The $12.93 Billion Emoji Joke

0:05Hello and welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg. I am in the Slate offices in Brooklyn, New York with Emily Peck of Axios.

0:20Felix Salmon: Hello, hello. We have a screen up on the wall where we can see Elizabeth Spiers of New York Times. Hello. We are going to talk about AI. What is going on with M &A? What is happening to the San Francisco property market? Is it all a bubble? We are going to talk about bonds. Oh, my God. Look at the yields. Eek. We are going to talk about Kalshi and Steve Barmer and trading and rule circumventing and the CFTC and the SEC and the government and the Supreme Court and George Santos. We have a super top secret Slate class you're just going to have to listen to to find out what it's about. But spoiler alert, somehow we wind up talking about whether Europeans have two writers.

1:12Felix Salmon: They don't. They don't. Or do they? I don't believe you. We still don't believe Felix. No one believes me on anything. I have no credibility here at Slate Money.

1:21Elizabeth Spiers: If only we had a European on the podcast. If you're a European with a dryer, let us know. SlateMoney at Slate.com. Otherwise, stay tuned. It's all coming up on Sleep Money.

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2:36Felix Salmon: 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. 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. so guys did you see greg brockman of open ai came out this week and said we have now achieved agi artificial general intelligence these intelligences that we've been cooking up in the lab have now become properly intelligent and everyone kind of looked at him and goes well i guess you have this model.

3:35We haven't played with it yet. But yeah, the AI hype, just when you thought it couldn't get any hypier, has just been bubbling up even more than ever this week. And one of the things that I wanted to talk about was just a little interesting angle in the sheer scale and speed of wealth creation in the AI world, which is not just the fact that SpaceX went public at a $2 trillion valuation and Anthropic and OpenAI are going to be doing that as well. And those numbers are so big that it's hard to kind of wrap your head around them. What's smaller but still enormous are the acquisitions. So SpaceX bought Cursor for$8 billion.

4:19Stripe bought Open Router for what,$9 billion, something like that. And now this week, NVIDIA bought Hugging Face for

4:27Felix Salmon: another 9 billion no it was like 12 12 billion oh yeah 12.9 billion 12.9 billion and if you take the first six digits of the acquisition price it's the decimal version of the hugging face emoji code dead silence what like you know there's a hugging a hugging face emoji yes and that has like an ISO number. Okay. And then if you put that ISO number in decimal, it comes to the first six digits of the acquisition price of hugging face. You know, things are too frothy when they're doing clever, like, number bits with the multi-billion dollar deal amounts. Like, money no longer has any meaning. Correct.

5:12Felix Salmon: When they're just like, ha, ha, ha, emoji joke. It's an emoji joke. Yes.

5:16Elizabeth Spiers: Very Elon Musk with his 420. Yes. Yes. Yeah, I mean, well, Google was doing that, you know, back in its IPO, like the number of shares it would offer would be like E or something like that. But yeah, apparently by some glorious cosmic coincidence, also that six-digit number 12903 or whatever it is, turns out to be the sort of hexadecimal code of the green in the NVIDIA logo. So this is obviously fated.

5:42Felix Salmon: That's synergy, right? That's what they mean when they say synergy. That's synergy, right. The hugging face number, emoji number is the color number. And that matters because nothing matters.

5:53Elizabeth Spiers: I feel like you could put this on Reddit and it would turn into a conspiracy theory somewhere in the bowels of the Internet. Yeah. Yeah. Make a documentary on YouTube about it. Where I'm going with this is basically this idea that a bunch of these companies, hugging face has actually been around a little for a minute. but like a bunch of these companies have been set up just in the past couple of years, got a whole bunch of VC funding, got hundreds of millions of dollars of VC funding, and then sell for eight, nine, 10, 12 billion dollars. The VCs make a lot of money. The founders make insane amounts of money.

6:25There's just huge amounts of wealth creation happening in a very, very, very small world. This isn't the tech world writ large. It's not even really Silicon Valley. Like there's a bunch of people in Menlo Park and Palo Alto and stuff who are like, what? But, you know, it's really just San Francisco. And the San Francisco property prices have just gone insane because suddenly San Francisco is crawling in billionaires and they all want to buy apartments. And yet it's such a small number of humans making such an enormous amount of money. I don't think I've ever seen anything like it.

7:04Elizabeth Spiers: I think for early stage investors, though, this is a little bit unusual. Anthropic and OpenAI have 95 investors total. And these are still early stage companies. Normally, these VC firms won't invest in competitors. And with AI, they've just kind of thrown that rule out the window. So you also have the same investors in both companies in a lot of cases. And so the sort of wealth concentration is going to be even more crazy. You say that 95 is a small number of investors for a startup? For early stage, yeah. Institutional investors. I feel like 95 is quite a lot. I don't know very many companies which have more than 95 institutional investors.

7:41Elizabeth Spiers: Not for startups. That's highly unusual for companies that are raising money from early stage VCs.

7:47Felix Salmon: To your point about the concentration of wealth and how it's not like tech wealth, like we saw Facebook, Google, like back in the social media going public days. Redfin had a report earlier this week showing the divergence between San Francisco's real estate market and Seattle's real estate market. I think of Seattle as like a tech city and home prices there are falling, actually. Demand is low. And in San Francisco, home prices are soaring because everyone's just throwing around their AI money. There's also a piece in The Real Deal, I think I read for reasons I couldn't explain to you last night, about how people with AI money are coming to New York City looking around for places to live and willing to rent now.

8:29Felix Salmon: Partly, They want to avoid whatever the wealth tax is. Pied-de-terre tax. Yeah, pied-de-terre tax. And they're willing to spend upwards of like$100 ,000 a month on rent. So that's happening. It's kind of related to what we're going to be talking about a little bit later in the show, which is this sort of price insensitivity. Like we've talked about this in terms of chip prices, that the AI companies will pay literally any amount of money for compute. And so chip prices have been going through the roof. We're seeing this also to a certain degree in the bond market, that when they need to borrow money, they're just like, give us the money.

9:07We don't care what the interest rate is.

9:09Felix Salmon: Yes. I was just talking to some, I guess, bankers. I don't know. I don't know what my life is anymore, you guys. But basically, exactly what you're saying, the expectations that profits will be so huge down the line means that companies are willing to borrow money at like higher interest rates than you would expect. No one really cares. Yeah, because especially when you're looking at the cost of equity, right, the returns on equity, as we've seen, tens of thousands of percent, right? And so you're like, the cost of me raising a dollar two years ago of equity is so enormous, because now I have to pay out a billion dollars of equity in return for that dollar that I got two years ago.

9:53So then if I say, well, you could raise debt instead, and they're like, great. So I borrow$1 two years ago, and now I owe$2. Crazy interest rate, APRs through the roof. But they're like, that's so much less than a billion dollars. I don't care. Debt just seems so incredibly cheap relative to equity because equity just seems so, like, the returns have been so enormous.

10:13Felix Salmon: But only in this little AI niche. Like, we had data this week showing the explosion in data center construction right now. The line goes up and to the right. And then construction of everything else was down and to the right. Like no one wants to pay higher, is willing to pay the higher interest rates, except for these AI companies. Most developers are price sensitive. And when interest rates go up, the math doesn't math anymore. With data centers, it's all just like we will pencil in infinity in the future. And therefore, all of the math works out. Yeah, it's all that. Like everywhere you look, if you look at the startup deals happening, If you look at the bond deals happening, data center construction, like anyone who has money is like throwing it at this one little niche and that very few people are getting rich from it.

11:03Felix Salmon: Right. I wonder about things like the Stripe acquisition of Open Router, right, which is Stripe is a private company. It's valuable, but it's not OpenAI or NVIDIA valuable. and it's spending$9 billion on this startup called Open Router, which is just like a company that picks which AI model to use. And that's not core to Stripe's job, which is like being the payments layer on the internet. But it feels to me that they're just like, well, they've been AI-pilled, they are convinced that everything is going to be AI and maybe tokens of the new money or something like that. and they just need to be there.

11:48And so there's this, I kind of smell an element of FOMO here.

11:52Elizabeth Spiers: I think there's that, but it's also, you know, any company right now that's a SaaS company has some incentive to throw some money at AI just as, so they have a story that they can tell that they're hedging against the supposed AI destruction of their entire business. And I do think there's also a lot of board pressure. Do you think Stripe is a SaaS company? Yeah, mostly, yeah. Maybe. I mean, people don't subscribe to it. It's not like, you know, I buy a, you know. No, they do have subscription offerings. I think you're right. I'm not sure. I feel like Stripe in particular is probably, I don't know, maybe it is.

12:26Like, what do you think, Emily? Do you think Stripe is something that could conceivably be disrupted by AI that you could just ask Claude to do whatever Stripe is doing right now?

12:37Felix Salmon: I don't feel like I can answer this because of how I don't completely understand what Stripe does, but that kind of makes sense. Stripe is, what you said, a layer in the payments process. Could it be disrupted by AI? I mean, theoretically, anything could be disrupted by AI. I just feel like, in my mind, it's hard to disrupt Stripe. Stripe is like when I rent an Airbnb and my money ends up, you're renting, it's your Airbnb, right? And I'm paying Airbnb and Airbnb is paying you. The little, the pipes that my money goes through to go from me to Airbnb and then from Airbnb to you are Stripe pipes.

13:15Felix Salmon: Yeah, and then Stripe presumably had to do a lot of deal-making and work with the financial institutions to be in that. It's financial plumbing. So you couldn't just replace that. Yeah, I don't really see how ChatGPT can do financial plumbing. We have definitely reached the point in the AI bubble at which people just feel they need to get on this train at any price and the people driving the train are completely price insensitive. And this is showing up in a bunch of different ways. And it's now showing up in the M &A markets, which is kind of interesting. Well, when we first talked about talking about this, if you want to get meta, not meta like Facebook, just meta meta, I said, wow, this is a big deal,$12.9 billion.

14:02Felix Salmon: And Felix was like, is it? NVIDIA is worth, you know, more than$4 trillion. This is like nothing for them. Like they get out of bed and like cough and spend$12 billion. Exactly. Yeah, I think for NVIDIA, compared to their market cap, a$12 billion acquisition is a rounding error. For Stripe, it's huge.

14:20Elizabeth Spiers: Strategically, though, it is interesting because it's NVIDIA sort of really getting behind open-weight models, which are in some ways competitive to AI and Anthropic. Yes. And they've been trying to sort of talk open AI and Anthropic out of closed model systems for a while. And so this is just them putting their money where their mouth is.

14:38Felix Salmon: Well, and The Economist had the good piece. I think it came out like two days ago. I don't know. I don't know if they coined this, but everyone now is calling NVIDIA the central bank of AI. Yeah, I like that. They are the plumbing. They're sort of like the stripe of AI in a way, I guess, because they are... Yeah, they have this layer. Since we're talking about layers, they have this layer called CUDA, which is basically the programming interface that everyone uses to program all of the AIs. And so they just, they control. So that's one of the reasons why it's so difficult for other companies like Amazon and Google to make their own AI chips.

15:15Like, you can build the chip. That's fine. But then if it doesn't, if you can't program that chip using NVIDIA's programming language and everyone's using NVIDIA's programming language, then you have to kind of invent your own programming language to control your own chips. And then everyone's like, yeah, fuck it. I'm just going to go buy myself an H200.

15:35Felix Salmon: There's that. And then I guess I was more thinking of how NVIDIA now is just like investing in buying startups in some cases, backing deals so people can get data centers built. Like they're not borrowing the money, they're not lending the money, but they're backstopping the money now. Making sure that the whole AI sort of multiverse is properly funded, especially the companies that aren't the hyperscalers and don't have the ability to go into the debt markets and issue bonds at lower interest rates. And one of the things we've seen is like a really interesting evolution in what debt looks like.

16:11Historically, debt came in two flavors. There were bonds and loans, right? And in both cases, you have a company who's taking on an obligation to pay a certain amount of money every quarter for a certain amount of years. And in return, they get like a bunch of cash up front. Now, companies are taking on obligations to pay a certain amount of money every quarter or month or whatever. But those obligations are often in the form of leases rather than bond payments or loan payments. And so, you know, Meta or NVIDIA or whoever it is will be like, oh, yeah, we will lease data center capacity for a certain amount of money for a certain number of years.

16:47And then that looks like that, that kind of quacks like a duck and looks a little bit like a duck. And so it feels a bit debt like and banks and other risk averse investors look at NVIDIA and Meta and go, well, they have cash. They're not going to the default on that lease obligation. And so then they will advance money to the data center developers or whoever in order to build data center because they have that lease obligation. So it's like the data center developer can't borrow money because they have no credit worthiness. But the minute they sign a deal with NVIDIA or Meta to lease the data center, then you have a predictable cash flow that banks will lend against.

17:25Felix Salmon: Yeah, it's like if I owned a house that I couldn't really afford. And then I was like, don't worry, Felix is renting it. And he signed a lease for the next 10 years. So I know that every month Felix is going to give me what,$50 ,000? $50 ,000. And then the bank's like, cool, cool, cool. We'll loan you a bunch of money. Like you're good. You have credit worthiness now because we know that Felix is good for his 50 grand a month. It's kind of like that. Exactly. What could go wrong?

17:52Elizabeth Spiers: Well, these data centers are usually leasing both to the hyperscalers and to other smaller AI companies and they try to maintain a combination of the two for hedging purposes. But the smaller AI companies are collateralizing their leases with chips. And we still don't know really how to properly evaluate chips and what their depreciation schedule should be. So there is some guesswork around that. The interesting thing about that, and you've mentioned this on the show before, in the context of what happens if the chips wind up being worthless because most chips do end up being worthless pretty quickly.

18:27It's called Moore's Law. And then what's happened like over the year or so since you first started bringing up this worry is that the chips not only have depreciated much less quickly than anyone thought. So the underwriters are laughing. But in fact, in many cases, the chips have gone up in value. And this is like we mentioned this before, like this has never happened. Right now, anyone who's got a loan that's collateralized by chips is incredibly happy because their loan is looking much healthier than it ever was.

18:55Felix Salmon: But it does seem like, how long can that go on? Do you know what I mean? It's so weird. It's against nature. The supply chain of chips is a known thing. We know how many chips TSMC can produce. And there's a lot of visibility into future chip prices. And going out for three, four years, it doesn't look like this is going to change.

19:16Elizabeth Spiers: Well, I mean, visibility, Yes, assuming the economic conditions that we have right now don't change, that Trump doesn't get up tomorrow and come up with some crazy new tariff. There are a lot of sort of moving parts. I'm not sure it's that straightforward. Well, I mean, no, it's not straightforward. It's definitely complicated. But at the margin, if Trump woke up tomorrow and came up with a crazy new tariff, that would increase the value of chips, the price of chips. You know, like it's hard to come up with a future scenario that causes chip prices to plunge.

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23:11We should talk about the bigger picture of what is going on in the bond market, which is partly an AI issue. As we have said, there are now a whole bunch of price insensitive borrowers out there, which is something that to a first approximation has never existed in the bond market. And when you get a bunch of price insensitive borrowers coming into the market, that tends to make the price go up. And if you look at the total amount of borrowing, even if you include all the things that don't look like borrowing, like leases and stuff like that, that is happening in the AI world, it is still a tiny amount of the bond market.

23:51It's not like...

23:52Felix Salmon: The government bond market. No, the total global bond market of all global bonds, and whether it's corporate bonds, government bonds, multinational development banks, mortgages, all of it. AI is a very small sliver of that, but it's a price-insensitive sliver. And so that is causing yields to rise. The government fiscal situation globally, it doesn't really matter which government you're pointing at, looks really kind of terrible. And so that is causing yields to rise. The sheer amount of government borrowing that is necessary every year is multiples of what it was 10, 20 years ago. And then more recently, over the past few months, we've had various repercussions of the war with Iran, which is causing yields to rise.

24:42And so we've had a significant rise in yields over the past few months since we invaded Iran. The 10-year bond yield has gone up from like 3.9 to 4.9. That's a big increase. It is still roughly in the same range that it has been in since 2023. But there is increasingly this feeling that this is not any kind of aberration anymore. This is just bond yields are high and they're going to stay here forever. This is the new normal.

25:11Elizabeth Spiers: But how much of this is really isolated to the U.S. being a prime mover? I know not all of it, but if Trump had never gone into Iran, for example, how would this be different? So, yeah, I mean, it's a good question. And probably bond yields globally would be slightly lower than they are right now. but they would still be high.

25:29Felix Salmon: If you chart the 10-year treasury yield and you draw the line down in February when the war started, the 10-year yield was going down a little bit before the war and then it starts going up after the war. But also, to Emily's point, the increase since the start of the war has been magnified by the fact that by the standards of the past few years, yields actually looked kind of low when the war started. They were coming from a low. People were like, ooh, this is weird. Yields are going down. Why are they going down? It's really astonishing if you look at all the charts. Like you look at the 10-year chart.

26:06Felix Salmon: You look at the oil price chart. You look at the inflation chart, diesel price. Like everything was sort of like headed south. And then when that war started, everything picked back up. Like it was not a good idea. Just from an – I'm not in a foreign policy podcast. From a global financial market point of view. Just from an economic point of view because it's raising inflation. And I mean, it's it's for a country like us, we're borrowing more money to spend on the war. Oil prices are up now. Diesel prices, we've already talked about the crack spread. We don't need to talk about the crack spread again, but they diesel just hit a record high, higher than even in the Russia-Ukraine war.

26:41Felix Salmon: There's all this inflationary that those diesel prices filter down to prices of all the things you buy, right? Because the stuff that you buy gets moved around on trucks which run on diesel fuel. So the price of everything goes up. So there's all this like inflationary pressure. So, you know, investors in bond yields, they see the inflation going up and they're like, well, we need more. We need more yields because inflation is going to eat away at our money. So that's part of it is inflation expectations. And you can see that especially in the spread between 30-year and 10-year bond yields. And part of it is just fiscal math that we have reached this point of$40 trillion of U.S.

27:18government debt and massive deficits as far as the eye can see. And this point, if you extrapolate forwards, and you can't cleanly extrapolate, but it's a good place to just, you know, baseline. Somewhere in the 2030s, which isn't that far away, on current trends, the government's going to be spending half of its tax revenue on interest payments. And so as those interest payments get bigger, you wind up spending more. It just becomes this crazy sort of circular scheme of we need to be able to borrow money to repay the money that we've borrowed. And the debt just starts ballooning and it gets bigger and bigger very quickly.

27:55And that kind of vicious cycle of national debt, I think, Elizabeth, is more top of mind right now, probably in the U.S. than in some other countries. But it's certainly a huge problem in Japan. It is becoming a big issue in Europe. Like, this is a global problem as well as just being a U.S. problem.

28:19Felix Salmon: And it's solvable. Politically, no. Politically, it's not solvable. But it's not like climate change where it was like, we got to do this and we got to do this. And everyone has to switch to this and like blah, blah, blah. It's not that kind of a problem. It's more like if you just raise taxes like a little scooch, like a scooch a bit, like you could do it. Like it actually is doable. It's becoming harder and harder. The longer we leave it, the harder it becomes. The multi-trillion dollar deficit is kind of baked in now. You know, the interest payments you can't do anything about. The entitlement payments you can't do anything about.

28:52That's most of the budget right there. and just covering that with taxes is becoming increasingly difficult, partly because the interest payments are going up so much and also because of various.

29:03Felix Salmon: But if you just did some, I mean, you can't, you cannot do a tax increase in the United States of America anymore. Like you almost like have to do a tax cut every year just to be a politician now. It's wild. Like, what are we doing? It's like.

29:16Elizabeth Spiers: I think you can, but we don't operate. You can sort of see it happening here in New York City with Mom Donnie just because people will not pay for something until they see it work. And so you always have to front run the policy before you can find real funding for it. But it's funny, looking at the spiraling debt situation, you think of Trump's history as a Queens-based casino operator. It's almost like he's doing the same thing to the country. All of the casinos that he ran, he just ran them on debt and kept borrowing more and more to make the interest payments, which kept ratcheting up, and that's how he went bankrupt several times.

29:49Right. And so, I mean, I don't want to be that person like fear-mongering and saying like the U.S. is going to go bust and there's going to be a default.

29:57Elizabeth Spiers: Oh, well, I don't think that. I mean, first of all, Trump's going to be out of office either because he dies or gets laid out. Sure, but Emily's point is that the fiscal and political constraints are there anyway. And on the right, as she says, everyone's still saying the taxes are too high and need to be cut. And on the left, everyone still wants to believe in this magical fairy of all we need to do is raise taxes on the rich and that will solve things. Neither of these things are true.

30:26Felix Salmon: No, it would have to be the middle class also. I asked Neil Irwin for his thought bubble about this because I get interested in it. And Neil was like, yeah, no, you can't just tax the rich. You'd have to get down to like the upper middle. And all of this rhetoric that the left loves of all we need to do is tax the billionaires. No, it doesn't work. Well, we don't know it doesn't work because it never happens. We could give it a shot. I mean, what's the worst that could happen? We never tried it before. I mean, my fear, I guess, I don't know, fear, but my concern or my prediction is, I mean, we're going to hit the Social Security cliff in 2032.

31:04Felix Salmon: And if we're still in this sort of worry about the deficit kind of vibe, that's when the entitlements get cut, Felix. That's when they start hitting the poor a little bit more. Raise the retiring age, stuff like that. I have been very sanguine about Social Security. I'm like, Congress will cobble together some way to make sure that you keep on getting your Social Security payments at the very last minute. And they have no incentive to do it now. The bond market could smack them for that. And now I am losing my sanguinity. And that's my point is that like I am now looking at exactly what you're looking at.

31:39And I'm thinking, huh, it is actually possible that the bond vigilantes will end up cutting Social Security.

31:48Felix Salmon: Yeah. Yeah, I think so. I mean, I don't think so. That's a really long time from now. It's not. It's five years.

31:54Elizabeth Spiers: Well, since we're all making predictions, we could go to a betting market. Is that your segue, Elizabeth? Oh, good. Yes. Oh, my God.

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33:36Felix Salmon: All right, I need to talk to you guys about calendaring, which is a verb, sadly. And it starts with me having not one, but two different Google calendars that I deal with. One is personal. One is for my work at Axios. And my work at Slate gets kind of spread over both the calendars. My doctor appointments hit one or the other. Y 'all, it's a mess. And that's just me, okay? Then there are the kids. They have their own schedules. Work, school, back to school is underway. way. It can get really chaotic. But what's happened recently is that I have been given a Skylight calendar. Skylight is designed to bring families together for more time.

34:22Felix Salmon: It's an all-in-one smart calendar. It can bring all of the calendars together for a great calendar summit of calendaring and other verbs that we haven't even thought about that we could use to describe what happens when all the calendars converge. You can manage events. You can manage chores. You can keep a grocery list handy. Your happiness is Skylight's happiness. And what I'm hearing is if you don't like this, you can return for a full refund. They don't ask questions. Families are better when they're working together. Right now, Skylight is offering our listeners $30 off their 15-inch calendars by going to myskylight.com slash slate money.

35:05Felix Salmon: Go to myskylight.com slash slate money for$30 off your 15-inch calendar. That is M-Y-S-K-Y-L-I-G-H-T dot com slash slate money. Should I explain? Okay, well, Felix had the idea of talking about two completely unrelated things, but he had the take of we could relate them. The two unrelated things are, one, George Santos, who is the former congressman from Long Island who was kicked out of Congress and has now been also banned for life from Kalshi, the prediction market, which I think it was Elizabeth who was like, wow, that doesn't happen to anyone. This is incredible. And then at the same time, a billionaire got a little like slap on or big slap on the wrist this past week.

35:53Felix Salmon: I'm talking about Steve Ballmer, who has a lot more money than I realize, if I'm being honest. He has like$30 billion or something. Microsoft Stock has been doing really well. Holy cow. Anyways, he owns the LA Clippers. He also got in trouble, not banned for life, but I think blocked him for a year from running the Clippers. And the team itself lost five first round draft picks because he has been found to have done basically self-dealing where he finagled his way around the NBA salary caps to funnel more money to one player in particular. And then Pablo Torre, an investigative reporter, discovered this a year ago, and the NBA took a year to investigate it.

36:35Felix Salmon: And lo and behold, blah, blah, blah. By the way, if you want to read a really fun White Shoe law firm report, read the Wachtel report into what Steve Barber did because it's kind of wild how blatant this was. There's the salary cap. the NBA is like, no, you can't just pay an official salary and then an unofficial salary via someone else. Like the cap is the cap. And this guy, Kauhai Leonard, is a basketball player and his manager slash cousin was like, no, I want more money. And so the Clippers were like, yeah, we'll just literally give a bunch of money to our, the company that makes the signs for our stadium for quote unquote consulting.

37:13And then that sign company can sign Kauhai Leonard to an endorsement deal which he never needs to show up to or endorse anything and then he gets more money and everyone's like really really you think this is going to work and they actually did that you know yes um okay this might be a little bit of a stretch wait and what did santos do santos bet on himself showing up to the state of the union after he by the way he tweeted out that he was going to show up and then didn't yeah he tried to manipulate the contract price by tweeting out that he was going to show up and then he didn't show up so he made a lot of money by betting that he wasn't going to show up and the thing that these two have in common is that the mba and kalshi these are private companies they're in charge of their own like little internal domains and worlds and they can enforce anything they like how they like in a sort of private non-criminal way right no one is saying that steve barma did anything criminal that he broke any actual laws no one are saying that George or some people are saying that George Santos broke laws but I don't think he did but you don't need to do something illegal to be banned from running an NBA team or to be barred for life from Calci right because these are private companies and it's up to them like you could show up wearing a pink t-shirt to work tomorrow and the CEO of Axios could be like I don't like people in pink t-shirts you're fired and like you're an at will employee and there's a relatively strong case that they could just be like, yeah, you're fired.

38:45We don't need to give you a reason. But I could go to court, I think, for that. Wearing pink T-shirts is not a protected class.

38:52Felix Salmon: But if only I, an old lady, was fired, then I'd have to prove that young men wear pink T-shirts all the time and don't get fired. Then I have a case. Exactly. But you would need to show that it was about more than just pink T-shirts. Yeah, for sure.

39:06Elizabeth Spiers: I think this all hinges on what the courts decide about prediction markets. You know, are they financial instruments or are they sports betting? And New Jersey just asked the Supreme Court to hear a case around this. And Koushi has been much more conservative in terms of how they have approached this, which sort of makes you think that they anticipate that the court will rule that these things are financial instruments. I don't take that stance. I think that Kaoshi is being relatively, as you say, conservative. Like, you know, it's cracking down on the Santosis of the world precisely in order to signal to the government broadly, including the judiciary, that it doesn't need to be regulated because it does a perfectly good job of regulating itself.

39:53It's also, I mean, if you want to have a market, it has to be perceived as a fair market.

40:01Felix Salmon: Otherwise, people aren't going to want to come to the market and do stuff. Well, so that we have an interesting test case here, and that is called Polymarket. And by far, the two biggest prediction markets are Calci and Polymarket. Polymarket, historically, has been bigger than Calci. Now, Calci has kind of caught up. They're roughly the same size. Polymarket is not doing the Calci thing. Polymarket is not cracking down on insider traders. Polymarket would not have banned George Santos for life. Polymarket is allowing contracts on things like, will this person die and stuff that Kaoshi won't allow.

40:36Polymarket is not regulated by the United States because it is a global crypto decentralized finance, something, something, something, something. thing they have plans to launch a sort of regulated u.s something but that isn't really here yet so for the time being if you're on polymarket you're still in sort of wild west crypto land and the fact is that people are betting huge amounts of money on polymarket in the knowledge that there

41:05Felix Salmon: are a bunch of shenanigans going on there there's something on polymarket with a guy in the military bet on the Venezuela. Yeah. That was Polly Market, though. They took action. No, they didn't. Oh. What's interesting in that case is that it was the U.S. government who took action, and the U.S. government was like, you're in the military. You just violated your duties of whatever to the government. And so they started prosecuting him criminally. Got it. It just seems like you have to draw lines. Like, if the NBA wants to have a salary cap, it can't let the Steve Ballmers do things like that to get around it because then their cap that they worked hard to sort of put in place and have a reason becomes meaningless.

41:46Felix Salmon: And the same with Calci, I think. Like you want your market to operate in a clear way. And if they're like all markets are they have their own enforcements and regulations and things like that. So again, like, you know, we can talk about Calci and Polymarket as being one more sort of regulatory and one more laissez faire. Yes. It kind of reminds me of the SEC and the CFTC. Yes. The SEC is born out of the Securities and Exchange Act of 1933, which was born out of all of the anger against stock manipulation in the 1920s. And it's basically Joe Kennedy coming in and putting in a whole bunch of regulations to protect the little guy and make sure there's a level playing field.

42:30The CFTC is a bunch of Wild West cowboys in Chicago doing whatever they want. They're historically much more laissez-faire. For many, many years, there was no insider trading statute at all in derivatives and options and all of this kind of stuff. Now there is, but it's weaker than in securities. and you know in cftc land much more is allowable so for instance to give you a really obvious example which i'm stealing from matt levine airlines oil companies all of these people are constantly in the derivatives markets hedging their oil exposure right that's you need to do that right but they have obviously a whole bunch of inside information about how much oil they're and stuff.

43:15And so on some level, that's kind of what George Santos did. They're betting on the stuff that they themselves are doing. And that's fine and actually expected in the derivatives world, not so much in the securities world. And the super interesting thing here is it's not different at all, is that under current regulations and the thing that has allowed Cauchy to offer all of this sports betting in a way that it was never allowed to before, under current regulations, Kaoshi is actually regulated by the CFTC, not the SEC. And the CFTC, especially in the second Trump administration, has made it very clear that has no interest in regulating anything and anyone can do anything, right?

43:58They have let crypto go wild. They've let Kaoshi go wild. They've let sports betting go wild. They haven't really cracked down on anything anywhere. And so Kaoshi is kind of saying like, well, we know we're regulated by the CFTC and we know the CFTC is MIA. So we're going to be the grownups in the room and do things like bar George Santos because there's no way the CFTC is ever going to force us to do that.

44:23Elizabeth Spiers: Also, I just I think it's hilarious and smart that they chose George Santos specifically because other people have done this, but he's such an outlier, insane case that they can sort of point to it and say, look, we are paying attention. And here's this guy who everybody knows is a grifter. And he did something and we're going to ban him for life. Like, I think this would not have been, well, it wouldn't have been as much of a story if they just picked a random who, you know. If they picked Steve Bama, that would have been amazing. So rich.

44:54Felix Salmon: So rich. I really had no idea. I don't know. It seems like, I don't want to go to a place that's not secure. I don't know. Maybe you don't, but you are not a gambler. Sophisticated. People aren't using Kaoshi for risk-free investments. They're using it for gambling. And if you think back for centuries, you know, people have been gambling on lotteries and numbers games and all manner of things, or like going to under, you know, bookmakers who come over and send people to break your knees like you know gambling has never been like a safe and secure clean well lighted place it's true so you're like i wouldn't go i wouldn't gamble if it wasn't clean and well lighted but that's the whole point you're not a gambler you're not attracted by that kind of thing right but cal she is trying what is they are trying to get institutions on the platform they have institutions on the platform yeah they do james street is making loads of money by doing arbitrage on the platform but that's why they do kind of want it to seem

45:55Elizabeth Spiers: like a well-lighted, decent place.

45:56Felix Salmon: Yeah, they want to seem like they're a market, but they also don't want to seem like it. Jane Street is modeling the fact that there are going to be insiders trading, right? They were working in the pits in Chicago back when there were no rules. They can cope with that without having Uncle Kalshi make sure everything is safe.

46:30Let's have a numbers round. Emily, you said that you have a number in your head and you don't need to look it up.

46:35Felix Salmon: It fell out. I have to look it up. Go to someone else. All right. Elizabeth, what's your number?

46:41Elizabeth Spiers: Who's the other person that we can go to?

46:46Elizabeth Spiers: It's$74. That's the amount of money you would pay for a can of hairspray from Dyson. And the reason why I found this is because we are going to talk about Dyson shortly. But I was wondering, what's the most expensive thing that they have? Because I think of them as a premium kind of luxury product. And the most expensive thing I could find was just a robot vacuum that started out at$1 ,600 and now it's been priced down to$1 ,000. So the range of what they sell is not, the high end is not as high as you would think. But I was particularly interested in the$74 hairspray. so it's$74 for 165 milliliters and as an American I have no idea how much that is it could be a swimming pool or you know eyedropper but the big selling point of it is that it has flexible all-day hold without the crunch and I don't think there's been crunch in hairspray since the Aquanet era but I don't know I don't really use hairspray there's definitely cheaper her hairspray but without the crunch dyson has really done an amazing job of becoming absolutely central to the hair care market it's hair curler that what's it called the air wrap yeah is like people swear by it i know one woman who has four different air wraps because it they don't make it multi-voltage so if you travel a lot you need a different one for every country that you go to does she have amazing hair of course once you buy into this idea that dyson knows hair Then at that point, yeah, I'm sure there are other$75 hairsprays out there.

48:20I'm sure you can walk into Sephora and find...

48:23Felix Salmon: Herastas or something. Yeah, some$75 hair. And that is, we'll go in there. As we will talk about in the Plus, they now have their own tooth mouthwash thing as well. So yeah, they're not just a tech company. But anyway, we won't have the Plus conversation here. We'll have that in the Plus. I'm really holding back right now because I have news about Dyson related, but I won't say what it is. Save it for the Plus. I won't say what it is. Save it for the plus. My number is 1 ,088, which is also a price. It's the price of laser mosquito zapper. I'm sorry? It's an AI-powered. It's this little box. I love this.

49:05It's like an iron dome for mosquitoes. It's this little box that you put in your front yard, and it has LiDAR, and it has radar, and it has lasers. And it has a blue light. And it looks around your yard for a mosquito. What? And if it sees a mosquito, it will fire a laser and a blue light at the mosquito. And the mosquito will go zoom. And it just goes, pew, pew, pew. And it's like Star Wars. It's amazing.

49:32Felix Salmon: You've seen it work. Yeah. Well, I've seen videos of it working. That's amazing. Now do ticks. Oh, no, it does. I mean, anything that flies, it does. As long as it's less than a certain number of millimeters. Oh, my gosh. And wait, and you can see the lasers? Yeah. Oh, wow. That's funny. So especially at night. You know, when you're hanging around. I hope so.

49:53Elizabeth Spiers: Pew, pew. Pew, pew. Yeah. You should make it just go pew, pew every time. Would it shoot a firefly, though? I'm imagining. Oh, yeah. We don't want that. Yeah. You just turn them off for that, like. Make it look like Star Wars. Two weeks in June when you have the fireflies. You don't want all the fireflies to go there because they are lovely. Yeah. All right, Emily. You're going to bring us home with your number.

50:14Felix Salmon: Oh, man, it's not like a fun one. I wish I had gone first. Anyway, my number is 8.2. It's a percent. I know. It's a percent. Well, it's good. We had dollars. You can have percents. Okay. Well, that is how much companies say that they're going to raise health care costs next year. Yeah. But wasn't it like 75 % this year? Is that a decrease or an increase from what happened this year? I think it's a slightly higher. I didn't write that part down. Felix can't tell you. But this 8.2 % is after they throw some of those costs back onto workers. Oh, right. So the total health care costs aren't going up by 8.2%, but the share paid by workers is going up.

50:58Felix Salmon: Yeah. Yeah. Anyways, the point is it's the highest increase since 2003. Health care costs are going bananas. Whatever happened to curve bending? I thought we bent the curve. I was so confused. I thought we'd bend the curve. I'm not a health care reporter. Is health care a large consumer of diesel? Well, the New York Times piece on this, they said there was a few factors. I wrote them down. Rising hospital costs, more expensive. Yeah, but that's just like a tautology. Right. More expensive cancer drugs. The prices are higher because the prices are higher. Right. The more expensive cancer drugs, GLP-1s, which companies aren't paying for, and the ones who do pay for it are dropping it because they're spending too much on it.

51:39Felix Salmon: This was a new one, more efficient billing because of AI. AI is enabling them to like screw you more. That's what we're all spending money on, folks. That's why they're throwing all this money at AI, so they can screw you on health care.

51:53Elizabeth Spiers: This is also on the heels of a Yale research study that says that if we move to single payer, we'd save a trillion dollars a year versus the current system.

52:01Felix Salmon: And it's already started to get worse because of the cuts in the big, beautiful bill to the Medicaid, Medicare, whatever, more uninsured people are showing up in emergency rooms. And that raises costs for everyone. But still, I don't really get why. But I have to say, apropos our earlier conversation, and apropos what Elizabeth just said, this is the tax hike, right? This is the way that America raises taxes, not through actual taxes, but by making people pay more for health care, which is something that in most countries is covered by your taxes. Right. And so because it's not technically a tax, people are like, oh, that's gone up.

52:39They don't blame the government in the same way.

52:42Felix Salmon: Interesting, yeah. Anyway, I think that's it for the main show this week. Thank you for listening. Thank you for producing, Mr. Ben Richmond here in Brooklyn. And also, of course, to Jessamyn Molly at 2Pain Armada in an undisclosed location. We are going to have a Slate Plus segment where Emily is going to break news. We are going to have to be a Slate Plus member slash subscriber to listen to it. We are going to talk in that Slate Plus segment about a$500 toothbrush. Other than that, keep the emails coming on slatemoneyatslate.com and we will be back here next week with more Slate Money.

53:30Felix 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.

54:11Felix 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 WashingtonWise or wherever you listen.

54:49Elizabeth Spiers: their clients' money, all in one place. The right systems can free up time, reduce drag, and make growth more intentional. Visit bill.com slash proven to talk with an expert about automating your business finances.