Permanent Temporary Tariff Regime

0:10Emily Peck: Hello, and welcome to Slate Money, your guide to the business and finance news of the last two weeks. I'm Felix Salmon of Bloomberg. I'm here with Emily Peck of Axios.

0:21Felix Salmon: Hello.

0:21Emily Peck: I'm here with Elizabeth Spiers of New York Times. Hello. And over the past couple of weeks, there has been a lot of tariff news. And we are going to unpack it all and explain what it all means and what the Supreme Court has done and has not done and what Donald Trump has done and has not done. That is all coming up. We are also going to talk about what is going on with Warner Brothers Discovery, which is now, it seems, not going to be bought by Netflix after all. It is instead going to be bought by the Allisons and Paramount. We are going to talk about Blue Owl, which is a big private credit fund and whether it portends a major crisis.

0:58Emily Peck: We have a Slate Plus segment on the thrift savings plan and whether it's a wonderful thing that should be available to everyone. It's a fun show this week, so stay tuned. It's all coming up on Slate Money.

1:25Emily Peck: okay so i was in new zealand last week when the news of the tariff broke and we didn't talk about it last week we just talked about random bookie things and there was part of me thinking oh no oh, this is sad because we're not super all over the news about the tariff. And then the news kept on changing every day for like seven consecutive days. And so now I'm actually very happy that we didn't talk about the tariffs last week, because at this point, we actually have a vague idea of what has happened rather than just trying to look at 63-page dissents and understand what on earth it all means. So, Emily, as the only person who's a full-time financial journalist in this group,

2:08Felix Salmon: How did that happen?

2:09Emily Peck: It falls to you, I'm afraid, to try and upsum the past sort of week and a half of tariff craziness and tell me, and by extension, the listenership of Slate Money, where we have landed. Half the tariffs have been abolished, and then a whole bunch of new ones have put in place. Is that about it?

2:29Felix Salmon: Yeah, Felix, you got it. I mean, what do you need me for?

2:31Emily Peck: Oh, great. Okay.

2:32Felix Salmon: I mean, so yeah, basically, on the week that Felix decided to just peace out around the world, The Supreme Court finally issued its anticipated ruling, and it was as the markets expected. The court knocked down these IEPA tariffs, IEPA being this Emergency Powers Act from the 70s that the administration tried to use to pass these huge Liberation Day tariffs. They knocked it back quite simply because the president didn't have the power to do it. They were like, that's for Congress. Then there was some squabbling within the court about this made-up doctrine, the major questions doctrine. We don't have to talk about that right now.

3:09Felix Salmon: Maybe ever. I don't know. At first, everyone was like, wow, amazing. And this remains true. The court has finally drawn a red line in the sand, whatever metaphor you want to say, and pushed back on the president, not coincidentally, around some thing he did that the business community hated. Because as we know, and as Felix has written, the Supreme Court really likes the business community and they tend to rule in its favor. So that happened. Everyone was like, this is great. Everything's solved. let the refunds begin. Oh, wait, the Supreme Court didn't say anything about how that process would work.

3:42Felix Salmon: It like kicked it back to the lower courts. So in the week since they issued the rulings, I think the conversation has turned in two ways. One, refunds. 1 ,800 plus companies have now filed suits seeking their money back. Democrats want to do something. They can't do anything, But they want to get refund money, too. There's a lot of trading. The price of the refunds is trading higher now. You know, and Wall Street is trying to buy refund rights from companies, blah, blah, blah.

4:13Emily Peck: You know where they're trading in, like, cents on the dollar? Is it, like, above 50 cents?

4:16Felix Salmon: No, I want to say it's, like, 40 cents on the dollar. That's the one side of what's happening now with tariffs. And then the other side is the Trump administration, our president. He has not given up. He wants to do the tariffs still. Like, he's not over it. He's not like, oh, sorry, we'll go to Congress and we'll figure out a way that makes sense. And yes, I am chastened by this. No, he's like right away after the ruling comes out, Bro is like, we'll do it another way. Finds a new law, finds Section 122 pastoring. When Nixon was president, when the gold standard was an issue, when the country's in real big trouble financially, when it comes to the balance of accounts or whatever, you can do this Section 122 tariffs, they are temporarily in place.

5:01Felix Salmon: And after 120 days, Congress has to re-up them to a maximum of 15%. So at first, the president says, we'll do 10%. And then he's like, no, fuck it, we'll do it live 15%. So like, no one knows exactly what is going to happen.

5:16Emily Peck: I think right now, as far as I can make out, they are at 10%. And there's this kind of vague threat to raise them to 15%, perhaps maybe on the basis of what side of bed the president gets out of. We should mention, and this is one of my favorite little factoids about American history, people love to talk about how the United States has never defaulted on its debt. And that's one of the reasons why it has this AAA credit rating. And for me as a foreigner, this is not true. The United States has defaulted on its debt once in the 1970s, when it took the dollar off the gold

5:51Elizabeth Spiers: standard.

5:52Emily Peck: Every single foreign creditor of America thought that it was owed a certain amount of gold because there was a gold standard. And then Nixon de-pegged the dollar from gold. And suddenly the amount of gold you were owed was much less because the dollar devalued massively against gold. And so as far as any foreign creditor of America was concerned, that devaluation was effectively a default. And as you say, quite rightly, Emily, that was a very sort of fraught time in terms of US sovereign finances. And that was, just to oversimplify massively, that was the one and only time in modern history where the United States could credibly have claimed that it had a balance of payments crisis.

6:37Emily Peck: This law that you're talking about, Section 122, is precisely designed to address this thing called a balance of payments crisis. We are not in a balance of payments crisis, right now. They're in no way, shape or form. What Donald Trump is trying to do is basically make the claim that because we have a balance of payments deficit, which we do, we therefore have a balance of payments crisis. But that is just simply not the case.

7:01Elizabeth Spiers: Trump's own lawyers argued earlier that we were not in a balance of payments crisis. So now they're going to have to turn around and argue exactly the opposite.

7:09Emily Peck: But that's why they get paid zero bucks, because they're all working pro bono for him in the wake of all of those settlements that the big firms made, right?

7:17Elizabeth Spiers: That's true. And this also feels very whack-a-mole to me. Trump basically just doesn't like being told that he can't have tariffs at his disposal. So he goes and sort of shops for another law that he thinks he can get it done through. But what's to stop him from just continuing to do this? Like, this is going to go back through the courts for probably for a while.

7:37Emily Peck: One of the numbers that strikes me is that if you just look at end of February, which is when this ruling came down from the Supreme Court, and sort of subtract mid-April, which was Liberation Day, that's the amount of time it took for Trump's Liberation Day tariffs to be found illegal. That was about 10 months. These current tariffs, absolutely maximum, can be in place for 150 days, which is a lot less than 10 months. So by the time it wends its way up through the courts and makes its way to the Supreme Court and is found illegal, they're not even going to be in place anymore.

8:10Felix Salmon: I said that's assuming Congress stands up to Trump, because when the 120 days expires, Congress can re-up. So that's a question, right? Is Congress going to re-up or not?

8:20Emily Peck: If there was a majority in Congress to pass a tariff bill, he would have just done this through legislation. The whole point of the Supreme Court ruling and everyone saying it's illegal is basically saying that Congress has the power of the purse and if Congress wants to impose tariffs, it can, and the president can't. So the easy way to do this, if he has Congress on his side, is to get Congress to pass a bill. But he doesn't have that much time for that because, like, pretty soon we're going to run into the midterms and, you know, at least the House is going to be much less likely to pass anything.

8:53Elizabeth Spiers: Well, and the Republicans don't necessarily like tariffs. They're not really behind him as much on this. And so there's not the political will to do it.

9:01Felix Salmon: I think the bigger picture is that Trump won, Biden won and only, And Trump, too, all together have shown that tariffs are sort of a president's game. They're not relying on Congress to say no to Trump, I think, is typically a bad bet. And relying on a president to figure out some kind of a way to do tariffs is a good bet. And the administration has said even if Section 122 isn't going to work, they're trying to figure out other things to do to make tariffs work. Like tariffs, like inflation, once they go up, I think are difficult to bring down overall.

9:34Emily Peck: I think you're half right on that one. I think that Donald Trump likes tariffs for two reasons. One reason is the reason we talked about a couple weeks ago, which is that they're basically an easy way of raising taxes without raising taxes. And so he got$170 billion worth of tax revenue from these IEPA tariffs, and he's like scared that he's going to have to give that back. And you don't have any member of Congress that can feel accountable or take the blame for I raised taxes because it was all done by the president. And that's like a nice little slate of hand. And I kind of agree with you that that's probably not going away.

10:11Emily Peck: But also, it's never going to be that big of a deal in terms of the big fiscal picture. The other reason why Trump really likes tariffs is as a negotiation cudgel when he's in negotiations with various countries. And he's like, I don't like what you're doing geopolitically, or I don't like how your sports team behaved, or I don't like the horoscope I read this morning or whatever the hell it is, it's like I'm going to impose tariffs on you. And that is where this IEPA ruling is really important because the IEPA ruling said you cannot do country by country tariffs at all. None of the proposed alternatives, whether it's the Section 122s or whether it's the sector-based ones or anything else, none of the proposed alternatives work on a country by country basis.

10:56Emily Peck: So every single tariff that he's said, like China, you pay this, Brazil, you pay that, UK, you pay this, India, you pay that. All of those are gone. And those aren't coming back. And that means that when he's doing his negotiations with the EU, all of that has changed. When he's doing his negotiations with China, all of that has changed. Even the finalized negotiations with the UK, he was like, I will carve out a special deal for you. I like you, Geir Starmer. All of that has gone out the window because everything is now subject to the broad 10 % tariff.

11:28Felix Salmon: That's a really good point. Yeah.

11:29Emily Peck: He can't even keep his existing deals that he has done. It's not good for him in terms of tariffs as a negotiation play, which is one of the main reasons why he likes tariffs.

11:40Felix Salmon: That's like a really, really good point that I haven't seen anywhere.

11:43Elizabeth Spiers: Does his calculus change, though, if he ends up having to refund$175 billion in tariffs?

11:49Emily Peck: No, I don't think he cares at all about fiscal anything. If he has to refund$170 billion in tariffs, he's like, oh, yeah, that's like a bunch of money that the Supreme Court is making me pay back. He's not someone who is pouring over budget deficits and going, oh, no, I have to refund these tariff numbers. So I need to raise taxes and I need to persuade Congress to raise taxes or I need to cut ICE funding. Or, yeah, no, that's not how he thinks.

12:15Felix Salmon: The journal also reported that the administration basically plans to fight in court over everything it can when it comes to refunds, which is a crazy political strategy. Like, Americans want their money back. Companies want their money back. And it's weird for a White House under a Republican president, even this one, to fight so hard against that, especially since the president last year especially kept saying, we're going to send you tariff refund checks. We're making so much money. We're going to send the money back to you. And now the administration's like, no, we're never sending this money back to you.

12:47Felix Salmon: Like, it's our money and we're keeping it forever. And doubling down in the State of the Union this past week, the president was like, we're looking to make, to get rid of income taxes for, quote, the people I love. That's what the president said. And replace them with tariffs, which is also pretty wild because obviously we've taken in like 13 times as much money in just income taxes to the federal government than we are even it from the Trump tariffs.

13:10Emily Peck: This reminds me, as long-running listeners to Slate Money will know, I am a sovereign debt geek at heart. And this just reminds me so much of the hedge funds who bought up various loans or bonds or something in Peru or Argentina or somewhere like that, that the government wasn't paying and just sat back effectively and waited for a more compliant government to get elected and then got the money from the more compliant government. If you buy up the tariff refund rights today at 40 cents on the dollar or whatever, will Donald Trump pay you your money or will he fight you in court every step of the way?

13:48Emily Peck: He will probably fight you in court every step of the way. But at some point, he's not going to be president anymore. You're still going to have those tariff refund rights. And then whoever replaces Trump is going to be much less invested in fighting that. And it's going to settle with you and you're going to make money.

14:02Felix Salmon: The journal quoted one of the like Amlaw 100 firms has like a special team unit devoted just to taking in business from the refunds. So the clear winner for tariffs, I think, is like law firms, traders doing it, trading the tariff refunds and nobody else. And the losers are all of us who paid a little more money for our stuff and I guess some wine importers or something.

14:24Emily Peck: It's still like what we have now is the way in my mind, very similar to what we had before, but just at a slightly lower level, which is a permanent temporary tariff regime. There was very little predictability about tariffs before. And now there is no predictability about tariffs. And that just makes it basically impossible for anyone to import anything from anywhere because you have no idea what tariff regime is going to be in place when the stuff arrives. I think at the margin, what we have right now is good for China. A lot of the excess China tariffs have disappeared in a puff of smoke. So maybe if you're importing stuff from China, now's the time to do it, especially if you're importing like memory chips, because there seems to be a massive shortage of memory chips right now.

15:07Emily Peck: I do think that in general, if you are in the business of shipping things around the world, you are not going to have any certainty for the foreseeable future. And it's even less certain now than it was before. There's just everything is up in the air. Even the current tariffs, the 122 tariffs are by their nature temporary. I disagree with Emily that we can count on Congress to renew them. I think Congress will not renew them for the same reason that they won't pass any tariffs themselves. They just don't want any blood on their hand. And by blood, I mean tax sakes. So we are in this radically uncertain world.

15:41Emily Peck: And yay.

15:41Elizabeth Spiers: I think there's a European official who referred to it as pure tariff chaos.

15:45Emily Peck: Pure tariff chaos. We don't like the impure tariff chaos that we had before. Now we've got the pure shit.

15:52Elizabeth Spiers: The unadulterated tariff chaos.

15:54Emily Peck: That's straight into my veins.

16:13Emily Peck: This is a fun little M &A story.

16:15Elizabeth Spiers: Big M &A story. Huge.

16:17Emily Peck: $111 billion M &A story, which is a tale as old as time, which is there's this company that seemed big when it was formed through some merger or other, but then it tried to make it on its own in the big wide world and decided it wasn't big enough and it needed to get bought by someone even bigger. This little engine that could is known as Warner Brothers Discovery, and it tried to make it on its own, decided it wasn't big enough, put itself up for sale, found a bigger company in the form of Netflix who said, I will eat you and I will pay you$100 billion or something to eat you. And they said, great.

16:53Emily Peck: And they did the deal. But there was an underbidder. The underbidder is this much, much smaller company called Paramount. And Paramount doesn't really have the money to buy Warner Brothers. And the heads of Paramount and Warner Brothers don't really like each other very much. And so everyone was kind of relieved when it turned out that Netflix bid was hired and the Paramount bid. And so everyone was like, okay, fine. It's going to Netflix. That makes sense. But then it turns out that even though Paramount is much smaller than Warner Brothers, you know who's got much more money than either is Paramount's CEO's dad.

17:28Emily Peck: This is the world we live in where like one guy can have more money than this entire company. Paramount's CEO's dad is this guy, Larry Allison. We've talked about him many times. He's worth hundreds of billions of dollars. he and his son got together and said well yeah the thing is that paramount which is even smaller than warner brothers if warner brothers is too small to make it paramount is way too small to make it so we're gonna need to buy warner brothers otherwise we are gonna just die our bid of 30 dollars was rejected by warner brothers board as not being enough and then this is the bit which absolutely astonishes me.

18:06Emily Peck: They're like, hey,$30 was less than the Netflix bid. $30 was not enough. That Netflix bid is signed. We need to sweeten the deal. If we want to make it, if we want to come back with a new bid, we need to do a knockout bid that is going to persuade the board of Warner Brothers to tear up the existing deal and say, screw you, Netflix, we're going with Paramount. They are finally giving us a much, much better deal. And so you know what Paramount did? They came back and they said we're not going to give you$30 we're going to give you wait for it drum

18:37Felix Salmon: roll$31 but Felix there was other stuff but yeah okay there's other stuff but amazingly I would the

18:45Emily Peck: minute I saw that the minute I saw that bit of we have sweetened our bid from$30 to$31 they'd already thrown in the other stuff on top of the$30 bid and that hadn't moved the needle enough The final thing they did that moved the needle was raise their bid from 30 to 31. And somehow that actually worked. And I was like, wow.

19:07Elizabeth Spiers: It worked for a couple of reasons. One is that I think Netflix sort of realized that given the hostility from the Trump administration, that the deal wasn't going to go through anyway. And Sarandos always said that, you know, he wanted the company at the right price, but not any price. So it's possible that they were just bumping up against whatever Sarandos' reserve price was.

19:28Emily Peck: So Ted Sarandos, to be clear, is the CEO of Netflix. And yeah, I think the fact that Netflix wasn't going to go any higher was a relatively predictable part of this. So yeah, that's part of it. But OK, so here's a question for you, Elizabeth. Netflix, on the face of it, comes out of this looking pretty good on the strength of number For one, it has forced its competitor, Paramount, to pay more than it wanted to pay for this asset. And number two, it is getting$2.8 billion from Paramount as a breakup fee. So Netflix is like, ha ha, you're overpaying for Warner Brothers and you're paying us$2.8 billion.

20:07Emily Peck: You're just like laughing all the way to the bank. Except somehow the, I don't know, the vibe around Netflix is that this is a loss for Netflix and not a win for them.

20:16Elizabeth Spiers: I think that's because there was a perception that Netflix pursuing the deal in the first place was a sign that there were weaknesses there and that they felt like they had to make the acquisition in order to shore up certain parts of the business. And so that now it's the people who thought that already are just probably feeling validated.

20:34Felix Salmon: I don't think that's the right interpretation. What do you think? that Netflix is like coming out the loser somehow. I mean, you can see simply in the stock, which is up as we're talking like 8 % for the week, people were just relieved that Netflix wasn't embroiling itself in this like paramount drama. And by saying like, okay, you want to pay that price? Congratulations on saying the most dollars, you know, just like Logan Roy said in succession.

21:00Emily Peck: The classic Logan Roy.

21:01Felix Salmon: Netflix is the streaming winner, definitely. Paramount Plus desperate, just like you said, Felix, desperately needs to get bigger, needs HBO way more. Paramount Plus, like for all the attention its little shows get like Yellowstone or whatever. No one really respects it the way they respect HBO and the other programming that's coming from Warner Brothers Discovery. Like they're so thirsty for this company. I think they come off probably paying too much. Netflix dodged a bullet, didn't need to do this, just like they said. And maybe the biggest winner of all is our buddy David Zasloff, who once again comes out with tons of money, is looking pretty sharp for all of the wrangling here.

21:44Felix Salmon: And I think it's like very CBD if Paramount looks good in a year.

21:48Emily Peck: This reminds me a little bit of when Steve Schwarzman bought the terminal bit of Thomson Reuters and then owned it for five minutes before turning around and flipping it to LSE Group for a massive profit. And I'm like, this is kind of what Zaslav did with Warner Brothers. He was running this tiny little cable company called Discovery. He bought a much, much bigger company called Warner Brothers. right like that was that was the first crazy thing is this minnow called discovery buys this massive studio warner brothers he holds on to it for five minutes struggles through as an independent company like tries to make a pretense that he can make it work as an independent company but it rapidly becomes obvious that he doesn't and then turns around and sells it for a massive profit you're like that was a good deal david's that stuff yeah he's done it again yeah it'll be

22:40Elizabeth Spiers: interesting to see how it it shakes out though because Warner Brothers Discovery is a very top heavy company in terms of sea level officers and there are like 12 CEOs who are accustomed to having a direct line to Zaslav and now you combine that with the people that Ellison's already managing it feels like there could be a big clash of cultures and working out the hierarchy there

23:01Emily Peck: oh definitely and expect a bunch of senior level heads to roll for sure but hanging over all of

23:08Felix Salmon: this is the politics. That's like a big thing that happened here, right? I mean,

23:11Emily Peck: Yes, Emily, can you tell me about this Susan Rice thing? Because that confuses the fuck out of me.

23:16Felix Salmon: I mean, Susan Rice, former official in the Obama administration, national security official, is on the board of Netflix and has said some things, political things.

23:27Elizabeth Spiers: He said people shouldn't capitulate to Trump. And she sort of said it in a general way, but it got back to Trump and he lost his mind.

23:34Felix Salmon: So he said Ted Sarandos needs to fire her. That's what happened. Just showing like the administration's clearly in the bag for Paramount. I feel like that's not a controversial thing to say at this point. And Paramount leveraged that perception and reality in its deal making. Like there's like some provisions in the in the bid it made that if the deal takes longer than a certain amount of time to go through, they start paying like some ticking fee or something like 25 cents a share. Like they use that political oomph to make their bid look better, I think. And I think that helps. And then just the general perception from Netflix's end, like the dawning realization of just how like dicey the whole situation is, is going to make them even more want to walk away from this thing.

24:17Felix Salmon: That's what it seems like to me.

24:18Emily Peck: My hot take when it comes to this whole thing, when it comes to antitrust, is that, yeah, I mean, given how politicized antitrust enforcement has obviously become in the Trump regime, I do think there was a non-trivial chance that Netflix would have run into antitrust scrutiny by the DOJ. But at the same time, just objectively speaking, neither of these combinations is big enough to be an antitrust real thing. There's still plenty of streamers. There's still plenty of competition. Warner Brothers is not big enough that if it's owned by Paramount or if it's owned by Netflix, it's going to move the needle too much in any direction.

24:59Felix Salmon: Also, I mean, we didn't really talk about this. I think while you were gone last week, the woman at DOJ who everyone liked who was in charge of antitrust, like that had bipartisan support and people were like, it's Trump antitrust. And she was like, I'm mega antitrust and I'm going to protect you from big whatever. She really didn't do any protecting from big whatever during her tenure and got a lot of pushback from lobbyists. And the DOJ hasn't really done anything to stop any deal. So it's kind of interesting to think about that also like, OK, maybe the politics was wonky for Netflix. But like the DOJ doesn't seem to have any appetite to stop any deal, actually.

25:34Felix Salmon: So like maybe it would have been fine. I don't know. I'm like countering my own point. But that's something I was thinking about.

25:39Elizabeth Spiers: Also, I think, you know, any facial policy that the Trump administration has around antitrust or anything else is always subject to revision based on Trump's personal enmities. And so it did feel like a turning point when he got really mad about Susan Rice.

25:52Felix Salmon: Yeah. And I think that was probably the moment where Sarandos just thought, we should not be doing

25:58Elizabeth Spiers: this.

25:58Felix Salmon: It gave Netflix the ick. As the kids say.

26:01Emily Peck: Yeah, don't try and get into negotiations with the Trump regime as Anthropic is currently learning.

26:07Felix Salmon: We should. I wish we were talking about that too. That's so interesting.

26:10Emily Peck: Yeah, that is a wild story.

26:13Felix Salmon: Maybe we could talk about it next week.

26:14Emily Peck: We will talk about that next week when we know how it ends. Because we are recording this on Friday. The big deadline is Friday afternoon. And then it will work out one way or the other. And then we will have a topic to talk about next week. It's always good.

26:26Felix Salmon: Someone write it down. We will definitely forget.

26:47Felix Salmon: next up on the list is hoot hoot does that help you the duolingo owl Close. Owl. Correct. Oh, the blue owl. Oh, there you go.

27:01Emily Peck: Yeah, we have talked a little bit about private credit on this show. And whenever you say the words private credit, there's always a kind of wailing and gnashing of teeth. And people are, ooh, sucking of teeth. And it could be bad. This could all end in tears. Ooh, I know. Private. Ooh, retail investors are getting involved. Ooh, this is. And then anyway, I feel like this past week or the past couple of weeks have been the point at which all of those doom mongers about all of this could end really badly has come to the test. Because Blue Owl is like the 800 pound gorilla of the private credit world.

27:37Emily Peck: And it's facing a bunch of redemption requests. And it's generally considered to be in trouble. And its share price is down 60%, even though its revenues are doing just fine. Thank you very much. and it had one fund that was available to retail and retail was putting in enough retention requests that it was having difficulty meeting them all and everyone's like, this is it. And then it turned out not to be it. And then they were like, oh, nevermind. If we can't pay you 5%, we'll pay you 30 % of the entire fund. And they were just like, we're just going to wind the whole thing down, which we were going to do anyway.

28:10Emily Peck: And that was always what was expected. And we'll sell it to a bunch of CLOs and no biggie and life goes on. Is that about it?

28:17Elizabeth Spiers: There are still some people who are saying, ooh, this could end badly. Jamie Dimon is saying that. Mohamed El-Aryan is saying that. I think, first of all, Blue Isle did the smart thing. They sort of, I think, staunched some of the panic around private credit because they were sort of considered emblematic of everything else that's happening in the private credit markets. And I think they were just sort of concerned that the people asking for redemptions were mostly coming from the retail sector and that it could snowball. And even though one of the great, if you're in private credit, one of the advantages of being in private credit is you can lock up your investors.

28:53Elizabeth Spiers: So even if the fund is doing badly, they can't just ask for their money back and get it. You would be in that situation with a regular bank.

29:00Emily Peck: Yeah, banks do maturity transformation. Private credit funds do not, right? Banks, like you put your money in the checking account and it's there whenever you want it. But meanwhile, they're turning around and making a 30-year mortgage. And that by its nature is incredibly dangerous. Whereas with private credit funds, you give them a bunch of money and they lend it for seven years. And when they get the money back seven years later, you get your money back. And you shouldn't be able to ask for your money back until the person they lend it to gives you their money back. And no maturity mismatch whatsoever, at least in principle.

29:31Elizabeth Spiers: Yes. I think what they were worried about, though, is when their investors start making a big stink about wanting their redemptions back and not being able to get them because of the terms they agreed to. I feel like a lot of this was just managing optics for Blue Owl. They could have just stood fast and said, sorry, we're going to stick to this 5 % redemption rate and we're keeping your money. And instead, they found a way to give the investors more money back than they would have gotten otherwise.

29:56Felix Salmon: First, we should say Blue Owl, at a high level, they take money from investors and then they lend money to mid-sized companies. And those mid-sized companies are a lot of them in the software business, which the market really hates right now. Now they think AI is going to take over the software business and all the companies are going to go away. Maybe that's true, maybe not. But that's rattling the whole system for private credit. But I think what's interesting is sort of how everyone always jumps to the, whenever something bad is happening with companies or people pulling money out of something, someone will be like, it's like 08 all over again.

30:29Felix Salmon: And Mohamed El-Arian's like, is this the canary in the coal mine? Is this 2007? And then everyone's like, oh my God, the whole system. But it's like, as you both are saying, this isn't like 2007 in that you can't run these companies. You can't have a bank run like situation on a private credit company. They lock up your money. They're in control of what happens. Like the retail investors we're talking about are like rich people. They're not like people in Florida who are cocktail waitresses with a mortgage that they can't afford anymore. And everyone's going to lose their house all at once. Like it's not.

31:03Emily Peck: The one thing I'll add here is that the danger is not run risk, as we have discussed. The danger is, in theory, if there is a danger, is the same danger that we saw in 2007, which is overleverage. And the weird thing about this Blue Owl resolution is that it does actually increase the amount of leverage in the system. Blue Owl basically, in order to pay out all of the money to the retail investors that it paid out, It basically sold a bunch of assets to CLOs, collateralized loan obligations that by their nature are much more leveraged than the investors who got paid out. So the amount of leverage in the private credit system has gone up.

31:47Emily Peck: And if you're the kind of person like Mohammed, who wakes up in the morning and looks at leverage ratios and worries about leverage, then I can see why you could consider this to be a making things worse thing rather than a making things better thing. But frankly, just like we've talked about on the show in the past about like, well, you know, private credit could have passed through effects via the banking system because the banks have lent money to the private credit companies and all of this kind of stuff. It all feels very theoretical to me. And I still think that, you know, yes, the software companies are, their stock prices are down and people are bearish on them.

32:26Emily Peck: But ultimately, private debt is senior to private equity. That's how it works in the capital stack. The lenders get paid back before the shareholders get anything. And private equity is still doing just fine, thank you very much, including Tomo Bravo and all of those software-y private equity companies, Silver Lake and whoever. So long as private equity is broadly doing fine, I don't think that private debt has anything systemic to worry about.

32:53Elizabeth Spiers: There is one line of argument. I'm not sure I totally buy it, but it's that there's risk here that people are not really understanding because it's easy in private credit to move troublesome credit to less visible parts of the market. And in a way that, for instance, in 07 or 08, it might not have been because you did have some accountability, however little, from ratings agencies and other third parties that would be able to kind of look at those valuations. And the reality is there's kind of no way to get total visibility into the private credit markets as a whole.

33:30Emily Peck: I think that's a feature rather than a bug. It's a feature if private credit markets are doing well, but if they're doing badly and that comes out, I think that's what people are worried about. Okay, so if that comes out, so this is interesting. What actually happened with Blue Owl in the end was their plan B. Their plan A was they were going to take this fund that was having all these redemption requests called OBDC2, and they were going to merge it into this other fund that they have that's listed on the stock market. And OBDC2, by its nature, because it's privately held and was redeeming people, it was redeeming people at 100 cents on the dollar.

34:08Emily Peck: And if you wanted your money back, you could get your money back at 100 cents on the dollar. And then this other fund that is listed on the stock market, you can't really redeem from that fund. But what you can do is sell your shares in that fund. But if you sell your shares in that fund, you sell them at the prevailing share price. And the prevailing share price is roughly 80 cents on the dollar. And so everyone was like, if you merge OBDC2 with this public vehicle, then everyone's going to wind up losing 20 cents on the dollar because if they want to sell their shares, they will only be able to sell their shares at 80 cents on the dollar.

34:40Emily Peck: And on some level, that's true. And to Elizabeth's point, if you want visibility into how much the market thinks these things are worth, you can look at the share price of these things and say, well, the public stock market is valuing these things at 80 cents on the dollar rather than 100 cents on the dollar. But if that's the worst that happens, that's just the price mechanism doing what it does. And if these things are worth 80 cents rather than 100 cents, like there's nothing systemic about that at all.

35:07Felix Salmon: I'm curious, though, and maybe this is something we can put on our list for next week. How exciting is that? There's a story kind of breaking as we're taping on Friday about a UK mortgage firm that went under called MFS or Market Financial Solutions. Apparently, they were doing some shenanigans with double booking, like using an asset as collateral for two.

35:27Emily Peck: It's like the UK version of Tricolor or First Brands. Yeah.

35:30Felix Salmon: And it's moving the treasury market, which is interesting to me.

35:34Emily Peck: The US treasury market or the UK treasury market?

35:36Felix Salmon: Well, the U.S. Treasury market yields on the 10-year dip. I can't believe I'm talking about this. Yields on the 10-year dip below 4 % Friday morning. People are saying because of this news, which is something I'm trying to understand.

35:49Emily Peck: Yeah, but this is my favorite thing. Like, if a mortgage lender in the U.K. runs into difficulty, then the upshot is that mortgages become cheaper in the U.S. because 10-year Treasury rates go down. And by the way, the mortgage rate, the 30-year mortgage in the U.S. is below 6 % now. for the first time since 2022 or something.

36:09Felix Salmon: Yes, it's crazy. And there's this bigger mystery happening. And again, add it to the list. Keep the list growing. There's this mystery that I was talking to our friend Me Too Gulati about, which is that we have a president who we discussed is doing all this crazy stuff with tariffs. It's pure uncut, the good stuff, tariff chaos in our country. Like the sovereign is wild. Our debt is going up in price because there's more demand for it and yields are falling. And like, I guess people who think about sovereign debt thought that Trump would make us more of a risky bet credit wise. But that doesn't appear to be happening at all.

36:43Felix Salmon: It's like a big mystery.

36:44Emily Peck: It's the it's still the safe haven. Treasury bonds are still the cleanest, dirty shirt.

36:52Felix Salmon: The cleanest, dirty shirt. Good stuff.

36:54Emily Peck: Talking about Mohammed Al-Aryan and his famous cleanest, dirty shirt analogy.

36:58Felix Salmon: So like, what's the risk? The risk is just cheaper mortgages, I guess. It's good stuff.

37:03Emily Peck: What's not to love? Home ownership, yay.

37:23Emily Peck: We should have a numbers round. Elizabeth, do you have a number?

37:26Elizabeth Spiers: Yeah, it's 86%. That's the amount that HRT, hormone replacement therapy prescriptions, went up between 2021 and 2025. So now there's a big...

37:36Emily Peck: 86 %?

37:37Felix Salmon: 86%. Why?

37:39Elizabeth Spiers: Well, largely because there's a famous study around estrogen therapy in particular that applied to women over the age of 65. And it showed a small incidence of breast cancer increase with HRT. But then now the conventional wisdom has changed fairly rapidly on that. And the idea is the absolute risk is very small. And also, we just don't have the data on people who start HRT in their 40s when perimenopausal symptoms start. But now it's become kind of conventional wisdom that's when you should start and that also it has protective effects later. So you can point to some studies and sort of media spikes around the debunking of that earlier study where people started going into doctor's offices and asking for it explicitly.

38:23Elizabeth Spiers: But as a result, there is now a shortage on estrogen patches.

38:27Felix Salmon: Yeah, it's really been amazing because I remember the initial study where they said a hormone replacement therapy causes breast cancer in women. And then everyone was like, we're not doing it anymore. And then but in recent years, as everyone gets older, like the broadly speaking, like the demographics are like this tsunami of old people hitting the whatever, blah, blah, blah. perimenopause and menopause has become a massive industry at the same time big they've debunked the hrt research at the same time this new industry has cropped up to service all these like pre menopausal and menopausal women like i don't know it's it's a lot i have to say though like

39:04Emily Peck: everyone is not getting older as we have mentioned many times on this show gen x is the smallest generation in ever.

39:14Elizabeth Spiers: But we're very loud, Felix.

39:15Felix Salmon: It's the boomers getting old.

39:16Emily Peck: But the people who are going on HRT is Gen X. It's not the boomers. Fair enough.

39:21Felix Salmon: But I will push back on your statement that everyone is not getting older because literally everyone is getting older.

39:27Emily Peck: No, not me. I'm getting younger. Emily, what's your number?

39:32Felix Salmon: My number is 40, 40 percent share of employees at Block who were laid off this week because Jack Dorsey just said that AI makes it so he doesn't need as many people. So 40 % is, it's like 4 ,000 of the employees or something, a lot. And everyone is kind of freaking out about it. Not because, to my mind, it's not definitively a sign that AI is coming for all our jobs, because Block was in financial distress for the past couple of years. But just because it's like the other CEOs will see this and be like, Yeah, it's on. You know what I mean? Use this as an excuse to fire more people.

40:09Emily Peck: Block, we have to remember, used to be a perfectly normal payments company called Square. And then Jack Dorsey took a big toke of something one morning and said, everything's going to be blockchain, man. I'm going to pivot to blockchain. That worked out about as well as you would expect. And now he's pivoting to AI doomerism. And he's quite happy because his investment, he rolled over his investment in Twitter. He's famously a founder of Twitter. He rolled over his investment in Twitter to X when Elon Musk took it over, which everyone thought was really stupid. But now that has paid off massively because now he has a stake in Grock and XAI and all of these things that are worth hundreds of billions of dollars.

40:48Emily Peck: So, yeah, he's just following the cool kids and laying off 4 ,000 people. But we have a podcast with Paul Ford coming out. This, though, is a real, this is absolute ground zero for most of my employees are software engineers and software engineers are just people I don't need anymore because Claude Code can do it all for me.

41:07Felix Salmon: I really want someone to write a story about the software engineers and like, are they taking different jobs in different industries now? Like what is happening? There are legitimately quite a lot of software engineers who are losing their jobs right now. And it's legitimately going to be hard for them to find new software engineering jobs. So like, what are they doing?

41:24Emily Peck: What's a new thing?

41:25Felix Salmon: Write to us and tell us.

41:26Emily Peck: If you are a software engineer, what are you doing now?

41:28Felix Salmon: I spoke to a guy last year who's doing contracting.

41:31Emily Peck: Like Friend of the Pod, Rick Webb, starts a pool business, installing swimming pools. That seems to work.

41:36Felix Salmon: Until the economy goes bad.

41:38Emily Peck: Yeah, we're not going to talk about that Citrix research thing or whatever, because that was just nonsense.

41:42Elizabeth Spiers: Citrini. Citrini.

41:44Emily Peck: We are instead going to talk about Taylor Swift, because, of course, my number is 15%. And this is an absolutely wonderful NBR paper called Smartphones, Online Music Streaming, and Traffic Fatalities.

41:59Felix Salmon: Let's go.

41:59Emily Peck: I don't know if you saw that one coming. Apparently, when Taylor Swift releases a new album or any other big new music artist releases a new album, the amount of music streaming rises by about 40%. And that's like a big event in the streaming world. The streaming jumps by 40%. And what happens on those dates is U.S. traffic fatalities increase by 15%.

42:24Felix Salmon: Yo, I'm stealing this from my newsletter. That's amazing.

42:29Emily Peck: It's wild. Stop releasing albums, Taylor. People are dying.

42:33Felix Salmon: But her new album, when did the study look at?

42:37Emily Peck: Yeah, the Tortured Poets is included in this study.

42:40Felix Salmon: But that's not her most recent album.

42:41Emily Peck: Yeah, it is. You know what?

42:42Felix Salmon: Just cut this part. Okay, you know better. Felix is low-key Taylor Swift fan.

42:47Emily Peck: I am a low-key Swifty.

42:49Elizabeth Spiers: What a way to die.

42:52Emily Peck: Is it because people are looking at their phones, trying to find the... I don't know exactly what the causality is, but there's definitely a correlation. I think that's it for us this week. Thank you, Elizabeth. Thank you, Emily. Thank you, Jessamyn Molly. Thank you, Micah Phillips. Thank you, all of you lovely listeners for listening and sending us email, sleepmoneyatslate.com. Thank you for being Slate Plus subscribers. If you're a Slate Plus subscriber, we are going to have a fabulous Slate Plus conversation about the thrift savings plan and whether it can slash should be extended to normies rather than just federal employees.

43:26Emily Peck: and we will be back on Tuesday with the greatest episode of Slate Money that has ever been recorded in the history of the universe. Emily, you owe me now. Emily, what is this episode? I have not listened to it. I don't know what it is.

43:43Felix Salmon: It's Slate Money Talks and I'll be modest and say perhaps not the greatest episode, but a really good one. Here's the reasons. First, Anna Shemansky comes back and also it's three of us and Hilary Fry, editor-in-chief of this here Slate operation. We are talking about this season of the HBO show industry, which I was obsessed with this year. I mean, so good. So many plot lines with echoes in the real world. A Ghislaine Maxwell thing was happening. A Wirecard-like thing was happening with all manner of like Russian assets infiltrating the highest levels of the UK government, all of it, but also the usual sex and cocaine and blah, blah, blah, blah, blah.

44:23Felix Salmon: We talk about all of it. It's so good. You have to listen. Even if you don't like industry, watch industry. I think you might like this segment. Please listen. Thank you.

44:32Emily Peck: All right. As someone who has assiduously not watched industry since the first half of the first episode of the first season, I am going to listen to Tuesday's podcast and that will catch me up.

44:44Felix Salmon: OK, yeah. You don't believe me?

44:45Emily Peck: Why would I lie about that?

44:47Felix Salmon: I don't know. It's just like when you ask people, are you going to quit your job? And they say, yes, I want to. And then people run the survey and they're like, 40 % of workers will quit their jobs. That's not true. It's kind of like that.

44:58Emily Peck: Well, you're saying really as in you don't believe that I will listen or you don't believe that I haven't watched industry?

45:04Felix Salmon: I believe you haven't watched industry. I believe you when you say you will listen to the episode, but I don't believe you will actually listen to the episode.

45:12Elizabeth Spiers: People are notoriously bad predictors of their future behavior.

45:17Felix Salmon: Yes, what she said.

45:18Emily Peck: I love your Money Talks episode.

45:20Felix Salmon: Oh, good. Yeah. Yeah, no, definitely listen. It's a good time. Also, I pushed Hillary and I think got her to agree to do the whole last season of industry, like episode by episode, the way we did Six Sessions.

45:31Emily Peck: I believe the person in charge is Hillary. If she said yes, then it's happening.

45:35Felix Salmon: She greenlit it.

45:36Elizabeth Spiers: And we have that on tape.

45:37Felix Salmon: We have it on tape. Yes.

45:39Emily Peck: Amazing. All right. We will see you on Tuesday with more Slate Money.

45:54Thank you.