Fat Wallet: Tariffs, Mergers, Brands

Michael Lewis discusses the relevance of his audiobook *The Big Short* to today's financial system, while host Matt Levine shares frustrations about a mishap involving oatmeal. Co-host Katie Greifeld relates to Matt's challenges and they introduce the podcast's focus on money-related topics.

Matt highlights Donald Trump's recent difficulties regarding tariffs, which the U.S. Supreme Court deemed illegal. Katie notes skepticism during the Supreme Court's oral arguments about these tariffs. Matt explains the legal context, referencing the 1977 International Emergency Economic Powers Act (IEEPA) and its implications, while Katie emphasizes that tariffs are generally viewed as taxes, raising constitutional questions about presidential authority.

The discussion reveals that both Trump and the Supreme Court do not view the tariffs as solely for revenue generation; instead, they are seen as a means to reduce the budget deficit. Chief Justice John Roberts asserts that tariffs are taxes on Americans, a power constitutionally reserved for Congress. Trump-appointed justices, including Neil Gorsuch and Amy Coney Barrett, express skepticism about the tariffs, with Gorsuch advocating for the non-delegation doctrine, which limits Congress's ability to transfer powers to the executive.

Roberts introduces the major questions doctrine, which requires Congress to clearly grant significant powers to the executive. The IEEPA allows the president to regulate imports but not to tax them, raising questions about clarity. If the Supreme Court strikes down the tariffs, concerns arise about reimbursement feasibility, with the government indicating it could manage refunds if necessary. Current consensus suggests that consumers have not significantly borne the cost of tariffs, as companies have absorbed much of it. However, uncertainty exists regarding who would receive refunds if tariffs are overturned, especially since importers have sold refund claims to hedge funds, creating a potential profit scenario for them.

The discussion also touches on tariff revenue, which has contributed to a reduction in the national budget deficit, although the overall trajectory of spending and tax cuts may not change significantly. The government cannot argue in the Supreme Court that tariffs are necessary for revenue generation.

In a shift to a new topic, the conversation introduces Metzera, a U.S. biotech company with a promising obesity drug not yet on the market. Pfizer, which previously faced trial failures with its obesity drug, has agreed to buy Metzera, while Novo Nordisk has made a higher bid, raising antitrust concerns. Metzera's board is currently weighing Novo's higher offer against Pfizer's lower, less risky proposal. Novo is taking a bold approach by paying upfront for shares of Metzera, bypassing the wait for antitrust approval.

If Novo secures antitrust approval, it will own Metzera; if not, Metzera can sell to another party, with Novo entitled to the first $6.5 billion of proceeds. This strategy aims to help Novo regain market share in the obesity drug sector, which it has lost to Eli Lilly in the US. Pfizer is actively opposing the acquisition, believing it will not close due to antitrust issues and has filed lawsuits, including a recent defeat in Delaware Chancery Court.

In a separate discussion, the First Brands case involves the auto parts conglomerate filing for bankruptcy and suing former CEO Patrick James for alleged fraud, including misusing company funds for personal expenses. Bankruptcy firms often highlight issues with previous management to protect creditor interests, and creditors are now demanding repayment of funds taken by James, who allegedly manipulated invoices to secure larger loans, constituting fraud.

The conversation raises questions about corporate governance and the acceptability of fund withdrawals by company owners, emphasizing the need for adherence to formalities in financial transactions. The fraudulent activities described raise serious concerns about oversight and accountability, particularly regarding the disconnect between James's lifestyle and the company's financial practices. There are discussions about the diligence process in invoice financing, with concerns about the ease of manipulating invoices. Blockchain technology is mentioned as a potential solution for verifying invoice authenticity, though its adoption is not universal. The future of invoice financing is speculated to require more due diligence, especially in light of recent events like the Credit Suisse situation.