Money Talks: Boilerplate Land Mines

0:10Hello, and welcome to Money Talks, the very special part of Slate Money where we talk to the most interesting people in the world about the most interesting subjects in the world. I'm Felix Salmon of Bloomberg. I'm here with Emily Peck of Axios.

0:28Felix Salmon: Hello, hello. And we are talking to one of the most interesting people in the world, the one and only Mitu Gulati. Mitu, welcome. Welcome back, I should say. Thank you so much. It's been almost four or five years since we last talked about Venezuela, I think. Venezuelan debt and how to restructure it. Who knows? Oh, my God. Those were the days. Imagine a world where people talked about restructure. Oh, never mind. But yeah, Mitu, first of all, introduce yourself. Who are you? I am an obscure law professor at the University of Virginia, and I work on the topic of hazards in boilerplate contracts.

1:09I am completely obsessed with boilerplate contracts. Okay, so I did mention at the top of this show that the whole point about Money Talks is that we talk to the most interesting people in the world about the most interesting subjects in the world. Emily.

1:26Felix Salmon: Yes, sir. I have a question for you. Is legal boilerplate one of the most interesting subjects in the world? Felix, yes. I'm so happy you said that because I think so too. I was looped in to an email between the two of you. And without any context, it said something like, I can't wait to talk about landmines when you come on. And I was like, what? Landmines? Are we talking about that again? Like, is Princess Diana involved? What's happening? and it turns out landmines are these things you'll explain baked into contracts that can explode at a later date but it all comes back to I think a really core philosophical question about the meaning of words and how you get the meaning that is in your head how you communicate that on paper or even verbally to your friends and how there's always a disconnect between what you want to communicate and you're trying to communicate and what you actually communicate.

2:25Felix Salmon: And I think it's fascinating. So this is, yeah, this is super. I feel like we should bring Willard Van Orman Quine back from the dead to talk about this philosophy of language and stuff like that. But in any case, it's admittedly a slightly nerdy one, but I can promise you this is going to be a fun one. We are going to be talking to Mitu Gulati about Boilerplate coming up on Money Talk.

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3:35Felix Salmon: Slate Money is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Listen to Washington Wise, an original podcast for investors from Charles Schwab, to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market.

4:16Felix Salmon: Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen. okay me too let me tell you what i believed about boilerplate up until about a year ago when you sent me the first draft of your book which is that the legal profession collectively needs to do the same thing over and over again we've all come across this thing like when we're renting an apartment we'll get like a standard boilerplate lease and we'll sign it at the bottom and one of of the great things about the standard boilerplate is that it is tried and tested and everyone knows what it says and everyone understands what it says.

5:04And if it ever winds up getting litigated for whatever reason, all of the lawyers and all of the judges and everyone knows everything because it's right there. And instead of every single contract being made bespoke, which would A, be very expensive in terms of lawyers' times and B, be very difficult to sort of try and unpack exactly what was meant each time. Everyone just knows what is meant. And so it just makes everything smooth. It's a bit like why everyone incorporates in Delaware. It's just a lot easier when everyone is doing exactly the same thing and there's no ambiguity and everything works smoothly.

5:38And then you wrote this book, which disabused me of all of that. So what's the truth? So if you will indulge me, I start my contracts class every year by asking the students about their rental agreement. And I asked them, if you have a dispute with your landlord, where can you sue? And then I asked them, under what conditions can the landlord throw you out? Then I asked them, how many friends are you allowed to have in your apartment? And none of them, none of them have looked at their rental agreements. And they start looking at it in class because they have them online. And then they're like, oh my goodness, this requires me to sue him in Amsterdam, in arbitration court.

6:24Or like the landlord can throw me out with three days notice and keep my security deposit for three weeks. So the students then go and ask the landlord and the landlord doesn't know that these provisions are in there and they're horrified because they took them from like some form book on the internet or something like that. So this is just all over the place. If you read your contracts, which nobody should because they're too damn long, they are not the paradigm that you described, Felix, which was also the paradigm that I was taught in graduate school when I asked my corporate bonds professor, why don't we actually read the bonds?

7:04And he said, they're all designed by Salmon Brothers back then. And so they're perfect. And there's no need to actually read contracts because we can assume the contracts to be efficient and correct. And I believed that. And I said, all we need to do was like run these partial differential equations on the pricing of the contracts. And then I went to law school and started reading the contracts. And then I became a lawyer and actually had to design the contracts. And I didn't know what I was designing. And I was sending contracts out there that I had no understanding of. I hope I can't get sued.

7:38It's at least 30 years since I've been a lawyer. Yeah, the statute of limitations on this one. No, but it's true. This is one of the things I've really learned from your book is that boilerplate is so entrenched that it's just like what we like, extremely online people call copypasta. It's just stuff that you should kind of like plonk in without understanding. And while going into this, my understanding was, well, the whole point about boilerplate is that everyone understands it. The truth is kind of the opposite, that because everyone is using it, no one reads it. And because no one is reading it, no one understands it.

8:12That's exactly right. And, you know, you can even write a model. I'm not in economics graduate school anymore, so I wouldn't write a model. But if you think of a world in which everybody assumes perfect efficiency, then it is in nobody's interest to actually investigate it. And the contracts might have made sense 30 years ago. But if everybody keeps using it, all those people are dead. They don't exist anymore. Nobody knows anymore what these provisions are. And this is precisely what we started finding out, that there were contract provisions that had crept in the 1980s or the 90s or sometimes in the 1800s.

8:50And they've been reproduced and they've reproduced. But we have no idea today why they're there and let alone how to use it. And this is where the problem arises. So I'm reading a provision that I don't know why it was put in, but I read the words and I think, aha, I can do something creative with this. That means that Emily owes me a billion dollars instead of my owing Emily a billion dollars. And when you have things like that, then you have an entire industry of people who are really good at reading the words in a particular context who can take your money from you. And this has been the birth of an entirely new class of lawyers.

9:38Felix, you and I saw the beginnings of this, but I didn't really understand that that's where it was going. Longstanding listeners of Slate Money will remember over the years, you've come on to talk about this many other people have come on to talk about this. My bug bear for many years was this thing called the pari passu clause in sovereign debt agreements. And a large chunk of your book is devoted to sovereign debt. The problem of boilerplate, of course, is much, much bigger than just sovereign debt. But when I was a young, very financial reporter back in the 20th century, there was this hedge fund called Elliott Associates, which made the case that this thing in bonds called the pari passu clause meant yada, yada, yada.

10:19And without getting into the details of the Paris Passou clause, I started phoning up all of the people I knew in the sovereign debt world and unanimously to a person, they all said, this clause is completely meaningless. It does nothing. There is no reason for it to exist. And yet for some weird sort of atavistic reason, it has like, you know, it's like, it's like the human appendix or something. It's just kind of last, it kind of got read over into sovereign debt boilerplate from corporate debt boilerplate where it actually makes sense. It makes no sense in the sovereign context. And we all just assumed it was this pointless thing that served no purpose.

10:57And then, you know, Jay Newman decided that he could try and use it to make billions of dollars. And so that was, I guess, with hindsight, that was the point at which I should have said to myself, wait a minute, this boilerplate shit is a little bit overrated because it can include things like the Paris-Pasou clause, which shouldn't exist at all, and they just wind up remaining in contracts. Well, me too. Explain. Why is it, if this thing is completely useless and there are very smart, very, very well-paid lawyers, very big law firms who are issuing sovereign bonds, what is the obstacle to those lawyers just taking out the Paris-Pasou clause?

11:33Why couldn't they do that?

11:34Felix Salmon: They didn't take it out after the Elliott thing happened the first time. I couldn't believe that when I'm sorry to interject. You should answer the question. But I couldn't believe it. They found this. They exploited this little bit of appendix in the contract. They exploit it. Elliot makes all this money. Everyone's like, oh, my God. And then no one changes the contracts going forward. And then they do it again. Like you guys played yourself. What are you doing? They made like 10 million or 15 million the first time. And then they made 200 million again. And nobody changed the provisions saying that, you know, it could not possibly happen in New York.

12:10And then it happened in New York because it's exactly what Felix said. Like the language is completely unclear. Elliot was brilliant at litigating it and persuading the judge. And the judge was pissed off at Argentina. So just before we get to the question of why this happens, I thought back when I was young with Felix and we were working on this Elliot stuff, I was writing about it. He was writing about it. He was actually writing stuff that people read. I was writing obscure academic articles. But I thought this was the one and only instance of this. And everybody I talked to in academia, at least, was like, yeah, maybe this happened once, but, you know, why waste time on it?

12:50It's never going to happen again. And then, Emily, as you said, it did happen again, but maybe it's just this clause. What we found is that literally every sovereign debt instrument, and we also looked at other types of instruments, but I'm obsessed with sovereign debt instruments, has like seven or eight of these. Like not one or two. And that's only seven or eight that I can identify. Like if you put Lee Bukite on it, I mean, I'm sure he would have like two dozen at least. Astonishing, and it's not supposed to happen, but I haven't answered Felix's question. And maybe I'll just give the beginnings of it.

13:24We were perplexed, just befuddled. And we decided, look, we have no idea. This is not supposed to happen. These lawyers get paid. I don't know how much somebody like Lee would get paid$2 ,000 an hour or something like that. How is it that this? It was like some of this is just garbage. How is it that it ends up in the contracts? And so we decided we're going to go and find the most eminent lawyers who do these kinds of contracts all around the world. And we're going to interview them. We're going to send them two dozen of these wonky clauses and say, here's our reading of these clause. Tell us we're wrong.

14:02Or maybe you could tell us why this is the way it is. And so that's what we did. And if you want, I'll tell you some of what we heard. But it wasn't exactly a nice, clear answer. One of the answers that I got back in the day when I asked this question, if it shouldn't exist, why can't you take it out, is a bunch of bankers basically saying to me, yeah, we know it shouldn't exist and we know it doesn't perform any function. But if we take it out, then the investors will be like, you've changed something. And then they're going to have to think about the documentation. And no bond investor ever wants to have to think about documentation.

14:39And they will charge you effectively for just thinking about it. And therefore, we're not going to change anything, which I kind of sort of nodded along and went, okay. But then I started talking to people who knew what they're talking about, like you. And you're like, this is ridiculous. Documentation changes all the time. There's no such things like one standard bond contract. There are what, like a dozen different standard bond contracts. There are a series of bullshit answers that people give you. Those are among those. So the, it will cost you five basis points and nobody wants to pay for it, is the standard answer you get when you ask people, why didn't you change it?

15:17Or why doesn't anybody change these provisions? So then because we're obscure academics, what we do is we're like, okay, let's go do a pricing study. Let's look at all those contracts and let's see what happens when you do change it. Because it turns out, as Felix said, there's enormous variation in what is thought of as boilerplate. And if there's enormous variation, you can look at the contract for the Philippines, which will be different than the contract for Italy, which will be different than the contract from Venezuela, by just a word or two. But that word or two, if it's pari pasu, or pari pasu in payment, or pari pasu in right of payment, or pari pasu without right of payment, makes an enormous difference if you're engaging in kind of some legal jiggery-pokery, as Justice Scalia used to say.

16:06So we could see, does it really make a difference when you change one or two words? And it makes diddly-squat of difference. No difference. Like, study after study after study makes no difference. And this is supported, I guess, by, I mean, again, in the sovereign debt world, one of the things that we look at quite a lot are these things called oil warrants, which is basically a country saying, we can't afford to pay you a lot in interest because we don't have a lot of money. But we do have oil reserves. And if the price of oil gets very high, then I'll pay you more. and the bankers and the investors all go, oh yeah, this is a great idea, let's do this.

16:45But then it turns out that when you actually trade these bonds, the warrants turn out to be completely fucking worthless until suddenly someone wakes up 20 years later and they're worth like 30 bucks or something. But like no one is good at pricing even big things, let alone tiny things like the value of the Paris-Pasouc laws. And this whole concept that, oh, if you make a little change somewhere, then the investors will punish you in the pricing. yeah, no, they don't. I've spoken to these investors. I know these investors very well. And no, they just don't. That's not how it works. So we know how it doesn't work.

17:19So Emily is now going to ask.

17:20Felix Salmon: Oh, I was going to maybe change the subject just a little. Okay. Still on the subject of the book, obviously. But one thing that interests me is, you know, with all the students in your class and their rental agreements, and like I have my mortgage somewhere around here and all those documents, they really don't matter unless something goes wrong. And then those documents are so, so important. And I think what struck me is first that none of this matters unless it matters, which seems important. And then the second thing is like, it matters less if everyone is cool, if everyone is like abiding by whatever the norms are.

17:57Felix Salmon: And that what was the innovation of Elliott Associates and all the Elliott's after them to exploit these mistakes is that they were like, screw the norms. The norms don't matter. Things are changing. Big law is big, really, really, really big. And we don't need to play by any kind of like standards or any kind of values. And that seems to me like something that's happening big picture as well as in this small but very important world too. I wondered if you could talk more about that. Like, Like, is this a norm thing? Like, this wouldn't matter maybe if not for, like, the death of those norms. One of the really fascinating things about the norm, since we're on the subject of real estate contracts, I was up until quite recently on the board of my co-op in Manhattan.

18:41And co-ops have their own special, completely insane form of legal boilerplate. And there's a lot of it. And the standard co-op form of words is a standard co-op form of words. And Emily is absolutely right that there are norms which the legal profession has coalesced around, basically saying we all understand what these words mean. The fascinating thing, even within New York City, is that the legal profession in Queens, for a very specific form of words in this contract, the legal community in Queens has all coalesced around this idea that the words mean this. And the legal community in Manhattan has all coalesced around the idea that the words mean that.

19:21And so basically, depending on whether you're in Queens or in Manhattan, the exact same words can mean two completely different things. Like, the norms exist, but you need to sort of know literally, like, where you stand geographically within the city of New York in order to know what those words mean. It's absolutely wild.

19:40Felix Salmon: And it's all English. Well, is it English? I guess paro—what is it paro— Paripasuo is Latin. Paripasuo is definitely not English. Definitely not English. It's Latin. But even the stuff that's ostensibly English is not really English. It's what we used to call legalese. But the whole point about legalese is it's comprehensible to lawyers. And I'm not even sure now that's true. I knew it wasn't. I worked at the legal magazine. I was always rewriting the lawyers. I'm like, no one wants to read this. They just want to read a regular thing. But Emily, I think that you've put your finger on what has happened and why people thought that the Elliot thing was a one-off.

20:18And we were totally wrong. I was certainly totally wrong. It was just the beginning of something that was a function of the industry changing and the legal industry partly. So back in the Elliott days, Elliott's still around and is doing its stuff, although now it's by no means the most aggressive in doing these kinds of things. They've become sort of establishment, as maybe always happens. But back then, I think it was hard for them, and I don't know the inside story, to get a big New York law firm to work for them on these kinds of strategies. It was just not acceptable behavior because these people were always doing deals together.

20:58It was a two martini lunch, you know, these, especially these billion dollar sovereign deals. You didn't, nobody read the contract, but everybody understood. You were all gentlemen. You went to Paris. You'd like, you went to Davos. This was like, you don't have to work very much, but you had a really good life. And maybe you made like your$2 million a year as a senior partner at a big firm. You had a medium-sized house in the Hamptons. Now, like this is no longer do you live your whole life in the same law firm. Now you move firms. Now everybody wants to be Elliott. And it's completely acceptable to sort of rip the face off of your opponent if you can find the words that enable you to do it.

21:43Because there's a lot of things happening. And one of the things we should mention here is the principals at Elliott Associates are nearly all lawyers, right? So it's like they obviously have outside counsel. They have people, you know, making their case for them and all the rest of it. But they're the people finding these landmines and they're the people like coming up with the legal strategy. And Elliott was very early in terms of our alpha is going to be we're very smart lawyers. Yeah, they're not the only firm that does it. There are lots of them. And sovereign debt is the tip of the iceberg.

22:17It's actually the world where people still are relatively well-behaved and polite, but just move a little bit over to the high-yield corporate syndicated loan world, which syndicated loans were literally the most boring instruments ever imaginable. Like, nobody wanted to work on syndicated loans unless you wanted to retire at age 25. And now they're exciting. It's a multi-trillion dollar market. And the lawyers there, the liability management lawyers, they will go to the clients and say, I have a clever strategy to screw everybody else over. And they give presentations. I've seen these PowerPoints.

22:59It's I can screw them over better than the next law firm can. And that's the world. Yeah, this is this whole new genre of Wall Street activity, which is generally referred to as creditor-on-creditor violence, where it used to be that there was the debtor, and then there were the creditors, and the creditors collectively would want to maximize their recovery, and the debtor would try and negotiate. Now, it's like everything, all norms have been up in smoke, and the creditors are fighting each other in a way that often the company, the debtor, can take advantage of, and it's a wild world. we need to have a quick ad break but when we come back i'll ask me too about the four corners doctrine

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28:23Felix Salmon: So why is it exactly that it's like this now? Is it just because the law industry has gotten bigger and more competitive? I mean, like, why? You know, I don't know. There are a number of things you can look to as external indications, but causality is a little bit hard to figure out. Lawyers now are making money like the bankers are. So at the top end,$10,$15 million a year is not crazy for the really creative people at doing creditor-on-creditor violence. And that was unheard of in the early days when Felix and I were talking about these Elliott lawyers. So that's one thing. The other thing is these law firms were not sustainable in their old model.

29:07They've had to merge. The top lawyers are moving regularly from firm to firm. In the old days, the story was the firm's reputation was what you carried with you. And so you didn't do really aggressive stuff because the senior lawyers at the firm would come down to your office and beat you on the head or maybe fire you. Now you are kicking the senior lawyers out because they're not producing enough revenue. Maybe this is just inevitable, but the law firm world has radically changed. Now, has it changed because of the rise of hedge funds? Has it changed because of the rise of private equity? It's hard to say, like, what is driving this?

29:52But the reality is that you have this sort of race to the bottom in terms of legal weaponization of language, which did not used to happen at all. And so the next step is like we move out of the wonkish stuff like sovereign debt and chunk bonds and syndicated loans. And we move into just the bread and butter of what all of us have in our retirement accounts, which are the stocks and treasury bonds and all the rest of it. You know, we've seen a little hint of this with Tesla sort of throwing its toys out of the pram and saying, well, if I'm not allowed to do this in Delaware, I'll just move to Texas.

30:30Where do we stand now in terms of what I call the master contract, the sort of deep, concrete foundations of every stock and bond in everyone's brokerage account? Is that, everyone always thought that was solid. And I know you're going to tell me there are landmines in this contract and it's not solid at all. They're so not solid. Like, I mean, it's like, but it takes courage. So just to give you an example, so let's take the ISDA collective action clause for sovereign debt, which a collective action clause, I know if you've listened to Slate Money, you know what it is. but it's just a provision that says 75 % of the creditors in principal amount can vote to change the terms of the contract.

31:19It used to be 100%, which is impossible to change, and it was changed to 75%. Now, the standard contract for countries using this ISDA contract would say that if the issuer proposes a change and 75 % of the creditors agree to the change, the change is binding on everybody. That works. That's kind of like what bankruptcy is supposed to do, except it does it by contract. Turns out there's like a version of this ISDA contract that's been used for over a decade. I can't believe I'm getting so excited about this because I'm at one level completely befuddled, at the other level so totally excited about this.

32:00There's a version of this ISDA contract I described to you that says the investors, if they have 75%, can change any of the terms of the contract. So wait, if the country issues a bond and me and three quarters of the other bondholders are like, you know how you promised to pay us 3 % on our debt? Actually, we want to change that to 14%. We can just like vote to change it to 14%. Okay, you should have gone to law school. All right, you should just go work for Elliot. That's exactly. So there's like billions of dollars of contracts that arguably the investor because just get together and do this.

32:39So I'm not a real lawyer, right? Like nobody, I work for free and nobody really would take anything I say seriously. So I go to people and I say, like, why the hell do you have this in the contract? Like, is there some like hidden trap door somewhere where the issuer comes in? And what I've heard is, no, not really, but nobody would do this. Like, it was so outrageous. Nobody would do this. I'm like, but I'm reading the contract And it does actually say what Felix said. And I'm like, okay, so maybe I wouldn't change the interest rate, but I could just say like, I changed the currency. Or I can just say, you have to pay me three months earlier.

33:16And it's just that, no, how can you change it? Like we've had so many contracts already that we've done. If we change it, then people will realize that it's completely screwed up. And so we can't change it. Or I don't want everybody to realize I screwed this up the last 300 times. Or just, it's such a pain. Why don't you just go away and stop bothering us? No client wants to spend money on some lawyer, like redrafting the whole thing. Like, these are all the explanations that people give you for why something that's staring you in the face as being so risky doesn't get changed. I'm like speechless almost, but it happens.

33:59Felix Salmon: It kind of reminds me of, you know, how there are all these norms governing like the Department of Justice and federal law and the White House and everything. And everyone's like, there's no law that says this, but presidents typically don't do X, Y, Z thing. And then Trump comes in, especially this this present term and is like, actually, I'm going to just see like what does the law actually prohibit me from doing? And it turns out very little. It kind of reminds me of that. I don't know. Maybe it's the opposite of that. No, no, no, no. Let's stay on that, Emily. You're right. No, I think it's the same because you're reminding me of Chevron deference, which is what we talked about last year when it got overturned by the Supreme Court.

34:41Everyone just kind of understood that Congress would pass a law and then the executive branch would explain what it means and then the judicial branch would interpret the law according to what the executive branch says that it meant. And then, you know, one day the Supreme Court wakes up and says, no, we're going to ignore everything the executive branch says. If it's not in the legislation, then, you know, no go, no dice. And then suddenly all of this jurisprudence, all of these things that people thought they knew were in the law and were illegal or legal, no one knows anything anymore because all of the norms have been tossed out.

35:15Felix Salmon: Yeah, no one knows anything anymore because all the norms have been tossed out. That sums it up for me. So can I give you an example just building on what Emily said? So let's just purely hypothetically say that we have a president who this morning is really pissed off at a bunch of former allies in Europe. And those former allies hold a whole bunch of U.S. Treasury bonds. And we just would like to cause them, just teach them a lesson because they didn't give us the Nobel Prize. They didn't like they're not giving us Greenland and all of that. So we decide, we ask, what can we do? And I were the lawyer who was asked, what can we do?

35:55It's just possible that I ran this exercise in my debt in the constitution class last week. So I gave the students the hypothetical. They're like, looked at the law and they're like, I think that our contracts allow us to impose a tax on the payments to all foreign bondholders. And I was like, no, that can't be true. That can't be true. Like, you just can't just like halfway through the life of the contract, decide you want to impose a tax. And that it is not true for the bonds of almost every country. They have a provision in that says you can't just decide to impose a tax. But for the U.S., it actually says you can impose a tax.

36:35It's not even ambiguous. It actually says. And in the 1800s, it said you cannot impose a tax. Like after the Civil War, when it was hard to raise money and the Rothschilds did the U.S. bond issuances. And it said U.S. cannot impose a tax. Then somewhere after World War II, just one or two words got changed. And instead of saying you can't impose a tax, it said you can impose a tax. And I had never really looked at that. And I'm like, shit. Because who the hell ever examines the documentation for treasury securities? I mean, come on. Nobody. But it says that. And the students were like, maybe the Constitution prohibits it.

37:14Because there are some provisions in the Constitution about the debt cannot be questioned. I'm like, but if it says it on the face of the document that you're allowed to tax, is that questioning the debt? So literally, we had a whole week of class about this. But the conclusion was, yeah, and maybe hopefully nobody will tell Trump about this.

37:33Felix Salmon: Well, now you're putting it out there. Yeah, but he's not listening, right? Yeah, Donald Trump is not one of our listeners. He listened to the first five minutes, but then he got bored and moved on to something else. Now he's back watching Fox News. We don't need to worry about it. Yeah, no one tell him. It is amazing. And there's other amazing stuff. So, Felix, I don't know if you came across this, but, you know, the U.S. is owed a few trillion dollars by the British government from World War I. Wait, really? The U.S. lent money to Great Britain for World War I, maybe like$4 billion or something like that.

38:09So with interest, it had an interest rate on it. That's now in the trillions, I would imagine. I can't do the math in my head, but I think I did it once. They've never paid it, and we haven't tried to collect on it. But it's a valid debt.

38:23Felix Salmon: Oh, my God. I mean, that is kind of what he's done with NATO. He's like, you guys haven't been paying your dues. So then he calls it in. So, like, yeah, why not call in the World War I debt, too? All he wants is a piece of ice. Right. So he's like, here, I'll forgive that debt. Give me my ice. Because apparently we want Iceland now and not Greenland. But again, this gets back to what Emily said. Like this stuff, if I had gone to the U.S. Treasury Department and told them, look, you have this language there, don't you think it's a little problematic? Should we change it? They would have thrown me out of the building.

38:56In fact, I've been there and they usually say, this is just so stupid. Like we're the most careful conservative Treasury office in the world. We preserve our credibility with just such devotion. That's all gone out the window. And it's not just Trump. I do think that the norms have changed. And blaming the current administration, you know, yes, we should, because they're like completely batshit crazy. But there's just been a shift in how we think about this. And I think it connects to our devotion in law to modern devotion to originalism and original meaning and all of that. All of that leads to stuff like this.

39:42Oh, OK. If that's all we have, then we have like creative ways to do stuff.

39:46Felix Salmon: Because the stuff on paper is supposed to not matter as much as the people. But now it's getting flipped around. It's getting flipped around. And the stuff on paper is kind of everything, but it's a manipulation. It's not really that it matters. Me too. give me a very, very quick, like one minute explanation of this concept of the four corners of a document. And if it's in there, then it matters. And if it's not in there, you can ignore it. Like when did this spring up and how generally accepted is it today? Okay. I'm not going to be able to give you the exact period of time, but it's within the last century and probably the last half century that four corners combined with plain meaning became sort of the dominant view of how to deal with contracts.

40:35And the idea was that sophisticated parties know what they want to say and they say it. And so we should just give them what's in their document, four corners, and what is in the words because that's what they wanted. And if they don't want it, They can fix it the next time, but we don't want to make errors. We're going to allow it. Now, those views that are at least a half century old, if not a century old, did not anticipate the modern contract and particularly the modern explosion of boilerplate. And so that's the dominant legal paradigm that everybody teaches. and it has this assumption that everybody's reading everything and carefully understanding it and if it goes wrong, fixing it.

41:27And we know, we've spent all this time talking about it. None of that happens, but we are still using that old legal paradigm. And I have to say, I don't know how to change it. We can't have a paradigm that says everything is crap. Is it different in London? The London courts, are they a little bit more? No, it's not. No. If you go talk to the London lawyers, the thing that they will say is, look, our backstop is we're a really small legal profession and every judge in the court in London is somebody who was a queen's counsel or a king's counsel. And so they've lived in the big law firm. They understand when you're trying to be sneaky and they're going to beat you over the head if you do that.

42:11But the problem is that they're also following these four corners and the literal meaning thing. So if the literal meaning says what Emily says it is, which is if you want to get paid, you have to do a dance and then pay me a billion dollars first before I pay you a hundred million dollars, then they're going to follow it. These same problems exist in London. Now, I will concede that British judges who are not, they're not quite political appointees in the way in which American federal judges are and American state judges. That's just like complete crapshoot. Oh my God, I'm going to get into so much trouble for what I'm saying.

42:49But the British have fewer of those Paripasou type cases for whatever reason. But it's not the product of that contract law being different. It's just somehow they figure it out, but they have the same issues.

43:05Felix Salmon: Can I ask one question that might not be related? If they're never changing the language, except rarely in these contracts, why does Apple keep sending me new terms of service?

43:17This is a great question, but there are different worlds. So what we've been talking about, the world of commercial contracts where both sides are highly sophisticated players, you have bondholders, debtors, or a mergers and acquisition contract. Consumer contracts are an altogether different world where you have a giant company on one side and then little customers on the other side. Now, you might think that the consumer contract world is the dangerous world where you just keep getting screwed. It's not, in part because the law, and this is particularly in England, less so in the US, but sort of protects the little person more.

43:57Whereas what Felix was talking about, the four corners and the plain meaning, that's what you do with sophisticated players on both sides. So us as consumers, like I teach an Uber contract case where literally it was that the Uber driver in Canada in some province, like his contract said he had to go to Amsterdam to litigate if he had a dispute with Uber. And it was in arbitration court where I think the filing fee was 10 ,000 euros to get into the court. And the guy's dispute was like a hundred Canadian dollars or something. So the court in Canada is like, no, this is just completely stupid. We're not upholding it.

44:37But they're not going to do that for a billion dollar bond deal. I see.

44:41Felix Salmon: Interesting. Just so I'm clear about this, Mitu, one of the things I like about you is you're not one of these book authors who feels that you need to put a solutions chapter at the end, which everyone kind of ignores. I like that he said, I don't know how to fix it. That's what he said. Yeah, there is no fix for this, right? The publishing company, Oxford University Press, bless them, desperately wanted us to have a solution. I'm like, I don't know. I don't have any solution. If I did, I would propose it and become a billionaire myself. I don't have a solution. I can just point out that there are lots of problems.

45:16But, you know, like literally every country that is in distress right now that is facing a restructuring, take Lebanon, take Ukraine, take Venezuela. You can find these landmines and you can exploit them if you want to. And there are lawyers like our friend Lee, who he's just the most dignified person in the world. And you would never think of him as exploiting loopholes or landmines. But the reality is that that's his magic. He's just such genius at it. I've seen him do it, me too. He's the guy who invented the exit consent. But he doesn't do it for evil. That's the difference, I think. And the thing is that he's not the only one.

45:55I would like to think that Lee is special. Somebody called him recently Dumbledore. They used to call him Gandalf. But there are others, and they don't restrain themselves for doing it only for good. Voldemort is out there. Voldemort is out there. We will fear Voldemort. Maybe Lee can come in and fight him. Me too, Gulati. Thanks so much for coming on. This has been so much fun, and you have proved that Boilerplate is, as they say in Germany, doch interesting. Many thanks to you for coming on. Many thanks to Jessamyn, Molly, and Shana Roth for producing. Many thanks for all of you guys for listening and for emailing us on slatemoneyatslate.com.

46:35And we'll be back on Saturday with a regular Slate Money.

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