The Hogmanay Edition

Summary

Slate Money – The Hogmanay Edition

Date: January 2, 2016
Host: Felix Salmon
Guests: Kathy O’Neill, Jordan Weissmann
Producer: Zach Dynastine

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Episode Overview

This “Hogmanay Edition” of Slate Money kicks off 2016 with Felix Salmon, Kathy O’Neill, and Jordan Weissmann exploring the business and financial stories that surfaced during a notably slow news week. The panel discusses the economics of New Year’s Eve parties in Times Square, the intricacies and pitfalls of financial derivatives, and damning investigative reporting on Warren Buffett's predatory lending in the manufactured homes business. The usual light banter and sharp critical analysis are in full swing as the team looks back, looks forward, and, as always, brings biting humor to complicated topics.

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Key Discussion Points and Insights

1. New Year's Eve and Times Square Pricing Outrage

(Starts at 04:05)

• Topic: Outrage over expensive tickets (up to $1,700) for New Year's Eve at Times Square chain restaurants, notably Olive Garden and Bubba Gump Shrimp.

• Context: Media, especially the New York Post, spotlighted these rates, though this has been an annual occurrence, not breaking news.

• Economic Rationale:

  • Felix highlights consumer logic:

    “Given the choice between spending New Year's Eve in Times Square with a million other people with nothing to eat, drink ... and spending 400 bucks to have a chair and a toilet and an open bar ... it would take me a fraction of a second to sign up.” (06:22)

  • Jordan points out pricing inefficiencies:

    "When you see something selling out, that's usually a sign that's underpriced." (09:42)

  • Lottery vs. auction: Bubba Gump sells tickets via lottery due to excess demand, which led Jordan to suggest they could capture more value by auctioning tickets to the highest bidders.

• Sociocultural Observation:

  • Kathy muses on the commercial (never public) nature of the Times Square celebration, using a fun historical tidbit:

    “It's actually a completely consistent arc ... about commercialism, about selling ridiculous food.” (08:50)

• Memorable Quote:

  “If chickens were treated like this, that would be considered, like, inhumane, and no one would want to eat them.” – Felix Salmon, on being penned in during Times Square celebrations (11:25)

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2. Derivatives & The Illusion of Financial Control

(Starts at 13:11)

• Kathy’s Explainer:
  Kathy O’Neill demystifies options and the Black-Scholes formula—a central tool in pricing financial derivatives.

  • Options Primer: An option gives holders the right to sell (or buy) an asset at a certain price; the Black-Scholes model provided a standardized way to price these contracts.
  • Limits of the Formula:
    • Black-Scholes relies on faulty assumptions (e.g., constant volatility, continuous markets).
    • Felix notes:

      “Basically, the Black-Scholes formula gave people a scientific benchmark ... but it didn't actually change the pricing at all.” (16:34)

  • Enter the Human Factor: People placed too much trust in mathematical models, resulting in false confidence and potentially disastrous risk-taking.

• Real-World Case: Mexico’s Oil Hedge

  • Discussion of Bob Henderson’s multi-billion dollar derivatives deal hedging Mexico’s Maya crude oil.
  • Kathy recounts:

    “He ended up having to sell and sell and sell fuel oil at a huge loss ... he was the one huge seller in the market. And he was driving the price down just by dint of selling all of this.” (20:03)

  • Felix highlights the break from mathematical hedging to outright speculation:

    “He more or less gave up on that and just [placed] a prop bet on the oil market and made a fortune.” (22:39)

  • Critical Takeaway: Models fail especially when "stress testing" is based on previous crises—leaving out the unprecedented.

• Lesson:

  “People tend to think they have more ability to influence what are actually random events than they really do.” – Jordan Weissmann (23:36)

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3. Predatory Lending and Warren Buffett’s Mobile Home Empire

(Starts at 29:46)

• Investigative Reporting:

  • BuzzFeed and Seattle Times expose on predatory lending to minorities by Clayton Homes (a Berkshire Hathaway subsidiary).
  • Focus on “reverse redlining”: targeting minorities with worse mortgage terms.

    “Vanderbilt typically charged black people who made over $75,000 a year slightly more than white people who make only $35,000.” – Kathy O’Neill (32:50)

  • Lending practices included:
    • Pushing in-house lender Vanderbilt, sometimes telling buyers there were “no other lenders”
    • Targeted non-English-speaking buyers with English-only legal documents
    • Retaining profitability even on defaulted loans because repossessed mobile homes could be resold.

• Ethical and Regulatory Concerns:

  • Structural racism leads to minorities facing higher effective rates due to worse credit scores/less wealth—not just income.
  • Felix and Jordan debate culpability: while lending discrimination often aligns with credit risk, aggressive and misleading targeting magnifies harm.
  • Regulatory gaps explored: Even with data on these practices, little government action had occurred before news exposés.
  • Felix’s litmus test for predatory lending:

    “Do you make money on this loan even when it defaults? And if the answer is, yeah ... that's very likely to be a predatory loan.” (36:41)

• Wider Issues:

  • Parallels drawn between mobile home finance and exploitative for-profit colleges (“American dream” is sold, not delivered).
  • Critique of mobile home ownership as a depreciating asset, often leaving borrowers worse off than if they rented.

• When Will This Reflect Poorly on Buffett?

  • Discussion about potential legal action and whether Buffett's “Teflon” reputation will weather the revelations.

  “Is there—do you think he's untouchable? ... He's such folksy charm that it’s just never going to start to erode his reputation?” – Jordan Weissmann (42:10)

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Notable Quotes & Memorable Moments

• On the Ball Drop Experience:

  “Given the choice ... it would take me a fraction of a second to, you know, sign up for Olive Garden or anywhere where there was ... somewhere to sit down and booze.” – Felix Salmon (06:22)

• On Financial Mathematics:

  “People believed in the Black-Scholes formula, like it was a dictum from a God, which is a bad thing, because ... it was wrong.” – Kathy O’Neill (17:19)

• On Predatory Lending:

  “You give the person the mobile home, they live in it for a month or two, they default, they don’t make any payments, you just tow it away and then you sell it to someone else.” – Felix Salmon (36:54)

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Timestamps for Segment Transitions

• 04:05 – Outrage over Times Square NYE prices
• 13:11 – Derivatives, Black-Scholes model, Mexico oil hedge story
• 29:46 – Investigation: Buffett, Clayton Homes, and predatory lending
• 44:05 – Brief sponsor mention (skipped for summary)
• 46:10 – Numbers Round: Football weekends, Fed rate predictions, Apple’s buybacks

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The Numbers Round

(45:54–51:44)

• (46:10) Kathy: 511 – Estimated annual additional rapes on college football weekends, reflecting troubling social costs of campus party culture.
• (48:01) Jordan: Predicts the Federal Reserve’s short-term interest rate won’t rise above 1% in 2016, due to ongoing global economic weakness and falling oil.
• (49:12) Felix: $247 billion – The amount Apple has returned to shareholders in the past three years via buybacks and dividends.

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Closing Banter

The episode concludes with lighthearted ribbing among hosts about New Year’s resolutions, podcast interruptions, and Slate’s impending move to Brooklyn. There’s even a meta moment on audience complaints about Felix’s tendency to interrupt—handled with characteristic irony.

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Tone and Style

• Tone: Witty, irreverent, but serious about the topics; a blend of academic rigor and conversational accessibility.
• Style Highlights:
  • Pop culture references (Forrest Gump, Flavortown)
  • Nerdy humor and self-deprecation
  • Real-world anecdotes grounding financial theory

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Final Takeaways

Slate Money’s “Hogmanay Edition” offers a sharply observed, plainspoken, and often humorous take on the intersection of business, finance, and public policy. From the price of a seat at Bubba Gump to multi-billion-dollar derivatives gone awry and Warren Buffett’s empire’s darker corners, the conversation consistently connects the abstract to the everyday, making economic stories vital and relatable.

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Transcript

[Zach Dynastine]

Slate Money is brought to you by TaxAct. File simple federal and state returns for free by visiting taxact.com slate TaxAct will guide you through every step of the process using your computer, tablet or phone and get you the maximum refund guaranteed. That's taxact.com slate and by texture, the mobile app that lets you tap directly into the world's most popular magazines anywhere using your phone or tablet. Dive deeper into Vogue, People, Esquire, Time, and hundreds more with interactive content for a richer reading experience. Right now, try Texture for free@ texture.com money that's texture.com money and by mileiq. If you're one of the 60 million Americans who drive for work, then you know that your miles are your dollars. Every mile you don't log is money that you are losing. MileIQ is the only mileage tracker app that detects, logs and calculates your miles for you, ensuring that every mile is accounted for and no dollars lost. Try MileIQ for free today by texting slate money 231996 that's slate money 231996.

[Jordan Weissman]

The following podcast contains explicit language.

[Felix Salmon]

Hello people. Happy New year. It is 2016 and it's going to be an amazing year, isn't it, Kathy?

[Kathy O'Neill]

It is.

[Felix Salmon]

It can only get better.

[Kathy O'Neill]

Fantastic.

[Felix Salmon]

From here on in, we have already been talking about our amazing New Year's Resolution edition of Slate Money, which, if all goes according to plan, is going to happen next week. But this is the Hogmanay edition of Slate Money. This is the.

[Jordan Weissman]

I have no idea what that word means.

[Kathy O'Neill]

They just made that up.

[Felix Salmon]

Neither of you know what Hogmanay is?

[Jordan Weissman]

No, I assume it sounds like some sort of Scottish delicacy.

[Kathy O'Neill]

It's fried.

[Felix Salmon]

You're not far off. In a way, Hogmanay is the biggest night of the year in Scotland.

[Jordan Weissman]

Oh, wow. I got close.

[Felix Salmon]

And it's the time when all Scots go out and drink even more than they normally do.

[Jordan Weissman]

No true Scots on Hogmanay.

[Kathy O'Neill]

Do you guys see the hangover search result, like, Hangover Cure graph for, like, every day of the year for the Google searches?

[Jordan Weissman]

No, I haven't.

[Kathy O'Neill]

It's like an absolute spike on January 1st.

[Jordan Weissman]

Oh, really?

[Kathy O'Neill]

I feel sorry for everyone listening to.

[Felix Salmon]

This, but the interesting thing is that about 90% of those searches come from Scotland. Hogmanay is what the Scots call New Year's Eve, and it is. If you've never had New Year's Eve, you've never spent New Year's Eve in Scotland. I can highly recommend it. It is a lot of Fun. It gets dark very early. You start drinking even before then. And it's.

[Kathy O'Neill]

Did you go to college in Scotland?

[Felix Salmon]

I did. I went to Glasgow University.

[Kathy O'Neill]

That's right.

[Felix Salmon]

So this is the Hogmanay edition. We are going to be welcoming in the new year with without booze. Our lovely producer Zach Dynastine is smiling here because he knows that it's going to be a happy edit for him compared to Ink Uncensored, which was very boozy and which I guest starred on this week. I can only imagine there was a lot of sparkling wine drunk over the course of that. So apologies to anyone who wanted us to get shit faced on this podcast. But, yeah, we are going to talk about. What are we going to talk about this week? Oh, wait, hang on a sec. I should introduce Kathy O'. Neill.

[Kathy O'Neill]

Oh, hi.

[Felix Salmon]

Hi. The [e-mail], in general. Awesome person. I should introduce Jordan Weissman. Hi, Jordan.

[Jordan Weissman]

Hello.

[Felix Salmon]

The Money Box columnist who's also good at funny voices. I'm not sure what that was.

[Jordan Weissman]

What's he doing?

[Felix Salmon]

Kathy is going to talk about derivatives trading because. And we're going to make it interesting. Don't go away. Jordan is going to talk about Hogman A. Why not? And I am going to talk about Warren Buffett. Because you can never get enough Warren Buffett. Let's start with eeny meeny miney, Jordan.

[Jordan Weissman]

Okay, so the Internet was really bored this week. Like, really, deeply, deeply bored.

[Felix Salmon]

It was a slow news week.

[Jordan Weissman]

It was a slow news week. There are like three people in everyone's office. You know what I'm talking about? So when news broke that Olive garden was charging $400 pop for its new Year's Eve party, everyone kind of went nuts. Just.

[Felix Salmon]

And this, this idea of breaking news. Olive Garden, this is. There's only one Olive Garden on the planet which does this. Yeah, it's the Times Square in Times Square, which is the biggest Olive Garden in the world and which does this every year. This is not exactly new.

[Jordan Weissman]

Yes. But the New York Post decided to report on it. And basically the New York Post said was it went and just asked all the Times Square restaurants how much they were going to charge for the evening. But Bubba gump shrimp was $799. And we're going to come back to Bubba Gump in a second.

[Felix Salmon]

Bubba Gump Shrimp, by the way, is a restaurant which is named after a fictional company in Forrest Gump.

[Jordan Weissman]

Yes, yes, yes. Fried shrimp, scampi shrimp. You know, black and shrimp.

[Felix Salmon]

When did Forrest Gump Come out. I want to say it was like early 80s, 94. Oh, early 90s. So way off.

[Jordan Weissman]

Yeah.

[Felix Salmon]

I just feel like it has spawned the restaurant.

[Kathy O'Neill]

Can we stop talking about that movie? I mean, why.

[Felix Salmon]

Why is this a There only one of them?

[Jordan Weissman]

No, it's a chain.

[Felix Salmon]

It's a chain?

[Jordan Weissman]

Yeah, it's a chain.

[Felix Salmon]

I think you have to be. Isn't there some rule that you have to be a chain restaurant if you're in Times Square?

[Jordan Weissman]

I think that. Well, I think those are the only ones that are gonna be able to do enough business probably to. Or be able to even make, like, the investment upfront to do that. Although, you know, that's not totally true because Guy Fieri has a restaurant in Times Square.

[Felix Salmon]

Had, had, had, had, had, had. Yeah, it closed.

[Jordan Weissman]

It closed.

[Felix Salmon]

It closed.

[Jordan Weissman]

No, they're offering a New Year's Eve.

[Kathy O'Neill]

It's too good.

[Jordan Weissman]

It closed. They were offering New Year's Eve party. Last I looked.

[Felix Salmon]

Welcome to Flavortown. That one.

[Jordan Weissman]

Yeah.

[Felix Salmon]

I thought that one closed.

[Jordan Weissman]

We'll have to fact check this later.

[Felix Salmon]

We don't fact check this podcast, so.

[Jordan Weissman]

Also, I think Ruby Tuesdays had a $1,700 dinner for two and a VIP booth. You get the idea. This is what they're charging. And so I took a look in particular at Bubba Gump Shrimp's pricing model, and my opinion is actually that they undercharged everyone. But, Felix, I want to start with you as the resident food snob. And Kathy, you too, a little bit. Are you appalled by this, or do you see a sense in people paying 400 to $1,600 for this?

[Felix Salmon]

The first thing I will say is that this is a complete no brainer, given the choice between spending New Year's Eve in Times Square with a million other people with nothing to eat, nothing to drink, nothing, nowhere to sit, nowhere to pee. There are people who literally turn up to Times Square wearing adult diapers because there's nowhere to pee. Given the choice between that, which just seems like the Ninth Circle of Hell and spending 400 bucks to have a chair and a toilet and an open bar, like, you know, it would take me a fraction of a second to, you know, sign up for Olive Garden or anywhere where there was, you know, somewhere to sit down and booze. So it really depends on what your perspective is. From the perspective of someone like me who just can't imagine ever wanting to go to Times Square on New Year's Eve. It makes no sense. Why would you ever want to, you know, spending seventeen hundred dollars at Bubba Gump Shrimp doesn't make any sense either, but it makes more sense than the million people who are in New Year's Eve. I mean, in Times Square.

[Kathy O'Neill]

Okay, well, I have a different perspective, but it ends up being pretty close. So the first thing I thought about is like, well, what is this? This apple dropping or whatever, the ball dropping? Is this a. Is this a public event? In which case, like if it was like a firecrackers event, like, then it would offend me that only rich people, you know, that you could pay your way into a good, into a good spot, into a sort of a, you know, elite spot. Because I'm thinking, oh, it's a public. It should be publicly accessible. I looked into the history, though, a little bit of this event, okay? And it's never been a public event.

[Felix Salmon]

In fact, Times Square is a public space anyone can turn up.

[Kathy O'Neill]

But I guess what I mean to say is it's never been a non commercial event. It is a commercial event. It start got started by the guy who ran the New York Times back, way back when in 1907. And I've taken a quote from the, the web page of this event that happens every year since 1907, except in 1942. In 1943, on the very first year, waiters in the fabled quote lobster palaces, unquote, and other deluxe eateries in hotels surrounding Times Square were supplied with battery powered top hats emblazoned with the numbers 1908 fashioned on tiny light bulbs. At the stroke of midnight, they all flipped their lids and year on their foreheads lit up in conjunction with the numbers 1908 on the parapet of the Times Tower.

[Jordan Weissman]

So not only is this an old tradition, it's been this tacky for its entire. Exactly.

[Kathy O'Neill]

It's like it's actually a completely consistent arc. And so for that reason, I'm just like, yeah, this is about commercialism. This is about selling ridiculous food.

[Felix Salmon]

I don't think anyone is paying for the food.

[Kathy O'Neill]

No, no one's paying for the food.

[Jordan Weissman]

We can agree they're paying for the location. Although some of the funny thing is some of the restaurants actually can't really see the ball dropping. And those are the ones that are charging less. It's, it's interesting to see how like, the, like they. There is price sensitivity here. These aren't all just like. It's clear they're not catering just to rich people because there are different levels at which you can pay, you know, everything from like a $200, $300 ticket to the sixteen hundred dollar table for two. I want to make my argument quickly about why Bubble Gump is actually undercharging. I think it's very clear that they are leaving money on the table, and it says so they're charging about $800 a head. However, if you look, they sold out. And I checked with the company, and they actually sold out in five days.

[Kathy O'Neill]

Five days.

[Jordan Weissman]

So already, when you see something selling out, that's usually a sign that's underpriced because you know too many people. There's more to get.

[Felix Salmon]

Like Bubba gump reservations on StubHub. Is there a secondary?

[Jordan Weissman]

So there might be. I mean, there are tickets, but. I should have looked at that. But here's the thing. So I went and checked a little further. It turns out they award their tickets by lottery. You have to sign up months ahead of time, and then they give. If you win the lottery, you get your tickets, and then you pay, which the obvious takeaway there is that demand way outstrips which supply.

[Felix Salmon]

Jordan's way of saying that rather than have even a veneer of democracy here, this really should just be for rich people.

[Jordan Weissman]

This should be an auction. Yeah. I mean, Bubble Gump really should be.

[Felix Salmon]

This should just reward the people with the most money to burn.

[Kathy O'Neill]

I think that's what Jordan said.

[Jordan Weissman]

Yeah. That is what I am saying that they are. Yeah. Yes.

[Felix Salmon]

That is.

[Jordan Weissman]

That's basically. Actually, if I could swap that, I would. You know what?

[Kathy O'Neill]

I actually just. Business idea. I'm gonna just carry a porta potty down to Times Square and charge, like, 50 bucks for each person who wants to use it.

[Jordan Weissman]

Oh, man. There might be some licensing or.

[Felix Salmon]

I need to ask, because you guys are the Americans.

[Jordan Weissman]

Yeah.

[Felix Salmon]

And this is where I get to pull my Foreigner card.

[Jordan Weissman]

Yeah.

[Felix Salmon]

Can someone explain to me, like, I perfectly understand the whole. If you're going to Times Square, you would like to be able to sit down. Can you explain to me the overwhelming majority of the 99% of people in Times Square who are just standing there freezing, and for hours and hours. They couldn't be like that for eight or nine hours. You have to get there super early.

[Kathy O'Neill]

Yeah, you do.

[Felix Salmon]

Can someone explain this?

[Jordan Weissman]

No, I agree.

[Kathy O'Neill]

Not only do you have to get there early, you have to stay inside a pen. They call them pens. And then you have to. I think you have to wear.

[Felix Salmon]

If chickens were treated like this, that would be considered, like, inhumane, and no one would want to eat them.

[Jordan Weissman]

That's not true, Felix. Chickens are treated like that.

[Kathy O'Neill]

You know, I've actually. I've had the urge to do it. So I've never done it, but I have had the urge to do it. I think I would never do it with kids. I would never do it with elderly people. I would only do it with people who are just like, we're gonna see if we can get. If we can drink this entire bottle.

[Felix Salmon]

Of whiskey, which you're not allowed to bring in.

[Jordan Weissman]

No, but I mean, people sneak in.

[Kathy O'Neill]

Obviously. You have to bring whiskey.

[Jordan Weissman]

Yeah, People on. People sneak stuff in. People get drunk beforehand. All of that then will wear off after eight hours, you know. You know, there's something to be said for just being there. I think some people just really like to be at the center of things and they think of Times Square as, like, the center of New Year's celebration.

[Kathy O'Neill]

And I also want to add that, like, it has nothing to do with actually watching the ball drop. I mean, it can't. Like, these restaurants aren't giving them good views. It's about being in touch.

[Jordan Weissman]

So what bubblegum shrimp is. Bubblegum shrimp has, like, a direct view. That's why it can charge so much.

[Kathy O'Neill]

Okay, whatever.

[Jordan Weissman]

Yeah, that's. Again, this is why I think they should be on.

[Kathy O'Neill]

It's about being there. It's about being part of the. Is literally a million people. A million people every year.

[Felix Salmon]

I can tell you as someone, I worked at Reuters for five years, and Reuters is right next to the ball. Like, you do not get a better view of.

[Jordan Weissman]

I have a friend who stayed there for New Year's one year just to watch it.

[Felix Salmon]

And there was this annual email which would go out saying, well, if you want to come in and work that night, you have to be in by this time, and you can't leave until that time. And all of us would look at each other and go, why on earth would we want to do that? But apparently people pay a fortune for being able to do that.

[Jordan Weissman]

Oh, no. If Reuters.

[Felix Salmon]

Reuters was leaving money on the table as well.

[Jordan Weissman]

Actually, to be entirely honest, if Reuters is having any financial troubles these days, I haven't checked in a while. This might be a revenue stream. Like, they might really want to check into it. They make, you know, at least 100 bucks a ticket. Just for the. Anyway.

[Felix Salmon]

Okay. Kathy. Yes, In a second. You are going to talk to us about derivatives.

[Kathy O'Neill]

I will, but I'm going to make it sexy, too.

[Felix Salmon]

You talk to us about derivatives. I'm going to tell you about our sponsor, which is TaxAct. You've made all of the money. I hate to break this to you, but all of the Money that you are going to make in 2015 has now been made. It is done. Your job now is to tell the government how much you made in 2015. And with taxact.com that's how you do it. You get easy, fast, affordable tax filing at your fingertips. You get everything you need to file your taxes. If your deal is getting the best, you'll go to taxact.com slate and get your simple federal and state returns for free. Taxact.com slate. So you used to work at a hedge fund?

[Kathy O'Neill]

I did.

[Felix Salmon]

And the hedge fund traded derivatives and presumably made money doing that.

[Kathy O'Neill]

Yeah, I guess.

[Felix Salmon]

But it's also possible, it turns out, to lose a lot of money trading derivatives.

[Kathy O'Neill]

Yes, it is. You know, I'm gonna get a little wonky here, but it's gonna be fun.

[Felix Salmon]

We like that show. You're allowed to. That's why we have you on.

[Kathy O'Neill]

Oh, really? I thought it was for my body.

[Felix Salmon]

That's next week.

[Jordan Weissman]

That's the second.

[Kathy O'Neill]

That's next week.

[Felix Salmon]

Okay, that's next week.

[Kathy O'Neill]

So, yeah. So look, I was in the futures trading group, but what I'm interested in talking about today is options because there was a really interesting article written by.

[Felix Salmon]

Do all listeners need to understand the difference? Is it important?

[Kathy O'Neill]

It's important because there's a really interesting story around the Black Scholes formula that I want to tell. Okay, well, I find it interesting. We'll see what the.

[Jordan Weissman]

I'm excited for it.

[Kathy O'Neill]

So Black Scholes. There's actually two people. There's Fisher Black and Merton Scholes.

[Felix Salmon]

Myron Scholes.

[Kathy O'Neill]

Myron Scholes, Bob Merton.

[Felix Salmon]

But he's like the third one.

[Kathy O'Neill]

Yeah, let's just ignore that guy. In fact, I'm going to ignore the first two guys from now on because I'm going to say the one thing they did, and this is a while ago, I want to say late 70s or early 80s, is they. They figured out how to price an option. And the way they did it was they created a synthetic portfolio of a bond and some stock. And let me just explain that. First of all, let's talk about what an option is. I think for the sake of this discussion, an option is just sort of like a seller of last resort. Like if you own a bunch of things and you, you want to be able to sell them, say it's like crude oil or corn, and you want to make sure that you can sell it at some price that's not too, too low, then you buy an option that gives you the right to sell it at the sort of Lowest, a low price. So it's not going to go below that price. Well, options existed for a long, long time, but people didn't know exactly how much to charge for them or how much to pay for them. And these guys came along and said, you know what? We can create a synthetic version of this, which is to say something that pays off the same amount of money in the same situations. So it's almost exactly like the same thing, except it's not quite the same thing because it's made up of bonds and stocks instead.

[Jordan Weissman]

Interesting.

[Kathy O'Neill]

So what's good about that? It doesn't sound like they've done much. Right, because they've just replicated the same kind of contract with using two different things instead of one thing. The great news was that they knew how much those two things, those two components cost, and so they could therefore back out how much the original thing should cost.

[Felix Salmon]

Now, I just want to jump in here and say that Nassim Taleb has done a bunch of work at looking at how much options cost before Black Scholes came along. And what you said is that no one knew how much to charge for them. It turns out that if you look at how much options cost after Black Scholes, they cost generally a little bit more than the Black Scholes formula would suggest, on average. And if you look at how much they cost before Black Scholes came out, they cost generally a little bit more than the Black Scholes formula would suggest, on average. Basically, the Black Scholes formula gave people a scientific benchmark they could compute things off of, but it didn't actually change the pricing at all.

[Kathy O'Neill]

Well, here's what's interesting, Felix, and thanks for bringing that up. Like, people believed in the Black Scholes formula, like it was a dictum from a God, which is a bad thing, because one of the reasons is it was wrong. It assumed something which. Which turned out to be completely wrong, namely that the volatility of the market is going to stay fixed at a certain thing, at a certain volatility.

[Felix Salmon]

And it also assumed continuous markets and a whole bunch of stuff.

[Kathy O'Neill]

And it assumed all sorts of things once you had this form. In other words, what happened was once traders had this formula in their pocket, they were just like, I know what I'm doing. And it created this false sense of security, an illusion of control, if you will.

[Jordan Weissman]

And so that brings us back to the article that you wanted to talk about, which was very cool, but do you. I feel like you should intro, because this is such your wheelhouse, I'm gonna butcher it. If I tried it.

[Kathy O'Neill]

Okay. Well, it really was an article written by this guy named Bob Henderson who made a huge amount of money by selling an option to Mexico to basically assure the lower bound of price for something called Maya crude. It's a kind of oil, but it's not the standard type of oil.

[Jordan Weissman]

Yeah. So basically. Well, I do know enough about the oil market to talk about this, but so Mexico pumps a lot of really dirty heavy crude oil out of its waters, and it takes a lot of processing. And so it's not quite same thing as the crude that we pump up in the United States. And for, you know, if Mexico wanted in the past to basically ensure the price it would get on its oil, it used to have to use derivatives based on US Oil, American oil, and frankly, oftentimes they kind of tracked each other, but the markets weren't quite the same. And so it was interesting from an oil markets perspective. What this guy, Bob Henderson did was he said, you, Mexico, I'm going to create essentially an insurance policy, an option that guarantees you the ability to sell your Maya crude at a certain price. And it's going to be based on Maya crude. It's not going to be based on U.S. oil.

[Kathy O'Neill]

Right. And so what Bob Henderson did was he said, I'm going to build you the option you want for a certain price, and I will take on the risk of creating the synthetic portfolio on my behalf, on my side. And that's a lot of risk he took on. And one thing that happened was we talked about it as a bond and some kind of underlying stock. Well, in this case, the underlying was a different kind of oil, which was called fuel oil. And the problem was that the option he sold to Mexico was so huge and he had to buy so much fuel oil. And by the way, I should have mentioned that when you do this synthetic portfolio, you have to act on it every day. You have to sort of re up the portfolio to make sure it's following the option. And he ended up having to sell and sell and sell and sell fuel oil at a huge loss.

[Felix Salmon]

Because, because he'd written this option, he needed to do this thing called Delta hedging, which we're not going to be that wonky.

[Kathy O'Neill]

No.

[Felix Salmon]

But the effect is that every day, according to what happens in the market, you have to either buy or sell. And if the market's going down every day, you need to sell a bit more. And the problem was that the size of the option that he'd written was so huge that the amount of fuel oil he had to sell every day was so huge that he was the one huge seller in the market. And he was driving the price down just by dint of selling all of this fuel oil. And it became this vicious cycle.

[Kathy O'Neill]

Yes, he was moving the market in fuel oil, which actually lowered the price more and then he had to sell more. Great. Going back to the Black Scholes formula, this is a great example. Black Scholes did not assume that your actions would change the market price. It assumed that you were acting in small enough ways so that nothing like that happened. And so yet another mistake with Black Scholes. The funny thing about the story, of course, is that he renegotiated. He knew what was happening. He renegotiated with Mexico and he ended up making a shit ton of money and Mexico ended up happy as well. And ultimately it was kind of a huge, humble brag, the whole article. But it was also interesting looking into the Black Scholes.

[Felix Salmon]

But this is one of the genius things about derivatives traders is people think that you sell an option and then you either make money on selling that option or lose money on selling that option. But in fact, what these people are is salespeople. He sold this massive deal to Mexico and as his boss told him, you know, when he got his massive bonus at the end of the year, I'm giving you this massive bonus because you sold this massive deal to Mexico on all of the work you wound up doing and all of the money you lost and then made back is really neither here nor there. I'm giving you this bonus of selling the deal to Mexico. And in fact, what he did was he sold two deals to Mexico, he sold a big deal to Mexico. And then what happened is that the price of Maya crude went down a lot. Mexico had a huge mark to market gain on the option that it had bought. So what he did is he went back to Mexico and said, I'm going to allow you to re up this deal and lock in a lot of that gain. And Mexico said, that sounds good, we just make 3 billion doll. And Bob Henderson said, that sounds good to me because if you didn't do that, I would lose $200 million a month for the foreseeable future and I would lose my job. And he also, then this is the crazy bit, took this massive prop bet on fuel oil. Basically he bet that it was going to continue to fall, which it did. And then he covered that bet, more or less, timed the market perfectly, covered it when it was at the bottom, started buying a bunch of fuel oil, then it went up and he made a fortune on fuel oil. And so never mind the whole sort of black Scholes synthetic like trying to Delta hedge and all of that kind of stuff. He more or less gave up on that and just plot bet the whole oil market and made a fortune.

[Jordan Weissman]

So that's the thing. So we should. One thing we left out at the beginning of this, it's sort of important is he sold this option to Mexico right before the financial crisis. He basically insured 2/3 of Mexico's entire 2009 oil production, which is just insane. You insured 2/3 of one of the world's largest oil producers.

[Felix Salmon]

And in general, just to be clear about this, you want to be a buyer of options when volatility is low and a seller of options when volatility is high. That's basically how you make money in options. What he does, he sold the option to Mexico when volatility was low. And that's exactly the position you don't want to be in.

[Kathy O'Neill]

Which by the way was enough to fill more than 100 supertankers with oil. That's how much oil we're talking about.

[Jordan Weissman]

I mean there was nothing he could. I mean he was up Schitt's creek without a paddle. But what he.

[Felix Salmon]

But he found a paddle.

[Jordan Weissman]

That's the thing. Well, he found one, but. So this is the point, he kind of took a couple paddles. This is the kind of makes horrific is that all of his mathematical models basically failed him. And because he had done all this stress testing, he had done all these tests to see what the worst case scenario was because he didn't see the Great Recession coming and he didn't see the actual worst case scenario for the oil market. So the models were useless because the assumptions were bad. And that's where he comes back to this idea of the illusion of control is that people tend to think they have more ability to influence what are actually random events than they really do.

[Felix Salmon]

Well, not even influence people. But they rarely imagine that things are going to get worse than they have been in the past, especially if they.

[Kathy O'Neill]

Have mathematical models which are based on the past.

[Felix Salmon]

So you know, one of my pet animals, you know, in my menagerie of financial instruments is this thing called the Gaussian copula function, which was more or less the single most destructive piece of mathematics ever invented. And, and this was basically something which looked at credit derivative prices on mortgage backed securities over the period of about two or three years that these things existed. And based on the volatility of this incredibly benign period that they were trading, said, well, they can never go too bad. And then people started writing all of these crazy instruments based on the idea that they never really move very much. But of course they only never really moved very much over two years between 2004 and 2006.

[Jordan Weissman]

Yeah, it's the fighting the last war thing. It was interesting to me because a lot of what he was saying in this article actually reminded me of our conversation with Greg Ipp. This article, Nautilus, talks about the Fed stress tests. Now every year the Federal Reserve requires banks to undergo a stress test which sees will they essentially survive if the worst happens. But their idea of the worst is essentially a replication of the Great Recession. That's there. They look if unemployment spikes and GDP goes down by X amount, what they don't look up, and this is a point in the article, is say the Euro cracks up, something truly disastrous and unforeseen takes place. Hyperinflation, something along those lines. And so again, like Greg told us before, there's a degree to which when regulators try to fix things and make them safer, they're fighting the last war. It seems like there's a little bit of that going on with the Fed and their attempts to control and prevent another disaster. Suffer from some of the same flaws, I thought.

[Kathy O'Neill]

Yeah, and you don't have to. It doesn't have to be a purely mathematical process to fool us. There was an incredible Atlantic article on the VW scandal written by Jerry Usim and he talked about like the normalization of deviance where you have these scripts that you go by, especially if you're the CEO of a large company or up there and you know, things get more and more out of whack. But you're just following your scripts. It's just similar to be like following the formula normally I just believe in it.

[Felix Salmon]

Deviance is something you see all over the place. One of my, I literally see it every day. I ride my city bike around New York City every day and I ride bicycles in other cities around the world as well. If you ride a bike around London or around Copenhagen or around New York, you see massive differences in basically how law abiding cyclists are. And in New York cyclists are happy to do this horrible thing called Salmoning where you run the wrong way down the street or they run through red lights or they ride on sidewalks and they do all of these things they're not allowed to do, mainly because everyone else seems to be doing it and it seems normal. And all of these are behaviors which you would never see in say, Cambridge, you know, and so it's localized, often within certain communities. But once a bunch of people start doing things like you get much, much more deviant behavior and becomes normalized.

[Kathy O'Neill]

The last thing I'll say is that both these articles talk about the role of stress inside that norm, that localized culture, and how every human being always thinks the future is going to be good. But stressed out human beings who are under pressure from their bosses are even particularly bad about this. They will do anything in the current currently to avoid future problems. They just don't believe future problems will happen. And so you see, you see that with the VW thing. You see that with this kind of derivatives trading, it's all over the place, okay?

[Felix Salmon]

So if you want to learn more about the Gaussian copula function, read my article in Wired magazine. This is where I segue seamlessly into the ad for Texture, who is a, who is a sponsor of Slate Money this year or this week at least, we hope all year, because we love Texture because they're a great company and they're basically Spotify for magazines. And you can read Wired, you can read the New Yorker, you can read, you know, basically any magazine you want. It starts with Ad Week and all recipes and allure, and it goes all the way through to Women's Health, Wood Magazine, Working Mother and Yoga Journal. And There are over 100 different magazines, including all of your favorite magazines. Literally, you want to look at this list because it has all of them. It's one subscription and you just pay that one subscription. And it's all available on your tablet. It's kind of awesome on your phone. You can read any magazine you want, any article from any magazine going back years. And yeah, I can recommend it and you can save it for offline reading if you're on a plane or the subway or whatever, anything you want to do, you can do. So it's called Texture. If you have ever found yourself, say, an airport newsstand, you think I should stock up on magazines? A month subscription to Texture costs less than like just buying free magazines at the airport newsstand. But you get hundreds of them and they're always available to you. They have a curated collections list. It's easy to use. And guess what?

[Kathy O'Neill]

What?

[Felix Salmon]

There's a free trial.

[Kathy O'Neill]

Let's do it.

[Felix Salmon]

Let's do it. So you go to texture.com slatemoney so you get it for free right now by going to texture.com slatemoney and try it out. And if you don't like it, you don't Pay anything. It's awesome.

[Jordan Weissman]

Great.

[Felix Salmon]

Next up is Warren Buffett. Now, we've talked about the skeevy side of Warren Buffett's empire before. Okay, so back in 2015, this pair of reporters, Mike Baker and Daniel Wagner, who were at the Seattle Times and the center for Public Integrity, wrote a story about how Clayton Holmes, which is a subsidiary of Berkshire Hathaway, was a predatory lender. This is Warren Buffett's mobile home subsidiary, basically. Now Mike Baker and Daniel Wagner have come back with another article, but now it's Seattle Times and buzzfeed, because obviously buzzfeed is better at these things than the center for Public Integrity.

[Jordan Weissman]

They're not bad at it.

[Felix Salmon]

They're very good.

[Kathy O'Neill]

I was so in love with this article.

[Felix Salmon]

And what it does is it. It's the same story about predatory lending by Clayton Holmes and the mortgage lenders that Berkshire Hathaway owns. But they've added this just particularly evil racial overlay to the whole thing. And what they're showing is that a lot of the victims are Native Americans or African Americans. And these people, or, you know, these are people, sometimes Hispanic Americans who don't speak English and who have very friendly Spanish speaking salespeople, but then get presented with a whole bunch of English language jargon. Documents which they can't read and don't understand, are just told to sign on the dotted line. So, Kathy, you loved this article.

[Kathy O'Neill]

It was just so good. And, you know, one of the things I loved about it is they had this, I don't know if you noticed a link to their methodology. Just, it warms the cockles of my heart.

[Felix Salmon]

BuzzFeed is very good in its investigations, like the H2Vis investigation, especially of having a lot of primary documents there, so you can really see exactly what they're talking about.

[Kathy O'Neill]

So, and I just want to make a plug for a certain civil rights regulation law that they're using here. I know how sexy this is, but it really is. It's amazing. It's called the Home Mortgage Disclosure Act. And what it does, because these are prefabricated homes, whenever you take a loan out to buy one, it's considered a mortgage loan. And so it falls under this, this act, which basically means you have to collect race information about the borrower. The reason is because historically lenders would practice redlining, which would mean they would avoid giving certain people loans. So this act was just to be able to keep track of whether this redlining was happening. Now, what these guys did in this article was they tracked, not redlining, but what they called reverse redlining, and that is that you charged minorities more money than you would charge.

[Felix Salmon]

Redlining is where you refuse to lend to minorities. Reverse redlining is where you target minorities because they're the most profitable segment.

[Kathy O'Neill]

So they have this. They have this one line that said Vanderbilt, typically. Vanderbilt's a lender for. That works for. What's it called?

[Felix Salmon]

I'm sorry, Clayton Ho or Warren Buffett.

[Kathy O'Neill]

Okay.

[Jordan Weissman]

It's part of this Galaxy company.

[Kathy O'Neill]

So Vanderbilt typically charged black people who made over $75,000 a year slightly more than white people who make only $35,000.

[Felix Salmon]

Okay, now where I'm going to come in and do a tiny bit of in defense of Warren Buffett.

[Kathy O'Neill]

Okay, please.

[Felix Salmon]

Because income is not really much of a factor in the way that these loans are underwritten. And if you look at things which are factors like credit scores, I think what happens is that these differences basically go away. It is well known that Black people earning $75,000 a year have roughly the same credit as white people earning $35,000 a year. Or they have worse credit, they have less wealth. All of these things are racist. I mean, it's bad that because of the structural racism in the United States for any given income group, certain minorities and African Americans in particular are much, much worse off financially. But given that, it does kind of stand to reason that they are going to wind up paying more for their mortgage.

[Kathy O'Neill]

I actually, totally. My point I was trying to make was that I'm so glad that they explained the methodology. I could go do this data analysis, is my point. Right. And you might be right, Felix. I expect you are right, because you're right that people that blacks with higher incomes still have worse credit scores. And ultimately the apr, the interest rate that they charge probably has more to do with the credit score than their income, although it's probably has to do with both of them. But the point is that I can go do this analysis too. And I think that's pretty cool that they've set it up so that I can go do it.

[Jordan Weissman]

So now that we've defended Warren Buffett a little bit, I want to go back to criticizing him, which is, you know, it's not just the differential in rates that was a problem. There's. I mean, there's all sort of rot, all sorts of rot that they were uncovering. One of the big problems was that there's this in house lender called Vanderbilt. And one of the rules from. For when you're selling a home is you are not supposed to. To push A specific lender, you're not allowed to say, oh, come to our in house lender.

[Felix Salmon]

But unless you are specifically licensed to do so, which most of these mobile home salespeople are not.

[Jordan Weissman]

Yeah, Exactly. And so BuzzFeed and Seattle Times talked to, I think 280 buyers, people who had purchased homes to his company. And they found that sometimes they were told there were no other lenders.

[Kathy O'Neill]

They even got someone to record the conversation.

[Jordan Weissman]

Exactly. They were told that there were no other lenders in their era. Even though that wasn't true. They would do things like they would have a. Basically a billboard in the office. And even though the home salesman could not push Vanderbilt, there'd be a big red button on the billboard. And if you pressed the big red button, there is a recorded pitch for Vanderbilt. And the thing about Vanderbilt was that it gave worse terms, or according to their research, it consistently overcharged both poor people and minorities. But they were specifically targeting non English speakers and they were doing it through their advertising, through fairly sophisticated geographic analysis to find immigrant communities and then handing them, like you said, Felix, these stacks of papers that were written in dense English legalese with nobody to translate for them, and thereby giving them these homes that they had basically no chance of being able to pay off. There are all sorts of, I think, interesting issues here.

[Felix Salmon]

Also, I think that the one which I would really like to pick up on is a very simple test which no responsible lender should ever fail, which is, do you make money on this loan even when it defaults? And if the answer is, yeah, we always make money even when they default, that's very likely to be a predatory loan.

[Kathy O'Neill]

Well, listen, I mean, nobody makes money if the default is immediate.

[Felix Salmon]

That's not true.

[Jordan Weissman]

No, in this case.

[Felix Salmon]

In this case, they do.

[Kathy O'Neill]

What?

[Felix Salmon]

Yes, this is why it's.

[Kathy O'Neill]

I missed that. Tell me how that.

[Felix Salmon]

Because this is how it happens. Because they get these. They charge a whole bunch of fees and down payments and stuff up front. Okay. And then you know what the thing is about mobile homes?

[Kathy O'Neill]

Tell me the thing.

[Jordan Weissman]

They're mobile, you can take them back.

[Felix Salmon]

So you give the person the mobile home, they live in it for a month or two, they default, they don't make any payments, you just tow it away and then you sell it to someone else. And then you do the same thing. You get all of the fees up front, give it to someone, throw it away, take it back.

[Kathy O'Neill]

Plus the repo.

[Jordan Weissman]

It's more similar to predatory car lending and that's than it is to predatory home lending. And that you can just take back a car and sell it as a used car and still make a pretty good profit in the end. And so they don't really worry much if less than a year later they're going to have to be repossessing it.

[Kathy O'Neill]

And by the way, I want to throw in that they also looked into the internal corporate culture at Vanderbilt and they found some really nasty practices, especially for debt collectors who are just super demeaning.

[Felix Salmon]

They recorded someone on the phone saying, well, you could try selling some plasma.

[Jordan Weissman]

So I have a question though. One of the big problems with the lead up with the housing bubble and the lead up to the financial crisis was there wasn't really anyone regulating mortgages. You know, we're supposed to have the CFPB now kind of looking at predatory lending and trying to do something about it. But if all this was going on and it was available in the data and it, no one was doing anything about it until BuzzFeed and the Seattle Times dug into the numbers which were, were presumably available to government regulators as well. What does that say about our current state of regulation?

[Kathy O'Neill]

There's a lot of bad lenders out there. But I mean, I do think that they.

[Jordan Weissman]

But this is a huge one. I mean, but Clayton is a huge one. They argue that is the nation's largest home builder.

[Felix Salmon]

Okay, so Clayton refused to cooperate with the reporters doing this story and then put out a detailed response after the story came out. And I hate it when companies behave that way. And it's just always a red flag in this detailed response. They were basically making this case that they are the only people who are providing this incredibly important service to an underserved community. The underserved communities being the, you know, the poor people and the minorities who are the victims of the predatory lending. And the incredibly important service being we will give you a mortgage, basically. And as we have covered on this podcast many times in the past, my general feeling about this is, and we had, we had Harold Pollock on last week saying, only buy a house if you can afford it. This is a prime example of this is a service which no one really should get because if you can't afford a house, you shouldn't be getting a house and saying, I've created a way of lending you money so that you can get a house. You're not helping things beyond that.

[Jordan Weissman]

So what is the argument for encouraging mobile home ownership? I mean, it's a depreciating asset. It's not like a mobile home gains. Maybe the land it's on gains value over time.

[Felix Salmon]

No, it doesn't. Absolutely right that you don't even get the capital appreciation. The only real argument for buying a house that has ever really swayed me on an economic level is that it is a commitment device which forces you to pay a certain amount of money every month and at the end of it you own a valuable asset. This argument does not apply to mobile homes because at the end of it you own a piece of junk which no one wants to buy.

[Jordan Weissman]

Exactly.

[Kathy O'Neill]

Well, you have to compare it to what the other options these people have and that's renting. And if they also have terrible renting costs, then. Look, I'm not defending this industry whatsoever.

[Felix Salmon]

It's all about. No, but this is the whole point is that no one is saying, even Clayton Holmes is not saying that the cost of owning one of these homes is lower than the cost of renting one. And if you rent them, you have much more flexibility. You can move if you run into money troubles.

[Kathy O'Neill]

It reminds me so much of the for profit college industry, especially for the marketing, but also for this thing. This is like an American dream thing. You know, you're supposed to go to college, you know, this is American dream. You're supposed to buy a house. And I think that's what one of the selling points of it.

[Jordan Weissman]

So they're sounding like an ersatz house that doesn't actually have all the same economic benefits, but they're acting like it is. I can imagine maybe some people would justify it to themselves saying, I don't. I live in a poor rural part of Mississippi or Alabama full of unscrupulous landlords and this is my way of getting away from landlords. Like this is even if I have to pay a little more, at least I have some independence. But even that you're then in debt to a predatory lender.

[Felix Salmon]

Land is cheap. You know, one of the ways ways that the economics works is that Clayton loves to talk about how its down payments are high. It has 20% down payments from lots of people. This is only true because it doesn't consider down payments to be cash. It considers down payments to be land. So if you own a plot of land and say I want to put a mobile home on this plot of land, they will basically take title to that land and consider that to be a down payment, which is just horrible.

[Jordan Weissman]

They're taking collateral payment.

[Felix Salmon]

It is a very common way of structuring these deals and you can see how attractive it is because if you own a small plot of land, you can buy a mobile home for 70, $80,000. You can get a $80,000 mobile home which is like 1400 square feet and big enough for families. If you wanted to build a 1400 square foot home, it would, would cost you hundreds of thousands of dollars. So it's a lot cheaper.

[Jordan Weissman]

So when does all this start to look bad for Warren Buffett is my question? Is there? Do you think he's untouchable? You think he's just like, he's such folksy charm that it's just never going to start to erode his reputation?

[Felix Salmon]

Teflon.

[Kathy O'Neill]

Well, I'm looking for the Attorney General offices of the relevant states to take a look at this. I mean, don't you think that the Buzzfeed and Seattle Times has said it pretty well?

[Jordan Weissman]

It's happening in states especially where the attorneys general tend not to be as quite as aggressive.

[Felix Salmon]

And especially that's happening in states where there's a lot of predatory lenders who get away with it. Lending is considered to be, you know, a bit like gun ownership. It's a sort of carpe diem thing.

[Kathy O'Neill]

Well, I guess I think that this article is going to at least embarrass the Attorney General office.

[Jordan Weissman]

I mean, even if it doesn't, the racial.

[Felix Salmon]

Kathy, you poor, naive, deluded.

[Jordan Weissman]

So the racial element makes it more likely, I think, because it's bad shit. We are in this country where we crack down much harder on people who screw minorities than people who just screw poor people. Or we're supposed to. That's how laws are sort of built. So maybe, maybe.

[Felix Salmon]

We'll see. Okay, next up, the numbers round. But first another sponsor, which is Mileiq, which is this little app you download for your phone and it automatically works out where you're driving and because it can tell when you're in a car and you're driving. And then you get a list of all the car trips that you've taken and then you can sort of swipe left and swipe right and you can register which of those car trips are work related, a business related in which you're allowed to get money back. And most people don't bother with this because it's a pain in the ass listing trips. But with the app Mileiq, you can make $500 a month just by sort of pressing a button and registering your trips and getting the money that you're owed. So if you drive a car for work, Mileiq is a bit of a no brainer. So what you do is you text slate money to 31996 and you get a 40 drive, free trial, 40 day, 40 drive. So if you, if it takes you three months to make 40 drives, then it will be a free trial lasting for 40.

[Kathy O'Neill]

Sorry to interrupt.

[Felix Salmon]

No, feel free. Jump right in. And what's more, you get not only to try this out for 40 drives and see how easy it is, you also get 20% off the annual plan, which you are sure to sign up for because the average mail IQ user logs $547 a month in drives. That's over $6,000 a year in miles that you could be claiming. So go for it. 31996. Text slate money to 31996. Before we move on to the numbers round, we're going to move on to the corrections and clarifications round which Zach Dynastyn has been doing some real time correcting and clarifying. Thank God for showing in his little glass box. Zach, what are you going to tell us about Flavortown?

[Zach Dynastine]

Thank you, Felix. So Guy Fieri's American Kitchen is holding a New Year's Eve party and it has a five hour open bar. Five hour.

[Felix Salmon]

And how much does that cost?

[Zach Dynastine]

It costs $120 for general admission and couple VIP package is $700. Still cheaper than Bubba gum shrimp.

[Felix Salmon]

$120.

[Kathy O'Neill]

I could drink $120.

[Felix Salmon]

Five hour open bar. I can.

[Jordan Weissman]

Although I remember the Pete Wells two drinks in New York must be terrible.

[Felix Salmon]

But wait, let's correct and clarify your, your correction and your clarification here. Is Guy Fieri's American Kitchen the same restaurant and the same name as the one that.

[Jordan Weissman]

Yes, that is. That's the people Pete Wells reviewed? Yes, it is. I'm telling you right now, I love that review.

[Felix Salmon]

It's a great review. But I didn't, I think it was called American Kitchen.

[Jordan Weissman]

Yeah, he can't actually call it Flavortown. I think there's like a sign that probably says welcome to Flavortown. But.

[Felix Salmon]

So now that I've completely lost my appetite, Kathy, what's your number?

[Kathy O'Neill]

My number is 511, which is the number between 253 and 770, I found this incredible statistic about additional rapes that happen on football weekends. Jordan looks skeptical.

[Felix Salmon]

What's a football weekend?

[Jordan Weissman]

College football week.

[Kathy O'Neill]

Out of the 128 schools that participate in Division 1A football, they think that overall, per year you have about 511 additional rapes because the rape, the rate of rapes goes up on weekends that are football games.

[Felix Salmon]

If we needed another reason to ban college football, this is a good one.

[Kathy O'Neill]

I am really anti football at this point. I used to be a football fan and I've just like.

[Felix Salmon]

You still listen to a lot of sports radio?

[Kathy O'Neill]

I listen to sports radio, but I've boycotted football this season cause I've just done with it. It's like there's just, it's too bad. And of course I just want to say to be fair, this is about parties. This is not really about the football game. This is about the parties associated with football games.

[Felix Salmon]

But still like if you get rid of the football game, you get thousands of women around the country who will not be raped as a result.

[Kathy O'Neill]

That's right. Well, hundreds.

[Jordan Weissman]

Assuming the amount of drinking goes down. The look I gave you wasn't skepticism, it was just I remember looking at this article when it came out on National Bureau of Economic Research and going, oh God, this is depressing.

[Kathy O'Neill]

It is, it's really sad.

[Jordan Weissman]

But yeah, there are all sorts of issues with college partying and sexual assault and this just sort of highlights them. I think this effect is probably the same for basketball games at places that have major teams there too. It just this happened to look at football. I'm guessing that's my assumption. Any major big time college sport is probably going to produce where people are drinking. It's going to produce this problem.

[Kathy O'Neill]

I use my litmus test of like whether I'd want my kids to do it and the answer is rape.

[Jordan Weissman]

Well, I think football is where playing.

[Kathy O'Neill]

Football or going to those kinds of parties. I would say no.

[Felix Salmon]

Okay.

[Jordan Weissman]

So my number is actually, as Felix said to me earlier, I'm making it up, but it's a prediction. I thought about writing an article about this, but it's easier to say it on the air. I just wanna go on the record and say I don't, I don't think the Federal Reserve is going to raise short term interest rates above 1%. I want to put that as a benchmark. Basically the Fed is going to fail in its ambitions this year and partly in 2016. And my feeling about that is partly because a none of the major problems, with exception of maybe the Greek crisis, have really been solved from the past year in the world economy. Beyond that, oil has continued to slide and that's going to have a hangover effect for the next year. That's probably going to keep us close to deflation or could potentially keep us close to deflation, especially if the price of the DOL rises, which for a lot of reasons I think.

[Felix Salmon]

So you know, your prediction is that interest rates at this time next year will be going to be no higher than 1%.

[Jordan Weissman]

Yes. There will be no, there will be short term interest rates. The Fed target rate will be no.

[Kathy O'Neill]

More than, I'm actually going to say point 75.

[Jordan Weissman]

You think it's going to be one. So basically you're saying if you're Narayana.

[Felix Salmon]

Coach Lakota, I think it's going to be negative.

[Jordan Weissman]

Well, he, in his heart of hearts he wants it to be negative, but yeah, so that's, that's. I just want to go on the right.

[Kathy O'Neill]

I'm going to, I'm going to agree.

[Jordan Weissman]

You're actually going 1 lower.

[Kathy O'Neill]

I'm going lower.

[Jordan Weissman]

Okay, okay.

[Felix Salmon]

Okay. My number is, I'm doing some mental arithmetic here. My number is $207.5 billion.

[Kathy O'Neill]

That's a lot of money.

[Felix Salmon]

That's a lot of money. That's actually a sum, that's the sum of $104 billion which Apple has spent on buybacks over the past three years, plus $1.43.5 billion that Apple has spent on dividends. So you add those two together and what you get is $207.5 billion, which is the amount of money. Sorry, 247.

[Kathy O'Neill]

I was going to say that doesn't.

[Felix Salmon]

Yeah, billion dollars which Apple has returned to shareholders just in the past three years alone. And you know what's amazing is that over the course of those three years, the amount of cash on Apple's balance sheet has gone. Gone up.

[Jordan Weissman]

Hmm. So here's people bemoan they can't get.

[Kathy O'Neill]

Away their money fast enough. Sorry.

[Jordan Weissman]

Yeah, people bemoan stock buybacks for all sorts of reasons. There's a part of the kind of left that, that is convinced that they're actually hurting growth by making companies not invest more. But I think Apple is if anything a good example of how that's not necessarily always the case because they are trying to come up with things to spend it on. They invented a watch, for instance, that doesn't seem to be doing too well. They're considering maybe getting into cars. They really don't seem to know what to do with their money. And so, and so I don't know that giving it back to shareholders is necessarily the wrong thing.

[Kathy O'Neill]

I mean like I have an Android phone, right.

[Jordan Weissman]

Yeah.

[Kathy O'Neill]

I didn't get an iPhone. But what is the Android equivalent for a laptop? Like, you know. Yeah, I don't. There isn't anything like what do I buy?

[Felix Salmon]

Yeah, Chromebooks.

[Kathy O'Neill]

Okay, maybe I'll buy a Chromebook instead of a MacBook next time.

[Felix Salmon]

There you go.

[Kathy O'Neill]

I'm just saying the competition for laptops is pretty weak.

[Jordan Weissman]

Yeah, competition, but I mean, in the end, they just have the iPhone. Just is basically licensed to print money for them and they don't know how to reinvest that money.

[Felix Salmon]

And for the record, you know, even though if you walk into a coffee shop in Manhattan, all you see is MacBooks, laptops are still overwhelmingly Windows or Chrome OS, they're not. You know, Mac OS is still a very small minority of computers really.

[Jordan Weissman]

It's a coastal elite thing. Yeah, it's a coastal snob thing.

[Kathy O'Neill]

Yes, I am a snob.

[Jordan Weissman]

But yeah, so I don't really worry about the buybacks with Apple. Cause I don't know what the hell else they would do with it except for literally just leave it sitting in overseas.

[Kathy O'Neill]

Which they do too.

[Jordan Weissman]

Yeah. Which they are still doing. Yeah.

[Felix Salmon]

Okay, so that is it for us this week. Thank you for listening to Slate Money. Many thanks to Cathy o', Neill, to Jordan Weissman, to Zach Dynastein, to Andy Bowers, who executive produces this entire Panoply network, which is all to be [e-mail] Panoply Happy New Year to all of you.

[Kathy O'Neill]

Happy New Year.

[Felix Salmon]

We're thinking of New Year's resolutions, sort of fitness episode next week, if you have any questions.

[Kathy O'Neill]

It's all a scam.

[Felix Salmon]

People in. No, but I buy that scam.

[Jordan Weissman]

So hard. I buy it.

[Kathy O'Neill]

We love that scam.

[Felix Salmon]

The email address if you want to give Jordan some unsolicited advice on weight training is slatemoneylate.com yeah.

[Jordan Weissman]

Next week we're gonna talk about Jordan's attempts to get swole. It's gonna be great.

[Felix Salmon]

Jordan. Jordan is going to be beefed up. So, Jordan, what's going to happen to your. You know, if we're making numerical predictions here, what's going to happen to your, like, muscle mass over 2016?

[Jordan Weissman]

Okay, I'm going to go with a realistic predict. Absolutely jacked. But I'm gonna try to make. I'm gonna try to turn that. I'm gonna try to prove myself wrong. So.

[Felix Salmon]

All right.

[Kathy O'Neill]

Do you have any New Year's resolutions you wanna discuss, Felix?

[Felix Salmon]

So my New Year's resolution is I'm going to. Is a really boring one, but I'm going to write about changing the world and philanthropy and things like that more in 2016.

[Kathy O'Neill]

Okay. That wasn't the one I was hoping for.

[Felix Salmon]

So what was one you were.

[Jordan Weissman]

I'm get swole. You're gonna write about changing the world and what are you gonna.

[Felix Salmon]

Well, no, I don't actually want to know what Kathy's New Year. I want to know what is the New Year's resolution that Kathy was hoping.

[Kathy O'Neill]

For about interrupting Jordan.

[Felix Salmon]

Oh, yeah, let's discuss this. That one. So there is this other thing that there's this constant back channel of emails to slatemoney.com we love you. We love you, Felix. But will you stop interrupting Jordan and. Or Kathy, especially Jordan, but yes, both. And so I traded to interrupt as much as I could this week because. Because. Because you know I can only get better from that, right?

[Jordan Weissman]

Felix getting it out of his system.

[Kathy O'Neill]

That did not amount to a resolution.

[Jordan Weissman]

I think what Felix meant to say was he was getting it out of his system before going cold turkey in times.

[Kathy O'Neill]

Let me interrupt you, Jordan, to mention that. Jordan, that Felix did not say that.

[Jordan Weissman]

All right.

[Felix Salmon]

We may or may not see less interruption, depending partly on whether we can get clocks installed in the studios. We are moving, by the way. I don't know if you know this, Kathy, but we are moving to Brooklyn.

[Jordan Weissman]

Yep. Slate's moving to Brooklyn in March.

[Kathy O'Neill]

That's no good for my commute.

[Felix Salmon]

Oh, yeah, it's straight there on the 2, 3 as well.

[Jordan Weissman]

You can also get there on the A train. So.

[Felix Salmon]

Okay, so we are gonna have state of the art new podcasting studios in a minute and maybe they will have clocks on the walls.

[Jordan Weissman]

Wow.

[Felix Salmon]

You know, anything is possible. All right, we'll talk to you next week on Slate Money. Sam.