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hey everybody welcome to another episode
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of the Allin pod the notorious threesome
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is here doing the show solo today
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threesome thle it's a thr it's a thle we
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have a thruple I think it's more like a
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cuddle puddle okay the dictator chamoth
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poopaa Rainman David Sachs sulan of
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science Dave fredberg happy to be here
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with you guys today we are absent jcal
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taking the week off any other
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housekeeping let's do it let's jump been
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to it well you announced that we're
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going to hire a CEO right oh let's talk
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about that how's it going freeberg in
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our CEO search okay I got to admit I've
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had a few conversations but I got to get
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through the list there are 240
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applicants so far wow wow and there's
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some really like great people in there
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so we need to figure out how we're going
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to manage this but I think we're pretty
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excited I can't believe so many people
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want to work for us that's insane
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there's some really great folks I think
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the Jim you posted it and people were
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pretty positive right generally positive
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not everyone it was it was really
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positive yeah I mean I think that people
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were
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very excited about the fact that we were
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going to try to kind of like
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professionalize us a little bit more so
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let's just talk about that we did The
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all-in
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Summit in September we thought it went
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really well folks really enjoyed it the
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survey data the folks that attended was
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really positive so we we want to do that
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and do more of that live
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inperson stuff we all have full-time
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jobs and other things to do so we need
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someone to come and run this as a
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business and organize it and Carry It
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Forward a little bit for us and so we're
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really excited to hopefully get someone
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that can scale this no ads ever no
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subscription fees nothing's going to
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change about the Pod so it's a media and
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events business and it might become a
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cpg business as well
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meaning was it cpg's consumer package
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Goods that's right TXS you're
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that is the correct use of the acronym
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David congratulations your first product
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uh would be what
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tequila I would do like a tequila or
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like a hard Seltzer or something like
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that that seems to be a big growth
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category or we could figure out
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something very orthogonal I mean Mr
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Beast did candy bars and we found out at
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the all Summit that he's doing something
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like 250 million a year in Revenue
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growing very fast yeah we could do saxs
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nuts the sax nuts be too big to eat you
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wouldn't to fit them in your mouth Jamal
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they just be old and
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salty let your win
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ride
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[Music]
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David we open source it to the fans and
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they've just gone crazy
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[Music]
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with well I think the other thing that's
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worth figuring out is this idea of like
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what is what does the community really
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look like I think that's the biggest
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that's the biggest upside for the CEO is
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like is it physical places like zero
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Bond or is it virtual sort of like
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Community oriented things is it some
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combination of the two I'm really
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interested in trying to figure that out
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and and what answer they come up with
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then the other thing that I would really
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like to experiment with quite honestly
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is if we could do a little bit of a tour
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I just think it would be super fun to
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kind of go to like five or 10 cities and
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just kind of like crash those places and
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have like a big get together and talk to
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people and do a big Q&A I think the
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thing that is really fun is just the
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interactive Q&A just because it allows
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everybody to get involved and then to be
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able to do dinners with each other and
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like there's just a really amazing
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community so that person should be able
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to figure this out I don't know the
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answer to it but I I'm hoping they
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figure that out we should give a shout
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out to the guy who did the interview
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video or
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submitted you see that that's like a
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4-minute video that somebody submitted
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his by video on on X I think I was on
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his podcast Sean you were I was on his
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podcast like a year and a half ago I
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think can we pull it up welcome welcome
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to my five minute job application to
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become CEO of the all-in podcast this is
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the American dream
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baby that's great well he posted a tweet
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the day before saying if it gets a
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thousand likes he'll submit an
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application and instantly got a th likes
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and then he put that video together so
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great job Sean I will be calling you
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later for your second round interview I
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think you're well qualified after that
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submission but I do remember like at the
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all-in summit I've never been to a
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conference where I'd say like 95% of the
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audience was actually in the theater for
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the entire content session like they
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really sat through it it was really
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engaging so I think that's the sort of
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product that I'd love to
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bring bring out more which is some of
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these important conversations with
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people that can
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provide a perspective that folks might
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not be getting elsewhere Jam you also
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mentioned on Twitter that you're doing
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more content like you're you called it
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learn with me what is that yeah I mean
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well I've been doing this for a while
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but I just wanted to wrap it up and kind
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of make it into a clean kind of produ
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eyes service so you know I have this
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newsletter that I've been using weekly
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to just kind of share everything that I
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read but then I thought okay why don't I
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actually like really invest just a
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little bit of time every week to curate
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that even a little bit more and then
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write little summaries of probably the
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three most important news topics of the
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week and I just kind of give an insight
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into my process so when I read all of
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this stuff usually two to three times a
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month but the average is around twice a
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month I end up writing an essay and it's
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like one or two pages really quick and I
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just keep them for myself and it's like
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right now I'm just I just finished one
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what is the Federal Reserve and the
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reason I did that was because dren
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Miller was on TV and was talking about
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all this stuff and I just wanted to
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remind myself about why the Federal
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Reserve exists the way it does but
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basically what happens is from these
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quick essays and from what I read I
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typically start every month a deep dive
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where my team and I we probably
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allocate at least a month to a month and
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a half where we figure out something in
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really excruciating detail and we
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generate a slide deck and a write up and
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then we take that and we go and we ask
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bunch of experts what they think and
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then we only keep it within ourselves
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but then I thought you know what why
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don't we just start sharing it so the
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reason I'm doing this is really to keep
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myself accountable to keep learning
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because I feel like in the last few
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years the thing that I lost most when
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things were going crazy was just the
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incentive to learn and I thought if
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there are other people around me that
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are also relying on this I'll be more
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accountable and obviously to the extent
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that this thing can actually be self
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funding then I can take some of that
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Revenue reinvest it in more research
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Associates maybe publish more content
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but it's kind of like all the
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information I wish I had so that I could
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make better decisions I'm just going to
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kind of take what I have share it with
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everybody and kind of go from there so
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we'll see so you're charging for the
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kind of higher end part of it at the end
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of it like it's kind of like I would say
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most of it is free the Twitter spaces
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obviously is not because the point of
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these or these X spaces is we just don't
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want a bunch of bots controls but
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there's a bunch of people that signed up
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to be a subscriber so we'll do q&as
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monthly for subscribers and then once a
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month I'll publish a deck and like I
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said if you want the full one then you
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can be part of like a paying Community
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otherwise you'll get some portion of it
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for free and then you'll have cash to
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reinvest in doing more content is that
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like right now I have a couple of
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research assistants that really help me
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and we have a pool of experts that we
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use but if this thing picks up some
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steam and we can have enough Revenue to
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hire three or four more ra
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maybe at some point instead of monthly
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we can go by weekly I don't know but the
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idea is just to focus on sort of what I
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think is interesting so that I can have
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a general view of of things so that I
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can make better decisions and like I
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said to the extent people are interested
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now they can follow along at any level
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there you have it so people can go to
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your Twitter to see it right yeah okay
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by the way the other thing is it's kind
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of cool to be in this like content
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creator economy you know that's the
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other thing is like I don't know about
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you guys but I feel like I'm on the
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sidelines looking in at Trends now
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whereas before I was in the middle of
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them like Web 2.0 social I was right in
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the heart of it and I was like okay this
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is amazing and then as an investor in
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SAS and deep Tech I was kind of in the
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middle of those as well that felt great
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but this last push in AI I'm like wow
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I'm really on the sidelines looking in
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or this content creator stuff so I think
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it's it's a good forcing function for me
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to kind of learn as well to be active in
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the content creator economy basically to
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understand it better yeah I don't know
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how else I'll ever learn how to because
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like I I could read all the stuff I want
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just so you know you do a podcast that a
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lot of people listen to yeah but I think
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that that's like a it's the lowest order
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bit quite honestly you know when you see
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like what Jimmy Donaldson
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does or even like Kim Kardashian what
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they do as content creators it's just an
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intense process that then creates all
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this upside so even if what I want to
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have a more informed view of where Allin
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needs to go I want to be a little bit
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more on the ground and actually in the
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engine room doing it for myself yeah
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since we started doing the Pod sax has
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been creating a ton of content too I
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mean saak you wrote a piece this week
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didn't you and on Ukraine or like the
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the time article on Ukraine didn't you
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yeah yeah like you weren't doing a lot
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of content before we started doing the
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Pod right no he was he was writing like
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a lot of blog posts on SAS those were
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excellent he had like an occasional blog
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post but he's like super active now
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particularly on Twitter no like has that
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changed a
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lot well what basically happened is I
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would Express political views on the Pod
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you know on a weekly basis and I wasn't
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really tweeting much about politics but
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then it all kind of bled together I mean
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once you start talking politics on a pod
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people were clipping it they were
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putting it on Twitter and then I have to
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respond to it maybe correct yeah Mis
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interpretations or respond to ATT or
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whatever so it all the politics and
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business stuff just kind of bled
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together on Twitter it' be nice if I
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just had two accounts and people could
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just follow me for what they wanted to
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follow my substack is just business and
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then I'll occasionally write an oped on
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the political stuff so I've written a
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few on free speech and then I've written
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a few on Ukraine and so I wrote a piece
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for responsible statecraft this week on
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Ukraine which was based on a Time
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Magazine story that came out and then I
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did a version of it on X kind of a long
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post which I called the Ukraine Wars
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kronite moment which descri the the
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kronite moment in the Vietnam War was
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that Walter kronite who was the top
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newscaster America's most trusted man in
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the
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1960s he went on a fact-f finding
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mission for himself to Vietnam and he
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came back and he said the war is
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basically unwinable and that's when the
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public sentiment really turned against
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the Vietnam War it still took us 5 years
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to get out of bit but what kronite said
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there's a great quote from kronite which
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I included at the end where kronite says
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it is increasing clear to this reporter
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that the only rational way out will be
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to negotiate not as Victors but as
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honorable people who lived up to their
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pledge to defend democracy and did the
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best they could so that that's basically
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what happened in 1968 what happened this
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week is that Time Magazine wrote a cover
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story on zinsky where the main sources
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for the story were all of zelinsky's
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AIDS and advisers and what they told the
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time reporter was effectively this war
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is unwinable and moreover zalinsky is
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delusional that was a word they used
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delusional in in not confronting the
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battlefield realities that the Ukrainian
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Army had been decimated and delusional
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in the sense that he refuses to engage
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in peace negotiations with the Russians
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he's utterly unmovable on this idea that
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Ukraine's going to somehow Prevail and
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the troops in the field are basically
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saying that they cannot follow the
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orders they're being given they
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literally they can't Advance they're
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being ordered to advance and the
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officers in the field the Frontline
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commanders are rejecting the orders
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because they've been decimated so badly
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and they they consider the orders to be
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impossible so I consider this to be the
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kronite moment of the war when
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zelinsky's own Inner Circle is saying
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that the war is lost and the only
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question is when are we going to realize
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that and start negotiating are we going
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to continue until the very end here with
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zinsky in this psychological bunker that
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he's
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created or are we going to recognize
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reality the way that kronite urged the
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nation to in 1968 do you think these
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AIDS to
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zalinski proactively reached out to the
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journalists to try and get this story
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published how does a story like this
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come about that provides this kind of
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revealing Insight on the supposedly
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inner chamber in zinsky operations that
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can shed so much light on the challenges
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and with him and with the operation
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really interesting question and I think
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the starting point for understanding
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that is that this writer Simon Schuster
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of Time Magazine wrote the in-depth
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profile zinsky for times person of the
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year at the end of
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2022 so this reporter cannot be accused
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of unor this this is the person that
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profiled zinsky as person of the year
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yes yes exactly oh wow so so they so
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through that he probably had contacts in
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zin's inner circle and doing his
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Preparatory work for that article back
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then absolutely yeah and maintained
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those relationships and has a back
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Channel now to be able to get this sort
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of insight well he was physically there
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I mean I think he was physically there
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to write the person the your profile and
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he was physically this isn't some like
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weirdly planted this is like a legit
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source well that's my whole point is
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that this this reporter is and and Time
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Magazine obviously is mainstream media
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and this writer has given favorable
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coverage to zalinsky in the past and I
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believe that's what led to him having
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this kind of access to zelinsky's Inner
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Circle so you have to take all of that
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into account the key question Sach is
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does this change anything so does this
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article change the sentiment of
00:14:47
political leaders in the US or is
00:14:49
nothing really different that we still
00:14:51
need to defeat Putin continue to feed
00:14:53
the war machine continue to support the
00:14:55
effort against Putin or does this start
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to beg the question hey maybe we need to
00:15:00
look at this tactically and and make a
00:15:02
change is anything actually going to
00:15:03
change from any reason to think that in
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a certain sense this article isn't
00:15:07
saying anything that's new I mean the
00:15:10
article basically says the same things
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that I've been saying the same thing the
00:15:14
same kinds of things that Professor Mir
00:15:15
shimer has been saying Professor Jeffrey
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Sachs the all the critics of this war
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have been saying these things for a
00:15:21
number of months which is the Russians
00:15:23
are winning there is no feasible way for
00:15:26
the ukrainians to evict the Russians
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from their territory we are out of
00:15:29
artillery and other types of ammunition
00:15:32
to give them effectively the war is
00:15:34
unwinable we should negotiate so a lot
00:15:36
of people have been saying that for a
00:15:37
long time but what's different now is
00:15:39
that if you believe this publication and
00:15:41
this writer which I do because of his
00:15:43
access it's zelinsky's own Inner Circle
00:15:46
are now saying those same things so in
00:15:49
other words the so-called Putin talking
00:15:51
points that we're always accused of are
00:15:53
coming from inside the house yeah and to
00:15:56
me that's what makes this a kronite
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moment now will policy makers in
00:15:59
Washington changed their tune or Chang
00:16:01
their perspective on this probably not
00:16:04
the uni party of both Republicans and
00:16:05
Democrats are still seems to be a
00:16:07
majority who want to fund another 61
00:16:10
billion for Ukraine so is this
00:16:12
penetrating The Blob I don't think so I
00:16:15
mean but again think about Walter
00:16:16
kronite in 1968 the country basically
00:16:18
came around to his point of view after
00:16:20
that but it still took five years to get
00:16:23
out of the Vietnam War so I think that
00:16:27
this week was a Watershed in terms of
00:16:30
the way that public perception is going
00:16:32
to evolve over the next few months but
00:16:34
it seems like the policy makers in
00:16:36
Washington are the last ones to get the
00:16:38
MEO well let's see what happens I mean
00:16:40
I've shared my point of view for a
00:16:41
couple of years now I think the US is in
00:16:43
a call it subconscious conflict
00:16:47
escalatory state that would continue to
00:16:51
drive us into these sorts of it's great
00:16:54
for
00:16:54
markets seems to be great for markets
00:16:57
conflict is great for markets you're
00:16:59
saying no no no no the the fact that it
00:17:02
seems
00:17:03
like there's a terminal outcome and all
00:17:06
we're debating is
00:17:09
whether zilinsky sees it is actually
00:17:11
very reassuring for the market oh you
00:17:13
think the markets you think the markets
00:17:15
recognizing that there may be an end to
00:17:17
the Ukraine conflict well I I do think I
00:17:19
I do think in part I don't think it
00:17:20
explains why it's up necessarily today I
00:17:22
think that's more because I think I I
00:17:24
mentioned this before but the end of the
00:17:27
fiscal year for m UT funds was October
00:17:29
31st and so there was a lot of selling
00:17:31
going into October 31 just to capitalize
00:17:34
tax losses and tax loss Harvest but that
00:17:38
leaves them with a lot of cash and so
00:17:39
starting November 1st which is day one
00:17:42
of the new fiscal year mutual funds are
00:17:44
not allowed to really own cash that's
00:17:46
not why you pay them and so they're
00:17:48
going to be active buyers so that's why
00:17:50
in the short term the market is up but
00:17:52
if you think
00:17:53
about the overhang of risk that we've
00:17:55
had right you had one Forever War and
00:17:59
now the beginning of what potentially
00:18:00
could be another Forever War that's
00:18:03
definitely a dampener on market demand
00:18:05
right and and and sentiment and investor
00:18:08
confidence but if a story like this is
00:18:11
true it actually takes one of those big
00:18:12
risks off the table which is this idea
00:18:15
that now it's like every other kind of a
00:18:18
thing which is it's the reason we spend
00:18:20
money there is not to win something
00:18:22
that's winnable it's just graft it's
00:18:24
just typical corruption and the article
00:18:27
says that quter Ukrainian officials
00:18:29
saying that people are stealing like
00:18:31
there's no tomorrow right right so that
00:18:35
that the US unfortunately enables in
00:18:38
many places that's not new and so to the
00:18:41
extent that that's now more of the
00:18:43
status quo that's reassuring for
00:18:44
investors because we're not talking
00:18:45
about a war we're just talking about
00:18:48
bleeding more money which I'm not saying
00:18:50
is right but
00:18:51
it's morally more acceptable than the
00:18:54
alternative so there you have it it's
00:18:56
generally good for markets now that
00:18:58
leaves I think Israel
00:19:02
Gaza as a
00:19:04
risk and I think people and I think the
00:19:06
markets still view that as a potential
00:19:09
War and the longer that goes
00:19:14
on I think that there's a very good
00:19:16
chance that we drisk that as well as
00:19:18
again not a war but part of that
00:19:22
cycle between Israel and Palestine which
00:19:24
is conflict timeout conflict timeout
00:19:27
conflict timeout and so if what we think
00:19:29
is now this is just a version of
00:19:31
conflict timeout and the market Dr risks
00:19:33
that
00:19:34
then it's actually pretty positive for
00:19:38
equities for startups because now the
00:19:42
FED has a reason to actually say okay
00:19:45
the economy is cooled off inflation is
00:19:48
calm it looks like the markets are
00:19:50
stable let's cut rates right let's let's
00:19:53
reintroduce some demand into the market
00:19:56
it's generally a good thing and if if
00:19:58
there's no reason to be risk off people
00:20:02
will use that as a reason to be risk
00:20:04
on yeah well treasure yield the 30y year
00:20:08
cracked is yeah it's down uh
00:20:11
cracked days0 days or three days yeah so
00:20:15
don't you think this is because the
00:20:17
forecast or the outlook for Q4 or q1
00:20:20
next year it's starting to go down quite
00:20:23
a bit that people are starting to see
00:20:25
more recessionary indicators so you had
00:20:27
this like Peak four .9% growth rate and
00:20:29
then inflation seems to be tamed quite a
00:20:32
bit too I think to be honest the look
00:20:34
through on q1 looks also pretty good and
00:20:36
Q4 looks healthy as well so for example
00:20:38
Shopify their read through on GDP was
00:20:42
actually pretty healthy hary was on I
00:20:45
think it was CNBC I saw this morning
00:20:47
basically saying he thinks consumer
00:20:49
spending is still strong and it's still
00:20:50
there so I think in terms of just like
00:20:54
economic strength I think it's pretty
00:20:56
decent actually I think what Chang for
00:20:58
the market was the fed's rhetoric and I
00:21:02
think that they were holding on to this
00:21:04
option that they were going to show up
00:21:06
out of nowhere with another 25 or 50
00:21:08
basis point increase and I think that
00:21:10
that's fundamentally now off the table
00:21:12
and I think that that's really hardening
00:21:14
for the market that's good for the
00:21:15
market grow stocks are ripping a firm
00:21:17
tuner are up 20% today ripping ripping
00:21:20
ripping open door ripping door Dash
00:21:23
ripping all these companies are up 20
00:21:25
and 25 and 30% it's crazy yeah so are we
00:21:29
calling bottom
00:21:30
stxs well maybe I mean I don't know it's
00:21:34
so hard to predict the markets but if
00:21:36
you believe that there's
00:21:38
more upside to rates than downside
00:21:42
meaning that the odds of a rate decrease
00:21:44
are much greater than the odds of a rate
00:21:46
increase from here then there is upside
00:21:49
to valuations particularly for gross
00:21:51
stocks also for distressed real estate
00:21:53
because all these things get more
00:21:55
valuable when rates are lower so if you
00:21:57
believe that we're going to be in a in a
00:21:59
cycle of rate decreases and that whole
00:22:02
thing has played its way out then
00:22:03
everything's going to Rally well let's
00:22:05
talk about real estate because I think
00:22:07
that's one of the biggest overhangs
00:22:10
right now that hasn't fully been
00:22:11
accounted
00:22:12
for there's you know $3
00:22:16
trillion of commercial real estate loans
00:22:19
sitting out on Commercial Banks balance
00:22:22
sheets in the US today 3 trillion it's
00:22:24
an insane
00:22:25
number and we were all talking over T
00:22:28
the other day as you guys know about
00:22:30
this building that's being shopped and
00:22:31
got some attention on Twitter I think
00:22:33
the it's 115 samom you guys know this
00:22:36
building I've lived in San Francisco for
00:22:38
20 how long have I lived there 20 some
00:22:40
odd years now so I know this
00:22:44
building and it's 125,000 foot building
00:22:47
that's going to likely be fully vacant
00:22:49
in call it two to three years so the guy
00:22:51
puts it up for sale the equity owner he
00:22:54
puts the building up for sale and he's
00:22:56
basically like running auction on it and
00:23:00
the Brokers are all saying hey it's
00:23:01
currently at 199 bucks a square foot
00:23:03
which translates to $25 million it'll
00:23:06
probably get done at 300 bucks a square
00:23:08
foot which is about $38 million for the
00:23:10
building the problem is if you look at
00:23:12
the debt on the building there's 53
00:23:14
million of debt B OFA owns that note so
00:23:18
Bank of America in 2016 issued a $54
00:23:21
million note on this building if this
00:23:23
deal closes at $39 million the equity
00:23:27
owner who's running this auction to sell
00:23:29
the building makes 0 all that happens is
00:23:32
that money pays down the debt and the
00:23:34
debt only gets 7 cents on the dollar and
00:23:36
B of A has to take a write down on the
00:23:38
rest so there's a rumor that in this
00:23:41
particular case what's happening is the
00:23:43
equity owner of the building is putting
00:23:45
it up for auction to show the bank hey
00:23:49
this thing's only worth 7 cents on the
00:23:51
dollar for you on your debt you should
00:23:53
restructure my debt so apparently there
00:23:55
have been a lot of building owners that
00:23:56
have been going to their Bank and saying
00:23:58
Hey I want to restructure my note I want
00:24:00
to have longer payment terms I want to
00:24:02
keep the rates lower for longer I want
00:24:04
to have some of the debt forgiven
00:24:05
anything they can do to get the cost of
00:24:07
the debt down because the overhang of
00:24:09
the debt on all these buildings is so
00:24:11
significant these buildings cannot make
00:24:13
money and the owners will never make
00:24:14
money so they're like why am I even
00:24:15
wasting my time so they have one option
00:24:17
which is to hand the keys back to the
00:24:19
bank and say here you go you auction it
00:24:20
and sell it good luck and the other
00:24:22
option is to go to the bank and say hey
00:24:24
restructure my debt let's figure out a
00:24:26
deal here's the problem
00:24:28
the $3 trillion of debt that we just
00:24:30
mentioned that's sitting on all the
00:24:31
bank's balance sheets is all being held
00:24:33
at par they're not discounting it at all
00:24:35
and they're not marking it as being
00:24:36
impaired in any way so as soon as they
00:24:38
have to start writing this stuff down
00:24:40
the bank's balance sheets all get
00:24:41
impaired and so there's a real risk in
00:24:43
the market that I don't think's been
00:24:45
fully accounted for that we're starting
00:24:46
to see the cracks and to chim's point
00:24:49
this might accelerate either fed action
00:24:52
or as I've mentioned in the past I think
00:24:54
the federal government steps in and
00:24:56
starts to issue programs to support
00:24:58
commercial real estate developers and
00:24:59
owners SX I know you've been following
00:25:01
this quite a bit you know maybe you
00:25:03
could share your point of view and if
00:25:04
I'm off on this in terms of how
00:25:05
significant of a problem this is how you
00:25:08
know how much of the three trillion of
00:25:09
debt really is impaired and by how much
00:25:11
should it be impaired do we think
00:25:13
massively I think it's a huge problem if
00:25:15
you talk to anybody any of these uh
00:25:18
commercial real estate developers or
00:25:20
sponsors they'll tell you many of them
00:25:22
are just kind of hanging on by their
00:25:23
fingernails I mean it's really ugly and
00:25:26
you know how dist things are when you
00:25:28
actually look at some of these sales
00:25:30
that same account on Twitter that you
00:25:31
posted he's got like a a tweet storm
00:25:33
here showing about half a dozen of these
00:25:36
sales that have happened in the last few
00:25:38
months and buildings are now selling for
00:25:42
$2 to $300 a square foot in San
00:25:44
Francisco these are buildings that could
00:25:45
have sold for a th000 bucks a foot you
00:25:48
know a couple of years ago and now
00:25:50
they're selling for 2 to 300 the
00:25:52
replacement cost if you were to try and
00:25:53
recreate these buildings from scratch
00:25:55
given how expensive it is to build in
00:25:57
San Isco and how complicated the
00:25:59
entitlements process is probably be
00:26:01
1,200 plus a foot so these buildings are
00:26:05
selling for 10 to 20% of their
00:26:08
replacement
00:26:09
cost these are fire sales if you look at
00:26:12
the loans in the in the San Francisco
00:26:14
commercial real estate market do you
00:26:15
think that the loan value is probably
00:26:17
impaired by 40% because that's roughly
00:26:19
what it would say on that 115 Sansom
00:26:21
building is BFA would probably have to
00:26:23
take a 30 40% markdown on their debt do
00:26:25
you think that's the right way to think
00:26:26
about the numberers 30 to 40
00:26:28
you could figure it out this way a
00:26:29
typical commercial real estate deal is
00:26:31
about 13 equity and 2/3 debt so somebody
00:26:33
bought a building at call it $1,000 a
00:26:36
foot they would have had to have put in
00:26:38
call it 333 of equity 666 of debt yeah
00:26:43
now if that building is only worth I
00:26:46
don't know 200 250 a foot there's $750
00:26:49
of loss per foot right and only 333
00:26:54
roughly half of it is equity so the debt
00:26:58
is taking a huge haircut there too yeah
00:27:00
debts about 40 50% right yeah and no one
00:27:02
wants to recognize that loss the equity
00:27:05
holders certainly don't because they get
00:27:06
wiped out and even the banks are
00:27:08
reluctant to recognize that loss because
00:27:10
who knows what that could trigger when
00:27:13
their balance sheets are so impaired so
00:27:16
what where these people gonna come from
00:27:18
suck where they where like this is my
00:27:20
this is my big problem with this
00:27:22
argument is I I think that numerically
00:27:24
you're right that there is this
00:27:27
bottoming or there is just like a lot of
00:27:29
value to be had right the the problem is
00:27:32
and I'll and I'll give you an example of
00:27:33
a company that I own so it's not even a
00:27:36
company that I'm just a minority
00:27:37
investor
00:27:39
in we used to be in San
00:27:41
Francisco and we went virtual now all
00:27:45
the salaries are pegged to San Francisco
00:27:47
salaries but now everybody's sort of
00:27:48
like everywhere throughout the country
00:27:50
we don't have an office space and I'm
00:27:53
really struggling trying to figure out
00:27:54
how to actually bring everybody together
00:27:57
and my choices were I thought okay well
00:27:58
let me find what it would cost to
00:28:01
actually run this place in San Francisco
00:28:03
and my my Opex would have gone up 15 20%
00:28:07
just for the building so then I'm like
00:28:09
okay well where else can I go and it's
00:28:11
like well I could go to a place like Las
00:28:14
Vegas and I could put the people
00:28:16
there it's an hour so it's close by we
00:28:19
can fly there whenever we need
00:28:22
to it's got no tax so maybe that's an
00:28:24
advantage for the
00:28:26
employees and so I'm in this constant
00:28:28
hamster wheel as an owner of a business
00:28:31
I can't get people into the office if I
00:28:32
do bring them into the office it's super
00:28:34
expensive and it bloats my Opex so I'm
00:28:37
just trying to figure out how does that
00:28:39
get resolved for people like me so that
00:28:41
we want to go back to San Francisco and
00:28:43
rent those buildings that are so cheap
00:28:45
those buildings are going to have to get
00:28:46
written down first so I set up my
00:28:48
company in 2006 and I was paying $22 a
00:28:51
square foot for my first office in '06
00:28:54
and then we ended up getting a really
00:28:55
nice office and I think we ended up
00:28:56
paying like3 to 40 bucks a square foot
00:28:59
by the time we move to a super nice
00:29:00
office around
00:29:03
2010 but around that time which was also
00:29:06
when GFC happened the global financial
00:29:07
crisis in 0809 and that's when rates
00:29:10
dropped to zero and that's also when all
00:29:13
startups and tech companies said hey
00:29:14
let's start setting up in San Francisco
00:29:16
because it's mostly young people that
00:29:18
are Engineers now they mostly want to
00:29:20
live in the city they mostly want to be
00:29:21
single and have a good life here rather
00:29:23
than go live in Suburban Silicon Valley
00:29:25
and so real estate shot up because rates
00:29:27
were zero all the tech companies were
00:29:29
setting I mean sax you had Yammer in San
00:29:32
Francisco didn't you were you in the
00:29:33
peninsula yeah yeah and that was like
00:29:35
the place to have your company was in
00:29:36
the city and so I would argue like if
00:29:39
you go back to the ' 0809 era that's
00:29:41
really when San Francisco started to
00:29:43
take off and it was almost like a bit of
00:29:46
an outlier of a bubble that started all
00:29:48
the way back then and then you know the
00:29:50
Zer environment kept things moving up
00:29:51
and up and up over the years that
00:29:52
followed I do think that this like this
00:29:55
Market will likely normalize back back
00:29:57
to pre 2010 pre
00:30:00
09 and that's when rates were like in
00:30:02
the 25 to 35 bucks a square foot range
00:30:05
for you know but are you saying that I
00:30:06
will move back to that building and I'll
00:30:08
and I'll move my company back there when
00:30:10
it gets repriced yes I do think so are
00:30:13
you sure I don't see how I don't see how
00:30:15
the market stays where it is yeah jamas
00:30:17
argument is basically on the demand side
00:30:19
basically saying where is all this
00:30:20
demand going to come from I think you
00:30:21
could give it to me for zero and I
00:30:23
wouldn't bring my team back there I'm
00:30:24
just asking like again the math all
00:30:26
makes sense on a spreadsh but the big
00:30:28
issue is as an owner of a company why
00:30:31
would I ever bring my team back to that
00:30:32
place and I'm struggling even at like Oh
00:30:35
you mean because it's a nasty City
00:30:36
because it's all messed up the city's
00:30:37
messed up first of all what if you're if
00:30:39
you're asking me to blow my Opex 10 20%
00:30:42
the answer is absolutely not will I do
00:30:44
that then if you're saying well chath
00:30:46
how about at zero let's just go to zero
00:30:48
right it's free take the building yeah I
00:30:50
still wouldn't do it because then these
00:30:51
people have to move from all around the
00:30:53
country come back here and all of a
00:30:54
sudden just live in a slimy dungeon
00:30:59
yeah so how does that get solved so that
00:31:00
building should be zero Zach do you own
00:31:03
buildings in San Francisco what's your
00:31:05
answer as a landlord yeah I only own
00:31:07
buildings in Jackson Square which is
00:31:08
like the one decent part remaining of
00:31:10
San Francisco and which is actually
00:31:12
where people want to be and we've seen
00:31:13
pretty good leasing activity there
00:31:14
because it's as people get driven out of
00:31:17
Market Street and out of s they actually
00:31:20
they substitute to Jackson Square look I
00:31:22
think Jam makes a good point which is
00:31:24
the demand picture for San Francisco is
00:31:26
really unclear there's something like
00:31:27
call it 30% vacancy so there's an
00:31:30
enormous number of these zombie
00:31:32
buildings and it's really hard to
00:31:34
understand where the demand is going to
00:31:36
come back to fill them now the
00:31:39
counterargument to that is yeah but it's
00:31:41
so cheap I mean these buildings are so
00:31:44
cheap they're basically selling for
00:31:46
almost land value that's Jam's point
00:31:48
it's like it goes to zero yeah so if
00:31:50
there's a recovery then it's very
00:31:52
asymmetric right I mean you could get
00:31:55
three or 4X upside on your money very
00:31:56
very quick quickly rates come down over
00:31:58
the next couple years you could refile
00:32:00
your Equity out so that's the
00:32:03
counterargument is yeah we're not
00:32:04
exactly sure where the demands comes
00:32:06
from but if you are willing to have a
00:32:08
long-term Outlook like five or 10 years
00:32:11
then there's a pretty good chance that
00:32:12
it'll come back somehow I think one of
00:32:14
the things that has to happen in order
00:32:17
to Foster that demand is for there to be
00:32:19
some fundamental changes in the politics
00:32:21
of the city and the question is how does
00:32:24
that happen and I think one of the ways
00:32:25
it could happen is the city starts
00:32:27
facing huge budget shortfalls which are
00:32:30
coming there a there's going to be a
00:32:31
huge budget shortfall over the next year
00:32:34
and next couple of years because there's
00:32:35
no activity I mean a third of the
00:32:37
economic activity of the city has just
00:32:39
dried up and what about the rest of the
00:32:41
country so tell me like if if this is
00:32:42
what's happening in San Francisco what's
00:32:44
happening in Boston Dallas New York City
00:32:47
well I don't think those areas are as
00:32:48
impaired they don't have the vacancy
00:32:50
rates that San Francisco does I mean so
00:32:52
if you look Major Market has 30% so just
00:32:55
coming back to my prior question if you
00:32:56
were to assume San Francisco commercial
00:32:58
real estate debt is impaired on the
00:33:00
order of 30% what do you think the debt
00:33:03
load for the for all commercial real
00:33:05
estate around the country is impaired is
00:33:07
it 10% 15% 20% I don't know I mean I I
00:33:12
think that you probably for San
00:33:14
Francisco I'd say probably half the debt
00:33:17
should be written off I don't know what
00:33:18
it is for the rest of the country
00:33:19
there's already half a dozen these
00:33:21
buildings that have traded in the range
00:33:22
that we're talking about and there'll be
00:33:24
about 20 more that are coming to Market
00:33:26
that'll trade in the next year it's
00:33:27
going to be fire sale after fire sale
00:33:30
and you you have to clear out all of
00:33:33
this bad equity and then you've got to
00:33:35
clear out all this bad debt and the
00:33:37
market can reset itself look chath has
00:33:40
has asked the you know $64,000 Question
00:33:43
here which is when will the demand come
00:33:46
back and what will it consist of and
00:33:48
that is the leap of faith here that you
00:33:50
have to make just to finish the point I
00:33:52
was making the city the politicians are
00:33:54
going to be under extraordinary Str
00:33:56
stress because there's not going to be
00:33:58
any budget so what are they going to do
00:33:59
are they going to lay off half the city
00:34:02
employees reform pensions and salaries
00:34:04
or are they going to start to realize
00:34:07
that all of their crazy transfer taxes
00:34:08
all their crazy regulations and
00:34:10
entitlements need to be stripped away to
00:34:13
start fostering real activity in the
00:34:14
city are they going to start investing
00:34:16
in police again are they going to start
00:34:17
cleaning up the city are they going to
00:34:19
act as a partner to business I mean
00:34:22
that's where the incentives are going to
00:34:23
be is for them to start acting like a
00:34:24
partner again and that's a huge leap of
00:34:28
faith given how crazy leftwing the
00:34:30
politics of San Francisco have been but
00:34:32
they may not have a choice because it's
00:34:34
going to come down to do we fire half
00:34:36
the government employees or do we start
00:34:38
working with business instead of driving
00:34:40
them out of the city I don't want to get
00:34:42
too caught up in San Francisco politics
00:34:44
and San Francisco as a region I think
00:34:46
you know we' we've hashed that one out
00:34:47
but the bigger question is if there's
00:34:49
this impairment on three trillion
00:34:51
dollars of commercial real estate debt
00:34:53
across the country who eats the loss so
00:34:56
who owns all the equity in these
00:34:57
buildings and where does that ultimately
00:35:00
flow through to what are the second
00:35:01
order effects and who owns the debt and
00:35:03
where does that all flow through to we
00:35:04
know the debt sits on the commercial
00:35:06
Banks do the bank stocks get beat up the
00:35:09
Market's been cognizant of this folks
00:35:11
have been shorting and selling Regional
00:35:13
Bank stocks and then Bill gross the
00:35:15
well-known Bond Trader used to run Pimco
00:35:17
came out this week and said hey I've
00:35:19
been tracking all these Regional Bank
00:35:21
stocks they're down so much it's insane
00:35:24
they're they're trading at a huge
00:35:25
discount to book I'm going to start
00:35:27
buying and then this morning he put out
00:35:28
a tweet saying I'm buying these stocks
00:35:30
and he listed the names of the bank
00:35:31
stocks he's like the Bottom's been hit
00:35:33
do you buy that I mean is is this
00:35:34
already been priced into the market that
00:35:36
this debt is going to be written off at
00:35:38
some point and all these balance sheets
00:35:39
are impaired because these banks are
00:35:40
trading at a big discount to book value
00:35:42
so well book well Book value is a term
00:35:45
that you need to put in quotes so my
00:35:46
question would be what are the rules
00:35:48
around the real Mark to Market because I
00:35:50
think that when we talked about the
00:35:51
banking crisis the biggest problem was
00:35:53
these guys were playing fast and loose
00:35:55
with valuations and so are these things
00:35:58
actually valued to Market and do they
00:36:01
have to they're not yet no that's the
00:36:02
point that's why they're trying to avoid
00:36:04
these sort of these book values are
00:36:07
ilate yeah and that's why they're
00:36:09
trading at a discount but Bill gross is
00:36:10
now saying they're trading at such a
00:36:11
discount to whatever the accounting is
00:36:13
that they're like now well below the
00:36:15
fair value that's the argument for San
00:36:17
Francisco real estate I sorry that at
00:36:20
least for these fire sales that are
00:36:21
happening yeah well SX let me ask you
00:36:23
one more question so I mentioned the
00:36:24
Biden program Biden announced this
00:36:26
program
00:36:27
which is effectively $45 billion in
00:36:30
federal money to convert commercial
00:36:32
buildings into condos and residential
00:36:34
buildings he basically relies on a 1998
00:36:38
transportation and infrastructure bill
00:36:40
that provides authority to the federal
00:36:42
government to issue low interest
00:36:43
interest loans for specific
00:36:45
infrastructure projects if you're a
00:36:47
developer is it realistic that this
00:36:49
money is going to unlock potential for
00:36:52
increasing affordable housing density in
00:36:54
urban centers by converting Office
00:36:56
Buildings into residential buildings
00:36:59
people talk a lot about these office to
00:37:01
residential conversions the problem is
00:37:03
it's easy to say and much harder to do
00:37:05
most commercial Office Buildings don't
00:37:08
meet the structural requirements or
00:37:10
architecturally they're not really
00:37:11
suitable if you think about most
00:37:14
commercial Office Buildings they've got
00:37:17
really big floor plates and if you think
00:37:20
about like restructuring them into
00:37:21
Apartments there's not proper window
00:37:22
coverage there's not proper utilities so
00:37:25
it's a lot hard than it sounds and I'd
00:37:28
say most Office Buildings don't meet a
00:37:32
lot of the requirements for this but I
00:37:34
think what's good about this executive
00:37:36
order even though I don't really believe
00:37:38
this is a great use of 45 billion is
00:37:39
that it's sending a signal to all of
00:37:43
these cities all these local governments
00:37:45
that we need to get with the program
00:37:46
here in other words you've got you know
00:37:48
a blue executive sending a message to
00:37:51
all these blue cities and states that
00:37:54
commercial real estate is in distress
00:37:55
and you need to loosen up your
00:37:57
entitlements you need to loosen up your
00:37:59
regulations it's sending a message to
00:38:02
the city of San Francisco and all these
00:38:03
other cities that you guys need to start
00:38:06
doing positive things and this is my
00:38:09
point about will San Francisco start
00:38:13
acting like a partner for Real Estate
00:38:15
development which is how you make real
00:38:17
estate work or will they continue to
00:38:19
drive all of these crazy regulations so
00:38:22
I I mostly see this Biden program as
00:38:24
symbolic I see but the question is
00:38:26
whether
00:38:27
the symbolism will actually drive better
00:38:29
Behavior by these blue cities I
00:38:31
personally think they're just trying to
00:38:32
find more ways to pump money into
00:38:34
supporting commercial real estate
00:38:35
markets because of the issues we just
00:38:37
highlighted and I think this is the
00:38:38
first of what will likely be several
00:38:40
programs to support framed as things
00:38:42
like affordable housing but really
00:38:44
designed to support the economic loss
00:38:47
impairment that's going to be inevitable
00:38:49
at some point right but but you know you
00:38:50
can't you can't convert an office
00:38:52
building to a residential building
00:38:54
without resoning typically totally yeah
00:38:56
yeah then this is where you need action
00:38:58
by these City governments they've got to
00:38:59
reone they've got to reduce the
00:39:01
regulations they've got to eliminate
00:39:03
these transfer taxes um they have to
00:39:05
make these project yeah exactly they
00:39:06
have to make these projects economically
00:39:08
viable I think that we'll be able to
00:39:11
look back in San Francisco will be an
00:39:14
incredibly measurable
00:39:17
experiment
00:39:19
on the return on invested
00:39:22
capital on the return on invested
00:39:25
capital of Progressive left
00:39:28
ideology and it will be a great case
00:39:32
study now if it works it will prove that
00:39:36
all of these ideas that were kind of
00:39:39
talked about in kind of like high
00:39:41
intellectual
00:39:43
circles has some value and if it fails
00:39:46
which it looks like it's failing it'll
00:39:48
never be tried again for a very long
00:39:49
time either way you're going to have a
00:39:51
very clear answer and the good news is
00:39:53
we're we're probably another five or 10
00:39:56
years away from that bottoming well
00:39:58
actually can I ask you a quick question
00:39:59
Jam so there was a article here saying
00:40:02
that the city Controllers Office for San
00:40:05
Francisco has released its projected
00:40:09
budget shortfalls for the coming years
00:40:12
it's almost half a billion for 20242
00:40:15
reaching 1.3 billion in
00:40:18
2728 so what do they do about this I
00:40:21
mean they money they'll borrow money and
00:40:25
you you can look at all of these other
00:40:26
municipalities around the country as
00:40:28
examples but counties and municipalities
00:40:30
and cities that are in much worse fiscal
00:40:33
shape than San franisco was able to stay
00:40:36
incompetent for a lot longer and so that
00:40:39
Delta te of incompetence tends to be
00:40:41
about 5 to 10 years I would say the
00:40:43
midpoint is eight so if we're starting
00:40:45
now you'll probably see some rationality
00:40:48
by 2032
00:40:51
2033 right that's how much borrowing
00:40:54
David I think you can tap in the in the
00:40:57
mun Market because you know again this
00:41:00
is sort of the the double-edged sword
00:41:01
right like when you're a Triple Tax
00:41:03
advantag borrower you can paint the case
00:41:06
for being in San Francisco which is part
00:41:08
of California etc etc etc and your
00:41:11
alternative is to own something in a
00:41:13
state that's not nearly as economically
00:41:15
vibrant it's a pretty easy case to make
00:41:17
to be able to borrow the money I think
00:41:18
and so the problem is that it'll take
00:41:20
like I said another probably eight years
00:41:23
10 years so before the the spigot gets
00:41:26
turned off and they have to make some
00:41:27
harsh changes so they'll keep running
00:41:29
this experiment for at least I think if
00:41:31
you want to be conservative for at least
00:41:32
a decade another decade so they'll just
00:41:34
pile on the debt until pile on the debt
00:41:37
absolutely I don't want to keep harping
00:41:39
on San Francisco let's let's move on to
00:41:41
we work because we work feeds into this
00:41:43
real estate piece I don't know if you
00:41:44
guys saw this article that U Wall Street
00:41:46
Journal reported that we work it's going
00:41:48
to file for chapter 11 as early as next
00:41:50
week they have a significant debt burden
00:41:53
owed to SoftBank Vision fund as part of
00:41:56
their go public they've signed leases in
00:41:58
Office Buildings in San Francisco and
00:42:00
elsewhere around the country $10 billion
00:42:02
in total lease obligations due starting
00:42:05
in the second half of 2023 through the
00:42:07
end of 27 and after that an additional
00:42:10
$15 billion starting in 2028 and as of
00:42:13
June we work had 70 777
00:42:16
locations including
00:42:18
229 in the US in major cities the
00:42:21
business made about call it 840 million
00:42:24
bucks in Revenue last quarter
00:42:26
so that works out to call it a $3.5
00:42:29
billion Revenue run rate with you know
00:42:31
$10 billion of lease obligations
00:42:33
starting next year so the business is
00:42:35
just drowning in these lease obligations
00:42:36
and to restructure 777 lease obligations
00:42:40
in this environment that we're talking
00:42:41
about while doing what jamat is saying
00:42:44
lowering rents to attract employers to
00:42:47
show up and actually rent space from
00:42:49
them is obviously causing the business
00:42:51
model to distort even worse than it has
00:42:53
been historically they burned $8 billion
00:42:55
doll of preash flow in since Q4 of 2019
00:42:59
8 billion of free cash there's no
00:43:02
question that that wework has been a
00:43:04
capital destruction machine that being
00:43:06
said I actually think that some private
00:43:09
Equity player is going to buy this out
00:43:10
of bankruptcy and make a fortune I agree
00:43:12
with that too because out of those 777
00:43:17
locations a lot of them are good
00:43:19
locations and have good tency they
00:43:23
probably generate good Revenue the
00:43:25
problem is that the leases are just bad
00:43:27
and bankruptcy gives you the power to
00:43:28
break those leases or renegotiate them
00:43:31
so a really smart private Equity player
00:43:33
would come in here and say okay we're
00:43:35
going to take these locations we're
00:43:36
going to divide them into three buckets
00:43:37
bucket number one is we're going to get
00:43:39
rid of them because they're just bad
00:43:40
locations we don't want them there's
00:43:42
just no occupancy bucket number two is
00:43:44
we're going to go to the landlord and
00:43:45
say that sorry like this lease doesn't
00:43:48
work for us we will be willing to work
00:43:51
for you as an operator of the space and
00:43:54
you'll pay us a fee and a REV share on
00:43:56
whatever it makes but we can't pay you a
00:43:58
guaranteed rent so that's bucket number
00:44:01
two and then bucket three which will be
00:44:03
the best locations they'll go back to
00:44:04
the landlord and say Here's 60 cents on
00:44:06
the dollar we're willing to pay you this
00:44:08
in in rent that's it if that's not good
00:44:10
enough for you we're breaking the lease
00:44:12
we're out and those landlords are going
00:44:13
to have to accept it because who they
00:44:15
going to get who's any better and they
00:44:17
don't even have the ti they don't have
00:44:19
the capital to put some new tenant in
00:44:21
there and even if they could put someone
00:44:22
in there it's not going to be at a rent
00:44:25
that's much higher than 60 cents on the
00:44:27
dollar because we work made a lot of
00:44:29
these top of Market leases so I think
00:44:32
the landlord will take the bird in the
00:44:33
hand so think about it some private
00:44:35
Equity player goes in there renegotiates
00:44:37
all these leases sheds the bad ones and
00:44:40
all of a sudden the business is going to
00:44:41
make a lot of money and the reason why
00:44:43
it's going to make money is because we
00:44:45
work poured all of this uh Capital into
00:44:49
renovating these spaces and making them
00:44:51
really nice I mean if you go into a Wei
00:44:53
work they are really nice spaces and the
00:44:56
reason for that is because we work spent
00:44:59
billions of TI dollars making these
00:45:02
things incredibly nice was that a wise
00:45:04
investment no it was a terrible
00:45:05
investment but that money has been spent
00:45:08
and already lost that that Capital has
00:45:10
been wiped out so whoever buys this
00:45:12
thing out of bankruptcy now is going to
00:45:13
be the beneficiary of all of those
00:45:15
absurd TI dollars that were spent when
00:45:19
Adam Newman oh my God you just convinced
00:45:21
me let's go buy it let's put it in a bid
00:45:24
is it filed is it filed the Brilliance
00:45:27
of Adam Newman was somehow convincing
00:45:29
wow all these investors to put in
00:45:32
billions of dollars into TI money on the
00:45:35
theory that it was a software business
00:45:37
this was never a software business it's
00:45:38
a real estate development company it was
00:45:41
reges it was reg it was so I got soft
00:45:45
Bank put in a total of $16.9 billion in
00:45:49
equity and debt oh my gosh is that
00:45:52
incredible who did oh my gosh sof sof
00:45:55
which is mostly through the vision fund
00:45:57
which is as you guys know 45% Saudi
00:45:59
money it was Regis with much better
00:46:00
design but that design came at a huge
00:46:03
expense which was again this
00:46:05
overinvestment in in TI dollars combined
00:46:08
with the fact that they had no
00:46:10
discipline around signing leases and
00:46:12
they have so many topof Market lease
00:46:14
deals yeah but again that's all fixable
00:46:17
for someone who comes in old saying in
00:46:18
real estate that it's the third owner
00:46:21
who makes all the money like the first
00:46:23
owner who does all the ground up they
00:46:24
lose a fortune and they blown out then
00:46:27
the second guy comes in and thinks that
00:46:29
they're going to make it work but they
00:46:31
can't make it work either so then they
00:46:32
get blown out and it's finally the third
00:46:34
person who comes in who makes all the
00:46:36
money and that's gonna happen here too
00:46:38
oh my God that's just fantastic this is
00:46:40
a story of the ages let's transition
00:46:42
from one bubble to the most recent
00:46:45
bubble so AI regulation given the frenzy
00:46:47
and frothiness and fear-mongering on AI
00:46:50
destroying the world which I would
00:46:53
personally argue as largely fear
00:46:56
porn the Biden Administration took it
00:46:58
upon themselves to try and be leaders in
00:47:00
regulating Ai and published an executive
00:47:03
order on October
00:47:04
30th this long anticipated executive
00:47:07
order covers a very broad range of
00:47:09
matters in 111 page order document
00:47:12
covers very specific actions in very
00:47:15
detailed terms it uses technical terms
00:47:16
of Art and I think it creates as much
00:47:19
confusion as it does provide Clarity
00:47:21
it's an executive order so it's not
00:47:24
legislation and there's much in here
00:47:26
that some would argue needs to be
00:47:28
legislated as an executive order it can
00:47:30
be overturned very quickly and easily by
00:47:33
the next Administration it largely
00:47:35
demands voluntary action from technology
00:47:38
companies to submit their models
00:47:40
infrastructure and tools for review for
00:47:45
proof of safety don't forget the equity
00:47:47
and inclusion there's an equity
00:47:49
inclusion component which is that your
00:47:50
models have to account for diversity
00:47:52
equity and inclusion diversity equity
00:47:53
and inclusion there's a phrase from the
00:47:55
executive order the term dual use
00:47:57
foundational model means an AI model
00:47:59
that is trained on Broad data generally
00:48:01
uses self-supervision contains at least
00:48:04
tens of billions of parameters is
00:48:05
applicable across a wide range of
00:48:07
contexts and that exhibits high levels
00:48:10
of performance at tasks that pose a
00:48:12
serious risk to Security National
00:48:13
Economic Security Public Safety or any
00:48:15
combination of those matters none of
00:48:17
which ultimately describes end points
00:48:19
none of which describes loss or
00:48:22
applications to me this is the biggest
00:48:24
problem I see with the executive order
00:48:27
and with the approach to AI regulation
00:48:28
broadly particularly with what's being
00:48:30
developed and has been leaked in what
00:48:32
terms of what's being developed out of
00:48:33
the EU which is that many of these
00:48:36
government agencies government actors
00:48:38
are trying to Define and regulate
00:48:42
systems and methods rather than regulate
00:48:45
outcomes and applications for example if
00:48:47
you were to say you cannot commit fraud
00:48:50
and falsely impersonate someone using
00:48:53
software you can rightly say that it
00:48:56
follows the rule of law and we should be
00:48:58
able to adjudicate that cleanly in
00:49:00
courts instead to have government
00:49:03
agencies and have what this executive
00:49:05
order describes as a chief AI officer in
00:49:07
every Federal agency responsible for
00:49:09
regulating the systems and methods of
00:49:12
all the actors and all the private
00:49:14
companies that are building software to
00:49:16
say this is the scale that your software
00:49:18
can get to you could have a certain
00:49:21
number of parameters if you're bigger
00:49:22
than this number of parameters we have
00:49:24
to come in and check your software
00:49:26
creates an outlandish standard and one
00:49:28
that makes absolutely no sense
00:49:30
particularly in the context of the pace
00:49:32
of AI progression remember the paper
00:49:35
that was foundational to Transformer
00:49:37
model development which is what a lot of
00:49:39
people call AI today which is develop
00:49:41
these llms and so on came out in 2017
00:49:43
and wasn't really widely adopted until
00:49:45
2018 as a standard we're five years into
00:49:48
this so the way that we're making models
00:49:50
the types of models we're building the
00:49:52
scale of the models the number of
00:49:53
parameters being used the pace at which
00:49:55
these things is changing is staggering
00:49:58
we are only in the first inning and so
00:50:00
to come out and say here are the
00:50:01
standards by which we want to now
00:50:03
regulate you this is the size that the
00:50:05
model can be these are the types of
00:50:06
models it's going to look like medieval
00:50:08
literature in three years none of the
00:50:10
stuff's even going to apply anymore I'm
00:50:12
just really of the point of view as you
00:50:14
guys know that the market needs to be
00:50:16
allowed to develop if we don't allow our
00:50:19
Market to develop in the United States
00:50:21
India and China and Singapore and other
00:50:24
markets will get well ahead of us in
00:50:26
terms of their model development and
00:50:28
their capabilities as a nation and their
00:50:30
capabilities as an industry and the more
00:50:32
our government actors step in and try
00:50:34
and tell us what systems and methods we
00:50:37
are allowed to use to build stuff the
00:50:39
more at risk we are of falling behind
00:50:41
that's my general statement on the
00:50:42
matter I'll pass the the uh the mic I
00:50:45
mean jamat you were advocating for AI
00:50:47
regs a couple months ago I think right I
00:50:48
mean where does this fall with respect
00:50:50
to what you were advocating for and what
00:50:52
you were concerned about well I had a
00:50:54
very specific lens that I viewed this
00:50:58
stuff through and they didn't really
00:51:01
address it I think that this was a
00:51:02
little bit of a kitchen syn EO and I
00:51:07
think what probably happened was
00:51:08
depending
00:51:09
on look I I I mean I think the thing is
00:51:12
like look
00:51:13
they when this process first started it
00:51:16
started in the Senate and it started
00:51:18
with the majority leader Chuck Schumer
00:51:20
and I met with Chuck and then I met with
00:51:22
Chuck's team and then it morphed into
00:51:24
this much bigger thing and I think it
00:51:27
morphed into a lot of people trying to
00:51:31
do the right thing meeting with a lot of
00:51:33
very important and very famous people
00:51:36
and I think somewhere along the way it
00:51:39
just became
00:51:40
this convoluted and Confused document
00:51:44
because I do agree with you that it's
00:51:45
not super coherent there's a lot of
00:51:47
arbitrary requirements you know like
00:51:50
there's like I think there's a
00:51:51
requirement here that at a certain
00:51:53
number of parameters you have to like
00:51:55
self-report yourself to the government
00:51:58
which is like what does that even mean
00:52:01
why why is that even important so it
00:52:03
it's it's just a lot of random stuff so
00:52:05
it just seems like anybody who had the
00:52:07
ear of the people writing this had a
00:52:09
chance to write something
00:52:12
in so it's a little confusing it's not
00:52:16
going to do the job and I think that
00:52:17
you're right in two or three years we're
00:52:19
going to look back and this is going to
00:52:20
look medieval I'll just say I'll point
00:52:22
out another point just one of many that
00:52:24
I could highlight in this document I
00:52:26
read most of it they say you know
00:52:28
there's got to be legislation on
00:52:30
watermarking AI content think about that
00:52:32
for a second what is AI content we've
00:52:36
been using Adobe Photoshop for 30 years
00:52:39
to change photographs and change
00:52:41
documents we've been using various tools
00:52:44
for doing audio generation and music I
00:52:46
mean there's no music that doesn't run
00:52:48
through a digital processor of some sort
00:52:50
there's no video there's no movies that
00:52:53
don't have some degree of CGI elements
00:52:55
or some degree of post production
00:52:58
digital rendering integrated into the
00:53:00
video itself what makes something AI is
00:53:04
it the fact that 100% of the pixels are
00:53:06
generated by software what if it's only
00:53:08
98% is Pixar AI because all of Pixar is
00:53:11
made on computers is the autotune hip
00:53:15
hop artist AI because his voice isn't
00:53:17
coming through on the audio track so
00:53:19
what is AI in this definition the fact
00:53:23
that any piece of content needs to be
00:53:25
watermarked if it's AI I think is one of
00:53:27
the most outlandish infringements on
00:53:30
First Amendment rights I've seen and
00:53:32
doesn't really understand any s in any
00:53:35
sense how software is generally used in
00:53:37
the world today which is frankly
00:53:40
everywhere and to say that now there is
00:53:42
a certain definition of a certain type
00:53:44
of software that we're going to
00:53:46
arbitrarily call AI we want to Watermark
00:53:49
the stuff and we want to get a stamp on
00:53:51
that content so the government can track
00:53:53
it and audit it I think is absurd sax
00:53:57
over to you yeah okay three three quick
00:53:59
points here number one AI has been
00:54:01
convicted of a pre- crime this this EO
00:54:06
it describes it describes this Litany of
00:54:09
horribles this parade of horribles
00:54:11
that's gonna happen unless you know the
00:54:14
wise people in the central government
00:54:16
like Joe Biden and KLA Harris guide its
00:54:18
development so that's what the EO say is
00:54:20
going to do is guide the development of
00:54:21
this technology because if we don't it's
00:54:23
going to result in all these horrible
00:54:24
things happening Steven sinowski who was
00:54:27
a key executive of Microsoft in the I
00:54:29
think going back to the 80s wrote a
00:54:31
really interesting blog post about this
00:54:33
where he he was there at the beginning
00:54:35
of the PC Revolution with the dawn of
00:54:37
the microprocessor in the 70s and 80s
00:54:40
yeah and he pulled a bunch of books off
00:54:41
his bookshelf from that time period
00:54:44
which were sort of these sci-fi books
00:54:45
like forecasting Doom infringement on
00:54:48
privacy one was called The Assault on
00:54:50
privacy another one was called
00:54:51
electronic nightmare another one was
00:54:53
called the rise of the computer State
00:54:55
and so on and so it was also predicting
00:54:57
all these horrible things that would
00:54:59
come from the birth of the computer and
00:55:02
it would put all these people out of
00:55:04
work and so on totally but nobody
00:55:08
allowed these fears to guide the
00:55:11
development of the industry there was no
00:55:12
executive order at that time saying that
00:55:15
we're going to guide the development of
00:55:16
the micros processor to avoid all of
00:55:19
these arms that haven't occurred yet and
00:55:22
instead we're taking a a different
00:55:23
approach here and he makes the point
00:55:25
that if the industry had been guided in
00:55:28
that way then it never would have
00:55:30
achieved the potential that It
00:55:31
ultimately achieved and furthermore he
00:55:33
makes the point that a company like IBM
00:55:35
would have been more than happy to work
00:55:37
with The Regulators to say yeah let's
00:55:38
define a bunch of these rules to make
00:55:40
sure that it doesn't go in this dark
00:55:42
direction that everyone thinks it's
00:55:43
going to go in and you would have gotten
00:55:44
very extreme regulatory capture can I
00:55:47
precog one of the crazy lines in this
00:55:49
thing here are the precogs what here's
00:55:51
one when a foreign person trans acts
00:55:55
with an infrastructure as a service
00:55:57
provider so Azure Google Cloud Amazon to
00:56:01
train a large AI model with potential
00:56:03
cap with potential capabilities that
00:56:05
could be used in malicious cyber enabled
00:56:07
activity they propose regulation that
00:56:09
requires that I ask provider to submit a
00:56:13
report so if you you have to
00:56:17
know you have to know if a foreigner is
00:56:21
using your apis on AWS and then file a
00:56:25
TPS report oh my God what is going on I
00:56:29
have a clarifying question what happens
00:56:31
if you're a foreigner that's on an H1B
00:56:33
at Facebook or you know Microsoft good
00:56:36
question well technically a foreigner
00:56:39
right and then chamath meanwhile
00:56:40
remember when SpaceX is now being sued
00:56:41
by the doj because they haven't employed
00:56:43
enough
00:56:44
foreigners so it's
00:56:48
like they outlaw both sides of it so
00:56:51
that you're you're in non-compliance
00:56:53
just by existing if
00:56:56
you you know what I mean is by death if
00:57:01
you uh employ foreigners in the creation
00:57:05
of these very sophisticated Technologies
00:57:06
you're creating a national security
00:57:07
threat if you exclude them you're
00:57:10
violating their civil rights and these
00:57:11
are regulations are promulgated by two
00:57:13
different parts of the government so the
00:57:15
the the government is basically getting
00:57:16
to a point where no matter which side of
00:57:20
the regulation you choose you're going
00:57:21
to be a non-compliance somewhere and
00:57:23
this is just a recipe for the government
00:57:25
to basically take action against anybody
00:57:27
who they don't like politically yeah now
00:57:29
on this pre- crime point you know one of
00:57:31
the crazier stories that came out and I
00:57:34
think this was in variety is that Biden
00:57:36
grew more concerned about AI after
00:57:38
screening the most recent Mission
00:57:39
Impossible movie in which the villain is
00:57:42
a sensient AI that seizes control of the
00:57:46
world's intelligence apparatus is that
00:57:48
true that's not true well that's what
00:57:50
the story said didn't the Press reporter
00:57:52
ask the press secretary this and this
00:57:54
was was the response who said this the
00:57:57
white house chief of staff I guess said
00:57:59
Reed said Reed who yeah wow unbelievable
00:58:01
the crazy thing is that I think the
00:58:03
reason they're putting out this story is
00:58:04
they don't want to admit how the EO
00:58:06
really happened which is a bunch of
00:58:07
lobbyists came in and like you said a
00:58:10
lot of powerful people from Big Tech
00:58:12
they're all clamoring for regulatory
00:58:14
capture they're all clamoring to define
00:58:16
the regulations so that they can benefit
00:58:18
themselves and keep out new entrance
00:58:20
because one of the big targets here is
00:58:22
going to be open source software so if
00:58:24
you for example open AI which is no
00:58:27
longer open it's closed Source the
00:58:29
number one thing you want to do is pull
00:58:31
up the ladder before open source
00:58:34
software can get a lot of momentum and a
00:58:37
big part of the regulation here does
00:58:38
apply to open source software I think
00:58:40
one of the most problematic things about
00:58:42
this just to move on to the next point
00:58:44
is the way that it's not just this 110
00:58:48
page EO that's being promulgated the
00:58:51
directive is for all these other parts
00:58:53
of the federal government to start
00:58:54
creating their own regulations so it
00:58:56
says here that the National Institute of
00:58:58
Standards of Technology will develop
00:59:00
standards for red team testing of these
00:59:02
models it directs the Department of
00:59:04
Commerce to develop standards for like
00:59:07
you said freeberg labeling AI generated
00:59:08
content it directs explicitly the FTC to
00:59:11
use existing leg regulation to go and
00:59:14
legislate it it requires the FCC to
00:59:17
think about Spectrum licensing rules
00:59:21
through this lens you're absolutely
00:59:22
right it activates every agency of the
00:59:24
government to create more bureaucracy it
00:59:26
no more importantly it creates Authority
00:59:28
for agencies of the government to go
00:59:30
into private servers and run audits
00:59:33
you're allowing the government for the
00:59:34
first time ever to have access to
00:59:36
private information private Computing
00:59:38
infrastructure rather than do what the
00:59:40
job of the government should be which is
00:59:41
to regulate the outputs to regulate the
00:59:44
outcomes to regulate illegal and illicit
00:59:47
activities rather than um regulate
00:59:50
systems and methods that as saxs point
00:59:52
out are prec convicted of a crime there
00:59:53
is no crime until a crime is committed
00:59:56
and so this idea that the government can
00:59:58
come in and regulate and keep a crime
01:00:01
from being committed by auditing and
01:00:03
managing all the systems and methods
01:00:05
that software companies are using puts
01:00:07
the United States at an extraordinary
01:00:09
and unfair disadvantage on a global
01:00:11
stage by the way and by the way llama 2
01:00:13
is out there Hardware is out there all
01:00:15
the tooling is out there for others to
01:00:17
start to get well ahead good news about
01:00:19
the immigration thing there is they
01:00:21
actually on the other side do streamline
01:00:23
the immigration process for people with
01:00:26
AI or other critical Technologies so on
01:00:29
the one hand we should be able to hire
01:00:30
them but then on the back end we'll have
01:00:32
to file a TPS report about what they do
01:00:35
let me just finish my point about all
01:00:37
these different agencies being directed
01:00:38
now to promulgate regulations and by the
01:00:40
way there's some new committee or
01:00:41
Council that's being created of
01:00:43
29
01:00:46
different parts of the federal
01:00:47
government that are now going to
01:00:48
coordinate on this AI stuff so it's
01:00:51
going to be a brussel style bureaucracy
01:00:53
what's going to happen is that with all
01:00:55
of these different bodies issuing new
01:00:58
regulations it's going to get more and
01:01:00
more burdensome on technology companies
01:01:03
until the point where they cry out for
01:01:05
some sort of rationalization of this
01:01:08
regime they're going to say listen we
01:01:10
can't keep up with FCC and Department of
01:01:12
Commerce and this nit Standards Board
01:01:15
just give us one agency to deal with and
01:01:17
so the industry itself is eventually
01:01:19
going to cry uncle and say like please
01:01:22
just give us one and you're already here
01:01:25
people like Sam Alman and so forth
01:01:27
calling for the equivalent of atomic
01:01:29
energy commission for AI this is how
01:01:32
we're going to end up with a federal
01:01:34
software commission just like we have a
01:01:35
FCC to run uh big Communications and we
01:01:39
have a FDA to run big Pharma we're going
01:01:42
to end up with a federal software
01:01:43
commission to run software big software
01:01:46
and the thing to realize about AI is
01:01:49
that functionally there's no way to
01:01:51
really say what the difference is
01:01:53
between AI and software in general every
01:01:55
single technology company it's look in
01:01:57
Valley has AI on its road map it's a new
01:02:00
Computing Paradigm everybody is
01:02:02
incorporating it everyone is using some
01:02:05
elements of AI so this wave of AI is
01:02:09
just becoming software so we're going to
01:02:12
take the one part of our economy that
01:02:15
has been free market and relatively
01:02:17
unregulated which is software it's like
01:02:19
the last Bastion of true entrepreneurial
01:02:22
capitalism and we're going to create a
01:02:24
new federal
01:02:26
agency to manage it that's where we're
01:02:29
all ah headed here
01:02:31
and we're going to end up as an industry
01:02:34
in the same place that Pharma has ended
01:02:37
up or Telecom has ended up which is you
01:02:41
go for permission to Washington no I
01:02:43
Nick can you just put this up so I I did
01:02:46
you know write a blog post sort of
01:02:48
asking for this AI regulation and and I
01:02:51
do think like the model of the FDA is
01:02:54
probably the best one where in certain
01:02:56
use cases I do think that you can create
01:03:00
a Sandbox where these things can be
01:03:02
tested and I think can be
01:03:05
evaluated the problem is that this
01:03:07
legislation or this executive order
01:03:09
doesn't really do that so the way that I
01:03:11
wrote this was well what are the
01:03:13
arguments against what I'm proposing and
01:03:16
unfortunately I have to say every single
01:03:18
one of those arguments is now valid
01:03:21
so I I think that we should have in the
01:03:24
direction of like a simplifying
01:03:26
assumption which is that most of this
01:03:28
stuff is just software and there are
01:03:30
going to be some very specific kinds of
01:03:32
businesses that before you take it to
01:03:34
Market you should do something that's
01:03:37
equivalent to sticking it in a sandbox
01:03:39
letting people see it and and I think
01:03:40
it's easy to Define what those are
01:03:42
actually and the fact that we didn't do
01:03:44
that and we have this overly generalized
01:03:47
approach is going to create more chaos
01:03:48
and people will not know whether they're
01:03:50
in violation or they're in support
01:03:52
they're going to be sort of preg guilty
01:03:54
as you said sacks of a pre-
01:03:56
crime it's just going to it's just going
01:03:58
to be chaos so I think smus board for
01:04:02
politicians because everyone's going to
01:04:03
be lobbing them to try and shape the
01:04:05
regulations the way they want I think
01:04:07
it's going to be a schoras board for
01:04:10
lawyers yeah I me everyone's going to
01:04:12
hire lawyers and lobbyists and policy
01:04:15
people to try and shape these
01:04:16
regulations good time to bet on India
01:04:18
thank God for Mark Mark Zuckerberg and
01:04:20
the open sourcing of the Llama 2 model
01:04:23
it's entirely open source right I mean I
01:04:25
think the biggest thing with llama 2
01:04:27
that I find problematic is that it has
01:04:28
these arbitr arbitrated thresholds on
01:04:31
the number of users one can have yes
01:04:33
before you have to go back to Facebook
01:04:34
so yeah it's 700 million I think right
01:04:37
yeah yeah before I give all the credit
01:04:38
to Facebook I'd rather say that I think
01:04:40
there are a lot of Open Source
01:04:42
Alternatives including mistol that I
01:04:44
think are much better yeah and uh free
01:04:46
and open and in the clear where you can
01:04:48
have unencumbered growth not dependent
01:04:50
on anybody
01:04:53
else yeah yeah but I think your free
01:04:56
your larger point about us versus India
01:04:58
versus China I think this could have a
01:05:00
major impact on our Global
01:05:02
competitiveness of course because as you
01:05:04
look around the what's happening in the
01:05:06
American system there are so many things
01:05:08
going wrong right our fiscal situation
01:05:10
is untenable we're mired in massive debt
01:05:13
we have tremendous internal division in
01:05:15
the country many of our cities are r
01:05:18
with crime you just look at the number
01:05:19
of people living on the streets it's not
01:05:21
good I mean you know there's a lot of
01:05:23
indicators that America's in Decline
01:05:25
we're involved in way too many Foreign
01:05:26
Wars so there's a lot of bad things
01:05:29
happening however the one bright spot
01:05:32
that America's had going for it now I
01:05:34
think for decades is that we've always
01:05:35
been the leader in new technology
01:05:38
development I mean we're the ones who
01:05:39
pioneered the internet we're the place
01:05:42
where mobile took off we're the place
01:05:44
where the cloud took off and everyone
01:05:45
else has been playing catchup with that
01:05:47
and I think we are in the lead in terms
01:05:49
of AI development I mean other countries
01:05:51
are doing it too but I think that we are
01:05:53
in the lead and and it's not because of
01:05:54
the involvement of government it's
01:05:56
because we have this vibrant private
01:05:58
sector that's willing to invest risk
01:06:01
Capital where you know that nine out of
01:06:04
10 checks that you write are going to
01:06:05
zero but that one check that one out of
01:06:08
10 hopefully could be a huge outcome so
01:06:10
we've had this incredible
01:06:12
ecosystem of software development that
01:06:14
is free and unregulated that is
01:06:16
clustered around Silicon Valley but it
01:06:18
you know radiates out to many other
01:06:20
places and the only reason that
01:06:22
ecosystem has thrived and survived is
01:06:25
the reason that bill Gurley stated at
01:06:28
all in Summit which is was it 2200 miles
01:06:30
away from Washington and Washington has
01:06:34
generally kept its Ms off and now we are
01:06:37
headed to a place where not just AI but
01:06:40
basically all software companies are
01:06:42
headed for regulation and like I said
01:06:45
right now it's 29 different agencies
01:06:48
promulgating the regulations but where
01:06:49
this is going to end up is that the
01:06:52
industry is eventually going to beg
01:06:54
for its own agency just to rationalize
01:06:56
all the spaghetti of different
01:06:58
regulations we are eventually going to
01:07:00
beg for our federal agency Overlord just
01:07:03
to rationalize this whole mess and sadly
01:07:06
I think that's where we're going to end
01:07:06
up and a lot of what is special about
01:07:09
our industry which is that two guys in a
01:07:11
garage really can get started in a
01:07:13
completely permissionless way I think
01:07:15
that's going to be jeopardized if that's
01:07:17
the end game that's genius I think that
01:07:19
is the end game I mean do you think that
01:07:20
they wrote this thing in a way just to
01:07:22
create enough confusion where we just
01:07:24
cry uncle and say just regulate us give
01:07:26
us one mute yeah look I don't know if
01:07:28
it's that conscious I think what it is
01:07:30
is there's a lot of politicians in
01:07:31
Washington and Biden and Harris
01:07:33
definitely fall into this category who
01:07:35
just think that Central planning or the
01:07:38
central guiding of the economy or
01:07:40
aspects of the economy to avoid certain
01:07:43
problems that they think they can do
01:07:44
this they think that they are wise
01:07:46
enough to do this or maybe they're
01:07:48
cynical and they just know this a
01:07:49
pathway to campaign contributions but
01:07:51
either way they kind of believe in this
01:07:54
approach and they threw the kitchen sink
01:07:57
at this 110 pages every agency is's now
01:08:01
going to be writing thousands of pages
01:08:02
and I think where it's going to end up
01:08:04
is with a new agency to manage software
01:08:07
so I think Sach it's a the point you're
01:08:11
making is one that some folks in Silicon
01:08:13
Valley have felt for a while which that
01:08:16
is that a lot of the freedom and
01:08:19
opportunity that the United States
01:08:22
offers pioneers and entrepreneurs
01:08:25
has been realized and born out in
01:08:26
Silicon Valley that's feeling like it's
01:08:28
been styed in a number of ways but the
01:08:32
events in
01:08:33
Israel couple weeks ago in my opinion
01:08:38
seems to have shocked a lot of people
01:08:41
that are traditionally very liberal
01:08:44
Democrats into being redpilled I have
01:08:47
had a number of calls with individuals
01:08:49
over the last few weeks that have
01:08:52
historically been very dieh hard blue
01:08:54
liberal Democrats have spent their their
01:08:57
time with NOS with nonprofits with
01:09:01
various efforts to promote liberal
01:09:03
causes and these are folks who may or
01:09:06
may not be Jewish but who have been so
01:09:09
shocked
01:09:10
by what's happened in Israel and how
01:09:14
many liberal
01:09:15
organizations have created this
01:09:18
narrative around being pro Palestinian
01:09:21
in a way that is being deemed and coming
01:09:24
across as highly and in many cases is
01:09:26
very much
01:09:27
anti-semitic and so I've had folks say
01:09:30
I'm giving up everything else I'm doing
01:09:32
and all I'm going to do is change the
01:09:34
causes I'm working on now and I have
01:09:37
just been redpilled do you guys and and
01:09:40
Sham you shared your story on our show a
01:09:43
couple of weeks ago the clip of you
01:09:45
saying that went viral on how you kind
01:09:47
of recognize that maybe Trump was a good
01:09:49
president in the context of what you're
01:09:50
experiencing with the Biden
01:09:52
Administration now we're seeing what the
01:09:53
bid Administration now you seem to be
01:09:56
like the case study that I'm now hearing
01:09:59
more from Silicon Valley folks yeah
01:10:01
about this the shift I think that over
01:10:03
the last three or four
01:10:05
years
01:10:07
my political positions really haven't
01:10:10
changed that much but I think what's
01:10:13
happened is that the the political party
01:10:16
that I've historically been affiliated
01:10:18
with has just kept lurching further and
01:10:21
further to the
01:10:22
left and so it leaves
01:10:26
me looking for a new home I
01:10:30
think and I think that there were a lot
01:10:33
of people that thought they were signing
01:10:35
up for a set of beliefs around Free
01:10:37
Speech around being pro Reproductive
01:10:40
Rights around being supportive of lgbtq
01:10:45
issues but also supportive of a rational
01:10:49
approach to the border and reasonable
01:10:52
fiscal discipline
01:10:54
these are all seem to just be totally
01:10:55
out the window
01:10:58
so I understand because I've I've
01:11:00
actually talked to a lot of my friends
01:11:01
and my friends some of them have been
01:11:04
huge
01:11:05
donors to both Elite colleges and the
01:11:10
Democratic party and they've paused all
01:11:13
of it
01:11:14
and it's definitely given me pause and
01:11:17
I'm just trying to figure out where to
01:11:19
go from here because I think the reality
01:11:21
is that this is a really crazy situation
01:11:24
so I think that there's just a lot of
01:11:25
people that are in the center that don't
01:11:28
really belong anymore the way that the
01:11:29
Democrats represent themselves so
01:11:32
there's clearly something going on that
01:11:33
we just need to get to the bottom of
01:11:35
here because I think it's not probably
01:11:37
the Democratic party that a lot of
01:11:38
people thought that they belong to do
01:11:40
you have other friends and folks that
01:11:41
you know that have traditionally been
01:11:42
Democrat donors in Silicon Valley
01:11:45
chamat that you see are now maybe
01:11:47
considering shifting where they're
01:11:49
giving money to
01:11:51
Republican party candidates and causes I
01:11:54
think it's easy to say that amongst my
01:11:57
friends it's in the billions of dollars
01:11:58
that's been
01:12:00
paused that's insane that's a lot of
01:12:02
money Z you used to be part of a niche
01:12:06
in Silicon Valley Silicon Valley
01:12:08
Republican Niche is your Niche growing I
01:12:11
think so I actually made a list of I
01:12:14
think eight issues that have driven the
01:12:17
shift and when you say there's been a
01:12:18
shift right I wouldn't say that there's
01:12:20
been a shift all the way to the right
01:12:22
but I think there's a shift from the
01:12:24
left to the center by the way that
01:12:25
statement is consistent with what I've
01:12:27
heard personally from a lot of folks
01:12:29
which is I consider myself a Centrist
01:12:31
now that I see that some of these
01:12:33
liberal causes are so they're extreme
01:12:36
from my point of view right so let me
01:12:38
rattle off what I think the key drivers
01:12:40
are number one Reckless fiscal and
01:12:42
monetary policies coming out of
01:12:43
Washington as drunen Miller says we've
01:12:45
been spending like drunken Sailors
01:12:46
number two the Dismal state of San
01:12:48
Francisco because of crime drugs
01:12:50
homelessness and so on and we all know
01:12:52
that's an stream one party government
01:12:55
number three the runis coid policies
01:12:57
they botched the science they harmed the
01:12:59
educational development of kids and they
01:13:01
also harmed work Culture by making
01:13:03
employees feel permanently entitled to
01:13:05
work from home so that's number three
01:13:07
number four this long con of reg
01:13:09
regulatory capture in both Washington
01:13:12
and Sacramento that we just talked about
01:13:13
with AI people are waking up to that
01:13:15
number five the Betrayal of true liberal
01:13:18
values like free speech and open inquiry
01:13:21
number six the way that Tech Visionaries
01:13:23
like Elon have been targeted for
01:13:25
harassment by leftwing politicians
01:13:27
remember Biden said we need to look into
01:13:29
the guy Raina Gonzalez was even less
01:13:31
subtle she said simply Elon Musk number
01:13:34
seven the growing awareness that
01:13:36
wokeness has gone way off the rails uh
01:13:38
we saw this even before the Israel Hamas
01:13:41
War but now I would say number eight is
01:13:43
this war it's really thrown gasoline on
01:13:46
the fire by showing that wokeness leads
01:13:49
to this simplistic breaking up of the
01:13:51
world into oppressor and oppressed
01:13:54
categories and what we're seeing is that
01:13:57
there's a lot of people in the woke left
01:13:59
who are basically cheering for a
01:14:00
terrorist organization and they're able
01:14:02
to rationalize atrocities because of
01:14:05
this simplistic woke
01:14:07
dichotomy that being said I do think
01:14:09
it's possible to support the desire for
01:14:11
a Palestinian State and a two-state
01:14:13
solution without falling into that
01:14:15
bucket I want to be clear about that but
01:14:17
I think that there's been way too many
01:14:18
people on the woke left who have blly
01:14:21
disregarded the atrocity and were
01:14:24
basically cheering for Hamas from day
01:14:26
one on this thing and I think that has
01:14:28
woken up a lot of liberals both Jews and
01:14:31
non-jews who saw Jews as allies on the
01:14:34
left and when they see Jews being
01:14:36
attacked this way that has led them to
01:14:39
really I think question their their
01:14:40
priors on this what did you think of the
01:14:42
Cala Harris announcement yesterday that
01:14:44
they're launching a program to combat
01:14:47
islamophobia in the US at a time when my
01:14:51
understanding is many of their Jewish
01:14:52
donors are up in
01:14:54
arms about their lack of action on
01:14:58
anti-Semitism I mean it just seems it
01:15:00
seem turna I mean look I have not seen
01:15:02
in this particular case I don't think
01:15:04
I've really seen outpourings of
01:15:06
islamophobia to be clear I'm against
01:15:09
islamophobia I'm against hatred towards
01:15:11
any particular group including Muslims
01:15:14
or Jews to me you know any outpouring of
01:15:17
hate towards a particular group is is
01:15:19
bad but yeah this seems like a a problem
01:15:22
that we really haven't seen so it seems
01:15:23
a little bit toned deaf and look this
01:15:26
administration's been kind of stumbling
01:15:27
around on on this whole issue it seems
01:15:29
like they don't really know what to do I
01:15:30
don't know how to quantify it I just
01:15:32
think it's an anecdote what do you think
01:15:34
no I I like I'm saying I don't know how
01:15:36
to quantify it but I think that the
01:15:37
anecdote is a lot of folks no no I'm
01:15:41
saying what what do you think what do
01:15:42
you
01:15:44
feel what do I feel yeah I mean I'm not
01:15:48
a party guy taking a step back this is
01:15:51
getting going to get a little esoteric
01:15:53
but
01:15:54
I think humans organize into social
01:15:55
systems one social system is a family
01:15:57
one is a company and I think that the
01:16:00
government is a social system the point
01:16:01
of a social system is to get influence
01:16:04
to achieve the things you want to
01:16:06
achieve by aggregating together by
01:16:08
creating a tribe by creating a system
01:16:11
and that's what a government is it lets
01:16:12
a lot of people pull resources to get
01:16:14
things done as a group that you wouldn't
01:16:15
otherwise be able to get done
01:16:16
individually same with a company same
01:16:18
with a family to support each other Etc
01:16:21
and I think that the problem with
01:16:23
uh democratically elected governments or
01:16:25
all governments for that matter frankly
01:16:27
is like any other system they and I've
01:16:30
said this in the past they have a
01:16:31
natural incentive to grow I met with a
01:16:34
government person the other day
01:16:36
well-known government person and I was
01:16:39
struck by the the
01:16:41
tone I I've been struck by the tone on
01:16:44
multiple people I've met from the
01:16:45
government on here's all the next things
01:16:47
I'm going to get done and here's how
01:16:48
we're going to grow and do more and be
01:16:50
bigger just like if you're running a
01:16:52
company that's your incentive that's
01:16:53
your model of thinking and like with
01:16:56
your family you want to grow the balance
01:16:57
sheet for your family you want to have
01:16:58
another home you want to take care you
01:17:00
want to build security Etc so
01:17:02
governments as an organizing system are
01:17:04
no
01:17:06
different and so I think that in a
01:17:10
democracy over
01:17:12
time there is as sax points
01:17:15
out a group of folks who get elected and
01:17:19
as a result like a
01:17:20
philosophy that endures in that system
01:17:23
that is all about overcoming the power
01:17:26
that is that we all view there to be
01:17:28
powers that are keeping us from doing
01:17:30
the things we want to do and I think
01:17:32
that this is the ultimate manifestation
01:17:34
of what happens is that you push the
01:17:36
government to be as big as possible with
01:17:39
no end and you push the government to
01:17:42
destroy any system of power that gets in
01:17:44
the way of those who are able to vote
01:17:46
these folks in and now a lot of folks
01:17:48
who thought that they were supporting
01:17:49
liberal causes to help those in need are
01:17:52
realizing that you're actually
01:17:53
repressing minorities in the process
01:17:56
that there are minorities that are
01:17:57
viewed to be powerful like Jews that
01:18:00
there are minorities that are viewed to
01:18:02
be unfairly advantaged like those in the
01:18:05
tech industry that there are minorities
01:18:07
who are viewed to be unfairly advantaged
01:18:09
like billionaires and I know that this
01:18:11
sounds insane to say that those terms
01:18:14
but that's the objective is to destroy
01:18:17
any system of power any individual of
01:18:19
power that has any form of Leverage over
01:18:21
us it's also why I think we've generally
01:18:23
been techn pessimistic in the west since
01:18:26
the late 1960s early' 70s is because
01:18:29
technology has been viewed as this point
01:18:30
of Leverage for creating a power system
01:18:32
for a minority of the people so I I
01:18:35
generally view this as part of a longer
01:18:37
Arc and a natural kind of conclusion to
01:18:40
this stuff and you know I I'm I'm not
01:18:41
trying to be super pessimistic about
01:18:43
where things are going because I do see
01:18:45
that the a lot of folks are now waking
01:18:47
up to this reality and they're like so
01:18:49
my anecdote is I've had a lot of folks
01:18:51
tell me in the last couple weeks we we
01:18:53
have to be thoughtful about how we elect
01:18:54
and how we govern so that we create a
01:18:57
more balanced so what's the end game in
01:19:00
your framework my endgame is socialism I
01:19:03
think that's where things go ultimately
01:19:05
long term I think that there's a
01:19:06
recapturing and a redistribution of
01:19:08
power and value I think that there's
01:19:10
some degradation of the system that
01:19:12
erods to looking like something like
01:19:13
France it's not like a nasty and it's
01:19:16
like a a slow whimpering like you end up
01:19:18
looking like France or something and so
01:19:19
that's my my endgame in that framework
01:19:21
and I I I believe strongly is why we
01:19:23
talked about this with doo that there
01:19:25
are political actions decisions voting
01:19:28
mechanisms that that hopefully we can
01:19:29
put into place to stall out and to stop
01:19:32
that from happening uh because I do
01:19:34
think that human progress is critical
01:19:36
for the Min for the majority of people
01:19:38
that are disadvantaged and we need to
01:19:40
enable it okay so I'm guessing you're on
01:19:43
the I don't want to be France side 100%
01:19:46
that's right okay so and so what is the
01:19:49
I want to be the wild west I want to be
01:19:50
the 19th the the early 19th century what
01:19:53
do you think that we should do in
01:19:54
America right now I think we should
01:19:56
unwind a lot of laws and I think we
01:19:58
should have as a mandate the objective
01:20:01
is how do we get more of our economy and
01:20:03
more of our people in this country to
01:20:07
be supported by and progress through
01:20:10
Private Industry rather than public
01:20:12
support the federal government and the
01:20:14
role that the federal government has in
01:20:15
funding industry in hiring individuals
01:20:18
in pumping dollars into markets I think
01:20:22
has gotten so far beyond the tell that
01:20:25
we as we know are being sosed back and
01:20:28
forth based on the decisions being made
01:20:30
by the Federal Reserve that should have
01:20:31
never been the case the free market
01:20:33
should have always been allowed to
01:20:34
operate progress should have always been
01:20:36
allowed the government should have
01:20:37
stopped people from being hurt should
01:20:39
stop negative outcomes but the idea that
01:20:41
the government should come in and start
01:20:42
to run things and employ people and get
01:20:45
to the scale that it's gotten to this is
01:20:46
the largest organization in human
01:20:49
history the federal US federal
01:20:50
government it has got the highest dollar
01:20:52
spend the highest budget of any
01:20:54
organization in human history even
01:20:56
accounting for the Roman Empire there
01:20:57
should be accountability standards for
01:20:59
every law which is how do I know that
01:21:00
this thing did what it was supposed to
01:21:01
do and how do I measure if it didn't and
01:21:03
by the way if it doesn't and the dollars
01:21:04
aren't returned to me at some multiple
01:21:06
we shut that law down we shut that
01:21:08
department down we move on there should
01:21:10
be an accountability standard for every
01:21:11
dollar that's spent but we don't
01:21:13
describe any outcomes we don't say
01:21:15
here's the standard of measure and
01:21:17
here's the accountability and if this
01:21:18
doesn't work and this dollar isn't
01:21:21
return to us we don't end it anymore and
01:21:23
we don't keep doing this thing over and
01:21:24
over again and then layer something else
01:21:26
on top and layer something else on top
01:21:28
and then you've got 10 layers of nothing
01:21:29
accountable to anything and that thing
01:21:31
cost 10 times as much to do half as
01:21:34
much I am optimistic still I'm always an
01:21:37
optimist oh make sure you put in that
01:21:39
caveat good
01:21:41
yeah what's going right in your view I
01:21:44
feel like we just killed the last good
01:21:46
thing yeah what is going right in your
01:21:48
well the AI thing is what really pisses
01:21:50
me off man I mean this whole idea that
01:21:51
we're going to come in and tell people
01:21:52
how to run businesses I hear you go just
01:21:54
go back but do you think AI is going
01:21:56
well right
01:21:58
now we have nothing to really show for
01:22:00
it yet so it's hard to say that it's
01:22:02
it's cute and it's cool but there's
01:22:04
there's nothing really is AI I don't get
01:22:06
the term when I started my company I had
01:22:08
people that I called math people and
01:22:09
statisticians then it was called data
01:22:11
science then it was called Big Data then
01:22:13
it was called ml now it's called AI at
01:22:16
the end of the day it's software based
01:22:19
algorithms that use three things data
01:22:21
software and statistics and the
01:22:23
statistical tools and the approach to
01:22:24
the software algorithm development have
01:22:26
changed with the Transformer model that
01:22:28
was paper that was described but it's
01:22:30
the same thing we've been doing since
01:22:31
the 1960s which is creating packages of
01:22:34
software that make predictions and that
01:22:36
do things for us and all that's happened
01:22:38
in the last two years is we've seen a
01:22:40
piece of software that can communicate
01:22:42
well with us based on these llms and
01:22:44
we're like oh intelligence is here you
01:22:46
know the first time a computer in the
01:22:47
1960s said hello world everyone was like
01:22:50
oh my God we have ai now ai are sensient
01:22:52
it just said hello world well the same
01:22:55
thing happened when when big blue which
01:22:57
was that big IBM Mainframe beat Kasparov
01:22:59
in chess people are like oh my God AI is
01:23:02
just about here because at one time
01:23:05
being great at chess was considered to
01:23:07
be only a human capability and if a
01:23:10
computer could ever get that good the
01:23:13
theory was that it would have to be an
01:23:14
AI but we actually found out that
01:23:17
computers could do chess but that didn't
01:23:19
make them an AI it just meant that they
01:23:21
could acquire that one capability I
01:23:23
think kind of what you're saying is that
01:23:25
computers now thanks to language models
01:23:27
have some ability to interface with us
01:23:29
using language and to understand
01:23:31
Language by itself that is not
01:23:33
artificial intelligence in the way that
01:23:36
is portrayed in science fiction movies
01:23:37
there's two key things that are
01:23:38
happening one is a new a new modality in
01:23:41
human computer interaction through chat
01:23:43
which is incredible and opens up lots of
01:23:45
new software applications and markets
01:23:47
which I think can be transformative and
01:23:48
worth trillions of dollars no [ __ ]
01:23:50
doubt and then the other one is in
01:23:51
generative tooling where you can make
01:23:53
art and you can make video and audio and
01:23:55
all this other sort of stuff so you're
01:23:57
you're creating digital outputs that are
01:23:58
not necessarily text but other forms
01:24:01
that also start to represent the
01:24:03
expectation that you might otherwise
01:24:04
have and so that is really powerful and
01:24:07
opens up all these new models for media
01:24:09
content exploring new business models
01:24:11
Etc so both of those are really
01:24:13
important new software capabilities that
01:24:15
have emerged but this this notion that I
01:24:17
think people confuse AI as being this
01:24:19
like we've now got humans in software
01:24:21
that can do things
01:24:23
is almost like back in the0 when the
01:24:24
computer said hello world and they said
01:24:26
the same thing I think that what people
01:24:29
are OD by right now is that a computer's
01:24:32
ability to statistically guess has
01:24:35
gotten several orders of magnitude
01:24:37
better than it ever was before and so
01:24:39
these guesses seem human and lifelike
01:24:42
but you'll find the edge cases where
01:24:43
this stuff fails and we'll be asking
01:24:45
ourselves yet again in a few
01:24:47
years what the next leap is but the
01:24:51
thing that is different
01:24:53
is that there is a level of investment
01:24:56
multiplied and Nick I I tweeted this so
01:24:58
you can just show the math here there's
01:25:00
a level of investment multiplied by a
01:25:02
level of improvement in the underlying
01:25:04
Hardware multiplied by a level of
01:25:07
improvement in the underlying models
01:25:09
that's
01:25:11
creating a 400x improvement from the
01:25:14
Baseline every year and so the thing
01:25:18
that I think is different is that we are
01:25:20
taking this statistical guessing if you
01:25:23
want to just call it that and we're
01:25:26
getting exponentially good at it so
01:25:29
there is an efficient Frontier at which
01:25:31
point you're like oh my gosh this is as
01:25:33
good as certain humans you know maybe
01:25:36
not the smartest of the smart humans but
01:25:37
certain humans and I think that that's
01:25:39
what's really really crazy and intense
01:25:41
right now so I can understand why people
01:25:44
are like we need to get a handle on
01:25:47
this but it may kill the Golden Goose
01:25:51
although I would just say there is no
01:25:52
Golden Goose yet there's just a lot of
01:25:54
really interesting stuff that people can
01:25:56
say is novel and it's inspiring to see
01:26:01
but by no means has there been just a
01:26:02
proven use case that is 10x in
01:26:05
productivity yeah that hasn't happened
01:26:07
yet that's the reason to wait is this
01:26:09
whole thing just seems very premature
01:26:12
let the technology develop a little bit
01:26:14
let the problems become a little bit
01:26:15
clear more manifest let the Ws let the
01:26:17
cake bake let the cake bake let the
01:26:20
problems emerge in a way
01:26:22
instead of we're guessing about them we
01:26:24
can actually see them and also allow
01:26:27
there to be time for solutions to be
01:26:30
developed by the industry on its own and
01:26:34
we don't need KLA Harris's help or
01:26:35
guidance to do
01:26:38
that okay there you have it folks thank
01:26:41
you for joining us for another episode
01:26:43
of the Allin pod we hope that you walk
01:26:45
away with the utmost of optimism
01:26:47
enthusiasm for the world around us
01:26:49
there's awe and wonder outside go take a
01:26:52
walk and enjoy it there's so much more
01:26:54
than what is on Twitter I leave everyone
01:26:57
with blessings and love gentlemen
01:27:01
anything else final words David you
01:27:03
better [ __ ] be
01:27:05
there oh for poker yeah I will I will
01:27:08
I'm coming last week saxs RSVPs to poker
01:27:11
then texts he's supposed to be at dinner
01:27:13
at 7 o' texts at 7:30 I'm on my way
01:27:16
11:00 rolls around no saxs no idea what
01:27:19
happened to you you disappear into like
01:27:21
the a triangle of the Bay Area I don't
01:27:24
know where you go but you just disappear
01:27:27
he gets in an Uber he has him Park in
01:27:29
the airport and he just plays
01:27:32
chess gets out of the house all right
01:27:35
boys byebye byebye
01:27:38
byebye let your winners
01:27:41
ride Rainman
01:27:45
David and instead we open sourced it to
01:27:48
the fans and they've just gone crazy
01:27:49
with it love you queen of
01:27:52
[Music]
01:27:59
besties
01:28:01
are that's my dog taking your
01:28:06
driveways oh
01:28:08
man we should all just get a room and
01:28:11
just have one big huge orgy cuz they're
01:28:12
all this useless it's like this like
01:28:14
sexual tension that they just need to
01:28:17
release
01:28:19
your your your be that's going to we
01:28:23
need to get merch
01:28:27
[Music]
01:28:36
our
