Slate Money – The Turning Point Edition

Date: September 17, 2016
Host: Felix Salmon (with guests Jordan Weissman and Lynette Lopez)

Episode Overview

This episode, dubbed “The Turning Point Edition,” dives into three central stories from the week in business and finance:

• The controversy and mechanics behind Silicon Valley startup Point, which enables homeowners to sell “equity” in their homes;
• The release of a “blockbuster” US Census report signaling strong income growth for the American middle class;
• The massive proposed merger between Bayer and Monsanto, its industry implications, and broader trends in corporate mergers.

Throughout the episode, hosts dissect complex financial products, scrutinize economic data, and question the motives and impacts of both fintech disruption and mega-mergers, all in Slate Money's signature irreverent yet incisive style.

1. The Point Startup: Selling Shares of Your Home Equity

[02:02–15:31]

What Is Point?

• Trigger for Discussion: Andreessen Horowitz’s investment in Point snags finance Twitter’s attention, leading to confusion about its business model ([02:02]).
• Jordan Weissman: “So instead of taking out a home equity loan, you can sell a share of your equity to Point and then 10 years later... you pay them back plus a percentage of whatever your house appreciated.” ([03:43])
• Felix Salmon: Points out it's only available to current homeowners, not for new home purchases ([05:24]).
• Mechanics:
  • Homeowner sells a chunk of home equity (e.g., 10% for $100,000 on a $1 million house).
  • No monthly payments; after 10 years (or at sale), homeowner pays back original amount plus a percentage of home appreciation.
  • If the home’s value falls, Point shares some downside risk, but only if losses are substantial ([07:54]).

Critiques and Concerns

• Lynette Lopez: “There's just a lot of ifs going on here... How are we going to get screwed doing this?” ([04:34])
• Felix Salmon: Argues it’s akin to a “gussied-up second mortgage,” and risks are similar to pre-crisis practices ([05:44]).
• The downside risk Point shares is minimal; the major burden for homeowners remains ([10:12]).
• Jordan Weissman: Defends limited social utility; it's a liquidity option for the “paycheck-to-paycheck rich”—the asset-rich, cash-poor suburbanites ([11:00]).

Memorable Quotes

• Lynette: “How are we gonna chop this up nasty? What's happening?” ([04:34])
• Felix: “The only way you can pay them back is by refinancing in some way.” ([12:55])
• Lynette: “If you two clowns can sit in here and come up with that stuff and all the downside... they definitely thought about it.” ([13:10])
• Felix: “This whole Silicon Valley thing of ‘finance is broken and we can fix it’...” ([13:41])

Context and Trend

• Growth of fintech startups aiming to “disrupt” conventional lending.
• The pervasiveness of lightly regulated lending options fueled by global pools of cash ([15:15]).

2. A Turning Point Report: Middle Class Income Surges

[15:31–23:52]

Census Bureau’s Big News

• Headlines: Median US household income rose 5.2%—the fastest since records began in 1967 ([16:27]).
• Jordan: “...the median household income went up 5.2%. That's the fastest growth on record... It is just, I mean, it's sort of a remarkable spurt after just waiting and waiting and waiting.” ([16:27])
• Added context: Decreases in unemployment, low inflation, and minimum wage hikes may have all contributed.

Are We Better Off Than in the 1990s?

• Caveats:
  • Depending on inflation measures, median income is now either “2% below where we were in 1999 or maybe 3% above” ([18:22]).
  • Rising income is not evenly felt—youth unemployment, stagnant wages for some, and “angst” remain ([18:50]).

Sociological and Generational Perspectives

• Lynette Lopez: “We are still not where we were when Bill Clinton was president in the 90s.” ([17:39])
• Millennials’ anxiety around job stability and the tendency for more young adults to live at home ([20:11]), referencing the “quit rate” as a societal optimism indicator ([21:43]).

Key Insight

• Felix Salmon: “For all that ... 2008 vintage millennials might have a lower quit rate ... even your quit rate is going up. Statistically speaking, among y’ all, we're starting to feel ourselves.” ([22:28])

Memorable Moment

• Lynette (on Millennial attitudes): “Old millennials, we don't do Kanye. We're tired of his bullshit.” ([23:10])

3. The Bayer-Monsanto Mega Merger: Antitrust and Agriculture

[24:04–34:41]

The Deal

• Bayer, best known for pharmaceuticals, offers $56 billion to buy Monsanto, a lightning rod for controversy over GMOs and monoculture ([02:23], [24:04]).
• Lynette: “When you have to get 30 different governments to agree on something, it's like, oh, well, we might as well not even try.” ([24:09])
• $2 billion breakup fee if the merger falls through ([24:28]).

Why the Fears?

• Felix: “Among a certain class of urban liberal, it is hard to come up with two companies which are more hated than Monsanto on the one hand... and Bayer [for its historic links to IG Farben].” ([25:01])
• Lynette: Ponders if the name Monsanto will disappear in a rebrand ([26:13]).

Industry and Regulatory Implications

• The merger combines Bayer’s strength in pesticides and Monsanto’s dominance in GM seeds ([28:06]).
• Felix: “Pesticides and seeds are two sides of exactly the same coin... if you have the same company making the pesticides and making the seeds... you can charge much more for the seeds...” ([28:54])
• The ag industry is in a persistent bear market; this merger is partly defensive ([29:41]).
• Lynette (on the structure): "This is an all cash deal... companies can borrow for almost nothing at this point" ([30:42], [31:06]).

Political and Antitrust Barriers

• Jordan: “The guy who runs the Judiciary Committee in the Senate... Chuck Grassley [Iowa]... if he thinks that this merger is going to create problems for his constituents... he's going to make hell.” ([33:50])
• Widespread skepticism on whether it will clear regulatory hurdles, not just with Justice Department, but politically ([34:21]).

Key Quotes

• Felix: “It’s really hard to find anyone who’s going to come out and say, yay, what a great idea.” ([34:26])
• Lynette: “This is just such a sexy thing for people to hate. Like, this is just too easy.” ([34:21])

4. The Numbers Round

[34:45–40:19]

• Jordan: 3.5 — The percentage of Americans pushed into poverty by medical expenses, a figure unchanged by Obamacare, reflecting lingering issues with high-deductible health plans ([36:21]).
• Lynette: $2.69 — Price of Burger King’s Cheeto-dusted chicken fries; commentary on America’s health and diet ([36:44]).
  • “Now, you know, $2.69. But think of how high deductibles are right now.” ([37:40])
• Felix: 3 — “Three decades of intellectual regress” in macroeconomic theory, as per Paul Romer’s paper “The Trouble With Macroeconomics,” signaling growing academic skepticism toward macroeconomic models ([38:45]).

5. Notable Quotes and Moments

• Lynette, on fintech startup Point: “How are we going to get screwed doing this?” ([04:34])
• Felix, on Silicon Valley finance disruptors: “There’s a bunch of Silicon Valley companies which have taken it upon themselves to decide that finance is broken and we are Silicon Valley and we can fix it.” ([13:41])
• Jordan, on economic growth: “The economic recovery that for so long didn’t feel like it was filtering down to the middle class now is… not just in the unemployment numbers but in terms of people’s bank accounts, in terms of their earnings.” ([19:18])
• Lynette, on generational divides: “Old millennials, we don't do Kanye. We're tired of his bullshit.” ([23:10])
• Felix, wrapping up the themes: “The thing which is genuinely tying all three of our disparate segments together is monetary policy and just these oceans of cash which are sloshing around the world looking for somewhere to go.” ([32:31])

6. Episode Structure

• [00:08] Introduction, guest-host banter, and topic preview
• [02:02]–[15:31] Fintech’s Point: Home equity for cash
• [15:31]–[23:52] Income growth and the 2015 Census data
• [24:04]–[34:41] Bayer-Monsanto merger analysis
• [34:45]–[40:19] Numbers round: Poverty, cheese, and economic theory
• [40:19] Credits and sign-off

Final Thoughts

The episode blends skepticism, humor, and sharp financial analysis while examining how the current flood of cheap money shapes startups, personal finance, and mega-mergers. Of particular note is the questioning of whether new fintech really serves consumers, if recent economic gains are sustainable or evenly spread, and whether historic corporate mergers can (or should) survive political and regulatory scrutiny—all reflecting a moment of inflection for both policy and markets.