B (3:22)

So, Kathy?

E (3:23)

Yeah.

B (3:24)

What are you going to be asking Guan about?

E (3:27)

Well, you know, everybody, we're going to be talking with Guan about what everyone's been talking about for the last week and a half, which is Apple versus FBI.

D (3:34)

And I'm amazed that people are still interested in this story.

B (3:37)

But it keeps on getting better. I mean, this is one of those stories which, which just grows and grows and where it really does evolve over time. Like we were talking about doing it last week. We didn't. And I'm quite happy that we're doing it this week because we really have learned a lot over the past week.

E (3:53)

So, I mean, I guess for our listeners, where should we start? Everybody knows that Apple has refused to comply with the judge's order that the FBI asked for, which is to basically let them into a phone that their San Bernardino shooter. San Bernardino shooter left when they died. And it's really split down the middle, like whether people think Apple's doing the right thing or whether, whether they think Apple should just comply with the judge. And actually, I actually changed my mind on a daily basis myself.

B (4:25)

And I have this feeling that, like, that the American population is really split between, on the one hand, you have the sort of techno libertarian, utopian crypto types who are like, of course Apple is doing the right thing. And then you have the law and order types who are like, of course the FBI should be able to get into this phone. And then you have the, the 1%, the cognitive elite, which is you and me and Gwen, who are like, we have no idea. And it's way more complicated than that.

C (4:55)

Can I, can I speak for the law and order types? Because that's definitely the camp I initially fell into and still sort of fall into. Also, I need to just discuss some conflicts of interest here. My wife, I've mentioned, is a prosecutor in the Manhattan DA's office. Her boss is Cy Vance, the Manhattan district attorney who has come out on one side of this very clearly saying we cannot unlock 175 iPhones that are used or involved in criminal investigations right now. I personally hear about this issue at the dinner table. Like, my wife will come home and tell me about some iPhone she cannot unlock.

D (5:28)

Does she have your iPhone passcode? No.

C (5:31)

But so the issue, I mean, I guess for me, when I first heard about the story. My gut reaction was to be very, very negative about Apple. And because I don't view it necessarily even as a terrorism issue, I kind of see it as a everyday law enforcement issue where most of these cases tend to involve things like domestic abuse and rape cases and regular kind of, I guess, smaller crimes than terrorism that cops and prosecutors have a difficult time dealing with because they can't find information on phones.

D (6:00)

Right. So I'm personally on the side of those who say that Apple should not assist in bypassing the passcode on this phone. I think the. And there's sort of many different slippery slope arguments, you know, going in different directions that you could take, I think, about Cy Vance's 175 phones. First of all, whenever law enforcement speaks out on this issue, it's really unclear whether it's truly necessary to unlock these phones. Are there other things they could have done? Is there otherwise enough evidence to prosecute, to investigate, to prosecute, to convict these suspects? And whenever examples have been raised, if you Google this, there are various stories you can read sort of debunking various examples that the law enforcement side of this debate has put forward. And this is the so and so case, of course, that's just individual examples. And there might well be other examples where it truly wasn't possible to investigate these cases.

B (6:57)

But is that the Germain barg one? Do you think that, like, in order for Apple to have to cooperate, then it should have to be, you know, unless you cooperate, we can't prosecute? Is that like an important bar hurdle for law enforcement to clear here?

D (7:17)

I think it is. And I'm going to try to explain why the so probably nothing bad will happen if Apple is forced to bypass the security on this one particular phone. If it really stops here, if it's just this one phone in Los Angeles, you know, the world is not going to collapse. But if Apple really has to unlock 175 phones that Siteman's produces, the problem is that Apple can might be able to keep. So Apple's being essentially being asked to create a backdoor, but a backdoor that only works on this one phone that's locked to the serial number for this one phone. And Apple can probably keep that backdoor secure. But if this backdoor has to be used for 175 phones from Manhattan or. In the first half of 2015, Apple received more than 3,000 device requests that were satisfied, in part, if Apple has to use a backdoor, even if it's a backdoor that's locked to particular devices more than 6,000 times in a year. It's going to be really hard to keep that secure and to keep that under lock and key.

E (8:24)

I'm going to interrupt there and just do something which I want to do more than once in this conversation, which is try to remove Apple from the conversation and talk about the underlying principles, which I think are actually more interesting. You mentioned in your newsletter this man named Dan Bernstein, who was a graduate student at Berkeley when I was an undergrad. So I knew him. What happened to him is he built an encryption algorithm that was so good. This is the myth. You can tell me if I'm wrong. It was so good that the government basically stepped in and said, this is classified. You can't tell people about this algorithm. And then he fought it in court and he eventually won. But it brought up the main question, which we want to, I think, is more important than the Apple question, which is, should there be algorithms that are encryption algorithms that are so good that they really work and they're completely rock solid, and then nobody can get access to it? No police, no nsa, no FBI, nobody. And the question is, should those things be allowed?

D (9:19)

I think what I would say is there are encryption algorithms that are so good that probably nobody can break them. That's definitely true. What's not true is that there are security systems that nobody can break. Algorithms are implemented. They're not just these mathematical objects that are described in academic papers with Greek letters. Algorithms are realized with code, code that runs in computers. These computers are used by humans. And security is really, really hard. The fact that Apple is theoretically able to comply with the San Bernardino order shows that security is really hard. That even Apple hadn't, probably hadn't truly anticipated this case.

E (9:57)

So can you explain a little bit why the perfect algorithm is not enough?

B (10:02)

Yeah, it's because the perfect algorithm wouldn't be accessible even to the person who was using it. An individual needs to be able to unlock this information relatively easily. And if an individual can unlock the information relatively easily, then there's some sort of human way of doing that. So even if there's one layer which is secure, there are probably other layers which make it easy to use, which are less secure.

D (10:30)

Right. So hackers like to talk about social engineering attacks. It's a way that if you want to compromise the security of a large organization, the easiest way is probably not to break in through the door or even to try to attack the computer systems or the math. It's to try to call up customer service and say, hello, my Name is Jordan Weissman. I forgot my password. Could you, could you give it to me? If you think of the algorithm itself, they run on imperfect computers. They're implemented, realized by imperfect programmers. And when you read about security systems, there are just so many different attacks and so many different ways that you can get in. I discussed in my newsletter this community of jailbreakers who are people who don't like Apple's walled garden philosophy to their phones. They try to install custom versions of iOS and they try to install apps on their iPhones that are not authorized by Apple. And these jailbreakers, almost since the very first iPhone, have had pretty good success in bypassing Apple security measures, which you could say are theoretically unbreakable and get into their phones and do whatever they want with them.

E (11:37)

And besides the jailbreakers, you also mentioned that you think the NSA could break into this phone if they wanted to. I've heard that said a few times. I don't know what the evidence is for that.

D (11:48)

I mean, in the Ed Snowden leaks, we definitely know that the NSA spends a lot of money and a lot of time worrying about the security of devices like iPhones. And there's definitely been pretty good, well, substantiated reports that they've been able to break into previous iPhone iOS versions. There are commercial tools on the market right now. As far as I know, there are no tools that work against the latest versions of Apple's operating system, iOS 8 and iOS 9. But we know from past experience that there are commercial tools that for slightly older versions of iOS have been able to circumvent their security. And it's just a very educated guess that given the resources at the NSA's disposal, their $10 billion a year budget, that they probably have some way of at least making a good attempt at this problem.

B (12:42)

Yeah, I haven't found anyone who believes that the NSA couldn't break into this phone. Which is why I think that this really is not a question of a debate about encryption. This is a debate about, you know, the FBI trying to compel Apple to make its life easier and the FBI not having to go to the NSA if they want a phone broken into. And basically, more broadly, the government co opting Silicon Valley in into its surveillance and law enforcement.

D (13:16)

And there's definitely a sense that if this were a really important case, that if this were Osama bin Laden's iPhone or something of that caliber, that the FBI could go to the NSA and say, hey guys, could you help us out?

C (13:30)

I want to bring this conversation to some of the just Kind of basic privacy issues that are at stake, because, frankly, I had a hard time understanding them. And I think at first, because I looked at the situation, I thought, okay, a lot of people are talking about slippery slope and what happens if China gets this backdoor and what happens if Russia gets this backdoor, if Apple creates it? I kept thinking to myself, well, we're only talking about a way to access a physical iPhone. Yes. And to me, it says, if Russia has your physical iPhone or China does, you're probably already sort of screwed. Like, if they've already raided your apartment, like, you're really, your days are numbered to begin with. And so you talk about this issue in a way that made me kind of question my initial assumptions. But you talk about the difference in your letter between data that's being transmitted and how that is safeguarded through cryptography and data that's just sitting on your phone and why we should think differently about those two and why they're both kind of important. I was hoping you could just maybe discuss that a little. So people listening might have that kind of just be able to kind of frame that for themselves.

D (14:28)

Okay, so the distinction I tried to make was between data that's in transit and data that's at rest. So data that's in transit are things like your text messages, your emails, the slightly more secure Messages from Apple's iMessage service. And that in practice, that's for, you know, against most attackers, that's pretty easy to secure. The cryptography is good enough. You know, there are always flaws, but it's probably secure enough that you don't really have to worry about a casual attacker reading your imessages. Whether you have to worry about the nsa, well, that depends on who your threat really is. Data that's on your phone is harder to secure. Data that's in storage that's at rest. Your phone is designed to let you look at that data. Apple has various features. By default, the passcode might not even be required until after five or 15 minutes, depending on how you set it up. You might have fingerprint smudges on your phone that reveal what your passcode is like on an ATM pin pad.

E (15:35)

And.

D (15:38)

You'Re just a lot more exposed to potential flaws in how the security is realized.

C (15:44)

And so why. What is the big concern about giving more? I guess what does the big concern say for an American about giving the government more access to data that's at rest? What should frighten us about that, in your opinion?

E (15:59)

I'd like to jump in here again, and I'D like to bring up this very specific point that, you know, that has nothing to do with Apple once again, but which I think is lost in most of the conversations about this, which is that the government, our government, has responsibility to protect all of our privacy. Obviously, the San Bernardino killer doesn't have the right to privacy in this, in this situation. But until the government admits, the FBI in particular admits that once they start asking private companies to make backdoors many, many times a year, that they should be admitting, rather they should be admitting that they are actually putting the rest of us at risk, our privacy at risk. They're not doing that.

B (16:42)

Let me just ask Juan about this to.

D (16:45)

Can I say it just a little bit?

B (16:47)

Gwan, do you buy that the US Government exists in some part to protect our privacy?

D (16:56)

I think it does. And I think there's certainly conflict of interest here. I mean, there are agencies and groups within the government that do a lot to protect privacy. The iftc, the fcc, the National Institute of Standards and Technology. And one of the dangerous things that has happened in this round of the crypto wars was when it was revealed that the NSA basically got to introduce a backdoor in a standard, in a federal government encryption standard that was published by the nist. And in the Apple case, as several people have brought up, Apple will also face a similar conflict of interest that if Apple is forced to assist in 6,000 or 7,000 of these device requests per year, to, even though they're individual backdoors, to basically create 7,000 backdoors, it's certainly, I believe, as an Apple customer, it's certainly Apple's job to protect my privacy. But Apple will sit with a conflict of interest that the better Apple's able to protect my privacy, the more difficult Apple's job will be in the 6,000 cases where it has to comply with these court orders.

E (18:01)

But I mean, as a citizen of the United States, I want to be able to complain about my government not protecting privacy. I have no power over Apple protecting my privacy or not. I guess that's my, my fundamental problem is that we're not complaining about the government's role enough about in this. We're just talking about what Apple should do.

C (18:15)

Yeah, but I mean, also the government has two. Even if you do think the government has some interest in protecting privacy, it does also have a law enforcement interest that a lot of people I think are very, very worried about, especially since we're not even, you know, just to make it clear, we're not even talking about something like bulk data collection or a warrantless spying. At this point, we're talking about things that are going through the normal court system. I mean, that's, we're not, we're not talking about the government trying to do something illegal and enlisting, you know, it is a little scary.

B (18:43)

I think the scandal, the scandal, Jordan, as ever, is not what's illegal. The scandal is what's legal. But we, we have to, we have to end it there on, I think, what is probably a suitably unresolved note, because this, this story, no one really knows why the government is going to court and trying to get Apple to do this. No one really knows. Apple has cooperated in the past and how much of a, of a, how much they've diverged from previous practice. There's a lot unknown here, but it's complex. And I urge you all to read Guan's newsletter on this because he really does an amazing job of teasing out a lot of those complexities. But we're going to stay on the subject of technology and complexity. We're going to talk about Sci Hub, which is fascinating. But first I need to talk about ZipRecruiter, which is this website which allows you to hire people really easily. Instead of posting your job on a whole bunch of different websites and hoping that the right person will find that job posting, you just go to ZipRecruiter once, post your position once, and they will post it to hundreds of different places and, and find you exactly the right person that you want to hire. You can go over 100 different job sites with a single click. It has been used by over 400,000 businesses to match from over 4 million resumes. It's kind of amazing. So try ZipRecruiter for free. If you go to ZipRecruiter.com Slate Money, that's ZipRecruiter.com Slate money to try ZipRecruiter for free and find exactly the right person. ZipRecruiter.com SlateMoney all right, Jordan.

C (20:38)

Yes. We're gonna talk about Sci Hub, which is just the story just kind of makes my heart happy. I'm just gonna, I'm gonna put that out there because a minute ago you.

B (20:46)

Were like, all on the side of law enforcement, and now you're like, law enforcement be damned.

C (20:51)

No, this is a totally different issue, man. This is totally different. So, okay, so what is Sci Hub? Sci Hub is this website. It's sort of like the Pirate Bay of academic papers. It's a site that, let's put it very bluntly, helps people pirate academic research papers that have been put behind a paywall. So if you're looking for a paper on neurobiology that costs $30 because Elsevier owns it, you can go, and you can take the URL for that paper and you can throw it into Sci Hub search engine. And what Sci Hub will do is it will go fetch a copy of that paper, essentially using a login donated, quote, unquote, by one of its academic helpers, someone from a university that has a subscription. And then what Sci Hub does is as it gives you a copy of that paper, it also adds a copy to its big database. So it just has them on hand. This site was created, site service, whatever you want to call it, was created by a Kazakhstani graduate student, I believe, in 2011. I want to make sure I pronounce her name right. Alexandra Elba Kyan. And, you know, it gained in popularity. Eventually the Elsevier, which is one of the big. One of the world's largest academic publishers, took, took her to court in New York, in the Southern District of New York, in New York federal court, and filed a lawsuit, got an injunction to take the site down. And that happened last year. However, Sci Hub is now back up and a lot of academics are very happy about this. And, you know, the reason this story is interesting is it brings up all sorts of issues about what good is the academic publishing industry anyway, should knowledge be free. There are all sorts of things to discuss here, but. But I want to just ask everyone first, does anyone here think there's really. Is anyone here against what Sci Hub's doing? Is anyone anti.

E (22:51)

I think Sci Hub's amazing.

C (22:52)

Okay.

D (22:52)

Does it work well for you? Like, I tried to, you know, I didn't know what papers to look for, so I tried to look for some classic finance papers, and I didn't have a huge success rate with it.

C (23:01)

I'm not going to say how much I've used it, but I played around. I've certainly fetched some things that I had a tough time getting before. It worked pretty well.

E (23:09)

Where is it hosted now? That is out of the reach of the courts.

C (23:12)

Yeah. So what they've done is. And this kind of speaks to the whole, you know, this gets back to kind of the data security issue. So it used to be a dot org. Now it is a dot IO which I believe it's like some. It's a. It's essentially British territory. So the US doesn't necessarily have jurisdiction.

D (23:29)

British Indian Ocean territory.

C (23:31)

British Indian Ocean territory. It doesn't. The US doesn't have jurisdiction. Plus the woman who runs it is now in either Kazakhstan or Russia. So it's very. She doesn't have any assets in the us, so they can't really go after her. And then on top of that, it also functions through the Tor network, which allows a lot of the dark Internet to function. Essentially, it's a network of computers that disguises where your site is from where its server exists. So it makes it even more. It was something allowed, Silk Road, for instance, to operate for a very long time.

B (23:59)

So I want to bring in Gwan here for two reasons. Number one, Gwan was a friend of Aaron Swartz who tried to do something quite similar. But number two, you really understand the economics of the publishing industry and of publishing knowledge and that kind of stuff. So the question which I have for you is, is there a credible case to be made that Elsevier and the other scientific publishers are being significantly harmed financially by the existence of Sci Hub? And if so, should we care about that?

D (24:48)

So, to your first question, it would be really hard to make that case like Sci Hub is. You know, it's fun, it's useful to some people, and it's fun as a form of civil disobedience. But the fact is that nobody was really buying academic papers for $35. A popular. The people who are paying Elsevier are libraries, university and college libraries, library systems who buy these big bundled contracts that cost millions of dollars a year, and then they give everyone on campus access to the articles. And my guess is that it's a tiny percentage of Elsevier's revenue that comes from sale of $35 papers.

E (25:27)

And like, to your second point, Felix, I just want to throw in that I don't think anyone feels sorry for Elsevier. I mean, there's actually, there's more context here. There's been, like, at least in math, maybe one, you know, of other fields, but there's been a pretty widespread boycott of Elsevier for various reasons. One of them being how much they charge libraries. Another one being that they. The way academic publishing actually works is that they get professors to do, like, free editing and. And then they charge just a shitload of money for people to get the resulting papers.

D (26:02)

The authors are basically paid by the public through research grants. The editors aren't paid, the referees aren't.

E (26:07)

Paid, so the content is free for them. The work to edit it is free, and then they charge for publication. So we.

B (26:13)

Okay, wait, we have two PhDs in the studio right now, so I need to ask you guys how did this system come about? And yeah, how is it that all of this research in the name of science, which is meant to be public and everyone gets to share it and stand on the shoulders of everyone who went before them and so on and so forth, how did that all wind up behind these enormous paywalls in the first place?

E (26:44)

I mean, I'm not a historian of all this stuff, but I do want to say that there's two things going on. First, that there is very strict rules about how much. They're not very specific, but they are strict rules about how much you have to publish in official papers to get tenure. So there's this kind of like everyone has to buy into the system at least when they're young and by the time they're old they already have tenure. So whatever. And the second thing is that in spite of that, they're almost not used. The actual published journals is not where people get their mathematics anyway. They get it from the pre print archives, which are much more timely and much more available and totally free.

C (27:22)

I can speak to the history actually a little bit, which is. It's pretty simple in the sense that these journals used to do a very important service which was, you know, before the Internet, someone had to actually edit and then print and then distribute all this stuff to libraries. Just like, you know, publishers distribute books. When print was the natural distribution system for academic literature, they needed these journals to do that service. Having actual professors do peer review for free, it was just kind of became part of that system because no one had a sense that they were being ripped off. The journals were valuable. However, with the Internet all of a sudden you have these giant companies which by the way have been consolidating companies like the major academic publishers have bought up smaller publishers. So now I think it's about 5 that own a vast like 70% of the market. As a result, they've, they are collecting what we call rents in economics, economic rents. It's just where you are scraping money from the system without actually adding value.

D (28:20)

And in most fields, so Kathy mentioned the tenure system. In most fields, to get tenure you often have to have a certain number of publications in so called top journals. And in most fields it's really, really hard to change the perception in tenure committees with deans about what the top journals are. So you can have a boycott and you can start up new open access journals very successfully in certain fields. I know in math, in biology, there have been very successful new open access journals, but it's really hard and it takes decades to sort of persuade people that these journals are really top journals and the people who publish in them should get tenure.

C (28:56)

This also is actually maybe a good example of why we occasionally should be afraid of money in politics. I know I'm probably the one who shows least afraid, but you do have these giant companies that have a economic interest in keeping this stuff locked behind their paywalls. They don't add any value. However, one of the ways to fight that is through legislation. Right now the NIH requires publishers to eventually put up research after X number of months that if it's funded with NIH money, it has to be free to the public eventually. The National Science foundation has also now just recently implemented a rule along these lines. These publishers have tried in the past to lobby to ban the NSF and NIH from requiring that the publish the, that the research the public pace or be made available freely to the public. It's crazy. These efforts have failed so far. But there's nothing saying they won't try to do it again in the future.

D (29:51)

Even if we solve all these problems, even if 100% of exciting new research is in open access journals starting tomorrow, you still have this problem of all the previous research, you know, going back to when, to everything that's still in copyright that people in, at least in fields like economics and finance often need access to to understand the whole literature. And there's not, there aren't any obvious solutions to freeing that old stuff. Maybe Sci Hub is the solution.

C (30:18)

Maybe.

B (30:19)

Thank you. All right, so we are next. This is where everyone who isn't a complete nerd can probably start tuning out. But seriously, I'm going to say one thing. Argentina. I have talked about Argentina a lot on this show. I'm going to talk about Argentina one more time and then this might be the last time I talk about Argentina. So this is the wrap it all up in a bow sort of Argentina discussion. You want to hang around for that. But first you want to make sure that you go out and you order your Bolland Branch sheets because they're sponsoring slate money. And we like Bolland Branch. They are free trade, they're organic, they have a 30 day money back guarantee. They are super comfortable, they are super soft, they are everything you want in sheets and towels and duvet covers and pillowcases and everything. And you can get 20% off your entire order if you use the promo code money. So this is what you do. You want to sleep well, you want to dream beautifully. You want to have a lovely night's sleep. So you go to bollandbranch.com b o l l and branch.com, you put in the promo code money, and you get the first honest and transparent and super luxury bedding that you've probably ever had for 20% off with free shipping. So once again, bolandbranch.com promo code money. Okay, so Argentina. I love this story so much.

E (31:56)

Felix, can I ask you something about Argentina?

B (31:58)

Yes.

E (31:59)

What's going on in Argentina?

B (32:03)

Well, Kathy, as you may recall from previous episodes of Slate Money, Argentina was the subject of a pretty nuclear injunction by a New York judge called Thomas Griset, who said that if Argentina wasn't paying a bunch of vulture fund hedge fund bondholders who had a bunch of old defaulted debt, then it couldn't pay any bondholders any debt. It was an unprecedented remedy for default, which no one ever thought that the US Courts would ever do. And then he did it, and then it was upheld by the Second Circuit Court of Appeals, and it more or less changed the entire landscape of sovereign debt, which is my favorite little landscape of all, the finance. So I've been obsessed with this story for many, many years. And one of the main reasons why this injunction came down was because the U.S. courts, this is debt, which was issued under U.S. law. The U.S. courts decided that Argentina was being contumacious, which is my favorite word, that Argentina was basically cocking a snook at the U.S. courts. Oh, that explains it.

E (33:23)

That explains that. Thank you.

B (33:28)

So now what happened is that Argentina has a new government, a new president, Mr. Macri, and it is being much less contumacious. And in fact, it's making friendly overtures to its old defaulted bondholders, and it's coming to settlements with them, and it's paying them off. And it hasn't paid all of them off. It hasn't settled with all of them. But they did go to Judge Griset and say, hey, look, we're nice and we're friendly and we're not being contumacious anymore. And we're giving people more than 100 cents on the dollar for their claims. Well, not on the claims, but on principle of the bonds that they own, which they bought for pennies on the dollar in some cases. And so can you please lift this horrible nuclear injunction because we're not evil contumacious Argentina anymore. And to quite a lot of people's surprise, Judge Griset said yes. Which means the whole thing is over, does it not?

D (34:27)

But there are still some holdouts, for.

B (34:30)

There are still holdouts. And the number one most important holdout the one who paid nearly the lion's share of the legal fees that the holdouts spent, the one who owns more debt than anyone else, the one who's noisiest, the one who has been driving a lot of the lobbying and these weird, like, astroturf groups and everything, that one notorious holdout, Elliot Associates, has still not settled. And Elliot, when guiset's injunction came down, originally this was a massive victory for Elliot's associates, and now it's looking like they really need to settle pretty quickly.

D (35:14)

So the delegates at the end of the month.

C (35:18)

I read that there are rumors that as of last night, there were rumors going around that they were coming in close to a settlement. I don't know nothing yet, but apparently we're getting to the end game, or so the Wall Street Journal was telling me.

B (35:33)

The key date here is February 29, for various legal reasons which are too boring to go into, but essentially, if Argentina can do various things, which it can do quite easily, about getting rid of this thing called the lock law, and paying off various other bondholders, and if the Second Circuit signs off on this, which almost certainly will, then what happens is the Elliott Associates loses all of its leverage. Like, up until right now, Elliot Associates has been been able to say, you need to settle with us, or you need to keep all of your bondholders all over the world in default, even the ones you really, really want to be paying. And then as of March, Argentina can say, well, that's not the case anymore. We don't need to settle with you, because we now can just go back to paying our bondholders like we were before, and you can just be a tiny little holdout and we can ignore you.

D (36:33)

Felix, what is your prediction? Like, come February 29th, Elliott Associates have settled with Argentina, or.

B (36:42)

My guess is that they will because they know that they have made a huge profit on this investment. And it's really incredibly hard to see how they can make an even bigger profit than the offer which Argentina is putting on the table right now. Elliott's Associates has been very sophisticated. It's trying to claim, in some cases, two or even 300 cents on the dollar for the. For the paper that it bought for like 20 or 30 cents on the dollar because of various, like, clever ways of calculating interest on interest and calculating interest in some cases at over 100% per year. Because, again, you know, it gets complicated, but they reckon that was the final interest rate on variable rate notes. And so that's the rate it should be compounding at. And this kind of thing so they're using a lot of very sort of skeevy math to come up with the highest numbers they can. But ultimately they're being offered, you know, call it 150 cents on the dollar for debt, which they bought for 20 or 30 cents. That's not a bad return for them.

D (37:51)

Felix. So apart from just the legal details, one of the really interesting things about this whole case is how wide reaching Judge Chris's orders are. Like basically any, you know, Argentina was not even allowed to pay local currency, local law bonds, if Citibank Argentina was involved. And just how any company that had the tiniest connection to the United States and to the southern district of New York was suddenly, you know, under Judge Chriset's thumb. Is there anything, is there anything that people in these markets are doing in the future to protect themselves against that? Is there anything they can do?

B (38:33)

The answer. So you're absolutely right. This nuclear remedy, as it's known, was a clear case of judicial overreach. It's hard to see how it's justifiable. I for one, and a lot of other jurists, well, I'm not a jurist, but a lot of jurists were saying this is insane. This makes no sense. But yes. So going forwards, we've already seen this, that when countries issue new debt, the pari passu clause, which is this tiny little piece of boilerplate which no one paid any attention to in the past and really means nothing in a sovereign context. That clause was seized upon by Elliot's associates and by Judge Griset as the excuse for bringing down this nuclear remedy. And that Paris passu clause has now been reworded in new bond contracts so that it makes it very clear that you can't interpret it in the way that guiset interpreted it. Now, does that mean that like an activist judge couldn't seize on some other clause and enact the same remedy? It's unclear, but it's certainly the easy way to get there is now slowly being taken away. Of course, most bonds out there still have the old clauses. It takes a long, long time for the old bonds to get paid off and for the new bonds with the new clauses to replace.

E (39:56)

One of the things that's really crazy about this whole story, and I think it's one of the reasons you like it so much, Felix, is how idiosyncratic it is. I mean, it just completely depends on the judges of personality, various maybe how much coffee he had on a certain morning. And it doesn't seem to have any. Like there's no moral of this story.

C (40:14)

Well, actually, I want to ask that. So, Felix, you were just saying that this. I mean, Elliot's gonna make a big boatload of money off this deal, off this effort of theirs.

B (40:24)

Maybe, eventually.

C (40:25)

Eventually. So given that on the one hand, and then on the other hand, you have the fact that these contracts are being changed in the future, they're changing these clauses, it's going to make it a little bit more difficult to pull these maneuvers in court. What do you think the incentives are for distressed sovereign debt funds going forward now that we've seen this all play out?

B (40:44)

So the slogan in the distressed debt world is Greece and Greece. That we've seen two big, unexpected things happen in terms of sovereign debt defaults. Sovereign debt defaults don't happen that often, and certainly not at this magnitude. But the two biggest sovereign debt defaults in history were Greece and Argentina. And in both cases now what we're seeing is the holdouts essentially getting paid off in full. In the case of Greece, Greece didn't even really put up a fight. They just paid off the holdouts. A lot of the time, if you do some kind of an exchange offer, if you're a country and there's 2 or 3% of bonds left over, you just mop them up by paying them off in full, because it's cheaper to do that than to just have an ongoing legal fight for decades. So Greece paid off its holdouts. Argentina is now paying off its holdouts after many, many years of Kirchner recalcitrants. And so it's looking that the balance of power is moving back towards the holdouts. If you have the patience and if you have deep enough pockets to be able to fight a long legal fight, maybe it's more likely that you'll wind up getting paid out, and maybe that's going to make it that much more difficult for countries to restructure their debts going forward.

C (42:03)

I don't think that's a good thing. No, it's not. I don't think that's.

E (42:06)

I want to see bondholders lose money.

C (42:09)

That's a really. From, like, from somebody who cares more about macro than about, like, the sanctity of the bond markets. Like, that's a really sad answer.

D (42:15)

But what about macro? Will this settlement. Well, yeah, so there's Argentina's economic problems.

C (42:19)

Okay, so that's a good question. There's actually been some research on this about, like, how quickly countries tend to recover from financial crises and from sovereign defaults. And typically you kind of need to resolve all of your holdouts and resolve your past issues and get back into the bond markets for everything to kind of clear up. So, theoretically, this should be good for Argentina. You want to see countries just put this stuff to bed. On the other hand, Argentina has so many other problems with, like, hyperinflation right now. And just, it's kind of a mess. So it's hard to say. I don't think this is going to suddenly be a cure all for them. Maybe it's a step in the right.

B (42:55)

Direction, but even if it is a step in the right direction, it's an incredibly expensive step in the right direction. It's costing billions of dollars which are going to New York hedge fund managers and various gazillionaires when that money, you know, is money which the Argentine population desperately needs. And it's sad that they're having to pay this much money right now.

E (43:17)

I have a. I have a ridiculous prediction, which is that when the millennials become judges, they're going to have a lot more sympathy because they're going to be.

B (43:25)

It is true. It is true that Thomas Griset, he's really old, far, far from being a millennial. He's in his 80s.

C (43:31)

It's true. And like, basically every millennial who knows this case knows it as, like, the case where a hedge fund stole Argentina's yacht. Like, it's not even an accurate description, but that's how it's like it was a military ship, but that's the case. We know it as.

D (43:44)

You know, I still think there's, like, a lesson here drawing a connection to the Apple case, where the US Government, or in this case, one judge in the government, likes to use the dominance of American technology and financial companies to sort of exert its influence worldwide without necessarily considering what consequences that will have for the same companies. Will American depository companies lose market share because of this order?

C (44:11)

It's true. It's a concern.

B (44:13)

And certainly, I mean, there's absolutely no doubt that there's a double standard going on here and that if any other foreign country had treated the USA in a foreign court the way that American courts had treated Argentina, America would not be taking that lying down. So enough on Argentina. The numbers round I already know is going to be a great one. I do need to talk first about Mileiq, which is this app you just put on your phone and which measures all of the miles that you drive, which sounds like a relatively pointless app, until you realize that a huge number of those miles, like, you know, thousands of them, are actually Reimbursable. If you drive for business, if you can get your mileage reimbursed, the average mile IQ, the average mile IQ user logs $547 a month in drives. That's over $6,000 a year in miles. And that's money you could be claiming. It's basically free money. And it so easy with my. Like you, you put it on your phone and it logs it all for you, and it tells you how much money to pay you can claim for and it does all the paperwork for you. And rather than just being one of those chores which you never get around to, it's just something which feeds you money. It's. It's literally an app which just makes you money. So what you should do is text slate money to 31996. That will start a 40 drive free trial of Mileiq. And if you create an account this week, you'll get 20% off an annual plan. So text slate money to 31996 and then if you sign up, which you will, because it's free money, you'll get 20% off the cost of Mileiq. So do that. And now to the numbers round. I'm going to go first because I never go first and because if I don't go first, I'm worried that someone else is going to have the $400 million number, which is the amount of money that Phil Knight, the founder of Nike, just gave to the Stanford Endowment, which is, I think, last I looked, about 22.5 billion. Like, I just do not cannot understand why anyone with a single philanthropic bone in their body would pour $400 million, which can do so much good in so many different places, into like, this seemingly bottomless pit of money that is a major endowment like Stanford's, and think that that's like a smart or sensible thing to do with that.

C (47:00)

What is he doing or what is he endowing with it? Anything specific? Or did he just like, pour more money down the gullet?

B (47:07)

Well, if you're, if you give a university $400 million, they're going to put your name on something. So the thing that they're putting his name on is something called the Knight Hennessy Scholars Program, which is essentially the Stanford version of Rhodes Scholars, where they'll take 100 students per year and give them a graduate degree.

C (47:27)

Oh, that's so pointless.

D (47:30)

Don't go to grad school.

B (47:32)

I mean, just to put this in perspective, because it's all about the endowment. Phil Knight's money is going to be contributing about $20 million a year to this program. The amount of money that the Endowment is spending this year is $1.15 billion. So if they just increased that to $1.17 billion, that would have the same effect.

C (47:57)

Anyway, the marginal good he's doing in the world is like, practice. So, anyway, I can't even. There is no marginal good, Jordan. Okay. My number is not econ or finance related, but, I mean, I don't know. We should have numbers.

B (48:11)

Wait, do you know what podcast you're on?

C (48:13)

I know, but I feel like we should have numbers about, like, the end of the world. Right? Anyway, just as. So my number's 20%, give or take a little. It's from a YouGov survey. Apparently, 20% of Donald Trump supporters disapproved of Lincoln's decision to free the slaves. Yeah, I just. I just. I can't. I can't.

E (48:32)

Nobody can.

C (48:32)

Like, I mean, I really want to.

D (48:35)

Know, did they ask about their reasoning or.

C (48:37)

No, because it was a sur. I did. They just said, did you. I mean, like, maybe a lot of those people answer. Were trolling the survey taker, but it's.

E (48:43)

Oh, I need to go next.

C (48:44)

Anyway. God damn it, I need to go next.

E (48:47)

My number's 20%, but it fits very well with Jordan's. My number's 20%. That's the difference in polling versus betting markets. So it's kind of related. Right. We think that that poll is kind of inaccurate. My guess is that if people had to put their money on something, it would be different from just saying their money.

B (49:10)

Wait, Kathy, Kathy, give me the numbers here. It's a 20% difference between what and what?

E (49:15)

So my number is 20%, which is the difference between what. What the chances are for Brexit polling, which is around 50%. So when people are called up and say in Britain and say, is Britain going to leave the European Union? 50% of them say yes, and 50% say no. But in the betting market, 70%, the money is on staying. Britain staying. So the money is on no Brexit. 70% chance of no Brexit.

C (49:43)

Yeah. But I feel like we're finding that betting markets are more reactive than predictive on a lot of this stuff.

D (49:49)

And if I were an annoying finance person, I would say something about the betting markets being used for hedging. So it doesn't necessarily reflect probabilities.

B (49:55)

Please.

C (49:55)

Oh, no, go ahead, finance, but get deeper into that, man.

D (49:59)

Well, so the point is just that prices in a betting market don't necessarily. You need a lot of Assumptions for them to actually reflect people's predictions about the probability of something happening. Because if you're afraid, let's say you're afraid of Brexit, you would lose money if that happens, you would want to buy insurance against it and you would, in a market in equilibrium, it be expected to pay some kind of premium for that. Which means that drives a wedge in between the betting market probabilities and some.

B (50:27)

But that's the wrong way around. That would make Brexit more likely in the betting markets and in fact, Brexit is less likely.

D (50:34)

Okay, so let's say there are a lot of people who would profit from Brexit.

B (50:37)

No one is going to be profiting from Brexit.

C (50:39)

Someone might be. There's got to be like one maybe.

E (50:41)

Isn't that like an arbitrage opportunity though, if it's the market's way off and I'll bet the right way if there.

D (50:47)

Are a lot of risk neutral agents.

C (50:48)

There is, yeah. I mean, I will say one thing, like the betting markets in the US on the presidential election have just swung with polls and with individual caucuses. I mean it's, or primaries. It seems like they're not really predicting much of anything. It's anyway, anyway a lot of difference.

D (51:05)

So the number, what's your number? The number I brought is about Apple, since we were talking about Apple. And the number is one. There are no units on it. It's dimensionless. And one is the number of P and LS at Apple, or profit and loss statements. So a P and L is a basically a unit of accounting inside a corporation. Each division might have one, or each product might have one. And it measures basically the financial performance of that division or that product or that group. And Apple has one pl. It's basically run as a single unit globally, which is really strange. And this is really unusual for a company that size. And the idea is that you operate the company with one strategy. So you're not worried about cannibalization. For example, that one product, the iPhone will cannibalize the ipod. You're not worried about stores spending a little extra to be more profitable if it hurts service or sales or some other aspect that will, that will contribute to profits.

C (52:10)

It's sort of like a beautiful unitary whole. Just like Steve Jobs vision of technology. Exactly.

D (52:16)

I mean, there are some details. Of course there are metrics, of course there are metrics that they use within the company. But on paper at least this is what they say, that it's one company.

C (52:25)

And financial types are just so angry that they can't break into the profit and loss statement and get more detail.

B (52:32)

This is exactly the opposite to the way that Google, you know, became Alphabet and created a whole bunch of almost entirely autonomous separate companies, each with their own P and L and so forth. So Apple is in this sense like the anti Google. Yes, the anti Alphabet.

D (52:48)

Yep. Apple is the anti Alphabet.

B (52:51)

Amazing. Okay, so thank you very much to the one and only Guan Yang. Your welcome back anytime because you're awesome. Thank you listeners for listening. If you like the show, subscribe, find us by searching for Slate Money in the itunes store. Leave a review there, write to us. The email address is always slate moneylate.com thank you to Audrey Quinn, who's managed to work out the rather complex telephony situation to record the show this week. Thank you to Steve Lichti and Andy Bowers, the executive producer. Slate Money is part of the Panoply Network, so check all of those out@itunes.com panoply and we will talk to you next week on Slate Money.

F (53:55)

Hi, I'm Ezra Klein, editor in chief of Vox.com and I've got a new podcast on the Panoply Network. It is called the Ezra Klein show, which I'm never going to be able to say without feeling like a terrible, terrible narcissist. But it's long form, intimate, real conversations with newsmakers, with politicians, policymakers, journalists, business leaders, people who are influencing the world in fascinating and important ways. We talk about what they think, why they think it, what they believe. I've really enjoyed getting a chance to talk with these people and I hope you enjoy it too. You can find it wherever fine podcasts are given away for free over the Internet.