Slate Money: "The Anna's Air Quotes Edition"

Date: September 23, 2017
Host: Felix Salmon
Guests/Co-hosts: Jordan Weissman, Anna Shymansky

Episode Overview

This episode dives deep into several of the week’s biggest stories in finance and business. The panel discusses the bankruptcy filing of Toys R Us and what it reveals about bankruptcy, private equity, and the modern retail landscape. They then move into an analysis of Loftium, a new startup offering homebuyers cash for Airbnb-proceeds-sharing, debating the sustainability and social impact of such a business model. Lastly, Anna leads an engaging primer on sukuk (Islamic bonds/securities), exploring both the religious structure and legal conflicts currently upending this market.

The tone is irreverent, sharp, and often laced with sarcasm, especially as the hosts challenge business models and financial orthodoxy.

Key Discussion Points & Insights

1. Toys R Us Bankruptcy: Retail, Debt, and Private Equity

(00:54–16:17)

• Background: Toys R Us, once a retail giant, files for bankruptcy, prompting public outrage and discussion.
• Bankruptcy Details:
  • Unusually, no immediate store closures and employees may get raises (02:54).
  • "If you took out the interest payments, they would be making a profit." – Felix Salmon (03:46)
  • Bankruptcy spurred when vendors refused to provide new inventory unless paid upfront (03:59).
• Ownership Structure:
  • Toys R Us owned by private equity firms (KKR, Vornado)—classic leveraged buyout (04:28).
  • Panel debates whether high leverage from private equity leads to higher bankruptcy rates—uncertain, per academic research (07:10–08:30).
• Costs and Reasons for Bankruptcy:
  • Anna compares bankruptcy to a formal negotiation tool—"just a way to get all the creditors to the negotiating table." (05:32)
  • Jordan: Bankruptcy is "always very, very expensive." Legal and advisory fees for all sides (06:12).
• Bigger Picture:
  • Felix voices skepticism about the system: "I'd much rather move towards...everyone can just fund themselves with equity at the same cost and you wouldn't have these extra bankruptcy and debt related costs burdening the system." (09:17)
  • Anna cites research showing that, beyond “hopeless” cases, reorganization success rates are now fairly high, often 60–70% (11:00).
• Bankruptcy Success Stories:
  • Airlines and General Motors seen as bankruptcy survivors; Trump casinos less so (12:28–13:40).
• Retail Dynamics:
  • Discussion of the "hot toy" phenomenon—high demand for unpredictable items creates annual scarcity hype at Toys R Us (14:34–15:44).
  • Surprising stat: Toys R Us makes most profits from baby products, not toys (15:53).

Notable Quote:

• Felix Salmon: "I see a headline, Toys R Us is declaring bankruptcy. And everyone's like, this is clearly bad for Toys R Us. Is it clearly bad for Toys R Us?" (10:47)

2. Loftium & The Future of Homeownership

(16:11–25:47)

• What is Loftium?
  • Not a rare metal but an Airbnb-based startup: gives homebuyers up to $50,000 for down payment if they’ll share Airbnb proceeds for three years (17:09).
  • "It's a startup that's saying they will give individuals up to $50,000 for a down payment on a home, but then the borrower has to list that home on Airbnb and share the Airbnb proceeds with Loftium." – Jordan (16:51)
• User Experience:
  • Must list the spare room every day for three years ("you get 24 days off over the three years," Felix, 17:19). Imposes a “weird form of indentured servitude” (20:32).
• Panel’s Skepticism:
  • Felix: "It's shit and I hate it. ... Felix is going to kill Loftium with fire." (19:41)
  • Concern that it burdens homeowners with unappealing, relentless hosting; only a tiny minority would enjoy such an arrangement (20:29).
  • Anna: "Running a BnB is actually work." (20:29)
  • Jordan/Anna note that negative Airbnb reviews—or new local regulations—could tank the business (21:22–25:27).
• Market Context:
  • The real driver of down payment unaffordability: mix of rising house prices, stagnant wages, and student loans (18:45).
  • Anna notes traditional examples where buying to rent makes sense (brownstones with garden apartments), "but...that doesn't actually include most homes." (24:04)
  • Regulatory risk: cities may ban or restrict Airbnb in the future, undermining Loftium’s whole model (25:14–25:27).

Notable Quote:

• Felix Salmon: "It's a weird form of indentured servitude, which I feel most people are going to be quite unhappy about." (20:32)

3. Sukuk: Islamic Bonds and a Legal Crisis

(25:47–39:40)

• What is Sukuk?
  • Commonly called “Islamic bonds”, but not true debt—structured to be Sharia-compliant (no interest, assets and profit-sharing) (25:53).
  • “Don’t call them bonds,” says Anna, as they're structured as asset-based profit-sharing (26:05, 27:20).
  • Many have payouts that mirror LIBOR interest rates, in practice (28:37–29:00).
• Current Crisis:
  • Dana Gas (UAE) claims it cannot pay sukuk holders because, retroactively, their sukuk is no longer Sharia-compliant—a move likely motivated by cash flow, not theology (30:54–34:03).
  • London courts (where international sukuk are typically governed) will likely side with creditors, but parallel UAE legal proceedings could yield conflicting rulings (32:03–33:44).
• Market Risks:
  • Lack of a central Sharia authority means rulings can be unpredictable; a leading authority says 85% of sukuk are invalid (36:23).
  • Jordan: "If you actually look at Dana Gas's finances, this is clearly not about Sharia law. This is about their cash position." (33:44)
  • Investors accept higher profit rates to compensate for legal uncertainty (35:01).
• Comparison with Other Legal Regimes:
  • Anna is baffled by the religious-legal overlay, but Jordan points out that unpredictability is common in many emerging market legal systems too (38:24–39:05).
  • Felix: “In most of the world, [finance is] all much more contingent and crumbly and weird…” (39:07)

Notable Quote:

• Felix Salmon: "You thought the Jews were good at, like, finding ways around religious restrictions ... I'll tell you where you want to look is Islamic finance." (26:22)

Numbers Round

(39:50–47:19)

• Jordan: 57% – The share of German voters ages 18–21 supporting Angela Merkel’s center-right CDU, compared to 53% overall (39:56).
  • Discussion of Merkel's surprising youth popularity; her memeability; and her role as “the leader of the (free) world” in a time of crisis.
• Anna: 4 – Number of months Equifax hackers roamed its servers before breach discovery (42:33).
  • “At least you can't say that that's how they screwed up now. … Nonetheless…all of our financial information…they didn't notice.” (42:33–43:32)
• Felix: $211 billion – Size of Yue Bao, a Chinese money market fund held by Alipay/Alibaba with 370 million depositors (43:35).
  • It’s now possibly the world’s largest; highlights how tech firms are starting to act like shadow banks, but U.S. tech firms unlikely to follow due to regulation (44:51–45:19).

Notable Moments and Quotes

• Anna on Bankruptcy:

  • "Sometimes it becomes, you know, really fucking vicious and expensive and a drain on finances. And it really does look like blue sharks picking at a whale." (06:35)

• Jordan on Loftium:

  • "Why would anyone invest in that company? Like, that makes zero sense." (21:59)

• Felix on Sukuk:

  • "[Sukuk] are traded on debt exchanges like a duck... But actually, this is a cow... it does raise these amazing kind of ontological questions..." (26:12)

• Anna on Regulatory Risk for Loftium:

  • "The real smart move here is to take out your Loftium deal and then immediately lobby your local government to make Airbnb illegal..." (25:27)

Timestamps for Key Segments

• 00:54 — Toys R Us bankruptcy: start of discussion
• 11:00 — Success rates for bankruptcy reorganizations
• 16:11 — Loftium: what it is, how it works
• 20:29 — Panel consensus: Loftium is a bad deal for most
• 25:47 — "Nerd out about sukuk": Islamic finance primer
• 30:54 — The Dana Gas sukuk crisis
• 35:39 — Impact of legal risks on sukuk demand
• 39:50 — Numbers round (Merkel support stat)
• 43:35 — Yue Bao fund/Alibaba bank-like operations

Summary

This episode showcases what makes Slate Money distinctive: a blend of accessible technical explanation, irreverent skepticism, and playful, sometimes snarky, banter. The hosts demystify the spectacle of bankruptcy (showing it as both potentially routine and disastrous), critically ambush a much-hyped startup, and peel back the veil on the complex, improvisational world of Islamic finance. Listeners come away entertained and enlightened, ready to spot air quotes in the next business headline.

For feedback, questions, or to weigh in on the "hot toy" of the year, the hosts invite listeners to email slatemoney@slate.com.