Slate Money – "The House of Cards Edition"

Date: June 16, 2018
Host: Felix Salmon
Panelists: Anna Szymanski, Emily Peck (Huffington Post)
Special Guest: John Carreyrou (Author of "Bad Blood: Secrets and Lies in a Silicon Valley Startup")

Episode Overview

This episode centers on the rise and fall of Theranos, as detailed in John Carreyrou’s bestselling book "Bad Blood." Carreyrou discusses the company’s culture of deception led by Elizabeth Holmes, the broader culture of Silicon Valley, and the consequences for both investors and employees. The panel also delves into Netflix’s aggressive content strategy and the sustainability of its business model. Finally, the team analyzes the "Just 500," a proposed more ethical stock index, and debates its legitimacy and impact.

Key Discussion Points & Insights

1. John Carreyrou and the Theranos Scandal

[00:45–19:07]

Why Has "Bad Blood" Resonated So Strongly?

• Carreyrou credits the book’s success to Silicon Valley’s cultural importance and public fascination, especially with unicorn startups and the tech economy.

  “I think Silicon Valley is an object of fascination in America and beyond…and it's a part of the country that has become really important to the American economy.” — John Carreyrou [02:45]

• Emily Peck highlights how Elizabeth Holmes’s persona added to the story’s allure:

  “She manages to just hoodwink all these, like, supposedly brilliant men…Men of a certain age. And…she appears on the cover of Fortune, on the cover of Wired. I mean, everyone just seems to be totally taken in by her.” — Emily Peck [04:53]

Was Holmes Just “Faking It” or Deliberately Defrauding?

• Carreyrou distinguishes Holmes from classic fraudsters like Bernie Madoff. He suggests her initial intentions were earnest, but her refusal to accept setbacks and the “fake it till you make it” Silicon Valley attitude led to deception with serious real-world consequences (e.g., inaccurate medical test results).

  “She continued to over promise and continued to pretend that she had achieved what she claimed to have achieved…by the time she went live with the finger stick tests in Walgreens stores, the gap between her promises and the reality was enormous.” — John Carreyrou [06:01]

Silicon Valley’s “Fake It Till You Make It” Culture

• The panel discusses how overpromising is common in tech, with the difference being that Theranos’s failures posed direct health risks, unlike most software startups.

  “Everyone lies. And maybe this was worse in kind because she was lying in a way that actual human beings could have serious health consequences as a result. Rather than lying about software, which is like a whiter lie, it's a more victimless crime.” — Felix Salmon [08:03]

Culture of Secrecy and Internal Dysfunction

• Carreyrou explains Theranos’s highly secretive, siloed structure, emphasizing how internal communication breakdown hindered the product’s development.

  “To create an environment in which you make communications between [biochemists and engineers] difficult is completely shooting yourself in the foot.” — John Carreyrou [15:53]

Real Victims – Employees and Patients

• Carreyrou recounts the story of Ian Gibbons, a respected biochemist driven to depression and suicide by Theranos’s mismanagement and ethical violations.

  “He became depressed that she was misrepresenting the technology…and he was also depressed that his exacting standards for accuracy…weren’t being maintained.” — John Carreyrou [12:49]

Unconventional Investment—Dumb Money vs. Smart Money

• Theranos’s late-stage funding mainly came from wealthy individuals and family offices—not sophisticated VCs with experience in medical technology, who generally avoided the company after early rounds.

  “The people who were defrauded were the billionaires and the family offices…not sophisticated Silicon Valley venture capitalists.” — John Carreyrou [18:51]

2. Netflix’s High-stakes, High-spending Content Model

[19:07–28:23]

Insatiable Appetite for Content

• Discussion based on a New York Magazine article about Netflix’s internal greenlighting process, aggressive spending (as much as $11 billion cash-flow outlay), and ‘say yes to everything’ approach.

  “Basically…they just say yes to almost everything. And their whole goal is to scale.” — Emily Peck [20:00]

• The importance of original content is underscored, given the increasing competition and content removals due to industry mergers.

Can Netflix Sustain This Model?

• Panelists debate whether Netflix’s negative cash flow and rising debts are dangerous, or sustainable due to low borrowing costs and potential for price increases.

  “They have no plan on being cash flow positive anytime soon. And as you said, in a low rate environment, that’s not actually a bad idea…they have a pretty smooth maturity profile.” — Anna Szymanski [24:10]

• Discussion of “content liabilities” — future payments to studios not visible on the balance sheet.

  “They have a lot of content liabilities that do not show up on their balance sheet…because of where the show is in process.” — Anna Szymanski [24:36]

• Debate on whether Netflix can keep raising subscription fees amid rising competition:

  “Right now, Netflix membership is $10.99 a month. Average cable bill is like $100…That means there’s so much room for Netflix to raise prices.” — Emily Peck [25:12] “I actually do question how much room they have to raise prices because…they’re now going to be a lot of players with a lot of different revenue sources.” — Anna Szymanski [25:51]

3. Mergers, Debt, and the Battle for Content

[28:23–29:40]

• The panel touches on the AT&T–Time Warner merger and Comcast’s $65 billion cash bid for Fox assets as examples of cable and telecom companies massively leveraging up to compete for original content, driven by the success of streaming giants.

4. The "Just 500" — An Ethical Alternative to the S&P 500?

[29:40–38:23]

What is the Just 500?

• A new index ETF attempting to select the “most just” companies in the US, based on massive public surveys about ethical business practices (“how companies should treat workers, suppliers, the environment…”).

  “You basically get the same exposure to the stock market that you would if you were investing in the S&P 500, but you’re avoiding the crappiest companies. And that’s good.” — Felix Salmon [31:15]

Panel Debate—Cynicism and Skepticism

• Emily Peck dismisses the index as a PR move by Wall Street players like Paul Tudor Jones and Goldman Sachs.

  “Blatant PR move by Goldman Sachs and Paul Tudor Jones…If you actually care about how companies treat their workers or about the environment…you would work with the government…” — Emily Peck [30:07; 33:37]

• Felix counters that the criteria are transparent and rooted in extensive research, and argues the fund provides a new way to passively invest more ethically at low cost.

  “They have done extensive surveys of 72,000 Americans…if you just want a kind of passive investment…without investments in the worst companies…this is a relatively new [option].” — Felix Salmon [31:15; 36:54]

Broader Implications?

• General agreement that the “Just 500” likely won’t dramatically impact the market or lead to social change, nor will it deviate significantly from the performance of broader index funds.

  “The actual stocks in it are going to be very, very similar to any regular index…The performance is going to be pretty similar.” — Anna Szymanski [33:33; 34:36]

Notable Quotes & Memorable Moments

• Emily Peck on Theranos’s appeal:

  “Part of the fascination…is with this woman, Elizabeth Holmes…who manages to just hoodwink all these, like, supposedly brilliant men.” [04:53]

• John Carreyrou on the company inner workings:

  “Most Theranos employees were actually smart, had good educations, were accomplished and ethical…where the company went off the rails was with its leadership.” [13:54]

• Anna Szymanski on management dysfunction:

  “The silos made it very hard for the chemists and the engineers…to create an environment in which you make communications between those two groups difficult is completely shooting yourself in the foot.” [15:53]

• Emily Peck on Netflix’s content strategy:

  “Their whole goal is to scale, right. To get more, use, more content. More content, more users, more revenue.” [20:00]

• Felix Salmon on the Just 500:

  “You basically get the same exposure to the stock market that you would if you were investing in the S&P 500, but you’re avoiding the crappiest companies.” [31:15]

• Anna Szymanski questioning Netflix's pricing power:

  “I actually do. I question how much room they have to raise prices because…there are now going to be a lot of players with a lot of different revenue sources.” [25:51]

Timestamps for Important Segments

• 00:45–19:07 | John Carreyrou on Theranos and Silicon Valley culture
• 19:07–28:23 | Netflix’s spending, internal greenlighting, and sustainability
• 28:23–29:40 | The great media mergers: AT&T/Time Warner, Comcast/Fox
• 29:40–38:23 | The "Just 500": Purpose, skepticism, mechanics, and market impact

Numbers Round [38:23–44:24]

• $80 million: Scrapping value of used Airbus A380 planes despite new ones costing $445 million (Felix) [38:33]
• $350,000: Canadian clarinetist awarded damages after girlfriend sabotaged his career by deleting scholarship offer (Emily) [40:44]
• 2026: Year when the US, Canada, and Mexico will jointly host the FIFA World Cup (John Carreyrou) [42:13]
• 0.8%: Drop in Brazil’s GDP due to a 10-day lorry driver strike (Anna) [43:15]

Episode Tone

The conversation is fast-paced, insightful, and often irreverent, with skepticism and humor, especially around Silicon Valley hubris, Wall Street PR maneuvers, and media consolidation. The experts challenge each other throughout, providing depth and context for listeners.

Summary for Uninitiated Listeners

This episode offers a gripping exploration of how charismatic leadership and Silicon Valley’s culture can lead even smart, ethical people astray, the mechanics and risks of Netflix’s growth-at-any-cost model, and the promise and pitfalls of “ethical” investing. With deeply informed panelists and a star investigative guest, the episode balances hard business analysis with skepticism and wit, making it a must-listen for anyone following the intersection of business, technology, and ethics.