Twitter was a clown car that fell into a gold mine, then a gold mine that fell to a car clown.
Now it’s a metaphor of sorts. By buying and killing Twitter, Elon Musk has become its persona, its real-world avatar. This works a little like how dogs and their owners come to resemble each other, in the sense that there’s a fusion of the shared traits that brought them together.
For the Musk-Twitter hybrid there’s a shared addiction to drama, a reliance on reductiveness, a tendency to switch in an instant between serious and glib, an assumption that nothing said today will matter by tomorrow, and a knack for annoying a lot of people. So, whenever one fails, the other has failed.
Walter Isaacson’s biography of Musk seeks to tell a much bigger story than the one outlined above. But it has been filleted for news lines — such as Musk playing with Ukraine’s wartime communications access as if it’s a game of Civilization II — which for the casual reader is unfortunate. Such highlights are rare within the tale of how a talented oddball rolls consecutive sixes in the game of life, becomes rich enough to indulge all his whims, then catches brainworms from a social media website.
It’s fine for us though. We’re a finance blog and you’re a well-read individual who already knows the good stuff, so this post can focus only on the bits of Isaacson’s book that reviewers have skipped over: the bits about money.
Phrases like “blood emerald Trustafarian” turn up quite often on Twitter and its rebadged successor, X. This appears to irritate Musk because the origin story he has preferred in recent years is that his family was never that rich.
Early chapters of Isaacson’s book sketch out a not-particularly-remarkable story of paternal cruelty, social awkwardness, self-diagnosed autism and an adolescent habit for sci-fi. The main character is Errol, Musk’s father, an engineer and boastful fantasist, who does stuff like test whether a kitchen microwave affects spins of a plastic roulette wheel. Errol “believes all events follow the Fibonacci Sequence,” Isaacson writes. Errol mentions a scientific paper on the subject, but says sharing it would mean “all activities relying on chance will be ruined, so I am in doubt as to doing that.”
It should be apparent immediately that Errol is an unreliable narrator of his own life. Isaacson reports that he fell into trading emeralds in 1986 by swapping a plane for offtake agreements from some Zambian mines, then lost everything “in the 1980s [after] the Russians created an artificial emerald in the lab”. But synthetic emeralds have been around since the 1930s, current production methods were developed in the 1960s, Russia’s gem farms were already well established by the 1980s, and reporting from the relevant period makes no reference to a price crash.
Potentially more significant is that in 1990, Zambia tore up a monopoly export agreement with Tiny Rowland’s Anglo-African conglomerate Lonhro that had meant artisanal miners would sell product to smugglers for a better price. Liberalisation shut down the international trade in bootleg Zambian gems almost overnight.
Musk Sr tells Isaacson he made roughly $210,000 from black-market sales of emeralds. Where all this money went, and why his offtake agreements suddenly disappeared, are questions the book does not address.
By 1989, Elon had enrolled at Queen’s University, Ontario, and fluked his way into a summer job at Scotiabank’s strategic planning department. Here’s how Peter Nicholson, the department boss, remembers it:
One topic Musk researched for Nicholson was Latin American debt. Banks had made billions in loans to countries such as Brazil and Mexico that could not be repaid, and in 1989 the US Treasury secretary, Nicholas Brady, packaged these debt obligations into tradable securities known as “Brady Bonds.” Because these bonds were backed by the US government, Musk believed that they would always be worth 50 cents on the dollar. However, some were selling as low as 20 cents.
Musk figured that Scotiabank could make billions by buying the bonds at that cheap price, and he called the Goldman Sachs trading desk in New York to make sure they were available. “Yeah, how much you want?” the gruff trader on the phone responded. “Would it be possible to get five million?” Musk asked, putting on a deep and serious voice. When the trader said that would be no problem, Musk quickly hung up. “I was like, ‘Jackpot, no-lose proposition here,’” he says. “I ran to tell Peter about it and thought they would give me some money to do it.” But the bank rejected the idea. The CEO said it already held too much Latin American debt. “Wow, this is just insane,” Musk said to himself. “Is this how banks think?”
Nicholson says that Scotiabank was navigating the Latin American debt situation using its own methods, which worked better. “He came away with an impression that the bank was a lot dumber than in fact it was,” Nicholson says. “But that was a good thing, because it gave him a healthy disrespect for the financial industry and the audacity to eventually start what became PayPal.”
The above might be evidence of Musk’s temperament but doesn’t say a whole lot about his business acumen.
Brady bonds were invented so western banks could avoid recognising losses from distressed and defaulted sovereign debt. Holding them meant taking a chair at restructuring talks, sitting opposite sovereign officials who couldn’t care less about the expected returns on your spreadsheet. The last thing any mainstream bank wanted to do was add to their exposure. They were all in far too deep already.
Given the sketchiness of the description it’s difficult to say for sure but there’s no reason to believe Musk’s bet on Lat-Am debt would’ve paid out, even if it were possible. Saying Bradys would always be worth 50 cents in the dollar was presumably based on the then-current value of the embedded Treasury zero coupon bond, but that would change over time based on rates.
Factor in also that capital markets closed to emerging issuers following the Asian crises and currency devaluations including the Mexican peso (1994) and the Brazilian real (1998). Volatility would have been intolerable for a return that was probably going to be unremarkable. Here’s a study showing realised returns from Brady bonds were lower than those available from US stocks and bonds.
Maybe Isaacson includes the anecdote to show that young Musk thought the strategy function at Canada’s third-largest bank should include making opportunistic bets on junk because if the punt went wrong the US government would be obliged to write a cheque? If so, job done.
The story progresses. Musk drops out of college, sells a listings website, starts a payments processor and crashes a McLaren F1 while trying to impress Peter Thiel. He’s very rich now, so people agree with him in meetings then try to ignore his requests afterwards, including a recurring one to add an X to the names of things.
There’s a scene where he challenges PayPal cofounder Max Levchin to an arm-wrestle over whether to ditch Linux and rebuild on Microsoft Windows, which sets development back by a year. There’s a scene where Musk is ejected from Paypal’s C-suite after being nonplussed by Levchin’s demonstration of a Captcha. Musk then catches malaria, takes flying lessons, impregnates his first wife at the Burning Man festival and spitballs a plan to send mice to Mars using decommissioned Russian missiles.
Rockets are built, then cars. Musk relies heavily on a strategy of balking at the cost of buying a thing then telling a minion to make it cheaper. Attempts to sideline him during Tesla’s launch phase fail after he hires Robert Downey Jr to be his friend.
Then it’s 2008 and most of the money runs out, but Nasa subsidises SpaceX with a weirdly generous contract award while Tesla raids customer deposits to keep the lights on. It’s here that Isaacson scolds his reader for probably thinking that Tesla was rescued by the government in 2009, like those legacy US automakers who took Tarp, when all it received were loans worth $465mn from the Department of Energy.
There’s no mention here or anywhere else in the 416 pages of the $5bn+ of revenue Tesla has booked from claiming then selling carbon offset credits, which is an oversight.
The next several dozen chapters have a rotating cast of investors, executives, associates and girlfriends. Targets are missed. Holes are bored. Rockets fail to launch. Monkeys play Pong. A cave explorer is slandered. Funding isn’t secured. None of the reported facts differ from the commonly accepted narrative, however, so we’ll skip ahead to Chapter 67: Money.
Tesla’s stock price, which had been knocked down to $25 when COVID began to spread in early 2020, rebounded ten-fold by the beginning of 2021. On January 7 it hit $260. That day Musk became the richest person in the world, with $190 billion, vaulting him past Jeff Bezos. Under the extraordinary compensation bet he had made with his Tesla board in February 2018, amid Tesla’s worst production problems, he got no guaranteed salary. Instead, his compensation would depend on hitting very aggressive revenue, profit, and market value targets, which included Tesla’s market valuation increasing ten-fold to $650 billion.
News articles at the time predicted that most targets would be impossible to achieve. But in October 2021, Tesla became the sixth company in U.S. history to be worth more than $1 trillion. Its market value was greater than its five biggest rivals—Toyota, Volkswagen, Daimler, Ford, and GM—combined. And in April 2022, it reported a profit of $5 billion on revenue of $19 billion, an 81 percent increase from the year before. The result was that Musk’s payout from the 2018 compensation deal was around $56 billion and his net worth at the start of 2022 increased to $304 billion.
A pedant might note Tesla’s five-for-one stock split in August 2020, and that its pandemic low was $350.50 in old money. Tesla bears might quibble that “profit” in the second paragraph is adjusted ebitda and includes stuff like $679mn in emission credit sales to other automakers, which bolstered revenue growth in spite of flat quarter-on-quarter delivery volumes.
None of this matters overly to the main point, which is that Tesla’s board gave Musk some targets lots of people thought were unachievable and then he exceeded them. An unstated alternative reading, that Musk allegedly dictated terms to a supine board and some of the payout targets had already been hit before they were put to a shareholder vote, is currently being considered by the Delaware Chancery Court.
When it comes to money, Isaacson is more a transcriber than a biographer. Musk’s many complaints about scrutiny of his tax avoidance, and how people are ungrateful that his wealth funds the building of cars, rather than roads, go straight on to the page unchallenged.
The 2021 stunt of running a Twitter poll on whether he should exercise expiring Tesla options then sell the shares is presented as an act of largesse, with no hint of cynicism. Isaacson writes that the $11bn tax bill attached to the sale was “enough to fund the entire budget of his antagonists at the Securities and Exchange Commission for five years,” as if they’re meant to be grateful. Meanwhile, all discussion of the significant contemporaneous event has to wait until Chapter 72.
There’s a lot of detail about how Musk fell into the twit-hole by confusing engagement with adulation, celebrity with fame and memes with wit. Nothing much is new in the story of how he blundered into making an silly offer he thought would be too low, but that turned out to be too high, so he tried fantastical nonsense as a way to back out.
What the book does provide is a chronology of Musk’s literal whereabouts while he stands on each metaphorical rake. Here’s a bit about how Musk didn’t agree to a lower price, for example, and it helps flesh out the scene to know he’s on a yacht in Mykonos, Greece.
The company made some proposals that could have reduced the $44 billion price by about 4 percent, but Musk insisted that the reduction had to be more than 10 percent before he would consider it. At certain moments, it seemed there might be ways to get the two sides closer, but there was an additional problem. If the deal was restructured or repriced, it would allow the banks that had committed to provide loans to renegotiate the terms. The commitments had been made when interest rates were low, so the new interest rates they would charge might wipe out any savings.
There was also a more emotional obstacle. Twitter’s executives and board members insisted that any renegotiated deal must protect them from future lawsuits from Musk. “We are never going to give them a legal release,” Musk said. “We will hunt every single one of them till the day they die.”
Remember that at the time, Musk was arguing that Twitter had breached the merger agreement because of bots or whatever. Threatening to scrap the deal wasn’t just a way to push for a lower price, so why worry about finance restructuring?
The syndicate banks had agreed $13bn of debt financing, irrespective of how many bots Twitter was harbouring, with Musk himself on the hook to make up the difference. Musk couldn’t be seen to torpedo his own funding but if the syndicate rejected a new price without new terms, he could pay the $1bn break fee and walk away. A dealbreaker was what he wanted!
Legal risk looks zero sum, at least at the corporation level, since the deal’s reverse termination clause capped Musk’s potential damages at $1bn. A much bigger “emotional obstacle” was the question of good faith, since Musk had already shown that contractual agreements meant nothing to him. Why bother lowering the price in the knowledge that his decision to pay would still depend on his mood that morning?
Isaacson describes the negotiations between Musk and Twitter over price as informal, which sounds like understatement.
As we now know, Twitter’s advisers played the “specific performance” card that forced Musk to stick to his original offer terms and swatted away his attempts to filibuster a legal challenge to beyond the expiry of the debt facility. The biography skims over these details and dives headlong into the post-takeover narrative of inter-office memos about blue ticks, woke wars, micro payments, data centre redundancy and management by emoji.
It’s here that detail misses the big picture. Musk’s gonzo realtime biographer Matt Levine (whose name doesn’t appear once in Isaacson’s book) wrote presciently for Bloomberg in November 2022 that the funniest outcome would be:
Musk is forced to pay $33.5bn for a company he doesn’t want.
His banks are forced to lend that company $13bn.
The banks can’t sell the debt and are stuck holding all of that risk.
Musk runs it into the ground out of pique.
This is precisely what happened. But Isaacson’s doesn’t give much time to the idea that Musk’s luck ran out, even though that’s the story told by following the money. In search of gravity he concludes instead by asking whether he would’ve achieved so much if he were a bit less weird:
Sometimes great innovators are risk-seeking man-children who resist potty training. They can be reckless, cringeworthy, sometimes even toxic. They can also be crazy. Crazy enough to think they can change the world.
A much more straightforward conclusion would be that Twitter was owned by Musk, and vice versa.