The Mayday Mayday Edition

Summary

Slate Money: "The Mayday Mayday Edition"

Episode Date: June 10, 2017
Host: Felix Salmon
Co-hosts: Anna Szymanski, Jordan Weissmann

---

Episode Overview

This week’s edition of Slate Money—dubbed the “Mayday Mayday Edition”—is a whiplash round-up of global financial and political turmoil, anchored by the surprise UK election results, the ongoing European banking crisis, and the bizarre, high-stakes standoff between Qatar and its Gulf neighbors. Felix, Anna, and Jordan dive into the “bonkers” political moment in Britain, unpack European financial regulation in response to bank failures, and analyze the steep international consequence of Gulf power politics—all while maintaining the show’s signature mix of irreverent banter and sharp economic insight.

---

Key Discussion Points & Insights

1. The Shocking UK Election: From Foregone Conclusion to Total Mayhem

(00:10–17:07)

• Election Surprise:

  • Felix opens with disbelief at the UK elections, labeling them “bonkers.” He and the others reflect on how the election, initially predicted as a Conservative landslide, resulted instead in a hung parliament, upending Brexit plans and Theresa May’s leadership.
  • Quote:
    • “The UK election was bonkers. Bonkers.” — Felix Salmon (01:12)
    • “I thought the Belgians invented surrealism.” — European official, quoted by Felix (01:18)

• Theresa May’s Political Missteps:

  • The hosts chronicle how May went from refusing to call an election to betting on polls and disastrously misreading her mandate (“misguided optimism,” Felix at 03:25).
  • May’s weak campaign, robotic slogans (“strong and stable”), and the notorious “dementia tax” (a deeply unpopular policy punishing elderly homeowners) are dissected as reasons for her loss of support.

• Corbyn’s Unexpected Success:

  • Despite accusations of being “beardy” and old-school, Labour’s Jeremy Corbyn managed to energize young voters and erode Conservative majorities, even capturing traditionally safe Tory seats.
  • Quote:
    • “He has people who like him. He has a constituency which she does not seem to have.” — Anna Szymanski (04:39)

• Coalition Scenario and Northern Ireland’s DUP:

  • Theresa May’s only remaining hope: forming a government depending on Northern Ireland’s Democratic Unionists. The show explores Brexit and border complexities, with special attention to the invisible Ireland/Northern Ireland border and the peace accords.
  • Quote:
    • “The crazy ones... the spiritual descendants of Ian Paisley.” — Felix (05:49)

• Brexit Implications:

  • May’s hard Brexit mandate is lost—Labour’s stance is murky, and DUP suggests a softer border, leading to potential delays, confusion, and yet another election.
  • “No way you can negotiate a deal of this magnitude in the amount of time they have available. It is not possible.” — Felix (10:59)
  • Possible leadership shakeups (e.g., Boris Johnson or Corbyn) and overall uncertainty roil both markets and politics.

---

2. European Banking: Crises Contained or Still Smoldering?

(17:08–28:41)

• Banco Popular’s Swift Collapse:

  • A major Spanish bank is declared failing, quickly resolved and absorbed by Santander. The hosts praise Europe’s post-crisis banking regulation (BRRD) for working as intended—no contagious panic, bondholders take losses, depositors remain protected.
  • “You can resolve that bank without creating a crisis.” — Felix (19:18)
  • Anna breaks down why Italy’s Monte dei Paschi crisis is more complex and politically sensitive, especially with retail investors holding “risky” bonds.

• Contrast with U.S. Resolution Regimes:

  • U.S. allergy to bank mega-mergers post-crisis contrasts with Europe’s rapid wind-downs. However, Felix argues most U.S. banks can still be resolved by selling to the “big four.”
  • Spain’s banking sector remains a drag on Europe’s recovery; note that Southern Europe remains in critical condition—e.g., Spanish unemployment has only dropped from 26% to 18%.

• Underlying Eurozone Economic Strain:

  • Lack of bank lending drags out the recession, particularly in Spain and Italy. Labor mobility is presented as Europe’s pressure valve, with Brexit threatening to worsen the situation.

---

3. Qatar’s Multi-Billion Dollar Ransom and the Gulf Crisis

(29:34–40:15)

• Outline of the Gulf Blockade:

  • Qatar is suddenly blockaded by Saudi Arabia and allies, accused of funding extremism and being too cozy with Iran. The proximate cause: a reported $1 billion ransom to free Qatari hostages, some of which allegedly went to Iranian interests and various militant groups.
  • “A billion dollars is a large...” — Felix (33:26)

• Complexities of Gulf Politics:

  • Qatar’s habit of “playing both sides” (e.g., supporting Hamas, dealing with Iran, housing Al Jazeera) leads to mounting regional enmity.
  • Anna explains the diplomatic and economic impact of the blockade, including the disruption to food supplies and air traffic.

• Ethics and Repercussions of Hostage Ransom Payments:

  • US/UK refuse to pay ransoms but see more hostages killed; other countries pay, potentially funding illicit networks—a thorny moral and strategic dilemma.
  • “If you pay, you are essentially funding terrorists. And I don't know where to come down in that argument. It's a really difficult question.” — Anna (35:06)

• Role of U.S. and Unexpected Consequences:

  • President Trump’s tweets supporting Saudi action escalate the crisis, which, according to the hosts, should have remained a “family” matter among Gulf states.

---

4. Numbers Round: Statistics With a Twist

(40:15–46:20)

• Anna’s Number:

  • $1 Billion: Amount Lone Star Capital is investing in Portugal’s Novo Banco, with a quirky twist—senior bondholders must swap for riskier instruments, while government-held equity is protected, upending typical capital-structure norms.
  • “Night is day. Shit, man.” — Anna (42:13)

• Jordan’s Number:

  • 233: The number of House Republicans who voted for the CHOICE Act, a bill that would gut Dodd-Frank regulations, undo the Volcker Rule, and weaken consumer protections. Jordan highlights the “derangement” in current regulatory thinking.
  • “Jeb Hensarling...said [about Lehman Brothers] ‘the Lehman bankruptcy...to some extent worked as it should have worked.’ That is the thinking that is now powering the majority party approach to financial regulation.”—Jordan (43:52)

• Felix’s Number:

  • $187 Billion: Market capitalization of Taiwan Semiconductor, which now surpasses Intel, marking an epochal shift in the global chip industry.
  • “Intel, which is always the 800-pound gorilla in the room, is no longer the world’s biggest chip maker. And I just thought that was interesting.” — Felix (46:07)

---

Notable Quotes & Memorable Moments

• “You don't get a period of stability by losing your majority in Parliament.” — Felix Salmon on Theresa May’s failed campaign (14:09)
• “Nobody in Britain has a plan. Like, there's really nobody anywhere because there's...Because nobody thought this would happen.” — Anna & Jordan on Brexit confusion (10:53)
• “This is not good for us that this is happening. But also, this is typically the kind of thing that's kind of handled in the family in the Gulf...But once the U.S. President gets involved, that means all of a sudden, all hell fucking breaks loose.” — Jordan on the Qatar crisis & Trump’s tweets (40:15)

---

Important Timestamps

• 00:10–17:07: UK Election breakdown, Brexit implications, and political fallout
• 17:08–28:41: European banking crisis (Banco Popular, Monte dei Paschi), regulatory successes and failures
• 29:34–40:15: Qatar-Saudi dispute: ransom, regional power dynamics, Trump’s intervention
• 40:15–46:20: “Numbers Round” — finance oddities and regulation highlights
• Notable quotes/segments:
  • 01:12, 03:25, 10:53, 14:09 — UK election drama
  • 17:18, 19:18, 20:52, 22:06 — Banking crisis
  • 33:26, 35:06, 36:38 — Qatar ransom and international ethics
  • 43:52 — Financial regulation quote (CHOICE Act)

---

Tone & Style

The episode has a dynamic, conversational style blending skepticism, humor, and sharp economic analysis—full of memorable analogies (e.g., “turd in the punchbowl” on the dementia tax), insider explanations, and a candid view of global finance gone awry.

---

Summary

The Mayday Mayday Edition delivers a globe-trotting, intellectually engaging episode: from a surreal and destabilizing UK election through the careful containment of Europe’s ongoing banking woes, all the way to an eye-popping Gulf diplomatic incident, Slate Money’s team delivers timely context, biting wit, and unparalleled clarity on why money—and politics—remain unpredictable forces.

Transcript

[A]

The following podcast contains explicit language.

[B]

Hello, and welcome to the Mayday, Mayday edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Ham on Infusion. I'm joined, as ever, by Anna Szymansky.

[C]

Hello.

[B]

Hi, Anna. And by Jordan Weissman of Slate.

[A]

Hello.

[B]

And I have to say that up until the actual UK election, my general feeling coming into this week was this is the least important election of my lifetime. It's not going to make any difference to Brexit. There's no point in talking about it. The only way we're ever going to talk about it is if there's something completely insane happens. So I thought to myself, let's talk about Spanish banking and how, like, there's a huge banking crisis going on in Southern Europe. And let's talk about sexy things like the Qatari royal family paying a billion dollar ransom and these kind of things. And then maybe we'll talk about activist investing or something like that.

[A]

But no, no, but no.

[C]

British voters strike again.

[B]

We are going to talk about the UK election, because the UK election was bonkers. Bonkers.

[A]

So there's a great quote from this Belgian, from this, like, Eurocrat who got interviewed by the Times. He's like, I thought the Belgians invented surrealism.

[B]

So the Belgians, I mean, this is the wonderful thing, right? The Belgians really did invent the idea of a country without a government. They managed to go a year without having a government not that long ago. And it is increasingly looking as though the only way that Britain is going to be able to move forward is by not having a government. It's just a shit show over there. And the problem is the Belgians are boring enough to be able to run their country without a government. The Brits are not.

[A]

No.

[C]

That.

[B]

We're just not that competent.

[A]

It's not your strong. No, you muddle along well enough. But. So, okay, can we. Can we go through exactly what the state of play is at this point? Okay, so Theresa May has lost her majority after calling her rights.

[B]

Let's rewind a little bit because it's important to rewind here. Let's rewind to 2015, where you have Prime Minister David Cameron with a small majority. He gets reelected with a small majority in the lower house, which is the important one. And in order to placate his right wing, and also because he is a complete moron, he decides to make the single worst political decision in the entire history of the world, which is to call this stupid Brexit referendum. And we had a whole issue about that. And as we all know, the Brexit referendum went tits up, I believe is the technical term.

[A]

Yes.

[B]

And so he wound up resigning because obviously he completely, miserably failed. And the lesson which his successor, Theresa May drew, was to never call an election which you know you could lose and you don't need to have.

[A]

Yeah. It's like you never ask a question you don't already know the answer to. Except the problem is she thought she knew the answer.

[B]

So everyone started telling her, when she becomes Prime Minister, obviously she's unelected because she's just stepped into the recently departed David Cameron's shoes. And everyone says, are you going to call an election to give yourself a mandate? And she's like, no, that's ridiculous. Of course I'm not going to call election. Of course I'm not going to call election. Until one day she wakes up and sees an opinion poll saying that if she called an election, her tiny little majority would become a massive majority. Instead of having a majority of like, 5, she would have a majority of 100. And she's. And she is very excited about this because that way she has a mandate and she can barge through with her hard Brexit and she doesn't need to worry about annoying right wingers or left wingers in her own party and all of this kind of thing. So in a fit of, like, misguided optimism, Theresa May goes and calls an election.

[A]

Yep.

[B]

And her. And when she calls the election, according to the opinion polls, her lead over the Labour Party is bigger than the entire vote for the Labour Party.

[A]

Yes.

[C]

Yes.

[B]

What Theresa May doesn't realize is that Theresa May is the world's worst election campaigner. That Jeremy Corbyn, the leader of the Labour Party, for all that he's an unreconstructed, beardy, lefty, is a really good campaigner.

[A]

I wouldn't say he's a good campaigner. I'd say he's better than she is. And he has people who like him. He has a constituency which she does not seem to have.

[B]

And he does bring out young people votes in actually much the same way that Bernie Sanders did. And, you know, he manages to increase the size of the electorate. The turnout was really big. My favorite result in this election was Canterbury, which has been a safe Tory seat since, like, the 19th century and is, like the most conservative, boring Tory, Kentish, like town you can possibly imagine. Swung to labor this election, basically on the strength of the fact that it has a bunch of university Students who don't normally bother to vote, but they all came out and voted.

[A]

So now we've arrived at this point where Theresa May no longer has a majority by herself. So she has to create a sort of. She has to create a coalition government. And apparently that's going to hinge on. You said it's the Democratic Unionists of Northern Ireland going to be the key to the UK government.

[C]

Yes.

[A]

We have reached a point where the Protestants of Northern Ireland hold the future of the uk.

[B]

The crazy ones. Yeah. These are the spiritual descendants of Ian Paisley, who was famous mainly for just saying Ulster says no over and over again. No matter what the question was, the answer was always Ulster says no. And so these guys, these guys are interesting because of course, Northern Ireland has the UK's only land border with the European nation. Yeah. With an EU nation. And when I say it's a land border, I mean it's a land border in much the same way that it. There's a land border between Belgium and Luxembourg. It's an invisible line which people wander across back and forth all the time. You know, they'll live in one country, they'll work in another, they'll send their school, get kids to school in one, they'll go to the shops and another. And the problem with this land border is that Theresa May has promised that she's gonna crack down on immigration.

[A]

Yeah.

[B]

And of course, the Republic of Ireland has open borders with the rest of Europe. Anyone from Poland or France or Spain can just go to Republic of Ireland, no problem. They can then wander across the border to Northern Ireland, no problem. Because it's an invisible border with no border controls. And once you're in Northern Ireland, you're in the UK and there's no border control stopping you going to the rest of the country. Yeah.

[A]

And I think that one of the reasons this is so important, or the reason this is so important is that the, the Northern Irish Peace accords, all of that was based essentially, or largely based on some amount of free movement there. So that, that's, that's, it's absolutely key.

[B]

Yes. And they're peaceful Northern Ireland, and they're.

[C]

Also not in favor of exiting the Customs Union, which is really significant if we're talking about what this means for a harder or softer bright.

[B]

So this is. So this is why this is a, like, DESP attempt to shoehorn the British election into slate money.

[C]

I'm trying.

[A]

Yeah, we'll make an effort here.

[B]

Sort of is, Is that it does have important implications for Brexit because What Theresa May wanted was a mandate for what's known as a hard Brexit. She has decided that what she wanted late last week was this hard Brexit, where they would leave the single market, leave the Customs Union, leave the eea, the European Economic area, put up like, hard immigration walls and basically just be very extreme. And she wanted an electoral mandate to do that. She clearly failed to get that electoral mandate. And even the dup, who are pretty hard Brexit and kind of crazy Conservatives, are not that extreme. And it looks now that the ability of the minority Tory government, because that's probably what we're going to wind up with to get, you know, to push through a hard Brexit through Parliament, to push through the Great Repeal Bill, where they need to repeal all of the laws which gave all of the powers to Europe and that kind of stuff that's severely diminished. And what you might wind up with, especially if you have a slightly more moderate Tory leader, which is entirely possible, is a second look at the negotiating strategy and maybe a softer Brexit and maybe possibly we stay in the Customs Union or the single market or something like that.

[A]

So, I mean, I think part of the issue here is also just like Theresa May was going for a hard Brexit, because it's not clear she can negotiate anything else if immigration isn't on the table. And that's really the. I mean, during this election, even Corbyn was saying, we're going to reduce immigration. And that's. I think, part of the strange thing about this election is that labor successfully took place Brexit off the table by saying, yeah, we'reor a lot of Brexit off the table by saying, okay, yeah, we're gonna reduce immigration, we're gonna take control of our borders and we're gonna go through with it in some respect, but not the crazy deal that the conservatives are contemplating without ever really getting too deep into what their better deal would be. And so I think, you know, it's not. As long as you're saying we're taking, we're gonna close our borders, it's not clear the European Union will give you any kind of a deal that lets you stay in the Customs Union, which will let you.

[B]

But isn't that the whole point of the Irish thing, though, that maybe now the borders aren't going to be so closed?

[C]

Exactly. I mean, I may. Essentially, part of what she's being criticized for is only focusing on Brexit, whereas the labor was essentially focusing on economic policies that really appealed to People.

[B]

Well, it's been criticized for two many things like. But, but one of them is only focusing on Brexit and the other one is saying absolutely nothing about what her Brexit policy was. Right. She kept on saying, I'm going to announce a Brexit policy. Then she never did.

[C]

Yes. And just in saying things like, you know, no deal is better than a bad deal, and you're like, what does that mean?

[B]

The only thing, like this is the woman who famously, when she was running for the Tory party leadership, just kept on repeating Brexit means Brexit, like some kind of robot tautology. And then in this election campaign, she would just repeat, strong and stable, like some kind of robot. And no one knew what that meant either.

[A]

But that's because no one in Britain has a plan. Like, there's really nobody anywhere because there's.

[C]

Because nobody thought this would happen.

[A]

Nobody thought it would happen.

[B]

And it's not even possible. Like, there's no, no way you can negotiate a deal of this magnitude in the amount of time they have available. It is not possible.

[A]

Yeah.

[C]

And this is why I ultimately think this could be troublesome for the British economy, because this just puts even more uncertainty in terms of, I think right now, investors don't entirely know how to read this because on the one hand you can say, well, okay, maybe it's going to lead to a softer Brexit and then that could potentially be positive. But then it can also just lead to going to have another election and then there's going to be more instability.

[B]

I mean, there really could be, There's a real, real possibility of another election in August.

[C]

Yeah.

[B]

If Theresa May can't manage to cobble together the votes for confidence.

[C]

And right now, I mean, you're seeing weakness, a bit of weakness in the pound, but in terms of the, you know, in terms of the, you know, stock market, it's a little split between, like, your, your blue chips, which are more exporters, which actually are up because it's the idea that if you have a weaker pound that's, you know, it'll, it'll make them more competitive. But then your kind of mid caps that are all focused on the domestic economy are all down, so everything's just.

[B]

All over the place. And then also, yeah, no one knows who the next Prime Minister is going to be. And I think it's Boris that makes a big difference.

[A]

I'm open.

[B]

The return of Boris really, really could be. I mean, I hate to say this, but it really could be Boris Johnson.

[A]

It makes. Because this was such a, like, this was an election, was fought so much on domestic policy. And like the fact that Theresa, I mean, I think we should talk about the dementia tax.

[C]

We have to talk about the dementia tax.

[A]

But, you know, Boris Johnson at least has some ability to connect, for better or worse, with his fellow Brits and make crazy British, like, Tory policy sound palatable to people, which Theresa May completely failed on. So, although. So part of it, and this comes back to, I guess, talk about the dementia tax, is that Theresa May did lose some of the older vote because essentially their party platform, and no one knows, seems to know why this happened, but their party platform included this provision that said that if you had long term care from the nhs, like you were suffering from dementia or you had some, some critical illness in your old age and you had to have home care, it would be paid for by essentially selling off your assets after you died.

[B]

Including your house.

[A]

Including your house. They would sell off your family home and your family could keep like £100,000 worth and everything else above that, which would go to the government. And so this, I mean, talk about a fucking death tax, like the least popular thing. And it came out and no one seemed to understand how it had gotten to platform. No one took responsibility for it. It was like someone saw a turd in the punch bowl and everyone's like, who laid the turd? And no one would take. It was this insane thing. And then even the Conservative papers went nuts about it. Was it the Evening Standard? The Daily Mail coined the phrase dementia tax. So they, and all the old voters said, hey, this is not in our interest. So she, they managed to alienate even some of their core.

[B]

Well, they did. They. Did u turn on it?

[C]

Yes.

[A]

Yeah, but it was.

[C]

But that made it even worse.

[A]

Yeah, it was because then she was.

[C]

She wouldn't admit that she did a U turn on it. She put a cap on it and then said, oh, it's not different at all. And you're like, it's entirely different.

[B]

But, yeah, but this is the other thing. She kept on saying strong and stable. And then she did about seven different U turns over the course of six weeks.

[C]

Weak and flimsy.

[B]

There's nothing strong. She even came out in her victory speech after she got reelected in her own constituency and said, what we really need now is a period of stability. It's like, well, you don't get a period of stability by losing your majority in Parliament.

[A]

So I think there's one parallel to the US election in some ways that we just went through which is that this is a vote with profound consequences for the future of Great Britain. It throws so much into chaos, much as our own decision to vote for Donald Trump through everything into fucking chaos. But a lot of it hinges on the personal incompetence and personality of the, of one of the candidates. And so it's a little bit tough to suss out exactly what all this means.

[C]

Exactly what? Because I think at the end of the day, the UK is still not a far left electorate. I mean, I don't think that this election suggests that all of a sudden, no, the population politics have massively.

[B]

Part of the problem with Brexit is that it's not really a left right issue. So what you don't see in this result is like a big national swing, either away from the Tories or towards the Tories. What you see is a bunch of incredibly idiosyncratic local results in Scotland. In Northern Ireland, you saw a big victory for Sinn Fein. Weirdly, Sinn Fein has a record seven seats which they're not going to take in Parliament. And that really alters the parliamentary math because those seven MPs don't turn up and don't vote. There's a bunch of bifurcation. I would say the one thing which you see in both Northern Ireland and in England is that they've both become two party states for the first time in a long time. In England, it's just the Tories in Labour, in Northern Ireland it's just the DUP and Sinn Fein and Scotland is still mostly snp, but you have Labour and the Tories coming back, you know, that's the last three party country. There's a big reworking of the political landscape and everyone knows that it's waypoint to somewhere, but just no one knows, no one can see where we're going.

[C]

And how this affects all policy, not just Brexit, but also domestic policy. Anything moving forward.

[B]

It does seem that the, you know, demographically, if you want to look at what do people under the age of 40 believe, they are moving to the left generally. And they like the idea of Free University and they like the idea of nationalising the railways and they like the idea of raising taxes and they like the idea of ending austerity and that could be a big move.

[A]

In the meantime, we get Prime Minister Boris Johnson, hopefully.

[B]

Don't even joke about that. Although, yeah, I pray it would be so bad. I mean, it is, actually. I mean, just to wrap this up, it is still possible we could wind up with Prime Minister Jeremy Corbyn. I mean, anything is possible right now. Jordan.

[A]

Yeah.

[B]

Talking about European countries which are being fucked by European policies. This is something we've been kind of hinting at for a long time. Right. Or talking around for a long time or mentioning en passant is this idea that there's a major banking crisis in Southern Europe and you can't just close your eyes and hope it'll go away.

[A]

No, no. And so we had a little flare up this week. A European banking regulator essentially declared that a Spanish bank, Banco Popular, was failing. And they actually successfully wound it down and sold it off to Santander. In a way, this is a weird way, sort of a story of a success of European banking regulation post crisis in the sense that they saw trouble, they came down, they said, okay, you're experiencing a bank run. We don't want this to get out of control and we're going to just send you off to a larger, more stable institution. Sort of the way, in my mind, the way I'm comparing this is sort of what the US did with Bear Stearns and JP Morgan. In a way, they sold it essentially for a nominal sum so that they would take on.

[B]

I think it's closer to what they did with Washington Mutual.

[A]

Okay.

[B]

You know, and, and it's not just that they were having liquidity issues in the bank run. They were determined to be insolvent. Yeah. And so what they did is they wiped out all of the stock. They wiped out some of the junior bondholders. And they said, we are just going to take your assets and hand them over in much the same way that the US did when they sold all of Washington Mutual Exchange. Yeah.

[C]

Although this, this really is significant because this is an example of the new banking regulations working exactly as they're supposed to.

[A]

Yeah.

[C]

And the other thing, and they've done.

[B]

It before in Portugal, but this is much bigger.

[C]

Yeah, this is much bigger. And it's also really significant because there has been no contagion.

[A]

Yeah.

[C]

And that's exactly what you're supposed to do.

[B]

This is. And this is. Yeah. And one of the great things about this is that it shows what all of us kind of suspected. But it's always good to have it approved. A real life proof, which is that if a bank becomes insolvent when there isn't a major crisis going on, you can resolve that bank without creating a crisis.

[C]

No, I mean, this is the whole point. If you look at the BRRD and you have Article 32.4, you have precautionary recapitalization.

[B]

Okay. Right, stop. Start again.

[C]

So the brrd, which is the Banking Resolution and Recovery Directive that was established after the banking crisis, which essentially sets up all of these regulations for how you're going to deal with banks. And there are many different ways of how you deal with them, depending on whether they are actually insolvent or not insolvent. But in one instance, you know, this, this is a little different because what we've seen in Italy is actually this being used with like Monte Peschi to do precautionary recapitalizations, which is exactly this idea of trying to come in before everything is entirely falling apart, inject cash and then kind of stabilize.

[B]

Okay, so let's be. Let's take this one at a time because it's a very interesting difference. In Italy, we've got this big bank, very old bank, Monte de Peschi, which has not been resolved in this way, has not been sold off. The junior bondholders have not been wiped out. The bank still exists. It's kind of staggering on somehow the government is trying to inject new money into it to keep it going. It's getting and it's a mess. Whereas with Populure, there's no injection of new money. You just wipe out a whole bunch of bondholders. You sell it all off to Santander. It's much cleaner. So the question I have for you, Anna, is why are the Italians not doing the clean thing and just doing a popularity Monte de Pesci?

[C]

So a lot of the bond, junior bonds that are held in a lot of these failing Italian banks are held by retail investors. A lot of them were sold essentially to mom and pop investors. So the idea of wiping out that is almost akin to wiping out depositors. It's a big political deal. And actually part of the rescue plan that has been developed for NPS has actually involved some of those bondholders are in theory going to be turned into equity. But then what's going to happen is that then that equity is going to be swapped for a senior bond instrument. So that's been part of the rescue of. The idea of how they are trying.

[B]

To deal with this always comes down to this, which is like who owns the various tiers of capital. Like depositors are generally protected. Unless you have a major, major bank collapse, you try as hard as you can to protect depositors as much as you can. Certainly small depositors, not because they necessarily have any particular legal seniority, but just because they are the little guy and everyone wants to protect the little guy. And this is why the Argentina Bankruptcy was such a big deal in Italy. It wasn't that Italy, Italian institutions had a bunch of Argentine bonds. It's because Italian individuals had a bunch of Argentine bonds.

[A]

I think there's also something to be said for protecting the little guy. I mean, that is the core of having the fdic, for instance, the US is that it makes the banking system more stable when small depositors, who are the crux of, you know, this is.

[C]

Entirely why we have established the, these new banking regulations to create capital buffers. So not only do we not need to inject state aid, but then on top of that, you are protecting depositors. Because what has happened with Popular is that the additional Tier one capital, which is like the cocos, the contingent convertibles, those were wiped out. And then I think a bit of the, I think the Tier 2 was also wiped out. But again, your senior bondholders are safe, your depositors are safe.

[B]

And I guess what my point is is that this is fine in theory, and it's fine in the US where depositors aren't really bondholders and they're protected by the fdic. And it's fine in Spain where, you know, there, there aren't any like little guys who own cocos. But it's, but in. That's more of a sort of coincidence that it just so happens that the people with the riskiest securities are also institutional investors who can afford to take the loss in an event. If you have a bank like you, like Monte de Paschi, where the people with the riskiest securities are little guys, then suddenly this beautiful system where you just wipe out the riskiest securities doesn't work anymore. It only works if you manage to place those securities with institutions who can take the loss.

[A]

Yeah, I think also you're talking about how this could work. Something like this can work in the U.S. i think what just happened with Banco Popular show is kind of the flaws in the US system to some degree that we've created Banco Populars have been a very smooth process where they just kind of again sold it off to another larger bank. In the US there's an immense allergy right now to creating even larger banks. And the system that we've created, our kind of our, our version of resolution is aimed at taking these institutions through bankruptcy, identifying them ahead of time, like Europe did with this bank, but saying, okay, we're just going to wind you down in the courts, but just sort of in an expedited way.

[B]

I feel that's not really true, or it's true only for the four biggest Banks. I think that any bank which isn't Chase or JP Morgan or Bank of America or Wells Fargo can quite easily be resolved by selling it to one of those four.

[A]

That's true. Yeah. And Banco Pablara, we should say, is small enough that it is something that could actually be kind of taken care of, probably by the FDIC in the us like in a more traditional way.

[B]

Spain couldn't have done this with Santander.

[A]

No, no, no.

[C]

You know, and this actually works well for Santander because it's going to help them increase market share with small and medium enterprises.

[A]

So I want to zoom out for a second, though. Talk about kind of the bigger picture of what's going on with these banks. Why? I think there's that, you know, there's real world implications. You can talk about how this shows that the, you know, the financial regulatory system they've put in place is working or not working. But in the end, like you said, Felix, there is this raging banking crisis still going on in Southern Europe. And Europe is very Europe, all business investment. You know, their economy runs on bank lending far more than the US Does. Right. In the US we have a lot. We have very active bond markets in Europe. They rely on banks to lend and banks aren't lending in Europe, partly because of this crisis. And you can look at the data, you can look at the lending, you can look at loan growth or how actually declined for a while. And this is hampering just a huge part of the world economy. And the fact that they haven't been able to put out this fire is just, it's one of the kind of quieter, I don't know, crises that's still lingering from.

[B]

Certainly bank lending in Spain and Italy and Portugal is way below what you would consider to be healthy. But then again, in a weird way, it always has been that, even when it was high in Spain. I mean, Italy is a different thing, but even when it was high in Spain, it was mostly the wrong kind of bank.

[C]

Right.

[B]

I think it's real estate.

[C]

I think it's important to remember why Bunco Popular got into trouble. And it's because they essentially got into the real estate market at the worst time. They were really late to get in, so they got the. They had the riskiest assets.

[B]

But yeah, the, the real estate crash and the 2009 crisis has not been resolved in Spain and. Or even in Italy. That overhang is there. The one thing that has happened since then which is good news, and I think we're seeing this week with Popular, is that at one point it was felt that you couldn't, like back in the worst days of 2009, 2010, 2011, it was felt you couldn't wipe out those bondholders, many of whom, let's be frank about this, are German, because the Germans would be up in arms about it and they would cause all manner of chaos. The Germans have not said a peep about this. We have managed to wipe out the bondholders without any real negative repercussions in large part because the financial asset markets, the bond market and the stock market are both doing so well that you can take those losses now. Yeah.

[C]

And again, it's also, I do think people understand, especially if you're buying additional tier one capital, that you are getting a significantly higher coupon because you are taking on significantly higher risk.

[B]

So I think so long as the stock market remains high, so long as bonds remain broadly healthy, so long as you don't have another major Europe wide crisis, it seems like we can weather the European banking crisis without it turning macro and bringing the entire continent down.

[A]

Well, it's not going to bring it down in like a flash. It's not going to be volcanic. But I mean, it's a drag.

[C]

It is a drag.

[A]

Yeah. It's still weighing on the economy and people. You see these optimistic stories about what's going on in Spain right now. Oh, they're righting their economy. I saw someone say Spanish unemployment is coming down from disastrous levels. Right. So I went and double checked. I was like, I thought it was still pretty high. Yeah, it's come down from about 26% to 18%. I mean, we're talking about countries that by, if the US were in this state that Spain is, it would be considered a historical crisis. It would be. People would be freaking the hell out. It never got as bad in the US during the Great Recession as it currently is in Spain. And this is one of the factors that is still dragging out. And so I just, I don't know how you, how do you lance this boil? How do you just fix it once of all? Is there a way to.

[B]

The way you do it ultimately over the long term is through, you know, like tying into the first segment here, labor mobility in Europe. If there aren't a lot of jobs in Spain, then the Spaniards wind up going to find work in Germany. That takes a very long time and it doesn't solve the problem in Spain. But that is part of how the European Union is meant to work. And where they really ought to be finding work is in the UK Because The UK is quite good at creating jobs for lots of people from lots of nationalities. And we love the Romanians who come in and bash terrorists over the head with chairs from their. Like, you know, when they went from their stall in Borough Market. And if the UK puts up these walls and doesn't absorb the. Those people who need jobs, that's bad.

[C]

For all of Europe, especially because the UK has an aging population and really needs workers.

[B]

Exactly. Okay, so now we're going to move even further east. We started on the Atlantic, on the east coast of the Atlantic, but now we're going to move over to the Middle East.

[C]

Yes. So we are going to move to Qatar.

[B]

Qatar.

[C]

Qatar. People love Qatar. Qatar. Yes. Cutter.

[B]

So it's one of those. Is. That's the one where Doha is the capital.

[C]

Yes.

[B]

Doha is famous for being a World Trade Organization negotiating around and also basically not having any oil.

[C]

No. So Qatar is gas.

[A]

Yeah, yeah.

[C]

It's the world's largest exporter. Yeah, exactly. So I think this. This row between the Saudis and their Gulf coast allies and Qatar has really confused a lot of people because they're like. I don't understand. They're all Sunnis. What's the problem? But. But the. That apparently, you know, Qatar has been kind of a bit of a maverick nation in the region for a while in the sense that they've. They've often been known to kind of play both sides in conflicts. And they've also. Al Jazeera is there. And Al Jazeera will sometimes be critical of a number of the other dynasties kind of in the region, but not the Al Thani dynasty in Qatar. So that. And essentially it's just the Saudis think that Qatar doesn't always kind of play by the rules that they're supposed to.

[B]

But Kurta is. It has a big US Military base. It does have Al Jazeera, which is a. You know, it's an instrument of soft power, but it's a genuinely respectable news organization. Doha is generally considered to be a perfectly pleasant place.

[C]

It's not like unless you're one of the many, many migrant workers.

[A]

Yeah.

[B]

But it's not like Saudi Arabia, where, like, women aren't allowed to drive and you have these police roaming the streets, whipping you if you don't go to.

[C]

Yeah, it is a Wahhabi. I mean, like, they're, they're. I mean, they're.

[A]

It.

[C]

Qatar is actually fascinating because most, the vast majority of the population are foreign nationals and migrant workers. There's a very small percentage of the population who are actually Qataris, which is actually interesting because this is a side note. But if this lasts for a significant amount of time, this could actually have ramifications in Southeast Asia.

[B]

Okay, so two questions we have to like rewind. Number one, what is this? What, what have the Saudis and the rest of the Gulf Council.

[C]

Okay, so essentially they cut off diplomatic ties with Qatar and they also cut off all land, sea and air transit, which is actually really significant for the airways and also because Qatar imports their food and essentially everything.

[B]

So this is a major blockade of a big deal country and one which it looks like the resident of the United States is okay with. What was the proximate cause of this?

[C]

So Russian hack? Yeah, maybe potentially. So one of the issues is that the Saudis have really pointed to is this idea that Qatar has been financing extremism. And specifically what people think is this announcement of this one potentially $1 billion payment to gain the release of I believe 26 Qatari hostages essentially that were kidnapped. And the payment appears to mostly have gone to Iran. It's a bit complicated in terms of what actually happened. But basically you had this Qatari group that were going into southern Iraq. They were then taken by these Iranian backed militias. Then the money that came in both went to these militias, it went to some Iranian officials. It was then later also moved to these, this Al Qaeda affiliate that then released a different amount, different hostages. But the point that Saudis and their allies are really angry about, frankly is the fact that it looks like this was a way to funnel money to Iran.

[B]

And in terms of ransom payments, I mean, correct me if I'm wrong here, but a billion dollars is a large.

[C]

It's a lot of money. Yeah. And I think that's why it also feeds into this larger critique that again the Saudis have, which is that it seems as though it's not that this was necessarily that the Qataris were just trying to help the Iranians, but it's a way for them to essentially fund a lot of these extremist groups.

[B]

So the question which I have is, number one, are you saying that the Qataris basically used the ransom as an excuse to do something which they kind of wanted to do anyway, or because France makes a lot of ransom payments to the Islamic State, as do various other European countries. It's not like every ransom payment is something you do because you want to.

[C]

No, it's less that they were using as an excuse. It's more that it looks like they will essentially pay anyone. And I think that's the real Critique.

[B]

So which brings me to the thing which I'm really interested in about this, which is the flow of ransom payments into terrorist organizations, which has been going on for many years now and is a really large amount of money.

[C]

It is. I mean, I granted now kidnapping is not the major source of funding for most of this. The, for the, some of the Iranian backed militias it's one of the bigger sources of money, but for a number of others it's not necessarily. But having said that, it is interesting to look at who pays ransom and who doesn't. And I think this is interesting because the US and the UK are essentially two of the only countries that really just say we will never pay. And.

[B]

And the result is that their hostages get killed a lot more often.

[C]

Yes. And then this becomes a just a significant ethical issue where you go, okay, you know, there is no evidence to suggest that the other European hostages that do pay, it's not that they're targeted more because they pay. And again, you are having these, again, US hostages being killed. But then the other argument is okay, but then if you pay, you are essentially funding terrorists. And I don't know where to come down in that argument. It's a really difficult question.

[B]

Maybe you pay a couple million bucks, but you don't pay a billion. Maybe, maybe like the minute you start getting a B on there, it starts stopping being like a ransom payment and starting being something bigger. I do want to just jump in here randomly because this is my favorite story and mentioned my favorite ransom payment. So you know how we talk about a very large sum of money often as a king's ransom?

[A]

Yeah.

[B]

This is actually a genuinely factual historical story, is that King John II of France was captured by the English in the early 14th century and was ransomed back to France for literally a king's ransom. This is I think 1340 around there. And this payment, this ransom payment was so enormous that it almost single handedly was responsible for the fact that Britain wound up being a much more successful nation over the following few hundred years.

[A]

So you're saying kidnapping pays.

[B]

Kidnapping really, really did pay for the English.

[A]

How much of this is then? Because it seems like this whole kidnapping incident and the ransom, it's sort of a gray area for how badly Qatar wanted to avoid it or how willingly they went along with it. How much of it is just like they didn't really negotiate the price. They were just like, okay, a billion dollars that's going to people we want to support anyway. Is that sort of the theory there?

[C]

I mean, it just Seems like this wasn't, I mean it's very complicated because it was also related to like moving people between. In Syria you had a certain number of like people in rebel held towns and government held towns and they were able to swap them as part of this as well. So it invited, it involves a lot of things. So it's very complicated to say.

[B]

So it was a complex negotiation with a lot of moving parts. It wasn't just a, someone came along with a bill for a billion bucks.

[C]

No, exactly. But, exactly. But it, again, it's more, I think just this issue of again the Qataris kind of not sticking to the party line. Yeah, they, they will negotiate and work with parties. They've also, I mean there's also concerns because they, they are supported the Muslim Brotherhood, which the Saudis really are opposed to.

[A]

Yeah.

[C]

As well as Hamas. Hamas and then in Hezbollah which was also connected with this. So it really is an example again of the Qataris have kind of existed in this like middle space and they've sometimes portrayed themselves as like, you know, oh, like look, we can negotiate but some of the other regional powers, more are acting as though they're taking advantage. And frankly this is just another example of, in this region where you, you just have this essentially battle between the, the Saudis and Iran and they, and this is to me just, if anything just another example of a kind of proxy of that larger issue which I.

[A]

Should say the, just to explain my Russian hackers reference earlier. So there's this other weird subplot here that is almost unbelievable. So basically there was a news story on state, There was a state news story that came up that quoted the Qatari leader basically praising Israel's leaders and I believe also Iran's leaders. And the Saudis took exception at this. They were very angry about it. And then later on it came out that maybe the story had been planted by Russian hackers as like a propaganda thing. But then the Saudis didn't believe that. And so that tells you, I mean it's, there's sensitivities here about actual, you know, financing and then there's just straightforward political bickering as well. And that's. So there are two parts this, but it goes I think further to your point is that there's a great game going on in. The Saudis are very sensitive.

[B]

Exactly.

[C]

This, I think the, the payment, this $1 billion payment was like the final straw, but it's a part of a much, much larger issue.

[A]

Yeah. And then of course you have Donald Trump tweeting, yeah, and so, basically, after all this happened, Donald Trump jumped in and started tweeting about how great it was that Saudi Arabia had fingered Qatar about this. And he sort of tried to take credit for the whole thing because of his. His, you know, his trip out there where he did a little sword dance and touched the orb. But it's. You know, what one person said to me who had spent a lot of time in Qatar is that they were just obviously just astounded by this. A. Because the US has its Centcom base on Qatar. We have 11,000 troops there. This is not good for us that this is happening. But also, this is typically the kind of thing that's kind of handled in the family in the Gulf that, like, these kinds of conflicts break out and they deal with them, but once the US President gets involved, that means all of a sudden, all hell fucking breaks loose. And that's sort of now why this has become gone from an interesting and weird and possibly bad story to an international crisis that sort of escalates.

[B]

Yeah, let's just hope he doesn't tweet about Yemen. Okay, let's have a numbers round. Because I have so many different numbers to choose from this week, I feel that I'm going to let you guys go first because maybe some of them are going to be mine.

[C]

I think I'm actually going to switch my number.

[B]

You're going to switch at the last minute.

[C]

Okay. Because when we were talking about banks, I'd wanted to talk about Nova Banco in Portugal and didn't get a chance to. So I think I'm going to talk about it now.

[A]

Okay.

[B]

Portuguese bank. What's your Portuguese bank?

[C]

So, actually, this is kind of fascinating. So Lone Star Capital.

[A]

Wait, you need a number.

[C]

It's 1 billion. Sorry, it's another. It's another 1 billion.

[B]

It's the $1 billion number. But it's not a Qatari ransom.

[C]

No, it is not. A guitar ransom payment is, in fact, a private equity payment to essentially take over Novo Banco. But the reason I think this is fascinating is what they're. Essentially, they're. They're doing is upending the cap structure, which I find fascinating. So essentially.

[B]

All right, for those of you who are listening and going, we have no idea what Anna is talking about. I promise there's going to be easier numbers to understand.

[A]

My numbers are really easy, but this is really interesting. So.

[B]

But just. Just bear with us here, and we will get through the capital structure of Novo Banco.

[C]

So Novo Banco was, again, this was the good bank that was created out of the last Portuguese.

[B]

And I was so excited about Novo.

[A]

Bank, no bank destroying the studio.

[C]

So, so basically, okay, so as part of this deal, what's going to happen is essentially Lone Star is saying they're going to inject a billion dollars of capital. But part of this is that then they're making these senior bondholders swap their instruments for these higher risk instruments. But then the 25% of the, of the bank that's still held essentially by the government is not going to be touched. So the equity holders are there in that restructuring. Senior to the senior bondholders.

[B]

Boom, boom.

[A]

Black is black is white. Night is day. Shit, man.

[B]

So this is. No, I mean, so rabbit hole here. Anna and I are cap structure nerds. And the way that these things always work is you try and find the point of leverage. And mostly the point of leverage is somewhere on the cap structure where the people below you get shafted and the people above you don't get touched. But that's not always the point of leverage. Sometimes the point of leverage is just the stock. If you buy enough stock, you can control stuff. And that seems to be what's going on here.

[C]

Yes, this is true, but I also think this is a kind of domestic foreign issue as well, because you also have, you have larger issues with Portuguese banks being sold by potentially discriminating against foreign investors in favor of domestic investors. So that's a larger issue.

[B]

But, so, yes, if you want to, if you want to start, like, finding interesting financial engineering opportunities, team up with Lone Star Capital and start buying Portuguese banks. Jordan, what's your number?

[A]

233. That's the number of House Republicans who voted for the Choice act hasn't gotten a lot of attention this week because of other things going on in Washington, a certain former FBI director testifying among them. But the Choice act would essentially undo all the vast majority, the important parts of Dodd Frank. It would vastly weaken the Consumer Financial Protection Bureau. It would eliminate the Volcker Rule. I mean, just all sorts of things. It's just this repository of bad financial regulatory ideas that has sort of come together over the years on the Republican side. And even though it looks like it's probably dead on arrival in the Senate, there are pieces.

[B]

So it passed the House.

[A]

It passed the House with one. One Republican voted against it. 233 voted for it. No Democrats. Pieces of it could potentially make it through the Senate through the reconciliation process. But really, I'm sharing this number just to give you, to share a quote, because it gives you a sense of sort of the derangement that has taken hold on one side of the aisle and the way they've sort of, as Mike Konskal noted in your times, just rewritten the financial crisis. Jeb Hensarling, who's sort of the brain behind this bill, was asked about too big to fail and the Lehman bankruptcy or Lehman crash. And he said although it was painful and somewhat chaotic in many respects, those in the bankruptcy arena will tell you the Lehman bankruptcy to some extent worked as it should have worked. That is, that is his take on financial history and that is the thinking that is now powering the majority party approach to financial regulation.

[B]

Which you think is crazy. And I'm just going to say is actually kind of in line with what I said earlier, which is that so long as you don't have a major macro crisis raging around you, having a relatively clean bankruptcy where the whole thing just gets taken over by Barclays or whatever is ok. The problem with the Lehman bankruptcy was not the Lehman bankruptcy. The problem with the Lehman bankruptcy was the fact that it happened in the context of a global crisis and it had a whole bunch of contagion. But that's another segment I need to come up with.

[A]

My I tried to see as loudly as the mic could, breathe deeply and go on. Felix.

[B]

My number is another little stock market capitalization number. We've had a few of these over the weeks and they're always kind of fun. It's $187 billion which is the market capitalization of Taiwan Semiconductor. Taiwan Semiconductor is now the biggest chip maker in the world. It is a higher market cap than Intel. Intel's market cap is 172 billion and it's quietly and weirdly like the chip making universe has been completely transformed over the past couple of years.

[A]

By mobile, right?

[B]

And by mobile and also just by a bunch of M and A activity which has quietly been happening. And intel, which is always the 800 pound gorilla in the room, is no longer the world's biggest chip maker. And I just thought that was interesting.

[C]

That is not as interesting as Calcstructure.

[A]

Thanks, Anna.

[B]

So next week we are going to talk about. No, we are not going to talk about Lehman bankruptcy. Next week we are going to talk about scams. It's going to be a fun show next week. In the meantime you have a whole week to listen to. I have to ask, which is another Slate podcast which is hosted by Isaac Chodna and it comes out every Thursday and he has deep dive interviews with what it says here. Notable folks. Notable folks means Chuck Schumer Andrew Sullivan, Ashley Parker, novelist George Saunders. You could start with Chris Hayes. I don't know. He's interviewed a bunch of people. Or Pamela Paul from the New York Times Book Review. And check out his [e-mail] ask I'm.

[A]

Gonna do a little extra plug because Isaac is truly one of the best interviewers going right now in media. His one on one interviews are absolutely special and he's excellent at getting people to say things they probably shouldn't. So go listen. It'll be worth your time.

[B]

Okay, so I have to ask Isaac Chodna. Check that one out. Stay with us by subscribing using the little subscribe button in whatever app you're listening to this show. Keep the emails coming. Slatemoneylate.com as various listeners will attest, there's a whole weird email back channel which is cropping up around Slate Money and it can be quite fun. Dan Schrader will even sometimes weigh in himself. But in any case, many thanks to him for producing the show and we will talk to you next week on Sunday Sleep Money.