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- [00:11]
A
Hello and welcome to the Horse Loose in a Hospital edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm joined by Anisha Mansky.
- [00:25]
B
Hello.
- [00:25]
A
The woman with much expertise on matters emerging market. Those areas of expertise are going to be in high demand this week. I'm joined by Emily Peck of the Huffington Post. Hello. Who is going to talk about horses loose in hospitals. We are going to talk about the Fed, which to no one's surprise failed to raise rates this week. But to the market surprise kind of signaled that it wasn't going to raise rates at all anytime soon. That's a big deal. We are going to talk about PG&E, which is this massive utility company in California which just declared, well, filed for bankruptcy, I should say, even though it is solvent because climate change. So how on earth to unravel that is a fascinating question. And also we are going to talk about the U.S. treasury and how it is throwing its weight around and the White House and the Justice Department. And are we entering a whole era of U.S. hegemony and power the likes of which the world has not seen for, oh, decades? It's kind of an. Emily is shaking heads.
- [01:39]
C
I don't think so.
- [01:40]
A
Emily is saying that she doesn't think so. We are going to untease all of these things and we are going to talk about ofac, because we get to talk about ofac and that's how nerdy we are. And we are going to talk about Venezuela because we love to talk about Venezuela on this show. So if that's not enough for you, we have an entire Slate plus segment on Facebook's newest and most powerful regulator, which is Apple. All of that is coming up on Slate Money. Okay. So Anna, the Office of Foreign Assets Control, ofac. This is leading Slate Money this week because it's so amazing. This is going to be the best conversation about OFAC ever. But I guess we should probably start by saying what is ofac? It's the treasury, basically. And the Treasury Department is not just a finance ministry like any other finance ministry in the world. It's also the entity which looks after the entire dollarized world. Anything which is done in dollars, anything in the world comes under the purview of Treasury. And what that means is basically every company in the world that operates internationally comes under the purview of Treasury. And if treasury decides to slap sanctions on you and say you're not allowed to deal with that company, then that company essentially gets excommunicated from the entire global economy. Treasury can do this. No other finance ministry can do this. Treasury has an extraordinary amount of power and the arm they use to do this is called ofac.
- [03:19]
C
When you say no other finance ministry you mean in the world?
- [03:22]
A
In the world.
- [03:23]
C
Okay.
- [03:24]
A
So only it's because the world runs on dollars, because global commerce runs on dollars, because every single global company needs a dollar bank account that treasury has that degree of control. So every bank in the world ultimately has to do what treasury says. Every company in the world ultimately has to do what treasury says, including which is the state owned oil company in Venezuela. Now the White House, John Bolton and all of these super hawks in the White House are very aggressively cracking down on Venezuela. And as part of that crackdown they have decided that they are going to essentially excommunicate Pervasa from the global economy. If you own pervasive bonds, you can't sell them. There's no broker dealer basically anywhere in America or any bank that you, you know, I mean theoretically you're allowed to sell them. You're certainly not allowed to buy them if you're an American. But you need to sell them to a non American and that. And you'd need to find some kind of a broker dealer to broker that deal. And there's no broker dealer who's going to touch that deal.
- [04:31]
B
Yeah, it will be interesting to see what happens because they're in the mb, the JPM index and so at a certain point there's no liquidity and you can't access them then in theory they should not be in the emby. But if you're tracking the EMBY and you own them, you then can't sell them.
- [04:46]
A
So it's a conundrum, it's tough and we don't, no one knows how long this is going to last, although there's a reasonable expectation that it will probably last for as long as Maduro has power in Venezuela.
- [04:59]
C
Should we explain a little bit why the United States has slapped such heavy sanctions?
- [05:04]
A
Yes.
- [05:04]
C
Can you explain this? I mean I can try.
- [05:06]
A
Go ahead.
- [05:07]
C
Basically Maduro was reelected for a second term. Most people think he basically stole the election. He's real bad guy, bad leader. A lot of Venezuelans are essentially starving. The country is in chaos. This other guy, Guaido. Guaido has declared himself the leader and the United States took the rare step, it seems like a rare step for 2019 of saying yeah, this new guy is a legit leader. And then they place all these sanctions on Venezuela to essentially force Madero out.
- [05:40]
A
And part of my thesis, which I'm going to try and flesh out a little bit tomorrow when my newsletter comes out, is Axios Edge. Sign up. Sign up, yeah. Okay. Axios.com I can get a plug in there. It's a good newsletter. I'm going to try. And my slightly inchoate thesis, which with any luck will be slightly more coate by tomorrow, is that the Americans are really in charge now. And one of the data points which supports this is that the US Immediately recognized Guaido as the interim president of Venezuela within minutes of him swearing himself in. And then the rest of the world, I mean, with the large and important exceptions of Russia and China, but like Canada followed after about 25 minutes, like most of the rest of South America followed within like, you know, a few hours. And even now the European Union has done the same thing like the US led and everyone else followed.
- [06:37]
B
Yeah, this is actually really significant if you look at the power the US wields because of how involved global trade is with dollars that, I mean, if you're talking about most global trade is in dollars, you know, most reserves are held in dollars, most debt that's issued globally is denominated in dollars. And if you look at what's happened since, you know, 2000, the US has been much more aggressive in using this power. And now the Trump administration has actually been particularly aggressive about this. If you look at, you know, the number of names have been added to the OFAC list of the Trump administration than say the last year of the Obama administration, it's like an increase of like 30%. And I think this can be good and bad. If the US is using this power for good and in a consistent, reasonable way, then that's, it's better than having them bomb a bunch of people. But on the other hand, if they're using this in a inconsistent way, like we saw, say with Rusal, where they just aren't thinking through these sanctions, they. That is not ideal. Same thing if you look at Iran right now.
- [07:39]
A
Let's take these one at a time because let's, let's talk about Russell, which is the big Russian aluminium company, which is owned or was owned or is controlled anyway, the degree of like overlap is interesting, but by this guy called Oleg Deripaska. So Oleg Deripaska is a classic oligarch kleptocrat, very close to Vladimir Putin and he winds up on this OFAC list. Now this kind of makes sense. Although it was the Trump administration who put in there, it was not the Obama administration who put in there. And then about a week ago he came or he's still on the OFAC.
- [08:23]
B
List, but the company's not.
- [08:24]
A
Rusal is not that somehow he managed to reduce his ownership of Rizal to a point at which Rizal is now off the OFAC list and a bunch of Democrats. This is kind of fascinating to me rather than sort of saying like what are you doing placing using all of this power? They kind of approved of putting him on the OFAC list and they're disapproving of taking him off it or taking his company off it.
- [08:52]
C
And a handful of Republicans too aren't happy about this either. And I think when the US first put the sanctions on Russia in the spring, Congress did it overriding Trump's veto. So the administration has never really been that into this for some reason.
- [09:09]
B
Well, the result, sanctions though I think when they put those on, it seems as though people didn't understand what that would do to the aluminum market or how, you know, who's really going to benefit from that?
- [09:19]
A
China.
- [09:19]
B
The Chinese companies, because those are the big competitors. It didn't make any sense and you know, it didn't make any sense because they were never really actually implemented. They kept just having extensions and extensions for when you had to divest if you held any, if you held Rusal, debtor equity and same, they kept having extensions and extensions for Deripaska to reduce his ownership in the company. So they didn't. The sanctions were bizarre. I mean they affected Rusal. They weren't making a long term contract.
- [09:45]
A
So what was the effect on the aluminum market?
- [09:49]
B
Well, obviously initially when people thought that they were actually going to be truly sanctioned, you saw a significant increase in the price of aluminum because you weren't going to have all this aluminum taken off the market. Now you're obviously seeing a bit of a decline because there's all of this aluminum that Rusal has apparently been stockpiling that's going to be coming back on the market. It also had a big impact on the alumina market because one of the other mines that produced it had also gone down that year. So this had a real effect on the market. It also had an effect on supply chains. Now it didn't have the like super damaging effect because they were never really implemented. However, the uncertainty definitely had an effect.
- [10:28]
A
And this brings us to the really big one, which is China. Another big thing we saw this week was a massive lawsuit that the Justice Department filed against Huawei, which is a huge Chinese telecommunications company. We've talked about in the past and is closer to the Chinese government than even most Chinese companies are. It feels like an arm of the Chinese government in many ways. And the Chinese government certainly is taking this lawsuit as an act of aggression on the part of the Americans. And again, like, this is. This is not part of trade talks officially, but unofficially, of course, it's part of the trade talks because the United States has a whole bunch of different mechanisms it can use to make life very miserable for foreign countries and companies, and some of. And tariffs are just one of them. And what we're seeing is an increased willingness to use things like lawsuits and OFAC sanctions and stuff like that, which are complicated. Like, if you look at the PEDAVESA sanctions, there's like, pages and pages of schedules of workarounds and who's allowed to do this and that with which companies, even Petavasa's own subsidiary in the United States, Citgo, is allowed to keep on operating. So it's complicated to structure these things. But I have to say, given the general incompetence of the Trump administration at doing absolutely anything at all, they seem to be relatively sophisticated at the way they're building these things and trying to make sure that they're targeting the sanctions in a way that it hurts the Maduro administration as much as possible and hurts international commerce as little as possible at the same time.
- [12:12]
C
So it seems like they're using similar instruments in three different cases. And that's sort of like, totally, they're very different, as we just described. In Venezuela, they're going to. The idea is pretty clear to punish this one government and force this guy out. But in Russia, it's sort of unclear what the original intention was and the effects were bigger than were wanted. And now with China, I feel like maybe it's good that we. That the Justice Department just charged them with 13 counts of, you know, fraud and other espionage stuff. Yeah. But, like, it's not clear to me that this is going to be effective or not yet. And, like, what. How China is going to retaliate is not clear. It just seems like a more complicated game.
- [12:56]
B
I agree. I think that if you're looking at the China situation, it's a lot more complicated. And I think it does call into question whether at a certain point doing this could become counterproductive for the US when you're actually going to be encouraging countries to find workarounds and also to incentivize them to think about a world beyond dollar dominance. Now, I realize that seems absurd right now because There just are no other alternatives. Like, certainly not gonna be the euro, obviously not gonna be the renminbi. Like, basically everybody else sucks more than we do. So it's going to continue to be the dollar for a long time. But, you know, as I was mentioning a little bit earlier, you know, even this week you had Europe announce that they're kind of structuring a workaround around the Iranian sanctions. Now, it's pretty limited, but this is another example of other countries kind of banding together, saying, we don't agree with what the US Is doing and trying to find a way around it.
- [13:48]
A
Yeah, I mean, I think that, as you say, it's limited, and I think the US Is okay with that. I think this is actually the reason why previous administrations didn't pull these kind of stunts is because they were precisely because they were worried about long term dollar dominance and that kind of stuff. And they wanted to protect that dominance, but the way they protected it was basically by never using it. And what the Trump administration has absolutely demonstrated is, especially in the realm of tariffs, is that it's willing to hurt itself in the furtherance of its international trade and foreign policy goals. They're saying, we will slap a bunch of tariffs on Chinese goods. They've done that. They've already slapped tariffs on like $50 billion worth of Chinese goods. And that hurts a bunch of American importers, It hurts a bunch of American consumers. And they're like, yeah, it hurts us, but we're going to do it anyway. And the rational. And that changes the whole game theory of trade negotiations. And similarly, these sanctions, yes, people are like, yeah, you are probably hurting your long term hegemony by doing this kind of thing. But if you're going to do this and you have a credible threat because we believe that you will do it, then that actually does force us to come to the table and make concessions.
- [15:12]
C
I feel like that's not gonna. It's just not clear yet with China whether that strategy of raising tariffs to get them to make concessions is going to work. Especially because the US Is being so unilateral, like they're going alone. They could have brought in others to put pressure on China and maybe in the end China won't be. The tariffs aren't even really the problem. And they're. I just don't see. Like I see with Venezuela, it's very clear that the US Went in kind of on its own and was the first responder. And then people came in, other countries came in behind them. But on China, it's Sort of like, isolated itself in trying to negotiate with this major economic power.
- [15:51]
A
I mean, it hasn't. I mean, we saw an interesting thing with the Canadian ambassador to China when he was just a tiny little bit trying to distance himself from the Americans and immediately got fired by Justin Trudeau for doing so well.
- [16:06]
B
And I was just going to say, I think part of the issue with China and as I said, with Rusal as well, is just the inconsistency of US Policy. I don't think that is a good look long term. I don't think that is going to benefit the country long term. And I agree with you, Felix, that I don't think this administration cares, but I think maybe the rest of the country should care in terms of, you know, the dollar is the most powerful thing we have. And we're. We're basically altering a lot of norms of foreign policy. And the idea that, you know, we're saying a company like zte, they violate sanctions on Iran. You have, you know, Trump saying that Iran's the worst thing in the world, but then being like, well, but if China buys some more soybeans, then ZTE is okay. Like, this is so inconsistent, and it makes it so other countries don't really know how to deal with us.
- [16:52]
C
They're injecting politics into places where it's becoming, I think, too. It's too messy. They're like, so John Mulaney, the comedian, he has a whole bit based on comparing Trump to if a horse was loose in a hospital. It's just total chaos monkey. There's no consistency in the policy. And it's sort of like he's there, this, like, chaos agent going around the world. And to say, like, it's effective is like, yeah, maybe one time it's effective here, but most of the time it's not effective.
- [17:20]
B
And it may be effective in China. In the short term, I think it probably will be, but in the long term, I mean, like, they're gonna be playing the long game. They know that Trump is not gonna last forever.
- [17:29]
A
So just to. Just to sort of wind this up, I just need to ask both of you, do we believe that the Huawei lawsuit was politically demotivated and basically came from the White House?
- [17:44]
B
Well, so on the one hand, I'm sure it's. I mean, I think you can't in any way divorce this from our kind of ongoing issue with China. But if you actually look at the lawsuit and, like, read the emails, it's pretty clear that these were just, like, massive violations.
- [18:03]
A
Yeah, no, I Mean, it's absolutely clear that the Justice Department has been doing a huge amount of work investigating Huawei for many years and they have a huge amount of evidence. But by that very token, since they've clearly had a bunch of evidence for many years, you know, it does kind of seem mildly coincidental at the very least that they suddenly drop this lawsuit now.
- [18:28]
C
Oh, for sure.
- [18:28]
B
Of course. Political.
- [18:30]
C
I don't think there's any doubt there.
- [18:31]
B
Yeah. But I think two things can be true at the same time. It can be political and there can still be some valid concerns.
- [18:36]
A
Oh, it's a valid lawsuit, that's for sure. So let's talk about the Federal Reserve last year, which wasn't all that long ago. It was only a month ago. The Fed was on a steady pace of raising interest rates, while at the same time declaring that it was being data dependent about the whole thing and that if the data changed, then it would change. And then this year, at its very first meeting of the year, they basically stopped saying that they were on a steady part of raising interest rates. And everyone jeered because they decided that the rate hike cycle might well have come to an end. And so my question is, what data are they looking at? Because I can't see any data. We just had an amazingly strong jobs report, especially considering the shutdown. What is this data that has brought this hiking cycle to an end?
- [19:30]
B
We're not seeing the same increase in inflation. We are seeing soft corporate earnings. We're seeing slowed growth. China, that's the biggest one people are talking about. You're also seeing this in Europe, Germany in particular, also in Italy.
- [19:42]
A
Oh, we should mention that Italy is now in recession.
- [19:46]
B
And then we now are going to have China starting to feel, moving forward, actual effects of these, this trade war. So I think that it's not really that surprising. And then on top of that, you also had all the volatility we saw at the end of December. So I think the Fed and the stock market.
- [20:03]
A
Yes, yes. And so, which is interesting, I think it's indicative the Fed shouldn't stop hiking rates just because the stock market goes crazy. But by the same token, if the stock market declines do represent a genuine pessimism about the future course of earnings and growth, then they should take that reasonably seriously.
- [20:27]
C
Yeah. And there are all the other indicators that Anna just mentioned. It makes sense to me that they would stop raising rates.
- [20:32]
B
Plus so do you think they're pausing?
- [20:34]
C
I mean, pausing.
- [20:37]
A
What's the next move?
- [20:37]
C
Is that why they're also doing. Should we also talk about the quantitative tightening that they're also doing.
- [20:43]
B
Yeah, although I, yeah, I think the balance, I mean actually the balance sheet is important. It's interesting because people are talking about it a lot. Although I think people are overestimating the effect of the balance sheet, just allowing these, this debt to roll off, which is essentially now. And I think the reason I actually think though this is important is because.
- [21:02]
C
Should we explain what quantitative tightening is before?
- [21:04]
B
Well, quantitative easing is when you're buying bonds, you're increasing the assets on the Fed's balance sheet. Quantitative tightening is the opposite.
- [21:10]
C
Quantitative easing was begun during the Great Recession to sort of basically what happened.
- [21:15]
A
Was the Fed cut rates all the way to zero and then they wanted to keep on cutting, but you can't cut below zero for various reasons. And so they invented this thing called quantitative easing which had the same effect in terms of monetary policy as a rate cut. It affected long term rates and which are the important ones. And so now they have to unwind that. And that unwind is called quantitative tightening. And what, what Jay Powell has been trying very aggressively to say is look, this is just a technocratic unwind. It's not really monetary policy at all. And the markets are like pulled the other one, this is monetary policy. If it was monetary policy on the way down, it's monetary policy on the way back up.
- [21:57]
B
What is less significant is actually then the size of the balance sheet because although yes, the balance sheet will be getting smaller, it's not going to go to where it was before the crisis. But what is interesting is that they're planning to allow a lot of the, to get rid of a lot of the mortgage backed securities because they want to have actually like even like less risky assets in the balance sheet and also to shorten the maturity. And I think that long term could potentially have a little bit of a bigger impact.
- [22:25]
A
On what?
- [22:26]
B
On rates. But not that it's not something we'll necessarily see anytime soon. And I think it's going to be such a gradual process that I don't think you're going to see some like massive market moves. But I do think it's the Fed getting back to more normal policy.
- [22:42]
A
So I mean just continuing the theme of White House throwing its weight around and getting what it wants. You know, like Trump was extremely aggressive saying stop raising rates and then they stopped raising rates. I mean there's, there's, you know, correlation there, is there causation.
- [23:01]
B
I know. I actually think Trump's comments make it harder for the Fed to actually pull.
- [23:06]
C
Back but they did.
- [23:07]
B
But they did because they had to. It wouldn't have made any sense to continue to hike with what we're currently seeing. I think if we start to, if you started to see inflation picking up a little bit, if all of a sudden the trade war, like, ended and you had a better growth report, then I think they would start tightening again. This is.
- [23:25]
C
So if so, Italy's in a recession, so the signs are not great for us. So if we do go into a downturn, the fact that the Fed has already stopped raising rates, that the Fed has less leeway to help out.
- [23:41]
B
Not necessarily. I mean, it's. Yes. On the one hand, you part of wanting to increase rates is to give yourself a little bit of, like, kind of wiggle room. So, like, if you need to reduce. But having said that, like, right now it appears that we're basically still somewhat stimulating the economy, but no one really knows, nobody really knows where the neutral rate is. A lot of people kind of think about a lot of our old ideas about the relationship between, I mean, inflation and unemployment has just changed. And so I don't think it's as simple as saying, like, oh, if rates are still relatively low going into, like, a recession, then the Fed can't do anything. Well, I mean, it can do what it did the last time, basically go to zero and then buy bonds again. And also, not every recession is the Great Recession. I think there's a sense that, like, if this cycle ends and we go, we start to slow like it will, and then if we end up in a recession, it doesn't have to be the end of the world.
- [24:36]
A
Right. I think this is part of the sort of trauma of the American public. When they hear the word recession is. They're like, oh, I remember what a recession is. A recession is what we had in 2009. That's not what a recession is. A recession is what you had in 2001, and no one really remembers that. We are not talking about a global financial crisis here. We're just talking about the economy slowing down and shrinking a little bit before bouncing back. It's entirely natural and in the economy. And the Fed will cut rates when it happens and life will go on.
- [25:12]
B
Okay.
- [25:15]
A
So let's talk about PG&E. This is a really interesting one. This is the big utility in California which has now filed for bankruptcy. The reason it has filed for bankruptcy is fascinating because normally you file for bankruptcy when bankrupt. Well, when you're insolvent, when your liabilities exceed your assets. And it's not Insolvent, but it kind of thinks that it probably will be on the grounds that there will be a huge number of claims against it from people who lost their homes in the campfire and other big wildfires last summer. And so the question then becomes, is this kind of a skeevy move on the part of PG and either to basically get out from the inevitable lawsuits and claims and say, oh, we can't pay them because we're in bankruptcy, or is this like a sensible way of trying to get out in front of those claims and punt the whole thing to a bankruptcy court? Who is probably better placed to make those judgments about who gets money and who doesn't?
- [26:23]
B
I think pretty, certainly the latter. I mean, you do have PG&E. And look, this is not a company that's behaved particularly well over the past, you know, 15, 20 years. But having said that, currently they are facing a situation where if they, although they are not insolvent now, they very quickly could become insolvent. And it doesn't make any sense for them to behave as though that's not the case because that you can't run a business like that. And it makes far more sense for them to go into bankruptcy and have to renegotiate a lot of their liabilities, their debt, their long term contracts. Yes. Are there going to be people who lose from that? Certainly. I think a lot of like solar and wind farms could actually potentially lose from this because they had established rates at a higher rate and they're going to be able to probably lower that. But it's also the reality of utility policy in California. When you have a law that says that a company is liable if their equipment is involved, even if they weren't negligent, you're going to keep running into this problem, especially as climate change continues.
- [27:27]
C
It does seem a little skeevy though. I mean this, like Anna just said, this company doesn't have a great track record. It just had to pay like a record fine for an explosion in California that it was responsible for in bankruptcy. Like you just said, it'll get to renegotiate prices. And customers in California might be the ones who wind up paying for this bankruptcy through highway.
- [27:49]
A
One way or another, customers are gonna wind up paying.
- [27:52]
C
And I guess, bigger picture, this seems like one of the first, I read somewhere, one of the first financial catastrophes of climate change essentially. And I feel like bankruptcy courts isn't where we should resolve these kinds of issues. There should be, I don't know what.
- [28:09]
A
The answer is, but it should be Something outside of courtroom bankruptcy, especially for utilities, is an incredibly convoluted and involved and expensive and time consuming process. This is going to cost millions and millions of dollars. It's going to years and it's going to end up with a solution where the main benefit for PG and E is they can just say, well it wasn't us who made these decisions, it was someone else and point to a bankruptcy judge. And at some point I feel like you do actually need to just own this. And, and this seems to me like they just rushed into this a little bit too gleefully. That they had these contracts with the wind and solar companies that they wanted to renegotiate and they couldn't get out from under. Under they're like o, now we can. They have a whole bunch of employees who have like pension funds and various other things which will fall under the bankruptcy regime. And you know, this is a great opportunity for them to like shaft their employees a little bit as well. Also, by the way, the employees for various reasons have a bunch of PG and E Stock in their 401k. So that's all like getting wiped out or certainly going down a lot. And in general this seems like a way for PG and E to sort of say, hey, we get to absolve ourselves of any decision making, what's the word, like responsibilities here and come out smelling clean and not really have to take the blame for all of the harm that we're going to impose on the solar companies and the wind companies and the employees and even the homeowners, they're not really trying to make it right, they're just washing their hands with it.
- [29:52]
B
I disagree with that a little bit because number one, if I'm a company currently my assets exceed my liabilities by $20 billion. I'm facing $30 billion of additional liabilities. What exactly am I supposed to do? And especially because right now what a lot of courts and people want PG and E to do is make the system safer. That costs money. How are they supposed to do that? How are they supposed to invest in that? I'm not exactly sure what the alternative is.
- [30:18]
A
So the alternative is, I think actually enter into constructive discussions with the state of California.
- [30:24]
C
That's what I think. I think this is really, it's a red flashing sign like states, the state governments and federal governments have to deal with the realities of climate change. And the way to deal with those realities is not by going to bankruptcy court, it's by having some kind of like visionary discussion and planning and policies that would make it possible for Californians to have electricity and for the state to actually wrestle with climate change and what needs to happen going forward. And I feel like going to bankruptcy court is sort of like an abdication of all those responsibilities on the part of the utility and California itself.
- [31:07]
A
California and utilities have always wound up kind of in all manner of nasty situations from Orange county and Enron and PGE's last bankruptcy, which wasn't all that long ago. And then PGE's latest, like the, the, not to mention the drought, the fires, like it's, it's not a great state to live in as a customer of utility. And what the politically expedient solution seems to have been to just blame the utility companies for everything and force them to pay for everything. Which is, which doesn't really work when you get catastrophe, catastrophes of this kind of magnitude.
- [31:46]
C
My question is, and maybe I'm just a crazy kind of communist lady, but why is a public utility private anyway? Like, it doesn't seem like a good idea.
- [31:55]
B
No, I mean, okay, this I actually will push back on because there's actually like, there are many studies, I think Slate actually published a piece a while ago comparing public and private utilities and the idea that like public utilities are going to keep prices lower or they're not. There is no evidence.
- [32:11]
A
No, no, we're not talking about prices. We're talking exactly about this.
- [32:14]
B
And actually in terms of safety also not if anything actually a little bit less. Now having said that, private utilities also aren't any more efficient, which you think they would be. So there, there's just not a tremendous amount of difference.
- [32:26]
A
No, no, but the whole point here is not like looking at how they operate on a day to day basis in terms of prices. We're exactly talking about aligning the interests of the state, literally the state of California, the interests of the people of California and the interests of the energy company in California so that, that all of these different moving parts can work together in a context of increasingly catastrophic consequences of climate change.
- [32:56]
B
I agree.
- [32:57]
A
And if you want all of those parts to work efficiently together, it helps if they're all part of the same entity. And it doesn't help if you wind up in the highly adversarial context of a bankruptcy.
- [33:09]
B
I disagree. You're talking about heavily regulated utilities. They also, they're constantly working with the government. They have a set of profit rate. That's how regulating utilities works. And actually right now, like if you look at a lot of legislatures in California, they'll say like, we don't want to take on this. Sacramento says we don't want to take on this. They don't have the capacity to like, run this grid. I mean, like, the actual people that we're saying, you're saying you want to give this problem to are saying we don't want this. So I agree with you that the current system is unsustainable. You simply cannot have like, status quo remain. You are gonna have to change things. I've heard of, like, potentially having an industry wide, like insurance fund that all of these companies are gonna have to put into so that you have funds that you can go to if you have these type of catastrophic issues. And also there are going to have to be. People are gonna have to think about, like, how can you try to reduce this happening in the future. But I just don't think if you look at the reality of simply saying, well, we'll just give it to the government and then that'll make everything better, that doesn't seem like it would work at all here.
- [34:12]
C
I'm just saying there's. PGE is not the gap. You know, just selling pants and it can go bankrupt. Like, PGE is delivering a public good. And like the state of California has a responsibility to its citizens to deliver the public good. And so it's interesting that it's that we've abdicated that to the private sector and now it's not abdicating.
- [34:32]
B
Though, as I said, like, when you're talking about a regulated industry, this isn't the gap. Like, this is very, very different. It's. This is so highly controlled. So I think what you're talking about is already happening. What is currently happening is not perfect. And I think that things do need to change. But I don't think the answer is.
- [34:52]
A
Okay, so what's the answer? What needs to change?
- [34:54]
B
Well, I mean, as I've said, I think the kind of insurance fund issue is an idea. I think that they are going to have to consider how, like, how rates are set and some of these laws that put so much of the liabilities on the companies themselves. But then on the other hand, it's complicated again because obviously if you don't put the liabilities on the companies, then they are just going to fall to the government in terms of when people do lose their homes. So then just trying to think of, like, how can we actually, like, what are the actual steps we can do to reduce the likelihood of this happening. And partly that's hard because partly it's like, let's cut down a lot of Trees in California, which would be part of it. Could you put more power lines underground? Yes. That's going to be extraordinarily expensive. There are no easy solutions here. And the government and this utility company are going to have to work, work together closely. But the utility company is not going to be able to do that if it's basically constantly in fear of being bankrupt like it has to.
- [35:45]
A
That's the whole point. It is now going to be in bankruptcy for the foreseeable future, for the next few years, which is not the best place to be if you want to try and implement one of these big long term structural solutions. I just feel like there are ways of reorganizing the system here which will work over the long term. And I just don't believe that the narrow interests of creditors fighting each other in bankruptcy court are the best way to arrive at that solution. Let's have a numbers round. Oh, yeah, yeah. Do you have a number, Emily?
- [36:23]
C
Yeah, I have a number.
- [36:24]
A
What's your number?
- [36:26]
B
Seems like a very aggressive number.
- [36:27]
C
Number 77%. Oh, yeah, that's Bernie Sanders proposal this week to raise the estate tax basically. And on estates that are over a billion dollars, he wants to charge 77% death tax. Remember people used to call it the death tax. And he's just the latest presidential candidate on the Democratic side to propose a new wealth tax.
- [36:55]
B
And I think state taxes and wealth taxes are not actually.
- [36:58]
A
Well, they are taxes on wealth.
- [37:00]
C
It's a tax on the wealth, but they're different things.
- [37:03]
B
I mean, an estate tax is something that. But if someone dies, then the person who's inheriting it has to pay a wealth tax, as you have other people. I'm just saying those are actually different things.
- [37:12]
C
But it's a tax on wealth.
- [37:14]
A
Yeah, Anna, there are lots of different types.
- [37:17]
C
It's a different.
- [37:17]
A
There are lots of different types of wealth tax. Property taxes are the most common one. Inheritance taxes are the second most common one. The kind of Elizabeth Warren proposal of an annual wealth tax on all of your global wealth is one which does not yet exist, but which might. But they're all different types. They're all kinds of wealth tax. And there is definitely a move now in the wake of this Warren proposal to take another look at inheritance tax as a way of basically backdoor, low key implementing a wealth tax without having to go through all of the practical difficulties involved in trying to do something which is annual.
- [37:58]
C
Yeah, it's interesting because it's a mechanism that already exists. We already have an inheritance tax. So Sanders proposal is actually much more practical, if you ask me, than Warren's because there's no new mechanism to implement. She just raise the, you know, we lower the threshold and we raise the percentage. So it's kind of easy peasy, I guess. Jeff. If Jeff Bezos died today, which he won't imagine, I'm sure he would owe, his estate would pay $101 billion or.
- [38:24]
A
Maybe the government would become a major shareholder in Amazon. Anna.
- [38:30]
B
So my number 17, that is the age difference between the two quarterbacks playing in the super bowl this week, which I just think is legitimately kind of interesting and cool. That so you have obviously Tom Brady and Jared Goff. Tom Brady is, you know, 17 years older. When he played in his first Super Bowl, Goff was seven. Like, I think that's kind of impressive.
- [38:55]
C
He's old. He's very old.
- [38:58]
A
I can weigh in on this because I am a complete expert on all things sportsball and I totally understand what this number means. I have no idea.
- [39:06]
C
The Super Bowls this weekend, did you.
- [39:07]
A
Know that it's tomorrow on Sunday I will be in a windowless theater watching an eight hour play. 2 billion. That's my number. That's a little hint of what we're going to be talking about on Slate plus this week. Two billion is the number of people who use a Facebook service that's either Facebook itself or Instagram or WhatsApp app every day on a daily basis, which is it came out in their latest quarterly earnings which were spectacular. And the stock went up. We are going to have a Sleek plus segment about why the stock went down before the stock went up. There is a whole scandal about Facebook abusing its enterprise access to the Apple App Store. That's going to be in plus. But 2 billion is a hell of a lot of people to use your services every single day. And it does kind of bespeak the power of Facebook and why it might want to be broken up. On which point I think we shall wrap up the main part of Slate Money because we want to rush along to the whole question in Slate plus of whether Facebook's most effective regulator is now Apple. Thank you for listening. Thank you for keeping the emails coming on slatemoneylate.com thank you to Max Jacobs for producing and we will talk to you next week on Slate Money.