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Hello and welcome to The Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levin, all right, the Money Stuff Colm for Bloomberg.
Opinion, And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
What are you at today, Katie?
Death bets, death bets.
We're going to talk about Apollo, and we're going to talk about a really interesting asset class.
Death death, the final asset class.
We're also going to talk about a messy merger. We're talking about Paramount and Sherry Redstone and what is going to happen there.
And we're going to talk about Bill Wang and Archagis and how money.
Failed him Money failed.
And we might talk about reader mail.
We have a lot of it.
We have a certain amount of reader mail.
Death bets.
Specifically, you said that Apollo had some death bets, really interesting case. I'm going to need you to just give us a quick summary here.
Okay, So you can buy life insurance. If you buy life insurance, you can sell that life insurance if you have like a twenty year life insurance policy, and after five years you're like, I don't need this life insurance policy anymore. They're investors who will buy it from you. One of the biggest investors that owns these policies is Apollo, or it's funds run by Apollo, and when you do this, then they take over the policy and then if you die,
they get the money, but the estate the sun. I think of a woman who died well Apollo owned her life insurance policy, sued Apollo saying you shouldn't get that money, and he actually won, and now he's suing Apollo some more.
Which is crazy. We're going to get into the specifics, all the bits of it occurred that case.
I have to say before you even wrote about this, because I think the original story was from April twenty six, and there were a imediately so many memes on Twitter about like how this is the perfect money stuff story. There is a meme of Matt Levine reading this headline and it was like this cartoon guy like being reanimated. I really enjoyed it, and then you did write about it.
I did write about it. There is a sense in which it is not news. This is a trade that happened in two thousand and six. The women died several years ago. The lawsuit they won against the polo last year, but it burbled up into consciousness this week when they filed this other lawsuit. And although it is not very newsy, it is very money stuff.
It is very money stuff. And I'm going to need you to just explain to me what they're alleging that Apollo did wrong here, because, as you lay out in your column, you can sell your life insurance policy. If you have one, you can sell it. And it seems like that is somewhat common.
Somewhat common, it's common. It's a very small fraction of the life insurance market, but it does happen a lot. So they're actually not saying Apolo did anything wrong. Weirdly, I mean they are because like they're trying to be inflammatory.
But what happened here is that for a long time you could sell your life insurance policies, and at some point in the early two thousands, people realize, hey, this could be a big business, so they started funds so they'd raise money from investors saying we're going to go buy all these life insurance policies from people, and they raise all this money and then they're like, oh, we got to go find all this life insurance. It's actually not that easy. All these people have life insurance and
they don't want to keep paying the premiums. It's hard to find them. Like they don't know that there's a secondary market where they can sell their life insurance. And so what happened in the early to mid two thousands is that there is a boom in insurance brokers saying, wait a minute, there's all these investors looking to buy life insurance policies. I'm trying to sell life insurance policies
to people. There's a trade here where I sell a five million dollar life insurance policy to like an older person. I get my commission for selling the life insurance policy. She turns around and immediately sells the policy to an investor, and she gets cash for selling the policy. I get cash for originating the policy, and the investors get life insurance policies that they want to invest in. So this became a big business in the early mid two thousands.
And it's called stolely, which is stranger originated life insurance. And so this policy came into being, like an insurance agent went to this woman and said, hey, I've got a trade for you. You can get paid one hundred and fifty thousand dollars to sign your name to some papers, and then I'll sell the life insurance to investors. The investors were not Apollo. Yeah, Apollo like several years later bought this policy in a big pool of policies from
other investors. So Pollow didn't have anything to do with the apparently illegal origination of this policy. Because it turns out that if you're a person and you take out life insurance and you then change your mind years later and decide to sell it, you can do that. There's a secondary market. It's sometimes controversial, but basically it works
and it's legal. But if you do this, if you do the thing where you just take out a policy, planning from day one to sell it to investors, and you're not paying the premium, the investors are sponsoring the premium from day one, then that doesn't work.
Why not?
Is it just because the insurance company doesn't like that?
Because insurance companies don't like it, and so like states regulate it. I don't have a good answer to why not. Yeah, But the rough answer is that insurance is supposed to be insurance. You're supposed to be buying it for what they call insurance purposes, which is this kind of vague term, but it means like, you're trying to protect your family if you die, you're trying to do some estate planning, you have some sort of personal reason for buying the insurance.
If you're just doing it as a bet on your mortality, then it's frowned upon. And this trade where it's just an investor buying life insurance for you is just a pure bet on your mortality, and so they don't like it. It's kind of illegal, by which I mean not that you go to jail necessarily. But the result here is that the investors bought this policy for this one. They gave her money, They paid her like one hundred and
fifty to sign the papers and do this thing. They paid all the premiums on the policy for her entire life, and then she died and the policy paid out five million dollars and the investors were like, Okay, that's the insurance we paid for, and her estate was like, no, no, we get that money because you weren't allowed to do this in the first place. And turns out the estate is right, and so the estate gets the money she got paid to take out the insurance, and then she
got the proceeds of the insurance. It seems kind of unfair.
I have two points to make here, the first being on like why insurance companies don't like this. I mean, you make the point that this is an insurance product, it's not necessarily supposed to be financialized in the way
that it has been. But I was talking to someone in the insurance industry and they also said that these insurance companies count on there's going to be a certain percentage of people who let their life insurance laughs, like they're not going to pay the premiums, they can't keep up with it, and then obviously they don't have to pay it out the insurance company, and this whole model that we're talking about removes that.
Yeah, that's exactly right. That's sort of what it means to say, shouldn't be financialized. Like the insurance companies sell you the insurance understanding that you're a person, and like your circumstances can change. You might forget to pay the premiums, you might not be able to afford to pay the premiums. You might decide, actually, I don't need this life insurance
anymore because my kids grew up or whatever. And if you do that, you will stop paying the premiums, and so they can price that and the insurance is cheaper because they know some people won't pay the premiums and will then die and won't get the death benefit. But if you sell your insurance to a financial investor, the financial investor is just going to make a rational calculation about what the expected value of the policy is and they're going to keep paying the premiums as long as
it has positive expected value. And so the insurance company is underpricing its insurance. Like that's why this trade worked, because you could go to all these people and buy underpriced insurance because the insurance companies were pricing it expecting the policies with lapse. But they didn't know or they didn't think about the fact that they're selling it to financial investors.
I have to say, from the investors, you seems like a great trade. I mean you thinking about uncorrelated returns, how much more uncorrelated can you get?
That's how this worked. People were like realized that this was a asset class that first of all, there's tons of life insurance out there, and sandly it's uncorrelated, and so it's a great product to pitch to investors. I would say that my understanding is that the size of the market is limited by the fact that a lot of investors in a lot of investors everywhere, but particularly the United States, find this cross like, yeah, I don't want to buy life. I don't want to if you can grow up.
Yeah.
Well. The reason I use the word death bets is because like it's funny. Well, yeah, because it's funny, but also because the estate suing Apollo in their complaint they had a lot of rhetoric about how Apollo is secretly betting on people's deaths and people don't know who has an incentive to have them dead, and it's like, this is true. The reason for a lot of these like
rules is it's called the insurable interest treament. It's like, you can only take out insurance on someone who you have some connection to, you have some incentive, you have
some reason to want them to stay a lot. Right, So you're gonna have insurance on your parents because like hopefully you're not going to kill your parents, right, you get have insurance on your employee because like, you care about your employee's production, right, and if your employee dies, you'll be sad and the insurance will compensate you for that. But you can have insurance on a stranger because if you go and try to take out insurance on a stranger,
why are you doing that? Is it because you're trying to kill them? The insurance law is really based in part in like not creating incentives to murder people. And as when Investor pointed out, there are no cases o case we know financial investors killing the insurance on their
contracts to get the payout. There are many cases of husbands, wives, children killing their loved ones to get insurance parents, So like, really this is not that gross at all, Right, yeah, really this is like sure they're betting on depths, but they're like more more morell than the sort of tail end of the spouse distribution.
I was wondering how quickly we would get to the fact that this does create incentive for murder.
I mean, when I wrote about it, I think I got to it immediately. It's the most sense to talk about it insurance.
I mean, I have the entire column in front of me and yeah, you're right, murder did get brought up pretty quickly.
Did you not think about murder when you think about life insurance.
Let's talk a little bit though, about this actual case. Her name.
I feel like we've referenced her a few different times, Martha Barotes. I'm saying it correctly. She died in twenty eighteen. Like you said, the estate wants.
The payout back.
They got it, and I don't know is that entirely fair because Martha knew what she was doing.
Martha knew what she was doing. Yeah, she never paid a penny for this insurance. She got paid to fill out the forums, and then when she died, her children were like, hey, we'd like the money. I would think that if you decide that this policy is invalid because it was like a bad evil betting on lives, it didn't have an insurable interest whatever, I would think that you would say, well, then the insurance company doesn't have
to pay. But in fact, the law seems to be that if the insurance company pays, the estate can get it back rather than giving it to the investors because they want Basically, the law wants to punish the investors so that the investors don't.
Do this one more point on investing, what do this do? The thoughts I had while reading this and thinking about this was to the point that this has become an asset class. I feel like just the evolution of markets is that somehow this is gonna be an investable asset class. On robin Hood, retail will be involved in It'll trade twenty four to seven.
So there I would worry more about murder.
Murder, oh my god.
Because it's like there's a limited number of investors in this asset class. They're all institutional, they have careers, they don't want to go to jail, they care about the reputation of the asset class, and they're doing it in scale, so that like murdering one person wouldn't change the returns that much.
It I don't know, man, it have to be totally blind.
If you invested in a big pool, then you wouldn't have much incentive together.
Well, you'd want to diversify, obviously, but.
Unless you're planning to do murder, than you wouldn't want a diverse Well.
I feel like then it'd be easy to track, like who just has some really concentrated part of the playoffs a lot.
Of insider trading is pretty easier to track, and people do it anyway, So if you had a lot of this, you'd have at least one murder, I think.
I think it'd be a really interesting psychological and market structure experiment.
So maybe someone will do it.
Let's talk about a messy merger, potentially tricky, messy. I don't know what word do you want to use.
It's a classic boardroom battle.
That's a good one.
Why don't you tell that?
What we're talking about Paramount and the fact that it's in exclusive conversations with sky Dance, which is owned by David Ellison, but there's a lot of investors who would like them to consider also a deal coming from Apollo and Sony as well. So that's one tricky element. Then the other tricky element is, of course Sherry Redstone, who owns seventy seven percent of the Class A shares, which
is what Skydance is after. And then you have the vast majority of outstanding shares or Class B shares that have no voting power.
Yeah, so it's like this weird situation where Paramount is a big company with a lot of shares outstanding, most of which don't vote, and so basically Sharry Redstone controls about five percent of the stock, but that five percent of the stock has seventy seven percent of the voting power, which means that if you buy her five percent stake, you control the company, which creates a lot of incentives
for mischief. The other weird thing is that share Redson doesn't actually own that stock, which she owns is a company called National Amusements. National Amusements is a chain of movie theaters that also owns this five percent one.
Hundred and twenty four theaters on.
Four theaters, but they also own this chunk of class A voting stock in Paramount. That company controls Paramount, and shire redsn controls that company. And so if you want to buy Paramount. One thing you could do is you can go to the board of directors and say we'll pay twelve dollars a share in cash for all the shares of Paramounts in a merger. And that's kind of
more or less what Apolo seems to have offered. Another thing you can do is you get a share red Zone and say, hey, we'll take National Amusements off your hands for like two billion dollars, which is like a fraction of the price of Paramount. Paramount is equity value something like twelve billion dollars. This is what people seem to be talking about. If you could pay two billion dollars for National Amusements and then you control Paramount and then you can do what you want, and I don't
know what they want, but the deal structure is very complicated. Basically, skid Ends wants to buy National Amusements and then have Paramount buy Skuidens for stock and then put their own people in charge of Paramount, and they're like, this is going to make Paramount be worth thirty dollars a share. But it's like a complicated merger structure. But step one of the structures, we're going to buy National Amusements and then we'll control Paramount.
So that was a gorgeous explanation. I don't know why I had to try. So that's very tricky. And I have to say the disparity, the discrepancy in pricing between the Class A and the Class B is interesting.
I mean, there's just a wide gap there.
There's lots of companies that have dual class shares, but it's often like a founder compan where like Mark Zuckerberg isn't going to sell Facebook, right, Like here, you really can buy control of a twelve million dollar company by buying five percent of the stock. And it's like just an unusually sharp case of the difference in the value of the two types of shares.
So that's tricky. That's one of the messy things. The other messy thing they fired the CEO. Now it's a CEO committee run.
Office of COO. Right, it's like three guys. Yeah, yeah, I was looking at the announcement. They say the Office of the CEO is working with the board to develop a comprehensive long range plan to accelerate growth and develop popular content. But you know they don't mean that, right. You don't install three guys as your office of CEO if you're planning to like have them run the company for ten years and develop new content. Right. That's like, we are selling this company in the next two weeks.
We don't really care he's running it for like two.
Weeks, right, yeah.
Yeah. As Blueberg Intelligence put it, the replacement of Bob Backish puts Paramount a step closer to a deal with Skydance Media. Backish obviously the acquisition it feels like, there's a lot of people who vocally oppose this.
Yeah, well so shareholders, Yes, some shareholders oppose it. Backers seems to opposed that. Several directors step down last month because they seem to be not super comfortable with the deal. One person who really opposes it is h Marrigabelly, who runs GAM who's the biggest holder of Class A shares
other than National Amusements. He's in this weird position where like, he has these shares that are like theoretically worth more than the Class B shares, except that like Skydence doesn't have to go buy up all the Class A shares, They don't have to pay a premium for the Class A shares. All they have to do is buy National Amusements and then they get a majority of the vote and they're done. So they don't have to pay him any premium. Right, they don't have to pay the other
Class A holders of premium. They just have to pay Shary Redstone for National Amusements. So he's in this weird position where he's like, I think I have these super voting valuable shares, but actually they turn out not to be that valuable because they're a minority.
I mean, where does this go from here? Is this like a done deal?
Is there any way that some of these vocal people who don't like this deal could actually stop it?
Oh? Yeah, I mean you can't literally buy the seventy seven percent voting stock, fire the board and say okay, we're like taking over this company and we're not going to give the public shareholders anything. There's a special committee of Paramount directors who have to approve any transaction. Now it's tricky because they don't have to approve any National
Amusements transaction. Yeah, they don't run National Amusements. The Class A shares don't have to change hands, right Like National Amusements, which is its own company, could just be acquired and then National Amusements can come into the board meaning and say, okay, we're still we still have our seventy seven percent control.
Nothing has changed except who owns National Amusements. It's also tricky because the Special Committee and thinking about paramount will think about how much value did share Redstone get for her Class A shares? How much value are the other shareholders getting for their Class P shares? But they don't know how much value she's getting for her Class A shares because Skydance will presumably right her a check for
National amusements. And you know, her Class A shares have a market value seven hundred million dollars, and the check for National amusemance is like supposedly the reporting is going to be around two billion dollars. So that's a big premium. But there's all those movie theaters. We don't know how much they're worth.
Right, all one hundred and twenty four of them.
You can make like AMC memestock, like maybe movie theater companies are really valuable, right, maybe they're paying her the two billion for the movie theaters. So like the Special Committee of the Board has the job of making sure that whatever deal is done for paramount is fair to the Class P shareholders, to like the regular public shareholders. And so one thing you can do is say no to any acquisition of sky Dance, for instance, that it
thinks is not fair to shareholders. But what it can't do is like say to share Redstone, you have to sell to the person we pick. Right if they like the Apollo deal and she doesn't like, they can't make her sell, and she can block the Apolo deal because she has seventy sum percent of the vote. So it seems likely there's going to be a deal because they have no CEO, and it seems like any deal would
have to be one that's acceptable to share Redstones. You have to thread this needle of like, whoever's going to buy the company has to give Shy Redstone enough that she wants to take the deal, but it also has to be fair enough to the public shareholders that the
Special Committee agrees to take the deal. And by the way, there's history here before it was Paramount, like the predecessor Viacom CBS was also the structure where a Shay Redstone and a majority of this voting stock through National Amusements, And at some point the board of Viacom CBS tried to take away her voting rights or like make it so that all the shares were voting to like block her from doing some merger that they thought was bad.
Didn't work. They got in a lot of trouble for her, but they were like, we can't have this dynamic where like there's one shareholder who has a minority of the economic interest, but who has a controlling voting stake and who can like just force through a merger that we think is unfair to the shareolders. So they tried to take away her super voting rights. Didn't work.
Now they are I crave that kind of power.
Which kind of power the super voting rights or the super board.
Tried to take away the super voting super voting right.
I know, it's good, it's really it's so unusual. Yeah, it's so unusual. Like it's not that unusual to have super voting rights, but like usually people try to not have so little of the economics and have so much of the voting rights. Yeah, sort of looks weird. Many of the companies that you talk about it a lot. The founders are still around. They're still running things, you know you think about like Facebook, they're huge companies are
unlikely to sell right. Like here it's like share Edstone is an air to like the sort of mogul who ran it. She's interested in cashing out. You know, Usually the super voting shares people are like that's designed to keep control with the people who care the most about the company, even if they have a minority economic interest. But here that's not what it's doing. Here, it's like just the cash benefit for someone who wants to get rid of the company.
What I find amusing about this episode is that we're all so interested in sort of the theater and the drama of what this merger is actually going to be that there hasn't, at least in my circle, has been a lot of discussion on Okay, but what about the future of Paramount, What about the actual business? Because they're in a very tough industry, and it's funny that they reported earnings this week paramounted and it was a total non event. It was a complete afterthought the actual numbers.
Because the stock is not going to train on earnings, right. Yeah, if you look at like the two bids, like it's unclear, like what businesses stay with businesses go like, Yeah, it's in a bit of a limbo about what it's actually going forward.
Business is going to be.
Speaking of Viacom CBS, Bill Wang, what was that transition our.
Chade goos okay, one of their physicians, was that.
What brought him down? I had forgotten about that. I made a gorgeous That was a great transition. I am sorry, Bill Wang brought down by Viacom CBS. Go on, Bill Lang, he's a guy, he's a former Tiger Cub hedge fund manager who then left headge fund managing after an insider trading incident and then ran his own family office called our Kego's Capital Management. That briefly became like a thirty billion dollar portfolio because he bought like twelve stocks on
which is ViacomCBS. He bought them with like huge amounts of bargin borrowing or like total return swaps from like a collection of banks. All these banks learned up lots of money to buy stock. He bought all the stock. The stock went up because he was buying so much
of it. Then he had a profit. He was able to borrow more money against the profit from the banks to buy more stock, and this kept going in like a sort of like virtuous cycle where the stocks went up and up and up, and he got to buy more and more until Viacom CBS was like, car stock price has gone in this incredible run, we should sell some stock. So they sold some stock. The stock gap down. He had a loss. His banks issued margin calls. He's like,
I don't have any money. I put every penny I have into these twelve stocks, and they've let the stocks all went down. He lost everything, and then he was arrested and he's going on trial next week for market manipulation.
I am so interested in this trial. I feel like that's going to be so interesting to follow. We also have to talk about his charity as well. One of the things actually that I was going to use to lead into this was I have a new name for your newsletter.
Oh, money fail, Yeah, which is.
A biblical reference. That's Genesis forty seven. Money failed, money failed.
Right. It's a biblical reference, but also not what you want when you're a headsprend manager or a family office manager. That was your job was to not have money fail. Yeah, money that fail.
Okay, money failed, but the word of God doesn't fail. That is a quote that was used to describe the situation, which we don't have to get into but the trial itself. So the trial going on trial next week. I wanted to talk a little bit about the judge, Judge Alvin held Stein. He oversaw lawsuits arising from the nine to eleven attacks. He's also ninety years old, which I found extremely impressive. You know what I won't be doing at ninety years old.
I feel like this is tying back to the life insurance.
Right, but I will be selling my life insurance to Apollo.
I'll be doing at ninety years old, not podcasting.
Mm hmmm.
Yeah.
And I definitely won't be presiding over criminal trials. Yeah, I mean this is going to be a big one. Do you think about some of the charges that have been brought against him, including RICO charges.
There's two sort of types of charges against them. There's market manipulation charges, which I think is fascinating because his defense it seems like, is I just like these stocks. I thought they were undervalued, so I bought as much as I could of them, and then the stocks shot up,
and then that all blew up. But they don't have a lot of as far as I've seen so far from like the charging documents, they don't seem to have a lot of evidence against It's like a crime of intent, right, Like if he bought these stocks because he thought they were undervalued, then that's not market manipulation. If he bought them because he wanted to push their prices up in order to like get some benefit elsewhere, then it is
market manipulation. He didn't go around saying I'm going to buy the stocks so I can push their prices up. What would be the point of the market manipulation. I think we talked on this podcast about the Mango markets guy.
It was hard first, oh yeah.
Last day of our lives. The Mango markets guy, he like did some stuff in crypto where basically he pushed up the price of this token and then extracted like one hundred million dollars from the token exchange and then ran away laughing right, Bill Wang pushed up the price of these stocks and like borrowed more money against them to push up the price of the stocks more and then at the end it all collapsed and he ran away with nothing more or less. He ran away with something.
But we'll get it to that. But the thing that you do in market manipulation is one you push up the price of the stock and then two you take the money out. And he didn't take the money out. What was the market manipulation. It's a very strange case. He's got a real defensive. I wasn't manipulating the market. And the way you do that is because I didn't make any money. Now, to be fair, he gave this talk about how money failed with this incredible slide. The
Bloomberg story about this. There's a picture of him standing in front of his charity talking about how money failed at the slide behind him, saying money failed.
Explanation but beauty and simplicity.
It's so good. It's like the level of PowerPoint that I aspire to. He gave that talk at his charitable foundation, which runs five hundred million dollars of assets, which is like, it's a lot. He didn't walk away from Archagos with no money. You worked away with five hundred million dollars in this charitable foundation. And in fact, the Bloomberg Sorry mentions that like several of the old traders from Archagos
are now working as traders at the charity foundation. So it's like a little bit he like scrolled away part of the hedge fund into the child of foundation.
Yeah, and apparently it's assets screws significantly in twenty twenty three.
Just is it it's run by some hedge fund traders.
Yeah, I want to know what they're doing.
Probably buying a concentrated portfolio stocks that are going up.
There you go.
I would say. The other charges against him, though, are like about lying to banks, and that's much worse because there's like an email chain and it's mostly not from him. It's mostly from his Like it's like underlings, but like it's you know, saying, oh, no, we don't have a concentrated portfolio of twelve stocks that we couldn't sell that oft we're very diversified. And then like that's not true. So there's some bad stuff there and the bad stuff it's one like that's a crime, and lining to a
bank is a crime. You can get a jail for a long time. But then also just like if you're asking the question of was he manipulating the stock market? Was he manipulating these stocks? Like just by the shape of his trades, you'd be like maybe not, maybe just like the stocks because he didn't throw any money. But then you're like, oh, and I'll see he was lying to the banks. It's like, okay, I was probably doing something.
And just to put some numbers on it when it comes to how much the bank's actually lost, we're talking about how Viacom CBS brought down our Chagos.
Well brought down see credit.
Yeah, it was one of the things that brought down Credit Sweee or in the chain of dominoes, it was somewhere in there because Credit Sweee lost five and a half billion dollars. No Mirror lost three billion dollars. Morgan Stanley more than nine million dollars. So I mean it's not chump change that we're talking about. This caused really widespread damage.
Yeah, I mean he had like a thirty six billion dollar portfolio that went poof, and like he lost whatever equity he had, but like a lot of banks lost a lot of money too.
That was a wild moment in time. I mean it was also what was that twenty twenty one, Yeah, March twenty twenty one. That was just a very upside down time for everyone.
It was a wild time that was like, hey, this thing you've never heard of called Archagos is like the biggest Dutch front in the world.
For like a week, no one knew how to pronounce it. I remember I would have to go on and do like telephone phoners for television and trying to be googling and youtubing. How do I pronounce this? Archigos was something I'm pretty sure I said a few different times.
I will understandable. Yeah, yeah, Like I'm always sort of allergic to the financial trip of like this company you've never heard of, controls the world right, because it's now you've heard of Jane Street, you've heard of whatever, Like yeah, I feel like really people had not heard of Archagos because it really was like one guy's family office. And then it was a gigantic hedge fund that or family office. By the way, I would call it a hedge fund.
People from the hedge fund industry would be like, you're slandering us. Okay, it's a hedge fund. It is not a hedge fund. It is just a family office. It is not.
Yeah, I can tell that you've been chewing on that, like what to call it? Just in this conversation.
It's a thirty six billion dollar fund run by a hedgehund manager. It feels like a hedge fund, even though it was only his money.
It was only his money.
Mail bag, mail bag, we need we need a musical cube.
We should just both sing.
Perhaps only you should sing.
No, it could be cute if we harmonize.
It would it would be less cute if I harmon.
You go high, I'll go low. You did get a lot of that's a mail this week.
We got emails at the money pod at Bloomberg dot net email address. And now we will read some of them. If you want your emails we read, send it to money Pod at Bloomberg dot net and we'll see what we can do.
Phil the Jeweler had some facts for us.
I don't think he signed his name Phil the Jeweler's.
But his name is Phil and he is a metals and jewelry design professor. Okay, so Phil writes, I'm going to imagine that you are going to get a lot of this. But an ounce of gold does not weigh an ounce, or more specifically, gold is typically described and sold in Troy ounces and not the normal ounce we were used to. I can't pronounce that word avoir dupois ounce.
I don't know.
This is pretty good.
So an ounce of gold weighs almost one point one ounces. I'm guessing you probably already know this, but just because you mentioned that an ounce of gold weight an ounce, I thought I would just send it in case. So I can't remember remember exactly how this originated.
Okay, So you were talking about how gold is heavy, yeah, and you were like, it costs like forty dollars to mail an ounce of gold, and I was like, that's not that heavy, Like it's dense, but an ounce of gold weighs an ounce, And now we have received a reader correction pointing out that anounce of gold does not weigh an ounce, which is really wild.
Let me clarify what I'm What I was trying to say is that it's expensive to mail gold.
I know, do you want to talk about old fashions.
A little bit? So getting a correction from a reader that announce of gold does not weigh announces one of my better corrections. But it reminds me of my very favorite probably reader mail bag of all time, which is it? Years ago I was writing about some article that described like a quantity of sugar and they were like, that's enough to fill three thousand Olympic sized swimming pools. And I was like, how is that a helpful description?
Yeah?
Who puts sugar in swimming pools? And so I wrote jokingly like, if you combine three thousand Olympic sized swimming pools of sugar with three thousand swimming pools of to form six thousand Olympics sized swimming pools of simple syrup, having Katie that ike, you swim through them and then use the syrup to make three trillion old fashioned cocktails. And I got so many emails.
I mean, that's just bait.
I got emails that were like, actually, if you combine three thousand pools of sugar with three thousand pools of water, you wouldn't get six thousand pools because the sugar dissolves in the water. The syrup that it makes is denser than the water, So you'd only be able to fill about forty five hundred pools with the combination of those three thousand.
And kind of shocked that you would make such an error like that.
In retrospect, it seemed obvious and I was embarrassed. I also got to read your emails. It was around the time of the Olympics. Kitty that Ichi was in the news. I read about her swimming through these pools of syrup, and I said something like it would probably take her longer than her usual time to swim through a pool of syrup because it's.
Thick and gooey, And you were kind of wrong on that.
I was wrong on that too. Apparently Isaac Newton wrote about this because it's like it's harder to get through the pools. I'm making swimming motions that you can't see on this audio.
On the podcast they're very convincing.
It's hard. It's harder to move through the pool because it's thick, but you also get more forced because you're pushing off on thicker stuff and they cancel out. And actually professors had done experiments and it turns out to be true. You can serve just as fast and syrup as you can in water.
So one of my like rich person fantasies is a sort of uh is to fill up a pool with pudding or jell o and see what that would be like. But a little worried about suffocating, right, I.
Don't want to give you any advice. Yeah, but it does seem like you could swim as fast through putting as you could through water. But I don't know what the sinking situation that is. We're going to get email about that too good.
No, please someone write in about that, because obviously in water you float. I don't think you float and pudding.
I'm not trying to speculate, but our readers will.
On one, you learned your lessons, Okay, moving swiftly along, so Alex writes in a version of the Great Consumer Financial Arbitrage I've heard goes as follow one get a no limit credit card from a bank, two using that card by the three have the bank forgive your credit card debt for profit question mark you own a bank now, can't be that hard.
So why can't you buy a bank of a credit card? Because merchants have to agree to accept credit cards, right, because it costs money to accept the credit card. Right, every time you do a credit card transaction, you have to pay the credit card company like one and a half percent or two percent of the transaction. So a lot of businesses want to accept credit cards so they can increase their seals. But M and A bankers are not one of those businesses, right, They're like not going
to pay two percent to the credit card company. And also, like if you get a credit card to buy a bank, the credit card is not going to have a sufficient limit to buy the bank. You're not going to have like a one hundred million dollar ten billion dollar credit limit on your credit card. That said, the basic idea of like step one, borrow money, step two, buy a bank, step three forgive the loan is like kind of a
really deep one. A lot of finance, a lot of financial companies work this way where you have a giant pool of assets that is very levered. So at bank with ten billion dollars of ho assets will probably have stock that's worth one billion dollars or less. Right, it will be like ten to oneish ratio of assets to stock. If you could get a billion dollars and buy the stock, then you would control ten billion dollars of assets. Then you could just lend it all to yourself and forgive
the loan, and then you have a huge profit. This works financially. It's a good idea, except that it's like wildly illegal because you're stealing the money from the bank's customers. But like much of bank regulation is cured around preventing people from doing that, right, like the rules regulating related party loans, so that the president of a bank who controls the one billion dollars of bank stock doesn't lend himself ten billion dollars and then forgive it. There's rules
around that. Because it is a good idea, you don't see it that much in banking, but you see it a lot in insurance, where smart investors will.
Say, let's buy life insurance policies so that but.
No, what I was thinking of is smart investors will say I have a million dollars. I would like to make investments. I'm really good at making investments. I'd like to make ten million dollars of investments. How can I do that? I only have one million dollars. Will buy a life insurance company for one million dollars, and then I will have the life insurance comp You know, life insurance also a very levered company, right, it has all this policyholder assets that it can invest. I will buy
the life insurance company stock for a million dollars. I'll take over the life insurance company, and then I'll have ten million dollars to invest in all my other good ideas. Right. Sometimes people get arrested for this when like they're good ideas, are like they're other weird companies that they are making concentrated risky bets that sort of run a foul of
life insurance standards. Other times, people who do this are Warren Buffett, Like Warren Buffett, right, Like buy a life insurance company and now he like controls a life insurance company and gets to make investments. And everyone's like, oh,
he's so good at making investments. It's good that he has this giant pool of life insurance money to invest and that's true, But like taking over a levered financial institution in order to control the money of that levered financial institution is a great idea, and people do it sometimes.
So Alex sounds like you're on the right.
Track, except for the illegality, right.
For sure, keep thinking, so, Steve writes in with some stern words for you. He says, from time to time you mentioned dentists in your commentaries, certainly with more frequency than one would expect from a financial writer. Sometimes use dentists as the archetypal rubes getting scammed for an unsophisticated financial crime. I want to be shocked and offended by such a portrayal, perhaps having the American Dental Association brand
you as an anti dentype. My discussions with colleagues seem to bear that out, that sure enough, dentists are greater rubes than the average well educated professional. Could you comment on what you think uniquely qualifies dentists to be such rubes, and more generally, what makes a good target for financial criminals.
I'm sorry to the dentists. I don't think I ever really thought about it much as like dentists specifically. In fact, I think I once wrote that The general rule of US securities law is that you're not allowed to invest in risky, weird private companies unless you're a dentist. But then I qualified it and said or a radiologist or a retired professional football player. I mean. The point is that there are rules that say only qualified investors, any
accredited investors they called, can invest in certain private offerings. Right. Private offerings typically have less disclosure, weirder financials, more fees, more hidden fees than like public market investments. And so there are a lot of people in the world whose job it is to find people to invest in not very good privately marketed investments. And so those people are
looking for accredited investors. Right. They're looking for people who make more than a certain amount of money, and dentists are a nice target because they all pretty much make more than the accredited investor threshold, which I think is like two hundred thousand dollars a year. But they're not typically millionaires, so they don't have like a family office
that devets investments for them. They're not like tech startup people who've exited Tech startups are good targets for private investments, but they're like connected to venture capitalists. It's a good venture capital investments. If you're just like a dentist in the middle of the country, you have no like necessary like connections to high finance, but you have enough money to be put into really bad investment decisions. So people
are targeting you. It's not that you're bad, it's that you're in that like narrow band of rich enough to have access to like the worst possible investments, but also not so rich that you have access to the best possible investments. So I think that's the main reason.
Well, thank you for that.
Sorry dentists, no bad. Yeah, you can send you know through money pot at Bloomberg dot net if you want to be a participant in a future mail bag segments.
So you did sing, We're going to get that out there, mash them together like the harmonize.
You did go high, So that was perfect. Should I go low? Anyway?
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