Friday, May 6, 2022

Matt Damon's soul didn't come cheap and other Friday miscellanea

!!!MOOB

[Implosion sound effect]



From YouTuber and scam expert Coffeezilla.



More details here.


Also from Coffeezilla. You may have read about this interview, but that's not the same as actually hearing it.

"You're just like 'well, I'm in the Ponzi business.'"



Sam Bankman-Fried is worth $24 billion.



110 doesn't seem like a lot.


We'll probably do another post of this article by Emily Shugerman focusing on the politics of this 2022 bitcoin conference (Jordan Peterson, Peter Thiel, you see where this is going). Most of the well-written piece focuses on less famous and far more likeable characters. Much of it is funny. Most of it is sad. This will not work out well for these people.

MIAMI BEACH—The thing about bitcoin, the man at the back of the convention center wanted me to know, was that once you understood it, it changed everything. It seeped into every aspect of your life: personal, political, financial. Bitcoin was freedom, he said; it had the power to literally end all war. And that’s why he was here, at Bitcoin 2022—the largest bitcoin event in the world—trying to spread the gospel through women’s panties.

“Once you get into bitcoin, there is no way back,” the man, whose name was Pablo, said over piles of women’s underwear emblazoned with the cryptocurrency’s logo. A sign behind him read: “Panties for Bitcoin.”

“Once you understand it, it gets into your life from every point of view—not only the economic point of view,” he continued. ”Once you have control of your money... you have control of everything.”

I heard a similar refrain from other attendees over the course of the conference, including a man who quit his job as an industrial engineer to make bitcoin-themed merchandise on his 3D printer and a 23-year-old Lebanese jewelry heir who had recently convinced his family to invest part of their fortune in bitcoin.

The former engineer asked me why I was among the 25,000 people at the conference, and I told him my reporting beat included cults.

“We’re a cult, absolutely,” he said. “One hundred percent. I love the bitcoin cult.”



A free speech absolutist, but only in the relative sense.


I can't really call this miscellanea without including Cory Doctorow's chickenized reverse centaurs. 

Big Chicken tells farmers which chicks to buy, what kind of coops to raise them in, when the lights go on and off, which vets they’re allowed to use and which medicines the vets are allowed to administer. They even tell them who they’re allowed to hire to fix their coops (specifically, they bar farmers from hiring ex-farmers who speak out against the industry).

The processors tell the farmers everything…except how much they’ll be paid for their birds. This is decided only after the farmers bring them to market, and the sum is titrated to pay them enough to service their debts and raise another batch of chickens, but not one penny more.

This worker misclassification and control — governed like an employee, paid like a contractor — has spilled out beyond the poultry industry. Uber drivers are heavily chickenized, with their pay calculated to let them service their car loans, insurance payments and fuel bills — but not enough to save up and quit the industry.
And
In AI circles, a “centaur” is a human/AI collaboration, like when chess masters and chess programs form a team that can trounce the best people and the best programs. In these centaur ops, the human is the “head” and the AI is the “body” — a “decision-support system,” that augments the human.

A reverse centaur is when it’s the other way around. Think of an Amazon delivery driver, whose work is observed and analyzed by a constellation of cameras and algorithms. These workers are the body, not the head — the AI gives the orders and the human is the dumb meat, augmenting the machine.

Now we’re ready to put it all together. A chickenized reverse-centaur is a worker who is misclassified as a contractor, micromanaged like an employee, and given no guarantees of pay or hours.

This is end-stage app work capitalism, as with Doordash and Uber, where workers don’t get to see the full amount on offer until they take the job. This lets these unprofitable companies continue to grow by offering subsidized services to customers. The app work monopolists have always relied on subsidies to grow, and this tactic switches the costs of subsidies from their shareholders to their workers.

And a little politics. 


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Thursday, May 5, 2022

Thursday Thoughts: A tale of two tweets

This is Joseph.

So the leaked Roe versus Wade opinion has elicited a variety of reactions. On one side, we see the group that sees abortion as unique and unlikely to lead to further dramatic changes:





On the other hand we have people who are deeply concerned:

I think the real point of concern is what happens next. James Joyner, who I have always seen as fairly right wing, has this point to make that I think is largely correct: 
Regardless, Tribe’s larger point is surely right. There’s nothing stopping a Court that is willing to simply disregard precedent from making wholesale changes to the way the country is governed. Even aside from various “rights” that previous Courts found hiding in the shadows of the Bill of Rights, there are strong signs that this collection of Justices may overturn the very foundations of the Administrative State. Grounded in the Constitution of 1787, they have a plausible case for doing so. But it would be dangerous, indeed, making governing a modern continental superpower next to impossible
Really, this is the key point of concern. The law is a living and breathing thing, that evolves over time as technology and circumstances also evolve. It goes forward and backwards, makes mistakes but ultimately creates the underpinning of how to make a complex society work. Codified law has been a feature of complex (i.e. agrarian) societies for at least 4,000 years. There are different types of law but the sort of constitutional law that the United States uses is deeply based in precedent. It is also a system with a lot of veto points and a written constitution. It might be that a parliamentary system could react more quickly to a radical court -- but that isn't the US system. 

Now it is possible that things will improve. This could be a bad draft that is a lot better in final form. I hope nobody ever leaks the first draft of one of my papers! There could be bargaining to improve the legal reasoning and bring it more into line with precedent (laws can evolve, or, perhaps, devolve). It could be a one off decision like Bush versus Gore, that ages badly but does not foretell of future radical decisions (the Megan McArdle view, above). 

That said, I go back to Abraham Lincoln. In the face of a major internal crisis, he expanded the court to its largest historical number as a part of stabilizing the country. If there is too much tampering, I think we should consider that the primary legislative body is congress and that the democratic accountability of congress makes it a far better branch to enact radical change, should it be desired. 

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Wednesday, May 4, 2022

Late Night Thoughts on Roe v Wade, Black Swans, Elections, and Uncertainty

I normally let these things sit for a while and run them past a stat professor or two to check my logic and language, but this is a fast-moving story and I wanted to make some points before the experts weighed in.

Dictated to my phone, so beware the occasional homonym. 

1. All predictive models are based to some degree on the assumption that the underlying relationships that held before will continue to hold in the future.

1b. All causal relationships we observe or, more often, fail to observe depend on the ranges of the variables in question. You will find no relationship between age and blood pressure if your study is based on a group of college students.

When we have reason to believe that underlying relationships in changed, particularly when factors have moved out of previously observed ranges, you should be prepared to discard deeply held assumptions about what is likely and what is unlikely.

2. Also remember that most of those nice, straightforward relationships we throw around when explaining and predicting are at best oversimplifications and frequently useful fictions. We constantly gloss over complexity and complication in order to get a clear, concise explanation. Think using a simple linear model when an enormous Bayesian network would be more appropriate. Under normal circumstances, we can usually get away with this -- It may even be the best approach -- but when profound changes are happening these oversimplifications can lead to disastrously wrong conclusions and recommendations.

3. We also have a tendency to put far too much faith in what we have come to think of as fixed points. At least in the social sciences, there are very few values, thresholds, or relationships that we can treat as immutable laws of nature.

The main lesson here is that when we get into uncharted territory, no one can be certain of anything including the pundits and even researchers. 

My gut feeling is that the upcoming SCOTUS ruling is horribly dangerous for the Republican Party. The GOP has staked out a position as the anti-Roe, pro-Putin, anti-vax, pro-insurrection party. On top of that, the governors of their two most populous states have in effect declared war on their own states' economies. My instincts tell me that under these circumstances, bringing any of these issues front and center in the discourse is likely to hurt the Republicans.

But that's just a guess. 

I don't know what I'm talking about, not because this is way out of my field (which it is) and not because I am unfamiliar with the data (though I am, in fact, almost completely ignorant of it*). I don't know what I'm talking about when I make predictions about the upcoming election because nobody knows what they're talking about when they make predictions about the upcoming election. 

We are so far beyond the range of data that no statement can be made with any confidence, not just with respect to Roe v Wade but along a number of other dimensions, the extremism of the rhetoric, the level and precision of gerrymandering, the role of conspiracy theories, the infiltration (sorry, there's no better word) of one party by a hostile power, revelations of coups past and future, and this is not a comprehensive list. 

There are limited sorta-kinda parallels from history books and interesting, perhaps even informative findings from polls and previous elections, but none of it is science, at least not yet. A year from now, you will see some first-rate research coming from smart political scientists that will give us real insight into what is and is about to happen, but for now, no one is making any kind of statistically solid predictive analysis about November. 

*Yes, I know, but the plural just sounds stupid.
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Tuesday, May 3, 2022

Tuesday Tweets -- Web3 edition

One of the best cryptocurrency quotes, period.




A bit off topic for this post, but an important point (and I'm a sucker for really British names).



While we're leafing through the Financial Times, no one does needful snark like Jemima Kelly.


Tough stance from an organization that needs (and deserves) donations.
This bodes well.

Anyone else getting a really strong sophomore stoner who likes to impress freshmen vibe off of these Silicon Valley visionaries? 

What could go wrong?
                                        What could go wrong?
                                                                                     What could go wrong?



I'd seen the term "gas war" in this context before but I was never entirely clear about what it meant until I read this post by Amy Castor.

Yuga Labs launched a land sale for its upcoming metaverse project Otherside Saturday night, which quickly morphed into a gas war — and broke Ethereum. 

As part of their psychedelic-fueled business plans, Yuga Labs offered 55,000 NFTs called “Otherdeeds” for 305 APE each ($5,800, at the time). Apecoin was the only crypto accepted for the minting.  

The sale, which started on April 30, at 9 p.m ET, immediately became a land grab for the rich. People paid between 1.3 ETH to 1.9 ETH ($3,500 to $5,500), on average, just to get their transactions to go through. Some even paid 5 ETH ($13,500) and higher — double the cost of the land itself.

The high fees lasted several hours, making Ethereum virtually unusable for any other projects. [Reddit]

By the time the sale was over, Yuga Labs netted 16.7 million APE ($310 million), helping to recentralize a coin they can then claim is decentralized. All of the APE acquired in the sale are locked up for one year. 

Gas fees

Ethereum — a “world computer” — ambles along at 15 transactions per second. You have to pay a fee, called “gas,” to Ethereum miners to process transactions. 

When transaction volumes are high, miners get to selectively process only transactions paying the highest gas fees. The higher the gas fee you are willing to pay, the better your chance of having a miner include your transaction in the next block on the blockchain.  

If you happen to pay too low a gas fee, your transaction will fail, and you lose your gas money. The Otherdeed mint saw lots of failed transactions. [Dune]
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Monday, May 2, 2022

I just checked and we've been making fun of Zucker since 2010.

Sometimes you come up with an example so good you just have to keep revisiting it. When it comes to executive compensation, that example is Jeff Zucker.

The standard defense of exorbitant CEO salaries and bonuses is that they are worth it, that they more than pay for themselves in terms of corporate performance. 

The problem with that argument is that there doesn't seem to be that strong a correlation between how well these people do and how well they are paid or how they are able to get and hold on to incredibly sweet jobs.

As you can see from our earlier post below, Zucker is a strong competitor for worst network executive executive ever, taking NBC from first to fourth with remarkable speed. You might have thought this would have been a bit of a black mark on the resume. Fred Silverman had spectacular runs at CBS and ABC, then stumbled at NBC and though he later re-established himself as a successful producer and many of his NBC decisions look pretty good in retrospect (such as greenlighting and developing David Letterman's first show), he remained an industry punchline for years.

At NBC/Universal, Zucker just kept failing up. Even after being forced out there, he landed the top job at CNN because he had "experience" running a network. All of which makes it all the more fitting that he left on this note.  

Before we give ourselves over to schadenfreude, it's important to remember that when executives screw up, it's the people way down the food chain who pay the price.

Here's a very pensive and uncharacteristically unpolished Bob Chipman on the subject.





From Business Insider:
CNN+'s demise came fast, and so have the blame and recriminations. 

Warner Bros. Discovery pulled the plug on the costly project less than a month after launch, with new CNN CEO Chris Licht saying in a statement that "CNN will be strongest as part of WBD's streaming strategy which envisions news as an important part of a compelling broader offering along with sports, entertainment, and nonfiction content."

...

Blame for the destruction doesn't seem to be falling on new owner WBD or its emissary Licht. Instead, company insiders and industry observers are largely laying responsibility on the shoulders of former CNN president Jeff Zucker and departed WarnerMedia CEO Jason Kilar.

"This was all ego. All a power play for a bigger job or independence. Hubris. Nothing more," said one former WarnerMedia exec of Zucker. "The only people who ever thought this was a good idea either worked at CNN or were trying to get CNN + to hire them. Nobody else."

...

"It was a vanity project for [Kilar] and Zucker," an insider familiar with CNN's plans said in early April. "They wanted to launch it." 

After Zucker resigned from his role in February — over his failure to disclose a relationship with a colleague — industry observers wondered if the company might hit pause on CNN+. But Kilar stayed the course. 

"Frankly, I think Jason Kilar knew it was going to fail," the former WarnerMedia executive said, "and was happy to let Zucker push it out there so his last final thing at CNN was a failure."



Saturday, September 25, 2010

Forget teachers-- hell, forget employees, what does it take to fire a CEO?

One of the fundamental tenets of the modern educational reform movement is faith in the private sector. In the last post, I discussed the contradictions in using that faith to justify attrition policies that are pretty much unheard of in the corporate world.

There's a second potential danger in looking to the private sector for answers. Companies are not very transparent. Most go to great lengths to hide incompetence and depict every effort as a success. There's nothing illegal or even unethical about this. If anything, the people who run a company have an obligation to present it in the best possible light.

Though you can't blame businesses for spinning their results, you can get into a great deal of trouble by imitating them. For example, a school system might adopt an innovative system of project management and never know that it was responsible for hundreds of millions in cost overruns.

Occasionally, however, you will run into a corporate screw-up so massive that no degree of opacity, no amount of spin can obscure it. When you encounter one of these, you should take a moment to remind yourself that the snafus that break the surface represent a minute share of the general population.

Which brings us to Jeff Zucker.

Zucker was brought in as president of NBC Entertainment in 2000 after a stint at the Today Show where his most notable accomplishments were moving the studio and introducing the Today Show's outdoor rock concert series.*

His tenure on the Today Show represented one of Zucker's two specialities: making tiny tweaks to a hit then claiming credit for its success and screwing up on an almost biblical scale. Under Zucker, NBC was the first network to ever go from first to fourth place and he came very close to destroying their lucrative late-night slate. According to an executive for another network (quoted by Maureen Dowd), "Zucker is a case study in the most destructive media executive ever to exist... You’d have to tell me who else has taken a once-great network and literally destroyed it."

Zucker was grossly incompetent. The cost to shareholders is difficult to estimate but it's probably in the hundreds of millions (possibly billions**). His poor performance was widely discussed in the industry.

And yet it took a change of ownership to force him out and he still gets terms like these:
Zucker's contract had been renewed last year to run through January 2013 with an annual salary of $6.3 million and a guaranteed annual bonus*** of $1.5 million. If he leaves by January, he can expect at least a $15.6 million check.
The moral of this story is: next time people tell you that schools should be run like a business, make sure to ask them which business they have in mind.


* Apparently the Today Show has an outdoor rock concert series.

** Here are some numbers from Wikipedia to put things in context:

On December 1, 2009, CNBC reported that a tentative agreement had been reached between Comcast and GE.[26] The deal was formally announced on December 3, 2009.[7] Under the agreement, NBC Universal would be 51% owned by Comcast and 49% by GE. Comcast is to pay $6.5 billion cash to GE. Comcast will also contribute $7.5 billion in programming including regional sports networks and cable channels such as Golf Channel and E! Entertainment Television. GE plans to use some of the funds, $5.8 billion, to buy out Vivendi's 20% minority stake in NBC Universal.[7] After the transaction completes, Comcast will reserve the right to buy out GE's share at certain times. GE will also reserve the right to force the sale of their stake within the first seven years. The deal is subject to regulatory approval.[7]

Vivendi will sell 7.66% of NBC Universal to GE for US$2 billion if the GE/Comcast deal is not completed by September 2010 and then sell the remaining 12.34% stake of NBC Universal to GE for US$3.8 billion when the deal is completed or to the public via an IPO if the deal is not completed.[27][28]


*** I just love the idea of a "guaranteed annual bonus."











Wednesday, December 12, 2012

Peter Principle or Dilbert Principle*

In case you haven't heard, Jeff Zucker has just been named president of CNN. Since we've been discussing incompetent executives lately, this seems like a good time to ask how, despite huge stakes, fierce competition and multiple layers of screening, incompetents still sometimes manage to make it to the top of large corporations.

At first glance, Zucker would appear ot be a perfect example of the Peter Principle, an effective producer promoted past his talents, but when you look closer at Zucker's one big accomplishment, the resurgence of the Today Show, you see less proof of competence and and more evidence that corporate reputations are often built on unrepresentative baselines, delayed effects, external factors and the tendency to embrace appealing and established narratives.

First some background via Wikipedia (as are all block quotes unless otherwise noted).
In 1989, [Zucker] was a field producer for Today, and at 26 he became its executive producer in 1992. He introduced the program's trademark outdoor rock concert series and was in charge as Today moved to the "window on the world" Studio 1A in Rockefeller Plaza in 1994. Under his leadership, Today was the nation’s most-watched morning news program, with viewership during the 2000-01 season reaching the highest point in the show’s history. ... In 2000, he was named NBC Entertainment's president.
Sounds pretty good, but remember two things that happened at the Today Show in 1990 an 1991. The first was a disastrous transition from Jane Pauley to Deborah Norville. You could make the case that Norville was actually better qualified for the job, but that did nothing to soften the viewer reaction. The younger Norville was seen as taking advantage of looks and youth to steal Pauley's position. Saturday Night Live even did a sketch entitled "All About Deborah Norville."

The ratings took a hit from the debacle, but Norville was soon gone, setting the stage for an upturn. That recovery was all but guaranteed by the hiring in 1991 of Katie Couric, a journalist who could have been genetically engineered to host a morning show.

Whoever got the producer's gig in 1992 was almost certain to oversee a substantial rise om ratings as the memory of the debacle faded and Couric started bringing in viewers. Now add in what was going on at Today's significant competitor.
Good Morning America entered the 1990s with its overwhelming ratings success. Gibson and Lunden were a hard team to beat. But Good Morning America stumbled from its top spot in late 1995. Lunden began to discuss working less, and mentioned to network executives that the morning schedule is the hardest in the business. ABC executives promised Lunden a prime time program; Behind Closed Doors would be on the network schedule. On September 5, 1997, Lunden decided to step down after seventeen years on Good Morning America and was replaced by Lisa McRee. Gibson and McRee did well in the ratings. However, ratings sharply declined when Gibson also left the show to make way for Kevin Newman in 1998. With McRee and Newman as anchors of Good Morning America, long-time viewers switched to Today, whose ratings skyrocketed and have remained at the top spot since the week of December 11, 1995.
In other words, Zucker started with an artificially low baseline, was handed a major TV personality on the verge, and saw his competition fall apart at exactly the right time. All of the important drivers of the show's success were things he had nothing to do with.

Just to be clear, many, probably most CEOs get their jobs because they are smart and capable and add value to the company, but there are other ways to  succeed in business. You can:


Fit in with the culture;

Make the right friends;

Couple your career with rising leaders and initiatives;

Fashion a persona that complements the favored narratives;

As for that last one, the legend of the studio boy wonder runs deep in the entertainment industry, from Thalberg to Silverman. When Zucker was put in charge of Today in his twenties and NBC in his thirties, he tapped into something both familiar and resonant.

But Thalberg and Silverman really were boy wonders who had laid down impressive resumes before they were put in charge. Zucker only had the perception of success. Sometimes, though, that's enough.



* Technically not the Dilbert Principle, but close.






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Friday, April 29, 2022

Updated: A year ago at the blog we were talking about about the disconnect between Musk pontificators and the reporters on the beat. Let's see how that's going

As soon as I run a post, perfect examples start showing up.



___________________________________________

Picking up from Wednesday and Noah Smith's misinformed defense of the non-founder of Tesla and PayPal. 

While Musk's attempt to buy Twitter has focused the attention of many in the press and a lot of disturbing stories have come out since last year, many commentators are still perplexed at the hostility toward Elon, particularly among liberals who, according to conventional wisdom, should be the ones who hold him in the highest regard. 

An example from an associate editor of Reason (I assume center-right politically).
Worth noting that by 2021, Tesla had largely dropped out of the clean energy business.
In the fourth quarter of 2017, Tesla reported a 43% drop in solar deployments compared with when it purchased SolarCity. The company ended up losing its market-leading position in 2018 and now hovers around 2% of the residential solar market, according to Wood Mackenzie. In the first and second quarters of 2021, Tesla installed 92 and 85 megawatts of solar, respectively. That’s less than half of what SolarCity was installing per quarter before the acquisition.

Tesla moved some solar employees to work on building the company’s electric cars and batteries, fired other solar employees, and moved others who had been doing new installations to work on repairs and remediation.
And that Musk's relationship with the ACLU is... complicated.
Beyond that, notice that Binion's they-hate-him-because-he's-rich is the same one used by center-left Matt Yglesias a year ago. (see below.)

Like Yglesia, NYT columnist Farhad Manjoo is also generally center-left (though he is also the paper's goto guy for blame everything on liberal hypocrisy stories) 
Quick side note: All justifications of Tesla's valuation start with the assumption that it will have a virtual monopoly in the near future, so I guess he's just an aspirational monopolist. 

I cannot think of an example of a major journalist working this beat who has posted one of these "why is everybody mean to Elon?" tweets. Even at Manjoo's own paper, reporters like Neal Boudette are far more likely to point out false statements from Musk and serious safety issues with Tesla's FSD, even when it means dealing with one of the nastiest troll armies on the internet.

___________________________________________

And now the reposting starts. 

Monday, April 26, 2021

It actually takes some effort to devise arguments this conventional and this wrong

It is rare that you come across a comment that is so ill-informed in such an informative way.



Barro is such a creature of the standard narrative that not only does he form his opinions based on the carefully crafted persona of Musk; he assumes that everyone else must be doing the same. If someone disagrees with his take, it has to be due to their reacting differently to that narrative.

E.W. Niedermeyer's response to that same initial tweet could be read as a rebuttal to Barro. 
It's safe to say that no one who has been seriously following Musk and Tesla in the Financial Times,  the LA Times, Business Insider, Atlantic, Vanity Fair, Edmunds.com or Wired would attribute the criticism to "fun, futuristic and coded with all sorts of “bro” aspects." 

If anything, it is this reputation as a playful visionary (along with the cultivated misimpression that he is some kind of natural engineer) that has largely shielded Musk from his critics for so long. While it might be possible to find people who like their environmentalism dreary, the vast majority desperately want to live in the kind of world Musk promises and couldn't care less about the bro culture trappings. 

The trouble is, most people paying attention have realized that the man is a habitual liar.

Specifically on the question of climate change, here's a reminder of one reason why environmentalists have been falling out of love with Tesla recently.


Jamie Powell writing for FT Alphaville.

From "Tesla: carbon offsetting, but in reverse"

We’re not the first to point this out by any means, but bitcoin is dreadful for the environment. Still don’t believe it? Well Bank of America published an excellent report last week (which can be found on David Gerard’s blog), on the dominant digital coin. And, in particular, its carbon impact. 

 Here are a few choice stats. 

 Bitcoin -- or to be more precise, bitcoin mining -- currently consumes more energy than Greece, and a touch less than the Netherlands. In theory, it wouldn’t be so much of an issue if mining was powered by renewable energy, but 72 per cent of mining is concentrated in China, where nearly two-thirds of all electricity is generated by coal power. 

 For the moment then, bitcoin has carbon emissions that sit comfortably between American Airlines’s output, the world’s largest airline which currently carries 200m passengers per year, and the entire US Federal government. 

 Perhaps the most relevant stat of all, however, is this one:


























Monday, May 3, 2021

Josh and the toasty warm take

Following up on a comment by Andrew Gelman, I was going to open this post with a discussion of hot takes, but going through the Twitter feed around this topic, and I saw that lots of mainstream media and political thinkers had the same take, greatly reducing its hotness.

If you'll remember, this started with the following tweet from Josh Barro:




Before we go on, I think it's useful to break down the implicit and explicit points Barro is making. Here's my attempt:



a. Musk is fighting climate change

b. But many environmentalists dislike him

c. Because they disapprove of his style and image

The first two points establish a mystery to be solved; the third offers an explanation. While Barro may have intended this conclusion to be provocative, he treats the premise as axiomatic, as do many others.




And a whole damned essay by James Pethokoukis.

More deeply, Musk is offering an attractive techno-optimist vision of the future. It's one in stark contrast with that offered by anti-capitalists muttering about the need to abandon "fairy tales of eternal economic growth," as teen climate activist Greta Thunberg has put it. Unlike the dour, scarcity-driven philosophy of Thunbergism, Muskism posits that tech-powered capitalism can solve the problems it causes while creating a future of abundance where you can watch immersive video of SpaceX astronauts landing on Mars while traveling in your self-driving Tesla. As journalist Josh Barro neatly summed it up recently, "Environmentalism is supposed to be pain and sacrifice. Because Musk offers an environmental vision that is fun, futuristic and coded with all sorts of 'bro' aspects, he is deeply suspicious and must be stopped."

You'll notice that that these examples include liberals, conservatives and centrists. This is one of the many cases where trying to approach this with an ideological filter not on fails to help, but actually obscures what's going on. The distinction we need to focus on isn't left vs. right but close vs. far.

I don't know of another case where the standard narrative and the story told by reporters on the front lines diverge this radically, and the gap has only grown larger. In one version Musk is a visionary and spectacularly gifted engineer who, though flawed, is motivated only out of a passion for saving the planet. He does amazing things. In the other, he is a con man and a bully who, when goes off script, inevitably reveals a weak grasp of science and technology. Outside of the ability to get money from investors and taxpayers, his accomplishments range from highly exaggerated to the fraudulent.

While this view may not be universal among journalists covering the man, it is the consensus opinion. 

The explanations of Barro et al. are not all that reasonable, but they are probably as good as you can get when you start with the assumption that the standard narrative is right.


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Thursday, April 28, 2022

The writers didn't waste any time with the next big plot twist

I'm glad I didn't drag my feet about posting yesterday's response to Noah Smith because, at least among business and finance types, the narrative has definitely moved on.



Why would Elon be getting cold feet?

Credit analyst Vicki Bryan has some details and they aren't pretty.

We’ll see. Meanwhile, it’s less clear that Musk “won” Twitter, since no other bidder stepped up to top his $54.20, which was down 26% versus the stock peak last year. Twitter stock still was trading well below that at $51.20 as of Monday’s close—up less than $3 on news of the deal. On Tuesday the stock slumped back below $50.

For good reason. Deal terms revealed so far leave out important detail about where Musk will or even if he will get all the cash he needs to close the deal at some still undetermined date, subject to shareholder approval. And if the deal does close, Twitter’s already strained financial condition will be crushed under billions of expensive new debt its operations can’t afford to service.

No wonder Twitter’s existing bonds have traded lower as the drama has played out—even before the severe credit quality rating downgrades I have warned clients to expect.


Elon's favorite journalist, Linette Lopez fills in more of the picture.

From Business Insider:

As it stands, Twitter does not exactly rake in money — it brought in just under $5.1 billion in revenue last year and posted a net loss of $221 million, in large part due to the settlement of a class-action lawsuit brought by some shareholders. But even that doesn't tell the whole story.

...

The most notable under-the-hood item, according to Bryan, is the roughly $630 million Twitter paid in stock compensation to employees last year. Instead of paying their workers bigger salaries upfront, tech companies like Twitter (and Musk's Tesla) offer employees stock that they then can sell down the line. That can be good for employees who hope that the stock is more valuable when they're able to sell, and it's good for Twitter because the company doesn't have to pay that money out in cash or count it as an expense. But once the company goes private that will change, and employees will need to be compensated in cash. Twitter's debts will need to be paid in cash too.

Analysts cited by the Wall Street Journal estimate that Twitter's annual interest payments would balloon from $52 million in 2021 to $845 million after the buyout. Bryan sees the picture getting even worse because she believes the market is underpricing Twitter's risk. She estimates that Twitter's annual debt payment could hit $1.3 billion in a "worst case" scenario.

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It's not just Twitter that's staring down a big debt bill when this transaction closes — Musk himself is going to be on the hook for a whole lot of cash. Last week Musk filed a non-binding letter with regulators detailing how he had secured over $46.5 billion in funding to buy Twitter. Part of that is over $20 billion in cash Musk promises to pay out of his own pocket, presumably by selling a lot of Tesla stock. It also includes a $12.5 billion margin loan that uses $62.5 billion worth of his Tesla stock as collateral. One hedge fund source who spoke on the condition on anonymity to talk freely about the deal told me the terms for this loan were "ugly," and that their fund regularly pays much less to secure debt financing than the richest man in the world may pay to secure Twitter. 

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And this is where Musk's Twitter deal threatens the rest of his empire. Not only is he tying up a lot of his net worth in Twitter — he's also putting his other businesses on the line. About one-third of his stake in Tesla will be put up as collateral for the margin loan.  According to the funding letter, if Tesla stock drops 40% — below $400 a share, in this case — he will either have to put up more of his stock or the banks will start selling the stock they have until they get their money back. This is especially risky given that Tesla's stock is already wildly volatile. It was down 30% from its highs at one point in March, and analysts are already projecting Tesla's second half of 2022 to be less profitable than the first.


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