Slate Money – "The Screwed Pooch Edition"

Date: March 19, 2016
Host: Felix Salmon
Co-hosts: Cathy O’Neill, Jordan Weissman

Overview

This episode of Slate Money dives into three of the week’s most talked-about stories in business and finance:

1. The massive Bangladesh bank hack through the SWIFT system
2. The downfall of pharmaceutical giant Valeant and the investing losses suffered by Bill Ackman
3. Bridgewater hedge fund’s cult-like workplace and leadership succession crisis

With their trademark wit and insight, Felix Salmon, Cathy O’Neill, and Jordan Weissman break down the stories’ mechanics, implications, and the human follies that drive the financial world.

Main Stories & Key Points

1. The Bangladesh Bank Heist & the SWIFT Security Failure

[02:38 – 11:18]

• The Heist in Brief:
  Bangladesh’s account at the New York Fed was hacked, resulting in the theft of $81 million via fraudulent SWIFT messages.
• How Central Bank Accounts Work:
  • All foreign currency reserves (other than the US’s own) are stored at the New York Federal Reserve.
  • Countries use the SWIFT network to transfer reserves internationally.
• What Went Wrong:
  • Hackers sent fraudulent instructions via SWIFT, attempting to steal over $1 billion.
  • Only $81 million actually got transferred, due to a critical typo in the word “foundation” (“fandation”) that flagged the transaction ([06:33]).
  • Bangladesh’s manual alert system failed—possibly deliberately—so no one noticed until it was too late.
• Money Laundering via Casinos:
  • Funds ended up laundered in the Philippines, exploiting local casinos’ exemptions from money-laundering laws ([07:11]).
• SWIFT’s Security:
  • The incident revealed the weakest link is often the people, not the technology, with Felix noting:

    “The weakest spot of any security system is the person at the end.” ([10:25] – Cathy paraphrased)

• Aftermath:
  • Bangladesh lost $81 million with little hope of reimbursement ([11:04]).
  • The hack rattled faith in systems thought to be nearly foolproof.

Memorable Quotes:

• “They spelled it ‘fandation’—is this a Nigerian spammer?” – Cathy Weissman ([06:33])
• “The amazing thing is that this is a failure of the SWIFT security system, which almost never happens.” – Felix Salmon ([08:10])

2. Valeant Pharmaceuticals: A Hedge Fund Hotel Flames Out

[12:35 – 22:16]

• Valeant’s Business Model:
  • Buy up companies, gut R&D, raise drug prices drastically, repeat—financed by heavy debt ([14:14]).
• The Hedge Fund Angle:
  • Big-name funds (notably Bill Ackman’s Pershing Square) loaded up on Valeant shares, seduced by quick-profit financial engineering ([15:01]).
• Distribution Scandal – Philidor:
  • Valeant used a shadow pharmacy (Philidor) to bypass retail limitations and push expensive drugs to patients, charging insurers ([15:19]).
  • Philidor’s questionable licensing and relationships with shell pharmacies drew scrutiny and eventual regulatory investigation.
• Stock Collapse and Consequences:
  • Valeant’s mounting debt, broken business model, and opaque accounting tanked share prices.
  • Ackman lost about $4 billion:

    “Bill lost a billion dollars in a day this week… basically lost $4 billion on this trade.” – Felix Salmon ([12:59], [19:21])

• Industry Fallout:
  • Some fear pharma price-gouging may just become subtler, not stop; regulation is clamping down but the temptation remains ([20:40], [21:04]).
  • A new FDA fast-track for generic drug competitors should help offset price spikes ([21:29]).
• Notable Numbers:
  • Isuprel price: $50 → $2,700, a 54x increase ([17:41])
  • Daraprim: $13.50 → $750 (Martin Shkreli’s infamous spike)

Memorable Quotes:

• “Martin Shkreli was not the first douchebag in pharmaceuticals. It needs to be said.” – Cathy O’Neill ([13:01])
• “If your model is to jack up generic drug prices, you're probably going to piss off someone in the process.” – Jordan Weissman ([16:19])
• “The stock market is saying, well, okay... but you have $30 billion of debt... if you’re not going to jack up all of these prices, how on earth are you going to be able to service the debt?” – Felix Salmon ([19:21])

3. Bridgewater: The World’s Oddest Hedge Fund

[24:26 – 35:00]

• Bridgewater’s Scale & Quirk:
  • Largest hedge fund in the world, $156 billion under management, 1,500 employees ([25:21]).
• Leadership & Cult of Personality:
  • Founder Ray Dalio’s plan to step back is floundering; the firm’s “crazy, crazy management system” borders on dystopian ([27:00]).
  • All meetings are videotaped; employees must watch and critique videos of each other daily ([27:05]).
  • Former Bridgewater employee James Comey (later FBI Director) left because “the place wasn’t joyful enough for him” ([27:58] – Jordan).
• Succession Struggles:
  • Internal politics (e.g., Dalio vs. Jensen feud, the Apple-imported John Rubenstein) show that succession in such a personality-driven outfit is fraught ([30:30]).
• Transparency, or Surveillance?:
  • 210 written company “principles”; and yet, trading strategies are kept secret among just 10 insiders, with lifetime non-competes ([33:42]).
• Longevity Doubts:
  • The hosts are skeptical Bridgewater will outlast Dalio.

    “Bridgewater is not going to outlast Ray Dalio at all.” – Cathy O’Neill ([35:00])

Memorable Quotes:

• “There’s a culture of calling people out on their mistakes… not that far from the Ferengi Rules of Acquisition.” – Cathy O’Neill ([31:09])
• “It’s a cult. It’s explicitly a cult… They love to hire people straight out of university because they can indoctrinate them.” – Felix Salmon ([28:23])
• “It reminds me of the 19th century industrialists who tried to build company towns so their employees would live to their moral standard.” – Jordan Weissman ([32:28])

Notable Quotes & Moments with Timestamps

• "They spelled it ‘fandation’—is this a Nigerian spammer?" – Cathy O’Neill ([06:33])
• "The weakest spot of any security system is the person at the end." – Felix Salmon, paraphrasing ([10:25])
• "Martin Shkreli was not the first douchebag in pharmaceuticals. It needs to be said." – Cathy O’Neill ([13:01])
• "If your model is to jack up generic drug prices, you're probably going to piss off someone in the process." – Jordan Weissman ([16:19])
• "Bridgewater is not going to outlast Ray Dalio at all. That's just my prediction." – Cathy O’Neill ([35:00])
• “The company everyone thought would replace Dalio as CEO… ended up being shunted sideways.” – Felix Salmon on Greg Jensen ([29:56])

The Numbers Round

[36:33 – End]

• Cathy: "Nine" – The number of tech companies where a shareholder proposal pushed for gender pay equity reporting. Discussion about the somewhat symbolic nature of shareholder votes and pushback from companies like Amazon ([36:35]).
• Jordan: "15%" – The share of U.S. wealth held by the top 0.1%, revised downward from Piketty's often-quoted 22%. Discussion covers the variability and fragility of such statistics ([39:32]).
• Felix: "40%" – Only 40% of 18–29-year-olds in the U.S. now say beer is their drink of choice, down from 70% two decades ago. The long-term secular decline in beer preference ([41:45]).

Final Banter & Closing

[43:58 – End]

• Brief talk about changing beverage preferences, and Cathy’s plan to recover from her mild concussion with a trip to a beer hall—Lederhosen, the unofficial Slate Money bar ([44:08]).
• Invitation for listeners to send in their correspondence and a plug for a potential meetup ([44:24]).

Tone and Style Notes

Throughout, the tone is sharp, conversational, and filled with banter. The hosts are unafraid to make bold or humorous statements about the follies of finance—whether calling a hedge fund “a cult” or pharma execs “douchebags”—but always grounded in keen financial insight and institutional knowledge.

For listeners wanting a crash course in how greed, incompetence, and hubris shape real-world financial disasters and excess, this episode is essential and entertaining listening.