The FDA, Tech Stocks, Twitter, Terra, and Tether
The F in FDA stands for Food, and while the agency has been in the news for the last 2 years as it oversaw the COVID-19 vaccine approval and rollout, it’s also responsible for making sure around 80 percent of the food Americans eat is not going to make us sick or kill us.
The food division of FDA receives around $1 billion dollars a year to keep our food safe. How’s that going?
Indeed, POLITICO’s investigation found that the Center for Food Safety and Applied Nutrition, the little-known food arm of FDA, has repeatedly failed to take timely action on a wide range of safety and health issues the agency has been aware of for several years, including dangerous pathogens found in water used to grow produce and heavy metal contamination in baby foods.
The FDA’s food division is unique even for an inefficient government bureaucracy in that everyone - lobbyists, lawmakers, consumer advocates, and its own employees - agree it’s completely dysfunctional:
There is a remarkable level of consensus that the agency is simply not working. Current and former officials and industry professionals used terms like “ridiculous,” “impossible,” “broken,” “byzantine” and “a joke” to describe the state of food regulation at FDA.
They aren’t wrong! Some organizations - like the CDC - can appear timid when issuing sweeping public health proclamations. The FDA is responsible for issuing recalls when food is found to be contaminated or dangerous. That can be quite challenging - figuring out the source of bacteria in produce isn’t straightforward. But they’ve had decades to figure it out, and are getting worse at it somehow:
The vast majority of its funding – about two thirds – goes to the Office of Regulatory Affairs to pay for inspections, but the number of food safety inspections performed each year has been going down despite increased resources.
This may be due to the fact that the division is essentially accountable to no one:
Even those who have worked there, or worked closely with the agency across government, say they are mystified by the glacial pace of decisions. They say FDA’s food division essentially answers to no one. Its food officials are rarely asked to testify before Congress. The agency has a way of escaping scrutiny on Capitol Hill.
Figuring out how to properly regulate and inspect farms for water contamination is a tricky issue, sure, but how about making sure baby food is safe?
In recent weeks, FDA’s oversight of the food supply has come under more scrutiny after an outbreak of Cronobacter sakazakii – a rare but deadly bacteria – sparked a massive recall of infant formula, exacerbating already strained supply chains.
The agency has so far refused to explain why it took months to inspect the plant and subsequently recall product.
It’s not the agency’s first brush with potentially unsafe formula. Back in 2017, it spoke with a nonprofit about a report of dangerous levels of toxins in baby products:
It was Friday, Oct. 27, 2017. The agency had reached out to the Clean Label Project, a small nonprofit based in Colorado, because the group had two days earlier published a report based on its testing of 500 samples of baby food and infant formulas. The group tested for lead, arsenic, mercury and even Bisphenol A, a commonly used plastic in food packaging, among other contaminants. It found that 25 percent of all products tested “exceeded at least one state or federal guideline.”
Clean Label thought the FDA was reaching out to considering taking action, but got ghosted for a year:
None of the seven officials [Jaclyn Bowen] wrote to responded to her email. Bowen followed up again in April 2018. By that point, another major report had come out, this time from the group Healthy Babies Bright Futures, which found that arsenic levels in infant rice cereals were many times higher than in other types of infant cereals, such as oatmeal.
In response to the second report, the FDA formed a work group:
In April 2018, FDA publicly announced that it had formed a work group to “help shape what FDA will do to protect consumers of all ages from these metals when present in foods.” The agency posted a lengthy interview with the leader of that effort, but there was no mention of forthcoming standards or even guidance. There were no timelines or plans for action.
Then Consumer Reports found high levels of neurotoxins in baby food:
A few months after the work group was announced, Consumer Reports tested 50 popular baby food products and found two-thirds contained “worrisome levels” of at least one neurotoxin such as arsenic, cadmium and lead. It reported that 15 of the products tested would pose health risks to children if regularly consumed.
This went on - a steady stream of news reports of dangerous levels of toxins in baby food and formula - until 2021, when Congress asked the FDA what it was doing about this. Four years later, the answer was - still nothing!
The agency had little to show for its work. Officials had been holding internal meetings, but there were still no plans for action, nor were there timelines.
FDA responded publicly to the subcommittee’s report nearly a month after it was released by saying the agency would focus on the issue, but still did not set any timelines for action.
They did roll out an ‘action plan’ called Closer to Zero with this bizarre image of a baby drinking what could be household cleaning product:
The timeline for ‘draft limits’ (not final) for lead in baby food would happen this year - they’ve missed that deadline already - and arsenic would come ‘sometime between 2022 and 2024’. Cadmium and mercury could maybe happen after 2024. Maybe.
Even when Congress passes food safety laws the FDA ignores them:
Congress passed a food safety law that gave FDA a big to-do list over the past decade, but the agency missed many of its statutory deadlines and was sued multiple times by the Center for Food Safety, an advocacy group, for these delays.
Salt (sodium) has been a decades-long fight, with the FDA missing deadlines and issuing half-hearted guidance to try to get American consumption under control. With sodium in particular, it’s alarming to see how much is in our food compared to other countries that have functioning food regulations:
That’s a salty meatball! With sodium, the FDA did have to contend with the processed food industry - who lobbied USDA, who put pressure on the White House, who put pressure on the FDA. But! Both Obama and even Trump’s FDA commissioner pushed the agency to take action on sodium and it just…didn’t, really. After years of wrangling the agency released some voluntary sodium reduction goals, which the industry was under no obligation to follow. Last year, FDA finalized some Obama-era goals, sort of:
It wasn’t until October 2021 that FDA finalized that [sodium] policy, and when it did, it did so only for the short-term targets, which are easier to meet. The long-term targets have not been finalized. At this point, it’s taken so long to get the policy out, all of the reduction goals are based off of data that’s more than a decade old. Food companies are now formally encouraged to help cut salt across the food supply by 2024.
Other stories border on farce. In the 1980s, yogurt-makers petitioned the FDA to update the identity rules for yogurt - things like fat content and ingredients. The FDA did not, and when it complained of staffing levels the yogurt industry lobbied Congress to get them millions for new staff. FDA hired staff, and still nothing happened. Then, out of nowhere:
This past June, FDA finally updated the standard of identity for yogurt. Yogurt-makers hated it.
“We've been asking for this for 40 years,” Dykes said. “And when they finally did it, we had no choice but to object to it. It didn't even come close to acknowledging the things that our members do to make yogurt.”
Then there’s the bread industry:
The bakery industry in 1992 asked FDA if it would define the term “fresh” so bread-makers could use it on their labels in the bakery aisle. (Currently the term “freshly baked” is allowed but “fresh” is reserved only for bread that was just baked in store.) The agency never ruled on it and the industry eventually gave up.
And…frozen cherry pies?
Last year, the agency finally proposed revoking a restrictive standard of identity for frozen cherry pies – a full 15 years after the bakery association petitioned the agency to do so. The policy has not yet been finalized.
When FDA announced it was working to free cherry pies from their regulatory tyranny – something bakers hadn’t pressed for more than a decade – [Robb] MacKie said he “half-jokingly” asked his staff to check and see whether the group had filed any other petitions in the 1970s or 1980s that might spring free out of nowhere, so they could be prepared.
Last but not least, the salad dressing industry got some big news:
The FDA in January surprised everyone and no one by announcing it had finally revoked an overly restrictive decades-old standard of identity for French dressing – something of such little importance you’d be hard-pressed to find anyone who cares.
A dressings and sauces trade group had asked the FDA to do this in 1998.
The stories can be grimly funny or terrifying, depending on whether you have a young child. But the stats on the damage caused by not having a functional food regulatory agency are simply grim:
The CDC estimates that more than 128,000 people are hospitalized and 3,000 people die from foodborne illnesses each year – a toll that has not lessened after a sweeping update to food safety a decade ago.
Those are quantifiable illnesses and deaths tied directly to bad food. High fat and sodium levels, and a mostly unregulated processed food industry kill many more:
In 2010, the Institute of Medicine advised the FDA to set mandatory sodium standards, estimating that cutting sodium intake nationwide could prevent more than 100,000 deaths and save billions in health care costs each year.
The FDA’s food agency has the funds and the staffing to do something about these problems, but a combination of slow-moving, risk-averse bureaucracy and a truly impressive level of Not Giving a Fuck combine to make the food we eat unhealthy and unsafe and actively poisoning our future generations.
The stock market is having a bad few weeks. Tech stocks have shed over a trillion dollars in market value. Is that bad? That depends. It’s bad for the employees at companies like Facebook, Uber, RobinHood, Peloton, or Cameo. Even Amazon is now debating what to do after their warehouse hiring binge as online retail slows down and people start shopping in stores.
What happened? A bunch of things are going on at the moment - inflation, war in Ukraine, easing of COVID-19 restrictions, another Chinese lockdown, and, perhaps most importantly to the markets, the Fed raising interest rates. The government had kept borrowing costs artificially low for years to keep the economy - or, at least, financial markets - growing at a breakneck pace and now that it’s pulled back on the reins, companies that fed on easy access to cheap cash are scrambling.
Another problem many tech companies have is they don’t make profits. That hasn’t been a problem in the past, because investors didn’t seem to care, but now Uber is becoming a ‘leaner’ company, Facebook is ‘scaling back costs’ and Peloton is becoming more ‘nimble’ which may actually be a good thing? Tech companies focusing on building profitable businesses might change things for the better. Might.
The good news is aside from anyone unfortunate enough to be employed in tech, things seem to be okay? Unemployment is steady, and the economy will probably keep growing even though consumer prices are still high and may not come down for awhile. Just don’t look at your retirement account balances (if you have them) for a few more months and it will all be okay (not financial advice.)
One important thing to remember when the media is breathlessly reporting stock market news is - if Apple loses twenty percent of its market cap, or Uber pivots from burning cash to trying to be profitable, it means almost nothing for you, an average person trying to go about their day. Fortunes are being made and lost - mostly lost - but that’s not the world the rest of us live in. Arguably, tech stocks have been massively overvalued for years now, and are correcting back to about where they should be, if you believe these companies are worth anything at all - which a different discussion.
Speaking of! A few weeks ago I said this about Elon Musk’s Twitter takeover bid:
Sometimes the difference between a fraudster and a business genius really is timing.
Well, timing has become an issue. Elon offered $54.20 - weed jokes haha - per share for Twitter. If you were an investor and you believed Musk was going to pay $54.20 and you saw the stock was trading lower than that, you’d buy it because easy money, right? Meltdowns aside, the markets have been skeptical - Twitter has traded well below Musk’s offer price since his takeover announcement. Short seller Hindenburg Research wrote a report this week spelling out what some people had been thinking - will Musk use current market conditions to renegotiate his deal?
As a result of these developments, we believe that if Elon Musk’s bid for Twitter disappeared tomorrow, Twitter’s equity would fall by 50% from current levels. Consequently, we see a significant risk that the deal gets repriced lower.
Twitter’s stock has dropped like much of the rest of the tech industry, but not as much as if Musk’s deal wasn’t still on the table. Hindenburg argues that Musk has a lot of leverage over the offer at this point - if he pulls out, Twitter’s stock could go into freefall like the rest of the market. Musk and his investors are motivated to save themselves as much money as they can on the deal - we have talked about how Elon has leveraged both himself and the company to dangerous levels to get the funds to buy Twitter.
Now, if you were in Elon’s position and also a savvy investor you might have your investment team write up a detailed Powerpoint citing market conditions or borrowing costs and revise your offer down ten or twenty percent or to $42.00 because weed haha. Or, you could Tweet about bots:
In a tweet, the world's richest man suggested he was waiting for more details on just how many accounts on the social media platform might be bots rather than humans.
"Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users," he said, linking to a Reuters article from May 2.
Sure, okay. Bots. Elon’s offer explicitly did not ask for any due diligence in the Twitter deal, but now he is suddenly concerned about a two-week old news story and fake accounts - like the spam bots that compete to shill crypto scams in the replies to every one of his tweets.
The most likely result of his stunt is that the deal will get revised, he and his merry band of investors will save some money, and when the markets stabilize Twitter’s stock won’t plunge any further. Some media outlets will praise Musk as a savvy investor or business genius because he is rich enough to turn a really stupid deal into a slightly less stupid one thanks to market factors entirely out of his control. For now, we are stuck living in this world, waiting for the day Musk unbans Donald Trump.
The big news in the world of crypto this week is the (likely?) collapse of ‘algorithmic’ stablecoin Terra, and its associated token Luna. Here is Matt Levine explaining how the setup was supposed to work:
You promise that people can always exchange one Terra for $1 worth of Luna. If Luna trades at $0.10, then one Terra will get you 10 Luna. If Luna trades at $20, then one Terra will get you 0.05 Luna. Doesn’t matter. The price of Luna is arbitrary, but one Terra always gets you $1 worth of Luna. (And vice versa: People can always exchange $1 worth of Luna for one Terra.)
You set up an automated smart contract — the “algorithm” in “algorithmic stablecoin” — to let people exchange their Terras for Lunas and Lunas for Terras.
Terra should trade at $1. If it trades above $1, people — arbitrageurs — can buy $1 worth of Luna for $1 and exchange them for one Terra worth more than a dollar, for an instant profit. If it trades below $1, people can buy one Terra for less than a dollar and exchange it for $1 worth of Luna, for an instant profit. These arbitrage trades push the price of Terra back to $1 if it ever goes higher or lower.
He has a bunch of other steps in his explanation, but these are the critical ones for our not-finance-blog purposes. Basically, someone created these two tokens and a smart contract that should allow people to make money doing a bunch of trading, while the price of Terra stays at $1. Seems good, right? Well:
These things reinforce each other: The more fees you collect and distribute to Luna holders, the more big and viable your ecosystem looks, so the more highly people value it, so the more Luna they buy, so the more activity you have, so the more fees you collect, etc.
But there is no magic here. There is no algorithm to guarantee that Luna is always worth some amount of money. The algorithm just lets people exchange Terra for Luna. Luna is valuable if people think it’s valuable and believe in the long-term value of the system that you are building, and not if they don’t.
Right, that’s sort of the problem. It’s not really an algorithmic stablecoin because you still need people to decide to trade it. That doesn’t happen algorithmically, or automagically:
Yeah. Well. The problem is that if people lose confidence in this system, they decide to dump both Lunas and Terras.
Without doing too much math, if people are dumping Terras eventually you need a lot of Lunas to equal one Terra, but no one is buying Lunas because they’re selling Terras, so eventually it all falls apart. It’s called a ‘death spiral’ and applies to other things too, like stocks:
A “death spiral convertible” is a bond of a company that converts into stock of that company at a floating exchange rate, so that each $100 bond converts into $100 worth of stock at whatever the market price is. If the company’s profits are good and the stock price is stable, no problem. But if the company is running out of money and can’t pay back the bond, then the stock drops, one bond converts into lots of shares, selling the shares pushes the stock down more, converting another bond produces even more shares, which get sold and push the stock down more, until eventually the stock is at $0.0001 and each bond converts into a million shares and there are no buyers for those shares and it’s all worthless.
The only thing preventing a death spiral at Terra is one of the founders and the ‘organization’ behind the tokens used a bunch of their initial definitely-not-Ponzi earnings to buy a lot of Bitcoin, which it’s trying to inject into the ecosystem to prop it up:
Another solution is for LFG to step into the market and buy enormous amounts of Terra to stabilize the price. To do this you need money. (Or Bitcoin, or Ether, etc.) As we have discussed, [Do] Kwon actually prepared for this possibility; that’s effectively what the Luna Foundation Guard is.
I am sorry to introduce names like Luna Foundation Guard into your life but basically, the founder of Terra created a group to buy up a bunch of Bitcoin to ‘defend’ Terra if something like this happened - the ‘Guard’ in LFG - and they are saying they’re going to buy tons of Terra to get it back to a dollar. Then, to further, uh, breed confidence in their systems they briefly shut their blockchain off to ‘update’ it to prevent people taking it over? A ‘governance attack’ is when your token is worth so little that someone with a modest amount of money can come in and buy a controlling share and start doing bad stuff. So they stopped that, and restarted the blockchain, and are tweeting furiously that the Guard is going to spend lots of Bitcoins to buy Terra to restore confidence but it hasn’t worked as of Thursday night when I’m writing this because Terra is around 30 cents and Luna is at four one-thousandths of a cent if I remember my grade school math properly. Not great! Update: It’s Friday now and Terra has both shut its chain down again and been delisted from Binance, and both tokens have halved in value overnight.
For awhile, everyone agreed that Terra and Luna were good and a bunch of people traded them and made money. Then, some other people figured out ways to make money by manipulating the prices of the tokens in bad ways, things got ugly, and that’s where we are at the moment. Maybe a better strategy to run a stablecoin is to just tell everyone you have the assets to back it, and don’t waste your time creating complicated ‘algorithm’s someone smarter than you can figure out creative ways to exploit.
About that! We have talked before about Tether, the stablecoin used to facilitate a lot of the Bitcoin trading around the globe. For whatever reason, Tether’s peg dropped as low as 95 cents in trading this week, which alarmed a lot of people and gave ammunition to the skeptics who don’t believe Tether is fully backed by cash and financial assets. Then, the CTO of Tether said this to the Financial Times:
Paolo Ardoino, Tether’s chief technology officer, on Thursday vowed to defend the token’s dollar peg and said the company had bought “a ton” of US government debt, which it is willing to offload in that effort. But in an interview with the Financial Times, he declined to give details about its $40bn hoard of US government bonds because he did not “want to give our secret sauce”.
“Our counterparties are not public. We are not a public company,” he said. “So we keep that information [to] ourselves, but we are working with many big institutions in the traditional financial space.”
One thing you can do if you are the world’s largest stablecoin and a critical piece of global crypto markets is prove your haters wrong by submitting to an audit of your finances. Another thing you can do is say ‘just trust us’, which is what Tether is doing. Also, they’re claiming they can’t get an audit because auditors are haters too:
Ardoino also said the stablecoin issuer is working on obtaining an audit, but said the big accounting firms “are quite scared for reputational risk in touching crypto at this moment”. Tether has had $2bn in redemption requests in the past day, an unusually high number, Ardoino added.
Sure sure, this all seems fine. Tether has mostly rebounded to its dollar peg, so - unlike Terra - they seem to still have trust of the greater crypto ecosystem.
WSJ - “The deal for Assurance IQ has badly missed its financial targets and left Prudential facing questions from regulators. In February, Prudential said it wrote down the investment by roughly half.”
CFPB - ““MoneyGram spent years failing its customers and failing to follow the law, ignoring customer complaints and government warnings in the process,” said CFPB Director Rohit Chopra. “MoneyGram’s long pattern of misconduct must be halted.””
The Independent - “About 46.7 million reviews were left on Trustpilot’s global review platform over that period, with 5.8 per cent taken down after they were found to be fictitious. The firm said 1.8 million reviews were automatically deleted by software.”
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