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hey guys I got a little friend here what I think I'm gonna start a new podcast is
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that a bulldog and I'm gonna have a bulldog as my mascot do you want a bulldog oh my God you got
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my mascot yeah I took over your mascot well look at that now you're actually likable sax are you trying to improve
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your image is so unlikable that he has gotten a bulldog oh my God sax show me his face
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again is it him or her him what's his name his name is Moose oh my God oh my God you got a bulldog yourself yeah it's
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really my mascot Jake I'm going solo with my podcast I'm gonna call it this week in technology it already exists
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please don't start any more trademark lessons all right everybody it's an emergency podcast
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Silicon Valley Bank has been taken over by the FDIC sorry is this the twist live
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stream am I on the twist live stream I mean guys if you couldn't just interrupt me well okay never gonna get through
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this it's a lot to get through the world needs to hear our opinions if you care about us click like And subscribe
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make sure you search for this week in startups and uh write a review in the comments if you don't get enough jaycal
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you can get me four more times a week the name of the other podcast is this week in startups thanks for the free
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promo guys it is a huge day today in Silicon Valley we haven't seen a Black Swan like event happen here in a long
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time since 2008. I thought the last time was when you published the book Angel oh
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God we have to get to work chamoth I saved the jokes I'm trying to give you a cold
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open we did that around here we go three two [Music] okay everybody it's been a while 36
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hours here we're gonna get into Silicon Valley Bank imploding the FDIC has shut down Silicon Valley Bank and there's
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many different things we have to discuss with me today as always the dictator himself
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the Rain Man David sacks and the prince of panic attacks no more his wires cleared David Friedberg the Sultan of
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science welcome boys how is everybody just to start this off contextually the last 24 hours can you can you recall
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a time in our careers where it's felt this acute or insane or intense uh 2008 and covet okay and I think that this is
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right up there could be two probably three in terms of the level of panic and concern the problem is we're in the
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middle of it we don't know what's going to happen this weekend so there's a lot of anxiety right now a lot of panic
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going on and a lot of like unlike covid and 08 really acute effects that many companies
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and investors are actively dealing with right now like not just a few thousands of companies that are really in a state
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of like distress right now so it is um potentially from a Silicon Valley perspective worse than 08 or covet oh
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for sure for sure I mean this this is basically a Lehman sized event for Silicon Valley remember when Lehman
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Brothers went out of the basically fall for bankruptcy in 2008 started the whole
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financial crisis the federal authorities thought that the best plan for Lehman was to file for
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bankruptcy they didn't try to save it and that basically led to a Cascade where the whole financial system almost
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collapsed I think that svb this is a lehman-sized event for Silicon Valley and there's there's two big things
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happening one is the impact on the startup ecosystem so you're seeing probably thousands of companies now
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cannot make payroll in the next few weeks because their money is trapped and tied up at Silicon Valley Bank which is
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now under receivership so if you wired your money out yesterday you're good and a lot of people managed to do that but
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there are a lot of people who were had wires in the hopper didn't make it today logged into the website can't log in the
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monies is frozen and we don't know when they're gonna be able to get their money
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out or how many cents of the dollar they're going to get so basically the whole startup ecosystem is in Peril I
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think Gary tan called it an extinction level event yes exactly that was a good term and just to make it really clear
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this is not big Tech at risk I know there's a lot of people out there who don't like the idea of bailing out big
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Tech this is not Google it's not absolutely those companies have plenty of cash they're fine this is small
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companies companies with 10 to 100 employees and you're looking at maybe thousands of them just being wiped out
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for no reason they didn't do anything wrong because of this this could have a very damaging effect on the startup
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economy and the whole United States economy this is little Tech these are the future companies that will keep the
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United States competitive versus China and the rest of the world and then the other big thing that's happening this
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all happening in real time is a regional banking crisis because when depositors see that their money was not safe at svb
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which was a top 20 bank that as far as everyone knows was in Regulatory Compliance nobody has said that svb
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wasn't compliant as far as we know they had a regulator Steel of approval and now you find out your money was not safe
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and it's not FDIC insured above 250 000 so the conversations we're all seeing in
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our chat groups with leading investors is why the hell would you keep your money anywhere but JPMorgan or a top
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four bank and so I think that unless the FED steps in here over the weekend we're
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going to see potentially a a run on the regional banking system a Cascade like we saw in 2008. well sax let's let's
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just take a step back before because I think you're right but we should talk about why that happens the contagion
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drivers and just so people know Silicon Valley Bank is used by 50 percent of venture-backed startups and I would say
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the majority of venture firms also have their money there so this morning I got a note from uh fund I'm an LPN they had
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millions of dollars that they can't access to invest in startups so chamoth there are many products and services
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that Silicon Valley provides one is you know banking services to startups another is to venture capitalists they
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do the mortgages for Banker for Venture capitalists and for Founders as well they provide those kind of white glove
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services but you also mentioned in our group chat they also provide loans to GPS General Partners to people who run
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uh Venture firms so the impact could also hit there maybe you could explain what that is and then we'll get into
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what happened here yeah well I think it's important maybe actually just for Freeburg to just explain what's
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happening but okay can maybe maybe let me just do the lead-in and then Friedberg can do the details but for for
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those that are far away and aren't even sure what's going on the basic problem that we have right now
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is in the last 36 hours a key part of the financial Plumbing of Silicon Valley has basically been turned off and as a
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result billions of dollars of deposits have basically um been frozen it means that people
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can't pay their bills it means that people can't access their deposits it means that credit lines could be in
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default it means that payroll can't be met and so as a result we have this potential Contagion on our hands but in
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order to understand it on a packet I think it's important to explain exactly how this came to pass so let me just
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hand the ball to Freeburg and then we can talk about some of the implications of which there are many yeah before
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Freeburg starts with the why just the what that's happened as well this all started on Wednesday evening when
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Silicon Valley Bank's CEO published a letter to shareholders announcing that the bank was rebalancing its balance
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sheet by selling tens of billions of dollars worth of mostly U.S Securities I'm sorry treasuries and then they
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announced they would raise some money and sell some shares in Silicon Valley Bank the then the shares in Silicon
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Valley Bank is a publicly traded entity dropped 60 on Thursday then another 60 on Friday of course then the entire
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world got focused on this and then every venture capitalist started telling or I
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would say the overwhelming majority of venture capitalists told their Founders to get their money out of svb
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then you had a classic run on the bank a small number of venture capitalists gave
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advice to say hey we should support Silicon Valley Bank I understand that but it turned out to be really bad
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advice and then trading uh was halted on Friday morning pending news and then finally the FDIC
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shut down Silicon Valley Bank at noon on Friday and there's a lot of speculation of what
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will happen on the win over the weekend but maybe you could walk us through technically what happened to Silicon
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Valley Bank and why they had this cash shortfall and this we spend the run of the bank basically but what led up to
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this the irony is it really was and is prior to the quote run a financially solvent business so I I have a few
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slides to Fair on YouTube you can see it that we pulled one slide that was kind of made by us and the other set that
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come from Silicon Valley Bank's actual presentations but if you look at their balance sheet this is from the end of
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the year 2022 um you can kind of look at the you know stuff that they owe their their
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liabilities which is what they owe their customers that sits in deposits because
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when customers give you cash in a deposit you owe them that money back so that sits us a liability and then they
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had a some other debt so in total Silicon Valley Bank at the end of the year had about 195 billion dollars in
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liability it's 173 billion of customer deposits that they owe to customers and 22 billion of other debt and then they
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take those customer deposits and they invest it in in a number of Securities and the way that a balance sheet
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business like this bank would operate is you know the customers have access to their cash
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um anytime they want but in order for the bank to make money they make longer duration Investments and those longer
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duration Investments give them the ability to earn money on those longer duration Investments more than they're
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paying the customers for the deposit so if you look at their longer duration Investments they had about 208 billion
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dollars um of total assets sitting on the balance sheet so compare that to the 195
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billion that they owe customers and and other debt holders so you know the difference here between 208 and 195 is
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about 13 billion dollars that's kind of the net what people would call Book value of Silicon Valley Bank at the end
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of the year and of the 208 billion of assets that they had not 74 billion were loans and they've got a breakdown of the
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loan portfolio here in a minute 91 billion where these hold to maturity Securities where they don't actually
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adjust the value of these on a quarterly basis and 26 billion is what triggered this Panic which is available for sale
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Securities mostly treasuries and what happened is Silicon Valley Banks deposits came in so quickly over the
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last couple of years that they went out and they bought a bunch of treasuries you know with the cash that they got and
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the problem is that very quickly Freeburg is actually MBS they bought a bunch of MBS tenure division MBS an
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important to note of the 208 billion that they have the book value Friedberg there was a whatever 10 if it's in cash
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or something so they do have some cash there that's right yeah sorry it's a good
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point if you go back so like you know let's say that of the 100 of the 173 billion of customer deposits you know
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they've got 14 billion of cash and then they've got all these treasury Securities they can sell call it 40
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billion so if 25 of customers said tomorrow hey we want our cash back theoretically they could just dump those
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treasury Securities distribute the cash and give it all back to customers the problem is if suddenly more than 25
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percent want to get their cash back well now they have a problem and that is effectively what triggers the run on the
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bank as soon as some folks think that others might be pulling money out then everyone rushes to be the first money
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out the door and that's what triggers a classic run on the bank there's a statistic I think in the 1920s there
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were several hundred banks that had runs every year for almost the entire decade
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and these this was like a regular kind of occurrence that happened in the 1920s that ushered in a lot of our modern
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Securities laws that are meant to kind of create the necessary liquidity provisions and how these banks are able
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to operate to make cash available to customers but what happened is so much so by the way Freeburg that they made a
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movie It's a Wonderful Life about bankrupt so basically one of the bigger problems that Silicon Valley Bank they
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ran into two big problems number one is the closet decline where uh VCS were not
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investing new money and when they were not investing you money and startups were burning more money than Silicon
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Valley had modeled they would be burning because they thought everyone was going
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to reduce spend and reduce burn and they didn't so deposits were going down while all
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these startups were burning money no VCS were investing so total deposits were on
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the decline meanwhile their bond portfolio the assets that they hold on the balance sheet also declined in value
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and I and I kind of just put a really simple illustration here on why if you have a hundred dollar kind of face value
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bond that earns two percent uh which is basically you know where these treasuries were a year ago and you
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and you hold that for 10 years that 10-year bond yields 122 dollars if the interest rate goes up to five
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percent then though that that that Bond should yield 163 dollars so the value of
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the first Bond actually goes down by 25 because of the market conditions that's how significant the value changes with
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just a three percent change in the interest rates and that's effectively what happened with that available for
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security segment of the Silicon Valley Bank portfolio balance sheet they had this Bond portfolio that suddenly got
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devalued and they had declining deposits so when deposits start to decline you got to make sure you have enough assets
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sitting on the balance sheet so they sold a bunch of them said we're going to raise more money and at that point
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everyone kind of perked their head up and said oh my gosh what's crazy is in Q4 by the way
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Seeking Alpha this website you guys know they had actually done an analysis instead of svb about to blow up and they
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put together a bunch of slides that highlighted why this might be the case because they saw that deposits were
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declining that their um their assets that they hold were basically declining in value because of the massive and very
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quick rise in interest rates and that svb had bought a bunch of bonds that were long long durated bonds so it led
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to a you know obviously a real short-term problem if you look at the rest of svb's loan portfolio there's
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also a question of how distressed that all is so 10 of their 70 billion plus dollars of loans is in Venture debt and
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Venture debt is very questionable in this market right because historically the way Venture debt makes money is that
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they assume that VCS are going to keep funding the companies that they're providing debt to and if the VC stopped
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funding the companies then the Venture debt defaults and so if you go to the last slide in this deck you'll kind of
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see svb's performance on their Venture debt portfolio yeah so look at this this is the the performance results on just
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the warrants that they get on their your debt so when you when you issue Venture
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debt you take a write down or you get paid back and then you also get some warrants you get some a right to buy
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shares in the in the winners and the startups that work and so the way that svbs made money on their Venture debt
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portfolio historically is hopefully they get paid back on all their loans some of
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them they don't but then they'll make a bunch of money on selling their warrants
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or the pub companies going public or getting bought and in Q4 of 2022 it just fell off a cliff and their Venture debt
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portfolio really started to show distress and that's 10 are these realized gains or these are Mark to
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market gains this is the net gains on on their warrant so they don't Mark to Market warrants I think this is what
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they actually exercised and got out so there was there was obviously a ton of exits in 2021 so they made 560 million
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dollars in profit on their warrants that they had in their Venture debt portfolio
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in 2021 that number collapsed to 148 in 2022 and you better believe most of that
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was in the early part of 2022. um so you know they didn't do a quarterly breakdown on this this was
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like their full year number but their Venture debt portfolio which is another seven billion dollars a capital also
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distressed um certainly wasn't going to perform as everyone had modeled so when you kind of
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start to add this all up and remember if you go back to the beginning they only had 15 billion dollars of true net Book
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value which is the difference between their assets and their liabilities and so if you really start to adjust what
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are those assets really worth are they really worth what they're holding them at the book at and if people start to
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pull money out and you got to sell them at a distressed price in order to give people their cash that they're owed on
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deposits that's when you have a classic run on the bank problem and then everyone tries to be the first out the
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door and that's basically like what triggered this this week can I give you guys my
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little version of all of this I think there are three buckets but before I go into the three buckets I just want to
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say to all of the employees at these companies I think we the four of us are so truly sorry for what's going on
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and what you guys are going through and then the founders that are trying to navigate this it must be unbelievably
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tough there are a few Founders in our portfolio so you know from all of us just know that
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we're thinking of you guys and hopefully everybody ends up on the other side of this by
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Monday or Tuesday with not a lot of damage so let's just put that out there as sort of like
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Goodwill and kind of good Juju in the world for the next it's going to be a really difficult weekend for people who
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are trying to navigate this yeah I think it's well said yeah I mean in really really tough shape right now
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trying to figure out how do I make payroll and it's a big question okay so just putting a pin in that
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because we'll come back to it I think that this whole debacle I guess is the maybe
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the best word there's a little bit of blame that you can put at the feet of three different groups of actors and
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I just want to get your guys's reaction to this so group number one and Freeburg
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just mentioned this is we the four of us have been talking for the last 18 months about the impact
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of rising rates and you know we talked a lot about for example like in our portfolio my
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partners and I walked into every company and made them have at least enough money to get
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through mid 2025 right I've said this a bunch of times and so that was about having very
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difficult conversations about making sure that you were husbanding cash so that you had enough to weather any storm that
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came on the horizon but it turns out that there was some group of VCS and companies that just
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didn't get that memo and just kept spending like nothing had changed but when other VCS have stopped giving
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you money and you're continuing to spend like it was 2020 that's what caused this mismatch and it
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was really the spark that Lit the fuse so I think it's a really sad commentary at some level about the lack of
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governance that we have inside of some of these companies where folks are just not doing the job
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that they're supposed to at these board levels I think people and we've talked about this have made venture too much of
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a popularity contest where they are you know glad handing and smiling and not doing the hard work of holding
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folks accountable and so some handful of VCS and some handful of founders just didn't get this memo and it made
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what could have been a slower train wreck faster unnecessarily so I think that that's worth talking about
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then I think if you look at what actually practically happened over the last year and a half at svb was that
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they were so desirous of profits that they basically had a duration mismatch so what is that imagine you get
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a job and you know somebody's like hey Freeburg I'll pay you a hundred thousand dollars
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monthly over some number of months right in in normal pay every two weeks or I'll
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pay you 200 000 but you only get paid once a year well the problem with that second thing
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is you still have monthly bills that you have to make up for before you get paid
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and so most people wouldn't take that job even if they paid you a lot more because you have this durational
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mismatch you have to pay rent every month you have to pay bills on a monthly basis you have credit card bills all
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these things and so you need to match the timing of your cash flows and so I think somewhere along the way
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the risk Folks at svb just made a really large miscalculation they basically went
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and bought 10-year risk in order to pay back money that could be called on a daily or weekly basis that
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obviously in hindsight was not a good idea but more importantly and they didn't adjust fast enough well they
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can't because they have these Mark to Market assets that were just getting clobbered in the head as rates got
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raised and then the Third the third thing is around Regulators you know after the great financial crisis we
00:21:01
went through a period where there was hundreds of bank failures and then for the last decade they've
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been virtually none right they've been like a few here or there and the last one was just during covet
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and so the The Regulators I think have done a really good job with Dodd-Frank and all of these other things to clean
00:21:18
up the banking laws and the reporting requirements and the capital structures so that runs on banks
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are more and more infrequent but they kept this crazy loophole around the accounting treatment of assets and they
00:21:35
allow these durational mismatches to appear in A bank's balance sheet and so I think there's a piece here for
00:21:44
The Regulators which is here's an opportunity that's glaring and obvious now and screaming about how we need to
00:21:52
tighten some more of the transparency that's required it shouldn't be a group of armchair salutes on Seeking Alpha
00:22:00
that sniff this out three months before it happened it should have actually been
00:22:04
a regulator that said hey hold on a second something is happening here that we don't like and so we I think need to
00:22:09
figure it out but I think those are the three actors that are in play and they each share a bit of the blame here
00:22:15
Freeburg Sachs what do you think who who is to blame here most for this blow up or is this just the extraogenous event
00:22:23
of the rate hikes happening in such a short compressed period of time no I mean look I think that svb's risk
00:22:30
management was terrible obviously they signed up for these long data Securities when the the market they serve is
00:22:39
incredibly volatile like Jamal says duration mismatch really good point I would also say that there's a weird
00:22:46
regulatory treatment where apparently if you buy these 10-year bonds these 10-year mortgage-backed Securities or
00:22:54
10-year treasuries you don't have to recognize the loss until you sell them which is just bizarre so in other words
00:23:01
they should have been marking the the positions to Market and instead they just were allowing these losses to
00:23:09
accrue I don't understand how The Regulators can allow that kind of system I also don't understand how The
00:23:14
Regulators can allow a bank to take customer deposits and loan them out to startups with this
00:23:22
Venture debt that we've been talking about in the show where 10 percent of their portfolio is basically being
00:23:27
loaned out to startups who have no credit that's crazy we talked on the show a few months ago yeah actually it's
00:23:32
a good time to play the clip here because what we saw and sax and I you know seeing at the series a level you
00:23:39
have a lot of times Founders would get this basically free money in their minds I raised 10 I get five in Venture debt I
00:23:46
can extend my Runway but that money comes due and here's the clip for when Saks and I were talking
00:23:52
about it just a couple episodes ago what I don't trust is whether the the return
00:23:58
models on Venture debt that were created over the last five to ten years will be
00:24:02
a good predictor of what the returns will be in the next five ten years when a lot of the mortality that should have
00:24:08
happened in the past now happens in the future yeah I mean this is just four or five episodes ago we had kind of nailed
00:24:16
it startups have no collateral they have no there's no security for that load how
00:24:20
does that make sense no not true loan to a creditor not true guys look I I disagree with you on this point look if
00:24:27
you pull up the the slide that breaks down so let's talk about Venture debt for a second because I've actually
00:24:32
invested in a venture debt fund and I've seen the economics on it the way that the The Venture debt model typically
00:24:38
works is the lender loans Money to the startup and what they underwrite is what the current VCS and the startup say
00:24:46
they're going to do to support the company in the future so their ability to get paid back in the future is
00:24:51
largely predicated not on underwriting the company and the performance of the business or the assets they have but
00:24:55
it's underrated by the fact that the VCS are committed to continuing to put money
00:24:59
in and hopefully see that this thing has a bigger there's no commitment there is
00:25:02
no commitment hold on let me just finish I get it but but the asset as a as an asset class we
00:25:12
can make fun of it all we want it's actually performed pretty well these guys have generated typically 18 as an
00:25:17
industry and yeah you're right it's the same as Ventures and the way that they generate
00:25:24
those returns is that they're loaning money to the startups a bunch of those startups fail they don't get paid back
00:25:29
and then the ones that succeed they actually take warrants in the startups so they have some Equity upside in the
00:25:35
startup and that's the way the model works we can make fun of it all we want it actually works as an industry let me
00:25:41
tell you why that broke is um it goes back to the point you made earlier in the show which is the the the lender has
00:25:47
this expectation that the VCS are going to keep investing what if they don't well we've been in a generally up into
00:25:52
the right bull market since the last that's right yeah I believe from the data for all
00:25:58
these models is is skewed because it assumes again an environment in which companies keep raising up rounds and as
00:26:07
soon as you get into a crisis in which the that breaks then the whole asset class breaks that's right I think this
00:26:12
was completely predictable but even if you think that this asset class is legitimate I don't understand why
00:26:18
banking deposits could ever be used to fund it if you want to be a venture debt fund go out and raise money from LPS
00:26:25
because what happens is when you raise it with customer deposits you're creating systemic risks for the banking
00:26:31
systems should never have allowed that even worse under two assets are correlated because you're you're loaning
00:26:38
it to people who are depositing it and in every other part of the private credit Market that is exactly what you
00:26:46
do what Sac said you can't use custard customer deposits to do some clo deal or to do like you know to back a PE play
00:26:56
these are all LP Capital that goes towards that this is the only sliver as far as I know where you take customer
00:27:04
deposits to create very risky loans wrapped with warrant coverage and by the way this stuff is never free right so
00:27:12
they make you keep your money there they make you have enough money to cover the
00:27:16
size of the loan in the first place so it's not even that valuable because if they give you eight million dollar loan
00:27:20
you have to have eight million dollars always on deposit otherwise you violate the otherwise you know you breached
00:27:26
alone so there is no free lunch in Venture debt there has never been and I still think Venture debt is very much
00:27:33
like Venture Capital which is most of these gains are on paper most of these gains haven't really been realized and
00:27:41
now we're going to go through this sorting process when all of this stuff gets whacked I do want sexy your
00:27:46
reaction to this though which is the thing that started this was the fact that VCS seeing the markets imploding
00:27:53
stopped giving companies money but they didn't do enough work to help Founders cut burn
00:28:03
what is going on inside of these boys I think that's crazy because listen I mean
00:28:08
we started doing portfolio updates with our entire portfolio of Founders in February last year saying this regime
00:28:16
change you've got to cut costs we did another one in May you can watch them both on YouTube okay and we were telling
00:28:21
Founders cut your burn do it now don't wait we were beating the drum on this so hard and in every board meeting and
00:28:28
privately and I like you know and it takes multiple times frankly to get through I think your point chamoth about
00:28:34
not wanting to be unpopular with the founder crowd uh LED some young Capital allocators to maybe say okay yeah let's
00:28:42
try this ditch effort before we do you know another riff let's try this new product let's change our sales strategy
00:28:49
I don't think it's young versus old I think it's experience versus unexperienced no I think it's experience
00:28:54
that's better I think that's right yeah the experiences listen if you've never lived through a bear Market you don't
00:29:00
know how bad it can get and Tech is a boom bust cycle and the bus are really hard really hard really hard and if
00:29:07
you've never lived through a regime change before like there was in 2008 nine or in 2000 and 2000 was the worst
00:29:13
yeah 2001 to three yeah you're totally improved you have no idea and you know and and I think experience does matter
00:29:18
and there there aren't that many VCS around who live through the.com craft no probably 85 if not by the way if you
00:29:25
guys pull up just that slide on the loan portfolio at svb I just want to make the
00:29:29
case a sex I hear you it's a risky it seems like a risky investment to make but what don't you guys agree that a
00:29:36
balance sheet business like svb or an insurance company or any business that has you know some amount of money coming
00:29:43
in that sits on the balance sheet and then they invested for a period of time there's a laddering of risk and there's
00:29:49
a laddering of duration that you have and so if you look at Silicon Valley Bank from there from the update they did
00:29:54
last week that figured all of this if you look at svb's loan portfolio 70 are really these asset back loans which are
00:30:02
56 of the portfolio is like you know prepayments on on LP commitments and then 14 is is private banking loans
00:30:10
which is loans against you know public Securities that people have only 10 of the portfolio is ventured at
00:30:17
which is 7 billion and you know look if the asset historically is performed at an 18 kind of rate of return what is the
00:30:24
you venture debt portfolio going to look like in a distressed environment is it negative 100 is it negative 50 negative
00:30:29
40 negative 30 I mean you guys can have a point of view on this but you look I mean for any business that's managing a
00:30:36
large um balance sheet of assets against you know a short uh kind of liability tree they're gonna have some riskier
00:30:43
assets I think you know the question is was 10 too much of the loan portfolio I think one percent's too much yeah you
00:30:51
know one of the issues here that we saw qualitatively sax and I both saw qualitatively is the standard for giving
00:30:59
these and the size of them got lower and lower in fact the covenants went away and this is what we kept having 100 say
00:31:05
to us it has no covenants they offered me no covenants I don't have to have a certain amount of cash I don't have half
00:31:09
a certain amount of Revenue those covenants were there for a reason to filter out the people who can't afford
00:31:14
the house right and this is exactly what happened in 2008 when people started giving those no recourse or no uh
00:31:22
background check mortgages remember those where like you didn't have to do a background check to get a mortgage
00:31:26
that's what happened in Venture they just gave these I saw it firsthand willy-nilly I begged Founders to not
00:31:31
take them and I only won that discussion sacks one out of five times because Founders are like money we're having
00:31:38
this debate but there's no indication and there were no losses in this portfolio to date that showed that
00:31:43
Venture that's underperforming we're we're saying past performance is no guarantee of
00:31:49
future performance exactly because it's obvious to us on this podcast you guys are arguing about Venture debt when the
00:31:55
real loss that happened at svb no we understand that they bought a bunch of treasuries and that was rates went from
00:32:01
two percent to five percent let me know there's two things going on here okay Freebird When I See Your Chart and you
00:32:07
talk about laddering this and laddering that and X percent and all this kind of stuff I think about the smartest guys in
00:32:12
the room okay this is long-term capital low management this is Enron this is the
00:32:17
2008 bank failure they think they can basically do Financial engineering to make this work you know why it doesn't
00:32:22
work is because number one they're not in fully liquid assets number two they're not marketing to Market every
00:32:27
day if you're a deposit Bank you should be required to keep all of your assets in fully liquid Securities that you mark
00:32:35
to Market every day it's that simple and what do they do they put it in 10-year duration mortgage we need to explain
00:32:44
hold on where the value got devastated with the rise of interest rates they didn't have to mark that to Market and
00:32:49
second they put 10 of their portfolio in basically loans to creditless startups so when there is a run on the bank you
00:32:59
have a what like roughly 30 gap between deposits and their actual the value of their portfolio yeah and and listen that
00:33:08
shouldn't be allowed and and the reason it's allowed is frankly I think Regulators are completely asleep at the
00:33:12
wheel where's Powell where's Yellen two days ago two days ago Powell was testifying in front of the Banking
00:33:19
Committee and they asked him do you see any systemic risks in the banking system
00:33:23
because of the rapid rise in interest rates he said no no systemic risk tax is right I agree that this is the rise in
00:33:30
interest rates is the key driver here it drove down Venture investing it drove down valuations and it's driving down
00:33:37
the value of long-terrated bond portfolios which by the way is the Mainstay and the standard of how a lot
00:33:41
of these businesses invest and operate and it's called distress and stress on the system my biggest concern is the
00:33:47
contagion effect that arises next if you go in and you continue to assume interest rates climb and everyone's
00:33:52
holding on to these bonds and they're getting written down meanwhile you owe people all this money in cash and the
00:33:56
other thing that's happening if you hold cash today you're likely want a higher interest rate to compete with treasuries
00:34:01
because you can invest in treasuries today and make sure for a second here I just want to make sure that the audience
00:34:06
understands and Yellen put out a statement today Jackal just to finish the the thought that they're they're
00:34:10
monitoring the situation yes she's sitting there like a bump on log I mean it's ridiculous they need to be out
00:34:17
front they don't understand like that this is a cascading situation either this weekend either this weekend
00:34:25
they place svb in the hands of a JP Morgan they do basically they either do that this weekend or this
00:34:34
thing keeps cascading next week and look I could be wrong maybe they're working on it right now behind the scenes if
00:34:40
they are kudos to them they'll have an announcement before the Market opens on Monday but if they're not and yellen's
00:34:45
just like we're monitoring the situation while three days ago she was in Ukraine
00:34:49
this is incompetence at work all right hold on we'll figure out a way for you to dump this into January 6 next
00:34:57
he connected Silicon Valley Bank to Ukraine it was yeah exactly it's beautiful the piece here that's
00:35:02
important treasury doing in Ukraine I mean seriously take it easy take it easy here's what happened just so people
00:35:09
understand U.S treasuries were at 102 you get like a two percent a year they bought a bunch
00:35:15
of those that was actually when you think about it you would say that's a safe bet the problem is those are locked
00:35:22
up for 10 years and nobody anticipated on the Silicon Valley Bank team that the rate hike would happen so quickly so
00:35:29
violently remember we saw the 25 25 50 50 75 75 all those increases now what happens to a two percent U.S treasury
00:35:38
when the interest rate goes up is they get devalued they're not worth as much so if you did need to sell them you
00:35:44
would have to sell them at a discount if you held them to maturity you would get
00:35:47
that complete return and what happened here is they needed to sell these early and they sold them early and they
00:35:54
took a massive loss billions of dollars and that's what lit diffused that's the slide I showed like the price I just
00:35:59
want to make sure the audience understands that if they had sold these earlier or if they hadn't bought but
00:36:04
hold on hold on wait a month now why why in that meeting did they have to decide
00:36:10
to emergency sell it's because VCS stopped giving startups money so startups couldn't deposit more money
00:36:18
into the bank but they kept spending at the same rate that they were spending which means that the deposits went down
00:36:24
yeah in the last 18 months not enough folks read the memo yes and by the way the tragedy of that
00:36:32
is let's just say that you did get the memo and you did make the hard Cuts right now then let's say you're working
00:36:39
on something and you can fill in the blank on the thing that you care about okay so for the listeners let's say it's
00:36:43
climate change let's say it's breast cancer research whatever it is this had nothing to do with you four
00:36:49
days ago you had your money in the bank you did everything you needed to do to go and
00:36:53
you know figure out product Market fit you know try to get to Market try to sell your product and all of a sudden
00:36:59
because of some other set of folks and actors who couldn't get their act together
00:37:06
now you're on the precipice of bankruptcy in 36 48 hours that's crazy to me this is the challenge Saks I think
00:37:13
you could speak to this as well is we did all this portfolio management over the last year these were the troubled
00:37:18
companies and then yet the company is a large person who did the right thing they had a big war chest and they had uh
00:37:26
set the burn at the right pace and now they the other portion of our portfolio that had big war chests they're now at
00:37:33
risk so if you're a capital allocator right now you're looking at a group of companies that you tried your best to
00:37:38
save and their and they're angled and they're wounded and now the strong ones are wounded too this is cataclysmic for
00:37:45
Silicon Valley if this does not get stopped this weekend not only and I I don't want to be hysterical you're right
00:37:52
this is a meteor hitting the dinosaurs extension level event you're right Jake how listen we have portfolio companies
00:37:58
that had tens or you know millions or more in yes Silicon Valley Bank and their account showed that their money
00:38:07
was in the safest money market funds money market funds with a publicly traded ticker symbol that were managed
00:38:13
by BlackRock or Morgan Stanley okay that's what their accounts showed them they had and then they're told all of a
00:38:20
sudden no you're only protected up to 250 000 everything above that that your your money market fund is just an asset
00:38:28
of svb which is in receivership you get a certificate yeah and you get a certificate do you see this announcement
00:38:33
by the way regulator made things worse the California Regulators stepped in and they froze everything so our companies
00:38:40
were in the process we have companies that submitted a wire Yesterday by the way we spent all day yesterday on the
00:38:46
phone with our portfolio companies trying to get them out we had wire requests that went in before the
00:38:51
deadline and for some reason we're in a queue they didn't get through and they didn't get out they didn't get through
00:38:55
and then the California regulator steps in this morning and freezes everything and what did they announce they said oh
00:39:01
you're good you're good for your insured amounts how much is that 250 000 for your uninsured amounts which is
00:39:07
everything above 250 you're going to get a certificate a certificate what does that mean that means you're a creditor
00:39:13
in bankruptcy so the mutual fund that you thought you owned was actually not hypothecated in your name it was in
00:39:21
svb's name at BlackRock and so our companies have been calling BlackRock and calling Morgan Stanley saying hey do
00:39:27
you have my money market fund and they're like no sorry that's svb so this is the crazy they're sitting in a in a
00:39:33
creditor line in bankruptcy we got to explain this these were called sweep accounts so what Silicon Valley Bank did
00:39:39
with uh some of these large portfolio holders let's say Saks and a bunch of other VCS gave you 30 million bucks
00:39:46
yes and they would they took your money and they said you know what just to be safe we're gonna take your money we'll
00:39:52
automatically sweep it and distribute it across two other accounts so we got this
00:39:56
BlackRock over here for you great we got this Morgan Stanley over here great whatever it is
00:40:00
you could only get to those through the Silicon Valley Bank interface and so it was supposed to protect you but there's
00:40:08
no recourse it seems those are frozen too so the only thing you can do that's logical and I had a mentor 30 years ago
00:40:14
when I had the magazine and we started hitting millions of dollars in revenue and he said I said how much money we
00:40:19
have in the bank he's like which bank account and he had four bank accounts and he would load balance them and he
00:40:23
did it every Friday God bless Elliott cook he did it every Friday for me and I've always done that I've always had
00:40:29
multiple bank accounts and load balanced them but in this case Silicon Valley Bank did it through one interface I have
00:40:35
multiple startups today who did this exact thing sex and they they couldn't even log into
00:40:40
Silicon Valley bank today to even see where they're at I mean I think everything got Frozen and the California
00:40:46
regulator froze them and they brought in the FDIC so there's a couple problems now with the working out of this this is
00:40:51
basically a bankruptcy process receivership process it's that we've got all these companies and you make payroll
00:40:55
in the next few weeks right and so these processes don't work at startup time if
00:41:01
you could just figure out like over the weekend okay svb lost 30 cents on the dollar and everyone's just gonna be
00:41:07
prorated you're gonna get 70 cents in the dollar and then you get your money on Monday
00:41:11
it would be a hit to the Starbucks ecosystem but people would recover and move on but the fact the matter is it's
00:41:17
not going to be on Monday it could take weeks or months to figure out how many cents on the dollar you have are they
00:41:22
limited Silicon Valley Bank are they selling the gas is FDIC is going to liquidate everything
00:41:28
well you have two paths here path number one is you if you actually try to sell these assets but the problem is who do
00:41:34
you think the buyer is the buyer are the sharpest Sharps on Wall Street who will
00:41:41
purposefully under bid these assets and so that then takes you to path two which is then the only other real
00:41:48
solution is for the FED to Warehouse them and guarantee them and that's an equivalent version of what they had to
00:41:54
do during the great financial crisis which it was this thing called tarp which is the troubled asset relief plan
00:41:59
which was just a backstop and a mechanism so that these at the time those toxic assets which were a bunch of
00:42:06
mortgage-backed loans could be cleared through the system over time which effectively meant that the FED basically
00:42:12
warehoused that risk so I think what we need to see now is is sax it could be 50
00:42:18
cents on the dollar it could be 60 cents if you want immediate liquidity you know
00:42:23
a friend in our group chat was mentioning that there was one claim a company that had a hundred million
00:42:28
dollars inside of svb was offered 60 cents on the dollar today for that claim now the third party from a third party
00:42:39
who said I will take you I will give you 60 million today in return for that certificate plus the 250 000 that says
00:42:46
Euro to 100 million because they're willing to take the risk that they'll get you know 80 million
00:42:53
right and then they take the difference now the point is that if you're TR if you're seeing today that kind of a
00:42:57
discount that's not a good sign I think and it does speak to the fact that Regulators have to step in now here's
00:43:03
the other reason why I think it's important I think what regulators and I think the
00:43:07
people and there's a lot of them in Washington that listen to this what this does is it torches
00:43:13
years of U.S innovation and you should not let that happen there are companies working on really
00:43:21
important things for the United States and for the rest of the world and if it's if if the company fails
00:43:29
because they can't make the product work so be it we take that risk every day if
00:43:34
the company fails because customers don't want to buy it so be it if the product fails because a better product
00:43:39
comes out so be it but it shouldn't fail because we can't get money yeah because
00:43:46
you forgot your paper that should not be why we torched hundreds of startups in what they're
00:43:52
working on this is maybe thousands yeah this is a this would be a lost decade a lost decade for so first of all do you
00:43:59
guys want to talk about second and third or third order effects because I think it's important to
00:44:04
highlight why it's not just about a couple hundred Tech Bros in Silicon Valley not being able to make payroll
00:44:10
but there's important Downstream consequences for example there were payment processing companies in Silicon
00:44:16
Valley that use Silicon Valley Bank to store their capital and to to move money around there are payroll companies that
00:44:24
do payroll for many businesses not just Tech businesses but many businesses in different parts of the economy that
00:44:30
store their cash at Silicon Valley Bank and process money through Silicon Valley
00:44:34
Bank today was announced that Rippling one of those companies could not hit their payroll cycle today because they
00:44:39
had money tied up at Silicon Valley Bank fortunately they announced that they also have money at JP Morgan and other
00:44:44
places so they will be able to kind of get the the payroll processed early next week and get everyone back on track but
00:44:51
this is hundreds and potentially thousands of companies that use their payroll software to to process and pay
00:44:58
their employees and then there's all the payment processors we don't know how many of them have what level of exposure
00:45:03
and a lot of infrastructure companies that move money in and through Silicon Valley Bank and so if they start to go
00:45:09
down and then payroll doesn't hit the air conditioning company that's using the the tool and some you know in
00:45:15
Arizona and then you know the the stripe service isn't able to process e-commerce
00:45:20
payments for a small business owner that runs a website you can start to see how
00:45:23
there can be very significant trickling effects and more important like we saw in 08 perhaps to a different degree but
00:45:29
still a significant concern is the the the contagion of panic where people say if there isn't reliability in the things
00:45:36
that I thought were reliable before I start to have real questions in the soundness of the system overall and
00:45:42
that's why it's so important that Sac said to step in Shore up the problem this weekend I don't think it's about
00:45:48
bidding 50 cents or 60 cents on the dollar every depositor needs to get paid 100 of their money and that cash needs
00:45:54
to be made available to them by early next week and if that money is not available to them if within the first 48
00:46:00
or 72 hours of the end of this weekend then we are going to have a real crisis on our hands because then you will see a
00:46:06
lot of people trying to move money away from any institution that stores their money in some sort of security that's
00:46:11
not 100 liquid like cash and that's going to cost that's gonna cause a massive run and so some what has to
00:46:18
happen the only way this can happen is if someone takes over Silicon Valley Bank this weekend and that the federal
00:46:25
government unfortunately as much as I hate to say it because I absolutely hate the federal government having a role in
00:46:30
this stuff has to say we will guarantee 100 of those deposits to the company that takes over the bank that takes over
00:46:37
this portfolio and says let the port folio of assets run its lifetime see what you get paid whatever the Delta is
00:46:43
we'll make it up to you but we need to make sure that there's cash here today for all of these depositors if you had
00:46:48
something you wanted to say if not I have something I want to say yeah the other big thing that
00:46:53
svb was was an on-ramp for a lot of investors including many U.S investors to get money into China and without
00:47:03
commenting on whether that's right wrong or indifferent the point is that China has a very complicated Capital Market
00:47:08
structure which requires you to basically use an offshore Bank I.E non-domesticated Chinese bank and to be
00:47:16
able to get those dollars and so what would happen is Chinese startups that raise money would raise money from U.S
00:47:21
investors and abroad using these bank accounts and so this issue now doesn't just touch the United States Innovation
00:47:28
economy it also touches China's Innovation economy which you know creates actually a complicated set of
00:47:34
trade-offs for the U.S government and treasury as they think about what they want to do in this heightening great
00:47:38
power conflict that sax talked about last week and I want to just make a very important nuanced Point here I know
00:47:43
there is no bank that the public specifically you know people who don't want to support you know rich people
00:47:51
already like big Tech or billionaires the the reason to backstop this with public money is because we have a road
00:47:58
map for this people don't know this uh widely but tarp was just over 400 billion dollars it actually returned a
00:48:06
15 billion dollar profit to the American people this would require maybe 25 or 50
00:48:12
billion dollars ten percent maybe five ten percent of the totality of tarp would be enough to cover What's
00:48:20
Happening Here with Silicon Valley Bank and work this out that's 50 billion dollars for the people listening in
00:48:24
Washington or for the people who will say hey why are we you know bailing out big Tech you're bailing out small Tech
00:48:31
as Tremont said you're bailing out Innovation on breast cancer on you know uh renewable energy but most importantly
00:48:38
this can easily be structured so that the American people return twenty percent thirty percent maybe even double
00:48:45
their money you could structure this so it is senior to everything else and is exactly what the government is supposed
00:48:52
to do when there is a crisis that doesn't mean the people who run Silicon Valley Bank should have their Equity
00:48:57
worth a lot they should get wiped out they didn't do their job properly the equity the people who ran the management
00:49:04
team there if they don't get anything that's okay they understand that but the people who had their money at deposit to
00:49:10
pay the salaries and to pay for this Innovation it is unconscionable that we wouldn't backstop it and the I guarantee
00:49:17
you the US government could get some warrants on those companies or warrants and ownership in Silicon Valley
00:49:24
bank and make at least 50 cents on the dollar maybe even double and that's the way this bailout should be structured
00:49:30
and it has to be done this weekend you bring up a great idea I think I think if the U.S
00:49:36
balance sheet does step in over the weekend I'm going to say on behalf of the U.S taxpayer you
00:49:44
must get a piece of these companies and the reason why is that that's the way to make it fair for everybody that's
00:49:52
not in Tech who's on the outside looking in and if you look inside of Twitter as
00:49:57
an example there's a lot of negative sentiment around even the idea of a bailout happening and it's for this
00:50:04
exact reason because I think people believe that it will benefit just a small sliver
00:50:10
of people right so to step in and to save these companies Jason would still be you know really only helping
00:50:17
say several hundred thousand or several you know and and the thing that that gets wrong in my opinion is that
00:50:23
these companies if they're if they're allowed to germinate should be building things that actually
00:50:29
help everybody including and so if you can view it that way and if you can view a share of it
00:50:37
now obviously look we're very we have a very deep incentive for that to happen but I think it's important to present
00:50:44
the other side of it and the other side would say this industry has a little bit run amok
00:50:51
it's not well regulated you know you guys push the boundaries and get away with a lot
00:50:58
and there's a lot of consequences you're saying but no I'm saying the tech industry no no I'm saying the the
00:51:03
average person that's on the outside looking into the tech industry can make that claim and now they would be
00:51:09
pointing at Big Tech but the problem is we all get swept in together under the same thing and then what they would say
00:51:15
is I don't think it's right to to to step in and I think that you have to give the U.S taxpayer an incentive if
00:51:21
they are going to do it and I think the the incentive should be that they should
00:51:24
just get a share in all this Innovation if they take over the Venture debt portfolio then they would have that
00:51:30
right the Venture debt portfolio comes with warrants so they would have that I think there's a big risk here that
00:51:35
precisely because Tech is unpopular and people I think are confusing big Tech with small Tech that the government
00:51:42
doesn't step in here and the The Dominoes start falling and we start getting all the systemic risks playing
00:51:49
out remember the beneficiaries here aren't just these the sort of current generation of tech companies and
00:51:55
everyone they do business with it's also wherever the contagion goes next and we're already seeing I think multiple
00:52:03
Regional Banks Under Pressure they're stocked down people asking questions we know people in our chat groups who are
00:52:10
wiring money out as fast as they can just because why take a chance you know that and by the way you have to
00:52:17
understand the game theory around these Bank runs people describe them as a panic but that implies that it's
00:52:23
irrational it's not irrational it's actually rational and what this what this is really highlighted is that what
00:52:30
you said earlier at the beginning sacks which is that the regulatory oversight is actually extremely pristine at the
00:52:38
biggest banks but the smaller and smaller you get there's a level of opacity and well your
00:52:45
lack of regulatory follow through that allows this stuff to build so the Wall Street Journal right now is reporting
00:52:49
that U.S banks have 620 billion of unrealized losses just on treasuries I don't know what the unrealized losses
00:52:56
are on these long-dated mortgage-backed Securities like I said I have no idea why Regulators allow Banks to hold these
00:53:03
uh bonds at their Book value instead of marking them to Market every day that's crazy and on the equity side you have to
00:53:10
do it Buffett talks about this all the time the equity side you have to mark to market the equity portfolio at the end
00:53:16
of every quarter right and he sees these wild swings and he complains about it but it's the right thing to do for
00:53:22
exactly this reason right so so think about the game theory here okay the banking system the banking Regulators
00:53:27
have created this opacity in the system you've got all these assets that are being held by these banks that are not
00:53:33
marked to Market so nobody really knows what the true level of exposure is so what's the response why take a chance
00:53:40
just move your money to JP Morgan so I think there's a chance that if the if the federal government doesn't step in
00:53:44
here the whole Regional banking system can be decimated and you're just gonna be left with four too big to fail Banks
00:53:50
how's that benefit anybody that doesn't benefit the little guy guys there's a there's a pretty good set of regulatory
00:53:56
disclosures that happen but I do think that the real question is you know are the ratios right do they should they
00:54:02
really be allowed to invest in these types of assets with depositor capital and if so with what percent of the
00:54:09
deposit or Capital should they be allowed to do it and maybe you know that seems to be where the biggest you know
00:54:13
issue is we've come a long way I mean I just pulled up the statistic it's insane
00:54:18
there were 505 banks that failed in 1921 failures continued to rise in the early
00:54:24
20s and averaged 680 Banks per year failed between 1923 and 1929. so obviously you know coming out of 08 uh
00:54:34
there was a lot of controversy around hey Banks can't make money anymore it's too restrictive the disclosures and so
00:54:39
on the disclosures are actually quite good you know you guys can go to these these sites that regulate the banks you
00:54:44
can go to the SEC site you can get a very detailed schedule of every asset held by every one of these Banks it's
00:54:50
good transparency I would argue but should they be allowed to invest in Securities that are effectively not
00:54:55
fully liquid that are risky that are long dated with short data deposits right it seems It's a fundamental
00:55:02
question about what banks are supposed to be doing in a world of computers that can calculate everything the idea that
00:55:07
you can't solve duration matching doesn't seem like one of those problems that's intractable in 2023. I mean if
00:55:13
people can make an AI version of the podcast they could do that yeah I mean free
00:55:19
burger also like take this I think Venture that's the most extreme example how do you mark to Market alone to a
00:55:26
series a startup I mean that just 100 depends on what they're going to raise the series
00:55:30
believer you can underwrite anything I think you can under for the right interest rate for the right premium you
00:55:35
can underwrite Insurance you can underwrite loans I mean there's a lot of ways that you could kind of how do you
00:55:39
mark that to Market on a daily basis you're right no that you cannot you're you're right absolutely yeah yeah and so
00:55:44
from a reporting perspective how does that solve the problem you've got different they've got different tiers of
00:55:50
regulatory Capital guys and so you know there are rules around what the ratios need to be and where you need to fall
00:55:55
and so they they bucket the stuff up differently right if you're a bank and you want to buy Securities you want to
00:56:01
invest in something that's not liquid and Mark to Market every day you should have to package it up in some period of
00:56:08
time and sell it if you want to make a loan to a you know to a venture-backed startup package those up and Syndicate
00:56:15
that and sell it as a security and if you can't do that you probably shouldn't be investing in the asset class anyway
00:56:20
same thing with like you know mortgage these mortgages already get packaged up and sold right so I just doesn't make
00:56:26
sense to me that like customer deposits that's what we're talking about which you assume should always be a hundred
00:56:32
percent safe right this is not a source of capital where anyone's ever expecting
00:56:36
to lose money if you want to use risk Capital to get some sort of outsized return go raise that from LPS but to
00:56:44
like take customer deposits and use it on on risky non-liquid Investments it makes no sense there's one thing I could
00:56:51
I could just help people frame this the aggregate amount of dollars in these bank accounts I would estimate equals 10
00:57:00
percent of the value of the startups they represent would we all agree on that it's about 10 of the value of those
00:57:07
startups maybe 20. if how do you work what how do you how do you calculate it I don't know well I'm thinking about the
00:57:13
startups who recently did a round of funding they diluted 10 percent that represents all of their treasury or half
00:57:19
of their treasury so if that cash for the startup portion of this equals 10 of the value of service I can guarantee you
00:57:26
those startups with access to that Capital again Monday will be able to outperform the backstop that the
00:57:32
government would provide this sounds like Enron math to me no okay if you what are your startups just take any of
00:57:38
your startups they have 30 million you don't have time listen we don't have time here for the government to figure
00:57:43
out how to be a partner in or an investor in all these startups I'm sorry we don't I'm not saying step in or they
00:57:50
don't if they don't step in you'll have systemic failure no no but do the math definitely here of one of the companies
00:57:56
pick one of the companies that has 20 you have a company that has 20 million there or 30 million there what does that
00:58:01
represent if you were to take their valuation from last year when they raised that money cut in half it doesn't
00:58:06
matter it doesn't matter who's the depository it does not matter it matters for people to understand how how much
00:58:12
value is going to be lost and how easily recoverable it is if these companies are allowed in aggregate
00:58:18
to deploy that Capital that's the point you're not getting or I'm not explaining
00:58:22
to you properly if allowed to deploy that it's going to return a multiple an adventure multiple two three four
00:58:31
five x but if we destroy that money these companies are going out of business next month that money is their
00:58:37
money that's their deposit I agree with you I'm trying to create a framing here for people to understand exactly how
00:58:43
much value is going to be I think the better framing is that when you put your money in a FDIC insured bank and you put
00:58:49
it in a customer deposit that's supposed to be completely safe that's paying you
00:58:52
a couple of percent interest and that is reflected even as a money market fund on
00:58:56
your account you do not expect that money to be turned around by the bank and put in risk and raise the FDI no
00:59:04
sense raise the FDI Banks should not work that way okay look I think it's crazy that you could set up a bank
00:59:09
account okay because you just want to write checks and you could lose that money because the bankers decided to
00:59:15
loan it to some startup that's insane or the bankers decided to buy a 10-year mortgage-backed security who doesn't
00:59:21
understand interest rate risk that's not the way the system's supposed to work and you got all these people on Twitter
00:59:25
pushing back no bailouts or whatever that's the depositor's money I agree no bailout for sgb they should lose
00:59:31
everything all those Executives or stock options are worthless all the stockholders of that company their
00:59:36
Shares are worthless but the question is should depositors lose money in these Banks they just thought they're selling
00:59:42
for a checking account I mean are you kidding me and if you let that happen there will be a Cascade here because the
00:59:48
The Logical consequence will be everybody's going to say put my money in JPMorgan or Wells Fargo or Bank of
00:59:54
America there'll be four Banks that's it and all the regional banks are going to
00:59:58
shut down 10 highly paid workers and not just Tech workers are going to be out of jobs and
01:00:06
they don't have jobs waiting for them at Amazon or Google to bail them out and this is the start of a contagion if it
01:00:13
doesn't get started what do they do wrong they used uh what is considered one of the most reputable banks in the
01:00:19
world they use the top 20 bank that the regular said was in compliance so did they do something wrong or were The
01:00:25
Regulators asleep at the at the wheel I don't know some way I think it's this is Biden's fault or
01:00:33
wow it's binary zelinsky's fault what do you guys think this means for VC it is a chilling effect I I talked with
01:00:41
some LPS in the last two days in the VC World I'll give you a couple anecdotes I have a friend runs a fund he looked at
01:00:49
his portfolio they have 270 million dollars or sorry 350 million dollars tied up at Silicon Valley Bank
01:00:56
they need 27 million dollars uh for cash for the next 30 days so he's called his
01:01:02
LPS and he's trying to get his LPS uh to front him money to wire money so that he
01:01:07
can front his company's money so they can actually pay their operating expenses and cover their payroll and
01:01:13
then I spoke with a couple of LPS in the last 48 hours um they have gotten dozens of calls from
01:01:19
various Venture funds everyone is asking the same question can we do a capital call can we get money delivered early
01:01:25
can we use that money to support our companies because their cash is stuck coming out of this the the the
01:01:31
uncertainty that this creates in the investment environment um I think it's going to have a real
01:01:36
chilling effect not just with the GPS and their you know uh proclivity to sign term sheets right now and wire new money
01:01:43
over but also with the LPS as they're making Capital commitments and actually following through with with capital
01:01:49
commitments that have already been made um given uh you know where's the capital
01:01:53
actually going to land up that was never a question mark before it was never in anything that anyone even considered
01:01:58
that Capital could be disappeared or locked up or tied up and the fact that this is adding this unique friction in
01:02:04
the market is the layer on top of an already distressed and challenged environment for fundraising for GPS for
01:02:12
LPS and it seems to um be exactly the icing on the cake we did not need right now no matter how
01:02:18
this gets resolved I I think private markets in BC could seize I think you're going to see people
01:02:24
pull term sheets maybe half as many fundings are going to occur as people try to do triage another VC friend of
01:02:30
mine just sent me a text he can't make payroll next week he's a fund for his VC fund his VC fund their employees cannot
01:02:37
he cannot pay his employees on Monday Lord and so um yes I do think funds could shut down
01:02:43
uh coming out of this it I think that companies that were call it you know 75 distressed are done for now no one's
01:02:51
going to step in and Bridge them and fund them uh it's going to accelerate a lot of shutdowns because people are now
01:02:57
cash is King now cash is king or right it's like a big shift I think that was really well said I think you're you're
01:03:03
right about all that Jake how you tweeted that you think this is going to cause a 60-day freeze and and deal
01:03:07
making activity I think that's more or less right you're right because you know all the VCS out there have to think
01:03:13
about Shoring up their existing portfolios exactly what if you got companies that are now in distress that
01:03:18
are perfectly good companies you've got to focus you're picking one or two winners you
01:03:24
know and you're going to focus on that you're going to say you know what the rest of them could be good but I can't
01:03:27
it's it's going to be a tough decision I have three open deals right now um that we're doing I now have to figure
01:03:34
out how to get those deals done and I have four companies that are in this payroll situation in a major way so now
01:03:41
I've got capital and I've got to and we're not personally affected by the Silicon Valley Bank thing thank God but
01:03:49
now we have to do triage the known winners in your portfolio that did nothing wrong
01:03:55
or do you make the next three Investments or four Investments and I'm gonna make good on those three
01:04:00
Investments but next month Maybe not maybe next month I'm taking off and I'm focusing on the portfolio and I think
01:04:07
that's what's going to happen writ large we're in triage mode now full on triage
01:04:12
mode if this doesn't get resolved if they can't get those what do you think it's
01:04:18
dark I had a meeting three weeks ago with the US LP and you know you guys know how
01:04:26
I run this business here but it's there's there's like a lot of risk management you know we think about this
01:04:32
stuff a lot and the message that came back to me was I don't think risk management is
01:04:38
worthwhile in Venture I didn't understand where that was coming from um because if you're investing your
01:04:44
money across a very risky asset class you have to be always thinking about how you could lose money
01:04:52
and I think that venture has always romantically been described as like buying lottery tickets
01:04:57
and so it doesn't matter if you lose but when you have that kind of latitude you
01:05:02
just become super complacent and you don't think about left tail risk you only think about right tail outcomes and
01:05:09
this is an example of like left tail risk that came out of nowhere that could wipe out entire portfolios so you had
01:05:16
you know folks invest into funds that spent a few years probably 2019 2020 2021 really misallocating money
01:05:27
right writing ginormous checks into companies at valuations that didn't make sense who then went and burned it
01:05:34
and now what little cash they had left may also be gone which means those valuations are even more impaired which
01:05:41
means that the LPS that gave them the money are even more underwater and that cycle I think is really terrible that'll
01:05:47
take a so maybe this is the wake-up call where now risk management is actually in
01:05:52
Vogue and cool and it's important to know this stuff I don't know we have breaking news uh while we're taping this
01:05:58
the Department of Financial Protection and innovation of the State of California has published findings on svb
01:06:03
we'll pull it up on the screen for the besties to respond to on March 8 2023 the bank announced a loss of
01:06:09
approximately 1.8 billion from the sale of Investments we've talked about that already
01:06:14
on March 8th 2023 the bank's holding company announced it was conducting a capital raise despite the bank being in
01:06:20
sound financial condition prior to March 9th 2023 investors and depositors reacted
01:06:25
by initiating withdrawals of 42 billion dollars in deposits so that would be over 20 I think of the of the total
01:06:33
deposits from the bank on March 9th or even more 2023 causing a run on the bank as of the close of business on March 9th
01:06:41
the bank had a negative cash balance of approximately 958 million despite attempts from the bank with the
01:06:47
assistance of regulators to transfer collateral from various sources to bank it did not meet its cash letter with the
01:06:53
Federal Reserve the precipitous deposit withdrawal has caused the bank to be incapable of
01:06:58
paying its obligations as they come due right and the bank is now inside the beginning 42 billion dollars
01:07:04
uh is 25 of total deposits but 42 billion is greater than the 14 billion of cash they had on hand and the 26
01:07:13
billion of liquid Securities that they had so you add those two up together you're at 40 billion and then to get
01:07:19
more cash they're gonna have to sell a bunch of loan portfolios and selling loan portfolios you got to package them
01:07:25
up it takes weeks or months to do that and they're going to be sold to distressed prices so this is where a
01:07:29
classic run-on-the-bank problem actually causes a decline in the asset value of the business uh and the assets that they
01:07:37
own because if you have to go and turn around and sell those assets in the market super fast you're going to take a
01:07:41
huge loss you guys remember that movie Margin Call with Demi Moore and um what's his name and they make this plan
01:07:48
to go and Mark and they're like Swayze no not Patrick Swayze uh no the Jeremy Irons Jeremy Irons he plays the
01:07:55
best character he's like the chairman of the bank and they're like we have to sell all this but we're gonna take a
01:07:59
huge loss and they make this big trade that happens at the beginning of the morning but that's what happens when you
01:08:04
have to sell a lot of assets very fast as you guys know you end up selling them at a discount so the rate at which
01:08:10
deposits are coming out of the bank can actually impact the asset value held at the bank and that's fundamentally what a
01:08:16
run on the bank causes and the irony is as they point out the company was fundamentally financially sound they had
01:08:22
enough assets marked at the current market value or whatever to meet all of their obligations but the rate at which
01:08:27
assets started to get pulled out is what drove those that drove the company the bank into distress and if you think
01:08:34
about it it it's it's an ironic point of view on Silicon Valley because Silicon Valley operates with such we all joke
01:08:42
about what a herd mentality uh and and what an incredibly tied and and deep Network Silicon Valley is we all got
01:08:49
dozens and hundreds of texts and messages from friends colleagues co-workers yesterday all relaying the
01:08:56
news about what they were going to do and as soon as that happened that's how tightly intertwined Silicon Valley is
01:09:01
within 24 hours every CEO and every venture capitalist was on a chat group or on a message group with other people
01:09:09
in the valley and once there was any indication of panic the entire Market flipped and you guys saw this we all saw
01:09:16
this within 24 hours the beginning of a day yesterday it was like they'll get through it it'll be fine they just took
01:09:20
a little mark down on their portfolio they got plenty of assets but then it's like well Founders fund said we should
01:09:26
probably get out okay well Founders fun is getting out maybe we should get out before everyone else does well we got to
01:09:30
get up before everyone else does let's do it now I'm getting out right now I'm telling my best friend I'm getting out
01:09:34
right now and then everyone tells their second best friend and then all of a sudden the whole valley knows it and
01:09:38
then the whole valley is running for the door and this is a really interesting and unique scenario it's not like the
01:09:43
classic consumer run on the bank where you're trying to pull cash out it's the Silicon Valley 24-hour cycle of
01:09:50
we all got to do it because everyone else is doing like what we're seeing with investing Cycles in Silicon Valley
01:09:55
where everyone chases and these bubbles emerge the reverse I think happened yesterday where the herd mentality drove
01:10:00
us all to rush for the door as quickly as possible you know I'm not sure that that that might be why it's not as much
01:10:06
of a contagion you know as you might expect elsewhere because places other kind of regional Banks don't have the
01:10:13
same sort of intertwinedness as we saw with all the depositors here in Silicon Valley Bank I don't know I don't know
01:10:20
this is where um I think that describing what happens as a panic kind of misses the fundamental rationality of the
01:10:27
response so both are true by the way yeah so it does seem like a panic but that doesn't mean that each individual
01:10:33
decision Maker's motivation is panic I actually think it's a rational upside downside calculation I mean this is all
01:10:40
Game Theory so if you think that there's a risk of other people pulling out their
01:10:45
assets and in fact you're hearing that they are you don't want to wait and be the last one to leave and so you think
01:10:52
about it there's no penalty or downside to taking your money out right so the the downside of taking your funds out
01:11:00
immediately is zero and the upside is you might save 100 of your money so it's it's a rational decision when confidence
01:11:07
is lost to take out your money and in fact it was rational there were a bunch of VCS not a lot but some of them
01:11:14
between yesterday that you know sgb has been a great player in the ecosystem for
01:11:18
30 years we should show our support right now by not taking our money out well guess what what happened to them
01:11:24
they got stuck and now their money is frozen and they're not sure whether they get you know Pennies on the dollar or
01:11:30
not whereas the people who rushed for the exits yesterday got their money out prisoner's dilemma it is a prisoner's
01:11:36
dilemma but here's the thing it's it's not even about anymore whether the institution is solvent it's about
01:11:44
whether there's confidence and I think there is a risk now of contagion spreading to these other Regional Banks
01:11:50
because people aren't sure and there's already huge cash outflows leaving these other Banks because why take a chance
01:11:56
the game theory of it is move your money out until this is over and if you're okay with you know moving it back in a
01:12:04
few weeks if it turns out not to be around the bank that's fine so a lot of this can be self-fulfilling you have to
01:12:09
remember that runs on the bank freeway you said this a hundred years ago were extremely common every decade there
01:12:15
would be a giant Financial panic and there'd be a run on the bank run on many banks and the only way that the federal
01:12:21
government stopped it was by introducing FDIC and they said they said to depositors your money is safe and at
01:12:27
that time 250 000 was enough the problem we have is that with these business Banks 250 000 is not enough
01:12:34
so all of a sudden there's going to be a crisis of confidence if you think a business bank can go under again you're
01:12:40
just going to leave all these Regional Banks you're going to go to the top four that's going to be it so I I think that
01:12:46
that the situation right now is really Dynamic and If the Fed does nothing and just says up you know these uh
01:12:55
depositors should have known better you know the losses on them then I think the rational reaction for depositors at
01:13:03
all these other Banks would be just to leave because I don't think depositors are in
01:13:07
a good position to assess the uh liquidity and credit worthiness of a bank I just don't think they are I think
01:13:15
stockholders are they're the people who should lose all their money if the bank goes under but not depositors any advice
01:13:20
or takeaways for Founders and capital allocators going forward obviously have your money in multiple bank accounts I
01:13:28
sent you guys a list that was just published of all of the funds that custody at svb
01:13:33
and it's unbelievable the list it's every single major VC in Silicon Valley wow where'd you get this I have my ways
01:13:41
oh extracted from SEC filings got it okay thank you yeah this is amazing wow holy I mean everybody's in there
01:13:50
500 Sequoia we're going pretty fast here but yeah to find I mean this is that we were we were out
01:14:01
a few months ago when we were talking about Venture debt on the Pod I didn't believe that sgb should be in this
01:14:08
business so I told oh look there's craft there's craft no well hold on I'll tell
01:14:13
you does it say how much money we got in there yeah go to the right I'll tell you what
01:14:17
happened is so after the conversation we had on this the show about Venture debt
01:14:21
I'm like I don't really like that sgb's in this business so I told my guys set up an account somewhere else so we did
01:14:26
that so we moved our firm accounts over and we were just using sgb to make you know Warehouse loans or whatever so I
01:14:34
thought they were just a lender to us so yesterday when all this stuff went down
01:14:39
I said to our guys like we're out of there right they're like well actually we had about 45 million dollars that we
01:14:44
were about to distribute to LPS and I'm like whoa that's crazy so we were able to sweep that to an account we
01:14:51
used to make in-kind distributions and then we got on the phone and we called as many portfolio companies as we could
01:14:56
to get them out and we got a huge number of them out but unfortunately some of them didn't get out here's the thing
01:15:02
that I think people in Washington don't understand we're doing this with the next set of banks the triage is still
01:15:07
happening guys I will tell you look sex I appreciate the the siren Call but I think the only way that what you're
01:15:15
saying because you're saying that triggers the next siren Call and the contagion spreads I'm not blaming you
01:15:22
I'm just saying it's a reality and you're right the game theory optimal way to play this as a depositor is to move
01:15:27
your money out and get it somewhere that it's completely safe and you know you have your cash secured or buy a security
01:15:32
and a brokerage account where it's totally safe and it's registered with the Securities Exchange or something but
01:15:38
um in the meantime for this to get resolved there has to be a bear hug solution offered up this
01:15:45
weekend I'll say it again yeah in order to stop the next set of siren calls to drive
01:15:51
a call listen this is the thing I hate about um the the run on the bank conversation
01:15:57
is that if you warn people that there's a possible run on the bank happening you're actually creating the run on the
01:16:02
bank that's why it's so pernicious when these things get started and yesterday we were calling all of our portfolio
01:16:09
companies because we were warning them because our obligation was to them but we weren't you know I don't think we
01:16:15
were putting out like a siren to the world and by the afternoon it was really clear that if they listened and got
01:16:20
their money out they were in much better shape than the ones who didn't listen so
01:16:23
this is the pernicious thing is that every individual actor has to do what's in their best interest and we're not
01:16:29
trying to start a um another run sorry hold on but we know things we know that people very close to us big players
01:16:37
are withdrawing their money from other Banks right now so let me just finish my point my point
01:16:44
is what you're saying makes a ton of sense and it's gonna cause this as you described kind of pernicious escalatory
01:16:53
problem and the only way to stop it is a bear hug which may not cost the taxpayer
01:16:58
anything If the Fed or some federal agency stepped in and said we are going to backstop all of these banks with all
01:17:05
of these deposits with cash and we're going to guarantee it today and here's a 500 billion dollar facility and just by
01:17:12
saying that everyone stops trying to pull their money out and you don't actually need to backstop it with any
01:17:18
money it's it's so it's already started so Nick if you just the link that I sent
01:17:23
you in the in the group chat can you just throw that link up there I think this is the best proxy for what Sox is
01:17:29
talking about so sort of I think very unemotionally how would we know that there is a contagion that's a foot
01:17:36
you would look at the equity layer of all these Regional Banks so what is this this is the ishares Regional Bank CTF
01:17:43
and what you start to see is this Decay and go to the one week view Nick please it just starts to fall off of a cliff
01:17:51
and so why is this happening well it's happening because the equity tier of these Banks are now increasingly worried
01:18:00
that their Equity will get wiped out and so that's why they're selling and so the
01:18:05
I think what David said is already afoot unfortunately it starts at svb but forget the name for a second and take
01:18:12
Silicon Valley out of it this is a top 20 bank that now is in the receivership of you know the authorities and so there
01:18:21
does need to be something that needs to happen in really short order because what's to prevent bank number 35. let me
01:18:27
just say it again if a federal agency comes in If the Fed comes in and says you know what we're going to backstop
01:18:32
all of these Banks and we're going to put 500 billion dollars behind it and we're going to guarantee that all these
01:18:37
deposits are going to be made whole it stops the Panic at that point it you don't even have to put up any money
01:18:43
because as soon as it's a first derivative problem it's a feedback loop as soon as you stop people from doing
01:18:48
the withdrawals the whole Market subsides you don't actually need to you unplug it and I think that's what needs
01:18:53
to happen this weekend that's what should I unplug it today is the number one need to go get um Silicon Valley
01:18:59
Bank hand it over to a big balance sheet and guarantee that balance sheet but they're going to make money by taking
01:19:03
this thing on on and number two they got to make a statement we got another 500 Billy for you where's the president
01:19:08
where's he Allen well they'll make a profit on it too so I mean they don't need to use any money to do it right the
01:19:13
thing that's missing in our system is that there's no FDIC for 25 million accounts What like 250 is not an
01:19:21
effective amount that's a personal account it's a small businesses needs confidence in our economy in our banking
01:19:27
system or the whole thing starts to unspool so what the quid pro quo should be is you can get a 25 million FDIC
01:19:34
business banking account and the bank is highly restricted in what it can do with
01:19:38
that money you can't put that money in fugazi Venture debt you can't put that money in lattered 10-year bonds that
01:19:45
don't get marked to Market it's only highly liquid secure Mark to Market assets and the the downside of that for
01:19:51
the bank is they'll make less money and pass on less interest to the the business the the depositor the
01:19:57
shareholders yeah so what that's the way it should work how are stable coins looking like a better option right now I
01:20:03
in the crypto guys right now are like why didn't you you're not Jacob they're not they're not joking it was a joke
01:20:09
nothing can revive the crypto Market as we're seeing today even in a run on the bank which is exactly what everybody was
01:20:14
afraid of in a Bitcoin world that thing is down ten percent so of course there's a reason for that is just that
01:20:23
what we've seen is that liquidity is all correlated so when people are panicking
01:20:28
about the state of their finances and worried about getting access to their cash the first thing they dump is crypto
01:20:33
because it is very liquid so everyone is trying to free up cash right now I just
01:20:38
want to be clear as the end of the show here we were dancing around is this going to be a Contagion
01:20:43
and I think what we know and what we're seeing is the the next dominoes are already
01:20:50
falling and so yeah contagion it cannot be a contagion we have to stop it that's
01:20:55
the point that's your feeling and I agree with you but I just want to make sure people understand we started this
01:21:01
we didn't want to go there you know I think with some reticent reticence to to going there let's let's put it this way
01:21:08
if you if anybody if you have initiated a wire in the last 24 hours you are worried about contagion yes if you're in
01:21:18
DC and you have any ability management matters and if you have any ability to influence what's going to happen this
01:21:23
weekend we strongly advise unplug it someone comes in and Bear Hugs the market this weekend and says we will not
01:21:32
let contagion happen with a very big slug of capital to support it that will likely not even be needed to support it
01:21:40
because once you say that the contagion will stop yeah Freeburg we're going to know on Monday whether these Regulators
01:21:46
have in the administration know what they're doing at all the other Black Swan problem is that this weekend we
01:21:53
will find out what some of the unintended second and third order consequences are going to be of svb
01:21:58
being in a receivership this weekend we talked a little bit about the pipes problem but there may be several other
01:22:04
businesses and companies that we don't know about that may trigger another set of
01:22:10
cascading effects that are unrelated to a banking problem but could drive some more significant business and economic
01:22:16
problems that we're going to kind of probably end up talking about next week so you know this weekend with success
01:22:21
with payroll but there are other things that this money goes towards uh you know
01:22:25
mortgages or rents so the cascading effect of this if people stop paying their rents if people stop paying
01:22:31
mortgages I mean real estate yeah if I didn't visit a Kiev instead of East Palestine Yellen visited Kiev instead of
01:22:40
Silicon Valley do these people know what's going on here come home they promise more financial assistance for
01:22:46
Ukraine and they're saying they're monitoring the situation here we're in the process of what what's the bill for
01:22:53
you yeah the bill for Ukraine this month versus this bailout is you know probably the same so I think we have to
01:23:03
really think this through folks yeah you're gonna get well no on Monday where these people have a clue or not no
01:23:09
they have to be on TV tonight or tomorrow this is to be a pressure on Sunday hold on I think I think a lot of
01:23:15
these guys do know what they're doing so let me just say it to them in language they understand
01:23:20
folks when you look at the equity tier of these Regional Banks people are liquidating the equity tier because they
01:23:28
know that that is the first Domino to fall if banks go into receivership please act accordingly you can see it in
01:23:36
the ETFs you can see it in the trade flows this is not a Silicon Valley problem anymore
01:23:42
it is a Regional Bank problem and it will get worse unless you do something to make it better right and and Jake
01:23:49
I'll just use the word bailout I don't like that word because no not about backstop there were big you know too big
01:23:55
to fail banks in 2008 in the financial crisis who did get bailed out those people should have lost the value of
01:24:00
their stock okay that was wrong that's not what we're talking about here the PCB is wiped out already what we're
01:24:06
talking about is protecting depositors these are people who trusted that when they put their money in a top 20 bank
01:24:11
that our regulatory system is compliant that they will not lose their money when
01:24:16
it says on their computer screen that my money is in a black rock or a Morgan Stanley Mutual Fund or money market fund
01:24:23
rather the safest instrument there is that that money is where it's supposed to be and if Regulators allow that bank
01:24:30
to put their money in stupid assets that are not marked to Market and that's why
01:24:34
they shut down that is not a good reason for depositors to not get their money 100 we're taking care of depositors here
01:24:42
and not bear filling out stockholders this is not for the executives at the banks it's for the depositors who did
01:24:48
nothing wrong and nor did their employees and their customers and The Innovation that they're working on all
01:24:52
right this has been a great all-in podcast sorry we didn't have time to talk about the uh
01:24:57
Shaman Q Anon Shaman I know that's a passion project for you sex but you can announce your Kickstarter for him and
01:25:04
your GoFundMe for the shopping but uh where's the ball dog man give me that Bulldog one more
01:25:11
time the shaman the shaman is an intersection of three of a very interesting Venn diagram he is very
01:25:19
athletically fit incredibly hairy and obvious tattooed that's a that's a try that you rarely
01:25:26
see you rarely see that and you know also cultural appropriation so yeah we have to keep that in mind and conspiracy
01:25:32
theories I mean this guy's got it all are we gonna play poker this week at it just like as the as the major is coming
01:25:39
it's kind of sad Silicon Valley is kind of he's kind of an odd that seriously the the shaman what's his name is uh
01:25:45
Jake uh he doesn't seem like he's all there sure yeah no he's he's a guy who has diagnosed Mental Illness but he's
01:25:51
completely non-violent he's completely non-violent he actually believes in the philosophy of Mahatma Gandhi of no
01:25:57
violence towards any creatures he's a vegetarian yeah he you know he's a bit of an odd duck
01:26:04
and he didn't assault anyone he just wandered through the capital apparently getting a tour uh from police officers
01:26:12
who are just guiding him through he's the January four years hold on a second he got four years in jail for that
01:26:17
because he became the face of an Insurrection because he just just looks so weird with the Viking horns and the
01:26:23
face paint or whatever we also made some threats to politicians too but yeah I mean it does seem like it might not be
01:26:29
the appropriate sentence he wrote a note saying we're coming for you I think on but you have to look into the case but
01:26:34
he was sentenced by a republican judge from Texas and he had made threats written threats and put them on the
01:26:39
desks of folks and he was one of the first people into the building so I think they got him for that but I agree
01:26:44
with you they're listening to the building if he didn't break a door down or didn't smash a window if he damaged
01:26:51
property that's one thing if he assaulted someone that's one thing but if he just wandered through the capitol
01:26:55
I think four years is kind of excessive and I think the reason why the guy got four years is because of his mental
01:27:00
illness he's not able to defend himself the way that he should be this is just a
01:27:04
fundamental civil liberties issue if you have any compassion at all you shouldn't
01:27:08
let a guy like that get scapegoated there's 400 people who of the thousands of people who broke in who were violent
01:27:15
and who got sentences of some degree they were all uh settled like a plea bargained including his they didn't go
01:27:22
to trial and if you know I think we could all agree the violence that occurred that day is you know should be
01:27:28
punished and the non-violent stuff should be a speeding ticket you know and we don't need three categories Jason I
01:27:35
think violence The Assault on cops or and so forth yeah punished full accessibility then damage a property and
01:27:41
then people who just trespassed or wandered through who may not even have known they
01:27:47
were trespassing probation that that that's not that's not jail time that's not a felony yeah I mean we want to
01:27:52
promote peaceful protests if they had come with guitars and sang Kumbaya and we shall overcome we'd be having a
01:27:58
different discussion here instead they'd be cops you know and you can't beat cops
01:28:02
up sorry those ones go to jail yeah period full stop we're in agreement okay everybody it's been another amazing
01:28:07
all-in podcast sorry we couldn't get to all the news but we felt that this required a big unpacking for the Sultan
01:28:14
of science the uh uh dictator and the Rain Man imv Undisputed world's greatest moderator
01:28:22
we'll see you next time on the all-in podcast not this week not this week we'll let your winners ride
01:28:30
Rain Man [Music] besties [Music] it's like this like sexual tension that they just need to release
01:29:06
[Music] [Music] I'm going all in