Slate Money – “The Peer Pressure Edition”

Date: May 14, 2016
Hosts: Felix Salmon (Fusion), Kathy O’Neill (MathBabe.org), Jordan Weissmann (Slate Moneybox)

Episode Overview

In this lively and candid episode, the Slate Money crew dive into the week’s most pressing business and finance stories. The discussion orbits around three main issues:

1. The implosion at Lending Club and what it means for marketplace lending
2. Google’s landmark decision to ban payday loan ads and the larger question of Silicon Valley companies as arbiters of social policy
3. Whether hedge funds are still worth it as major institutional investors pull out, and public pensions keep piling in

The episode mixes deep analysis and friendly banter, probing questions of transparency, corporate power, and the shifting financial landscape.

Main Topics & Key Insights

1. Lending Club Scandal: End of Illusions in Marketplace Lending (02:21–19:04)

What Happened at Lending Club?

• Lending Club, once the poster child for transparent peer-to-peer lending, faces massive trouble after CEO Renaud Laplanche is ousted due to loan irregularities and undisclosed conflicts of interest.
• The trigger: $3 million of loans sold to Jefferies were forward-dated to superficially comply with new legal wording (05:00).
• Laplanche failed to disclose a personal stake in a fund (Cirrix Capital) that was buying Lending Club’s loans, while encouraging Lending Club to invest in it.

  “You can’t have your company invest in your fund without telling them that it’s also your fund.” – Jordan Weissmann (03:21)

Marketplace Transparency & The Reality Check

• The entire premise of marketplace lending is radical transparency—seeing every borrower’s data, every transaction.

  "The whole point of marketplace lending is that you have complete transparency down to loan level information... The fact that they could change anything at all was... deeply worrying." – Felix Salmon (06:23)

• This technical breach, though seemingly minor, undermines trust in the entire model.

Scaling Pains & Two-Sided Market Dilemmas

• Marketplace lenders now have far fewer “mom and pop” investors; institutional money dominates (10:05).
• Growth pressure has led to pushing loans, sometimes by quietly recycling old ones—a possible sign of market maturity or rot.

  "If your share price basically never ever hits that IPO price ever again and it just goes steadily down... your board is going to get upset." – Felix Salmon (08:50)

The Borrower Side

• High-bar underwriting: only about 10–15% of applicants are approved.
• The classic borrower (refinancing expensive credit cards) is becoming scarcer as consumer behavior evolves (12:09).

Big Picture/Outlook

• Marketplace lending still fills a gap created by banks’ aversion to unsecured personal loans.
• Uncertainty looms for how Lending Club et al. will weather a downturn:

  "The big question is what happens through the credit cycle. Lending Club has never gone through a bad credit cycle... Will it come out the other side smelling like roses? Or will the credit cycle claim Lending Club...?" – Felix Salmon (17:31)

2. Google Bans Payday Loan Ads: Are Corporations Our Moral Police? (20:42–29:07)

The Policy Shift

• Google announces it will ban ads from payday lenders, setting a benchmark by denying ads to loans with over 36% APR or terms less than 60 days.

  "Google has decided to stop letting payday lenders make advertisements on their site. This is a big deal…I know people, some people think, what now? Google's in charge of deciding who's good and who's bad in the world of lending. And the answer is yes." – Kathy O'Neill (20:42)

Corporate Social Responsibility – or Overreach?

• The hosts draw parallels to Silicon Valley’s resistance to discriminatory laws (HB2 in North Carolina), asking if it’s healthy for giant tech firms to dictate public morals.

  “Should we be worried that corporations have this kind of power?” – Felix Salmon (22:10)

• Corporations have always made these decisions—it’s just more visible (22:42):

  “Let’s just kick neutrality out of the entire conversation. There is no such thing." – Kathy O’Neill (22:42)

• Differentiating between location decisions (boycotting states) and acting as a “utility,” with Google’s dominance of search making its choices essentially societal gatekeeping (23:20).

Will the Policy Work?

• Some skepticism about whether lending companies can game the system by tweaking loan terms or using third-party “lead aggregators" (24:51).

  “Google just can unilaterally make that decision.” – Felix Salmon (25:32) “They unilaterally make the decision but companies will game it.” – Kathy O'Neill (25:52)

• Even if only 90% effective, it’s arguably a net positive (26:35).

Is It Good Paternalism?

• Debate over Google’s "paternalism," and if/where such intervention should end:

  "There’s something weird about Google paternalism...where does that paternalism cease?" – Jordan Weissmann (28:39) "If you feel uncomfortable about this, then you should. I mean the algorithms we're seeing taking control of our lives are really powerful." – Kathy O'Neill (29:07)

3. Hedge Funds: Exodus or Steady-State? (30:50–39:24)

The State of Hedge Funds

• Despite headlines about big investors pulling out, the overall number of public pensions invested in hedge funds has risen (282 in 2016 vs 234 in 2010) and their share of assets is creeping towards 10%. (32:31)

• Some, like CalPERS, have dramatically exited—but often the “dumb money” is still getting in.

  “On the whole, public pension funds are actually sticking with it.” – Jordan Weissmann (32:19)

Why Are They Still Investing?

• Middle/small public pensions buy into the argument that hedge funds offer diversification—returns uncorrelated to the stock market, rather than just “outperformance.”

  “Alpha... is not supposed to be just like beyond the market, right. It’s supposed to be statistically independent.” – Kathy O’Neill (34:18)

• The largest institutions try to pick "the best" funds, betting they can beat the averages; most can’t.

Asset Allocation vs. Picking Winners

• Many pension fund managers treat hedge funds as an asset class, allocating and diversifying across many (AIG had investments in 100 different hedge funds). (37:48)

  “Isn't the idea of treating hedge funds as an asset class kind of inherently crazy?” – Jordan Weissmann (37:56)

Fees & Value Proposition

• Fees are coming down (slowly) from the standard “2 and 20” (38:25), pressured by big clients leaving.

• Hedge funds’ promise to perform in “bear markets” hasn’t materialized—many didn’t shield investors in 2008 and often get hit in sector blowups like Valeant (39:24).

  "Hedge funds are always going to be around. But my hope is that they're literally going to be playthings for rich people at some point.” – Kathy O’Neill (39:42)

Notable Quotes & Moments

• On Lending Club’s Loss of Trust:

  "The fact that they could change anything at all was... deeply worrying." – Felix Salmon (06:23)

• On Google’s Power:

  “Let's just kick neutrality out of the entire conversation. There is no such thing.” – Kathy O’Neill (22:42)

• On Hedge Funds as an “Asset Class”:

  “Isn't the idea of treating hedge funds as an asset class kind of inherently crazy? They are...a compensation scheme masquerading as an asset class.” – Jordan Weissmann & Felix Salmon (38:06 & 38:11)

• On Algorithmic Control:

  "If you feel uncomfortable about this, then you should. The algorithms we're seeing taking control of our lives are really powerful." – Kathy O’Neill (29:07)

Timestamps for Key Segments

• Lending Club scandal & marketplace lending: 02:21–19:04
• Google bans payday ads & the role of corporate power: 20:42–29:07
• Hedge fund skepticism, pension dynamics: 30:50–39:24

Numbers Round Highlights (41:57–46:59)

• $175 billion: Expected global spending on “smart city” projects (Kathy, 41:59)
• $1 billion: Apple’s minority investment in China’s Didi Chuxing, the Uber competitor (Felix, 43:14)
• $7 trillion: The absurd “budget surplus” claimed by a Trump advisor (Jordan, 46:07)

  “Dumb, dumb, dumb.” – Jordan Weissmann (46:44)

Episode Tone & Style

Friendly, skeptical, and rigorous with a dose of irreverence (and sartorial humor). The hosts aren’t afraid to “call BS” or wrestle with the grayer areas of business and technology, and are quick to swap jokes about fashion, Trump, and the perils of magazine blowout cards.

In Summary

Listeners come away with a sharp, nuanced understanding of the week’s big business stories—and plenty of lively food for thought:

• Trust in “transparent” fintech isn’t automatic;
• Our new public policy gatekeepers might just be Silicon Valley giants like Google;
• The emperor (hedge funds) may have no clothes—and pensioners may be paying the price.

For those who care about how money, power, and tech intersect—this is a must-hear episode.