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E120: Banking crisis and the great VC reset

March 17, 2023 / 01:30:05

This episode covers the recent banking crisis, Silicon Valley Bank's collapse, and the role of venture capitalists in the situation. The hosts, including David Friedberg, Chamath Palihapitiya, and David Sacks, discuss the implications of the Federal Reserve's actions and the broader economic environment.

The conversation begins with a recap of the hosts' experiences at a recent dinner and transitions into a discussion about the panic surrounding the banking sector. Sacks shares his observations of the bank runs and the urgency to address the situation, emphasizing the need for transparency and communication.

Chamath and Friedberg analyze the timeline of events leading to the crisis, including the failures of multiple banks and the impact of rising interest rates. They argue that the blame should not solely fall on venture capitalists, as the issues stem from systemic problems within the banking sector.

The hosts also explore potential solutions to prevent future crises, such as improved regulatory oversight and real-time monitoring of bank health. They highlight the need for a shift in how banks operate, suggesting that consumers may prefer a model where they pay for banking services without the risk of their deposits being used for lending.

Finally, the episode touches on the future of venture capital and the importance of building sustainable businesses in the current economic landscape, emphasizing the need for a reset in valuations and investment strategies.

TL;DR

The episode discusses the banking crisis, Silicon Valley Bank's collapse, and the role of venture capitalists, emphasizing the need for regulatory reform and transparency.

Video

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all right everybody Welcome to the all

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in podcast and with me again this week

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the Sultan of science the prince of

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panic attacks the queen of quinoa David

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Friedberg the dictator tremath

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polyhapatia wearing a beautiful Mr B

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sweater and David sacks the Rain Man

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himself thanks for coming to my Laurel

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piano dinner on Tuesday Jayco that was

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wonderful thanks uh at least one bestie

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showed up for you wonderful wonderful

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dinner I sat as far away from the Laura

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piano people as possible in the arranged

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seating thank you for that I guess maybe

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you were like I'm gonna contain the

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damage Bernard Arnold said put put the

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all caps guy at the end and I said okay

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yeah he still hurt me I was like what's

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the amuse bouge

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at dinner every time he said something

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he yelled like he was in office

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he's like I want another butterscotch

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pudding the butterscotch pudding is

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delightful Shawn I'm four feet away from

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me Jay Cal you can take the caps lock

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Sean was so Ember Chef Sean crush the

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chef Sean crush it once again were you

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selling alarms when the restaurant like

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almost ran out of something alert alert

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alert restaurant is running low on

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coffee we're dangerously low on caviar

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on this one is

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[Music]

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[Music]

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all right everybody Welcome to the Pod

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where we uh you know try to inform you

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we try to make some jokes here I just

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want to make what is a little bit of an

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opening statement here it's not an

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apology and it's not a Victory lap in

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any way

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but there's been a lot of attention I

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think on the last episode of the Pod and

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perhaps some tweeting from two of the

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four besties this past weekend

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I saw and I you know I'll let you speak

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for yourself your sax and we're going to

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get into the timeline of what's occurred

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and then what are potential outcomes

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here in solutions to the banking issues

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that we've witnessed in

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what is a week since the bank run on

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Silicon Valley Bank in the shutdown on

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Friday but what I saw and again speaking

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only for myself here was absolutely

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terrifying up close and personally

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watching people pulling money out of

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Banks and watching people have to set up

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loans to hit their payroll and this was

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like one of those surreal moments in a

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in a movie where like a meteor is coming

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towards Earth and you see it in the

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telescope and nobody else sees it or

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only a small number of people in the

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observatory see it and I think part of

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the reason people listen to this podcast

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is because we are insiders and speaking

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again just for myself I'm always trying

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to be exceptionally candid and

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transparent with the audience

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additionally I make jokes uh so

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sometimes you might laugh during this

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podcast or you might laugh when you're

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reading my tweets and uh that's part of

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what I do now I also realize that we

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have an audience now that is larger than

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I think any of us expected for this

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podcast I certainly magnitude larger

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than I expected and frankly I don't know

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if this Pockets was going to make it

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past 50 or 100

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episodes and my Twitter following count

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doubled since we started this podcast

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because you tried to ruin the putt I

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think it was because of the Caps locks

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but anyway putting all that aside what I

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would like to say as well is like we are

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living in a situation that is

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unprecedented I think the alarm Bell I

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sounded you know was because I saw a

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fire

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we'll get into the timeline here but I

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sounded that alarm Bell after Silicon

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Valley Bank

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was put into receivership and when I saw

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additional bank runs occurring I

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wouldn't change it I think these were

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the right the right thing to do was to

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inform folks now I did use all caps

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perhaps a little too much that was a

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little bit of a bit if people didn't

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understand that maybe I need to adjust

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my communication style now that this

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thing is so popular

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but I stand by my mode of operating in

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the world which is I always want to be

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candid with people I always want to tell

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the truth and yeah sometimes I make

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jokes about life and you know dealing

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with these stressful situations that's

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it it's not an apology it's more of an

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explainer and yeah maybe I need to

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adjust the caps lock or how I deliver

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stuff but I stand by the message of what

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I said and I think it's important for us

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to maybe look at the series of events

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and misinformation that has spread

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because there are people literally

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blaming Venture capitalists for the bank

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run that is now systematic and the the

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balance sheets of multiple banks around

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the world

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and I think sax would be great for you

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to maybe just comment on the week that

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was and the timeline of events yeah so

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as usual you're not apologizing no

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absolutely not apologizing but we'll

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recognize that this platform is bigger

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and that may be on the margins I could

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adjust my communication strategy but

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Chris there's a lot of people who don't

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know that I make jokes

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and maybe people don't understand what

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I'm joking and when I'm serious right

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and so right Jason what would you change

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was there anything you changed come on I

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think I might not have used a Mad Max

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image and GIF about the end of the world

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because people are too stupid to

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understand that's a joke and a fictional

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movie I see so you find yelling

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effective it depends well Jay Cal I

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agree that I don't think you have

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anything to apologize for in terms of

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the substance of what you're trying to

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get across I personally could have done

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without the all caps it was a bit oh

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yeah what you're basically saying is

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nobody should listen to you because

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you're not that important and I

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wholeheartedly agree with that

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I'm saying understand I might joke

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because

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of course category yeah all right let's

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go back let's go back and look at the

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Timeline because there are now serious

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accusations and I would call it really

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scapegoating uh and it wasn't just you

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it was me and Bill Ackman in fact the

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Wall Street Journal editorial board

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which I respect a lot

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mischaracterized what me and Ackman were

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trying to do in terms of drawing

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attention to a regional banking crisis

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in progress a run on the banks they

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called it spreading panic I don't know

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how you tweet or publicly discuss a run

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on the bank that's currently happening

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needs to be addressed with an immediate

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Federal intervention I don't know how

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you can discuss it without then having

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someone else mischaracterize it as

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trying to spread a panic but Jake how

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the The Wall Street Journal editorable

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didn't mention you so you're off there

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okay they didn't know who you are but

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thank you

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but no but seriously so I went back and

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looked at the timeline of all of this

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and so first of all we have to

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understand that this banking crisis now

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has uh swept in five banks Five bank

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failures first or a silver gate but

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everyone dismissed that because it was

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some weird crypto bank then it was svb

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but everyone sort of dismissed it

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because they said it was based on

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panicky VCS rather than a systemic

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problem in the banking system then it

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was Signature Bank which got seized on

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Sunday which I think utterly refuted the

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idea that this was just a Silicon Valley

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problem then you had the feds step in

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and backstop First Republic which would

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have been the next dominant of fall if

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it wasn't backstopped and then five you

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had Credit Suisse basically again avoid

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an outright failure because they got

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backstopped by the Swiss government so

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we now have five banks in roughly a week

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and these are not small Banks they're

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this Credit Suisse is a is a G7 but

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globally systemically important bank and

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the other ones are top 20 top 30 type

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Banks we're talking about hundreds of

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billions of dollars in deposits so

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clearly there's a larger phenomenon

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going on here and frankly it's being

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caused not by like anything VCS did

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because VCS are just depositors we're

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just one class of depositors and

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deposits are not to blame for what's

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going on here what's going on is that

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these banks have huge unrealized losses

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on their balance sheet and the losses

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have come from the sun's spike in

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interest rates that's what's going on

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the sun spike in interest rates is

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because we've had the most rapid fed

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tightening cycle in our lifetimes in the

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last year the FED funds race gone from

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roughly zero to almost five percent that

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has broken a lot of things and the banks

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which have broken first are the ones

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that had pre-existing problems

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and they had horrible risk management

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but that's who gets broken first in a

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stress test right is the most poorly run

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Banks the ones with pre-existing issues

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but just because they went first doesn't

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mean that others don't have similar

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kinds of issues now I'm not saying this

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in any way to be panicky maybe those

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banks will be fine but

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there are larger issues in the banking

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system that are worth talking about in

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to the point about whether VCS could

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have spread this J Cal you're absolutely

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right about the timeline I mean I went

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back and checked I personally never

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tweeted anything about sgb until Friday

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afternoon when svb was already in

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receivership and the run on the bank had

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already started with signature and First

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Republic and we could see it with our

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own eyes and then this pod didn't drop

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the one where we talked about this

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problem didn't drop until Saturday

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morning when the banks were already

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closed and by Sunday night the FED had

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acted and basically implemented our

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recommendations which was to basically

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intervene so I don't know how you can

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blame this search for scapegoats I think

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is getting out of control and it's just

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not factually accurate

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and you know that it's convenient to

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make Tech which is hated right now

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chamoth and Friedberg you know the

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scapegoat Venture capitals obviously the

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the part of tech that people might hate

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the most or the easiest Target but let's

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talk about the FED raised those rates

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because of inflation and inflation

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happened because of out of control

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spending due to covid and then the the

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second Administration so you had a

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republican Administration that spent a

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lot of money and then a democratic

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Administration shamata spent a lot of

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money so maybe we could even go

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backwards from fed fund rate going you

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know what looks like parabolic when you

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look at the chart

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maybe you could speak to what got us to

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the FED making those decisions chamoth

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or Friedberg maybe I can just do a

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little cleanup on what Sac said I think

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the issues that Credit Suisse are

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different than the issues at First

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Republic and the issues that first

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Republic are different than those other

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three Banks the other three Banks David

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that you mentioned

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signature Silicon Valley Bank

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and silvergate

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all had very traditional liquidity

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crises right we talked about this last

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week which is duration mismatching where

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you have depositors who want their money

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today but you have assets that mature in

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10 years and as a result you have huge

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unrealized losses if you all of a sudden

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cash them out today versus waiting 10

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years

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I think what's happening at First

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Republic is really just about making

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sure that that loan book

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and the depositors can get parked into a

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combination set of banks that can take

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care of the balance sheet so that there

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are no more liquidity issues

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at Credit Suisse they have an enormous

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amount of liquidity what that was was I

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think a lot of speculation around

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whether they would default on their

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bonds or whether they would

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theoretically need more liquidity

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but the balance sheet itself was not

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only liquid but also very solvent

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so I think that was just more of a

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panicky reaction to comments from a 9.9

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shareholder

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who just said that they can't put in any

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more Equity but even then I went back

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this is the chairman of the Saudi

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National Bank he was asked on Bloomberg

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would you give credit Suites more money

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and he had a very reasonable answer but

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it was snapshotted in a very awkward way

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the first sentence was under no

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circumstances would he do that okay now

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if you stop there you could be panicked

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but the rest of it made a lot of sense

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which is he said look

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in Saudi Arabia if we go above 10

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percent

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we have to go through regulatory

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approvals domestically and there are

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regulatory approvals abroad that's a big

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hill to climb and all of a sudden it no

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longer becomes a financial investment it

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becomes a somewhat political investment

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and so we're very happy at 9.9 that was

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the totality of a statement but if you

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just cherry pick the first 45 seconds

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and ran with it which people on the

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internet did

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this is sort of what caused that second

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level wave Panic at a g-sub and then the

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Swiss National Bank stepped in and I

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think that that Panic has largely gone

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okay so what is the real issue the issue

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again is I think we have had a bit of

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supervisory failure here right because

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we all know this in any industry if you

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let capitalism go totally unchecked

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shareholders will demand immediate

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profits today it happens in every

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industry except in ones where you can

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basically gamble on future profits and

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that's what tech does

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but every other shareholder in every

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other asset class demands money today

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and that's the same for banks the

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problem is the banks are a highly

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regulated business they are supposed to

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be supervised by The Regulators

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and this is a very clear example where

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why is there not a real-time spreadsheet

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I mean this is not complicated stuff

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where assets and liabilities and

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duration mismatching can be known on a

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real-time basis where the San Francisco

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fed Mary Daley should have a report

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that's escalated to her when svb got

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over their ski tips which they did in Q4

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of 2022

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so I think the real question that has to

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be examined is where were these folks

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for the last four months when they could

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have done something not just about this

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but rules in general for all banks that

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are not the gcps and I think that's a

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very important question that politicians

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need to get to the root of Friedberg we

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discussed this article from Seeking

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Alpha which came out on let me get the

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exact date here December 19th

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title of this Seeking Alpha story is svb

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financial colon blow up risk and the

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summary in three bullet points

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says

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bullet point one potential losses in

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loan portfolios could severely impair

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book Equity number two unrealized losses

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in hold to maturity portfolio already

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equal to book Equity number three

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funding environment for startups will

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pressure deposit based adding even more

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pressure to the balance sheet in other

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words startups spending money to cover

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their burn rate Free Bird

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and obviously we had the Dodd-Frank

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rules lessened or loosened under the

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previous administration and that

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specifically was driven by Silicon

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Valley Bank they had a big part in that

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so looking back on this and and people

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do want to place blame let's talk about

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the effects that occurred because this

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was hiding in plain sight

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literally in December in an article that

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looks like it was written by somebody

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who went into a time machine and said

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how do I warn people in December about

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this maybe you could talk about the

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fed's interest rates the spending and

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what led up to this look issue with the

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banks you guys remember when we started

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this podcast three years ago we were

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like they're gonna shut down the economy

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there's gonna be crazy second and third

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order effects of doing that no one knows

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what they're gonna be

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here they are and I think that's like

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the root of what is a Rippling effect

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you can't shut down

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the global economy

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and stop trade and stop people and have

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the government step in to write a giant

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check and not expect that you're going

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to have to cash that check at some point

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that's effectively what I think we've

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been kicking down the the road here the

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way we initially tried to resolve the

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problem was to drop rates to zero and

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then spend our way you know back to a

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growing supported economy and then

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overshot ended up with you know too much

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stimulation

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too much stimulus two lower rates for

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too long responded too quickly

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whiplashed back at the end of the day

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there was a giant gaping hole blown into

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the global economy

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when we shut down the world from covet

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blame it's just what happened

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and when that happened there was a

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massive cost that had to be born at some

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point

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and it's gonna get born at some point

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and the Rippling in a pond you don't

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know where the Ripple is going to hit

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what part of the pond what leaves it's

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gonna hit that's what's going on still

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and it's such a dynamical system it's so

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hard to say with linear certainty this

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is what should be done and what could

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have been done and what they should have

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done at the time no one had that

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predictive capacity back then they did

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what they needed to do people thought

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that they should have drop rates they

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said we should have written all these

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big stimulus checks some people said you

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shouldn't some people said you did

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certainly

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some people are being proven right and

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some people are being proven wrong but

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at the end of the day

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the economic loss that was realized at

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that period of time

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we're still trying to get out of it and

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we're still recovering from it I think

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that's a big part of what's being eaten

00:16:43

up right now and you're going to see it

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in the Wipeout of certain Equity you're

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going to see it in the Wipeout

00:16:49

of

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these banks of the assets that they hold

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and these portfolios and the effects of

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that are obviously you know still being

00:16:57

felt

00:16:58

Saks do you agree

00:17:00

that mistakes that this uh there isn't

00:17:04

somebody to blame because it is clear

00:17:06

that the FED said inflation is

00:17:10

transitory that was wrong and then they

00:17:13

went faster than in history to raise the

00:17:15

rates those seem like two glaring

00:17:18

mistakes and then the Todd the

00:17:20

Dodd-Frank loosening under Trump and

00:17:22

with Silicon Valley Bank pushing them

00:17:24

that seemed like a really big mistake by

00:17:26

the way I wasn't saying the feds not to

00:17:27

blame for not raising rates fast enough

00:17:29

okay that was because you guys remember

00:17:30

I was the first person to talk about

00:17:32

sure what Stan drucken Miller had said

00:17:34

that they're not raising rates fast

00:17:35

enough that we've got massive inflation

00:17:36

we should have been raising rates I was

00:17:38

the first person on this show to be you

00:17:39

know barking that so don't don't forget

00:17:42

like I was there okay like pretty early

00:17:44

what I was pointing out was like we shut

00:17:45

down the economy during covet that is

00:17:48

the main yeah so that's the main cause

00:17:50

that is the Cannonball that got blown

00:17:52

through the ship got it and everything

00:17:53

else is plumbing and patching and work

00:17:55

to try and keep the ship afloat and

00:17:57

we're still dealing with that and at the

00:17:58

same time as you guys know we've we've

00:18:00

been loading the ship up with debt the

00:18:02

global ship the global economy with debt

00:18:04

360 Global debt to Global GDP ratio

00:18:08

right now and as that ship has gotten

00:18:10

heavier and heavier to have a giant hole

00:18:12

blown in the side while you're trying to

00:18:13

do all this Patchwork with all this debt

00:18:14

Weighing on it it's a critical challenge

00:18:17

we're feeling acutely here they're

00:18:19

feeling it in Europe now and we're

00:18:21

certainly going to see the global

00:18:22

ramifications as we try and fix this

00:18:24

economic catastrophe that was caused by

00:18:27

covid at the same time that we've been

00:18:29

spending our way into a happier future

00:18:31

that it turns out

00:18:33

we have to pay the bills for at some

00:18:34

point sex your response the question of

00:18:37

who you blame for this banking crisis

00:18:38

has really become a political Rorschach

00:18:40

test and I've seen that there are six

00:18:42

different parties that people want to

00:18:45

blame in this situation and there's some

00:18:48

Merit to all of them but the degrees are

00:18:50

very different number one

00:18:52

okay number one the bank management of

00:18:54

all these different banks clearly very

00:18:56

poor risk management didn't do a good

00:18:58

job they are to to blame however and

00:19:01

tremath is right about these Banks they

00:19:03

differ in the details but the point is

00:19:05

that they're all operating under

00:19:06

conditions of extreme stress where did

00:19:08

that come from number two the fed's

00:19:09

rapid rate tightening cycle clearly I

00:19:12

think that the the combination of poor

00:19:16

risk management with the spike in

00:19:18

interest rates that basically has

00:19:19

precipitated this larger problem number

00:19:21

three is I think the Biden

00:19:24

administration's spending which In

00:19:25

fairness started with covid before Biden

00:19:28

but Biden really intensified it and then

00:19:30

I think it really compounded the problem

00:19:32

in the summer of 2021 by claiming that

00:19:34

inflation was Transit story when it

00:19:36

wasn't that allowed them to keep

00:19:37

spending and keep printing money and

00:19:39

kept QE going for another six months

00:19:41

that created the bubble of 2021

00:19:43

everything got super frothy and then

00:19:45

that made the rate cycle even more

00:19:48

vicious because you started six months

00:19:51

later they could have started six months

00:19:53

earlier and it could have been more

00:19:54

gradual and I think that really was a

00:19:56

disaster for the economy okay number

00:19:58

four the d-reg in 2018 I think Elizabeth

00:20:01

Warren and rokana have made what I would

00:20:04

call a compelling case that the d-reg in

00:20:07

2018 have contributed to this problem I

00:20:09

think in hindsight

00:20:11

creating a two-tier system of banks

00:20:13

where one tier are the systemically

00:20:16

important Banks who are completely

00:20:17

guaranteed and backstop by the federal

00:20:19

government and then a sort of lower tier

00:20:22

a second tier of regional Banks was a

00:20:24

poison chalice for the regional banking

00:20:27

system because in the short term it

00:20:29

meant they were more lightly regulated

00:20:30

which may be appropriate for you know

00:20:33

smaller banks that aren't these Mega

00:20:35

Banks however it has also now I think

00:20:37

created a situation where people are

00:20:38

less confident about them and so the

00:20:41

money flows are going from the regional

00:20:43

Banks to the systemically important

00:20:45

Banks the sibs so like I said it might

00:20:47

be a double-edged sword and I think

00:20:48

we're gonna have to look at those

00:20:49

regulations and figure out what's the

00:20:51

right regulatory regime

00:20:53

to create confidence in the regional

00:20:55

banking system we want a thriving

00:20:57

Regional banking system

00:20:59

and so the question is what's the right

00:21:00

regulations that get us there and then

00:21:02

the final two that we can talk about

00:21:04

later are I'm hearing wokeness getting

00:21:06

blamed which listen I think that

00:21:08

wokeness was a distraction there was a

00:21:10

lot of crazy programs happening at these

00:21:12

Banks but listen if wokeness was the key

00:21:14

factor the whole Fortune 500 would be

00:21:16

out of business because because they all

00:21:18

do this stuff they all do this stuff so

00:21:20

I think I think we're going back to the

00:21:21

well a little too often on that critique

00:21:23

and I don't want to I don't want to burn

00:21:25

that critique out because I I think that

00:21:27

wokeness is bad but it's not the key

00:21:29

reason why this stuff happened and then

00:21:31

the last group that gets super wokeness

00:21:33

we could also maybe frame it as ESG more

00:21:36

broadly as the distraction because woke

00:21:38

this is charged ESG is real

00:21:40

yeah what I would say for sure is that

00:21:42

if these banks have spent as much time

00:21:43

on risk management as they did on ESG or

00:21:46

on woke then this crisis wouldn't happen

00:21:48

so definitely a distraction but not not

00:21:50

the thing that like specifically caused

00:21:52

it and then just the final thing is VCS

00:21:54

and I just can't fathom at this point

00:21:57

given the multiple bank failures given

00:21:59

that we see the larger problem of

00:22:00

unrealized losses on bank balance sheets

00:22:02

that somehow any class of depositors

00:22:05

would be blamed for this that just makes

00:22:07

no sense to meth I think the VC the

00:22:10

critique is specific to Silicon Valley

00:22:12

Bank because I think and this article

00:22:13

was in the Wall Street Journal but what

00:22:16

it shows is a really complicated

00:22:18

intertwined relationship between VCS and

00:22:20

Silicon Valley Bank where you know VCS

00:22:23

were given very cheap interest rate

00:22:25

loans they were given GP call lines of

00:22:27

credit they were given LP lines of

00:22:29

credit and then those same VCS would be

00:22:32

directing their companies to put their

00:22:33

deposits inside of SPV who would then

00:22:35

take those deposits and buy perhaps and

00:22:37

buy risk and while the reality is all of

00:22:40

this stuff will come to light because I

00:22:42

think it will get exposed as we go

00:22:43

through Congressional hearings on all of

00:22:45

this

00:22:46

but I think the I think pointing the

00:22:48

finger at VCS in this specific case is

00:22:51

somewhat warranted because there was a

00:22:52

little bit of people working in lockstep

00:22:54

together and there was a a lack of

00:22:56

functional responsibility around how to

00:22:58

be a true fiduciary so if you come to a

00:23:02

board and your founder is 22 years old

00:23:05

and you give that person 15 or 20

00:23:07

million dollars I think it makes a fair

00:23:10

amount of sense that you are supposed to

00:23:11

be

00:23:13

the more sophisticated Financial person

00:23:15

in that room

00:23:17

and if you have incentives that aren't

00:23:19

properly disclosed to that CEO

00:23:22

and now a set of decisions are made I

00:23:24

think that that there should be some

00:23:26

accountability for that or at least some

00:23:27

exploration of why that happened I just

00:23:29

want to make sure the audience

00:23:30

understands this because it is a bit in

00:23:32

the weeds and it's a bit inside baseball

00:23:33

what you're saying shamoth is if I can

00:23:36

summarize it there are people who are

00:23:38

the adults in the room Venture

00:23:39

capitalists they have deposits at

00:23:41

Silicon Valley Bank they also might have

00:23:43

loans that are fantastic with Silicon

00:23:46

Valley Bank I have a mortgage for this

00:23:48

office from Silicon Valley Bank and I

00:23:49

talked about how on the last episode how

00:23:51

great it is they come they open wine

00:23:52

with you it's white glove service that

00:23:54

you wouldn't get at another bank

00:23:56

and then they might have loans against

00:23:59

What's called the GP carry or the GP

00:24:02

share or they might have mortgages and

00:24:05

so there's a conflict there if you're a

00:24:07

venture capitalist and you're directing

00:24:09

a 22 year old CEO to Silicon Valley Bank

00:24:10

maybe you're doing that is

00:24:15

explored no the biggest conflict of

00:24:17

interest and in some cases Silicon

00:24:19

Valley Bank is a limited partner in all

00:24:21

of these funds my point is

00:24:23

interesting okay hold on we have to

00:24:25

explain that so imagine a situation you

00:24:27

go and start a fund Silicon Valley Bank

00:24:30

constituent says let me be a limited

00:24:32

partner and invest with you let me give

00:24:34

you some amount of money I don't know

00:24:36

where that money comes from from Silicon

00:24:37

yeah

00:24:39

well let's be realistic more like 25 50

00:24:42

million 100 million okay that's a lot of

00:24:44

okay so a million kind of is

00:24:45

whitewashing this problem so you give

00:24:47

them a reasonable amount of money

00:24:49

they're like wow I'm I have tremendous

00:24:51

loyalty for you thank you well do you

00:24:53

need anything else do you need personal

00:24:54

loans do you need lines of credit for

00:24:56

your business sure why not I take those

00:24:58

two

00:24:59

and invariably on the back end now your

00:25:01

loyalty obviously builds up again

00:25:03

nothing none of this is wrong but this

00:25:05

is what's happening

00:25:06

and then you tell your companies to keep

00:25:08

your deposits there maybe the cash

00:25:10

management program is not as strong as

00:25:11

it would have been if you were more

00:25:13

circumspect and you didn't have those

00:25:14

incentives to direct people to one

00:25:16

institution only

00:25:18

in any other part of the market so in

00:25:20

the public markets as an example there

00:25:23

is such a bar for disclosure okay and I

00:25:26

cannot stress this to you enough related

00:25:28

party transactions all of this stuff we

00:25:30

have to tell everything not just for us

00:25:33

but even if our like sister or brother

00:25:36

or mother may have a transaction with an

00:25:38

entity that we're doing a deal with

00:25:40

and it just isn't the case in private

00:25:42

markets and so it's not to say that

00:25:44

anything untoward happened but when

00:25:46

people point the finger at VCS I think

00:25:48

they are pointing to this whole set of

00:25:50

issues and asking the question shouldn't

00:25:53

there have been more disclosure and

00:25:54

transparency around it and now that this

00:25:57

has come to pass shouldn't we explore it

00:25:59

and I think that's what the Wall Street

00:26:00

Journal did they started pulling on this

00:26:02

sweater thread and my guess is that

00:26:05

you're going to find a whole ball of

00:26:06

yarn at the end of it sax what do you

00:26:08

think of this I think tremath makes a

00:26:09

fair point that if VCS have svb as an

00:26:14

investor and then they're directing

00:26:15

startups to use svb that is a conflict

00:26:18

that should be disclosed by the way we

00:26:21

never did either one of those things we

00:26:22

never had sdb as a limited partner and

00:26:25

we also never direct our starts to the

00:26:26

bank at svb I don't know why we'd ever

00:26:28

do that moreover I always try to talk

00:26:31

Founders out of taking Venture debt

00:26:32

whether from svb or elsewhere so listen

00:26:35

can we be clear about that I've never

00:26:37

directed anybody to a specific bank I

00:26:39

know able to get two or three Banks and

00:26:41

have redundancy

00:26:43

yeah totally and look Founders have

00:26:45

multiple VCS typically on their board so

00:26:47

the idea that like anyone VC directs

00:26:49

them which bank to use is this not

00:26:51

that's not realistically what happens at

00:26:53

these startups

00:26:55

but look I think chamoth is right that

00:26:57

when there is a bank failure or any kind

00:27:00

of failure this big then all the

00:27:01

practices are going to be under a

00:27:03

microscope and there's going to be some

00:27:04

scrutiny there we go and maybe there

00:27:05

should be but my larger point is we're

00:27:08

now operating in an environment in which

00:27:10

clearly there's a larger set of stresses

00:27:13

on the banking system we've already had

00:27:15

now Five bank failures or near failures

00:27:17

moreover do any of us believe that this

00:27:20

is over or do we believe there are more

00:27:22

shoes to drop if we believe that there

00:27:24

are more shoes to drop we may not know

00:27:26

exactly what they are but but I think

00:27:27

all of us probably believe that we're

00:27:29

not the end of this but but but just a

00:27:31

thought if we believe there will be more

00:27:33

shoes to drop then clearly the issues

00:27:35

cannot just be limited to Silicon Valley

00:27:38

they have to be a larger set of issues I

00:27:41

think that it's important to understand

00:27:42

the facility that the FED created so

00:27:45

what the FED did this weekend

00:27:48

is essentially create a buyer of Last

00:27:50

Resort again now how do they do this so

00:27:53

all of these Banks basically have assets

00:27:55

that they bought for a dollar and are

00:27:57

now worth 95 cents and that's what's

00:27:59

creating this whole issue or 80 cents or

00:28:01

85 cents you you pick the number but

00:28:03

they're not worth the dollar that they

00:28:04

bought

00:28:05

what the FED basically said is okay

00:28:08

give me that asset give me that Bond

00:28:11

I will value it at a dollar and I will

00:28:13

give you a dollar as a loan and you will

00:28:16

pay me interest and the interest rate I

00:28:18

think is what's called ois and they

00:28:20

added 10 basis points on top so I think

00:28:22

it's about 4.9 percent

00:28:24

so what it allows all of these Banks and

00:28:27

if you take all of the banks that are

00:28:29

not the top four in America so the top

00:28:31

four are

00:28:32

JPMorgan B of A City and well so just

00:28:35

ignore those for one second the other

00:28:37

end Banks if you look at all of the

00:28:39

assets that are underwater because of

00:28:42

all the rate hikes that sax talked about

00:28:44

and you add up all those losses

00:28:47

that is about two trillion dollars

00:28:49

and the FED didn't denounce that there

00:28:52

was a beginning and an end to this

00:28:54

program other than saying these would be

00:28:56

one-year loans

00:28:57

and so I think the exposure for the

00:29:00

American banking system at a minimum

00:29:03

is going to be this two trillion dollars

00:29:05

because now the incentive if you're a

00:29:08

banker right now running one of these

00:29:10

banks that has not gone under

00:29:12

is to immediately go to the Fed

00:29:15

put all of those assets to them

00:29:17

get a loan

00:29:19

and now take that and buy different

00:29:21

assets different bonds different U.S

00:29:24

treasuries that are yielding much more

00:29:27

than what your old treasuries were

00:29:29

yielding and I think that's the

00:29:31

Arbitrage that we've unfortunately

00:29:33

created

00:29:34

and the other question now though

00:29:36

however is what does that mean for the

00:29:38

top four Banks right because if it's two

00:29:40

trillion for everybody else but the top

00:29:42

four

00:29:43

what's the gap for the top four that

00:29:45

looks like it's somewhere between a

00:29:47

trillion and 2 trillion so that's

00:29:49

another

00:29:50

amount of money we're going to have to

00:29:52

cover the FED will have to backstop and

00:29:54

then

00:29:55

as Friedberg said these checks always

00:29:57

come due what do we do in a year

00:30:01

because in a year

00:30:03

the problem is the only way to make the

00:30:06

banks in a position to repay this much

00:30:08

money in one year

00:30:10

is to cut interest rates so massively

00:30:14

that these assets massively inflate and

00:30:16

now all of a sudden you're in a position

00:30:18

to cover this so this is

00:30:21

Delta is because it's about they're down

00:30:23

15 10 and Book value these

00:30:26

longer terms of security again it

00:30:29

depends on what they bought we don't

00:30:30

really know enough details so I don't

00:30:31

want to guess but if you own these

00:30:33

10-year treasuries you could be off 10

00:30:34

or 15 if you own

00:30:36

mortgage-backed Securities it could be

00:30:38

off a little bit more if you own

00:30:39

short-term Securities they're off a

00:30:41

little bit less but these are with the

00:30:43

government you get a loan collateralized

00:30:45

by these assets so you're still holding

00:30:47

them right yes and they mature so if the

00:30:49

FED takes an emergency posture and says

00:30:52

okay guys we want to avert a crisis in a

00:30:54

year from now

00:30:55

and we're going to cut rates these

00:30:57

assets that these Banks own will be

00:30:59

worth more which will allow them to

00:31:01

repay the loan

00:31:03

as far as I can tell

00:31:06

all we've done is we've kicked the can

00:31:07

down the road for a year

00:31:09

but I do think it's important for people

00:31:11

to realize this doesn't solve the

00:31:13

problem it just means that mark your

00:31:15

calendar for a year from now we have a

00:31:18

problem on March 15 2024 because all

00:31:22

perfect folks that took money what do we

00:31:24

do yeah and so a year to work it out

00:31:26

Freeburg would seem

00:31:28

like a good idea because

00:31:31

the FED is fighting inflation they seem

00:31:34

to have gotten some portion of it under

00:31:36

control it's not out of control right

00:31:37

inflation and maybe if they can slowly

00:31:41

you know either start Ray Cuts or pause

00:31:43

so let's shift the discussion to hey

00:31:46

what are the changes we need to make to

00:31:48

the system and how do we think this

00:31:50

plays out over the next year Freeburg

00:31:52

chamoth had one suggestion which was all

00:31:55

of these Banks should have a disclosure

00:31:57

statement Mark to Market every day week

00:32:00

month quarter whatever it is just like

00:32:03

circles usdc their stablecoin has a page

00:32:06

with their disclosures of all their

00:32:07

Holdings so that seems to be a very

00:32:09

productive one we should have them Mark

00:32:11

to market the Dodd-Frank stuff as Sac

00:32:14

said you know Elizabeth Warren probably

00:32:16

correct we need to reverse that so those

00:32:18

are two very tangible suggestions

00:32:20

real-time dashboard we need to have a

00:32:23

real-time dashboard at every single fed

00:32:26

that allows them for every bank that

00:32:28

they supervise to know in real time

00:32:34

I'm not sure that should be true but

00:32:36

they are their supervisors they should

00:32:38

see it they should choose to ignore it

00:32:40

but they should not not have it

00:32:43

Freeburg what are your suggestions going

00:32:44

forward as to how we can learn from this

00:32:47

situation

00:32:48

forget about the Cannonball as you

00:32:50

vividly expressed there I think very

00:32:53

well a great analogy

00:32:55

but just going forward how do we keep

00:32:57

the ship

00:32:58

from taking on water if we do have a

00:33:01

cannibal hit it again

00:33:03

now we got a hard that's a hard equation

00:33:06

to solve

00:33:07

it that's why I'm asking you that's why

00:33:09

I'm asking you suggestions a lot of

00:33:12

Demands for money

00:33:14

you guys see I I think there's a lot of

00:33:17

things that are seem unrelated that are

00:33:19

all pretty related right now

00:33:21

there's a massive protest underway by

00:33:24

labor in France

00:33:26

there's a massive protest underway in

00:33:28

the Netherlands

00:33:30

there's strikes on the Underground in

00:33:33

London when we talk about global debt

00:33:36

and U.S debt

00:33:38

we often I don't think account for all

00:33:40

the debt which also includes promissory

00:33:42

obligations made to a Workforce Global

00:33:45

Workforce that's been working for

00:33:47

decades individuals that have spent

00:33:49

their whole lives committed

00:33:51

to some company or to some government

00:33:53

working with the expectation that

00:33:55

they're going to retire and have some

00:33:56

benefits paid to them

00:33:58

and there's this massive underfunding of

00:34:00

those benefits and those pools of

00:34:01

capital we very quickly talk about

00:34:04

unfunded pension liabilities

00:34:06

but when you actually kind of account

00:34:09

for the number of people and the amount

00:34:11

of capital that those people are

00:34:13

expecting that the workforce the global

00:34:15

Workforce is expecting to be paid to

00:34:16

them in retirement

00:34:18

both public and private

00:34:20

it's a massive amount of money that's

00:34:22

not funded today

00:34:24

and you start to see the cracks in the

00:34:26

system when that population

00:34:28

says my pension payments are not keeping

00:34:32

up with interest with inflation or when

00:34:35

there's a threat that pension payments

00:34:37

or retirement benefits are going to kick

00:34:39

in at a later age well you're not going

00:34:41

to get them fast enough you're not going

00:34:42

to get as many as you thought you were

00:34:43

going to get we have that problem in the

00:34:44

United States in the form of Social

00:34:46

Security and these underfunded pension

00:34:47

liabilities

00:34:48

that is the critical macro tension in

00:34:51

this equation that I think

00:34:55

drives the real problem that's going to

00:34:57

come to a head at some point we blew a

00:34:59

hole in the in the in the boat but we're

00:35:01

also forgetting that there's like a

00:35:03

massive amount of weight that's going to

00:35:05

drop on the boat

00:35:07

and I think that it's a really hard

00:35:08

equation to solve we can talk about

00:35:10

keeping Bank solvent and all this sort

00:35:12

of stuff at the end of the day the

00:35:13

Central Bank it appears in the United

00:35:14

States and probably globally it's going

00:35:16

to be one big bank right they're

00:35:18

basically going to take on the whole

00:35:19

balance sheet themselves and and at the

00:35:22

same time you've got a lot of folks

00:35:24

saying I want to get paid more

00:35:26

I have obligations due to me and guess

00:35:29

what you know Jason here

00:35:32

important statements historically about

00:35:34

the importance of democracies ultimately

00:35:37

you know the members of that democracy

00:35:39

are going to say this this is a benefit

00:35:41

that the majority are owed

00:35:43

and that's going to pull things out I

00:35:45

think the only stop Gap I'll just say

00:35:47

one thing the only stop Gap in the next

00:35:49

decade is going to be significantly

00:35:51

higher tax rates in the United States

00:35:53

I I don't see how you're going to

00:35:55

fulfill the tension Gap that's underway

00:35:57

right now with respect to where

00:35:59

productivity is going and where Capital

00:36:00

markets are going and where the demands

00:36:02

are on the system from people requiring

00:36:05

additional Capital to come out to them

00:36:06

without taxing assets away from the

00:36:10

asset holders so this would be

00:36:12

corporations and high net worth people

00:36:13

and I think that's why you see this

00:36:15

Biden proposal

00:36:16

we may not like it but at the end of the

00:36:19

day it's going to be the only way to

00:36:20

create a stop Gap that's that's that's

00:36:21

going to avoid massive inflation in the

00:36:23

near term reducing Supply proposal hold

00:36:26

up hold on one second let me just say

00:36:28

the only other way the only I'll just

00:36:29

say one more thing Jacob you can go the

00:36:30

only other way besides

00:36:33

you know a massive long-term tax regime

00:36:35

to fill the hole would be some

00:36:37

extraordinary productivity gain and this

00:36:39

is where we can all have a hope and a

00:36:40

dream and an investment and an effort

00:36:42

around technology AI automation people

00:36:45

think that their energy job energy but

00:36:48

if you can get energy down below uh

00:36:50

three cents a kilowatt hour and you can

00:36:52

scale its production by tenfold if you

00:36:54

can automate a lot of Labor if you can

00:36:56

get AI to do a lot of stuff that we do

00:36:58

today productivity will go through the

00:37:00

roof the economy will grow fast enough

00:37:02

to get out of the debt bubble and meet

00:37:04

all of these liability obligations so

00:37:05

there are three ways yeah I think I

00:37:08

think to me to me that's the long term

00:37:09

the medium term is going to be this tax

00:37:12

stop Gap it's very high tax top Gap and

00:37:15

then the short term is going to be all

00:37:16

the shenanigans that we're talking about

00:37:17

okay I'll go to you in a second sax so

00:37:19

just to recap there it's actually a

00:37:20

third way too there are three ways

00:37:22

productivity as you very astutely point

00:37:24

out and we we just highlighted some of

00:37:26

the

00:37:27

ways productivity could help whether

00:37:29

it's energy AI Etc

00:37:31

second is of course increasing taxation

00:37:34

on the people who are at the top of the

00:37:36

pile uh would be the likely solution the

00:37:38

third is also austerity cutting spending

00:37:40

in some way

00:37:41

but let me also propose one thing here

00:37:43

as we look forward to what do people

00:37:46

want out of a bank and how should

00:37:49

startups or just individuals deal with

00:37:51

bank runs and their trust in Banks to

00:37:53

tremont's point I've been I was thinking

00:37:55

about this over the weekend and then

00:37:56

this discussion that we would have based

00:37:58

on a lot of things you said Saks which

00:38:00

was people just deposited their money

00:38:02

and they don't have the ability to

00:38:03

assess if a bank is solvent because

00:38:06

the FDIC can't do it and it's their

00:38:08

full-time job it's their mandate to make

00:38:10

sure these Banks were solvent so how is

00:38:12

a consumer going to be able to do that

00:38:13

or even a startup founder or even a

00:38:15

sophisticated investor like Ackman or

00:38:17

any of us if we're in fact sophisticated

00:38:19

so let me pause for a second here and

00:38:21

posit something

00:38:23

we don't want a bank we want a bank

00:38:26

vault consumers do not want their

00:38:30

deposits to be used for shenanigans just

00:38:33

like many people would rather pay for a

00:38:36

social network than have their privacy

00:38:38

data sold so I think we should bifurcate

00:38:41

Banks into bank vaults and Banks Banks

00:38:45

can do what they want with your deposits

00:38:46

you get free checking but what I wanted

00:38:48

a bank what I want my startups to use

00:38:50

what I want my Venture firm to use is I

00:38:52

want to pay the bank for services

00:38:54

whether it's 10 basis points 25 basis

00:38:57

points 500 a month I would rather see my

00:39:00

startups pay a thousand dollars a month

00:39:02

in banking fees two thousand dollars a

00:39:04

month on banking fees for two million

00:39:06

dollars whatever it is and pay for each

00:39:09

check pay for wires pay for White Glove

00:39:11

service whatever they choose

00:39:12

but not allow the banks to take that

00:39:15

money and Loan it out or do things with

00:39:16

it I just want a vault and I think a

00:39:19

vault service is what the majority of

00:39:21

consumers want and given what we're

00:39:23

seeing with two insane Bank Run bailouts

00:39:26

in our lifetimes as adults for those of

00:39:28

us who are in Gen X 2008 and now we

00:39:31

would rather pay for services and I

00:39:33

leave it to you sax is this a potential

00:39:35

solution because I don't hear anybody

00:39:37

saying give me a bank vault and why does

00:39:39

that service not exist in the world

00:39:41

yeah look what people really want are

00:39:43

they want a service provider who gives

00:39:45

them the ability to make payments which

00:39:47

if you're a small business is payroll

00:39:49

and payables things like that they want

00:39:51

a money market fund to basically earn

00:39:54

interest and

00:39:57

um and they want all that to be safe I

00:39:58

mean it's it's very simple the idea that

00:40:01

when you go open a checking account at a

00:40:04

bank that you are making an unsecured

00:40:07

loan to that bank that is not something

00:40:09

that any consumer or small business

00:40:11

understands that whole model I think is

00:40:13

completely Obsolete and outdated and

00:40:16

what I heard so many people say and I

00:40:18

think this is not sincere I think it's

00:40:20

just because they hate Tech is that

00:40:22

depositors should take it on the chin

00:40:24

because somehow they made a stupid

00:40:27

decision when they opened a checking

00:40:29

account it's like are you kidding me

00:40:30

listen what do you want the process to

00:40:32

be

00:40:33

you want consumers and small businesses

00:40:35

when they open a bank account have to

00:40:37

review the financial statements of that

00:40:39

bank try to figure out all their

00:40:41

disclosures where their assets are

00:40:42

whether they have toxic assets on the

00:40:44

books and if they don't do a good enough

00:40:46

job doing that if they're not smart

00:40:48

enough to do that then you want them to

00:40:50

be disciplined this is the word that I

00:40:52

kept her being used is we need to

00:40:54

distributive the depositors the

00:40:57

depositors are not in a position to

00:40:59

evaluate the balance sheet of these

00:41:02

Banks that's what the feds are supposed

00:41:04

to do that's what the Regulators are

00:41:05

supposed to do that's what movies is

00:41:06

supposed to do and you're telling me

00:41:08

that a bank that had an a rating from

00:41:10

Moody's the week before and had an FDIC

00:41:12

seal of approval that somehow they got

00:41:14

it wrong and the FEDS got it wrong but

00:41:17

the interested

00:41:18

I mean come on that's ridiculous in

00:41:21

related news chamoth I would like an

00:41:23

airbag in my cars to protect my family

00:41:25

but I don't want to evaluate the airbag

00:41:28

technology and unpack it and make sure

00:41:30

that it's got the right right

00:41:33

let me finish the point it's about

00:41:35

consumer protection here and I don't

00:41:38

care who the depositor is if the banking

00:41:40

system is going down because the feds

00:41:42

haven't done their job I mean pal two

00:41:45

days before the bank failures was

00:41:46

testifying that he didn't see stress in

00:41:49

the banking system so either he was

00:41:50

lying or asleep

00:41:53

the feds had given the seal of approval

00:41:55

to sgb and all these other Banks they

00:41:57

had all passed the regulatory exams and

00:42:00

so to now put it on the deposit when the

00:42:03

FED screws up and The Regulators screw

00:42:05

up and Washington screws up by printing

00:42:07

all this money and creating this

00:42:09

inflation that we've had again out of

00:42:11

all the six parties that you could blame

00:42:13

I just think it's the the least culpable

00:42:15

chamoth should there be a service

00:42:18

that provides no interest but is just a

00:42:21

custodian of money that is absolutely

00:42:24

protected where is the bank vault

00:42:26

product in the world does it exist

00:42:28

because I can't seem to find it some

00:42:29

people seem to say I think Freeburg you

00:42:30

alluded to this maybe in the group chat

00:42:32

that if you have a brokerage account

00:42:33

that's kind of similar to what I'm

00:42:36

saying but it doesn't have it I don't

00:42:37

want any interest I don't need any

00:42:39

interest for putting this money in the

00:42:41

bank for a startup they're not in the

00:42:42

business of making one to five percent

00:42:45

and optimizing for that I have Founders

00:42:46

who are now sending me five page memos

00:42:50

if yeah if the bank can't use your money

00:42:52

they're going to charge you so remember

00:42:54

I want to be charged that's the service

00:42:56

I want but but I think this is an

00:42:58

important point a bank as a service

00:43:00

provider they spend a lot of money

00:43:02

Building Technology having people that

00:43:03

work there providing service and

00:43:04

infrastructure so for the services that

00:43:07

they're offering if you're not going to

00:43:09

let them use your money to make

00:43:10

investments with your money and they can

00:43:12

participate on that gain they have to

00:43:13

charge you they charge you and I think

00:43:15

that's really worth it

00:43:18

provider under the current laws you

00:43:20

understand how it works now is that what

00:43:22

we're being told is that when you went

00:43:24

to the bank thinking you were just

00:43:25

getting a service provider and frankly

00:43:27

largely a commodity service provider

00:43:29

you're getting yeah you're getting a

00:43:30

manager yes and you're being told that

00:43:33

you actually made a risky investment

00:43:35

decision think about that when you

00:43:36

opened a checking account you weren't

00:43:38

just trying to you know again use a

00:43:40

vendor you were actually making a risky

00:43:42

investment decision that's what they're

00:43:43

trying to say and you deserve to lose

00:43:45

your money if you chose poorly even

00:43:48

though nobody else could figure it out

00:43:49

none of the experts could figure it out

00:43:51

you should talk about the the challenges

00:43:53

of your system to someone who lives in

00:43:55

Argentina it's far worse in other parts

00:43:57

of the world and we've come a long way

00:43:58

in the last hundred years we talked

00:43:59

about 500 600 bank failures on average

00:44:02

per year in the 1920s so I'm not saying

00:44:04

that hey that's not the case but there's

00:44:06

always been to some degree risk when

00:44:07

people are giving their Capital over to

00:44:09

someone else and we've certainly made

00:44:11

huge strides in progress but I think

00:44:12

Jake out to your point you know there is

00:44:14

a point of privilege now that people are

00:44:16

saying I want to have a position where I

00:44:18

know that my money's not going to get

00:44:19

used not going to get moved gonna be

00:44:21

completely safe why would you pay for

00:44:23

that what's the price free Burke what

00:44:25

would you pay for that because right now

00:44:26

we're basically giving every crypto

00:44:28

entrepreneur and sell it you know

00:44:31

basically The High Ground because they

00:44:32

could make this product I would pay 10

00:44:34

basis points literally 10 000 a year per

00:44:37

million is that right yeah remember when

00:44:39

you thought Jeff Bezos was going to be

00:44:40

president

00:44:41

I still think it's a distinct

00:44:43

possibility anyway what would you pay

00:44:45

for this product

00:44:46

or like Bloomberg or Bezos I don't want

00:44:50

to speculate on

00:44:52

new products it's kind of a dumb tangent

00:44:54

I think the thing that you're bringing

00:44:56

up though is Dom tangent okay

00:44:59

why doesn't a product like this exist

00:45:02

and I think that it was very well

00:45:04

explained it's that every for-profit

00:45:07

business is in the business of making

00:45:08

money and there are physical costs that

00:45:11

you have to bear in the case of a bank

00:45:13

there's physical infrastructure

00:45:15

literally bricks and mortar that go into

00:45:17

making the branches there are lots of

00:45:19

people there is lots of software there's

00:45:22

lots of complex back office and middle

00:45:24

office things that banks have to do in

00:45:25

order to accept money that has a cost so

00:45:29

I don't see how it will be very easy for

00:45:32

somebody to create a bank that just

00:45:35

stores your money for you without you

00:45:37

being charged quite a lot of money

00:45:39

unfortunately I think that there has to

00:45:43

be a different way to solve this problem

00:45:45

and I think that what we did after the

00:45:47

great financial crisis was The

00:45:50

Regulators wrote down all kinds of new

00:45:52

rules

00:45:53

but the crazy thing in 2008 where those

00:45:57

rules were written on paper

00:45:59

and now we're in 2023 and these rules

00:46:02

can be written in software

00:46:04

and so I think what it requires is some

00:46:07

amount of tactical real-time

00:46:10

intelligence

00:46:11

that Regulators need to have over those

00:46:15

that they regulate and I don't know why

00:46:17

we're so afraid of demanding that the

00:46:19

next time some of these complicated

00:46:21

real-time laws are written in law that

00:46:25

they also need to get written in code

00:46:27

and I think that that's a practical

00:46:29

solution it should be the case

00:46:32

that every bank that's supervised by the

00:46:34

Fed

00:46:35

has a dashboard that has all of the key

00:46:37

levers that allows what you said Jason

00:46:40

to happen which is a real-time Mark to

00:46:41

Market should those or should those be

00:46:43

just should or should they not be

00:46:44

disclosed to shareholders that's a

00:46:46

different discussion but The Regulators

00:46:48

should have a hundred percent

00:46:49

transparency into how these

00:46:51

organizations run because as Sac said

00:46:54

they are an enormously critical

00:46:56

institution that at best case after this

00:46:58

Fiasco what we've realized is very

00:47:01

poorly misunderstood by consumers

00:47:03

and that at the worst case is being

00:47:06

mismarketed to us

00:47:08

yeah and I think that that shouldn't be

00:47:10

allowed we're also missing the other

00:47:12

side of the balance sheet we haven't

00:47:13

talked about it at all but Banks play a

00:47:16

really critical and important role as

00:47:17

lenders

00:47:19

thanks act as the channel for Lending

00:47:21

Capital to small businesses for Lending

00:47:23

Capital to individuals to buy homes

00:47:26

it's the primary place where capital is

00:47:29

provided to help fuel economic growth

00:47:31

and prosperity uh particularly in the

00:47:34

United States where we have such a

00:47:35

liquid fluid and available mortgage

00:47:37

Market to support home buying in America

00:47:39

and the absence of you know Jason what

00:47:42

you're talking about having the ability

00:47:44

to use deposits to make loans

00:47:47

and have what banks have fundamentally

00:47:49

been in this country for over 100 years

00:47:51

which is taking short-term deposits to

00:47:53

make long-term loans and making sure

00:47:55

that there's some degree of balance and

00:47:56

availability of liquidity to support

00:47:58

transactions and ultimately mortgage

00:48:00

Securities came out of the need to

00:48:02

generate more liquidity by Banks to

00:48:03

support depositors and obviously there

00:48:05

was all these inflationary things that

00:48:06

happened in that market and Bubbles that

00:48:08

happened but it's an important role that

00:48:10

Banks play and the lending aspect of

00:48:12

banks if it gets stifled too much

00:48:13

because we swing too far the other way

00:48:15

it can actually have a really adverse

00:48:17

effect on economic growth and prosperity

00:48:19

and the ability for people to to afford

00:48:21

homes in this country so that's the

00:48:23

other side of the coin on where things

00:48:24

can go bad so this is where I find like

00:48:27

the the current banking model to be sort

00:48:29

of like weird and maybe Obsolete and

00:48:31

definitely not what consumers expect so

00:48:33

for example if you go to a bank and you

00:48:36

put your money in a deposit account and

00:48:37

then they loan it out to make mortgages

00:48:40

do you realize that you're an investor

00:48:42

in those mortgages as the as the

00:48:44

depositor I don't think you do I mean

00:48:46

because what what they what they do is

00:48:48

they take those mortgage sacks they

00:48:49

package them up they sell them and they

00:48:52

get an origination fee and they get the

00:48:54

money back

00:48:58

Wells Fargo do not exactly so B of A

00:49:00

Wells Fargo for example they they do a

00:49:03

lot of that but if you look at First

00:49:04

Republic they have a 90 billion dollar

00:49:05

loan portfolio on their balance sheet

00:49:07

that they've not packaged up and sold so

00:49:09

the packaging and selling of mortgages

00:49:11

generated the liquidity that the banks

00:49:13

needed but there's a cost to that so a

00:49:15

lot of banks will try and balance out

00:49:16

their loan portfolio where they'll

00:49:18

package some of it up and sell it but

00:49:19

when they do that they take a loss or

00:49:21

they pay maybe they should be required

00:49:22

to do that because because yeah because

00:49:25

I mean look to the point about Mark to

00:49:26

Market assets it's very hard to mark an

00:49:29

asset to Market unless it's liquid and

00:49:31

publicly traded let me give you an

00:49:32

economic point I think that there's

00:49:33

about seven trillion dollars in deposits

00:49:35

in Banks so if what you guys are saying

00:49:37

happened you're basically sucking seven

00:49:39

trillion dollars out out of the system

00:49:41

that's being used to fuel purchasing in

00:49:43

the form of loans and you're taking that

00:49:45

step or call it a 10 discount to that so

00:49:47

about call it six trillion dollars and

00:49:49

you're saying we got to go find a market

00:49:51

for six trillion dollars of loans and

00:49:54

then we're going to have six trillion

00:49:55

dollars of cash sitting in a bank

00:49:57

account doing nothing and that that

00:49:59

challenge is the way that cash will go

00:50:00

into money market funds so in other

00:50:02

words like you'd package up all those

00:50:03

mortgage bonds you create a mortgage

00:50:04

Bond security and then if consumers if

00:50:07

depositors want that product they'll

00:50:09

just buy it

00:50:17

on cash that's being used to make

00:50:18

investments elsewhere so ultimately if

00:50:20

you want to earn interest on your cash

00:50:22

it has to be loaned out somewhere to

00:50:24

someone I understand but what I'm saying

00:50:26

is look I'm just brainstorming here I

00:50:28

don't you know I don't have to say it I

00:50:29

don't have spitballing yes exactly I'm

00:50:32

not saying this is what should be done

00:50:33

I'm just kind of asking whether it might

00:50:34

make more sense what if on the depositor

00:50:37

side all of the things you put your

00:50:38

money in are money market funds and then

00:50:40

when the bank goes out and does its

00:50:42

lending business it does ultimately at

00:50:44

some point have to package those up and

00:50:45

they get turned into Securities you know

00:50:48

sexy but money market funds

00:50:50

you know where that cash goes so when

00:50:52

you when you invest in a money market

00:50:53

fund you're you're giving like money to

00:50:55

someone who's using it to make a loan

00:50:57

like it is also I understand but then

00:50:58

the depository would be marked to Market

00:51:01

as sex is

00:51:02

never be at risk of bank failure I just

00:51:04

want to give you're Shifting the risk

00:51:06

equation to the fund manager the money

00:51:07

market instead of the advantage of the

00:51:09

bank and at the end of the day

00:51:11

just the owner of that security that

00:51:14

money market fund that would take the

00:51:16

hit okay just as we wrap here because I

00:51:18

want to talk on some other issues as

00:51:20

well there's two things that are super

00:51:21

tangible that Founders can do right now

00:51:24

or people who want to mitigate against

00:51:26

these kind of issues there's something

00:51:29

called ICS insured cash sweeps these are

00:51:32

accounts that automatically you know

00:51:34

will put your money into multiple FDI

00:51:37

insured institutions 250k at a time we

00:51:40

talked about this previously there's a

00:51:42

bunch of folks doing that in fintech I

00:51:45

won't give any of them free plugs here

00:51:46

but you you can just go look and search

00:51:48

for ICS there is a also maybe some

00:51:51

thought here that the FDIC 250k limit

00:51:54

maybe that's outdated certainly for

00:51:56

businesses it is so maybe that should

00:51:57

double or triple and obviously that cost

00:51:59

would be spread out and then finally you

00:52:02

can go to treasury direct.gov right now

00:52:03

and buy short-term government debt and I

00:52:05

literally have startups doing this who

00:52:07

have major treasuries they're going

00:52:08

there and buying short duration stuff

00:52:10

themselves holding it themselves so they

00:52:13

don't have to worry

00:52:14

this is part this is provided by the

00:52:16

government is my understanding and uh

00:52:18

people are buying direct from the

00:52:21

government I personally am not a fan of

00:52:24

startups buying t-bills because of the

00:52:27

duration mismatch problem they always

00:52:29

underestimate when they're going to need

00:52:30

their cash and so I don't like tying up

00:52:34

accounts this is if you had a giant

00:52:36

treasury yeah

00:52:38

always get it wrong I see this all the

00:52:41

time whenever they try to let me just

00:52:42

say when starts trying to create

00:52:43

laddered Bond portfolios they end up

00:52:45

needing the money sooner than they

00:52:47

thought what I'd much rather see startup

00:52:48

do is buy a hundred percent

00:52:51

UST Bill backed money market fund run by

00:52:54

the absolute biggest to the big

00:52:57

financial institutions because you can

00:52:59

get in and out of it at any time you

00:53:00

want and without paying a fee and that's

00:53:02

so much better than trying to manage

00:53:03

your own Bond portfolio let a

00:53:05

professional fund manager do it well

00:53:07

there are people who do provide these

00:53:09

kind of bond ladders I'm just telling

00:53:10

you what the best practice advice

00:53:13

through like a brokerage account sure or

00:53:16

multiple ones right and but now this is

00:53:19

I think speaks to chamoth

00:53:21

the fact that we have startup Founders

00:53:24

and people having to measure manage a

00:53:27

treasury

00:53:28

this granularly is this a failure or is

00:53:31

this what should be happening should we

00:53:33

have to have treasuries in the 10

00:53:35

million or 20 million range be this

00:53:38

granularly managed or should this just

00:53:40

be FDI FDIC rates you know should be

00:53:44

just a 10x well in the absence of

00:53:46

regular regulatory changes that protect

00:53:49

this money

00:53:51

you need to have a financially

00:53:52

sophisticated actor on the board and

00:53:55

again I go back to that should be your

00:53:56

venture capitalist

00:53:58

and that person should not have

00:54:00

conflicts of interest with the banks

00:54:03

that they direct you to I mean I don't

00:54:05

think that that's a very controversial

00:54:06

statement

00:54:07

yeah it's just not happening and I I am

00:54:10

just flabbergasted that

00:54:12

people are not even doing the basic

00:54:14

blocking and tackling here of having

00:54:16

three or four accounts I've always had

00:54:18

three or four banking relationships

00:54:19

always had it uh split up should we move

00:54:21

on to some of the other pressing issues

00:54:22

there

00:54:23

was a really interesting Founders fun

00:54:25

story about them breaking their latest

00:54:28

Fund in half and then there is stripe

00:54:30

closing their funding which one would

00:54:32

you gentlemen like to go to or a

00:54:33

different story on the docket I think

00:54:35

there are there are four things that are

00:54:37

very interrelated okay in startup land

00:54:39

so Founders fund took their just to make

00:54:43

the math simple because I'm going to get

00:54:45

the numbers not exactly right but like a

00:54:46

two billion dollar fund that they're

00:54:48

gonna break into two one billion dollar

00:54:50

funds so I think that's one 1.8 billion

00:54:52

dollar fund they're going to break it

00:54:53

into two 900 million dollar funds it's

00:54:55

their eighth fund it's being cut in half

00:54:57

and it'll become eight and nine I think

00:54:59

what that speaks to is valuations and

00:55:02

the marks that we think we have for

00:55:05

existing companies and the future value

00:55:07

that smart investors like this see

00:55:10

all roads lead to it says we're in for a

00:55:14

slog and so trying to put a two billion

00:55:16

dollar fund to work doesn't seem to make

00:55:18

a lot of economic sense to some of the

00:55:20

smartest people in the room so that's

00:55:21

that's that the second thing it's

00:55:24

according to axios Peter Thiel LED this

00:55:26

charge and he is uh the contrarians

00:55:28

contrarian

00:55:30

he was the one according to access that

00:55:32

led that cut of the fund size with

00:55:34

Summit uh Founders fund according to the

00:55:36

reports about closing him I'll say the

00:55:38

more important thing which in Peter and

00:55:40

I are in the same we're the largest LPS

00:55:41

in our funds and so you know as the

00:55:43

largest LPS in our funds I think this is

00:55:45

a no-brainer decision number two

00:55:49

stripe basically takes a 50 haircut

00:55:51

which is the single

00:55:53

best run most highly valued company in

00:55:56

Silicon Valley again that's going to

00:55:58

eviscerate private company yeah a lot of

00:56:02

tbpi and a lot of people's portfolios a

00:56:04

lot of theoretical money that LPS were

00:56:06

going to get

00:56:08

I think the third thing is

00:56:11

there's a person that went and filed a

00:56:14

foia request that UC Berkeley

00:56:17

to get sequoia's returns

00:56:20

and it turns out that the best investor

00:56:23

in the game quote unquote since 2018

00:56:26

has not really done that well

00:56:29

and I think in the University of

00:56:31

California invested over 800 million

00:56:34

dollars in Sequoia since 2018 and I

00:56:36

think has returned

00:56:37

what some 40 million bucks on that

00:56:39

number and then the fourth which just

00:56:41

came out today is that

00:56:43

tiger wrote down the value of their

00:56:45

private book by 33 percent

00:56:49

for 2022 and so you know I think tigers

00:56:52

and um basically has gone from 100

00:56:53

billion to 50 billion

00:56:55

in a year there's one more note to add

00:56:57

to that YC basically let go of their

00:56:59

growth team this week y combinator uh

00:57:02

for people didn't know what was called

00:57:03

the continuity fund they were doing late

00:57:04

stage

00:57:06

investing and that got cut gosh which is

00:57:09

a signal and the 17 employees are gone

00:57:11

now and Gary 10 I think is making the

00:57:13

right decision you know they have to

00:57:15

focus on what they're great at which is

00:57:16

the earliest stage of the company and

00:57:17

they had conflict with this one look

00:57:19

yeah this is the most interesting thing

00:57:22

for me in the following way I think the

00:57:24

Y combinator unicorn hit rate is six

00:57:28

percent right so every 100 companies

00:57:30

that come out of YC which costs only

00:57:32

about 10 million dollars to seed right

00:57:34

six of them become worth a billion

00:57:37

dollars or more and obviously some

00:57:39

become worth much much more

00:57:41

and so if you see how difficult it is

00:57:43

even for a growth fund that's attached

00:57:46

to that funnel

00:57:49

to be successful and make money because

00:57:51

obviously if this thing was ton in cash

00:57:53

you would not have cut it I don't think

00:57:54

anybody would do that

00:57:56

so I think it was a very challenging

00:57:57

strategy at a challenging moment in time

00:58:00

and so I applaud these guys for having

00:58:01

the discipline to do it but if you take

00:58:03

them all in totality it is a complicated

00:58:06

place in venture capital and startup

00:58:08

land holy mackerel like it's a reset a

00:58:11

it's tough to make money b a lot of

00:58:12

folks may not know exactly what they're

00:58:14

doing see a bunch of valuations are

00:58:16

totally wrong

00:58:18

and D we're going to have to start doing

00:58:20

the cleanup work now of resetting all of

00:58:22

it which just takes years as you guys

00:58:25

remember it took us it took us five

00:58:28

years to fix this

00:58:29

yeah it's a hard reset sax what do you

00:58:31

when you look at these in totality what

00:58:33

would you say well I agree with what

00:58:35

chamoth just said I mean it is gonna be

00:58:36

a hard period with a lot of resets a lot

00:58:38

of restructuring a lot of cap tables

00:58:39

there's a lot of mess to clean up all of

00:58:42

that being said I think I'd rather be an

00:58:44

investor today than an investor two

00:58:47

years ago or one year ago because at

00:58:51

least the valuations have corrected to

00:58:54

some degree and then also we have this

00:58:55

really interesting AI wave happening

00:58:58

now and there's a lot of opportunities

00:59:00

to invest in that new you know cycle so

00:59:03

at least there's like an interesting

00:59:04

product cycle

00:59:06

it's getting me excited to go to work

00:59:07

and see these new demos from all these

00:59:09

different companies whereas you know you

00:59:11

go back a year or two and just the

00:59:13

product Innovation just didn't seem as

00:59:14

world changing as it does now so I think

00:59:17

that as bad as things are my guess is

00:59:21

that the new vintages of VC are going to

00:59:24

be better than you know call it 2021 for

00:59:27

sure

00:59:28

that's not going to be a high bar it's

00:59:31

not a high bar but still wow

00:59:36

trash crash this is the contradiction is

00:59:39

that it felt better to be a VC in 2021

00:59:42

but in hindsight we know that the

00:59:44

Vintage is gonna be not good whereas

00:59:47

David how many hold on but today it

00:59:49

feels not great to be a VC but I think

00:59:51

the vintages will be a lot better

00:59:53

but anybody would tell you that at some

00:59:55

point you're going to have to divorce

00:59:57

yourself from emotion to be a reasonably

00:59:58

good investor over long periods of time

01:00:00

how many data points do we need to

01:00:02

realize that too many people

01:00:04

were put into this game that may not

01:00:07

have known what they were doing and

01:00:09

we're going to have to go and work

01:00:10

through all of those excesses

01:00:12

and I think it's just going to take a

01:00:14

lot of time U.S

01:00:16

limited partners are in a really

01:00:18

difficult spot

01:00:19

European investors I think are probably

01:00:21

in a pretty difficult spot there are a

01:00:23

couple of bright bright points around

01:00:26

the world the folks that are still

01:00:27

optimistic and doing well I think Middle

01:00:30

East is one southeast Asia is another

01:00:34

but other than those it's just a whole

01:00:36

group of folks that just have to get

01:00:38

completely re-underwritten from first

01:00:39

principles even when you have an

01:00:42

incredible platform like Sequoia five

01:00:45

years of no returns on 800 billion

01:00:47

dollars for somebody like UC Berkeley

01:00:49

what it really means without commenting

01:00:51

on sequoia's performance is that UC

01:00:53

Berkeley is effectively out of business

01:00:54

in being a limited partner for the

01:00:56

foreseeable future

01:00:58

wow right and I think that that has that

01:01:00

has implications so even if you think

01:01:01

these vintages are great

01:01:03

I don't think they're open for business

01:01:05

and and frankly if even if they wanted

01:01:07

to be open for business how do you go to

01:01:09

an IC when they look at all of the

01:01:12

totality of those dollars that have not

01:01:14

made anything how do you justify the

01:01:16

next 800 million I just think it's very

01:01:17

hard while I agree that LPS are out of

01:01:20

it I think the story was garbage because

01:01:21

it all funds go through a J curve and

01:01:24

they're literally talking about the

01:01:25

majority of the funds in that vintage

01:01:27

2008 2019 2000 2021 they're all in

01:01:31

literally the definition of the J curve

01:01:32

the third fourth fifth year one of the

01:01:34

most important things you need to be

01:01:35

able to do is measure

01:01:37

how long does it take the delta T to 90

01:01:40

of calling committed capital and how

01:01:43

long does it take the delta T to return

01:01:45

1X DPI I can tell you Jason if you're a

01:01:48

reasonably good fund those numbers

01:01:50

should be between five and seven years

01:01:52

for both

01:01:53

which none of those funds have hit the

01:01:55

average

01:01:56

for a normal Venture fund

01:01:59

is around five to seven years

01:02:02

to call ninety percent of the capital

01:02:04

and around five to seven years to return

01:02:07

one xdpi I'm just telling you that's

01:02:09

what the average is and if you talk to

01:02:10

firms so all I'm saying is there was a

01:02:13

period of time

01:02:14

where in the absence of getting money

01:02:16

back again this is not a sequoia thing

01:02:18

it just means that there was an entire

01:02:21

cohort

01:02:23

and years of capital allocation that is

01:02:25

not necessarily in a J curve it's

01:02:27

impaired because if after five years if

01:02:30

after five years you've returned nothing

01:02:32

sometimes you just have to see the

01:02:34

writing on the wall sax explain the J

01:02:36

curve one more time for folks and then

01:02:37

what is your analysis of that Sequoia

01:02:40

story well the J curve the theory behind

01:02:42

it is that when you start deploying a

01:02:45

new fund you're drawing fees down to pay

01:02:47

for the firm and the Investments you've

01:02:49

made have not been marked up yet so the

01:02:51

value of the fund is actually going down

01:02:53

because some of it's getting eaten up in

01:02:55

fees and you haven't really had a chance

01:02:57

for any of those Investments to be

01:02:58

successful and then what happens early

01:03:01

right I don't even know I just think

01:03:04

it's they haven't had a chance to get

01:03:05

marked up but then what happens is you

01:03:06

start getting markups and now at least

01:03:08

on paper the value of the fund goes up

01:03:10

and then hopefully those markups

01:03:12

eventually turn into distributions or

01:03:14

DPI like jamath is talking about yeah we

01:03:16

have a vintage

01:03:18

2017-2018 fund that's actually fully

01:03:21

returned at this point you exited some

01:03:22

secondary or Acquisitions no we just had

01:03:25

some we just had some exits but look I

01:03:27

think that is a little bit on the early

01:03:29

slash lucky side but we haven't really

01:03:31

seen much of the J because you know you

01:03:34

should be getting markups within two

01:03:36

years I think on your Investments if the

01:03:40

companies are looking good at least

01:03:41

historically that was the case freeberg

01:03:42

any any thoughts on this collection of

01:03:44

stories with Venture basically having

01:03:47

the great Venture reset

01:03:51

the end of the super cycle the beginning

01:03:52

of the next

01:03:53

it's happening yeah okay we're in the

01:03:55

thick of it but by the way I would just

01:03:57

I always go back to the point though

01:03:58

with all the problems tramatha's is

01:04:00

talking about the reset and the Wipeout

01:04:02

that needs to occur I think this is

01:04:04

still that I think that's part of what

01:04:06

makes this a better time absolutely to

01:04:09

be an investor this is what I'll say

01:04:11

about that sex I think I agree with you

01:04:15

I disconnect

01:04:16

asset values and asset prices from

01:04:20

fundamental business value being created

01:04:22

so the market bid stuff up prices went

01:04:25

up that doesn't really mean that

01:04:28

businesses aren't fundamentally good

01:04:29

that there aren't amazing technology

01:04:31

businesses being built today that are

01:04:33

going to affect billions of lives

01:04:35

tomorrow

01:04:37

if you are tracking a public company

01:04:40

stock

01:04:41

and you like the business you spend time

01:04:43

with management you see what they're

01:04:44

building you see their revenues growing

01:04:46

their profits are growing they're making

01:04:47

great products people are happy with

01:04:49

what they're doing but the Stock's

01:04:51

really expensive you don't want to buy

01:04:52

the stock

01:04:53

suddenly the stock drops by 80 percent

01:04:56

nothing about the business has changed

01:04:57

it's just that the market is paying less

01:04:59

to own shares in that company that's a

01:05:01

great time to buy that stock

01:05:03

I think that's the moment we're in in

01:05:05

Silicon Valley everyone's like oh my God

01:05:06

it's over there's uh things are terrible

01:05:08

just because the asset prices of the

01:05:12

shares in companies has gone down does

01:05:14

not mean that the quality of the

01:05:16

businesses has changed or that there

01:05:18

isn't fundamental value being created in

01:05:20

Silicon Valley in fact the contrary

01:05:22

point to Sax's comment is that it is a

01:05:26

great time to be buying these shares and

01:05:28

it is a great time to be investing and

01:05:30

it is a great time because as we've

01:05:32

talked about countless times there are

01:05:33

extraordinary Technologies from AI to

01:05:37

biotech becoming software to Fusion to

01:05:40

novel applications with AI and SAS and

01:05:43

on and on and on many of the amazing

01:05:44

things we've talked about that I think

01:05:46

can and will affect many Industries and

01:05:47

billions of lives are being built today

01:05:50

and they're not going to stop being

01:05:51

built and you can now buy the stock at

01:05:53

80 off so you know if you're investing

01:05:56

today and if you're a builder today as

01:05:58

long as the capital keeps flowing to

01:06:00

support the building work which I think

01:06:02

to some degree it will because still

01:06:03

enough of it sitting there you're not

01:06:05

going to have a lot of these crazy

01:06:06

growthy rounds with high prices and all

01:06:08

the nonsense that went on the last

01:06:09

couple years but there's certainly a lot

01:06:11

of opportunity to greet real business

01:06:12

value and right now an opportunity to

01:06:15

buy shares pretty cheap and participate

01:06:17

meaningfully in that value creation I'll

01:06:19

tell you the thing I'm seeing on the

01:06:20

field and like playing the game on the

01:06:21

field is something we've been talking

01:06:22

about for the last year

01:06:24

we started a program called

01:06:25

founder.university and it's basically

01:06:27

like a 12-week course on like how to

01:06:29

build your MVP we had 350 people to join

01:06:32

the discount code people can use to

01:06:33

there's no discount code it's it's free

01:06:35

for Founders basically if they if it's

01:06:37

free for Founders if they come to the 12

01:06:38

weeks but anyway what I did was

01:06:42

no it's founder dot University because

01:06:43

it's an extension but uh in the words of

01:06:48

uh of sex let me finish please let me

01:06:51

finish

01:06:52

what we did was we just said anybody who

01:06:54

gets to an MVP and it's two or three

01:06:56

Builder co-founders we'll give them a

01:06:58

25k check

01:07:00

and I did 20 or 30 of these 25k checks

01:07:02

in the last couple of months of just the

01:07:05

founders right now who have been laid

01:07:06

off by other companies they're dogged

01:07:09

pragmatic

01:07:11

absolutely customer-centric

01:07:13

product-centric Founders whereas the

01:07:15

last five years have been filled with

01:07:17

theatrics and white papers and icos and

01:07:20

just nonsense and absurd valuations and

01:07:22

people wanting credit for work not done

01:07:24

and now people are actually building

01:07:26

MVPs and they're dogged product driven

01:07:29

Founders customer Centric Mission driven

01:07:31

Founders and it feels to me

01:07:35

that first part is so well said people

01:07:37

wanted all this credit for work not done

01:07:39

and for Progress not achieved that game

01:07:42

is over

01:07:44

finished finished which means if you are

01:07:47

a product LED CEO and you're a

01:07:48

mission-driven CEO who actually built

01:07:50

something you stand out so much in this

01:07:52

ecosystem and have people begging for

01:07:54

money sending me long emails and decks

01:07:57

and total addressable Market I'm just

01:07:59

like can you just build a product and

01:08:00

show me that you can actually deliver a

01:08:02

product and then we'll start the process

01:08:05

of the rewards based system here you

01:08:07

know the the the the reward-based system

01:08:10

in Silicon Valley is so magical when it

01:08:12

works you get money from founder

01:08:14

University or you know Tech Stars or Y

01:08:17

combinator then go to a seed fund then

01:08:18

go to a serious a fund that

01:08:20

milestone-based funding was so broken

01:08:22

and now it's back and it's so functional

01:08:25

when it's working it's just a magic of

01:08:27

Silicon Valley is when people work and

01:08:29

get rewards work and get rewards and it

01:08:31

just creates this great pace and dynamic

01:08:33

that I'm glad to see just as we wrap

01:08:36

here everybody's been begging for a

01:08:38

science Corner enough about the chaos in

01:08:41

the world

01:08:42

everybody wants the Sultan of science

01:08:45

to tell us and educate us about

01:08:47

something and sax needs to use the loo

01:08:49

anyway so let's do a science corner here

01:08:52

room temperature superconductors you

01:08:55

sent me a link I read the abstract of

01:08:57

this paper and I I don't know which

01:09:00

language I need to put this into Google

01:09:02

translate but I couldn't understand any

01:09:03

of it

01:09:04

so please I literally read the abstract

01:09:06

and I was like I couldn't get through

01:09:08

the first two sentences without

01:09:10

having to start doing searches I'll

01:09:12

start with just like the simple

01:09:13

explainer on superconductors please

01:09:16

um you know materials that conduct

01:09:19

electricity are called conductors so

01:09:21

conductors electrons move through them

01:09:23

like a copper wire that's how

01:09:25

electricity flows

01:09:26

and all conductors

01:09:29

have some amount of resistance meaning

01:09:31

not all the electrons kind of flow

01:09:33

through at a perfect rate they bump into

01:09:35

the atoms in the material in the wire

01:09:37

and they generate heat you know you've

01:09:39

ever felt a wire while electricity is

01:09:40

flowing through it gets hot right so

01:09:42

that's because the conductor has some

01:09:44

resistance which means the electrons

01:09:46

bump into the walls of the atoms in the

01:09:48

material they generate heat and you lose

01:09:50

electricity you lose energy you lose

01:09:52

power

01:09:53

and so in 1911 it was discovered when

01:09:57

Mercury was reduced to a very very cold

01:09:59

temperature that there was a point at

01:10:02

which the material conducted electricity

01:10:05

with absolutely no resistance so the

01:10:08

electrons flowed through the material

01:10:10

completely unbounding on

01:10:13

you know not bouncing into the material

01:10:15

not generating any heat and having no

01:10:18

resistance mean you're losing no power

01:10:19

in transmission of that electricity but

01:10:21

another number of other super

01:10:23

interesting effects occur number one is

01:10:25

that magnetic fields now reflect off of

01:10:28

that metal perfectly so if you put a

01:10:30

magnet you ever seen that image of a

01:10:32

Nick we could probably pull one up in

01:10:34

the YouTube video where you put a magnet

01:10:35

on top of a superconductor it actually

01:10:37

floats

01:10:38

because the magnetic field like the

01:10:40

North and the north push against each

01:10:41

other and it floats up so

01:10:43

superconducting materials kind of became

01:10:45

this Fascination in the early 20th

01:10:47

century that oh my God if we can

01:10:49

actually make materials that

01:10:50

superconduct there are all these amazing

01:10:52

benefits one of the benefits is you

01:10:54

could have no loss in electricity being

01:10:55

transmitted today 15 of power is lost in

01:10:58

the transmission from the Power Station

01:11:00

to your home you could also do

01:11:02

interesting things like create maglev or

01:11:03

frictionless trains

01:11:05

that float you know like magnets

01:11:07

floating off the ground on top of a

01:11:09

superconducting track and by having no

01:11:11

friction you could push the Trap the

01:11:13

train once and you wouldn't need to use

01:11:15

any energy to move it along so you could

01:11:16

have basically powerless transportation

01:11:19

you could have really powerful

01:11:22

new microprocessors so a superconductor

01:11:26

microprocessor instead of a traditional

01:11:27

semiconductor microprocessor would use

01:11:30

just one percent of the energy of a

01:11:33

semiconductor microprocessor think about

01:11:34

that all the AI stuff we're talking

01:11:36

about all the chips that we're talking

01:11:37

about dropping the energy needs by 99 if

01:11:41

those chips were made from a

01:11:42

superconducting material and one of the

01:11:44

more interesting applications of

01:11:45

superconducting materials could be

01:11:46

infinite battery storage so you could

01:11:48

take a superconductor turn it into a

01:11:50

coil and the electricity would just flow

01:11:51

through it infinitely because it would

01:11:53

never turn into heat and then when

01:11:55

you're ready for that power you just

01:11:56

plug in and you get the power out the

01:11:57

actual loss of energy in a

01:11:59

superconductor battery

01:12:00

less than five percent and that's

01:12:02

compared with you know significantly

01:12:04

more energy loss used in chemical

01:12:05

systems and you wouldn't need to kind of

01:12:07

get all the materials that we're

01:12:08

struggling to get now to generate

01:12:09

batteries so the idea of generating like

01:12:12

superconductors in industrial scale has

01:12:14

always been super interesting today the

01:12:16

way that we generate superconducting

01:12:17

materials is we have to make a material

01:12:19

super super cold

01:12:21

in 1987 a physicist named Chu developed

01:12:25

one of the first ceramic superconductors

01:12:27

where they discovered a new way of

01:12:29

generating superconductivity it wasn't

01:12:30

just taking a metal and cooling it down

01:12:32

very very cold because when you get it

01:12:34

very very cold the atoms stopped moving

01:12:36

and the electrons inside pair up and

01:12:38

it's called Cooper pairing and they flow

01:12:39

through and he said we could actually do

01:12:41

this with a hotter temperature and he

01:12:43

demonstrated this in a ceramic Atrium

01:12:46

barium copper oxide super confusing name

01:12:48

but basically he took a bunch of

01:12:49

materials and baked them in an oven and

01:12:51

they turned into this really interesting

01:12:52

material that became superconducting and

01:12:54

then the race was on because what he did

01:12:56

is he made a superconductor that could

01:12:57

superconduct at the temperature of

01:12:59

liquid nitrogen and liquid nitrogen is

01:13:01

really cheap so we can just use them

01:13:03

that's actually how all MRI machines run

01:13:04

today if you have superconductors that

01:13:06

reflect the magnetic fields in the super

01:13:08

in the MRI machine and they're using

01:13:10

liquid nitrogen to stay cool and so

01:13:12

there's a lot of industrial applications

01:13:13

today that use superconducting materials

01:13:15

using liquid nitrogen but in order for

01:13:17

us to do all the stuff I mentioned like

01:13:19

maglev trains and Infinite Battery free

01:13:21

storage and superconducting

01:13:23

microprocessors we have to get

01:13:25

superconductors we have to discover a

01:13:27

material

01:13:28

that can superconduct at room

01:13:30

temperature so that we can sit with it

01:13:32

in a computer on our desktop or we can

01:13:34

have it run on a railroad track or you

01:13:37

know we can put it in our backyard to

01:13:39

store energy and there's been this race

01:13:41

and there's all these different classes

01:13:43

of materials that physicists and

01:13:45

material scientists have spent decades

01:13:46

trying to figure out what can

01:13:48

superconduct at room temperature we

01:13:50

started with Metals you know copper and

01:13:52

we tried carbon nanotubes and fullerene

01:13:54

tubes we had all these different

01:13:56

Ceramics like like with like I talked

01:13:58

about and there have been literally tens

01:14:00

of thousands of ceramics that people

01:14:01

bake in ovens and Prime see how

01:14:04

superconducting they are basically you

01:14:06

take the material and you cool the

01:14:07

temperature and you measure the

01:14:09

resistance and as soon as it hits

01:14:10

superconductivity

01:14:12

boom there's this magic moment where it

01:14:14

drops to zero and it becomes super

01:14:16

conducting and there's this big

01:14:17

changeover effect so everyone's trying

01:14:19

to find that temperature which it can

01:14:21

happen at room temperature

01:14:22

and people have found superconductivity

01:14:24

on the surface of DNA and organic

01:14:26

molecules but you can't scale that

01:14:28

people have found you know

01:14:30

superconductivity and all these weird

01:14:31

kind of material on the surface of

01:14:33

things but no one's ever been able to

01:14:34

industrialize it in 2015 there was a new

01:14:37

kind of material called a hydride which

01:14:39

is basically

01:14:41

taking a thin metal and putting it in

01:14:43

hydrogen gas and kind of baking it for

01:14:45

for a couple of days and the hydrogen

01:14:47

sticks to the metal and then you would

01:14:49

use this hydride as a new kind of um

01:14:51

conductor and hydrides that turned out

01:14:54

had really good superconducting

01:14:55

potential they would superconduct at

01:14:58

room temperature but they needed super

01:15:00

high pressure so you'd actually have to

01:15:02

leave them in like something that's like

01:15:04

hundreds of times the pressure of the

01:15:05

atmosphere and so that that's not really

01:15:07

technically an industrially feasible

01:15:09

either

01:15:10

so this guy named ranga Diaz published a

01:15:12

paper

01:15:13

a couple weeks ago that got a ton of

01:15:15

press

01:15:16

and a ton of controversy and basically

01:15:19

he said look I've got this new hydride

01:15:21

and uh it's I've got this really you

01:15:24

know weird metal that no one ever talks

01:15:25

about

01:15:26

and I've baked it with this um with

01:15:28

hydrogen gas and this hydride can

01:15:30

actually superconduct at you know room

01:15:32

temperature and at only one gigapascal

01:15:35

which is still greater pressure than

01:15:36

room temperature but it basically starts

01:15:38

to show on the chart of are we getting

01:15:40

there can we actually get there that

01:15:42

maybe we are and so this paper was

01:15:44

published in nature a couple of weeks

01:15:46

ago and it got a ton of a ton of

01:15:49

coverage because everyone's like oh my

01:15:50

gosh the problem is this particular

01:15:52

individual

01:15:55

you know the the lead uh research of

01:15:58

ranga Diaz on the on the paper he's

01:16:00

pretty controversial because he made a

01:16:02

room temperature superconducting claim

01:16:04

back in 2020 in a paper he published in

01:16:06

nature and after he made that that claim

01:16:09

a lot of scientists tried to replicate

01:16:11

what he did and they were not able to

01:16:13

and then the journal retracted his paper

01:16:16

and he had a method that he took data

01:16:18

noise out of the measurement system he

01:16:20

was using and the way that he took the

01:16:22

data noise out people said actually

01:16:23

skewed the results and made it look like

01:16:25

it was super conducting when maybe it

01:16:27

wasn't and he actually had a a talk that

01:16:30

he did that was published on YouTube a

01:16:32

year later where he said he raised 20

01:16:33

million dollars from Sam Altman and

01:16:35

Daniel Eck and a bunch of other

01:16:36

investors and it turns out that also

01:16:38

wasn't true and then he came back and

01:16:39

said well I didn't actually raise the

01:16:40

money I was talking with them about

01:16:42

raising the money so this guy's kind of

01:16:43

a sketchy character in the space but the

01:16:47

temperature at which he was able to

01:16:48

generate or claims to have generated and

01:16:50

he did get peer review and did get

01:16:52

published

01:16:54

a superconductors is at room temperature

01:16:56

it's at slightly high pressure

01:16:59

but if it's real and it does get

01:17:01

repeated it's one of the next steps that

01:17:04

we're almost going to be getting to this

01:17:05

point of true room temperature

01:17:06

superconducting materials and then this

01:17:08

whole industry will blow up transmission

01:17:11

lines battery storage maglev trains

01:17:13

superconducting microprocessors

01:17:16

you know many new Industries can and

01:17:18

will emerge from this material Discovery

01:17:20

if it's proven to be real so you know

01:17:22

it's a super interesting storyline a lot

01:17:25

of people in the Material Science World

01:17:26

and scientists chemists physicists are

01:17:28

kind of going crazy about this and there

01:17:31

was a um a survey done by quanta

01:17:33

magazine and half the scientists were

01:17:35

like this is and the other half

01:17:37

was like this is going to change the

01:17:38

world so we don't really know yet where

01:17:40

this is all going to settle out but I

01:17:41

thought it was worth kind of talking

01:17:42

about and bringing it up because if room

01:17:44

temperature superconductivity is really

01:17:46

realized in the next decade it's another

01:17:48

one of these kind of Black Swan

01:17:49

technology discoveries that we none of

01:17:51

us are thinking about right now but it

01:17:53

totally transforms all these markets and

01:17:56

very quickly kind of increases like we

01:17:57

were talking about earlier productivity

01:17:59

makes renewable energy super super cheap

01:18:01

makes computing power 99 less power

01:18:04

intensive AI chips will explode using

01:18:07

this technology so a lot of super

01:18:08

interesting applications if room

01:18:10

temperature superconductivity comes to

01:18:11

light super interesting story I thought

01:18:13

we should share it and talk about it

01:18:14

yeah I would love to get your insights

01:18:17

on it and then sax I would like to

01:18:19

understand how many emails and what you

01:18:20

order from ubereats during that segment

01:18:22

venkat vishwa Nathan who runs a battery

01:18:25

group at Carnegie Mellon introduced me

01:18:28

to ranga two years ago me and my partner

01:18:30

Jay we were like holy this is

01:18:32

outrageous

01:18:33

and we tried to spin it out

01:18:36

into a natural company

01:18:38

but the University of Rochester blocked

01:18:40

it

01:18:42

and so we've been following this guy for

01:18:43

two years and all the trials and

01:18:45

tribulations but

01:18:46

it's a really really exciting thing if

01:18:49

it does come to you've got Capital

01:18:50

blocked explain why you would get

01:18:52

Capital blocked in a situation like that

01:18:54

why wouldn't they allow you to spin it

01:18:55

up it is interesting because like

01:18:57

typically universities have a tech

01:18:58

transfer office and you can do these

01:19:00

deals pretty cleanly so you know when

01:19:02

you go to Stanford the tech transfer

01:19:03

office is quite sophisticated at MIT

01:19:05

it's quite sophisticated there are these

01:19:06

pretty standardized deals and and

01:19:08

royalty percentages what's what is the

01:19:10

standard deal how explain to the

01:19:12

audience how a tech transfer deal would

01:19:13

work and how does the University make

01:19:15

money from it if you're a Prof and you

01:19:17

invent something or even if you're a

01:19:18

student it's technically owned by the

01:19:20

school and so if you want to

01:19:22

commercialize it you go to them and you

01:19:24

basically say here's a Capital Partner

01:19:26

of mine and we want to go and start a

01:19:27

company around it and what they will

01:19:29

normally say is okay great give us a

01:19:31

piece of equity and give us some royalty

01:19:34

in some cases depending on what it is

01:19:37

the equity tends to be in the mid single

01:19:39

digit percentages the royalties tend to

01:19:41

be in the mid-single digit percentages

01:19:42

it depends okay yeah call it five five

01:19:45

six seven percent but it can be a lot

01:19:47

when you think about a you know a school

01:19:49

like Stanford who's spinning out

01:19:51

hundreds of these things a year

01:19:54

but if you're if you're a school that

01:19:56

doesn't historically do a lot of tech

01:19:58

transfer or has a lot of cutting edge r

01:20:01

d you wouldn't have that team and so

01:20:04

Rochester didn't necessarily have it now

01:20:07

look rank is probably getting bombarded

01:20:09

by 30 other people who'll pay 10 times

01:20:10

more than what I was trying to pay 18

01:20:12

months ago it's a really interesting

01:20:13

thing and I think there'll be some

01:20:14

there'll be something does anybody know

01:20:16

what the top Tech transfers of all time

01:20:19

were like was Google a tech transfer or

01:20:21

Freeburg you know like yeah because yeah

01:20:25

no yeah Larry and Larry and Sergey gave

01:20:28

Stanford I think one think of Stanford

01:20:29

yeah they give them a percent yeah

01:20:34

because back rub was written while Larry

01:20:37

was a PhD there so technically they you

01:20:40

know they had some part of it Carnegie

01:20:42

Mellon ranked as top Tech transfer

01:20:44

University I'm just seeing here in terms

01:20:45

of the rankings University of Florida

01:20:47

Columbia Stanford Harvard because

01:20:49

everybody so much some of them are

01:20:51

terrible like and some of them are

01:20:53

cronyism so like you go to some of the

01:20:55

universities and the tech transfer

01:20:57

offices have deep relationships with

01:20:58

certain VCS and investors that they'll

01:21:00

only work with and they always get first

01:21:02

picks and first kids and they're super

01:21:03

tight with them they don't run a real

01:21:05

Market process and then some tech

01:21:07

transfer offices just give away the farm

01:21:09

for nothing and then some tech transfer

01:21:11

offices think that they own it and they

01:21:13

should get paid 60 royalties for the

01:21:15

thing it's all over the map and some of

01:21:17

them are sophisticated and some of them

01:21:19

are not

01:21:20

um so it's it's actually quite

01:21:22

surprising Jake how different all the

01:21:25

universities are in terms of their level

01:21:27

of sophistication and the types of deals

01:21:29

they'll do but I will say this work in

01:21:31

superconducting research it's another

01:21:33

good example going up to going back to

01:21:35

the point a couple episodes ago about

01:21:37

the importance of fundamental research

01:21:39

and the importance of

01:21:41

um you know the support from academic

01:21:44

institutions and governments and other

01:21:45

aspects when you're still not sure what

01:21:48

the technology is that to do that

01:21:50

fundamental Discovery work I think is a

01:21:52

good Collective social benefit and then

01:21:55

to industrialize it and commercialize it

01:21:56

requires I think a market-based approach

01:21:58

which is you take that capability you

01:22:00

try and build a business find customers

01:22:01

make money and that's really how you get

01:22:03

it to be funded to be scaled because

01:22:05

you're never gonna you shouldn't have to

01:22:06

put you know government and academic

01:22:08

money behind that sort of effort but

01:22:10

private Market participants should

01:22:12

and so you know it's interesting I mean

01:22:14

I think

01:22:15

I'm not holding my breath I've been you

01:22:17

know I did a science project

01:22:19

in 1993 when I was probably 12 or 13

01:22:22

years old on superconductors and I got a

01:22:25

Atrium barium copper oxide disk and I

01:22:28

got some liquid nitrogen from UCLA and I

01:22:30

poured it on the disk and I floated a

01:22:31

magnet above it I had a poster board and

01:22:33

a computer presentation back then and I

01:22:35

was super enthralled about the future of

01:22:37

superconductors and exactly what I said

01:22:38

today is what I said back in 1993. so

01:22:41

you know 30 years ago it was so busy

01:22:43

dating I didn't think you had time for

01:22:44

superconductor experiments yeah look I

01:22:46

don't think I don't think that this

01:22:47

stuff

01:22:48

that's really uh it's been a it's been

01:22:51

like Fusion it's always been a promise

01:22:53

around the corner physicists have always

01:22:54

had hope we've taken incremental steps

01:22:55

towards it but it's always felt like one

01:22:58

of those things where you're always

01:22:59

getting 50 closer to the wall it's like

01:23:01

you're never actually reaching the wall

01:23:02

and so

01:23:04

yeah by the way I will say one area that

01:23:07

that a lot of people think holds a lot

01:23:09

of promise for superconducting research

01:23:10

is in Quantum Computing because you can

01:23:13

actually model on a molecular level what

01:23:15

might be going on right now the BCS

01:23:18

theory is this theory on Cooper pairing

01:23:19

that happens in Ceramics is the only way

01:23:21

that we really understand how

01:23:22

superconducting actually works why it

01:23:24

works why there's no resistance at

01:23:26

certain temperatures for certain types

01:23:27

of materials for most materials we have

01:23:29

no freaking clue why it happens we don't

01:23:31

understand the physics of it there's

01:23:33

something going on on a quantum

01:23:34

mechanical level that we just don't get

01:23:35

and so if we could understand it better

01:23:37

through Quantum modeling using quantum

01:23:39

computers all of a sudden we may be able

01:23:41

to actually start to come up with ideas

01:23:43

for molecules and crystal structure that

01:23:46

would allow us to make super productive

01:23:47

material that we simply don't have

01:23:48

enough time in our lifetime to run all

01:23:51

the experiments in a lab today and we

01:23:52

can simulate it and so that's why

01:23:53

Quantum Computing could play a real role

01:23:55

in advancing our ability to do Discovery

01:23:57

and superconducting materials and like I

01:23:59

talked about these are like not just one

01:24:01

but like two or three order of magnitude

01:24:03

improvements in the efficiency of

01:24:05

certain systems of Industry on Earth

01:24:06

today so it shows how the compounding

01:24:08

benefits of technology and things you

01:24:10

cannot see around the corner can

01:24:12

suddenly cause these explosive growth

01:24:13

moments in technology in an industry I

01:24:16

don't know what when Quantum Computing

01:24:17

gets here when it gets here it might

01:24:19

discover superconducting and then when

01:24:20

that gets discovered boom energy costs

01:24:22

dropped by 99 Computing goes up by 100

01:24:24

fold so there's these amazing things

01:24:26

that are still like in front of us that

01:24:28

each one of which could be you know

01:24:30

really great exponential triggering

01:24:31

events and we're seeing a little

01:24:32

Milestone today but yeah I don't know

01:24:34

sax reaction

01:24:37

sounds good

01:24:39

sax uh how many moves did you play in

01:24:41

your 12

01:24:43

chess games

01:24:47

how many points did you go up all right

01:24:49

look I got shitzu come on let's go oh

01:24:53

sucks all right listen this has been a

01:24:56

great episode thanks to the best comment

01:24:58

on the Atlantic article that says Ron

01:25:00

DeSantis has peaked already

01:25:02

oh oh

01:25:04

yeah don't do it don't do it why you got

01:25:07

to troll him let's see that but it's in

01:25:09

the Atlantic oh you want to know why the

01:25:11

Atlantic suddenly has turned on him is

01:25:13

because they're the biggest

01:25:14

backers of the war they those guys have

01:25:17

all these like neocons over there and so

01:25:20

he gave a statement

01:25:22

saying that you know our support for

01:25:24

Ukraine shouldn't be a blank check and

01:25:26

some other comments expressing

01:25:28

let's say skepticism of what we're doing

01:25:31

over there and that was totally

01:25:32

inaccessible to them so all these

01:25:34

neocons are registering disappointment

01:25:36

but I would argue that's a electoral

01:25:38

asset not a liability I have a

01:25:40

prediction given what's going on with

01:25:41

these Banks and what's going on in this

01:25:43

kind of a I think we all agree the soft

01:25:45

Landing concept is over we're going to

01:25:47

be in a recession

01:25:48

the war is going to end there because

01:25:50

we're not funding this an American the

01:25:52

American public is not going to want to

01:25:55

see tens of billions of dollars go into

01:25:57

Ukraine and to fight to fund this war in

01:25:59

year two or three hundreds of billions

01:26:01

well I'm just saying every month yeah I

01:26:03

know the spending run rate of this war

01:26:05

is actually greater than what we did in

01:26:07

Afghanistan and Afghanistan ended up

01:26:09

being a 20-year multi-trillion dollar

01:26:12

operation that just flushed all that

01:26:14

money down the drain so yes we're in a

01:26:17

greater run rate than Afghanistan yeah

01:26:20

do we know what the monthly run rate is

01:26:22

for this oh my God how is it do they

01:26:23

process back we've appropriated over 130

01:26:26

billion Tremors and Afghanistan we spent

01:26:28

2 trillion over 20 years so it's 100

01:26:31

billion a year run rate yeah this is

01:26:33

think about what a Monumental waste of

01:26:34

money that was and now look at the

01:26:36

financial crisis we're in can you

01:26:37

imagine if we could have 2 trillion back

01:26:39

I mean all these trillions

01:26:41

instantly we would take that it's

01:26:43

trillions and trillions we squandered on

01:26:45

stuff that didn't matter and now we're

01:26:47

paying the price for it that could be

01:26:49

education could be Universal Health Care

01:26:51

it could be paying down the debt how

01:26:52

about paying down the debts we don't

01:26:53

have all this inflation exactly let's

01:26:55

think logically here the number one

01:26:57

issue for this country in the next

01:26:58

election I am with Friedberg is great

01:27:00

prediction uh from the year-end show is

01:27:03

we need a president and we need an

01:27:05

Administration that is fiscally

01:27:06

responsible and controls the balance

01:27:10

sheet in a logical fashion like the last

01:27:12

two administrations have not seen

01:27:14

capable of doing I am with Freeburg

01:27:16

single issue voter balance the budget

01:27:18

get spending under control austerity

01:27:20

measures hashtag all right for the

01:27:22

Sultan of science sorry what's that can

01:27:25

you repeat that what I wanted to say

01:27:27

Tremont is there are there any plugs for

01:27:29

the remaining part of the episode Mr

01:27:31

Beast is curing blindness and buying

01:27:34

people's shoes has he been canceled yet

01:27:36

Jax aren't you excited about

01:27:37

superconductors and the benefit for AI

01:27:40

and energy storage and energy costs and

01:27:42

Humanity yeah what does it do to burn

01:27:44

rate of a Sasuke yeah but I'm not I'm

01:27:46

not like an expert at assessing like

01:27:48

hard science or hard tech I mean I'm a

01:27:51

software investor I'm just a simple man

01:27:53

I'm just a software investor all right

01:27:54

everybody for the Rain Man himself David

01:27:56

sacks the dictator trim off polyhapatia

01:27:59

and the Sultan of science the prince of

01:28:02

panic attacks No More Mr David Friedberg

01:28:05

I'm the world's greatest moderator

01:28:07

Undisputed congratulations everybody on

01:28:10

another successful episode and Freeburg

01:28:12

when are we locking in the date for all

01:28:15

in Summit 2023 my replies my DMs are

01:28:18

filled people want to know do you have

01:28:26

so now they've gone back to their

01:28:28

committee to get approval for us doing

01:28:30

it without parking and just doing

01:28:31

something or walking shut up Uber Uber

01:28:34

Uber Uber

01:28:36

hopefully if they accept it then we are

01:28:39

okay how many shuttles do we have to

01:28:41

take to Uranus yeah exactly how am I the

01:28:44

prince of panic attacks I think you're

01:28:45

the king of caps locks at this point

01:28:47

they were calling me j-caps J caps was

01:28:51

the best one I heard talking about panic

01:28:52

attacks Jake hell this weekend man

01:28:54

panicking panicking I I was in sheer

01:28:57

Terror sure I have literally gotten rid

01:29:00

of the caps lock everybody relax you can

01:29:01

follow me twitter.com Jason we'll see

01:29:03

you all next time

01:29:06

we'll let your winners ride

01:29:10

[Music]

01:29:15

and they've just gone crazy

01:29:17

[Music]

01:29:23

besties

01:29:25

[Music]

01:29:40

it's like this like sexual tension that

01:29:43

they just need to release them out

01:29:50

where did you get Mercies

01:29:55

[Music]

Badges

This episode stands out for the following:

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Episode Highlights

Communication Style Under Scrutiny
Discussion on the effectiveness of using all caps in communication during a crisis.
“I always want to be candid with people, I always want to tell the truth.”
@ 03m 58s
March 17, 2023
The Ripple Effects of COVID Shutdowns
Exploring the long-term economic consequences of shutting down the global economy during COVID.
“You can't shut down the global economy and not expect that you're going to have to cash that check at some point.”
@ 15m 16s
March 17, 2023
The Role of Wokeness
Wokeness is often blamed for banking issues, but it's not the main cause.
“Wokeness is a distraction, not the key reason for this crisis.”
@ 21m 06s
March 17, 2023
Risk Management vs. ESG
If banks prioritized risk management over ESG, the crisis might have been avoided.
“If banks focused on risk management as much as on ESG, this crisis wouldn't have happened.”
@ 21m 42s
March 17, 2023
Future Banking Challenges
The current banking crisis may just be the beginning of larger issues ahead.
“We've kicked the can down the road for a year, but the problem remains.”
@ 31m 06s
March 17, 2023
The Need for Bank Vaults
Consumers are seeking banking services that prioritize security over risky investments. 'We don't want a bank, we want a bank vault.'
“We don't want a bank, we want a bank vault.”
@ 38m 23s
March 17, 2023
Consumer Protection in Banking
The discussion highlights the importance of consumer protection in the banking system. 'You deserve to lose your money if you chose poorly.'
“You deserve to lose your money if you chose poorly.”
@ 43m 45s
March 17, 2023
The Great Venture Reset
We're witnessing a reset in venture capital, with valuations correcting and new opportunities emerging.
“It's a complicated place in venture capital and startup land.”
@ 58m 06s
March 17, 2023
Investing in the Future
Despite the downturn, there are extraordinary technologies being built that will impact billions.
“It’s a great time to be investing and buying shares pretty cheap.”
@ 01h 05m 26s
March 17, 2023
Building Real Value
Founders are now more focused on building MVPs rather than theatrics and absurd valuations.
“The game of wanting credit for work not done is over.”
@ 01h 07m 44s
March 17, 2023
Ranga Diaz's Controversial Claim
Ranga Diaz published a paper claiming a new hydride can superconduct at room temperature, sparking debate in the scientific community.
“This paper was published in nature and got a ton of coverage because everyone's like oh my gosh.”
@ 01h 15m 44s
March 17, 2023
The Race for Room Temperature Superconductors
Scientists are racing to discover materials that can superconduct at room temperature, which could revolutionize industries like energy and computing.
“If room temperature superconductivity is realized, it could transform all these markets.”
@ 01h 17m 46s
March 17, 2023

Episode Quotes

Key Moments

Terrifying Week02:19
COVID Consequences15:16
Banking Solutions38:23
Financial Literacy43:45
Private Company Impact55:51
Venture Capital Challenges58:00
Superconductivity Breakthrough1:16:56
Quantum Computing Potential1:23:10

Words per Minute Over Time

Vibes Breakdown

Podcast thumbnail

01:41:58

E84: Markets update, crypto collapse, Russia/Ukraine endgame, state of the podcast

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November 12, 2022

01:25:18

E104: FTX collapse with Coinbase CEO Brian Armstrong + election results, macro update & more

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29:07

#AIS: Opening chat with Miami Mayor Francis Suarez

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01:38:21

E136: Hacking the pod, Threads launches, Fed minutes, immigration, balloon farce, heart health

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01:39:11

E74: Market update, inverted yield curve, immigration, new SPAC rules, $FB smears TikTok and more

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August 20, 2022

01:39:03

E92: Adam Neumann's second act, a16z's $350M bet, housing policy, Inflation Reduction Act & more

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January 25, 2025

02:05:33

Trump's First Week: Inauguration Recap, Executive Actions, TikTok, Stargate + Sacks is Back!

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01:17:38

E75: Fast shuts down, board culpability, Elon buys 9% of Twitter, deplatforming's evolution & more

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November 20, 2021

01:15:41

E56: Constitution DAO, Rittenhouse trial coverage, private sector efficiency vs the government

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February 23, 2024

01:20:27

E167: Google's Woke AI disaster, Nvidia smashes earnings (again), Groq's LPU breakthrough & more

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01:34:29

E121: Macro update, Fed hike, CRE debt bubble, Balaji's Bitcoin bet, TikTok's endgame & more

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01:29:27

E119: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability, and more