SPEAKER_00: sacks the united states is maybe not going to send weapons to ukraine indefinitely and they're asking them to sit down and negotiate something that people on the left started to do and got got smashed for something you've been pushing for so i guess mini victory lap for you sacks SPEAKER_02: what what's the end game here well yeah i mean i've been talking common sense about this for months just saying that we need to be open to diplomacy because total defeat for russia also means a a maximum risk of nuclear war i mean these things go hand in hand that's the paradox of this war is that if russia faces the prospect of a total defeat that's when they're most likely to David Sacks: escalate this conflict into something much much worse so therefore we need to be open to diplomacy but it was good to hear administration officials over the past week say things that i've been saying for months and that i've been accused of being like a putin sympathizer for so apparently there's a bunch of putin sympathizers in the administration and just to read you some of these remarks actually i want to play like a fun game with you guys instead of just oh really yeah instead of just mentioning these quotes i want to play a game called millie or sax so i want you guys to guess okay whether it was general millie who said the quote or whether i said the quote okay does that sound like a fair fair game yes fair game let's put some game show music here millie or sax i'm going to read you like four or five quotes and you guys are going to say whether it was millie yeah or sax who said it SPEAKER_13: first quote who said it general millie or sax one of the lessons that should have been learned from David Sacks: world war one is that european powers refusal to negotiate compounded the human suffering and led SPEAKER_18: to millions more dead millie or sax sax i'm going sax i'm going sax it's a very historic millie said SPEAKER_21: god no come next one next one go go go okay a regional war turned into the first world war David Sacks: because all parties made maximalist demands and assumed others were bluffing it can happen again SPEAKER_24: exactly millie or sax i'm going sax because you said bluffing that bluffing is a word that you would use all right that was sax that was sax maximalist yes okay the general would never say maximalist yes he SPEAKER_21: would never say bluffing yeah go ahead where there's an opportunity to negotiate when peace can be SPEAKER_28: achieved sees it millie millie or sax millie millie it's very pithy it's pithy like millie all right that was millie yes i'm two and one two and one me and you do for one i'm two for one it's deeply SPEAKER_30: irresponsible not to try for diplomacy when the stakes are so high sax sax that's an emotional SPEAKER_33: statement i go max it was sax it was sax damn it two and two three and one there has to be a mutual David Sacks: recognition that military victory is probably in the true sense of the word may not be achievable through military means and therefore you need to turn to other means oh that's millie it's a word David Friedberg: salad i go millie word salad hold on hold on it's a millie word salad it's too too convoluted for sax sax i go millie i go millie i think it's millie that's millie yeah yeah word salad millie uh that's SPEAKER_29: it i caught up now i'm three and two tied with chamath last one last one okay it must be our objective SPEAKER_21: now to help achieve a ceasefire and negotiate a peace rather than protract the conflict SPEAKER_28: um wow it's so formal millie so formal feels like somebody said that on the steps of like a building outside it's very formal it's well spoken it's crisp can we hear it one more time may we hear it one SPEAKER_21: more time it must be our objective now to help achieve a ceasefire and negotiate a peace rather SPEAKER_43: than protract the conflict millie it's a little too formal for a podcast but in a tweet it wouldn't SPEAKER_28: be so it could be a sex tweet but i'm thinking this whole podcast i gotta go millie i gotta go millie sax oh god damn it damn it you can't tell millie from sax is what we've learned what a great game right now we're going to play the next game this is called bernie madoff or sbf SPEAKER_60: bernie madoff or sbf all right everybody welcome to the all-in pod with us again the dictator in a SPEAKER_64: beautiful purple sweater sweater karen man it's the fall season so i want you to notice the inside SPEAKER_67: the inside of this is suede oh very nice very nice so uh multiple animals killed for your pleasure SPEAKER_69: yeah got it all right what animal do they kill to make suede is that like a type of leather or what SPEAKER_66: is that i hope it's an endangered one SPEAKER_67: well actually that version of sway that he's wearing is from a white rhino so they just take the hide and they throw everything else away oh my god it's so horrible SPEAKER_75: can we take this out of the show uh these are ivory buttons SPEAKER_69: i think it's baby seal fur around the column no how many baby seals were killed to make your outfit SPEAKER_82: all right also with us is uh the sultan of science uh david freeberg racing from the airport how is uh jet blue mint i heard you upgraded to mint no comment well you don't want to talk about the 1200 David Friedberg: upgrade you did to your jet blue ticket wait you don't want to talk about jet blue mint why are you SPEAKER_85: embarrassed to fly commercial what did you eat are you embarrassed to fly jcal yeah when i'm in mint i SPEAKER_89: woke up like i'm the president i'm like hold on mint coming through and then i start spreading out SPEAKER_92: i think jcal class is like the seat by the bathroom in the back hey yeah you save 150 bucks each way SPEAKER_93: what is is jet blue mint the name of like jet blue mint is their first class uh coast to coast SPEAKER_94: like it is so delightful what is that jet blue mint they just have figured out a way to make like SPEAKER_95: sleeper seats you know that are very nice and that's great upgraded service where they they put like a SPEAKER_00: little wall between you and everybody else it's kind of like having a private plane if you didn't and um sax is here the whole crew is here basically uh we'll have a surprise uh bestie guestie jumping SPEAKER_64: in in the middle of this i'm not going to tell you who because nothing's going on this week nothing is SPEAKER_00: going on this week i mean there's so much to talk about let's just start with the elections and then SPEAKER_95: we have to start with my mea culpa usually this is like throwing red meat to sax but i mean at this SPEAKER_64: point all right so desantis won by double digits in florida he got a huge amount of the vote but all the trump high profile trump back candidates seem to have lost dr oz dan cox just it was a shellacking i guess or the red wave became like a puddle or like an eyedropper or something but some of the SPEAKER_00: trump back candidates did win some of the um peter teal collection jd vance won so i guess that's SPEAKER_102: a big win for that wasn't a trump candidate though because if you remember when uh trump went to stump for jd vance he forgot his name i got his name wrong so trump so when you got trump on your side you don't need friends anybody that trump actually cared about turned out to be just a complete dud and lost and everybody that kind of you know had to keep him somewhat around just so that he didn't throw bombs actually did decently but i mean trump is a just a weight on the neck of the republican party and SPEAKER_32: it's time to just get rid of him sax what happened to your red wave yeah listen i got this wrong um i SPEAKER_02: think there's a few reasons for it so i think when you get an election wrong you have to admit it and figure out what you've what you what your mistake was otherwise you're not going to improve i mean number one i was looking at you know the rcp polling this real clear politics where they take an average of all the different polls they were adding a factor to it they were showing by the way plus three or plus four in the senate for republicans but they were adding a factor to it based on the underweighting uh that the pollsters did in the last election cycle and it turns out that the pollsters i think did a pretty decent job correcting their polls and so the rcp overweight David Sacks: turned out to be just basically completely wrong the other thing that i got wrong was i was looking at the fundamentals i mean three quarters of americans think we're on the wrong track and we're in a recession so based on that you would think that this would be a great year for republicans and in fact the out of power party usually wins in a midterm and biden's popularity is at historic lows at like 41 42 so everything was teed up for the republicans so what went wrong i think a couple of things number one two days before the election trump basically comes out and pre-announces that he's running oh yes you know this basically plays into the narrative that biden has already created that this is a this is not a referendum on biden it's a referendum on democracy and basically trump made it into a choice election who do you like better biden or trump and the fact of the matter is if you look at the exit polling as unpopular as biden is trump is even more unpopular so that did absolutely nothing to help the republicans and i think it really hurt them at the margins the other thing that turned out i think the other big thing that helped democrats was dobbs and i never thought that it wouldn't be a factor but if you looked at the polling before the election 15 of likely voters said that it was their number one issue if you looked at exit polling after the election it was 28 so dobbs turned out to be twice as significant as what the early polling was showing and if you remember jason go back to the episode we did on abortion i said the shrewd play for republicans here was the roberts compromise what did roberts want to do he basically was going to allow the 15-week restriction on abortion but not have the headline of roe v wade overturned and that basically is what desantis implemented in florida he basically restricted abortion after 15 weeks it's the purple state compromise it's where i think the purple states and where most of the country is going to end up and the sooner republicans get their heads wrapped around that fact the better they're going SPEAKER_116: to be long term to ask you one question there sex yeah who stacked the supreme court deliberately to SPEAKER_117: turn over roe v wade listen i mean there this was a long-term priority of republicans that's not SPEAKER_84: a question jacob well no i mean we do have to recognize that trump said he would do that he did it so SPEAKER_121: this is doubly trump's fault every party nominates justices that align with their values and it cycles SPEAKER_123: yeah but trump said he's going trump said he would specifically do it in order to know but the SPEAKER_125: president doesn't choose who dies in the supreme court and when yeah right yeah it's also more SPEAKER_02: complicated than that because what this dobbs decision did is throw the issue back to the states and the fact of the matter is that now it's up to each of these states to determine where they're David Sacks: going to come out in this issue so if you look at there were ballot initiatives in red states like kansas and like kentucky kentucky rejected a ban that's right that's what i'm saying is there were pro-life ballot initiatives in red states that lost and so you can see all over the country that the republicans tried to go too far or they do try to go too far when they try to impose a total ban what it seems to be popular is this what i'm saying is the purple state compromise it's what yes de santis did in florida it seems like most of the country we talked about this on that episode yeah most of the country is in the messy middle they want abortion to be safe legal rare and early they're willing to support it in say the first 15 weeks but then after that there needs to be some restrictions that i'm saying most of the country supports that now it's also the case that democrats though are staking out a pretty extreme position too because most of the democrats were taking the position that abortion should be legal up into the ninth month which is not even that's more radical than even roe rose said that you can restrict it after 23 weeks so you know what we said on that podcast jason was the party that gets to the middle first on this issue is the one that's going to do well just this issue yeah and i and i think yes i think it's true on this and i think it's true on other things so look i think the republicans can correct here pretty easily if they listen to folks like desantis and youngkin and kemp uh people who understand that they have there's a compromise SPEAKER_139: here and the ones who basically insist on pushing a total ban are going to go down in flames there's SPEAKER_125: a couple of things i think that are worth looking at now that we have all the exit polling and the results the democrats strategy of helping to promote these extremist mega candidates in the primaries turned out to be a huge winning strategy because every single one that they helped put up against Chamath Palihapitiya: the democrat the democrats won but number two so what that shows is the extreme right cannot field a winning candidate but on the other side all of these extreme left-leaning democrats also did not do very well either and so you're back to david what you said which is we have been saying for a while the winning strategy is that messy middle it's the moderate person that kind of like tax to the center and this is what you see everywhere around the country all of the battle ballot initiatives every time you had an extremist ballot initiative whether it was a complete ban on abortion in a red state or whether it was a tax the rich policy in a blue state they failed and so i think the message that you have to take away is the extreme left doesn't work the extreme right doesn't work right if you look at for example like kathy hochel almost lost in new in new york state because of who because of like aoc and all of that extremist progressive rank and file of that party so people need to really understand and SPEAKER_72: look at the data on the ground if you want to win in 24 you got to be in the middle and you got to SPEAKER_121: clean up all of this extremist rhetoric freeberg any thoughts i think the georgia senate runoff race that we had in the 2020 election cost the u.s 10 trillion dollars and i think it uh because if you'll remember that was the race that when the democrats won tipped the power in senate to the democrats and all this legislation for the last two years was passed including a lot of the fiscal stimulus and spending that very likely may have faced significantly more opposition than could have been faced where the democrats had the white house and the senate in the house and so that single seat and and the loss of that seat in the runoff to the democrat party i think ended up allowing a lot of loose behavior over the last two years that's going to cost this country for a very long time and in part perhaps we could argue a lot of the inflationary pressure uh and now the debt load the u.s debt load increasing by 10 trillion dollars in the last two years since that election by the way and so i think one of the most important things that perhaps people don't cognizantly recognize but feel in some way is that having a balance of power is really important in this country and so to some degree while there may be issues that folks can argue about disagree about there may be candidates that are vile to us i think ultimately folks are recognizing the benefit and the value in having a good uh legislative debate and a good check and balance in this country and so i i think there's a lot of what sacks is saying that that ties into to that kind of emotional conditioning that's SPEAKER_116: probably underway okay sacks trump said he was going to announce he went after de santos called him the sanctimonious obviously the the trump endorsements here didn't help roe v wade didn't help the situation what is going to happen here is the republican party finally going to cut ties SPEAKER_00: because they want to start winning or uh is trump going to just announce next week and cause massive chaos what's going to happen in the republican party in the coming weeks because we're 14 months SPEAKER_02: away from iowa right i mean this is now the next issue the question comes down to do republicans want to start winning elections yes or no and freeberg brought up the the right point in the last election David Sacks: cycle he's right that the reason why we got 10 trillion dollars of unnecessary spending is because of that georgia runoff seat we're about to have another one where purdue won that seat on election night and then warnock won it in the runoff why did things go against purdue because trump had a six week hissy fit after the election the georgia runoff happened on january 5th and then all culminated in the ride on january 6th so the fact of the matter is trump has been having this extended hissy fit and and living in denial since the loss in 2020 and as a result of that we lost the georgia runoff i think we did worse than we had to in this midterm i think we're going to lose the georgia runoff again if trump continues with these antics and so it really comes down to republicans do you want to win and look i know that there's call it 40 of the country passionately loves trump but here's the problem he's capped at 40 percent independents and moderates centrists will not give the guy another look and so you cannot win a major national election in this country with 40 of the vote no matter how passionate that 40 is you know what 40 is 40 is charlie christ the guy who de santa's beat who wiped out in florida that was a 60 40 election that is what a 40 of the electorate looks like landslide it's a landslide exactly so the bottom line is that who your messenger is in politics is incredibly important and trump just gives his enemies way too much to work with now if he weren't a republican it might be different take federman for example okay this guy federman okay he's being portrayed as this man of the people he's got the goatee and the the tattoos and the hoodie or whatever who is he really he's a trust fund kid who never had a job until his mid 40s but the press completely gives him a pass on that they would never do that for republican if federman were republican the press would expose him in two seconds now that's a complaint but the fact of the matter is republicans just have to accept it these are the rules of the game if you're a republican candidate for office you have to be perfect you have to be focused you have to be disciplined you have to be desantis you cannot give your opponents something unnecessary to work with every fight desantis picks has been a smart fight that he's won and same thing with glenn youngkin as well he doesn't give his opponents things to work with and unless republicans realize these are the kinds of candidates we need to nominate in this media environment we're going to keep losing elections yeah jamath any final thoughts here as we wrap up SPEAKER_102: election i'm going to dc next week doing the rounds high-fiving yeah just to finish the thought one David Sacks: other quote from uh new hamster governor kristen nunu who's kind of a he's a republican who's been in spats with trump he said listen the message of this election is first fix crazy then fix policy if you're coming across like you're crazy their voters will reject you now that doesn't mean you can't stand for principle ron desantis says that florida is where woke goes to die he says we will fight woke in the boardrooms we'll fight in the classrooms this is certainly not a liberal position these are pretty conservative positions he's taking but he does it in a calculated disciplined way i'll say Chamath Palihapitiya: this right now he is a winning candidate and the scale of reagan if the democrats also don't figure out how to clean up their act because the other message that's so interesting that i took away is the legislative agenda that works is actually what biden has always believed the problem is that biden seems SPEAKER_164: to get distracted or confused or hijacked by the left wing of his party and they introduced all these unbelievably crazy iterations of progressive policy that just are not popular even in blue states just Chamath Palihapitiya: look at the number of bills that failed so he also has to fix what he's doing by the way because he SPEAKER_168: doesn't think that could fail uh the a u.s judge in texas i'm not sure you can tell me if this is SPEAKER_167: legit or uh or not no they stayed but we should talk about that in the context of the economy David Sacks: actually well that was predictable that was predictable that the college loans are thrown out it's completely unconstitutional for a president to spend half a trillion dollars without congress's approval can i build on jamal's point here desantis won miami-dade county which went for hillary by 30 points okay he showed that a competent executive a an energetic youthful operator who actually runs the state SPEAKER_30: well okay can win over moderates and independents and democrats no he's a winner that these are the SPEAKER_172: types of candidates republicans are yeah he's a winner he's the winner we got a we got a call SPEAKER_00: breaking in here uh we have a special bestie guest you know it's been a big news week it's not just the elections ftx crypto exchange went belly up and uh we thought well let's bring somebody in who's super credible in crypto and that's friend of the pod he's credible because he's wearing a tie yeah hey brian armstrong how are you doing brian armstrong you look fantastic yeah what are you testifying SPEAKER_178: today i'm doing great it's not it's not montclair and it's not uh laura piano but um you know normally SPEAKER_181: i just i just wear the black t-shirt and the hoodie but you know when times like this i gotta go talk to media policy makers regulators and it's a it's a good time to you know spruce up the image this is SPEAKER_186: a week to break out the tie yeah hey listen men's warehouse it never looked better you look great thank SPEAKER_14: you i see a red tie and i think fiscally responsible i guess brian just to kick it off SPEAKER_95: ftx in spectacular fashion blew up this week and it's pretty gnarly you run an exchange as well what's SPEAKER_116: your take on what happened with ftx and then what is your position in terms of making sure your SPEAKER_64: customers understand that coinbase is not going to have a similar fate to all the other exchanges that seem to be blowing up every couple of months yeah well first of all i mean i think we were all SPEAKER_178: shocked that somebody like sam who seemingly is so smart and and capable ended up in this really SPEAKER_181: the situation where he appears to have done something quite unethical and illegal so you know my job right now this week has been to go out there and just help people understand that coinbase is not like that we've been pursuing a different strategy for the last 10 years we're a public company we're we're regulated our our financial statements are audited they can show that you know customer funds are segregated they're backed one to one we're not investing customer assets without their explicit direction and so that's been the first step is just to make sure people understand that but then after that we need to kind of think about how we go forward as an industry here and both take a long-term perspective make sure the good companies in the space aren't allowing one or two bad actors to kind of mess it up for everybody else and it feeds into the whole regulatory story too because companies like coinbase are already regulated but we're regulated like a traditional financial service business but we don't have clarity about the crypto specific regulations like what's a commodity what's a security and that lack of regulatory clarity i believe has pushed a lot of this business offshore to these less regulated exchanges that's part of what caused the blow up today uh they were based in the bahamas you know and they just there's not sophisticated SPEAKER_196: financial regulators overseeing what they were doing brian there's a lot to unpack but maybe we can just SPEAKER_102: take a step back and for the uninitiated or for the person who's only been just following this very superficially can you just in a nutshell explain what happened yeah so my understanding is and again SPEAKER_181: this is from people i've talked to and i spoke with sam and cb cz briefly during this but i didn't get details from them i got it from other people you spoke to them this week yeah i mean this was all going down i mean i spoke to sam about you know he was trying to raise emergency financing and things like that and i spoke to cz about why he was considering buying the asset i thought it was a bad idea but my understanding what happened at this point again i don't have all the facts this is just my my understanding is that you know ftx was in a position where they had this market maker alameda that was investing in risky things and that's fine like market makers hedge funds they're designed to take more risk it appears at this point that back during the last uh shake up in the crypto industry where you know terra luna and voyager and celsius and three arrows went under it appears that alameda took a big loss at that time as well they may have even been underwater and instead of just saying hey you know this hedge fund is going to blow up too which would have been unfortunate people would you know sam would have lost money it's embarrassing but it's not illegal for a hedge fund to blow up it happens with some regularity instead of just letting it blow up it seems like at this point SPEAKER_198: he took customer funds but you have to explain he also he owns both that's for the people that may SPEAKER_02: not understand that right so it's a related party he owns his own exchange called ftx and he owns his Chamath Palihapitiya: own hedge fund called alameda which operates inside of ftx as well as in other places right but again alameda SPEAKER_181: seems to have blown up sorry brian back to you yeah so it seems they had this solvency issue and instead of just letting it blow up sam basically said um hey we have a bunch of customer assets over here at ftx or he somehow basically made a loan from ftx into alameda to try to prop it up i don't i don't know why he did that i mean that that's the moment in my mind where he crossed the line into probably committing fraud and i i think he probably lied to users lied to investors and he went around and tried to bail out these different companies like like voyager and blockfi and to sort of prop up this thing and and maybe he thought he could trade his way out of it or something i i'm not sure SPEAKER_121: but that seems to be where the mistake was made brian can i ask one question which i which i think will help frame the contagion risk set of questions that everyone's having when people have an asset we all talk about customer deposits and customer assets held at these exchanges but those assets and those deposits are very often some form of coin i have some amount of bitcoin some amount of ether some amount of something else is it the case that there is an assumption of total asset value that's held in its in a portfolio of coins that doesn't necessarily match the individual users accounts and then when one coin goes down in value nominally to dollars that the whole value of the portfolio goes down and now you can't actually make the customers whole so in the statements that have been made by these guys and other exchanges that we have enough liquidity to cover customers accounts that the assumption might be we have enough liquidity if you assume the current market price for a whole bunch of different coins but then if one coin tanks the total liquidity tanks and they don't actually have it matched up correctly because now the customer account value didn't go down as much as the exchange of the total uh asset value does that make sense it does and is that part of the contagion risk that's going on here is that they're not matched truly between customer accounts and the exchanges you know SPEAKER_181: holding of coins so not exactly okay so if you're a regulated financial service business um that's but you're not a bank you know we're regulated as a trust company a money transmitter etc you're required to hold customer assets one for one in the the asset so in other words if you say you the customer has one bitcoin you have to hold one bitcoin if they say they have a hundred dollars you have to hold a hundred dollars and so that's the case with coinbase you don't have to take our word for it by the way you can look at our audited public financial statements as a public company with a independent you know big four accounting firm who went to go verify all of that and that's what various custodians and exchanges that's what they all should be doing if by the way if you're regulated as a bank you can actually uh go invest some of those but there's very strict regulation around that and capital requirements and whatnot and we're not a bank so we we hold one to one now if you're an investment fund or a hedge fund or or something like that then you can try to take positions in different coins and different assets and they could go up and they could go down you know you may you may lose your investors money but there's no such thing as the customer assets being involved in that there needs to be clear segregation of those customer funds and from from what an investment fund would be or corporate funds and that's where they got in trouble they basically co-mingled SPEAKER_119: customer funds with their hedge fund classic front yeah can you explain the contagion by the way just so we can because everyone's been talking about the contagion and understanding what's next SPEAKER_121: so that's what i just want to yeah because i think people are going to be asking that a lot this SPEAKER_185: weekend yeah so i do think there's there is some contagion risk here i think there's other SPEAKER_181: firms that had first of all there's firms that had money just sitting in ftx and that's now going through bankruptcy court so that's been bad i mean multi coin came out publicly and said that they had 10 of their portfolio sorted on ftx there's other firms that alameda may have had loans with and those firms are probably struggling i you know i don't want to say who but we have received a couple of inbound calls from other people trying to get emergency financing there's people who may have just totally different from ftx and alameda they may have just had their own portfolio that they took margin or leverage on to buy crypto and now as the prices have come down a little bit they're getting stopped out so um that's all been very challenging and i again just for the sake of clarity i should say that coinbase did not have any material exposure to um alameda ftx or ftt token SPEAKER_02: can we just talk about this issue of customer deposits because this is really the crux of the issue from a legal standpoint right i mean i remember when i was doing paypal like 22 years ago and the company was like six months away from running out of money i remember the lawyers told us really clearly David Sacks: you cannot use customer deposits to fund the operating expenses of your business in other words if this business ends up going bankrupt you'll still have all the customer money there and they'll be able to get it back and you know it was really clear like hey if you use customer funds to pay for the burn of the business to operate the business that is a do not pass go go directly to jail type offense and so like that's really the heart of this now i read in some articles covering this that the way it worked is that alameda had a bunch of these ftt or f these ftx tokens f called ftt and they basically use that as like a marker as collateral so they basically borrowed what is it like 6 billion of customer funds from ftx and then they use their own token to then as collateral so back stop it yeah exactly and then what happened is apparently like cz got wind of this and he owned a whole bunch of these tokens and he signaled that he was going to dump it and the price basically went SPEAKER_02: down and so now all of a sudden the collateral for the customer loans was insufficient and then there was SPEAKER_125: a run on the bank and by the way this has happened this happens in the public markets a lot as well so like when you see heavily shorted names or when you know that certain hedge funds are on the brink other hedge funds will go in and essentially force a margin call and a stop out because then it's what Chamath Palihapitiya: causes all of these runs and if you look actually inside a game stop the reason why you got all this gamification in the game stock equity and a bunch of these other names was in part because of this dynamic folks that are highly levered folks that don't have the right matching of risk and what happens is they're solvent but a liquid and then if you run the instrument into the ground they both become insolvement and illiquid all at the same time and the whole thing explodes so brian the question is now that we know what happened which is all of these crazy inner party related transactions and you know all of this stuff seems very illegal there was a bankruptcy filing today and up until today it seemed like this issue was really about ftx international and alameda and it didn't touch ftx us which for a lot a long time tried to position itself as you know well run and regulated as coinbase to be you know they tried to say that but now if you look inside the wall street journal all the articles say that this is actually ftx group so the whole thing seems to be imperiled can you just help us explain that because there now that's a lot of us people that were following the rules thinking that this thing was matched one to one that may be also affected yeah so look i i don't know SPEAKER_181: who inside ftx is and its orbit of companies actually knew that the the fraud had been taking place i it would not surprise me i have no idea to be honest but it would not surprise me if ftx us people and employees had no idea that this was happening i am imagining if sam was doing when he when he started doing this he probably wanted to keep it to a very small group otherwise this is the kind of thing that leaks and the whole thing blows up now that being said i don't necessarily think ftx us is worth anything as a business right now because of the brand being so tainted and there probably was not great separation of these entities in the sense of you know like did they have truly separate boards and beneficial owners and governance and it sam seems to have you know it appears that they didn't ftx didn't really have a cfo or maybe even like a real board or anything like that and so it's hard Chamath Palihapitiya: for me to imagine we found on red there was an article that appeared that said that the head of compliance at ftx was also the head of compliance at a poker site called ultimate bet which in the 2010s SPEAKER_125: did this exact thing apparently some version of this where they went in and they looked at whole cards of poker players and then a few employees inside the business would basically play against these folks knowing what the whole cards were ran this cheat stole millions of dollars Chamath Palihapitiya: somehow that person found a way to be out of compliance at ftx yeah 10 years later which is incredible but back to this question so so now what happens now is you have the international business and the u.s business and alameda research all rolled up into this one frozen entity right with now regulators having to so do you know what happens in a process like this like is it that the the doj and the sec get priority or is there some international monetary like who who's who unwinds all of this how how do people get their money back if at all yeah so i'm not an expert at this but SPEAKER_181: my high level understanding is that the bankruptcy courts will essentially and i believe they filed bankruptcy in the u.s which is an interesting thing i didn't know why they did that versus bahamas but anyway the bankruptcy court will basically go through and try to find any assets of value so i mean they must they still have some tokens and value they have a venture portfolio they you know i think sam owns nine percent of robin hood there's various things that they may own and then they'll kind of auction those off to various bidders on distressed assets and then try to distribute those funds to the SPEAKER_209: customers i i don't know the exact process beyond that though i mean if you remember the madoff um SPEAKER_228: wind down took many years and for years he was uh trying to find assets and then he found a market sold SPEAKER_121: them there's just the trustee i think he's still active and then you know it's tried to redistribute the funds obviously so many more customers here than there was with madoff but it can be a very long and winding process to identify all the assets then run the market sale process on them then figure out Chamath Palihapitiya: who gets what first and then distribute there was an interesting thing that larry summers did i think for bloomberg where he was asked whether this was lehman or enron and he said it seems more like an SPEAKER_125: enron than it is a lehman and brian i'm just curious how you think about it like is this sort of a fraud Chamath Palihapitiya: perpetuated by a group of executives to essentially take advantage of a situation or do you think that this is more like a lehman situation which is a well-run business i guess that just you know got SPEAKER_185: caught in a liquidity trap i think it's my guess is it's a little more like enron in the sense that i mean yes they were over levered and that kind of thing but the minute that they moved customer funds SPEAKER_209: in some way shape or form to backstop the hedge fund that that was in my mind fraud and you know SPEAKER_125: that's more like enron do you think now that we have to open the gates on regulation like the whole point of crypto in some ways was you know trust nobody and you know decentralization is the key but here what we see is a lot of people were tricked into trusting ftx and having their deposits there Chamath Palihapitiya: and it was a centralized exchange which caused all these problems so it's like it almost violates the principles of what the whole product market fit was supposed to be so what what should sort of the observer expect and what do you expect as a business in terms of how governments now react to SPEAKER_181: all of this yeah well i think it's really important to distinguish between the centralized players in crypto which are custodians exchanges etc coinbase has a big business there and the decentralized players which are you know self-custodial wallets defy protocols web3 that whole world so the centralized players um should be regulated and today they're regulated already likes like kind of traditional financial service businesses but they don't have the regulation clear when it comes to the crypto aspects so for instance in the us we we actually don't still have clarity about what is a commodity what's a security should which one should cftc regulator versus sec that kind of thing and that lack of regulatory clarity and frankly the the climate of regulation by enforcement the negative rhetoric from you know chair gensler in particular has created this sort of chilling effect in the us that has pushed a lot of that centralized actors activity offshore in fact 95 of the trading volume in crypto is now outside the united states and it's come down a lot since the beginning of this year even now the decentralized players self-custodial wallets defy web3 this is where crypto really has an opportunity to make a more fair and free and transparent system because you can go look at any smart contract to see exactly what it's doing anybody can audit the code if you have a self-custodial wallet you you can just trust yourself you don't have to trust any other intermediary out there and that's where you get true decentralization and i think that's actually now those areas still have a couple of their own challenges you know sometimes people will lose their password or their phone and they'll lose their own money so if you're if you're trusting yourself you still have the you have to trust you know that you're going to do that piece correctly but there's a lot of good things we SPEAKER_197: can do there around making social recovery mechanisms and mpc wallets and things like that SPEAKER_116: we uh remember just a couple of months ago gary gensler started saying hey these things are all SPEAKER_00: securities and you went and visited the sec a couple years ago or you tried to they wouldn't meet with you you were very public you did a tweet storm we talked about this on my other pod that hey like we want to meet we want to talk about that now we're still in a position where the sec's position is these are all securities which means the anything that's trading it would have to be limited to accredited investors etc what should the united states do here and how close are we to getting clarity because i know you're trying to talk to the sec directly about can we just get some clarity here SPEAKER_238: can people buy these tokens or not what is the status of are they tokens are are they securities SPEAKER_181: or are they not here in the united states yeah so luckily since then we have had a lot of productive dialogue with both the sec and the cftc and treasury and all kinds of people in congress and i do think the us is making some steps in the right direction there was actually there was a bill going through congress recently called the dc cpa or the stab now bozeman bill although it's having some challenges now frankly due to this ftx blow up because sbf was one of the people sort of pushing that bill forward but regardless of that the the sort of system that we should have is there should be a clear designation between what is a crypto commodity and that can be regulated by the cftc and what is a crypto security now this is one of those legal and by the way what is also a stable coin and artwork and other things that are not any of those things the challenge lies in that there's kind of a fuzzy line between what is a commodity and what is a security and a lot of this law is based around the howey test which says a security is an investment in a common enterprise with an expectation of of profit and so it's basically a point-based system and in the absence of really getting a clear list between the cftc and the sec are in this turf battle i would love it if you know they could basically put out a list uh get their heads together and put out a list hey cftc is going to do these sec is going to do these a bunch maybe are in the middle let's let the courts figure that out or whatever but that just hasn't happened and it's a it's a missed opportunity in the us so if the howey SPEAKER_00: test is not perfect given the dynamic nature of cryptocurrencies and all the innovation if brian armstrong was going to say hey this is in the best interest of americans balancing you know some amount of security and safety for people making bets on this currency and allowing innovation what would you say is the best definition the best way for us to regulate crypto coins putting nfts aside SPEAKER_102: putting down just specifically hold on hold on let me just tweak your question sure build on it because because we should switch to spf as well and just talk about the person but to me it seems the whole Chamath Palihapitiya: issue if you come back like what is the first string that you pulled that unraveled the sweater was the fact that these tokens were created out of thin air they had no meaningful value somebody prescribed a value and all of a sudden everybody else in the economy all of a sudden said yeah i'll take that as collateral look you cannot do that in the regular world i can't call jp morgan and say i've invented this thing it's called a share in xyz and i'd like you to margin loan you know give me a loan against it so brian explain like there's a ton of these tokens that have been engineered right and there's been a ton of these tokens that have been sold so what should people do that own these things thinking that there was going to be some safety or value or you know like how do you think about all of these tokens that are that that could be as basically as as fragile and shitty and SPEAKER_181: worthless as ftp yeah well there there is this concept of like an exchange token and there's a couple other firms out there that have them and that's something we haven't done and i do i think i think you're right like the actual utility of those things is a little questionable and so if someone's going to sort of mark those up on a low supply and then a low float and then somehow leverage that that that's going to get yourself into trouble but look i don't want to throw out the entire concept of people creating tokens i think there's actually a lot of good stuff there and it comes down to this idea of if you're trying to raise money for your company and a token through a token that's fine that should be a security and there should be a regulated way to do that in the us like go register it with the sec you know let it trade on broker dealers that's that's what we've been wanting to do for a long time and the sec is taking their time getting there they don't you know genser to be honest he doesn't seem that um excited about the idea of this whole industry existing and so anyway but it should it should exist and it should be happening in a regulated way so if people want to issue a token that's raising money for a company let's regulate it as a security if they want to issue a token that's truly on a decentralized protocol or has some other purpose like voting in a dow or or rewards or something like that then that's probably not a security and let's be honest about that and allow those things to trade in a different SPEAKER_226: environment a different regulator under the cftc we're probably running out of time with you because Chamath Palihapitiya: you said you had a hard stop so let's ask the million dollar question tell us about spf like SPEAKER_121: what's who is this character when did you first suspect yeah what's your read on the psychology that this wasn't legit do you think that it was his altruistic intent that allowed himself to convince himself to do this or you think this was like malicious the whole way or what's your sense of SPEAKER_181: the guy so again i'm speculating here i mean i've spent time with i've i've met him a bunch of times and i have to say i did not see this coming like he he appeared to me to be a very bright credible competent person perhaps a bit young perhaps you know a bit reckless at times but not unethical and not not committing fraud i definitely did not see that you know if i look back to see were there any warning signs that i should have thought twice about it you know one of the things i noticed was that in 2021 you know coinbase had a good year we we did 7 billion in revenue 4 billion of positive ebitda we went we became public as a company at that time ftx did about 1 billion in revenue and i knew how much money we had for our venture budget and just like different investments we wanted to make and i knew their revenue and i had to scratch my head a bunch of times and i was like where is this guy getting all this liquidity because he was like buying nine percent of robin hood he was putting like a billion dollars into this he was donating to all these politicians and i was like i it did not make sense to me where he was getting all this cash people just kept telling me oh his market maker alameda is just printing cash i guess like okay i guess you know it seems like a conflict of interest to own an exchange in a market maker that's why we haven't done it but more power to him i guess and so i was surprised i didn't speak up i cannot i can't explain the psychology of it at this point whether he's a pathological liar or if he's started off good and somehow under the pressure of this whole thing went bad but the minute you can you can go watch the interviews he's he's he's lying to people about why he's he's you know a bailing out voyager and block fi and these and he he knew at that time that most likely he knew at that at that time that they were not solvent alameda was not solvent and so that's where he crossed a major line in my book and we see it time and time again SPEAKER_121: elizabeth holmes bernie madoff i mean once the lie gets too big you can't get out of it anymore SPEAKER_116: if that's the case really incredible and the most important thing at this point brian is that the united states makes a decision on do we want to be in crypto do we want to have a say in this and SPEAKER_00: create a regulatory framework that entrepreneurs like yourself can deal with that is the most important thing to happen in the next year but you're saying the sec is not motivated i guess why SPEAKER_101: are they not motivated they're just cya one oh they're motivated now this is a political issue SPEAKER_164: now so they yeah but let's hear brian yeah answers here what do you find out who who did sbf give all David Sacks: this money to because he was touted as one of the future biggest donors to the democratic party democratic if you want signals so if you want signals i would say there are some pretty big signals here number one he says he's going to donate a billion dollars democratic party and he kept touting this like effective altruism whatever the saving the world stuff now why do you need to do that unless you're reputation laundering and trying to buy political protection come on okay you SPEAKER_155: don't think that was a little bit of a signal right here i'll tell you i'll tell you an even Chamath Palihapitiya: more explicit signal we he pitched us in that 17 billion dollar round and i did a zoom with him and after the zoom i'm like this doesn't make much sense but i'll have my team do some work we did some work and we sent him a two-page deck and we said here are our recommendations for taking the next SPEAKER_125: step one was the formation of a board the second was the creation of dual class stock the third was some reps and warranties around affiliated transactions and related party transactions Chamath Palihapitiya: and the person that worked there called us back and literally i'm i'm not i'm not kidding you said go yourself was quote unquote the response to us we're like okay so that was the easy decision but message receives message received but i still thought okay i'll just put that in the bucket of these guys are unbelievably arrogant and smug but brian i thought what you thought which is maybe it's because they've print they've created some money-making machine in the bahamas and so they they have that level of it of confidence you know i it but then to see this thing to the extent of which is now we're only scratching the surface guys you know that we're going to find out stuff every day SPEAKER_00: the post form is going to be crazy but brian to the question i asked before about the sec SPEAKER_238: and what should happen you said i want to pick up on what you said which is the sec doesn't seem motivated why is the sec in your mind not motivated well i think you're right that i hope that they use SPEAKER_181: this as a moment to come together and help you know local companies in the u.s being built here to end up in a better place and i do believe you know david i think said it's it's right it is a political issue at this point there's going to be a major impetus to get the clarity here in the u.s and hopefully to help build the companies here in the u.s that are going to serve the rest of the world and in every major financial hub so we're committed to building that together with all the SPEAKER_209: regulators around the world and crypto is here to stay this is a temporary setback um but i'm i'm here SPEAKER_271: to keep building and make this thing happen all right we really appreciate you taking the time SPEAKER_02: right thank you you want to get the list yeah i mean story after story here about you know sbf David Sacks: was going to create this billion dollar philanthropy to you know save the world improve humanities long-term prospects number two donor to the entire democratic party and on and on and on and on and like quite frankly what this shows is you want to know what effective altruism means it means that you steal other people's money while bragging about saving the world while taking a big chunk for yourself SPEAKER_121: that's what it means there was a research paper in 2011 and uh this research team looked at drug addicts and drug abusers 4 000 people and they found that the biggest addicts had the highest intelligence that you were twice as likely to become an abuser or an addict uh if you were any kind of intelligent SPEAKER_126: uh quintile quintile that they were measuring and someone explained this to me at the time SPEAKER_121: that the smarter you are the more you can convince yourself that when you're doing bad things you're actually doing good things even if you're doing bad things to yourself or bad things to other people that you really may actually care about you can convince yourself that there's some reason to keep doing it he seems like a brilliant guy i think that to some extent he may actually i don't know the guy but he may actually believe that the um you know the the ends did justify the means and he thought that he was doing good for the world and this was something that had to be done in some way and oh it just got a little bit away from me but it's it's still i think though Chamath Palihapitiya: i think the problem is bigger than ftx uh and i'll say the uncomfortable part out loud and nobody needs to necessarily comment if you don't want to but there were an enormous number of venture firms that hawk their their way into just completely doing zero work here i mean and the the tip of the spear is this thing uh well who's the guy that works at founders fund bulgar buljar is zebuljar zebulgar delia delia thank you yeah yeah yeah that tweet that he had where he basically took the SPEAKER_125: snapshot of the sequoia transcript was one of the funniest things that i've ever seen i mean this was a 215 million dollar decision and sequoia documented it and put it on their own website and i think SPEAKER_164: that's an example of something that was happening which is people just looked the other way and SPEAKER_121: didn't even want to do the layer of work chamat let me just string together a couple of things we've talked about over the past few episodes and i think you'll agree with this point but generally speaking there seems to be a very heavy lack of governance in investing given the amount of capital and the velocity of capital in silicon valley particularly in private markets of late and a lot of the stuff that's been talked about where last week we talked about super voting shares and the founder does whatever they want and there's no governance and there's no board and there's no oversight and particularly with this ftx situation where clearly there wasn't a board that was you know getting the necessary information that had the necessary influence that had the necessary controls the meta conversation but all of these threads tie together the concept that maybe there's not a lot of governance and not a lot of diligence going on and the amount of money that's flowed into silicon valley has allowed a lot of this loosey i'll say there i agree with SPEAKER_116: the consequence of it let's thank brian armstrong for joining us and it was a very busy day and uh what a great uh candid insightful uh yeah thank you brian thank you candid and insightful finish SPEAKER_125: i just want to say the second uncomfortable thing out loud which is there was a lot of venture firms in silicon valley in this period of both not doing any work or diligence who also took Chamath Palihapitiya: the extra step and actually created classes and would teach teams how to create these tokens okay and those artifacts those video links and artifacts are sometimes on their website they're still on SPEAKER_125: youtube they're inside of twitter and what these folks would do when we talked about this the game Chamath Palihapitiya: that they played was they would get a team they would create a token they would also buy equity at some crazy valuation the equity was locked up but the tokens were not and then they would put them on an exchange and sell them to unsuspecting people and they would be able to dump these tokens and if you look inside of that trend what you're going to see and brian just mentioned this those were the sale of securities except it was done in a completely unregulated way so if the sec is really and the doj is really going to take this ftt token issue seriously and what happened to ftx they're going to start to look at a bunch of other tokens and token sales and you're going to end up looking SPEAKER_296: at some very well-known venture firms inside of silicon valley hey this is going to be super gnarly SPEAKER_297: and we talked about it before on this pod there are people who knew better so you get a bunch of kids who are living in the bahamas in a house and and they're you know winging this thing that's one level of responsibility and they'll go to jail but when we talk about venture capital's capital allocators who've been at it for decades to chamats point and they're teaching people how to do this and they're hiring attorneys and creating offshore panama you know bvi whatever uh places to put these SPEAKER_00: coins and then teaching people how to do it and then flipping them potentially this is we're just SPEAKER_300: peeling back the onion on this i have a feeling that this is going to be the turning point in all that SPEAKER_164: token guys let's be honest is not the only token that has been engineered by silicon valley venture SPEAKER_72: firms and it is also not the only token that's gone to zero that was engineered by silicon valley SPEAKER_302: venture firms well i mean who knows engineered by but yeah adjacent to at the very least jason jason Chamath Palihapitiya: there's videos today on some of the most well-known venture firm sites on how to do this oh wow i'm SPEAKER_238: gonna have to see those um yeah so they're basically your point chamath is they're instructing SPEAKER_306: people on how to do this and that is part of the deal it's what it's what it's what they it's what SPEAKER_121: they did can i ask your guys a point of view on just one big macro philosophical question i'm obviously not big in the crypto world and haven't been but so much of the positioning has been that these networks get decentralized through the cryptographic verification systems that obviously enable you know them to operate effectively and truthfully and correctly and without centralized control or manipulation but ultimately while these networks themselves may be decentralized the user's point of access often ends up being centralized as a point on the network and it is that point on the network that accrues the same level of influence power control and value as what we saw in the prior centralized network model you know we had balaji on last uh year and you know i tried to get to this point with him we had to cut the thing the show the conversation short but i've still not heard from anyone and i've spoken with brian separately about this point and and the the the concept i use is like look media if you put all the youtube videos on on a decentralized network and anyone can access them and they're distributed everywhere you still need to have a really good application and whoever makes the best application is going to get all the usage and then all the users will use that application and that becomes effectively the point of control and influence and value once again and so it seems to me like in this case the exchange was being used as a centralized wallet certainly you can do you know exchange through the exchange but but mechanistically these guys were storing their coins their cryptocurrency inside of ftx's wallets and so ftx had control over their assets and so the network centralized and so does the decentralized model it's a it's a question i'd love to just ask you guys in your point of view on does this decentralized model actually ever manifest where everyone has their own wallet i know there's all these new protocols and these distributed wallets and d5 things but i don't know enough yeah i don't know that would be certainly better but then this SPEAKER_228: points out to me just you basically recreated an exchange without a regulator and of course someone ripped you off and it blew up like i mean how's it any different than what we had in version 1.0 and is there really a model where decentralized works or ultimately because of the network effect and the SPEAKER_317: and the economy okay answer yeah we got the question yeah go to math no i mean i have i haven't SPEAKER_163: i have i don't know the answer to free bird question because i don't i don't know this space SPEAKER_102: well enough i mean you know i my my biggest purchase ever was bitcoin in 2011. you know i've bought a bunch of these tokens that have massively depreciated in value i think lots of investors have you know i kind of fell into it as well like i thought wow this is incredible i get to buy these tokens they do all of this cool stuff they represent all this value and my experience has been the opposite of that i've lost a lot of money in these things um and so you know i really hope that regulators not just obviously i hope that regulators do their do the best they can to get investors money back in ftx Chamath Palihapitiya: but i really also hope they figure out all these other tokens as well because you can just rank them in terms of market cap start at the top and work your way down and you will see that these were unregulated securities jason that were manufactured and sold by our brethren people who understand the SPEAKER_321: law around accredited investors and the stuff very well yeah they understand implicitly yeah do you guys SPEAKER_102: think crypto investing uh is dead or what do you think how do you think people think about that risk SPEAKER_321: profile now inside of i think investing in the tokens is going to end investing in the corporation SPEAKER_00: is going to begin and any of the tokens are going to be super regulated building on what you said chamath about the ultimate bet is it possible that alameda the trading hedge fund was looking at the ftx data which they had insights into and essentially that's the same as seeing the whole cards in the ultimate bet and so they're making their trades based on what they see the consumers SPEAKER_321: are making their trades front running their trades or otherwise that's not illegal you know SPEAKER_125: citadel does this in the regulated market that's what payment for order flow is it's right it's SPEAKER_102: the ability to front run retail volume and so you know in dark pools that is legal by the law in the united states and that's what allows citadel and you know i think jane street and susquehanna you know all these folks basically run these dark pool exchanges for regulated securities like options Chamath Palihapitiya: and bonds and and stocks and they get this order flow and they front run it by a millisecond and SPEAKER_84: they they just take small big but they can't print the ftc tokens and otherwise manipulate the SPEAKER_163: market to the level that i think sbf could i i just think that there's there's there's these really uh Chamath Palihapitiya: strict walls and segregation as you heard brian talk about when you have those businesses in these regulated markets the problem here is that this is totally wild west unregulated wild wild west so who SPEAKER_00: knows what's going on really and we're pushing the business sacks off of the shores of the united states as you said 95 of this is happening offshore what do you think should happen regulatory wise sacks in terms of america and competitiveness or do we not to be need to be competitive in this SPEAKER_02: no i think we should be i mean what if what if crypto and defy is the future of finance i mean it's an important technology that i think we should enable through some sort of constructive regulatory framework i think where would that start let's i think the regulator should listen to brian and help come with the appropriate framework but to be clear look what sam did is way worse than people going on an exchange and speculating i mean look i i think that people who speculated in the David Sacks: buying and selling these tokens they're they were using it like a casino okay like that's different than a customer putting their money on ftx and having their money get stolen that's a big difference so i think there's levels here now to your point about who's minting these tokens you're right maybe that's like another category but i do think that the reason why this is on a different level is because it Chamath Palihapitiya: wasn't sam's money to give away there is such an easy solution to this regulatory environment i'm just i'm just great i'm i agree with you on that point but i think don't underplay when there's an organized process to create an illegal security with special rules for them that allows the liquidity for one class of asset and not liquidity for yeah you're right so that's a separate bucket i don't SPEAKER_02: think it's the same as what sam did and i don't think no i agree i agree no i'm saying SPEAKER_40: that's something that needs to be looked at and we need a constructive regulatory framework for that SPEAKER_00: there is such a simple silver bullet for all of this which is these things need to be there needs to be proper governance people have to have skin in the game insurance people signing off on the taxes boards onshore here in the united states and then we need to have and i'll keep saying this a way for SPEAKER_84: americans to become sophisticated investors only six percent of this country fall into the qualified purchaser and accredited if you want to trade in these things or you want to trade in nfts or private companies we should have a driver's license like test a firearm like test and i SPEAKER_243: are on the sophisticated test and let people opt into it with an education the problem is when you Chamath Palihapitiya: have guys like this it sets that desire back by a decade if not more okay because it really sucks i agree because every single so frustrating every single person inside of washington right now who's anywhere near this from a regulatory perspective or a policy perspective is meeting on monday morning and the meeting topic is how do we defend the mom and pop folks that lost money here yes that's the only thing so we took this out of you know because i i remember i remember i texted into the group chat hey guys what what what do we think the the legal ramifications are that drive prosecution SPEAKER_164: and one of our friends said legal ramifications these are political ramifications yeah which means that this is going to go to the utmost level and it's going to have the most scrutiny and they're going to act SPEAKER_95: really quickly it is they're going to drop the hammer instead of having a path to accreditation i agree with you they're going to drop the hammer because their constituents some grandma and grandpa SPEAKER_00: or some people put their college education to some lost everything we just need a test let people prove SPEAKER_313: they're sophisticated and let them participate well first and only if they get a license haven't you been a proponent for letting people invest in startups that are just mom and pops and democratizing access SPEAKER_84: i'm only allowed to do that with accredited investors i would like there to be a test and i actually teach a course angel university six times a year for charity i do it for charity it's SPEAKER_00: a four-hour course where you learn about diversification you learn about the asset class you learn about 70 80 go to zero we teach you about the power law i try to teach people about this stuff so that SPEAKER_84: they can participate intelligently it would it would be the equivalent freeberg and thank you for asking the question it would be equivalent if we had a poker test and to play in the world series of poker you had to go to a five-hour seminar and you had to take a practical test and you had to say you know a flush beats a straight and you had to just prove that you had some level of knowledge of how to play the game it's such an obvious path to removing these problems while staying competitive as a country and instead we're letting people do this offshore like cz with no rules or whatever SPEAKER_345: rules he chooses it's just infuriating it's so stupid our politicians in washington are so dumb SPEAKER_121: can i just say something i think the challenge is there's always a spectrum of understanding and you'll always end up seeing the people on the wrong end of the spectrum getting taken advantage of there's this notion of adverse selection distributions are not equal people will end up you know kind of opting in to spend money on things or making investments that they think are good investments but they're actually getting taken advantage of because they're not savvy enough where they miss an important angle or important perspective about the person or the thing that they're giving their money to and there will always be some number of those and the way that regulation has worked historically is not by first saying hey let's figure out the right way to create a framework for operating it's that some sort of people got advantage that story then becomes the regulatory framework and that story has repeated itself for 500 years across capital markets we're SPEAKER_00: talking about a multi-layered thing here we want to see crypto have a framework we want it to blossom here in the united states and then there's multiple level of people who are um causing chaos in this ecosystem in this very promising technology with their goddamn grifts whether it's vcs grifting or sbf or incompetence we just need to clean this framework up if people sometimes people i understand in dc SPEAKER_84: listen to this podcast if they're listening it's essential that america be competitive here it's essential that everybody participate in risk capital and get educated let's clean it up and make a framework that allows all americans to participate and educates them and then stops these grifters from doing stupid things if people were educated that's the first step and it's the best talk about SPEAKER_101: the economy sure you want to talk about facebook with 11 000 you want to talk about the uh market popping so at the beginning of october yeah i think what we basically said kind of generally speaking SPEAKER_125: is markets up right markets went from nibbling to being constructively positive and basically being Chamath Palihapitiya: positioned long here's this really interesting setup we have a bunch of very positive news that i think we all have to process first positive news was that inflation ticked down now here's what i'll tell you there's a caveat here i talked to a bunch of pretty smart sharps on wall street and oh two things number one is they all gave credit to david sacks and they said sacks was totally right double dip recession is coming but then they said tell sacks that we think that these are the sharps we think that there's a double hump in inflation coming which means it's coming down to come back up and there's a bunch of reporting vagaries that may cause that so keep that in the back of your mind but positive news number one is inflation ticking down um number two jason we talked about this uh a federal judge basically stayed biden's attempt at giving student loan relief now that would have been a 500 billion dollar transfer payment from the government into the hands of individuals it is deflationary to not put give that money to people it's effectively taking stimulus away from folks number three it looks like we're headed towards a split government which means that um we are not probably going to see any more stimulus over the next two years number four uh ukraine wins and curzon i hope i'm pronouncing that right number five the united states uh announced yesterday through the wall street journal that they had essentially said no to ukraine's request for advanced drones and they said to ukraine essentially you need to go and negotiate an end game here and number six china has started to relax his covet policies and g is pivoting to economy first so if you took all the ways take seven don't forget seven facebook which would SPEAKER_95: not take the medicine they refused brad gerson's letter cut 11 000 people 48 hours ago i don't i don't SPEAKER_32: think facebook matters that much to be honest well but it matters that big tech is and they're taking SPEAKER_303: matters to us but it doesn't matter to the economy to be completely honest i think it does if people Chamath Palihapitiya: are going to start cutting jobs but okay keep going my point is these seven things are macro level things that affect everybody yep and i think if you take them together what it says is that wow there's there's the potential for a lot of great positive developments over the next six or nine months and i don't think that that was adequately priced in the market but here's the problem and this is what's why we've been rallying the problem is that most of this rallying has been because of a bunch of short covering by folks that who were pretty pessimistic and negative after the last few inflation prints so this is not really net new buying that we saw over the last couple days so you take it all together i'm like it's still going to probably trend up a little bit but then again you know we talked about this jason when the vix gets into the low 20s or the high teens that's probably the short-term top and then it turns around and unfortunately we're near the low 20s high teens so that's kind of my thought on things right now okay freeberg any SPEAKER_249: thoughts on the inflation print yeah so i think there's two things one of which i'll give credit SPEAKER_121: to a guy named carl uh chu i hope i pronounced carl's name right he's from william blair he puts out these excellent research reports and we used one of his graphics a few weeks ago so i put it up here and basically he showed that with the uh the nasdaq move that we saw this week so you can see this here he basically tracked the move in the 10-year treasury against the the one-day move in the nasdaq and uh he said that it really indicates a unique sentiment shift whereas in other times you've seen big moves in the nasdaq that weren't really seeing significant moves in in the treasury rate at the same on the same trading day and that this is such an outlier what happened uh this week the only other time that we've seen anything like it was when the bank of england issue happened back at the end of september uh in the last you know 20 times that we've seen this big of a move in the nasdaq in a single day and so we saw a 31 basis point move in 10-year treasuries in a single day at the same time that we saw what a seven point move in the nasdaq so he said because you don't normally see the bond market and the equity market trade in this way together it really speaks to a big shift in sentiment now at the same time what is that shift in sentiment that there is going to be less of a driver for the fed to raise interest rates at this point because it seems like the inflation print indicates that inflation is coming under control faster than what folks had otherwise anticipated and so there may not be as many rate hikes as quickly as folks were anticipating which will you know benefit uh benefit equities and the bond market traded that that with that perspective as well now the counter narrative which uh i just put a tweet by a guy who i've never heard of before but someone shared this with me his name is gordon johnson and he said um the cpi surprise may actually be due to a technical print that within the cpi one of the biggest indicators is health insurance cost and um you know it the health insurance cost plunged by four percent october to september but he says health care costs didn't actually magically collapse there was just an accounting difference in how they're shifting how they're accounting for health care costs that took place during the month and if you did not uh um if you assumed that that was flat uh month over month you would end up actually with a 6.7 percent year over year print which was higher than expected so there is a counter narrative going on in the market i don't know how significant this guy is or how much of a voice he has but i don't know if we're out of the woods yet but some folks are saying that the market is saying we're feeling a lot better but there are still analysts that are indicating that maybe there is still risk uh to be had ahead of us i think the sharps tend to be on that second second SPEAKER_368: perspective and by the way i'll say this week i heard five and a half points even after that print SPEAKER_84: so it is where we're gonna get to i think consensus we have here is is that we're in the end game now SPEAKER_00: maybe what two quarters three quarters four quarters of choppiness chamath what would your gut tell SPEAKER_102: you if you i i've been telling all of our startups that you need to plan to have money through the first quarter of 2025 you must yeah you absolutely must and the way that i have cash okay the way that i frame that out to them is nine yeah eight or nine quarters of cash ideally nine and the reason is Chamath Palihapitiya: that we have all of this positive news in the offing but but the but the problem is again there is still a lot of risk to the downside we haven't seen david's second you know dip in the recession right so that double dip is going to be expensive and again the sharps think that inflation will come back at some point in the next six months that will keep the feds foot on the gas maybe it's two or three more 50 basis point hikes the point is jason you could be at five and a half again we said this last week we're going to get to a point that's probably higher than what people expect that's probably around five and a half and we'll stay there longer than people want that's probably through the middle part of 24 and if you don't prepare for that worst case scenario you're doing yourself a disservice i think the market can start to rebound in the second half of 24 but if you're a company you need to balance and and plan for the first quarter of 25 because you know again most venture investors are going to want to see six months of data on the ground that things are better before their sentiment changes yeah and we're just starting to see the drawdowns we're just starting to see the impacts in people's portfolios that will drive behavior change i mean this sbf thing is the tip of the iceberg in terms of the money at risk you know i went and by the way i did it in analysis i shared it in the group chat hopefully we can show this up brad has a little chart nick maybe you can throw up the the the historic drawdowns so for people that care about early stage technology since 2018 through 2021 and including an estimate for 2022 we have injected 1 trillion dollars into venture capital and if you look at historically how money has been lost in periods like this and you layer that into 2018 to now what it basically tells you is about 500 billion dollars of that trillion from 18 19 20 21 and 22 is going to be destroyed we haven't even started to see that yet right and then if you factor in another 100 billion or so from older vintages we're talking about a 600 or 700 billion dollar destruction of paid in capital so there's still for all the good news there's still a bunch of these unfortunate pieces of bad news that have to work its way through the SPEAKER_116: system yeah and for people who are looking at the chart right now and you can see the charts on spotify or if you search for all in on youtube we have a video version there you just take a look at 1997 the peak tvpi was you know seven and a half acts seven and a half times you know cash on cash money and uh what actually got realized was 5x right so what paper said and what got distributed were two different things anecdotally uh what i'm seeing in the startup world chamath is people are taking SPEAKER_00: the medicine and a lot of people are shutting their companies down they're giving up on raising money and then asking me which portfolio company can i get a job at because i on my personal balance sheet have been you know taking a 5k draw a month and i had i have two kids i need a job can you get me a job at amazon or another portfolio company and a lot of aqua hires have started to happen and so what's happening is the consolidation of talent people who would be a great number three or four person but maybe they weren't suited to be the number one person are now consolidating into startups with these layoffs at meta and other corporations we're starting to see very talented people who had peak comp of 300 700k a year are going to go to startups or smaller companies and SPEAKER_101: that is also positive more consolidation of talent stronger companies did you guys hear the story yesterday that uh nick if you could just leave out the name told about his friend his friend basically Chamath Palihapitiya: makes 140 000 working for a tech startup and then also makes 280 000 working for meta and so and he's been working at both of those companies virtually for the last two years the guy makes 400 450 000 a SPEAKER_379: year and nobody knows and he says he works about 20 22 hours a week on both combined so the 80 hours SPEAKER_297: and and remember when we started in startups in the night late 90s and into the turn of the century SPEAKER_116: the number of hours that was expected at a startup was what sax when you were at 60 hours a week i would SPEAKER_00: say 60 60. that was expected baseline yeah 60. baseline yeah baseline 10 hours a day plus come SPEAKER_382: in on the weekend for a couple hours yes yeah for sure easily easily probably more early days of SPEAKER_145: facebook our our executive management meetings wouldn't start till 9 pm yeah this is i think SPEAKER_02: elon's going to be a trailblazer in a lot of ways on this twitter thing you know first he did the big headcount reduction but then he also just this past week said everyone needs to come to the office and if you don't come to the office you you don't come to the office you have a good excuse if you're an exceptional performer and you've got a good reason they don't have to but the baseline is everyone SPEAKER_199: comes to the office by the way just to put this point into focus nick can you just throw up this chart for these guys to see because i think it's just ridiculous so this is basically what we're dealing SPEAKER_125: with which is like if you look at and these are just a couple of examples but this is meta amazon snowflake datadog versus gilead raytheon and exon what is the point of this the point of this is Chamath Palihapitiya: just to show you that we have had a massive rotation away from our industry is the point SPEAKER_125: right where normally the things that we would work on were just so well received by so many different kinds of investors that unfortunately just isn't the case anymore and i think it just goes to show Chamath Palihapitiya: you that the reason why this is happening is because people are hedging their bets about how long the economic pain lasts that's why you know they'd rather be long healthcare stocks you know industrial defense companies and oil companies because at the end of the day they're banking on oil and war SPEAKER_101: and sickness you know versus social media and e-commerce and saas software and if we look at this chart just no matter how good by the way so this is not an indictment on these companies go watch the SPEAKER_349: the prediction episode from last year i think that was your prediction episode yeah we you and i SPEAKER_297: nailed it on crypto we both said crypto is going to crater these four horsemen here data dog SPEAKER_116: meta amazon snowflake down 23 to 27 percent and then the gilead raytheon exxon cohort 8 to 28 SPEAKER_00: up i think chamath what this says also is we don't think your management style and how you're running these businesses is appropriate for this moment in time please consider uh some austerity measures and some thoughtfulness in how you treat shareholders visa visa well i mean it's just watching the number uh you know how people are running companies i think we took it too far in silicon valley we took it too far whether it's jacal i i know that i know it's sort of a pet issue Chamath Palihapitiya: of ours because we have to deal with some incredible hubris and arrogance sometimes on the boards of these companies because folks don't want to listen to to reasonable advice and we come off as wet blankets but that chart to be honest is is because of what we explained last week which is the when rates go up the value of a dollar that you earn today is just meaningly meaningfully more worthwhile than a dollar that you may earn even two or three years in the future that's why that chart looks the way that it does and if you believe that david's forecast of a double dip recession is accurate which again most of the sharps do and then you also layer in this idea that inflation could come back you have to be really defensively positioned you know you can't take a lot of risk which is why startups have to expect that if that's the dynamic and 600 billion dollars is going to get destroyed in venture capital portfolios how open are vcs going to be for business they're probably not going to be that open and so you have to plan i think for the middle for the early part of 25. SPEAKER_00: if amazon and how do you get incremental dollars in these tech companies amazon does a riff some austerity measures they raise prices a little bit if they can you know maybe you see more incremental dollars coming today and maybe that incentivizes people look what happened uh we were at 89 dollars for facebook shares last week jamal when he made the riff 107 he went up like 15 20 dollars SPEAKER_102: what does that tell you i mean i think it tells you that a lot of people were short going into that and they were probably cut off side a little bit by the magnitude of it i think that that's good the the issue that a lot of these companies have even in the face of riffs is that you have to Chamath Palihapitiya: reset expectations now on earnings and if you do that the problem is that when you flow that through to what people think the s p will look like in a year there's some real issues so this is not free you know it's really hard treading and i just i would i would just encourage people it feels wonderful to have a few days of like it's like a respite in the middle of a huge storm right it feels like SPEAKER_125: we've been getting whipsawed back and forth and the sun came out and the wind went down came out Chamath Palihapitiya: i would just really encourage people in this moment to to reset your energy which i think is good SPEAKER_125: but you got to go back into that office and you got to find the money and the wherewithal i think to last through 24 if possible it's grind time facebook by the way 27 months at least two SPEAKER_362: years two years yeah 24 months is the new yeah eight quarters is the new six quarters and by the Chamath Palihapitiya: way you know the the thing that employees need to do now in this moment is to hold the management teams of your companies accountable because in those q a's hopefully you're not just glad handing SPEAKER_102: talking about bullshit you actually go and ask the question how much money do we have what decisions are you going to make to get this company to be you know in a position to survive Chamath Palihapitiya: that is really what's at stake here for the venture capital industry is just survival of as many of these companies as possible through these next two years the conversation has to shift from SPEAKER_00: like culture and features to like the bottom line and grinding it out and just proving it to wall street and to the investment community that your business is worthy of investment as you're saying SPEAKER_297: the dollars today matter all right it's been a crazy week thank you to david freeberg for showing up unfortunately no time for science corner apologies to the freeberg stans who are many and we'll see you in the youtube comments for the dictator himself jamaht polyhapitiya with just a wonderful sweater going into the strong november strong showing for november with that purple sweater i don't know if it's mauve or purple whatever you got going there it looks wonderful thank you for team montclair SPEAKER_403: sasshole himself david sachs people don't understand what you're saying when you say that jason SPEAKER_00: oh they know you're an s-hole uh they they're no that's what they think you're saying they don't know understand they don't know that we're adding the sass to it yes so david also is a great executive in software as a service in addition to being an s-hole so you put the two together and SPEAKER_297: you get s-hole no i'm just joking david's a wonderful person people are really excited that you and i are uh friends again it's an amazing moment that was your chance to make a joke so i SPEAKER_412: actually missed it i threw it up there for you i threw up the softball for you to say you're not SPEAKER_425: we're not friends all right we'll see you all next time bye bye