Hello Welcome to the Jack. Jack Edition of Sleet. Money or guides in the business and finance news of what has been. I pretty exciting week. I'm feel examine of axios. I'm here with breaking views. I'm here with Emily. Pack of Huffpost. And we're GonNa talk about Jack Jack. We're GONNA talk about specifically we're going to compare and contrast shall we say the Jack of the moment Mr Dorsey of twitter and square versus the Jack of Eight hundred ninety s? Mr Welsh of General Electric. We are going to talk about Lebanon because we promise that we would and so arrogant to talk about Lebanese ponzis. Which are you know they used to be called? Sita's now tickled ponzis and of course we are going to talk about the Fed. The emergency rate cut that they did this week. What has to do with Corona virus? What the right response to convert. A virus is all of this coming up on slate. Money want to hear something. Amazing discover matches all the cashback back. You earn on your credit card at the end of your first year. And it's even more amazing because discovers accepted at over ninety five percent of the places in the US that take credit cards learn more at discover dot com slash. Yes two thousand. Nineteen Neilson report limitations. Apply slate money is sponsored this week by Cola. They care about your bathrooms. Going to the bathroom should be an elevated. You have really smart gadgets and devices everywhere in your home your bathroom should be no exception with a Kola intelligent toilet. You got a whole range of smart features to help you feel your cleanest and most comfortable. You can set preferences through a whole variety of routines different times of day. No matter what your mood is a Cola Intelligent Toilet Office. Everything you need for the ultimate pampering relaxation and cleanliness. Discover what you've been missing at COLA DOT COM SLASH. Intelligent toilets so. When was the last time we had an emergency rate cut? I feel like that was financial crisis in two thousand and eight per fifty basis points out and these things are rare and meant to panic the world. I guess not meant to panic if you want if you want to really try and send a signal. The don't worry people we have this under control and don't panic then like a panicky rate cut in between meetings. Feels like the wrong message to send. It was weird because you basically had before the rate cut you. All of a sudden had. This kind had a jump in stock prices. Because there's an anticipation of a rate cut. However when there was then this emergency rate cut. That was not communicated clearly then. The markets fell. It was just another example of this particular feds poor communication skills. Well there's one market which isn't fooling which is the bond market of course which is soaring and you highs. But that's not good news. That's a sign of pessimism and flight to quality and scared. Nece we should. We should say the Fed did an emergency rake head on Tuesday because it came off of this phone call with other Leaders around the world writing seven g seven peeps and it took action almost right away it also was being pressured of course by trump. Who is tweeting about doing rate cuts? And then then they did it. And then the market went bonkers but it's been bonkers before the monkey looking at the market. What the market did in length the fifteen minutes? After the rate cut or the day after the rate cutler the two days after the rate cut has limited utility because the market has been bouncing around like a demented pogo. Stick for the past two. We true but if you've looked at in the number of past years when we've had some type of issue and the market's been scared and then the Fed has come in with the cut. The market has responded pretty well and granted. This is still early. It's possible that the markets will calm down. But I think the fact that it hasn't is kind of telling it's important because this rate cut doesn't seem like it can do an enormous amount to stop the damage potentially of the It's the whole like wrong tool scenario right like summer. But it's not a nail contain this virus. You need to do public health so right. I had a big thing in my newsletter. This week saying the racist is the CORONA VIRUS. The crisis isn't epidemiological public health crisis. We do not have a financial crisis and there is no financial crisis anywhere on horizon except for in Lebanon. We're GonNa talk about later and so the tools that you use to fight the financial crisis which all the kind of tools that we used back in two thousand eight with coordinated rate cuts between central banks and fiscal policy and all that kind of stuff have relatively limited utility that said the corona virus is going to cause a macro economic slowdown that is an OECD forecast for the first quarter of negative GDP growth since the crisis and like exiting the crisis since one thousand nine hundred eighty two so this is a big deal the corner virus of the global economy and if global central banks including the Fed. Do everything they can. To mitigate the the economic effects of crossovers. That's fine. We just need to be very clear. The all of this is secondary to the number one big priority which is medical so the fiscal policy makes more sense. That's what I was. GonNa say told me whether eight billion dollars is remotely fiscal policy. Is I mean so right? So the Congress passes eight billion dollar corona virus. Emergency spending bill. But it's mostly focused on re and rightly so medical spending public health spending. But I think what? A lot of economists were talking about this week was we sort of like hit. The Wall on monetary policy like the ray cut rates are very low already. This ray cut hasn't really isn't really going to do much what we need to finally do recognize that fiscal policy has to happen. We have to do stuff to inject money into in the US. We have to for example. We do do things like extend unemployment insurance and get it set up so that if people start losing their jobs they have unemployment insurance. We can be food stamps. We can send out. This is what I wrote about today. We can send out checks not maybe just too sick people for starters but then maybe two. I have an idea. Why don't we send reimbursement checks to anyone who has any kind of medical expense associated? Yes you can absolutely true. Although everyone's corona virus related healthcare. You can assure people that if they're sick and they stay home they will be reimbursed. That was where the check idea came from. Because you do paid sick leave. But for like tipped workers for example if they're paid their reimbursed just for the tips hourly wage. That's like nothing. They're still missing tip. So maybe it's better to send to send the checks out but if you if you want people to continue to eat out at restaurants. Those people need to have some assurance that the kitchen workers on sick and in order to have that assurance those kitchen workers do need to be able to stay home if they ask and in order for them to be able to stay home if they are sick. They need to somehow get paid if this things and we need a mechanism for doing that exact otherwise no one will eat at restaurants in fiscal policy actually becomes public health policy. Because it's sort of bolstering. Its allowing people to stay home and rest up and Making it so that people don't go to work every day and it's really important and also because even though right now this is would basically be a supply shock. There is the fear that there is going to be a demand shock as well and then now can you please just because I'm a barrel very little brain exciting. What the difference is between the supply shortage question that you have so one of the big fears with the Corona virus? Is that because you had all of these factories shut down in China that now all of these parts. All of these goods that are needed aren't going to be available. The supply is lower shock right. So that's that's the shock. So what is more likely that we see happening here is that we have this. You know clear supply issue. But then on the same time the panic and the shutdowns and the quarantines is going to reduce demand people aren't going to be using services people aren't going to be shopping as much so you're having a little bit of both and so that's where what the. Fed is doing in theory could make a little bit more sense it with the idea of we want to continue to spur economic growth now. I just want to point this out though that there are downsides to what the Fed has done normally when an economy is still doing relatively good and we thus far don't have a lot of data for the United States to support the idea that things are falling apart in fact just on Friday. We had an amazing these strong jobs. Report showing three hundred and fifty thousand people. New Jobs Allen Clements is at three point five percent like this is all kind of before the Corona Virus Shock. But the fact is that the economy is about as healthy as it's ever been going into this show right and so the fear is that if you do go into an actual recession normally when you go into an actual recession the. Fed cuts a lot. You know we don't have that much room to cut. The Fed has already said they don't want to go negative and they shouldn't go negative because as we've seen in other countries Japan and Europe it's not overly effective. And then you say okay. What are the other tools? Well they can do quantitative easing again but okay again when rates are already so low okay. Great you're going to lower rates a tiny bit more on the end like longer dated bonds as not GonNa do much until there's no reason not to cut rates. I feel like this. Is this argument. The Larry Summers has been out making and being. Broadly ridiculed ridiculed about. He's like it's like defend only has two bullets left in its gun and now it's fired two of them and it doesn't have any bullets left and you should save bullets and in fact that's just like a really bizarre analogy because if lower rates are going to be good in like a couple of months time whenever he wants to hypothetically by those bullets then if you lower rates now the the rate will be lower in a couple of days time you will. You'll have what you want and like it's better to lower the rates now and have even more effect. He has this idea that it's not. The lower rates number is low. It can only go so much exactly but the quest the big question is when when you cut rates what makes the difference. Is it the fact that interest rates are lower in which case you want them to be as low as possible for as long as possible rates now or is it the fact that you cut rates? Is it the actual like physical action of cutting rates? The has some kind of solidarity effect on the economy and as we saw with this emergency rate cut. The physical action of cutting rates doesn't do very well now but I I think looking at what we just saw and using that to say to discount everything we've seen in the last few years. I'm not sure if I totally agree with that. I'm not saying I totally agree with Larry. Summers. I'm not saying one hundred percent by this argument but what I am saying is that historically I think the in recessions the Fed has cut a lot and that has indicated that the Fed has the ability to control. What's happening now if you're getting to a point with basically can't cut and you're going into a recession. I do think that limits what the Fed can do and top of that when you have rates extremely low. You're putting pressure on your banks very very low rates. Do not help banks so I think there's a lot of people worried about right now. The bank okay who makes loans who keeps the economy going to the bank loans on keeping the economy going. Well then why are we cutting rates? Because that's really what this is is a good thing because monetary policy isn't the only weapon in the arsenal. We have to go back. I agree and I think we learned in the last recession and the slow agonizing slow recovery. Was that there needs to be more fiscal stimulus. You need to help. Not just the banks but the people and that'll work that's its own kind of stimulus and the past decade. There's been this push away from that and this this this running towards austerity. That really hasn't worked. So maybe the silver lining here is like an end. This a lot depends on the twenty twenty election but like maybe the silver lining. Is We actually start doing more of that stuff? And and we solve some inequality issues that people were sort of like unwilling to deal with except except I feel that everything will saying on one level is right but on another level. It's doing this thing I again talked about my newsletter which is fighting the last war that we're looking at this problem through the Lens of how we fought the financial crisis whether we did it the right way whether we should have spent more on fiscal and there is this General Consensus Expos that we should have spent more on fiscal in two thousand nine but the fact is that that was a major financial crisis and financial crises have financial solutions and the epidemiological crisis has medical solutions and while fiscal monetary policy can be helpful at the margins. I think the one thing we can agree on is that honestly the economic problems facing America although they are potentially significant and it is possible that there could be a recession pale in significance to the virus in medical problems. So let's concentrate on go with that one hundred percent but we need strong policies. That help like I said before. Americans stay healthy like yes. The physical is tied to write like looking behind and saying Oh. We should've done more in the recession. But it's also looking at like the uninsured population the underinsured population the percent of people. Who again like you have to go to work like these really important intersection. You're absolutely right and I just think that cooling fiscal stimulus is a little bit a weird way of framing policy. I mean it is. It is in front and his by definition fiscal fiscal policy. I'm just saying that like everything. The government spends money on Cisco Policy. But what? We're really talking about here. Is Public Health Policy? And it's it's like it's a huge sign that like we need to return to the era of big government like we need a strong government with good sound policies that can help us maneuver through public health crisis an effective government. I don't know but yeah no it needs to be effective and it needs to be spending money in small ways and I guess the reason why. I recoil a cooling. This fiscal policy is because when people talk about Fiscal Stimulus. Like what's the size of the stimulus we need and then they work out. Where spend it? It's like should we do tax cut. We do more spending that kind of thing like here. It's not like that. It's not like let's start with the size of the stimulus and then workout wet do it. It's like let's don't wed do need to spend money in order to keep Americans healthy and then spend that money agree okay. Slate money is sponsored. This week by Ziprecruiter is a really tough job. 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I think and Jack Dorsey who is also somewhat legendary Ceo of not only twitter but also square and Jack Dorsey is in trouble and Jank. Dorsey is has doubled. The number of CEO ships that. Jack Welsh hats. Obviously he's twice as CEO. She's much richer and is much richer. Jack Welsh Again I put this in Magnon plucking my newsletter a lot this week. I don't know why Jack Welsh got a severance package of four hundred seventeen million dollars and then he got a divorce and then in the divorce it turned out. He was getting like even more stuff that no one ever knew. Like two in the half million dollars worth a year of just random perks of being retired and everyone was like. Oh my God. This guy is so rich and paid so ridiculously lavishly and this is capitalism. Gone Bizarre conquers and in comparison to Jack Dorsey. The guy was a Porp- feel sorry for him now on it's interesting because I think that Jack Welsh and a lot of ways started this kind of cult of the CEO. Not Entirely. But I think he was a big player and he was he he definitely was other. And there's a few others I think like Lee Iacocca like He. What he did was he was the guy who started the cult of the CEO and really Made it the same as the cult of the rising stock price and shareholder value. Yeah and and because if you look at what? The G share price did when he was in office. She'd be like great. Of course. Then you look at what it's done since then and it's not just that you've had nine eleven in the financial crisis it was also that a lot of the things that Welsh did in terms of GE capital you know and just expanding the footprint of Ge into areas where it did not have a competitive advantage was shown to not actually very smart so what well did was financial engineering. Lots lots and lots of financial engineering. There was the obvious financial engineering which everyone knows about. Which was he would engineer the prophets. Every quarter said they would. They would beat expectations. Every quarter and price would of the stock would go up every quarter because everyone go. Oh my God you made even more money this quarter than we thought you would and so. He was very good about that. Expectations Management and endings managing the other piece of financial engineering. He did that was the way he did that. And the way that he got the growth in the way that he got the earnings with by Turning around and realizing General Electric is this huge industrial company with massive cashflows. Had this incredibly valuable thing which was a AAA credit rating and he's like shouldn't let that AAA credit rating go to waste. And so he became a thank. Basically he became an Linda and he started lending out and borrowing huge amounts of money using his AAA credit rating that he could borrow cheaper rates than even like J. P. Morgan or Goldman Sachs. Anyone like that. So he had a comparative advantage in nets in his funding costs with super-low to borrow money and then he will turn around and lend that money just like banks do and so he up massively leveraging General Electric and that leverage in those liabilities that he took on a borrowing so much money really walked the company over the head with a two by four in the financial crisis when it lost its AAA credit rating. And it couldn't roll over its debts and it needed to bail out from the federal government. And the reason I find Jack. Welsh interesting is less the financial engineering and more his management style which he was celebrated for. But I'm he delivers lots of people rank and Yank right where you would rank and rate all of the workers in the company and then cold the bottom ten percent literally five literally fire even when the company was growing this neutron Jack Nickname et from lake. Firing one hundred thousand people came in where like the buildings were still standing. But the people were like vaporized. Yes even after that every single year in good years and in Betty is he would still fire. Ten percent of the best method was lauded. People thought this was really smart and other companies followed suit and I think it was invoked for a really long time and only way a lot more companies now. I think recognized that you don't want to have a culture of fear and got sent in the mail the upcoming book by Reed Hastings that CEO of Net flicks who basically does not bad. No they have this whole like They'll fire low performers but they think they do it really nicely so it's okay good for everybody because if you're not fitting in then you gotta go but yeah. I was thinking also Reykdal EEO in bridgewater. Things like people generally recognized now. This is not good strategy. I think a lot more companies and we can talk about twitter. Yes I don't I think. Twitter is very much the yeah. I mean I will say that there have been a number of studies that have shown that that type of competition within a company really decreased productivity off. I mean the one thing I will say one thing though that like in Jack Welch's defense a little bit. What you saw a lot of these eighty. Ceo's was that they were responding to some genuine big problems that you had in the seventies that there was a reason that the US economy kind of tanked as it did and some of those were external but some of those were because a lot of companies had become very uncompetitive. Ceo's were only thinking in their own interest in the interest of shareholders. And so I do think that there are parts of what he was thinking to do. That weren't a bad idea. It was just. I would argue how he did it and the excessive. What he's in the problem of if we look back at the seventeenth we're like. Oh my God that will if these huge inefficient conglomerates and then what does Jack Welch to he creates he he buys like NBC and makes it wasn't just commerce. I mean it was part of the reason that the we don't have to go into too much of this will be the last thing. I say the part of the reason that the US economy was not as competitive in the seventies was because you had companies and other countries particularly Germany and Japan that their companies were leaner and the US companies. Could not compete. That was a problem that was things didn't need to change. Isn't that the whole? I mean the auto industry that was the shining example right right so in any case what we now have in this enlightened fist passing meditation Goo p. You Know twenty-first-century era is Jack Dorsey. Who you know walks fifty miles a day and is very thin because he never eats anything and he manages to run two companies essentially in his bad time while trying to become you know achieve some kind of Navan and and he's going to understand Africa and well he's not anymore he has now come out Because he's in the middle of shareholder proxy war with a good friends at Elliott Associates He has now announced that he is no longer going to spend six months of the year in Africa. He is in fact going to stay put in California. Still running to companies. We will see whether Eliot manages to oust him from twitter or not but the thing that a lot of people have really picked up on I think is that Elliott trying to oust him as CEO of twitter. They don't care about him as CEO of square where he is by definition justice stretched and doing justice little work as he is twitter because the square share price is doing just fine and so long as the share price is doing just fine. You can be a touchy feely absentee. Oh No one cares. I I've been thinking a lot about this and like Elliott management definitely. They have a point right. Like twitter's finally turning a profit now but like compared to facebook. It's just not as big. It's not growing as fast. It's not as innovative. It's still the same old twitter more or less but like that's fine. No it's not I'm Elliot on this. I'm like that's not being run. Well like if you look at how. The share price has performed in relation to other companies. And I know we'll we'll share price doesn't matter no it does because it. It represents the fact that like as emily or even just admitting this company is not innovating if a company companies there's no stasis you either grow or decline. This company is not getting better okay. So twitter is growing. The rate of growth is not increased is growing actually very healthly. It is it's prophets and its revenues have been going up strongly under Dorsey much more than under previous CS. The only thing isn't going up is the share price everything else up until the right and honestly like why do we want a really high growth social network like I fault and all the takeover by Bats and sixteen? You cannot argue that facebook. Facebook was way worse. Like let's just let twitter kind of like be twitter like we don't need some Mike. We don't need another monster social network doing crazy stuff to grow and get more and one of the arguments ended die. No well wait. Hang on say Anna. We've had this conversation many times on on slate me and we're just GONNA have it very briefly one more time. Twitter is profitable. It is making good healthy amounts of money. Let's assume it remains at current levels of profitability and has no growth. It'll and it is growing. But let's assume West case in there that it has no growth tool it will retain those healthy levels of profitability in perpetuity. That isn't the same as dying now. It might. It doesn't need to fund itself because it's making money it's probably going to be using its cash that it's generating and let's just say it is not historically been very profitable but now. I'm saying I'm saying I'm thinking is profitable now. Let's assume that it remains profitable at current levels. Which is a good amount of profitability in? Perpetuity it no longer needs to fund itself it can send those out to shareholders if it wants. Us dividends it can keep on going. Just fine does not die. No I'm sorry I I just I disagree with. I think that like it is a so number one. This is a growth company number one. I don't even know what that means but I'm just saying that this isn't less humid. It stops growing fine. Why is that bad? Well it's equity valuable than decline. Yes so we we. Let's assume that the stock goes down. Why is that bad okay so then if it needs to? I don't know acquire another company. How's it going to do that? It doesn't need it. That's why I'm saying it's just going to make lots of money in perpetuity. Why is that that all of its competitors are going to be able to keep innovating they're going to be able to acquire they're gonNA be able to get better talent and then you're going to have this company that apparently like it's equity value is going to decline its ability to raise debt is going to be lower so it yet it apparently is going to still get the same amount of profits which. I'm not exactly sure how that's going to happen. All its other competitors are going to be able to do all the things that normal companies that are growing quickly do and yet it's going to do just fine and Dandy. I would say history suggests that that is not going. I think it'll be fine and Dandy and you just need to let twitter twitter sort of. It's my favorite social network. And don't miss next thing we're going to be around for long. Yeah you millennials. Wouldn't understand we don't need twitter to be that much better because then it becomes like big brother becomes facebook and no one wants that. We need twitter to be a little more like kind of like low rent. And like maybe we in the. Who Does this passive meditation Al-? Ceo's should work part-time honestly like we don't need them obsessing about growth that much. That is what I think. Support for. Today's episode comes from Progressive Insurance Fun fact progressive customers qualify for an average of six discounts when they sign up for progressive auto insurance discounts for things like enrolling an automatic payments ensuring more than one car going paperless and of course being a safe driver plus customers who bundle their auto with home or at Renters Insurance. Save an average of twelve percent on their auto. 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Adams wants everyone to just toast them onto the efforts for that hard work for that friendship for that support. Tell people that you care about them. There's never a bad time. Now's a really good time. Bring people together. It's simple it's easy to do and it's accomplished perfectly for toast so be sure to make a toast this year with Sam Adams from the Boston Beer Company. Boston Massachusetts Savor the flavor responsibly. All right so we put this to you last week. And for those of you who are ready for the Anna Szymanski Ned out about Lebanon. I can tell you the Earlier this week and I spent two hours listening to a lecture by the one and only Lebron Kite who was a previous guests on on slate money and he was addressing a bunch of very sophisticated law students about sovereign debt things. And so I'm just GonNa Remind Anna here that she has not talking to very sophisticated and you're going to have to pay stiff about four not just below where leeward. Okay interrupt you whenever I stop. I find okay so right now what you have in. Lebanon is a banking crisis and a general economic crisis. Now this has been going on for a while. It really started kind of come to a head last fall. This was around the same time when you start to see a lot of protests right okay. This is all related because Lebanon is the third most indebted country in the world there. Debt-to-gdp is between one hundred forty eight hundred fifty percent of GDP okay. Why do they have such a big debt burden while the reason they do is because they have massive what we call twin deficits which means they have big fiscal deficit? So they're not bringing in as much revenue as their spending and they have a big current account deficit which means that. They are importing a lot more than they're exporting. So consequently they need to raise money to keep all these things funded right. So how have they been doing that on the debt markets? Okay so who's buying this debt? Well a lot of this debt has actually been bought by the Central Bank of Lebanon and private banks in Lebanon and then some foreign creditors. Okay make sense right now. Okay now the way that the both the central bank and the especially the private banks were able to keep buying off debt to keep this economy going was because they had deposited flows now wherever the deposit inflows coming from well you have a large Lebanese Diaspora. That also was often wealthy. That we're sending money and then on top of that. You also had money coming in from Gulf countries around because the Lebanese Bang you could get higher rates of interest. There was a lot of bank secrecy. People wanted to put their money their question. Actually the for the People's the Daska sending the money. What does that mean? What this means is that. Let's say that I'm a very rich Lebanese past. And let's say I'm cost Goan or Nassim Taleb or someone like that and I feel a sense of loyalty to my homeland and the Lebanese bank comes along to me and says I will. You stole a bank account paying interest of seven percent. And I'm like Oh now now I get to kill to number one. I get to support my homeland and number two. I get way higher interest and I do putting in with J. P. Morgan and more bank secrecy and also no one will ever find out that my I have this money that because the Lebanese Central Bank won't force the banks to tell the irs so this is where Anna you start using the word Ponzi. Yes this is lie. Described it as a Ponzi scheme because so much of Lebanon's economy is their banking sector and just jenning up growth through loans for the construction and real estate and so it the whole thing only works from the government to the economy only works. 'cause you have these dollar inflows coming in now what had started to happen honestly? A while ago was these started declining now figuring influence. Just go up indefinitely forever now. No well okay well well. Here'S THE PROBLEM. Because if they don't everything falls apart you see. This is why I think that you think the twitter is like Lebanon. I do not like Lebanon so okay so basically one of the things you'd have been happening is that Hezbollah which is kind of a proxy of Iran having gaining more and more power in Lebanon and consequently you a lot of Gulf countries aren't super excited to send their money to a country that is increasingly being run by Lebanon are being run by Hezbollah right so that was one thing that started to kind of reduce this this flow of dollars in so then what happened was and I won't go into all the details here because Felix won't let me but I'm very mean there was another form of what is actually called financial engineering. Which if you go onto Lebanon Central Bank website. They will show you what they're doing but they did all of these various swaps and the reason they did all these various swops was basically to make it appear that the central bank had a larger stash of dollars and important because the lab. Lebanon has a pegged currency so their currency is kept at a certain rate in relation to the dollar. The only way you can do that is if you have to support that in the currency. So it's cool to Lebanese pound and I'm old enough to remember when the pound was pegged currency in the UK we have pegged the pound to the Ecu as it was then that the precursor to the euro and then famously George Soros made a big bet against the pound and the Bank of England had all these foreign currency reserves and was trying to support the pound until eventually they gave up and the pound crashed because pegged currencies have a tendency to crash when a lot of people betting against them and this is basically exactly the same thing instead of the British pound went out talking about the Lebanese pound it is pegged against the US dollar. And if there's two things that seem inevitable at this point One is that Lebanon is going to default on a bunch of its debts and another one is that the pound is going to Dev- devalued against the dollar. It all feels a lot in some way like Greece back in twenty eleven people. Like will they devalue will they default in the end Greece did default? But they didn't devalue Lebanon? I'M GONNA come out and say it's going to do both probably. It is super complicated. I mean this is even I would. I would argue. This is one of the most complicated re kind of defaults restructurings that we've seen since probably something like Iraq for a number of reasons one because because of all of this financial engineering one of the big results of that is that a lot of the dollar deposits from the private banking sector are at the Central Bank. And so what this means is that and also sorry and also the private banking sector owns a lot of the debt that was issued by the central government. So if the we've seen this multiple times with sovereign defaults it it means that if the government defaults and if it doesn't pay its debts the main bondholders who get hurt at the domestic banks. And then that just makes a domestic banks insolvent the government needs to bail out the banks. But it doesn't have any money to bail out the banks and so you have this combination banking crisis sovereign debt crisis. They often go together and even closer than they normally eve- e- hundred percent correct. And it's but it's almost a little bit worse because you've all of these dollar deposits that were being held out the central bank to make it appear basically that they had more reserves. But that means if you actually look at the numbers. The country doesn't have enough dollars to fund all of those deposits so they can have bank run and they actually have right now. Defacto capital controls to stop that from happening because they just simply don't have enough dollars. That is their problem. More than honestly their debt itself. It's the fact that they do not have enough dollars so what they'll probably going to do. I would argue is that they're going to do some type of swaps with the local banks where they'll say okay. We're GONNA take your debt. That's kind of going to mature soon. And we're GONNA swap that with that. That's going to mature further along in the future. We're going to lower the coupon the interest rate and that can buy them a little bit of Thai GonNa kick the can down the road because this is the first thing that is always do but I want to get back to where you started. Which was the demonstrations on the street? What water people that own straightening about? So what kind of sparked it was actually a. what's that tax. So because as I mentioned Lebanon has is not a tweet. Yeah then Turkey would be like. Turkey is all about with Lebanon so because Lebanon houses like massive fiscal deficit. They're trying to find ways to close that and instead of like. I don't know cutting down on the massive corruption of the government. They're like let's tax people for what's that messages and so unsurprisingly this really anger people. But I think it's important that it wasn't just the WHATSAPP messages. This is decades and decades of misrule of lack of social services being given to the population while you have this governing elite that is just wasting all of this money and living lavishly while most people are suffering especially the bank is if you thought there was a bunch of anger in America are bankers second occupy like multiply that by a hundred. The bank is in Lebanon. Have just been basically what they've been doing is they've been borrowing money from the government. Two percent lending it out at nine percent it's been the easiest cash generating game in the world and they've been paying themselves hundreds of millions of dollars in dividends these. This is like personal income. These the big bank is in in Lebanon as Anna said Lebanon is basically offshore banking centre. More than isn't anything else have made billions of dollars and they've done nothing relief to improve. The health is all by design from the government. All of that activity that we're talking about the banking sector is directly what the central government want so. Now we're in a situation right now where unfortunately no matter what happens. The population is going to end up screwed. Because if you would. Almost certainly going to happen is that the pound is going to be valued. It's already on a parallel exchange rate trading like forty percent less than where it technically is so people who are regularly just holding Lebanese pounds all of a sudden now. They've a lot less money and then on top of that. This is an unsustainable system. At some point this has to collapse. You're going to need to have reforms and unfortunately part of those are going to be like cutting the massive electricity subsidies that they can't afford which are like three percent of GDP. I mean this has been another problem. Is that Lebanon has had the opportunity to get money in. I think France actually put together like big pot of money from a bunch of different countries that technically Lebanon could've used but in order to use it they would have had to put through forms they didn't want to do it and then now this issue of Hezbollah so bad I in the IMF or something. This is important too because normally in this situation to you'd say like well this sounds like a job for the but the problem here. Is that again right? Now you also recently had another Election where the governing coalition is now run by Hezbollah allies and so the idea that the IMF is gonNA give a massive loan to a government where the governing coalition is run by Hezbollah that seems somewhat unlikely and then on top of that you have re representatives from us both saying we don't want the IMF to tell us what to do and if you think about it this government when you already have people on the street. Protesting doesn't especially want to start going through and putting through Jerry measures which they would have to do at least somewhat and so there are simply no good options will probably happen is delaying which will only make things worse. It's even possible that they will pay out some of their foreign creditors because they technically have the liquidity if they really wanted to. They could muddle for another year but they shouldn't do that. That's just a waste of money. But they they may very well do that in the longer they do it. Just the worst situation is going to get because if you think about like what incentive like this system only runs if you have dollar inflows sending their dollars to Lebanon now right like and so I mean Cosco. And he's going through college can Carlos. Save Lebanon actually interesting people. There's a there's a whole popular movement in Beirut right now saying color going for finance minister and he's like no I mean. He rescued some car companies. Why not a country? I think it's time for a numbers round. I start this week because I have one right here. Which is one point? Four million hounds this British pounds not Lebanese pounds as we know the British government is trying very hard to stop building relationships with countries and rich people around the world because it's now cut itself off from the European Union and it needs to try and get a bunch of investment and it needs to try and get a bunch of relationships going and reinvent itself somehow no one really thinks this is going to be very easy or even possible. But they're trying at least a little bit and so one of the things they do. Is they setting up meetings with rich people around the world and saying hey you should come and invest in Britain? If you're a government how do you think you would set up those meetings you would have? Some people causes people some people and then you would have you know if you're the British government. What you do is you pay. This company. Called quintessentially one point four million pounds to set up the meetings both Quinta Fontana quintessentially being this company that was founded by some toffee. Went to Eton knows a bunch of rich people and he. I can introduce you to rich people. And like he's like I've had dinner Buckingham Palace and I'm related to Camilla Parker Bowles and they're like. Oh Wow you're very special here have one point four million pounds and you can set up the meetings for us. That's that's an incredible scam Britain for you. This is all in amazing. Fda tickle about quintessentially which everyone should read if they have any belief that Britain isn't actually functioning country. It's better than Lebanon. It is numbers nine. That's a number of states that have passed measures to stay on daylight savings time because Sunday morning very early. We all have to spring ahead as we know there was a very nice piece in the Wall Street Journal detailing all the problems that occur when you set your clocks ahead and I personally really dislike it. I feel horrible. Everyone I know hates it. Just got a notification from my fit bit congratulating me on sticking to the same bedtime every night and my circadian rhythm is like really fine tuned. Yes and now along comes as daylight savings time which no one wants and it's going to mess me up an apparently I mean it's kind of like the studies but I'm going to bring them up with some studies. Say that there's more heart attacks and strokes right after the clock spring ahead Some people say it's usually. Let's just be clear about this. The daylight saving the daylight savings time is the problem. We should never have fallen back in the first place. We should be on summertime all year right. I think we should be on standard time all year. Round and the health experts Felix. According to the article in The Wall Street Journal. They agree with me. The health experts agree with me. I'm going to push back hard on this one health. Experts are saying the one thing you shouldn't do is vacillate. Backwoods was down vacillate. Credit to changing the clocks is bad. Yes so don't change the clocks right but if you're not going to change the clocks can we please have delayed at four? Pm in the winter. Come on I mean no. We can stay on standard time and like what is the reason why standard time better than having delighted four pm because if you have daylight at four PM minutes like really dark in the morning and all the kids walking to school get hit by buffing. This is this is like the razor blades in the Halloween Candy Molin Goes. I think we should never spring ahead again. We should never lose our again and we should just stick to the way it is. It's darker in the winter. Deal with it. Get a lamp and if there's more daylight in the summer it's fine so I'll be depressed. We'll get hit by a bus was actually also nine. It's nine inches. So that is the size of Joe Boroughs hand. So it is. Yes he's Lsu quarterback is almost certainly going to number one in the draft from fingertip to thumping so like so. What does that? That's a great it? Well no it's not the problem so apparently there was mole well so there was this controversy at the at the combine which is the thing where players that are going to go in the draft like do they get measured in the run basically track and field events to impress NFL scouts. It's stupid but so they measured his hand. People are like Oh my God. It's only nine inches because there's become this weird idea that for it to be a good quarterback your hand needs to be closer to ten inches. This makes absolutely no sense. The theory behind it is that like you will fumble the Baltimore which like it it. It it's completely quarterbacks. Have enormous hands though. This is like one of those things. I- fixate on when we watch football because the rest is kind of boring to me. But like the announcers always talking and gesturing with their hands in their hands are like these large men and paddles. I mean it is. It is true that like their big until their hands are big as well. But this idea that it needs to be closer to ten inches and that somehow it's nine inches because Patrick mahomes. Who was the Super Bowl? Mvp His hand is like nine quarters. So this idea is silly and can I just say this is my favorite. Part was the tweet from Joe Borough which was considering retirement. After I was informed the football will be slipping out of my tiny hands. Keep me in your thoughts on twitter again. A valuable of information and this no explains everything and explains why Donald Trump is so hands. The ball is falling out of its demands on which bizarre. Just wrap this up. Thank you very much for sticking with this episode of slate money. Thank YOU DIGEST. Mean Molly for producing. Thank you for keeping the emails coming on slate. Money at slate dot com and thanks especially to aunt. Who's been giving me all manners smiles and enjoyment throughout this entire episode. She's in the studio today. My Aunt Nellie and my cousin esther are both here they live in Brooklyn and have been promising to come for a while. So how come on which no. We'll wrap this up and come back with more slate money next week. Want to hear something. Amazing discover matches all the cashback. You earn on your credit card at the end of your first year. And it's even more amazing because discovers accepted at over ninety five percent of the places in the US take credit cards learn more at discover dot com slash. Yes two thousand. Nineteen Neilson report limitations apply.