Slate Money: "The Frack You Edition" (May 7, 2016)

Host: Felix Salmon (Fusion)
Co-Hosts: Cathy O’Neil, Jordan Weissmann
Guest: James Surowiecki (The New Yorker, Moneybox founding columnist)

Episode Overview

This week's Slate Money brings a lively discussion on three main themes:

• The rise of non-voting shares at major tech companies—a debate over corporate control and the future structure of capitalism
• The wave of oil and gas bankruptcies following a collapse in oil prices, examining whether bubbles are helpful or harmful to the broader economy
• The Consumer Financial Protection Bureau’s (CFPB) new rule on mandatory arbitration clauses—what it means for consumers’ rights to sue banks and other corporations

The discussion features passionate disagreements, witty banter, and dives deep into the mechanisms and consequences behind each trend.

Key Discussion Points & Insights

1. Non-Voting Shares and Corporate Control (00:55–21:41)

Background (00:55–07:15)

• Facebook and Google’s New Share Structures: The episode opens with a debate on the newly proposed creation of non-voting shares by Facebook (and precedent from Google and Under Armour).
• Felix Salmon’s Anxiety: Felix expresses concern over Mark Zuckerberg’s ability to maintain absolute control over Facebook regardless of how much equity he sells.

Debate: Control vs. Shareholder Rights (04:09–13:10)

• James Surowiecki's Position: The main check on CEOs like Zuckerberg is for shareholders to sell their shares if they disapprove, emphasizing exit over “voice” as in democracy.

  • "The dominant mode of registering disapproval...in capitalism is you exit, you leave, you sell your shares." — Jim Surowiecki [04:09]

• Felix’s Counterpoint: There is a qualitative difference between dual class structures and non-voting shares—complete lack of shareholder oversight could empower radical or harmful decisions.

  • "At some point giving one man dictator-for-life powers...starts being scary." — Felix Salmon [13:32]

• Cathy O’Neil’s Concern: Worries what happens when things go wrong—whether share prices will become more volatile if there is no check on leadership.

Philosophical and Legal Angle (13:10–21:41)

• Democracy vs. Capitalism Metaphor: Surowiecki argues the analogy to democracy is misplaced—corporations can have varied governance models as long as the terms are clear to investors.
• Historical Context: Felix notes that non-voting shares were illegal between the 1920s and 1986, reading a poetic lament from the era.
  • "Shall it be said your heart's a stone, they are your brethren and they groan, oh, drop a tear for those who own non voting corporate stock." [18:50]
• Check on Power: The only “check” is the share price, which, as Google’s C shares illustrate, only trades at a slight discount.

Memorable Moment:
Felix imagines Zuckerberg using non-voting shares to buy every news outlet and control global media (13:32–15:52).

2. Oil & Gas Bankruptcies: Bubble Burst or Capitalism at Work? (22:35–34:06)

Wave of Bankruptcies (22:35–23:28)

• Jordan Weissmann: 59 oil/gas bankruptcies and counting, comparable to the telecom bust of the early 2000s.
  • "There have now been 59 oil and gas bankruptcies during this oil rout...creeping up on the number of telecom bankruptcies." — Jordan Weissmann [22:40]

Role of Leverage (23:28–25:46)

• Felix Salmon: Bankruptcies are messy and result from companies being over-leveraged; considers it evidence capitalism isn’t working well.
• Cathy O’Neil: Argues these failures are actually capitalism at work—a consequence of too much debt.

Could There Have Been Another Path? (25:46–27:49)

• James Surowiecki: It would’ve been impossible to raise that much capital via equity, especially for small drillers; junk bond markets filled the gap.

Are Bubbles Ever Good? The Macro Perspective (27:49–34:06)

• Dan Gross’s “Yay Bubbles” Argument: Sometimes bubbles leave behind useful infrastructure (as in telecom). But the oil bubble’s legacy is more ambiguous.
• Jordan: The fracking revolution brought technological advances, reducing break-even costs—but at the cost of overproduction and environmental harm.
  • "These companies are learning how to drill for much cheaper prices than they were when they initially went into the shale belts." — Jordan Weissmann [30:21]
• Felix: Lower extraction costs mean higher profits, not lower oil prices for consumers.
• Climate Concern: Cathy and Jim highlight increased extraction has negative effects for climate change and public safety.

3. Arbitration Clauses: CFPB Fights for Consumers (37:18–46:44)

What Are Arbitration Clauses? (37:18–39:12)

• Cathy O’Neil: CFPB’s proposal seeks to limit “forced arbitration” clauses that prevent consumers from bringing class action suits against banks and other companies.
  • "If you take out a payday loan...you're going to have to sign a contract called a forced arbitration contract." — Cathy O’Neil [37:23]
• Jim Surowiecki: These clauses have proliferated since the 1980s; often, affected consumers rarely enter arbitration due to cost, and arbitration typically favors corporate defendants.

Class Actions vs. Regulation (39:12–44:20)

• Felix (Devil’s Advocate): Argues this shift signals regulators aren’t effective enough, outsourcing enforcement to class action lawyers is an imperfect solution.
  • "Class action suits are kind of the worst conceivable way of doing regulation." — Felix Salmon [41:09]
• Jordan: Defends class actions as vital given regulatory understaffing—especially in complicated markets like consumer finance and student loans.
• Discussion: There is no perfect system; class actions are one imperfect but necessary check on corporate misbehavior. Arbitration isn’t a genuine alternative for most consumers.

Evolution & Constraints of Arbitration (44:20–46:44)

• Jim: Legitimacy of consumer/employment arbitration was cemented recently by Supreme Court decisions; the present move is seen as necessary pushback.
• Cathy/Jim: Explore what better dispute resolution could look like, but recognize administrative and practical hurdles.

4. Numbers Round & Memorable Facts (46:44–End)

Referee Bias in Sports (50:01–54:21)

• Jim’s Number: 10%
  • Away teams in the NHL receive 10% more penalties than home teams—a measurable refereeing bias.
  • "In the NHL, the away teams received 10% more penalties than the home team did. That's outrageous." — Cathy O’Neil [50:01]
• Felix: Cites evidence that with no crowds, the bias disappears (as found during Italian soccer bans).

Venezuela’s Beer Crisis (54:25–55:00)

• Jordan’s Number: 80%
  • Empresas Polar makes 80% of Venezuela’s beer but can no longer import ingredients due to currency shortages; Venezuela has no beer.

Obama Campaign Spending vs. Trump’s Plans (55:54–57:55)

• Jim’s Number: $721 million
  • Obama’s 2012 campaign spending; Trump faces an uphill fundraising battle, challenging his outsider, self-funder narrative.

Billionaire Philanthropy & Ironies (58:01–59:35)

• Felix’s Number: $25 million
  • Billionaire couple Linda and Stuart Resnick pledging $25m to name a public health center—contrasted with $67m private jets on display at Milken Global Conference.
  • "Philanthropy money sloshing randomly from one billionaire to another." — Felix Salmon [58:01]

Notable Quotes

• "The dominant mode of registering disapproval...in capitalism is you exit, you leave, you sell your shares." — Jim Surowiecki [04:09]
• "At some point giving one man dictator-for-life powers...starts being scary." — Felix Salmon [13:32]
• "What it actually speaks to is the problem that, you know, workers have no say in the way their enterprises run." — Jim Surowiecki [19:24]
• "There have now been 59 oil and gas bankruptcies during this oil rout...creeping up on the number of telecom bankruptcies." — Jordan Weissmann [22:40]
• "If you take out a payday loan...you're going to have to sign a contract called a forced arbitration contract." — Cathy O’Neil [37:23]
• "Class action suits are kind of the worst conceivable way of doing regulation." — Felix Salmon [41:09]
• "In the NHL, the away teams received 10% more penalties than the home team did. That's outrageous." — Cathy O’Neil [50:01]

Timestamps for Important Segments

• Intro & Panel Introductions: 00:55–02:59
• Non-Voting Shares (Facebook/Google): 03:19–21:41
• Oil & Gas Bankruptcies: 22:35–34:06
• Arbitration Clauses/CFPB: 37:18–46:44
• Numbers Round (Bias in Sports, Venezuela, Presidential Funding): 46:44–59:35

Overall Tone:
Lively, skeptical, and irreverent, with robust disagreements, data-driven arguments, and sharp wit. The panel balances deep-dive economics and policy analysis with easy rapport and humor—making even arcane debates about share classes or arbitration accessible and engaging.

For First-Time Listeners

If you missed this episode, expect a smart, no-nonsense look at how finance, corporate structure, and regulation intersect with real lives. The sparring over Facebook’s share structure and arbitration clauses is especially thought-provoking, with each side getting a fair and spirited hearing.

Skip the ads, but not the Numbers Round—it’s packed with oddities and insights, from sports to presidential campaigns to Venezuela’s beer drought!