pplpod

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

Subway began in 1965 in Bridgeport, Connecticut, when 17-year-old Fred DeLuca borrowed $1,000 from family friend Dr. Peter Buck, a nuclear physicist, to open Pete's Drive-In Super Submarine Sandwiches and pay for medical school. Their holding company, Doctors Associates Inc., nodded to Buck's doctorate and DeLuca's ambitions. Renamed Subway in 1968, the chain turned to franchising in 1974 and grew to more than 37,000 locations in over 100 countries on low startup costs of roughly $200,000 to $500,000, paired with royalties of about 12.5% of gross sales. The "Eat Fresh" pitch, sandwich artists and Jared Fogle, credited with one-third to one-half of growth from 1998 to 2011, drove the boom.

Fogle pleaded guilty in August 2015 to child pornography and illicit sexual conduct with minors and received more than 15 years in federal prison. The $5 footlong, launched in 2008, squeezed franchisees until it was dropped in 2018, while the azodicarbonamide "yoga mat chemical" petition and a 2017 CBC DNA test on its chicken hit the brand's image. Fred DeLuca died of leukemia in 2015, U.S. stores began closing in 2016, and Roark Capital bought the company for $9.6 billion, a deal the FTC cleared in April 2024.

• In 2020 Ireland's Supreme Court ruled that Subway's bread had so much sugar it counted as a confection rather than bread.
• A 1999 hepatitis A outbreak in Seattle led to a $1.6 million class action and a $10 million settlement for a six-year-old who needed a liver transplant.
• Subway filed a $210 million defamation suit against the CBC after the network reported its oven roasted chicken was 53.6% chicken DNA.
• Soldier Leon Beatty Jr. sued after Subway seized his stores while he was deployed to Afghanistan, settling confidentially in 2010.
• After Subway ended its Russian franchise agreements in June 2024, the former franchisee rebranded the stores as Subjoy.

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

The 2007 to 2010 subprime mortgage crisis grew from a housing boom built on cheap credit: the Federal Reserve cut rates to 1 percent by 2004 while foreign capital from Asia and oil exporters hunted for yield. Lenders wrote 2/28 adjustable rate mortgages with two-year teaser rates, and under the originate to distribute model brokers collected fees and sold loans to Wall Street within days. Warren Buffett told the Financial Crisis Inquiry Commission that a nationwide belief that home prices could not fall dramatically drove the behavior. Wall Street pooled loans into mortgage-backed securities and CDOs sliced into tranches, and shadow banks ran debt ratios as high as 40 to 1.

Rating agencies paid by issuers stamped senior tranches AAA, using the Gaussian copula and assuming regional housing markets were uncorrelated, then downgraded $1.9 trillion in mortgage securities in 2007 and 2008. As the Fed raised rates from 1 to 5.25 percent between 2004 and 2006 and teaser rates reset, foreclosures mounted, interbank lending froze, and credit default swaps multiplied losses, culminating in the collapse of Lehman Brothers in September 2008. TARP and the 2009 stimulus followed, and by 2021 the government had turned a $109 billion profit on the rescue funds.

• The 1999 repeal of Glass-Steagall removed the wall between commercial and investment banking.
• Michael Lewis described speculators stacking side bets on mortgage bonds they did not own.
• Nearly nine million jobs were lost in 2008 and 2009, and U.S. household net worth fell by $13 trillion.
• Homeownership among young adults dropped from 43 percent in 2005 to 37 percent by 2013.
• From 2009 to 2015 the top 1 percent captured 52 percent of U.S. income growth.

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

Stockton, California, sits where the San Joaquin Valley meets the Sacramento-San Joaquin River Delta, land once home to the Yachicumne, who built villages on raised mounds above seasonal floods. In the 1840s German immigrant Charles Maria Weber, barred as a foreigner from a Mexican land grant, partnered with William Gulnac, who secured the eleven square league Rancho Campo de los Franceses and passed it to Weber. After trying mining in the 1848 Gold Rush, Weber turned the riverfront into an inland port supplying the southern gold fields and laid out a town in 1849, named for Commodore Robert F. Stockton.

Draining the Delta's peat soil drew large immigrant workforces: by 1880 Stockton had California's third largest Chinese community, and in 1912 it became home to the first Sikh gurdwara in the United States. On Thanksgiving Day 1904 Benjamin Holt tested a continuous track tractor that a photographer said crawled like a caterpillar, and its use hauling artillery in World War I influenced the armored tank. In the 2000s Bay Area commuters tripled home values, the crash made Stockton the national leader in foreclosures, and in June 2012 it became the largest U.S. city to file for Chapter 9. It exited in 2015 and in 2019 launched a privately funded basic income pilot.

• Stockton was the first California community with a name of neither Spanish nor Native American origin.
• During World War II the San Joaquin County Fairgrounds held about 4,200 Japanese Americans as an assembly center.
• In April 1918 British Colonel Ernest Dunlop Swinton traveled to Stockton to thank Benjamin Holt and his workers.
• One in every 30 homes received a foreclosure notice, and unemployment rose above 13 percent.
• The SEED program gave 125 randomly selected residents $500 a month for 24 months with no strings attached.

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

In 1960 Tom Monaghan and his brother Jim bought DomiNick's, a pizza shop near Eastern Michigan University in Ypsilanti, with a $500 down payment and $900 borrowed. After eight months Jim, a full-time postman, traded his half for the Volkswagen Beetle they used for deliveries. Tom bought two more stores by 1965, but original owner Dominick DiVarti blocked use of the name, and employee Jim Kennedy suggested Domino's. The three dots on the domino logo stood for those three stores, with a plan to add a dot for each new one. In 1975 Amstar, maker of Domino Sugar, sued for trademark infringement.

While the case ran, Monaghan opened 15 stores as Pizza Dispatch as a fallback, and in 1980 the Fifth Circuit Court of Appeals ruled in his favor. A strict menu of one crust, two sizes, 11 toppings and Coca-Cola supported the 30-minute delivery guarantee introduced in 1973. After a $2.8 million settlement in 1992 with the family of a woman killed by a delivery driver in Indiana, and a nearly $80 million punitive award the next year that settled for $15 million, the guarantee ended in late 1993. In 1998 Monaghan sold 93 percent of the company to Bain Capital for roughly $1 billion.

• During the lawsuit Monaghan also began converting some existing Domino's stores to Pizza Dispatch branding as a hedge.
• The guarantee was later softened from a free pizza to $3 off.
• Monaghan first hired Taliesin Associated Architects to build on Frank Lloyd Wright's unbuilt Golden Beacon design before the partnership dissolved.
• Gunnar Birkerts designed a 30-story Ann Arbor tower leaning 15 degrees, dubbed the Leaning Tower of Pizza; only a 50-foot model was built.
• The chain Monaghan started grew to more than 21,000 stores worldwide.

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

A eurodollar is a U.S. dollar deposit held at a bank outside U.S. jurisdiction, free of Federal Reserve reserve requirements and deposit insurance fees, and paying more because it carries more risk. The market grew from Cold War fear of asset freezes. In 1949 Communist China moved dollars to a Soviet-owned Paris bank, the Banque Commerciale pour l'Europe du Nord, whose telex address, Eurobank, gave the market its name. On February 28, 1957, the Soviet Union moved roughly $800,000 to the Moscow Narodny Bank, a British-registered company it owned, so a London entity held legal title to dollars still sitting in New York.

An Italian banking cartel paid the Soviets a premium and lent the dollars on, and by the end of the 1960s the market reached an estimated $70 billion. Regulation Q caps on U.S. deposit rates pushed American banks to open branches in London and the Cayman Islands. After the 1974 failures of Franklin National Bank and Herstatt Bank, ten central banks agreed to backstop the market, and in 1981 the Chicago Mercantile Exchange launched eurodollar futures, the first cash-settled futures contract. The repeal of Regulation Q in 2011, zero reserve requirements in 2020 and the LIBOR scandal brought the era to a close.

• By 1997 nearly 90 percent of international loans were structured in eurodollars, and the market was estimated at $13.8 trillion in 2016.
• Banks used nightly sweep accounts to move idle corporate cash into offshore eurodollar deposits and back each morning.
• Domestic selected deposits made up nearly 85 percent of overnight volume by early 2024, up from about half in 2019.
• LIBOR was based on bank estimates rather than trades, which let traders ask colleagues to shade their submissions.
• Eurodollar futures on the CME were retired in April 2023 in favor of SOFR contracts based on actual repo trades.

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

Soichiro Honda worked as a mechanic at the Art Shokai garage before founding Tokai Seiki in 1937 to make piston rings. Toyota rejected his rings for poor quality, so he enrolled in engineering school without graduating and toured factories to study Toyota's quality control, including the five whys. By 1941 he had automated production so unskilled workers could meet Toyota's standards. During World War II the government took control, Toyota took a 40 percent stake and Honda was demoted to senior managing director. A B-29 raid in 1944 and an earthquake in early 1945 destroyed his plants, and he sold what remained to Toyota for 450,000 yen.

In 1946 he started the Honda Technical Research Institute in a tiny shack, fitting 500 surplus Tohatsu radio generator engines to bicycles, with hot water bottles as fuel tanks. In 1949 he incorporated Honda Motor Company with Takeo Fujisawa running the business side, and that year released the D-Type, the first Dream. Honda became the world's largest motorcycle maker by 1964, entered Formula One that year and won a Grand Prix in Mexico in 1965. He stepped back alongside Fujisawa in 1973 and died in 1991.

• The motorized bicycle was nicknamed the Bata Bata for the sputtering sound of its engine.
• A 1975 Boston Consulting Group report credited Honda's U.S. success to deliberate strategy, while Richard Pascale's interviews told a different story.
• Honda's 300cc bikes overheated and seized on American highways, while the Super Cub scooters staff used for errands drew buyers in San Francisco.
• In 1963 Honda entered cars with the T360 mini truck and the chain-driven S500 sports car.
• Honda has built over 500 million motorcycles as of May 2025, and Ayrton Senna called it the greatest company in the world.

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

Silicon Valley Bank, founded in 1983, served venture capitalists, startups and California wineries. During the pandemic its deposits doubled from $62 billion in March 2020 to $124 billion a year later, and it put over $91 billion into long-term bonds classified as held to maturity, without substantial hedges. When the Federal Reserve raised rates in 2022, those bonds lost tens of billions in market value as startups drew down deposits. For eight months of 2022 the bank had no chief risk officer, and Fed supervisors issued matters requiring attention on its interest rate and liquidity risk.

On March 8, 2023, SVB disclosed a $1.8 billion loss on bond sales and a plan to raise $2.25 billion. Moody's downgraded it, venture firms told portfolio companies to pull funds, and on March 9 customers requested $42 billion in wire transfers, leaving the bank nearly $1 billion negative. Regulators seized it on March 10, and by Sunday the Treasury, Fed and FDIC invoked the systemic risk exception to cover all deposits at SVB and Signature Bank. A Fed review led by Michael Barr called the failure a textbook case of bank mismanagement, and First Citizens Bank bought the commercial banking business.

• About 89 percent of SVB's deposits were uninsured, above the $250,000 FDIC limit.
• Roku had nearly half a billion dollars at the bank, and Etsy seller payouts froze.
• The guarantee was paid from the Deposit Insurance Fund, financed by fees on banks, while shareholders were wiped out and executives fired.
• CEO Greg Becker had lobbied for the 2018 law that eased stress testing for mid-sized banks.
• Fact checkers found no evidence that ESG or diversity programs caused the collapse.

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

Short selling flips the usual trade: borrow shares, sell them, then buy them back later at a lower price to return to the lender. Lenders are mostly custody banks, pension funds and asset managers, who earn fees and hold cash collateral of about 102 percent of the shares' value. Investors with margin accounts usually sign hypothecation agreements that let brokers lend their shares; while a share is on loan, the short seller owes any dividend and the voting right passes to the new buyer. Naked shorting, selling without first locating a borrow, is largely illegal in the U.S. under the SEC's Regulation SHO.

The first recorded short seller was Isaac Le Maire, a former Dutch East India Company director who used forward contracts in 1609 and spread rumors, prompting a temporary Dutch ban. Herbert Hoover blamed short sellers after 1929, the U.S. adopted the uptick rule in 1938, and the SEC banned shorting of nearly 800 financial stocks in 2008. In 1992 George Soros sold borrowed pounds until Britain left the Exchange Rate Mechanism on Black Wednesday, making about $1 billion. The episode explains short squeezes, short interest and days to cover, and why Warren Buffett and Seth Klarman defend short sellers.

• Synthetic shorts using put options or total return swaps reach the same bet without borrowing any shares.
• The Bank of England raised interest rates to 15 percent in a single day trying to defend the pound.
• Studies from the New York Fed and Duke University found short selling bans did not stop prices from falling and reduced liquidity.
• In 2001 Krispy Kreme short sellers paid an annualized borrowing fee of 55 percent.
• James Chanos uncovered Enron's accounting problems before the SEC and rating agencies, and in 2011 short sellers exposed frauds at Chinese companies listed in North America.

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

Jefferson County, Alabama, was created in December 1819 at the southern edge of the Appalachians, on rare side by side deposits of iron ore, coal and limestone. Birmingham was founded there in 1871 and named for England's industrial city, and after 1890 Black and white rural migrants and European immigrants poured into its mills and mines. A rural-dominated legislature refused to reapportion seats, and the 1901 state constitution used poll taxes and literacy tests to disenfranchise most Black citizens and many poor whites. The county recorded 29 lynchings between 1877 and 1950, the most in Alabama, and Klan bombings earned the city the name Bombingham.

The 1963 Birmingham campaign, coordinated from the 16th Street Baptist Church, won integration of public facilities, and that September Klan members bombed the church and killed four Black girls. The Voting Rights Act and the one man, one vote principle of Baker v. Carr eventually gave the county home rule, including control of its sewers. In the 1990s, facing a federally mandated sewer overhaul, officials including commission president Larry Langford entered interest rate swaps with Wall Street banks such as JPMorgan. On November 9, 2011, the county filed a $4.2 billion Chapter 9 bankruptcy, then the largest municipal bankruptcy in U.S. history.

• Water and sewer rates rose more than 300 percent in 15 years to cover the debt.
• After a 2008 downgrade to junk by Standard & Poor's, the county could not post $184 million in required cash collateral.
• Six former county commissioners and 15 other local officials were found guilty of corruption, and Langford went to federal prison.
• After SEC action, JPMorgan paid $75 million to the county and forfeited $647 million in future swap fees.
• The county still runs two courthouses, in Birmingham and Bessemer, a remnant of an early 1900s plan to split off a new county.

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

Carried interest began with 16th century European ship captains who took a 20 percent cut of the profit on the goods they carried across the ocean. Today it is the share of profits paid to the general partners of private equity, hedge and venture capital funds. Most funds also charge a yearly management fee of 1 to 2 percent of assets, taxed as ordinary income, while carry flows through a distribution waterfall: return of principal, a hurdle rate of about 7 to 9 percent, a catch-up phase and an 80 to 20 split. Flagship funds at firms such as Bain Capital and Providence Equity Partners have charged supercarry above 20 percent, and performance fees have reached 44 percent.

Carry is taxed as a long-term capital gain at up to 23.8 percent, against 37 percent for top ordinary income, a treatment rooted in the sweat equity of early 20th century oil wildcatters and affirmed by the IRS in 1993. In the UK, a 2007 uproar over office cleaners paying higher rates than private equity executives led to an 18 percent capital gains rate, but carry kept its status. In the U.S., Sander Levin, the Obama budgets, Dave Camp and Hillary Clinton all targeted carry. The 2018 Tax Cuts and Jobs Act added a three-year holding period, and a 2022 Inflation Reduction Act provision was dropped.

• Agreements in 1987 and 2003 between the Inland Revenue and the British Venture Capital Association taxed UK carry at around 10 percent.
• Mitt Romney's released tax returns showed 31 percent of two years of income came from carried interest.
• Republican Dave Camp, chair of House Ways and Means, drafted a 35 percent rate to help pay for lower corporate taxes.
• The 2018 law carved out large parts of the real estate sector from the tighter rules.
• The 2022 provision was reportedly removed at the insistence of Senator Kyrsten Sinema.