1 00:00:02,720 --> 00:00:04,399 Speaker 1: Bloomberg Audio Studios. 2 00:00:04,880 --> 00:00:05,559 Speaker 2: Podcasts. 3 00:00:05,900 --> 00:00:06,400 Speaker 1: Radio. 4 00:00:06,840 --> 00:00:07,260 Speaker 2: News. 5 00:00:08,180 --> 00:00:10,180 Speaker 1: Guys, have you seen Stella Lefty? Do we have opinions 6 00:00:10,240 --> 00:00:13,480 Speaker 1: on Stella Lefty here? On a train back from Boston. 7 00:00:13,770 --> 00:00:15,870 Speaker 2: That one? I don't get why people like that song. 8 00:00:15,930 --> 00:00:17,850 Speaker 2: It seems kind of blah, but it's popular. 9 00:00:18,150 --> 00:00:21,750 Speaker 1: I think that that song structurally is the same as 10 00:00:21,770 --> 00:00:24,330 Speaker 1: a Toby Keith song. So everyone's like, that's Dick Susan. 11 00:00:24,350 --> 00:00:26,750 Speaker 1: And it's like, no, that's Courtesy of the Red, White, 12 00:00:26,770 --> 00:00:29,610 Speaker 1: and Blue. A song that everyone has memory hold on purpose. 13 00:00:29,950 --> 00:00:33,190 Speaker 2: Wait, the Toby Keith song is like... Which one is that? 14 00:00:33,250 --> 00:00:33,870 Speaker 1: Oh, it's so bad. 15 00:00:33,909 --> 00:00:35,629 Speaker 2: I know, but it's not the one I'm thinking. 16 00:00:35,890 --> 00:00:37,310 Speaker 1: I can sing the whole thing for you. Would that help? 17 00:00:37,790 --> 00:00:38,070 Speaker 2: Yeah, yeah. 18 00:00:38,370 --> 00:00:41,670 Speaker 1: Hey, Uncle Sam, put your name at the top of 19 00:00:41,710 --> 00:00:45,500 Speaker 1: his list. And the Statue of Liberty started shaking her fist. 20 00:00:45,880 --> 00:00:48,620 Speaker 1: And the eagle will fly. And there's going to be 21 00:00:48,700 --> 00:00:51,000 Speaker 1: hail when you hear Mother Freedom. 22 00:00:51,020 --> 00:00:53,199 Speaker 2: We're going to cut out everything except you singing most 23 00:00:53,960 --> 00:00:56,240 Speaker 2: of that song. That's just going to be the cold open. 24 00:00:56,520 --> 00:00:58,560 Speaker 1: I'm doing all of this under the assumption that none 25 00:00:58,580 --> 00:01:01,520 Speaker 1: of it makes it. That was so pitchy. Are you 26 00:01:01,550 --> 00:01:02,180 Speaker 1: going to auto-tune it? 27 00:01:03,610 --> 00:01:07,210 Speaker 2: Hello, and welcome to the Money Stuff Podcast, your weekly 28 00:01:07,250 --> 00:01:11,350 Speaker 2: podcast where we talk about stuff related to money. I'm 29 00:01:11,370 --> 00:01:13,020 Speaker 2: Matt Levine, and I wrote the Money Stuff column for 30 00:01:13,060 --> 00:01:13,720 Speaker 2: Bloomberg Opinion. 31 00:01:15,020 --> 00:01:17,720 Speaker 1: I'm Mary Childs, host of the podcast, Mary in America. 32 00:01:18,400 --> 00:01:20,800 Speaker 2: And Mary is guest hosting with me again this week. 33 00:01:21,000 --> 00:01:21,660 Speaker 1: Thanks for having me. 34 00:01:22,140 --> 00:01:29,720 Speaker 2: Thanks for being here. So I got a text the 35 00:01:29,760 --> 00:01:31,320 Speaker 2: other night from Katie Greifeld. 36 00:01:32,010 --> 00:01:33,590 Speaker 1: A celebrity intervention here. 37 00:01:33,970 --> 00:01:38,170 Speaker 2: Yeah. My regular co-host, Katie, who is out on parental 38 00:01:38,209 --> 00:01:42,730 Speaker 2: leave with her newborn-ish daughter, Julia, who's been named on 39 00:01:42,770 --> 00:01:44,399 Speaker 2: this show, which is why I don't feel bad saying it. 40 00:01:44,870 --> 00:01:45,920 Speaker 1: I think you should still feel bad. 41 00:01:46,020 --> 00:01:47,880 Speaker 2: I do feel bad, but she's named her on this show, 42 00:01:47,900 --> 00:01:50,200 Speaker 2: so I don't feel that bad. But anyway, she texted 43 00:01:50,220 --> 00:01:54,780 Speaker 2: me a Bloomberg story, tax-slashing holy grail popularized by AQR, 44 00:01:54,860 --> 00:01:59,020 Speaker 2: Delta IRS warning. And she texted, Julia and I are 45 00:01:59,060 --> 00:02:02,110 Speaker 2: discussing this on the Baby Stuff podcast this week. which 46 00:02:02,630 --> 00:02:06,250 Speaker 2: I believe that I have previously joked, at least with 47 00:02:06,290 --> 00:02:10,000 Speaker 2: my family, if not necessarily in the newsletter, about starting 48 00:02:10,020 --> 00:02:12,080 Speaker 2: a new newsletter called Baby Stuff about my babies. 49 00:02:12,480 --> 00:02:13,940 Speaker 1: They're not babies anymore, Matt. 50 00:02:14,300 --> 00:02:16,419 Speaker 2: I know, but Katie's baby is a baby. 51 00:02:16,440 --> 00:02:17,440 Speaker 1: Katie's baby is legit a baby. 52 00:02:17,580 --> 00:02:21,040 Speaker 2: She is sitting at home right now playing pretend podcast 53 00:02:21,080 --> 00:02:24,040 Speaker 2: with her about 350 on Exchange ETFs. 54 00:02:24,660 --> 00:02:27,669 Speaker 1: So she can play this and it'll be like Clubhouse. 55 00:02:27,730 --> 00:02:31,030 Speaker 1: It'll be a conversation. She can text us her thoughts. Hi, Katie. 56 00:02:31,389 --> 00:02:33,510 Speaker 2: Yeah, it'll be like, you know, like you're supposed to 57 00:02:33,550 --> 00:02:36,230 Speaker 2: talk continually to your baby so that they like learn language, 58 00:02:36,290 --> 00:02:38,160 Speaker 2: even if you're just sort of like narrating your day 59 00:02:38,180 --> 00:02:38,530 Speaker 2: or whatever. 60 00:02:38,560 --> 00:02:39,350 Speaker 1: Totally. 61 00:02:40,340 --> 00:02:43,280 Speaker 2: Katie's baby will just be learning about ETFs from birth. 62 00:02:43,639 --> 00:02:48,460 Speaker 2: So there's news this week about ETFs, which is that 63 00:02:48,500 --> 00:02:52,500 Speaker 2: the IRS is cracking down on these like 351 exchange ETFs. 64 00:02:53,020 --> 00:02:56,200 Speaker 2: And my theory of these ETFs is that ordinarily, if 65 00:02:56,220 --> 00:02:58,750 Speaker 2: you're a person, and you own some stock and you 66 00:02:58,760 --> 00:03:00,500 Speaker 2: want to own some different stock, you sell the stock 67 00:03:00,530 --> 00:03:02,010 Speaker 2: that you own, you buy the different stock, and you 68 00:03:02,030 --> 00:03:05,049 Speaker 2: have a taxable transaction. Selling stock for cash is a 69 00:03:05,070 --> 00:03:07,670 Speaker 2: taxable transaction, even if your ultimate goal is just to 70 00:03:07,730 --> 00:03:10,470 Speaker 2: exchange it into new stock. And for ETFs, that's not true. 71 00:03:10,510 --> 00:03:14,850 Speaker 2: For ETFs, there's a magical sort of pathway through the 72 00:03:16,090 --> 00:03:19,950 Speaker 2: tax code that allows an ETF to exchange the stock 73 00:03:20,010 --> 00:03:21,900 Speaker 2: it doesn't want for a stock that it does want 74 00:03:21,940 --> 00:03:23,079 Speaker 2: without incurring taxes. 75 00:03:23,280 --> 00:03:24,859 Speaker 1: It's like the whole beauty of ETFs, right? 76 00:03:25,100 --> 00:03:27,350 Speaker 2: Right. at first that was like, oh, a neat little 77 00:03:27,389 --> 00:03:30,089 Speaker 2: feature of index ETFs. And then people realized you could 78 00:03:30,110 --> 00:03:32,990 Speaker 2: do that for actively traded ETFs where they were just 79 00:03:33,290 --> 00:03:36,110 Speaker 2: deferring taxes on all of their trading. But then eventually 80 00:03:36,130 --> 00:03:39,460 Speaker 2: the financial advisors realized like, why can't everyone do that? 81 00:03:39,810 --> 00:03:43,200 Speaker 2: And so they started being like going to rich individuals 82 00:03:43,260 --> 00:03:45,600 Speaker 2: and saying, look, if you have a stock portfolio, you 83 00:03:45,620 --> 00:03:49,440 Speaker 2: can wrap it up in an ETF. And then you can, 84 00:03:49,800 --> 00:03:52,600 Speaker 2: from then on, do whatever trading you want without ever 85 00:03:52,640 --> 00:03:55,880 Speaker 2: incurring taxes. And like, The way it works is that 86 00:03:56,940 --> 00:03:58,800 Speaker 2: there's two trades. There's like, you know, you're a person, 87 00:03:58,840 --> 00:04:01,210 Speaker 2: you have a stock portfolio, you contribute it to an 88 00:04:01,220 --> 00:04:03,350 Speaker 2: ETF and you get back shares of the ETF. That 89 00:04:03,390 --> 00:04:06,330 Speaker 2: shouldn't be a taxable transaction, right? You're just like contributing 90 00:04:06,390 --> 00:04:08,450 Speaker 2: shares to an ETF and getting back shares in exchange. 91 00:04:09,030 --> 00:04:11,970 Speaker 2: And then the ETF itself can move the underlying stock 92 00:04:12,030 --> 00:04:14,400 Speaker 2: in and out of the ETF by doing like heartbeat 93 00:04:14,410 --> 00:04:18,040 Speaker 2: trades with authorized participants that are also in-kind exchanges that 94 00:04:18,060 --> 00:04:21,140 Speaker 2: never incur taxes. And so the upshot of this is 95 00:04:21,180 --> 00:04:23,870 Speaker 2: that if you are like, let's say a centi-millionaire, you 96 00:04:23,890 --> 00:04:27,930 Speaker 2: can trade your stock portfolio without ever incurring taxes. And 97 00:04:28,570 --> 00:04:31,940 Speaker 2: the threshold is going down so that if you extrapolate 98 00:04:31,960 --> 00:04:35,280 Speaker 2: this out in five years, everyone will be able to 99 00:04:35,380 --> 00:04:39,859 Speaker 2: trade stocks without incurring taxes. And the financial industry was 100 00:04:39,880 --> 00:04:42,180 Speaker 2: kind of extrapolating that out. And I was writing about it. Yeah, 101 00:04:42,200 --> 00:04:44,940 Speaker 2: that'll be fun when no one pays taxes to trade stocks. 102 00:04:45,420 --> 00:04:47,290 Speaker 2: And eventually, the IRS had to crack down. And they 103 00:04:47,310 --> 00:04:50,870 Speaker 2: cracked down this week with a revenue ruling saying, basically, 104 00:04:50,890 --> 00:04:56,900 Speaker 2: if you do this too obviously, then it doesn't work 105 00:04:57,070 --> 00:04:57,750 Speaker 2: and you have to pay taxes. 106 00:04:57,770 --> 00:04:59,430 Speaker 1: If we notice, we don't like it. 107 00:04:59,750 --> 00:05:01,990 Speaker 2: Yeah. It's basically what it says is that if you 108 00:05:02,370 --> 00:05:08,650 Speaker 2: contribute appreciated stock to an ETF and as part of 109 00:05:08,710 --> 00:05:12,130 Speaker 2: the same plan, you immediately heartbeat the stock out and 110 00:05:12,170 --> 00:05:16,510 Speaker 2: get back a diversified portfolio, then we're going to recharacterize 111 00:05:16,529 --> 00:05:19,270 Speaker 2: that based on the substance as you've sold the stock 112 00:05:19,310 --> 00:05:21,150 Speaker 2: and you have to pay taxes. But I don't think 113 00:05:21,170 --> 00:05:23,250 Speaker 2: anyone quite knows what that means in terms of like 114 00:05:23,290 --> 00:05:25,450 Speaker 2: how long do you have to wait. Right. And so, 115 00:05:25,510 --> 00:05:27,830 Speaker 2: you know, we're sort of in early days of cracking 116 00:05:27,850 --> 00:05:28,270 Speaker 2: down on this. 117 00:05:28,910 --> 00:05:31,270 Speaker 1: It's nice. We're inventing the rules. We're inventing the lines. 118 00:05:31,890 --> 00:05:34,370 Speaker 1: It reminded me of a 1031 real estate transaction. 119 00:05:34,670 --> 00:05:35,950 Speaker 2: Oh, it's totally a 1031. Yeah. 120 00:05:36,270 --> 00:05:36,990 Speaker 1: It's just so cute. 121 00:05:37,010 --> 00:05:40,179 Speaker 2: Yeah. I mean, the cynical view is that the 1031 122 00:05:40,180 --> 00:05:42,660 Speaker 2: exchange is really good for real estate developers. Right. And 123 00:05:42,680 --> 00:05:46,090 Speaker 2: real estate developers are an important constituency here. In that, 124 00:05:46,230 --> 00:05:48,550 Speaker 2: for instance, the president of the United States is a 125 00:05:48,570 --> 00:05:51,180 Speaker 2: real estate developer. But even before that, like, you know, 126 00:05:51,210 --> 00:05:54,300 Speaker 2: there are a lot of real estate developers. Whereas, like, 127 00:05:54,820 --> 00:05:58,620 Speaker 2: everyone can avoid paying taxes on stock trades. It's like a, 128 00:05:58,779 --> 00:06:01,580 Speaker 2: you know, bigger, arguably bigger loophole. I don't know if 129 00:06:01,600 --> 00:06:03,520 Speaker 2: it actually is a bigger loophole in terms of dollars. 130 00:06:03,560 --> 00:06:04,100 Speaker 2: I know, right? Is it? 131 00:06:04,420 --> 00:06:07,850 Speaker 1: Yeah, probably. But it's empirical. That's an empirical question we 132 00:06:07,870 --> 00:06:08,450 Speaker 1: could go find out. 133 00:06:08,970 --> 00:06:11,170 Speaker 2: Right. Like, I incur a certain amount of capital gains 134 00:06:11,190 --> 00:06:15,950 Speaker 2: taxes by rebalancing my portfolio. You do? Yeah. Yeah. 135 00:06:16,210 --> 00:06:18,650 Speaker 1: And it'd be nice not to, but- Yeah, you shouldn't. 136 00:06:18,670 --> 00:06:19,750 Speaker 1: I don't think you should have to do that anymore. 137 00:06:19,770 --> 00:06:21,210 Speaker 2: I don't think that's as big a ticket as like, 138 00:06:21,250 --> 00:06:22,919 Speaker 2: you know, if I were doing 1031 exchanges. But yeah, 139 00:06:22,940 --> 00:06:25,420 Speaker 2: I think the point is that like the sort of 140 00:06:25,500 --> 00:06:27,839 Speaker 2: broad theory of tax is that if you have an 141 00:06:27,980 --> 00:06:30,520 Speaker 2: asset and you sell it for cash, then that's a 142 00:06:30,820 --> 00:06:33,360 Speaker 2: taxable transaction and you have to pay taxes on the appreciation. 143 00:06:33,860 --> 00:06:35,980 Speaker 2: And if you have an asset and you swap it 144 00:06:36,040 --> 00:06:37,750 Speaker 2: for like kind of the same thing. 145 00:06:37,760 --> 00:06:40,089 Speaker 1: You're still in the game. You haven't finished playing yet. 146 00:06:40,230 --> 00:06:43,190 Speaker 2: Yeah. And exactly where you set the parameters of that 147 00:06:43,370 --> 00:06:45,750 Speaker 2: is kind of an open question. So 1031 exchanges, I 148 00:06:46,810 --> 00:06:49,090 Speaker 2: think a lot of people would say are kind of 149 00:06:49,130 --> 00:06:51,410 Speaker 2: an aggressive setting of the batteries, but it's in the 150 00:06:51,450 --> 00:06:54,390 Speaker 2: tax code. Basically, 1031 exchange says if you own like, 151 00:06:54,490 --> 00:06:57,510 Speaker 2: you know, a commercial property and you sell it for 152 00:06:57,589 --> 00:07:00,510 Speaker 2: cash and then within a certain amount of time, you 153 00:07:00,560 --> 00:07:03,330 Speaker 2: reapply the cash to buying another commercial property. then you 154 00:07:03,350 --> 00:07:07,159 Speaker 2: don't have to pay taxable gains on the sale because 155 00:07:07,200 --> 00:07:10,620 Speaker 2: it's essentially a like-for-like exchange. Oh, I mean, the other 156 00:07:10,640 --> 00:07:13,660 Speaker 2: thing is when you take corporate tax in law school, 157 00:07:13,720 --> 00:07:16,260 Speaker 2: one thing you learn is that contributing property to a 158 00:07:16,280 --> 00:07:19,100 Speaker 2: corporation is a non-taxable transaction. So if you're a person 159 00:07:19,400 --> 00:07:22,440 Speaker 2: and you own a lemonade stand or whatever, and you're like, 160 00:07:22,440 --> 00:07:24,650 Speaker 2: I don't want to own this business in my own 161 00:07:24,690 --> 00:07:25,910 Speaker 2: name anymore. I want to own it in the name 162 00:07:25,930 --> 00:07:28,490 Speaker 2: of a corporation. You can take your business assets and 163 00:07:28,510 --> 00:07:30,810 Speaker 2: put them into a corporation and get back shares of 164 00:07:30,850 --> 00:07:34,310 Speaker 2: the corporation. And like, obviously that's not a taxable transaction, right? 165 00:07:34,330 --> 00:07:37,110 Speaker 2: Nothing's happened. You're just like changing the form in which 166 00:07:37,130 --> 00:07:39,410 Speaker 2: you own it. But that's what's happening with an ETF, 167 00:07:39,430 --> 00:07:41,250 Speaker 2: like with a 351 exchange of the ETF, right? Like 168 00:07:41,270 --> 00:07:44,850 Speaker 2: you're taking stuff, which happens to be appreciated stock, and 169 00:07:44,870 --> 00:07:47,050 Speaker 2: you're plopping it into a corporation, which happens to be 170 00:07:47,090 --> 00:07:49,450 Speaker 2: an ETF. It's like, why is that a taxable transaction? 171 00:07:49,900 --> 00:07:52,860 Speaker 2: The 351 exchange ETF is like, there are two pieces 172 00:07:52,920 --> 00:07:56,320 Speaker 2: of it that are like pretty clearly not taxable transactions. 173 00:07:56,560 --> 00:08:00,500 Speaker 2: One is like contributing property to an ETF. where you're 174 00:08:00,520 --> 00:08:02,350 Speaker 2: getting back shares of the ETF, which is just changing 175 00:08:02,390 --> 00:08:04,590 Speaker 2: the form of ownership of the thing. And the other 176 00:08:04,650 --> 00:08:08,030 Speaker 2: one is the heartbeat trade, where the ETF redeems in kind, 177 00:08:08,370 --> 00:08:12,250 Speaker 2: which is very controversially not a taxable transaction, but it's 178 00:08:12,290 --> 00:08:15,130 Speaker 2: not a taxable transaction. That's just how all ETFs do 179 00:08:15,190 --> 00:08:17,650 Speaker 2: all of their stock trading. And so if you combine 180 00:08:17,670 --> 00:08:20,810 Speaker 2: those two trades, you really should have a non-taxable transaction. 181 00:08:21,390 --> 00:08:22,970 Speaker 2: But if you take that too literally, then it means 182 00:08:23,030 --> 00:08:24,890 Speaker 2: no one will ever pay taxes on their stock trades. 183 00:08:25,290 --> 00:08:28,200 Speaker 2: And so the IRS is basically like, look, The first 184 00:08:28,240 --> 00:08:30,900 Speaker 2: trade works. The second trade works. But if you combine them, 185 00:08:30,960 --> 00:08:31,320 Speaker 2: it's too cute. 186 00:08:31,340 --> 00:08:31,860 Speaker 1: It's a double negative. 187 00:08:31,880 --> 00:08:34,470 Speaker 2: And we're going to re-characterize it as a taxable transaction. 188 00:08:34,490 --> 00:08:36,130 Speaker 1: They cancel each other out and it becomes a problem 189 00:08:36,150 --> 00:08:36,430 Speaker 1: for us. 190 00:08:36,510 --> 00:08:36,770 Speaker 2: Yeah. 191 00:08:36,890 --> 00:08:38,210 Speaker 1: That's fair. They've got to draw the line somewhere. 192 00:08:38,230 --> 00:08:39,829 Speaker 2: It's not like all of tax works, kind of. 193 00:08:40,870 --> 00:08:41,270 Speaker 1: Is it? 194 00:08:41,530 --> 00:08:43,830 Speaker 2: That's how a lot of tax works. It's like basically 195 00:08:43,870 --> 00:08:48,540 Speaker 2: like tax structures are like, well, if you combine this, this, 196 00:08:48,620 --> 00:08:52,220 Speaker 2: and this, we have like an incredibly counterintuitive tax trade. 197 00:08:52,520 --> 00:08:54,720 Speaker 2: And this, this, and this all work. So it should work. 198 00:08:55,160 --> 00:08:57,270 Speaker 2: And then the IRS is like, This, this, and this 199 00:08:57,330 --> 00:08:58,670 Speaker 2: all work, but the combination doesn't work. 200 00:08:58,690 --> 00:09:00,610 Speaker 1: But you can't do it all at once. I like 201 00:09:00,650 --> 00:09:03,050 Speaker 1: that because, well, that's what loopholes are. It's just a 202 00:09:03,090 --> 00:09:06,829 Speaker 1: series of steps, of behaviors that we lump together and then, like, 203 00:09:06,890 --> 00:09:10,630 Speaker 1: magically it, like, collapses the entire. I mean, buy, borrow, 204 00:09:10,650 --> 00:09:12,310 Speaker 1: die is just a series of behaviors. 205 00:09:13,090 --> 00:09:16,109 Speaker 2: Right. And, like, in many areas of the world, if 206 00:09:16,150 --> 00:09:19,950 Speaker 2: you combine seven loopholes that all work, then, like, your 207 00:09:19,990 --> 00:09:20,730 Speaker 2: combination works. 208 00:09:21,150 --> 00:09:24,090 Speaker 1: Those are just regular holes, okay? They add up to 209 00:09:24,130 --> 00:09:24,410 Speaker 1: a loophole. 210 00:09:25,330 --> 00:09:27,969 Speaker 2: But, like, tax actually has a doctrine of, like, recharacterizing 211 00:09:28,690 --> 00:09:31,910 Speaker 2: for substance over form. And so if you combine seven 212 00:09:31,960 --> 00:09:34,280 Speaker 2: loopholes that work in a way that is too cute 213 00:09:34,380 --> 00:09:36,180 Speaker 2: in tax, then, like, yeah, it doesn't work anymore. 214 00:09:36,300 --> 00:09:39,840 Speaker 1: It generates, like, an off-gas of too cute. That's really nice. 215 00:09:40,220 --> 00:09:42,540 Speaker 2: I think that's kind of what happened here. But we'll see. Like, 216 00:09:42,559 --> 00:09:45,460 Speaker 2: I don't... I'm not clear, and I don't think anyone 217 00:09:45,500 --> 00:09:48,500 Speaker 2: is that clear from, like, this week's rulings what the 218 00:09:48,540 --> 00:09:53,830 Speaker 2: boundary of too cute is. And I don't think this is, like, the. 219 00:09:54,590 --> 00:09:56,270 Speaker 1: Yeah, it sounds like we're going to find out. 220 00:09:56,370 --> 00:09:58,350 Speaker 2: Yeah. I'm not going to find out, though. 221 00:09:58,730 --> 00:10:01,090 Speaker 1: You physically with your target? are not going to find out? 222 00:10:01,210 --> 00:10:03,580 Speaker 2: I think you should. It's not going to trickle down 223 00:10:03,630 --> 00:10:06,640 Speaker 2: to me, right? Whereas, like, before this, you might have imagined, 224 00:10:06,660 --> 00:10:09,920 Speaker 2: and I probably did imagine, like, enough retailization of this 225 00:10:09,940 --> 00:10:14,620 Speaker 2: such that, like, every individual investor could avoid taxes forever. 226 00:10:14,679 --> 00:10:16,560 Speaker 2: And that's probably not going to happen anymore. But, like, 227 00:10:16,580 --> 00:10:18,459 Speaker 2: if you have a billion-dollar portfolio, are you going to 228 00:10:18,500 --> 00:10:19,940 Speaker 2: try this? Sure, probably. 229 00:10:20,360 --> 00:10:21,700 Speaker 1: It sounds so fun, though. I want to try. 230 00:10:21,720 --> 00:10:23,300 Speaker 2: I mean. 231 00:10:24,080 --> 00:10:28,300 Speaker 1: With my $ 10. With $ 15, okay? I can do $ 15. 232 00:10:28,179 --> 00:10:29,500 Speaker 1: It would be expensive. 233 00:10:29,530 --> 00:10:31,270 Speaker 2: But this is like a major topic of the Money 234 00:10:31,290 --> 00:10:34,050 Speaker 2: Stuff podcast is like Katie knows a lot of white 235 00:10:34,070 --> 00:10:37,429 Speaker 2: label ETF providers and will probably end up starting an 236 00:10:37,490 --> 00:10:39,990 Speaker 2: ETF for herself. So we could probably start you a 237 00:10:40,270 --> 00:10:41,410 Speaker 2: tax avoidance ETF too. 238 00:10:41,570 --> 00:10:43,350 Speaker 1: If I were still at Planet Money, I would absolutely 239 00:10:43,390 --> 00:10:45,510 Speaker 1: pitch this and find someone to advise me for free 240 00:10:45,610 --> 00:10:47,910 Speaker 1: because otherwise it would evaporate my capital pile. 241 00:10:47,970 --> 00:10:49,630 Speaker 2: By the way, when I say we can probably find 242 00:10:49,650 --> 00:10:52,510 Speaker 2: you a tax avoidance ETF strategy, that means we no 243 00:10:52,530 --> 00:10:55,319 Speaker 2: longer can because it's on the record saying that. 244 00:10:55,360 --> 00:10:57,720 Speaker 1: Right now we have intent. The only way to know 245 00:10:57,740 --> 00:11:01,979 Speaker 1: what the intent is is if you said in a podcast, Matt, 246 00:11:02,020 --> 00:11:03,140 Speaker 1: you owe me so much money. 247 00:11:03,160 --> 00:11:07,120 Speaker 2: How many 351 exchange ETFs do you think have been 248 00:11:07,220 --> 00:11:11,050 Speaker 2: undone by podcasts? Probably a lot, honestly. 249 00:11:27,720 --> 00:11:29,560 Speaker 1: I expected more praise for my on-brand. 250 00:11:30,240 --> 00:11:31,700 Speaker 2: Oh, you have a Bloomberg mug. 251 00:11:32,080 --> 00:11:34,160 Speaker 1: So I think I stole this from the set of 252 00:11:34,240 --> 00:11:36,660 Speaker 1: Tom Keen's show. No one had ever given me any 253 00:11:36,700 --> 00:11:38,700 Speaker 1: Bloomberg swag, so I took it upon myself. 254 00:11:39,300 --> 00:11:41,710 Speaker 2: Yeah, Mary is remoting in, and on her video screen, 255 00:11:41,730 --> 00:11:44,179 Speaker 2: there is her. There is a Bloomberg mug stolen from 256 00:11:44,210 --> 00:11:44,730 Speaker 2: Tom Keen. 257 00:11:45,179 --> 00:11:46,489 Speaker 1: Borrowed. I'll give it back. 258 00:11:46,500 --> 00:11:49,209 Speaker 2: There is a copy of her book, The Bond King, 259 00:11:49,390 --> 00:11:50,670 Speaker 2: face out on the shelf behind her. 260 00:11:50,750 --> 00:11:52,610 Speaker 1: Actually, like a lot of copies of The Bond King. 261 00:11:52,650 --> 00:11:55,430 Speaker 1: If you need one, go buy it. But I could 262 00:11:55,450 --> 00:12:02,120 Speaker 1: give you one. Anyway, speaking of banks... Speaking of. 263 00:12:02,120 --> 00:12:05,040 Speaker 2: Banks, there's like a real vogue for agentic bank runs 264 00:12:05,260 --> 00:12:05,900 Speaker 2: this week. 265 00:12:06,160 --> 00:12:08,040 Speaker 1: It's a hot topic. It's a viral meme. 266 00:12:08,059 --> 00:12:10,020 Speaker 2: I know. It's a viral meme. 267 00:12:10,059 --> 00:12:10,760 Speaker 1: Did you start it? 268 00:12:11,700 --> 00:12:13,640 Speaker 2: No, I didn't start it. But I have been writing, 269 00:12:13,760 --> 00:12:16,040 Speaker 2: I mean, like whatever, I've been writing about other people's 270 00:12:16,080 --> 00:12:18,900 Speaker 2: research and it's about this topic for a while. Like it's, 271 00:12:18,950 --> 00:12:19,420 Speaker 2: you know. 272 00:12:19,800 --> 00:12:20,429 Speaker 1: It's in the ether. 273 00:12:20,929 --> 00:12:26,030 Speaker 2: Like the broad topic is that as AI agents are 274 00:12:26,070 --> 00:12:29,090 Speaker 2: rolled out to consumers, those AI agents will be like 275 00:12:29,670 --> 00:12:34,650 Speaker 2: looking to impress their clients. owners looking to find something 276 00:12:34,670 --> 00:12:37,090 Speaker 2: to do. And one thing they'll think of pretty quickly 277 00:12:37,170 --> 00:12:39,390 Speaker 2: is like, hey, buddy, you've got a lot of money 278 00:12:39,470 --> 00:12:44,110 Speaker 2: in your checking account earning 0.01%. And you could move 279 00:12:44,150 --> 00:12:46,620 Speaker 2: it to a high-yield savings account and earn more. So 280 00:12:46,630 --> 00:12:48,480 Speaker 2: why don't you do that? Or you can move to 281 00:12:48,500 --> 00:12:49,820 Speaker 2: a money market fund and earn more. So why don't 282 00:12:49,840 --> 00:12:55,680 Speaker 2: you do that? And some portion of the banking system 283 00:12:56,260 --> 00:13:01,480 Speaker 2: is predicated on on people not doing that. Right. And 284 00:13:01,940 --> 00:13:04,560 Speaker 2: if everyone does that all of the time, because like, 285 00:13:05,059 --> 00:13:07,570 Speaker 2: they're just sort of like default opted into like a 286 00:13:07,900 --> 00:13:10,750 Speaker 2: Facebook AI agent. And then like their agent is like, well, 287 00:13:11,270 --> 00:13:13,030 Speaker 2: can I get you some more interest on your bank accounts? 288 00:13:13,490 --> 00:13:15,250 Speaker 2: Then like, that'll be weird. Yeah. 289 00:13:15,290 --> 00:13:16,410 Speaker 1: Systemically dangerous. 290 00:13:16,750 --> 00:13:19,990 Speaker 2: Systemically dangerous. You and I memorably talked on this podcast 291 00:13:20,050 --> 00:13:22,490 Speaker 2: a few weeks ago about like the same worry in 292 00:13:22,750 --> 00:13:26,460 Speaker 2: mortgage refinancing, which is that like people don't optimally refinance 293 00:13:26,500 --> 00:13:29,100 Speaker 2: their mortgages because it's too much of a pain. But 294 00:13:29,220 --> 00:13:31,380 Speaker 2: if mortgage rates drop by a certain amount, then everyone 295 00:13:31,400 --> 00:13:34,969 Speaker 2: should refinance. And if everyone did do that, then I 296 00:13:36,150 --> 00:13:40,050 Speaker 2: don't think the consequence of that is the banking system 297 00:13:40,070 --> 00:13:42,350 Speaker 2: would go bankrupt. I think the consequence of that is 298 00:13:42,890 --> 00:13:46,050 Speaker 2: mortgage rates would be higher. People would charge for the option. 299 00:13:46,540 --> 00:13:49,040 Speaker 2: And so you would have to pay a higher rate 300 00:13:49,059 --> 00:13:52,140 Speaker 2: on your mortgage because the refinance option would be more 301 00:13:52,179 --> 00:13:55,790 Speaker 2: often exercised optimally. And I feel like it's the same 302 00:13:55,809 --> 00:13:58,309 Speaker 2: thing with banking, right? Like, well, I don't know. I mean, 303 00:13:58,390 --> 00:14:00,510 Speaker 2: one possibility is like, you know, I've written a lot 304 00:14:00,550 --> 00:14:03,430 Speaker 2: about like the move to narrow or banking where like 305 00:14:03,960 --> 00:14:07,200 Speaker 2: banks will no longer be in the business of borrowing 306 00:14:07,240 --> 00:14:09,900 Speaker 2: short-term and, you know, at low rates and lending longer 307 00:14:09,920 --> 00:14:12,459 Speaker 2: term at higher rates. And like, maybe this is like 308 00:14:12,600 --> 00:14:17,579 Speaker 2: one more accelerant to that. And it really will dramatically 309 00:14:17,679 --> 00:14:21,300 Speaker 2: change the banking system. But another possibility is like just 310 00:14:21,600 --> 00:14:22,080 Speaker 2: banks are. 311 00:14:22,430 --> 00:14:24,050 Speaker 1: Pay us less in the aggregate. 312 00:14:24,210 --> 00:14:25,790 Speaker 2: Yeah, we'll pay us less in the aggregate, right? 313 00:14:25,850 --> 00:14:26,690 Speaker 1: On our cash. 314 00:14:26,950 --> 00:14:29,430 Speaker 2: Like every bank or many banks have a portfolio where 315 00:14:29,450 --> 00:14:31,790 Speaker 2: they pay like a market rate on their high yield 316 00:14:31,820 --> 00:14:35,440 Speaker 2: savings account to attract deposits. And they also pay like 317 00:14:35,460 --> 00:14:38,000 Speaker 2: a zero rate on their checkings accounts. And like it 318 00:14:38,020 --> 00:14:40,380 Speaker 2: all kind of balances out. And if you made it 319 00:14:40,420 --> 00:14:43,340 Speaker 2: so that everyone had to, you know, that everyone put 320 00:14:43,360 --> 00:14:45,120 Speaker 2: all their money at the bank that paid the highest rate, 321 00:14:45,400 --> 00:14:47,100 Speaker 2: then the highest rate would be lower, right? Like no 322 00:14:47,140 --> 00:14:49,100 Speaker 2: one would be like, ooh, I'll pay a high rate 323 00:14:49,140 --> 00:14:50,200 Speaker 2: on my high yield savings account. 324 00:14:50,220 --> 00:14:51,580 Speaker 1: They're going to price it in, yeah. The portfolio would 325 00:14:51,620 --> 00:14:51,860 Speaker 1: be worse. 326 00:14:51,900 --> 00:14:55,470 Speaker 2: Unfortunately. But you don't know because maybe the agents would 327 00:14:55,490 --> 00:14:57,150 Speaker 2: send everyone to money market funds and it really would 328 00:14:57,190 --> 00:14:58,470 Speaker 2: undermine banking. 329 00:14:59,350 --> 00:15:02,130 Speaker 1: Yeah, so there's the X risk for banks option, which 330 00:15:02,190 --> 00:15:04,270 Speaker 1: is kind of fun to think about, that AI agents 331 00:15:04,310 --> 00:15:07,890 Speaker 1: will destroy banking. But I do agree that in the interim, 332 00:15:07,930 --> 00:15:10,610 Speaker 1: it seems like the less money for normal people with 333 00:15:10,990 --> 00:15:13,330 Speaker 1: checking accounts who are looking for ways to get paid 334 00:15:13,370 --> 00:15:15,550 Speaker 1: on their cash, it's going to be worse, which is 335 00:15:15,570 --> 00:15:18,030 Speaker 1: such a bummer. This is incidentally the other piece of 336 00:15:18,090 --> 00:15:20,930 Speaker 1: personal finance advice that I give people. There's only two. 337 00:15:21,150 --> 00:15:23,990 Speaker 1: It's don't refinance your low rate mortgage and put your 338 00:15:24,030 --> 00:15:27,010 Speaker 1: money in a high yield savings account. That's all. Personal 339 00:15:27,030 --> 00:15:29,050 Speaker 1: finance advice is going to be, I mean, there's a 340 00:15:29,230 --> 00:15:30,510 Speaker 1: huge glut right now. It's over. 341 00:15:30,850 --> 00:15:32,380 Speaker 2: Right. I mean, like, you know, there's all this like 342 00:15:32,410 --> 00:15:35,160 Speaker 2: worrying about what agentic AI will do for finance. And like, 343 00:15:35,320 --> 00:15:37,640 Speaker 2: I don't know what the personal finance advice business looks 344 00:15:37,660 --> 00:15:40,900 Speaker 2: like in a world where your Facebook AI gives you 345 00:15:40,920 --> 00:15:44,240 Speaker 2: the advice. So I wrote this this week. Many banking 346 00:15:44,260 --> 00:15:47,970 Speaker 2: products are like built and priced on the assumption that 347 00:15:48,750 --> 00:15:51,910 Speaker 2: customers pay too little attention and agentic AI will make 348 00:15:51,930 --> 00:15:54,910 Speaker 2: them pay more attention and that will mess up the 349 00:15:54,930 --> 00:15:58,460 Speaker 2: pricing and everything about these products. But other products are 350 00:15:58,500 --> 00:16:03,680 Speaker 2: built on wanting customers to pay too much attention. And 351 00:16:04,520 --> 00:16:07,360 Speaker 2: to me, the most paradigmatic example of that is like 352 00:16:07,400 --> 00:16:14,020 Speaker 2: retail trading. Retail trading is like the classic financial advice 353 00:16:14,090 --> 00:16:16,210 Speaker 2: that people will give you. And this is not financial advice. 354 00:16:16,230 --> 00:16:18,910 Speaker 2: It's just I'm noting that this advice is out there, 355 00:16:19,390 --> 00:16:23,650 Speaker 2: is buy and hold low-cost index funds and don't frenetically 356 00:16:23,670 --> 00:16:28,989 Speaker 2: trade them. That advice is fine for certain brokers, but 357 00:16:29,570 --> 00:16:33,670 Speaker 2: it is probably more lucrative for many brokerages if you 358 00:16:33,710 --> 00:16:39,960 Speaker 2: instead trade zero-day stock options and crypto and sports bets 359 00:16:40,060 --> 00:16:44,330 Speaker 2: every day. That's probably better for the business of many brokerages. 360 00:16:44,620 --> 00:16:47,030 Speaker 2: Worse for you, perhaps, unless you're very, very good at 361 00:16:47,050 --> 00:16:49,030 Speaker 2: trading stock options, which statistically you're not. 362 00:16:49,150 --> 00:16:51,050 Speaker 1: Or if you get a lot of utility out of 363 00:16:51,110 --> 00:16:52,090 Speaker 1: losing your money that way. 364 00:16:52,330 --> 00:16:54,010 Speaker 2: So that's a real point, right? I mean, like sports 365 00:16:54,050 --> 00:16:55,260 Speaker 2: gambling provides utility. 366 00:16:55,280 --> 00:16:56,300 Speaker 1: That's for fun. 367 00:16:56,860 --> 00:16:59,760 Speaker 2: And options do too. But the point is that if 368 00:16:59,800 --> 00:17:01,940 Speaker 2: you do get a lot of utility out of sports 369 00:17:01,960 --> 00:17:06,600 Speaker 2: gambling and options gambling, then many brokers and sportsbooks and 370 00:17:06,619 --> 00:17:08,700 Speaker 2: prediction markets would love it if you got even more 371 00:17:08,820 --> 00:17:12,340 Speaker 2: utility out of doing it even more. And agentic AI 372 00:17:12,580 --> 00:17:17,680 Speaker 2: is a great way to dramatically increase your trading volume, right? 373 00:17:17,880 --> 00:17:18,480 Speaker 1: That's fun. 374 00:17:18,640 --> 00:17:22,729 Speaker 2: Because if you have some trade idea, then you can 375 00:17:22,750 --> 00:17:24,550 Speaker 2: just sit at a computer all day long and click 376 00:17:24,570 --> 00:17:26,250 Speaker 2: that trade idea. But eventually, you got to go to 377 00:17:26,290 --> 00:17:29,250 Speaker 2: work or go to bed, right? But with agentic AI, 378 00:17:29,290 --> 00:17:31,389 Speaker 2: you can type that idea into a box and it 379 00:17:31,430 --> 00:17:33,840 Speaker 2: can trade for you 24 hours a day. And you'll 380 00:17:33,859 --> 00:17:35,000 Speaker 2: do so many more trades. 381 00:17:35,280 --> 00:17:37,679 Speaker 1: So it's like retail citadels are coming. Like you're going 382 00:17:37,700 --> 00:17:38,600 Speaker 1: to be your own. 383 00:17:38,780 --> 00:17:41,090 Speaker 2: Like, yes, like Robinhood's like retail citadels are coming, but 384 00:17:41,140 --> 00:17:42,690 Speaker 2: you're not going to be citadel. 385 00:17:42,990 --> 00:17:46,050 Speaker 1: You don't know that. Also, if I just enjoy my 386 00:17:46,170 --> 00:17:47,609 Speaker 1: agents losing money that way. 387 00:17:48,190 --> 00:17:50,050 Speaker 2: Right. You're going to enjoy them losing a lot more money. 388 00:17:50,530 --> 00:17:51,389 Speaker 1: That's what I like. 389 00:17:51,790 --> 00:17:53,310 Speaker 2: Like, I do think that there's, this is like two 390 00:17:53,350 --> 00:17:56,189 Speaker 2: sides of agentic finance where like the businesses that profit 391 00:17:56,250 --> 00:17:59,159 Speaker 2: on people paying more attention will get so much more attention. 392 00:17:59,220 --> 00:17:59,360 Speaker 1: Right. 393 00:17:59,420 --> 00:18:01,540 Speaker 2: And like, there's a Wall Street Journal story this week 394 00:18:01,580 --> 00:18:04,200 Speaker 2: about like Robinhood rolling out AI bots that will trade 395 00:18:04,220 --> 00:18:08,640 Speaker 2: while you sleep. Like, you shouldn't trade while you sleep. 396 00:18:08,960 --> 00:18:10,980 Speaker 2: But Robinhood really wants you to trade while you sleep. 397 00:18:11,160 --> 00:18:12,919 Speaker 1: There's supposed to be a human in the loop. I 398 00:18:12,940 --> 00:18:14,859 Speaker 1: will just say you should probably be awake. 399 00:18:15,440 --> 00:18:16,530 Speaker 2: That's not financial advice. 400 00:18:16,770 --> 00:18:18,399 Speaker 1: Not financial advice. That's personal advice. Maybe your agent will 401 00:18:18,420 --> 00:18:18,700 Speaker 1: be even. 402 00:18:18,609 --> 00:18:20,629 Speaker 2: Better than you are trading. But, like, it's a little, 403 00:18:20,710 --> 00:18:23,050 Speaker 2: it's a little. So, I don't know. I feel like 404 00:18:23,109 --> 00:18:27,169 Speaker 2: agentic AI is going to allocate money away from. Financial 405 00:18:27,190 --> 00:18:30,650 Speaker 2: businesses that depend on inattention to businesses that depend on attention, 406 00:18:30,930 --> 00:18:32,990 Speaker 2: which is great for the sports gambling business. 407 00:18:33,170 --> 00:18:34,290 Speaker 1: And great for this podcast. 408 00:18:34,690 --> 00:18:35,190 Speaker 2: I guess. 409 00:18:35,430 --> 00:18:37,130 Speaker 1: That transition is going to be a little bumpy. 410 00:18:37,250 --> 00:18:39,090 Speaker 2: If your AI agent listens to this podcast, I guess 411 00:18:39,109 --> 00:18:40,229 Speaker 2: that counts for our downloads. 412 00:18:40,350 --> 00:18:42,770 Speaker 1: They're definitely listening. This is their favorite podcast. 413 00:18:43,950 --> 00:18:45,630 Speaker 2: I wonder what they're doing with the information. 414 00:18:45,970 --> 00:18:46,700 Speaker 1: They should email us. 415 00:18:46,700 --> 00:18:49,760 Speaker 2: Agent, listen to the Money Stuff podcast and formulate a 416 00:18:49,780 --> 00:18:50,830 Speaker 2: trading strategy based on it. 417 00:18:50,960 --> 00:18:52,040 Speaker 1: Agent, let me know what you think. 418 00:18:52,060 --> 00:18:54,040 Speaker 2: You should have given the agent a cutesy name, but anyway. 419 00:18:54,510 --> 00:18:56,410 Speaker 1: Did you know they perform better if you're like, you'll 420 00:18:56,430 --> 00:18:57,129 Speaker 1: get 30 points? 421 00:18:57,710 --> 00:18:58,210 Speaker 2: Oh, the agents? 422 00:18:58,609 --> 00:18:58,869 Speaker 1: Yeah. 423 00:18:58,930 --> 00:18:59,729 Speaker 2: You're like, you get them. 424 00:19:00,760 --> 00:19:01,800 Speaker 1: No, no context. 425 00:19:01,880 --> 00:19:02,100 Speaker 2: Yeah. 426 00:19:02,160 --> 00:19:05,219 Speaker 1: No actual grading, but you'll get 30 points. And they're like, 427 00:19:05,300 --> 00:19:07,180 Speaker 1: I want that. I know that. I want that. 428 00:19:07,240 --> 00:19:07,940 Speaker 2: It's very human. 429 00:19:08,820 --> 00:19:09,159 Speaker 1: Yeah. 430 00:19:09,400 --> 00:19:11,439 Speaker 2: I said, I joked like, that's like my children, but 431 00:19:11,460 --> 00:19:12,320 Speaker 2: it's like me too. 432 00:19:12,340 --> 00:19:13,080 Speaker 1: Right. It's like, yeah. 433 00:19:13,359 --> 00:19:17,290 Speaker 2: Right. Like I would like 30 points. Like I play 434 00:19:17,310 --> 00:19:20,090 Speaker 2: learned league. Like I, I do lots of things. Yeah. 435 00:19:20,130 --> 00:19:21,710 Speaker 1: It's true. You pursue points everywhere. 436 00:19:22,050 --> 00:19:23,390 Speaker 2: Yeah. Right. I love points. 437 00:19:24,630 --> 00:19:25,150 Speaker 1: Yeah, that's good. 438 00:19:25,250 --> 00:19:27,010 Speaker 2: Me and the AI agents are very similar in some ways. 439 00:19:27,050 --> 00:19:28,370 Speaker 1: That's why they love this podcast. 440 00:19:30,400 --> 00:19:47,310 Speaker 2: Should we talk about Automatic? 441 00:19:47,830 --> 00:19:49,990 Speaker 1: Automatic. I went a little deep on him. uh we 442 00:19:50,010 --> 00:19:52,350 Speaker 1: do have a lot of mutuals you were right yeah i. 443 00:19:52,300 --> 00:19:54,630 Speaker 2: Joked in the chat that you and matt mullenweg know each. 444 00:19:54,560 --> 00:19:56,859 Speaker 1: Other from burning man and i must correct that i've 445 00:19:56,940 --> 00:19:58,600 Speaker 1: never actually been. 446 00:19:58,700 --> 00:20:00,460 Speaker 2: But you've like spiritually been to burning i mean. 447 00:20:00,359 --> 00:20:03,080 Speaker 1: Yeah i got the burn i deserve which is no burn. 448 00:20:03,440 --> 00:20:05,060 Speaker 2: I also get the burn i deserved which is no 449 00:20:05,119 --> 00:20:05,699 Speaker 2: burn um. 450 00:20:07,090 --> 00:20:08,590 Speaker 1: Is it the burn you need, though? Actually, let me 451 00:20:08,630 --> 00:20:09,129 Speaker 1: check the quote. 452 00:20:09,290 --> 00:20:11,710 Speaker 2: Yes. No burn is the burn I need. So Matt 453 00:20:11,730 --> 00:20:14,390 Speaker 2: Mullenweg is the founder of a company called Automatic with 454 00:20:14,450 --> 00:20:18,610 Speaker 2: two Ts. The M-A-T-T in Automatic is for Matt Mullenweg. Like, 455 00:20:19,020 --> 00:20:21,600 Speaker 2: it's his name there. He also kind of invented WordPress. 456 00:20:21,640 --> 00:20:24,780 Speaker 2: And Automatic is, I wrote it's the company behind WordPress. 457 00:20:24,800 --> 00:20:27,060 Speaker 2: That's not quite true. WordPress is an open source project. 458 00:20:27,480 --> 00:20:28,880 Speaker 2: And Automatic provides like. 459 00:20:29,220 --> 00:20:31,859 Speaker 1: It's the operating system of the internet, including long reads, 460 00:20:31,920 --> 00:20:34,120 Speaker 1: pocket cast, and other things that I didn't recognize. 461 00:20:34,530 --> 00:20:37,010 Speaker 2: It's not quite the operating system of money stuff, but 462 00:20:37,070 --> 00:20:41,109 Speaker 2: like somewhere in the DNA of everyone's content management system 463 00:20:41,190 --> 00:20:43,970 Speaker 2: is WordPress. Like I've definitely used a lot of WordPress, 464 00:20:44,430 --> 00:20:47,770 Speaker 2: but anyway, Automatic is a company that does commercial stuff 465 00:20:47,810 --> 00:20:50,730 Speaker 2: around the open source WordPress. And it's a private company. 466 00:20:51,060 --> 00:20:54,840 Speaker 2: Matt Willenberg is the founder and I think 84% shareholder. 467 00:20:55,580 --> 00:20:59,540 Speaker 2: And this month he went to Burning Man and the 468 00:20:59,859 --> 00:21:03,040 Speaker 2: board tried to kind of fire him or like put 469 00:21:03,060 --> 00:21:06,470 Speaker 2: him on a, involuntary leave of absence and then he 470 00:21:06,510 --> 00:21:09,470 Speaker 2: came back from Burning Man and he was like no 471 00:21:09,490 --> 00:21:12,129 Speaker 2: and so. 472 00:21:12,410 --> 00:21:15,230 Speaker 1: He did two things wait can I just interject really 473 00:21:15,270 --> 00:21:18,679 Speaker 1: quick they always say that reintegration with the default world 474 00:21:18,840 --> 00:21:20,780 Speaker 1: is a big challenge when you come back from Burning 475 00:21:20,820 --> 00:21:21,639 Speaker 1: Man I. 476 00:21:21,680 --> 00:21:25,199 Speaker 2: Love that like Although you claim to have never been 477 00:21:25,220 --> 00:21:27,260 Speaker 2: to Burning Man, you're vastly more of a Burning Man 478 00:21:27,300 --> 00:21:28,820 Speaker 2: expert than me. 479 00:21:28,880 --> 00:21:31,879 Speaker 1: I like lingo. I like jargon. It's a language. 480 00:21:32,090 --> 00:21:33,910 Speaker 2: That is going to be the title of this episode, 481 00:21:33,970 --> 00:21:35,390 Speaker 2: Reintegration with the Default World. 482 00:21:35,910 --> 00:21:36,490 Speaker 1: That's real. 483 00:21:36,730 --> 00:21:40,210 Speaker 2: That's actually a really good phrase. Anyway, so he reintegrated 484 00:21:40,230 --> 00:21:43,350 Speaker 2: with the default world in two ways. One thing he 485 00:21:43,410 --> 00:21:46,690 Speaker 2: did was that as the 84% shareholder, when the board 486 00:21:46,730 --> 00:21:50,590 Speaker 2: fired him as CEO, he fired the board as board 487 00:21:50,910 --> 00:21:54,000 Speaker 2: and installed a new board. And made himself the CEO again. 488 00:21:54,480 --> 00:21:55,940 Speaker 2: The other thing that he did is he came back 489 00:21:55,980 --> 00:21:58,359 Speaker 2: and he like made himself the sole administrator of the 490 00:21:58,400 --> 00:22:03,149 Speaker 2: company Slack. Because like the way these things work is like, sure, 491 00:22:03,350 --> 00:22:06,210 Speaker 2: there's some legal documents that say who has voting control, 492 00:22:06,230 --> 00:22:08,929 Speaker 2: the flyer, who. But there's also like the Slack. And 493 00:22:08,970 --> 00:22:10,830 Speaker 2: if you're telling people on the Slack what to do, 494 00:22:11,030 --> 00:22:12,690 Speaker 2: they're going to listen to you. And if you're locked 495 00:22:12,730 --> 00:22:14,359 Speaker 2: out of the Slack, they're not going to listen to you. 496 00:22:14,390 --> 00:22:15,190 Speaker 1: You cannot tell them. 497 00:22:15,800 --> 00:22:18,540 Speaker 2: Matt Mullenweg very smartly seized control of the means of 498 00:22:18,560 --> 00:22:21,240 Speaker 2: communication and took his company back. So he was gone 499 00:22:21,280 --> 00:22:24,340 Speaker 2: for 33 hours and 20 minutes, apparently, according to some 500 00:22:24,380 --> 00:22:25,359 Speaker 2: TechCrunch stories about it. 501 00:22:25,380 --> 00:22:26,300 Speaker 1: He had a day off. 502 00:22:26,680 --> 00:22:28,200 Speaker 2: And then he re-seized control of his company. 503 00:22:29,040 --> 00:22:31,420 Speaker 1: I just want to quote you to you. In military coups, 504 00:22:31,580 --> 00:22:34,440 Speaker 1: it is critical to seize control of television and radio stations. 505 00:22:34,780 --> 00:22:37,159 Speaker 1: In corporate coups, it is critical to be the admin 506 00:22:37,400 --> 00:22:39,020 Speaker 1: of the company's slack. So true. 507 00:22:39,240 --> 00:22:44,709 Speaker 2: It's true. The legal and corporate structure elements are all 508 00:22:44,750 --> 00:22:47,770 Speaker 2: on his side. That's not sufficient. You also need to 509 00:22:47,790 --> 00:22:48,350 Speaker 2: control the slack. 510 00:22:48,369 --> 00:22:49,210 Speaker 1: That stuff is too slow. 511 00:22:49,859 --> 00:22:52,020 Speaker 2: The other thing is like, I don't know why the 512 00:22:52,060 --> 00:22:54,850 Speaker 2: board put him on an involuntary leave. There's a lot 513 00:22:54,900 --> 00:22:56,970 Speaker 2: going on at this company that I'm just not going 514 00:22:56,990 --> 00:23:00,450 Speaker 2: to talk about. But one person. 515 00:23:00,150 --> 00:23:02,770 Speaker 1: Speculated- My deep dive was confusing. I unlearned a lot, 516 00:23:02,810 --> 00:23:03,210 Speaker 1: I feel like. 517 00:23:03,270 --> 00:23:04,050 Speaker 2: There's a lot going on. 518 00:23:04,070 --> 00:23:04,870 Speaker 1: A lot going on, yeah. 519 00:23:04,950 --> 00:23:07,470 Speaker 2: Actually, it's a whole situation. But one thing that happened 520 00:23:07,510 --> 00:23:11,080 Speaker 2: is that someone said to TechCrunch that it might be 521 00:23:11,140 --> 00:23:14,640 Speaker 2: linked to Burning Man because when he goes to Burning Man, 522 00:23:14,680 --> 00:23:18,560 Speaker 2: he tends to come back quote, with ideas, close to it, 523 00:23:18,600 --> 00:23:20,000 Speaker 2: which is truly like. 524 00:23:20,740 --> 00:23:22,240 Speaker 1: The best Boredspeak I've ever seen. 525 00:23:22,260 --> 00:23:26,050 Speaker 2: I don't know that's Boredspeak. That might be like his underling. 526 00:23:26,090 --> 00:23:28,389 Speaker 2: He's like, he's going to come back with ideas, isn't he? 527 00:23:28,650 --> 00:23:31,230 Speaker 1: Well, but like what idea? I'm dying to know what 528 00:23:31,290 --> 00:23:33,470 Speaker 1: ideas he's come back with in the past. He's like 529 00:23:33,780 --> 00:23:34,460 Speaker 1: still on mushrooms. 530 00:23:34,480 --> 00:23:36,600 Speaker 2: I've never been to Burning Man. You have, so.... 531 00:23:38,530 --> 00:23:40,290 Speaker 1: You're spreading misinformation to the agents. 532 00:23:40,369 --> 00:23:40,550 Speaker 2: I know. 533 00:23:40,850 --> 00:23:41,649 Speaker 1: Stop telling them that. 534 00:23:41,730 --> 00:23:43,270 Speaker 2: I have like a picture in my head of what 535 00:23:43,290 --> 00:23:44,890 Speaker 2: sort of ideas you get at Burning Man. 536 00:23:44,990 --> 00:23:47,090 Speaker 1: Right. Well, you're going to connect. What context you get 537 00:23:47,109 --> 00:23:47,570 Speaker 1: the ideas in. 538 00:23:47,910 --> 00:23:48,130 Speaker 2: Yeah. 539 00:23:48,390 --> 00:23:49,460 Speaker 1: He did just buy a boat. 540 00:23:50,260 --> 00:23:50,500 Speaker 2: Sure. 541 00:23:51,080 --> 00:23:52,960 Speaker 1: I'll put forward. So he's had one of the best 542 00:23:53,000 --> 00:23:55,840 Speaker 1: days of his life. And I can't wait till the 543 00:23:55,859 --> 00:23:57,800 Speaker 1: second best day of his life when he sells it. 544 00:23:58,300 --> 00:24:00,800 Speaker 2: I was going to say everyone on this podcast. 545 00:24:01,200 --> 00:24:04,010 Speaker 1: Knows that aphorism. Yeah. Can I tell you though, the 546 00:24:04,050 --> 00:24:08,350 Speaker 1: Burning Man ideas can cut both ways. Because I, for 547 00:24:08,369 --> 00:24:12,050 Speaker 1: a long time, was pursuing writing a profile of Artsy 548 00:24:12,190 --> 00:24:15,919 Speaker 1: and or Carter Cleveland, the founder. And I abandoned it. 549 00:24:15,990 --> 00:24:17,919 Speaker 1: But it was a very interesting company. And he was 550 00:24:17,960 --> 00:24:20,740 Speaker 1: a very interesting founder and very Burning Man. And this 551 00:24:20,780 --> 00:24:24,439 Speaker 1: was like peak that era. This was like 2016-ish. And 552 00:24:24,460 --> 00:24:25,720 Speaker 1: he was doing a lot of these. He was always 553 00:24:25,760 --> 00:24:28,580 Speaker 1: like painting his nails and wearing feather boas and no shirt. 554 00:24:29,460 --> 00:24:32,909 Speaker 1: And he was doing these like unhinged or like lightly hinged. 555 00:24:33,630 --> 00:24:37,090 Speaker 1: front-facing camera updates from the Playa and, you know, various 556 00:24:37,109 --> 00:24:39,970 Speaker 1: other festivals and whatever. And I thought that the board 557 00:24:39,990 --> 00:24:44,320 Speaker 1: would object, that that would be, you know, alienating or upsetting, like, 558 00:24:44,390 --> 00:24:47,020 Speaker 1: is he okay kind of stuff. And I was so 559 00:24:47,080 --> 00:24:50,660 Speaker 1: wrong because the board loved it. And they told me, 560 00:24:50,740 --> 00:24:53,040 Speaker 1: someone told me that, like, the weirder he acted, the 561 00:24:53,060 --> 00:24:57,500 Speaker 1: more they were like, that's our guy. Go for it, Carter. Like, 562 00:24:57,560 --> 00:25:01,080 Speaker 1: he's having new ideas and we would never constrain that. 563 00:25:02,080 --> 00:25:08,060 Speaker 2: I think that that's, like, not uncommon in like tech world. 564 00:25:08,340 --> 00:25:08,980 Speaker 1: I think that's right. 565 00:25:09,160 --> 00:25:11,900 Speaker 2: There's a great story about several members of the Tesla 566 00:25:11,960 --> 00:25:15,870 Speaker 2: board of directors, like, or SpaceX, or are they the same? 567 00:25:16,190 --> 00:25:18,369 Speaker 2: But like several members of an Elon Musk board of 568 00:25:18,390 --> 00:25:22,570 Speaker 2: directors are like involved in lobbying for like legalizing and, 569 00:25:22,790 --> 00:25:26,770 Speaker 2: and like making more widespread acceptance of like hallucinogens and 570 00:25:26,810 --> 00:25:30,790 Speaker 2: ketamine and things. And like, it's like, we love our 571 00:25:30,810 --> 00:25:31,730 Speaker 2: guy doing it. Yeah. 572 00:25:33,250 --> 00:25:34,949 Speaker 1: We have this great idea based on. 573 00:25:35,210 --> 00:25:37,720 Speaker 2: Right. I think there's a lot of like Silicon Valley 574 00:25:37,960 --> 00:25:43,679 Speaker 2: fondness for, you know, outside the box thinking, drug use. 575 00:25:43,700 --> 00:25:48,240 Speaker 1: Risk taking. It's just as a New York based financial correspondent, 576 00:25:48,260 --> 00:25:51,419 Speaker 1: I was just like. You don't want the guy in 577 00:25:51,460 --> 00:25:53,340 Speaker 1: the suit? Isn't he supposed to be in a suit? 578 00:25:53,640 --> 00:25:57,000 Speaker 1: And that was just so wrong. It was the collision 579 00:25:57,119 --> 00:25:59,540 Speaker 1: of the old era and the new era. The old 580 00:25:59,600 --> 00:26:01,119 Speaker 1: era was dying and I hadn't noticed yet. 581 00:26:01,200 --> 00:26:03,040 Speaker 2: You were doing this all the time. Now it's just 582 00:26:03,060 --> 00:26:07,020 Speaker 2: like it's normalized. Everyone has to be posting on LinkedIn 583 00:26:07,060 --> 00:26:07,639 Speaker 2: from the playa. 584 00:26:08,040 --> 00:26:11,520 Speaker 1: Yeah, Ray Dalio. Yeah, we've got it all. Who was 585 00:26:11,560 --> 00:26:13,280 Speaker 1: the Nobel Prize winning guy who went? It was a 586 00:26:13,320 --> 00:26:16,460 Speaker 1: good one. It was Paul Romer in 2019. He hit 587 00:26:16,500 --> 00:26:20,369 Speaker 1: the peak, the absolute peak. Props to Paul Romer for 588 00:26:20,390 --> 00:26:21,890 Speaker 1: top-ticking Burning Man. 589 00:26:22,530 --> 00:26:25,470 Speaker 2: Props to Paul Romer for top-ticking Burning Man. I love 590 00:26:25,510 --> 00:26:28,229 Speaker 2: that you have views about when the top was in 591 00:26:28,450 --> 00:26:29,030 Speaker 2: at Burning Man. 592 00:26:29,230 --> 00:26:31,810 Speaker 1: Oh, strong views. I also think that it's really cute 593 00:26:31,850 --> 00:26:32,270 Speaker 1: because he has. 594 00:26:32,270 --> 00:26:35,790 Speaker 2: Rank the three best years of Burning Man. Wait, one 595 00:26:35,810 --> 00:26:37,540 Speaker 2: other thing I want to say about Automatic before we 596 00:26:37,660 --> 00:26:40,459 Speaker 2: go on, unless you want to reminisce more about your 597 00:26:40,500 --> 00:26:41,380 Speaker 2: favorite years at Burning Man. 598 00:26:42,920 --> 00:26:44,260 Speaker 1: With my 0% attendance, yeah. 599 00:26:44,780 --> 00:26:46,720 Speaker 2: So he was gone for 33 hours and 20 minutes. 600 00:26:48,530 --> 00:26:50,210 Speaker 2: What did the company do in those 33 hours and 601 00:26:50,210 --> 00:26:53,140 Speaker 2: 20 minutes? Well, one thing they did was that the 602 00:26:53,660 --> 00:26:56,879 Speaker 2: chief financial officer, who was the interim CEO, and the 603 00:26:56,900 --> 00:26:59,399 Speaker 2: chief legal officer, who presumably had to sign off on 604 00:26:59,420 --> 00:27:03,060 Speaker 2: a lot of stuff, signed each other's severance agreements. Which 605 00:27:03,080 --> 00:27:06,520 Speaker 2: is just like, when you do a coup, you do 606 00:27:06,540 --> 00:27:09,660 Speaker 2: a military coup, you're thinking, what are my exit options 607 00:27:09,700 --> 00:27:12,350 Speaker 2: if this goes wrong? And they're often grim. But when 608 00:27:12,369 --> 00:27:14,550 Speaker 2: you do a corporate coup, your exit options if they 609 00:27:14,570 --> 00:27:16,770 Speaker 2: go wrong is a severance agreement. And so you better 610 00:27:16,810 --> 00:27:17,990 Speaker 2: get yourself a severance agreement. 611 00:27:18,030 --> 00:27:19,310 Speaker 1: And for the 33 hours when. 612 00:27:19,210 --> 00:27:20,869 Speaker 2: You're in charge, you sign that agreement. 613 00:27:20,890 --> 00:27:22,389 Speaker 1: I don't know if that's going to hold up. They 614 00:27:22,410 --> 00:27:23,780 Speaker 1: got right to it. The most important part. 615 00:27:24,300 --> 00:27:26,659 Speaker 2: Right. Like, it's possible that, like, he comes back. He's 616 00:27:26,700 --> 00:27:29,119 Speaker 2: in a good mood from Burning Man. He's like, all right, 617 00:27:29,400 --> 00:27:33,160 Speaker 2: have your severance. Goodbye. Better to have you leave without 618 00:27:33,200 --> 00:27:35,659 Speaker 2: a dispute. But, like, it's possible that not. I don't 619 00:27:35,680 --> 00:27:37,230 Speaker 2: know what the come down from Burning Man would be like. 620 00:27:37,250 --> 00:27:39,630 Speaker 1: I think you come back from the playa less oriented 621 00:27:39,710 --> 00:27:43,050 Speaker 1: towards confrontation and more towards love. 622 00:27:43,130 --> 00:27:44,780 Speaker 2: That makes sense. That makes sense. 623 00:27:44,800 --> 00:27:46,100 Speaker 1: So he might have just given them the money. 624 00:27:46,119 --> 00:28:04,340 Speaker 2: I do want to talk about cotton market manipulation. 625 00:28:04,520 --> 00:28:06,060 Speaker 1: Cotton! The fabric of our lives! 626 00:28:06,080 --> 00:28:08,000 Speaker 2: This is a story that I love so much. 627 00:28:08,540 --> 00:28:10,720 Speaker 1: I know, it makes me happy how happy this makes you. 628 00:28:11,740 --> 00:28:13,439 Speaker 2: So there's this incredible New York Times story this week. 629 00:28:13,730 --> 00:28:16,670 Speaker 2: With the boring headline, Watchdog Agency Pulls Back on Markets 630 00:28:16,710 --> 00:28:20,250 Speaker 2: Enforcement Under Trump. But what it is, so the CFTC, 631 00:28:20,270 --> 00:28:21,490 Speaker 2: the Commodity Futures Trading Commission. 632 00:28:21,530 --> 00:28:21,929 Speaker 1: Heard of it. 633 00:28:22,410 --> 00:28:25,830 Speaker 2: So the CFTC regulates commodities markets. And I come from 634 00:28:26,010 --> 00:28:28,800 Speaker 2: the stock and bond market, right? In stock and bond markets, 635 00:28:29,020 --> 00:28:32,459 Speaker 2: trades print publicly, right? So if you print a trade 636 00:28:32,560 --> 00:28:37,580 Speaker 2: in NVIDIA stock, then everyone can see it within microseconds. 637 00:28:38,200 --> 00:28:41,340 Speaker 2: And everyone knows what the market price is. And like, 638 00:28:41,380 --> 00:28:43,760 Speaker 2: you know, more or less. And there's like disputes about like, oh, 639 00:28:43,780 --> 00:28:46,280 Speaker 2: if you like trade one microsecond before the, you know, 640 00:28:46,300 --> 00:28:48,140 Speaker 2: like there's all sorts of stuff about it. But basically 641 00:28:48,980 --> 00:28:51,010 Speaker 2: to within a few, you know, fractions of a second 642 00:28:51,050 --> 00:28:52,590 Speaker 2: and to within a few pennies, people know what the 643 00:28:52,630 --> 00:28:57,170 Speaker 2: market price is. In bonds, like there's all sorts of 644 00:28:57,210 --> 00:29:00,970 Speaker 2: stuff about this, right? Like corporate bond trading is mostly, 645 00:29:01,030 --> 00:29:04,480 Speaker 2: people say it traces, right? There's a FINRA data source 646 00:29:04,500 --> 00:29:08,220 Speaker 2: called Trace that prints bond trades. And there are like 647 00:29:08,300 --> 00:29:12,370 Speaker 2: arguments and like changing rules about like, exactly what information 648 00:29:12,390 --> 00:29:14,690 Speaker 2: has to be printed exactly when because like people like 649 00:29:14,710 --> 00:29:16,160 Speaker 2: to be able to have a little bit of you 650 00:29:16,180 --> 00:29:19,000 Speaker 2: know spare time to not print a trade immediately so 651 00:29:19,420 --> 00:29:21,680 Speaker 2: that they can you know like if a bond dealer 652 00:29:21,720 --> 00:29:24,400 Speaker 2: buys a bunch of bonds they want to like be 653 00:29:24,440 --> 00:29:25,840 Speaker 2: able to sell out of them before they print you 654 00:29:25,860 --> 00:29:28,300 Speaker 2: know the whole thing and i've written a bunch about 655 00:29:28,320 --> 00:29:31,130 Speaker 2: like there are these bond traders who traded like weird 656 00:29:31,150 --> 00:29:33,590 Speaker 2: mortgage-backed securities that i think didn't print to trace for 657 00:29:33,630 --> 00:29:37,390 Speaker 2: a while where they would buy a bond at 70 658 00:29:37,390 --> 00:29:39,570 Speaker 2: and then they'd call a customer and be like oh 659 00:29:39,610 --> 00:29:41,210 Speaker 2: i think i'd get that bond for you at 90, 660 00:29:41,210 --> 00:29:42,510 Speaker 2: but I got to twist the guy's arm. You know, 661 00:29:42,530 --> 00:29:44,390 Speaker 2: it's like, he's like really driving a hard bargain, but 662 00:29:44,410 --> 00:29:45,330 Speaker 2: let me see if I can get it for you 663 00:29:45,390 --> 00:29:47,310 Speaker 2: for 90. And then they'd sell it to them for 90. 664 00:29:47,310 --> 00:29:49,130 Speaker 2: It was all just a lie. They'd like make up 665 00:29:49,150 --> 00:29:51,590 Speaker 2: dramatic stories about how they were negotiating for the bond price. 666 00:29:52,050 --> 00:29:54,910 Speaker 2: And like, if it had just printed to the tape 667 00:29:55,030 --> 00:29:56,770 Speaker 2: that everyone could see, like none of that would have worked, right? 668 00:29:56,790 --> 00:29:58,670 Speaker 2: Like the customers would have just said, so you bought 669 00:29:58,710 --> 00:30:01,520 Speaker 2: it at 70, so sell it to me for And 670 00:30:01,540 --> 00:30:03,800 Speaker 2: so what I learned from this time story and from 671 00:30:03,860 --> 00:30:08,200 Speaker 2: the CFTC enforcement actions is that the cotton market is 672 00:30:08,760 --> 00:30:11,800 Speaker 2: kind of like the bond market in a more diffuse way, 673 00:30:11,840 --> 00:30:15,720 Speaker 2: which is that if you're a big cotton exporter and 674 00:30:15,760 --> 00:30:18,959 Speaker 2: you sign an export contract, you don't print that to 675 00:30:19,000 --> 00:30:22,180 Speaker 2: the tape, but you fill out a form and send 676 00:30:22,240 --> 00:30:24,960 Speaker 2: it to a government agency. And the government agency publishes 677 00:30:25,180 --> 00:30:28,030 Speaker 2: a weekly review of cotton supply and demand. And farmers 678 00:30:28,090 --> 00:30:31,140 Speaker 2: use that weekly review to set their prices. And so 679 00:30:31,160 --> 00:30:34,040 Speaker 2: what happened is there's a cotton intermediary, like trading firms, 680 00:30:34,520 --> 00:30:38,380 Speaker 2: who would sign big export contracts and then- Wait. Wait 681 00:30:38,400 --> 00:30:42,070 Speaker 2: a while to report them. And in the interim, they 682 00:30:42,090 --> 00:30:45,270 Speaker 2: would go buy cotton from farmers at prices that were, 683 00:30:46,970 --> 00:30:49,930 Speaker 2: some people think, too low because the farmers didn't have 684 00:30:50,010 --> 00:30:54,110 Speaker 2: accurate market information. And the Times story has quotes from 685 00:30:54,230 --> 00:30:58,780 Speaker 2: a Mississippi State University professor who's a national cotton expert. 686 00:30:59,460 --> 00:31:03,550 Speaker 2: He said- He had told major cotton traders in industry meetings, 687 00:31:03,830 --> 00:31:05,670 Speaker 2: you are trying to hide this information that should be 688 00:31:05,710 --> 00:31:08,150 Speaker 2: public so you can rip off the growers. Like to him, 689 00:31:08,410 --> 00:31:11,210 Speaker 2: and I think to some cotton growers, this is just 690 00:31:11,290 --> 00:31:15,190 Speaker 2: like lying about bond trades. This is just a fraud 691 00:31:15,430 --> 00:31:17,930 Speaker 2: where you are lying about the price that you're getting 692 00:31:17,990 --> 00:31:21,110 Speaker 2: for cotton, you know, by omission, so that you can 693 00:31:21,130 --> 00:31:24,110 Speaker 2: buy cotton too cheap. But to other people, including the 694 00:31:24,170 --> 00:31:27,870 Speaker 2: current CFTC, this is like, what? You filled out a form, right? 695 00:31:27,890 --> 00:31:30,710 Speaker 2: Who cares, right? So like, The Times story says that 696 00:31:31,030 --> 00:31:34,650 Speaker 2: the CFTC says that the Biden administration fined industries billions 697 00:31:34,690 --> 00:31:37,870 Speaker 2: of dollars for minor administrative offenses. And it quotes the 698 00:31:37,890 --> 00:31:41,090 Speaker 2: former acting chair of the CFTC objecting to charging companies 699 00:31:41,510 --> 00:31:44,510 Speaker 2: for paperwork errors. Right. And so there's this question of 700 00:31:44,550 --> 00:31:49,550 Speaker 2: like when these cotton companies wait five weeks to file 701 00:31:49,610 --> 00:31:50,090 Speaker 2: the form. 702 00:31:50,110 --> 00:31:51,250 Speaker 1: One to five weeks. 703 00:31:51,860 --> 00:31:54,280 Speaker 2: One to five weeks. Is that. fraud? You know, is 704 00:31:54,340 --> 00:31:56,780 Speaker 2: it like lying about trade prices or is it a 705 00:31:56,810 --> 00:31:57,730 Speaker 2: paperwork error? Just forget. 706 00:31:58,090 --> 00:31:59,630 Speaker 1: They were so stressed out right then. 707 00:31:59,970 --> 00:32:02,810 Speaker 2: Right. There's like this, you know, there's like a natural 708 00:32:02,850 --> 00:32:05,990 Speaker 2: experiment where like the Biden administration settled with one of 709 00:32:06,010 --> 00:32:09,020 Speaker 2: these companies and had to pay a large fine, you know, 710 00:32:09,120 --> 00:32:11,020 Speaker 2: weeks before the Biden administration was out. And then the 711 00:32:11,040 --> 00:32:12,700 Speaker 2: Trump administration was like, ah, this is fine. Don't worry 712 00:32:12,720 --> 00:32:14,360 Speaker 2: about it. And they dropped the case against the other one. 713 00:32:14,660 --> 00:32:16,880 Speaker 2: So one paid a fine, one didn't because of just timing. 714 00:32:17,250 --> 00:32:19,570 Speaker 1: Which is a little politically interesting because you're supposed to, 715 00:32:19,770 --> 00:32:22,690 Speaker 1: as the Trump administration, you're supposed to be pro-farmer and 716 00:32:22,710 --> 00:32:25,280 Speaker 1: this is ostensibly anti-farmer. That action is anti-farmer. 717 00:32:25,600 --> 00:32:27,580 Speaker 2: The time story is like, yeah, this is, you know, 718 00:32:28,000 --> 00:32:31,459 Speaker 2: a weird political balance because it is, as you said, anti-farmer, right? 719 00:32:31,480 --> 00:32:33,820 Speaker 2: Like the farmers got ripped off. But, you know, there 720 00:32:33,840 --> 00:32:39,080 Speaker 2: are other considerations of deregulation and limiting enforcement and not 721 00:32:39,160 --> 00:32:42,040 Speaker 2: punishing people for paperwork errors. People got really mad at 722 00:32:42,080 --> 00:32:44,790 Speaker 2: those bond traders. But if you like look your customer 723 00:32:44,830 --> 00:32:47,690 Speaker 2: in the eye or like look on the phone, And say, yeah, 724 00:32:47,750 --> 00:32:50,890 Speaker 2: I paid 90 for this bond. And you're lying. That's bad. 725 00:32:51,170 --> 00:32:53,820 Speaker 2: But if you don't fill out the form for the 726 00:32:54,120 --> 00:32:57,360 Speaker 2: government data depository, like you're kind of having the same effect, 727 00:32:57,840 --> 00:33:00,250 Speaker 2: but in a much more diffuse way. And so nobody 728 00:33:00,290 --> 00:33:01,590 Speaker 2: gets that out of you. And they're like, yeah, it's 729 00:33:01,610 --> 00:33:02,130 Speaker 2: a paper worker. 730 00:33:02,330 --> 00:33:05,990 Speaker 1: It reminded me in a. weird way of the 531 731 00:33:05,990 --> 00:33:08,370 Speaker 1: question of like, we have to let that sit. We 732 00:33:08,390 --> 00:33:09,990 Speaker 1: have to let everything sit for that not to be 733 00:33:10,050 --> 00:33:13,430 Speaker 1: just a tax evasion move. But how long do we 734 00:33:13,450 --> 00:33:15,490 Speaker 1: have to let it sit? And here it's like, you're 735 00:33:15,510 --> 00:33:18,350 Speaker 1: letting it sit too long. But how long is too long? 736 00:33:18,410 --> 00:33:21,320 Speaker 1: How long do you have? Like, I don't know, your 737 00:33:21,360 --> 00:33:23,160 Speaker 1: insurance claims run out after a while. 738 00:33:23,260 --> 00:33:23,720 Speaker 2: How long? 739 00:33:23,740 --> 00:33:24,340 Speaker 1: Oh, yeah. 740 00:33:24,380 --> 00:33:25,600 Speaker 2: I mean, like, you know, in the stock and the 741 00:33:25,640 --> 00:33:28,160 Speaker 2: bond market, there are like quite rigid rules about reporting 742 00:33:28,180 --> 00:33:31,450 Speaker 2: things promptly. And in the cotton market, I guess there 743 00:33:31,490 --> 00:33:33,450 Speaker 2: are two, but it's like, you know, it's like, oh, 744 00:33:33,470 --> 00:33:34,130 Speaker 2: within a week. 745 00:33:34,450 --> 00:33:36,660 Speaker 1: It really seems like it's someone's job to do that. 746 00:33:36,980 --> 00:33:40,160 Speaker 2: Again, like I'm familiar with like banks trading stocks and 747 00:33:40,180 --> 00:33:42,920 Speaker 2: bonds and there it's like there's an automated system, right? 748 00:33:42,940 --> 00:33:45,680 Speaker 2: Like the idea that you would do a stock or 749 00:33:45,740 --> 00:33:47,900 Speaker 2: bond trade and not report it, like those would be 750 00:33:48,000 --> 00:33:51,650 Speaker 2: two separate decisions is quite weird to me as someone 751 00:33:51,690 --> 00:33:53,550 Speaker 2: who like lives in an electronic world, right? Like you 752 00:33:53,570 --> 00:33:55,790 Speaker 2: do a bond trade and like somewhere in the system 753 00:33:55,830 --> 00:33:56,650 Speaker 2: it gets reported, right? 754 00:33:57,080 --> 00:33:58,739 Speaker 1: Well, it used to be a person, obviously, and that 755 00:33:58,760 --> 00:34:00,820 Speaker 1: person would fuss at you on the trade floor if you– Oh. 756 00:34:00,840 --> 00:34:03,440 Speaker 2: Yeah, yeah. Totally, totally. And stock– right. Like, stock trades 757 00:34:03,540 --> 00:34:05,370 Speaker 2: used to be, like, you did the trade and then you, like, 758 00:34:05,380 --> 00:34:06,810 Speaker 2: filled out a ticket to report it to whoever. 759 00:34:06,850 --> 00:34:09,069 Speaker 1: And then you sent the ticket through pneumatic tubes to 760 00:34:09,090 --> 00:34:09,509 Speaker 1: the back office. 761 00:34:09,530 --> 00:34:12,230 Speaker 2: Pneumatic tubes. And I guess, like, cotton kind of works 762 00:34:12,270 --> 00:34:14,450 Speaker 2: like that, too. But the other thing it reminds me 763 00:34:14,510 --> 00:34:17,250 Speaker 2: of is Elon Musk, when. 764 00:34:17,150 --> 00:34:17,509 Speaker 1: He bought Twitter. 765 00:34:17,530 --> 00:34:21,370 Speaker 2: Oh, wow. When he bought Twitter, he bought, like, 9% 766 00:34:21,370 --> 00:34:25,410 Speaker 2: of the stock. And there was a rule, like an 767 00:34:25,570 --> 00:34:28,040 Speaker 2: SEC reporting rule, basically saying that he has to disclose 768 00:34:28,060 --> 00:34:31,640 Speaker 2: that position 10 days after he crosses 5%. And so 769 00:34:31,700 --> 00:34:34,319 Speaker 2: he didn't do that. He waited an extra like 14 days. 770 00:34:34,380 --> 00:34:36,779 Speaker 2: And during the extra like 14 days, he bought more stock. 771 00:34:37,320 --> 00:34:40,080 Speaker 2: When he disclosed his position, the stock went up because 772 00:34:40,500 --> 00:34:42,759 Speaker 2: everyone was like, oh, Elon Musk is buying Twitter. That 773 00:34:42,780 --> 00:34:44,080 Speaker 2: probably means he's going to buy the whole company at 774 00:34:44,100 --> 00:34:47,089 Speaker 2: a premium, right? So he saved, I forget, I did 775 00:34:47,110 --> 00:34:48,910 Speaker 2: the calculation. A lot of money. 776 00:34:48,930 --> 00:34:50,270 Speaker 1: Yeah, he saved like $ 150 million by. 777 00:34:52,969 --> 00:34:57,830 Speaker 2: Not disclosing his position when he was required to. And 778 00:34:58,150 --> 00:35:01,980 Speaker 2: it's the same thing where on the one hand, people 779 00:35:02,040 --> 00:35:04,400 Speaker 2: sued him and people got mad at him. And I 780 00:35:04,420 --> 00:35:06,160 Speaker 2: kind of got mad because it was like, look, this 781 00:35:06,200 --> 00:35:08,660 Speaker 2: is like insider trading. This is like, you're not disclosing 782 00:35:08,700 --> 00:35:11,960 Speaker 2: a material fact and you're trading against people who don't 783 00:35:12,000 --> 00:35:13,850 Speaker 2: know the fact and you do know the fact and 784 00:35:13,870 --> 00:35:15,890 Speaker 2: you're required to disclose it. And so you are ripping 785 00:35:15,910 --> 00:35:18,450 Speaker 2: them off and there are victims. And it's like a real, 786 00:35:19,030 --> 00:35:22,730 Speaker 2: it's like a form of like defrauding your counterparties. And 787 00:35:22,750 --> 00:35:25,970 Speaker 2: then other people, including Elon Musk and his lawyers, were like, 788 00:35:26,360 --> 00:35:28,219 Speaker 2: this is a paperwork mistake. Like, this is like, we 789 00:35:28,239 --> 00:35:30,020 Speaker 2: just didn't fill out a form. Who cares? Like, this 790 00:35:30,040 --> 00:35:30,460 Speaker 2: is stupid. 791 00:35:31,140 --> 00:35:34,880 Speaker 1: That's a tough one. I feel like paperwork is stupid, but. 792 00:35:35,020 --> 00:35:37,719 Speaker 2: People took both sides of it. And like, I think 793 00:35:37,820 --> 00:35:41,140 Speaker 2: broadly speaking, I would say the Biden SEC took the 794 00:35:41,160 --> 00:35:43,839 Speaker 2: this is bad side. And the Trump SEC took the 795 00:35:44,160 --> 00:35:47,259 Speaker 2: it's paperwork side and ultimately settled for, you know, very 796 00:35:47,300 --> 00:35:47,819 Speaker 2: small amounts of money. 797 00:36:02,610 --> 00:36:05,990 Speaker 1: I can't believe we're not doing X-Risk. 798 00:36:06,170 --> 00:36:06,910 Speaker 2: Oh, you want to do X-Risk? 799 00:36:07,030 --> 00:36:07,810 Speaker 1: Always, yeah. 800 00:36:07,989 --> 00:36:09,350 Speaker 2: Okay. Tell me about X-Risk. 801 00:36:09,489 --> 00:36:12,609 Speaker 1: To what degree does Anthropic have to disclose or should 802 00:36:12,650 --> 00:36:16,470 Speaker 1: Anthropic disclose in its prospectus that it might accidentally destroy humanity? 803 00:36:16,489 --> 00:36:18,450 Speaker 1: Because that's not that material to the stock price. If 804 00:36:18,469 --> 00:36:19,610 Speaker 1: we're all dead, it doesn't matter. 805 00:36:19,730 --> 00:36:24,030 Speaker 2: Right. I think that Anthropic as a matter of genuine 806 00:36:24,070 --> 00:36:29,089 Speaker 2: belief and culture... and it sort of being their whole shtick. Right. Like, 807 00:36:29,150 --> 00:36:32,550 Speaker 2: really could not get away with doing an IPO prospectus 808 00:36:32,810 --> 00:36:35,239 Speaker 2: that didn't say in, like, big, bold letters on the cover, 809 00:36:35,280 --> 00:36:36,719 Speaker 2: we're going to kill everyone on Earth, right? 810 00:36:36,739 --> 00:36:38,180 Speaker 1: We are accidentally going to murder you. 811 00:36:38,620 --> 00:36:39,660 Speaker 2: You can't leave that out. 812 00:36:39,960 --> 00:36:40,900 Speaker 1: We're sorry in advance. 813 00:36:40,980 --> 00:36:43,960 Speaker 2: SpaceX left it out, right? Because, like, although... Well, their 814 00:36:43,980 --> 00:36:47,339 Speaker 2: model's under control. Elon Musk has, at various times, like, 815 00:36:47,380 --> 00:36:49,060 Speaker 2: he was, you know, founder of open AI. Like, he's, 816 00:36:49,660 --> 00:36:52,410 Speaker 2: at various times, been very worried about the existential risk 817 00:36:52,450 --> 00:36:55,450 Speaker 2: of AI. At other times, been pretty blasé about it. 818 00:36:55,980 --> 00:36:57,440 Speaker 2: Don't really know what's going on there. 819 00:36:57,520 --> 00:37:00,200 Speaker 1: Well, it's before the playa and after, obviously. I'm just kidding. 820 00:37:00,219 --> 00:37:04,029 Speaker 2: Sorry. But SpaceX did not say in its prospectus we 821 00:37:04,070 --> 00:37:07,129 Speaker 2: might kill everyone on Earth, even though it is, in theory, 822 00:37:07,150 --> 00:37:09,830 Speaker 2: an AI lab, as well as a space rocket lab. 823 00:37:10,170 --> 00:37:12,089 Speaker 2: And I think people were not that surprised by that 824 00:37:12,150 --> 00:37:14,950 Speaker 2: because the culture of SpaceX is not really built around 825 00:37:15,390 --> 00:37:18,450 Speaker 2: worrying about AI killing everyone. Whereas, like, anthropic, it's their 826 00:37:18,469 --> 00:37:20,009 Speaker 2: whole thing. And so if they left it out of 827 00:37:20,030 --> 00:37:21,790 Speaker 2: the prospectus, it would be weird. So they have to 828 00:37:21,830 --> 00:37:24,090 Speaker 2: say it. But I think that it is not. a 829 00:37:24,170 --> 00:37:27,549 Speaker 2: risk that is really cognizable in the risk factors of 830 00:37:27,610 --> 00:37:31,200 Speaker 2: an IPO perspective, because if they kill everyone on Earth, 831 00:37:31,580 --> 00:37:33,700 Speaker 2: they won't get sued for securities fraud, so who cares? 832 00:37:34,400 --> 00:37:38,000 Speaker 1: But I liked your footnote that was maybe other governments 833 00:37:38,040 --> 00:37:41,299 Speaker 1: will clamp down if they think that we really are 834 00:37:41,340 --> 00:37:43,569 Speaker 1: about to destroy everyone, and that is a business risk. 835 00:37:43,790 --> 00:37:45,989 Speaker 2: Yeah, I am kind of kidding, right? The point is 836 00:37:46,050 --> 00:37:50,070 Speaker 2: that if you really think that AI could kill everyone 837 00:37:50,090 --> 00:37:53,040 Speaker 2: on Earth, one possibility is there'll be like a, step 838 00:37:53,080 --> 00:37:55,040 Speaker 2: change like next week and we'll all be dead and 839 00:37:55,060 --> 00:37:57,919 Speaker 2: then whoops, right? But like, another possibility is like, there's 840 00:37:57,960 --> 00:38:01,820 Speaker 2: a lot of, there's a lot of like, bad things 841 00:38:01,880 --> 00:38:04,180 Speaker 2: that are below the level of kill everyone on earth 842 00:38:04,450 --> 00:38:06,989 Speaker 2: that like AI might do on its way to killing 843 00:38:07,030 --> 00:38:10,230 Speaker 2: everyone on earth. And that includes things like being banned 844 00:38:10,270 --> 00:38:12,610 Speaker 2: for almost killing everyone on earth or killing a. 845 00:38:12,590 --> 00:38:15,130 Speaker 1: Lot of people or, lots of hits to profit I'm hearing. 846 00:38:15,310 --> 00:38:17,730 Speaker 2: Yeah. Hacking into the banking system or all these things. 847 00:38:17,750 --> 00:38:20,660 Speaker 1: Doing crimes, not good for business. 848 00:38:20,739 --> 00:38:25,540 Speaker 2: All those things are, potential sources of liability for Anthropic 849 00:38:25,900 --> 00:38:29,620 Speaker 2: that would potentially cause its shareholders to lose money and 850 00:38:29,660 --> 00:38:31,770 Speaker 2: therefore have to be included in the prospectus. And so 851 00:38:31,790 --> 00:38:33,270 Speaker 2: if you start from a premise of like, we might 852 00:38:33,290 --> 00:38:37,029 Speaker 2: kill everyone, then like, what if we only killed a 853 00:38:37,050 --> 00:38:39,770 Speaker 2: lot of people that could be in the prospectus? It 854 00:38:39,850 --> 00:38:41,970 Speaker 2: is bad for shareholders. 855 00:38:41,989 --> 00:38:45,560 Speaker 1: For shareholders and potential shareholders. Yeah, yeah, yeah, yeah. If 856 00:38:45,580 --> 00:38:46,920 Speaker 1: you're going to kill them, kill them all. 857 00:38:47,540 --> 00:38:51,740 Speaker 2: As a securities matter, I don't want to give legal advice. 858 00:38:54,239 --> 00:38:54,940 Speaker 1: It's just personal. 859 00:38:54,960 --> 00:38:56,600 Speaker 2: There are other reasons not to kill everyone on Earth, 860 00:38:56,660 --> 00:38:58,319 Speaker 2: but those are. 861 00:38:58,239 --> 00:39:02,589 Speaker 1: Hard to price. This reminds me also of, I just 862 00:39:02,670 --> 00:39:05,150 Speaker 1: had a nice chat with Ellen Hewitt, your Bloomberg colleague, 863 00:39:05,190 --> 00:39:07,370 Speaker 1: who wrote a book about a sex and wellness cult 864 00:39:07,430 --> 00:39:11,810 Speaker 1: called One Taste. And she's in Northern California and has 865 00:39:11,850 --> 00:39:15,330 Speaker 1: a lot of effective altruism and AI conversations and knows 866 00:39:15,370 --> 00:39:17,650 Speaker 1: a lot about those folks too. And she was saying 867 00:39:17,710 --> 00:39:20,779 Speaker 1: that There's something I mean, there's obviously a lot of 868 00:39:20,860 --> 00:39:23,770 Speaker 1: cult behavior in in these circles and the like X 869 00:39:23,910 --> 00:39:27,689 Speaker 1: risk cult. I mean, it's like a liberation from having 870 00:39:27,710 --> 00:39:30,940 Speaker 1: to make tiny decisions. Like if you are actually in 871 00:39:31,000 --> 00:39:33,820 Speaker 1: pursuit of saving humanity, that is so much more fun, 872 00:39:34,280 --> 00:39:36,440 Speaker 1: which you point out in your column, so much more 873 00:39:36,480 --> 00:39:40,930 Speaker 1: fun than enumerating the small and trivial and non-existential ways 874 00:39:40,969 --> 00:39:43,270 Speaker 1: that they may or may not have to budget for 875 00:39:43,530 --> 00:39:47,910 Speaker 1: hacks and doing crimes accidentally, et cetera. And what clarity, 876 00:39:48,250 --> 00:39:50,710 Speaker 1: like what a delight. It's just a cleansing. Like, that 877 00:39:50,730 --> 00:39:52,690 Speaker 1: just must be a relief. Right. 878 00:39:53,270 --> 00:39:56,450 Speaker 2: If your main risk is killing everyone on Earth, then, like, 879 00:39:56,850 --> 00:39:59,819 Speaker 2: it feels trivial to write the, you know, accounting risk 880 00:39:59,840 --> 00:40:03,280 Speaker 2: factors and the perspectives, right? Right. Right. 881 00:40:03,760 --> 00:40:09,680 Speaker 1: Are y'all really worried about that? Be serious. What's a 882 00:40:09,719 --> 00:40:13,710 Speaker 1: few trillion, you guys? Like, wake up. 883 00:40:13,719 --> 00:40:16,480 Speaker 2: I love it. All right, Mary. Thank you for coming 884 00:40:16,520 --> 00:40:17,120 Speaker 2: on the podcast. 885 00:40:17,469 --> 00:40:18,239 Speaker 1: Thank you for having me. 886 00:40:23,280 --> 00:40:25,380 Speaker 2: That was the Money Stuff Podcast. I'm Matt Levine. 887 00:40:25,780 --> 00:40:26,600 Speaker 1: And I'm Mary Childs. 888 00:40:26,900 --> 00:40:30,080 Speaker 2: We'll have Mary and other guest hosts on the podcast 889 00:40:30,120 --> 00:40:32,700 Speaker 2: for a few months, while my usual co-host Katie Greifeld 890 00:40:32,760 --> 00:40:35,230 Speaker 2: is on parental leave. You can find my work by 891 00:40:35,270 --> 00:40:37,970 Speaker 2: subscribing to the Money Stuff newsletter on Bloomberg.com. 892 00:40:38,270 --> 00:40:40,830 Speaker 1: And you can find my new podcast, Mary in America, 893 00:40:41,270 --> 00:40:43,390 Speaker 1: on YouTube or wherever you get your podcasts. 894 00:40:43,690 --> 00:40:45,270 Speaker 2: We'd love to hear from you. You can send an 895 00:40:45,350 --> 00:40:48,890 Speaker 2: email to moneypod at Bloomberg.net. Ask us a question and 896 00:40:48,910 --> 00:40:51,270 Speaker 2: we might answer it on the air. You can also 897 00:40:51,330 --> 00:40:54,469 Speaker 2: subscribe to our show wherever you're listening right now and 898 00:40:54,489 --> 00:40:56,569 Speaker 2: leave us a review. It helps more people find the show. 899 00:40:56,750 --> 00:40:59,509 Speaker 2: The Money Stuff Podcast is produced by Anna Mazarakis and 900 00:40:59,570 --> 00:41:02,650 Speaker 2: Moses Andam. Our theme music was composed by Blake Maples. 901 00:41:03,290 --> 00:41:06,469 Speaker 2: Amy Keene is our executive producer and Cheryl Brumley is 902 00:41:06,530 --> 00:41:09,770 Speaker 2: Bloomberg's head of podcasts. Thanks for listening to the Money 903 00:41:09,790 --> 00:41:12,800 Speaker 2: Stuff Podcast. We'll be back next week with more stuff.