The Down to Earth Edition

Summary

Slate Money – The Down to Earth Edition

Date: October 1, 2016
Host: Felix Salmon
Guests: Cathy O’Neil (author, "Weapons of Math Destruction"); Miriam Gottfried (Wall Street Journal, “Heard on the Street”)

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Overview

This episode of Slate Money, dubbed "The Down to Earth Edition," tackles three central topics at the intersection of business, finance, and society:

• The launch and merits of new college rankings co-produced by the Wall Street Journal and THE (Times Higher Education)
• The precarious situation at Deutsche Bank and the broader stresses in European banking
• Elon Musk’s latest Mars colonization vision—and the economic feasibility and psychology behind interplanetary travel

Throughout, the conversation is lively, skeptical, and critical, with the hosts mixing insight, humor, and some friendly teasing.

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1. New College Rankings: Do We Need Another List?

(00:54 – 14:46)

Main Discussion Points

• The New Rankings:
  Miriam Gottfried introduces the Wall Street Journal/THE college rankings, highlighting their focus on tailoring results based on different factors such as resources, student outcomes, and—importantly—cost, which is often ignored by legacy lists like U.S. News & World Report.

  “The good thing about our rankings, I think, is there is some ability to tailor them because you can rank by different factors... including, I think resources was one of the factors. Outcomes like how much money do students make after they leave..."
  — Miriam Gottfried (04:22)

• Survey-Based Engagement:
  A key innovation is the inclusion of a massive student survey (over 100,000 responses) assessing engagement: are students challenged, meeting faculty, having fun?

  “You send out a survey to 100,000 students around the country and you say, are you challenged? Are you having fun? Are you meeting with your teachers? These kind of questions and that then becomes part of the rankings.”
  — Felix Salmon (05:02)

• Critique of Traditional Rankings:
  Cathy O’Neil and Felix Salmon critique the flaws of existing rankings:

  • Overemphasis on selectivity and endowments
  • Lack of cost consideration (fueling an “arms race” in tuition)
  • Metrics that privilege certain institutions (e.g., those with large grad programs)

  “The biggest complaint I have about the U.S. news and world Report's ranking is that they do not consider cost.”
  — Cathy O’Neil (03:51)

• Gaming the Rankings:
  Discuss how previous rankings have been “gamed” by colleges chasing higher scores, but note the new model bakes in metrics (like “value added” and diversity) that are a bit harder—or at least less damaging—to optimize for.

  “…what we should do is love any ranking which isn't gamed.”
  — Felix Salmon (13:14)

• Caveats & Downsides:

  • Research is weighted, favoring universities over liberal arts colleges
  • Salary outcomes privilege STEM-heavy and elite institutions (Brown, for example, suffers because many grads go into non-profits)
  • “Value added” algorithms remain tricky and sometimes controversial

  “There's this idea that, you know, it's value added. It's the value added algorithm, which of course there's a whole other chapter of Kathy's book saying how crap value added algorithms are in the educational system.”
  — Felix Salmon (12:39)

Notable Quotes

• “I think cost is a hugely important factor. That's way more important than all of those things.” — Miriam Gottfried (05:29)
• “If you don't agree with the way the world rewards people for being STEM graduates, … it's hard to know exactly how to look at this list.” — Cathy O’Neil (10:18)
• “One of the reasons that US News and World Report is so bad is because that is the specific one that is being gamed.” — Felix Salmon (13:41)

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2. The Deutsche Bank Crisis and the State of European Banking

(14:54 – 27:17)

Main Discussion Points

• Backdrop & Scale:
  Deutsche Bank is “one of the biggest banks in the world” (1.6 trillion euros in assets), but its market capitalization has plunged to about $14 billion, signaling deep troubles.

  “Deutsche bank is just this huge behemoth of the financial industry ... it is connected to everyone. There's literally no financial institution on the planet which doesn't have Deutsche bank counterparty risk.”
  — Felix Salmon (15:14)

• Triggers: Regulatory Fines & Fragility:
  A $14 billion U.S. Department of Justice proposed fine for mortgage misdeeds from the financial crisis pushes Deutsche’s already thin capital into the danger zone.

  “The DOJ wants $14 billion from Deutsche Bank. Now let's be absolutely clear about this. The amount that Deutsche bank pays in a fine is not something which just magically gets removed from market capitalization. ... Deutsche bank is not going to pay $14 billion in this fine. Like this is all part of a complex negotiation.”
  — Felix Salmon (17:02)

• Why Deutsche, and Why Now?

  • European banks generally struggle under new capital regulations, weak profitability, and a loss of investor confidence.
  • Deutsche has especially high “operational risk weighted assets” because of its history of fines and infractions.

  “Operational risk weighted assets have more to do with your performance as a management ... So Deutsche bank has the problem of having paid all of these fines in the past, which suggests that they'll have to pay more fines in the future...”
  — Miriam Gottfried (20:43)

• The Core Problem:
  Deutsche must raise capital, but with a weak share price, doing so would dilute existing shareholders, and the timing may affect the size of regulatory penalties (a "game of chicken").

  “If the current market capitalization is $14 billion and they raise another $14 billion in common stock, then basically at the current price, then what that means is that your share of the company gets cut in half.”
  — Felix Salmon (23:05)

• Liquidity vs. Capital:
  The group stresses that Deutsche is not at risk of a fatal liquidity crisis; it can always borrow from the ECB. The big question is capital, not funding.

  “Not only is it not going to be allowed to fail, there is literally zero, zero chance of it failing because it has more than enough in assets. ... It just doesn't have the capital.”
  — Felix Salmon (24:41)

• Market Psychology:
  Fear and speculation among hedge funds and investors compound the trouble, making the situation “Lehman-like” even if fundamentals are different.

  “People are getting afraid and that fear is sort of driving things and making it feel a little Lehman like.”
  — Miriam Gottfried (23:40)

Notable Quotes

• “The Deutsche bank price to book ratio... is 0.21. ... On the other hand, the Commerz bank price to book ratio is 0.25, so it's not much better.” — Felix Salmon (19:15)
• “The share price is at a 33 year low right now.” — Felix Salmon (23:34)
• “If we raise more capital, then that's just going to embolden the Department of Justice to ask for a bigger fine.” — Felix Salmon (25:17)
• “There's no quick fix for Deutsche bank to make it into a trimmed down bank. You can't just start selling assets to solve the problem.” — Miriam Gottfried (27:02)

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3. Elon Musk’s Mars Missions: Fantasy, Economics, and Human Nature

(27:17 – 35:43)

Main Discussion Points

• The Big Vision:
  Elon Musk proposes sending a million people to Mars via affordable tickets (~$200k each), emphasizing that it would be a high-risk, one-way trip—but one that some people (including co-host Cathy’s husband) would be eager to take.

  “Elon Musk has been very clear that he's not gonna do it. He's like, that's a very high risk of death. It's a one way ticket. You've gotta be insane to do this. But he also knows that there's a very, very large number of people out there... who are willing and indeed eager to do this.”
  — Felix Salmon (28:10)

• Economic Analysis:
  Is colonizing Mars economically rational? No. Resource extraction or trade is not feasible. It would be a gigantic money pit with no real return.

  “There's no way that there's no like Unobtainium on Mars that we can mine and bring back to Earth... There's nothing that Mars can do that we can't do better.”
  — Felix Salmon (29:44)

• Science, Psychology, and Government:

  • Discussion of the personal drive—often a “boyhood fantasy” fueled by science fiction.
  • Debate over whether tax dollars should fund Mars efforts, with hosts generally favoring big science but questioning human Mars missions specifically.

  “The question is whether manned space exploration counts as big science and something that we should be investing in...”
  — Felix Salmon (33:21)

  “I agree, actually that manned missions to Mars are pretty dumb. I mean, there's no particular reason for the taxpayer to pay for it.”
  — Cathy O’Neil (33:30)

• Risk, Funding, and the Outer Space Treaty:

  • SpaceX can take risks NASA can’t, but failures (like recent rocket explosions) are frequent
  • Outer Space Treaty (1967) supposedly bans “terraforming” Mars
  • Conversation returns repeatedly to the high personal cost (“one kid’s college tuition”)

Notable & Memorable Moments

• “My husband actually, when I first got married to him, told me that if he was ever given the opportunity to go to Mars in a one way ship, he would take it.” — Cathy O’Neil (27:24)
• “I do think the $200,000 ... sum is, is low enough and achievable enough that it's within the reach of a large proportion of the people who really, really want to do this.” — Felix Salmon (35:11)
• “You have to sell a lot of books for that. It’s basically one kid's college. Let's be clear.” — Cathy O’Neil (34:30)

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4. Numbers Round

(36:01 – 40:46)

Miriam Gottfried: "500 million"

(36:13)
The estimated annual savings in dollars if Viacom and CBS re-merge, per Barclays. Most of this is due to the elimination of one of the highest-paid CEOs in the S&P 500.

• “If you just eliminate one of them, that's huge.” — Miriam Gottfried

Felix Salmon: "4,899,000,000"

(37:49)
The number of euros by which rogue trader Jerome Kerviel’s fine was reduced (from nearly €5 billion to €1 million). Once the "poorest man on earth," Kerviel is now only liable for a sum he might actually pay.

• “French court just cut that $4.9 billion fine to 1 million euros, which is something he could actually pay.” — Felix Salmon

Cathy O’Neil: "0.9 (or 90%)"

(38:59)
A new personality test claims to identify, with 90% accuracy, children likely to develop drug addictions, and interventions apparently help reduce risk. Cathy remains wary about the ethical and privacy implications.

• “I'm hoping that that data, by the way, doesn't get leaked out into their public profiles.” — Cathy O’Neil

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Key Takeaways & Tone

• The show underscores the importance of critical thinking—whether evaluating new college rankings, reacting to market panic in banking, or being skeptical about new utopian visions from Silicon Valley.
• While lighthearted and wry, the hosts consistently dig for underlying incentives, structures, and unintended consequences—especially who benefits, who’s at risk, and the practical realities masked by hype.
• The interplay between personal stories (e.g., Cathy’s Mars-obsessed husband) and hard-nosed financial analysis helps make complex topics both relatable and illuminating.

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Suggested Listen Timestamps

• Introduction & College Rankings: 00:54 – 14:46
• Deutsche Bank Crisis: 14:54 – 27:17
• Musk & Mars: 27:17 – 35:43
• Numbers Round: 36:01 – 40:46

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Memorable Quotes

• “College admissions are stupid. They're going to remain stupid. You have one more tool if you're in that stupid world. Go check it out.” — Felix Salmon (14:53)
• "People have spent half a million on far less interesting things." — Miriam Gottfried (35:37)
• “Seriously, that's a great point. Like, you know, a third graduate degree.” — Felix Salmon (35:43)

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If you missed the episode, this summary gives you all the key insights and character of the conversation, with timestamps for deeper exploration of what most piqued your interest.

Transcript

[A]

The following podcast contains explicit language. Hello, and welcome to the down to Earth edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Fusion. I'm joined, as ever by Cathy o', Neill, the author of Weapons of Mass Destruction, fresh off the boat from the country with which I used to associate myself.

[B]

Great Britain. Wow, that's a long. Oh, yes. I just got back from London. Hi, everybody.

[A]

And yeah, I'm never going back. Not since that vote.

[B]

It's nice there.

[A]

Meanwhile, Jordan has disappeared off to that random armpit of a city known as Paris for reasons which only he can hazard a guess at. Which means the great and exceptionally awesome news of the week is that Miriam Gottfried is here.

[B]

Yay.

[A]

Yay.

[C]

Hi, guys.

[A]

Hi. You work at the Wall Street Journal?

[C]

I do. I write for the Hurt on the street column.

[A]

And you have a podcast?

[C]

I do. My podcast is called Hurt on the street, so check it out. It comes out with a new episode every Thursday.

[A]

Every Thursday. And you talk about.

[C]

We talk about the financial news of the week where we. We give a little bit more wonky commentary about what's going on than this podcast.

[A]

Do you do wonky commentary about Deutsche Bank?

[C]

Yes. Our. Our latest episode was about Deutsche bank. And when we get to Deutsche bank later on, I'll tell you why it's kind of funny because our podcast might already be out of date. Only one day later. We.

[A]

We come out on Saturdays, which means our podcast is better than Heard on the street, which comes out. It's two days better than Heard on the Street.

[B]

Having said that, I think our audience will probably be very interested in your podcast.

[C]

Yes.

[A]

And so, yeah, do listen to Heard on the Street. It's an excellent podcast. Go check out what they have to say about Deutsche bank, but not before you listen to what we have to say about Deutsche bank. Because we have our own opinions. We are also, because we're Slate Money, going to talk about missions to Mars because it's awesome. We get to go to Mars. But first, we are going to take a special advantage of the elevated presence of Miriam Gottfried to talk about a whole brand new college rankings that has come out from the tls and. Or the Wall Street Journal.

[C]

That's right. My illustrious employer decided that there was a void and we needed more college rankings.

[A]

There aren't enough college rankings out there. So now here's a new college rankings for those of you who are thinking to yourself, I'm short a college ranking.

[B]

I'm gonna pipe in right here and right now and mention that a full chapter of my book is devoted to college rankings.

[C]

Whoa, you're an expert in college rankings?

[B]

I really, really am happy about this. This is huge. In a good way.

[A]

So, okay, so the one thing everyone knows about college rankings is that, number one, okay, the two things that everyone knows about college rankings is that number one, the only one that anyone cares about, at least in academia, is U.S. news and World Report. And number two, that the U.S. news and World Report rankings are shit and completely flawed.

[B]

And that's a real problem. And so I'm glad there's like a real competitor out there.

[A]

So without asking the Wall Street Journal reporter to plug her, let's not let him talk too much. I have some criticisms, but just, I'm going to quit before we come to you, Miriam. I'm going to ask Kathy, like when you wrote your chapter, did you look at alternative rankings?

[B]

Absolutely. That's what I ended the chapter with.

[A]

Are they all shit?

[B]

Well, I ended the chapter with saying, let's get some better and more varied rankings. And theoretically and conceivably ideally to have us able to tailor our own rankings after being a few questions about what we care about. But the biggest complaint I have about the U.S. news and world Report's ranking is that they do not consider cost.

[C]

As a messed up.

[A]

And guess what? We have your rankings do, Miriam.

[C]

Yeah. Well, the good thing about our rankings, I think, is there is some ability to tailor them because you can rank by different factors. You know, including, I think resources was one of the factors. Outcomes like how much money do students make after they leave or, you know, how many are employed or how many can pay back their loans. All of these things are included in the rankings. So it is a little bit more tailorable and you can kind of see how different schools, you know, you know, I think, you know, some public schools were mentioned in the article as ranking surprisingly high. Brigham Young got sixth place on one of the metrics and nobody would ever put it near the top of the U.S. news & World Report.

[A]

Ranking. And that's because that was the bit which was done on the really innovative part of this, which is the student survey. You send out a survey to 100,000 students around the country and you say, are you challenged? Are you having fun? Are you meeting with your teachers? These kind of questions and that then becomes part of the.

[C]

Rankings. Yeah, I think they called it engagement or something like.

[A]

That. Engagement, yeah. But tell me, so what's your explain why the world needed another college rankings and what you think of this.

[C]

One. Well, I mean, I don't necessarily think the world needed someone else to tell them that Stanford University is the best in the country, I mean, or and Massachusetts Institute of Technology is up for too. But I do think, you know, I've done a lot of work with my own college and you know, with recruiting people for the school. And I really do think that different outcomes matter to different people. Like, I don't think that to everyone making the most money when you leave is the most important factor. I don't think that donating to your school the most alumni who donate to their school is necessarily an important factor for students. And as Kathy said, I think cost is a hugely important factor. That's way more important than all of those.

[B]

Things. And I would add that like the fact that cost hasn't been taken into consideration. My book, the whole point of the chapter is that that the college administrators in this arms race to be better ranked have actually ignored cost and allowed it to balloon because it literally doesn't punish them to do so. So now we have a rankings where they will get punished if they let tuition rise just because they want to get better in the.

[C]

Rankings. The thing that I didn't like about the rankings is that I think it favors universities with a graduate school over universities that don't have one because.

[A]

8% of it is based on.

[C]

Research. It's based on research which obviously would from schools that have graduate programs. And none of that is going to go. I mean, not none, but very little of that ever gets to the undergraduate experience. I mean, I think the student to faculty ratio, which was also a factor and was weighted more heavily than the research, is much more.

[A]

Important. But it's not that important if half of the faculty are off doing research and never.

[C]

Teaching. That's right. And I think, you know, you saw that Williams College, which is, which was the top ranked small liberal arts school, was way down at, you know, 20 something in the list. And you know, I don't necessarily think that that is a reflection of the education that you would get.

[A]

There. Right. So if the reason why you're going to college is because you want the best possible liberal arts education, then what you do is you sort of filter the list by, let's show me the liberal arts schools with a good education. You can find that there are many, many different reasons to college, as Kathy says, and you can, you know, slice and dice these things in as many different ways as you like. There's no one waiting, which is going to be exactly how everyone should look at this question of where to go to college and how to think of college. But the thing which I have to say I liked the most about this ranking was the way in which it didn't use selectivity, that it didn't sort of say, you get all of the smartest students because you get to pick and choose the smartest students, therefore you're the best. College, it was much more. It weighted diversity a little bit, but it did weight diversity, and it didn't give extra credit for just picking the people who were going to do the best. It was like, we understand that college is an educational institution which is meant to make people smarter and better and more valuable to society, rather than just pick the people who are going to be the most valuable to society and take credit for.

[C]

Their. But then again, it's the same cast of characters at the top of the list as you might expect to find. So it didn't necessarily change the.

[B]

Outcome. All of.

[A]

Them. It didn't necessarily change the top of the list. And I think one of the problems with these rankings in general is that whenever you look at a league table and, Miriam, you know this better than anyone working at Hurden on the street is that the first thing anyone does when they look at a ranking is look at the top of the.

[C]

List. That's.

[A]

Right. And they're like, what's the top 10? What's number one? Who's number one? Has number one changed from last year? And the useful information is actually much lower down the list, I.

[B]

Feel. That's right. I don't think they're perfect either. If I make, say, my pet.

[A]

Peeve now, I don't think anyone, even the Wall Street Journal, doesn't mean they're.

[B]

Perfect. No, exactly. One of the most important points of this is that just the existence of different rankings is gonna make people realize that it depends on what you care about. Right. And so one of the things, I guess the biggest pet peeve I would have about this is just like the salary after you leave is just Obviously, that was 12%. It privileges engineering schools, and that's what we see. That's one of the reasons Williams isn't.

[A]

High. And it's one of the reasons why Caltech is.

[C]

In. Brown was the only Ivy League that was much further down because so many more Brown graduates go into nonprofits. I mean, everybody knows that just.

[B]

Intuitively. So if you don't agree with the way the world benefits and rewards people for being STEM graduates, if you think like, there are values to other kinds of majors, then it's hard to know exactly how to look at this.

[A]

List and I certainly think that has helped put Stanford at number one. Because Stanford graduates, by dint of, just by dint of graduating from Stanford and also by dint of the fact that computer science is the most popular course there, tend to earn much more than graduates from other universities. One question I have for you, Kathy. As a proud Cal graduate, one of the things which I find more useful than looking at the rankings is to look at the ratings that every school gets a rating out of 100. And so if one school is at number five and another school is at number 50, but they're within three points of each other on the ratings, you're like, well, they're basically the same. The ranking doesn't matter. But when you can compare the great rivalry between UC Berkeley and Stanford, you see that Stanford has 92 points and Berkeley has 78 points. And that's a big.

[B]

Difference. So one of the things that they don't do in this ranking is like go to the granular level. So like looking at CS majors, right, of Stanford versus UC Berkeley. And then if you did that, it would be much closer, I would assume. And you can't do that yet. Maybe it'll be in the future. But like once you, once you decide to go to Berkeley, you're not just going to Berkeley and taking like the probability of you taking a major is the same as the probability distribution of majors, right? You probably have an idea of what you're actually going to do at Berkeley and then you'd have more information. Again, this is, I'm excited and.

[C]

That matters more for a big university like.

[B]

Berkeley. The other thing that I think they do, and I didn't see the actual source code of this stuff, but I think they actually do some kind of value added kind of measurement. So one of the points that they make in there's like 12 different Wall Street Journal articles about this, by the way. You should read them all. They make the point that, you know, Harvard shouldn't be given too much credit for getting graduates that make good money because they, they take only very elite students. So there's some kind of effort to understand whether the population that is actually drawing that the college drawing from is actually doing better than you would have expected otherwise. So there's this idea that, you know, it's value.

[A]

Added. It's the value added algorithm, which of course there's a whole other chapter of Kathy's book saying how crap value added algorithms are in the.

[C]

Educational. I cannot wait to read.

[B]

Kathy? Well, I have to say I'm going to defend this, this order of value added, because it's lots and lots of data. It's not just 24 kids in the classroom. I think there is, if you have enough data, which is, I assume this is based on very good data, like lots of.

[C]

Data. I think it said 100,000.

[A]

Participants. No, that's the survey for the value addie. That was, that was the IP survey or something like that. But basically it's, it's federal loan data, which is one of the reasons that there's a bunch of colleges which aren't in this ranking because they don't have enough students on federal loans. But, yeah, I think the general consensus here seems to be that more is more. If this was the rankings, if this had the same power as the US News and World Report, then this would get gamed as well. And I think in general, what we should do is love any ranking which isn't gamed. You can basically, one of the reasons that US News and World Report is so bad is because that is the specific one that is being.

[B]

Gamed. So let's think about what it would look like if this were gamed. What would college do to game.

[A]

This? Well, there are simple relative. You know, there are things like how many students do you have who are the first in their family to go to college? So you like, hire a few, you know, admit a few more of those, say, or something like that, or you tweak the value added algorithm somehow because all of these algorithms, as you know, can be.

[C]

Tweaked. I think it would be a little harder to game than the U.S. news and World.

[B]

Report. I actually, I hope so. I thought about it a little bit. I think gaming this model would actually not be as bad for America.

[C]

As the way we were seeing admitting more diverse.

[B]

Students. Right, Admitting more diverse students. I mean, there would be probably like accentuating engineering courses instead of English majors. That might not be great, but it would certainly be better than what we see now where colleges are trying to not admit students unless they promise to come. And that's making high school seniors lives hell because they basically have to act like they're, they are salivating over every single college they're applying to. It's.

[A]

Stupid. Well, college admissions are stupid. They're going to remain stupid. You have one more tool if you're in that stupid world. Go check it out. So the one subject we really need to talk about this week is Deutsche Bank. Deutsche bank is one of the biggest banks in the world. Definitely in the top five by assets depending like one of the.

[C]

Problems. Only by.

[A]

Assets. One of, one of the problems is that European banks measure their assets differently from American banks. So it's hard to actually compare easily apples to apples like which bank is bigger. But they're huge. They have on the order of 1.6 trillion euros of assets and that's insane amount of stuff. And so. And yet for all the fact that they're mind bogglingly enormous, they're also the most interconnected bank in the world. If you remember when Lehman went bust and it wasn't too big to fail so much as it was too interconnected to fail. Lehman's nothing compared to Deutsche. Deutsche bank has tentacles everywhere. It is connected to everyone. There's literally no financial institution on the planet which doesn't have Deutsche bank counterparty risk. And so Deutsche bank is just this huge behemoth of the financial industry. And what we see when we look at the stock market, which is a. Not necessarily, let's be clear about this, the best way of judging anything but, but it is definitely something which the world is looking at right now. It's the Deutsche bank share price and it says that this bank with 1.6 trillion euros of assets is worth $14.

[B]

Billion. So what's going on with it? I, I literally don't know. I was, I've been in London. Tell me what's been going on with.

[C]

It. So Deutsche bank is experience, it's very complicated but it's experiencing a few kind of like negative feedback loops I guess. So there's this looming threat of a regulatory fine from the US and.

[A]

That precipitated the current craziness because it's only $14.

[C]

Billion. Well, but if you're the stocks only or the market value is only.

[B]

14. Oh, I see, yeah, that's a good.

[A]

Point. And so the DOJ wants $14 billion from Deutsche Bank. Now let's be absolutely clear about this. The amount that Deutsche bank pays in a fine is not something which just magically gets removed from market capitalization. It's not like Deutsche bank would in any way get wiped out if.

[B]

It paid $14 billion in particular because people knew it was coming. So they probably priced it in to some.

[A]

Extent. And also Deutsche bank is not going to pay $14 billion in this fine. Like this is all part of a complex negotiation. But the fact is that this enormous fine for various mortgage things that happened in 2008, even if it gets cut down, is big enough to cut into Deutsche Bank's capital, which was relatively thin to begin with. Now it's nowhere near as thin as, say, Lehman brothers was in 2008. And even if you wound up getting $14 billion, it would still meet the regulatory minima, but it would be very close. And both regulators and the stock market want it to be much stronger than that. And the problem is that in order for Deutsche bank to become stronger on the capital front, what does it need to do? It needs to raise more capital. And right now its bond ratings have been cut, its capital is thin, its stock is weak, it has no way of raising capital without that capital being incredibly expensive. And it has no obvious way for its return on investment, invested capital to be higher than the cost of.

[B]

Capital. Can I back up a little bit? Because here's the thing. I understand that there's lots of ill winds for Deutsche bank and there have been for a while. This $14 billion fine by the SEC was probably the straw that broke the camel's back. But really, why aren't all banks in Europe going through what Deutsche bank at least was going through before the SEC stepped.

[C]

In? Because they are, to a much, much lesser.

[A]

Degree. So the other big bank in Germany is Commitz Bank. And to just put this in a little bit of perspective, the Deutsche bank price to book ratio, which is one way of looking at how happy the stock market is about a bank, is 0.21. You know, it's basically saying that Deutsche bank is worth one fifth of the amount that it's actuarially worth. On the other hand, the Commerz bank price to book ratio is 0.25, so it's not much.

[B]

Better. So that's actually very.

[A]

Close. You know, back before the crisis, most, you know, most banks were trading above book. Some banks are trading at 2 times book, some banks are trading at 3 times.

[B]

Book. So one of the reasons a.

[C]

European bank is not a very good.

[B]

Thing to be right now because. Because of the interest rates, I assume. Because negative interest.

[A]

Rates. Well, it's, it's not really because of interest rates. It's to do with the regulatory regime, the fact that they just are constantly being forced to raise more capital. And the more capital they have, the less return there is for more capital they have to hold, the less return there is for shareholders and generally the fact that banking is being forced to become a boring low profit utility which is good for society but bad for bank shareholders. And that's kind of what we.

[C]

Want. I actually learned about a new thing which maybe is too wonky to bring to this podcast. But I'm going to risk. Hey, we're wonky operational. Make me feel defensive assets, operational risk weighted assets. And this is like something that. So all banks have risk weighted assets so that certain assets are, are basically called riskier than others because they are like the chances.

[A]

Of. Or because.

[C]

Regulators. Because.

[A]

Regulators. So because the regulators tend to be European sovereigns, then the European sovereigns will say, well, if you hold European sovereign bonds, those have zero risk weighting.

[C]

Even though they're free, right? And so then there. But operational risk weighted assets have more to do with your performance as a management. How have you run the bank in the past and how will that affect your future performance? So Deutsche bank has the problem of having paid all of these fines in the past, which suggests that they'll have to pay more fines in the future, according to regulators, which means that they have to have more assets. Is that.

[A]

Right? So anyway, the big question right now, the big question facing Deutsche bank, and this is why everyone is talking about Deutsche bank right now, and one of the reasons that the stock price is so low is is it going to raise more capital? And on the one hand, the answer is it has to. If you look at what the bond market is saying, if you look at what the CDS market is saying, if you look at what the stock market is saying, they're all saying the same thing very, very loudly, which is, go out and raise more capital. And the CEO of Deutsche bank is this guy called John Kryon. And there is literally no one in the world who is better at raising capital than John Kryn. That's what he has spent his entire career doing at various different banks for various different institutions if he felt that he needed to or wanted to. There is any number of people who, he has very good relationships with sovereign wealth funds around the world, that kind of.

[C]

Thing. He can raise the.

[A]

Capital. He can phone them up and say, hey, I, I'm selling you $5 billion of stock and they'll be okay. And then it's just a question of how much they're paying for it. Well, they're paying $5 billion for it, but the question is like, what's the share price? How many shares do you get for that? 5 billion.

[B]

Euros. Or they could issue bonds.

[A]

Right? No, that's not.

[B]

Capital. Okay, yeah, yeah.

[A]

Yeah. So basically, if you want this to be tier one capital, which is one type of capital that everyone wants, it needs to be common stock. Anything other than common stock. If they try and do it with Cocos or something obscure like that, no one is going to.

[B]

Be. So the reason they are happy, they're hesitant is because they just don't want to give that much power to someone.

[A]

Else. Well, it's also because they don't want to dilute their current.

[C]

Shareholders. That's why the current shareholders are upset, because they think that dilution is.

[A]

Imminent. If put it this way, if the current market capitalization is $14 billion and they raise another $14 billion in common stock, then basically at the current price, then what that means is that your share of the company gets cut in.

[B]

Half. But then the company itself might be much worth a lot more because it's more.

[A]

Stable.

[B]

Might. But I mean it is a dynamic system. You can't really, you can't say it'll.

[A]

Be. The share price is at a 33 year low right.

[B]

Now.

[A]

Yeah. And so yeah, there's a bunch of dilution which is probably priced in. We just don't know how.

[C]

Much. I think one thing that's also really hurting Deutsche bank is people are getting afraid and that fear is sort of driving things and making it feel a little Lehman like. Even though as you put, it's.

[A]

Really not so that's exactly.

[C]

It. In finance we have hedge funds, right, that are pulling their, some money out.

[A]

Of. Okay, so this, this, we should address this because there was a bunch of like very bad reporting about this and there was some good reporting about this. There were some hedge funds who basically moved the cash in their derivatives accounts from Deutsche bank to other banks. The cash in their derivatives account was not useful assets to Deutsche bank in any way, shape or form. This isn't people pulling assets from Deutsche bank. In a real sense. It's a more symbolic move which allows hedge funds to go to their LPs and say, yeah, we're doing something. What's not being pulled is funding. And what's more, Deutsche bank has access to essentially unlimited funding from the ECB and other.

[B]

Sources. Right. It's not going to be allowed to.

[A]

Fail. Not only is it not going to be allowed to fail, there is literally zero, zero chance of it failing because it has more than enough in assets. As we said, it has 1.6 trillion in assets. It has more than enough assets it can take to the ecb. It can get cash in return. It has all the liquidity it needs. It has all of the funding that it needs. It just doesn't have the capital. So the question is, why don't you just go out and raise the capital even if it is expensive? And the answer is you're going to love this one. The answer is, well, if we raise more capital, then that's just going to embolden the Department of Justice to ask for a bigger.

[C]

Fine. They want to wait to find out what the actual fine is going to be before they raise the capital.

[B]

Right. So it's like a playing a.

[A]

Game of chicken, It's a sequencing thing, that the markets want Deutsche bank to raise the capital now, but Deutsche bank wants to wait until after the fine is determined because then all of that uncertainty goes away. And they can also hold over the head of the DOJ and this idea that they don't have much capital so they can't afford much of a.

[B]

Debt. Oh my.

[C]

God. But I kind of think that makes sense. If I were Deutsche Bank, I would want to do that. I wouldn't want to just raise the capital now because I don't know what my actual needs are going to be.

[A]

Yet. And yet somehow I suspect that Deutsche bank is going to end up raising capital. Right now the most expensive capital in the world is the capital you haven't raised.

[C]

Yet. Yeah. I mean, it will continue to loom over them. Their stock will probably continue to be very volatile until they give investors more certainty about what the amount.

[A]

Is. And just to make it clear how big of a problem this is for Deutsche bank, they announced with great fanfare that they were selling off a random life insurance arm called Abbey Life, who knew that that was owned by Deutsche Bank. But anyway, apparently Abbey Life in the uk, which was owned by Deutsche bank, and they announced they were raising $1.2 billion by selling it off. And the stock market just kind of blinked and the stock continued to fall. When a billion dollars of sale just doesn't make the blindest bit of difference, you know, you need to do something.

[B]

Big. Yeah. It's like billion dollars is at the new unit. They're like, it's just one.

[A]

Unit. When you have a balance sheet which is 1,600 billion dollars, it really isn't that.

[C]

Much. That's right. And I think there's no quick fix for Deutsche bank to make it into a trimmed down bank. You can't just start selling assets like to solve the problem. I don't think that investors are going to be won over that.

[A]

Way. Absolutely.

[B]

Kathy.

[A]

Yeah. So take us to.

[B]

Mars. You know, I feel like we might give a little bit too much attention to Elon Musk and his fantasies. But the reason we do it is because, at least for me, it's the conversation I have at dinner every single night with my kids. My husband actually, when I first got married to him, told me that if he was ever given the opportunity to go to Mars in a one way ship, he would take.

[C]

It. Oh my.

[A]

Gosh. Would he spend $200,000 for the.

[B]

Privilege? Absolutely. I mean, I'm telling you. And recently I actually finally gave in and I was like, husband, if you really want to go to Mars and never see me again, I'm going to let you do it. The reason I said that you wouldn't go. I wouldn't.

[A]

Go. No, I wouldn't.

[C]

Go. No, I wouldn't go at.

[B]

All. That's the kind of conversation we have at dinner every night. But my husband is like 100% I'm there and I'm only agreeing to it because I know he'll never actually do.

[A]

It. So Kathy, explain to me, I mean to a couple things. I mean, Elon Musk has been very clear that he's not gonna do it. He's like, that's a very high risk of death. It's a one way ticket. You've gotta be insane to do this. But he also knows that there's a very, very large number of people out there, like your husband, who are willing and indeed eager to do.

[B]

This.

[A]

Unbelievable. And so since you're married to one of.

[B]

Them. Yes, I.

[A]

Am. Can you explain the.

[B]

Thinking? It's just, it literally is a boyhood fantasy because he's a science fiction fan and it's just this idea that you're floating in real outer.

[A]

Space. What's the second word of science.

[B]

Fiction? Oh yeah, no, but I mean it's really, you know, and it's funny because I love Star Trek, but he, my husband is not a Star Trek fan. He's like this, you know, he considers it too soft and he's only like really into the super hard science fiction anyway, long. It's like, let's not psychologically understand my husband. There's no.

[A]

Doing. But let's go into the economics here because this is slate money, right? My good friend Manu Sardia, who wrote Trekonomics, the economics of Star Trek has gone at great length into the economics of Mars colonization. The idea here is that we're going to colonize Mars and that's going to be a good thing ultimately economically. And that's just not true. It's too far away. It's just, it's always going to be a drain on society. There's no way that there's no like Unobtainium on Mars that we can mine and bring back to Earth and like make Earth richer. There's no comparative advantage on Mars. There's nothing that Mars can do that we can't do.

[B]

Better. I'm gonna start defending this in a second. Okay, but you're right, there are lots of obstacles. Number one, people have estimated how much it'll cost. Between 200 billion and 1.5 trillion. Like we'd have to close down Deutsche bank and take all their assets. He claims that he's going to have a million people on Mars in the next hundred years. That's Elon's idea. And that it only costs $200,000 per person. But this, I mean, but what would he do there? Oh, he has no plan for that. To be clear. He's just talking basically about a transport system. He literally has no plan for.

[C]

It. Would they be coming back too or would they.

[B]

Go. It's mostly cargo going there. He also is ignoring things like radiation poisoning which is a real problem according to some people. And the fact that the soil there is toxic to.

[A]

Humans. I saw that like Ridley Scott movie. It's all doable with a bit of ingenuity and like you can just MacGyver that shit, you.

[B]

Know. Yeah, I mean one of the things, another topic that we get into at dinner regularly is like who's. Who should pay for this. Right. So Elon, Elon's idea is this is going to be a sort of a partnership between like NASA, in other words the taxpayer and him and other some other kind of visionaries in that area. And you know, we've seen a lot of recent huge failures with the SpaceX launches and.

[A]

Stuff. Yeah, there was a big explosion just a few weeks.

[B]

Ago. Yeah, yeah, exactly. And I have to tell you when I saw that latest failure and like Facebook's satellite blew up and everything, I was like, I'm really glad that NASA isn't part of that because it would be such like a shit show for like the.

[A]

NASA. And this is part of what Elon Musk is doing is he's quite deliber taking a number of risks that NASA cannot for political reasons.

[C]

Take. The cost of failure for him is actually very low relative to a lot of other. I mean I think our investors have stuck with.

[A]

Him.

[C]

Yeah. And I think even though, you know, all of his businesses are very precarious in terms of their financing, he's riding.

[B]

High. It's play money for him in some.

[A]

Sense. And also he, he's. His investors are self selecting in a kind, in a way that they.

[C]

Have an appetite for risk that the.

[A]

Stock market is very good at that. Most sen. Sensible people don't want to go to Mars and most sensible people don't want to invest in SpaceX. But there's a few people who think that both of these are awesome ideas and he can, he can get.

[B]

Those people to support and they're very rich people. Yeah, yeah. So I'm going to go back to what you said, which is that there's no future for this. I mean, really, what. The question of, like, whether NASA will ever be part of this is a question of what are our priorities with money for taxpayers. Like, do we first fix, you know, hunger and the medical system and then only then think about, you know, space travel, or is this something that we should be taking.

[A]

Seriously? Now, I'm a believer in big science in general. I think there's a bunch of scientific projects which are extremely expensive and can only be funded by taxpayers. And I think that there are serious problems with those big scientific projects being underfunded because taxpayers are too stingy. And the classic example of that is the, the big nuclear fusion experiment going on in Europe right now, which is probably going to fail. And it's probably going to fail not because nuclear fusion is impossible, but because there was just too much skimping and too much of bureaucratic pudding going on for it to work. The question is whether manned space exploration counts as big science and something that we should be investing in in a.

[C]

Way. You never know what this could lead to. I mean, we're destroying our own planet, so I mean, maybe we should be ahead of the game when it comes to exploring other.

[B]

Planets. So thank you. That's kind of my point. Like, I agree, actually that manned missions to Mars are pretty dumb. I mean, there's no particular reason for the taxpayer to pay for it. But, like, the question of terraforming other planets is actually really, really interesting. And in spite of the fact that there is, get this, an outer space treaty of 1967, which kind of tells us we cannot do that because we can't, like, ruin potential life that's already exist on Mars. I think it'd be pretty fascinating to be like, working on the science of figuring out whether we could live on other planets since we're destroying our.

[A]

Own. Yeah, but you don't need to sell $200,000 tickets to people like your husband in order to do.

[B]

That. Well, you don't have.

[A]

To. Also, this is not just, this is not just a question of, like, taxpayer money. You know, in the grand scheme of the national budget, it's Never going to be that big. This is much more a question of the, you know, Cathy O' Neill family finances, really, because $200,000 is material. It's much more material to you than the NASA.

[C]

Budget. You have to sell a lot of books for.

[B]

That. It's basically one kid's college. Let's be clear. We could have had four kids.

[C]

Bring it back to the.

[A]

College. So the answer is, if you want to go to Mars, maybe just reduce the number of children you have by one, and then that will do.

[C]

It. I'll start planning. I don't want to go to Mars, though. I really have no interest in space travel at all. I'm really scared of.

[B]

It. You know, believe it or not.

[C]

Anything that I've read makes me scared of.

[B]

It. I think there's enough, and I, I might be completely wrong about this. Please, listeners, weigh in. But I think there are enough people who want to do this that it's going to eventually happen. And I mean in the next hundred years. Like, I don't mean 4,000 years. I mean it's going to.

[A]

Happen. And no, I, I, I do think the $200,000, enormous though that sum is, is low enough and achievable enough that it's within the reach of a large proportion of the people who really, really want to do this. And if it's in their reach.

[C]

They'Re going to do it. Or you can go to Mars.

[B]

Right. Well, I don't even think it's going to be 200,000. It's going to be way more than that. But I still think a lot of people want to do.

[A]

It. Even if it's half a million, people will, people will find the.

[C]

Money. Yeah, people have spent half a million on far less interesting.

[B]

Things. Seriously, that's a great.

[A]

Point. Like, you know, a third graduate degree. Okay, so that's it for the main topics. But we do still have the numbers round, which is the best and most exciting bit of slate money. We get very rude emails when we miss out a.

[B]

Number. Oh, yeah.

[C]

Seriously. So, Miriam, My number is 500 million. And that is the amount in dollars. In dollars that Barclays estimates, estimates that Viacom and CBS would save by combining into one company again. And they broke apart in.

[B]

2006.

[C]

Yep. Yeah. So just think, every year they've been wasting that much.

[B]

Money.

[A]

Wow. Yeah. No, I never believe these synergy numbers. Mergers are always sold on the strength of like, billion.

[C]

Dollars. I never believe them either, but in this case I do, because think about it. The two CEOs of Viacom and CBS are two of the highest paid CEOs in the S&P 500. If you just eliminate one of them, that's.

[B]

Huge. That is bad.

[A]

Reason. Who is the CEO of Viacom these.

[C]

Days? Tom Dooley, but only for another month and a.

[A]

Half. I suspect that Tom Dooley and whoever a successor might be are not going to be paid anywhere near as much as Philippe.

[B]

Dumas. I was going to say we could solve that problem right now, just fire.

[C]

Them. That might be the case. But I also think that CBS and Viacom are getting back.

[A]

Together. So, I mean, ultimately, it's up to Sherry Redstone and she will do what she wants to do. I don't think there's much in the way of obvious synergies there, but people love to be.

[C]

Big. Well, I think actually being big matters in media right now because otherwise the value of Viacom just continues to dwindle. You need scale in order to get your crappy channels carried on TV these days. And if you have a leading broadcaster like CBS saying, you can't have CBS unless you take my crappy channels, then that's gonna help.

[A]

Viacom. Yay.

[B]

Synergy. That sounds so good for the world.

[A]

Too. My number is 4,899,000,000, which is the number of euros by which Jerome Cavill's fine has been reduced. Wow. So you might remember Jerome Cavill. He was the rogue trader at Societe General who managed to not quite blow up Soc Gen, but he came pretty close. And he was personally fined $4.9 billion, which made him, up until a few weeks ago, by far, according to some rankings, the poorest human being the world has ever seen, with a net worth of -4.9 billion, which is. Which just goes to show how net worth calculations can be really stupid. But anyway, French court just cut that $4.9 billion fine to 4.9 billion euro fine to 1 million euros, which.

[C]

Is something he could actually.

[A]

Pay. Something he.

[B]

Could. He's probably disappointed because at least he could say there's no way that's ever going to happen. But now he's like, oh, shoot.

[C]

Now I really have to.

[B]

Pay. My number is 0.9 or 90%. So there's this new personality test out there and another chapter of my book, it's about how terrible some personality tests are, but mostly because of the way they're used. So there's this new personality test that finds kids. It seems to be 90% effective in finding kids that are likely to become addicted to drugs. And here's the Good news. They're using it to, like, help kids avoid getting addicted to.

[A]

Drugs. And how do you do.

[B]

That? They have these kinds of counseling sessions and they claim to be very effective. So the four attributes they're looking for are sensation seeking, impulsiveness, anxiety, sensitivity, and hopelessness. And I guess there's ways to train these kids to, like, specifically address these impulses they have. And what I also like about this, it was written up in the New York Times, is that they don't. They don't tell the kids, here's what we're doing, and you are about to get too addicted to drugs. It's kind of like this double blind thing. So the kids don't actually know why they're getting this advice, but it seems to.

[A]

Help. Wow, excellent. Yeah, there you go. And the idea is to stop them from doing drugs at all. And if you don't do drugs at all, then you don't get addicted. Or is the idea that even if they're, you know, typical teenagers and doing some drugs, they might be less likely to get.

[B]

Addicted? I think it's the former. They seem to have.

[C]

Like. Yeah, so these kids were selected because they have a propensity for addiction and. And so. But they want to avoid having these kids come in contact with.

[B]

Addicted. I think, I think it's probably a combination of the two. Yeah, it's good. I'm hoping that that data, by the way, doesn't get leaked out into their public.

[C]

Profiles. You have a.

[B]

Preventive. It could still go.

[A]

Wrong. There are so many ways it could go wrong. But for the time being, we can be an optimistic Slate Money crew, which is a rare and special feeling in this studio. Well, a little bit less rare now that the great Viryl Lynn Williams has taken over as producer. Thank you, Viralyn, for producing. Thank you for listening. Search for us in the itunes store. Subscribe to us there. Leave a review of us there. Write to us. The email address is slatemoneylate.com thanks to Steve Lichti and Andy Bowers. The executive producer is over here. And check out all of the Panoply [e-mail] Panoply which I believe might even include heard on the.

[C]

Street. I believe it does. Check out.

[A]

Her. We have tentacles even longer than Deutsche Bank. We are going to go off and eat undersea creatures and then come back to talk to you next week on Slate.