Loading summary
Transcript164 lines
- [00:10]
A
Hello, welcome to the Spoiled Children edition of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. Emily Peck is here from the Huffington Post.
- [00:24]
B
Hello.
- [00:25]
A
And Anna Shymansky is here as well.
- [00:26]
C
Hello.
- [00:27]
A
And all of the big news that we maybe didn't get to due to the fact that we were talking about global warming last week is all going to get packed into this show. We are going to talk about Operation Varsity Blues and all of the advantages that rich kids have in this here country. We are going to talk about Boeing and their safety or lack thereof. We are going to talk about Europe's most too big to fail biggest, worst bank, Deutsche bank, and whether if you tie that rock to the other rock, known as Commerzbank, that somehow the two of them will manage to float. Anna actually is going to make the case that they will stay tuned for that because it's a great moment in Anna Shymansky contrarianism, all of that. And a Slate plus on Alan Kruger is coming up on Slate Money. Emily.
- [01:22]
B
Hi.
- [01:23]
A
The Operation Varsity Blues scandal, I think it touched a nerve.
- [01:29]
B
Oh yeah. This scandal has everything.
- [01:31]
A
It's it. I feel like this one, like it's not one of those like two day news stories. This one's going to keep on reverberating for a while because is like the tip of the iceberg. But people realize that it probably, number one, it's much bigger than we know already because there are like hundreds of parents involved and then we only know like a few dozen of them. But number two, like it just reinforces everybody's prayers about how completely broken the American education system is.
- [02:00]
B
Yeah, I mean, I think you're exactly right because this story broke the fact that I think it's 50 people now have been indicted for their participation in this scheme which involves parents bribing coaches to get their kids into a variety of exclusive schools.
- [02:16]
A
Photoshopping images, I mean, parents donating money to a registered 501C3 which is then funneled onto these coaches. Oh my God. It's insane.
- [02:29]
B
But just some of the mechanics just like photoshopping faces onto people playing water polo, just wild stuff. Paying people to take the SATs and people asking what score do you want?
- [02:39]
A
Deep fake athletes.
- [02:41]
B
Deep fake athletes? Yes. The aunt Becky, her daughters, they paid half a million dollars to get both daughters into USC of all places. And they were supposed to be on the crew team, but of course they never played any.
- [02:54]
A
My favorite one was Bill McGlashan who was the CEO of the Rise Fund, which is like the super ethical investing fund, which is meant to be very ethical. He got his son into somewhere or other on an athletic scholarship and there's this wiretapped phone conversation where he's like, so what am I meant to tell my son? Because the son's getting in on an athletic scholarship. But the idea is that he doesn't know that this is happening. And so how do you get in on an athletic scholarship without being told that you're on an athletic. Athletic scholarship? I'm like, I can't tell him he's on an athletic scholarship because he's not an athlete.
- [03:30]
B
Yeah. Reportedly the children don't know that their parents, but I don't think some didn't. I don't really believe any of them didn't know.
- [03:37]
A
I think some of them didn't know.
- [03:38]
C
Right. And I think what's interesting here is if you want to tie this into conversations about inequality and access to opportunity. And I feel like I should say full disclosure, like, I started doing test prep when I was like, in grad school, like, teaching it. And I've always had, like, usually a student or so on the side. So I actually like, know kind of a ridiculous amount about these tests.
- [03:57]
A
Okay, so you're part of, you're part of like, in terms of. The scandal isn't what's illegal, the scandal is what's legal. You're, you're part of the legal bit. You're indeed, you're one of these high paid test prep people who sit down and cram the students so that whatever score they need to get, they'll be able to get.
- [04:12]
C
It's not, it's not quite like that, but I've, I mean, part of the reason I've always done it, even when I, I didn't really need the money, was just because I actually think it's fun and you get to help a student. And I do think that when you're talking about test prep, it is certainly true that having access to people who can just kind of coach you and help you and keep you disciplined is a huge advantage because you can, of course, improve your scores on these. And it takes a lot of diligence and it takes a lot of practice, but you can, it's not as simple as I think sometimes people think it is where it's like, oh, you, you go in and you give them a few tricks and all of a sudden they're, you know, their scores magically improve.
- [04:49]
A
But there are a few tricks, right?
- [04:51]
C
Oh, there are certainly a Lot of tricks, but they're not like. I think they're tricks in the sense of strategies.
- [04:57]
A
But yeah, I once read an article about this guy who claimed that he could get a perfect 800 on the math sat just by looking at the answers and not by looking at any of the questions.
- [05:09]
B
Anna, can you do that?
- [05:12]
C
Well, one of the strategies is that you always start in the math section. You always start with the answers because very often you can use those to save yourself time. Although this is also. I know too much about these things. But this is also part of what the actual, especially the SAT is actually testing. The SAT has changed a lot and it really is actually testing a student's ability to estimate and to use logic, which I actually think is kind of useful as opposed to the act, which doesn't. But the point I will also say is I've also done kind of volunteering where you're working with lower income kids or kids who aren't paying. And the reason I just bring this up is because I think this is part of the reason why this isn't just a matter of access to test prep. Because I'll tell you, like, when I've done that, the problem often is, is that the organizations you're working with are completely disorganized, like the kids. Because often, because, I mean, I've worked with a lot of really great kids, but they don't necessarily have the same. It's. How do I say this there, the people who are running it don't put any pressure on the kids to always attend the sessions to kind of stay with it. And so I, and I only say that to say that I, I'm not saying that there isn't a problem here, but I don't think it's as simple as saying, oh, access to test prep.
- [06:19]
B
I think it goes beyond test prep. The problem I was looking, I heard on the, on the media podcast about the origins of the word meritocracy. Okay, so this word, we think it means this great.
- [06:29]
A
This is Lord Young.
- [06:30]
B
Yes.
- [06:31]
A
We think it in England who like brought it up as this like dystopian nightmare where like, yeah, the intellectual cognitive elite would wind up running the country and everyone else would be an underclass.
- [06:43]
B
And it was a way of drawing attention to and satirizing the idea that these tests were measuring intelligence to get people in Britain into college, you know, fancy colleges. Whereas it was just sort of a veneer, a cover for the aristocracy to get their due, to get into the elite schools that they were always going to get. Into, but to give them this, like, sheen of they earned it. And that's what's going on here in the United States, too. Like, rich kids, kids in the upper middle class, from my kids who are 8 and 10 already, they hear about college all the time. They know what the SAT is. Like we're getting ready. Like, things are happening.
- [07:22]
A
They're working hard. And this is. There's a wonderful Yale commencement speech by this guy called. I think it's Daniel Markovitz, who goes into huge detail about this. It's like you have this upper class of children who are surrounded by books and pressure and learning and all of this stuff. Like, you have to do what Anna was saying, like, turn up and work hard. And they do turn up, and they do work hard, and they're very competitive, and they all get into Yale Law School and all the rest of it. And. And it's this way of perpetuating this kind of, you know, cognitive overclass. And everyone else loses. Right?
- [07:57]
C
But here's the.
- [07:58]
B
And the money fueling that is enormous. It's not just, you know, Massimo paying half a million dollars to get his Instagram stars into usc. This is, like, widespread. And there is also growing anxiety in the middle class that, like, that money might not even be enough anymore. And I think that's part of why this scandal sort of sparks something in everybody.
- [08:18]
C
But the problem is this. As the economy is changing and as it's increasingly, increasingly becoming more information driven, the reality is you are going to need certain skills. And to me, the bigger problem is that a lot of school systems in this country are not preparing students.
- [08:34]
A
Right? And we know which school systems those are. It's the school systems in the poorer neighborhoods. Again, it comes down to class and money.
- [08:40]
B
I thought of this today, too, because there's news in New York right now about Stuyvesant High School, which is very exclusive. You have to test to get in kind of high school. And I think it has, like, minuscule percentage of black kids get into seven. Seven.
- [08:52]
A
Thank you. That's seven kids. Not 7%.
- [08:54]
B
Seven kids.
- [08:54]
A
Seven kids out of a class of like, what, 900 or something. It's insane.
- [08:58]
B
And I was reading something today, I was coming in on Twitter where it was like, white and Asian kids in New York City know about Stuyvesant from a very young. And they're again getting ready. They got to get in. And a lot of the black kids, for whatever reason, they're not getting ready sometimes, and they're not getting in. Like, there's bigger issues Much bigger. But part of it is just like the parents with money get the kids ready and then they get in.
- [09:25]
A
If you look at, if you look at the Ivy Leagues and the most, you know, the top ranked universities in the country, a child from the top 1% of the income distribution is 77 times more likely to get in than the child from the bottom quintile. 77 times. That's like that. You know, those top 1% kids do have like a bunch of, you know, cognitive advantages in terms of what they know and how well they've been prepared since like pre K onwards to get into these colleges. But it's clearly unfair.
- [10:03]
B
Yeah, yeah.
- [10:04]
C
I mean, to me it just seems like the problem too is when you talk about, okay, well if we move away from test scores or grades or these kind of metrics, then what do you do? And the problem of course then is that you make it even easier for people to cheat their way in if you don't have some type of metric. There is part of the reason I originally brought in these tests was actually to in theory make a slightly more even playing field. There is simply, this is a problem where there isn't a great solution beyond saying that we, we need more kind of when we obviously have a lot of colleges and universities, but what we need are a lot of low cost, high quality universities that are giving kids the tools and skills that they need.
- [10:39]
A
So better, better state, better state colleges would be part of it, but you know, federal funding of education would be part of it as well. The fact that schools are all locally funded just bakes in this idea that schools in rich neighborhoods are going to be better than schools in poor neighborhoods because they have more money.
- [10:57]
B
Yeah, I think, I mean this is a policy problem. Again, local schools, public universities, which are great, they are meritocratic in a good way and they do help people, you know, they do help with social mobility. Their funding is getting cut and they're becoming more competitive. I mean there was I think a time in the US when there was some meritocracy, at least for some people. Like my parents, for example, they went to city universities and they were free. You just had to test in. And there was a big class jump for my parents generation from their parents because they were able to get free schooling at very good schools and you know, and jump levels and that, that doesn't really exist anymore.
- [11:36]
C
And to me this is, this is, I wish what more people would be talking about. So I get like talking about the sexy like people, I mean just. And it is A ridiculously insane scandal. That is all anyone can talk about it. We all are, obviously. But to me, like, if you really want to talk about better access to education, that's what you need to talk about. Not necessarily this kind of thing.
- [11:53]
A
And. And, yeah, the. My favorite story that I spent years covering was the story of Cooper Union here in New York City, which has one of the great engineering departments in America and was always completely free. And the diversity of that class and the architecture class and all of the other classes was absolutely astonishing until, you know, Jeffrey Epstein's brother Mark wound up, like, destroying the finances of the entire school and building some stupid building that nobody wanted. And then they had to start charging tuition, and now it's all over. It's. You know, there are tragedies like that happening all over the country.
- [12:32]
B
Yeah. The real scandal with USC isn't the two Instagram daughters. It's how much it already costs. Isn't it, like 60 or 70,000.
- [12:39]
C
There's a reason they call it the University of Spoiled Children. I wanted her to say, one of my sisters went there. And so we were actually laughing about this this week.
- [12:47]
A
It's. I've been there. I've seen the journalism school, the Annenberg School of Journalism.
- [12:53]
B
Yes, me too.
- [12:54]
A
Where they. They are. They purport to be training the next generation of journalists for a career in journalism. And you walk into that place, and it is so, like, rich and swanky. I'm like, I have never seen a newsroom, like, half as swanky and half as well kitted out as this J school. And, you know, if any of these kids do wind up getting a job in journalism, they're going to be so disappointed when they finally walk into real.
- [13:20]
C
So much.
- [13:22]
A
Okay, Anna, what are the two biggest banks in Germany? You can answer this question.
- [13:26]
C
Deutsche bank and Commerzbank.
- [13:28]
A
And they're both enormous, right?
- [13:29]
C
Yes.
- [13:29]
A
And they're both too big to fail.
- [13:32]
C
Yes.
- [13:32]
A
So what is the obvious thing to do?
- [13:34]
C
Too unprofitable to succeed.
- [13:36]
A
What is the obvious thing to do when you have two banks which are both too big to fail? Obviously, the thing to do is to break them Both up, right?
- [13:43]
C
100%. Not 100%. Not.
- [13:49]
A
No, the obvious, apparently. According to, like, what seems to be some weird train track that neither of these banks or anyone else can jump off? They're going to merge.
- [13:59]
C
They're discussing merging.
- [14:01]
A
People have been talking about this for a long time.
- [14:02]
C
Yes, they are.
- [14:02]
A
It seems more likely.
- [14:04]
C
It does seem a lot more likely because they've tried other. Other things. And nothing quite works. And part of the problem here is the fact that the German banking system is too fragmented. It's far too fragmented. And the German banking system also has this like weird theory, weird three tiered structure where you have all of these public sector banks and then you have cooperative banks and then you have a few private banks. And it, when you have all of this competition in the banking sector, especially at a time when you have negative interest rates, the banks are, it's very, very hard for the private banks to be successful. And this is really important in Europe and Germany in particular because a lot of the companies, a lot of the industry that's really fueling Germany's limited growth, they access funding through banks, not necessarily as much through the capital markets like they do in the U.S. right.
- [14:54]
A
But why do they need to access funding through the private banks? Can't they access funding through the state banks and the, you know, local banks and all that?
- [15:02]
C
Some do. But if you're talking about really, really large corporations, well, then they can go.
- [15:06]
A
To the bond markets, right?
- [15:07]
C
To a certain extent. But a lot of them are still relying more on bank lending. And also there's a reason that this, this structure, this kind of three tiered structure, a number of other countries used to have this and they got rid of it. And part of the reason they got rid of it is because it tends to make a very unstable system. Because what ends up happening is you have a lot of kind of local areas where you have these small banks that are very, very close that are kind of relying on funding from also some of the local businesses who then they're also funding to. And then in there also because they're public, they tend to be very, very close with politicians. And because they don't have a profit motive, they tend to be doing a lot of what the politicians tell them to do. So you can end up with some really bad situations in some really unstable banks. We also saw this with the cause in, in Spain that and also in Germany. Like, let's look what happened with the, like the Landes banking where they were taking the money from the Spasskazen, which are like the savings banks and Emily.
- [16:00]
A
Okay, we're going to, we're going to slow you down here because like we need to, we need to rewind a little bit because we've disappeared down the rabbit hole.
- [16:07]
C
Sorry. So point is, I guess my point is that I think when people hear, oh, cooperative banks and here, oh, public banks, oh, these are great. This is wonderful. This is community capitalism. Okay, well, let's look at what actually happened in the financial crisis.
- [16:19]
A
Okay, so, but wait, we've had a whole episode on like postal banking with Mercer Berettoran and we can go back and listen to that if we want. But yeah, the German Germany has this huge postal bank. Everyone has an account at Post bank in Germany. It's this massive thing and that became part of Deutsche bank and now Deutsche Bank. In any case, to get back to the subject at hand, Deutsche bank is struggling. It's enormous. You know, it's obviously dealing with various Trump related scandals here in the US and apparently, according to the New York Times, it lent Trump $2 billion, which is kind of insane.
- [16:56]
B
Yeah, so, so I guess those are my questions about Deutsche bank. Basically, like, why should this bank be allowed to get bigger? If you just read David Enrich's story in the New York Times about how they loaned Trump $2 billion over the course of two decades after. He just, he's like the bad boyfriend that Deutsche bank just keeps coming back to. Coming back to. He sued them because he said he didn't have to repay loans because of the financial crisis, was an act of God. He did a bond raise with them and defaulted. He promised the bankers that he would take them to Mar a Lago, but then quote, unquote forgot and like had to be reminded, which is a minor.
- [17:33]
A
Detail, but still, my favorite line in that entire article was the bit where it said, except for his history of defaults, he was a very good borrower.
- [17:42]
C
Yeah, that's funny.
- [17:43]
B
He was an attractive borrower.
- [17:45]
C
Yes. We all know that Donald Trump is awful.
- [17:48]
B
It's not Donald Trump being, I mean, yes, he's awful, like he said, but it's this bank. Like, is this. My question was because I don't follow the lending behavior of these banks as closely as maybe you two do, but is this normal bank behavior? It just seems insane to me. Like there are people inside the bank saying, we can't lend to this man, he sued us. What kind of example does that set for everyone else? And they're like, nah, we need his money. We want, we want this like high profile client. So let's do it. It seems like they really want this high profile client. They want to do the big deals, they want to merge.
- [18:19]
C
But like, because they want.
- [18:21]
B
Ready for prime time.
- [18:22]
C
No, because if you're looking at a large economy like Germany, if you're talking about basically not having an investment bank, you know, here you're talking about like DB can essentially just be, you know, broken up or not exist. Like that doesn't make a tremendous amount of sense. And part of the reason that the DB Commerce bank, the merger makes some sense is because you're going to bring over a much bigger retail base, Commerce, which because they tend to lend to.
- [18:48]
A
Wait, wait, wait, wait, wait, wait. Can you start that entire thing from the top? Because I didn't understand a word of it. Okay, you're assuming way too much.
- [18:57]
C
So part of the reason that Deutsche bank has been struggling is because they haven't been able to be a very successful investment bank outside of Germany. But right now the German government really wants to have a strong investment bank in Germany. But now investment banking funding is a lot more. It's wholesale funding, It's a lot less sticky than like retail deposits. So part of the reason that the Commerce merger makes sense is because Commerce has a much bigger retail deposit base that they can then bring in.
- [19:26]
A
So wait, if I am understanding you correctly, what you're saying is the Germans, broadly, I don't know if this means the government or the regulators or something. This means the government seems to be of the opinion that there needs to be a big German investment bank. And the only way that they can make that work is by funding it with retail deposits. And so they want to merge Deutsche with Commerce because Commerce has a bunch of retail deposits which it can then use to fund the Deutsche investment banking operations. This doesn't sound like a good idea to me.
- [19:57]
C
No, no, it's not. It's not just a matter of saying that oh, now they're just going to be completely reliant on Commerce's retail deposits. It's just, it's going to strengthen the bank a little bit. And then also, honestly, one of the biggest reasons that everyone says they're doing this is because of cost cutting, because they need to, because they're not very profitable and they cannot survive in the current environment and in this incredibly low rate environment if they're not able to become a bit more profitable. And as bank changes and as regulations continue to increase, which are very expensive and as also you're going to need to invest more and more in technology, they need to be a bit more profitable. And the last thing I'll say, and this is really important, is that Germany and a lot of Europe has really struggled to push through really robust growth. And if you don't have a strong banking sector, if you don't have a strong private sector bank that is able to take on more risks, you're not going to be able to spur the type of Economic growth that they need.
- [20:50]
B
I guess that was my question and maybe you just answered it. But I don't understand necessarily why Germany, which is part of the EU and part of like a global financial system, needs its own investment bank. Like, can it use the other one?
- [21:04]
C
It certainly couldn't. It certainly does. But if you're, if you're talking about why the German government is really big on this, it's because they don't like the idea of all of these German companies being so reliant on funding from outside. That's part of the reason they don't want a company from outside to be buying Deutsche Bankers, Commerce. So part of this is because you have a. I mean every banking system is close with the government, but you especially have that in the German banking system.
- [21:31]
A
So.
- [21:33]
B
Still seems like a bad idea.
- [21:34]
A
I mean, I mean it seems like a bad idea to me mainly. I mean, partly because the, the workers are all opposed to it. I mean literally, it's almost impossible to find anyone in either Deutsche or Commerce who thinks this is a good idea. Like both boards seem to have been opposed to it for a long time. Certainly the unions are opposed to it. But you would think on some level that the regul regulators, having been through the financial crisis not that long ago, would be like, yeah, if Deutsche bank is already way too big in terms of the size of its balance sheet and the systemic risks that it poses to the planet, making it way bigger, forcing it into this kind of forced marriage with Commerzbank for the sake of whatever kind of national champion strategy that you're trying to come up with. Just. But it seems like it's almost certain to end in tears at some point.
- [22:27]
C
No, I'm going to disagree with you. Just last thing I'll say. I think I've said that previously, but. So there's a reason we've been seeing so much. Well, there's a reason that recently we're seeing more consolidation in the banking industry. And part of that is because it's going to be very hard to survive as a bank in this environment of higher regulations, higher costs and lower interest rates if you don't have scale. And I also think it's important to remember that if you look back at.
- [22:48]
A
The Deutsche bank has.
- [22:50]
C
Right, but they need a lot more. I shouldn't say they need a lot more.
- [22:53]
A
Isn't it like the biggest bank in the world? I mean, like, how much bigger do they need to get?
- [22:57]
C
No, but in the point I also want to make is that I think we hear these. Oh, Too big to fail. The financial crisis was not caused because banks were big. The financial crisis was caused because of basically funding models that had to do with the fact that banks weren't well capitalized enough to account for the risk.
- [23:11]
A
Of too big to fail caused the crisis. What I'm saying is that it necessitated the bailouts because the financial crisis happens. Financial crises by their nature put banks in danger. And then when the banks are too big to fail, they need to be bailed out. When they're not too big to fail, they can be allowed to fail.
- [23:30]
C
I disagree with that because if you look at historically like countries bail out their banks again, let's look at what happened in Germany with all those tiny landes Banken, they bailed them out.
- [23:40]
A
So you have no problem with this merger?
- [23:42]
C
I think that ultimately this is not going to solve the larger problem. If you talk to most people who cover these banks, they'll tell you that, like, this is the, like this is a solution. Is this going to solve, like the fact that they have kind of crappy balance sheets? No, it's not that Europe has a problem that is bigger than this, but this can slightly help because it can help reduce costs.
- [24:02]
B
Bloomberg called it a merger of weak wolves.
- [24:06]
A
Yeah, then neither of them seem to be very strong. Let's talk about airplanes. Anna, can you give us the sort of latest status of where we're at on this, like, Boeing fiasco?
- [24:20]
C
So as I'm sure everyone knows, Boeing had a, you know, very tragic crash with their 737 Max. And then now throughout the world, these planes are being grounded because of safety concerns.
- [24:30]
B
Well, it had two crashes, one in October, and Boeing assured everyone everything was fine. And then again in March, a second crash.
- [24:39]
A
And it's becoming increasingly obvious that Boeing, you know, was making these claims about safety. And it's becoming increasingly obvious that they shouldn't have been making those claims. At the very least, that there were deep problems with the design of this aircraft. And Boeing kind of signed off on its own safety in a way that like the FAA is happy to allow it to do.
- [25:01]
C
And yeah, this, this is definitely appears to be a bit of an issue of like, kind of regulatory capture where there is a really too close relationship between the regulators and Boeing. And it's, it's not overly surprising if you look at like what a large percentage of our, you know, exported manufactured goods are represented by Boeing. And, you know, this is a problem. And the other problem is that when you have really complex systems, the best people to understand how to regulate it are people often who have actually worked with them because they understand it. But of course, people who are that connected with the industry are also much more likely to be captured by the industry. So this is a. This is a big problem. It's not an easy fix.
- [25:38]
A
Yeah, it's not an easy fix. And this idea that Boeing can come out with some kind of software fix and. And fix the problem with the 737 Max that way is something that I just think is very dangerous, because it is. I mean, ultimately there was a software problem like, you know, some of the electronics on the plane behaved in ways that they shouldn't have behaved. But the deeper problem is just a design problem that Boeing wanted to build a new airplane which would be able to compete with Airbus and Bombardier and all of its other competitors. And its competitive advantage was that there are millions of 737s out there already. And if you can bring out a new plane and call it a 737 and say that pilots don't need to be trained up from scratch on this new plane because they already know how to fly a 737, that makes airlines much more likely to want to buy it because they'll be like, great, we don't need to retrain all of our pilots on the new plane. We can just use our 737 pilots. It turns out that the 737 Max is so different from the old 737, especially the placement of the engines, that it just changes the way the planes fly in such a way that you really do and really should have to retrain the pilots from scratch. But if that was the case, Boeing never wanted to admit that because then the airlines would never have bought the planes in the first place.
- [27:02]
B
Yeah, I mean, I think Boeing comes off as problematic with this story in the situation you described, in the situation where there are some safety features that the company offered as optional that may have helped avoid these two crashes and the deaths of hundreds of people.
- [27:17]
A
Safety features should not be optional?
- [27:18]
B
Well, I mean, it's common that they are. I was thinking coming in here, like when we bought our car, there were safety features that were optional, like automatic braking and stuff like that. Those are optional features, too. But planes are different in the cars. La la, la. There's also a separate issue with the faa and like Anna was saying, regulatory capture, but also the Trump administration, and it's sort of like hands off, regulatory mission, I think, turned out in this case to be deadly. If you look at how the FAA has been doing under Elaine Chao, and transportation. And under Trump, they didn't have anyone running it for 14 months, no one in charge. If you look at fines that they've fined the airlines since 2016, they've gone from 4.7 million in 2016 to $560,000 in 2018. It really seems like this hands off policy in this, let's face it, this administration turns its nose up at regulation and what you get then is, I mean, I'm not going to, we don't quite know what caused this crash yet. So I'm not going to say that's why there was a crash. But certainly the delayed response, right? There was this first crash and people said, oh, maybe it is this new plane. Nothing happened. Then there was a second crash. Every other country in the world was like, let's ground these planes. And the US Kind of like waited and it's embarrassing.
- [28:33]
A
The FAA came out with a statement saying these planes are perfectly safe. Boeing came out with a statement saying these planes are perfectly safe. And that was the thing which worried me the most.
- [28:43]
B
Yes, exactly.
- [28:43]
A
Was that like after the second crash, just on a basic, like if you're a good Bayesian, you understand there is something wrong with these planes and you ground them until you work out what that thing is. And for some reason, both the FAA and Boeing seem to have these insanely strong priors that the planes were perfectly safe, such that, you know, an unprecedented like two back to back crashes aren't even that level of evidence isn't enough to make them alter their initial priors. And that's bonkers.
- [29:17]
C
It doesn't surprise me though, because if you're looking at how much money this is going to cost, I'm not saying that makes it okay. I mean, I 100% agree with you. But I'm just saying, like, why are people clinging to these priors? Because they don't want them to be true. Because it's going to cost so much money. You're talking about Boeing, it's going to have like a very large percentage of its revenue that's represented by these planes. You're talking about. If you're keeping these grounded, it's costing the airlines, it's costing the airports, it's. None of this is worth it for people to die. So I'm not saying that, I'm just saying that is why it makes it not surprising at all to me.
- [29:44]
B
And it was really interesting to me thinking about it. Because if you think about the level of risk we tolerate in transportation, like you could have a car get into a Couple of crashes and have say like 50 people die and like, that'd be fine.
- [29:58]
C
No one will speaking though. Airlines are extremely safe.
- [30:02]
B
That's exactly what I am saying. Airlines are extremely safe. There is a very, very, extremely low tolerance for risk. And the whole industry is very committed to safety because they have to be. And it's just interesting to compare to other industries which have much lax standards. There's a more tolerance for risk when you get into a car.
- [30:21]
A
Much, much higher. Yeah. I mean, even the 737 Max is a lot safer than car. But the thing which we're running into here in the 737 Max and also increasingly in cars, is that for decades we've been making both cars and planes safer by adding in various bits of technology which helps to make it safer. And that's worked for decades. We have now, I think, reached the point at which the technology has replaced a lot of what we used to rely on humans to do.
- [30:57]
B
Are you making Trump's argument and.
- [30:59]
A
No, no, in general, that's a good thing and makes it safer. But what we're beginning to do is have a situation where the humans don't feel like they're really in control and don't have the ability or the inclination to try and override what the software and the machine is trying to do.
- [31:19]
C
I think this is actually really important.
- [31:21]
A
Well, safety, I think is. I guess what I'm trying to say here is that on some deep level, safety has become like a behavioral thing and you need to be super aware of how does a pilot or car driver behave differently in a situation where the plane or the car is more or less driving itself?
- [31:43]
C
Yeah. When you're talking about semi autonomous, whether it's vehicles or planes, on the one hand you'll think, oh, well, you're taking more of the human out of it, so that's good. But it's almost could potentially be a scary world where humans start to assume that the, you know, the vehicle, the thing that they're in, can do things that is going to behave perfectly. And then when it doesn't, they're not prepared for that.
- [32:00]
A
There's a. Yeah, like people. I think it's, you know, Even in the 737 Max, I think it's clear that pilots behave differently when they're piloting that plane than they do when they're piloting a 737. And Boeing needs to understand why that is and they need to design their planes around that. Because I've seen a bunch of comments about how like it was the pilot's fault and they could have just done this and could have just done that and they would have saved it. There was one pilot, you know, deadheading a Lion Air flight just before the one that crashed who sort of said, oh, this is happening, you need to disconnect that. And then he sort of saved that flight. And that was, I mean, good for him. But the. But like there's a level of. But putting it all on the pilots isn't good enough because the technology changes pilot behavior. And that feedback loop of how pilots pilot behavior changes in the face of increasingly advanced technology is, I think, something that Boeing hasn't done nearly enough to understand. Okay, a numbers round. I'm going to start because it's depressing with 14, which is the number of days that Brexit has been put back. We were meant to leave. Britain was meant to leave on March 29th. And now the European Union has given Britain all the way until April 12th to get this, you know, meaningful vote three through parliament, which we all know is not going to happen, but basically until April 12th for Theresa May to come up with a plan B, because she's been very, very stubborn until now in terms of refusing to say what the plan is if she can't get her plan through Parliament. And the EU is basically saying, okay, enough of that crap, you are not going to be able to get your plan through Parliament. So you need to tell us what you do intend to do by April 12th. And no one has a clue what she's gonna say.
- [33:54]
B
Yeah, it's looking a little dicey because.
- [33:57]
C
It was looking very, very calm.
- [34:00]
A
It's really dicey, it's very bad. And it's. If you're not gonna be able to get her plan through, there's a large range of other options of what could happen. You could either just repeal Article 50, but she said she doesn't wanna do that. You could just say, you know what, never mind, we're staying in. And she has said that she will not countenance that you could just crash out with no deal at all. And that would be like catastrophic. And she seems more willing to do that than she is to stay in. Or you could do like a big long, like year long delay, which, you know, on the implicit understanding that she wouldn't be Prime Minister anymore and that someone else would come in and be able to work this out. But in order to do that, not only would she need to resign, but also Britain would need to have the European elections on May 23. And no one wants to do that either. So basically there's a bunch of options which no one wants to do, and no one knows which one's going to happen.
- [34:58]
C
That seems to be the theme of Brexit.
- [35:00]
B
Really does.
- [35:00]
A
How about you, Emily? What's your number?
- [35:02]
B
A billion dollars.
- [35:04]
A
A billion dollars.
- [35:05]
B
One billion dollars. So that's the new valuation for a company called Rent the Runway.
- [35:09]
A
Oh, Rent the Runway is a unicorn now?
- [35:11]
B
Yes, it's a unicorn now. It's one of only, I think, 16 unicorns that were founded by a woman, and that's up from zero in 2013.
- [35:22]
A
One of the latest ones, Justice Glossier.
- [35:25]
C
Yes.
- [35:26]
B
Which is. Yeah. So it was a good week for female unicorns.
- [35:29]
C
Yeah.
- [35:30]
B
Lady unicorns.
- [35:32]
A
Yeah. If you're. If you think the unicorns are good, then I guess Rent the Runway in glossier. Well done. Your unicorns.
- [35:39]
B
Yeah. I mean, if you want gender equality and ridiculous, the startup world, then here we go. And I think it took these women. These are good companies and they're better than a lot of the other unicorns that got there were able to get there a lot faster because they're run by and founded by men. This is just true. I've spoken to Jennifer Hyman, who founded Rent the Runway, and she told me her story. And fundraising was challenging for her. She went into rooms filled with men who couldn't get the concept of her company. Sometimes they would say things like, well, let me ask my wife what she thinks. Like, these are investors, mind you, that are investing in companies like Theranos or other biotech type companies where they don't understand the technology either, but that's the.
- [36:18]
C
Kind of thing they want us.
- [36:19]
A
Theranos didn't actually have a lot of Silicon Valley backers, but to be fair, point is fine.
- [36:24]
B
But the point is, the men claim they couldn't understand a company where you rent clothes, which my daughter understands. Like, it's not difficult.
- [36:31]
C
My theory is because they, in their mind, because they associate it with women, they don't take it seriously. So the things that are associated with men, like biotech, they're like, yeah, I understand that when they have absolutely no idea. So with the things that associate with women, they may also not understand, but they don't actually want to even pretend.
- [36:44]
B
Yes, exactly. So in other words, it just takes longer for women to become lady unicorns.
- [36:50]
C
Okay, My number is 1.3 million. That is the gift to the Tate Galleries that was refused. It was coming from the Sackler Foundation.
- [37:02]
A
Wait, hang on. Was that the gift to the National Portrait or the National Gallery. And then the Tate said they wouldn't accept any more new donations.
- [37:10]
C
But look, if I have the right number.
- [37:11]
A
Now, there are two different things going on in Britain right now. The first one is that the Sacklers a few years ago pledged about a million pounds towards some kind of building fund, which they then now officially aren't going to give that money because they hadn't actually written the check yet. That the National Gallery and the Sacklers came to a sort of mutual understanding that they wouldn't donate the money anymore. But it was basically understood that the National Gallery said, actually, Sacklers, we don't want your money after all. And now the Tate has followed up, saying, we are not going to accept any more money from the Sacklers. We have accepted money from the Sacklers in the past, but, Buster, this is it.
- [37:53]
B
They don't want that dirty, dirty drug money.
- [37:55]
C
And this is correct. And. Yes. Sorry, this is what happens when I look at the number five minutes before. Yeah. So the 1.3 was from the National Portrait.
- [38:05]
A
And it's good because, I mean, I think it's good. Do we think it's good?
- [38:09]
B
I think it's really good.
- [38:10]
A
I think there are ways, if the Sacklows really want to fund the Tate or the National Portrait Gallery, they are rich enough and resourceful enough to be able to do that in an anonymous way that no one knows money came from them, and they don't get their name on anything, and that's fine. But if they want public thanks and public recognition for it, that's the kind of reputation laundering that probably museums should not be part of.
- [38:34]
B
Yeah, then, I mean, there's probably a lot of other donations that should be turned down too. Right? I mean, if you really get deep into it.
- [38:40]
A
So what's next on the list? Now that we've turned down the Sackcloths, who's the next people that we. Are we going to refuse the Koch brothers donations to, say, the Met for New Fountains and that kind of stuff?
- [38:51]
B
Yeah, probably. The Koch brothers would have to be next. They should have been first.
- [38:54]
C
Maybe. Well, but I think you wanted to have a little bit of a difference between, like, when you're talking about politics and you're talking about, like, the. I mean, granted, I guess, going back to, like, the Koch brothers and related to global warming, I guess we can. We can say there. But I'm just saying that, like, with the opioid crisis and the direct connection between Purdue Pharmaceuticals and Sackler, I think it makes sense.
- [39:13]
A
On which note, I think that's probably it for the main part of Slate Money this week. Thank you for listening. We are going to have a Slate plus where we talk about Alan Kruger, one of the great economists of his generation. So stay tuned for that if you're a Slate plus listener. Otherwise, many thanks to Jessamine Molly for producing this show. Many thanks to you for listening to it. Do tune in on Tuesday for another episode of Slate Money Travel and do keep the emails coming@slatemoneylate.com and we will talk to you next week on Slate Money.