The Rule of Johns

Good morning. It's Tuesday, June 16th, 2006. This is up front. I'm Brian Edwards Teakert. On today's show, the Iran agreement that we still haven't seen in writing, we're going to talk about what happens to Israeli soldiers in Lebanon, which seems to be one of the main points of contention right now, and also what happens to Benjamin Netanyahu in Israeli elections. We'll speak to Joe Steve Bannon from Stanford University. In the second half of the program, we will turn to state news. We'll discuss the budget that just passed out of the California legislature with Scott Graves, budget director of California Budget and Policy Center. how it tease up fights over funding basic services with Gavin Newsom in the weeks to come. Closing out the program, take a look at the SpaceX IPO that minted the world's first trillionaire. And some changes to regulations that preceded it, enabled it, and may screw over people who are holding index funds in their retirement accounts. We'll speak to Corey Frere from the Consumer Federation of America. That's all next. After the news. I'm Max Pringle with these headlines. President Trump said Iran will never get a nuclear weapon under an agreement signed to end the U.S.-Israeli war with Iran. Trump made the remarks at a G7 meeting in France, where European leaders are hoping to switch Trump's focus to ending the Russia-Ukraine war. Ross Cullen has more. Ahead of traveling here to Eviole, the U.S. leader held an hour-long call with President Vladimir Putin, a conversation which came after the Ukrainian leader had sent an open letter to his Russian counterpart calling for face-to-face talks to end the war. European leaders attending the summit will attempt to coax Donald Trump to force more pressure on Moscow, with the U.S. President signaling that he is ready to work more intensively on Ukraine now that the U.S.-Iran peace deal has been agreed. The G7 Prime Minister's Presidents and Chancellor will also hold talks on Tuesday with the leaders from the UAE, Qatar and Egypt to further scrutinize the deal between Washington and Tehran. Ross Cullen, Evian. Iran's top diplomat said today that the tentative deal to end the war with the United States would require Israel to withdraw from Lebanon, a condition Israel has already rejected. Iranian foreign minister Abbas Araghchi said Israel's occupation of southern Lebanon would violate the deal. Simon Marx has more. Gideon, Chief Foreign Affairs columnist at the Financial Times, says he's not sure the Israelis will go along with it. Probably the biggest single danger is that at some point fighting restarts in Lebanon. The Israelis are obviously unhappy and there are like journalists who are close to Benjamin Netanyahu ready tweeting this is a disaster and so on. But the Israelis have very difficult choices to make because they can't really afford an open confrontation with Trump. My guess is that reluctantly they will go along with it for now, but that long term they're angry that Iran has successfully linked the war in Lebanon to the opening of the Strait of Hormuz and sort of tied Israel's hands. And Ahmed Khuzai, Middle East analyst based in Bahrain, worries that Iran will be hugely strengthened by the agreement. So for the memorandum, it's a 60-day framework.

around the Strait of Hermuz, Lebanon, nuclear deal, and the economic relief, where the Iranian sanctioned funds will be reimbursed. And I think we still all remember the last time sanctioned funds were released. 7th of October happened. So can we imagine with more money what Iran will do and empowered Iran? Won't be an easy enemy to tackle. It will be empowered. Lost in all of this, Iranians who oppose the country's government and who will now be expected to continue living under its brutal rule. With FSN Spotlight, I'm Simon Marx. Economists and industry analysts say that even after oil starts flowing again from the Middle East, it could take a while for the Iran War's effects on consumer prices to recede. That's because the fighting disrupted not only fuel supplies, but also fuel chains for fertilizer, food, and even footwear. Experts say that as long as business costs are high, customer prices are likely to be high, too. Gasoline, groceries, airline tickets, and other items have all gotten more expensive during the war. Primary elections are taking place today in Georgia and Alabama, among other states. The Georgia GOP primary will determine who faces Democratic Senator Jon Ossoff and Democratic nominee for Governor Keisha Lance Bottoms. President Trump is at the center of each contest. The Senate race pits self-described MAGA Warrior and two-term Congressman Mike Collins against a first-time candidate Derek Dooley. The former college and NFL football coach calls himself a political outsider, but he's got support from Georgia Governor Brian Kemp. Trump hasn't made an endorsement. The president's choice in the governor's race is Lieutenant Governor Bert Jay Jones, one of Trump's alternate presidential electors in 2020. Jay Jones faces billionaire businessman Rick Jackson. who spent $93 million of his own money in the campaign. Primary races are also being held today in Oklahoma and Washington, D.C. Governor Gavin Newsom said Monday that he and his wife, filmmaker Jennifer Siebel Gavin Newsom, are under investigation by the FBI. The Democrat says it's all for political reasons. Lisa Dwyer has more. Gavin Newsom is accusing the Trump administration of targeting him for political purposes as he weighs a presidential bid. Gavin Newsom says in a video posted on X that in recent days, federal agents have knocked on the doors of his friends and former employees and have asked for records. In the video, Gavin Newsom tells his wife that he loves her. You have not earned a single one of the indignities that he's trying to inflict on you. and our children. Gavin Newsom also has a message for President Donald Trump. Mr. President, come after me. I'm not going anywhere, and the country is watching. A person familiar with the matter confirmed that there are multiple federal investigations into people around Gavin Newsom, including one related to his wife's taxes. I'm Lisa Dwyer.

FBI director Kash Patel says law enforcement officials disrupted planned attacks meant to target the UFC cage fighting show at the White House this past weekend and multiple people are in custody. The nature of the potential threat has not been disclosed. Additional details are expected to be released once charges are unsealed today. A law enforcement official familiar with the matter but not authorized to speak publicly told the AP that five people have been arrested from states including Ohio, Missouri, and California. The Secret Service says it's, quote, worked around the clock to identify those responsible and hold them to account. California lawmakers approved a $355 billion state budget ahead of the Monday midnight deadline. The Assembly passed the spending plan late. The Senate approved it earlier in the day. The legislature and governor now have two weeks to finalize and sign off on the budget. It's larger than the $349 billion plan Gavin Newsom proposed in his May revise. It's expected to be the largest budget in state history. Sunny today in the San Francisco Bay Area, highs in the 70s, lows tonight in the 50s, and the Central Valley. A heat advisory is in effect, highs around 100, lows tonight in the 70s. Those are the headlines. I'm Max Pringle on KPFA. Those are the Pacific Alliance. I'm Max. Well, it certainly is Max Pringle. It's just past 708 in the morning. The show is up front. My name's Brian Edwards Teakert. We only know a little bit more about the Iran framework than we did this time yesterday. The Trump administration says they won't release the text until closer to the end of the week when they're expected to sign it. It is mostly Iran's government that is being specific about the alleged details. The Islamic Revolutionary Guard Corps has said the U.S. has agreed to release $24 billion in frozen Iranian assets during the upcoming talks, at least half of that money before the final negotiations begin. Iran's foreign minister, Abbasiragchi, said overnight that Israel's continued occupation of Lebanon would be a violation of the framework. Israeli Prime Minister Benjamin Netanyahu said Israel has no intention of withdrawing. Hezbollah, the Iran Allied force in southern Lebanon that has been fighting Israeli occupation, said that the Israeli withdrawal from southern Lebanon would be a consequence of ongoing talks, not a precondition for them. Since it seems like a lot of this agreement, which again, we still don't have in writing, is going to hinge on conduct by a party not entirely under control of either of the entities negotiating, we thought it would be worth diving back into Israeli politics. So we have invited back Joel Bain. He is Donald J. McLaughlin, Professor of History and Professor of Middle East History Emeritus at Stanford University. Good morning. Good morning, Brian. Good to be with you, as always.

You know, we should have you on under better circumstances. Maybe one day that will happen. I actually want to start with a side story that I am worried is going to drop out of the coverage of the Iran deal amidst all these headlines about what's happening in Lebanon, the member of the Benjamin Netanyahu government, Bazalil Smotrick. basically announced what looks like the annexation of the Palestinian-run city of Hebron in the West Bank. He said he's going to transfer planning powers from the Palestinian municipal government to Israel's civil administration, which seems like a massive bomb to drop. I was very surprised to read it when I woke up this morning. Can you explain what's going on here? Sure. So Smaltrich has been for many years, even before he joined the current government, an advocate of Israeli annexation of the West Bank, and the position that he occupies in the current government as minister within the Ministry of Defense, with responsibility for Israeli settlements in the West Bank, essentially makes him the political leader of the three quarters of a million. Israeli settlers in the West Bank. So he has the authority. to do what he has announced here. And since October 7th, he and the settlers that he supports have been taking every opportunity to expand the control of the Israeli settlers and, therefore, by extension, the state of Israel, over territory in the West Bank without in many cases announcing anything formally. In this case, he has, but the objective has always been clear for Smotrich. He wants to annex the West Bank. How significant is it? My understanding is Hebron big, hundreds of thousands of people, about 80% of them Palestinians? I think that there are 120,000. Palestinian Arab inhabitants of Hebron, that's the right order of magnitude anyway, could be off by some thousands. There are within Hebron itself only about a thousand Israeli settlers. Hebron has since the late 1990s been divided into H1, which is the Israeli health sector, about 20% of the physical area of the city and the rest of Hebron, where the Palestinian Arab majority mostly lives, except for a few that live in H1. That's under the control of the Palestinian Authority.

What Smutrich has done essentially has said, okay, H1, Israeli Hebron, that's ours. We're keeping it. We're going to exercise from here on in planning authority and all the other municipal authorities that would normally be exercised in any Israeli city. Planning authority, meaning control over what gets built, what gets demolished. Exactly. And where? An authority that has been wielded to the effect of continual dispossession of Palestinians elsewhere in the West Bank and East Jerusalem. Yes. Yes. That is certainly going to be accelerated if this plan actually comes into full fruition. What do you read into the timing that Smotrix makes this announcement while all attention in Israeli and U.S. media is on the Iran deal? Exactly that. People are, it's classic magicians misdirection. Look over here and you don't see what's happening over there.

Iran was not trying to build a nuclear weapon, and it has not tried to build a nuclear weapon for decades now. So if you believe Benjamin Netanyahu to start, then the war was a total failure from the Israeli point of view. Israel is not part of the talks that led to this agreement. Neither was Hezbollah. I guess my basic question is how would Iran or the United States expect either of them to be bound by them? Iran is expecting the United States to reign Israel in. I don't think it's such a simple... proposition that the United States could fully do that if it wants to. The United States is expecting Iran to reign Hisbalayan. I'm not sure that it that can happen to the fullest extent that the United States. for sure would like because Israel will be looking for every opportunity to blow up the whole thing and they will be constantly provoking his bala there's there's fighting in the nabitia area as we speak or several hours ago at least and Israel is going to proceed more cautiously than it would have in the absence of the deal that's been announced, but Israel is going to proceed and Hezbollah may decide that it has no choice but to respond. So then if the Trump administration is actually committed to an agreement that puts it at odds with the Benjamin Netanyahu administration, you know, if it is actually committed to Israel withdrawing from Lebanon, which is not clear to me, but let's say for the sake of argument it is, What leverage could the Trump administration theoretically apply? Stopping weapons supplies. That's the obvious thing. What I think the Trump administration is committed to is a mostly ceasefire in Lebanon. President Trump has already made it clear even before the deal was signed that he doesn't want Israel to be bombing Beirut. That's why Israel bombed Beirut two hours before the announcement of the agreement because they were trying to blow it up. And the Trump administration does not want Israel to be carrying out major operations in South Lebanon. Israel has destroyed. many villages in south Lebanon and made hundreds of thousands of people homeless and the messiness fascist wing of the Israeli government would like Israel simply to annex South Lebanon as though that will bring what is called permanent peace to Israel

the Trump administration isn't clear on what it thinks about that. Of course, Iran once it is demanding that Israel withdraw, but that question is not supposed to be negotiated according to the leaks that we have seen until after Friday during the 60-day period when all of the difficult issues will be on the table. Can Israel actually sustain a continued occupation of southern Lebanon, like economically, socially? No, we already have had that experiment. Israel occupied southern Lebanon between 1982 and 2000 and then withdrew in disarray. So it may be able to hold on for a while, but in the long run, no, Israel can't do that, neither economically nor militarily. Well, I mean, it is a different country than it was 24 years ago. It is wealthier. It has different weapons systems. Drone warfare is a thing now, although I'm not certain that works to Israel's advantage. That's true, but Israel also has, in part because it is a wealthier and more cosmopolitan place than it was in the 1980s and 90s, much lower tolerance for deaths of soldiers. So 13 Israeli soldiers, I think that's the number. have been killed in the fighting in southern Lebanon since Israel invaded the country. That's considered a very high number. If Israel chooses to remain in southern Lebanon for the indefinite future, that number is certainly going to go up. Joel Bain and I want to talk a little bit about how forces are aligning for the upcoming parliamentary elections in Israel, Knesset elections. There is an announced overnight our time, midday Israel's time, of the formation of a new Jewish and Arab party called A Place for Us All. Who were the people putting this together? How significant is the announcement? So as far as I understand, this party represents what in Israel is considered the consistent left, meaning people who don't accept the permanent Israeli occupation of the West Bank, who are opposed to the genocide in the Gaza Strip, even if they may not use that term, are opposed to Israel's occupation of southern Lebanon.

So this party grew out of the Standing Together movement, which has been a grassroots movement that has operated among Palestinian citizens of Israel and Jewish citizens of Israel for several years. They grew quite dramatically after October 7th because they were the only major force that... tried to maintain unity between Israel's Arab and Jewish citizens at a time when the government of Israel was unleashing horrific repression against its Palestinian citizens. So the party is co-chaired by Alon Lee Green, who is Jewish and Rula Daoud, who is Palestinian Arab and they are going to try to run a campaign like Zohran Mamdani Zohran Mamdani, Iran in New York. That is focusing on economic difficulties, organized crime in Arab cities, which is an enormous problem, cost of living, shortages of affordable housing, and advancing Israeli-Palestinian peace. That's going to be at the bottom of the list of their electoral platform because that's the mood of the Israeli public, but it's an expression of how upside down Israeli political discourse is because most of the problems. come from failure to resolve Israel's conflict with the Palestinian people. But a party that would say that simply would never get a Knesset seat. What threshold would they have to meet to actually get a seat in the Knesset? 3.25% of the votes. If you get 3.25%, you get 4 seats. If you don't get 3.25%, then your votes are redistributed, unless you have an agreement with another party. It's likely that this party will... form an agreement with the emerging United Arab list, which includes the four principally Palestinian Arab parties in Israel, so that if a place for us all comes up just short of 3.25% and The United Arab list has a few more votes than it needs for the total number of seats that it will get. Those votes get transferred over and maybe that would be enough to push them over the top. Those are the kind of technical things that you can only know once the votes are being counted. Right. What about the attempts to forge the various Palestinian parties or Arab parties in Israel into a united front for the purposes of the elections?

It appears like it will happen in some form. The two main forces among the Palestinian Arab citizens of Israel are the Democratic Front for the peace for peace and equality, which is led by the Communist Party. That's a joint. Jewish Arab political formation, although its overwhelming majority are Palestinian Arabs, its base and its voters. And then the other big one is the United Arab list led by Mansour Abbas, which is a version of the Israeli Muslim brothers. They have already been in a government, although they didn't actually take a ministerial seat to tamp down the critique of it. And Mansour Abbas basically has said, we're not fighting about the Palestinian question. What we want is better material conditions for Palestinian Arab citizens of Israel. And that's a, that that's a position that has some support i mean the they have today uh five seats uh and uh uh you uh unities uh between the democratic front for the peace and equality uh and uh ah Ahmadiby's party also has five seats so the Islamists are saying we'll have a joint list but then after the election every party goes its own way meaning they want they want to be open to accept an offer to join a government. On the other hand, neither the block led by Benjamin Netanyahu nor any of the Jewish opposition parties are willing to accept any Arabs in a government coalition. So there is a debate about the nature of the joint list and what will happen after the election. And that may scuttle the formation of the joint list, although at this point, I would say it looks like the exigencies of presenting a united front and increasing the number of seats in the Israeli Knesset held by Palestinian Arab citizens will probably push the joint list into existence. But if they actually cobble together unity and hold the United Front after winning seats in the Knesset and are in a position to make or break a majority coalition, a governing coalition, what could they actually accomplish with that power? They'd still be a small minority of the parliamentary body. Right. So what it looked, if you look at the polls today, the Arab, the joint list will get.

at least the 10 seats that its constituent parties have today, maybe 15. If they get that number of seats, then it's very likely that neither Benjamin Netanyahu's block nor the opposition block will be able to form a government on their own because they'll end up with 50 something votes and they'll in the Knesset and they'll come. short of the 61 that's required to form a government. So neither of the two blocks will be able to form a government without this joint Arab list or even if the Arab list didn't come into existence if the Arab parties, at least one of the Arab parties. If the Jewish parties persist in insisting, that they won't form a government with Arab parties. That may or may not happen. then neither the no government will be formed and there will be no elections and we've already been through that movie as well because several years ago Israel held a series of five elections over the course of a few years because neither and no one could form a stable government after the election after the elections were held Somehow it always ends with Benjamin Netanyahu back in charge. Joel Brennan, we got to leave it there for this morning. Thank you so much for speaking to us. Thank you, Brian. Anytime. Joel Steve Bannon is Donald J. McLaughlin Professor of History and Professor of Middle East History Emeritus at Stanford University. That takes us to 731. The show is up front. My name is Brian Edwards Teakert. Coming up, we're going to break down the specifics of the $356 billion budget that has just been endorsed by the state legislature. Think of this as its opening bid in negotiations with the governor. We'll close out the program, taking a look at the regulatory changes that the SEC facilitated for the initial public offering of Space X. That's all coming up next after the news. I'm Max Pringle with these headlines. President Trump said Iran will never get a nuclear weapon under an agreement signed to end the U.S. Israeli war with Iran. Trump made the remarks at a G7 meeting in France, where European leaders are hoping to switch Trump's focus to ending the Russia-Ukraine war. Ross Cullen has more. Ahead of traveling here to Evian, the U.S. leader held an hour-long call with President Vladimir Putin. A conversation which came after the Ukrainian leader had sent an open letter to his Russian counterparts calling for face-to-face talks to end the war.

European leaders attending the summit will attempt to coax Donald Trump to force more pressure on Moscow with the US president signaling that he is ready to work more intensively on Ukraine now that the US-I-Iran peace deal has been agreed. The G7 Prime Minister's Presidents and Chancellor will also hold talks on Tuesday with the leaders from the UAE, Qatar and Egypt to further scrutinize the deal between Washington and Tehran. Ross Cullen, Evian. Governor Gavin Newsom said Monday that he and his wife, filmmaker Jennifer Siebel Gavin Newsom, are under investigation by the FBI. The Democrat says it's all for political reasons. Lisa Dwyer has more. Gavin Newsom is accusing the Trump administration of targeting him for political purposes as he weighs a presidential bid. Gavin Newsom says in a video posted on X that in recent days, federal agents have knocked on the doors of his friends and former employees and have asked for records. In the video, Gavin Newsom tells his wife that he loves her. You have not earned a single one of the indignities that he's trying to inflict on you and our children. Gavin Newsom also has a message for President Donald Trump. Mr. President, come after me. I'm not going anywhere. And the country is watching. A person familiar with the matter confirmed that there are multiple federal investigations into people around Gavin Newsom, including one related to his wife's taxes. I'm Lisa Dwyer. California lawmakers approved a $355 billion state budget ahead of the Monday midnight deadline. The Assembly passed the spending plan late. The Senate approved it earlier in the day. The legislature and governor now have two weeks to finalize and sign off on the budget. It's larger than the $349 billion plan Gavin Newsom proposed in his May revise. It's expected to be the largest budget in state history. Sunny today in the San Francisco Bay Area, highs in the 70s, lows tonight in the 50s, in the Central Valley. A heat advisory is in effect, highs around 100, lows tonight in the 70s. Those are the headlines. I'm Max Pringle on KPFA. Just passed 7.34 in the morning. The show is up front. My name is Brian Edwards Teakert, and we're going to pick up with that California budget. What passed the legislature is not the final word. You can think of this as the opening move by the legislature in negotiations with the governor. Up to this point, Governor Gavin Newsom has proposed more stringent cuts than the legislature is willing to sign off on. most of them targeting the state's Medi-Cal system of providing health care for poorer people. He has proposed to roll back some of the eligibility for health care benefits that undocumented immigrants, asylum seekers, refugees, and so forth have in this state. He had proposed a reduction in state support for in-home supportive services that help people who are sick and disabled continue to live independently. And those are both

things that the legislature's version of the budget moderates to some extent. The devil is in the details, so we've invited on someone who tracks the details. Scott Graves is Budget Director of California Budget and Policy Center. Good morning. Yes, good morning. Thanks for having me on. Thanks for joining us. Walk us through the major areas where there is a big gap between what the governor proposed and what the legislature is prepared to embrace. Yes, well, the legislature's version of the budget, which is Assembly Bill AB109, which both houses just passed yesterday, rejects or delays many of the proposals that were set out by Gavin Newsom in his revised budget that he released about a month ago, known as the May revision. So essentially, the legislature was not willing to prioritize the kinds of cuts to Medi-Cal and other key safety net services as part of of this year's budget agreement. So in their package, they looked for ways to avoid cuts entirely or to delay them for about a year, which allows the state to buy some time. We'll have a new governor in office, as you all know, starting in January of next year, bringing in a new set of priorities, and perhaps that will give the legislature an opportunity. to work again to build some more stability around these very important services for Californians, including the one-third of Californians who rely on Medi-Cal for their health coverage. What are the prospects of just a big change in California's fiscal picture in that time? Like if the big AI companies, the metascalers, have the IPOs they're hoping to have, and a lot of employees who'd been compensated with stock options suddenly have a big taxable gain on their hands, is it something California even needs to worry about next year? Well, there are things that policymakers can control and things they can't control. So in the can't control category would be things like initial public offerings of these AI companies, which are anticipated for later this year, which would sort of be a boon for California's state budget, at least in terms of bringing a pretty substantial or likely substantial new revenues to the state budget. And so policymakers would have to consider what to do with those revenues because they would by definition be one time right or an IPO is a one time event generates money over a limited period of time so they would have um options or they would have to develop options for how to address a big influx of revenues coming from an event like an IPO. On the other hand, the things that are within the legislature's control and the governor's control are the state's current tax policies, right? So these are not something handed down from on high or written in stone. They're just written into state law and they can be changed at any point. That is one of the conversations that the legislature and governor

are currently having, the governor did propose some relatively modest tax increases, including limiting business tax credits as a way of preventing big corporations from avoiding state taxes pretty much altogether. Those bills were not passed by the legislature yesterday, so those conversations will continue, but really important to keep in mind that the legislature and the governor have the ability to adjust California's tax system so that it is fairer and asks in particular very profitable corporations doing business in California to pay their fair share toward the cost of public services. Those limits on business tax credits, as I understand it, that would be an extension of a limit that already exists, but is set to expire. Not exactly like a paradigm changing budget move. Yeah, well, I mean, yes, there would be, under the proposal, at least as I understand it at the moment, keeping in mind it could change in the next day or two, there would be an extension of the business, certain businesses' ability to use very generous tax credits the state provides, but then would make those permanent starting in the year 2030, tax year 2030. So there is an intention to make this permanent. Under this proposal, it would bring in somewhat more revenue in the short term, meaning the next few years, somewhat less revenue in the longer term compared to the governor's proposal back in May. So yeah, so this is an example of something else that needs to be negotiated in order. to finalize this budget package. But the legislature does have room to do more. The question is, are they willing to do more? And is the governor willing to sign off on more? It's very possible that they will take some pretty significant steps, hopefully, in the next week or two. And that will set the stage for further conversations with whoever the next governor of California will be in terms of really modernizing our state's tax system to make sure that it is raising the revenue needed to support the services Californians want and need. So like what would be an example of more aggressive tax increases that could go through the legislature without needing to go to the ballot? Well, for example, the legislature itself was entertaining a bill within the last few months that would close a pretty egregious loophole. It's very complex, but it goes by the phrase Waters Edge. Some of your listeners may or may not have heard of this proposal over the last few months. You probably, you may have reported on it. Basically, it's just an effort to stop corporations doing business in California.

from offshoring their profits by using tax havens in Bermuda, Cayman Islands, places like that in order to escape state taxation. So this was a proposal that's not going anywhere this year, but it was a proposal that could have raised potentially up to $3 billion per year in order to support. Public Services, that would not be the only change. And I think, you know, acknowledging the fact that it can be challenging to get tax increases through California's state legislature, especially when there's a governor who has expressed very little interest in tax increases as his governorship comes to a close. He is, in fact, fighting the billionaire's tax that organized labor has put on the fall ballot. Should that pass, that five-year wealth tax on the wealthiest Californians, how big a difference would it make to the budget picture? Yeah, there are a lot of unknowns about the billionaire's tax at this point. And I think the best thing for your listeners to understand is that there are currently negotiations going on in the legislature and with the governor around a number of measures that could qualify. for the November ballot but are still in this window where they can be removed before they actually show up on the ballot. June 25th is the deadline for making that decision. So basically they have about nine days to negotiate with various ballot measure proponents, including I would assume the proponents of the billionaires tax on what it would take to prevent certain ballot measures. from going forward. What kinds of changes would be demanded? What would the legislature and governor need to do? So we're just in a period where there are a lot of unknowns about whether the billionaire's tax will even go on the ballot. And we will have much more solid information about that on June 25th when we learn whether or not it will be pulled by proponents. So in other words, the legislature could sit down with SEIU, the union that's put up most of the money for the billionaire's tax. and say, hey, if we do some of the things you just described, close loopholes that benefit wealthy people and corporations to put more money in the state budget for the purposes that you want, mostly bucking up health care coverage, would you agree to keep this off the ballot and save the money that you would otherwise spend getting it passed?

Yes, exactly. I would assume those are conversations that are and have been going on behind the scenes. And that is not unusual. This has happened. I think it's fair to say this has happened every even numbered year in California where ballot measures could potentially show up on a November ballot. This was a change. I believe the legislature first put in place back in 2014. In order to avoid scenarios where ballot measures automatically get qualified and locked in as soon as the state confirms that there were enough signatures to qualify that measure, they wanted to provide sort of an escape valve for the legislature, for state policymakers overall to step in and say, Okay, this may not be the approach we favor. Maybe, you know, a lot of these ballot measures, they're questionable, right? Some of them are written in haste. Some of them have serious flaws that once you've circulated for signatures, you can't change it. So this gives the state policymakers an opportunity to step in. and see if there's a way to negotiate a deal that could potentially keep a ballot measure off the November ballot, but still achieve some of the goals that the proponents had when they circulated the measure for signatures. Scott Graves, thanks very much for speaking to us. Yes, thank you. Scott Graves is Budget Director of California Budget and Policy Center. That takes us to 746 in the morning. The show is up front. My name is Brian Edwards Teakert. We're going to turn now to the world of finance. It was like a minor earthquake. on Friday when Elon Musk's company, SpaceX, conducted its initial public offering. At the price the company went public at and then had its stock bid up to, it minted the world's first trillionaire, which is just a stunning testament to the state of rising inequality in this country. But along the way towards turning Elon Musk into a trillionaire, that IPO cleared a lot of regulatory hurdles that just might not have been possible to clear under a less accommodating presidential administration. The things, the doors that the SEC opened for SpaceX may produce a situation. that winds up hitting people who are saving retirement in their index funds. So we thought we would walk you through what some of the potential implications are. We've invited on Corey Frere, who's director of investor protections for the Consumer Federation of America. Thanks very much for speaking to us. Thanks for having me. All right, walk us through what SpaceX needed to go public that it didn't already have before the SEC started softening rules.

There are a lot of things about this IPO that have traditionally not made it through SEC scrutiny. A lot of those have to do with shareholder protections. So that would include in this deal, shareholders are subject to binding arbitration instead of getting their day in court if there's malfeasance by the managers of the company. There are limits on what are called derivative suits or essentially the way you would enforce the law against managers that insider trade against the shareholders and risk the company. And then there's the control of the company by Elon Musk himself that puts shareholders at a really big disadvantage. And so that's one set about just the stock being issued. that raised a lot of concerns and are typically things the SEC would have flagged been concerned about and potentially not allowed the stock to list at all with those characteristics and then in addition to that you have the folks that control the index funds several of which also have an exchange changing their rules to allow SpaceX to be included in those funds on a much faster timeline than typical, which creates these issues for the volatility and the lack of the price settling in SpaceX from, you know, settling that so that the index really represents the market and not the froth of these kinds of initial IPOs. So this is something that... standard would have been enforced in the past. And now, Elon Musk is getting special dispensation from, you know, an agency, the SEC that is now very much influenced directly by the president. Let's go back to the SEC for a minute, in a minute. I think we should unpack the index funds thing because not that many people pay that much attention to financial markets. In index is a list. of stocks maintained by an entity, for instance, the Standard and Poor's 500 is a list of the 500 biggest publicly traded companies in the country that meet certain criteria, one of which is they have to have been profitable in recent quarters. And then there are mutual funds. that invest in a bucket of stocks that track the index so that when someone with a retirement account wants to buy all 500 stocks in the S&P, they just buy into the mutual fund. And it tries to track the index. The S&P is the most prominent index that did not make accommodations that would let SpaceX enter early. And as a consequence, S&P index funds. will not be buying buckets of SpaceX stock anytime in the next several months. What did the other indexes do for Elon Musk?

What the other indexes did, and they don't have the same standards across all of them, but one thing that is common among them is requiring at least six months for these stocks to what the industry calls it seasoning in order to make sure that the market cap has settled. The trading represents the true value of the company, the insiders who are going to trade their stock out and trade that into the public. have made many of those trades. And so you want these things to sort of settle out before you introduce this kind of stock into a broad-based index fund that is supposed to be a safe and dependable investment that represents the reality of the whole broad stock market rather than exposing someone to risk from any particular. stock. And what's notable about SpaceX is in addition to sort of being pushed into these index funds, which means more and more investors will have exposure to it, is that it's by its market cap, a significant portion of those funds, depending on which fund we're talking about, how many stocks are in it. That's up to four and a half percent. And kind of paradoxically, being included in those indexes will push up the price of the stock, right? Because once it's in the index, then all those mutual funds have to buy shares of SpaceX to meet the terms of the index they're tracking. That's exactly right. So what the rules of these indexes that created those kind of windows, those delays that you described earlier were meant to do is prevent someone like Elon Musk from listing a stock, seeing it go up and price rapidly. because all the index funds are requiring that stock and then dumping his shares and leaving the index funds and the prospective retirees who are invested in them holding the bag with the depreciated stock. How exposed are America's savers right now? I think when you look at the history of the CEO, Elon Musk, this particular company, there's right to be concerned that even more than the potential risk of other stocks, he might take advantage of that ability to trade. Another issue with this particular stock is that insiders are typically so folks who had a share in this company when it was private. Before they could sell that into the public markets, there was a waiting period from when the IPO came out to the public to when they could sell their shares. For the same reason that you pointed out, you don't want to see retail investors used as what we call exit liquidity, used as sort of the people to sell at a high price in order for those insiders to benefit. Those insiders, rather than having to wait that typical six-month window, were allowed.

to trade will be allowed to trade within three months, a large portion of their holdings. And so you have this situation where because of this mass of rule changes, there are fewer shareholder rights, there are allowances for putting these into the index funds, putting pension holders in 401 s at higher risk, even in what are supposed to be low risk funds. And then this ability of insiders able to take advantage of the high price that comes out of sort of the exuberance around one of these initial stock issuances and that will likely depreciate in value as we look to a month or three months ahead. So what incentive did the companies that maintain these indexes like Futsi Russell? What incentive did they have to make accommodations for the SpaceX IPO? It's really noticeable which index providers decided to change their rules. So the first was the NASDAQ 100. And in addition to being an index provider, NASDAQ, as many people know, also has a very large exchange. And that exchange gets its business by convincing stocks to list on that exchange. And so if I were trying to coax SpaceX to list on my exchange, I might say, well, my index. I'm sorry, my index provider will change its rules to facilitate that initial sale of your stock. In exchange for you listing, it's notable that the S&P 500 does not have a stock exchange, is not affiliated with one, and decided not to change their rules. And the Futsi Russell did, which is owned by LSEG or the London Stock Exchange. And so, while it's always hard to prove this kind of corroboration or this kind of collusion, it suggests... that there were some other incentives involved rather than attempting to make the index fund more accurately represent the market, as has been claimed by some of those conflicted providers. Well, it certainly has worked out well for Elon Musk. The wealth that he has on paper as a result of the IPO. How easy is it for him to actually use that? How soon can he sell shares or borrow against them? So the ban that they have set out for themselves is three months. And after that three month period, insiders like Elon Musk can sell up to 20% of their shares. That's with regard to the common stock. Elon Musk will still hold 93% of the class B stock.

And so part of this is about that potential dilution of the value of the Class A stock, the common stock, as he sells that out in order to turn his paper gains into real gains. And that he will be, in order to keep his wealth, he'll be restricted at the amount he can sell. You can imagine dumping. Most of his shares onto the market would create so much supply that it may drive down that price. And so while there is some caveats to Elon Musk becoming a trillionaire just in terms of his liquidity, this measure is sort of what we... generally use what Forbes uses to define the most wealthy people in the world. And so there's sort of always this question about what is the paper wealth and what is the real wealth. And that's really hard to know what the market will bear. Those Class B shares, that's the preferred stock. That's what ensures he'll have voting control of the company, even if he cashes out a lot of the investment he has in the company. That's right. In unprecedented voting control, typically shareholders are able to hold the CEO and chair of the company, which in this case, Elon Musk is both accountable if they make inappropriately risky decisions, if they participate in crimes or manage the company away that would harm the shareholders. Typically, there is a removal power that shareholders have based on vote. In this arrangement, the Class B shares that Elon Musk holds, again, 93% of, get 10 to 1 the amount of votes as comment stock. And in order to remove the chair and CEO of the company, it is the Class B stock. It is these preferred shares that get a vote. So essentially, the only person who can hold Elon Musk accountable is Elon Musk. Corey Fraer, we'll leave it there for this morning. Thank you very much for speaking to us. Thank you. Corey Frere is Director of Investor Protection for the Consumer Federation of America. That does it for Upfront this morning. We are weekdays at 7 a.m. You can get in touch by emailing up front at KPFA.org. Our producer is Kimia Akbri. Our engineer is Kirsten Thomas. My name is Brian Edwards Ticker. Thanks as well to Max Pringle for the news headlines. Stay up. Stay tuned. Law and disorder with Count Brooks has come in your way in just over one minute at 8.

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