Jack Jack

Summary

Slate Money – “Jack Jack” (March 7, 2020)

Hosts: Felix Salmon (Axios), Anna Shymansky (Breakingviews), Emily Peck (HuffPost)
Main Theme:
A lively breakdown of recent business and finance news, focusing on the impacts of the Fed’s emergency rate cut in response to coronavirus, the contrasting legacies of Jacks Dorsey (Twitter/Square) and Welch (GE), and the financial crisis in Lebanon.

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Key Topics and Discussion Points

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1. The Fed’s Emergency Rate Cut and the Coronavirus Crisis

[00:10 – 14:47]

• Background & Context:
  The Fed made an emergency rate cut (the first since 2008) in response to growing economic fears around the coronavirus outbreak.
• Unintended Signals:
  • Felix questions whether panicky rate cuts actually calm markets or increase anxiety.
    “If you want to really try and send a signal that don’t worry people, we have this under control and don’t panic, then a panicky rate cut in between meetings feels like the wrong message to send.” – Felix [01:32]
  • Anna agrees, criticizing the Fed’s communication:
    “It was just another example of this particular Fed’s poor communication skills.” – Anna [01:45]
• Limitations of Monetary Policy:
  • Emily: “We sort of hit the wall on monetary policy… this rate cut isn’t really going to do much. What we need to finally do and recognize is that fiscal policy has to happen.” [04:59]
  • The panel discusses the need for fiscal interventions, such as expanding unemployment insurance, beefing up food stamps, or direct payments for medical expenses.
• Supply and Demand Shocks:
  • Anna explains: supply chains disrupted by China’s factory shutdowns (supply shock), and expected reduced consumer spending (demand shock). [07:00]
  • Felix notes pre-pandemic strength in the US economy: “The economy is about as healthy as it’s ever been going into this shock.” [08:06]
• Interest Rate “Bullets” Debate:
  • Felix challenges the logic of “saving bullets” (keeping rates higher to have more room to cut in a crisis):
    “It’s like the Fed only has two bullets… and you should save bullets. And that’s just like a really bizarre analogy.” [08:55]
  • He argues for immediate action if lower rates are needed.
• Banking System and Fiscal Response:
  • Anna: Very low rates may hurt banks, but long-term solutions require more than monetary moves.
  • Emily calls for moving away from an era of austerity:
    “…Maybe the silver lining is we actually start doing more of that stuff and we solve some inequality issues that people were sort of unwilling to deal with.” [11:10]
• Public Health Trumps Economics:
  • Felix:
    “The economic problems facing America, although they are potentially significant… pale in significance to the virus and medical problems. So let’s concentrate on those.” [12:00]
• Semantic Differences:
  • The trio puzzle over the terminology of “fiscal stimulus” versus “public health policy,” agreeing that the point is to support health directly.

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2. Corporate Leadership: Jack Welch vs. Jack Dorsey (“Jack Jack”)

[14:49–27:29]

• Two “Jacks”:
  Jack Welch (legendary former CEO of GE, recently deceased), compared to Jack Dorsey (current CEO of both Twitter and Square).
• Jack Welch & the Cult of the CEO:
  • Welch associated with the rise of “CEO as superstar,” prioritizing rising stock prices and shareholder value.
    “What he did was he was the guy who started the cult of the CEO and really made it the same as the cult of the rising stock price and shareholder value.” – Felix [16:33]
  • Welch’s approach:
    • Financial engineering, expectations and earnings management.
    • Using GE’s AAA rating to transform it into a quasi-bank, which proved disastrous during the 2008 crisis.
    • Ruthless management style: “rank and yank”—firing the lowest-performing 10% of staff annually, creating a culture of fear.
      “He got this Neutron Jack nickname… the buildings were still standing, but all of the people were vaporized.” – Felix [19:20]
• Is Laying Off the Bottom 10% Still Cool?
  • Emily: “A lot more companies now, I think, recognize that you don’t want to have a culture of fear and bullying.” [19:39]
  • Anna concedes Welch responded to serious 1970s problems but exceeded necessary reforms.
• Jack Dorsey’s Leadership & the Proxy Fight:
  • Dorsey’s lifestyle (walking, fasting, Buddhist retreat plans) and running two companies draws shareholder activism.
  • Elliot Associates is pushing to oust Dorsey from Twitter—not Square, since Square’s stock is soaring.
    “Because the square share price is doing just fine… no one cares.” – Felix [23:16]
• Twitter’s Future: Innovate or Coast?
  • Anna: “This company is not being run well. If you look at how the share price has performed…this company is not innovating. There is no stasis, you either grow or you decline.” [23:36]
  • Emily and Felix counter that maybe steady, low-drama Twitter is okay:
    “Why do we want a really high growth social network? …Let’s just let Twitter kind of be Twitter.” – Emily [24:19]
  • Felix maintains that profitability does NOT equal imminent death, even at zero growth.
  • Anna warns that without growth, Twitter loses its strategic options:
    “All of its competitors are going to be able to keep innovating, acquire, get better talent… its equity value will then decline significantly.” [26:25]
• CEO Attitudes:
  Emily: “I think all CEOs should work part time, honestly. We don’t need them obsessing about growth that much.” [27:21]

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3. Lebanon’s Financial Crisis: Ponzi Schemes and Street Protests

[27:29–39:15]

• Backdrop:
  Lebanon faces a critical banking and sovereign debt crisis, with deep underlying structural and political issues.
• The “Ponzi” Model:
  • Anna describes the Lebanese system: extremely high government debts funded by local banks, which were in turn funded by steady inflows of foreign deposits (mainly from Lebanese diaspora and Gulf countries).
    “This is why I described it as a Ponzi scheme, because so much of Lebanon’s economy is their banking sector and just like ginning up growth through loans for the construction and real estate.” – Anna [30:32]
  • The scheme worked as long as foreign dollar inflows continued—now those inflows are drying up, due to growing Hezbollah influence (scaring off Gulf depositors), political instability, and global context.
• Financial Engineering & Pegged Currency:
  • Lebanon’s banks and central bank used “financial engineering” (swaps, debt games) to pretend to greater dollar reserves.
  • Pegged currency. Felix compares to UK’s pound collapse (“Black Wednesday”):
    “Pegged currencies have a tendency to crash when a lot of people are betting against them. And this is basically exactly the same thing.” [32:16]
  • Two looming inevitabilities: government default; devaluation of the Lebanese pound.
• Default & Banking Crisis Roll Together:
  • Government default hurts domestic banks most, since they are the main bondholders, which in turn risks a full-blown banking crisis.
  • Anna: “The country doesn’t have enough dollars to fund all of those deposits.” [34:30]
  • Banks already limiting withdrawals; effective capital controls in place to prevent a bank run.
• Protests on the Streets:
  • The “WhatsApp tax” (charging for messages) triggered protests but is just the spark for years of corruption, lack of services, and banker enrichment.
    “This is decades and decades of misrule… the population is going to end up screwed.” – Anna [37:00]
• Hezbollah, the IMF, and No Solutions:
  • IMF seems unlikely to bail Lebanon out, given Hezbollah’s power and public resistance to austerity.
  • “There are simply no good options. What will probably happen is this delaying, which will only make things worse.” – Anna [38:01]

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4. Numbers Round

[39:49–45:50]

• Felix:
  £1.4 million — What the UK government paid to “Quintessentially” (a connections company) to set up meetings with foreign investors, highlighting Britain’s desperate post-Brexit search for cash. [40:49]
• Emily:
  9 states — The number of US states that have passed measures to stay on daylight savings time. She passionately objects to switching the clocks, citing studies on health effects. [41:32]
• Anna:
  9 inches — The (allegedly) “small” handspan of Joe Burrow, top NFL quarterback prospect, and the absurd fixation on hand size at the NFL Combine.
  Quoting Burrow’s tweet:
  “Considering retirement after I was informed the football will be slipping out of my tiny hands. Keep me in your thoughts.” – Joe Burrow (read by Anna) [45:34]

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Notable Quotes & Memorable Moments

• On the futility of monetary policy against public health threats:
  “The crisis is an epidemiological public health crisis… tools that you use to fight a financial crisis… have really relatively limited utility.” – Felix [03:37]
• On Jack Welch’s severance:
  “Jack Welch got a severance package of $417 million… in comparison to Jack Dorsey, the guy was a pauper.” – Felix [16:21]
• On CEO culture:
  “In this enlightened fist, passive meditation, goopy, you know, 21st century era… Jack Dorsey… manages to run two companies essentially in his spare time while trying to become, you know, achieve some kind of nirvana.” – Felix [21:53]
• On Lebanon’s system:
  “So much of Lebanon’s economy is their banking sector and just like ginning up growth through loans for the construction and real estate… It only works because you have these dollar inflows coming in.” – Anna [30:32]
• Burrow’s joke tweet about his “tiny” hands:
  “Considering retirement after I was informed the football will be slipping out of my tiny hands. Keep me in your thoughts.” – Joe Burrow (quoted by Anna) [45:34]

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Timestamps for Important Segments

• **[00:10] Introduction and top stories preview
• [01:20] Discussion on the Fed’s emergency rate cut and market reactions
• [04:47] Why monetary policy may be the “wrong tool” for the coronavirus crisis; push for fiscal policy
• [07:00] Explaining supply vs. demand shocks
• [14:49] Transition to “Jack Jack” — comparing Welch and Dorsey
• [15:12] Welch’s legacy, management style, and the birth of CEO culture
• [21:53] Jack Dorsey’s laid-back multi-CEO persona and current challenges
• [23:36] Twitter under Dorsey: growth, innovation, and boardroom battles
• [27:29] Lebanon’s imminent crisis, Ponzi mechanics, and public protests
• [32:16] Currency peg explainer and analogies to UK’s Black Wednesday
• [39:49] Numbers round: Quintessentially, daylight savings, NFL hand size

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Tone & Style

Conversational, witty, irreverent, but always grounded in expertise and lively debate. The hosts challenge each other, mix skepticism with humor, and delve deeply while keeping topics accessible.

Transcript

[A]

Hello, and welcome to the Jack Jack edition of Slate Money, your guide to the business and finance news of what has been a pretty exciting week. I'm Felix Salmon of Axios. I'm here with Anna Shymansky of Breakingviews.

[B]

Hello.

[A]

I'm here with Emily Peck of HuffPost. Hello. And we're going to talk about Jack Jack. We're going to talk about specifically, we're going to compare and contrast, shall we say, the Jack of the moment, Mr. Dorsey of Twitter and Square versus the Jack of the 80s and 90s, Mr. Welch of General Electric. We are going to talk about Lebanon because we promised that we would. And so Anna gets to talk about Lebanese ponzis, which are, you know, they used to be called cedars. No, they're called Ponzis. And of course, we are going to talk about the Fed, the emergency rate cut that they did this week, what it has to do with coronavirus, what the rate response to coronavirus is. All of this coming up on Slate Money. So when was the last time we had an emergency rate cut? I feel like that was the financial crisis, right?

[C]

Correct. 2008 for 50 basis points.

[A]

And so these things are rare and they're meant to panic the world, I guess.

[B]

Or they're not meant to panic.

[A]

If you want to really try and send a signal that don't worry people, we have this under control and don't panic, then, like a panicky rate cut in between meetings feels like the wrong message to send.

[B]

I agree. I mean, it was weird because you basically had before the rate cut, you all of a sudden had this kind, you had a jump in stock prices because there was an anticipation of a rate cut. However, when there was then this emergency rate cut that was not communicated clearly, then the markets fell. It was just another example of this particular Fed's poor communication skills.

[A]

Well, there's one market which isn't falling, which is the bond market, of course, which is soaring and hitting new highs. But that's not good news. That's a sign of pessimism and flight to quality and scaredness, to use a technical term.

[C]

Yes. So we should back up and we should say that the Fed did an emergency rate cut on Tuesday because it came off of this phone call with other leaders around the world.

[B]

Right.

[C]

G7, G7 peeps. And it took action almost right away. It also was being pressured, of course, by Trump, who was tweeting about doing rate cuts. And then they did it and then the market went bonkers. But it's been bonkers for a while.

[A]

Yeah, the market, I think. I think looking at the market, what the market did in, like, the 15 minutes after the rate cut or the day after the rate cut or the two days after the rate cut has limited utility because the market has just been bouncing around like a demented pogo stick for the past two weeks.

[B]

That's true, but if you've looked at it in the number of past years when we've had some type of issue and the market's been scared and then the Fed has come in with a cut, the. The market has responded pretty well. And granted, this is still early, it's possible that the markets will calm down. But I think the fact that it hasn't is kind of telling. And it's important because this rate cut doesn't seem like it can do an enormous amount to stop the damage potentially of the coronavirus.

[C]

Well, I mean, it's like. It's the whole, like, wrong tool scenario.

[A]

Right.

[C]

Like, except it's a hammer, but it's not a nail. Like, to contain this virus, you need to do public health stuff.

[A]

So. Right. I had a big thing in my newsletter this week saying the crisis is the coronavirus. The crisis is an epidemiological public health crisis. We do not have a financial crisis, and there is no financial crisis anywhere on the horizon except for in Lebanon, which we're going to talk about later. And so the tools that you use to fight a financial crisis, which are all the kind of tools that we used back in 2008, with coordinated rate cuts between central banks and fiscal policy and all of that kind of stuff, have really relatively limited utility. That said the coronavirus is going to cause a macroeconomic slowdown. There is an OECD forecast for the first quarter of negative GDP growth since the crisis, and, like, excluding the crisis since 1982. So this is a big deal, the coronavirus for the global economy. And if global central banks, including the Fed, do everything they can to mitigate the. The economic effects of coronavirus, that's fine. We just need to be very clear that all of this is secondary to the number one big priority, which is medical.

[B]

And also the fiscal policy makes more sense.

[C]

That's what I was gonna say.

[B]

Yeah, exactly.

[A]

Okay, tell me whether $8 billion is remotely fiscal policy as a response.

[C]

I mean, so.

[B]

Right.

[C]

So Congress is gonna pass this $8 billion coronavirus emergency spending bill, but it's mostly focused on, and rightly so, medical spending, public health spending. But I think what a lot of economists were talking about this week was we sort of like, Hit the wall on monetary policy. Like the rate cut. Rates are very low already. This rate cut hasn't really, isn't really going to do much. What we need to finally do and recognize is that fiscal policy has to happen. We have to do stuff to inject money into in the U.S. we have to. For example, we could do things like extend unemployment insurance and get it set up so that if people start losing jobs, they have unemployment insurance. We can beef up food stamps. We can send out. This is what I wrote about today. We can send out checks. Not maybe just to sick people for starters, but then maybe to payroll taxes.

[A]

I have an idea. Why don't we send reimbursement checks to anyone who has any kind of medical expense associated?

[C]

Yes. You can ask for everyone's coronavirus related health care. You can assure people that if they're sick and they stay home, they'll be reimbursed. That was where the check idea came from. Because you could do paid sick leave. But for like tipped workers, for example, if they're paid, you know, if they're reimbursed just for the tipped hourly wage, that's like nothing. They're still missing tips. So maybe it's better to send, to send the checks out.

[A]

If you, if you want people to continue to eat out at restaurants, those people need to have some assurance that the kitchen workers aren't sick.

[C]

Right.

[A]

And in order to have that assurance, those kitchen workers do need to be able to stay home if they are sick. And in order for them to be able to stay home if they are sick, they need to somehow get paid if they're staying home.

[B]

Exactly.

[A]

And we need a mechanism for doing that.

[C]

Exactly.

[A]

Otherwise no one will eat out at restaurant.

[C]

That's when fiscal policy actually becomes public health policy. Because it's sort of bolstering, it's allowing people to stay home and rest up and making it so that sick people don't go to work every day. It's really important.

[B]

And also because even though right now this is would basically be a supply shock, there is the fear that there is going to be a demand shock as well. And then that can.

[A]

Okay, so can you please, just because I'm a bearer of very little brain, explain what the difference is between a supply shock?

[B]

Well, is the question that you have. So one of the big fears with the coronavirus is that because you had all of these factories shut down in China, that now all of these parts, all of these goods that are needed aren't going to be available. The supply is lower Shock. Right. So that's, that's the shock. So what is more likely that we see happening here is that we have this, you know, clear supply issue, but then at the same time, the panic and the shutdowns and the quarantines is going to reduce demand. People aren't going to be using services, people aren't going to be shopping as much. So you're having a little bit of both. And so that's where what the Fed is doing in theory could make a little bit more sense with the idea of we want to continue to spur economic growth. Now, I just want to point this out, though, that there are downsides to what the Fed has done. Normally when an economy is still doing relatively good, and we thus far don't have a lot of data for the United States to support the idea that things are falling apart.

[A]

In fact, just on Friday, we had an amazingly strong jobs report showing 250,000 people got new jobs. That Alan Klimont is at 3.5%. Like this is all kind of before the coronavirus shock. But the fact is that the economy is about as healthy as it's ever been going into this shock.

[B]

Right. And so the fear is that if you do go into an actual recession, normally when you go into an actual recession, the Fed cuts a lot. You know, we don't have that much room to cut. The Fed has already said they don't want to go negative and they shouldn't go negative because as we've seen in other countries, Japan and Europe, it's not overly effective. And then you say, okay, what are the other tools? Well, they can do quantitative easing again, but okay, again, when rates are already so low, okay, great, you're gonna lower rates a tiny bit more on the far end, like longer dated bonds. It's not gonna do much. And so the Fed.

[A]

But that's not a reason not to cut rates. I feel like this is this argument that Larry Summers has been out making and being broadly ridiculed about. He's like, it's like the Fed only has two bullets left in its gun and now it's fired two of them and it doesn't have any bullets left and you should save bullets. And that's just like a really bizarre analogy because if lower rates are going to be good in a couple of months time, whenever he wants to hypothetically fire those bullets, then if you lower rates now, the rates will be lower. In a couple of rates time, you will have what you want. And it's better to lower the rates now and have even more effect. He has this idea that it's not the lower rates.

[B]

I don't get it.

[C]

Because the number is low, it can only go so much.

[A]

Exactly. But the big question is, when you cut rates, what makes the difference? Is it the fact that interest rates are lower, in which case you want them to be as low as possible for as long as possible and you cut rates now? Or is it the fact that you cut rates, Is it the actual physical action of cutting rates that has some kind of salutary effect on the economy? And as we saw with this emergency rate cut, the physical action of cutting rates doesn't do very well.

[B]

No, but I think looking at what we just saw in using that to say to discount everything we've seen in the last few years, I'm not sure if I totally agree with that. I'm not saying I totally agree with Larry Summers. I'm not saying I 100% buy this argument. But what I am saying is that historically, I do think the. In recessions, the Fed has cut a lot. And that has indicated that the Fed has the ability to control what's happening. Now, if you're getting to a point where the Fed basically can't cut and you're going into a recession, I do think that limits what the Fed can do. And on top of that, when you have rates extremely low, you're putting pressure on your banks. Very, very low rates do not help banks. So I think there's this idea.

[A]

The last people I'm worried about right now are the banks.

[B]

Okay, who makes loans? Who keeps the economy going? Who. I mean, I think.

[A]

But I don't. Bank loans aren't keeping the economy going.

[B]

Well, then why are we cutting rates?

[C]

Because that's, I think really what this is, is a good thing, because monetary policy isn't the only weapon in the arsenal. We have to go back to fiscal. And I think we learned in the last recession and the slow, agonizing, slow recovery was that there needs to be more fiscal stimulus. You need to help not just the banks, but the people. And that'll work. That's its own kind of stimulus. And I feel like the past decade there's been this, like, push away from that and this, this, this running towards austerity. That really hasn't worked. So maybe the silver lining here is like, and, and this a lot depends on, right, the 2020 election. But, like, maybe the silver lining is we actually start doing more of that stuff and, and we solve some inequality issues that people were sort of, like, unwilling to Deal with.

[A]

Except. Except I feel that everything you're saying on one level is right, but on another level, it's doing this thing that I again talked about a little bit in my newsletter, which is fighting the last war. That we're looking at this problem through the lens of how we fought the financial crisis, whether we did it the right way, whether we should have spent more on fiscal. And there is this general consensus ex post that we should have spent more on fiscal in 2009. But the fact is that that was a major financial crisis and financial crises have financial solutions and the epidemiological crisis has medical solutions. And while fiscal and monetary policy can be helpful at the margins, I think the one thing we can agree on is that honestly, the economic problems facing America, although they are potentially significant and it is possible that there could be a recession, pale in significance to the virus and medical problems. So let's concentrate on those.

[C]

Yeah, I agree with that 100%. But we need strong policies that help, like I said before, Americans stay healthy. Like, yes, the fiscal need for fiscal stimulus is tied to. Right, like looking behind and saying, oh, we should have done more in the recession. But it's also looking at like the uninsured population, the underinsured population, the percent of people who again, like half to go to work like these. So yeah, really important intersection.

[A]

You're absolutely right. And I just think that calling it fiscal stimulus is a little bit. A weird way of framing it.

[B]

But it's fiscal policy. I mean, it's. By definition.

[A]

It is.

[C]

I'm fine with not calling. I don't care.

[B]

It is money spent from. It is by definition fiscal policy.

[A]

No, it is. It is fiscal policy. I'm just saying that like everything a government spends money on is fiscal policy. But what we're really talking about here is public health policy.

[C]

Yeah. And it's a huge sign that we need to return to the era of big government. We need a strong government with good sound policies that can help us maneuver through public health crisis.

[B]

We need an effective government. I don't know if it has to be big, but.

[A]

Yeah, no, it needs to be effective and it needs to be spending money in smart ways. And I guess the reason why I recoil at calling this fiscal policy is because when people talk about fiscal stimulus, they're like, what's the size of the stimulus we need? And then they work out where to spend it. It's like, should we do tax cuts, should we do more spending, that kind of thing here? It's not like that. It's not like, let's start with the size of the stimulus and then work out where to do it. It's like, let's start with where do we need to spend money in order to keep Americans healthy and then spend that money.

[C]

I feel we all agree.

[A]

Okay.

[B]

Do you wanna do Jack Jack?

[A]

Let's do Jack Jack after Bob Bob.

[C]

Last week was Bob Bob this week Jack.

[B]

Jack.

[A]

Is Jack Jack, the name of the baby in the Incredibles?

[C]

Yes, the amazing baby in the Incredibles, with superpowers and everything.

[A]

The amazing baby in the Incredibles is like an impossible human being. And I feel like Jack Jack is another impossible human being. Is that a good segue?

[C]

That's pretty good. But we should tell people what Jacks we're talking about.

[A]

Which Jacks are we talking about?

[C]

We're talking about Jack Welch, who died this week. He was the legendary CEO of General Electric. He was 84, I think. And Jack Dorsey, who is also somewhat legendary CEO of not only Twitter, but also Square. And Jack Dorsey is in trouble.

[A]

And Jack Dorsey is. Has doubled the number of CEO ships that Jack Welch had. So obviously, he's twice as CEOish. He's much richer and is much richer. Jack Welch again. I put this in my newsletter. I've been plugging my newsletter a lot this week. I don't know why. Jack Welch got a severance package of $417 million, and then he got a divorce. And then in the divorce, it turned out he was getting, like, even more stuff that no one ever knew about. Like two and a half million dollars worth a year of just random perks for being retired. And everyone was like, oh, my God, this guy is so rich and paid so ridiculously lavishly. And this is capitalism gone bazonkers. And in comparison to Jack Dorsey, the guy was a pauper.

[C]

Yeah. I feel sorry for him now, in retrospect.

[B]

Well, it's interesting because I think that Jack Welch, in a lot of ways started this kind of cult of the CEO. Not entirely, but I think he was a big player in it.

[A]

He definitely was part of it. And there's a few others, I think, like Lee Iacock. But, like. But he. What he did was he was the guy who started the cult of the CEO and really made it the same as the cult of the rising stock.

[B]

Price and shareholder value. Yeah. And because if you look at what the GE share price did when he was in office, you'd be like, great. Of course, then when you look at what it's done since then, and it's not just that you've had 9, 11 in the financial crisis. It was also that a lot of the things that Welch did in terms of GE capital and, you know, and just expanding the footprint of GE into areas where it did not have a competitive advantage was shown to not actually be very smart.

[A]

So what Welch did was financial engineering.

[B]

Lots of it.

[A]

Lots and lots of financial engineering. There was the obvious financial engineering, which everyone knows about, which was that he would engineer the profits every quarter so they would, they would beat expectations every quarter and the price would of the stock would go up every quarter because everyone goes, oh my God, you made even more money this quarter than we thought you would. And so he was very good about that, like expectations management and earnings management. The other piece of financial engineering he did though was the way he did that and the way that he got the growth and the way that he got the earnings was by turning around and realizing that General Electric is this huge industrial company with massive cash flows, had this incredibly valuable thing which was a triple A credit rating. And he's like, shouldn't let that AAA credit rating go to waste. And so he became a bank. Basically he became a lender and he started lending out and borrowing huge amounts of money using his AAA credit rating meant that he could borrow at cheaper rates than even like JP Morgan or Goldman Sachs or anyone like that. So he had a comparative advantage in that sense in that his funding costs were super low to borrow money. And then he would turn around and lend that money just like banks do. And so he wound up massively leveraging General Electric. And that leverage and those liabilities that he took on by borrowing so much money really whacked the company over the head with a two by four in the financial crisis when it lost its AAA credit rating and it couldn't roll over its debts and it needed a bailout from the federal government.

[C]

Yeah. And the reason I find Jack Welch interesting is less the financial engineering and more his management style.

[A]

Oh my.

[C]

Was celebrated for. But he did let's hire lots of people. Rank and yank. Right. Where you would rank and rate all of the workers in the company and then cull the bottom 10%.

[A]

Like literally fire them.

[C]

Literally fire them.

[A]

And even when the company was growing, like he got this Neutron Jack nickname from like firing 100,000 people when he came in where like the buildings were still standing, but all of the people were like vaporized.

[C]

Yes.

[A]

But even after that, every single year in good years and in better years, he would still fire 10% of the workforce.

[C]

And this method was lauded. People Thought this was really smart. And other companies followed suit. And I think it was in vogue for a really long time and only recently gone away. I mean, a lot more companies now, I think, recognize that you don't want to have a culture of fear and bullying.

[A]

I just got sent in the mail the upcoming book by Reed Hastings, the CEO of Netflix, who basically does.

[C]

Oh, yeah, Netflix is bad, too. They have this whole, like, they'll fire low performers, but they think they do it really nicely, so it's okay. And it's like, good for everybody, because if you're not fitting in, then you gotta go. But, yeah.

[A]

Oh, I was thinking also Ray Dalio and the whole Bridgewater thing, he fires, like, people all the time.

[C]

I think he's generally recognized now that this is not good strategy. I think a lot more companies. And we can talk about Twitter. Yes. I don't. I think Twitter is very much the opposite.

[A]

Yeah, that's how she feels.

[B]

Well, yeah, I mean, I will say that there. There have been a number of studies that have now shown that that type of, like, competition within a company really decreases productivity.

[C]

I mean.

[B]

Yes, the one thing, though. I will just say one thing, though, that, like, in Jack Welch's defense a little bit, what you saw with a lot of these 80s CEOs was that they were responding to some genuine big problems that you had in the 70s, that there was a reason that the US economy kind of tanked, as it did. And some of those were external, but some of those were because a lot of companies had become very uncompetitive. CEOs were only thinking in their own interest and not in the interest of shareholders. And so I do think that there are parts of what he was thinking to do that weren't a bad idea. It was just, I would argue how he did it, and the excesses of what he did that were the problem.

[A]

The problem of, if we look back at the 70s, we're like, oh, my God, there were all of these huge inefficient conglomerates. And then what does Jack Welch do? He creates a. He. He buys, like, NBC.

[B]

No, it wasn't just inefficient conglomerates. I mean, it was part of the reason that the. We don't have to go into too much of. This will be the last thing I say. But part of the reason that the US economy was not as competitive in the 70s was because you had companies in other countries, particularly Germany and Japan, that their companies were leaner and the US Companies could not compete. That was a problem. That was why things did need to change.

[C]

Isn't that what the whole, I mean, the auto industry, that was the shining example. Right, right.

[A]

So in any case, what we now have in this enlightened fist, passive meditation, Goopy, you know, 21st century era is Jack Dorsey, who, you know, walks 15 miles a day and is very thin because he never eats anything. And he manages to run two companies essentially in his spare time while trying to become, you know, achieve some kind of nirvana.

[B]

And he's going to understand Africa.

[A]

Well, he's not anymore. He has now come out because he's in the middle of a shareholder proxy war with our good friends at Elliot Associates. He has now announced that he is no longer going to spend six months of the year in Africa. He is in fact going to stay put in California, still running two companies. We will see whether Elliot manages to oust him from Twitter or not. But the thing that a lot of people haven't really picked up on, I think, is that Elliot is trying to oust him as CEO of Twitter. They don't care about him as CEO of Square, where he is by definition just as stretched and doing just as little work as he is at Twitter. Because the square share price is doing just fine. And so long as the share price is doing just fine, you can be a touchy feely, absentee CEO and no one cares.

[C]

I. I've been thinking a lot about this and like Elliott management, definitely they have a point, right? Like, Twitter is finally turning a profit now, but like, compared to Facebook, it's just not as big. It's not growing as fast, it's not as innovative. Like, it's still the same old Twitter, more or less. But like, that's kind of fine.

[B]

No, it's not. I'm sorry, I am on Team Elliott on this one. Like that. This company is not being run well. Like, if you look at how the share price has performed in relation to other companies, and I know we'll say, oh, the share price doesn't matter. No, it does, because it represents the fact that, like, as Emily, you're even just admitting this company is not innovating. If a company, there is no stasis, you either grow or you decline. This company is not getting better.

[A]

Okay, so it is growing. Twitter is growing, but the rate of.

[B]

Growth is not increasing.

[A]

Twitter is growing actually very healthily. It is its profits and its revenues have been going up strongly under Dorsey, much more than they were under previous CEOs. The only thing isn't going up is the share price. Everything else is up and to the right.

[C]

And honestly, like, why do we want a really high growth social network?

[B]

Like, for how are we learning how bad that is?

[C]

False. And all the takeover by bots in 16. Like, you cannot argue with me that Facebook was. Facebook was way worse. Like, let's just let Twitter kind of like be Twitter. Like, we don't need some. Like we don't need another monster social network doing crazy stuff to grow and get more.

[A]

Exactly. And what one of the arguments.

[B]

And then it'll die.

[A]

No, no, but it won't. But wait, hang on a second. But, but, but Anna, we have had this conversation many times on, on Slate Money and we're just going to have it very briefly one more time. Twitter is profitable. It is making good, healthy amounts of money. Let's assume that it remains at current levels of profitability and has no growth at all. And it is growing. But let's assume, worst case scenario that it has no growth at all. It will retain those healthy levels of profitability in perpetuity. That isn't the same as dying.

[B]

How's it going to fund itself?

[A]

It doesn't need to fund itself because it's making money. It's profitable.

[B]

It's just going to be using its cash that it's generating. And let's just say it has not historically been very profitable. It's.

[A]

But it is now. Let's. I'm saying, I'm saying, I'm saying it is profitable now. Let's assume that it remains profitable at current levels, which is a good amount of profitability in perpetuity. It no longer needs to fund itself. It can send those profits out to shareholders if it wants its dividends. It can keep on going just fine. It does not die.

[B]

No, I'm, I'm sorry, I just, I disagree with this. I think that like it is a. So number one, this is a growth company.

[A]

Okay, number one, I don't even know what that means. But I'm just saying let's assume that it isn't. Let's assume that it stops growing.

[B]

Fine.

[A]

Why is that bad?

[B]

Well, it's equity value will then decline significantly.

[A]

Let's assume that the stock price goes down. Why is that bad?

[B]

Okay, so then if it needs to, I don't know, acquire another company, how's it going to do that?

[A]

It doesn't need to. That's what I'm saying. It's just going to make lots of money in perpetuity. Why is that bad?

[B]

So all of its competitors are going to be able to keep innovating they're going to be able to acquire, they're going to be able to get better talent. And then you're going to have this company that apparently, like, its equity value is going to decline, its ability to raise debt is going to be lower, so yet it apparently is going to still get the same amount of profits, which I'm not exactly sure how that's going to happen. All its other competitors are going to be able to do all the things that normal companies that are growing quickly do, and yet it's going to do just fine and dandy. I would say history suggests that that is not going to happen.

[C]

I think it'll be fine and dandy. And you just need to let Twitter be Twitter. It's sort of. It's my favorite social network. And don't miss the Gen X thing.

[A]

We're gonna be around for a long time. You millennials wouldn't understand.

[C]

We don't need Twitter to be that much better because then it becomes like Big Brother. It becomes Facebooky, and no one wants that. We need Twitter to be a little more like, kind of like low rent. And like, maybe we need a touchy.

[A]

Feely CEO who does this passive meditation.

[C]

I think all CEOs should work part time, honestly. Like, we don't need them obsessing about growth that much. That is what I think.

[A]

All right, so we promised this to you last week. And for those of you who are ready for the Anna Shymansky nerd out about Lebanon, I can tell you that earlier this week, Anna and I spent two hours listening to a lecture by the one and only Lee Bukheit, who was a previous guest on Slate Money, and he was addressing a bunch of very sophisticated law students about sovereign debt things. And so I'm just going to remind Anna here that she is not talking to very sophisticated law students. And you're going to have to pitch this about four notches below where Lee was.

[B]

Okay, okay.

[C]

I'm going to interrupt you whenever I stop understanding.

[B]

Fine, fine. Okay. So right now, what you have in Lebanon is a banking crisis and a general economic crisis. Now, this has been going on for a while. It really started to kind of come to a head last fall. This was around the same time when you started to see a lot of protests. Right? Okay. This is all related because Lebanon is the third most indebted country in the world. Their debt to GDP is between 140, 150% of GDP. Okay. Why do they have such a big debt burden? Well, the reason they do is because they have Massive what we call twin deficits, which means they have big fiscal deficit. So they're not bringing in as much revenue as they're spending. And they have a big current account deficit, which means that they are importing a lot more than they're exporting. So consequently they need to raise money to keep all these things funded. Right. So how have they been doing that on the debt markets? Okay, so who's been buying all this debt? Well, a lot of this debt has actually been bought by the Central bank of Lebanon and private banks in Lebanon and then some foreign creditors. Okay, makes sense right now. Okay, now the way that the, both the central bank and the especially the private banks were able to keep buying all this debt to keep this economy going was because they had deposit inflows. Now where were the deposit inflows coming from? Well, you have a large Lebanese kind of diaspora that also was often wealthy that were sending money. And then on top of that you also had money coming in from Gulf countries around because the Lebanese bank, you could get higher rates of interest. There was a lot of bank secrecy. People wanted to put their money there.

[C]

Wait, I have a question. Actually, the, for the people, the diaspora, sending the money, what does that mean?

[B]

They're putting the money in Lebanese banks?

[A]

What this means is that let's say that I'm a very rich Lebanese person. Let's say I'm Carlos Ghosn or I'm like Nassim Taleb or someone like that. And I feel a sense of loyalty to my homeland. And the Lebanese bank comes along to me and says, I will offer you a US dollar bank account paying interest of 7%. And I'm like, oh, well, now I get, now I get to kill two birds with one stone. Number one, I get to support my homeland. And number two, I get way higher interest than I do putting it in.

[B]

With like JP Morgan and more bank secrecy.

[A]

And also no one will ever find out that I have all of this money there because the Lebanese Central bank won't force the banks to tell the irs. So this is where, Anna, you start using the word Ponzi.

[B]

Yes, this is why I described it as a Ponzi scheme, because so much of Lebanon's economy is their banking sector and just like ginning up growth through loans for the construction and real estate. And so the whole thing only works from the government to the economy. It only works because you have these dollar inflows coming in. Now what had started to happen honestly a while ago was these started declining.

[A]

Now a big, you mean dollar Inflows can't just go up indefinitely. Forever.

[B]

No, not.

[A]

Oh, wow. Okay.

[B]

Well, here's the problem. Because if they don't, everything falls apart.

[A]

You see, this is why I think that you think that Twitter is like Lebanon.

[B]

I do not think Twitter is like Lebanon. Um, so. Okay, so basically, one of the things you'd have been happening is that Hezbollah, which is kind of a proxy of Iran, have been gaining more and more power in Lebanon. And consequently, a lot of Gulf countries aren't super excited to send their money to a country that is increasingly being run by Lebanon or being run by Hezbollah. Right. So that was one thing that started to kind of reduce this. This flow of dollars in. So then what happened was. And I won't go into all the details here, because Felix won't let me.

[A]

But I'm very mean.

[B]

There was another form of what is actually called financial engineering, which if you go onto Lebanon's central bank website, they will somewhat show you what they're doing. But they did all of these various swaps. And the reason they did all of these various swaps was basically to make it appear that the central bank had a larger stash of dollars. And that's important because the Lebanon has a pegged currency. So their currency is kept at a certain rate in relation to the dollar. The only way you can do that is if you have dollars to support that in the currency market.

[A]

So it's called the Lebanese pound. And I'm old enough to remember when the pound was a pegged currency in the uk, we pegged the pound to the ECU as it was then the precursor to the euro. And then famously, George Soros made a big bet against the pound. And the bank of England had all of these foreign currency reserves and was trying to support the pound until eventually they gave up and the pound crashed. Because peg currencies have a tendency to crash when a lot of people are betting against them. And this is basically exactly the same thing. Instead of the British pound, we're now talking about the Lebanese pound. It is pegged against the US dollar. And if there's two things that seem inevitable at this point, one is that Lebanon is going to default on a bunch of its debts. And another one is that the pound is going to get devalued against the dollar. It all feels a lot in some way, like Greece back in 2011. People were like, will they devalue? Will they default? In the end, Greece did default, but they didn't devalue Lebanon. I'm going to come out and Say it's going to do both.

[B]

Probably. It is super complicated. I mean, this is even. I would, I would argue this is one of the most complicated kind of default restructurings that we've seen since probably something like Iraq for a number of reasons. One, because, because of all of this financial engineering, one of the big results of that is that a lot of the dollar deposits from the private banking sector are at the central bank. And so what this means is that. And also. Sorry. And also the private banking sector owns a lot of the debt that was issued by the central government.

[A]

So, so if, then we've seen this multiple times with sovereign defaults, it means that if the government defaults and if it doesn't pay its debts, the main bondholders who get hurt are the domestic banks. And then that just makes the domestic banks insolvent. So the government needs to bail out the banks, but it doesn't have any money to bail out the banks. And so you have this combination banking crisis and sovereign debt crisis. They know, often go together, but in Lebanon, they're even closer than they normally are.

[B]

And it's 100% correct. And it's. But it's almost a little bit worse because you have all of these dollar deposits that were being held at the central bank to make it appear basically that they had more reserves. But that means, if you actually look at the numbers, the country doesn't have enough dollars to fund all of those deposits.

[C]

So they could have a bank run.

[B]

Yes. And they actually, they have right now de facto capital controls to stop that from happening because they just simply don't have enough dollars. That is their problem more than honestly their debt itself. It's the fact that they do not have enough dollars. So what they'll probably going to do, I would argue, is that they're going to do some type of swaps with the local banks where they'll say, okay, we're going to take your debt. That's kind of going to mature soon and we're going to swap that with that. That's going to mature further along in the future. We're going to lower the coupon, the interest rate, and that can buy them a little bit of time.

[A]

They're going to kick the can down the road because this is the first thing that countries always do. But I want to get back to where you started, which was the demonstrations on the street. What are people demonstrating about?

[B]

So what kind of sparked. It was actually a WhatsApp tax. So because as I mentioned, Lebanon has this.

[C]

Not a tweet, not A Twitter?

[A]

Yeah. Felix would be like, Turkey is all about Twitter. Lebanon, it's all about WhatsApp.

[B]

Yeah. So because Lebanon has this like massive fiscal deficit, there are but trying to find ways to close that. And instead of like, I don't know, cutting down on the massive corruption of the government, they're like, let's tax people for WhatsApp messages. And so unsurprisingly this really angered people. But I think it's important that it wasn't just the WhatsApp messages. This is decades and decades of misrule, of lack of social services being given to the population while you have this governing elite that is just wasting all of this money and living lavishly while.

[A]

Most people are suffering, especially the bankers. If you thought there was a bunch of anger in America at bankers circuit Occupy, multiply that by 100. The bankers in Lebanon have just been, basically what they've been doing is they've been borrowing money from the government at 2%, lending it out at 9%. It's been the easiest cash generating game in the world. And they've been paying themselves hundreds of millions of dollars in dividends. These, this is like personal income. These, the big bankers in Lebanon. And as Anna said, Lebanon is basically a offshore banking center more than it is and anything else have made billions of dollars and they have done nothing really to improve the health of the country.

[B]

And this is all by design from the government. All of that activity that we're talking about, the banking sector is directly what the central government wanted. So now we're in a situation right now where unfortunately no matter what happens, the population is going to end up screwed. Because if you would just almost certainly going to happen is that the pound is going to be devalued. It's already on a parallel exchange rate trading at like 40% less than where it technically is. So people who are regularly just holding Lebanese pounds, all of a sudden now they have a lot less money. And then on top of that, this is an unsustainable system. At some point this has to collapse. You're going to need to have reforms. And unfortunately part of those are going to be like cutting the massive electricity subsidies that they can't afford, which are like 3% of GD. I mean this has been another problem is that Lebanon has had the opportunity to get money in. I think France actually put together this like big pot of money from a different bunch of different countries that technically Lebanon could have used. But in order to use it, they would have had to put through reforms. They didn't want to do it.

[C]

And then now this issue of Hezbollah. So interesting, the IMF or something.

[B]

This is important too, because normally in this situation too, you'd say like, well, this sounds like a job for the imf. But the problem here is that again, right now you also recently had another election where the governing coalition is now run by Hezbollah and its allies. And so the idea that the IMF is going to give a massive loan to a government where the governing coalition is run by Hezbollah, that seems somewhat unlikely. And then on top of that, you have representatives from Hezbollah saying, we don't want the IMF to tell us what to do. And if you think about it, this government, when you already have people on the street protesting, doesn't especially want to start going through and putting through austerity measures, which they would have to do at least somewhat. And so there are simply no good options. What will probably happen is this delaying, which will only make things worse. It's even possible that they will pay out some of their foreign creditors because they technically have the liquidity. If they really wanted to, they could muddle through for like another year. But they shouldn't do that. That's just a waste of money. But they, they may very well do that. And the longer they do it, just the worse the situation is going to get. Because. Because if you think about it, like, what incentive, like this system only runs if you have dollar inflows. Who's sending their dollars to Lebanon now? Right, like.

[A]

And so, but I mean, Carlos Ghosn is going up directly.

[C]

Can Carlos Ghosn save Lebanon?

[A]

Sadly, even he people are. There's a. There's a whole, like, popular movement in Beirut right now saying, Carlos Ghosn for finance minister. And he's like, no fucking way.

[C]

I mean, he rescued some car companies, why not a country?

[A]

Right. I think it's time for a numbers round. Why don't I start this week? Because I have one right here which is £1.4 million.

[B]

Not Lebanese pounds.

[A]

This is British pounds, not Lebanese pounds. As we know, the British government is trying very hard to start building relationships with countries and rich people around the world because it's now cut itself off from the European Union and it needs to try and get a bunch of investment and it needs to try and get a bunch of relationships going and reinvent itself somehow. No one really thinks this is going to be very easy or even possible, but they're trying at least a little bit. And so one of the things they do is they are setting up meetings with rich people. Around the world and saying, hey, you should come and invest in Britain. If you're a government, how do you think you would set up those meetings?

[C]

What do you mean? I would.

[A]

You would get.

[C]

Have some people call some people.

[A]

You'd have some people call some people and then you would have the meeting and they. No. If you're the British government, what you do is you pay this company called quintessentially, 1.4 million pounds to set up the meetings. Quintessentially.

[C]

I've done it for much less.

[A]

Quintessentially being this company that was founded by some tough who went to Eton and knows a bunch of rich people people. And he's like, I can introduce you to rich people. And like, he's like, I've had dinner at Buckingham palace and I'm related to Camilla Parker Bowles. And they were like, oh, wow, you're very special. Here, have £1.4 million and you can set up the meetings for us. That's.

[C]

That's an incredible scam written for you.

[A]

Yeah.

[B]

Wow.

[A]

This is all in an amazing FTE article about Quintessentially, which everyone should read if they have any belief that Britain is an actually functioning country.

[C]

That's better than Lebanon.

[A]

It is better than Lebanon.

[C]

That's what I'm hearing. My number is nine. That's the number of states that have passed measures to stay on daylight savings time. Because Sunday morning, very early, we all have to spring ahead, as we know. There's a very nice piece in the Wall Street Journal detailing all the problems that occur when you set your clocks ahead. And I personally really dislike it.

[A]

I feel it is horrible. Everyone I know hates it.

[C]

I just got a notification from my Fitbit congratulating me on sticking to the same bedtime every night. And my circadian rhythm is like, really fine tuned. Yes. And now along comes this daylight savings time, which no one wants, and it's gonna mess me up. And apparently, I mean, it's kind of sketchy. Anna wouldn't like the studies, but I'm gonna bring them up. Some studies say that there's more heart attacks and strokes right after the clocks spring ahead. Some people say it's also when they fall back.

[A]

Let's just be clear about this. The daylight savings, there's just a lot.

[B]

Of heart attacks all the time.

[A]

The daylight savings time is the problem. We should never have fallen back in the first place. We should be on summertime all year round.

[C]

I think we should be on standard time all year round. And the health experts, Felix, according To the article in the Wall Street Journal. They agree with me.

[A]

No, the health experts agree with me. And I'm going to push back hard on this one. The health experts are saying the one thing you shouldn't do is vacillate backwards and forwards.

[C]

Don't vacillate.

[B]

Correct.

[A]

Changing the clocks is bad.

[C]

Yes.

[A]

So don't change the clocks.

[C]

Right.

[A]

But if you're not going to change the clocks, can we please have daylight at 4pm in the winter? Come on.

[C]

I mean, no, we can stay on standard time.

[A]

And, like, what is the reason why standard time is better than having daylight at 4pm?

[C]

Um, because if you have daylight at 4pm Then it's like, really dark in the morning. And all the kids walking to school, they'll get hit by buses.

[B]

They never.

[A]

This is.

[B]

This is like the razor blades and the, you know, Halloween candy. It's such a myth. It's never happened.

[A]

They're gonna get hit by buses.

[B]

Never happen.

[A]

No one gets hit by buses.

[C]

I think we should never spring ahead again. We should never lose that hour again. And we should just stick to the way it is. It's darker in the winter. Deal with it. Get a lamp and there's more daylight in the summer. It's fine.

[B]

So I'll be depressed and we'll get hit by a bus.

[A]

Anna, what's your number?

[B]

My number is actually also nine. It's nine inches. So that is the size of Joe Burrow's hand.

[A]

So is this a sports school thing?

[B]

It is, yes. He's LSU quarterback who's almost certainly going to go number one in the draft.

[A]

What am I measuring from fingertip to thumb tip?

[B]

I think so, like.

[A]

So what's that in octaves?

[C]

That's so big, right?

[B]

Well, no, it's not. That's the problem. So apparently they're small. Well, so there's this. Tell us. There. There was this controversy at the. At the combine, which is this thing where players that are going to go in the draft, like, do they get measured and they run basically track and field events to impress NFL scouts. It's stupid, but. So they measured his hand, and people are like, oh, my God, it's only nine inches. Because there's become this, like, weird idea that for it to be a good quarterback, your hand needs to be closer to 10 inches. This makes absolutely no sense. The theory behind it is that, like, you will fumble the ball more, which, like, it's completely.

[C]

Quarterbacks have enormous hands, though. This is like one of those things I fixate on when we watch football because the rest is kind of boring to me. But like the announcers always are talking and gesturing with their hands, and their hands are like these just enormous. Well, they're large paddles.

[B]

I mean, it is, it is true that, like, they're big and so their hands are big as well. But this idea that it needs to be closer to 10 inches and that somehow if it's nine inches, because Patrick Ma, who was the Super Bowl MVP, his hand is like nine and a quarter. So this idea is silly. And can I just say. Cause I just. This was my favorite part was the tweet from Joe Burrow, which was considering retirement after I was informed the football will be slipping out of my tiny hands. Keep me in your thoughts.

[C]

See, that was on Twitter. Again, a valuable source of information.

[A]

But this now explains everything. It explains why Donald Trump is so unsporty. It's because he has such small hands.

[B]

The ball is falling out of his tiny hand.

[A]

On which bizarre note, I think we're just going to wrap this one up. Thank you very much for sticking with this episode of Slate Money. Thank you to Jessamine Molly for producing, thank you for keeping the emails coming on slatemoneylate.com and thanks especially to Aunt Millie, who's been giving me all manner of smiles and enjoyment throughout this entire episode. She's in the studio today.

[C]

My Aunt Millie and my cousin Esther are both here. They live in Brooklyn and have been promising to come for a while. So welcome.

[A]

On which note, we will wrap this up and come back with more Slate Money next week.