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Will You Accept These Cookies?
00:54:04
Slate Money talks Apple privacy changes, businesses buying real estate, and the ‘tuna bond’ affair.
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- [00:11]
A
Hello, and welcome to the do you accept these cookies? Episode of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Emily Peck of Finance Fundries.
- [00:27]
B
Hello.
- [00:28]
A
I'm here with Stacey Marie Ishmael of Bloomberg.
- [00:32]
C
Hello.
- [00:33]
A
And we are going to basically talk about whether cookies are delicious or dangerous or both. And specifically not just about baked cookies, but about the ones that apps and computers put on your phone and follow you around the web. We're going to talk about ad tracking and all such things. We are also going to talk about tuna bonds, because who doesn't want to know about tuna bonds? And we are going to talk about Zillow, Ibuying, and the whole business of big companies buying up real estate. And whether it's a good thing or not, Spoiler alert. It's a totally good thing. I'm all in favor. No one. No one is going to agree with me. All of that. And a Slate plus on legacy admissions to universities is coming up on Slate Money. Oh, and Stacy, you have an update on the Th? Chan school of Something something at Harvard?
- [01:28]
C
Yes. In the episode in which you made it very clear why you hate surveys and polls, Felix, I described the Harvard T.H. chan School as having an affiliation with Chan Zuckerberg. It does not.
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A
Different Chan.
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C
Different Chan.
- [01:42]
A
Okay, Stacey, there's this thing that I've been peripherally reading about for, I guess, a couple months now where Apple made a big change to the add something something, and everyone was up in arms and Apple said, don't worry, it'll all be fine. And then Facebook said, we've got this. But then they came out and said, oh, actually, we kind of lost a lot of money because of this. And now Snap, which owns Snapchat, came out with earnings and said, well, wait, our earnings were way lower than expected because of this. And their share price went down. And literally that is 100% of what I understand about this story. And so I need you to explain to me, number one, what is going on. And number two, should anyone. Does anyone need to care about this?
- [02:32]
C
Well, I think people who spend a bunch of money on ad campaigns care a lot about this. So the Apple change is the iOS change that we actually talked about in the show a couple of months back around how Apple says it's trying to protect privacy. And the big change is the. And if you have used your iPhone from, like, iOS 14, iOS 15, you might have seen these messages saying, hey, this app is trying to track information about you or it wants to like use your location or et cetera, et cetera. And all of those prompts were the user facing version of do you want this company associated with this app? Or do you want the advertisers and the ad tracking technology associated with this app to have a really good picture of what you're doing, how you're using this app, how you are moving around the Internet and generally any information they can gather about you from your phone and surprise, surprise. And I say this sincerely because a lot of folks didn't think this would matter more than a small number of people said, actually I don't want to share my information with these companies. And what that has meant in terms of advertising is it's now harder for people whose model is, we can tell you person trying to sell shoes or glasses or whatever, direct to consumer thing. Everyone's buying how effective your advertising with us is because we know what folks are doing on their devices after we've seen your ads. And now they don't know that with the same level of precision or granularity anymore.
- [04:12]
A
And the result is that the advertisers selling shoes or glasses or widgets, sports betting accounts or whatever it is then saying, well, if you can't tell me how effective my ad is, I'm not going to spend as much money on it.
- [04:27]
C
Right. And in addition to that, you've also had this because everything comes back to supply chains in 2021 reality that advertisers are pulling back anyway because they don't want to try to sell things that folks can't get. Right. So you know, people are facing actual inventory in the. Not eyeballs, but actual stuff on shelves problem that's like we don't want to show shoes to you that if you try to order them they'll be out of stock.
- [04:54]
A
Right. There's no point. You're not going to see a lot of ads for Nissan Altima these days because Nissan is selling all of the Altimas. I just, I know where that name like popped into my head from advertising.
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B
They got you.
- [05:09]
A
Yeah. Nissan Altima. Congratulations on being the first car brand to come into my head. So is Apple a winner here? Are they like, is there a way in which Apple itself has like an unfair advantage now?
- [05:23]
C
Well, that was absolutely the criticism that folks who were not Apple were levying at the time. Right. That Apple would continue to know stuff, that Apple is itself an advertiser or you know, it facilitates advertising. There are people who buy ads on the App Store, for example and you know, I have seen charts floating around that shows sort of like Apple's, you know, percentage share of some of that advertising inventory has been going up as it's been declining for other folks.
- [05:55]
A
So the main chart that was going around, it was someone from the ft, wasn't it, who was basically saying that if you look at the searches that result in app downloads, the share of those ads, like when you do a search, you get search results, but you also get ads. And then where you can basically say, look, someone searched for an app download and then they clicked on an ad and then they downloaded the app. That used to be dominated by Google and now like half of it is Apple, which I don't entirely understand. I guess what you're saying is that's now search within the app store that people are. That like searching in Google for an app is something that people aren't doing so much anymore or that they're not clicking on ads so much anymore because of these reasons.
- [06:39]
C
Well, I haven't, I have. I've actually not seen that chart. But that kind of advertising is sort of distinct from the one that Snap is describing, right? Like for them, it's, we sold a set of impressions to somebody who's trying to sell, I guess, a Nissan Altima. And we used to be able to say, hey, for sure, at least with high intent X number of those impressions actually got to something approaching a conversion. The app advertising that you're describing is like, yes, exactly. Somebody goes into the App store, they're like, I want to download Nissan's app. They type in a keyword Nissan. And sometimes its competitors will bid to have an advertising search result appear at the top of those results.
- [07:26]
B
So, I mean, who cares? I mean, I guess marketers care because they like the precision of the advertising tools that Facebook and Snap could offer. But I mean, we lived a long time without those tools, so they won't be as precise anymore. Why does it matter, do you think?
- [07:49]
C
Well, it certainly matters to the people who've sold precision, right? If, if you're in a situation where the feedback you're getting from marketers is, hey, we used to have a lot more accuracy or we used to have a lot more conversion or whatever the kind of the metric is that they care about at the time. Now coming to you and saying, we're not seeing the performance that we need to justify this ad spend, that's potentially, as Snap is saying, a revenue hit.
- [08:11]
A
And I think there's a couple of interesting consumer behavior things going on here. Consumers in general like to preserve privacy and they get skeeved out when it turns out that advertisers and marketers know way more about them and their habits than they thought they did. There was recently an investigation in the markup showing how it's not just advertisers, how, like, the Planned Parenthood website has a bunch, not has like 35 different ad trackers on it and even like keystroke loggers and stuff. And you're like, no, don't do that. And it's very natural for people. When asked by iOS, like, do you want these people to know about you? The answer is, no, I don't want these people to know about me. At the same time, I'm. I'm reminded of like a bunch of stories about how everyone is seeing ads and offers for sports gambling these days. And I have literally never once in my life seen an ad or an offer for sports gambling because apparently these ads are so incredibly well targeted that they, they know I don't just avoid you, they just, they're just going to avoid me completely. And I'm fine with that, to be honest.
- [09:26]
B
I feel like actually, I mean, you said people like to have their privacy. I think people probably aren't thinking about it at all. And what Apple did is sort of like make the. What is it? Make the quiet loud or make the implicit explicit. Like, of course, if you're specifically asked, do you want this thing to track you all around? You're going to say no.
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C
But I don't know if that's true.
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B
But if you kind of know that in the back of your head, it doesn't really matter. Like, people know they shouldn't have a password that's like 1234.
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C
They do it anyway.
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B
Those passwords are still 1, 2, 3, 4.
- [10:01]
C
But, Emily, how often? So now, as a result of various other forms of legislation, you cannot go to a website without being asked 50 times. Do you want to allow all these kinds of cookies to track you? And I am that person who, who will go and be like, no, no, no, no. And it is meaningfully a pain in the ass. It has genuinely made my entire web surfing experience worse across mobile and web, especially because increasingly folks are trying to, like, fight back by making certain types of things not possible if you opt out of this ad tracking. But I did a thing that I do, which journalists do all the time, and I like, I went and talked to some people and I was like, how often do you opt out? And they're like, oh, never. I never even notice this anymore. So I do think that there's something different about the iOS ecosystem to have such sort of high rates of opting out relative to what has been true for advertising on the browser based web for a long time.
- [11:01]
B
I think it's the clarity of the opt out that Apple has written because if you get the message, it's very clearly written. It's like, do you want to be tracked? Yes. No. But those cookies notifications are very like, when I look at them, my eyes like cross a little bit. I don't understand them as much and I feel like that actually probably plays a big role. It's like clicking on terms of service, no one's actually going and like digging in there and reading it and learning. Like, you have no right to take this company into court and all this.
- [11:31]
A
The details, the language, the language is so important. If it's just like, do you accept cookies? It's like, fine cookies. Those are good, they're tasty. Like, can I have chocolate chip please?
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B
Exactly.
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A
Whereas it's like, do you want a robot following your every move? It's like, maybe not.
- [11:47]
B
No, no.
- [11:49]
C
Yeah.
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B
And I think Apple really wrote that very well and clearly and brilliantly. That makes a difference.
- [11:55]
A
So Stacy, are you a DuckDuckGo user?
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C
Yes.
- [11:59]
A
What?
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C
I mean, if it's possible to be extra and more nerdy than is practical on the Internet, I am probably engaging in that behavior. It's true.
- [12:09]
A
And so the other question I have since you actually know about this stuff, is all of those pop up banners that say do you accept cookies that we're seeing on basically every website these days, is that gdpr? Is that European regulations or is that something else?
- [12:27]
C
That's a good question. It started off as a function of GDPR because folks were just like, it's too hard to geoblock and say if somebody is subject to gdpr, we'll show them this or not. But it's also, I've seen much more of it in the aftermath of California passing various bits of privacy legislation that allow people who are domiciled in California to opt out of things. You might see for certain types of newsletters or other signups, for example, that hey, if you have a California address, you have the right to request all of the information that we have about you. I don't know how folks are thinking about it from the technical underpinnings, if they're doing some kind of magic that these buckets of opt outs apply to folks who are subject to gdpr or if they've just said like, fine, we're going to be in compliance with everything and we're just going to make it kludgier for everyone. But there are definitely multiple pieces of legislation around the world that is affecting this.
- [13:22]
A
I have one last question which is is it possible to opt out of tracking on TikTok? I love TikTok. I am ridiculously addicted to TikTok but. And I see like when I'm in, I'm in New York and I see a bunch of like very downtown New York specific TikToks which I assume is because they know where I am, but I don't recall ever sort of agreeing to let them track me. I don't know, it just. I feel like first party cookies are still allowed or have I got that wrong?
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C
First party cookies are in a very interesting gray area as it relates to TikTok. There was a lot of reporting I think in 2019 or 2020 about the ways in which TikTok, especially depending on how you've registered, will triangulate you by your phone number, which they would have gotten from your registration details. They will look at what they know about you from email addresses. So they're not even always looking at what's on your phone to figure out what's going on. They're like pinging your number across t mobile cellular towers, et cetera.
- [14:29]
A
They're.
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C
I mean the whole premise of TikTok is you don't even have to watch a video for them to know whether you like it or you don't like it. And so they are absolutely on the bleeding edge of figuring out how to give people stuff they think they're going to like.
- [14:42]
B
I feel like every time we have a conversation about privacy I come across as like someone who doesn't care about privacy. So maybe that's just, that's just who I am.
- [14:52]
C
We have an anti privacy campaigner on.
- [14:54]
B
The pod but like all this stuff is free and do people think there's no price to be paid? I don't like at some level, like I mean I could talk to you for an hour about how much I love Google Maps and how it's changed my life for the better in multitude of ways. And I know that the trade off with Google Maps is zero privacy. They know everywhere I go, every time I stop for gas.
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C
You can turn off your Google Maps.
- [15:20]
B
History by the way, but I won't. I love Google Maps. It's totally free. Like what a miracle of technology. Like I'm. And then Felix loves TikTok.
- [15:30]
A
Like I think the answer is that for decades, like this is, this is one of the things that has always like lives in the back of my head is that everyone who's hand wringing about the, how addictive the Internet is or TikTok is or anything like that never seems to care about how addictive good old fashioned broadcast television used to be. And people used to watch like eight hours a day of broadcast tv.
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C
That was a start that never made sense.
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A
And the, and the sort of baseline, decades old. We're all used to it, we're swimming in this water that we never even notice it. State of the world is a state of the world where things like broadcast TV and daily newspaper, you know, free sheets or whatever make sense that they're free and they're ad supported. But there's no privacy violation, right? If you, if you see an ad on the TV that you're not giving up any information there. And so that idea that every time that you're being marketed to, there's like a personal cost to you in terms of information that you're giving up about yourself is I think, new and does make people uncomfortable. Although obviously it doesn't make you uncomfortable.
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B
I mean, maybe I just don't think about it deeply enough. But yeah, I would rather not be lost in the car, you know, than, than, than retain my.
- [16:58]
A
But like, but. And also the other thing about privacy is that it makes people uncomfortable kind of only when it's visible. The thing that people always reacted the worst against was that one weird shoe ad that followed them around the Internet and then they saw like a billion times and like, I've already bought these shoes, stop showing me the ad for them. And you just keep on seeing the ad for weeks. Like so long as the targeting isn't quite that obvious, I think people are more okay with it. But when it comes like annoyingly obvious, then people get really skeeved out.
- [17:30]
B
Right? There's that famous story, it was a New York Times story about Target where Target knew that a woman was pregnant before she had told anyone because of what she had been buying. And they actually outed a specific like circular to the house and somehow that outed her. Stuff like that. When it's clumsy, I guess. Yes, I object, I object to clumsy marketing. So it's like as long as the.
- [17:54]
C
Robots that are trying to kill you are really, really cool. So here's the other thing that I would say about the privacy thing. I would also say the intimacy of the data that folks are being asked to give up is very different from what it was before. We want to Know exactly where you are at all times so that when you walk into a Sephora, we can target advertising to you based on your location, your Sephora browsing history. And say, this mascara that you looked at a week ago is 25% off, right? And so you've got the. Just the invasiveness of the kinds of requests that were previously invisible to folks that they're now, as Felix said, they're now loud as opposed to quiet. Those you. And then I think the second thing is the protection of this information has been very inconsistent. You know, I got a notification from an identity fraud tracking service that I used just the last week saying, hey, as a result of Minted.com, which sells stationary, getting hacked or whatever, a couple of years ago, two of my previous home addresses and my phone number are now, you know, sort of, like, tied together with my email and my identity and easily found on the Internet. And that's, like, really frustrating that, you know, that is data I explicitly gave up because I'm like, yes, please ship me a new stationery, because I love letters. But, you know, when I think about how much additional metadata about me is collected by people, I have even less visibility into where I'm like, they know where I'm standing right now. They know every single thing that I've been looking at previously. And I think about the risks and potential harms of having an extremely. Well, I'm a journalist, so it's going to be misleading because I look for weird stuff on the Internet, but a picture of what I'm up to at all times, you know, potentially leaked to the world, is quite scary.
- [19:49]
A
Let's talk about my favorite subject, which is home ownership and how it is a terrible thing and no one should own their own home.
- [19:58]
C
Felix, do you own your own home?
- [20:00]
A
Do as I say, not as I do, Stacy.
- [20:02]
C
Okay, cool. Just. Just putting that out there. Carry on.
- [20:09]
A
So the US Has a pretty high home ownership rate, and it is a kind of general truism in American politics that it is still too low, and it is always too low, and we should always want more people to buy their own homes. And I'm like the one outlier here saying, no, it's actually too high, and it should be lower. And that for most people, it is both physical and a financial tie. That is, it dominates your life in terms of you can't move anywhere if you want to get a better job, or you can't spend money on other things because you've got to pay your mortgage. You can't choose to, you know, Move somewhere with lower rent very easily, that kind of thing. And the flexibility that comes with renting is massively undervalued. And that if more people rented with decent protections for renters to allow them to stay in their homes if they want to, we would be in a much better place. And the way you fix this problem is by like large permanent pools of capital like BlackRock buying up huge amounts of housing, especially housing in neighborhoods that are historically unoccupied, and then renting them out and you know, for like long term yield generation, you know, asset diversification reasons. And then you get a bunch of renters in so called good neighborhoods and sending their kids to good schools and like the world becomes a much better place. And the way that you get BlackRock to buy up all of these houses is they buy them in bulk from like Ibuyers from Zillow. Basically people who want to sell their house easily just press a button on Zillow and Zillow's like, we will pay you tomorrow. And they're like, that's so much easier than listing my house and showing it. So they sell it to Zillow and then Zillow sells like a thousand houses at a time to blackrock and everyone wins. So that's my utopian vision of the future where we all rent from BlackRock and I expect zero listeners to agree with me on this one and probably neither of you do either.
- [22:22]
B
Well, I mean, we should say we're talking about this this week because Zillow stopped Ibuying, it stopped buying up individuals.
- [22:29]
C
Paused.
- [22:31]
B
It, paused the process because the company got in a little over its skis and its reason was, you know, supply chain, blah, blah, blah. But there's some convincing analysis out there that Zillow in the end was kind of overpaying people for their homes. And this isn't the kind of business where you can make those kinds of. You can't overpay. The margins are low. When you're buying up used single family homes, used homes, and trying to resell them, used homes, existing homes, whatever pre owned it is, it's like a used car, it's a used home, it's the same thing. So there are still these other ibuyers out there who make it really easy and you can see the appeal. It's such a pain. If you have a house to sell a house is a total pain. You have to get this weird, strange real estate broker lady has to come over and tell you all the things that are wrong with your house and how you have to fix them, paint this, fix that. It's a whole process. You just want to get rid of this thing, this used home you're living in.
- [23:34]
A
And pay 6% for the privilege.
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B
And pay 6% for the Privilege. Yeah. They're like, well, you'll get more money if you spend a bunch of money. And you're like, does that even make. What is the math that's happening here? So, I mean, there is this, I think, a real market need for ibuyers actually. But yeah, I know a lot of people agree that Zillow should be buying houses and selling houses. For some reason it's bad because real estate brokers lose out. Stacey.
- [24:02]
C
I mean, I just find this whole story so confusing. One, because, you know, shout out to the homeowners who got Zillow to overpay congratulations on once again making out like bandits in a housing market that is like biased against a lot of other people.
- [24:18]
A
But please tell me that somehow they wound up getting Softbank money. That's all I want to hear. And then it all becomes perfect.
- [24:24]
C
You know, I have not looked at whether SoftBank has participated in any Zillow rounds, but I shall do that. But I think for me, the thing that is also heroically confusing about this is you step all the way back and part of the problem is there just aren't enough houses for people in the places that they want to live at prices that they can afford to pay in them. And I don't see how the Zillow thing is going to solve that if they're buying up single family homes and then reselling single family homes. Unless they're suddenly like going to convince NIMBY esque zoning folks to like actually allow higher density housing in these places that Felix described as having good.
- [25:03]
A
There's no way that this solves. This solves for like the broad underinvestment in housing and too low density. Like, that's, that's for sure.
- [25:15]
B
I buying all of this. Blackstone buying up houses, it amounts to maybe 1 to 4% of, of the single family home transactions in the country. I mean, it gets, I think, a little bit outsized attention because it sounds, despite Felix's cheerleading, most people are like, I don't want private equity companies buying up the American dream. But it's just this very, very tiny fraction of the market. And only in specific markets like Phoenix and other places isn't Blackstone the biggest.
- [25:45]
C
Private landlord in New York, or at least in Manhattan?
- [25:48]
A
I think that's mostly commercial, not single family. Yeah, yeah, there is no Single family housing in Manhattan, but yeah, well, I think Gracie Mansion and that's about it. What we're talking about in terms of the bigger picture, what you're talking about, Stacy, of like housing being unaffordable and there's not, you know, enough new housing being built is totally true. The price mechanism is one of my favorite things in economics. It's called the winner's curse. The way the winner's curse works is it's an auction thing. Now houses, when you sell a house, what you are doing is basically auctioning it. You, you put it up for sale. And especially these days when you can get like five offers within a week or a day, you basically just end up selling to the highest bidder. There's a series of bids and then whoever puts in the highest bid wins the house. So it's an, it's, it's a good old fashioned English style auction. And the way the English style auctions work is everyone always overpays to a first approximation, because what you have is you have a whole bunch of different people all judging how much they can afford and how much the house is worth to them. And they don't know for sure. So they all make mistakes. And some of them make a mistake on the downside and wind up, you know, bidding less than the house would actually be worth for them. And then some end up overbidding and actually bidding too much compared to how much it's worth to them. And by the nature of auctions, the people who overbid inevitably wind up winning the auction. So everyone always ends up paying too much for housing and the housing becomes too expensive. And you get all of these people saying like, you know, house, house prices have become unaffordable. And it's all true, but that has absolutely nothing to do with Zillow or anyone else. But I will say to your point, Emily, about like Zillow overpaying, like if Zillow is in the market winning auctions, then by definition they're overpaying. If they're like, if they're, if people are putting their, their houses up for sale and Zillow is coming in and saying, like, you listed your house $300,000 and I will offer $320,000 and they win that, then they almost by definition will have overpaid. But the idea behind the Zillow Ibuying is that they do, they do not participate in those auctions and that instead of putting it up for auction, you just take the flat rate fixed offer from Zillow and in that situation, it is possible for them to just say, we will offer you $295,000, take it or leave it. And then if you want 325, you're going to have to put it up for auction and go through all of the, you know, real estate agent crap.
- [28:29]
B
Yeah, I mean, it's interesting looking at a chart of how the median purchase price that Zillow paid in, like, Phoenix in 2021 compared to the other Ibuyers. And Zillow's line is like, straight up and to the right, while the other ibuyers are more leveled off. So it does seem like it was doing something wonky and weird in comparison to these other, these other players, you know, paying a little bit, a little bit too much. Like I said, getting in over your skis.
- [28:59]
A
And what we, what we don't know, of course, is like, who they're selling to. There are three things you can do if you're Zillow. One is you can have like a basic agreement with BlackRock that all of the houses you buy, they will pay you, you know, cost plus 2% or something. You just like flip them to BlackRock and make it up and make lots of money on small margins with high volume. And then, you know, at that point, the algorithm you use to determine how much you're willing to pay is just whatever blackrock tells you to use. Right. It's a single, it's a monopsony. The other thing is like, Zillow goes, we have huge amounts of data on how much houses are selling for, what people are looking at, where the demand is going to be. And so we're going to use our proprietary data to work out which, which the hot neighborhoods. And we can slightly overpay a little bit in the hot neighborhoods because we can make it up with data and then hold on to those houses for maybe, you know, a few weeks or whatever, and then say, ha, it's hot. And then we can sell them at a profit and we can become house traders basically. You know, we can, we can be buying and selling houses and making money on, like, by selling them for more than we bought them for. And I suspect that that's what Zillow was doing, that the other ibuyers were just saying, like, you know, open door, whatever, were just saying we're just going to sell it all to BlackRock and sell for whatever BlackRock wants to pay. And Zillow was like, because we have a gazillion petabytes of data on what kind of houses people are interested in we can get alpha from that. We can make extra money by like seeing where the market is going and that's probably where they got unstuck.
- [30:35]
B
I think also there's a limit and I'm not the only person making this point. There is houses, single family houses are very specific collections of data and there is a lot of variation from one house to the next. So like even if you're Zillow and you have all this information about home prices, etcetera, etcetera, at the nitty gritty house by house level, there are so many variations and inputs that they still don't have the data advantage that they think they have. You know, like, like the guy next to me has been trying to sell his house for the past three months and you'd think it's a hot market. And, and every, all the data points where I live would, would, would have suggested he would have sold it by now, but he's not sold it by now and I have a lot of theories as to why I did. Take a look around. He doesn't listen.
- [31:24]
A
So it's not.
- [31:25]
C
It.
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A
Is it something to do with Wall to Wal?
- [31:27]
B
I mean, I think there needs to be some updating that goes on. Like you have to. Anyway, the point is that it's not like used cars actually, even though I call them used houses, existing homes are super specific and pricing them is difficult. And you can't just do it in aggregate. I don't think with big data sometimes.
- [31:51]
A
I have a special announcement for you today. This year is the 25th anniversary of Slate. I remember when I started reading Slate 25 years ago and it was a weekly magazine edited by Michael Kinsley that was published by Microsoft and you could print it out in Microsoft Word with page numbers at the bottom every week. It has come a long way for there. It has come a long way from there. And to celebrate all of its various iterations and what it has become, we are offering the annual Slate plus membership at $25 off. Now remember, you'll get all of us Sleep plus segments, which are amazing. You'll get no ads on any of the podcasts and you get Unlimited access to Slate.com Believe it or not, Slate podcasts have been going for a large chunk of those 25 years. Sleep money has been going for. Well, I've had, let's just put it this way, I've had three different jobs since Slate money started. So sign up for slate plus@slate.com moneyplus to keep us going for another 25 years again. That's $25 off an annual membership through October 31st. So between now and the end of the month, sign up@slate.com moneyplus all right, I'm not sure whether we've talked. I think actually a while back when we had Mitu Gulati and Lee Bukheit on the show, we mentioned tuna bonds. But for those of you who either didn't listen to that show or have forgotten it, or maybe I have forgotten that we didn't talk about tuna bonds. The most notorious sovereign debt deal of in living memory was a bond issue by the country of Mozambique. And this was Mozambique's first ever bond issue. You know, international bond issue. This was their debut in the euro markets, as those of us who used to work for Euromoney magazine would like to say. And so this is like Mozambique's coming out to the world and it turns out to have been just covered in lies and fraud and bribery and theft and all the rest of it. The long story short is that the state owned enterprise decided to borrow a bunch of money to buy tuna fishing boats. Because the idea was that you would build up a tuna fishing fleet and then the fleet would go out and fish for tuna and the tuna would be expensive and they would make money and that would be a profitable enterprise which would redound to the benefit of the population of Mozambique. They issue these bonds and then immediately get stolen basically by various Mozambican government officials. There's some vague walk on part by Abu Dhabi for reasons that I don't entirely understand. And of course, there are even bribes to the book runners of the deal, which was Credit Suisse. There was this guy called Andrew Peirce who basically ran the deal for Credit Suisse and he wound up getting bribed a mere $45 million to get this deal done. So, yeah, there was a lot of crappy theft and whatnot all around the bonds. Rapidly, it rapidly became obvious that these tuna fishing bonds were never going to get repaid because there weren't even any boats. They never went out, even bought the boats. They just stole the money instead of buying boats. When this became obvious, the finance minister of Mozambique at the time, who seems to have been reasonably corrupt himself, decided that what he was going to do was, was instead of just let these bonds default, he was going to swap them all into sovereign bonds. And this was what the big Mozambique sovereign bond was. This big coming out into international markets was basically a way to allow all of the people who bought bond bonds that were backed by tuna fishing boats that didn't exist to instead have Mozambique sovereign debt. And so the country wound up going billions of dollars into debt in order to effectively bail out a bunch of investors in crappy tuna backed bonds. And the whole thing was a disaster. There have been criminal prosecutions, there have been criminal convictions. There is an extradition attempt from Mozambique for Andrew Pest. Their story is going to run and run. Russian bank called VTB was involved. And whenever Russian banks get involved, you know, no good can come of this. But the biggest bank involved in all of this was Credit Suisse, who was the book runner on the deal. And it just agreed, this is the news hook, to pay $475 million in fines to the UK Financial Conducts Authority and the US Department of Justice and SEC, and also to forgive $200 million of Mozambican debt that it was holding on its books. That's my attempt to sum up the tuna bond story.
- [37:14]
B
So wait, what? So.
- [37:18]
C
So five minutes later Emily asked.
- [37:22]
A
Wait, what?
- [37:23]
B
So there was a bunch of bonds backed by tuna fishing boats that were bought that didn't exist?
- [37:30]
A
Yes.
- [37:30]
B
And then the gov, instead of just like letting that loss just wash over, what happened was Mozambique then took on the debt of the tuna fishing bonds itself and backed it.
- [37:42]
A
Yeah, it may or may not have had some kind of a government guarantee that may or may not have been enforceable, but instead of like making these bonds, government guaranteed bonds, it actually just swapped them into government debt. And the thing it really reminds me of is when the government of Ireland bailed out all of the Irish Banks in 2008 and took on, you know, tens of billions of euros of debt, you know, instead of just allowing the banks to, you know, have debt issues, they were like, no, we will make this a sovereign debt problem. And. And Ireland became like this massively indebted sovereign when it had up until that point been incredibly like fiscally responsible.
- [38:21]
C
Yeah.
- [38:22]
B
Okay, so, okay, so that seems an okay thing to do. Other countries have done it. So then what?
- [38:28]
A
It was a very bad idea for the country of Ireland and it was an equally bad idea for the country of Mozambique. If you have companies in your country that have borrowed money with credit spreads and credit risk and then they go bust. The way that capitalism works is that the lenders to those companies wind up taking losses. It's not that the country bails them out, but.
- [38:53]
B
Okay, you're gonna make me feel dumb again, but don't countries bail out lenders all the time? Like, didn't, didn't the US do that? Like a whole big lot Back in the day. Too big to fail. Am I missing something?
- [39:07]
A
We've done it. You're not missing anything a little bit with, with, with, with Citi. Citibank in Mexico. It has been done. Creditors tend to be very powerful and they tend to have, you know, very good relations with people in government, and they tend to go up to government and say, you can't let this company go bust because. And then they, you know, some parade of terribles. And then the government goes, oh, we don't want that parade of terrible, so we'd better bail out, quote, unquote, the company, which inevitably means the company's creditors. So is it, Is it true that other countries have bailed out creditors of that country's companies and debtors? Yes, it has definitely happened in the past. That happened in Ireland, it happened in Mozambique, it has happened in the United States. But the difference, I think, in this case is that Mozambique really didn't have the money to do that. And the impoverishment of an extremely poor population in Mozambique was entirely unnecessary.
- [40:06]
C
This was the thing that triggered the currency crisis. And what was that? 17 or 18?
- [40:11]
A
Yes, this is. Yeah, this, this, this deal was, I think, 2013. 2012. 2013. Around then, like. Yeah, this has been going on for a decade and there has been, like, Mozambique has now got, like, a junk credit rating. It's. It's not in a good place.
- [40:27]
B
And how does the U.S. department of justice become involved?
- [40:30]
A
Ooh, I love this question.
- [40:32]
C
Oh, no. What? I wish y' all could have seen Felix's face. It's just, like, radiated glee at this question from Emily.
- [40:41]
A
No, it's a really good question. And it's, and it's easy to see how the UK Financial Conduct Authority gets involved because the bonds were issued under London law in London, and that it was a fraudulent bond issue. And the UK FCA is like, don't do that. How does, how is this a problem for the SEC and the. Especially the doj? Like, I feel like that honestly, is a little bit of a stretch. And. But, you know, this is all part of the way the, The US exerts power globally. And because it has this kind of hegemonic status as the primary. Primary regulator of every global bank. And if a global bank does something bad anywhere in the world, the DOJ is going to want a piece of that.
- [41:29]
B
So the repercussions of the tuna situation fall upon poor people in Mozambique and Credit Suisse. Those are the losers here. Yeah.
- [41:40]
A
So if you, if you read Matt.
- [41:43]
C
Levine on this, one should always Read Matt Levine on everything.
- [41:46]
A
I think Matt Levine is far too sympathetic to Credit Suisse. Well, no, I wouldn't say that. He mildly like he, he hints at the idea that Credit Suisse is actually a victim here rather than a perpetrator. That, you know, there's a bunch of Credit Suisse bankers who are doing crimes and basically stealing from Credit Suisse and that Credit Suisse is being punished for the crime of being stolen from. And is that really fair? And the answer is, well, yes, it is really fair because if you are a bank with halfway decent compliance, then you basically make sure that you don't get stolen from. And it was your job to not get stolen from. And if you had done that job correctly, then you wouldn't have had all of those impoverished Mozambicans. And so it's probably a good idea to find Credit Suisse in this situation.
- [42:36]
C
I mean, I feel like Credit Suisse has had quite a run of challenging compliance questions recently. So this does seem to me more than, I mean there have been too many one offs for now for it to be like one offs anymore. We're past the point of three. Makes a trend.
- [42:58]
A
Emily, on a scale from one to ten, like how much do you feel like you now understand Mozambique and tuna.
- [43:03]
B
Buns with 10 being perfect understanding, 10.
- [43:07]
C
Being like a Felix level 15 minute explainer.
- [43:11]
B
I'm at just being honest. I think I'm at like a four and a half to five.
- [43:15]
C
I feel like I went from a four to a seven.
- [43:18]
A
We brought you up from like one. So we're, you know, we're getting somewhere. Let's have a numbers round. Why not? Stacy, I'm going to begin with you because you are very keen that I not steal your number.
- [43:28]
C
This is correct. Because I feel like we might have the same number. My number is 1300%.
- [43:34]
A
Okay.
- [43:34]
C
And that is how much shares of Digital World Acquisition, damn it, that was my number have gone up this week because this is the SPAC that's, you know, supposedly going to merge with Trump Media and technology in the name of truth and et cetera. And I have just been like watching real time data of this thing. You know, we're recording on Friday. So like on Friday morning and just losing my mind at both the volume and the intensity of the moves in this back today and this week.
- [44:14]
A
So we are recording on, it is right now 11:24am on Friday morning and I'm looking at Yahoo quotes and it's saying the day's range for Digital World Acquisition Corp. Is 69, 72 to 175. That's the range that it's. That's the range that it's traded in within less than two hours on Friday morning. And I'll hesitate, I'll hurry to add that the 6972, the bottom end of the range, is where it's trading right now. It's gone down a lot from its highs. But to be clear, yes, this is a spac, which means that the value of its assets is exactly $10. If it's trading at $70, that's crazy. If it's trading at $175, that's crazier. But everything is crazy. In a world of if you take two crazy things, which is SPACs and meme stocks, and then you multiply them both by the power of Trump, weird things are going to happen.
- [45:17]
C
Yeah, I mean, the chart is amazing. It just goes up, it's wild, and.
- [45:24]
A
Then it goes down.
- [45:25]
C
Well, I'm looking on a longer range than intraday, but, Emily, I was just.
- [45:31]
B
Going to say, I mean, just to emphasize the bingo card aspect of all this. Trump and SPAC together. Could it be more clear? We know Trump is the biggest scammer of all time who scammed his way into the White House, and he is now behind a spac. It's like it's too perfect. Like, you don't. I'm speechless. I can't believe this is happening.
- [45:54]
A
It's a great way for him to become, like, a paper billionaire because he puts no money in and then they give him a bunch of shares in this company, which is based on complete thin air. And the deck is wonderful. It's like we will compete with Stripe and Amazon Web Services. And you're like, yeah, of course you will.
- [46:11]
B
It's like we're watching Succession. It has echoes of this fictional HBO story as well. Just this completely.
- [46:21]
A
Tune in on Monday for our recap of episode two.
- [46:25]
B
Trump thinks he can take on Amazon and Facebook with truth social media. It's absurd.
- [46:31]
A
Yeah, you don't post tweets. You post truths. And then you can retruth someone else's truths. I'm not even making this up.
- [46:39]
B
But it's all lies.
- [46:40]
C
Well, the thing about attempting to compete with us and payments is this has very much been a kind of a cornerstone of the argument of, like, the techno right wing, where their concern is that tech is too lefty. But by which they mean whenever we host white supremacist Nazi content, we get kicked off and banned. And there are and have been for A while very real attempts to rebuild an infrastructure, like an infrastructure for the Internet, for web, for digital, for payments, that does want to compete with those folks whether it is possible to go from zero to MasterCard. But the spirit and the intent is very real.
- [47:24]
A
Yeah, and, and it's, it's absolutely obvious that, as you know, my colleague Mike Allen has been reporting, Trump is running for president. He will be the Republican nominee unless he's in jail or dead, basically. And he is hyper aware of the incredible tailwind that he got from Twitter the last time he ran for president. Well, both times he ran for president, I guess, and he's not going to have that tailwind this time. And so he's thinking that maybe if he doesn't have tweets, he can have truths and they will serve the same purpose as the tweets. There's clearly the non financial reason for.
- [48:09]
C
Him to do this since I stole Emily's number. Emily, what's your new number?
- [48:12]
B
Wow. Okay. My new number, I had a backup number.
- [48:17]
C
Ooh, you are so prepared. I respect that.
- [48:21]
B
My new number is 15 million. That is the number of doses of vaccine that the federal government is prepping to ship to pediatricians and other smaller sites once the Pfizer vaccine is approved for 5 to 11 year old people, which is the most exciting thing that is going to happen in the next few weeks, God willing. Let us all pray. We want the 5 to 11 year olds to be vaccinated before the holidays. I feel like not enough people are worried about this, but they should be. And it would be very exciting if all these kids could, could get vaccinated. And there's a nice piece in the Times about how the Biden administration is thinking about vaccination for this cohort because they don't want a bunch of little kids like, standing in line at mass vaccination sites. That would be kind of a disaster, right? The propensity for children to not want to stand in line for a long time or like cry and stuff like that. So it's a whole different kind of plan for them.
- [49:23]
C
I feel like there's been that same propensity in adults who've been trying to get to stand in line. So, you know, I don't want to like, shade the children, given what we've seen from the grownups.
- [49:34]
A
I can tell you, when I received my first jab, I was on the verge of tears. At Lincoln Hospital in the Bronx. It was not the most efficient system. My, My number is $0.70, which is the value of a physical Menu per average check According to BJ's restaurant, they moving back from QR codes to physical menus and all of this wonderful techno utopian idea that QR codes would make things much easier and seamless and, and more profitable and wonderful for restaurants like everyone hates them. And BJ's restaurant has discovered using their sort of back of an envelope, calculations and empirical data, that if you give people physical menus versus asking them to order from QR codes, the average check goes up by 70 cents.
- [50:34]
C
Well, I think with BJ's, I don't know if y' all have been in one of those recently, but at a place that I once worked in California, it was like literally the only place food in a reasonable distance. And so we were there a lot of the time. Those menus are gigantic. They're one of Those like your 15 pages of flipping past whatever exorbitant amount of pasta you could possibly imagine. So I would see for them how giving people that idea of oh, but did you want the extra extra could work in their favor. But I would love to see this for places where, you know, their menus were like three things they wrote in chalk on a twee little board in the spirit of kitsch or whatever and how it's shaping up for them.
- [51:14]
A
The thing I really like QR codes for is not ordering, but paying. The thing, which makes me happier than anything else, is if I go to my favorite soup dumpling place in New York and the check comes with a QR code on it and all you need to do is scan the QR code and Apple Pay comes up and you go click, click and you've paid the check and you can leave. I am so happy with that. That makes me so incredibly happy. But yeah, I've never enjoyed trying to scroll through menu on my phone especially, especially when it's a small restaurant and all they're doing is they're like, here's a crappily scanned PDF of a piece of paper and you have to.
- [51:54]
C
And you can't see with 50 AD trackers associated with it. And please give us your email. The payments thing is so interesting because I remember when I moved to the US being really confused that you would like pay in a restaurant and they would take your card away and go somewhere else and then swipe it. And I was like, what is happening right now?
- [52:11]
A
It is a terrible system. We need to get away from that.
- [52:13]
C
It's so confusing.
- [52:14]
B
Is it? So do you spend less money? Because like the whole thing with ordering in restaurants and money is like, you don't think about how much anything costs. And then the bill comes and you're like, oh, shit. You know, like you just ordering, like it doesn't matter. Yeah, but is it more explicit or more. Does it hit you harder in the QR code world?
- [52:35]
A
No, I think, I think it's. I think you just get exhausted trying to scroll through the options and so you just go, yeah, I can't be.
- [52:45]
C
I also think that ordering in a lot of these places has. Is a fundamentally social experience in a way that as soon as, you know, the four people around the table go into their phones and like half of them immediately switch to Twitter is not the same. I am in the house.
- [53:02]
B
Oh, and you can't upsell the way the server can't upsell. I remember when I was a waitress there, I was like, make sure you ask about appetizers. You want any apps? Would you like the nachos? You can't.
- [53:12]
A
And then you're. And then they're like, wait, let me pull out my phone again and try and work out where the appetizers are. It doesn't work.
- [53:17]
B
Yeah, no breaks. Breaks apart.
- [53:19]
A
All right, I think that's it for us this week. Thanks guys. This was fun. We will be back this coming Monday with the one and only Kurt Anderson. Talking about Succession Season 3, Episode 2. If you are not a succession person, we'll be back next Saturday with another amazing Slate Money. But yeah, thanks for listening, thanks for ranking this show on the app store and especially thanks to Shayna Roth for producing this his show in the face of of incredible last minute changes. In any case, we'll be back next week with even more Slate Money.