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I'm Felix Amon of Axios, I'm here with Emily Peck of Axios, I'm here with Elizabeth
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Disney and streaming and Strikes and Bob Eiger and we are going to talk about student loans,
which you're going to have to start paying back your student loans again. Is this a good thing?
Is this a bad thing? Should you have had to start paying them back much earlier? Did we wait too long?
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So let's start with how everything is going a little bit pear shaped in the entertainment industry
in general and at Disney in particular. Disney is a big producer of Foreman TV and now it has not
only all of the writers on strike, but also all of the actors on strike. And I'm going to come out
here with a highly insightful insight here, which is that it's really hard to make film and TV if
you don't have any writers or actors. Wow. So that would seem to be a problem, but that's not the
only problem that Disney has. Disney also has a problem that it's not it's placed this massive
bet on streaming. Disney plus, which is losing money and Wall Street doesn't seem to like Disney
losing money. It's share price is in the doldrums. It failed to get a bunch of really important
cricket rights in India. It's massive new Pixar movie that came out a couple of weeks ago was
seen by five people. And so it really needs a strong and dynamic CEO to turn it around. And so what
they've done is they've reupped the contract from the old CEO who was there years ago and said,
we're just going to keep you on for two years. Is that is that a good summary a little bit?
Yeah, that's that's pretty good. So Bob Eiger, who is 72, his contract has been renewed until
2026. And the statements from Disney indicate that the board asked him to stay, but you know,
Eiger during his first tenure extended his day three times. So the internal scuttle bet is that he
you know wants to stay, but he's been making a lot of noise indicating that he was not really prepared
for the problems that Disney is facing right now. Many of which are not even about the streaming
services failing, but their traditional lines of business being in trouble and thus being a kind
of secular problem in the industry. I'm trying to separate how much of Disney's problems are,
in fact, Disney's problems or their industry-wide problems like we know streaming is decline from its
boom times. You know, we know TV is in trouble. Eiger said this week that it's the TV is going
way faster than they think and he's trying to sell or he's considering selling ABC and FX, I
believe. So yeah, so how much of this is a Disney issue that his predecessor hand-picked predecessor,
Bob Chapeck caused or how much of is this Disney trying to adapt to this new world? And also just
to be clear here, like either way he should have been able to see this coming given the main job
of the Disney CEO is staying on top of what the industry is doing. And so if it's an industry-wide
thing, then you need to be alert to that. And I think the main thing that probably has changed,
if he was surprised by anything is what you just said, right, which is the decline of
old-fashioned broadcast TV on over the air or cable. The streaming strategy was always across
subsidy strategy where you take the massive profits from ABC and ESPN and places like that,
and you plow them into streaming so that when TV eventually inevitably dies,
you have a big streaming franchise that can take over. And now those profits are much smaller,
people are saying, you know, streaming needs to get profitable more quickly. But I don't think
streaming is declining. I think streaming is still, you know, doing perfectly well by the standards
of how it launched. It's not worse than it used to be. It's just, they used to be fine with
losing money and now they're not fine with losing money. Yeah, but I would say I was not playing
resources away from streaming. You know, when he came in, there was talk about Disney selling
their steak in Hulu. They own 80% of it, Comcast owns 20% of it. And now they're talking about
potentially buying the 20% steak off of Comcast. And the things that they're talking about
selling are really the the more traditional TV properties, you know, anything in linear TV in
particular. So ABC FX and they're thinking of selling their steak in ESPN. They don't have
100% of ESPN? No, Hurston's 20. Yeah, I thought he rolled out selling ESPN.
In his interview at Sun Valley. I mean, I guess anything is possible. Like I give it a deal
maker. And if it's presented with a deal, he will, you know, consider it. So possibly,
but yeah, I mean, the irony, I mean, it's not the irony. Like the big picture strategy of
navigating the move from linear to streaming is still there, right? If you look at what Hulu is,
it's basically TV shows on streaming. It's the old, it's the standard bunch of TV shows that they
have from owning, from owning Fox and ABC and NBC, right? Which is, which is part of the Hulu consortium.
And then just putting them all together in one place and saying, you can stream your favorite TV
shows as opposed to Disney Plus, which is much more movies based in much more sort of movie IP
based. Yeah, Hulu does have original programming though. That's just indigenous to Hulu.
Sure, but it feels like TV programming. Like when Hulu had
flashmones in trouble or whatever, that was indigenous to Hulu and Hulu was the only place
you could watch it. But it was like an FX production that still, it's a TV show.
I agree with you. If your viewer definitely feels that way, I think the difference is in terms of
how these things get produced and made. And that's where the strike situation comes in.
Because a lot of the writers strike things that are at stake or really have to do with
the differences between the way streaming shows get made and the way that they get made and,
you know, more traditional TV studios. And this is an issue with the actor strike too, right? The
thing that they seem to have in common is that while TV shows would pay out residuals or royalties
to the writers and the actors, every time they re-ed on TV, streamers don't work that way.
It's not like streaming a song on Spotify, where every time the song gets streamed on Spotify,
the artist gets some fraction of a cent. Instead, you get a massive, much bigger than normal
check up front and then nothing going forwards. And the unions are not fans of that model.
Yeah, there's a good piece in the New Yorker that begins with an anecdote from some actors,
from Orange's New, The New Black, which was like a huge hit for Netflix, talking about how
their residuals amounted to cents, you know, like under a dollar, and how they had to keep their day
job, even though there were a big star on a big breakthrough streaming show, which just doesn't
translate into the bottom line money. Yeah, there's one actress who said she actually lost money,
doing this show, because she had to relocate to LA and wasn't paid enough, you know, up front,
and then there were no residuals that were meaningful. And that show is enormously successful.
Right, that sort of like epitomizes the issue. My question about the strikes, because we talked
about them recently, I think, but now that, you know, there's now the actors and the writers
are on strike, and there's this great deadline piece this week where studio executives said anonymously
that they're like trying to starve them out. They think by October, everyone's going to be running
out of money and won't be able to keep their homes. Yeah, they said they know it'll be working when
writers start losing their apartments and losing their houses, which is incredible. And Eiger
didn't help us. He said at the Sen Valley conference, something to the effect of the writers and
the actors are all being unrealistic in their demands. You know, and he just got what like a $33
million contract or something with Disney. But my question is like, do the writers and actors
actually have leverage in this moment? Because we live in a, we don't live in network TV world,
like as Eiger said this week, like it's dying even faster than we thought. The movies aren't what
they were. We all have access to streaming. And like, if no one made any more movies or TV shows
for the next two years, I don't think people would run out of things to watch if I'm being honest.
Like you can always go to the well. It's not the same. And Netflix, by the way, is the absolute
expert at this much more than the other streamers, but I think the other streamers can catch up and
do it quite easily. Netflix has been expert at taking shows that originally came onto the platform
five or six years ago and just like re-upping them and throwing them onto the homepage of Netflix
and saying, here's this amazing show you should watch it. And everyone goes, oh, that's the second
amazing show and they watch it. And you're absolutely right. Just the sheer depth and quantity
of stuff that is available to watch on demand on any of these streaming services is so great that
in the short term, I think you're right that most of them will be able to just resurface stuff
that people haven't watched yet. Possibly Apple TV is the exception, right? They seem to have the
shallowest well, but I don't think anyone's worried about Apple right now. Yeah, who cares?
Right, Apple. This isn't existential for Apple. They happily go on and pocket their billions and
billions and billions in profit. But talking of which, right? This is the perennial
storyline surrounding I get, right? Which is the, he's a deal maker by heart. His great triumpths
were the M&A acquisitions of Marvel and Pixar. The, you know, the big question mark over his
management is the enormous amount of money he spent on 20th Century Fox and all of the debt that
came with and whether that is going to turn out to have been a smart deal or not. And the big question
going forwards is, is his whole idea here as in his final 10 years Disney CEO that he's going to
go out with a bang and sell Disney to Apple, which it's not clear that he totally wants to sell
Disney to Apple. It's not clear that Apple particularly wants to buy Disney, although it does
have a little bit of that Steve Jobs DNA in Pixar. But the problem here for I get used to share
price, right? That if he sells to Apple, let's say a normal 20, 30% premium to the current share
price, that looks like a really low price and a fail for him given that Disney stock is at a 10
year low right now. But it could go lower. It can always go low. No matter, what was that wonderful
Joe was until song about no matter how far you fall, you can always go down another hundred percent.
Yeah, yeah. I mean, if TV really is dying, then it probably has farther to go, right?
Streaming is not as profitable and I don't think anyone's figured out a way for it to be more
profitable. Like we said, every viewing is atomized. Now there's no energy behind this stuff.
And this industry is the last industry to be like fully disrupted. I think I've said this before
in the show, but like the media world we live in has been disrupted by technology, the music world
fully disrupted by technology. And I feel like movies and TV, they're kind of like the last to go.
But they yeah, and I think you're seeing you're seeing that in the strikes, right? That the strikes
really do seem to be like we want to go back to the old world. We don't like the new world stock
or although want to get off, right? And and it's just a lot of it is that they're like, can you please
not use any AI? Well, like AI is going to be ubiquitous. You know, everyone is going to be using
AI in everything. You can't just kind of say we want to carve out a little bubble in Southern
California where AI doesn't reach. It doesn't work that way. You're going to have to come up with
some smart way to, you know, try and allow creatives to make better shows by using whatever
the tools they have at their disposal. Well, I think that the negotiations are a little more
granular than that. I mean, we already use AI and CGI heavy production. So I think it's more
about the context in which you're allowed to use AI. Do we want if you if we're in the world of
sort of lots of people acting on streamers and the streamers are increasing demand for actors
and writers. That's that's clearly up into the right. Do we want to be in the world where
your pay is mostly a function of whether your whether the Netflix algorithm worked for you
and your show became a hit, right? Like like if you get a big paycheck from Netflix,
what is the sort of intuition that says, well, if the show turned out to be really big for Netflix,
then I should get paid more than they urged me agreed to pay me. Isn't that how Hollywood has
worked forever and ever? That's how residuals are. That's right. Exactly. Yeah. And the
argument for it is like, this is how it has always worked, right? Yeah. Yeah. And so
what are you proposing? It's a very, it's a very, you know, it's a low, it's a small sea conservative
position, right? Which is this is how it's always worked in the past. So this is how it should
continue to work in the future. The intuition, the reason is like if you're a big hit, you should be
paid more. That seems like true across, across industry is right? If you're a big hit, you should
get more money. Right. But against that is the is the standard sort of intuition that most
shows are not big hits. And the way that the economics of the industry works is the use the
profits from the big hits to cross-ubsidize everyone else. And so everyone else effectively can
get paid more if they're allowed to be cross-ubsidized. Yeah. To me, it sounds more like the standard
intuition that if you can exploit labor, you should. Because part of what's happening is that,
you know, the standards, the old standards are getting got worse for writers and actors
when streaming peaked. And for them, they're doing exactly the same work. It's not less work,
it's not, you know, less effort, just less pay. We should also note that, I mean, these two strikes
together, it's not just actors and writers and Bob Eiger and Disney shareholders. There's a whole
ecosystem, a whole economy, you know, that's living off of the work of the writers and the actors,
you know, that are now not going to be making, doing any work or making any money unless I guess
they do reality TV, which I am assuming there's going to be a lot of.
No, but you're right. The credits on any given movie or TV show are definitely not mostly
actors and writers, you know, all of those people who are part of the industry are now also out of
work and aren't negotiating for better pay or conditions and they're just going to suffer even more.
I haven't went, maybe this is a left-field point, but there's one of the successors or potential
successors for Disney is the guy who runs the Disney Parks Experiences and Products,
which to me has like a little bit of a shades of succession thing or Tom gets advanced from
Parks to running the whole shebang. Well, that was Chapeck, right? Wasn't Chapeck in
Georgia Park? I don't know. I think so, yeah. Yeah, I think Chapeck came up from Parks. Parks has
been like the kind of the bright spot, coming out of the pandemic, Parks really outperformed.
It's one of the reasons why Chapeck got the job and people still really love the experiences
and this is one of the great secrets of how Disney makes so much money and it's still a highly
profitable company or not making quite as much money as he used to. It's because it can take
IP for movies, turn it into Parks and Cruises. If I go and see a movie and spend $15 on my movie ticket,
the amount of money that Disney makes off of me is tiny compared to if I go to a theme park or
take a cruise. Yeah, they do need to do some more better movies. I think that's a big problem for them.
But yeah, exactly. Just do better movies. How do you get better movies? You embrace your talent.
You embrace your writers and your actors and you make them like you. And the weird thing is that
Iga was always known. He had this reputation for being very talent-friendly, which is why it's
interesting that he seems to be on the other foot right now. I know the answer to this question,
I feel like, but have you ever been to a Disney park? Okay, what do you think the answer is?
No. No. The answer is, the answer is, I have been to both Disneyland and Disney World.
What? Well, once you're in the context.
That maybe we'll save that one for the sleep less. But yeah, let's have a break and come back and talk
about student loans.
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new episodes of Race Chaser every Wednesday and Friday, wherever you get your podcasts. Thank you.
Emily, what is the news on student loans? There's a lot of news on student loans, Felix. A few weeks
ago, the Supreme Court ruled that the Biden administration did not have the authority to forgive
student loan debt. It's a big loan forgiveness plan. Got the Kaibash from Justice John Roberts and
his five conservative pals at the same time. The student loan payment pause that President
Trump put in place during the pandemic, which has been going on for more than three years,
which is wild. Millions and millions of people, I think like 42 million people,
haven't paid student loan, may haven't made a student loan payment for over three years. That
pause is ending. The pause is lifting. It's weird to say the pause is unpausing. I don't know,
whatever. In September, interest will resume in October. People will start paying again.
I'm thinking a few thoughts about this. There's a few things. For people who have to start
paying again, this is like a big hit because everyone's moved on and adjusted their spending to not
having to make this monthly payment. Average payment, say, is like $200 a month.
Some people actually used the freed up cash to take on more debt. They bought houses and cars,
and now have another payment to contend with. Some people just use the money to get by. It's
going to be a big hit to a lot of people to start having to pay again. That's interesting. What's
that going to mean for the economy? I'll give you two choices. We could talk about that. Or the
other thing I've been thinking of is, because I wrote a little bit about student loans. I don't
have time, has no meaning anywhere. I think it was last week. I got so much email about it. I've
been reading the Republicans really hate loan forgiveness. A lot of Democrats too, there's this
notion of morality to having to pay back. It's not fair that people should have their loans
forgiven. I didn't have my loans forgiven, so you shouldn't have your loans forgiven. It's just
like, this is wrong and immoral and horrible. I don't really understand that because in other
areas of lending and finance, it's not like that. It's heavily generational. I could just
end polling. The people who object to student loan forgiveness skew a lot older. I think there's
a kind of rational but unfortunate reason for that. It's that later loan cohorts are more likely
to have their loans. The total amount that they owe now is higher than what the principal was,
that they originally borrowed. I think that crossover happened around the 2013 loan cohort.
If you're younger, you have more experience of people you know, take out student loans,
expecting that they could pay it back and not necessarily because they were delusional,
but not anticipating the things that would lead you to have to, for instance, defer payments
or go into forbearance. Your interest still accumulates during that period. What happens is,
even with income-based repayment systems, you can end up in a situation where
your monthly payment is sustainable for you in a cash loan basis, but you're still not really
paying the loan down. I think that really wasn't the case in 40-50 years ago if you were taking out
available loans. They were completely able to repay them. There was a good piece in the
times this week was not bad about the fact that the pandemic era, stoppage on loan payments,
made it actually easier for a lot of people to actually get their loans paid off long-term,
just because that little break in having interest accumulate is so critical for people who
least likely to be able to pay their loans back. In terms of the income-based repayment plans,
though, didn't the Biden administration just announce that there was a $39 billion
forgiveness of people who were doing exactly that. They were making their
interest payments on time, and then if you make your interest payments on time for long enough,
then eventually at the end of it, you get the principal forgiven, and that just happened.
Yeah, it's, yeah, separate. It's good. I think it's very narrow, though, in terms of who's
actually eligible. Yeah, that's separate from the bigger plan and affects fewer people,
but separate from that bigger plan, the Biden administration is reforming the income-driven
loan plans. They're updating it and making it so, yeah, a lot of people are getting their loans
forgiven, or they're going to see their payments capped. The unpause for some people won't be as
bad as it could have been because of that. The administration has said they're going to try and
do their big loan forgiveness plan another way, but it'll be more complicated. It'll take longer.
You know how these things go, so I wouldn't hold out hope for that.
Emily, are you a plan of loan forgiveness and you're sad that it didn't happen?
Yeah, so I've been thinking about that. I mean, I feel like loan forgiveness is not addressing
probably the root cause of why people have so much student loan debt and why it's a problem.
There's probably, those are the symptoms of just like a broken system of how America
pays for college. So on the one hand, it's like, well, this isn't going to fix anything.
On the other hand, the loan payment pause went on for three years and the world moved on and
changed, and it kind of makes sense to me actually to forgive some money that people, oh,
just because of that overly long pause, you can't expect people to just go back to the way
it was, like you have to do something. To be clear about the argument here,
basically saying, we were too generous on the interest, therefore we now need to be generous
on the principle. Yeah, yeah, I really think so. I think it's been too long. You can't expect
people. Like if you're given away the internet for free for 10 years and on your
website, you can't just slam the paywall down. You have to do something a little more gentle.
And I mean, this isn't about paywalls. This is serious. This is people's lives, you know,
they've gone on and done other things. Was there a point at which we should have, we,
you know, basically ended the student loan payment pause like much earlier so it didn't become
just a fact of life. You know, clearly we're not in a pandemic emergency right now, but this
was a pandemic emergency program. Like did the pandemic emergency end at the end of 2020,
and it should have been unpaused at the end of 2020? I mean, I think, I don't know when it should
have been unpaused, but I think it should have been unpaused a lot sooner than it was. I think
three plus years is like pretty wild. That's not a pause. That's like a stop. I mean, you know,
you just, you, you, you have to go on with your life and figure out other things to do with
your money. I doubt anyone was just diligently putting aside their student loan cash, you know,
into like a separate savings account just in case the day arrives that they would have to start
paying again. Yeah, it should have, it should have a lot of other pandemic supports stopped long
before the student loan pause stopped. It's kind of odd, right? Like the checks, the, the child
tax credit, like Medicaid support. I mean, so many other things. It's sort of like interesting that
this is the one that lasted the longest. It tells you a lot about the constituency, right?
Yeah, well, the constituency of people who are struggling with that or people who really probably
likely are never going to be able to pay their loans back in the absence of forgiveness.
And, you know, there's a lot of moralizing around it because the, I think the conventional wisdom is
that if people aren't able to pay their student loans, that it's a function of irresponsible
behavior. But if you look at it, when student loans really started ballooning, it was a function
of a policy choice, which is that we started getting public education. And, you know, the,
the less public universities were funded by federal subsidies, the more potential students had
to take out loans in order to afford education. And, you know, the fact that a lot of the loans
that people take out aren't even, you know, government loans, they will backstop gaps with private
loans that are even more problematic. So, Emily is saying that the student loans should not
have been paused for three years. Put aside the question of the, the principal amount, just the
amount that people are paying every month should not have been zero for three years, because that
builds this kind of feeling of permanence there. Do you agree or disagree with Emily on that one?
I think I disagree with that. I mean, you know, people stopped also getting pandemic payments,
and there wasn't a giant backlash to that. I mean, I think when we think about loss of
and what people react badly to, I don't think that extending it for as long as we did really had
a big effect, except for people who were really struggling to pay the loans in the first place.
So, the question is, who does the end policy really benefit and did those people need assistance
for longer than some of the other government programs that provided assistance to people who
were struggling, or just, you know, people generally? Right. It was universal, right? It was not
in any way targeted at people who were struggling. No, but by definition, the people who would have
trouble making those payments, or the ones who are most affected. Do we have a feel for like
the percentage of student loan borrowers who are in that struggling bucket, because it does
feel like a kind of inefficient way of helping out struggling borrowers is to help out all borrowers
just for the sake of helping out the struggling ones. I don't have that percentage off the top of my
head, but it's a significant number of borrowers that are going to be in forbearance, I think,
coming out of the pause. So that works, right? They go out of one type of forbearance,
and they go into another type of forbearance? Yeah. And the Biden administration, I think, is
making it a gentle, a gentle transition for those who can't pay, like they're not going to
report mispayments to the credit agencies for a year or something like that to make it a little
more gentle, the reentry. Yeah. I mean, again, the biggest element is if you go into forbearance
and you're still accumulating interest, that's the real problem. It's not the monthly payments.
So the Biden administration's rule is applied very broadly, that's a huge change for people
who are struggling with payments. What I was going to note is that there, the Biden cancelation
plan did favor people who are struggling, because it gave the $20,000 relief to Pell Grant recipients,
and I think they'd done some, they put out some numbers saying that lower income people,
well, there was a cap on who could get their loan forgiven, I think $125,000 income cap,
or something like that. So the people who are going to see their loans forgiven were lower income
borrowers. So, you know, that's something not universal. And people hated it.
I think Elizabeth is correct that the attitudes of largely generational, and I do wonder whether
part of it is that the socio-economic makeup of
undergrads has become broader over time. Going to college used to be more of an elite thing,
and therefore forgiving loans would be forgiving the debts of the elite, versus now it's
so much broader thing, and you have a much higher proportion of the population going to college,
and therefore forgiving loans affects a larger chunk of the relatively poor parts of society.
I think that's a big part of it. I also think that people in older generations don't necessarily
fully understand how much more expensive higher ed is now, all in. So even, you know, let's say
you graduated from Harvard in the 1970s, you know, those people were paying a totally different
amount of money, you know, in terms of total cost. Well, Harvard's a bad example, because,
you know, Harvard is free if your parents make less than $950,000 a year.
Well, that's fair, but, you know, if you're paying retail price, the cost of college is just
going to astronomically. I kind of don't believe it's generational. I mean, I don't have,
I don't have great evidence. Okay. So this is just my gut, but I don't think it's generational.
I think people have a strong moral sense about individuals' responsibility to pay back their loans.
Like, we saw it in the great recession with mortgages, and we see it with the student loans also.
And I think, I don't know, there's something deep to it. No, you're right about it.
The genesis of the Tea Party, right? The Rick Santelli is rant on CNBC when there was
a trial balloon floated by the Obama administration saying that homeowners might get
debt relief on their mortgages. He was like, how dare you provide debt relief to their mortgages?
And that was how the Tea Party started. Tea Party then became something very different,
but there is this, you're absolutely right. There is a very kind of German feeling about
that that I see in a large chunk of that kind of side of the American discourse. You know how
how in Germany, debt is called shalt, which is basically the same as shame or guilt.
You know, a debt is something that you take on and it's a moral responsibility to take
to pay back. And obviously in the world of private equity and commercial real estate and stuff
like that, it's just a financial engineering thing, but on a personal level, it really is considered
a deep moral personal obligation to pay back everything.
In the US, we also, you know, we demonize poverty a lot. We create it, or we talk about it as if
it's a character flaw. And the underlying assumption is that if you're in debt, you did something wrong.
And you know, for people who are really in question, I don't even think that, I don't even think
that's that's the assumption. And again, and I think, you know, America is kind of more German
than it thinks about this. Like, Germans don't consider debt to be a character flaw. It's not like
you're a bad person if you have debt. But it is something that you have to, you have a moral
obligation to pay off that you've taken this on yourself and you need to get yourself out of it.
And it is not in any way the job of the state to come in and rescue you from decisions that you
personally. Yeah, but you're speaking to your argument with that, you know, the big negative
reaction that I see to student loans is people saying, like, well, you couldn't pay that loan back,
why did you take it out in the first place? Which completely ignores the fact that, you know,
a big part of the, you know, American promise of making it is contingent upon doing things that
enable class mobility for lower income people. And education is still one of the biggest sources of
class mobility. So we tell people it'll help you'll get a better paying job. And then when the
better paying job, you know, it's, you know, it's their fault. Yeah, no, you're absolutely right.
I just don't, I don't see, I guess I don't see the same amount of like blaming of the 18-year-old
self for taking out the loan. I don't see, I see less of that. I see blaming the, you know,
current 27-year-old for not taking on the obligations of the 18-year-old. But like, I don't see a
lot of people going, you know, in the student loan discourse, you know, pointing fingers at 17
and 18-year-olds who are taking out loans to go to school and saying, like, you should not be
doing that. You should not be taking on that debt because you're not able to pay it back. I see
the finger pointing very much at the older graduates and saying, like, now that you've made that
decision, you should pay it back. Yeah, that's not what I see. I mean, whenever I've talked about
the Sun Twitter written about it because I was at, you know, my parents didn't go to college.
I took out a lot of student loans to go to Duke and, you know, I get that. I've had, I've been
able to pay my stuff on time. But if I say that I'm fine with forgiveness for other people,
the overwhelming reaction I get is, well, you shouldn't have gone to such an expensive school or
you shouldn't have taken out those loans. And this is for undergrad. This is something that I
decided to do when I was 17. So, you know, somebody who is one of those examples, I get that all
the time. Like, I think maybe if you're not talking about it in a way that is about maybe your
personal situation, you get a different reaction because it's much more abstract.
So the only other thing I would want to add to student loans is that it will be interesting to
see if there is an impact on the economy because a lot of people are going to spend less money
starting in October, right? And that could make a big difference. At a time when things are
already kind of cooling off. So I'm curious about that. Yeah, I'll believe it when I say it.
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Member FDIC, Terms Apply. What's up next, Emily? Banks are just like closing people's bank accounts
without warning and freaking them out and making their lives a little topsy turvy, right?
And Elizabeth, do you think you think this is a bad thing and they shouldn't do that?
Well, yes and no. I think what's happening is that banks have always done this to some extent.
You know, whenever you sign onto bank account, there's usually something in the fine print that says
we can close your account for any reason at all and we don't necessarily have to explain to you why.
And what's happened is that there's been an uptick and accounts that have been closed because of
suspicious activity. So when you see accounts being closed and you know, I think a lot of people assume
that if they're being closed, it's because I don't know, like you're falling below on balances or
you've overdrafted a million times or whatever. But the real horror stories that are coming out now
are really about people who say they have one bank, which is not uncommon and their account gets
closed and no one can explain to them why they accounts been closed and then they have trouble
accessing their funds, which if you're only using one bank, it may make it difficult for you to
pay your mortgage or eat or, you know, all those things. So yeah, it is, you're absolutely right.
It's based around this thing called suspicious activity reports and again, we don't know for sure
that we do seem to know for sure that there is an increase in account closures if you look at
the time series of complaints to the CFPB. We don't know for sure that the increase in account
closures is an increase in account closures based on suspicious activity reports by
I think it's fair to assume that. One of the reasons why that looks like it's the case is
precisely that almost none of the people seeing their accounts closed are given any explanation.
If it's not because of suspicious activity, then the bank is invariably perfectly happy to say
like we're closing your account because of ABC. If it is because of suspicious activity, by
law they're not allowed to tell you why they closed. Well, they're actually not allowed to tell you
even if they just reported it. And one of the, there was a time's piece about this this week.
One of the stats was that only 4% of suspicious activity reports in the actually having suspicious
activity. So overwhelmingly, if you're a candidate for this. That's not, yeah, that's not actually
the stat. Only 4% of suspicious activity reports end up with some kind of criminal prosecution,
but it is very, it is very reasonable to assume that more than that have genuinely
suspicious activity and either the law enforcement didn't investigate the other 96% or they
did investigate and didn't conclude that they had a slam dunk case that they could win. But if
you look at the number of suspicious activity reports, which is tens of millions, then there's
law enforcement simply doesn't have the wherewithal to investigate the vast majority of them.
So the fact that most of them don't go prosecuted isn't really a sign that there was nothing wrong.
Well, no, but they're, they're, the overwhelming reasons why these things get reported end up
being fine. You know, there, there was a case in this story of a guy who, you know, was here
from Pakistan and he was transferring money in the way that people just do or you have to,
if you're an expat and you don't have, you've won bank here. There are also cases of people transferring
for good reasons a little under 10, 10 K, which is the threshold at which banks have to report to
the IRS. And then that's reported as suspicious activity just because of the amount and it's
a function. It's the threshold they need to report to the, to the SAR to be careful of the IRS.
But you know, the point being that these things are not inherently suspicious or bad, it's just that
because so much of this is monitored by algorithm now, people who aren't doing anything wrong,
get caught in the crosshairs. Yeah, that was my question. Is the increase
we're seeing because there's more suspicious activity or is the increase we're seeing because
banks tech and algorithms have gotten, I don't know, better. It's the right word, better, more
sophisticated. They're catching more, you know, the nets gotten wider and more people are getting
stuck in it kind of a thing. Is that what's happening? So just to like place a little bit of context
here, as I say, there are tens of millions of these suspicious activity reports. Every single bank
files thousands and thousands of suspicious activity reports every day. It's like for one
thing, it's any transaction over $10,000. It automatically generates one of these reports,
you know. And as Elizabeth says, a bunch of transactions under $10,000 get reported as well,
there is just because your account is generating SARs, does not mean it is going to get closed.
I can almost guarantee you that at some point in time, all three of us have had accounts that
have generated SARs, and we have not had accounts closed. So the question isn't like,
there's nothing automatic about if you generate SARs, then your account gets closed.
But in general, if the number of SARs goes up, then the amount of account closures goes up,
right? There's, you know, there's some percentage of those SARs that ends up like the bank kind of
looks at your account and goes, we're generating a lot of SARs. We're not quite sure where this money
is coming from. And we're going to end up closing your account. And I do think that one of the things
that we've seen in the past 15 years or so is a huge regulatory crackdown on banks,
if regulators saying you had an obligation to do this and you didn't do this, so you're working
to find you $10 billion. And we've seen this like every single major bank. There's always a fine
from the SEC or the FTC or the CFBB or the Department of Justice or something, you know, and they're like,
you had an obligation, you had a compliance obligation, and you failed at that obligation,
and so we're going to give you a massive great fine. And so the compliance departments
of banks have been getting bigger and bigger and bigger and more and more scared of like a potential
massive find down the world. So they're becoming more residuous in getting ahead of any complaints
of the government might have about like you didn't do what you were supposed to do in terms of
things like catching suspicious activity. And so I think in that sense, you know, it doesn't cost
them and it doesn't cost them very much to just close down an account. They're like, okay,
this can be someone else's problem or we're no longer liable. And I think, you know, the combination,
and so that's why they're filing more of these reports. And it's also why they're closing down
more accounts. And it's also why they're not telling people why they're closing down the accounts
because under law, they're not allowed to. Dang. So the advice from this piece in the times,
it was a friend of the pod, Ron Lieber and Tara Segal Bernard, maybe, who wrote it,
was not to put all your eggs in one bank account like to have a diverse, maybe you have a credit card
with one place and a bank account with another just diversify in case this could happen to you.
Or more to the point, just have a spare bank account with like two dollars in it.
You know, it's actually very easy to set up a bank account with a few taps on a phone.
And you don't actually need to use it, right? There's a bunch of online banks now that have no
monthly fees and you can just keep a very small amount of money in the account and just have it
there in case of emergency. And then at least you have a bank account sitting ready waiting for you
and you can transfer your money into it if you have any trouble with bank one. Like it's not like
you need to be actively banking with multiple institutions. You just kind of need to have
some kind of a financial relationship with another institution. Like we saw this
during the SVB bank run, right? Everyone logged into their SVB bank account and transferred
all of their money out to some other account that they had, right? And all of these people had,
it's not necessarily like they were using that other account. But they were just like,
oh, I'm happy that I have that other account right now because now I have somewhere to transfer my
money to. Right. But if you're like not a person with money, having two bank accounts is kind of,
it's scary because I've been that person when you don't have a lot of money and you have a bank
account, you're always getting screwed, right? You're always going below zero. You're always getting
hit with fees. That's why my one experience with bank closure was like the key bank being like,
you know what, lady, like, yeah, I have no money. This is it. If you do, if you do do this, if you do
try and follow the the Ron Lieber advice and open up another bank account, make sure it has like
10 bucks in it. And please, for the love of God, make sure it doesn't have any kind of monthly
fees or any kind of fees. Yeah. Yeah. That's what I'm saying. Yeah. Yeah. So that, so that like,
it's just going to stick that those 10 dollars are just going to sit there in perpetuity. And
then eventually, if you ever need it, it'll be there. Yes. Do that. But the other thing, I mean,
the other thing that's worth mentioning is that even though not everyone has another bank account,
a huge proportion of the population does have a Venmo or a cash app account or a PayPal account.
Like, and those are two wall-intensive purposes bank accounts, right? You can you can have your
paycheck paid into them. You can, you know, get a debit card associated with them. Like in case of
emergency, you know, if you if you do get a notice from your bank saying we're closing down your
bank, you need to move all of your money out. You can actually also move your that money into your
Venmo account or into your cash app account. And that's like another option now that didn't use
to exist. Oh, and that's the other thing from reading the piece. It's like the bank doesn't close
it out of nowhere. They they do send a letter. So you have to like, in a snail mail. Yeah. It's
important to check your mail people. Yeah. But if they sent an email, would you get that? Like, I
yeah, it's an interesting question. How is this bank meant to contact you? And and yeah, they all
have these secure messaging systems in the app, which we are possible to find. So if they tried
using that, that wouldn't work. Like, really, they just need someone to come up and like knock on
your door and say, Hey, yeah, seriously, because if they call or text, I'll be like, this is spam,
they're just fishing. And I'll just I'll screen it or I won't believe them. I think they do text
whenever it's it behooves them, you know, when I've gotten when I get fraud alerts from city bank,
it always comes text first. And everything I'm much more likely to see a text than I will ever be
to see any piece of snail mail. Yeah, or an email. That's now a problem. I've missed emails all the
time. But you should email us. It's like money at slate.com. Slate money at slate.com. I love that.
Emily, you should be a podcast host. Or you can just text Emily to think about.
Hey, everybody, it's Tim Heidecker. You know me. Tim and Eric Bridesmaid's in the fantastic
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Please subscribe. No.
Stock price of Coinbase. You guys, have you seen what's happened to Coinbase's stock?
It's so high. It went up 25. It went up 25% on Thursday this week. Is this because of the ripple
case? Yes. Yes, Felix. It is. There was a case of Ripple. And I'm sure you'll interrupt me
to explain this better than me. But there's crypto company called Ripple and they were facing charges.
Are our facing charges from the SEC that one of their tokens is a security? And this is like the
core issue right now in crypto. Everything's being considered a security by the SEC and it's like
this existential crisis. But Ripple actually won this case partially. And that just set off like
an exuberance chain in the crypto world, which spread to the Coinbase stock price, which
soared 25% in one day. But it had already been soaring for other reasons that I don't need to
really talk about involving BlackRock and a spot ETF thing. Sorry. My take on all of this for what
it's worth is that all of it is pretty much nothing better. The ETFs are not going to happen.
The case about whether XRP is a security is ultimately a side show. Well, it's a very
interesting question about whether it's Ripple's token. It's a token that is kind of related to
Ripple. Anyway, the fact is there are already two tokens that are not very clearly not securities
as determined by the SEC Bitcoin and Ethereum. And if there's like five tokens that are not
securities or ten tokens and not securities, it doesn't change the great order of things,
which is the SEC basically thinks that 99% of tokens are securities. But you're right.
This has caused some euphoria in crypto world. Strangely because crypto world is so unlike them to get
really, really you're far right about nothing in particular. Well, I mean, and the
Coinbase stuff, I mean, it's doubled from a month ago. That is wild to me. We had a whole episode
where we're like, is crypto dead? Is it over? And it's just like, no, still buoyantly bouncing along.
Well, Coinbase is a meme stock, you know? It's too much into the share price.
Isn't it the only place to really trade this stuff now? Like it's where it's like the
it's the last man standing. It is it is true. If you want to be trading crypto, where else are you
going to do it? Where else are you going to go? Where else are you going to the last man standing?
My number is 14 billion, which is the number of dollars of value that arguably were
created by Wachtel, the grand law firm, after it got hired by Twitter. This is in the news right now
because Elon Musk is suing Wachtel for $90 million because Wachtel charged Twitter $90 million
for its legal advice during the big fight between Twitter and Elon Musk. When Elon wanted to get
out of buying Twitter and Twitter was like, no, you can't get out of buying Twitter because
you signed a binding agreement to buy us. So you have to buy us. And so I did the math. I went
back to look at the Twitter share price on the day before Wachtel was retained by Twitter.
And it was $34. Basically, it was $14 billion underneath the amount that Elon had agreed to pay.
And then Wachtel comes in and they're like, you have to pay the full amount. And so he wound up
paying $44 billion and that meant that the value of Twitter went up by $14 billion. And for me,
I do think that $90 million is a very, very large amount of money to pay for legal advice.
But on the other hand, if you think about it in terms of $90 million spent for a $14 billion
benefit, it's 0.6%. I didn't pay attention to any of that because I was just up to my limit
in Elon Musk's shenanigans. But so he's suing the law firm to get his money back for their advice.
Like, who does that? Why is he doing that? Why is he not saying that people normally care about
this situation? Because it's kind of built into the transaction cost. It's just absurdity.
Basically, Matt Levine had a good column on this. Twitter didn't care how much it paid,
because Twitter's shareholders were getting $54.20 whatever. And the person paying the bill
was ultimately going to be Elon Musk. But Elon Musk was, he was on the losing side of this. He's
paying $90 million to Wachtel for losing that lawsuit because he wanted to get out of it.
And you can feel like he feels, you can imagine that he feels a bit but that he has to pay $90
million to someone for being on the wrong side of that case. So he's suing them because he lost?
He's suing them. Yeah, he's suing them because he lost basically. And he had to pay that bill.
Does that just, has anyone done that before? All of his major corporate decisions with regard
to Twitter have been about him being but hurt about something. So Elizabeth, before we have
your number, we do need to ask you, did you see the shirtless suck pick and how, just how
like hot is Mark Zuckerberg right now? Negative four.
Okay, but I'm not going to force negative four to be your number. What is your actual number?
My actual number is 82. And that's the number of gallons of water a day, the average American uses.
So this is back to a story about how water bills have gone up tremendously in the last decade.
So the average water bill now is $49 and then 2012 it was $32 and approximately 30% of that
for the average person is just outdoor watering people watering their lawns. And now I think
and has that gone up? I'm not sure if the percentage of outdoor watering has gone up but the
the thing that's making the water prices go up has the amount of has the amount of water being spent
on outdoor watering going up. I'm not sure but if you're looking for places to cut your
water bill, that's that's a big thing. You know that and changing out fixtures to use less water.
Sure, I guess I guess my question is like if the water has the water bill gone up because the water
usage is gone up as the water bill gone up just because the price by gallon is gone up.
So and as much as climate change has caused people to have to deal with droughts and you know
higher temperatures then that correlates with higher outdoor water usage.
But the other reason why prices are going up is because we have outdated infrastructure
and it's just costing more generally and inflation as a factor too.
So it costs more to get the water to the people.
If you if you want to see like a true dystopian nightmare, well it's interesting.
There are two big crazy dystopian water stories right now and neither of them in the United States.
You know this is like what we're talking what Elizabeth is talking about is
water bill is going up from $30 to $50 which is you know a big rise but it's still a $20 right.
Look at what's happening in Montevideo right now and they just don't have any water.
Like they got this unexpected drought and there is no water in the city.
There is no water there is no water they have run they have run out of water.
It is but how are they getting water?
They are going to the supermarket and they are buying bottles of water in the supermarket.
So there's no water coming out of their taps or anything?
There is a little bit of water coming out of the taps but it is very brown and very smelly.
Oh my god that's awful.
That we we went through this with Cape Town a couple of years ago now it's Montevideo.
And then look at London or the UK generally the UK government privatized all of the water companies
like 15 years ago and that went about as well as you would have expected and they
what they did is they divvended out billions and billions of dollars in dividends
while paying for those dividends by raising billions and billions of dollars in debt.
So now all of these water companies have massive debts and they can't
afford to make all of the investments in improving the pipes and the water supply
and the bills are through the roof and no one knows what to do about it.
So yeah the water situation is you know part of how global warming is going to make the whole
world go to hell and if you want to see just how bad it can get look at either the UK or
Uruguay.
And that note.
On which note?
On which note I think we will wrap this up I think yeah go take a long drink of water
as both Emily and Elizabeth doing right now and stay hydrated.
Don't water your lawn for Christchurch just replace it with some succulents or something but
do drink a lot and keep us posted on everything you're thinking about on sleepmoney at sleep.com
and thank you Patrick Fort for producing this show because it's great and we will be back next week
with more sleep money.
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