WEBVTT - Bad Monday: Shrimp, Fingers, Brains 0:00:03.120 --> 0:00:09.680 Bloomberg Audio Studios, Podcasts, radio News. We're starting with light 0:00:09.760 --> 0:00:16.560 fair you know, yeah, but lightly fried, well probably deeply fried, 0:00:16.640 --> 0:00:18.080 lightly breaded, deeply fried. 0:00:20.560 --> 0:00:24.239 All right, Hello and welcome to the Money Stuff Podcast. 0:00:24.520 --> 0:00:27.280 You're a weekly podcast where we talk about stuff related 0:00:27.280 --> 0:00:30.280 to money. I'm Matt Levine and I write the Money 0:00:30.280 --> 0:00:31.800 Stuff column for Bloomberg Opinion. 0:00:32.320 --> 0:00:34.680 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:34.720 --> 0:00:36.480 an anchor for Bloomberg Television. 0:00:36.920 --> 0:00:38.040 What do we got today, Katy? 0:00:38.520 --> 0:00:41.320 We're going to talk about shrimp and lobsters, all the 0:00:41.360 --> 0:00:43.200 fair out of the sea. We're going to talk about 0:00:43.320 --> 0:00:47.240 fat fingers and why City Group keeps having problems with those, 0:00:47.640 --> 0:00:49.640 and then we're going to talk about brains. 0:00:50.000 --> 0:00:51.000 It's going to be a good one. 0:00:51.120 --> 0:01:00.000 Yeah, Red Lobster, did they really shrimp themselves to death? 0:01:00.560 --> 0:01:02.319 No? Maybe a little bit. 0:01:02.680 --> 0:01:03.880 But isn't it fun to pretend? 0:01:03.920 --> 0:01:06.280 It's more fun to pretend than almost any other thing 0:01:06.319 --> 0:01:08.840 I've pretended about. So Red Lobster filed for bankruptcy over 0:01:08.840 --> 0:01:12.679 the weekend. And why did they go bankrupt? Well, you know, 0:01:13.000 --> 0:01:17.000 they like had a series of business mistakes. That's some 0:01:17.040 --> 0:01:19.880 onerous leases that they got in connection with the leverage 0:01:20.040 --> 0:01:24.280 via changing consumer tastes. Inflation is rough and fast, casual. 0:01:24.000 --> 0:01:25.199 Dining, those are all boring. 0:01:25.400 --> 0:01:30.000 Yeah. No, the real answer is that they are. Their 0:01:30.000 --> 0:01:33.440 equity owner is a company that is also one of 0:01:33.440 --> 0:01:36.679 their big suppliers. It's a seafood company called Tai Union, 0:01:37.160 --> 0:01:43.000 and Red Lobster under its former CEO, embarked on an unlimited, 0:01:43.200 --> 0:01:45.880 endless shrimp promotion where for twenty dollars you can get 0:01:45.880 --> 0:01:49.280 all the shrimp you wanted, all the time. And in 0:01:49.320 --> 0:01:52.080 the bankruptcy papers, the new CEO kind of like works 0:01:52.080 --> 0:01:56.480 on behalf of the creditors sort of insinuates that there 0:01:56.600 --> 0:02:00.640 is a scheme to pump shrimp through Red Lobster to 0:02:00.640 --> 0:02:03.880 make money for Tie Union at the expense of Red Lobster. 0:02:03.640 --> 0:02:07.120 To just line the pockets of Thai Union. Well, it 0:02:07.160 --> 0:02:11.080 did turn into they were the only shrimp supplier for 0:02:11.160 --> 0:02:13.280 Red Lobster, didn't They start out with three and then 0:02:13.320 --> 0:02:14.880 it whittled down to just Tai Union. 0:02:15.040 --> 0:02:17.520 It's not exactly clear, but yeah, the suggestion is that 0:02:17.600 --> 0:02:20.120 like there were some of the regularities in the procurement 0:02:20.160 --> 0:02:21.800 process where they got rid of some of their other 0:02:21.840 --> 0:02:25.000 shrimp suppliers and ended up sending more and more money 0:02:25.000 --> 0:02:27.640 directly to Taie Union for more and more shrimp, and. 0:02:27.520 --> 0:02:31.760 Thai Union of course disputes that passionately. They say that 0:02:32.000 --> 0:02:34.680 all of those issues concerning the company and its relationship 0:02:34.960 --> 0:02:39.000 to Red Lobster, you know, are basically false. But it 0:02:39.040 --> 0:02:42.080 is interesting that this started out as a limited promotion 0:02:42.200 --> 0:02:43.799 and then I think it was May twenty twenty three, 0:02:43.880 --> 0:02:47.960 actually it turned into a permanent promotion, this endless shrimp fiasco. 0:02:48.320 --> 0:02:51.360 It just makes sense. Yeah, But if you own a 0:02:51.400 --> 0:02:54.280 company that is going under, and by like February this year, 0:02:54.320 --> 0:02:56.320 Thai Union is saying the value of their equity at zero. 0:02:56.600 --> 0:02:58.400 You own a company that's going under, yeah, you get 0:02:58.440 --> 0:02:59.840 as much money as you can out of it, and 0:03:00.919 --> 0:03:03.680 you also sell that company shrimp. The goal is to 0:03:03.720 --> 0:03:05.359 sell them as many shrimp as possible. 0:03:05.560 --> 0:03:08.200 They did end up losing eleven million dollars on it, 0:03:08.280 --> 0:03:09.720 which is not huge in. 0:03:09.680 --> 0:03:11.839 The ground that gets you billion dollars. 0:03:12.080 --> 0:03:14.000 There's a lot of money to lose on shrimp, though, 0:03:16.320 --> 0:03:19.320 I mean, I certainly haven't come anywhere close to that. 0:03:20.120 --> 0:03:21.440 It is a lot of money to lose on shrimp. 0:03:21.760 --> 0:03:23.880 Red Lives the bankruptcy file has a lot of like 0:03:23.919 --> 0:03:26.640 good stats, including they're like twenty percent of the total 0:03:26.680 --> 0:03:29.880 market for lobster tales like in the world. So yeah, 0:03:29.919 --> 0:03:31.560 I mean, like, if anyone is going to lose eleven 0:03:31.560 --> 0:03:34.760 million dollars on shrimp, it's definitely red lobster. But that's 0:03:34.760 --> 0:03:36.840 probably not enough to drive them into bankruptcy, but it 0:03:36.880 --> 0:03:39.040 is enough to be very very funny in bankruptcy. 0:03:39.280 --> 0:03:42.240 It made for some amazing headlines, some amazing thought pieces, 0:03:42.240 --> 0:03:45.560 some amazing money stuff columns. Let's talk about the leases though, 0:03:45.680 --> 0:03:49.360 because a lot of people are pointing to the leases at. 0:03:49.240 --> 0:03:52.400 Sure sure, Like the boring answer is that, like there's 0:03:52.400 --> 0:03:55.120 a sort of classic private equity stripping story where it's like, 0:03:55.480 --> 0:03:58.200 you know, they were owned it on point by General Mills. 0:03:58.240 --> 0:04:01.680 They're on a Darden restaurant company. They were sold in 0:04:01.760 --> 0:04:05.080 a leveraged buyout where basically the buyer to finance the deal, 0:04:05.480 --> 0:04:07.880 sold a lot of their locations and leased them back, 0:04:08.200 --> 0:04:10.880 and so they entered into a lot of like expensive leases, 0:04:11.360 --> 0:04:15.040 and when hard times came, they didn't own their own 0:04:15.080 --> 0:04:16.599 real estate, and so they had a little bit less 0:04:16.600 --> 0:04:19.240 financial flexibility because that all these lease payments, and so 0:04:19.720 --> 0:04:22.280 that was also hard on them. I'm always like skeptical 0:04:22.320 --> 0:04:26.240 of these explanations because it's like that would work that 0:04:26.400 --> 0:04:30.120 fine had business kept improving, right, and it worked out 0:04:30.120 --> 0:04:32.880 poorly because business was declining. Like it adds leverage, right, 0:04:32.880 --> 0:04:36.960 it lowers your margin for error. But like it seems 0:04:37.000 --> 0:04:40.160 like the explanation here is not like Red Lobster was 0:04:40.200 --> 0:04:43.000 doing great and then like financial shenanigans destroyed it. The 0:04:43.040 --> 0:04:44.920 story is like Red Lobster is not doing that great 0:04:44.960 --> 0:04:47.120 and the financial maneuvers gave it less of a margin 0:04:47.160 --> 0:04:49.599 for error. But like, ultimately, this is a change in 0:04:49.600 --> 0:04:53.320 consumer tastes story, and it turns out the consumer taster 0:04:53.440 --> 0:04:56.840 or not for that many shrimp. Although the funny thing 0:04:56.920 --> 0:04:59.120 is like, in conjunction with like these stories about Red 0:04:59.160 --> 0:05:02.120 Lobster's collapse, you also read a lot of anecdotes about 0:05:02.240 --> 0:05:04.800 people eating one hundred and eighty shrimp at a sitting 0:05:04.880 --> 0:05:08.360 or whatever. I mean, why wouldn't you for reasons, but 0:05:08.480 --> 0:05:10.599 like you know that someone. 0:05:10.320 --> 0:05:13.280 Will I mean shrimp. I don't like shrimp, but shrimp 0:05:13.320 --> 0:05:15.919 are kind of the perfect food if you're just trying 0:05:15.960 --> 0:05:17.520 to get a lot of protein. 0:05:17.920 --> 0:05:19.600 It is true that if I were any one hundred 0:05:19.600 --> 0:05:21.440 and eighty of a food. It might be a shrimp. Yeah, 0:05:21.440 --> 0:05:24.040 come on, well, the Red Lobster advertised all the shrimps 0:05:24.040 --> 0:05:26.360 you could eat. That attracted some number of people who 0:05:26.400 --> 0:05:28.160 are like, oh, I can eat a lot of shrimp, 0:05:28.240 --> 0:05:29.400 Red Lobster, And it. 0:05:29.360 --> 0:05:31.600 Probably did get people in the door. But there was a. 0:05:31.640 --> 0:05:33.120 Really get negative margins. 0:05:33.200 --> 0:05:35.839 Yeah, exactly. And there was a fun Bloomberg News piece 0:05:35.960 --> 0:05:39.159 just talking about the state of the restaurant business right now. 0:05:39.320 --> 0:05:42.080 I don't think it's any surprise that inflation is still 0:05:42.120 --> 0:05:44.599 pretty high, pretty sticky. The absolute level of prices is 0:05:44.680 --> 0:05:47.080 much higher than it was. And you have all of 0:05:47.120 --> 0:05:50.479 these restaurant changs who you know, their businesses are in 0:05:50.560 --> 0:05:53.279 much better shape than Red Lobster, but they're just going 0:05:53.320 --> 0:05:56.680 for these promotions. You think about Applebee has one dollar 0:05:56.800 --> 0:05:59.240 Margaritos right now, which I actually would like to try. 0:05:59.279 --> 0:06:02.680 I can't imagine that as much alcohol. And then Chili's 0:06:02.880 --> 0:06:05.960 has recently introduced the Big Smasher. It's part of its 0:06:05.960 --> 0:06:08.840 broader campaign to have three menu items. You put them 0:06:08.839 --> 0:06:13.039 all together, they cost eleven dollars. Stay with me here anyway, 0:06:13.080 --> 0:06:13.320 And then. 0:06:13.279 --> 0:06:15.560 Maybe you say you put them all together like on 0:06:15.600 --> 0:06:18.440 a plate or like when you say, like, do they 0:06:18.480 --> 0:06:19.719 actually get a blender? 0:06:20.120 --> 0:06:24.000 You know, definitely not that one. Like you order three 0:06:24.080 --> 0:06:27.039 menu items and all together it costs like eleven dollars. 0:06:27.400 --> 0:06:30.240 But then they quote this man, he's the CEO of 0:06:30.600 --> 0:06:34.120 Aaron Allen and Associates. It's a restaurant consulting firm, and 0:06:34.160 --> 0:06:38.000 he says that these chains sabotage themselves by trading down 0:06:38.279 --> 0:06:42.480 just to get cheap hits. It's like taking grandma's jewelry 0:06:42.520 --> 0:06:45.520 to the pawn shop just to get a few quick bucks. 0:06:45.960 --> 0:06:48.039 And I guess that's kind of what Red Lobster did. 0:06:49.720 --> 0:06:58.600 Are the jewels the lobsters in this scenario, I'm torturing? Yeah, 0:06:58.640 --> 0:07:01.320 And so I don't know if I feel like it 0:07:01.400 --> 0:07:05.159 was a whole host of factors. It's probably crushing the 0:07:05.320 --> 0:07:07.680 entire restaurant industry right now is sort of the fast 0:07:07.720 --> 0:07:11.120 casual space. Those financial maneuvers that you described. 0:07:11.520 --> 0:07:14.320 Yeah, I just I love the idea that there is 0:07:14.360 --> 0:07:17.400 a shrimp conspiracy. Yeah, because, like right, there are a 0:07:17.400 --> 0:07:20.040 lot of factors that are affecting all of the competitors, 0:07:20.320 --> 0:07:23.360 but like here there's the specific factor that they are 0:07:23.440 --> 0:07:26.920 owned by their supplier, and so it's like we can 0:07:27.000 --> 0:07:29.320 just pump shrimp through the red lobster. 0:07:29.040 --> 0:07:31.040 System and no one will ever know. 0:07:31.280 --> 0:07:33.200 No one will ever know except that the CEO. 0:07:33.480 --> 0:07:36.840 Know who put in place the CEO? Was it Thai Union. 0:07:37.000 --> 0:07:39.680 Well so the old CEO Tai Union, yeah, pointed and 0:07:40.240 --> 0:07:42.240 the allegations now that he was in the pocket of 0:07:42.280 --> 0:07:44.680 Ti Union. But no, the new CEO is from ALPHAREZM. 0:07:44.680 --> 0:07:47.160 Marshall is like basically part of the restructuring team. So 0:07:47.200 --> 0:07:49.400 he like kind of works for the creditors. And you know, 0:07:49.440 --> 0:07:51.720 I wrote in m my column in the first day 0:07:51.760 --> 0:07:54.160 of the bankruptcy filing, he writes this statement sort of 0:07:54.680 --> 0:07:57.120 alleging that Tai Union was doing all this stuff, the 0:07:57.120 --> 0:08:00.560 stuff shrimp through the system. And I wrote that, you know, 0:08:00.600 --> 0:08:03.600 in his position, quote you cast a wide net for 0:08:03.640 --> 0:08:06.480 possible ways to claw back money for creditors, which I 0:08:06.480 --> 0:08:09.080 didn't really intend as a lobster pun. But like several 0:08:09.120 --> 0:08:10.160 readers put. 0:08:09.800 --> 0:08:12.239 That claw terrible. That's just terrible. 0:08:12.480 --> 0:08:14.040 I mean, like he works for the creditors and like 0:08:14.240 --> 0:08:16.280 they need to find as much money as they can, 0:08:16.320 --> 0:08:18.960 and like to the extent millions of dollars went out 0:08:19.000 --> 0:08:21.000 the door to pay Tie Union for shrip. You have 0:08:21.040 --> 0:08:22.960 some case to say it shouldn't have done that, and 0:08:23.000 --> 0:08:25.000 like that was a violation of their duty to the 0:08:25.000 --> 0:08:26.520 company and get the money back. 0:08:26.760 --> 0:08:29.040 I mean the fact that Tai Union appointed the CEO 0:08:29.240 --> 0:08:31.400 and then whittled it down. It's the owner of the company, 0:08:31.640 --> 0:08:33.880 I know, but still and then whittled it down to 0:08:33.920 --> 0:08:36.079 be the sole supplier. If they were one of several, 0:08:36.559 --> 0:08:37.880 maybe that would be a better look. 0:08:38.080 --> 0:08:41.600 It's definitely something that looks like a conflict of interest. 0:08:41.840 --> 0:08:46.040 It certainly does. What I'm unclear on is whether the 0:08:46.040 --> 0:08:48.400 promotion it's not still going on. Could you and I 0:08:48.480 --> 0:08:50.280 go to the Red Lobster in Times Square. 0:08:50.440 --> 0:08:53.040 I was thinking about trying to record this podcast from 0:08:53.240 --> 0:08:55.199 a Red Lobster, but I thought they shut down a 0:08:55.240 --> 0:08:56.000 lot of the restaurants. 0:08:56.080 --> 0:08:58.880 But the one in Times Square is still open. I 0:08:58.920 --> 0:09:01.640 know that because Bloomberg has actually sent some reporters there and. 0:09:01.880 --> 0:09:02.640 They get the shrimp. 0:09:02.760 --> 0:09:05.840 They interviewed a lot of guests, they get the shrimp 0:09:06.000 --> 0:09:09.040 that was not in the article Red Luster. 0:09:10.280 --> 0:09:13.439 At this late date at Red Lobster and not ordering 0:09:13.440 --> 0:09:14.280 the end of this ship. 0:09:14.280 --> 0:09:16.240 I know, I know it wasn't in the article. I 0:09:16.240 --> 0:09:17.920 feel like we need a little bit more on the 0:09:17.920 --> 0:09:20.920 ground reporting. But if the shrimp promotion is still going 0:09:21.000 --> 0:09:24.840 on ourselves, I don't eat shrimp, but I would choke down. 0:09:25.840 --> 0:09:27.439 Maybe maybe not one hundred and eighty, but. 0:09:27.600 --> 0:09:30.960 No, I will say, yeah, this is less funny than 0:09:30.960 --> 0:09:34.720 the shrimp. But people email me about this. There is 0:09:34.760 --> 0:09:39.240 this analogy to the AI investing boom, oh. 0:09:39.120 --> 0:09:41.600 My god, No, Okay, go ahead. 0:09:42.000 --> 0:09:44.319 There's this article from a poor Agarwalla a couple of 0:09:44.320 --> 0:09:48.880 months ago about large language model AI startups and a 0:09:48.920 --> 0:09:53.240 lot of their investors are like big cloud and chip 0:09:53.280 --> 0:09:57.280 companies like Nvidia and Google and Amazon and Microsoft. And 0:09:57.559 --> 0:10:00.280 he wrote this article being like, there is a weird 0:10:00.320 --> 0:10:03.040 tension there because these companies are investing billions of dollars 0:10:03.080 --> 0:10:05.920 in these AI startups, but a lot of that money 0:10:05.960 --> 0:10:08.000 is going right back to the cloud providers in the 0:10:08.040 --> 0:10:10.400 form of like paying for chips or paying for cloud compute, 0:10:10.640 --> 0:10:13.679 and so like when in Video or Microsoft invests in 0:10:13.720 --> 0:10:15.960 an AI startup, like it can say I'm putting in 0:10:16.000 --> 0:10:17.960 a billion dollars at a ten billion dollar valuation, but 0:10:17.960 --> 0:10:19.680 it's getting most of that money back right, It's like 0:10:19.720 --> 0:10:23.959 going to the supplier's bottom line. So he argues that's 0:10:24.320 --> 0:10:27.200 bad for venture capitalists in that space, because like the 0:10:27.280 --> 0:10:29.959 valuation of these companies is being driven up by people 0:10:29.960 --> 0:10:32.080 whose interest in the company is not just being an 0:10:32.080 --> 0:10:34.920 equity investor, but is also being a supplier. And He's 0:10:34.920 --> 0:10:37.240 like there's conflicts of interests where like if you are 0:10:37.720 --> 0:10:39.640 Microsoft or in Video and you're a big shareholder in 0:10:39.679 --> 0:10:41.559 these AI startups, you know, you're like on the board, 0:10:41.559 --> 0:10:43.880 you have control over this company. You might make decisions 0:10:43.880 --> 0:10:46.040 that are in your best interest as a supplier and 0:10:46.080 --> 0:10:48.000 not necessarily in the best interest of the company or 0:10:48.040 --> 0:10:52.200 in the other investors, because your money is not really 0:10:52.240 --> 0:10:56.120 an equity investment, it's really about finding customers for your 0:10:56.120 --> 0:10:57.040 cloud compute power. 0:10:57.920 --> 0:11:01.000 Similarly with the shrimp, Yeah, I was going to say 0:11:01.000 --> 0:11:03.959 I was skeptical, and then actually that is a really 0:11:04.280 --> 0:11:06.560 neat parallel in. 0:11:06.559 --> 0:11:08.200 Most of these cases, like these companies are not the 0:11:08.320 --> 0:11:10.800 controlling shawl, they're appointing the sea. Yeah. Right, Usually there's 0:11:10.800 --> 0:11:12.920 like some independent you know, like the startup has its 0:11:12.920 --> 0:11:15.000 own business model. But right, I mean, like there are 0:11:15.040 --> 0:11:17.200 conflicts of interest there where if you're like a big supplier, 0:11:17.440 --> 0:11:20.040 a big exclusive supplier, a lot of the equity investment 0:11:20.120 --> 0:11:22.760 is going directly to you, Like your interest is maybe 0:11:22.880 --> 0:11:24.840 less as an equity investor more as a supplier. 0:11:25.640 --> 0:11:28.360 I will say, like imagining, you know, an executive with 0:11:28.440 --> 0:11:31.360 semiconductor chips falling out of his pockets and his briefcase. 0:11:31.360 --> 0:11:34.080 It's definitely not as much fun as shrimp. But that 0:11:34.120 --> 0:11:35.400 does make a lot of sense. 0:11:35.400 --> 0:11:39.240 Right, Like you hope that like this is like in 0:11:39.280 --> 0:11:41.280 the earlier stage where it's like not as fun. You're 0:11:41.280 --> 0:11:43.600 not like, oh, they're like stuffing computing power into these 0:11:43.679 --> 0:11:45.840 AI startups, right because like they're all trying to make money. 0:11:45.920 --> 0:11:47.959 They're all, you know, optimistic and hopeful. It's not like 0:11:48.000 --> 0:11:49.640 Red Lovester with like sort of the end of the run. 0:11:49.720 --> 0:11:51.719 But uh, I don't know, food. 0:11:51.480 --> 0:12:12.079 For thoughts, some shrimp for thought. From shrimp to fat fingers. 0:12:12.800 --> 0:12:15.120 This is a sad story because that's a great story. 0:12:15.200 --> 0:12:17.920 I mean, it is about human error and who among 0:12:18.000 --> 0:12:21.040 us hasn't accidentally tried to sell four hundred and forty 0:12:21.080 --> 0:12:23.720 four billion dollars worth of equities. 0:12:24.000 --> 0:12:27.840 It is the most natural mistake it can possibly make. 0:12:28.120 --> 0:12:31.880 Why don't you walk us through the worst fourteen minutes 0:12:32.200 --> 0:12:33.319 of this trader's career. 0:12:33.480 --> 0:12:38.559 Okay, So there's a trader at city in London, apparently working. 0:12:38.280 --> 0:12:40.720 From home on a Monday holiday. 0:12:40.559 --> 0:12:41.920 On a Monday Bank holiday. 0:12:42.080 --> 0:12:46.199 Talk about a bad Monday. 0:12:46.280 --> 0:12:49.480 So this trader works on the Delta one desk and 0:12:49.559 --> 0:12:52.720 city to hedge an index features order has to sell 0:12:52.760 --> 0:12:55.880 a big basket of stocks on thirteen different European stock exchanges. 0:12:56.960 --> 0:12:59.920 Pulls up the order management system. There's like a box 0:13:00.000 --> 0:13:02.679 where you enter the quantity you want to sell. Actually 0:13:02.720 --> 0:13:04.760 there's two boxes. You can enter the quantity in terms 0:13:04.800 --> 0:13:07.160 of like units basically like shares of the index, or 0:13:07.200 --> 0:13:10.320 you can enter the quantity in dollars. This person wants 0:13:10.360 --> 0:13:13.320 to sell fifty eight million dollars, enters fifty eight million 0:13:13.360 --> 0:13:19.680 in the shares field, and therefore sells fifty eight million units, 0:13:19.679 --> 0:13:23.160 which is you know, four hundred and forty four billion 0:13:23.240 --> 0:13:28.440 dollars worth of stocks. So fills out the form and 0:13:28.480 --> 0:13:31.800 then this is the amazing part to me, the order 0:13:31.800 --> 0:13:34.720 management system displays you know, fifty eight million units, but 0:13:34.760 --> 0:13:37.840 then also displays a dollar amount. But instead of displaying 0:13:37.840 --> 0:13:39.760 four hundred and forty four billion, which is the actual 0:13:39.800 --> 0:13:45.600 dollar amount, it displays negative fifty eight million. Because in 0:13:45.640 --> 0:13:48.160 that field, it like pulls in from an external pricing 0:13:48.160 --> 0:13:50.360 source and the pricing source is like turned off that 0:13:50.480 --> 0:13:52.440 morning because I don't know if because the market's not opener, 0:13:52.480 --> 0:13:54.880 because the bank holiday or whatever. The pricing source is 0:13:54.880 --> 0:13:57.959 turned off. And so City's system says, the pricing sources 0:13:57.960 --> 0:14:00.800 isn't available, so we're going to default to negative one 0:14:00.960 --> 0:14:04.680 dollar as a price for each share, right, So the 0:14:04.679 --> 0:14:07.160 trader types in fifty eight million shares, and the thing 0:14:07.240 --> 0:14:09.920 pulls in a price of negative fifty eight million. So 0:14:09.960 --> 0:14:12.440 the trader looks at that and says, yes, right, I 0:14:12.480 --> 0:14:14.920 wanted fifty eight million dollars. It's showing me fifty eight 0:14:14.920 --> 0:14:17.520 million dollars. Now there's a minussignment. You know, everything is 0:14:17.559 --> 0:14:19.040 like no one knows what the sign is supposed to 0:14:19.080 --> 0:14:22.360 be on any of these systems, And so the trader's like, yes, okay, 0:14:22.560 --> 0:14:25.920 fifty eight million dollars just like I thought. Clicks okay. 0:14:26.520 --> 0:14:30.160 Then the next thing the system does pops up seven 0:14:30.280 --> 0:14:33.360 hundred and eleven warning error messages right saying, are you 0:14:33.400 --> 0:14:35.360 sure you want to sell you know, a billion dollars 0:14:35.360 --> 0:14:36.840 worth of stock in Sweden? Are you sure you want 0:14:36.840 --> 0:14:38.880 to sell a billion dollars worth of that? Suck? And 0:14:39.360 --> 0:14:42.040 the trader, first of all, only sees eighteen of these 0:14:42.040 --> 0:14:44.200 messages because you have to scroll down to see the 0:14:44.240 --> 0:14:49.120 other six hundred nine and why would you and telling yeah, 0:14:49.200 --> 0:14:51.920 it's a big order whatever, I'm clicking yes, so trader 0:14:51.960 --> 0:14:55.840 clicks yes. Then it shows like a final confirmation, like 0:14:55.920 --> 0:14:57.480 do you really want to sell? And at this point 0:14:57.480 --> 0:14:59.240 it has crossed off half of the orders. It's like 0:14:59.280 --> 0:15:02.920 half of these orders. Even cities somewhat chanky system knows 0:15:03.080 --> 0:15:05.240 that it should not sell, you know, more than two 0:15:05.280 --> 0:15:07.440 billion dollars worth of any stock, so like all the 0:15:07.480 --> 0:15:09.360 stocks that s to some more than two billion dollars worth, 0:15:09.360 --> 0:15:12.960 it cuts out, but still it says, okay, fine, do 0:15:13.000 --> 0:15:14.600 you really want to sell one hundred and ninety six 0:15:14.600 --> 0:15:16.560 billion dollars worth of stock? And at this point the 0:15:16.560 --> 0:15:20.960 trader says sure and clicks yes, and off City goes 0:15:21.200 --> 0:15:23.920 to sell one hundred ninety six billion dollars worth of stock, 0:15:24.080 --> 0:15:27.360 which causes a flash crash, and like a bunch of 0:15:27.360 --> 0:15:28.840 different European stock markets. 0:15:29.160 --> 0:15:33.880 Yeah, I mean, it's just amazing. Hearing you describe it 0:15:33.920 --> 0:15:36.280 makes my blood run cold. I do like to think 0:15:36.280 --> 0:15:39.120 that somewhere along that line I would have stopped myself, 0:15:39.160 --> 0:15:40.760 but one never knows. 0:15:41.960 --> 0:15:43.800 I got a lot of emails from people being like 0:15:44.240 --> 0:15:48.640 this person should have stopped themselves. I tell you I 0:15:48.760 --> 0:15:51.640 know at this point from my own computer use. I 0:15:51.720 --> 0:15:53.600 know enough about myself to know I would not. 0:15:53.520 --> 0:15:54.960 Have lived there messages. 0:15:55.120 --> 0:15:58.480 You know, because you're an experienced trader, right, you've done 0:15:58.480 --> 0:16:02.040 this before? You fill the form. You see the form 0:16:02.120 --> 0:16:05.760 show you fifty eight million dollars. You're like, yes, click yes, 0:16:06.040 --> 0:16:08.800 and then you get like seven more click buttons that 0:16:08.920 --> 0:16:11.480 to you are just a waste. They're like, okay, I've 0:16:11.480 --> 0:16:14.200 already checked it. It's already yes, yes, yes, yes, yes, yes, 0:16:14.240 --> 0:16:16.480 yes yes, and you just click. You don't look, I think, 0:16:16.560 --> 0:16:19.440 is what happened here. I'm not responsible for trading tens 0:16:19.560 --> 0:16:22.840 or hundreds of billions of dollars of stocks across Europe, 0:16:22.920 --> 0:16:25.280 but like I click yes all the. 0:16:25.280 --> 0:16:27.560 Time, man, I mean, I think about like my own 0:16:27.600 --> 0:16:29.840 stupid mistakes. I don't have anything of this magnitude, but 0:16:29.920 --> 0:16:33.480 like sending an instant Bloomberg message to the wrong person, 0:16:33.760 --> 0:16:37.120 making typos, et cetera, it happens. What is amazing. You 0:16:37.160 --> 0:16:40.960 described it as city somewhat janky system. It wouldn't have 0:16:41.000 --> 0:16:44.560 happened in New York necessarily, but it did happen in London. 0:16:44.280 --> 0:16:46.200 They had hard limits on how much you could sell 0:16:46.400 --> 0:16:48.640 at one time in New York. 0:16:49.040 --> 0:16:52.320 Yeah, And the natural question is why, But I don't 0:16:52.360 --> 0:16:53.920 know if you have that answer. 0:16:54.000 --> 0:16:55.800 I don't know the answer. But you know, everything is 0:16:55.840 --> 0:16:58.840 like silent and hierarchical, and some people put it in 0:16:58.840 --> 0:17:01.000 place and some people don't. You know, I don't have 0:17:01.040 --> 0:17:03.120 a good answer to why. But one loss put it 0:17:03.160 --> 0:17:03.720 in one didn't. 0:17:04.000 --> 0:17:07.560 This in and of itself is amazing, but it's even 0:17:07.600 --> 0:17:09.800 more amazing when you think about City's history, which you 0:17:09.840 --> 0:17:12.840 write about, and you think about what happened with Revlon, 0:17:13.119 --> 0:17:15.479 for example, because it hits a lot of the same notes. 0:17:15.760 --> 0:17:18.560 Yeah, I mean the Revlon thing. City was like the 0:17:18.640 --> 0:17:21.399 administrativevision on this big loan to Revlon, and like there 0:17:21.440 --> 0:17:23.880 was a sort of fight over whether Reverend was in default. 0:17:23.960 --> 0:17:26.480 And as part of that fight, Revlin meant to pay 0:17:26.520 --> 0:17:28.479 like seven million dollars an interest to a couple of 0:17:28.760 --> 0:17:31.919 hedge funds, and instead City paid nine hundred million dollars 0:17:32.200 --> 0:17:34.919 paid back the loan in full. And then City was like, oops, 0:17:34.920 --> 0:17:36.840 can we have the money back? Like half of the 0:17:36.920 --> 0:17:39.040 lenders were like sure, here's the money back, and half 0:17:39.080 --> 0:17:40.639 of them were like in this fight with Revlin and 0:17:40.680 --> 0:17:42.359 we're like, no, we're keeping the money and going to court. 0:17:42.720 --> 0:17:44.560 They kind of went in court and eventually lost, but 0:17:44.640 --> 0:17:48.800 in the court decision in loving detailed describes how city 0:17:48.800 --> 0:17:52.720 messed this up, and it's just incredible, like they had 0:17:52.720 --> 0:17:55.720 this system where like the only way for them to 0:17:55.760 --> 0:17:59.120 make this interest payment was for some reason, to pay 0:17:59.119 --> 0:18:01.800 off the entire principle of the loan, and the City's like, well, 0:18:01.800 --> 0:18:03.720 I was going want to do that. So no, it's okay, 0:18:03.840 --> 0:18:05.520 you can pay off the entire principle to like a 0:18:05.520 --> 0:18:08.120 fake memo account. So the system thinks it's paying off 0:18:08.119 --> 0:18:10.280 the entire principle, but it's not really, no money is 0:18:10.280 --> 0:18:11.720 going out the door. And so he's like, sure, that 0:18:11.720 --> 0:18:13.560 sounds great, let's do that, right, which is first of all, 0:18:13.640 --> 0:18:15.840 like a terrifying thing to agree to. But then secondly, 0:18:15.960 --> 0:18:18.879 in order to have it only be paid to a 0:18:18.880 --> 0:18:20.919 fake account and not actually go out the door, you 0:18:20.920 --> 0:18:23.560 have to click like three boxes, and one is like 0:18:23.560 --> 0:18:25.399 pay the principle to the fake account. You're like, okay, 0:18:25.400 --> 0:18:27.280 click the principal box, and then the other two are 0:18:27.320 --> 0:18:30.840 like just bizarre buzzwords, and so like the three people, 0:18:31.240 --> 0:18:33.520 three people had to do this, the three people signing 0:18:33.560 --> 0:18:36.200 off on the city thing, like yep, the right boxes checked, 0:18:36.760 --> 0:18:38.560 but then they didn't check the other two boxes that 0:18:38.600 --> 0:18:41.080 were more complicated, and so they sent out nine hundred 0:18:41.080 --> 0:18:44.359 million dollars by accident. And then when they saw that 0:18:44.400 --> 0:18:46.440 it had gone out, they called tech support and we like, 0:18:46.480 --> 0:18:49.160 the system isn't working. And ultimately turned out the system 0:18:49.240 --> 0:18:51.639 was working, but like you know, the system was terribly. 0:18:51.359 --> 0:18:54.360 Dissigned, right, and that happened in twenty twenty one. Yeah, 0:18:54.640 --> 0:18:57.720 this trade happened in twenty twenty two, so maybe maybe 0:18:58.200 --> 0:19:00.560 maybe it's all fix, it's all fun. I thought it 0:19:00.600 --> 0:19:02.840 was an interesting size and scope. So ultimately they were 0:19:02.880 --> 0:19:06.520 fined seventy eight million dollars. And apparently when regulators were 0:19:06.560 --> 0:19:10.080 thinking about how big the fine should actually be, they 0:19:10.080 --> 0:19:13.480 were thinking about how much it cost them in part. 0:19:13.760 --> 0:19:19.680 So basically, the Banks Delta one division had generated roughly 0:19:19.680 --> 0:19:21.920 six hundred and twelve million dollars in the nine years 0:19:22.000 --> 0:19:24.960