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- [00:13]
A
Hello.
- [00:15]
B
And welcome to the Memelord Takeover episode of Sleepd Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Emily Peck of Axios.
- [00:28]
A
Hello.
- [00:29]
C
Hello.
- [00:29]
B
With Elizabeth Spires.
- [00:31]
D
Hello.
- [00:32]
B
And guys, we have the perfect guest on for this week. Welcome, Matt Levine.
- [00:38]
A
Hi. Thanks for having me.
- [00:40]
B
Matt Levine. You need no introduction, but introduce yourself anyway. Who are you?
- [00:45]
A
I'm a columnist for Bloomberg Opinion. I write a daily ish newsletter called Money Stuff. Recently it's been Elon Musk stuff. And I just published a long article in Bloomberg Businessweek about crypto, which is awesome.
- [01:00]
B
Everyone should read it, go out, buy it in print if you can, because it looks beautiful in print.
- [01:05]
A
Those copies are going to be scarce collector's items.
- [01:07]
C
You should make them into NFTs, obviously.
- [01:09]
B
Please don't make that joke.
- [01:12]
A
You're the 40th person to make that joke this week.
- [01:15]
C
First to do it on Slate Money.
- [01:18]
A
That's true.
- [01:18]
B
We are going to talk about that article, obviously. We have so much to talk about. We're going to talk about the cryptos. We are going to talk about Credit Suisse, which is breaking itself up. We are of course going to talk about Elon Musk buying Twitter, which is now official. It has happened. Twitter is now owned by Elon Musk. It is a fun show. You're going to love it. It's all coming up on Slate Money. Okay. So, Matt, it finally fucking happened.
- [01:51]
A
I know. I was not expecting it to have happened. By now. Recording on Friday morning, I figured it would be like. I figured it'd be 4:20, but you know, exactly. He.
- [01:59]
B
He would, he would do the deal at 4:20 on Friday. In fact, he did it a day early on Thursday.
- [02:04]
A
Yeah, not what I predicted.
- [02:06]
B
He was. He was unusually swift. And then by Thursday evening, the top three executives at Twitter had all been fired. And Twitter is, as of this recording and as of listening to this podcast, now wholly owned by a Memelord. Ah.
- [02:25]
A
I mean, it does make sense that like, the person who values using Twitter the highest would now own Twitter. I mean, that doesn't really make sense, but like, it makes a kind of sense. Like he loves Twitter.
- [02:39]
B
Using Twitter is free. Owning Twitter costs, you know, $44 billion. It's like $44 billion. Plus a free bank account gets you onto Twitter. I mean, plus a free Twitter account gets you onto Twitter.
- [02:51]
A
But he's very, very rich. And like, don't you have things that you find annoying about Twitter that you're like, Ah, I would change this, right? Like if you just owned it, you could just do it. So that was my original thesis of this deal, is he just like, you know, he like wanted an edit button. He's like, I'll be to pay $44 billion for an edit button.
- [03:10]
B
Which I guess. So this is one of my questions for you. It's like he agreed to pay $44 billion. Then it rapidly became obvious that he was overpaying. He tried to get out of the deal, he wound up doing the deal in the end. One of my theories all along was that the reason he kind of wanted to get out of the deal was because he didn't have that much money once the margin loan fell through and he had to come up with like 33 billion dol dollars of equity and he only managed to find 7 billion from friends and family. That's like a non trivial amount of cash even for Elon. But he seems to have found it.
- [03:53]
C
Yeah. Matt, what did we know about where he found the money? Not under a couch cushion from a.
- [04:00]
A
Pack, so we don't fully know. I mean most of it presumably comes from selling stock in Tesla either in recent months, you know, sort of around the time he signed the deal, or earlier where, you know, just, you know, putting money in the bank or conceivably even last week, like there's some speculation he might have done some selling. I mean, sorry, not last week, this week, which would be disclosed next week if he had in fact sold any. Some of the money came from friends and family. It's not clear how much, you know. And back when the deal was on, he disclosed $7 billion of commitments from venture capitalists and Saudis and his buddies. But it's not clear that all of those came through. And it seems pretty clear that he got other money too. Other rich people kicked in some money that has been sort of reported but has not yet been disclosed. And I don't know if it ever will be right. There's no real obligation to disclose it anymore. I assume that the number that he got in equity co investors was kind of around $7 billion. But it could have been more, could have been less.
- [05:03]
B
My, my favorite theory, which I don't actually believe, but it would be amazing, was that he paid for a huge chunk of Twitter with Dogecoin, which there was this massive dogecoin whale wallet which at one point had like over $20 billion in it and it's now been all sold off. I was looking at it and all of those dogecoin have been sold. And the total profit in that wallet was about nine and a half billion dollars. And the total amount of money that the person who owned the wallet or the institution that owned the wallet put in was, like, over 350 million they spent on dogecoin. So, like, that wasn't just someone who got lucky, you know, that was a very rich person or a very rich institution buying all that dogecoin and then selling it all at an absolutely enormous profit. Was that Elon? Probably not, but it'd be very funny if it was.
- [05:58]
A
That would be amazing. That would be a great way to buy Twitter with your dogecoin profits.
- [06:04]
C
So I feel like for a while now, going forward, there's going to be a lot of, like, conspiracy theorizing going on about who Elon is really beholden to with Twitter and why it'll matter and all that. But aren't there just some banks too, kind of behind the scenes?
- [06:20]
B
Yeah. Twitter is now a highly leveraged company. He needs to pay, what is it, like one and a half billion dollars a year just in interest expense, which is more than Twitter's free cash flow. So good luck with that.
- [06:32]
C
So usually these things kind of all end in disaster. Not. Not for Elon Musk, but just for the company itself. It's just the layoffs, the cost cutting.
- [06:40]
D
Blah, blah, blah, blah.
- [06:42]
C
It all ends in kind of the bankruptcy court or something.
- [06:45]
B
So this is. This is something Matt, which you've written about, and I love this so much, is basically what happens if Twitter defaults on its debt. Are the banks going to come after Elon for? Are they going to try and foreclose on Twitter, or do they value their relationship with Elon too much to do that?
- [07:12]
A
So Twitter has a lot of cash. It's a weird deal in that ordinarily you do an lbo, you use the cash on the balance sheet to pay some of the price, and you operate on very thin margins that this one, Twitter is keeping a lot of cash. So it's not going to go bankrupt, like next year. If it doesn't have enough cash flow to pay interest, it's got some cushion. What happens if it stops paying interest? I don't know. I mean, I would love to see it, because I think that. So some of the weird dynamics here are like, the client is Elon Musk, and you don't want to. If you're the lender, you don't want to annoy the richest person in the world, not only because he's a good client, but also because he is Very irritating in litigation. And you don't want to get involved with that. If you foreclose, the thing that you own is Twitter with Elon Musk being mad at you. And do you want that? And the other issue is that as of now, the banks are making noises that they're not selling this debt. So ordinarily, you do an lbo. Banks underwrite the debt, and they sell it to the sort of investors who buy LBO debt. And if the company falls into distress, that debt migrates to the hands of the distressed debt investors of the world, who are very much in the business of, like, fighting tooth and nail to take over companies and try to extract value from them. Right now, the debt is. Is supposedly being held by his relationship banks like Morgan Stanley, who are not in the business of fighting to the death with Elon Musk to take over the company that he owns. So I don't know. My gut is that there will not actually be a problem servicing this debt. And if there is, the banks will do a lot to make things easier rather than try to take Twitter from an angry Elon Musk, because that just doesn't seem very fun.
- [08:53]
B
They will, you know, what's it called?
- [08:55]
A
Delay and extend and pretend.
- [08:57]
B
Pretend or just kind of roll over the debt in one way or another, rather than force it to. To a crunch point. That makes sense. And it also makes sense to me from Elon's perspective. If he's already put $20 billion into this company or more, you know, what's another 1 billion, right?
- [09:15]
A
Like, he could just pay the interest out of his own pocket, essentially. And it seems crazy to throw away all this money.
- [09:22]
C
I kind of am starting to think that Elon Musk is going to turn Twitter around.
- [09:26]
A
Like, yeah, I'm getting optimistic.
- [09:30]
C
Well, first of all, let's do it, Elon.
- [09:31]
A
Come on.
- [09:31]
C
Yeah, like, his purchase has made all the shareholders lots of money. The 5420 was good for them, so that seems good.
- [09:41]
B
Yeah. The exiting CEO, Parag Agrawal, he's exiting with a large swag bag of cash.
- [09:50]
C
Yeah, he was fired at nighttime, but who cares? He's like a big old millionaire now. So, I mean. And now Kanye is back as of Friday morning, onto Twitter.
- [10:00]
B
Well, he never actually left.
- [10:02]
C
Oh, okay, so he's there. I don't know. More people are gonna be there, like rubbernecking the train crash or just checking it out, I think. So that'll be good, right? It's advertising business. You want more users, they're going to show up because they're excited about Elon. People say they're quitting, but they're saying it on Twitter, you know.
- [10:18]
B
You know who was posting memes on Twitter on Friday morning? Although he did delete it quite quickly? Larry Summers. I'm not. He. He posted a Pokemon mean as a meme as a reply to Paul Krugman, which is very un. Larry Summers. But you have to remember that Larry is on the board of Square, which is Jack Dorsey's company. Jack Dorsey is BFF with Elon Musk. You know, these circles are tiny.
- [10:48]
C
Yeah, it's a popular place to be and I don't think that's changing. I think it's going to become more popular now that the billionaire owns the playground. Everyone's going to want to show up and play. So maybe it's all going to be good.
- [10:59]
D
I think it depends on whether he turns it into a cesspool. If it becomes kind of unsustainable for certain people, then.
- [11:05]
B
Then what?
- [11:06]
D
Well, I think they leave, you know.
- [11:08]
B
Right, but is that bad? I mean, you know, if the, you know, if the woke snowflakes leave, is Elon going to cry?
- [11:19]
D
Well, it depends on what it does to the business. How many of them leave again?
- [11:23]
C
I'll say. I read a lot of people talking about leaving Twitter on Twitter today, so that kind of tells you what you need to know about that.
- [11:31]
A
Yeah, I don't think anyone's going to leave if Donald Trump comes back. But I think that if in fact he cuts moderation to the bone and it just becomes all crypto spammers, then people will leave. But he has said that he bought it to get rid of the crypto spammers. So it's a little unclear what he's actually going to do. My sense is that there'll be some marginal right wing decisions, but the basic feel of the product won't change that much. And so people won't actually quit. But what do I know?
- [11:57]
B
Well, I mean, you do know quite a lot. You have been written about writing about almost nothing else for about a year now. I mean, we should actually talk about what the other thing that you, you know, managed to toss off in your spare time, which was 40,000 words of explanation of crypto. Like, yeah, that took you. That took you a couple of months. Right. You're not a complete robot who can do that overnight.
- [12:29]
A
No, I did not do that overnight. That sort of started in that sort of like over the summer because I was like, wow, summer's always slow. What am I going to have to write about I might as well take some time off to write about crypto.
- [12:41]
B
And then, you know, so, so this is, this is the, the second great Business Week takeover. Paul Ford did the first one on code. You've done the second one on crypto. The idea is that it's like a timeless issue that you on your bookshelf and referred to as a sort of reference thing. That's just. If you want to understand what crypto is, just read this and you will understand it. And I think you did that unbelievably well with Great Brio.
- [13:09]
A
And obviously that's a gamble when you're like, it's a timeless reference on this thing that's existed for 10 years and then crash. Right?
- [13:15]
B
I don't know. One of the interesting things about crypto to me is, is how slowly it actually evolves. A lot of people like to compare it to, you know, crypto is like the early days of the Internet. But the fact is that crypto has been developing much more slowly than the early days of the Internet. You know that if you go back and read the piece I wrote in 2013 about Bitcoin, some of it's out of date, most of it kind of isn't, you know, and, and I think honestly, the. What you wrote about the broad structure of crypto, how it works, why it exists, is going to be true, and it's going to be like, basically not out of date for at least a couple of years.
- [14:02]
A
I hope so. I mean, like, the, the, the risk that we talked about for it being out of date was like, you know, crypto crash from sort of like a 3 trillion ish market cap to a 1 trillion ish market cap, like over this year, like, if it went much further down, then people are like, I don't need a Businessweek issue on this, you know, trivial niche subject.
- [14:22]
B
So, yeah, so that, that one was interesting. Like, is, is that the reason why Businessweek devoted an entire issue of this, why you devoted your entire summer to writing it, is just because there is a metric fuck ton of money in this, and therefore it is important.
- [14:40]
A
I've always been kind of like an efficient markets guy, and I'm like, if enough smart people are investing their money in it, who am I to say there's nothing there? I spent a lot of time talking about specific crypto things being like, wow, there's nothing there. But, yeah, as a sort of rough indicator of importance and interest, the fact that there's a ton of money in it is interesting. And frankly, if it's not important. Then the fact that there's a ton of money in it is even more interesting.
- [15:09]
C
Yeah, that's the difference between Felix you writing about it in 2013 and Matt writing about it in 2022 is like, crypto is here.
- [15:18]
B
Well, I mean, when I wrote about in 2013, the news peg was, oh my God, the market cap of bitcoin has just passed $1 billion. This is completely insane. And it just blew everybody's mind that this weird crypto thing could be worth $1 billion. Yeah. Now.
- [15:36]
A
And now people are paying $9 billion in Dogecoin for Twitter.
- [15:39]
B
Exactly. Now like literally you can have a dogecoin wal person can have a Dogecoin wallet with $21 billion in it. And kind of that's accepted as normal and.
- [15:50]
C
Yeah, that's the thing. It's accepted as normal now. It's part of the system, it's part.
- [15:54]
B
Of the background noise.
- [15:56]
C
Yeah, right, Matt. Now, like, it's not going away. There's been a big crash. There's been crypto winter. But I think you say in the piece, like, seems to be sticking around. It's worth doing the big story.
- [16:08]
A
Yeah, I mean, that's my sense. Like people, you know, like it is, is now sort of like a through the cycle thing where like obviously a lot, a lot, a lot of activity in crypto like you know, a year ago is like people very naively betting that these lines always go up, but then they went down a lot and people are still around and people are still, you know, investing in it and people are still like, you know, building projects and stuff. And so there's still like, there's still something there even after like the sort of worst of the speculative frenzy came out.
- [16:37]
B
Although, you know, the big message of your piece is that there's not much there that beyond purely sort of self referential financial speculation, the amount of real there there is, is way lower than all the people I was Talking to in 2013 would have predicted at this point.
- [16:57]
A
I agree with that. Yeah, I agree with that. Right. I mean, when you were talking about like crypto moving more slowly than the Internet, like, like I think that there is a hype cycle even as of a year ago that was like, this is as much of a general purpose technology as the Internet. This will transform every aspect of our lives. And I think that where I come to in the piece is that this is a much more narrow purpose technology and it's like a financial technology. And as a person who writes about finance, I think that's interesting. And I think there are valuable things you can do with financial technology, but it's not going to change every aspect of your life the way having all of the world's information in your pocket does.
- [17:40]
C
Yeah, that's what was really interesting about your piece. You were like, we had a real world for a long time and then the financial system kind of grew along with it. And that's the financial system that we kind of know and think is real. And now we have this Internet world and there's this crypto system growing alongside it. And then I was kind of thinking like, yeah, we don't. I mean, we do need the financial system and all the bankers and stuff, but they're kind of just like, like soul sucking. We don't really need that for the real world as much.
- [18:09]
A
Your words, not mine.
- [18:11]
B
Right, right.
- [18:11]
C
Not yours.
- [18:12]
A
I love the background.
- [18:14]
C
They're all great. Obviously we need them to have our homes and our. Turn the lights on. The small businesses. Of course.
- [18:22]
A
Yeah. No, I mean, in all seriousness, I think that the financial system operates in the background of the real economy and adds incremental value. And like, you know, I used to sell derivatives and I was like, you know, like companies are building cures for cancer and the way they can do that is by selling convertible bonds. And I like hedge those convertible bonds. I think there's like truth to that. And I think like, you know, building a better financial system is not a trivial goal and can potentially like be good for the world, but not in a way that like you feel every day in your ordinary life.
- [18:59]
B
But this is, to be clear, the other side of that bet. When you're saying like, it's not actually being part of our day to day life, you are taking the other side of the bet that Mark Zuckerberg is taking. Right, with his massive pivot to.
- [19:15]
A
Well, sort of, yeah, like, sort of like you can like there's like a. The concept of the metaverse and the concept of like crypto and Web three are entangled with each other, but they're not identical. Right. I mean, Mark Zuckerberg is not saying the things that crypto people love to say about owning your own information and sort of having portable NFTs that track your attributes in the metaverse. Mark Zuckerberg is like, come to our walled garden product and use our metaverse. Those are different. Like his metaverse is not like all that built around crypto true believer ideas. Do you think also like, yeah, probably taking the other side of the bet.
- [20:02]
B
But do you think it's possible that The Mark Zuckerberg metaverse could become what Mark Zuckerberg seems to think it will become without crypto more broadly becoming an important part of day to day life for most of us.
- [20:22]
A
Yeah, I think it could. I mean, I think that the Internet exists and then you build these walled garden Facebook products on top of it. Right. And I think that to Mark Zuckerberg, the bet is some sort of metaverse will exist and he wants to kind of build the walled garden first. Right. I'm not sure he put it that way. And I'm not sure I'm even right about how I'm characterizing him, because I don't know what he's thinking. But it seems to me that the Facebook bet is on. We need to own the next walled garden of the Internet or whatever succeeds the Internet. And maybe that will work. And the meta product will be the sort of place where everyone goes to have meetings and walk around without legs. And maybe, in fact, it'll be a more diverse, you know, competitive metaverse in which crypto will serve some function to sort of like link between bits of the metaverse. I think talking about all this, like, just feels very abstract because, like, you know, the Mark Zuckerberg metaverse is like, you know, 20 teens logging on at night. And it's just not like. I don't, I don't, I don't really know what that vision is.
- [21:32]
B
Yeah, I mean, his prior vision was, was Libra, wasn't it? He tried to create his own crypto.
- [21:37]
A
Oh, yeah. No, I mean, like, like, I'm, I'm sort of speculating about Facebook's belief in walled gardens. And obviously they have talked about crypto and they have hired crypto people. But like, Libra was also like, you know, it's a crypto project that is like a little bit owned by Facebook, though they wouldn't say that, but it's like it has elements of centralization that don't necessarily fit with like the sort of classic crypto ethos.
- [22:03]
B
So I want to come in here and do a little pivot and just basically say that the reason Libra failed, which I think is generally accepted, is that it ran straight into a wall of regulators who wanted absolutely nothing to do with it. And they were like, fuck off. And then all of the big companies like Stripe and mastercard and everyone who had initially bought into it were like, we're not going to piss off our regulators. So they left. And then there was not. And then it was empty and it died. One of the themes sort of, I would say like behind your story. It's not like super explicit in your story, but you touch on it from time to time, is that a huge amount of crypto activity is basically just regulatory arbitrage. It's people trying to do financial things without having to get regulated by existing financial regulators. And isn't that bad?
- [23:07]
A
So yeah. And I mean, I think it's like one thing that I write about a lot is that like there are, there are like two ways to be regulated in crypto. One is like, you're a big existing company like Facebook and you're like, I have an idea for a really safe, well regulated crypto product like this Stablecoin that I want to issue called Libra. And then you go to a regulator and like, here is my proposal that's, you know, put together by the top lawyers who all used to work for the regulator. And the regulator says, absolutely not, get out of here. And then you don't do it. Right. And the other way to do it is you're a teen in a non extradition country and you just program it and do it and you do whatever you want and you make completely ridiculous promises of 18% safe interest and then you lose everyone's money and then you don't get in trouble with regulators because they haven't talked to you. Right? Crypto is, it's not even a regulatory arbitrage. It's almost a blind spot. And it's so new and busy that the regulators are spending a lot of time dealing with the sort of, the people who want to be regulated, the people who come in to talk to them, and the people who don't come in to talk to them and don't want to be regulated just aren't regulated because it's too early to regulate them. So that seems bad otherwise. I mean, like. So yes, a lot of what I write about is that that crypto reinvented shadow banking in a way that is incredibly unregulated and much worse thought out than the shadow banking of 2007. And so things blew up in ways that are just comical and astonishing. If you lived through 2008 and you're like, how did people let you do that again? But I also think that, I don't know, you see this sort of interactions between crypto people and the sec. And I think that I am sympathetic to the crypto people's belief that like modern sort of existing securities regulation and frankly, existing banking regulation is a little bit, stands in the way of innovation in a way that is probably bad.
- [25:06]
B
In some ways, are you pro financial innovation? I mean, the famous thing from Paul Volker was the only good financial innovation in the past 20 years has been the ATM. I would add exactly one other innovation which was good to that list, which is the index fund. But basically, I think financial innovation is broadly bad.
- [25:28]
A
Yeah. I don't know. I mean, like, a financial innovation that I like is like Venmo, you know, And I think that, like. Like, speeding up the payment system in, like, traditional finance has been sort of, you know, pressured by crypto, where, like, crypto sort of tells the story of, like, I can just send you money on my phone right now without having to, you know, write you a check and wait three days. And I think there's been some. Some of that pressure from crypto.
- [25:51]
B
Yeah. In my mind, Venmo. In my mind, Venmo is not financial innovation. I have to say this in my mind. In my mind, Venmo is. Is just a failure of the US Central bank to build a decent payment system.
- [26:05]
A
No, I agree. And, like. And crypto puts pressure on that failure to try to fix it and is arguably, you know, in some ways better than even the fixed system. But I also think I just like financial innovation. I think that having more cool financial markets is cool. And I realize that no normal people agree with me, but a lot of people in finance agree with me.
- [26:29]
C
One thing related to what you guys are talking about that I thought was striking about your piece was how crypto kind of piggybacks on the trust that everyone has in the regular financial institutions, exemplified by Celsius, which people gave their money to, knowing it wasn't a bank, but kind of believing it was anyway.
- [26:48]
B
Yeah.
- [26:49]
C
So even as it's not regulated, it's kind of like piggybacking.
- [26:53]
B
I love. I love that whole thing in your piece about trust, because there's such a deep paradox in the crypto world in that the whole edifice is built on mistrust. And, like, we can transact with each other without knowing who each other are, without trusting each other at all. And it's a trustless ecosystem. And isn't this great? For reasons. And then the minute that it becomes, you know, a minute, basically, around 2013, when I wrote my piece, that was when you started having people like Coinbase come along and say, like, trust us, we will look after your crypto for you, and we will actually be better at looking after it than you will if you try and keep it on your laptop, which is true. And. And then everyone just started trusting institutions all over again. But they were unregulated institutions that probably didn't deserve that trust. And now that Coinbase is a publicly listed company that managed to get SEC approval to go public, which still kind of surprises me, I think people trust it even more. And I want to ask you, is that trust misplaced?
- [28:03]
A
My impression is that Coinbase tries to be a sort of compliant, good citizen kind of public company. Right. I don't know. I don't think my gut is that trusting in Coinbase is not too much, you know, more misplaced than like trusting, you know, Tesla to take your deposit and deliver your Tesla. Is it more misplaced than trusting a bank? Like potentially banks are like more regulated than crypto exchanges, but it's all the same, you know, like, like these guys are trying to do the right thing.
- [28:33]
B
But, but, but clearly it's, it was a very bad mistake.
- [28:37]
A
To trust Celsius is crazy, right? I mean, Celsius is like, right?
- [28:41]
B
So there is, there is this kind of caveat emptor thing going. If I walk up to a bank on the high street and I deposit $1,000, I don't need to know anything about the bank. That's an information insensitive product and I know that that thousand dollars is safe. If I walk up to Coinbase and give them $1,000, I need to know something about Coinbase in order to be able to say I can trust you. And if I go up to Celsius and give them $1,000, I need to know something about Celsius to know. Actually, this is risky.
- [29:14]
D
I mean, how sophisticated do we think that retail crypto investors are though? If it has the veneer of traditional banking or it seems to have the same taxonomy, maybe that's where the trust comes from. Even if it's not really.
- [29:27]
A
I mean, I think the answer is not so good at all. I think you're right. I think that as I said, people have just sort of imported over their instincts about trusting banks to things like Celsius that are just like the opposite of banks. And like Celsius says, like, don't trust the banks, don't trust anyone, trust us, you know, and then like people do for no reason at all and they lose their money. No, I mean, I think that like in crypto there, there are definitely like, there is a. There are sophisticated people who sort of live in the defi, like decentralized finance world and who try to minimize trust and maximize like your own ability to audit the code and whatever. And to do that you have to be Sophisticated and kind of a hobbyist, right? Like that has to be fun for you because you're not going to audit the code if you're just like a sort of regular retail investor. And then on the other side there's the regular retail investor crowd and the centralized finance crowd and they're like, for it to work, it's just going to have to be more regulated, right? There's just going to have to be some sort of. And obviously there's interest from the SEC and there's interest to some extent from banking regulators, but like, there has to be some sort of like regulatory framework that will make it so that you are not just blindly picking the platform that has the best font and then you, you know, lose all your money. The other thing is that like, I.
- [30:48]
B
Think you pick the platform that has the cutest dog and then you lose.
- [30:52]
A
And I think the other thing in crypto is like, I think people have like, like there's like a very libertarian ethos, right? And I think even in traditional finance, you know, 10 years ago you could have people who are like libertarians who'd say we don't need regulation, like market based reputational issues solve all of this, right? Like a bank that isn't careful with your money will get a bad reputation and therefore no one will put their deposits. And it sounds like sort of like implausible. And it sounds implausible in crypto. And it is implausible in crypto, right? But like, I think that, like I think that there is a belief in the crypto world that reputation and market incentives solves a lot of this. Obviously it didn't for Celsius and Voyager.
- [31:37]
B
I love what the number one thing I love the most about your piece is when you talk about this incredible word that's used in the crypto world to refer to reputation, which is soul.
- [31:51]
A
Oh yeah. I mean, I wouldn't say that that's like the word for reputation in crypto. I'd say that that's like a proposal from a few sort of crypto thinkers, including Vitalik Buterin to have some sort of persistent identity thing that is sort of bound up in crypto tokens on the blockchain and they refer to it as soul bound tokens. And you have a soul. And it's just like it's an endlessly fun thing to write about because it's like they say in their paper, they're like a musician could issue a song from his soul and that sounds so good. And it's like a defined technical term. About the blockchain. Oh, yeah. A song from your soul.
- [32:36]
C
Can I say one more thing about the metaverse? Just to go back for a second?
- [32:39]
B
Please do.
- [32:40]
C
I'm here to say I live in the metaverse, Felix.
- [32:44]
B
Wow.
- [32:45]
C
You live in the metaverse, Felix. I wake up every day and I in the real world and I have my coffee, then I go and I open my laptop, and for the next eight or more hours, I'm in the laptop, I'm in Slack, I'm on Twitter, I'm in my email a little bit, living my digital life online all fricking day. And I think that happened to everyone on steroids in the pandemic and helped make crypto a bigger deal, helped make all this stuff a bigger deal. And I think, like, it makes sense what Mark Zuckerberg is doing. I mean, no one wants to live in his walled garden, as Matt calls it. But, like, if you think we don't already live in a metaverse, you are incorrect. You are incorrect.
- [33:25]
B
As I said in the introduction to my newsletter today, two places where I have lived a large part of my life just got taken over by a Gen X gazillionaire. One of them was the United Kingdom with Rishi Sunak, and the other one is Twitter. And I have lived a lot of my life in and on Twitter. And that is true. And I managed to do that very easily and very well without any crypto. And I think this is important. Right? Your point is absolutely true. That we do have very vibrant, very important digital lives, and we spend huge amounts of time investing in our digital Persona and our Twitter avatars and all of this kind of stuff. And you don't need crypto for any of it. It's completely unnecessary. And to Matt's point, you probably don't need crypto for the Facebook Metaverse thing, either Horizon or whatever it's called. Right. So what is the point of crypto at that point?
- [34:30]
C
I think it's to add eth to the end of your. Your name.
- [34:33]
B
Congratulations on your ETH account, Matt.
- [34:35]
A
Oh, yeah, I couldn't get Matt Levine. Someone else got it. I think, like, to squat on it for, like, for me, but I don't think it's like another Matt Levine. But I don't know.
- [34:50]
B
I want to talk one last thing because there was big news today. We were talking about trusting banks. This is a big thing. There are, depending on how you count, roughly nine bulge bracket banks in the world. And one of them came out this week and said, we are breaking ourselves up and we're not going to be a bulge bracket bank anymore. This is like a voluntary breakup. Have you ever seen that before?
- [35:21]
A
I feel like all of the European bulge bracket banks have been saying things like that for years. Right. I think there's been, I mean, this is a particular, like, this is a particularly real one. But like, I think there's been sort of a retreat from universal banking by some of the big European, you know, universal banks where they're like, we're going to specialize a little bit more.
- [35:41]
B
But this is a big one. The, the news is that Credit Suisse, which really is a big universal bank or strategy, it bought a massive US investment bank called First Boston in 1990. It has a huge wealth management term, of course, because it's Swiss and, and it does basically everything for everyone. Came out this week and said, we are breaking ourselves up into four parts. We're selling off a large chunk of, you know, financial innovation, securitization stuff to Apollo. We are setting up a bad bank with like emerging markets and stuff where we don't really want any of that business and we're just going to run it down. And then we are going to basically split the rest of this in two. We're going to have the asset management and the sales and trading in one part. And then we're going to take all of the real investment banking, investment banking stuff, give it to Michael Klein, let him spin it off as this resuscitated First Boston name. And it's going to be a boutique. It's going to be like Jeffries or Evercore or something like that. Like, definitely not bulge bracket, which is something which you. It's, it's something which you do if you are a sort of sum of the parts investment banker like Michael Klein, and you're like, if you add up the value of all the component parts of Credit Suisse, they're worth much more than the whole thing as a whole. So what we do is we split it up into its parts, sell them all off individually and create value that way. You only do that when the share price is in the toilet, which it is. And it fell even further this week. So, so, so yeah. So Matt, Emily has a question for you, which is like, why should we care?
- [37:26]
C
Yeah, that was the only one I said I wrote down. Why is matter to the normals? Like, I didn't even know Credit Suisse was an option when I'm, when I was choosing a bank, whenever it was.
- [37:35]
B
Well, I mean, it's not for you. It is in Switzerland.
- [37:38]
A
I don't think it is. You're not Swiss.
- [37:39]
C
Okay. So. Yeah. So why should normals care?
- [37:42]
A
It is if you're, if you're like a rich tax evad.
- [37:44]
D
Right.
- [37:45]
C
If you need a wealth manager, which I definitely.
- [37:49]
A
Why should you care?
- [37:50]
B
Yeah.
- [37:51]
C
Why should people care about Credit Suisse breaking up? What does it tell us about, I don't know, the future of big banks or why do European banks not want to be big anymore? I don't know. Or does it not matter?
- [38:06]
A
I think Credit Suisse has had a string of scandals, I think to the point about trusting banks. It's hard to run a big bank. And I was thinking, Felix, you were talking about the sum of the parts. I think that the view is, and I wrote about this this week. There was a widespread view that these parts add value to each other, that being a wealth manager helps you in investment banking. Being an investment bank helps you do sales and trading. All these things sort of send business to each other and the businesses work best together. And so the thing is worth more than the sum of its parts. And now Credit Suisse is worth less than the sum of its parts. And, and the reason for that is that like these businesses also like bring danger to each other. Like if you have a trading business and the trading business loses a ton of money, then like your investment bankers don't get paid, right? If you have a wealth management business and the wealth management business is like abetting some light frauds by like selling some like green cell notes to its clients, then like the investment bankers don't get paid, right? Like everything is, is like kind of like the worst business is what controls the narrative and also like the profits of the company. And so they're splitting them off so that like the worst business is less likely affect the other businesses. I don't know. I mean one thing it tells you about is the sort of risky and scandalous nature of banking. Even whatever it is. Like 14 years past the 2008 crisis where it is hard to kind of get all the engines going together so that you can have a big bank where everything is adding value to everything else. And banks are sort of still in long term retreat from ambition, which in some ways, like, you know, I used to write this a lot like the sort of broad like regulatory goal after 2008 was to make banking boring again. To make it so that it just wasn't that fun to be an investment banker. Because if you're having too much fun in investment banking, you're probably creating a lot of risk somewhere and I don't know, like this is like one more like kind of victory for that, that outlook. This is one more place where like banks continue to be forced to be more boring and sort of take less risk and be less ambitious.
- [40:18]
B
I think that's right. As you say, even the American banks like Citigroup are shrinking and being much less ambitious. And it's been a long time since anyone used the word global financial supermarket. In a non ironic sense. We are going to be able to bank anyone anywhere in the world and give them any product they need and just be all things to all people. That was a real vision 20 years ago and a bunch of banks put a bunch of money into trying to realize that vision. And now I think the number of banks with that vision is exactly zero.
- [40:55]
A
Yeah, I mean my old employer Goldman Sachs spent a few years recently ginning up a retail business which is the least sexy risky form of expanding your approach to banking. It's like we're going to give people savings accounts. That's not the sort of swashbuckling derivative trading that I remember from Goldman. But also they're sort of retreating from that ambition anyway. They're like, yeah, that was.
- [41:27]
B
As one of New York's foremost golden sexologists, what do you place the probability at that they will ever actually release this long awaited checking account?
- [41:41]
A
I don't know.
- [41:42]
B
There's a bank called Marcus which, which, which included up until about a couple weeks ago it included things like the Apple card and now it's. Now the Apple card has been spun off into a different division and now it's just like these savings accounts which are unbelievably boring.
- [41:58]
A
They're really boring. I have one, I like it.
- [42:00]
C
Matt has one.
- [42:02]
A
Yeah. I don't know where they'd get into checking accounts. Like a checking account. Like that's like a, you know, then you're like a real retail banker, right. Then you got to like then Elizabeth.
- [42:10]
C
Warren's getting mad at you because your overdraft fees, right?
- [42:12]
A
You like, you like charge one overdraft fee. Like you're done. You can't do that if you, you can't charge overdraft fees if you're Goldman Sachs.
- [42:19]
B
Yeah. I can guarantee you that if Goldman Sachs ever launches a checking account it will not have overdraft fees.
- [42:26]
A
There was some article about them doing consumer loans and not foreclosing on them because they're like we can't go into collections or Goldman Sachs.
- [42:35]
B
Exactly. We should have a numbers round. Elizabeth, do you have a number?
- [42:42]
D
Yeah, my number is 1200. And it's the number of times you toggle between apps or most people toggle between apps during the day. For me, that sounds low. I feel like it's like four times lower.
- [42:54]
C
That sounds so much.
- [42:56]
B
Emily.
- [42:57]
C
Okay. My number.
- [42:58]
B
Oh, we're excited about this.
- [42:59]
C
I'm so excited about my number. I've been thinking about it for like two weeks. My number is 40. That's how many years ago Halloween was almost canceled. Dun, dun, dun. This is because I don't know if you guys will remember this, but I'm. I guess I'm old Now, so. In 1982, in September, a lot of people died because Tylenol was tampered with in the United States. In the Chicago area, someone opened up these capsules of Tylenol. Tylenol put cyanide in them and all these people died. I think like seven people. And it was like a huge panic and scare. And Johnson and Johnson, which makes Tylenol and was the top selling painkiller of that time, tanked. It was a massive corporate scandal. They had to recall all the Tylenol. It was wild. Now, why am I telling you about this when it's about Halloween?
- [43:48]
B
Because is there something about razor blades.
- [43:50]
A
In apples, fentanyl and candy?
- [43:52]
C
Yes. So people have always low key, like, freaked out about Halloween sadism, I think it's called, where, like, people are like, everyone's tampering with the candy. But it really reached, like a total fever pitch in 1982, 40 years ago. That's my number. People were like, they can mess with the Tylenol. They can mess with anything. They can mess with our food.
- [44:10]
B
I don't.
- [44:10]
C
What are they going to do to the babies, the children? Keep the kids home. And like, several towns even canceled trick or treating. And I remember because 1982, I was like, prime trick or treat age. And I remember, like after that year, like, and this could be. I'm conflating with my age and growing up. But, like, trick or treating was not the same for a really long time. Like, far fewer kids would go out because there was so much fear over the candy getting messed with, which, P.S. it never gets messed with. It's just rumors.
- [44:37]
D
Yeah. The police department, my hometown, used to X ray people's candy because obviously.
- [44:44]
A
I have a fentanyl test kit for my candies this year.
- [44:49]
C
You don't have to worry. You can eat all the little mini Snickers you want. You don't have to X ray them or open them or anything. It's going to Be. It's going to be okay, people.
- [44:57]
B
Go out on Monday and enjoy your trick or treating because it's safe.
- [45:01]
C
And so is. And, and I think so is Tylenol now. They don't make capsules anymore. And their comeback from that scandal is, like, taught in the business.
- [45:09]
B
I can, I can tell you with, with 100% certainty that I have never died after taking Tylenol.
- [45:15]
A
I don't.
- [45:16]
C
It's true. He's alive. I see him right now.
- [45:19]
B
My number is 2.6%, which is a number which I feel maybe kind of got lost in the noise this week a little bit, but that was reasonably decently healthy GDP growth in the third quarter, which came out this week. All of the people talking about we're in a recession, like, kind of. No, we grew by 2.6% in the third quarter. Like, it's very hard to be in a recession and grow at the same time. But, yeah, just like, you know, worth noting.
- [45:51]
C
But isn't there, like, don't people. Didn't people write things that were, like. If you look under the hood, though, it's actually because imports were down. And if you look at the housing numbers, they are really terrible, so.
- [46:01]
B
Well, I mean, on the one hand, housing is terrible, right? Housing contracted at like a 26% rate or something in the third quarter, but that just shows how healthy everything else is. If you can. If you can. If you can eke out a 2.6% growth rate even with housing imploding as much as it did, that's pretty good. All right, Matt, take us home.
- [46:24]
A
My number is 1.5 billion, which is the amount. $1.5 billion. That's the amount that Forbes estimated. Kanye West's Ye's fortune went down this week.
- [46:39]
B
Oh, my God, I love wealth estimates.
- [46:41]
A
Yes. Went on an anti Semitic tirade and got his Adidas contract cancelled.
- [46:49]
B
Which, by the way, he had been trying to get out of already unilaterally because he didn't like the way they were dealing with him. Yeah. Thank you for this number. I appreciate it.
- [46:59]
A
Yeah. You and I, I think, have both written a lot about, like, how celebrity net worths get calculated. And as I wrote this week, like, there's a. There's like a crossover point where, like, at some point, your net worth is kind of your bank account. And then when you get big enough, your net worth is like Forbes estimate of your future earnings. And here, you know, he didn't lose any money, but he lost a stream of future earnings that was, you know, in like, the 100, $150 million a year area. And so that got capitalized into a $1.5 billion number. So he was a billionaire and now that has gone away and he's no longer a billionaire.
- [47:34]
B
And to the question of like, how did Elon pay for Twitter? You know, there's so much talk about how much money is Elon Musk worth? As though we know. We have no idea. We just, we know some things like how many shares of Tesla he owns. But there's a lot of things we don't know, like how many dogecoin he owns. And a lot of it is just made up. But yeah, I do need to quote Kanye west on Instagram because he's on all of the socials still. He put this post up on Instagram saying, ari EMANUEL, I lost $2 billion in one day and I'm still alive. So Kanye believes that he lost $2 billion in one day, I think, I.
- [48:24]
A
Mean, he did, right? He lost $150 billion a year for 20 years. Right? I mean, like, sure. It's not untrue.
- [48:32]
B
Yeah. Lies to analyze and celebrity net worth estimates. Matt, thank you for coming on. It's been a privilege for all of us. It's awesome to have you on the show. Thank you for having me and everyone else, thanks for listening. Next week we have another great special guest. Rana Farooha is the great columnist for the Financial Times who has a new book out called Homecoming, all about post global economics. And send any questions for anna to slatemoneylate.com and we'll ask her. So that's, that's the thesis. That's what we're talking about next week when we will see you back here on Sleek.