonable.

Felix Hammond (4:49)

So, Anna, this is the question, genuine question I have about this, and I don't know, the answer is most gas and wind and other kinds of electricity production in most of the world is winterized. Can cope with this kind of thing. It's in Texas. It's not. Texas is warm. And arguably, you know, people thought that they didn't need to. But was it really that expensive to make it winterproof? Like when you say their rates would go up, like, would their rates go up by a noticeable meaningful amount, or was it more just like, oh, we don't need to because we're in Texas?

Anna Shymansky (5:26)

I don't think anyone can say exactly how much the rates would have gone up based on the cost, because that's a very, very complicated calculation. But this was not. It would not have been Cheap. It's not cheap to winterize all these things because of course there are wind turbines in Minnesota. So you certainly can make these things function. But it's a very real cost. And I think this is something that is the larger story in this story, that this is not just about Texas and about people finding something to like or dislike about Texas. It's that as climate change affects the likelihood of extreme events, it's going to make the need for insurance, whether literal insurance or preparing for extreme events, it's going to need to make that. It's going to make that more necessary, but it's also going to make it more expensive. And the problem is that no one ever wants to prepare for things that seem unlikely because no politician, no business person, frankly, no individual likes to do that. And it's going to become more necessary.

Felix Hammond (6:28)

But that is the job of the insurance sector, right?

Anna Shymansky (6:31)

Yes.

Felix Hammond (6:31)

I mean, the insurance sector is a massive part of the economy. And every single politician, every single human being, like we all insure stuff, we all understand intuitively that unlikely things do happen and that it's a good idea to pay a little bit of money on a regular basis so that we are insured against some unlikely event that probably won't happen. That is how insurance works. The insurance sector is a multitrillion dollar industry globally and it does these calculations all the time. And people are actually happy paying insurance premiums. And winterizing an energy infrastructure is basically an insurance premium. So I don't understand why when you say, like, people just don't want to do it, it's like people are happy paying insurance premiums.

Anna Shymansky (7:20)

I disagree. I think if you look at how ill prepared we were for the pandemic, if you look on so many facts, factors, people do not want to pay for things that do not give them an immediate benefit. I'm not saying that people. No one wants to pay for insurance. Of course we do. We have health insurance. Like if we're lucky enough to have health insurance, we have insurance for our homes, insurance for our cars. Not saying people don't pay for insurance, but often people do that because they are literally forced to do it. People are horrible at planning ahead.

Emily Pack (7:49)

So I think what Anna's saying hits on the bigger issue in Texas and maybe across the country. I mean, there's one issue is our infrastructure and our electric grids are too old and they're not going to be capable of handling the extreme weather of climate change. You see it in Texas and you see it in places like California. Bloomberg Opinion had a piece that was really good saying, like, both Texas and California have had problems with their electrical grids, dealing with climate change and extreme weather. And, you know, some people look at Texas and say, it's an unregulated market. That's the problem. But then California is regulated, and it still has problems. So there's more to it than regulation. I think part of it is this unwillingness to spend money. And it's not just like, consumers are price sensitive and don't want to spend more for this kind of thing. Part of it in Texas is the companies don't want to spend more because it's a completely free market. But even in California, they don't want to spend to spend more either, even though it's more regulated and a little less subject to market conditions. There's just an unwillingness across the country in states that are blue and red, to spend the money on infrastructure that's necessary. And I think that's not just the disincentive of, like, we don't want to spend the money. It's even politicians and governments don't want to spend the money because, like, it's no fun. Like, I think on Lizzie o' Leary's podcast, the Energy Expert, she had was saying, like, you can build a new bridge and you cut a ribbon and it's, like, real cool. But, like, if you go and, like, make the windmills better for snow, like, there's no ceremony for that. No one cares. So, like, there's no incentive for the politicians even who want to spend money to spend the money, because there's very little reward there.

Felix Hammond (9:36)

It's super unsexy. That's definitely one of the problems. And the costs are enormous. I think while the costs of, you know, making Texas's energy infrastructure more winterproof than it is right now are not super enormous, they are entirely doable. And they, as I say, they happen everywhere else. But more generally, your point is very, very well taken, that people have been talking about hundreds of billions of dollars worth of broad energy infrastructure upgrades that the United States needs. And the United States is enormous. And this is really, to a large degree, a function of just sheer physical size. The big problem nationwide is that America in general, with the exception of a handful of large cities, doesn't bury its power lines. So anytime there's, like, wind, the power lines fall down and everyone loses power. And this is just an accepted, normal part of life in America, as you know. You know, Emily living in Westchester, New York, which is really very. A very rich, pretty dense part of the New York metropolitan area. It, you know, power goes out all the time. Whenever, whenever there's a windstorm and you're like, and there are, if you look at other rich parts of the world, if you look at Western Europe or Japan or Korea, like, they're not built like that. This is a peculiarly American sort of cheaping out on infrastructure. And we can point to that kind of cheaping out on infrastructure across the country. We can point to it in energy, we can point to it in broadband, we can point to it in roads and bridges, we can point to it in water, like it's everywhere. And so in this sense, like, again, I think Anna has a good point. You can, you can say, yeah, we should have spent more money on better infrastructure for energy in Texas. But the bigger picture of the amount, the sheer quantity of infrastructure investment that we need nationwide across a whole bunch of different industries, that really does go into the trillions. And as a policy perspective, this is something that Joe Biden ran on. He has this three point something trillion dollars build back, better plan to really address all of these things. Anna, I would ask you, is that like, is this Texas cold snap a sort of salutary reminder of why that kind of thing is necessary?

Anna Shymansky (12:10)

Yes, and I hope it does spur people on both sides of the aisle to actually have a real infrastructure week where we actually pass actual legislation to in fact spend a large amount of money to update our infrastructure. Both talking about things like roads and power, but also things like broadband. I know, like where my family lives, which is not that far from Ann Arbor. Their Internet's from like 1995. It's just one more example of this. One thing, though, I want to say before we move on that I'm going to correct you, Felix, is that a lot of infrastructure in Western Europe is falling apart. Germany is notorious, notoriously not invested in their infrastructure. There are bridges falling apart in Italy. So we're not the only country that's lousy about investing in infrastructure.

Felix Hammond (12:55)

As a brutalism fan, we all know my little thing about brutalism, I can tell you that a lot of infrastructure is made out of concrete. Roads, bridges, buildings, that kind of stuff. And concrete has this thing where it tends to fall apart after 50 years. And a lot of the infrastructure in Western Europe and in the United States was built about 50 years ago. And this is one of the reasons why the need for massive repairs is happening right now is just like the natural aging time cycle of concrete.

Emily Pack (13:28)

Speaking of crumbling infrastructure, I want to make two points. The first point is I Think it's really come home to us in the pandemic that all our infrastructure is crumbling. Like Texas shows us that our energy infrastructure is crumbling. The pandemic shows us that our public health infrastructure is non existent and our care infrastructure is non existent. And the unemployment benefits system is a mess too. Like, all our infrastructure seems to be having what you call it a Six Sigma. It's like, it's a lot of Sigma. I mean, things are crumbling all around us. And the second adjacent point to that is just that. I think next week or in the coming weeks, we're talking to the author of a book on how cities fall apart. And one of the key ways.

Felix Hammond (14:11)

Alleynewitz is coming up.

Emily Pack (14:12)

Yes, yes. And one of the key ways societies in the past have fallen apart. One of the pieces that leads to cities, like, dying is crumbling infrastructure. So I think it's something we need to pay attention to. Like, there should be like a. A red, you know, emoji, you know, light spinning or something right now, because.

Felix Hammond (14:30)

Yeah, and we have.

Emily Pack (14:31)

What we're seeing is like a real time just collapse of everything. I don't even think I'm being apocalyptic here, am I?

Felix Hammond (14:38)

Well, you are being apocalyptic.

Emily Pack (14:40)

Okay, a little. But in a real way, the apocalypse.

Anna Shymansky (14:44)

Is a Six Sigma event.

Felix Hammond (14:49)

So talking about Six Sigma events, Anna, the story of how Citibank wound up wiring $900 million by mistake to a bunch of Revlon creditors is just so absolutely glorious and. And terrifying and hilarious. And it's kind of amazing, given the sequence of events there, that it doesn't happen all the time, but apparently it had never happened before.

Anna Shymansky (15:22)

I agree. That was the thing that I found so fascinating about this story. And just to back up, basically, city wired like $900 million to creditors of Revlon, which it did not mean to. And while it was able to get some of the money back, there was about $500 million that a number of creditors, including a number of hedge funds, were like, we're not giving it back. And a judge just ruled that they don't have to give it back. Finders keepers is a real thing. This story, though, is way more interesting than just like a Fat Finger episode. This is really an example of a systems error. And as Felix said, when you understand what happened, it's shocking that this doesn't happen more often, because basically what happened, and give me a second here, is that you have to a little bit understand the background of what was going on with Revlon. In 2016, you had a number of creditors who gave money to Revlon and then over the years, Revlon had problems, and so they tried to use legal maneuvers to basically strip collateral from that loan so they could use that loan to borrow additional money. Obviously, the creditors didn't like that. There was a lot of contention between the two. I won't go into all of the details, although I think we should put the legal documents on the show notes, because it's a fascinating story involving a sham revolver, as it is called. But the upshot is that what ended up happening was that you had one group of creditors that were being rolled over from an old loan into a new loan. And then you had another group of creditors who didn't like what Revlon was doing and they didn't want it, and they were not being put into that new loan. So how does Citibank factor into this? They were the administrative agent, which basically just means they're supposed to basically process payments back and forth. So because of the way their systems were set up, the only way that they could pay the interest that had accrued on the loan to the creditors who were moving to the new loan was to pay that interest to all of the creditors, because apparently their system had no other way to do it. And then on top of that, the only way to trigger the payment of that accrued interest in their system was to appear to be paying off the entire loan. But what they were supposed to do were click certain boxes that told their internal system, we're not actually wiring this money out. It's going to this internal, what's called a wash account. So it's just like an accounting maneuver. Right. The problem is that the way the system was set up, when you were went to click those boxes, you would think if the money you don't want to send out is the principal, that you would click the box that says principal. Right. Reasonable.

Felix Hammond (18:00)

Reasonable.

Anna Shymansky (18:00)

The problem is that if you click the box that said principal, but you didn't click two other completely unrelated boxes, then the money was sent out. And there was actually was a warning that came up that said, you are sending money out. But the problem is it didn't say, like, you are sending the principal out. And so the people just assumed that that was referring to the accrued interest which they were intending to send out. And that's why this happened.

Felix Hammond (18:26)

It's just incredibly bad software design.

Anna Shymansky (18:29)

Yes.

Felix Hammond (18:30)

And there are two different things going on here. One is that Citibank, like all other big banks, is not just a bank that has grown to become very big over the years. It is held together by Basically bailing wire and duct tape. And it is a bunch of different banks which have all been merged over the years. It was put together mostly by a guy called Sandy Weil, who was famous for being extremely acquisitive in just buying banks all over the world and. And sort of stringing them together. All of those banks were based on ancient technology and on incommensurate ancient technology. And so trying to get them all to. To speak to each other in the same language, it's extremely hard. And all of that technology is now looking extremely dated. And if you look at the screenshot in the ruling, you're like, wow, this is a screenshot from some piece of software that was clearly state of the art in, like, 1984 or something. And it's just so hard to update everything that no one updates anything. And so the problem is really, as you say, one of, like, information and software design not being able to keep up with the world. And when that happens, you get these massive errors. And yeah, I agree with you that in a weird way, it would have been better if this mistake did happen more often, because if the mistake did happen more often, they would have realized how incredibly stupid this was, and they would have put in a fix. But because it had never happened before, it was just Citibank's dumb luck that the first time this mistake happened, it happened to be $900 million.

Emily Pack (20:08)

Exactly. And then what happens next, I feel like, is it starts getting really fun, right? Because. And Anna, you'll stop me if I have this wrong, but Citi sends out all this money to the creditors, some of whom have been fighting to get all that money back. So they get the money and they don't know it's a mistake. They're just like, oh, okay, cool. And Citi doesn't realize it's made a mistake for, like, 24 hours or something. And then finally messages them all and is like, could we have our money back? So sorry, that was a mistake. And then all the hedge fund guys, well, not all of them, but some of them, they start, like, messaging with each other and just, like, making jokes about it, like, oh, how was your day today at work, honey? Oh, it was fine, except for I accidentally sent out $950 million. And that's all in the complaint because there was this lag between these people generally thought this was the money they were owed. And then realizing it was a mistake, that contributes to the finders keepers ruling we have gotten this week. Right? I mean, that's part of it. They didn't Right.

Felix Hammond (21:10)

Like, they thought it was really central. A really central part of the ruling is that for that first 22 hours or whatever it is, everyone was, like, walking around scratching their heads, going, why did Revlon just pay off its loan in full when this loan was trading at, like, 20 cents on the dollar? That makes no sense, but I'll take it. And they thought there was some, you know, incredibly crazy, sophisticated financial engineering going on by, like, the holding of the holding company or something, rather than just like, Citibank fucked up, which turned out to be the actual explanation. But precisely because no one even entertained the idea that this was a Citibank error. Precisely because of that, that turns out to be an important part of why they don't need to give the money back for relatively obscure jurisprudential reasons.

Anna Shymansky (22:05)

Yeah, exactly. And whether anyone actually did think it was a mistake or not, like, obviously, we don't know. We're not inside their heads. But one of the things that I found so fabulous about this story was just, it's one of the few examples of where snarky emails and bchats actually help you, because those didn't start until after they knew it happened. So then they could say, well, if we had thought it was a mistake, we would have sent those snarky messages beforehand. We waited. So clearly we didn't think it was a mistake.

Felix Hammond (22:35)

They still don't have the money, though. I mean, it's still sort of sitting in a protected account and they can't spend it because Citibank is going to appeal. And I remember that when we talked about this the first time on this show, you and I basically just assumed that Citibank would get its money back. Like, of course they will. It's a mistake. The world doesn't run on Bitcoin, Right? The reason why bitcoin is bad, or one of the reasons bitcoin is bad, is precisely because transactions are irreversible. And on a. If you're trying to work money stuff, in a society that is civil, you have to be able to reverse transactions because people make mistakes. And one of the fundamental parts of the financial system is, yeah, people make mistakes. And when people make mistakes, those transactions get reversed. So we just assumed that that would be the overarching narrative and legal analysis here. Turns out there's this precedent called bonk worms, which is. And you guys can all, you know, correct my pronunciation on that one, but bonk worms turns out to be this, like, hugely important precedent in this case, which, at least according to this particular judge means that no one needs to give any money back, back at all. So if the amount you have received by mistake effectively pays off a debt that you are owed, then you can consider that debt to be discharged in return for the value that you receive. And so that's fine. Like, you got the money by mistake, but then again, the creditor no longer owes you the money. And so it's all a wash. And so the really big question, which the judge doesn't answer in this ruling at all anywhere, which is kind of astonishing, is, does Revlon still owe that $500 million or not? Does it owe that $500 million to Citibank now? Or did Citibank just pay off Revlon's debt with Citibank's own money and now that debt is discharged?

Anna Shymansky (24:39)

Yeah, no, it's a very good question. And partly this is also why it was so interesting that they, like, because they literally paid off the debt with the accrued interest to the penny, and that is part of the reason why the discharge for value. But, yeah, I mean, this does really raise the question of, like, so, yeah, is this discharged? Does Citi now have this loan? Like, what. I mean, because this is a very large amount of money. So it's not like you can just kind of wash past this. You have to figure out. And I don't think anybody knows. I mean, my guess is right now we're not going to know because Citi is going to keep appealing this.

Emily Pack (25:13)

I mean, I think at first when I heard about this ruling, I was like, that is the craziest thing I've ever heard. Like, common sense tells you if someone makes a mistake like that, you pay it back. Like, I don't need a judge to tell me that, but apparently I did need a judge, because when you kind of like dig into the ruling just a little bit and the guy explains, like, look, like if someone pays you back exactly to the penny, what they owe you. Like, we can't live in a world where every time someone pays you back, you're wondering if it was a mistake or not. Like, we need. We need to believe in it. Like, you need to believe that if you owe the money and it gets paid back to you, you're all good. Like, you can't. Finders keepers does actually kind of make sense in the specific way to keep things working so we can all trust the system or something.

Anna Shymansky (25:59)

One of the other things that was kind of fascinating about this was that part of the reason the creditors could also say that, well, we were due this money was because they had actually issued a default notice because they disagreed with what Revlon was doing. And Citibank had not distributed that default notice, which these creditors were not happy about. But technically, if you have an event of default, then you could have a bunch of people accelerate the debt, which would mean all the debt was due. So that was another, I thought, just kind of interesting fact about this. And then maybe the last thing I'll say, because I think this actually weirdly ties into what we were saying before, is that this is another example about the problems of infrastructure.

Felix Hammond (26:38)

Yes.

Anna Shymansky (26:40)

Yeah. Because the thing is, when you have systems, whether you're talking about a country or whether you're talking about internal systems, where you have trillions of dollars moving back and forth, it's not like somebody starts from scratch and plans this perfect system. And it's not like you can be like, okay everybody, we're just going to be offline for a week. The entire world global financial system, we're going to redo this and then start over again. No, you keep patching and you keep making changes and you add this and you say, well, this doesn't work. So we're going to put these weird default boxes and oh, we're going to do this. And then you get to this place where everything's just a complete mess. But it's not easy to move to a more coherent system. I think you're seeing that in both our power grid and our settlement system.

Emily Pack (27:24)

But why is my iPhone always updating? They figured it out.

Felix Hammond (27:27)

Okay, so this is actually a really good way of understanding it because what we're talking about here is systems architecture. And what Apple does is it keeps an absolutely iron grip on its entire ecosystem. And if you want to have an app in the App Store, you have to jump through so many Apple hoops and make sure that you play well with absolutely everything in Apple's os. And Apple won't let you onto a phone unless you do that and unless you're constantly updating things to make sure they work and so on and so forth. And the, and the OS itself, as you say, is constantly updating itself and patching various bugs that appear over the days and weeks. And that is a single privately owned system. And even just maintaining that is it takes a trillion dollar company to do that. What we are talking about here is distributed systems where there is no central authority like Apple making sure that everything is working in a state of the art way. I remember having a conversation with Max Levchin once, who was the co founder of PayPal and one of the ideas behind PayPal was basically that the global financial system was this cobbled together mess of ancient pieces of software that have huge amounts of difficulty talking to each other. And that if you just started from scratch and built a single system, you know, with Internet technology, it would be much more efficient and much easier to use. And that's what they did with PayPal and that worked. And then if you fast forward like another 10, 15 years, PayPal itself, you know, bought a bunch of companies, needed bunch of patches and started looking incredibly antiquated. And so then what you have is something like stripe coming along and it's like really sleek and smooth and easy to use. And everyone's like, oh, you know, suddenly stripe becomes like the new hot sexiness. And PayPal starts looking a little bit old fashioned. And this is a constant thing. You have different companies developing different things, and whoever's the newest always looks the cleanest. But it's basically effectively impossible to impose that new cleanliness on everything that went before. And so in terms of like infrastructure upgrades, you need to bring everybody up. And that's effectively impossible when it comes to the global financial system. And that's the deep, gnarly problem at the middle of all this.

Emily Pack (29:58)

And is that the same thing with the energy sector too? Is that also our electric grids problem? And there's never going to be like a new, like a stripe to come in and be like, we do it better than you. Like, you're just stuck with not.

Felix Hammond (30:11)

I mean, there's been a lot of talk this week about how Texas is not on the national grid. And because it's not on the national grid, it isn't regulated in the the same way that other parts of the national grid are regulated. But in terms of, would Texas have had access to a bunch of power from Washington state if it was on the national grid? No. Power doesn't travel that far. It doesn't travel efficiently in the way that money does. And if you connected Texas to the power grid, there might be a few regulatory changes involved. But in terms of suddenly having access to a beautifully efficient national infrastructure thing like, no, that's not how energy works. Energy is, again, like, you know, here's me talking about concrete again, but it's something which is very local and it needs to be produced locally.

Emily Pack (31:02)

So like, Apple can't make a new energy os for the whole country and solve all our problems.

Felix Hammond (31:08)

That was enro. Okay, Anna, we got questions for you. You are the person with the answers?

Anna Shymansky (31:20)

Yes, and thank you so much. To everybody who wrote in and said very kind things. Again, I'm going to miss everybody here and miss all of you listeners. I'm trying to answer as many of these questions as I can without going too long. So to start with, Ian Smedley asked who I read to basically stay up to date on financial journalism. And this I would say I honestly get most of my day to day news through podcasts. One of the few sources for financial journalism I do read every week is Breaking Views, partly because I worked there and also because their content is short and I think better than pretty much everywhere else. But I skim the Financial Times, I skim the Wall Street Journal, but I don't think day to day news is as important as larger trends. So I know this sounds really pretentious, but I actually spend a lot more time reading books than I do reading online news. I do like I read the Economist every week, but I really spend a lot more time reading books. I just think it's more helpful.

Felix Hammond (32:22)

I'm going to come in with a little plug here just because we're in podcast world and I listened to an hour long podcast this week. Daniel Torillo, who is the former head of bank supervision at the Federal Reserve, had a big podcast on this, had a big interview on the Banking with Interest podcast, which I don't know if anyone subscribes to the Banking with Interest podcast. Rob Blackwell interviewed him for an hour just talking about exactly this kind of thing, really big picture questions about what does it even mean to supervise rather than regulate and stuff like that. And it's a great idea to get out of the news cycle and just think those big picture thoughts on a regular basis because it does help you understand the news when the news happens.

Anna Shymansky (33:07)

Yeah, and that's exactly it because you can just pull things from different sources. I know when I was briefly working as a journalist, often the most interesting ideas I had were from a random book I had read that wasn't directly related. But there was an interesting idea that then I could connect and look at it in an interesting way. And I think otherwise a lot of people do end up often sometimes saying the same things or something becomes very quickly out of date. So I would definitely say spend a little bit more time on larger picture things.

Emily Pack (33:37)

Wait, what podcasts, Anna, do you listen to?

Anna Shymansky (33:40)

So I do honestly listen to a lot of Bloomberg podcasts. Odd lots. I actually particularly like and like Bloomberg Surveillance. Yeah, I don't know, I listen to like 30 different podcasts. I also. Oh, the BBC Global News also for Just like Global news is a fantastic, fantastic podcast.

Felix Hammond (33:56)

So is what you're saying that basically, if you want to have a well rounded view of the world, you need to do the peculiar Animus Shymansky thing of going on long runs every day, because that's the only way that anyone would ever be able to listen to so many podcasts.

Anna Shymansky (34:12)

Okay, well, yes, this is true that, number one, I obviously listen to everything at like one and a half times the speed, but yes, I do. I'm a distance runner, so that definitely helps. When you're doing like four hour runs, you can get through a lot of podcasts. I also like to cook, and so that's another great way to listen to podcasts. I also live by myself, so basically, if I'm not speaking with another human being, I'm probably listening to a podcast or an audiobook to a somewhat crazy.

Emily Pack (34:34)

Degree at one and a half times speed.

Anna Shymansky (34:36)

Anna? Yeah? People speak so slowly. And I. Okay, I realize I speak quickly. I know that that is like a running joke. Although I will say I feel like I slowed down from when I first started on the show.

Emily Pack (34:48)

I think so. But now I understand why you talk fast because everything you listen to is really fast. So of course you're talking really fast all the time because that's what you're used to.

Anna Shymansky (34:56)

Well, no, I spoke quickly and then listened to podcasts, but, well, because people speak often very, very slowly on podcasts.

Emily Pack (35:02)

Don't leave us. Are you sure you have to go?

Felix Hammond (35:05)

But does this now mean, Anna, that suddenly a large proportion of the Slate Money listenership is going to start listening to slate money on 1.5x because they don't need to do the 1x thing just for you anymore.

Anna Shymansky (35:21)

I used to listen to myself on 1.5.

Emily Pack (35:23)

Oh, my goodness.

Anna Shymansky (35:25)

People speak slowly, man.

Emily Pack (35:27)

Just get to the point. Get to the point.

Anna Shymansky (35:29)

Exactly.

Emily Pack (35:29)

That's what I'm saying.

Anna Shymansky (35:30)

That's what I'm saying. Okay, then we have Stu Van Airsdale, which is an excellent name, who wrote about OkCupid profiles and dating profiles in general and whether I think there's value to dating profiles. And this is based on the discussion we had last week about dating sites. I'm going to say I think there is absolutely no value to dating profiles. I'm sorry, Stu. I can understand maybe if people enjoy reading them, but for actual dating, it makes absolutely no sense because everybody knows when you're doing online dating, you look at the photo, that's like 95%. Then maybe you look at the age where somebody works they went to college, maybe political politics, that is it. Nobody cares about anything else. And the whole point of online dating, the only good thing about online dating is that it gets you to meet people who actually want to date. And the more time you waste before that is just pointless because you always waste so much time in online dating anyway. So that anything that creates more waste, I say, get rid of it. The only good thing about Tinder that it kind of moved in the direction of being like, yeah, nobody reads dating profiles. I say this as someone who used to have a very long, involved OkCupid profile. Let's see, we have a Richard Schumann, who asked if I've ever changed Felix's opinion about anything.

Emily Pack (36:43)

Such a good question.

Anna Shymansky (36:45)

It is a very good question. Now, I've obviously been doing this podcast for a number of years, and I definitely do think that I know when I have changed Felix's opinion. Not because he actually says, you are right and I was wrong. Anna, when. Which, to be fair, I never say when someone's changed my mind because, like.

Felix Hammond (37:02)

Six weeks later, I'll start mansplaining your own explanation back to you and you'll.

Anna Shymansky (37:06)

Be like, ah, yes, yes, you actually have done that. Side note. But it's often I know when I've changed Felix's opinion, partly because of the way he will respond to me. That often what he will do is he will kind of change the topic. He won't say that he was wrong, but he'll kind of change the topic and. And then jump off from what I said as though he had always agreed with it. I always do, like, a small little jig inside whenever it happens. It doesn't happen that frequently, but when it does, it makes me very happy because I know when I first started this show, I was not prepared to debate with Felix Salmon. Now, I, as I'm sure everyone knows on the show, love to debate. It's my favorite thing in the world to do. And when I first came on this show, it was so hard to debate with Felix because you would ask questions that no one would expect someone to ask. It would be like if you were having an argument about something related to climate change, you'd be like, why is the sky blue in questions that are actually really, really important? Maybe that was a bad example, but questions that are very important but nobody really thinks of. And doing this show has really, I think, made me a better debater because I would always have to be prepared for whatever random thing you would ask me. So I would do all this thinking beforehand about what random thing is Felix going to ask me? And. And whenever you would ask me the thing that I thought you were going to ask me, it made me so happy.

Emily Pack (38:31)

Are you guys going to say any example of a time that Felix's mind was changed?

Anna Shymansky (38:37)

I think recently we had a. Not that long ago discussion on tiered interest rates. And I thought as we were talking that Felix was starting to agree with me. Maybe I was wrong, but I felt as though he was starting to agree with my point that the whole concept of tiered interest rates was missing the point that monetary policy was a bad tool based on what was currently happening in the economy. And. And whether or not one could agree with them in theory, they didn't necessarily make sense in practice right now. And I kind of felt like by.

Felix Hammond (39:03)

The time we were done, that was a good conversation. And yeah, I think that's right. There was this kind of compelling odd Lots podcast actually trying to explain why offering different interest rates to different kinds of borrowers for different kind of things makes a bunch of sense for monetary policy, which I think it still does, but you had some very good arguments against it for sure.

Emily Pack (39:25)

This is beautiful.

Felix Hammond (39:26)

Oh, wait, you know, you know what you actually changed my mind on? I think the single biggest thing you've changed my mind on is the wealth tax and whether it's actually constitutional or not. I'm a big fan of wealth taxes, but I'm. I'm now coming around to your point of view that whether or not you think they should exist, it's basically impossible to imagine them getting past the judicial system because there's a whole bunch of constitutional reasons why they can't exist.

Anna Shymansky (40:00)

Right. And especially with court as it is currently constituted, it definitely seems like it is probably not the most useful thing to focus on. Again, whether or not one agrees with the underlying wealth tax as well. Glad to hear that. That was okay. I'm going to do the last question because this is my absolute favorite question. It's Kitan Patel who asked. I'll read his. Because it's short. When, if ever, will Jim Harbaugh deliver for Michigan football? If never. Do you think he should be replaced? Now, I have very, very strong opinions about this. I say, as I'm literally wearing a Michigan sweatshirt. So as again, everyone who listens to this podcast knows I'm mildly obsessed with Michigan football. Jim Harbaugh, for those of you who don't know, is the coach of Michigan football. He's been there since 2015. He was a quarterback at Michigan one point. Then he was A coach, other colleges in the NFL. And he came in as a savior of Michigan's program because it had really, really been in the dumps for a while. And while he improved things, he's achieved basically none of what he came to Michigan to achieve. We've not won a Big Ten championship, we haven't gone to the playoffs, we haven't won a national championship. And most importantly of all, we have not beaten Ohio State, which is the thing we care about more than anything else. I realize it doesn't make any sense. He recently had a contract extension and Michigan. Side note also, Michigan had a horrible football season this year. It's just absolutely abysmal. I think all of us just wish they had never played. It was bad, but his contract was extended. And here's the thing. I like Jim Harbaugh. I want Jim Harbaugh to succeed. However, I am very skeptical that Jim Harbaugh will be able to succeed. He has made a number of changes, got rid of our defensive coordinator, brought in some nice new talent, some also other coaches I think will be really good recruiters. We've had a relatively new offensive coordinator, so I think we have a chance. But the thing is, I just feel like his understanding of football may be a little bit out of date. And I don't know if he's ever going to be able to produce for Michigan. And last thing I'll say is that I think he has a very limited amount of time in order to produce. I think that unless he beats Ohio State in the next two years, he's gone.

Felix Hammond (42:09)

So how long has he been at Michigan and how much has he paid?

Anna Shymansky (42:13)

So. Ah, good question. So he started in 2015 and he's been known as like the most. One of the most well paid coaches. He was paid like $8 million. He's paid a lot of money. This most recent contract extension, he took a massive pay cut and almost the majority of the money he's making now is actually in incentive payments. So he actually has to meet targets.

Felix Hammond (42:35)

These incentives are things like beating Ohio, he gets like an extra million dollars.

Anna Shymansky (42:39)

Ohio State, I don't know the exact amount, but I.

Felix Hammond (42:43)

Is Ohio not a state?

Anna Shymansky (42:46)

Well, there's the University of Ohio, there's Miami of Ohio, there's Ohio State, who we hate. And unfortunately Ohio State is a very good team. It sucks when you're. Your rival, happens to be one of the best teams in the country.

Emily Pack (42:58)

Have you thought about doing a football podcast, Anna? Because you really just sounded like a sports podcaster just now when you were Speaking like, that is very in the mode of a sports podcast.

Anna Shymansky (43:12)

I would love to do that. I basically listened to finance podcasts, some other news, and then, I kid you not, I think I listened to seven Michigan podcasts, and then I listen to a couple other, like, college sports podcasts. It's ridiculous. It's insane. But it's not just football. I also listen to basketball. Shout out. Michigan won last night. They defeated Rutgers. We're playing Ohio State this weekend in basketball. Big game. So, yes, I would love to do a. Especially a football.

Emily Pack (43:45)

Why? Is it because you're from Michigan? Did you just grow up with the team? Is that what it all comes down to here?

Anna Shymansky (43:52)

Yeah. I am from this town called Dexter, which is just outside of Ann Arbor. Almost everyone in my family went to Michigan. Like, my dad went to Michigan for medical school. One of my sisters went to Michigan. Two of my uncles went to Michigan. My dad, at one point sold his medical practice to Michigan. And sports is really a big thing in my family. And so, literally, my earliest memories are of college football. Like, my earliest memory, I feel like, is my mother telling me we say, go blue on Saturdays, and then on Sundays, we say the lines are horrible, because they're always horrible. So, no, it was really. I mean, I was obsessed when I was a kid, like, to the point that my family. I was inconsolable. When Michigan lost, like, I would cry. No, it was ridiculous. But, yeah, I started going to the games when I was really young. And while I understand there are a lot of complications with college sports in general, especially with football, I understand all of those things, but it is something that is the thing I was raised on that I love more than anything else.

Felix Hammond (44:51)

Wow.

Anna Shymansky (44:52)

And that will lead us into our Slate plus, actually.

Felix Hammond (44:54)

Oh, yes. And so the Slate plus is going to be about Tom Brady. Do I have that right?

Anna Shymansky (45:00)

Yes. Because I made this joke last week when Felix was saying for me to say my last hot takes that I really like Tom Brady. And I know this is a very controversial thing to say because so many people hate Tom Brady. So I will explain my love of Tom Brady in Slate Plus.

Felix Hammond (45:17)

Okay.

Anna Shymansky (45:18)

And my defense of Tom Brady in Slate Plus.

Felix Hammond (45:21)

But before we have Anna Shymansky's hot take defense of Tom Brady, we still have a numbers round. So, Emily, what's your number?

Emily Pack (45:31)

My number is $1,600. That is the tax bill that this one woman I spoke to for a story I wrote this week has to pay because she got unemployment insurance benefits in 2020. So she owes now $1,600 to the IRS. She is one of. I think it's going to be like millions of people who got a lot of money in unemployment insurance benefits last year because the benefits were really good and because of honestly dumb reasons. The United States makes you pay taxes on your unemployment insurance, which is again, dumb and the fault of conservative economists from the late 1970s who thought that if you didn't tax unemployment insurance benefits, you would never work again because they would be so great. Which is hilarious and ridiculous, just based on common sense. And also what I learned is that a lot of people don't even know you have to pay taxes and the benefits. So how could they be an incentive or not if you don't even know about them anyway? So there were a lot of money went out in 2020. A lot of people are going to owe money. A lot of them still aren't working. Some of the ones I spoke to said they're going to use maybe their stimulus money to pay the taxes, which is just the dumbest thing I've ever heard. Because you're supposed to use the money for stuff, not to just give it right back to the federal government. It's real dumb. So I wrote about it and that's my number.

Felix Hammond (46:54)

Are there two types of income? There's like taxable income and non taxable income. I feel like on some level all income should just be taxable. That trying to carve out like, oh, this is like interest on municipal bonds and so you shouldn't have to pay income tax on this one special type of income is really dumb. And I kind of like the idea that you just, you know, income tax is based on how much money you earned in the year and then you pay tax on that. And if the government wants to give you more money, then it just should give you more money. And the taxable unemployment benefits should be higher than the non taxable unemployment benefit. But doesn't it make sense for everything to be taxed rather than to have this incredibly complicated tax code where you try and divide and come up into what is taxed and what isn't taxed?

Emily Pack (47:39)

I mean, I think that if the state or the federal government is giving you money and aid money that it shouldn't be taxed. It's not the same thing as income like SNAP benefits. You don't get a bunch of food stamp money and then have to pay some back in taxes. It's just, it's. What is the re. It doesn't, it doesn't make sense. It's not income in the way you're thinking of, like, money you get for doing a job or money you get from an investment or something, this is like aid. It's just so. I don't think it. It's not complicated.

Felix Hammond (48:07)

I think that's a good point, to.

Emily Pack (48:08)

Keep it out of the tax system.

Felix Hammond (48:10)

In that sense, it's closer to a gift. Right. And you don't need to pay income tax on gifts, but if it's over a certain amount. Yeah, but it's like. I think that that amount is, like, literally like $300,000 or something massive.

Emily Pack (48:22)

I mean, it's just the money is coming from, in this case, the federal government, but it's partly state aid, and we don't have to talk about that part. But the point is, like, the government wanted to help you and give you this money to help you get by, and now it wants some of it back. It's just. It's illogical. It's not the same thing as income. And in 2009, as part of the rescue package, they passed, then they exempted unemployment insurance from income tax, like the first $2,000 you get. And this time there's a proposal floating around from Dick Durbin to do it again, but it hasn't gotten much traction. And yet there's so much more money at stake for people because of those extra. Remember, it was $600 extra per week, so some people made, like, as much as, like, $20,000 from these benefits, and they're gonna. And they're facing big bills. And some of the state unemployment agencies weren't even able to withhold taxes from the payments, especially the new stuff, which went out to freelancers and part timers, like, they didn't even have the option of withholding. So it's kind of a mess, and I don't think it should be treated the same as income.

Anna Shymansky (49:27)

Yeah. I mostly am in favor of what Felix said in terms of keeping the tax code very, very simple. But I do think that, especially when you're talking about a crisis moment and especially when you are sending people money because we had to shut the economy down, it just seems like you should make an exception there, but you should make a pretty broad exception just to make it simple.

Emily Pack (49:48)

Yeah. I mean, I think used to be unemployment insurance wasn't taxed like that at all, and they changed it in 1978 for the reason I was telling you, this Harvard economist is a very big deal. Marty Feldstein was very adamant.

Anna Shymansky (50:02)

Yes.

Emily Pack (50:03)

That this would be. I spoke to one of his students who's now a grown person. And I said, this is stupid. And he said, yeah, no, it's stupid. Feldstein also believed in trickle down economics and other things I think we all agree were stupid. That's my fancy word for it.

Felix Hammond (50:18)

My number is $240, which is the median amount of money in a Robinhood account. This was a number that dropped out of the Robinhood testimony in front of Congress this week. There are something over 13 million Robinhood accounts out there, but a lot of them have basically no money in them. And we just saw Robinhood raising $3.4 billion at unknown valuation connected to its IPO price, but possibly as high as $33 billion. And I do kind of wonder, wonder how much those investors think These accounts with 50 bucks or 100 bucks or 200 bucks are really going to grow in order for that kind of valuation to get justified.

Anna Shymansky (51:14)

My number is 1%, in keeping with my statement about big picture thinking. In 1822, the bank of England lowered interest rates for the first time ever from 5% to 4%. So they lowered it 1%, I guess you could say, 100 basis points. This created this massive lending bubble and it involved other things that the bank of England was doing related to debt, but it fueled actually the first emerging market debt crisis. Because you had a lot of these Latin American countries that were newly independent, so a lot of them were issuing debt, including countries that didn't actually exist, like POI A. The best emerging market debt story ever.

Felix Hammond (52:01)

Yeah, I love that story.

Anna Shymansky (52:03)

And then it ended up resulting in this massive crisis where a tremendous number of small banks failed. And you had this famous quote that the country was within four and 20 hours of returning to a state of barter. And the reason I just bring this up is because, look, throughout history, having overly loose monetary policy very often leads to negative consequences. And while I have no criticisms of what the Fed or many central banks have done in this crisis, I think they did exactly what they should have done. I think that we're entering this era where people are becoming far too trusting that central banks can essentially do anything, that these are all essentially super men and women and that they'll be able to control everything and that there won't be any negative consequences. And while I can't say there will be because I'm not a fortune teller, I just think that this is one of the most important things that is occurring in the economy, one of the most important things that is occurring in finance. It's at the heart of almost every story we talk about. Is just. You're like, well, central banks. Well, central banks. I think that people should just be a little bit more skeptical about this idea that central banks are all powerful.

Felix Hammond (53:23)

So one of the big discussions that's been happening in the macro world of late is this idea that fiscal policy, if we have a $1.9 trillion stimulus, could cause inflation. And then you have people like Janet Yellen and Jay Powell coming out and saying, well, look, if it does cause inflation, we have the tools to deal with that. And in fact, Dan Tarullo said that on that podcast as well. And it is definitely colorable. It's a perfectly rational belief to believe that they're wrong about that. And if inflation does arrive, they will find it harder to stamp out than they seemingly think. But if that's the case, and if you're right that there's a bunch of negative consequences to overly lax monetary policy, what does that mean in practice? Should central banks be doing something different? Should public policy be different? Should fiscal policy be different? Should we be building some other form of resilience that will be able to cope with these negative consequences in the future? What's the practical implication of what you just said?

Anna Shymansky (54:38)

I think that's a really important question. I would say, number one, I do think the reliance on monetary policy that we've seen basically since the 1980s, I think we should. And I do think people are questioning whether that makes sense because it does lead to a lot of things like asset price inflation, and maybe isn't also necessarily the best tool to stimulate economic growth. And it also increases wealth inequality. And so, partly as a policy measure, I do think we should consider how to use fiscal policy appropriately. Now, I realize the counter to that would be, well, but it's going to be harder to use fiscal policy if rates go up. And that's a legitimate concern. And I think then that leads to the other problem of looking at, like, I think one of Felix's least favorite words, like structural problems, like, what are some of the issues that are keeping growth lower in a number of developing economies? Is there anything we can do about that? Now, I do tend to agree that I don't think rates will ever go up to where they were potentially in the past. I can't say that for sure, but it does seem like the natural rate of interest has probably declined because of a number of factors like an aging population and technology and globalization and all of these things. However, I do think that we should consider what are the negative aspects of having rates potentially too low. And I do Think one of them is that it encourages people to take more and more risks. It encourages people to take more and more debt. And so I do think partly it's shifting more towards fiscal policy. It's looking at these underlying structural problems. It is probably making sure that you do have strong regulations in terms of the banking sector. The other problem, though, I would say, and I don't have a good answer for some of this.

Felix Hammond (56:21)

Well, I have an answer. Let me ask you if your answer is. My answer, but like one seemingly obvious answer to this, which wouldn't necessarily solve all of the problems but would solve a fair few of them, would be to abolish the tax deductibility of interest payments.

Anna Shymansky (56:36)

Partly, and I actually kind of agree with you, I think it probably makes sense potentially to do that. Maybe you could make arguments on both sides, but I think that's a reasonable suggestion. I don't think, though, that that's necessarily going to solve all of the problems here.

Felix Hammond (56:50)

There's no silver bullets in this one.

Anna Shymansky (56:52)

Yeah. And I know my answer is probably not the most satisfying answer, and that's partly because there isn't an easy answer for this. And this is part of the reason people who are way smarter than I am are still just kind of muddling along and trying to figure out what exactly do we do? Because obviously everyone knows that there are risks out there. Everyone knows that there are. When you have companies, including very, very risky companies, being able to borrow debt very, very cheaply. But then the question becomes why? But if rates go up, are any of these people going to be able to service this debt? People know that. But then the question is, what do you do? And we don't have a lot of great answers for that. That's a very satisfying way to end.

Felix Hammond (57:32)

Okay. On which deeply, deeply unsatisfying note, I think this final Anna Shymansky episode of Slate Money needs to get wrapped up. I hope that somehow, in some crazy universe, we will have you. Oh, wait, we will have you back on the show because we have a whole miniseries of Slate Money Goes to the Movies episodes which have yet to come out. The next one on Tuesday is Michael Clayton. We have Peter Kafka fighting with Anna Shymansky over Michael Clayton, which is going to. It's a fun little Argy Bargy, that one. So we will have a little bit more Anna Shymansky on this show. But, Anna, thank you so much for being on this show for however many years it's been. I mean, time has no meaning anymore in this pandemic. But it feels like it's been an extremely long time. It's been amazing having you on. It's been amazing talking about movies with you. And obviously, it goes without saying that if you can get it past your new compliance department or whoever you are, welcome back on Slate money at any time in the future.

Anna Shymansky (58:45)

Well, thank you so much. Yeah, it has been. It's been four years. Almost. Almost exactly four years, which is kind of hard to believe, but it's been awesome. This has been such a cool experience and I am definitely going to, going to miss all of you guys.

Felix Hammond (58:58)

Okay, so that's it. Thank you, Anna, again, thank you, Jessamyn, for producing and thank you all for sending in those lovely notes to Anna, who will still be Getting notes on slatemoneylate.com for a little while yet. We're not going to take her off the Slate email for the time being. If you could do one thing for me, I would very much appreciate it, which is there's an online survey. We need to know who you are. It's@slate.com survey and if you answer the questions there, it'll make this podcast and all of Slate much better. Stay tuned for Anna Shymansky's defensive Tom Brady on Slate.