Slate Money: The Liquidity Edition – Summary

Date: April 15, 2017
Hosts: Felix Salmon, Jordan Weissmann, Anna Szymanski

Episode Overview

This episode of Slate Money, titled "The Liquidity Edition," dives deep into the week’s major business and finance stories, with particular focus on bank capital requirements, the recent downgrade of South Africa’s sovereign bonds, and why financial markets don’t seem to react as expected to significant political and economic shockwaves. The episode also features a lively debate around the safety of global banking post-crisis, insights into market psychology, and a “numbers round” with illuminating statistics and stories.

Key Discussion Points & Insights

1. South Africa’s Sovereign Debt Downgrade

[02:12–12:48]

• Background: South Africa was downgraded to “junk” status by Fitch after President Jacob Zuma sacked the respected finance minister and installed political allies, heightening concerns about governance and fiscal responsibility.

• Why it matters: This move shifts South Africa from the “investment grade” bucket (low risk) to the “high yield/junk” bucket (high risk, higher default potential) in the eyes of global investors.

• Political context: The downgrades are viewed as much a condemnation of South Africa’s government and corruption as of its finances.

  “This is significant. It’s the first downgrade since 2000, and for a lot of the BRICs, it’s a status thing… being downgraded is significant.”
  — Anna Szymanski, [03:33]

• Global implications: The bond market’s muted response highlights a trend: investors keep seeking returns even in risky markets due to a global glut of liquidity.

• Market behavior: Despite dire headlines, there were net inflows into South African sovereign bonds the week of the downgrades. Investors are chasing yield and betting against imminent default, buoyed by central bank interventions and a low-rate environment.

  “When there’s so much liquidity in the market and people needing to put money to work, they’re much more likely to believe the optimistic story than the pessimistic story.”
  — Anna Szymanski, [15:21]

2. Why Aren’t Markets Reacting to Bad News?

[13:06–25:52]

• Detachment from Reality: Recent seismic political events—Brexit, the election of Trump—haven’t produced the financial chaos that was predicted. Amid bad news, asset prices often rise.

• Main explanation: The panel attributes this to the "global savings glut"—an immense pool of capital looking for returns in a world with very few safe, yielding assets and massive central bank intervention.

• Market psychology: The complexity and ambiguity of political news make it hard for markets to “price in” risk; with so much cash, optimism prevails.

• Currency markets as real signal: Of all markets, the hosts find that currency (FX) markets may still reflect reality best.

  “My standard response for the past eight years or so has been, ‘Never mind the stock market. What really matters is the bond market.’ …My theory is that bonds don’t tell you anything, and stocks really don’t tell you anything. But currencies actually move in interesting and informative ways.” — Felix Salmon, [19:17]

• Stock market risks: With valuations so high, risk is increasing—yet with money continuing to pour in, the rise feels self-perpetuating.

3. Are Banks Safe Now? The Dimon–Kashkari Debate

[26:20–39:52]

• Jamie Dimon’s position (JP Morgan CEO): In his annual shareholder letter, Dimon claims banking crises are solved, so regulations and capital requirements should be loosened.

• Neel Kashkari’s (Minneapolis Fed President) counterpoint: He argues banks need even higher capital cushions, and that so-called “total loss-absorbing capacity” (TLAC)—new financial instruments designed to absorb losses—is no substitute for real capital.

• Bank balance sheet basics:

  • Assets: loans made by banks (generate income)
  • Liabilities: deposits and debts owed to others
  • Capital: the difference—shareholders’ money, retained profits (the loss-absorbing cushion)

• What if a crisis comes? The panel is skeptical that banks would, in practice, shift pain onto unsecured creditors instead of needing another bailout—especially if a crisis is systemic.

  “History suggests we will not [bail in unsecured creditors]. We have already seen this – frankly, in Italy right now.” — Anna Szymanski, [33:08]

• Key academic insight: More capital won’t prevent financial crises, but it makes post-crisis recessions less severe.

  “What it does do is make the recessions that follow them less painful…That’s actually a powerful argument in favor of Kashkari’s position.”
  — Jordan Weissmann, [37:06]

• Political reality: Bailouts, even if technically profitable for the government, are politically toxic. Capital requirements are the only real buffer.

4. Numbers Round

[40:11–45:02]

Anna’s Number:

“57.25”

• The USD-to-ruble exchange rate after the U.S. attack on Syria.

• Ruble slightly devalued—helps Russian exporters and the state, which profits when costs are in rubles and revenues in hard currency.

  “When you talk about EM economies, you have to be very precise in the way you talk about financial statistics.”
  — Anna Szymanski, [41:46]

Felix’s Number:

“0.7” (70%)

• From Jeff Bezos’ shareholder letter: Most decisions should be made when you have about 70% of the information you want. Wait for 90%, and you’re too slow.

  “Most decisions should probably be made with somewhere around 70% of the information you wish you had…”
  — Jeff Bezos (quoted by Felix Salmon), [42:34]

Jordan’s Number:

“1.42%”

• The percentage of Mississippi welfare applicants (TANF) who actually get assistance. Indicates severe administrative or political roadblocks to accessing aid.

  “For some reason, Mississippi has just stopped accepting new cases. For all intents and purposes, more than 11,000 people applied last year; 167 actually got cash assistance…”
  — Jordan Weissmann, [44:06]

Memorable Quotes & Moments

• On the markets ignoring bad news:

  “Mario Draghi trying to stimulate Europe’s economy is indirectly making it easier for a corrupt government in South Africa to keep surviving and not have to deal with the consequences of its actions.”
  — Jordan Weissmann, [12:15]

• On financial crisis politics:

  “There was enormous anger and real suffering in the country around the time of what everyone calls the bank bailouts…If you were a politician, it looked dreadful.” — Felix Salmon, [37:30]

• On bank bailouts:

  “At the end of the day, banks are the linchpin of a capitalist economy. You can’t let the banks fall apart. It destroys the rest of the economy. It’s not like any other industry.”
  — Anna Szymanski, [39:01]

Timestamps for Important Segments

• 00:05–02:12 – Introduction, setup, recap of main stories
• 02:12–12:48 – South Africa’s downgrade, bond markets’ surprising calm
• 13:06–25:52 – Why markets no longer panic, global “liquidity,” savings glut, biases
• 26:20–39:52 – The Dimon-Kashkari debate: Can bank capital alone prevent bailouts?
• 40:11–45:02 – Numbers round: FX, Jeff Bezos’ decision-making rule, Mississippi welfare

Tone and Style

The episode stays lively, conversational, and at times irreverently “nerdy.” The hosts enjoy in-jokes, dry humor, and aren’t shy about challenging financial orthodoxy or each other’s expertise. Technical content is often translated into plain language (or poked fun at for being jargon-heavy).

For listeners who missed the episode, this summary delivers a thorough explanation of the week’s most relevant finance news, contextual debate on banking safety, and insight into global market psychology—with just enough “nerdiness” and wit to match the Slate Money tone.