pplpod

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Give 61 people $25 and a coin rigged to land heads 60 percent of the time, and let them bet freely for 30 minutes. In the study at the center of this episode, 28 percent went bust, the average payout was $91 against a cap of $250, 18 players staked everything on a single toss, and two thirds bet on tails at some point. The fix has existed since 1956, when John Larry Kelly Jr. of Bell Labs worked out how much of a bankroll to wager on a favorable bet. For this coin the answer is exactly 20 percent of whatever you currently hold.

The episode explains why that fraction works: it maximizes the logarithm of wealth, which means the long-run compounding rate, and it can never reach zero. It then turns to the practical objections. Full Kelly betting produces brutal drawdowns, it assumes you know your true edge, and economists have argued for decades over whether maximum growth is the right goal for a person with a finite life.

• Without the $250 cap, steady 20 percent betting in the coin game would have produced an expected geometric mean wealth of more than $10,000.
• A 50 percent gain followed by a 50 percent loss turns $100 into $75, which is why sequential bets punish volatility and reward the geometric view.
• Many gamblers and investors bet half or a quarter of the Kelly amount as a margin of safety, because overestimating an edge leads to overbetting and ruin.
• Edward O. Thorp applied the formula to historical S&P 500 returns and got a fraction of 117 percent, implying borrowed money, a result that ignores margin calls and black swan crashes.
• Paul Samuelson objected on grounds of expected utility, an argument that reaches back to Daniel Bernoulli in 1738: a ruinous loss hurts far more than an equal gain helps.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

In 2023 the Federal Reserve, the institution that controls the U.S. money supply, posted a record loss of $114.3 billion. That puzzle opens a plain-language tour of how the Fed came to exist and how it works. America's first two central banks were killed off in the 19th century, leaving a free banking era of thousands of currencies and recurring panics in 1873, 1893, and 1907. In the last of those, J.P. Morgan locked New York bankers inside his private library until they agreed to pool money and stop the runs.

From there the episode moves to the secret 1910 meeting on Jekyll Island, where Senator Nelson Aldrich and banker Paul Warburg drafted the compromise that became the Federal Reserve Act, signed by Woodrow Wilson on December 23, 1913. It then maps the three layers of the system, explains the dual mandate, and shows how interest on reserve balances works as a thermostat for the economy.

• The seven members of the Board of Governors serve staggered 14 year terms designed to shield them from election pressure.
• Member banks hold stock in the 12 regional Reserve Banks and earn a fixed dividend, but the shares cannot be traded and carry no control over policy. Remaining profits go to the Treasury.
• After 2008, quantitative easing flooded banks with reserves, so the Fed now steers rates mainly through the interest it pays on those reserves.
• Milton Friedman blamed the Fed for failing as lender of last resort in the early 1930s. In 2008 it drew the opposite charge after an $85 billion loan to AIG.
• Bloomberg's lawsuit forced the Fed in 2011 to name recipients of emergency loans, and a 2021 trading scandal pushed two regional officials to resign.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

In 2003, Chris Moneymaker was a comptroller in Tennessee with a master's degree in accounting and a side job at a restaurant in Spring Hill. He paid $86 to enter an online satellite tournament on PokerStars and won a seat at the World Series of Poker main event, which normally cost $10,000. It was his first live tournament. This episode follows how a man trained to eliminate variance walked into a room of professional card players and beat them all, taking home $2.5 million.

His edge came from volume. Online play had shown him hundreds of hands an hour while live professionals saw perhaps 30, and his unorthodox bets were hard for them to read. He knocked out Phil Ivey and Dan Harrington, then faced the veteran Sam Farha heads up. The episode also weighs what the win cost him, how he answered the charge that it was a fluke, and why the rush of amateurs that followed became known as the Moneymaker Effect.

• Moneymaker is a real family name, the English translation adopted by German ancestors who made silver and gold coins.
• The book title that says he turned $40 into millions rests on a misremembered figure. The actual entry fee was $86.
• In the bluff of the century, he moved all in on the river with only king high, and Farha folded a pair of nines.
• On the final hand, his five and four made a full house, fives full of fours, against Farha's two pair.
• He divorced in 2004, went on to more than $8.2 million in live tournament earnings, finished second to Erik Seidel in the 2011 National Heads-Up Poker Championship, and entered the Poker Hall of Fame in 2019.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Allen Pace III was paid to find weaknesses in the Dunbar Armored depot on Mateo Street in downtown Los Angeles. As a regional safety inspector, he photographed the interior, drew floor plans, memorized every camera position, and learned that the main vault was left open on busy Friday nights. Then he was fired for tampering with company vehicles. The next night, September 12, 1997, he let himself in with his own keys, along with five childhood friends, and carried out what stood as the largest cash robbery in U.S. history for nearly three decades.

This episode traces the heist from the staged alibi at a house party to the dark staff cafeteria where guards were ambushed one by one on their lunch breaks. In 30 minutes the crew loaded $18.9 million into a U-Haul without firing a shot. The harder problem came afterward: how to spend a fortune in cash without being noticed, and how long six people could stay careful.

• Pace knew which bags held the highest denominations and targeted non-sequential bills that would be nearly impossible to trace.
• Investigators suspected an inside job at once, but the only physical clue left at the depot was a fragment of plastic taillight lens from a U-Haul truck.
• Pace imposed a six month ban on spending, then paid attorney David Matsumoto and his office manager a million dollars each to launder cash through real estate, front companies, and fake W-2 forms.
• Two years later, Eugene Lamar Hill Jr. paid a real estate broker with cash still bound in its original currency straps. Records showed he had rented a U-Haul on the day of the robbery, and he named the crew.
• Pace was sentenced to 24 years and released in October 2020. Only about $5 million was ever recovered, leaving roughly $13.9 million unaccounted for.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

At the peak of Zimbabwe's hyperinflation, a banknote printed with a one and 14 zeros could not cover a one-way bus fare. This episode takes the crisis apart piece by piece, starting from a surprising place: after independence in 1980, Zimbabwe was the breadbasket of its region, and its dollar was officially valued above the U.S. dollar. The damage came later. Land reform dissolved the property titles that farmers used as collateral, food production fell 45 percent between 1999 and 2009, bank credit dried up, and unemployment reached an estimated 80 percent.

With no tax base, sanctions limiting credit, and a costly war in the Congo, the government printed money. By mid-November 2008, monthly inflation hit an estimated 79.6 billion percent. The episode shows how ordinary people and financial professionals improvised around a currency in freefall, how the U.S. dollar finally ended the spiral, and why the government keeps trying to bring a local currency back.

• The Reserve Bank paid a Munich printing firm more than 500,000 euros a week to produce banknotes, the equivalent of 170 trillion Zimbabwe dollars entering the economy weekly.
• A 2007 price freeze and arrests of executives who raised prices emptied supermarket shelves and pushed daily commerce into the black market.
• Minibus drivers raised fares through the day and stopped up to three times a shift to swap takings for U.S. dollars or South African rand.
• Analysts compared Old Mutual's share price in London and Harare to derive the Old Mutual Implied Rate, a real exchange rate the central bank no longer published.
• Redenominations in 2006, 2008, and 2009 erased 25 zeros without fixing anything. Foreign currency was legalized in January 2009, and a new currency called the ZiG launched in April 2024.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Yahoo could have bought Google for $1 million in 1998. It declined. Ten years later it turned down $44.6 billion from Microsoft as too little, then sold its core business to Verizon for $4.83 billion. This episode reads the company's life as a corporate tragedy, beginning in January 1994, when Stanford graduate students Jerry Yang and David Filo built a human-edited directory called Jerry and David's Guide to the World Wide Web. Renamed Yahoo, it became the front door of the early internet, and its stock peaked at $118.75 in January 2000.

After the dot-com crash, the company never settled whether it was a search engine, a technology firm, or a media portal. That confusion drove a carousel of chief executives, costly acquisitions like Tumblr, a punishing ranking system under Marissa Mayer, and neglected security that exposed every user account. The episode closes with the Verizon sale, the Altaba spinoff, and the brand's long fade under Apollo.

• In 2002 CEO Terry Semel offered $3 billion for Google, and Yahoo walked away when Google asked for $5 billion.
• Scott Thompson was fired after 130 days over a discrepancy on his resume and left with at least $7.3 million. Carol Bartz was fired by phone in 2011.
• A 2013 breach was eventually found to have hit all three billion accounts, and a 2014 attack used forged web cookies to bypass passwords, prompting Verizon to cut $350 million from its price.
• Yahoo gave Chinese authorities user information that led to prison terms for dissidents, including Shi Tao, sentenced to 10 years in 2005.
• The company shut down GeoCities in 2009, erasing millions of early personal web pages, while its most valuable holdings turned out to be stakes in Alibaba and Yahoo Japan.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

Wirecard sat on Germany's DAX index with a valuation of 24 billion euros, a celebrated homegrown rival to Silicon Valley. Then, on June 25, 2020, it admitted that 1.9 billion euros, a quarter of its balance sheet, was missing and had probably never existed. This episode reconstructs how the illusion was built. Founded in 1999, the company began by processing payments for pornography and online gambling sites, slipped onto the stock market through a reverse merger with a defunct call center group, and then bought companies around the world to give the appearance of growth.

The core of the fraud lay in third-party acquirers in Asia, whose escrow accounts Wirecard counted as its own cash. When journalists and short sellers raised doubts, the company answered with spies and hackers, and the German regulator BaFin investigated the critics. The episode follows the whistleblower, the KPMG audit, the collapse, and the executives who were arrested or vanished.

• In 2015 Wirecard paid 340 million euros for an Indian payments group whose founders had recently valued the key assets at 46 million, and at least 175 million of the price never reached the seller.
• Nearly all of the reported profit ran through three opaque partners in Asia, and auditor EY accepted confirmation letters and screenshots instead of checking with the banks.
• Wirecard hired a former head of Libyan foreign intelligence to run stings on critics, along with a hacker for hire later sentenced to 80 months in a U.S. prison.
• BaFin banned short selling of Wirecard stock for two months in 2019. Its president, Felix Hufeld, was forced out in January 2021.
• CEO Markus Braun was arrested, while chief operating officer Jan Marsalek fled and remains on Europol's most wanted list. Whistleblower Pav Gill, a company lawyer in Singapore, supplied the documents that broke the story.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

From roughly 1836 to 1865, the United States ran without a unified national currency. State-chartered banks printed their own paper notes, each a promise to pay gold or silver to whoever walked up to the counter. Wildcat banks exploited that promise by printing far more paper than they could redeem and, by one account of the name, by setting up shop in wilderness so remote that only wildcats lived there. This episode explains how the scheme worked, starting with Andrew Dexter Jr., who bought distant country banks in the early 1800s and paid Boston laborers with their unbacked notes.

The story runs through Andrew Jackson's war on the Second Bank of the United States, the 1836 Specie Circular that drained coin from the frontier, and the Panic of 1837. It reaches peak absurdity in Michigan, where 49 banks appeared almost overnight under the General Banking Act, and ends with the Civil War legislation that taxed state bank notes out of existence.

• Dexter's Farmers Exchange Bank in Rhode Island collapsed in 1809 with more than $580,000 of its notes in circulation, the first American bank to officially fail.
• Michigan bankers pooled their gold and sent it ahead by fast horse so the same coins could be counted at the next bank before the inspector arrived.
• Commissioner Alpheus Felch pried open one bank's reserve boxes and found nails and broken glass under a thin layer of silver.
• Merchants kept banknote reporters at the counter and discounted every bill by the reputation of its issuer, so a ten dollar note might buy six dollars of flour.
• The National Bank Act of 1863 created a standardized currency backed by federal securities, and a 10 percent federal tax on state notes finished the wildcats.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

In late 1922 a loaf of bread in Berlin cost about 160 marks. Less than a year later the same loaf cost 200 billion. This episode traces how an advanced industrial nation destroyed its own money, beginning in 1914, when Germany suspended the gold standard and chose to pay for the First World War with borrowing instead of taxes, betting that a quick victory would let it bill the losers. Defeat left 156 billion marks of debt, and the 1921 London Schedule of Payments added a reparations bill of 132 billion gold marks.

Central bank president Rudolf Havenstein bought foreign currency with freshly printed marks, and the slide became a collapse in January 1923, when French and Belgian troops occupied the Ruhr and Berlin printed money to pay striking workers. By November one dollar bought 4.2 trillion marks. The episode explains the Rentenmark reset engineered by Hans Luther and Hjalmar Schacht, and the creditors and savers it left ruined.

• Only 50 billion of the reparations total, the A and B bonds, was realistically expected to be paid. The remaining 82 billion in C bonds was largely for show.
• Paying Ruhr workers to produce nothing while factories sat idle flooded the country with cash as goods vanished, the main accelerant of the crisis.
• Banknotes became cheaper than wallpaper, children stacked bundles of cash like blocks, and cigarettes took over as the money people trusted.
• Schacht stopped the central bank from discounting treasury bills, and the Rentenmark, tied to German land and industry, replaced the old mark at one to one trillion.
• A 1925 decree revived old mortgages at 25 percent of face value and government bonds at 2.5 percent, and a Supreme Court ruling that year set the first precedent for judicial review in Germany.

Got something to say to this podcast? Send a voicemail, and you might hear yourself on the next episode!

At 14, Warren Buffett filed his first income tax return and claimed a $35 deduction for wear on his bicycle and watch, the tools of his paper route. This episode follows that habit of precise accounting through a lifetime of compounding. He sold gum and Coca-Cola door to door at seven, bought a 40 acre farm at 14, and ran pinball machines in Omaha barber shops at 15. Rejected by Harvard Business School, he went to Columbia to study under Benjamin Graham, who taught him intrinsic value and the margin of safety.

The story then turns to Berkshire Hathaway, a dying New England textile maker that Buffett took over in 1965 after management shaved an eighth of a point off a promised tender offer. With Charlie Munger's push toward great businesses at fair prices, he rebuilt the shell as a holding company powered by insurance float. The episode also covers his 2008 rescue deals, his late turn to Apple, the controversies, and his retirement at 95.

• After learning Graham sat on the Geico board, Buffett took a Saturday train to Washington, got a janitor to let him in, and spent hours questioning a vice president about insurance.
• Buffett calls the textile purchase his worst trade, yet the float from insurance premiums became an interest-free pool of capital for buying companies like Coca-Cola in 1988.
• During the 2008 crisis he put billions into Goldman Sachs and General Electric through preferred stock with guaranteed dividends.
• A Berkshire subsidiary paid a $92 million settlement over reinsurance deals with AIG, and a 2023 ProPublica report on leaked IRS data alleged personal trades in stocks Berkshire was also trading.
• He still lives in the Omaha house he bought in 1958 for $31,500, pledged 99 percent of his fortune to charity in 2006, and later redirected his giving to his three children's foundations.