The Anna's Air Quotes Edition

Summary

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

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

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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.

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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)

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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)

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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)

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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).

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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)

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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

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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.

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For feedback, questions, or to weigh in on the "hot toy" of the year, the hosts invite listeners to email [e-mail].

Transcript

[Anna Shymansky]

The following podcast contains explicit language.

[Felix Salmon]

Hello, welcome to the Anna's Air Quotes edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Future Fusion, joined by Jordan Weissman of Slate, and also by Anna Shymansky. Hello, people.

[Anna Shymansky]

Hello.

[Felix Salmon]

And we are going to be talking about sukuk today. You get a little prize if you know what sukuk is. It's one of those wonderfully nerdy bits of international finance which I've been mildly obsessed with for about 10 or 15 years. And it just so happens that Anna Shymanski is here. So I finally get to nerd out about Sukku and it's going to be awesome. We are also going to be talking about Loftium, which is a rare metal that was just discovered in an obscure province of China.

[Anna Shymansky]

Very anchorman.

[Felix Salmon]

And is going to be a major part. Turns out to be a major part of the iPhone 10, without which the iPhone. Wait, maybe that's not what left. If that's not Loftium is, then we are going to have.

[Anna Shymansky]

I actually would have loved to see you string together an entire fantasy segment about what loftium is. Just keep going and see how long before our listeners, before someone was like, wait a second.

[Felix Salmon]

I mean, it is a well known fact that metals end in ium. This is why aluminium should be aluminium and not aluminum. But that's a whole other. Anyway, the. We are going to start by talking about bankruptcy. Jordan.

[Anna Shymansky]

Yeah.

[Felix Salmon]

Because I got a panicked email from my wife, or not so much panicked, but just like annoyed and distressed, saying, can you believe that Toys R Us is going bankrupt? After they drive every single mom and pop toy store in America out of business. Now they turn around and like go bust. What the fuck?

[Anna Shymansky]

Well, I mean a. Like insofar as retail is or is not dying, that's going to be the story as each of these companies go like the big box store is going like, if Barnes and Noble goes bankrupt, everyone's going to say thing they drove out. You know, they. You got mailed all the small bookstores and then Amazon.

[Jordan Weissman]

You got mailed them.

[Anna Shymansky]

Yeah, exactly. But that aside. Yeah. So Toys R Us is in bankruptcy. And you know, I'm sure there's some people who think this means the end of Toys R Us, but it's not necessarily the case.

[Felix Salmon]

In fact, this is.

[Jordan Weissman]

This is the weirdest, just the beginning.

[Felix Salmon]

This is the weirdest bank. One of the weirdest bankruptcies I've seen in a while.

[Jordan Weissman]

Mm.

[Felix Salmon]

Because it seems to be accompanied by zero store closings. If anything, the people working at Toys R Us are getting a raise.

[Anna Shymansky]

Yeah, that's the part that really puzzles me.

[Jordan Weissman]

The company is not doing well. Well.

[Anna Shymansky]

But it's okay. We'll get to that.

[Felix Salmon]

So. Yeah, so let's start there. Actually, Anna, when you say that the company is not doing well, I mean, obviously if you're going into bankruptcy, this is not exactly what the shareholders really want. But beyond a bunch of shareholders losing money, what is not doing well? What is not going well at Toys R Us?

[Jordan Weissman]

Net sales are down, revenues are down, they have a loss, their cash position has declined. Do you want me to keep going? Every number is getting lower.

[Felix Salmon]

It's not. I mean, okay, it's a loss, but it's only a loss because they are burdened with five.

[Jordan Weissman]

It's not only a loss because it's.

[Felix Salmon]

If you took out the interest payments, they would be making a profit.

[Jordan Weissman]

Their profits would still be getting lower.

[Anna Shymansky]

Yeah, So I think that's. So there's the question of, is the business, like, unsustainable or is it just sort of. Is it declining? Right.

[Jordan Weissman]

And also this. This bankruptcy. The reason that this bankruptcy is currently happening is because their vendors got spooked. Like, they could have potentially gone into an out of court settlement, but their vendors got really spooked and said, we're not giving you inventory right now, right before the holiday season unless you pay us everything we're owed. And then the. Their bond prices started to tank and then they were pushed into bankruptcy.

[Felix Salmon]

So, okay, let's rewind a little bit here. Toys R Us is owned by who?

[Anna Shymansky]

Kkk. It's kkr.

[Jordan Weissman]

Oh, sorry. Yeah, it's KKR Varnado.

[Anna Shymansky]

Yeah.

[Jordan Weissman]

And.

[Anna Shymansky]

Yeah, but.

[Felix Salmon]

Or to be. To. To. To give it their, you know, common. More. More commonly known as private equity.

[Jordan Weissman]

Yes, yes.

[Felix Salmon]

Private equity is the sexy new 21st century rebranded version of what used to be called leveraged buyouts. And every so often, I have the opinion that bankruptcy is really no big deal and that it's just a change of ownership, and the people who used to own the debt now own the company, and the people who used to own the company now have nothing, and it shouldn't really affect the company very much. And then at other times, I have the opinion that bankruptcy is a really expensive and difficult and inefficient way of conducting sale of a company or change of ownership, and that it is something which is best avoided. And the inefficiencies there are really quite bad for capitalism as a whole.

[Anna Shymansky]

So I think it's Kind of both of those things. Right? I mean, companies go into bankruptcy for all sorts of reasons. Sometimes it is. It just serves as a way to essentially get all the creditors to the negotiating table. It's almost the same way. We were talking about distressed debt or distressed sovereign debt several weeks ago and how essentially the courts act as a way to get just kind of act as a system so that they can have some way to negotiate in a formal setting. And this. Sometimes that's what a bankruptcy case serves as. It's just like, okay, everyone is now going to be in the room. You can't, like, ignore my phone calls. You can't put this off. 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.

[Jordan Weissman]

Yeah. I would argue that it's always very, very expensive. Yeah. There's a reason you normally like to do out of court settlements if at all possible, and it's because not only would, if you go into chapter 11, not only do you have to pay all of your legal fees, all of your advisory fees, you also have to pay the legal and advisory fees of the creditors committees. That's a lot of money.

[Anna Shymansky]

But, you know, that might be the. That might be the only way to, like, again, to just do a reorganization.

[Jordan Weissman]

Sometimes it is.

[Anna Shymansky]

Okay, because.

[Felix Salmon]

Can I, Can I just rewind here? You know, go back another sort of 20,000ft and say, given that bankruptcy is expensive and time consuming, is it not a good idea not to load up companies with this much debt? Isn't this an indictment of the entire private equity model, the entire leveraged buyout model of saying, hey, let's put huge amounts of debt onto these companies and run a much higher risk that they're going to have to wind up in bankruptcy.

[Anna Shymansky]

Well, so to me, that kind of gets at the question of whether or not companies are targeted for a private equity buyout, going to bankruptcy more often than companies that aren't. Right. Like, that's sort of what you're getting at.

[Felix Salmon]

I mean, the answer is clearly yes.

[Anna Shymansky]

Well, it's not clear. Like, there are people who have, like, tried to research this, and it's hard. It's a really difficult question to get at academically. But they've gone through these giant databases, and if you just look at exits, right? Like how a, how private equity firms exit, it doesn't seem like there's any higher rate of bankruptcy. It's not more like.

[Felix Salmon]

And higher rate than what?

[Anna Shymansky]

Then like, you're like, just like, it's not an unusual rate of bankruptcy for like companies overall in the sample. Right. Like comparing them to non private equity targeted firms. It's been, I will admit it's been a few years since I've looked at this specific research. So if.

[Jordan Weissman]

Right. And if you had higher to default rates it would almost be obvious you'd have higher default rates because the reason they were targets to begin with is because there were problems with the company.

[Anna Shymansky]

There are all sorts of. Yeah. The question over that kind of research is what happens to companies post exit? Is it the kind of thing where they spin them out in the public markets or sell them to someone else and then, you know, they keep stumbling for a few years and then collapse? That's a little bit more murky. But I think the issue is. But the bottom line is it's not obvious that private equity targets all buckle under the debt that they get.

[Felix Salmon]

No, no, no one's saying they all do.

[Anna Shymansky]

But more likely than any other company at the margin. Yeah.

[Felix Salmon]

The more leveraged you are, the more likely you are to end up in bankruptcy. If you don't have any creditors then you won't wind up in bankruptcy.

[Anna Shymansky]

And also speak to the fact when I'm talking about comparing them to other companies. Lots of companies get leveraged up. Lots of companies get leveraged. Right.

[Jordan Weissman]

It also, it depends the amount of leverage you have in your balance sheet. How problematic that is is going to depend on the type of company you are. Because a lot of very, very stable companies have a ton of leverage in their balance sheets. And it's fine because they're very stable, they have tremendous market share. That's fine if you're talking about a retailer.

[Felix Salmon]

I mean I'm going to push back a little bit on that. I mean it's sustainable and obviously there are compelling tax reasons why companies.

[Jordan Weissman]

And it's way cheaper. Debt financing is cheaper.

[Anna Shymansky]

Well, partly for tax reasons.

[Felix Salmon]

Yeah, for tax reasons.

[Jordan Weissman]

Not just for tax reasons.

[Felix Salmon]

The blended cost of capital is lower but I feel like that's a bug rather than a feature in the system. And I'd much rather move towards a kind of Modigliani Miller nirvana where 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.

[Anna Shymansky]

We are so close to getting back to our tax argument. Like we're really teetering. I would just like to. I, we will, we will talk about that another day though. I see. I mean I think like this comes out to just like, you know, being A little bit. I see where you're coming from. Like, you want companies not to buckle because of financial engineering, and it seems stupid and wasteful for that to happen. And I think, like, that that jives a lot of people's instincts. The question is, like, does this kind of debt financing have some sort of positive social good where all these private equity companies are actually making them run better or coming up? And like, that's. Which I think is. Is dubious. Some people have argued. Yeah, some people have argued that private equity does, like, make economies more. And like, I've tried to show, again, academically, with regressions that, like, they make economies, like, run more efficiently and whatnot.

[Jordan Weissman]

And sometimes they do and sometimes they don't. It also depends on how the private equity company is run.

[Anna Shymansky]

Yeah, I guess the question is, like, if it's ever realistic for us to get to that nirvana where all, all, you know, financing is treated equally because the tax system is totally neutral towards it and yada, yada, yada.

[Felix Salmon]

So back to Toys R Us, though. Like, 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?

[Anna Shymansky]

I don't think it is, because, again, they have so. And this is our favorite. Matt Levine was writing about this and. But so his take was sort of, you know, okay, they're going to reorganize their debts and figure themselves out. They have about a 500. If you take away their interest payments, they're making $500 million a year, supposedly, so at least they can get back on their feet. Granted, you have to figure out if the suppliers are going to keep working with them and if, you know, if they're not going to pull the plug. I went back and kind of scoped out a little bit more because this just made me wonder about the question of do companies typically actually emerge okay, from bankruptcy? For many years, the conventional wisdom was that almost never. There used to be this stat that only 17% of companies came out of Chapter 11 with even a reorganization plan, much less a plan that actually then succeeded in later years. So it used to be thought of as sort of a death sentence. More recently, and research by, like, Elizabeth Warren, for instance, of, like Senator Elizabeth Warren back when she was at Harvard, found that if you take out companies that are clearly, clearly hopeless from the equation that, like, just go in and don't have a chance in hell of ever reorganizing, actually, the success rate is pretty high. It's like gets into, like, 60s 70s they get to a reorganization plan, they can try to get back on their feet. It seems like. It seems like given that they are making money, they have. Their business has not died out yet at the hands of Amazon. Toys R Us is the kind of firm that would be more likely to survive.

[Felix Salmon]

I mean at some point we're probably going to have like an airlines edition, but the airlines are the classic ones who just are serial bankruptcy filers and they, and they go in and out and in and out of bankruptcy. And it's just part of the business model. It seems, it doesn't seem to do a huge amount of harm to or Donald Trump and gm.

[Jordan Weissman]

No.

[Anna Shymansky]

You know, that seriously was his business.

[Jordan Weissman]

It was. Yeah.

[Felix Salmon]

I don't think that's true to some extent.

[Anna Shymansky]

I don't, I don't practicing value and.

[Felix Salmon]

I don't think that he. I don't think it's easy to point to a Donald Trump company which declared bankruptcy and then came out the other side remotely healthy.

[Anna Shymansky]

That's true. He took the money and ran afterwards often or like got by away from the skin of his teeth.

[Felix Salmon]

I think. I think he's the prime example of someone who starts up a company, it goes bad, it goes bankrupt and then it dies.

[Anna Shymansky]

Oh, I mean the casinos were around.

[Felix Salmon]

Afterwards barely, and then they all wound up dying.

[Anna Shymansky]

They were a shell of their former self, former glory.

[Felix Salmon]

And so yeah, I feel like if you want, you know, if you want a success story of bankruptcy, you're much better looking at General Motors than you are looking at, you know, the Taj Mahal in Atlantic City.

[Anna Shymansky]

Yeah, that's.

[Jordan Weissman]

Yes. Less government involvement in the Taj Mahal.

[Anna Shymansky]

Although, although General Motors is a little bit different because they had the kind of government facilitated.

[Jordan Weissman]

Very different.

[Anna Shymansky]

And they were actually, they were often kind of. I mean, the reason you had a government facilitated bankruptcy is because people thought a car company specifically could not survive the process. Not because. Partly because of their vendors that was, you know, there. They wouldn't people get their goddamn parts. But then also the customers wouldn't buy cars that they didn't know there'd be a warranty on them or there wouldn't be someone to service them in a few years. So there are questions for some industries, you know, whether or not this is actually a process that will help kill the company.

[Felix Salmon]

I certainly don't think that Toys R Us, you know, this holiday season needs to worry too much about consumers buying their toys elsewhere just because they know that the company is in bankruptcy. I don't think computers really. Consumers really Care that much.

[Anna Shymansky]

What's the hot toy?

[Felix Salmon]

What is the hot toy? This. Email us sleep moneyleep.com and tell us what is the hot toy this year we want to start. There's always a hot toy.

[Anna Shymansky]

I thought there. Is it just like something that hot toy is. Yeah.

[Felix Salmon]

Statistically speaking, there is always a hot toy because you can't predict these things.

[Anna Shymansky]

No.

[Felix Salmon]

The weird thing about the hot toy. This is my favorite factoid about hot toys.

[Anna Shymansky]

Yeah.

[Felix Salmon]

Is that the biggest selling toys year in and year out are Monopoly and Barbie and all of these toys where the demand is enormous, but it's also predictably enormous, so they can easily make more than enough of them to fulfill demand. And the point about hot toys is that demand is much lower than it is for Barbies, but because it wasn't predictably high, the demand is much higher than the supply. And so everyone starts.

[Anna Shymansky]

Right.

[Felix Salmon]

I just think we're fighting with each.

[Anna Shymansky]

Other way past the era, like the glory days of the hot toy, where you would actually see, like, fisticuffs at Toys R Us where they would have to have, like, security amped up or. Cause like, otherwise the moms are going to tear each other to shreds trying to get a hold of an Elmo or something.

[Jordan Weissman]

Yeah, exactly. And I mean, if you look at Toys R Us, you know, segments where they make money from. They make most of their money from baby. From goods for babies.

[Felix Salmon]

That's right.

[Jordan Weissman]

Only like 15. Only like 15 of their revenues are from Core Toy. Like 49 of their revenues are from baby.

[Anna Shymansky]

Really?

[Jordan Weissman]

Yeah.

[Felix Salmon]

I love. I love the fact that we've managed to get the phrase into this podcast.

[Anna Shymansky]

Yeah.

[Felix Salmon]

Toy. All right, so, Jordan.

[Anna Shymansky]

Yeah. You.

[Felix Salmon]

You seem to believe that Loftium is something other than the rare metal in an obscure province of China.

[Anna Shymansky]

Yeah, it's an old ship from the Civil War era. That's right, Anna.

[Felix Salmon]

It's definitely one of those weird names. It could be just about anything. Anna, what is Loftium?

[Jordan Weissman]

But alas, Loftium is a startup.

[Felix Salmon]

No, I know, I know.

[Jordan Weissman]

Not a Silicon Valley startup or a Seattle startup.

[Anna Shymansky]

A startup with a really good PR operation, from what I can tell, because six articles in large publications all came out at the same time about this one damn startup. And it seems like they didn't know about each other, so.

[Jordan Weissman]

Yes. Anyway, so essentially 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.

[Anna Shymansky]

Yeah.

[Felix Salmon]

For three years.

[Jordan Weissman]

Yes.

[Felix Salmon]

And it needs to be on there every. It needs to be listed every single day.

[Jordan Weissman]

Except for three days.

[Felix Salmon]

Except for eight days per year.

[Jordan Weissman]

Oh, it does. Eight.

[Felix Salmon]

You get 24 days over the three years that you don't have to list your spare rooms.

[Jordan Weissman]

A lot of strangers.

[Felix Salmon]

Yeah. I mean, even if you don't fill it all those days. You're absolutely right. It's a lot of strangers. But the idea is what this is being sold as is a way for people to be able to rustle up a down payment that Loftium will give you whatever it is, 30, 40, $50,000, and that's going to be enough to enable you to make the down payment on that dream home that you always wanted and you might not otherwise be able to afford.

[Jordan Weissman]

Right. And they were trying to tie it to discussions of student loans, too, saying, well, the reason that people can't come up with down payments is because they're paying too much money on student loans. So here, now, Lofty, and we are coming to help all of these poor. These poor former students.

[Anna Shymansky]

I mean, that's not totally untrue, I think, like, I mean, the student loan part, the, the. You know, that's not exactly altruism here. It's more like they're seizing a market opportunity.

[Jordan Weissman]

Oh, no, I agree. That's just. That's how they're kind of. They're smart, they're marketing themselves. Although I do wonder, and I don't know exactly the statistics of how much do student loans actually.

[Anna Shymansky]

It's murky. I could.

[Jordan Weissman]

Right. Because if you look up the median student loan payment, it's like 200 bucks a month, which is not nothing, but.

[Felix Salmon]

It'S like two nights on Airbnb. It's not enough. It's not the kind of thing that. Where you would need to rent out your spare room continually on Airbnb for three years in order to cover.

[Anna Shymansky]

The point isn't that they. Their student loan payments are preventing them from, you know, paying the mortgage interest or something each month. The issue is that they've been paying student loan interest for years, and so they haven't been able to accumulate the down payment. That's what it's fixing.

[Jordan Weissman]

Right. I just wonder if the reason that people are not able to come up with a down pay is actually because of student loan payments or it's more because wages are lower. Because, again, if you look at average student loan payments, they're not by any means negligible, but they're not. I Wouldn't.

[Anna Shymansky]

And so I think people have been trying to untangle this for a while and it's like, I think the answer is like a little of column A.

[Jordan Weissman]

Right.

[Felix Salmon]

And a little of column C, which is house prices going up.

[Anna Shymansky]

Yes.

[Jordan Weissman]

Yeah.

[Felix Salmon]

And the higher the house prices, the higher the down payment.

[Anna Shymansky]

Especially in Seattle somewhere like, you know, where the housing market has just gone fucking crazy. So it's sort of the intersection of all.

[Felix Salmon]

My, My take on Loftium is that it's bad for everybody.

[Jordan Weissman]

Okay. Because you hate home ownership.

[Anna Shymansky]

It's. It's shit and I hate it. And we should know where this conversation is going. And let's. Okay, let's hear it. Felix. Let's kill. Felix is going to kill Lofty with fire. Let's hear why.

[Felix Salmon]

So, okay, so the.

[Jordan Weissman]

With fire and fury.

[Felix Salmon]

So I think. I think it's going to fail everyone. I think. I think it's going to fail the people who are trying to buy a home and who are a little bit desperate to rustle up a down payment and then find themselves burdened with this three year contract forcing them to rent out a spare room at all hours of the year. And it's going to immiserate those homeowners, unless they happen to be like that tiny percentage of the population who really loves having a bunch of strangers come through their house running.

[Anna Shymansky]

Like running a BNB is actually work.

[Felix Salmon]

Exactly. So you wind up. It's not just renting out your room. You're actually running a business at that point. And what's more, you're not getting most of the revenues of that business. Most of the revenues of that business are going to someone else. It's a weird form of indentured servitude, which I feel most people are going to be quite unhappy about. That's the homeowner side of it being bad. On the Loftium side of it, I think they are going to find pretty quickly that there's a big adverse selection problem going on here and that the only people who wind up taking them up on this kind of obviously bad offer are the kind of people who ultimately won't end up giving them a huge profit and might in fact wind up saddling them with losses.

[Jordan Weissman]

Right.

[Felix Salmon]

Because. Because, like, it's hard to rent out rooms. And if you don't rent out your room beautifully, then you wind up getting a bunch of negative feedback on Airbnb. And Airbnb doesn't surface your.

[Anna Shymansky]

So that was. I was wondering, like, isn't the strategy here to tank? Like, isn't it like to rack up those negative feedback.

[Jordan Weissman]

Because this is the biggest problem with this entire business model is that Loftium is saying they're taking on all the risk if you can't rent your room out for whatever reason because there is.

[Felix Salmon]

An appetite or because you have massive negative reviews.

[Jordan Weissman]

Right, Exactly.

[Anna Shymansky]

Just like one dead bedbug in the room. Right. And then you're golden, you're good. Yeah, that'll be on the review and they're done.

[Jordan Weissman]

Exactly, exactly. And then Loftium says they're taking on all of that risk. Like, why would anyone invest in that company? Like, that makes zero sense. And then all they're saying is that they would potentially have like a second lien on the mortgage, which is useless. Like what?

[Anna Shymansky]

Well, I have a question. Are there. So this is the question I would have wanted to ask Loftian, which is like, are there any performance standards? Like, do you have. Is there something saying that if you are clearly trying to keep people away from your home by like, you know.

[Jordan Weissman]

The pictures like rabid dogs or like.

[Anna Shymansky]

You know, the pictures like the bed with like, you know, fucking the clown from it sitting on it, like blood spilled around, like, you know, is that. Do you have anything to prevent that? Are there like standards here? I assume there has to be like some good faith thing in the contract maybe.

[Felix Salmon]

And, you know, we don't know how these things are being underwritten, but I find it hard to believe this is going to scale particularly easily. And I do think that the model. I mean, so in Brooklyn, it's quite common for people to buy a brownstone with a garden apartment and to rent out the garden apartment and to use the rental income from the garden apartment to pay the mortgage, like the. That kind of model of like, I'm going to buy something which is a bit bigger than I need and rent out the excess and that will help me pay for the thing that I bought. In principle is not a bad model.

[Anna Shymansky]

Yeah.

[Felix Salmon]

But what. It only works in very specific cases where there's a reasonably physically separate bit of your home. Yeah. Which is easy to rent out and you don't really need to have a lot of contact with the people who are in it. And in that. And. And that doesn't actually include most homes. So if you're interested in buying a home which happens to have some kind of a granny flat and you. And you go up to Loftium and say, oh, this my home has this granny flat that I want to buy and I can rent it out and I won't really have to meet These people very often.

[Anna Shymansky]

Granny flats.

[Felix Salmon]

Do you have granny flats in this country?

[Anna Shymansky]

I mean, that there. There are actually so many, like, social layers of context, like that your granny would be living above you in your own home. This is like. Anyway, I think I understand what you mean, though.

[Felix Salmon]

I just don't think that most of the housing stock in this country lends itself to this.

[Anna Shymansky]

No, I totally.

[Jordan Weissman]

I agree.

[Anna Shymansky]

I definitely agree. I think it is interesting, though, that Loftium does kind of want to send people back to, like, the 19th century boarding, like, model. Like my border. Yeah. We're all living in, like, some fucking Irish drama, like the, you know, pre independence era.

[Felix Salmon]

And then just to make this even worse, the entire Loftian business model seems to be based on what you might call Airbnb 1.0, where you're, like, renting out a spare room, as opposed to Airbnb 2.0, where we're at right now, which is renting out your entire house.

[Jordan Weissman]

Yeah.

[Anna Shymansky]

I think that Airbnbs. Airbnb 1.0 is still, like, a going concern. It's not like that's been totally abandoned, and it's like they're going. I feel like they're going to keep that around, if only for, like, nostalgic purposes. Right.

[Jordan Weissman]

And because some cities require that, too. Yeah.

[Anna Shymansky]

Also for regulatory.

[Jordan Weissman]

Yeah.

[Anna Shymansky]

And this.

[Jordan Weissman]

Yeah. And this is also a separate issue to think about, though, is that right now, this is based on the idea that in so many of these different states and cities and municipalities, you can continue to rent out your rooms in Airbnb in this way, which we don't know if that's going to be the case.

[Felix Salmon]

Yeah.

[Jordan Weissman]

What, three, four years?

[Felix Salmon]

The real smart move here is to take out your Loftium deal and then immediately lobby your local government to make Airbnb illegal, at which point you go, I'm sorry, I'm just not allowed to.

[Anna Shymansky]

Yeah.

[Jordan Weissman]

What do you want me to do?

[Anna Shymansky]

That's so good. That's so, so good.

[Felix Salmon]

All right, Anna, you get to nerd.

[Unknown/Unidentified Speaker]

Yay.

[Felix Salmon]

We get to nerd.

[Jordan Weissman]

I'm very excited.

[Felix Salmon]

This is so excited. Sukuk, AKA Islamic finance.

[Jordan Weissman]

Yes. Islamic. Yeah. They're colloquially referred to as Islamic bonds, which isn't entirely accurate, because for the most part.

[Anna Shymansky]

Because.

[Felix Salmon]

Don't call them bonds.

[Jordan Weissman]

Right, exactly. Because for the most part, they're not debt instruments and they are not allowed to charge interest, because that is.

[Felix Salmon]

They look like a duck and they quack like a duck, and they are traded on debt exchanges like a duck.

[Jordan Weissman]

But.

[Felix Salmon]

But there is.

[Jordan Weissman]

I'll pretend they're not a duck.

[Felix Salmon]

There is actually a, like, actually this is a cow. It's, it's a cat. It does raise these amazing kind of ontological questions. But yes, basically you thought the Jews were good at like finding ways around religious, you know, restrictions.

[Anna Shymansky]

I was about to say we're gonna get back to the Jews anyway.

[Felix Salmon]

You know, like if you, if you want, if you want the sort of talmudic experts. I'll tell you where you want to look is in, is in Islamic finance because under Islamic strictures you are not allowed to charge interest.

[Jordan Weissman]

Yes. You are also now not allowed to trade debt at a discount. You're also not allowed to borrow money on the interbank market because that's considered too risky.

[Anna Shymansky]

Wait, you're not allowed to trade debt at a discount because that's correct. Exactly.

[Jordan Weissman]

There are debts to cooks, but they don't trade. So there aren't a lot of them, but for that very reason.

[Anna Shymansky]

Wait, so okay, so what is, if it's not interest, what is it?

[Jordan Weissman]

It's technically a percentage of profits.

[Anna Shymansky]

So they're pretending the debt's equity.

[Jordan Weissman]

No, it is, it is. And this is why again, preferred equity. Yes.

[Anna Shymansky]

So what happens to this in chapter 11?

[Jordan Weissman]

Well, no, they actually have been defaults. Although the, many of the largest issuers of sukkuks are actually sovereigns or quasi sovereigns. So like state owned enterprises like oil and gas companies or Islamic banks. Okay, so, okay, the way it works, most sukuks are asset based sukkuks, which means that essentially I need money. So I essentially set up this vehicle that then issues the sukuk.

[Anna Shymansky]

Yeah.

[Jordan Weissman]

Then investors buy the sukuk, they give me money, I buy like a plant. And then the money that comes from that plant technically is then going to be paid out to the sukuk holders. They're going to get a percentage of those profits and then when they're sukk matures, they're going to have their percentage of the asset bought back.

[Felix Salmon]

And this is like you should. I want to. I really want everyone listening to this podcast to be able to hear the air quotes that Anna is like putting all over what she's talking about. Like every single, just imagine every single thing when you know that she said came with like air quotes.

[Jordan Weissman]

Right, Exactly. Because the other thing that's just fascinating about this is the profit rate is often like based on lies. Libor. So it's like this entire thing really. Yes, it's so entirely. These are.

[Anna Shymansky]

So it's not at all related. It's not even like we're actually getting a set percentage of the profits. That would be. Yeah, yeah.

[Jordan Weissman]

Well this is the other reason. This is actually.

[Anna Shymansky]

Is it like LIBOR plus? Is that.

[Jordan Weissman]

Well no, it's not that it's LIBOR plus, it's that when they're trying to figure out what they're going to be charging you, it's based on where LIBOR is, it's not based on what profits this asset is actually going to generate. Also in theory, when you, in order to be Sharia compliant, the sukuk is not supposed to guarantee that you get your principal back. It's supposed to be based on the market value of the asset. If the value went up, you'd get more, the value went down, you get less. That is not how it works in practice. They have a purchase agreement.

[Anna Shymansky]

This sounds a lot like, just like a lot of the early asset backed securities. Like, like it just.

[Jordan Weissman]

That's different though, though. It's different. It's also, it's also different. Well, I could go into the details of exactly how that. But I did a very abbreviated version of the vehicle that's it's not the same as like a mortgage backed security, let's put it that.

[Felix Salmon]

So in any case, because you technically.

[Jordan Weissman]

Do own a percentage, all of which.

[Felix Salmon]

Is to say, yeah, that there are these Sharia compliant debt securities which, not debt securities, which are debt securities and which like through a bunch of legal and structural ledger domain have managed to persuade some kind of Sharia court that they're not debt securities. And now because it's all so complicated, sometimes they trip up and it turns out that some Sharia court somewhere will determine or some observer somewhere will determine that, oh whoops, we thought we were issuing something which was Sharia compliant and it turns out we weren't. And then what happens?

[Jordan Weissman]

Yeah, and again, because this isn't, it's an issue of, in terms of what is and what is not Sharia compliant. It's not like there's one Sharia court. Every country has their own.

[Anna Shymansky]

So this is, this is the thing I wanted to ask you about. So we actually do have a news hook here too.

[Jordan Weissman]

Oh yes, yes, yes.

[Anna Shymansky]

So like basically the UAE wanted to become like the center of Islamic finance. This is what I've read with like they wanted to be the people that specialize this and now it's all blowing the fuck up because of like this one court case.

[Jordan Weissman]

Yes. Okay. Dana Gas, which is a UAE based natural gas company, has an outstanding sukuk and basically they're arguing that they cannot make payments. They cannot make their profit payments because the sukuk is no longer Sharia compliant. So they're arguing that the creditors have to accept their restructuring of this sukuk because that's the only way they can continue to make them payments, which is entirely not based in reality.

[Anna Shymansky]

So wait, so who said it wasn't Sharia compliant?

[Jordan Weissman]

Like, oh, well, this is interesting.

[Anna Shymansky]

So.

[Jordan Weissman]

Well, this is where it gets complicated because on the one hand, it really isn't sure you're compliant, though they're. Because essentially they're guaranteeing you your principal back because the profit rate is clearly based on an interest rate, not actual profits. They really should never have been structured this way. But originally they got someone to say they were Sharia compliant. Now the, like, the Sharia courts in or in UAE are saying it's no longer Sharia compliant.

[Anna Shymansky]

Okay.

[Jordan Weissman]

And they're okay. And also they're in Sharjah, which is important because right now the case is being tried in London.

[Anna Shymansky]

Okay.

[Jordan Weissman]

And in Sharjah, in London. It's probably pretty sure that the London courts are not going to say this is okay, but they could get that.

[Felix Salmon]

Wait, the London courts are going to say what?

[Jordan Weissman]

They're probably. The London courts are probably going to argue that they have to continue to make these payments.

[Felix Salmon]

Okay.

[Jordan Weissman]

Most likely. Now, if this were being tried in like, Abu Dhabi or something, it would be more likely that they'd be friendly to creditors.

[Felix Salmon]

But most Sukkuk bonds are issued under English law.

[Jordan Weissman]

Well, most, no, most Sukkuk bonds that are sold to international investors are issued under English law. Most Sukkuk are actually held by local investors. They're not investment grade. They're, you know, local currency denominated. So. Yeah, but yes, the vast majority are that are issued to international investors under London law, which is why this is in the London courts to begin with.

[Anna Shymansky]

Okay.

[Jordan Weissman]

And so.

[Felix Salmon]

Okay, so the London courts are going to find basically in favor of the investors, most likely. And then what happens?

[Jordan Weissman]

So then in theory, they would argue that, no, you have to work with your creditors to figure out some way to pay off these, to restructure these bonds where you're going to continue to pay. And because right now what Dana Gas is arguing is that they're saying, okay, what we're going to do is say we can pay off. We're going to swap these for a new sukuk, which will enable us to pay off the full value at any point we want to with no penalty, and we're going to cut the profit rate in half.

[Anna Shymansky]

And London's.

[Felix Salmon]

The profit rate being what most people.

[Anna Shymansky]

Like the interest rate.

[Felix Salmon]

Exactly.

[Jordan Weissman]

From like 8% to 4%.

[Anna Shymansky]

So they want to give their investors a big fucking haircut, basically. So it comes down to.

[Jordan Weissman]

Exactly.

[Anna Shymansky]

And London's gonna be like, no, we don't care what new interpretation of Sharia. But then in the uae, you've got this kind of parallel case.

[Jordan Weissman]

Exactly. So you could end up with a split decision. And the other thing that I think is interesting about this is that if you actually look at Dana Gass's finances, this is clearly not about Sharia law. This is about their cash position.

[Anna Shymansky]

Oh. I guess this is what it comes back to for me is like, so you have these courts in the UAE that are charged with deciding what is and isn't Sharia compliant, and you have Islamic scholars. Yeah. So how different is that than, like, going back to the Jews? Just because I have a little bit more context there. Like a bunch of rabbis actually pouring over the Talmud and just being like, we think this is what it means.

[Felix Salmon]

Exactly the same.

[Anna Shymansky]

It isn't. That's fucking terrifying.

[Felix Salmon]

It's a bit like fights over whether something is kosher or not.

[Anna Shymansky]

So why on earth would anybody want to buy into an instrument that is subject to that? Like the caprices of.

[Jordan Weissman]

Up until this point. And granted, these things really didn't start to take off until the early 2000s, and it is a pretty big market at this point. Granted, the international market is still reasonably small, but overall Islamic finance is like a, you know, $2 trillion, $2 trillion market. So the issue is, up until this point, we haven't run into this issue. There was one previous time where there was a Kuwaiti investment firm that also tried to do this, but it was thrown out pretty quickly.

[Anna Shymansky]

Yeah.

[Jordan Weissman]

So this hasn't been a major concern, but it has meant that as an investor, because, you know, you have this risk, you're going to get a higher profit rate.

[Anna Shymansky]

Okay. And if, you know, chasing yield.

[Jordan Weissman]

Exactly. And this is why this is very important, actually. This is part of the reason that you've had a lot of issuance over this past year or so. Partly it's been because. Because oil and gas prices are so low. So you have a lot of people. But it's also because they know that rates are probably going to start increasing. So right now you have a lot of investors who are still willing to buy these instruments, but they know that could change. So they're. A lot of companies are trying to get as much as they can.

[Felix Salmon]

So has this case had any deleterious effect on the demand for sukuk?

[Jordan Weissman]

Initially there was some thought that it did because there was like a few week period right after this initial statement was released from the company where it seemed like demand was lower. Now it seems like maybe it's okay. The question becomes moving forward, if they were to win this case, the market would be in turmoil. I mean, there's some argument that maybe it wouldn't be as big of a deal for the sovereigns or for domestic borrowers. But if you're talking about international investors.

[Anna Shymansky]

Yeah, so again, so who. So you said that there are sharia courts and there are scholars. Is there like one particular court that everyone's gonna have to defer to? Who's like going to be the one to make these? Or like there's no centralized authority?

[Jordan Weissman]

No, there isn't. And actually the guy who's like the granddaddy of Islamic finance has said like 85% of the SUKK are invalid.

[Anna Shymansky]

Oh, Jesus Christ. Jesus.

[Jordan Weissman]

So, and it's actually interesting.

[Anna Shymansky]

Could you wait? So is there like.

[Felix Salmon]

Wait, wait, can you stop?

[Anna Shymansky]

Oh, yeah, sorry. Is there like, is there a country they could go to that like, would have a slightly less crazed court system less likely to invalidate?

[Felix Salmon]

Yeah, it's called London.

[Anna Shymansky]

Okay, so they could.

[Jordan Weissman]

Yeah, I mean, so yeah, this is the issue.

[Anna Shymansky]

So London in the Islamic world, I guess.

[Felix Salmon]

Why does it need to be in the Islamic world?

[Anna Shymansky]

That's actually a good question.

[Felix Salmon]

Right.

[Jordan Weissman]

I mean, granted it's true that obviously the vast majority of sukkuqs that have been issued have shockingly been from the Islamic world. Now, the UK was the first non Muslim majority country that issued a SUKK in 2014 and actually had tremendous appetite for it.

[Felix Salmon]

Yeah.

[Jordan Weissman]

There is definitely the possibility that non Muslim majority countries could continue or start to issue more of these and maybe those would be seen as safer. But partly if you, you can get a sukk from a Muslim majority country, but if it's issued under English law, that should provide you with additional protection.

[Felix Salmon]

And this is why this case is so important.

[Jordan Weissman]

Exactly.

[Felix Salmon]

Because now we're gonna see just how much protection that English law gives the bondholders.

[Anna Shymansky]

Right? Yeah, I guess. You know, I just wanna go back to like my baffle or kind of. I wanna explore my bafflement over this a little bit more. Cause when I talk about how there's no authority and that's blowing my mind. In some ways that doesn't seem so different from the US court system because like, laws are up for interpretation and like, you have lots of lawyers that are trying to convince the judge that this is how. And to me, okay, so instead of a lawyer, you have an Islamic scholar. Why? I guess it kind of makes me like my mind is reeling at the whole idea of this. Is that in the US or most. Most countries, Most any country, you're dealing with statutes for the most part that are like, written to be interpreted this way and like, are can be changed and thought and like, altered. And there's like long. And there's a long history of jurisprudence over how to interpret these things, whereas it seems like when you're just dealing with whether or not something complies with Sharia, which is very complicated and ornate, it's still not a statute.

[Jordan Weissman]

And although I would argue that what we're seeing here is really not that dissimilar from what you see in many EM countries, when you deal with bankruptcy courts in many other EM countries, it also. The laws change. How the laws are interpreted are just very different. This is something I've talked about in the past where we in the US or in the UK we have something called seniority, where you assume that if you're a creditor, you have seniority over equity holders. That is often not really the case in EM because if you want to get a restructuring through, you have to get those equity holders on board.

[Anna Shymansky]

Yeah.

[Jordan Weissman]

And this is actually very similar to what we're seeing here.

[Anna Shymansky]

Okay.

[Jordan Weissman]

So it's not as out of the ordinary as it sounds if you do investing in em.

[Anna Shymansky]

Yeah. So I think.

[Felix Salmon]

Yeah. The lesson of this story is that it's very easy for investors, investors in the US or the UK to think that financial structures are these incredibly robust things which are shored up by centuries of precedent and jurisprudence and statutes. Whereas in fact and in reality, in most of the world, it's all much more contingent and crumbly and weird than that.

[Jordan Weissman]

And that's why as EM investors, you often make fun of developed market investors when they try to come into these countries and they think they know what they're doing and they all get destroyed because they have no idea.

[Felix Salmon]

All right, I think it's time for a numbers round. Okay, Anna, what's your number?

[Jordan Weissman]

So My number is 57%. So 57% of Germans between the ages of 18 to 21 support Angela Merkel, which is actually higher than the overall country, which is 53%, which I thought was interesting, just because, like, she's old. She's old. And the CDU is a center right party, which you don't normally Associate with the youngest possible voters. Right.

[Felix Salmon]

The young, young people. They, they tilt left, right, right normally.

[Jordan Weissman]

And so. And you often have a lot of people voters too, especially young voters who don't necessarily love the cdu, but they love Merkel.

[Anna Shymansky]

Yeah, because she's like become like the like superstar face of, you know, modernity.

[Unknown/Unidentified Speaker]

Right.

[Jordan Weissman]

It's true. In like the savior of liberal democracy. If you see these CDU posters they have throughout Germany, they are just a giant photo of Angela Merkel face with a teeny tiny CDU in the corner. It's amazing to me and I love Angela Merkel.

[Anna Shymansky]

She's also like really memeable. She's like really. She's really good. Good at like throwing shade at Trump in subtle ways.

[Felix Salmon]

Putin.

[Anna Shymansky]

Yeah, and Putin. Like just like the Putin eye roll. Yeah, her eye rolls are great. She's just like in an incredibly memeable world leader. And that's important.

[Felix Salmon]

So a little bit of context here. The German election is on Sunday and the chancellor, Angela Merkel is going to wind up getting reelected for the 900th time. She's become the one respectable global leader. She's basically the leader of the world at this point, which no one really expected when she became chancellor originally, but she's grown into this role and it's quite impressive. Especially like only a year ago, like no one really saw this coming.

[Jordan Weissman]

Well, I mean she was, it was. She definitely had a dip in her popularity because of a lot of the anti immigrant sentiment you had in Germany and the rest of Europe and the rise of the alternative for Deutschland, which is this far right party.

[Felix Salmon]

And maybe that's part of the popularity that she has among the youth is precisely that she's considered to be more pro immigrant than many other countries.

[Jordan Weissman]

Yeah, I do think that's part of it. She has this really interesting mix where she will actually go against her own party on certain issues, like in terms of immigrants, where in terms of economic issues, you know, she's center right. But when it comes to these social issues, she's farther left.

[Anna Shymansky]

Some of us haven't quite forgotten how Germany nearly cracked the European Union in half during the whole Greek crisis.

[Jordan Weissman]

Or okay, we could go into our like Merkel vsipras and I'm sorry, I am Team Merkel in that debate and I know people are going to criticize.

[Felix Salmon]

Me for that, but. No, but also that plays well in Germany in terms of domestic politics.

[Anna Shymansky]

I know it plays very well.

[Felix Salmon]

So what's your number, Jordan?

[Anna Shymansky]

Four.

[Felix Salmon]

Okay, what's four?

[Anna Shymansky]

I just wanted to see Felix's look, that's how many months. Apparently hackers were chilling out on Equifax's servers before the hack was discovered. And this is actually like kind of instill some confidence and weirdly instill some confidence in Equifax. Well, no, it doesn't sell confidence. I take that back.

[Felix Salmon]

Well, yeah, I don't buy that one at all.

[Anna Shymansky]

Let me, Let me. I'm not going to quite slate pitch this, but. So when the story first came out about the hack, everyone, myself included, noted that all Equifax had to do to prevent this was install a security update that had come out one month before. It turns out the hack had happened way before the security update. So at least. At least you can't say that that's how they screwed up now. I mean, nonetheless, I mean, they didn't note, like, the company, all of our financial information, Social Security numbers, didn't notice.

[Jordan Weissman]

Hackers, just as we said last week, one job.

[Felix Salmon]

Okay.

[Anna Shymansky]

Anyway, so that's. That's my number.

[Felix Salmon]

My number is $211 billion, okay. Which is the size of what is almost certainly the world's largest money market fund.

[Anna Shymansky]

It's big and boring, just like fucking Kansas or something.

[Felix Salmon]

And the name of this money market fund is Yue Bao, okay? And it's part of Alipay.

[Anna Shymansky]

Oh.

[Felix Salmon]

And it's basically 370 million Chinese people have money in their Alipay wallets and a keeping that money in this one money market fund, which has now risen to $211 billion.

[Anna Shymansky]

So this is like, you sometimes hear conversations about, like, tech firms in the US becoming banks because they have like, whatever. And this seems like actually almost a version of that where it's just like, okay. Oh, yeah, yeah. I mean, like, you. It's just you're so fucking big and you have so much money coursing around.

[Felix Salmon]

And they are paying real interest. Like, they're paying like 4% interest. And a bunch of Chinese people are saying, great, this is better than the bank account. And they're moving all of their money into their Alipay wallets because that's where they get a nice rate of interest.

[Anna Shymansky]

Do you think Jeff Bezos is, like, eyeing that, just licking his chops?

[Felix Salmon]

Probably not, because you don't want to be a bank, you don't want to be a regulator. No one wants to be a deposit depository institution in this country. But sure, in principle, if you didn't have all of the regulation of depository institutions, then Jeff Bezos would love it if you just paid for everything. On Amazon out of your Amazon bank.

[Jordan Weissman]

Account and lived in your Amazon house and your Amazon food.

[Felix Salmon]

But more to the point that you kept all of your money on deposit with Amazon and they could just invest that as they liked. That would be a nice free source of funding, a wonderful float for very good reasons. He doesn't want to do that in the US but it's equally obvious why Alibaba and Alipay are jumping into the opportunity in China. Okay, so that is it for us this week. I need to tell you all that on November 15th at 7:30pm in the Bell house in Brooklyn, we are going to have our food show. It's going to be a live show. For tickets, you want to go to slate.com live. Those of you who are Slate+ members will get 35% off. So if you want to go see this show and you want to become a Slate plus member, make sure you get your sequencing right and become a Slate plus member first at slate.com moneyplus and then you go to slate.com live and buy your tickets. So Dan Schrader, our producer says that it's 30% off and not 35% off, which you know is I consider to be like pedantry but okay, Dan, it's 30% off. Either way. You want to go to slate.com moneyplus first sign up for Slate plus, then go to slate.com live. Buy your tickets, come see us on November 15th. It's going to be a pretty fun show and it's going to be food related and it's going to be awesome and it is going to sell out. The last show sold out pretty quickly. So if you want to do it, I would probably recommend getting your tickets sooner rather than later. Other than that, it just falls to me to thank the pedant Mr. Dan Schrader for producing this and the man.

[Anna Shymansky]

Who cares about our listeners wallets.

[Felix Salmon]

I want to ask you to keep those emails coming slatemoneylate.com thank you very much and we will talk to you next week on Slate Money.

[Unknown/Unidentified Speaker]

The guy with a million toys and toys you're us that I can play with. I don't wanna go up. I'm a toys just kid we got the best for so much less. You really flip your leg from bikes to it's the biggest toy store there is she whiz. I don't want to grow up because baby if I did I couldn't be a Toys R Us kid. More gay, more toys. Oh boy. I want to be a Toys R Us kid.