Release Me From This Demon

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I left my Odd Lots mug in the kitchen.

I'm sorry. That's okay. We'll get you a Money Stuff mug.

I think you should make visors.

Visors?

Yeah, no one's making visors.

You know I have hats, which I'm pretty pleased with.

I don't. I do. It doesn't have the bag on it.

Oh, that's interesting.

It just says Money Stuff and looks like it says Morgan Stanley if you're not reading closely.

I know. First of all, I can't wear the Money Stuff hat because, like, you know.

No, yeah, you can't wear the t-shirt to the concert. I wear my own merch every day.

That's fine. You can wear your merch every day.

We're really different.

I can't wear my merch every day. There's something wrong about it. But no, it doesn't have the bag, which was a conscious choice.

Because you wanted it to look like it says Morgan Stanley?

No, although I do like that. I do like that it looks sort of formal.

Yeah, I love it.

I really like that. If you don't know what the newsletter is, it's sort of a perplexing hat. Because it says money stuff.

People love that. People who don't know what it is love it. Yeah.

Right. It sort of works without context. Anyway, it doesn't have the bag because the bag would look weird.

You should make a bag and put the bag on the bag.

But the other reason it doesn't have the bag is because the bag is technically the logo of this podcast.

Right, so this would be podcast merch, not newsletter merch.

No, but the hat was newsletter merch. Because it was for the 10-year anniversary of the newsletter. Okay. Anyway, if you're listening to this and you want a hat, please don't email me.

You should email product at bloomberg.net. You should.

We should. If we get like, once we get a thousand of those emails, we can order some more hats. Someone once told me that I should have a tote bag that just says everything is securities fraud, which is actually a really good idea. And like when we do merch, that's going to be top of the list.

Why have you not done this yet?

I don't know. We should do it. Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine, and I wrote the MoneyStuff column for Bloomberg Opinion.

I'm Mary Childs, the host of the new podcast, Mary in America, which is available wherever you get your podcasts.

And on YouTube. Okay, should we talk about sports betting?

We should.

Okay.

This is a live one.

We talk about it a lot, but it just absolutely boggles my mind and the mind of everyone I talk to. It is now the official position of the U.S. government— that sports bets are federally regulated commodities derivatives. Or it was the position until about a week ago. It's complicated. So what happened is that like Calci, the prediction market, which like everything here is so like crazily path dependent.

Calci is essentially in the business of like offering sports bets, right? Like it's essentially like that's the business model. But like it's so clear that no one involved in Calci wanted that. or sees that as the long-term vision. They're so clearly like embarrassed by it, right? Like they wanted to do prediction markets in the classic, like libertarian economist sense where it's like, we're going to have prediction markets on who will win the election and like what will happen in the economy and like what will happen to the wars.

And like, it'll be a truth machine for the world to understand. And in order to have that work, you need to have like sort of uninformed retail customers for like the informed people to trade against. And it turns out that uninformed retail customers are we'll bet on the election, they'll bet on the Oscars, but what they really want to bet on is sports. And so, Kalshi has become largely a sports book.

Which we've heard of.

Yeah. Because there's this history of like, oh, we should have prediction markets. Kalshi got itself legalized as a prediction market and fought the old Commodity Futures Trading Commission to allow it to list election contracts, which they won that case in court. And so, now they have this federally regulated prediction market, and they realized that listing sports bets is a good way to get people to come. And so they list mostly sports bets, and it's a big sports betting business. And most states have said, wait a minute, you're offering sports bets without following our sports betting regulation, including states where sports betting is illegal, right? You can't bet on sports in Utah, but you can on Cal State, right?

And so there's this big push by many states to regulate Cal State, and Cal State has said, no, no, no. We are offering federally regulated swaps, and swaps are subject to the exclusive jurisdiction of the Commodity Futures Trading Commission. And because the CFTC regulates our sports bets, you can't, even though they're sports bets. And the CFTC has agreed with that and has filed briefs saying, yes, we are the exclusive regulator of these sports bets, and therefore states can't regulate them.

And seems to be working to solidify that also.

Oh yeah. And it's been mixed results in courts. When I started writing about this, Kashi won most of these cases. Now it's more mixed and they've lost a couple of appeals cases. They've won an appeals case. And now the latest is that basically a state that lost and the appeals court has asked the Supreme court to review the case.

And that's ongoing. Like their petition has been filed and surely the Supreme court will review it because there's a circuit split and it's a big deal. And I really, you know, I wrote this, I have no idea. how the Supreme Court will decide because there's good legal arguments both ways. But it's just like, as a policy matter, it's completely nuts. And there's so many things that are nuts about it. But the one I want to talk about is that one problem with this whole theory is that there's already been sports betting, right? And the reason that the CFTC has exclusive jurisdiction is because the bets on Cal State are swaps, which is very broadly defined in the statute to mean any contract whose payout is

dependent on the Occurrence, non-occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence. So the CFTC is like, look, sports have economic consequences, and so betting on a sports game is a swap, right? And what people realized, including the appeals courts that have found against Kalshi, was that what that would seem to imply is that all sports bets are swaps, not just the ones listed on Kalshi. And so what that means is that every state-regulated sportsbook is violating federal law because the way the swaps rules work is basically you can either have them listed on a regulated commodities exchange like Kalshi, or if you don't, you're

not allowed to offer them to retail. So you can't sell swaps to retail investors except on a regulated exchange. So sportsbooks are not regulated exchanges. And so if you're offering sports bets to retail customers off Kalshi, you are apparently violating the law. And so this is like several courts ruled against Kelshi saying like, this is crazy. This can't be the rule, right? Like this is based on a, you know, 2010 change to the statute. And in 2010, no one was like, oh, this is going to make sportsbooks illegal, right? Like everyone understood that this did not apply to sportsbooks. Right. And so last week, realizing this problem and somewhat embarrassed by it, the CFTC put out like an emergency rule saying, no, no, sportsbooks are not swaps.

That's okay. Like basically they said casino gambling style bets, including sports bets are not Swaps, and so they're not regulated by the CFTC. Only Kelsey's sports bets are regulated by the CFTC.

And those are very different.

You know, this is like people.

They're so different.

Look, there are differences.

I'm confused.

You can like resell. It's like, as a person interested in market structure, I don't find the differences that compelling, right? They're both binary bets on sports outcomes. You can bet on like the same things. You can bet like the point spread. You can bet like over, under. You can bet like same game parlays on how many touchdowns. You can do all of the sports bets, but because they're technically offered in a peer-to-peer marketplace and you can trade out of them rather than being offered on a one-to-many sports book, then they're different. They're different.

And there you have it.

Yeah.

It doesn't feel good. It doesn't feel clean in there. It feels messy.

It feels gross to me. Yeah. I don't know how to handicap this. My gut is that Kalshi is like the slight favorite in the Supreme Court. I've heard from others who follow this more closely that they disagree. And I think that Kalshi is the slight underdog. You know, there's all these like competing interests, right? Like on the one hand, this is nuts. On the other hand, like Kalshi's reading of the statute seems a little better. On the one hand, like the Supreme Court really likes the Trump administration and lets them do whatever they want. And like, this is something the Trump administration wants. On the other hand, the Supreme Court likes state rights and the states want something else. So I really don't know how it'll, how

it'll go. But I wonder if Cal State would be like relieved if they were told you can't have sports bets, right?

They're like, thank you. We're just a truth machine.

Yeah. On this podcast last week, we had on a guest, Jeremy Mallets, who's like a prediction markets trader at Susquehanna, who like definitely trades sports, you know, because that's what there is. But who like mostly wanted to talk about like companies hedging real economic risk, people wanting to hedge election risk, people wanting to hedge data center moratorium and credit risk. Like, Really big economic questions. And it is clearly the case that like in the prediction market ecosystem, that's what people want to talk about, right? They don't want to be like, oh yeah, we have parlays, right?

Like now they have parlays, right? Like they have a lot of sports betting because that's where the money is. But like everyone is hunting bigger game or at least less embarrassing game.

Less embarrassing game because mentioned markets are also pretty big and not that intellectually satisfying.

Well, I don't think mentioned markets are big. They get a lot of coverage. But I don't think that, like, Susquehanna is trading merchant markets. No, no.

I don't think they're big in size. I think they're big in popularity.

Right. And also embarrassing. And also, like, weirdly— Humiliating.

Insider trading.

Yeah, yeah. The CFTC has put out some, like, proposed rules about how it's going to regulate. They're like, wow. I think I've talked about them on this podcast. It's like, you're allowed to bet on college sports but not Little League on Calci. You know, it's like, it's great.

They're like, that's too far. It has to be professionals.

My reading of those rules is that they would crack down on mention markets. I don't know if that's right. It's all sort of qualitative. But my sense of those rules is that they want to avoid prediction markets, listing markets where like one person can just decide the outcome and mentioned markets are just obviously subject to manipulation in a way that like you're going to have bets on the outcome of a baseball game because there are a lot of people involved in that and it's hard to rig. Right.

But Bets on whether a pitch will be a ball or a strike are famously easy to rig. And so in regular sports books, there are allegations of people rigging those. And so the CFTC wants to discourage those kinds of bets on prediction markets. I think mention markets are just exactly that, right? It's just like you bet on some guy saying something and then the guy says something and makes a hundred bucks, right? It's super embarrassing.

Or his teleprompter.

Yes, yes, yes.

As happened to me, I was on Kalshi. We were doing an episode for Planet Money. I was working with Bobby Allen. And we traded in a mentioned market of a Trump speech about Iran. And I'm like pretty sure based on the time that this happened that I was trading against the informed teleprompter operator. I feel like I'm owed damages.

Right. Yeah. So Trump's teleprompter operator was like allegedly insider trading on mentioned markets on Cal State.

Against me.

I do hope that you or Planet Money will. Yeah. Yeah. I think actually the prediction markets, they're really into enforcement on this stuff and they might actually refund your money.

I will let you know.

I don't know. That's not financial advice. Do let us know. I can't think of if there's been a case for victims of Calci Insider Trading demanding their money back. But should we move along?

You don't want my pancakes or stuff?

Oh, yeah. Do your pancakes.

To me, this whole... To me, whether... I'm so glad I'm able to bring this to the table, okay? So to speak. Okay. The question of Kalshi's sports bets and what jurisdiction they fall under and who gets to regulate them, it feels to me like the time I went to Waffle House in college when I really wanted a pancake.

And I know, you and I both know, that waffles and pancakes are the same batter. And, or can be. And you don't know that?

I'm not usually the maker of pancake or waffle batter in my house, but I do think that in my house, the pancake and waffle batter are distinctly different. I've ruined your story.

To me, it doesn't matter. or I don't know the taste difference. I'm not that deep of a connoisseur. So I went to Waffle House, but I wanted a pancake, but there were no pancake purveyors in my town. And so I said, could I please have a waffle, but I want it flat. And they're like, what? And I was like, can I have a waffle, but with no ridges?

And they were like, That's a pancake. And I was like, no, no, no, no, no. It's a waffle. I just want to, I just today, I want, anyway, they would not do it. They would not give me, you could just pour it right on the griddle. You and I can both see in the Waffle House that it has a flat griddle right there.

I don't get it. I don't know why they wouldn't do it, but it's like that. It's just like that.

It's just like that. You're assuming more knowledge of Waffle House than I actually have.

You didn't actually need it. I gave you what you needed.

The fact that it was a griddle was the main thing. I don't know if I just have a good series of waffle presses.

But it did also make me think of how lending used to be. Like, if you think about the why are we so obsessed with whether or not it's gambling? We regulate gambling. We don't like it as a society. But it is, if you think too hard about it, pretty confusing because the substance, the market structure, some of these things feel very similar. And it reminds me of the long history of credit and how that used to be illegal. It used to be very morally wrong under most religions, major religions to lend. and to get interest for your lending. And then we give up on that.

One thing I think about, I read it this week, like clearly for hundreds of years, one thing you could do in the stock market was gamble, right? And clearly now you have a range of gambling type options in your brokerage account, in your legitimate brokerage account. Not even the sports bets, like not even crypto. You can trade options in a way that feels very gambling-like and gives you the same sort of like adrenaline rush and has the same like expectation of loss. And it's, you know, broadly speaking, like that's kind of like gambling, right?

Which is what Kalshi says. They're like, if we are gambling, then so is that.

Right. If you just sort of start from a place of we want to have like deep and liquid capital markets.

And we do.

For retirement savers to invest their money and for companies to raise capital. And then you think about how would we get there? You'd be like, well, you'd have options market. And then like one thing leads to another. And like some people are speculating, right? Right. And it's like some retail investors are speculating. And you're like, well, yeah, that's the cost of having these deep and liquid capital markets.

It's like, we can't stop people from speculating, but like, that's not the goal of the thing. The goal is something else, right? With sports betting, the goal is sports betting.

But like, where does it stop? It doesn't make any, it stops making sense.

It doesn't stop. And again, with Calci, like they would say, no, our goal is to have deep and liquid and informative prediction markets that allow one, Truth machines, we know who will win the election, blah, blah, blah. And two, companies to hedge the legitimate economic risk of like a bar not selling enough beer, but also like, you know, data centers get a shutdown or whatever, right? It's like real huge economic risks and also fake sports related economic risks.

And Kashi would say, look, if we're going to have that, like the sports, which are, you know, most of the businesses, The sports are, like, an epiphenomenon on that, but, like, you can't throw out the baby with the bathwater, and you have to, like, allow a certain amount of sports gambling to get the, like, deep and liquid hedging markets that you want.

Come for the sports betting, stay to truth machine?

There's, like, a touch of truth to that argument. Like, I don't think that's a crazy argument. It's just, like, it looks bad. I don't know.

I don't know. Is that right? I don't think it's right, but it's nice.

No, I think there is some truth to it in that, like, Traditionally, people would say prediction markets are like a dead end because no one wants to come and spend all day gambling on elections because there's just not that many elections.

Yeah, you run out pretty fast.

I think that some of the theory here is that if you have a site that is liquid every day, that people come to every day, then you'll have professional market makers. people will get into the business of being good at those predictions because there's money to be made there. And then that will make the truth machines good and it'll make the hedging, you know, there's something to that.

And it allows the business to function because it's making money from the sports.

Right, right, right, right. So I think there's some, some reality to that, but it is just super weird to be like, we're not doing sports gambling. We're doing something completely different. It's swaps, swaps on how many touchdowns Joe Burrow.

I can't wait for more clarity here. I've stayed confused on this.

Yeah. You know, the Supreme Court has to decide it. I'm sure it'll be weird. Maybe they'll say, Kashi can't lift sports contracts. And then Kashi will have spent so much time. No, maybe it'll be great. Maybe like they'll have grown their business so much and they'll be like mostly hedging data center risk. And they'll be like, it's okay.

We didn't need the sports gambling. That was just like bootstrapping us to the glorious place we're at today.

It's like when a kid really needs a parent to make them stop doing something. They're like, please release me from this demon. That's what the Supreme Court can do for Kelshi.

I don't want to speculate about their psychology.

But you're going to do it.

But I feel like part of them, they'd be a little pleased to be released from the demon of sports betting. They're not here to be sports books.

We all just want boundaries, you know? We just want boundaries and we want to know where they are.

There is a lot of money in sports betting, so I don't know.

Speaking of a lot of money.

Always a good transition on the Money Slip Podcast.

Matt, we're banks making money now.

All sorts of places. AI financing. But there's a good Bloomberg story this week about Goldman's equities division. I was going to say disclosure where I once worked, but that's not true. I worked in equity capital markets, which is not part of the equities division, but it doesn't matter.

And derivatives.

Yeah. Some of my revenue fed up to the equities division. Anyway, Goldman's equities division, they have two businesses. They have intermediation and they have prime brokerage or financing, right? So they have the business of financing stock positions and they have the business of actually trading stocks. They made more money on prime brokerage on financing than they did on intermediation.

So this is like a trend that I've written about a few times where it used to be that prime brokerage was like kind of like a little sideline of like these big trading businesses that made most of their money by taking trading risk. And now it's like increasingly a big part of the business. And instead of like taking a lot of position risk on stocks and bonds and derivatives, these big banks are now instead lending a lot of money to hedge funds and prop trading firms that are doing the trading, which I think is an interesting shift.

I was trying to puzzle through like, banking was very relationship-based. And then you went into banks did a lot of trading, which was skill in trading, that kind of actual mechanical. It was more commodified and talent-based in the market. And then now Prime feels very relationship-motivated and the people who are the best at it often are the best at cultivating and maintaining relationships. It just seems like it's sort of going back in a way.

Yeah, it is. I mean, one thing that's happening is that Trading is probably less relationship-based than it used to be. Usually bond trading was like- That's what I mean, yeah.

Way back.

You would take the customers out for drinks, and then they'd be like, oh, we'll call that guy. We need to buy bonds. And you'd pay a quarter point to buy the bonds, right? But now a lot of trading.

Is on screen, and- You don't really need a person.

The bank's relationships are less important, and so it's easier for the Jane Streets and Citadel Securities of the world to do that business. And by the way, those firms are also like building up relationships, right? So a lot more trading intermediation is being done by prop market-making firms and also a little bit of a hedge funds. And meanwhile, those firms are like so big and institutional and so like risk managed that they need a lot of financing and they can get a lot of financing. They can go to a bank and say like, we need 10 times leverage on our positions. And the bank will be like, that's pretty safe because, like, you're a pretty, like, you know, well-risk managed firm, so it'll give them a lot of leverage.

And that's a relationship business, right? Like, that's, like, the bank has a very close and commercially important relationship with, like, the big prop trading firms and the big hedge funds. And so, yeah, they're lending them a lot of money and they're making their money on lending rather than trading.

And the job becomes protecting that relationship and making sure they're happy.

Well, to be clear, the job is also protecting the credit risk, right?

There are ways it can go wrong.

Yeah, like... In the business of intermediation, right? Like one thing you're doing is you're trying to get your clients to like you so that they call you to do trades. But another thing you're doing is you're trying not to get run over, right? You're trying not to buy bonds that are going down or whatever, hold stocks too long while they go down.

You don't want to be their stupid friend. Yeah.

Yeah. And in prime brokerage, same thing, right? With like slightly different like parameters, right? Like you really want to lend billions of dollars to the situational awareness because- They want leverage and they're making a lot of money and they're paying you a lot of money. I think, you know, Goldman was one of the banks for situational awareness. And I think there are stories about how the banks made a lot of money providing financing to situational awareness before it had a bit of an oopsie this year. But if you are their bank, you really also want to make sure that you're not left holding a bag when they have an oopsie. The old trading business is like, partly you're just like clipping fees and partly you're taking

a lot of market risk, right? Because like, At any moment, you own a lot of stocks and bonds. And if, you know, if they go down, you lose money. Right. Or you're short a lot of, you know, and then they go up, you lose money. The prime brokerage business is similarly a business where you earn like steady fees by charging interest, but a business where if the stuff you're financing goes down, then, you know, you send it a margin call and it's fine.

Right.

But if it goes down more, then you lose a lot of money. All right. So there are certainly cases of, you know, Archegos is the big one recently, but there are others. of like prime brokers.

Recently.

People just, it's not that, I know I'm so old. It's okay. It's like 20 years ago. But like, you know, prime brokers like losing their shirts, financing positions that go down. And that's definitely a risk, but it's like, you know, one thing I've written about a lot is like banking has gotten like narrower and safer. And like, Yeah. One aspect of that is like, you know, so like instead of like making loans to like risky LBOs, now private credit firms make loans to risky LBOs and banks are provide like back leverage to the private credit firms so it's still the same like their money is still going to the same place.

But you just added a degree of separation yeah they've added.

A degree of like seniority right so similarly here like banks don't do prop trading anymore but like they don't exactly own a concentrated book of ai stocks but they own you know half of that book right like they have like if that book goes down too much they lose their money so They're moving to a safer part of the capital structure, but they're still like involved in the same trades.

I like that because it's a little bit, everyone likes to wring their hands about private credit being riskier because we can't see it. I have done my share of hand wringing.

I don't wring hands.

You don't wring hands. I see on the table, your hands are very far apart, unwrung.

That's my best quality. I don't wring my hands. Never.

But I think that like, it's nice to consider the structure of it and to, I don't know, for once take solace in the. Perhaps it's an improvement.

Right.

Like we're allowed to make improvements.

This is like a general thing, I think, right? Like one thing that happened is that there was like a bank crisis in 2008. And then we're going to make the bank safer. And then like that had its intended effect. And so banks got out of some risky economic activity. And other people did the risky economic activity because there was still demand for it. And those other people have much better funding models than the banks, right? They have long-term locked-up funding from risk-seeking investors. They should be doing the risky activities. The problem with a banking crisis is that you're doing, you know, risky activities with deposits. And if you stop doing that and do risky activities with risk-seeking money, and also you get a little bit of

leverage from banks, that's like strictly an improvement. But everyone's like, oh no, the banks are still lending money. So people still get mad about it because they're like, we just pushed the risk elsewhere in the system.

I don't like risk.

Yes, you've pushed the risk to the less risky funding model. So it's fine. Anyway, by the way, I don't know if that's true here. Like that's like a general story about private credit. Here, like the funding models of like, The prop trading firms and hedge funds are, you know, they have like a lot of like locked up long-term funding because like they're managing either like very long-term locked up LPs money or like in the case of the prop trading firms, like their own money. But they also have a lot of leverage and yeah, there's ways for that to go wrong, but still, still.

Tell us the story of Martin Shkreli.

Do people remember Martin Shkreli?

People remember like a cartoon, but the reality is so much better. Martin Shkreli did.

So many different things at the same time.

He's done it all, really.

Everyone got annoyed with him for sort of the whole complex of the things, but like legally you have to separate them, right? So here are some things he did. One is he like owned some drug companies, and to simplify, and I'm sure he would object to this, jacked up the prices of some drugs to make a lot of money for himself in ways that people really didn't like.

So that's one thing he did. Another thing he did is that he ran some hedge funds that did some fairly basic fraud where he would raise money from investors and then yeet it all into options and lose it all and lie to them or whatever.

Not good.

And then a third thing he did was that he bought this one-of-a-kind wu-tang clan album and was very annoying about that too he did some others oh and also he's terrible on twitter like really like obnoxious and like made threats and like.

Everything canonical troll yeah.

So he did all those things and there were like legal comeuppance for all of them separately so he was charged with securities fraud for the hedge fund stuff which by the way it's like an incredible story he like lost all these investors money he rolled it into a new hedge fund lost all their money again and then he rolled like their equity interests into like his pharma company, which returned like a thousand times and like gave them all their money back. But he nonetheless went to prison for securities fraud because one, he did securities fraud and two, everyone hated him. Like he was so annoying.

Right, right. We're going to get you for something.

Yeah. He like tweeted threats about people. Like it was like, he did not make a good case for himself in his trial. And so he went to prison for securities fraud. Separately, the drug stuff, jacking up the prices of the drugs. Eventually he got done for like anti-competitive conduct by like the Federal Trade Commission.

And- He got done.

So- That was totally separate. There was a trial on that where his pharmaceutical company was charged with anti-competitive practices. He was in prison, I think, during this trial for the securities fraud stuff, which was separate. And the judge hated him because he was obnoxious. And the conclusion of the trial was basically he and his pharma company had to pay a big fine. And he was banned from the pharmaceutical industry for life in this incredibly broad way that included he was not allowed to acquire or hold any pharmaceutical stocks. And he wasn't allowed to take any action to directly or indirectly influence or control the management or business of any pharmaceutical company. And he said, well,

that would infringe on my free speech rights to tweet about pharmaceuticals. And the judge was like, yes, do not tweet about pharmaceuticals.

Literally, that's what I'm going for.

So she can't quite do that. But what she did was say, you can't tweet about them if a reasonable person would think that you're trying to influence pharmaceuticals. the management or control of them, which is pretty broad. And this was like upheld on appeal because everyone was really annoyed with him. And so he's gotten out of prison and he's been day trading pharmaceutical stocks and tweeting about it for a long time. And this week, the Federal Trade Commission and like seven or eight states filed for a contempt order, basically going back to court and saying he is not following the order in from his last trial.

So you should, you should make him stop.

He's still being annoying. Please stop him.

There are several interesting.

Things about this.

One thing that I think is slightly interesting is that the Federal Trade Commission, the actual commission, like the people in charge of the Federal Trade Commission, they voted to file this contempt order. And the vote was one to zero. Because the way that regulation works in the Trump administration is like, they fire all the Democratic commissioners, they don't replace them. And then like, Everyone is like somehow connected to the industry. So like there's two FTC commissioners and the chair had to recuse himself from this case. So there's one guy left.

So there you have it.

And so he voted. Nonetheless, that one guy was like, yeah, Martin Shkreli, really annoying. They went to the court to be like, he's in contempt. He's of course tweeting like, I would expect this from totalitarians like Letitia James, but not from the Trump FTC. He really tweeted that.

Oh, our guy.

The case is wild because like, I understand why people find him annoying, but like what happened here? is that he did some anti-competitive practices in the pharmaceutical industry. And to prevent that from happening again, they issued a broad order saying he can't try to influence the management of any pharmaceutical companies. I don't think he was trying to influence the management of any pharmaceutical companies. I think he was being a.

Troll on Twitter. But he's a true influencer.

Yeah, okay. But like.

He's a true influencer. People follow him. People care what he says for better or worse. I guess that's right. And that is, his speech is influential. His speech is literally influential. What do you do about that?

I wonder if what happened here is that like the lawyers who worked on this case for like the states and the FTC are like, oh, this guy is annoying. Or if what happened here is that the pharmaceutical companies that he was criticizing were We're like, hey, he's not allowed to criticize me. And went to the FTC. It's possible it was that.

I got this guy on my heels. Yeah.

It's possible that they were like, oh my God, I'm going to have to change my whole strategy. I'm going to have to withdraw this drug from the market because he's being so mean about this drug I have. I don't know if that's the case. It seems to me, as an outside observer, that he probably didn't have that much influence on these pharmaceutical companies. But maybe I'm wrong.

I don't know. Maybe. I mean, listen, maybe he's the Kelly Clarkson of. The situation, and he's doing social media warfare on the pharma companies. We have to understand that this is a huge seismic change in our economy, okay? That this influence is outsized and asymmetric. And when Martin Scranton, blah, blah, blah.

This is all Kelly Clarkson references.

You're read in on that, right? The animatronic bird.

I have the gist of it, yeah. I used to live near Atlantic Avenue. I hope our listeners have read it on it because I'm not going to discuss Kelly Clarkson on the- Can I just say it?

Do you want me to say it real quick?

Sure, do it. Okay.

So one time Kelly Clarkson went to this store on Atlantic Avenue called Art of Play and there was this like animatronic bird bolted to the wall and it had a price tag under it that said $ 15, 000. And she was like, can I have that bird? And they're like, not for sale. She was like, then why does it have a price tag? And they're like, we can give you this other one that's $ 2, 000. Which she felt implied that she was Julia Roberts in Pretty Woman. And so she left and tweeted about it angrily. And then everyone got mad at Art of Play. And then Art of Play got mad at Kelly Clarkson. And it's a lightning rod.

It can tell you so much about our society. Because in this, it seems to be a morality play where Kelly Clarkson's the powerful billionaire in Art of Play. is the lowly small business just trying to make it in America or something, which obscures the fact that the proprietor of Art of Play is actually the person who wrote Dragons Love Tacos.

It's like Kelly Clarkson, whatever. He's not making a billion dollars from Dragons Love Tacos.

We don't know what kind of minions he has.

Okay. Anyway. Really?

You don't think so? You don't think there are Martin Shkreli copycat trolls that are then... Annoying out of pharma companies if he says something?

No, no, I think you're right. I think like he's definitely annoying pharma companies. Is he changing or even attempting to change like their management or business practices?

Social media warfare.

Yeah, I mean, maybe. The other thing that I think, the other thing that I got so much pushback on. Okay.

I'm excited about this. Yeah.

He's not allowed to tweet about pharma companies, right? And so he's definitely tweeting about pharma companies. And so they're mad at him for that. But the other thing is he's not allowed to acquire or hold any pharma stocks, right? So he's clearly been trading pharma stocks. It seems like he's been buying pharma stocks. But most of what he's been doing is shorting pharma stocks. Or a lot of what he's, he claims to have made millions of dollars shorting pharma stocks that he thinks, you know, by the way, he like tweets terrible things about it. He's like, oh, they're faking their data, right? Like he's, is that trying to influence their management? I don't know. But he's been shorting pharma stocks. And I wrote, he's not allowed to

acquire or hold pharma stocks, but like, If you're shorting stocks, you're not acquiring or holding them. You're negative holding them. So that seems to be allowed. I got so many emails being like, no, if you short stock, you have to acquire or hold it. For two reasons. One is like you have to borrow it before you short it.

And therefore you hold it for a split second before you short it, which I do not think is true. I think that is wrong. I think that you never have possession of stock when you're shorting it. I think you like get a locate, you enter into the trade, your broker borrows the stock, your broker delivers it. You never touch the stock.

You don't touch it. There's no beneficial. Okay.

All right. I think, I mean, this is like a somewhat philosophical point, but I do think that I'm right. Yeah.

I would have thought that you were wrong.

I know.

I agree with the emailers.

Everyone thinks I'm wrong, but I just think I'm right. Maybe I'm wrong. It doesn't, this is all like, none of this is going to like affect the outcome in Martin Shkreli's case. But I think that clearly shorting stock means acquiring a negative amount of it. So you just, you're never holding stock to short it. But that said, When you close your short, I do think you have to acquire the stock. So I think that's your problem when you buy on the short. That I think is more of a problem. But if he was staying short, then maybe he hasn't violated the law.

That's exciting. I guess if it's your broker that, no, that's the same. I don't know, Matt. I think you might be wrong, Matt.

Yeah, definitely don't email me about this. I'm full up on emails about it.

Email me if you're a lawyer and you have the right answer.

I'm completely full up on like, oh, actually shorting requires you to. hold the stock um in any case there's like a substantive point which is that like he's not allowed to hold stock of pharma companies why well because like he did bad stuff in business and they want him to not influence the business of a pharma company if you're shorting the stock you don't own it like you're not doing you can't like run the company that way i don't.

Know whatever what no short activism doesn't exist.

I guess that's right right i guess that.

Like denying the existence of Bill Ackman.

I guess it's true that like Bill Ackman was trying to shut down the business of Herbalife.

Very actively. That was influenced. That was participating.

If you're worried about the competition in the pharma industry, you would not want Martin Shkreli to shut down pharma companies by shorting them. Fine. Fine.

Yeah.

Fine. He's not allowed to short, whatever.

Okay.

We agree. I think it's a fun philosophical question of the counterfactual where what if Martin Shkreli had been less annoying?

Yeah, this is what I wrote. Like, if you just like ran a pharma company and raised the price of drugs and were like, business imperatives demanded that I raise the price of drugs.

We love profits. We understand.

You might get in a lot of trouble. You might even go to prison.

The evidence suggests you'd be fine.

Not, yeah, it wouldn't. But like, but if you also did securities fraud, you might go to prison. It just wouldn't have occurred to anyone to be like, ban that person from tweeting if he hadn't been tweeting so badly.

Yeah, it's beautiful. It's really nice.

It's a weird punishment to be like, you're not allowed to tweet. I read this, like the cases I can think of are Martin Shkreli and Elon Musk have both run into problems with federal regulators that led to Twitter restrictions.

Just the two.

And they both ignored them, so that's fine.

So it's, yeah, it's a thin, it's not that durable.

Oh, well. Oh, well. I do think that the feds seized his Wu-Tang album, but now I've forgotten what happened to the Wu-Tang album, so I'm not going to. Do you remember?

Let's find out really quick.

Oh, I do remember this. Yes. Yes. It was sold to a Dow. What a depressing note to end on.

Yeah. And then they sued him.

Sure.

Because he kept digital copies and live streamed part of the album to his online followers.

Oh.

Yeah, again.

Really crypto story, right? Like a digital autonomous organization buys like this non-fungible thing. And Martin Shkreli is like, I just right clicked on it, man. I just downloaded it. Anyway.

Right.

Terrible, terrible end. Goodbye. And that was the Money Stuff Podcast. I'm Matt Levine.

And I'm Mary Childs.

We'll have fill-in guest hosts for a few months while my usual co-host Katie Greifeld is on parental leave. You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

And you can find my new podcast, Mary in America, on YouTube or wherever you get your podcasts. Anywhere that you get them.

We'd love to hear from you. You can send an email to moneypod at Bloomberg.net. Ask us a question and we might answer it on the air. You can also subscribe to our show wherever you're listening right now. And leave us a review. It helps more people find the show. The Money Stuff podcast is produced by Anna Mazarakis and Moses Andans. Our theme music was composed by Blake Maples.

Amy Keene is our executive producer. And Cheryl Brumley is Bloomberg's head of podcasts. Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

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