A (3:42)

I am getting whiplash here because there's a lot I don't understand about this. The first thing I don't understand about this is that the most popular politician in Brazil by some large margin is Lula. Is our friendly, cuddly, avuncular, imprisoned who would have won the election if he was allowed to run. But you know how it's weird, they don't really let you run for president if you're in jail. So he wasn't allowed to run. But I. So the first question which I don't understand is if Lula remains so popular and if the working classes of Brazil have really risen up as a political force and have shown their strength, how on earth did this ultra right winger manage to win the election? Wouldn't Lula's hand picked avatar, who was running against Bolsonaro, have done just as well?

C (4:42)

No. I mean, I think there are a couple things to think about here. One, that a lot of people actually didn't vote. So I think it's important to remember that even though Bolsonaro is on the far, far right, one of the things that people think about him is that he's not corrupt. And what you've seen going on in Brazil because of the Lava Giotto corruption scandal, every political party has been involved in it, but the party that has been the most involved in it has been the pt, which was Lula's party. So Lula was able to kind of rise above that because everybody loves Lula, but his party was still so tattooed with this corrupt label that it's not overly surprising that you would have people that would swing towards a candidate who was outside of the norm of the political parties.

B (5:24)

The other thing that's really important, I think with Brazil is just how violent of a country it is. It's something like 65,000 murders per year for the past two years. People are legitimately afraid of violence. And as popular Lula was, and his party maybe was, they didn't do very much to solve the violence problem. And Bolsonaro's whole thing is raise fear about the violence, which isn't hard because people are legitimately already afraid, and say, he's gonna solve it. I mean, his whole. He has this hand symbol. He does that's like guns, you know, pew, Pew. Kind of like Sarah Palin, but in a serious machismo way. And I think that's very appealing. The Times had a great video on this issue, and they showed this one woman who's kind of like a Bolsonaro kind of supporter politician, who she and these school kids were waiting to get inside some Mother's Day event, and a mugger comes up. This is all caught on camera. The mugger comes up, and this woman shoots him, and then he falls down, and she keeps shooting him until he dies. And then she uses that video to run for office. So that's the electorate in Brazil.

C (6:32)

To think about what has happened in Brazil in the last five years. I mean, you have had this dramatic increase in violence. You've had a very serious recession that pushed a lot of people back into poverty who had moved into the middle class. You have this corruption scandal that has been one of the biggest in history. So people's faith in institutions, faith in parties, fear, all of this has just created, I think, a kind of unfortunate perfect storm to get a candidate like this who says, I'm not corrupt and I'm going to establish order.

A (7:00)

All right, so I have two more questions about this. The first is that Bolsonaro is a gentleman of a certain age who served as a captain in the military under the military junta in the 80s, and who is explicitly nostalgic about those days and says that he wants to go back to them. Brazil as a country is demographically very young. Most of the electorate can't even remember the junta. But the. So the first question I have is, like, is it. Is his nostalgia for military dictatorships shared by the country as a whole? And then the second question is, like, was Brazil actually safer and in some weird way, more prosperous place in those years?

C (7:53)

No, not for the majority of the population. If you're. Yes, there is definitely nostalgia, I think, for a previous time on the same side that actually in the PT supporters, there's nostalgia for the best years of Lula. So, yes, right now, when things are going really poorly, it's not surprising you're going to have nostalgia on both sides. But one of the things I do think we should get into at some point is the market reaction to this election and, oh, hi, Bufespa's.

A (8:19)

At an all time high, the Brazilian stock market is surging because apparently there's some economy minister who's going to something.

B (8:25)

Something structural reform, something University of Chicago, blah, blah, blah.

C (8:28)

Yeah, okay, but see, I actually think some of this is important because I think it goes to the heart of what is causing a lot of Brazil's problems, which is that, okay, the reason that the market has reacted so positively is because Paulo Geddes, right, from University of Chicago has come in and he's saying he's going to be this kind of market liberalizer and all of a sudden the markets believe it. But then I think what people aren't looking at is the actual history of Bolsonaro and what he has actually done while in politics. And what he's done has been he voted for lula, he supports states intervention, he recently came out saying that they should have like targeted exchange rate. And this is all important because it goes to the one main thing that Bolsonaro has done while he's been in office for almost 30 years is to support the benefits of his cronies. And this is one of the.

A (9:12)

Wait, you mean he is a corrupt.

B (9:14)

Yes, he is.

C (9:15)

I mean, that's why I think it's kind of funny that people say, well, he's not corrupt because he wasn't involved in Lava Giatto. And granted almost everyone was involved in Lava Chateau, but his entire history.

B (9:22)

Can we say what Lava.

C (9:23)

Oh, sorry, it's this. It's like it stands for the car wash. Car wash. It's a kickback scandal.

A (9:27)

Yeah, it was basically the big Brazilian oil company wound up kicking back literally billions of dollars to Brazilian politicians over the years.

C (9:36)

So part of the problem that Brazil's economy has suffered so much is because they have unsustainable pension costs and they have unsustainable government workers salaries. It takes up a very large portion of their revenues. This is directly tied to the political establishment which continues to get elected by promising people jobs and then once elected, voting to have incredibly generous benefits to those very people and salaries to those very people. And the problem with that is that at the local level, it can actually incentivize certain politicians to keep their areas actually pretty poor. So people are very dependent on them. And then overall it creates the system where, you know, you have, you know, debt to GDP that's around 84%. That's only going to be if things don't change, growing higher and you aren't making the types of reforms that are truly necessary. And while the PT under Lula was able to actually, to be fair, legitimately improve people's lives quite a bit. It wasn't done in a sustainable way.

B (10:37)

And so they didn't raise taxes on the wealthier people and they overtax the lower income. It's also just the one expert I consult.

C (10:45)

There were a lot of pro cyclical policies and it was during a period of essentially the biggest commodity boom in modern history. And so, and there was a lot of spending done and they didn't do anything to crack down on pensions. And what everybody said, like, these are instabilities, you're going to make yourself very vulnerable. If there's a pullback in commodity prices, if the value of the real declines, you're going to be very vulnerable, which is exactly what happened. And it happened at a very poor time in terms of the corruption scandal as well, which caused this recession to be really, really steep.

A (11:13)

So in terms of the recession, maybe the market is a little bit overly optimistic in terms of what Bolsonaro is going to be able to do in terms of just the future of democracy in this country of hundreds of millions of people. The one thing I'm going to go out on a limb a little bit and say is that I have some significant amount of faith in the Brazilian military that they're not going to allow Bolsonaro to turn. To turn back democracy and to turn it back into some kind of military dictatorship. I think that there will be extreme abuses, human rights abuses by the police. And I think that the.

C (11:59)

There already are.

B (12:00)

Before Bolsonaro, part of the murder rate is police killing people.

A (12:03)

It's going to let, you know, the police completely off the chain, give them complete impunity, and that's going to be dreadful. I'm worried about the police, I am not worried about the military. And I think that. And I think that they genuinely want Brazil to remain a democracy. And so long as the military genuinely wants Brazil to remain a democracy, Brazil will remain a democracy.

B (12:24)

Yeah. The one person I spoke to, who is Travis Waldron, who covers this for us at HuffPost, was saying people describe Brazil as a young democracy, but it's not quite so young like it's made it through the first 20 years. So the chances that it stays democratic are actually not so bad. They're pretty high. So. And their institutions aren't as fragile as maybe some other countries might be. So the chances that it reverts to dictatorship, I don't want to say don't exist, but they're not as scary as some people are making it Sound, I.

C (12:53)

Think you're right, and I think you've actually already seen Bolsonaro pull back a little bit in some of his rhetoric. And also a lot of the things he said that he wants to do, he really can't. You know, he can't both because, like, some of the things with, like, the rainforest, there are actual, like, things in the constitution that protect things. So it's actually not that easy to do. You also have an incredible, incredibly still dysfunctional government that's going to make it hard for him to do anything. And Felix, I think you're right. I don't think that most of the military wants to go back to that type of government. So I think this is going to be very bad for Brazil because I think what is actually going to happen is not much of anything. And they need real reforms for people's lives to improve. They need real reform. So I think it's going to be bad. But I don't think we're going to be going into, like, Hugo Chavez territory.

D (13:35)

To be a homer here. Since I also produce if Then Slate's tech podcast, we interviewed a professor from Sao Paulo to specifically talk about the misinformation, which I think is worth noting that WhatsApp actually played a big part in the election of Bolsonaro.

A (13:54)

Which episode was that? The most recent one?

D (13:55)

That was the most recent episode, yes.

B (13:57)

Oh, interesting.

A (13:58)

At 10 minutes past 11, for reasons I don't understand what the significance of 10 minutes past 11 was, but at 10 minutes past 11 local time, in offices around the world, Google employees this week walked out of their offices in protest at their own senior management.

B (14:17)

Yes, it was amazing, which is kind of amazing.

A (14:19)

I mean, this. This doesn't happen in, in any company, really, let alone these happy Silicon Valley companies where everyone's in it together and we're all part of a team and we all have stock options.

B (14:32)

Yes. So this happened. If any of you listened. Last week, my number was the Google. It was $90 million, the amount of money Google paid to Andy Rubin after he'd been ousted because of sexual misconduct. And the piece was about three other executives were named in the piece who also kind of got packages and were secretly kind of squirreled away. And it sparked real outrage among Google employees. So, yeah, they walked out and they had a list of demands that they put out there regarding sexual harassment and including ending forced arbitration, more reporting on harassment. So it's known how male employees, how these situations actually get handled. Clearer policies, ending pay inequality. I think it's really interesting that this company.

A (15:21)

And the one which really jumps out at me is they want an employee representative on the board, which is our thing that we've been talking about a lot on slate money and would be awesome. And the fascinating thing is that senior management really doesn't know how to react to this. On one level, they don't object and they. They didn't push back at all against the New York Times reporting, except for to say it hasn't. You know, this kind of stuff hasn't happened in the past two years since Sundar's been CEO.

B (15:57)

They said they, they had fired 48 other workers because of sexual harassment without packaging them out in the same way.

A (16:05)

But ultimately, you know, Sundar is the CEO of Google, which is a subsidiary of Alphabet, and Alphabet is still run by Larry and Sergey, who both had extramarital affairs within the company. And at some point, we are going to talk to Adam Fisher, who has that amazing oral history of Silicon Valley. And if you read that book, like, Google was a super sexist place for many years, and it's hard to change culture. And it's clear that this culture did.

B (16:35)

Exist there, and it's clear it still exists. I mean, there were some, I think Yahoo had a piece yesterday there, some woman saying they know at least 30 other people who've been, you know, sexually harassed who haven't said anything or have said things, and nothing really changed for them. So there's clearly some resentment festering in Google. We've seen other things happen at that company, too, where employees spoke out. There was James Damore. Remember him?

A (17:00)

Yeah. He felt. He felt empowered somehow to start, like, raging about, like, how there was this horrible discrimination against conservative men or something, but.

B (17:12)

And there was a big backlash to him, too. But Anna was.

C (17:14)

I was just gonna say what I think I'll be very curious to see with this is what happens, because we. There's been a lot of talk, and for very good reason, about a lot of workers not having as much power as they've had in the past. But tech workers are unique in a. They're very highly skilled and they have very specific skills that are needed. They also tend to be a little bit wealthier, so they have more access to lawyers, they know how to use publicity, and they tend to work for companies that are. Want to appear to be good companies, especially because they have fears of regulation. So I'm very curious to see if this type of activity will actually cause a change, if forced arbitration will go away. And then if you could see this at other types of companies, like this. And then if that happens, would that just stick at tech or could that trickle down?

B (17:57)

Yeah, that's what's so interesting to me. Like, if you're looking at the labor pool of the whole country, the best place to work would seem to be Google. These are the highest paid workers in the country. They get the best benefits. Like every meal paid for, their dry cleaning done. Like, literally, they get so much. These are the most spoiled workers in the country and they're walking out and they're complaining about their company. I just, I think that's kind of interesting. And it, I feel like what we're seeing is just there, there are just massive inequality in, in the labor market right now, and workers like Google feel totally empowered to take a stand against these policies while everyone else is kind of like getting by by.

A (18:38)

It's, you know, it's the classic Palo Alto thing though, right? The, the story of all complaints and political tensions in Mountain View and Cupertino and Palo Alto and all of these Silicon Valley towns is always the millionaires against the billionaires. And this is what you're seeing here. If you have the millionaire employees walking out on the billionaire own, you know, owners slash senior management, which is, you know, the same kind of thing that you see, I don't know, when you have walkouts in the NBA or something like that.

B (19:07)

Yeah, I mean, the, some of the people that walked out were contractors and that's important to mention. And there are like this, there's this shadow workforce in Silicon Valley. It doesn't get any attention. So the people that hand out the free food in the cafeterias and like sweep up after, you know, the fancy tech workers and all this, and I don't know if they were out there in full force yesterday.

A (19:28)

I think they probably were because I think it was, as I say, it was pretty clear from the messaging from within Google that no one would look askance at people walking out. That, you know, there was no suggestion that the company would retaliate against anyone who did this or anything like that. So everyone was like, if you feel that this is a good thing, you should join the walkout. Even then it was, I think only 60% of offices actually did it. So, you know, I think it, it was a huge number of people and it was an important walkout. But I, it's not a universally thought thing among the sort of middle to lower ranks, as far as I can tell.

B (20:13)

Another thing I think is interesting is that companies like Google, and we'll talk, maybe talk about Netflix later, have all these like really squishy management philosophies and stances and policies where they want you to feel really at home at work and they want to bring your full self at work and then the dress how you want and la la, la, la. But then when you look at the actual like hardcore HR type policies, they're anti worker, like complaining about ending forced arbitration. That's, that's so much more important, I think, than like being able to wear jeans to work.

A (20:44)

Well, let's talk a bit about Netflix, because there was this amazing Wall Street Journal article about the Netflix culture. And for those of us who've been around on the Internet for a while, one of the first sort of viral corporate culture things back in the sort of the 90s sometime was the net famous Netflix unlimited vacation policy. And everyone was like, oh, wow, Netflix is such a wonderful place to work. Turns out, not so much that they actually fire 8% of their workforce every year. I did the math for my newsletter. What that means is if you're in a team of four people, there's a 50% chance that one of you will be fired within two years.

C (21:29)

Whoa.

B (21:29)

Yeah, we're all just staring at each other.

C (21:33)

And I think the Netflix response is this idea that, well, we have extremely high standards and workplaces. We're going to make everyone, you know, work as hard as they possibly can because they're so nervous about getting fired. But I think like both like replicated studies as well as just common sense tells you that if you have workers who are constantly nervous about getting fired, that is going to affect their performance negatively. They're not going to take risks, they're not going to work well with their co workers because they're probably just going to be trying to position themselves and they're just going to be incredibly stressed all the time.

A (22:04)

Yeah. And there seems to be this culture of managers being rewarded for firing people and fired if they don't.

B (22:14)

There was literally an example in this Wall Street Journal story, which is called at Netflix Getting Fired as part of the Job, which I think was a good title. But the anecdote is, yeah, this woman gets fired and she says, why are you firing me? And they're like, well, you were very slow to fire one of your workers, like what? And then Netflix does deny that that's true. But the Journal story is really good. They interviewed like 70 current and former employees and there are plenty of examples like that.

A (22:41)

And it really underscores how much of a lie the unlimited vacation policy was. And I don't even think that policy exists anymore. But the fact that.

B (22:50)

Oh, it was the unlimited maternity leave policy.

A (22:52)

Well, there was a one year. Well, this is really interesting. So the unlimited vacation policy, I'm not sure if it exists, but the idea was, hey, if you want to take as much as you want, except for if you're constantly terrified of being fired, what that means is no one ever takes vacation. When they implemented a one year maternity and paternity leave, people honestly thought that meant they could take a year off. And so they started doing that. And then. So then they had to sort of backpedal and say, oh, wait, you know how we have this up to one year thing? We really don't expect you to take that much.

B (23:25)

They're literally telling them now, take about four to six months, I think it said, which is a generous policy, but it's not 12 months. 12 months. It's not 12 months at all. And I think there's something else with this Netflix, their whole idea, their culture is supposed to be open and free and people should feel they could be candid with each other. Radical Candor.

A (23:44)

Oh, it's like Bridgewater.

B (23:46)

Yeah, but like. And they mentioned this story yet, like, Bridgewater. And I'm thinking to myself, like, is that ever good? Is Radical Candor really good? I think there could be. It can be mean.

C (23:55)

Look, yeah, I mean, I. I'm not saying that I don't think there can be times where being a little bit more honest. Sure, work can be useful because sometimes people are so loath to be honest in a way that can actually be harmful. It can hurt people's performance because they don't know they're doing poorly. So, yes, there. There are definitely ways that. That can work too, but only to a certain extent, because the reality is also, it doesn't go both ways. Like, you may have Ray Dalio out there saying, well, someone can give me fewer dots, and then that shows. But look, who cares? You look. You run the company. And I think ultimately, when you're at a company like Netflix, this idea that people can be honest is silly. If anything, it's going to, like, force people not to be honest.

A (24:32)

And there are all of these, like, weird catchphrases and things which you need to sort of either believe in or lie about believing in, otherwise you get fired. Whenever I think about Radical Candor, I think about what it would actually be like to live in, like, an Armando Iannucci sitcom, you know, like Veep or something like that, where everyone is, like, super smart and funny and, like, saying what they think to each other, and it works great in sort of sitcom land. But you couldn't actually do that.

B (25:02)

No. You have to be nice. I feel like I've learned this because I started out my career as an editor, and now I'm a reporter and a writer. And, like, as an editor, I think I could have been nicer to people, and it would have been great, because when you're constantly writing stories and submitting them for someone else to criticize.

A (25:18)

But writers are just so fun, fragile.

C (25:20)

I don't know. It's.

B (25:21)

It's nice for the criticism to be couched in a positive way. Yeah, I think it really, really helps. And I think this Netflix culture just seems so mean and stressful.

C (25:31)

Agreed. Although I realize this is slightly off topic, but one thing that is, like, often true is that a lot of male managers don't like criticizing their female workers. This has been something that. I mean, it's somewhat. When I say true, it's, like, somewhat anecdotally true. Is that because a. Women are more apt to cry. We are. I cry. I've cried all the time. And so. Or at least we're reportedly more apt to cry. And so a lot of men will not give women proper feedback, and it hurts their careers. Like, this is something that, I mean, I realize this is somewhat anecdotal, but I've had many, many women I know who've said they have that. Then all of a sudden they'll be like, no one ever told them because the managers just did in a way that they'd be much more candid with a man.

A (26:06)

Well, I don't know. I'm thinking back to my bosses over the years, and the meanest bosses have been the rudest to me, have all been women, so. Right.

C (26:14)

But that's different. You're a man, so you can. Whereas we will just start crying.

A (26:18)

That's true.

C (26:20)

Leverage loans.

A (26:22)

Anna Shymanski. What's a leveraged loan?

C (26:23)

A leveraged loan is a loan to a company that is not investment grade. So leveraged loans, does that make sense?

A (26:32)

So, okay, the first thing you need to know about leveraged loans is, basically, they're junk bonds.

C (26:39)

They're not junk bonds.

A (26:40)

Because. Because they're loans. They're not bonds. But the point about leveraged loans is that the name makes no sense, because leverage just means loan, and loan just means leverage. And it's only a tautology.

C (26:52)

But there's a lot of companies that have a lot of leverage, and that's why they have a lower credit rating often, because, I mean, like you have that.

A (26:57)

So they're in any case, it's a piece of.

B (27:00)

So they're loans to companies that are already kind of in debt a lot.

C (27:03)

Exactly, exactly.

B (27:04)

Got it.

C (27:05)

So. And recently Janet Yellen was in the news. She had an interview with the Financial Times where she was saying that these pose a real risk. Risk. So to explain why these pose a real risk is actually to a bit explain how they are different from high yield debt. They are definitely in the same universe as high yield debt.

A (27:21)

But so wait, high yield debt really is junk bonds?

C (27:24)

Yes, exactly. Yes.

A (27:25)

All right, so there are junk bonds, which is what you might call junk rated bonds, and then there's leveraged loans, which is junk rated loans. And you're saying that there's a difference between the loans and the bonds. And I'm a financial geek and this is actually one of the questions that I would ask people coming in for an interview at Reuters, like, what's the difference between the loan and the bond? And the range of answers we got was kind of hilarious, but one of the simple awesome answers which would give you high marks if you said it was loans are complicated things which are full of covenants and bonds of fungible things which have basically no restrictions on the company at all. And now Anna, explain why. Explain why that.

C (28:16)

So no one just said, well, a bond is a security and a loan is not.

A (28:20)

Well, that's another thing you could give that answer to.

C (28:24)

Well, okay, but one of the biggest differences between a leveraged loan and just a loan and a bond is that bonds are going to have fixed coupons. So the rate of interest you're being paid is fixed. Okay, so if interest rates go up, the value of your bond is going to decline. Now, leveraged loans are different than that.

A (28:41)

Oh, you mean. So bonds are normally fixed rates and loans are normally floating rates. Yes.

C (28:45)

Or they have a fixed and floating component. So in leveraged loans, the floating component, it floats with Libor, usually 3 month Libor. So as interest rates increase, the amount you get paid increases, the interest that they have to pay you increases. So in a, when people are in a period where people are thinking rates may be increasing, these can provide you some protection. So even though loans in general don't offer the same yield as bonds, what loans do offer is more security in theory.

A (29:17)

So. Well, I mean, I don't entirely understand this because. But don't both investors and issuers have the ability to swap fixed and floating back and forth more or less to their heart's content?

C (29:28)

Why does it know if I buy a bond, that bond has a coupon on it that you're not going to change. I mean, you can use derivatives to alter like what your actual position is, but the, the bond itself, that's a fixed rate instrument, whereas these loans are floating rate or they have a floating rate component. And that in this, in the environment, like up until very recently that we've seen has been very favorable to that type of instrument because people want that protection. And I think it's also important. And why actually I think they're riskier than people think is because people think that when they're going into leverage loans, they're getting yields that is lower but somewhat comparable to what you would want in like a more high yield instrument. But you're getting the protection of being in a loan because loans are higher. This is senior secured debt. This is higher in the capital structure. So if there's a default.

A (30:15)

All right, let me just also jump in here. We're talking a little bit more financial jargon, which doesn't always mean what you think it means. Senior secured. That doesn't mean it's secured.

B (30:25)

It means if you go if company.

A (30:26)

It doesn't even really mean that it's not really collateral.

C (30:29)

Yes, it is. There are assets that are behind it that you can sell.

A (30:33)

So the bit is no more secured than the bond is.

C (30:35)

That's not true.

B (30:37)

She just said it was more secure.

C (30:38)

Yeah, a lot of.

A (30:39)

Not asset backed.

C (30:41)

It's. No, no, but it's. There is their collateral. There is collateral that is you could sell in order to pay back people who've lended who loaned you money through a loan as opposed to a bond. Now you certainly have some secured bonds, but most bonds are not. So yeah, this is actually a significant difference. This is a lot of reasons why people are going into leverage loans because they think they're safer instruments. Now what I think what. Part of the reason I think that these are actually riskier than people are realizing is because so many of these leveraged loans have been issued at a lot of really dodgy companies. The recovery rates that you can expect to get on these are going to be a lot lower than people would have gotten previous cycles just because there are so many more of them.

A (31:20)

And so wait, again, just more financial jargon here. When you say recovery rate, what you mean is if the company stops paying the debt, even if it's collateralized, even if you sell the collateral, the amount you wind up getting back is going to be much less than face value.

C (31:37)

Much less. I mean, it used to like recovery rate on like a first lien. I think it was something like in the 70s, since now this would be in the 60s. And if you're going to a second lien loan, then you're talking about like a recovery rate and like 14 cents. So these are, these are definitely risky instruments. And the problem is when people invest in things that they think are safer, they tend to do so in a way that is actually riskier because they don't think it's as risky of investing.

B (32:01)

Is this like financial crisis level? Kind of.

A (32:04)

Okay, so there's the good news and the bad news. The bad news is there's a lot of these things. We just hit a trillion dollars in leveraged loans and there's never ever in the history of the world been like a trillion dollars in leveraged loans. In America we're hitting all time highs, issuance is very high. So there's a lot of these risky instruments outstanding. The good news is to Anna's point, are they being bought by people who think they're safer than they actually are? Are they being considered risk free on some level? The answer is they're mostly being bought by these things called close. And if the close wind up losing money, like does it really make, is it going to cause that much of a problem? I don't think so.

C (32:48)

Yes, I actually think it could. Now I'm not saying that this is going to be like the financial crisis with mortgage back because the mortgage market is just so much bigger. So it's a very different. I'm not saying that. But part of the reason people are concerned about this is because what it can do to credit markets. So you are correct that a lot of these loans are brought up in securitized and closing. You have some others who buy them directly, but you also have retail investors who invest through ETFs and mutual funds that are based on these loans. But part of the fear is that what could happen is that going back to the idea of the floating coupon, I swear there's a reason is because as an investor it might be great when you think, oh, as interest rates increase, I'm now getting more money. The problem is that company, now their debt service is increasing, their credit worthiness is going lower and lower. So you really have the chance that a lot of these companies could default. And then what could happen is if you start to see these defaults in mutual funds you're probably going to get that are based on like these loans, you're going to get a lot of redemptions. Which is going to push the price down. Now as you said, there actually isn't a huge universe of investors in these type of instruments, which it's not as broad. When you have a type of market that's not as liquid, not as broad, if you start to see significant price declines, then that can really exacerbate. It can make those price declines a lot more like severe. The reason that can be a problem is because that can then cause a panic or companies that aren't investment grade just cannot access credit. This is what happens in panics. It's because something generates a larger, like, right, so credit that then affects the larger market.

A (34:13)

So I, so I want to jump in here and just say I'm 100% with you on exact, on everything that you're saying. And what you're saying is like basically the worst case scenario here is that the credit window closes for junk rated companies. And my reaction to that is totally 100%. That could totally happen. But this happens more or less every single economic cycle. When the economy starts looking, slowing down or going into recession, it becomes really hard for junk rated companies to borrow money. You don't actually even need a collapse of the leveraged loan market for that to happen. It can happen anyway.

C (34:53)

It is of course true that in a downturn, you know, access to credit becomes, becomes harder. That's true. But the reason that people are worried about these is because what turns a normal downturn into a crisis or a severe, you know, recession is when you have this type of kind of imbalance in the market that makes a normal downturn much worse. Because that's the concern is that this kind of things can spread. Because all of a sudden if you have a lot of these companies that just can't access credit, that creates more defaults than the banks that are holding these, that puts more pressure on them, then they have a harder time lending to other companies and then that creates layoffs. I mean like there's, you have normal downturns and yes, you're totally right. But the, but when you have severe vulnerabilities, that is what turns a normal downturn into a crisis.

A (35:34)

Okay, and this story I have heard three times now, I would say in my sort of like tenure as a financial journalist, the most recent time being just before the financial crisis, everyone was running around like headless chickens, worried about the junk bond market and the leveraged loan market and what was going to happen when defaults spiked and people worried about the floating rate debt and all of these parade of horribles that Anna is talking about were paraded out then. And in fact, what happened was that far from going up, interest rates went down, debt service went down, and the number of defaults was way, way lower than anyone had anticipated. And the question is, has that made people complacent this time round? They're like, well, we all thought the sky was falling 10 years ago, and in fact the sky didn't fall. And so these things are safer than maybe you might think. Or does that just mean that maybe these kind of fears about the leveraged loan market can often turn out to be overblown?

C (36:46)

It's entirely possible with any fear. It's entirely possible that it can be overblown 100%. But I think there are a few different differences here. One, the leverage loan market was a lot smaller.

A (36:55)

If you're talking a bit smaller. It was about. It was. It was about like 25% smaller.

C (36:59)

So also, you weren't coming after a period of historically low interest rates. And I think that this has changed. Like the people's expectations of rates has just changed so much because of this long period of low interest rates. And I do think it has made some people complacent because we just haven't seen a kind of more normal rate environment in so long. So I do think there is a little bit more of a danger if, you know, if you have something happen, then all of a sudden you have a bigger rate spike than anticipated. Like, nobody's ready to deal with that in a way that I don't think was the case before.

A (37:33)

Let's have a numbers round. Emily, did you bring a number?

B (37:37)

I did, I did. We're supposed to bring one every week, so I'm on it. One.

A (37:41)

Well done.

B (37:41)

Thank you. Sometimes I forget $1.05 billion. That is how much paw Patrol, Paw Patrol merchandise sells. Sold in one year last year. Paw Patrol is a TV show. And there's this great feature story in Bloomberg by Jerry Smith, an ex huffposter, who writes this delightful story about how much money Paw Patrol makes. This is a lot of money for a television show and second only to Mickey.

A (38:09)

Is it like Star Wars? Are they making more on the merch than they are on the TV show?

B (38:12)

Yes, second only to Mickey and talks about Paw Patrol's creator, who also did another kids show that I forgot. Oh, Bob. He did Bob the Builder of Bob the Builder fame, of Bob Builder fame, of building fame. And just how unusual it is in this climate for a TV show for kids or really for anyone to generate this much money and Part of it is because Paw Patrol appeals to girls and boys and a little wider age demographic, like 2 to 7, as opposed to like 2 to 4. Whatever. But in this time, when there's Netflix and Amazon and YouTube is really popular.

A (38:51)

And YouTube, but you can get. It's hard to get masks on.

B (38:55)

You can get Paw Patrol, right?

A (38:57)

I mean, like, if I. If I type paw patrol into YouTube, I can sate my 5 year old first.

B (39:02)

Yes, exactly. But it is increasingly difficult to get, like, a mass audience of kids to, like, one thing now, which I know because I have kids and they just pull up Netflix and there's literally like a hundred cartoons that you could choose from.

A (39:14)

And do they watch a broad range or do they just wind up watching Paw Patrol?

B (39:19)

My kids don't actually watch Paw Patrol. I guess I somehow skated by on that one.

A (39:26)

My number is $43.7 million, which is a throwback to our JOLO1MDB episode, which was great. And it featured this chap called Tim Leissner, who was this Goldman Sachs banker who has now been indicted, and there is a criminal complaint against him, and he has pled guilty, and he is forfeiting $43.7 million of the money he made at Goldman Sachs, which gives you an idea of how much money he was making at Goldman Sachs. This is also, by the way, the guy who's currently married to Kimora Lee Simmons.

B (40:07)

They're still married then?

A (40:08)

They're still married.

C (40:10)

Impressive. Okay, so My number is $1,500. That is the price of a gallon of paint that was used on LSU's helmets. What?

A (40:21)

So wait, LSU? Is this a football team?

C (40:23)

This is a football team. So I somewhat say this in honor of this weekend's big LSU Bama game, who, honestly, I don't care who wins, as long as it can help my Wolverines. But I thought this was kind of fascinating. So LSU for. They had a night game at the beginning of the season, and they wanted, I guess, the athletic director, like, most idiot athletic director.

A (40:42)

It's like glow in the dark helmet. So.

C (40:44)

No, they change color. They change. Yeah. Apparently they shift from purple to gold. And so it was not only was this fifteen hundred dollars for a gown, also, every helmet needed, like four coats of this paint. And I think they only used the helmets for this one game. What? Like, I could be wrong about that last point, but I think it's just. I found this just ridiculous and just an example of, like.

A (41:05)

And yet you can't pay the football players.

B (41:08)

Yes, that's right.

A (41:09)

Because I mean they can, they can be running around in fifteen hundred dollar helmets, but they can't earn any money.

C (41:14)

But if they get.

B (41:15)

But how cool is that paint? I kind of want it for like a bedroom in my house.

C (41:18)

Fifteen hundred dollars.

A (41:19)

I feel like you can probably get it on a Bentley.

B (41:23)

I'll get my.

A (41:24)

At some enormous cost. If anyone has. Has discovered like, you know, which cars have the option of having crazy paint that I guess it changes color when it gets dark.

C (41:35)

It's in the dark. Yes. Because it was from Night Game.

B (41:36)

That's so cool.

A (41:40)

Anna's like, this is the most ridiculous success in Emily's life.

B (41:43)

Can we get that for our house?

A (41:44)

Can we get that? I want to paint that on the outside of my house with. My house glows with golden dust.

B (41:50)

It changes colors.

A (41:51)

Nice. We.

C (41:56)

It seems like they needed a number. I mean granted like the football helmets aren't huge, but as I've said, they needed four coats of paint. So you have guessing that this is for all their players, not just their starting.

A (42:06)

And how many helmets are there per team?

C (42:11)

I should in fact totally know this, but I do not know the number.

B (42:14)

Off the top of my head. A lot. There's lots of players.

A (42:17)

It's not. Yeah, it's more than 11 anyway. Or more than 15. Is it 15 or 11? Well, no, you have on the field at any given time.

B (42:24)

Oh boy.

C (42:26)

It's 11. Yeah, I was gonna say it's definitely 11. I'm like, wait, I. Yeah.

A (42:32)

Anna's supposed to be the football geek. It turns out there are lacunae in her football.

C (42:37)

No, I just was for very quickly, slightly like, wait, am I saying the wrong thing?

A (42:43)

If you know anything about American football, do not Write in on slatemoneylate.com because we find it confusing enough already.

B (42:50)

Max understands it.

A (42:51)

I think Max is the only person who will read those emails. The rest of us will be like, what football? Who? But no, Anna will care about someone.

C (43:00)

Playing someone because Michigan is playing Penn State this weekend and it's a big game. It's one of our last big games in like a three game. We beat it. We beat Michigan State, which was beautiful. So now if we can beat Penn State, then we have a pretty solid ride to the Ohio State game and that would be amazing. And then also if depending on who loses in the LSU Bama game, there's a possibility that we could move up in the rankings. So that would be awesome. Yes. Go blue.

A (43:26)

Well done to Michigan for beating Michigan. I thought that Michigan was going to beat Michigan and in fact, Michigan, Michigan.

C (43:33)

And Michigan State are very different.

A (43:35)

So there you go. Sports Ball. We love it.

D (43:39)

Apparently you can have up to 85 people on a team, right?

A (43:43)

Wow, 85 helmets.

D (43:45)

Potentially.

A (43:46)

Whoa.

B (43:47)

And you must need some backup helmets just in case, right?

A (43:50)

That would include the reserves, right? Yeah, that would presumably include the backup. But maybe what happens if you're wearing a helmet and then it gets, you know, dented? Then don't you need to replace it with, like, your backup helmet?

B (44:03)

Wait, if you paint your helmet, is it then. Now they have the helmets that always glow in the dark? Or were these special helmets?

C (44:09)

I'm pretty sure this was just for this one game.

D (44:11)

Whoa.

A (44:14)

Okay, this. This has been the more. One of the more surreal numbers that we've had.

B (44:19)

I think it's my favorite Anna number.

A (44:21)

It is a very Anna number. One day I'm going to go to a college football game and it will all make sense because I've been hosting Sleep Money.

B (44:29)

I don't think it'll make sense.

C (44:30)

No, you can come to Ann Arbor. You can go to the Big House, the best college stadium.

A (44:33)

Oh, boy. Yeah. We'll have a. A Slate Money outing to the Midwest. It would be amazing. Thank you anyway for listening to Slate Money and for putting up with this number ground. We will talk about IBM in the plus segment, but other than that, many thanks to Max Jacobs for producing. And we will talk to you next week on Sleet Money.