The Codfather Edition

Summary

Slate Money: The Codfather Edition (October 21, 2017)

Hosted by Felix Hammond, Felix Salmon, Anna Shymansky, and Jordan Weissman, with guest Robin Wigglesworth

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Overview

This special "International Codfather" edition of Slate Money dives deep into Scandinavia’s unique economic and political models—especially Norway’s enormous $1 trillion sovereign wealth fund—with help from Norwegian journalist Robin Wigglesworth ("The Codfather"). The wide-ranging discussion explores the mechanisms behind the fund, contrasts Scandinavian governance with other countries, examines the 1987 Black Monday crash, and considers lessons for innovation, risk, and transparency.

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Key Discussion Points & Insights

1. The Norwegian Sovereign Wealth Fund – World’s First Trillionaire?

[05:16-21:34]

• Background: Norway's sovereign wealth fund, now valued at over $1 trillion, is the largest in the world and is often highlighted for its transparency and governance.
• How It Works:
  • Fund built from oil revenues discovered in 1969.
  • Money is "stashed" and government only spends the returns (now capped around 3% annually).
  • Individual Norwegians technically "own" about $200,000 each, but benefit mostly through public services.
  • The fund is highly transparent: every asset, excluded company, and real-time fluctuations are publicly accessible.
• Uniqueness:
  • Unlike sovereign wealth funds in other nations (e.g., the opaque Middle East funds), Norway’s is fully open and regarded as a model of good governance.
  • "What is unique in the Norwegian, it's incredibly open. You can literally go to the website and see in real time the value of the fund go up and down." (Robin Wigglesworth, 08:34)
  • Emphasis on public and future generational benefit, not elite enrichment.
• Avoiding the Resource Curse:
  • Norway has dodged the "Dutch disease," unlike many petro states, through fiscal discipline and institutional transparency.
  • "Norway talks about the Dutch disease... when you have one industry that dominates everything else... it means the currency goes higher and you can't export anymore." (Robin Wigglesworth, 09:44)

2. Scandinavian Models of Government: Transparency, Social Safety, and Pragmatism

[12:16-29:44]

• Institutional Transparency:
  • Example of tax returns searchable online, illustrating Norwegian openness. "When I started going out with my wife, her friends checked out how much money I made." (Robin Wigglesworth, 12:57)
• Comparisons:
  • While all Scandinavians obsess over their differences, shared traits include robust welfare states, high taxation (especially on "sins" like alcohol and tobacco), and a pragmatic, non-ideological approach to policy.
  • Sweden's reforms in the 1990s reinvigorated growth by introducing more market-friendly policies.
• Consensus & Homogeneity:
  • National consensus and small, homogenous populations allow for sweeping policy changes, e.g., switching from left-side to right-side driving overnight.
  • "On a deep level, a broad national consensus on a lot of issues... It's easier to just, just come together as a community..." (Felix Hammond, 27:13)
• Pragmatism Over Ideology:
  • "... politicians on the left have done the biggest privatizations and politicians on the right have done the biggest welfare improvements ... Pragmatism is really the reigning ideology in Scandinavia." (Robin Wigglesworth, 25:27)

3. ESG Investing and the "Petro State” Paradox

[15:59-20:27]

• The Norwegian fund leads in environmental, social, and corporate governance (ESG) practices, excluding companies like Walmart, tobacco firms, and weapons manufacturers—even while built on oil money.
• "How do you get over the cognitive dissonance of being a petro state that then won’t invest in coal?" (Felix Salmon, 18:00)
  • Wigglesworth acknowledges it's hypocritical, but argues Norway uses its oil money to support sustainability at home and abroad, and does force cleaner standards on local oil companies (e.g., Statoil).
  • Norway’s domestic energy is 97–99% hydroelectric.

4. Entrepreneurship & Social Safety Nets

[30:31-36:31]

• The social safety net enables risk-taking by cushioning failures, leading to higher entrepreneurship rates by some measures, particularly in Sweden.
• "If you work at IBM and want to start a big company in the U.S. and you fail... your kids will not have health care ... In Norway ... you'll have everything." (Robin Wigglesworth, 32:18)
• Sweden is a top venture capital hub proportionate to its economy; Norway less so, due to its traditional economy and reliance on oil revenue.

5. The Swedish Banking Crisis and Black Monday

[23:01-38:15]

• Scandinavian banking crises of the late 1980s and early 90s linked to excess borrowing and market exposure, exacerbated by the Black Monday crash.
• Banks in Norway and Sweden were nationalized in a pragmatic, bipartisan move, contrasting with ideological gridlock elsewhere.
• "One of the things I feel is underrated ... is pragmatism." (Robin Wigglesworth, 25:27)

6. Black Monday Crash – Could It Happen Again?

[36:31-48:22]

• Mechanics of 1987 Crash:
  • Driven by portfolio insurance (selling futures as markets fell), nascent computer trading, and market structure weaknesses.
  • Global repercussions due to interconnectedness—shock in U.S. triggered collapses elsewhere (especially overleveraged Scandinavia).
• Modern Parallels:
  • Introduction of circuit breakers and greater awareness of systemic risk makes a repeat unlikely, but “volatility targeting” strategies may echo old risks.
  • "I don't think we'll ever have something like Black Monday again ... we have circuit breakers." (Robin Wigglesworth, 41:59)
• Potential Vulnerabilities:
  • Concern that technical failures, pro-cyclical strategies, or international crises (e.g., China, North Korea) could still trigger severe events.

7. Plausible Catalysts for the Next Crash – A Lightning Round

[48:22-54:00]

• Robin Wigglesworth: Sudden Fed rate hikes under a new Chair (John Taylor), panicked selling triggered by volatility strategies, and feedback loops affecting real economy.
• Felix Salmon: Potential for U.S. political gridlock or NAFTA withdrawal to evaporate market optimism.
• Anna Shymansky: Financial instability in China, given its highly leveraged, opaque banking system.
• Felix reflects: Possible lack of international savvy in future U.S. financial leadership could compound global crises.

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Notable Quotes & Memorable Moments

• On Norway’s Transparency:
  “You can literally go to the website and see in real time the value of the fund go up and down. You can see every single stock it owns, every single real estate deal it's ever done.”
  —Robin Wigglesworth [08:34]

• On Scandinavian Pragmatism:
  “Pragmatism is really the reigning ideology in Scandinavia. It gets cloaked in ideological language sometimes, but fundamentally people sit down and work out, well, this is probably a sensible thing to do and let's do that then.”
  —Robin Wigglesworth [25:27]

• On Social Safety Nets & Risk:
  “If you work at IBM and want to start a big company in the U.S. and you fail, your kids will not have health care ... In Norway ... you'll have everything.”
  —Robin Wigglesworth [32:18]

• On Petrostates and Green Policy:
  “This is the central conflict of Norway and oil. Norway is incredibly green in a lot of things ... But there's large swaths of northern Norway that are now banned. There is no oil exploration, going to protect the ecosystem up there.”
  —Robin Wigglesworth [18:19]

• On the Black Monday Crash:
  “I’d argue that 1987, the Black Monday crash, is probably the first modern market crash in that it happened partially because of computers ... and it was very quick. And then of course economically it proved to be fairly shallow in the U.S.”
  —Robin Wigglesworth [37:31]

• On Political Consensus:
  “On a deep level ... you don't have a deeply divided country like you do in the U.S. ... everyone’s kind of related to each other. They're racially very homogenous. And it seems to be easier to just, just come together as a community.”
  —Felix Hammond [27:13]

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Timestamps for Key Segments

• 00:14–04:39 – Icebreaker: The Norwegian Central Bank Cod Rap & introduction.
• 04:42–12:57 – The Norwegian Sovereign Wealth Fund: history, setup, comparison with other countries.
• 12:57–15:06 – Social and institutional transparency in Norway and Scandinavia.
• 15:06–20:27 – ESG investing: exclusions, ideology versus practicality.
• 20:27–29:44 – Expanding to “the Scandinavian model,” pragmatism, consensus, and social policies.
• 29:44–36:31 – Entrepreneurship, social safety nets, and innovation across Scandinavia.
• 36:31–48:22 – 1987 Black Monday: causes, portfolio insurance, market structure, global impact.
• 48:22–54:00 – Fantasy “Doomsday scenarios” for future crashes (lightning round).
• 54:00–58:52 – Numbers round: quirky economic stats and CEO tangents.

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Tone & Style

The episode maintains a smart, playful, globally curious tone, often self-deprecating and always conversational. Panelists riff on each other’s points, frequently veering into humorous asides (including the eponymous “Codfather” rap video), and openly grapple with economic paradoxes and political realities—a hallmark of the Slate Money style.

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Additional Memorable Moments

• Cod Rap Video – An example of Norwegian institutional whimsy:
  “There’s cod being thrown into a spin right now ... That’s the Norwegian Central bank. How they turn the cod into money.” (Felix Salmon & Robin Wigglesworth, 03:15–03:18)

• Americans and Norwegian Tax Returns:
  “This always freaks people out in the US ... In Norway, you can check everybody's tax returns online ... newspapers built tools around this so you could literally check who's the richest guy on my street.” (Robin Wigglesworth, 12:57, 13:50)

• Entrepreneurship and the Welfare State:
  “When you look at desire for entrepreneurship, how many people dream of working for their own company? The US is in the top of the world. Scandinavia is pretty high as well. But if you look at the percentages of people who work for a business they start themselves, those rates are far higher in Scandinavia than they are in the US.” (Robin Wigglesworth, 32:18)

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For Listeners in a Hurry

• Norway’s oil money management is a rare global success story of institutional transparency and long-term social benefit.
• The so-called “Scandinavian model” is less about ideology, more about pragmatism and consensus.
• Social safety nets may promote entrepreneurship by reducing personal risk.
• The dangers of portfolio-driven, technical market failure remain, though circuit breakers and better-regulated strategies offer some protection.
• If a global crash were to happen today, it would likely result from a combination of technical triggers, political missteps (especially in the U.S. or China), and risk pile-ups in financial products.

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This summary captures the conversation’s nuanced analysis, playful tangents, and practical comparisons. For anyone seeking an engaging exploration of Norwegian finance, Scandinavian models, and market risk, this Codfather Edition delivers!

Transcript

[Felix Salmon]

The following podcast contains explicit language.

[Felix Hammond]

Hello and welcome to the International Codfather edition of Slate Money, your guide to the business and finance news of the week. Where. That is, I believe. So Dan has managed to put this up on the screen in the studio. Robin Wigglesworth. Hello.

[Robin Wigglesworth]

Hello.

[Felix Hammond]

Robin Wigglesworth is a special guest. I'm Felix Hammond of Fusion. Jordan Weissman is here. Thank you, Jordan, for turning up.

[Felix Salmon]

Yeah, I'm back. I'm alive.

[Felix Hammond]

Anna Shymansky is here.

[Anna Shymansky]

Hello.

[Felix Hammond]

But Robin Wigglesworth, you have a day job at the ft, but mainly you're just a professional Norwegian.

[Robin Wigglesworth]

Yes, and that's kind of my full time job.

[Felix Salmon]

He is the Codfather.

[Felix Hammond]

You are the godfather. You translated this. This thing that we were just listening to. Yeah. Can you just explain what it is and what makes it like. Yeah, what is it? And why are we all laughing?

[Robin Wigglesworth]

It's a video that the Norwegian Central bank did together with the launch of some new money. They were coming out with new notes and they look pretty cool. There was a picture of a cod on the 200 krona note, which is rough. This over 15 bucks or something. And it's basically. It's a parody. Ish. But I think even better version of an old film, an old music video from the 80s in Norway and they just decided to go to town with it. And frankly, I think it's the best musical and it features at least the Norwegian Central Bank. Yes, that's very true.

[Felix Hammond]

It features a rap from the central bank governor.

[Robin Wigglesworth]

He only. He talks a little bit. I wouldn't call it rapping by any, but we do have a breakout rap part from DJ Codfather which is frankly just. Yeah, it's perfection.

[Felix Salmon]

Dan, queue that up again.

[Felix Hammond]

Can we have. Keep this going and we'll get the breakout wrap up.

[Felix Salmon]

They're cod being thrown into a spin right now.

[Felix Hammond]

All right, we have to. We have to wait a minute until we get to the.

[Felix Salmon]

Right now. They're men in raincoats throwing cod.

[Robin Wigglesworth]

That's the Norwegian Central bank. How they turn the cod into money. Next thing, the technology behind the modern notes and how you can't counterfeit.

[Felix Hammond]

All right, where the fuck. Dan, we've had enough of that. Okay. Okay. So that was the wrap. Yes, and it was amazing.

[Felix Salmon]

It's.

[Robin Wigglesworth]

It's. I think it's perfect. Especially where the way they talk about the obviously fascinating technological details to prevent counterfeiting of this cod, which.

[Felix Hammond]

Exactly the same as the technological details in every other banknote around the world. But in Norway, it comes with A wrap and a fish.

[Robin Wigglesworth]

Yeah. As one does in Norway. We rap to everything, really, especially when it's got anything to do with fish.

[Felix Hammond]

So. Okay, so let's. Let's try.

[Felix Salmon]

And what are we talking about this week?

[Felix Hammond]

So, yeah, we have decided that this week is going to be like a scandi week here at Slate Money, because it's not often you get a genuine godfather in the studio at Slate Money. So we are going to talk to Robin about Scandinavia generally. We're going to talk actually also about Black Monday, even though that wasn't particularly Scandinavian. And although, who knows, maybe there was some weird scandi thing which started the entire.

[Robin Wigglesworth]

Well, I can link pretty much everything to Scandinavia somehow, so just give me a try.

[Felix Hammond]

We will get you to link Scandinavia to Pleck Monday. But the news hook for. If we need a news hook for Scandinavia is your amazing sovereign wealth fund, which you personally own, all of, is now $1 trillion. We're going to talk. What order should we do this in?

[Felix Salmon]

I think we should start with the Norwegian sovereign wealth fund. It's worth a trillion dollars.

[Felix Hammond]

So your amazing sovereign wealth fund, which you personally own, all of, is now $1 trillion. You, Robin Wigglesworth, are the world's first trillionaire.

[Robin Wigglesworth]

Yes, thank you very much. And drinks on me later, of course.

[Felix Hammond]

How does it feel?

[Robin Wigglesworth]

It feels pretty good. I don't feel I always see all of that money, but I did have free healthcare, free education, free university, so, you know, you do see some of the effects. But I only own, technically 15 millionth of the fund, roughly speaking, around 5 million of us.

[Felix Hammond]

What is 15 millionth of a trillion dollars?

[Robin Wigglesworth]

I don't know.

[Anna Shymansky]

I think around 200,000 per person in Norway.

[Robin Wigglesworth]

Yeah.

[Felix Hammond]

Yeah. So, I mean, that's a nice chunk of change, I would say. It's like most people, even in Scandinavia alone, outside Scandinavia, don't have $200,000 worth of, you know, funds floating around in their name. So the way that Norway managed to come up with a trillion dollars just sitting in the bank is by saving its oil revenues. Basically. Yeah.

[Robin Wigglesworth]

Essentially, we found oil in. Back in the 60s, actually, the day before Christmas Eve. And obviously we like everybody. Right. Thinking people would celebrate Christmas Eve rather than Christmas Day.

[Felix Hammond]

Yes.

[Robin Wigglesworth]

The day before that, we got a very nice Christmas present and we struck oil. And for the first few years, people didn't think it was going to amount to much. I mean, the Finance Ministry calculated that maybe at some point we might be able to afford a new pair of shoes for every Norwegian. That's how much Money they thought they get out of it. But obviously it ended up being a lot more, more than we could ever possibly spend. So by 1990, this site decided to set up a fund where they basically stashed all the money and all the governments, all the various parties promised to only spend the return of that fund, roughly so 4% a year. So that fund in theory should grow and grow and grow and then basically provide an income stream for Norway for perpetuity.

[Felix Hammond]

And it's still in growth mode right now.

[Robin Wigglesworth]

There have been some withdrawals, of course. I mean, especially after oil prices crashed. The government decided maybe we need a bit more of that money to protect the economy. But essentially, yes, it's still growing. I mean hit a trillion dollars. Most all the oil money gets stashed there and the government's promised to spend roughly 4% now. They've actually lowered that to 3% a year. And if the economy's booming, they promise to spend less. And if the economy is doing worse, they spend a bit more.

[Felix Hammond]

So it's this lovely little sort of countercyclical cush you have. And as far as I can tell, it's like you're unique among oil economies in being able to get away with this. Well, I mean, okay, Saudi Arabia has a.

[Anna Shymansky]

There are a number of sovereign wealth funds either from oil and gas or metals and mineral wealth.

[Felix Hammond]

Yeah, no, no, I mean by, by. Yes, that's right. Let me.

[Robin Wigglesworth]

What is unique in the Norwegian, it's incredibly open. You can literally go to the website and see in real time the value of the fund go up and down. You can see every single stock it owns, every single real estate deal it's ever done. You can see every single bond it's done. You can see which companies excludes how much it owns, the history of the fund. And you know, I used to cover the Middle east and the sovereign wealth funds there. You're lucky if you know how much money they have. So that's about it.

[Felix Salmon]

This is what's interesting to me about kind of Norway in general actually, because you have these two ingredients that should theoretically just lead to all sorts of weird corruption. You have a huge, you have a huge amount of oil wealth, which petro states are just known for being horrible, corrupt, dysfunctional places. And then you have a giant against sovereign wealth fund. And I mean even in the us, pension funds can lead to all sorts of kind of small time corruption, just like backroom deals with comptrollers and stuff. So you have a lot of government controlled money, a big pool of It. And yet somehow it seems like Norway doesn't have. It's incredibly not corrupt.

[Felix Hammond]

It's avoided the resource curse, has it entirely.

[Felix Salmon]

Has it avoided the part where everyone. Well, what parts of the resource curse, has it?

[Felix Hammond]

What is the resource curse?

[Robin Wigglesworth]

The resource. I mean, Norway talks about the Dutch disease. I mean, it's an elemental. But basically the idea that when you have one industry that just dominates everything else and generates lots of revenue and export revenue, it means the currency goes higher and higher and in fact means everything else you have is just. You can't export anymore. So when the price of that commodity, let's say oil in Norway goes down, then suddenly the rest of the economy is basically obliterated and you have nothing else and you're kind of up the creek.

[Felix Salmon]

But you do have the fund.

[Robin Wigglesworth]

Yeah, you do have the fund. So Norway use the fund both to save money for rainy days in which countries have a few of, but also to prevent it from overheating the economy. If you all, if we all pour that money in, especially as the flow started getting really big in the 90s, would pour that into the economy, it would have caused rampant inflation, would have caused the currency increase, and would have basically obliterated the rest of Norwegian industry. Luckily, you know, oil dominates, but there are still other corners of Norway that are doing pretty well.

[Felix Hammond]

So is the Norwegian Oil fund basically the same as everybody else's sovereign wealth fund, but slightly more transparent and better managed, or is it qualitatively just kind of unique in many ways?

[Robin Wigglesworth]

Well, I'm hardly an objective observer here, but I have to admit the Norwegian sovereign wealth fund actually gets a lot of criticism in Norway. But I think objectively speaking is fairly unique. Not just for its transparency, not just for its size, but how it's been set up very much with the idea that it should benefit future generations. A lot of other sovereign wealth funds often become piggy banks for the ruling elite or the local sheikh or whoever it'll be. And in Norway, that idea that this is for everybody in Norway for perpetuity is very heavily ingrained. They even changed the name to some entrencher. It's now officially called the government pension fund Global and put pension in there, just that give it that kind of, oh, you can't kind of dive into it. And that's actually survived through quite a few generations now that people just. Or over a generation now that, you know, various governments haven't dipped into that, even though the temptation is huge, is.

[Felix Salmon]

That this is because, like, I guess I'm still Trying to wrap my head around why it's worked out as well as it has. And is it just because, like, they had social democracy in place when they got oil money? Like, they already sort of had really strong institutions around and they kind of stumbled into this wealth, and so it kind of. It just worked out the way it did or.

[Robin Wigglesworth]

That's a great question. I mean, I think the only country that's actually found oil and then become a functioning democracy is Mexico. Every other country that found oil first has not become a functioning democracy, but the countries that became democracies first and then found oil have generally managed it a lot better.

[Felix Salmon]

Interesting.

[Anna Shymansky]

And I think it's also important we'll get into this a little bit more when we talk about the Nordic model in general. But when you're dealing with a lot of Scandinavian countries, there is just a long history of transparency, good government, that I think, makes it more likely that this model would work in Norway in the way it wouldn't work in perhaps another country.

[Robin Wigglesworth]

I mean, a good example of that, tax returns. I mean, this always freaks people out in the US Especially, but in Norway, you can check everybody's tax returns online. Literally, when I started going out with my wife, her friends checked out how much money I made.

[Felix Salmon]

Wait, seriously?

[Robin Wigglesworth]

Yeah. That's like, find out who makes most money on your street. Who's the best paid sportsman, who's the best paid journalist in Norway.

[Felix Salmon]

That's like zillowing someone's house in order of magnitude crazier.

[Felix Hammond]

I know. I know a little bit about the Swedish model, but I don't know about Norwegian model. As I understand it, in Sweden you can check out someone's tax returns, but you're not allowed to then publish what they. What they make. You can find out for yourself. You can't, like, basically broadcast that. And then also, I believe, tell me if I'm wrong about this, that if I check your tax return, you get notified that I've checked your tax return. You know who I am.

[Robin Wigglesworth]

It might have changed in Norway. I haven't lived there for close to 10 years now. But. No, I mean, in Norway, newspapers built tools around this so you could literally check who's the richest guy on my street.

[Felix Salmon]

I really like the idea of kind of getting the equivalent of like a LinkedIn notification for your tax return. It's like someone's been looking at your profile, someone's been checking your.

[Felix Hammond]

And that's what happens in Sweden. But there you go. We will get into the differences between Norway and Sweden, but before we get There. I want to ask about the nitty gritty of the sovereign wealth fund because the one thing that we have all seen whenever you get billions upon billions of dollars in a big pile, whether it's endowments or pension funds or anything else, is they find it impossible to resist the allure of hedge funds and private equity and all of these alternative assets. And they're all very opaque and a bunch of hedge fund managers wind up making lots of money. So can we therefore assume that there are loads of quiet hedge fund types getting paid gazillions of dollars for managing this money?

[Robin Wigglesworth]

Probably not gazillions of dollars, but yes. So a lot of its money money is managed internally in Oslo. A lot of it is pretty much entirely passive as well. But they do hire external managers. And this is frankly a bigger subject in Norway than any sort of, oh, we should be, you know, diving into the money and building massive towers here and there is actually whenever a particular manager has done very well, because it's all in the annual report, all the compensation is there. And the Norwegian press sees on the hedge fund manager xyz, who might have had a brilliant year, but then also made 10 times more than Norwegian Prime Minister or 15 times or 100 times more than the Norwegian Prime Minister.

[Felix Hammond]

How much does the Norwegian Prime Minister make?

[Robin Wigglesworth]

Not much.

[Felix Salmon]

But what's his value add, really?

[Robin Wigglesworth]

Yes, exactly. I mean, Norway is a country that is fairly sort of self managing most of the time.

[Anna Shymansky]

This is important though, because it's, you know, not just the Norwegian fund, but many sovereign wealth funds are now some of the biggest clients of private equity and hedge funds. And they are having, I actually think, a somewhat positive impact. Because if you're looking for the clients that actually have issues with ESG concerns, the only ones who bring it up are the sovereign wealth funds and some of the international pension funds.

[Felix Salmon]

Remind me.

[Anna Shymansky]

ESG concerns Environmental, social governance.

[Robin Wigglesworth]

Yeah, yeah. The Scandinavians have been huge on that for a while. Not just the sovereign wealth fund in Norway, but the Danish and the Swedish and Norwegian pension funds, which are also very, very large anyway. And the sovereign wealth fund, the NBIM Norgas Bank Investment Management has enshrined this very strongly in its own government. Since 2004 they've been excluding companies that they feel break their own rules, including Walmart and here in the US because they felt they took a very anti labor position enough so that they decided to chuck Walmart out of its portfolio.

[Felix Hammond]

So is that in the sovereign wealth fund as well? Will not have any Walmart stock.

[Robin Wigglesworth]

Zero. No Walmart stock, no Walmart debt.

[Felix Hammond]

So this is fascinating to me. They are passive, but they are also kind of ideological. So instead of just buying an S&P 500 index fund, they will go out and buy every country, every company in the S&P 500, except for Walmart and the other ones they disapprove of.

[Robin Wigglesworth]

Essentially they use various screens. They can do it in bespoke fashion or do through various ESG screens. I mean, they actually do it in very custom ways. Walmart is one that, for example, wouldn't be screened out of a lot of ESG indices. But they will also have. They also have environmental concerns. So no coal companies, tobacco. Despite tobacco being legal in Norway. The sovereign wealth fund does not invest in any tobacco companies. Anybody involved with cluster munitions or nuclear weapons, that's Lockheed Martin, Northrop Grumman, a few other US Companies, and some companies that they feel work in this sort of an iffy way on the West Bank.

[Felix Salmon]

I think you.

[Anna Shymansky]

They're probably gonna have the exact same.

[Felix Salmon]

Question I've written about this, and I've never had a chance to actually ask an actual Norwegian is how do they get. How do you get over the cognitive dissonance of being a petro state that then won't invest in coal? Which, I mean, like, I think it's probably a good thing that you're not doing it, but just like, how do you make that.

[Robin Wigglesworth]

Yeah, this is the central conflict of Norway and oil. Norway is incredibly green. I mean, in a lot of things. We started recycling. If you put things in the wrong bucket in Norway, that's a social ostracization.

[Felix Salmon]

That you're a reluctant petro state.

[Robin Wigglesworth]

Yes, I think it's sort of we've guilty. Made our uneasy peace with it, but we do force the oil company Statoil, which is Norway's biggest oil company. The source of most of the money that goes into sovereign wealth fund is by oil company standards, pretty clean. And we pay money to Brazil to protect rainforests in the Amazon. We pay money to China, we support Chinese building of hydro dams. But Norway gets 97 to 99% of all its energy from hydro now because we have all these beautiful big waterfalls around the country. So the oil is, you know, it's hard to say no to, but, you know, it's a handy thing to have. But there's large swaths of northern Norway that are now banned. There is no oil exploration going to protect the ecosystem up there.

[Anna Shymansky]

So, yeah, even though it is hard to not view there to be a little bit of Hypocrisy. On the other hand, you could argue that right now, in this age of passive investment, where you don't have a lot of shareholder activism unless it's the worst kind, having something like the Norwegian sovereign wealth fund that has so much power because it has so much money and actually cares about these concerns is important.

[Felix Salmon]

We should say, what is it? They control like 1% of all global.

[Robin Wigglesworth]

Equities, which is 1.3%.

[Felix Salmon]

That's probably going to grow, right? Like that's only going to get bigger because wealth compounds and oil wealth also compounds, or at least for a while it will. So they're going to become more powerful.

[Robin Wigglesworth]

In 2016, they voted, I think over 11,000 shareholder meetings. And how they vote and why they voted that way is put on the government, the government pension funds website the day after every single vote, right? So if you see it in real time, almost.

[Anna Shymansky]

So if you're using, look, you're getting the money from oil, but then you're using it to really lower the carbon footprint of the rest of the world, then that's probably net, net good for the world.

[Felix Hammond]

So now I want to expand this a little bit to all of Scandinavia because a lot of what we've been talking about here is not uniquely Norwegian. And for all that, the Scandis love to obsess about the differences between the Norwegians and the Swedes or between the Danes and the Finns, there are more similarities. And people love to talk about the Scandinavian model. And part of that Scandinavian model, I think it's not just Norwegian, is this kind of of concern for the environment, for the world. I know the Norwegian foreign aid budget as a percentage of GDP is like way higher than almost anybody else's. And if you remember back to the worst ever presidential election campaign in the history of the world, there was a lot of talk from Bernie Sanders about like, I want America to become more Scandinavian. What does it mean to be Scandinavian? And is this something that all right, thinking people should seek to emulate?

[Robin Wigglesworth]

That's a great question. I got a lot of those around the presidential election, as you might expect. Like I say, there are actually really big similarities between the Scandinavian economies that frankly the Scandinavians don't always see broad brush. I'd say that high tax, high welfare economies, they've managed to combine a fairly big state and a high tax take with still fairly dynamic economies are still driven largely by the private sector and.

[Felix Hammond]

Very high sin taxes. Right. They love taxing alcohol like you would not believe generally.

[Robin Wigglesworth]

The Scandinavian countries also have a skew towards consumption taxes. Sin taxes are among those. So Norway makes. I haven't checked this again since I lived there, but in 2007, Norway made almost as much money from taxes on alcohol and tobacco as they made from income tax. Wow. Yeah. So it's because they do expensive. Buying a beer there for all the.

[Felix Hammond]

Alcohol is extremely expensive. They do still drink a lot.

[Robin Wigglesworth]

A lot, yes.

[Felix Salmon]

That's like if you combine 19th century America's tax structure with 20th century America's tax structure.

[Robin Wigglesworth]

Yeah, no, it's. You know, people enjoy a tipple there now.

[Anna Shymansky]

I do think, though, when we're talking about the big state dynamic growth, I think it's important to remember if we're talking about Sweden, that Sweden's growth actually was much slower between the 70s and 90s when you had a much bigger state and then they had the reforms in the 90s that were much more market friendly. And that actually is part of the reason why now you have that growth.

[Felix Hammond]

Yeah, well, so let's talk very quickly about the Swedish banking crisis, because why not? This is like a nerdy podcast. And if we want to talk about the Swedish banking crisis, we can talk about the Swedish. Every time there's a banking crisis anywhere in the world, everyone always says we should have the. We should deal with this the way the Swedes did. Certainly in like 2008 in America, everyone was like, can we do the Swedish thing here? I remember. And the answer to that question seemed to be, well, it would be great if we could, but we're too big and too heterogeneous. And the great advantage of being Scandinavian is that you're relatively small and relatively homogenous. You can get away with doing bolder things.

[Felix Salmon]

Well, so what exactly, Felix, give us the background of the field.

[Felix Hammond]

I feel like there's only one person.

[Felix Salmon]

To give us the background of the.

[Robin Wigglesworth]

Well, I wasn't in Sweden at the time time, but this links to Black Monday, actually. So when Norway found oil, Sweden was doing pretty well in the 80s, but not so fantastic. Well, and Denmark had the riches, but Scandinavia went through the yuppie period with, you know, a swagger. We were the ultimate yuppies. Big fat mobile phones buying real estate, inflation going crazy.

[Felix Hammond]

Nokia.

[Robin Wigglesworth]

Yes, exactly. Yes. No, it was. It was a boom time in Scandinavia and in Finland as well. But people borrowed a bit too much money. And when the Black Monday crash happened in the us, the shocks ripple through the world and all saying about the US sneezes and the world catches a cold is true. And in Scandinavia, we caught a really Nasty cold. And basically most of the banks went bankrupt in Norway, Sweden and Denmark. In Norway, the entire banking system was nationalized. All the big banks were nationalized. So the remnant is still that some banks are still partially government owned or the Swedish owned and Sweden still owns some of its banks as well.

[Felix Hammond]

And so basically the solution to the crisis, the Swedish solution to the banking crisis was nationalization and not in a kind of French way, because it's a sort of ideological view that banks should be owned by the state, but just in a kind of practical way are the lender of land, last resort and you're insolvent. We're going to put in the money and we're going to take them over.

[Robin Wigglesworth]

Yeah, I mean, one of the things I feel is underrated in politics in general, but also underappreciated when it comes to the Scandinavian or Nordic model is pragmatism. I mean, this is actually a region where politicians on the left have done the biggest privatizations and politicians on the right have generally done some of the biggest welfare improvements across the region. Pragmatism is really the reigning ideology in Scandinavia. It gets cloaked in ideological language sometimes, but fundamentally people sit down and work out, well, this is probably a sensible thing to do and let's do that then.

[Felix Hammond]

And is that the same as what we had under Obama, this kind of technocratic approach to problems? Was there a difference?

[Robin Wigglesworth]

No. I mean, with the banking sector it was just, they decided, look, this is easier, the banks are insolvent, let's just nationalize a lot of them.

[Anna Shymansky]

And the difference is they didn't have our idiotic congress. I mean, this is in Scandinavia, they get things done. I think I completely agree with you. I think when you talk about the Nordic model and where it can and cannot work, I think it's important to remember that non ideological element because you can't just take that model and plop it into some other, you know, political system.

[Robin Wigglesworth]

Well, I completely agree because we can't just copy models and copy countries willy nilly. I mean, it's hard. There are big differences. The US is a bigger country and it is more ideological and you have a, shall we say a slightly sort of this dysfunctional congress. But I do find that Americans especially are too fatalistic about this. You know, countries are a result of public policy choices that we make and we can make choice about what kind of countries we want to be and move in that direction. Yes, you can't suddenly turn into Denmark or Sweden or Norway overnight, but you can see what works and what doesn't work and learn from other countries.

[Felix Hammond]

And this is where I think the big question which I have comes in, which is, can you. And specifically what I think you're talking about, whether it's nationalizations, privatizations or I mean, I mean, I always remember this story about how Norway managed to go from driving on the left hand side of the road to driving on the right hand side of the road literally overnight and with almost no negative repercussions in a way that you can't even imagine virtually any other country being able to do. Because there does seem to be on a deep level a broad national consensus on a lot of issues. You can basically say that, that Norwegians and Nordic people in general, and Scandinavians in general, they agree very broadly on a lot of things. You don't have a deeply divided country like you do in the US and one of the reasons for that perhaps is that they're small and everyone's kind of related to each other. They're racially very homogenous. And it seems to be easier to just, just come together as a community than it is in. If we've seen all of these elections in places like Spain or US or UK where you get these deeply divided countries.

[Robin Wigglesworth]

And that's truly impossible there you can have divided governments. I mean, we basically haven't had a majority government for most of the post war period, apart from the first few years in Norway at least. So there's like, there's a tradition for consensus building and coalition building. I agree that the fact that the countries are small just makes it a lot easier. Bigger countries are hard to run. You know, they are far broader. You know, the difference in California or New York or you know, Arkansas or Wyoming, they're huge. These are countries in almost in their own right. But I still think, you know, if we give up on learning from other countries and other cities or friends and neighbors, I think it's a little bit, it's a little bit lazy. I still think that there are a lot of things that, yes, you couldn't do here. You couldn't. For example, in Norway they decided to kill off all old school radio and just move all digital, basically. They gave people a year to adjust, but then they just did it. That would be hard in a country like in the us they did that.

[Felix Hammond]

With TV in the uk.

[Robin Wigglesworth]

Yeah, the UK did it. I remember. I think that was pretty controversial at the time, but.

[Felix Hammond]

That was controversial, exactly. You get more pushback.

[Robin Wigglesworth]

Well, you can do these things. I mean, for me, that my pet peeve Is childcare in the US or in the UK as well for that matter? Being a child care is something that economically we know is better. Getting more women out into work. The US female participation rate is below Japan's now in Scandinavia, if you want to look at why Scandinavia is pretty wealthy, it's because close to 80% of all women are working. That is a huge boon. So actually subsidized or free childcare is actually something that might pay for itself. It's something that's a slam dunk. I think most people in the US would quite welcome it. It's just the implementation just drags on or never happens or probably never will happen, sadly.

[Felix Hammond]

I have one last question which is about entrepreneurship. And it's not that Scandinavia is some massive tech hub like Spotify notwithstanding, but there is a lot of anecdotal storytelling about the idea that if you have a strong social safety net, then you're more likely to be willing and able to take risks because you know that there's a good statistical chance that you're going to fail. But at the same time, you know that if you do fail, it's not the end of the world. And that helps to drive social mobility and entrepreneurship.

[Felix Salmon]

Sorry, I'll let Robin go first. But there's actually, it's not just anecdotes. There's actually a lot of data research on this issue and it varies within Scandinavia a great deal. Sweden is actually a venture capital hub. Like it very much is like top 10 for percentage of venture capitals, portion of the economy, that kind of thing. And it has a very high startup rate. Like internationally competitive Norway, on the other hand, much less. So it's much more of a traditional big company economy. Well, oil economy with a giant hedge fund attached.

[Robin Wigglesworth]

Well around the year. That's very true.

[Felix Salmon]

Actually.

[Robin Wigglesworth]

Sweden has a thriving tech. I mean the technology industry there I think is compared to the economy, much might actually be larger than the tech economy in the US.

[Felix Hammond]

That's, that's a function of a low denominator.

[Robin Wigglesworth]

Yes, exactly. Yeah. But I mean they've done a really good job. They also great at music exports. Yeah.

[Anna Shymansky]

Although I do think it's important that if you look at larger companies, if you look at listed companies, the vast majority of listed companies throughout Scandinavia were founded between like 1880 and 1950. You don't have a lot of large big new companies.

[Robin Wigglesworth]

Well, there haven't been that many of the big family owned companies have gone public. They. Yes, there's anecdotal and also qualitative and Quantitative work that shows, actually Scandinavia is fairly dynamic. It's one of the reasons why we can support a fairly big welfare system. And I think, like Felix said, it is partially because, you know, if you work at IBM and want to start a big company in the US and you fail, your kids will not have health care, you might not be able to send them to university, you might not be able to feed your family in Norway. Your kids will have health care, their kids will have school, they'll have university, they'll have dental, they'll have everything. So it gives you that safety net to do things. And there've been studies that show that when you look at desire for entrepreneurship, how many people dream of working for their own company? The US is in the top of the world. Scandinavia is pretty high as well. But if you look at the percentages of people who work for a business they start themselves, those rates are far higher in Scandinavia than they are in the US because here there are so many inhibitors towards that plunge that in Scandinavia you can.

[Felix Hammond]

Yeah, and that's the other thing, is that entrepreneurship in general means two different things. Yeah, like it can mean, I mean, I have the ability and willingness to support myself and to start up a business where I can pay myself a good living and I don't need to work for someone else. Or it can mean I want to start a massive company with millions of dollars of venture capital and turn it into the next Facebook. And they're two very, very different conceptions of what entrepreneurship does.

[Robin Wigglesworth]

And that's the second part is a tricky part that Norway has a lot of or Scandinavia has a lot of smaller businesses, but getting venture capital is harder, especially outside Sweden, outside of tech. And it's very hard to grow those big companies that, you know, the really big ones, the listed ones also because frankly, the countries are individually very small. And the old thing, despite us vaguely understanding each other, we speak roughly the same language. There are very few, if any, true pan Nordic companies. And that has been the real sort of issue here, that you can start a company, you can grow it. There's even some statistics. Stipends and help and tax breaks encourage that. But growing that to sort of be the next Facebook just is very, very hard, if not impossible.

[Felix Salmon]

When the tech economy is so focused on scale right now and you can't scale, it seems like kind of the critical problem. But I do think that the Swedish model does show one important thing about the role of the safety net and venture capital, which is that. And that kind of entrepreneurship, which is that having A big safety net and high taxes isn't necessarily going to stop people from wanting to take over the world that way. Sweden didn't have much of a startup economy, like kind of a Silicon Valley style startup economy until the 90s after the banking crisis, when they kind of went through all these financial market reforms. And those actually made it easier for venture capital to thrive. And the fact that it did, along with high taxes, or has thrived insofar as it has in this small country with high taxes and with a large safety net, I think says can combine these two things. And I think that is actually when you talk about lessons learned for other countries like the U.S. that's a really important one that we're not going to, you know, you can raise taxes and not lose Silicon Valley necessarily, or at least it indicates that's possible.

[Felix Hammond]

Yeah. And Silicon Valley itself is in a high tax state.

[Robin Wigglesworth]

Yeah, yeah, I know. I mean, I, you know, most people don't start a company to sort of necessarily just profit maximize. I mean, nobody sits there thinking, I'm going to work, you know, 50, only 50% of my capacity with my own company, because the government takes, takes 20 or 30%. And also the headline corporate tax rates are actually lower in Scandinavia than they are in the U.S. in the U.S. if you're multinational, there's all sorts of fun and games you can do with the tax code that allows you to pay in a far lower effective rate. But in Scandinavia, the actual headline corporate tax rate is much lower. And that's something you see whenever you read the Cato Institute on Scandinavia. What they see in the Nordic model is not high taxes. They say ethnic homogeneous and low corporate tax rates. And obviously that's what they like. The Nordic model is a bit like, it's like magic mirror. People see exactly what they want to see in it.

[Felix Hammond]

But let's go back to Black Monday because it's the 30th anniversary this week. And so, you know, we're gonna light a candle or 30 candles on a birthday cake and say 30 years ago this week was one of the most impressive examples of market failure that I can ever remember. We have stock market bubbles, we have stock markets going up and stock markets going down. I think the stock market decline of 2000 was probably bigger. The negative economic effects of the stock market crash in 2008 was obviously much, much bigger. But just in terms of market that like nothing can compare to how they just failed on Black Monday. And as you say, like for all that, it didn't have a lot of Negative repercussions in the U.S. it did in Sweden.

[Robin Wigglesworth]

Yes.

[Felix Hammond]

And Norway.

[Robin Wigglesworth]

Yeah. I mean I'd argue that 1987, the Black Monday crash, is probably the first modern market crash in that it happened partially because of computers. And it was certainly accelerated by some of these very sort of nascent embryonic computer trading programs. It was global and it was very quick. And then of course economically it proved to be fairly shallow in the us In Scandinavia it was worse. In Europe, it was in the middle, but it was a global one that people notice around the world. And suddenly we didn't have this quick communication to then as we do today. But it was something that traveled around the world in a day. It was seen everywhere.

[Felix Hammond]

So Anna. Yeah. Give us a quick primer on portfolio insurance and what the hell happened?

[Anna Shymansky]

Yeah, I mean again, this was essentially a technicals driven crisis. So there are a few different theories about what actually caused it. I mean, there was some fear that rates were going to increase, that the government was going to be cracking down on mergers. The actual instigating event I think actually had to do with this Illinois bank that people were worried they weren't going to be able to settle index trades. But what really caused this crash to become a significant crash was this thing called portfolio insurance was essentially a product that a lot of managers had that in theory was supposed to protect them. So if prices started declining, you would start selling index future. And then in theory that was supposed to cap your downside. The problem with this is that when one person's doing it, that's okay. When the entire market or a large portion of the market is doing, that's just going to exacerbate the crisis. And it's also important to remember that it wasn't just that the volume of these, of these trades, it was that they were also going through a different system. They were going through this new kind of like computer based system that was never designed for this volume volume and it just essentially collapsed. It was something like 30% of trades failed.

[Felix Hammond]

So explain how what seems like a sort of market structure systems failure in New York and Chicago has global repercussions. There was some level of portfolio insurance in London, but I mean was there portfolio insurance going on in every single stock market in the world like, or what caused this to be global? What caused banks to fail in Finland?

[Robin Wigglesworth]

Well, in Scandinavia it was just, it was the uppy era. People had borrowed too much money. They invest in lots of money in the stock market. Everyone was piling in. Day trading was exploding across Scandinavia. Lesser extent Europe, but to certain extent in the uk. And the thing is, the US is the world's biggest economy. It's the world's biggest market. And when you wake up one day and suddenly see the Dow has dropped 20 in a day, that's worse than Black Tuesday. And the great, that sort of triggered the Great Depression, that for psychological and technical reasons triggers one of these Minsky moments that Hyman Minsky thought of, the one that break that suddenly shatters those animal spirits. And the economic fundamentals were probably more solid in the US than they were elsewhere. And in Scandinavia, all the banks had just massively overexpected, extended themselves and went bust.

[Felix Hammond]

So we need to ask, because the other thing that's going on right now is we're not just celebrating or commiserating or doing whatever it is one does 30 years after a stock market crash. But we are also reading headlines about yet again, new all time highs in the US stock market. And for, I would say most of the last, what, 30 or 40% of the run up in US stocks has been accompanied by great worries about, oh my God, are we in a new bubble? We could crash any minute. And the more those worries seem to appear, the higher the stock market seems to go. What I don't see is the kind of frothiness, the day trading, the leverage and all those other things which tend to accompany the prelude to a crash. So the question which we need to ask because it's, it's the Black Monday segment is is this a risk today?

[Robin Wigglesworth]

Yes and no. I don't think we'll ever have something like Black Monday again. I mean, that was first of all, we have circuit breakers that kick in that prevent you. The stock market dropped 20%. You know, as Anna said, you know, the systems were just overwhelmed in 1987. They just weren't equipped for this. And people were hitting refresh buttons on their quatron machines and only finding out every 15 minutes what the market was doing. And that just when you don't even know, you can't even see what's happening, you just, you panic completely. You know, it's important to remember even during the great financial crisis, we never had anything that bad in one day. But there are some worrying similarities. Some of the things like at the time, people worried about Iran, there were tensions between the US and Iran, there's missiles flying around, there's, you know, bellicose rhetoric in today. We have North Korea, we had a great run up in asset prices in stock markets. And we have the same. Then we Also had a weaker dollar because of the plaza call. The dollar been weakening. There were some tensions because of that. And you could argue we have the same thing today. The one thing I think is fascinating is in the portfolio insurance issue, there's something called volatility control. And this is one of my favorite bogeymen, and maybe I'm panicking too much about this, but essentially has a lot of the same similarities to portfolio insurance. It's what people call. It's pro cyclical. It sells when the markets are going down and they buy. Markets are going up.

[Felix Hammond]

Anna, are you. Have you nerded out on volume control?

[Anna Shymansky]

Well, yeah, and you have like, managed futures. Like CTA is essentially these.

[Felix Hammond]

What's a cta?

[Anna Shymansky]

It's just a. It's just essentially a strategy where you're. I mean, you're selling. You're either buying or selling, like entire indices or commodities or currencies. And so essentially what you're doing is momentum trading. Trading where you're either selling into a down market or you're buying into an up market.

[Robin Wigglesworth]

Yeah. And as Anna said, these things make perfect sense. Targeting a specific level of volatility, say if you want 10% volatility in the stock market, and if it goes above that, you sell, and if it goes below that, you buy. That works for an individual fund. But the worry is when everybody does it, potentially it can overwhelm if you have the right confluence of bad factors at the same time.

[Anna Shymansky]

And it's important because also there have been a lot of inflows into the. These types of funds because they've been some of the few funds that have actually been performing well, not surprisingly, because we've been in an up market.

[Robin Wigglesworth]

Yeah.

[Felix Salmon]

So have any. Has this product ever been tested in like a serious correction? Like, was it around 2015, when we haven't.

[Felix Hammond]

We haven't had as well? Yeah.

[Felix Salmon]

That wasn't necessarily like a correction of any kind.

[Robin Wigglesworth]

We had it. We had a flash of it in August 2015. So August 24th was one of the. And it's, you know, it's. Again, it's one thing.

[Felix Salmon]

Things.

[Robin Wigglesworth]

We'll never know exactly what happened, but the market, to put it technically crapped out. And it's quite possible that some volatility targeting strategies exacerbated what was some quite weird stuff that happened in the market. And there was lots of stuff with ETFs that we probably can't go into here, but we suddenly saw a flash of what it might look like at some point.

[Felix Hammond]

And that's what we've seen a few times now with various different flash crashes over the past decade is that they tend to happen very quickly. And if you happen to be out at lunch while the flash crash happens and you come back after lunch, you wouldn't notice anything. Everything's already bounced back at that point. So the question is, is that just breeding complacency, that if you're not gonna, if you're not like looking at the minute by minute ticket, you have nothing to worry about? Or is this a case where if things were just a tiny little bit worse, they would actually start feeding on themselves and it could be much, much, much worse.

[Anna Shymansky]

And I think it very possibly could. I mean, I think there's a difference when you're talking about like a technicals driven crash, like some like glitch in the computer system almost. And then when you're talking about legitimate concerns about fundamentals, and then if you have that, that, and then on top of that you have all of these ETFs and index funds and all the, you know, volume strategies, what could then happen? And I would argue you were saying previously how you haven't seen this kind of froth and exuberance that we normally see in a bull market, but I would argue if you look at, say, China, I do think you have this froth and exuberance and over leverage that is completely characteristic of what happens before a significant crash.

[Felix Hammond]

So the next question is, is let's say that there is a crash. And certainly every time stocks have gone to these levels, every time in history, they have dropped by a significant amount like 20, 30, 40%. Let's say that happens again, which is entirely possible. Would that be bad? I feel like there's two different ways that can happen. It can happen in the kind of 2000s way where like the stocks go up and then they go down and people who bought when they were expensive wind up losing money. But it's a kind of, it hurts the rich and it's no harm, no foul, or it can happen in a 2008 way, in which case it just really devastates the economy.

[Robin Wigglesworth]

Yeah, and that's a great question. I think it boils down to whether it's a sort of a crash led by this financial economy or the real economy. I think in 2008, the reason why the market was just obliterated for a period was because was it, it was based on real economic issues. There were real fundamental bad things going on that frankly could have ended in some economic Armageddon. And it was Bad, but it wasn't quite that bad. I think when you look at the dot com crash, it was more so the classic bull run in markets, a bubble and that collapsed, that caused a mild recession, but it wasn't too bad. I think Anna's point about technical versus fundamental rallies. I happen to think that, I don't think the stock market's going to blow up anytime soon because frankly, the economy is doing pretty good and the global economy is doing pretty good. I mean, it's nothing to write home about. But I think we should respect the fact that global economy is growing at 4 or 5% a year. And that's not too bad. That can change. But until that changes, we might have some technical glitches in markets, but it's probably not going to be Armageddon.

[Felix Hammond]

Wow, that was amazing. Yeah. Robin Wigglesworth for the win. So we're going to have a numbers round, but before we do, let's do a little sort of bit of fantasy here. Let's reverse engineer the crash. It's going to come and the question is, what's the catalyst? What's the event that causes the crash?

[Robin Wigglesworth]

Well, this is my doomsday prophecy, so take it with a pinch of salt. But I think it's, it's plausible at least. But let's say the Federal Reserve actually raises rates quicker than people expect next year maybe because let's say John Taylor becomes the next Fed chair, damn it. Yes, exactly. And he starts, yeah, Taylor rule all the way, all day and start jacking up interest rates. The market kind of freaks out and volatility goes up. And then we have these short volatility trades. People are betting on volatility saying low. They're saying, oh my God, oh my God, I need to hedge my, myself. And they do that by selling into the market and that causes the market volatility to go even higher and the market starts selling off and that starts bringing in these volatility control strategies as well. Just pours more fire onto this fuel, onto this fire. And you suddenly have a very severe market correction that there aren't enough fundamental old school stock pickers to arrest. And then people wake up in the evenings, watch TV in the evenings, wake up in the morning to headlines about The Dow dropping 200%, 200 points, 50 points, 10 points, 500 points. And that starts affecting real economic sentiment like the actual real economy. And you suddenly have an economic recession that then again causes these cycles to feed on themselves again and again.

[Felix Hammond]

So I'm slightly more sanguine than you on some level, I think that even if John Taylor does become the next Fed chair, and I don't think he will will, he doesn't have enough support on the board to be able to just unilaterally decide that he's going to start raising rates and bring the rest of the board along with him. And I also think that the American stock holding public is a lot more grown up than it used to be in the face of stock market declines. And if stocks go down, they're not going to start panicking and selling real money. That said, I do think that you could easily see a stock market crash and I suspect that if you do, it's going to be precipitated by Donald Trump. Unsurprisingly, I think my scenario would probably be that tax reform looks like it's going to fail or does fail to get through Congress. So all of those hopes about corporate profits being boosted by tax reform evaporate and then sort of simultaneously Trump announces that he's pulling out of nafta. And you put those two together and I can easily see everyone just saying, okay, this is the end. It's only going to go down from here and they start selling.

[Anna Shymansky]

So unsurprisingly, I'm going to say it'll be something in China.

[Felix Salmon]

You'Re all hitting anyway.

[Anna Shymansky]

Yeah, I mean, I would say either they're, you know, an event on the Korean Peninsula, obviously, but, but also, I mean, again, you have an issue right now in the Chinese financial system where like a large portion of the banking sector is funded with these really short term liquid liabilities and then they're using that money to make long term illiquid investments. And you have the government right now in between this, like Cilla and Charybdis of wanting to delever, wanting to kind of slow the housing market, but still needing that housing market to maintain growth. And, and if something goes off in that, that's where I really feel like if China sneezes, the rest of the world like catches Ebola at this point.

[Felix Salmon]

So my worst case scenario is a combination of all these. But so it is, it involves specifically John Taylor becoming Fed Chair. And the reason this is a concern for a lot of people is that he apparently, A, he has the support of Vice President Mike Pence, which is important. B, he apparently walked into Trump's office and managed to give a really good first impression and that's how people get appointed in this administration.

[Robin Wigglesworth]

I.

[Anna Shymansky]

So he looks like he should be a pitch.

[Felix Salmon]

No, he really does. He looks like he, he Looks like he could play the part from central casting.

[Robin Wigglesworth]

Isn't that what Trump likes?

[Felix Salmon]

He really does. And so I don't think that John Taylor could walk in and rapidly increase rates the way that some people fear that the markets have already got a little jittery about. What I do think he could do is gradually increase them faster than they would under yellen and pull some of the money out of the market and just light their be just literally just like kind of crunch or just kind of, you know, there'll be less liquidity around and then that gets to what happens if there's an international crisis in somewhere like China. One of the things that on like a lot of people talk about on background about John Taylor and sort of whisper about off the record from his time and at the Treasury Department when he dealt with international issues is that he doesn't really understand international finance. And so basically it's like it doesn't.

[Anna Shymansky]

Fit into my little model I design right here.

[Felix Salmon]

He really doesn't. They're just like if you get outside of like the academic mod, like monetary or economics models that apply to the US his brain just goes haywire. So you could end up with a Fed chair who doesn't understand how to deal with an international crisis or how you should react when all of a sudden global markets start melting and then that is, that is I think a potential how you get a real crash.

[Felix Hammond]

But we do want a proper numbers round. So what's your number, Jordan?

[Felix Salmon]

My number is. One second. I have to pull it up because there's some reading material that goes with it. My number is 23% which is how much the stock of National Beverage Corp fell before its CEO put out just like a crazy fucking press release. National Beverage Corp. Is the company that makes Lacroix or Lacroix. Lacroix. How do you pronounce it?

[Robin Wigglesworth]

Lacroix.

[Felix Salmon]

Lacroix. Yeah. Right.

[Felix Hammond]

Anyway, although apparently it's officially pronounced La Croix.

[Robin Wigglesworth]

Oh, it is.

[Felix Salmon]

Lacroix.

[Felix Hammond]

Yeah.

[Felix Salmon]

Okay, well, you drink.

[Robin Wigglesworth]

Americans can't spell French.

[Felix Salmon]

Everyone at this table drinks that seltzer. I've got like my case of pamplemouse at home, but apparently the stock has just been like collapsing and the CEO just put us like weird Trump esque. Like you kind of have to read it like there are a lot of all cap sentences and like triple exclamation points. And then finally he goes, are perpetrators stimulate our perpetrators stimulating self serving movement by stating falsehoods, creating rumors and deliberately, deliberately, deliberately manipulating fizz value. The stock is called Fizz. We think so. Exclamation point. So it's just. Anyway.

[Felix Hammond]

Wait, and this came after the decline or before the decline?

[Felix Salmon]

After the decline. He thinks that sellers are trying to.

[Felix Hammond]

Undo fees and this CEO statement effectively stopped the decline.

[Felix Salmon]

I don't know if it. Well, it's up today, so I don't know. Maybe. I mean, maybe it just sort of. Correlation doesn't mean causation here. Felix.

[Felix Hammond]

I feel like this. All CEOs should put out crazy, all cap statements. It obviously works.

[Anna Shymansky]

I mean, become elected president.

[Felix Hammond]

Yeah. So, Anna, what's your number?

[Anna Shymansky]

My number is $20,000. Apparently that's the amount of money per hour that millennial consultants are charging.

[Felix Salmon]

Wait, what?

[Anna Shymansky]

So. So this is one of these?

[Felix Hammond]

This is my new job.

[Felix Salmon]

Yeah.

[Felix Hammond]

I've decided I'm going to become the Millennial Whisperer.

[Felix Salmon]

Years ago, I put out one of those articles of Darren Thompson, Atlantic that was a classic, like stepping stone to millennial consultant. And we didn't do it. And one of my great fuck ups in life.

[Anna Shymansky]

Exactly.

[Felix Salmon]

Anyway, go.

[Anna Shymansky]

So, yeah, this was this from last week, citing these generational consultants who are working with Fortune 500 companies to teach them how to speak to the youngins and. But my favorite part of the entire article was this quote from an older Deutsche bank managing director. To sit down with someone who's on the org chart six levels below me is educational. You learn about yourself and how you differ from them. So now if you've paid somebody $20,000 an hour and you still don't know that, you probably shouldn't be quoted referring to people by where they sit on the org chart. Perhaps you've overpaid. That's mine.

[Felix Salmon]

Millennials are also just like 30 somethings. Now that's the other thing.

[Anna Shymansky]

I'm officially a millennial. An old millennial.

[Felix Salmon]

Yeah. Like I may not have been. I may have been only one during the crash of 87, but I'm an adult. That mysterious.

[Felix Hammond]

Robin, what's your number?

[Robin Wigglesworth]

Six weeks.

[Felix Hammond]

Ah.

[Robin Wigglesworth]

That's how long it takes China to build a new road. Not one day. But they do build a new Rome, the equivalent of a new Rome every six years.

[Felix Hammond]

In terms of cities.

[Robin Wigglesworth]

In cities. In office and real estate, but generally office space housing.

[Felix Hammond]

This is contemporary Rome.

[Robin Wigglesworth]

This is last year they built the equivalent of the city the size of Rome every six weeks. Which I think just goes to show they're still massively overbuilding. I mean, it's a big country, but it's very overbuilt. And they can't seem to Quit that construction boom that they used to gin up growth.

[Felix Hammond]

I'm sure those cities are much more efficient than Rome.

[Robin Wigglesworth]

That wouldn't be hard.

[Felix Hammond]

My number, I think I'm not going to do the ETF number. I'm going to do 22%, which is the amount that pedestrian deaths. Number of pedestrians killed by cars in the US has increased over the past two years. Years. It was 5987 last year. So 6000. That's up 1100 from two years previously. And that's cars basically running people over and killing them every year. And that is cell phones. That is people looking at their phones and saying, oh, shit, I'm about. Oh, too late.

[Anna Shymansky]

Yeah, I also. It is amazing to me because, like, in New York, I mean, you literally see people on every. Every mode of conveyance possible on their cell phones, like on bikes, on motorcycles. It's amazing.

[Felix Hammond]

So, yeah, I mean, the car was one of those inventions which wound up killing millions of people. And we look back and go, how on earth did we even allow that to happen? But the cell phone seems to be moving in the same direction.

[Felix Salmon]

On that note, Twitter's worth it, man.

[Felix Hammond]

But on the other hand, you get to giggle at that tweet. I think that's it. I think that's all of Slate money for this week. So thank you for listening. Thank you to Dan Schrader for producing. There's a bunch of things I need to tell you in the end before we bring this podcast to a close. Number one, you guys are amazing. We had that pledge drive. You recall the pledge drive about slate plus, and you all went along to slate.com moneyplus and you all signed up. Up, like, every single one of you. And we crushed the competition. It wasn't even close. We got, like, twice as many signups per listener as anyone else because you guys are amazing. So thank you very, very much for doing that and for subscribing to Slate plus, and we are super grateful, and you guys rock.

[Felix Salmon]

And I think it's also because I spelled it out that one time.

[Anna Shymansky]

Yes.

[Felix Hammond]

And it's also because I want the.

[Felix Salmon]

Thanks that I'm Felix.

[Felix Hammond]

And it's also because Jordan spelled plus because, like, some of you guys, people.

[Anna Shymansky]

Were punching in the plus sign. They weren't going anywhere.

[Felix Salmon]

Look, I headed that off that disaster.

[Felix Hammond]

Anyway, so there is a prize here, amazingly. It's like, first prize is a voicemail. Second prize is like two voicemails, if you want a voicemail or some kind of voice message from Anna Shymanski. Or Jordan Weissman or even Heaven for offend me, email your slate+recent to Pluslate.com and tell us what you want us to say. And I, the first person to do that will get what they want. I'm not entirely sure what you would want or why would you want it.

[Felix Salmon]

But you just want to hear Felix whisper sweet nothing into your Send in.

[Felix Hammond]

Your, make it an Anna one and tell her to speak at normal speed and then you can listen to it on like 0.25x and try and work out what she says.

[Felix Salmon]

Can't we just like make like Felix's hello into a ringtone instead of a surprise for someone?

[Felix Hammond]

We will. We. If you want a Felix Salmon saying hello ringtone, email us on plus slate.com.

[Felix Salmon]

Going off like repeatedly. Hello.

[Robin Wigglesworth]

I think you need to get Felix to sing hello. Is it me you're looking for exactly?

[Felix Salmon]

At the opera that is going on over and over?

[Felix Hammond]

Yeah, it's, it's all going down here at Slay. Anything you want, just email pluslate.com and we will do our best to help you if you do that before anyone else. Also remember the live show November 15th. It's coming up at the Bell House in Brooklyn in Tickets and info slate.com live we will do be doing all manner of foodie awesomeness. And for those of you with kids, you know how the best thing you can do if you have a kid is just plonk them in front of YouTube when they're happy for hours. But sometimes YouTube is not available and in that case, we have a podcast network for you. It's called called Pinner P I N N A and it's a whole bunch of like really cool podcasts just for kids. Ad free, guilt free. It's an app so you go to Pinner fm, listen and you get to try it out for free. You'll get to listen to Molly and the Sugar Monster. So I mean, Robin, you have kids, right?

[Robin Wigglesworth]

Yeah.

[Felix Hammond]

Are you gonna make them listen to Molly and the Sugar Monster? Apparently the Sugar Monster monster has this mission in life which is to never let kids eat healthy foods. And so Molly is going to try and stop the Sugar Monster from doing his job.

[Robin Wigglesworth]

Sounds very worthy and educational. But I have to rip the kids off YouTube first.

[Felix Hammond]

Rip the kids off YouTube, put them onto Pinner Audio is good for kids because they're not looking at screens, right? And as we have just heard, screens kill 5,947 people every year just in terms of traffic death. So if you don't want your kids to grow up running people over, get them listening to Pinner podcasts, need something.

[Felix Salmon]

For them to listen to in the car, which this is obviously for Felix.

[Felix Hammond]

If you have a car. And the good thing is you're going to get so engrossed in these Pinner podcasts that you're not going to get distracted by your phone. So, yes, all of that, thank you. Hopefully see you on November 15th in person. But failing that, we will talk to you next week on Slate Money.