E120: Banking crisis and the great VC reset

00:00:00.000 | Alright, everybody, welcome to the all in podcast. And with me

00:00:04.400 | again, this week, the Sultan of science, the Prince of panic

00:00:07.160 | attacks, the Queen of Ken, why? David Friedberg, the dictator

00:00:10.920 | trim off poly hop at a wearing beautiful Mr. B sweater. And

00:00:15.640 | David sacks the rain man himself. Thanks for coming to my

00:00:18.960 | Laura Piana dinner on Tuesday, Jacob. That was wonderful.

00:00:22.000 | Thanks. At least one bestie showed up for you. Wonderful,

00:00:24.840 | wonderful dinner. I sat as far away from the Laura Piana people

00:00:28.600 | as possible in the arranged seating. Thank you for that. I

00:00:31.280 | guess maybe you were like, I'm gonna contain the damage.

00:00:34.760 | Bernard Arnault said, put put the all caps got the end and I

00:00:37.880 | said, Okay, yeah, he still heard me. I was like, what's the

00:00:42.560 | amuse bouge? Joe at dinner every time he said something he yelled

00:00:47.280 | like he was in

00:00:48.000 | I want another butterscotch pudding.

00:00:55.400 | Butterscotch pudding is delightful.

00:00:57.560 | Four feet away from me. Jake, how you take the cab slot. Sean

00:01:02.600 | was so embarrassed. Chef Sean crushed it. Chef Sean crushed it

00:01:05.800 | once again. Were you sounding alarms when the restaurant like

00:01:08.760 | almost ran out of something? Alert, alert, alert. Restaurant

00:01:13.360 | is running low on coffee. We're dangerous.

00:01:15.520 | Rain Man David

00:01:23.480 | sack.

00:01:23.800 | All right, everybody, welcome to the pod where we, you know, try

00:01:37.880 | to inform you we try to make some jokes here. I just want to

00:01:40.000 | make what is a little bit of an opening statement here. It's not

00:01:43.680 | an apology. And it's not a victory lap in any way. But

00:01:47.640 | there's been a lot of attention, I think, on the last episode of

00:01:51.840 | the pod and perhaps some tweeting from two of the four

00:01:54.360 | besties this past weekend. I saw and I you know, I'll let you

00:02:00.240 | speak for yourself here, sax and we're going to get into the

00:02:02.600 | timeline of what's occurred. And then what are potential outcomes

00:02:06.040 | here and solutions to the banking issues that we've

00:02:09.000 | witnessed in what is a week since the bank run on Silicon

00:02:13.640 | Valley Bank and the shutdown on Friday. But what I saw and again,

00:02:17.120 | speaking only for myself here was absolutely terrifying up

00:02:19.800 | close and personally, watching people pulling money out of

00:02:23.360 | banks and watching people have to set up loans to hit their

00:02:26.480 | payroll. And this was like one of those surreal moments in a

00:02:30.400 | movie where like a meteor is coming towards Earth and you see

00:02:32.840 | it in the telescope and nobody else sees it or only a small

00:02:35.280 | number of people in the observatory see it. And I think

00:02:38.200 | part of the reason people listen to this podcast is because we

00:02:40.360 | are insiders and speaking again, just for myself, I'm always

00:02:43.280 | trying to be exceptionally candid and transparent with the

00:02:46.720 | audience. Additionally, I make jokes. So sometimes you might

00:02:50.440 | laugh during this podcast, or you might laugh when you're

00:02:53.280 | reading my tweets. And that's part of what I do. Now, I also

00:02:57.600 | realize that we have an audience now that is larger than I think

00:03:01.120 | any of us expected for this podcast, I certainly magnitude

00:03:04.280 | larger than I expected. And frankly, I didn't know if this

00:03:06.680 | podcast was going to make it past 50 or 100 episodes. And my

00:03:10.400 | Twitter following count doubled since we started this podcast.

00:03:13.040 | And

00:03:13.160 | well, that's because you tried to ruin the pot.

00:03:15.640 | I think it was because of the caps locks. But anyway, putting

00:03:18.800 | all that aside, what I would like to say as well is like, we

00:03:22.840 | are living in a situation that is unprecedented. I think the

00:03:27.200 | alarm bell I sounded, you know, was because I saw a fire. We'll

00:03:31.640 | get into the timeline here. But I sounded that alarm bell after

00:03:34.680 | Silicon Valley Bank was put into receivership. And when I saw

00:03:38.440 | additional bank runs occurring, I wouldn't change it. I think

00:03:41.600 | these were the right the right thing to do was to inform folks.

00:03:43.760 | Now, I did use all caps, perhaps a little too much. That was a

00:03:46.640 | little bit of a bit if people didn't understand that maybe I

00:03:49.440 | need to adjust my communication style now that this thing is so

00:03:52.800 | popular. But I stand by my mode of operating in the world, which

00:03:57.840 | is I always want to be candid with people. I always want to

00:03:59.960 | tell the truth. And yeah, sometimes I make jokes about

00:04:03.520 | life and, you know, dealing with these stressful situations.

00:04:07.000 | That's it. It's not an apology. It's more of an explainer. And

00:04:11.520 | yeah, maybe I need to adjust the caps lock or how I deliver stuff.

00:04:14.960 | But I stand by the message of what I said. And I think it's

00:04:17.360 | important for us to maybe look at the series of events and

00:04:20.560 | misinformation that has spread because there are people

00:04:23.800 | literally blaming venture capitalists for the bank run.

00:04:27.360 | That is now systematic. And the balance sheets of multiple banks

00:04:32.800 | around the world. And I think that would be great for you to

00:04:36.120 | maybe just comment on the week that was and the timeline of

00:04:38.920 | events. Yeah.

00:04:39.600 | So as usual, you're not apologizing?

00:04:41.280 | No, absolutely not apologizing. But we'll recognize that this

00:04:44.520 | platform is bigger. And that may be on the margins, I could

00:04:47.320 | adjust my communication strategy. But Chris, there's a

00:04:50.240 | lot of people who don't know that I make jokes. And maybe

00:04:53.400 | people don't understand what I'm joking and when I'm serious,

00:04:55.720 | right. And so

00:04:56.400 | right, Jason, what would you change?

00:04:58.520 | Come on. I think I might not have used a Mad Max image and

00:05:06.120 | gifts about the end of the world. Because people are too

00:05:09.600 | stupid to understand that's a joke in a fictional movie.

00:05:12.240 | I see. So you find yelling effective? It depends.

00:05:16.240 | Well, J Cal, I agree that I don't think you have anything to

00:05:19.760 | apologize for in terms of the substance of what you're trying

00:05:22.320 | to get across. I personally could have done without the all

00:05:24.880 | caps. It was a bit. Yeah, what you're basically saying is

00:05:28.240 | nobody should listen to you because you're not that

00:05:30.720 | important. And I wholeheartedly agree with that.

00:05:33.480 | No, I'm saying understand, I might make a joke. Consider me

00:05:37.320 | more in that category. Yeah,

00:05:39.760 | all right, let's go back. Let's go back and look at the

00:05:42.040 | timeline. Because there are now serious accusations. And I

00:05:45.320 | would call it really scapegoating of and it wasn't

00:05:48.000 | just you, it was me and Bill Ackman. In fact, the Wall Street

00:05:51.400 | Journal editorial board, which I respect a lot, mischaracterize

00:05:55.320 | what me and Ackman were trying to do in terms of drawing

00:05:59.000 | attention to a regional banking crisis in progress or run on the

00:06:02.240 | banks. They called it spreading panic. I don't know how you

00:06:06.240 | tweet or publicly discuss a run on the bank that's currently

00:06:10.640 | happening needs to be addressed with an immediate federal

00:06:13.480 | intervention. I don't know how you can discuss it without then

00:06:17.200 | having someone else mischaracterize it as trying to

00:06:19.720 | spread a panic. But Jake, how the Wall Street Journal

00:06:23.320 | editorial board didn't mention you. So you're off. They didn't

00:06:26.880 | know who you were. Thank you.

00:06:27.960 | Thank you. But no, but seriously, so I went back and

00:06:31.600 | looked at the timeline of all of this. And so first of all, we

00:06:35.240 | have to understand that this banking crisis now has swept in

00:06:40.240 | five banks, five bank failures. First, there was Silvergate, but

00:06:43.520 | everyone dismissed that because it was some weird crypto bank.

00:06:45.640 | Then it was SVB. But everyone sort of dismissed it because

00:06:48.720 | they said it was based on panicky VCs rather than a

00:06:51.400 | systemic problem in the banking system. Then it was Signature

00:06:54.880 | Bank, which got seized on Sunday, which I think utterly

00:06:57.720 | refuted the idea that this was just a Silicon Valley problem.

00:07:01.360 | Then you had the Fed step in and backstop First Republic, which

00:07:06.440 | would have been the next dominant fall if it wasn't

00:07:08.920 | backstopped. And then five, you had Credit Suisse, basically,

00:07:12.920 | again, avoid an outright failure because they got backstopped by

00:07:16.400 | the Swiss government. So we now have five banks in roughly a

00:07:20.560 | week. And these are not small banks or credit Suisse is a is a

00:07:24.680 | GSIB, a globally systemically important bank. And the other

00:07:27.720 | ones are top 20 top 30 type banks are talking about hundreds

00:07:30.080 | of billions of dollars in deposits. So clearly, there's a

00:07:32.560 | larger phenomenon going on here. And frankly, it's being caused

00:07:37.120 | not by like anything VCs did, because VCs are just depositors

00:07:41.120 | were just one class of depositors. And depositors are

00:07:44.120 | not to blame for what's going on here. What's going on is that

00:07:47.320 | these banks have huge unrealized losses on their balance sheet.

00:07:51.920 | And the losses have come from the sun spike in interest rates.

00:07:55.280 | That's what's going on. The sun spike in interest rates is

00:07:58.200 | because we've had the most rapid Fed tightening cycle in our

00:08:00.520 | lifetimes. In the last year, the Fed funds rates gone from

00:08:03.680 | roughly zero to almost 5%. That has broken a lot of things. And

00:08:08.160 | the banks which have broken first are the ones that had

00:08:10.680 | pre existing problems. And they had horrible risk management.

00:08:15.400 | But that's who gets broken first in a stress test, right is the

00:08:18.360 | most poorly run banks, the ones with pre existing issues. But

00:08:21.440 | just because they went first doesn't mean that others don't

00:08:25.160 | have similar kinds of issues. Now. I'm not saying this in any

00:08:29.320 | way to be panicking, where those banks will be fine. But there

00:08:32.200 | are larger issues in the banking system that are worth talking

00:08:34.440 | about. And to the point about whether VCs could have spread

00:08:37.440 | this, Jake, how you're absolutely right about the

00:08:39.560 | timeline. I mean, I went back and checked. I personally never

00:08:42.600 | tweeted anything about SVB until Friday afternoon, when SVB was

00:08:47.720 | already in receivership, and the run on the bank had already

00:08:50.400 | started with signature and first Republic, and we could see it

00:08:52.440 | with our own eyes. And then this pod didn't drop the one where we

00:08:56.080 | talked about this problem didn't drop until Saturday morning when

00:08:58.760 | the banks were already closed. And by Sunday night, the Fed had

00:09:02.200 | acted and basically implemented our recommendations, which was

00:09:05.800 | to basically intervene. So I don't know how you can blame the

00:09:10.000 | search for scapegoats, I think is getting out of control. And

00:09:12.520 | it's just not factually accurate.

00:09:13.760 | And you know that it's convenient to make tech, which

00:09:17.600 | is hated right now, Chamath and Friedberg, you know, the

00:09:20.200 | scapegoat venture capital is obviously the part of tech that

00:09:22.840 | people might hate the most or the easiest target. But let's

00:09:26.600 | talk about the Fed raised those rates because of inflation and

00:09:31.160 | inflation happened because of out of control spending due to

00:09:34.000 | COVID. And then the second administration, so you had a

00:09:37.440 | Republican administration that spent a lot of money and then a

00:09:39.440 | Democratic administration, Chamath, that spent a lot of

00:09:42.120 | money. So maybe we could even go backwards from Fed fund rate,

00:09:46.120 | going, you know, what looks like parabolic when you look at the

00:09:49.880 | chart. Maybe you could speak to what got us to the Fed making

00:09:53.520 | those decisions, Chamath or Friedberg,

00:09:55.160 | maybe I can just do a little cleanup on what SAC said. I

00:09:58.840 | think the issues that credit suisse are different than the

00:10:02.480 | issues at First Republic. And the issues that First Republic

00:10:05.400 | are different than those other three banks. The other three

00:10:07.800 | banks, David, that you mentioned, signature, Silicon

00:10:11.800 | Valley Bank, and Silvergate, all had very traditional liquidity

00:10:18.640 | crises, right? We talked about this last week, which is

00:10:21.080 | duration mismatching, where you have depositors who want their

00:10:24.440 | money today, but you have assets that mature in 10 years. And as

00:10:30.920 | a result, you have huge unrealized losses if you all of

00:10:33.880 | a sudden cash them out today versus waiting 10 years. I think

00:10:37.880 | what's happening at First Republic is really just about

00:10:40.040 | making sure that that loan book and the depositors can get

00:10:45.320 | parked into a combination set of banks that can take care of the

00:10:49.680 | balance sheet so that there are no more liquidity issues. At

00:10:53.640 | credit suisse, they have an enormous amount of liquidity.

00:10:56.600 | What that was, was I think a lot of speculation around whether

00:11:00.800 | they would default on their bonds or whether they would

00:11:03.120 | theoretically need more liquidity. But the balance

00:11:06.680 | sheet itself was not only liquid, but also very solvent.

00:11:09.880 | So I think that was just more of a haniky reaction to comments

00:11:14.640 | from a 9.9% shareholder who just said that they can't put in any

00:11:19.320 | more equity. But even then I went back, this is the chairman

00:11:21.600 | of the Saudi National Bank. He was asked on Bloomberg, would

00:11:24.760 | you give credit suisse more money? And he had a very

00:11:27.600 | reasonable answer. But it was snapshotted in a very awkward

00:11:31.440 | way. The first sentence was under no circumstances, would he

00:11:35.040 | do that? Okay. Now, if you stop there, you could be panicked.

00:11:38.760 | But the rest of it made a lot of sense, which is he said, Look,

00:11:41.960 | in Saudi Arabia, if we go above 10%, we have to go through

00:11:46.000 | regulatory approvals domestically, and there are

00:11:48.400 | regulatory approvals abroad. That's a big hill to climb. And

00:11:51.840 | all of a sudden, it no longer becomes a financial investment,

00:11:54.720 | it becomes a somewhat political investment. And so we're very

00:11:57.640 | happy at 9.9%. That was the totality of the statement. But

00:12:01.120 | if you just cherry pick the first 45 seconds and ran with

00:12:03.840 | it, which people on the internet did, this is sort of what caused

00:12:07.400 | that second level wave panic at a GSIB. And then the Swiss

00:12:11.200 | National Bank stepped in. And I think that that panic has

00:12:13.800 | largely gone. Okay, so what is the real issue? The issue again,

00:12:18.600 | is I think we have had a bit of supervisory failure here. Right?

00:12:22.080 | Because we all know this in any industry. If you let capitalism

00:12:26.640 | go totally unchecked, shareholders will demand

00:12:30.360 | immediate profits today. It happens in every industry,

00:12:34.560 | except in ones where you can basically gamble on future

00:12:38.520 | profits. And that's what tech does. But every other

00:12:41.400 | shareholder in every other asset class demands money today. And

00:12:44.800 | that's the same for banks. The problem is the banks are a

00:12:47.720 | highly regulated business. They are supposed to be supervised by

00:12:52.360 | the regulators. And this is a very clear example where why is

00:12:56.880 | there not a real time spreadsheet? I mean, this is not

00:13:00.520 | complicated stuff, where assets and liabilities and duration

00:13:04.560 | mismatching can be known on a real time basis where the San

00:13:07.280 | Francisco Fed, Mary Daly should have a report that's escalated

00:13:12.520 | to her when SVB got over their ski tips, which they did in q4

00:13:17.040 | of 2022. So I think the real question that has to be

00:13:20.360 | examined is where were these folks for the last four months

00:13:23.520 | when they could have done something not just about this,

00:13:26.600 | but rules in general for all banks that are not the GSIBs.

00:13:29.840 | And I think that's a very important question that

00:13:32.120 | politicians need to get to the root of

00:13:34.440 | Friedberg, we discussed this article from seeking alpha,

00:13:38.160 | which came out on let me get the exact date here, December 19.

00:13:42.240 | Title of this seeking alpha story is SVB financial colon

00:13:47.960 | blow up risk. And the summary in three bullet points, says

00:13:52.800 | bullet point one potential losses in loan portfolios could

00:13:55.880 | severely impair book equity number two, unreal is unrealized

00:13:59.680 | losses in hold to maturity portfolio already equal to book

00:14:03.640 | equity. Number three funding environment for startups were

00:14:06.680 | pressure deposit base, adding even more pressure to the

00:14:09.000 | balance sheet. In other words, startups spending money to cover

00:14:11.320 | their burn rate, freeberg. And obviously, we had the Dodd Frank

00:14:15.680 | rules lessened or loosened under the previous

00:14:19.600 | administration. And that specifically was driven by

00:14:22.640 | Silicon Valley Bank that had a big part in that. So looking

00:14:25.040 | back on this, and people do want to place blame, let's talk about

00:14:28.760 | the effects that occurred, because this was hiding in plain

00:14:31.920 | sight. Literally in December in an article that looks like it

00:14:36.000 | was written by somebody who went into a time machine and said,

00:14:38.800 | How do I warn people in December about this? Maybe you could talk

00:14:42.360 | about the feds interest rates, the spending and what led up to

00:14:45.600 | this look issue with the banks.

00:14:48.080 | You guys remember when we started this podcast, three

00:14:50.760 | years ago, we were like, they're gonna shut down the economy.

00:14:54.240 | There's gonna be crazy second and third order effects of doing

00:14:57.720 | that no one knows what they're gonna be. Here they are. And I

00:15:01.240 | think that's like the root of what is a rippling effect, you

00:15:05.080 | can't shut down the global economy, and stop trade and stop

00:15:10.720 | people and have the government step in to write a giant check

00:15:14.520 | and not expect that you're going to have to cash that check at

00:15:17.000 | some point. That's effectively what I think we've been kicking

00:15:20.520 | down the road here. The way we initially tried to resolve the

00:15:24.040 | problem was to drop rates to zero, and then spend our way,

00:15:28.600 | you know, back to a growing supported economy, and then

00:15:32.120 | overshot ended up with, you know, too much stimulation, too

00:15:36.560 | much stimulus, to lower rates for too long, responded too

00:15:40.600 | quickly whiplash back. At the end of the day, there was a

00:15:43.640 | giant gaping hole blown into the global economy. When we shut

00:15:48.360 | down the world from COVID. There's no blame, just what

00:15:52.760 | happened. And when that happened, there was a massive

00:15:56.040 | cost that had to be born at some point. And it's going to get

00:15:59.760 | born at some point and the rippling in a pond, you don't

00:16:04.720 | know where the ripple is going to hit what part of the pond

00:16:06.840 | what leaves it's going to hit. That's what's going on still.

00:16:09.600 | And it's such a dynamical system. It's so hard to say with

00:16:13.000 | linear certainty, this is what should be done and what could

00:16:15.680 | have been done and what they should have done at the time. No

00:16:18.280 | one had that predictive capacity back then. They did what they

00:16:21.360 | needed to do people thought that they should have dropped

00:16:24.280 | rates. They said we should have written all these big stimulus

00:16:26.480 | checks. Some people said you shouldn't some people said you

00:16:28.360 | did. Certainly. Some people are being proven right and some

00:16:32.040 | people are being proven wrong. But at the end of the day, the

00:16:35.840 | economic loss that was realized at that period of time, we're

00:16:39.840 | still trying to get out of it and we're still recovering from

00:16:41.920 | and I think that's a big part of what's being eaten up right

00:16:43.960 | now. And you're going to see it in the wipe out of certain

00:16:46.600 | equity, you're going to see it in the wipe out of these banks

00:16:51.760 | of the assets that they hold and these portfolios and the effects

00:16:55.520 | of that are obviously you know, still being felt

00:16:57.320 | sacks. Do you agree that mistakes that this there isn't

00:17:04.520 | somebody to blame because it is clear that the Fed said

00:17:08.520 | inflation is transitory that was wrong. And then they went faster

00:17:13.920 | than in history to raise the rates those seem like two

00:17:17.200 | glaring mistakes and then the Todd the Dodd Frank loosening

00:17:21.800 | under Trump and with Silicon Valley Bank pushing them that

00:17:24.600 | seemed like a really big mistake.

00:17:26.120 | By the way, I wasn't saying the feds not to blame for not

00:17:28.200 | raising rates faster. That was because you guys remember I was

00:17:30.880 | the first person to talk about what Stan Druckenmiller had said

00:17:34.280 | that they're not raising rates fast enough that we've got

00:17:36.000 | massive inflation, we should have been raising rates. I was

00:17:37.960 | the first person on the show to be, you know, barking that. So

00:17:41.000 | don't don't forget, like I was there. Like pretty early, what I

00:17:44.440 | was pointing out was like we shut down the economy during

00:17:46.720 | COVID. The global economy. Yeah, I got you. So that is the main

00:17:49.680 | cause that is the cannonball that got blown through the ship.

00:17:52.440 | Got it. And everything else is plumbing and patching and work

00:17:55.520 | to try and keep the ship afloat. And we're still dealing with

00:17:57.920 | that. And at the same time, as you guys know, we've been

00:18:00.200 | loading the ship up with debt, the global ship, the global

00:18:03.280 | economy with debt 360% global debt to global GDP ratio right

00:18:07.960 | now. And as that ship has gotten heavier and heavier to have a

00:18:11.200 | giant hole blown in the side while you're trying to do all

00:18:13.080 | this patchwork with all this debt weighing on it. It's a

00:18:15.480 | critical challenge. And it's one that we're feeling acutely here.

00:18:19.120 | They're feeling it in Europe now. And we're certainly going

00:18:21.440 | to see the global ramifications as we try and fix this economic

00:18:25.040 | catastrophe that was caused by COVID at the same time that

00:18:28.720 | we've been spending our way into a happier future that it turns

00:18:32.000 | out we have to pay the bills for at some point.

00:18:34.760 | sacks your response.

00:18:36.520 | The question of who you blame for this banking crisis has

00:18:38.880 | really become a political Rorschach test. And I've seen

00:18:41.640 | that there are six different parties that people want to

00:18:45.120 | blame in this situation. And there's some merit to all of

00:18:48.920 | them. But the degrees are very different. So number one,

00:18:51.440 | let's go through them. Okay, number one, the bank management

00:18:54.120 | of all these different banks, clearly, very poor risk

00:18:56.640 | management didn't do a good job. They are to blame. However, and

00:19:01.640 | Chamath is right about these banks, they differ in the

00:19:03.520 | details. But the point is that they're all operating under

00:19:06.320 | conditions of extreme stress. Where did that come from? Number

00:19:08.840 | two, the feds rapid rate tightening cycle, clearly, I

00:19:12.480 | think that the combination of poor risk management, with the

00:19:17.400 | spike in interest rates that basically has precipitated this

00:19:20.280 | larger problem. Number three, is I think the Biden

00:19:23.840 | administration spending, which in fairness, started with COVID

00:19:27.440 | before Biden, but Biden really intensified it. And then I

00:19:30.840 | think it really compound the problem in the summer of 2021.

00:19:33.680 | By claiming that inflation was transitory when it wasn't, that

00:19:36.920 | allowed them to keep spending and keep printing money and kept

00:19:40.080 | QE going for another six months. That created the bubble of

00:19:42.760 | 2021. Everything got super frothy. And then that made the

00:19:46.120 | rate cycle even more vicious, because you started six months

00:19:51.600 | later, they could have started six months earlier, and it

00:19:53.800 | could have been more gradual. And I think that really was a

00:19:56.400 | disaster for the economy. Okay, number four, the D reg in 2018.

00:20:00.600 | I think Elizabeth Warren, and Ro Khanna have made what I would

00:20:04.040 | call a compelling case that the D reg in 2018 have contributed

00:20:08.880 | to this problem. I think, in hindsight, creating a two tier

00:20:12.680 | system of banks, where one tier are the systemically important

00:20:16.400 | banks who are completely guaranteed and backstopped by

00:20:18.760 | the federal government. And then a sort of lower tier, a second

00:20:22.400 | tier of regional banks was a poison chalice for the regional

00:20:26.600 | banking system. Because in the short term, it meant they were

00:20:29.440 | more lightly regulated, which may be appropriate for, you

00:20:33.480 | know, smaller banks that aren't these mega banks. However, it

00:20:36.720 | has also now I think, created a situation where people are less

00:20:38.920 | confident about them. And so the money flows are going from the

00:20:42.520 | regional banks to the systemically important banks,

00:20:45.280 | the SIBs. So like I said, it might be a double edged sword.

00:20:48.200 | And I think we're gonna have to look at those regulations and

00:20:50.240 | figure out what's the right regulatory regime to create

00:20:54.320 | confidence in the regional banking system. We want a

00:20:56.800 | thriving regional banking system. And so the question is,

00:21:00.040 | what's the right regulations that get us there? And then

00:21:02.280 | there's the final two that we can talk about later are I'm

00:21:05.040 | hearing wokeness getting blamed, which, listen, I think that

00:21:08.520 | wokeness was a distraction. There were a lot of crazy

00:21:10.920 | programs happening at these banks. But listen, if wokeness

00:21:13.960 | was the key factor, the whole fortune 500 would be out of

00:21:16.640 | business. Because, because they all do this stuff. They all do

00:21:19.560 | this stuff. So I think I think we're going back to the well a

00:21:21.760 | little too often on that critique. And I don't want to

00:21:25.000 | burn that critique out because I think that wokeness is bad, but

00:21:28.320 | it's not the key reason why this stuff happened. And then the

00:21:31.480 | last group that gets

00:21:33.080 | wokeness, we could also maybe frame it as ESG more broadly as

00:21:36.960 | the distraction because wokeness is charged ESG is real.

00:21:39.640 | Yeah, what I would say for sure is that if these banks have

00:21:42.880 | spent as much time on risk management as they did on ESG

00:21:45.920 | or on woke, then this crisis wouldn't happen. So definitely

00:21:49.320 | a distraction, but not not the thing that like specifically

00:21:52.200 | caused it. And then just the final thing is VCs. And I just

00:21:55.440 | can't fathom at this point, given the multiple bank

00:21:58.840 | failures, given that we see the larger problem of unrealized

00:22:01.240 | losses on bank balance sheets, that somehow any class of

00:22:04.680 | depositors would be blamed for this. That just makes no sense

00:22:07.640 | to me.

00:22:07.880 | Chamath I think the VC, the critique is specific to Silicon

00:22:11.720 | Valley Bank, because I think and this article was in the Wall

00:22:14.360 | Street Journal. But what it shows is a really complicated

00:22:18.120 | intertwined relationship between VCs and Silicon Valley Bank

00:22:21.480 | where, you know, VCs were given very cheap interest rate loans,

00:22:25.880 | they were given GP call lines of credit, they were given LP lines

00:22:29.480 | of credit. And then those same VCs would be directing their

00:22:32.680 | companies to put their deposits inside of SVB, who would then

00:22:35.840 | take those deposits and buy perhaps and buy risk. And while

00:22:39.640 | the reality is, all of this stuff will come to light,

00:22:41.800 | because I think it will get exposed as we go through

00:22:44.000 | congressional hearings on all of this. But I think the I think

00:22:47.720 | pointing the finger at VCs in this specific case, is somewhat

00:22:51.160 | warranted, because there was a little bit of people working in

00:22:53.840 | lockstep together. And there was a lack of functional

00:22:56.760 | responsibility around how to be a true fiduciary. So if you come

00:23:01.800 | to a board, and your founder is 22 years old, and you give that

00:23:06.120 | person 15 or $20 million, I think it makes a fair amount of

00:23:10.600 | sense that you are supposed to be the more sophisticated

00:23:14.880 | financial person in that room. And if you have incentives that

00:23:19.400 | aren't properly disclosed to that CEO, and now a set of

00:23:23.440 | decisions are made, I think that that there should be some

00:23:26.160 | accountability for that, or at least some exploration of why

00:23:28.600 | that happened.

00:23:29.160 | I just want to make sure the audience understands this

00:23:31.040 | because it is a bit in the weeds. And it's a bit inside

00:23:33.120 | baseball. What you're saying Chamath is, if I can summarize

00:23:36.640 | it, there are people who are the adults in the room, venture

00:23:39.520 | capitalists, they have deposits at Silicon Valley Bank, they

00:23:42.840 | also might have loans that are fantastic. With Silicon Valley

00:23:46.440 | Bank, I have a mortgage for this office from Silicon Valley

00:23:49.040 | Bank. And I talked about how on the last episode, how great it

00:23:51.760 | is, they come, they open wine with you, it's white glove

00:23:53.600 | service that you wouldn't get at another bank. And then they

00:23:58.120 | might have loans against what's called the GP carry or the GP

00:24:02.560 | share, or they might have mortgages. And so there's a

00:24:06.400 | conflict there. If you're a venture capitalist, and you're

00:24:08.520 | directing a 22 year old CEO to Silicon Valley Bank, maybe you're

00:24:12.880 | doing that is a conflict of interest. And in some cases,

00:24:18.920 | Silicon Valley Bank is a limited partner in all of these funds.

00:24:21.600 | My point is that all of these things, interest, okay, hold on,

00:24:24.480 | we have to explain that. So imagine a situation, you go and

00:24:28.000 | start a fund, Silicon Valley Bank, and says, let me be a

00:24:32.360 | limited partner and invest with you. Let me give you some amount

00:24:35.280 | of money. I don't know where that money comes from, from

00:24:37.200 | Silicon Valley. Well, let's be realistic, more like 25 50

00:24:42.040 | million 100 million. Okay, this is a lot of money. So a million

00:24:45.040 | kind of is whitewashing this problem. So you give them a

00:24:47.880 | reasonable amount of money. They're like, wow, I'm I have

00:24:51.120 | tremendous loyalty for you. Thank you. Well, do you need

00:24:53.320 | anything else? Do you need personal loans? Do you need

00:24:55.480 | lines of credit for your business? Sure, why not? I take

00:24:57.960 | those two. And invariably, on the back end, now your loyalty

00:25:02.240 | obviously builds up again, nothing, none of this is wrong.

00:25:04.640 | But this is what's happening. And then you tell your companies

00:25:07.880 | to keep your deposits there, maybe the cash management

00:25:10.320 | program is not as strong as it would have been if you were more

00:25:12.880 | circumspect, and you didn't have those incentives to direct

00:25:15.720 | people to one institution only in any other part of the market.

00:25:20.440 | So in the public markets, as an example, there is such a bar for

00:25:25.000 | disclosure, okay, and I cannot stress this to you enough

00:25:27.640 | related party transactions, all of this stuff, we have to tell

00:25:31.400 | everything not just for us. But even if our like sister or

00:25:36.160 | brother or mother may have a transaction with an entity that

00:25:38.960 | we're doing a deal with. And it just isn't the case in private

00:25:41.960 | markets. And so it's not to say that anything untoward happened.

00:25:45.760 | But when people point the finger at VCs, I think they are

00:25:48.480 | pointing to this whole set of issues and asking the question,

00:25:52.360 | shouldn't there have been more disclosure and transparency

00:25:55.320 | around it? And now that this has come to pass, shouldn't we

00:25:58.840 | explore it? And I think that's what the Wall Street Journal

00:26:00.960 | did, they started pulling on this sweater thread. And my

00:26:04.440 | guess is that you're going to find a whole ball of yarn at the

00:26:07.160 | end of it.

00:26:07.480 | Saks, what do you think of this?

00:26:08.760 | I think Shrath makes a fair point that if VCs have SVB as an

00:26:13.800 | investor, and then they're directing startups to use SVB,

00:26:17.440 | that is a conflict that should be disclosed. By the way, we

00:26:20.760 | never did either one of those things. We never had SVB as a

00:26:24.000 | limited partner. And we also never direct our starts to bank

00:26:26.760 | at SVB. I don't know why we'd ever do that. Moreover, I always

00:26:30.480 | try to talk founders out of taking venture debt, whether

00:26:33.120 | from SVB or elsewhere. So

00:26:34.800 | listen, we'd be clear about that. And to be clear, I never

00:26:37.520 | directed anybody to a specific bank. I know, like told people

00:26:40.520 | to get two or three banks and have redundancy. Totally. Yeah,

00:26:44.160 | totally. And look, founders have multiple VCs typically on their

00:26:47.040 | boards. So the idea that like anyone VC directs them, which

00:26:49.920 | bank to use, is this not, that's not realistically what happens

00:26:53.360 | at these startups. But look, I think Chamath is right that when

00:26:57.960 | there is a bank failure or any kind of failure this big, then

00:27:01.360 | all the practices are going to be under a microscope. And

00:27:03.480 | there's going to be some scrutiny of those. And maybe

00:27:05.520 | there should be. But my larger point is we're now operating in

00:27:09.120 | an environment in which clearly there's a larger set of stresses

00:27:13.040 | on the banking system. We've already had now five bank

00:27:15.960 | failures or near failures. Moreover, do any of us believe

00:27:19.800 | that this is over? Or do we believe there are more shoes to

00:27:22.560 | drop? If we believe that there are more shoes to drop, we may

00:27:25.880 | not know exactly what they are. But But I think all of us

00:27:28.080 | probably believe that we're not the end of this. But But just to

00:27:31.080 | finish the thought, if we believe there will be more shoes

00:27:33.360 | to drop, then clearly, the issues cannot just be limited to

00:27:37.400 | Silicon Valley, they have to be a larger set of issues.

00:27:39.880 | There, I think that it's important to understand the

00:27:43.000 | facility that the Fed created. So what the Fed did this weekend

00:27:47.320 | is essentially create a buyer of last resort again. Now, how

00:27:52.120 | did they do this? So all of these banks basically have

00:27:55.160 | assets that they bought for $1 and are now worth 95 cents. And

00:27:59.440 | that's what's creating this whole issue or 80 cents or 85

00:28:01.760 | cents, you pick the number, but they're not worth the dollar

00:28:03.880 | that they bought. What the Fed basically said is, okay, give me

00:28:08.880 | that asset, give me that bond, I will value it at $1 and I will

00:28:13.200 | give you $1 as a loan. And you will pay me interest. And the

00:28:17.720 | interest rate I think is what's called OIS. And they added 10

00:28:20.520 | basis points on top. So I think it's about 4.9%. So what it

00:28:24.920 | allows all of these banks, and if you take all of the banks

00:28:29.000 | that are not the top four in America, so the top four are JP

00:28:33.320 | Morgan, B of A, Citi and Wells. So just ignore those for one

00:28:36.120 | second, the other end banks, if you look at all of the assets

00:28:40.120 | that are underwater, because of all the rate hikes that sacks

00:28:43.000 | talked about, and you add up all those losses, that is about $2

00:28:47.960 | trillion. And the Fed didn't announce that there was a

00:28:52.760 | beginning and an end to this program, other than saying these

00:28:56.040 | would be one year loans. And so I think the exposure for the

00:29:00.520 | American banking system at a minimum is going to be this $2

00:29:04.920 | trillion. Because now the incentive if you're a banker

00:29:08.600 | right now running one of these banks that has not gone under is

00:29:12.640 | to immediately go to the Fed, put all of those assets to them,

00:29:17.040 | get a loan, and now take that and buy different assets,

00:29:22.120 | different bonds, different US treasuries that are yielding

00:29:25.920 | much more than what your old treasuries were yielding. And I

00:29:30.400 | think that's the arbitrage that we've unfortunately created. And

00:29:34.640 | the other question now, though, however, is, what does that mean

00:29:37.680 | for the top four banks? Right? Because if it's 2 trillion for

00:29:41.000 | everybody else, but the top four, what's the gap for the top

00:29:44.720 | four, that looks like it's somewhere between a trillion and

00:29:47.560 | 2 trillion. So that's another amount of money we're going to

00:29:51.680 | have to cover the Fed will have to backstop. And then, as

00:29:55.920 | Friedberg said, these checks always come to what do we do in

00:30:00.000 | a year? Because in a year, the problem is, the only way to make

00:30:06.640 | the banks in a position to repay this much money in one year is

00:30:11.160 | to cut interest rates so massively, that these assets

00:30:15.360 | massively inflate. And now all of a sudden, you're in a

00:30:17.920 | position to cover this. So it's a very bad delta is because it's

00:30:22.280 | about they're down 15% 10% in book value, these longer term

00:30:27.040 | security. Again, it depends on what they bought. We don't

00:30:30.240 | really know enough detail. So I don't want to guess. But if you

00:30:32.760 | own these 10 year treasuries, you could be off 10 or 15%. If

00:30:35.720 | you own mortgage backed securities, it could be off a

00:30:38.480 | little bit more. If you own short term securities, they're

00:30:40.760 | off a little bit less. But these are with the government, you get

00:30:43.880 | a loan collateralized by these assets. So you still holding

00:30:46.960 | them, right? Yes. And they mature. So if the Fed takes an

00:30:50.600 | emergency posture and says, Okay, guys, we want to avert a

00:30:53.600 | crisis in a year from now. And we're going to cut rates, these

00:30:57.640 | assets that these banks own will be worth more, which will allow

00:31:01.160 | them to repay the loan. As far as I can tell, all we've done is

00:31:06.800 | we've kicked the can down the road for a year. But I do think

00:31:10.400 | it's important for people to realize this doesn't solve the

00:31:12.960 | problem. It just means that mark your calendar for a year from

00:31:16.840 | now. We have a problem on March 15 2024. Because all those folks

00:31:22.760 | that took money, what do we do? Yeah, and so a year to work it

00:31:26.200 | out, freeberg would seem like a good idea, because the Fed is

00:31:32.200 | fighting inflation, they seem to have gotten some portion of it

00:31:35.560 | under control. It's not out of control, right inflation. And

00:31:39.240 | maybe if they can slowly, you know, either start rate cuts or

00:31:43.200 | pause. So let's shift the discussion to Hey, what are the

00:31:47.600 | changes we need to make to the system? And how do we think this

00:31:50.200 | plays out over the next year? freeberg? Chamath had one

00:31:53.800 | suggestion, which was all of these banks should have a

00:31:56.840 | disclosure statement, mark to market every day, week, month,

00:32:00.240 | quarter, whatever it is, just like circles, USDC, their stable

00:32:04.760 | coin has a page with their disclosures of all their

00:32:07.380 | holdings. So that seems to be a very productive one, we should

00:32:10.160 | have them mark to market the the Dodd Frank stuff. As Zack said,

00:32:14.520 | you know, Elizabeth Warren, probably correct, we need to

00:32:17.160 | reverse that. So those are two very tangible suggestions. What

00:32:20.320 | are your real time dashboard, we need to have a real time

00:32:23.480 | dashboard at every single Fed that allows them for every bank

00:32:28.600 | that they supervise to know in real time, they can ignore it.

00:32:32.960 | I'm not sure that should be true. But they are their

00:32:36.800 | supervisors, they should see it, they should choose to ignore it.

00:32:40.440 | But they should not not have it. freeberg. What are your

00:32:43.880 | suggestions going forward as to how we can learn from this

00:32:47.400 | situation? Forget about the cannonball, as you vividly

00:32:51.840 | expressed there, I think very well, great analogy. But just

00:32:55.760 | going forward, how do we keep the ship from taking on water if

00:33:00.680 | we do have a cannibal hit it again?

00:33:02.880 | Now we got a hard, that's a hard equation to solve. We got a lot

00:33:08.320 | of time asking you, that's why a lot of demands for money.

00:33:14.200 | You guys see, I think there's a lot of things that are seem

00:33:18.240 | unrelated that are all pretty related right now. There's a

00:33:21.960 | massive protest underway by labor in France. There's a

00:33:26.920 | massive protest underway in the Netherlands. There's strikes on

00:33:31.760 | the underground in London, when we talk about global debt, and

00:33:36.240 | US debt, we often I don't think account for all the debt, which

00:33:41.040 | also includes promissory obligations made to a workforce

00:33:44.880 | global workforce that's been working for decades, individuals

00:33:48.320 | that have spent their whole lives committed to some company

00:33:52.360 | or to some government working with the expectation that

00:33:55.040 | they're going to retire and have some benefits paid to them. And

00:33:58.040 | there's this massive underfunding of those benefits

00:34:00.760 | and those pools of capital, we very quickly talk about unfunded

00:34:04.280 | pension liabilities. But when you actually kind of account for

00:34:09.400 | the number of people and the amount of capital that those

00:34:12.240 | people are expecting that the workforce, the global workforce

00:34:14.960 | is expecting to be paid to them in retirement, both public and

00:34:18.920 | private, it's a massive amount of money that's not funded today.

00:34:22.760 | And you start to see the cracks in the system, when that

00:34:27.160 | population says, my pension payments are not keeping up with

00:34:31.960 | interest with inflation, or when there's a threat that pension

00:34:36.920 | payments or retirement benefits are going to kick in at a later

00:34:39.560 | age, or you're not going to get them fast enough, you're not

00:34:41.600 | going to get as many as you thought you were going to get.

00:34:43.040 | We have that problem in the United States in the form of

00:34:45.280 | Social Security and these underfunded pension liabilities.

00:34:47.520 | That is the critical macro tension in this equation that I

00:34:52.160 | think drives the real problem that's going to come to a head

00:34:57.280 | at some point, we blew a hole in the in the in the boat. But

00:35:00.920 | we're also forgetting that there's like a massive amount of

00:35:04.080 | amount of weight that's going to drop on the boat. And I think

00:35:07.640 | that it's a really hard equation to solve, we can talk about

00:35:10.600 | keeping bank solvent and all this sort of stuff. At the end

00:35:12.760 | of the day, the central bank, it appears in the United States,

00:35:14.880 | and probably globally, it's going to be one big bank, right,

00:35:17.720 | they're basically going to take on the whole balance sheet

00:35:19.720 | themselves. And, and at the same time, you've got a lot of folks

00:35:24.080 | saying, I want to get paid more. I have obligations due to me.

00:35:28.320 | And guess what, you know, Jason, your important statement

00:35:33.920 | is historically about the importance of democracies.

00:35:36.160 | Ultimately, you know, the members of that democracy are

00:35:39.560 | going to say, this, this is a benefit that the majority are

00:35:42.840 | owed. And that's going to pull things out. I think the only

00:35:46.240 | stopgap, I'll just say one thing, the only stopgap in the

00:35:49.280 | next decade, is going to be significantly higher tax rates

00:35:52.080 | in the United States. I don't see how you're going to fulfill

00:35:56.360 | the tension gap that's underway right now, with respect to where

00:35:59.400 | productivity is going and where capital markets are going, and

00:36:02.000 | where the demands are on the system from people requiring

00:36:05.360 | additional capital to come out to them without taxing assets

00:36:09.320 | away from the asset holders. So this would be corporations and

00:36:13.040 | high net worth people. And I think that's why you see this

00:36:14.960 | Biden proposal. We may not like it. But at the end of the day,

00:36:19.120 | it's going to be the only way to create a stopgap that's that's

00:36:21.480 | that's going to avoid massive inflation in the near term.

00:36:23.720 | Reducing

00:36:24.520 | proposal, hold on, hold on one second.

00:36:27.200 | Let me just say the only other way the only other I'll just say

00:36:29.720 | one more thing, Jay, got me. The only other way, besides, you

00:36:33.600 | know, a massive long term tax regime to fill the hole would be

00:36:37.400 | some extraordinary productivity gain. And this is where we can

00:36:40.120 | all have a hope and a dream and an investment and effort around

00:36:42.760 | technology, AI automation, people think that their energy

00:36:47.040 | job energy, but if you can get energy down below three cents a

00:36:51.200 | kilowatt hour, and you can scale its production by tenfold, if

00:36:54.680 | you can automate a lot of labor, if you can get AI to do a lot of

00:36:58.040 | stuff that we do today, productivity will go through the

00:37:00.520 | roof, the economy will grow fast enough to get out of the debt

00:37:02.920 | bubble and meet all of these liability obligations. So there

00:37:05.720 | are three ways. Yeah. So I think I think to me, to me, that's the

00:37:09.400 | long term, the medium term is going to be this tax stopgap is

00:37:13.160 | very high tax stopgap. And then the short term is going to be

00:37:15.840 | all the shenanigans that we're talking about.

00:37:17.160 | Okay, I'll go to you in a second sack. So just to recap, there is

00:37:20.400 | actually a third way to there are three ways productivity as

00:37:23.440 | you very astutely point out, and we just highlighted some of the

00:37:27.760 | ways productivity could help whether it's energy, AI, etc.

00:37:30.840 | The second is, of course, increasing taxation on the

00:37:34.640 | people who are at the top of the pile would be the likely

00:37:37.320 | solution. The third is also austerity, cutting spending in

00:37:40.000 | some way. But let me also propose one thing here, as we

00:37:44.280 | look forward to what do people want out of a bank? And how

00:37:48.760 | should startups or just individuals deal with bank runs

00:37:51.880 | and their trust in banks to Chamath's point? I was thinking

00:37:55.320 | about this over the weekend. And in this discussion that we would

00:37:57.320 | have based on a lot of things you said, sacks, which was

00:38:00.280 | people just deposited their money, and they don't have the

00:38:02.800 | ability to assess if a bank is solvent, because the FDIC can't

00:38:07.920 | do it. And it's their full time job. It's their mandate to make

00:38:10.840 | sure these banks are solvent. So how is a consumer going to be

00:38:13.240 | able to do that? Or even a startup founder, or even a

00:38:15.400 | sophisticated investor, like Ackman, or any of us, if we're

00:38:18.720 | in fact, sophisticated. So let me pause for a second here and

00:38:21.400 | posit something. We don't want a bank, we want a bank vault.

00:38:26.640 | Consumers do not want their deposits to be used for

00:38:31.880 | shenanigans. Just like many people would rather pay for a

00:38:36.200 | social network than have their privacy data sold. So I think we

00:38:40.200 | should bifurcate banks into bank vaults, and banks, banks can do

00:38:45.400 | what they want with your deposits, you get free checking.

00:38:47.440 | But what I want in a bank, what I want my startups to use what I

00:38:50.560 | want my venture firm to use is I want to pay the bank for

00:38:53.960 | services, whether it's 10 basis points, 25 basis points $500 a

00:38:58.600 | month, I would rather see my startups pay $1,000 a month in

00:39:02.600 | banking fees $2,000 a month on banking fees for $2 million,

00:39:06.840 | whatever it is, and pay for each check pay for wires pay for

00:39:10.400 | white glove service, whatever they choose, but not allow the

00:39:14.120 | banks to take that money and loan it out or do things with

00:39:16.280 | it. I just want to vault. And I think a vault service is what

00:39:20.280 | the majority of consumers want. And given what we're seeing with

00:39:24.080 | two insane bank run bailouts in our lifetimes as adults, for

00:39:28.200 | those of us who are in Gen X 2008. And now, we would rather

00:39:32.120 | pay for services. And I leave it to you, Saks, is this a

00:39:34.960 | potential solution? Because I don't hear anybody saying, give

00:39:37.880 | me a bank vault. And why does that service not exist in the

00:39:40.720 | world?

00:39:41.120 | Yeah, look, what people really want are they want a service

00:39:44.600 | provider who gives them the ability to make payments, which

00:39:47.440 | if you're a small business is payroll and payables, things

00:39:50.200 | like that. They want a money market fund to basically earn

00:39:54.760 | interest. And, and they want all that to be safe. I mean, it's,

00:39:59.160 | it's very simple. The idea that when you go open a checking

00:40:03.360 | account at a bank, that you are making an unsecured loan to that

00:40:08.120 | bank, that is not something that any consumer small business

00:40:11.280 | understands. That whole model, I think is completely obsolete

00:40:14.480 | and outdated. And what I heard so many people say, and I think

00:40:18.560 | this is not sincere, I think it's just because they hate

00:40:20.760 | tech, is that depositors should take it on the chin. Because

00:40:25.240 | somehow they made a stupid decision when they opened a

00:40:28.520 | checking account. It's like, are you kidding me? Listen, what do

00:40:31.480 | you want the process to be? You want consumers and small

00:40:35.240 | businesses when they open a bank account to have to review the

00:40:37.680 | financial statements of that bank, try to figure out all

00:40:40.960 | their disclosures, where their assets are, whether they have

00:40:43.600 | toxic assets on the books. And if they don't do a good enough

00:40:46.600 | job doing that, if they're not smart enough to do that, then

00:40:50.000 | you want them to be disciplined. This is the word that I kept

00:40:52.560 | heard being used as we need to discipline depositors. The

00:40:57.040 | depositors are not in a position to evaluate the balance sheet of

00:41:01.880 | these banks. That's what the feds are supposed to do. That's

00:41:04.400 | what the regulators are supposed to do. That's what Moody's is

00:41:06.640 | supposed to do. And you're telling me that a bank that had

00:41:09.160 | an A rating from Moody's the week before and had an FDIC seal

00:41:12.920 | of approval, that somehow they got it wrong, and the feds got

00:41:16.280 | it wrong. But the

00:41:17.360 | in related news was to get it right. I mean, come on, that's

00:41:20.080 | ridiculous. In related news, Chamath, I would like an airbag

00:41:23.600 | in my cars to protect my family. But I don't want to evaluate the

00:41:27.720 | airbag technology and unpack it and make sure that it's got the

00:41:31.080 | right, right.

00:41:32.280 | Yeah, let me finish the point. It's about consumer protection

00:41:36.600 | here. And I don't care who the depositor is, if the banking

00:41:40.520 | system is going down, because the feds haven't done their job.

00:41:43.640 | I mean, pal, two days before the bank failures was testifying

00:41:47.360 | that he didn't see stress in the banking system. So either he was

00:41:50.600 | lying or asleep at the wheel,

00:41:52.400 | asleep at the wheel, like

00:41:53.160 | and like I said, the feds had given the seal of approval to

00:41:56.080 | SVB and all these other banks, they had all passed the

00:41:58.760 | regulatory exams. And so to now put it on the depositor, when

00:42:02.760 | the fed screws up, and the regulators screw up, and

00:42:05.960 | Washington screws up by printing all this money and creating this

00:42:09.400 | inflation that we've had, again, out of all the six parties that

00:42:12.800 | you could blame, I just think it's the least culpable

00:42:15.840 | Chamath should there be a service that provides no

00:42:20.080 | interest, but is just a custodian of money that is

00:42:23.920 | absolutely protected? Where is the bank vault product in the

00:42:26.960 | world? Does it exist? Because I can't seem to find it. Some

00:42:29.400 | people seem to say I think Freeberg you alluded to this

00:42:31.360 | maybe in the group chat, that if you have a brokerage account,

00:42:33.960 | that's kind of similar to what I'm saying, but it doesn't have

00:42:36.760 | it. I don't want any interest. I don't need any interest for

00:42:40.000 | putting this money in the bank for a startup. They're not in

00:42:42.680 | the business of making one to 5% and optimizing for that I have

00:42:46.080 | founders who are now sending me five page memos.

00:42:49.520 | If they can't if we think if Yeah, if the bank can't use your

00:42:52.480 | money, they're going to charge you. So remember,

00:42:54.920 | I want to be charged. That's the service.

00:42:56.920 | I know. But I think this is an important point. A bank is a

00:42:59.680 | service provider. They spend a lot of money building

00:43:02.240 | technology, having people that work there providing service and

00:43:04.760 | infrastructure. So for the services that they're offering,

00:43:07.760 | if you're not going to let them use your money to make

00:43:10.200 | investments with your money, and they can participate on that

00:43:12.640 | game, they have to charge you, they charge you. And I think

00:43:15.360 | that's really what that

00:43:16.360 | but free work free work, not a service provider under the

00:43:19.080 | current laws, you understand how it works now is that what we're

00:43:22.400 | being told is that when you went to the bank thinking you were

00:43:25.400 | just getting a service provider, and frankly, largely a commodity

00:43:28.400 | service provider, you're getting a manager. Yes. And you're being

00:43:32.440 | told that you actually made a risky investment decision. Think

00:43:35.720 | about that. When you open a checking account, you are just

00:43:38.600 | trying to, you know, again, use a vendor, you are actually

00:43:41.760 | making a risky investment decision. That's what they're

00:43:43.480 | trying to say. And you deserve to lose your money. If you

00:43:46.680 | chose poorly, even though nobody else could figure it out. None

00:43:50.000 | of the experts can figure it out.

00:43:51.000 | You should talk about the the challenges of your system to

00:43:54.480 | someone who lives in Argentina. It's far worse in other parts of

00:43:57.400 | the world. And we've come a long way in the last 100 years, we

00:43:59.440 | talked about 500 or 600 bank failures on average per year in

00:44:02.680 | the 1920s. So I'm not saying that, hey, that's not the case.

00:44:05.400 | But there's always been to some degree risk when people are

00:44:07.760 | giving their capital over to someone else. And we've

00:44:10.160 | certainly made huge strides in progress. But I think Jake out

00:44:13.080 | to your point, you know, there is a point of privilege. Now

00:44:16.000 | that people are saying I want to have a position where I know

00:44:18.240 | that my money is not going to get used, not going to get

00:44:20.440 | moved, going to be completely safe.

00:44:22.200 | In a democracy for that. What's the price free birth? What would

00:44:25.520 | you pay for that? Because right now we're basically giving every

00:44:28.240 | crypto entrepreneur at zealot, you know, basically the high

00:44:32.120 | ground because they could make this product, I would pay 10

00:44:34.720 | basis points, literally $10,000 a year per million. Is that

00:44:38.000 | right? Yeah.

00:44:38.440 | Remember when you thought Jeff Bezos was going to be president?

00:44:41.080 | I still think it's a distinct possibility. Anyway, what would

00:44:45.000 | you pay for this product? Just come off or like Bloomberg or

00:44:49.040 | Bezos?

00:44:49.680 | I don't want to speculate on new products. It's kind of a dumb

00:44:54.320 | tangent. I think the thing that you're bringing up though is

00:44:57.160 | dumb tangent. Okay.

00:44:58.280 | Why doesn't a product like this exist? And I think that it was

00:45:03.920 | very well explained. It's that every for profit business is in

00:45:07.920 | the business of making money. And there are physical costs

00:45:11.080 | that you have to bear. In the case of a bank, there is

00:45:14.040 | physical infrastructure, literally bricks and mortar that

00:45:16.640 | go into making the branches, there are lots of people, there

00:45:20.360 | is lots of software, there's lots of complex back office and

00:45:23.720 | middle office things that banks have to do in order to accept

00:45:26.200 | money that has a cost. So I don't see how it will be very

00:45:31.360 | easy for somebody to create a bank that just stores your money

00:45:36.280 | for you, without you being charged quite a lot of money.

00:45:39.560 | Unfortunately, I think that there has to be a different way

00:45:43.600 | to solve this problem. And I think that what we did after the

00:45:47.360 | great financial crisis was the regulators wrote down all kinds

00:45:52.000 | of new rules. But the crazy thing in 2008, where those rules

00:45:57.120 | were written on paper, and now we're in 2023. And these rules

00:46:02.080 | can be written in software. And so I think what it requires is

00:46:06.880 | some amount of tactical real time intelligence that

00:46:12.160 | regulators need to have over those that they regulate. And I

00:46:16.800 | don't know why we're so afraid of demanding that the next time

00:46:20.160 | some of these complicated real time laws are written in law

00:46:25.440 | that they also need to get written in code. And I think

00:46:28.320 | that that's a practical solution. It should be the case

00:46:31.520 | that every bank that's supervised by the Fed has a

00:46:35.520 | dashboard that has all of the key levers that allows what you

00:46:39.400 | said Jason to happen, which is a real time mark to market. Should

00:46:42.640 | those or should those be discovered? Or should they not

00:46:44.640 | be disclosed to shareholders? That's a different discussion.

00:46:47.680 | But the regulator should have 100% transparency into how these

00:46:51.200 | organizations run because as SAC said, they are an enormously

00:46:55.680 | critical institution that at best case after this fiasco,

00:46:59.240 | what we've realized is very poorly misunderstood by

00:47:02.480 | consumers. And that at the worst case is being mismarketed to us.

00:47:07.960 | Yeah, and I think that shouldn't be allowed.

00:47:10.280 | We're also missing the other side of the balance sheet. We

00:47:13.360 | haven't talked about it at all. But banks play a really critical

00:47:16.640 | and important role as lenders. banks act as the channel for

00:47:21.440 | lending capital to small businesses for lending capital

00:47:24.040 | to individuals to buy homes. It's the primary place where

00:47:28.560 | capital is provided to help fuel economic growth and prosperity,

00:47:33.080 | particularly in the United States where we have such a

00:47:35.640 | liquid fluid and available mortgage market to support home

00:47:38.600 | buying in America. And the absence of, you know, Jason,

00:47:42.600 | what you're talking about, having the ability to use

00:47:45.680 | deposits to make loans, and have what banks have fundamentally

00:47:49.600 | been in this country for over 100 years, which is taking

00:47:52.200 | short term deposits to make long term loans, and making sure that

00:47:55.400 | there's some degree of balance and availability of liquidity

00:47:57.720 | to support transactions. And ultimately, mortgage securities

00:48:00.400 | came out of the need to generate more liquidity by banks to

00:48:03.600 | support depositors. And obviously, there was all these

00:48:05.960 | inflationary things that happened in that market and

00:48:07.840 | bubbles that happened. But it's an important role that banks

00:48:10.640 | play. And the lending aspect of banks, if it gets stifled too

00:48:13.560 | much, because we swing too far the other way, it can actually

00:48:16.720 | have a really adverse effect on economic growth and prosperity,

00:48:19.400 | and the ability for people to to afford homes in this country.

00:48:22.320 | So that's the other side of the coin and where things can go

00:48:24.640 | bad.

00:48:24.880 | So this is where I find like the the current banking model to be

00:48:28.560 | sort of like weird and maybe obsolete and definitely not what

00:48:32.240 | consumers expect. So for example, if you go to a bank,

00:48:35.600 | and you put your money in a deposit account, and then they

00:48:37.520 | loan it out to make mortgages, do you realize that you're an

00:48:41.640 | investor in those mortgages as the as the depositor? I don't

00:48:44.760 | think you do.

00:48:45.480 | I mean, what they what they do is they take those mortgages

00:48:49.080 | sacks, they package them up, they sell them, and they get an

00:48:52.480 | origination fee and they get the money back. Not always.

00:48:55.200 | But not always. But maybe they should be maybe they should have

00:48:58.320 | to be a Wells Fargo do not exactly. So be a Wells Fargo,

00:49:01.120 | for example, they do a lot of that. But if you look at First

00:49:04.320 | Republic, they have a $90 billion loan portfolio on their

00:49:06.560 | balance sheet that they've not packaged up and sold. So the

00:49:09.920 | packaging and selling of mortgages generated the liquidity

00:49:12.560 | that the banks needed. But there's a cost to that. So a lot

00:49:14.960 | of banks will try and balance out their loan portfolio where

00:49:17.560 | they'll package some of it up and sell it. But when they do

00:49:19.920 | that, they take a loss, they pay a fee.

00:49:21.720 | Maybe they should be required to do that. Because that might be

00:49:23.960 | because, because I mean, look, to the point about mark to

00:49:26.200 | market assets, it's very hard to mark an asset to market unless

00:49:30.520 | it's liquid and publicly traded.

00:49:32.240 | Let me give you an economic point. I think that there's

00:49:33.800 | about $7 trillion in deposits in banks. So if what you guys are

00:49:36.560 | saying happened, you're basically sucking $7 trillion

00:49:39.560 | out of the system that's being used to fuel purchasing in the

00:49:43.400 | form of loans. And you're taking that set or call it a 10%

00:49:46.920 | discount to that. So about call it $6 trillion. And you're

00:49:49.560 | saying, we got to go find a market for $6 trillion of loans.

00:49:53.680 | And then we're going to have $6 trillion of cash sitting in a

00:49:56.720 | bank account doing nothing. And that that challenges

00:49:59.480 | that cash, we're going to money market funds. So in other words,

00:50:02.200 | like you'd package up all those mortgage bonds, you create a

00:50:04.160 | mortgage bond security. And then if consumers if depositors want

00:50:08.280 | that product, they'll just buy it.

00:50:09.520 | Yeah, but what is a money market? It's it ends up being

00:50:14.520 | the same thing where money is you you earn interest on cash

00:50:17.840 | that's being used to make investments elsewhere. So

00:50:19.960 | right. You want to earn interest on your cash, it has to be

00:50:22.880 | loaned out somewhere to someone.

00:50:24.080 | I understand. But what I'm saying is, look, I'm just

00:50:26.920 | brainstorming here. I don't you know, I don't have the spit

00:50:30.600 | balling. Yes, exactly. I'm not saying this is what should be

00:50:32.800 | done. I'm just kind of asking whether it might make more

00:50:34.840 | sense. What if on the depositor side, all of the things you put

00:50:38.520 | your money in our money market funds, and then when the bank

00:50:41.040 | goes out and does his lending business, it does ultimately at

00:50:43.880 | some point have to package those up, and they get turned into

00:50:46.680 | securities, you know,

00:50:48.280 | sexy, but money market funds. You know where that cash goes.

00:50:51.880 | So when you when you invest in a money market fund, you're

00:50:53.720 | you're giving money to someone who's using it to make a loan.

00:50:57.000 | Like it is also

00:50:57.960 | I understand. But then the deposit would never be marked to

00:51:00.600 | market is sexist point.

00:51:01.920 | deposit would never be a risk. We never be a risk of bank

00:51:03.880 | failure. I just want to give

00:51:05.280 | you're shifting the risk equation to the fund manager,

00:51:07.520 | the money market instead of the manager of the bank. And at the

00:51:10.000 | end of the day, that money is just the owner of that security,

00:51:13.720 | that money market fund, that would take the hit.

00:51:16.760 | Okay, just as we wrap here, because I'm going to talk on

00:51:19.240 | some other issues as well. There's two things that are

00:51:21.600 | super tangible that founders can do right now are people who want

00:51:24.960 | to mitigate against these kind of issues. The there's something

00:51:29.320 | called ICS insured cash sweeps. These are accounts that

00:51:33.120 | automatically, you know, will put your money into multiple

00:51:36.760 | FDI insured institutions, 250 k at a time, we talked about this

00:51:41.120 | previously. There's a bunch of folks doing that in fintech. I

00:51:45.160 | won't give any of them free plugs here. But you can just go

00:51:47.800 | look in search for ICS. There is also maybe some thought here

00:51:52.240 | that the FDIC 250 k limit, maybe that's outdated, certainly for

00:51:56.080 | businesses, it is. So maybe that should double or triple. And

00:51:58.960 | obviously, that cost would be spread out. And then finally,

00:52:01.840 | you can go to treasury direct.gov right now and buy

00:52:04.040 | short term government debt. And I literally have startups doing

00:52:06.640 | this who have major treasuries. They're going there and buying

00:52:09.360 | short duration stuff themselves, holding it themselves. So they

00:52:13.080 | don't have to worry. This is part of this provided by the

00:52:16.320 | government is my understanding and people are buying direct

00:52:20.680 | from the government.

00:52:22.000 | I personally am not a fan of startups buying T bills because

00:52:26.640 | of the duration mismatch problem. They always

00:52:29.440 | underestimate when they're going to need their cash. And so I

00:52:33.080 | don't like tying up cash as if you had a giant treasury. Yeah,

00:52:37.360 | but this is always wrong. I see this all the time, whenever they

00:52:41.560 | try to say when start trying to create laddered bond portfolios,

00:52:44.960 | they end up needing the money sooner than they thought what I

00:52:47.440 | had much rather see startup do is buy 100% US T bill backed

00:52:52.560 | money market fund run by the absolute biggest of the big

00:52:56.960 | financial institutions, because you can get in and out of it at

00:53:00.040 | any time you want and without paying a fee. And that's so

00:53:02.400 | much better than trying to manage your own bond portfolio.

00:53:04.440 | Let a professional fund manager do it.

00:53:06.600 | Well, there are people who do provide these kind of bond

00:53:09.440 | ladders. I'm just telling you what the best practice advice

00:53:12.120 | going around your symbol through like, a brokerage account, sure.

00:53:16.120 | Or multiple ones, right. And but now this is I think speaks to

00:53:20.040 | Chamath. The fact that we have startup founders and people

00:53:24.640 | having to measure manage a treasury. This granularly, is

00:53:29.720 | this a failure? Or is this what should be happening? Should we

00:53:33.280 | have to have treasuries in the 10 million or $20 million range?

00:53:36.360 | Be this granularly managed? Or should this just be FDIC rates,

00:53:43.720 | you know, should be just 10x?

00:53:45.440 | Well, in the absence of regular regulatory changes that protect

00:53:49.360 | this money, you need to have a financially sophisticated actor

00:53:53.520 | on the board. And again, I go back to that should be your

00:53:56.800 | venture capitalist. And that person should not have conflicts

00:54:01.720 | of interest with the banks that they direct you to. I mean, I

00:54:05.040 | don't think that that's a very controversial statement.

00:54:07.240 | I Yeah, it's just not happening. And I am just flabbergasted that

00:54:11.680 | people are not even doing the basic blocking and tackling here

00:54:15.800 | of having three or four accounts. I've always had three

00:54:18.160 | or four banking relationships always had it split up. Should

00:54:20.920 | we move on to some of the other pressing issues there?

00:54:23.560 | Was a really interesting founders fund story about them

00:54:26.680 | breaking their latest funded half, and then there is stripe

00:54:30.000 | closing their funding, which one would you gentlemen like to go

00:54:33.240 | to or a different story on the docket?

00:54:34.720 | I think there are, there are four things that are very

00:54:37.600 | interrelated, okay, in startup land. So founders fund took

00:54:42.000 | their just to make the math simple, because I'm going to get

00:54:45.120 | the numbers not exactly right, but like a $2 billion fund that

00:54:47.880 | they're going to break into to $1 billion funds. I think that's

00:54:50.960 | one story $1.8 billion fund, they're going to break it into

00:54:53.600 | to $900 million funds, it's their eighth fund, it's being

00:54:56.400 | cut in half, and it'll become eight and nine.

00:54:58.760 | I think what that speaks to is valuations, and the marks that

00:55:04.400 | we think we have for existing companies and the future value

00:55:07.800 | that smart investors like this see all roads lead to it says

00:55:13.040 | we're in for a slog. And so trying to put a $2 billion fund

00:55:17.240 | to work doesn't seem to make a lot of economic sense to some of

00:55:20.000 | the smartest people in the room. So that's, that's that.

00:55:22.080 | The second thing is there. It says, according to Axios, Peter

00:55:25.960 | teal led this charge, and he is the contrarians contrarian. He

00:55:30.600 | was the one according to actually, I said, led that cut

00:55:32.720 | of the fund size with summit founders fund, according to the

00:55:36.000 | reports, I'll say to him,

00:55:37.360 | I'll say the more important thing, which in Peter and I are

00:55:40.120 | in the same, we're the largest LPS in our funds. And so, you

00:55:43.040 | know, as the largest LPS in our funds, I think this is a no

00:55:46.400 | brainer decision. Number two, stripe basically takes a 50%

00:55:50.960 | haircut, which is the single best run, most highly valued

00:55:55.720 | company in Silicon Valley. Again, that's going to eviscerate

00:55:58.760 | the company, a lot of TV, pi and a lot of people's portfolios, a

00:56:04.320 | lot of theoretical money that LPS we're going to get. I think

00:56:08.800 | the third thing is, there's a person that went and filed a

00:56:14.120 | FOIA request that UC Berkeley to get sequoias returns. And it

00:56:20.800 | turns out that the best investor in the game, quote unquote,

00:56:23.840 | since 2018 has not really done that well. And I think in the

00:56:30.960 | University of California, invested over $800 million in

00:56:34.640 | sequoias since 2018. And I think his return, but some 40 million

00:56:39.080 | bucks on that number. And then the fourth, which just came out

00:56:42.120 | today is that Tiger wrote down the value of their private book

00:56:46.040 | by 33% for 2022. And so you know, I think Tigers a um,

00:56:52.440 | basically has gone from 100 billion to 50 billion in a year.

00:56:56.160 | There's one more note to add to that YC basically let go of

00:56:59.200 | their growth team this week, Y Combinator, for people didn't

00:57:02.520 | know what was called the continuity fund, they were doing

00:57:04.640 | late stage investing, and that got cut, gosh, which is a signal

00:57:09.760 | and the 17 employees are gone now. And Gary Tan, I think is

00:57:13.360 | making the right decision. You know, they have to focus on what

00:57:15.680 | they're great at, which is the earliest stage of the company,

00:57:17.640 | and they had conflicts with this one.

00:57:19.000 | Look, this is the most interesting thing. For me in the

00:57:23.280 | following way, I think the Y Combinator unicorn hit rate is

00:57:27.920 | 6%. Right. So every 100 companies that come out of YC,

00:57:31.600 | which costs only about $10 million to seed, right, six of

00:57:35.520 | them become worth a billion dollars or more. And obviously,

00:57:38.840 | some become worth much, much more. And so if you see how

00:57:42.480 | difficult it is, even for a growth fund that's attached to

00:57:46.960 | that funnel, to be successful and make money, because obviously,

00:57:51.960 | if this thing was turning cash, you would not have cut it, I

00:57:54.360 | don't think anybody would do that. So I think it was a very

00:57:57.280 | challenging strategy at a challenging moment in time. And

00:58:00.440 | so I applaud these guys for having the discipline to do it.

00:58:02.640 | But if you take them all in totality, it is a complicated

00:58:06.400 | place in venture capital and startup land. Holy mackerel,

00:58:09.640 | like, it's a reset a it's tough to make money be a lot of folks

00:58:12.960 | may not know exactly what they're doing. See, a bunch of

00:58:15.600 | valuations are totally wrong. And D, we're gonna have to start

00:58:20.360 | doing the cleanup work now resetting all of it, which just

00:58:23.520 | takes years as you guys remember, in part, it took us,

00:58:26.520 | took us five years to fix this.

00:58:29.040 | It's a hard reset. Saks, what do you when you look at these in

00:58:32.800 | totality? What would you say?

00:58:34.000 | Well, I agree with what Chamath just said. I mean, it's gonna be

00:58:36.600 | a hard period with a lot of resets, a lot of restructuring,

00:58:38.920 | a lot of cap tables, there's a lot of mess to clean up. All of

00:58:41.920 | that being said, I think I'd rather be an investor today than

00:58:46.440 | an investor two years ago, or one year ago. Because at least

00:58:51.640 | the valuations have corrected to some degree. And then also, we

00:58:55.400 | have this really interesting AI wave happening now. And there's

00:58:59.280 | a lot of opportunities to invest in that new, you know, cycle. So

00:59:03.640 | at least there's like an interesting product cycle. It's

00:59:06.360 | getting me excited to go to work and see these new demos from all

00:59:08.960 | these different companies. Whereas, you know, you go back a

00:59:11.720 | year or two, and just the product innovation doesn't seem

00:59:14.640 | as world changing as it does now. So I think that as bad as

00:59:18.680 | things are, my guess is that the new vintages of VC are gonna be

00:59:24.440 | better than, you know, call it 2021. For sure.

00:59:27.440 | That's not going to be a high bar.

00:59:33.360 | That's actually to Martha. This is a contradiction. Rash, rash.

00:59:37.880 | This is the contradiction is that it felt better to be a VC

00:59:41.400 | in 2021. But in hindsight, we know that the vintage is going

00:59:45.040 | to be not good. Whereas today, hold on, but today, it feels not

00:59:49.520 | great to be a VC, but I think the vintages will be a lot

00:59:52.440 | better.

00:59:52.760 | But anybody would tell you that at some point, you're going to

00:59:55.880 | have to divorce yourself from emotion to be a reasonably good

00:59:58.760 | investor over long periods of time. How many data points do we

01:00:02.240 | need to realize that too many people were put into this game

01:00:06.280 | that may not have known what they were doing. And we're going

01:00:09.680 | to have to go and work through all of those excesses. And I

01:00:13.240 | think it's just going to take a lot of time us limited partners

01:00:17.320 | are in a really difficult spot. European investors, I think are

01:00:21.000 | probably in a pretty difficult spot. There are a couple of

01:00:23.680 | bright, bright points around the world of folks that are still

01:00:27.400 | optimistic and doing well. I think Middle East is one.

01:00:31.240 | Southeast Asia is another. But other than those, it's just a

01:00:36.000 | whole group of folks that just have to get completely

01:00:38.640 | reunderwritten from first principles. Even when you have

01:00:41.960 | an incredible platform like Sequoia, five years of no

01:00:45.720 | returns on $800 billion for somebody like UC Berkeley, what

01:00:49.960 | it really means without commenting on Sequoia's

01:00:51.800 | performance is that UC Berkeley is effectively out of business

01:00:55.120 | in being a limited partner for the foreseeable future. Well,

01:00:58.520 | right. And I think that has that has implication. So

01:01:01.040 | even if you think these vintages are great, I don't think they're

01:01:04.400 | open for business. And and frankly, if even if they wanted

01:01:07.560 | to be open for business, how do you go to an IC when they look

01:01:11.440 | at all of the totality of those dollars that have not made

01:01:14.280 | anything? How do you justify the next 800 billion? I just think

01:01:17.240 | it's very hard.

01:01:17.920 | While I agree that LPS are out of it. I think the story was

01:01:20.720 | garbage because it all funds go through a J curve. And they're

01:01:24.640 | literally talking about the majority of the funds in that

01:01:26.800 | vintage 2008 2019 2020 21. They're all in literally the

01:01:31.560 | definition of the J curve, the third, fourth, fifth year,

01:01:33.640 | one of the most important things you need to be able to do is

01:01:36.120 | measure how long does it take the delta t to 90% of calling

01:01:41.680 | committed capital? And how long does it take the delta t to

01:01:45.400 | return one x DPI? I can tell you, Jason, if you're a

01:01:48.600 | reasonably good fund, those numbers should be between five

01:01:51.520 | and seven years for both,

01:01:52.720 | which none of those funds have hit

01:01:54.560 | the average for a normal venture fund is around five to seven

01:02:01.200 | years to call 90% of the capital, and around five to

01:02:06.120 | seven years to return one x DPI. I'm just telling you that's

01:02:08.960 | what the average is. And if you talk to firms, so all I'm saying

01:02:12.280 | is there was a period of time, where in the absence of getting

01:02:16.120 | money back again, this is not a Sequoia thing. Yeah, it just

01:02:19.160 | means that there was an entire cohort and years of capital

01:02:24.920 | allocation that is not necessarily in a J curve. It's

01:02:27.360 | impaired. Because if after five years, you've, if after five

01:02:31.400 | years, you've returned nothing. Sometimes you just have to see

01:02:34.320 | the writing on the wall.

01:02:35.120 | Saks explain the J curve one more time for folks. And then

01:02:37.920 | what is your analysis of that Sequoia story?

01:02:40.880 | Well, the J curve, the theory behind it is that when you start

01:02:45.240 | deploying a new fund, you're drawing fees down to pay for the

01:02:47.880 | firm and the investments you've made have not been marked up

01:02:50.160 | yet. So the value of the fund is actually going down because some

01:02:54.000 | of it's getting eaten up in fees. And you haven't really had

01:02:56.880 | a chance for any of those investments to be successful.

01:02:59.240 | And then what happens happen early, right? I don't even know

01:03:02.560 | about that. I just think it's they haven't had a chance to get

01:03:04.840 | marked up. But then what happens is you start getting markups.

01:03:07.120 | And now at least on paper, the value of the fund goes up. And

01:03:10.680 | then hopefully, those markups eventually turn into

01:03:12.920 | distributions, or DPI, like Jamal is talking about. Yeah, we

01:03:16.480 | have a vintage 2017 2018 fund that's actually fully returned

01:03:21.560 | at this point, you exited some secondaries or acquisitions? No,

01:03:25.040 | we just had some, we just had some exits. But look, I think

01:03:27.280 | that is a little bit on the early slash lucky side. But we

01:03:31.360 | haven't really seen much of the J because, you know, you should

01:03:34.840 | be getting markups within two years, I think on your

01:03:38.560 | investments, if the companies are looking good, at least

01:03:40.960 | historically, that was the case.

01:03:42.280 | Freeberg, any any thoughts on this collection of stories with

01:03:45.640 | venture, basically having the great venture reset? The end of

01:03:51.600 | the super cycle, the beginning of the next?

01:03:53.080 | It's happening.

01:03:54.400 | Okay, we're in the thick of it.

01:03:56.080 | But by the way, I would just go back to the point that with all

01:03:58.920 | the problems, Chamath is is talking about the reset and the

01:04:02.120 | wipeout that needs to occur. I think this is still that I think

01:04:05.640 | that's part of what makes this a better time. Absolutely. To be

01:04:09.480 | an investor.

01:04:10.240 | This is what I'll say about that, Saks. I think I agree with

01:04:13.040 | you. I disconnect asset values and asset prices from

01:04:20.320 | fundamental business value being created. So the market bid stuff

01:04:24.640 | up, prices went up. That doesn't really mean that businesses

01:04:28.560 | aren't fundamentally good, that there aren't amazing technology

01:04:31.120 | businesses being built today that are going to affect

01:04:33.920 | billions of lives tomorrow. If you are tracking a public

01:04:39.560 | company stock, and you like the business, you spend time with

01:04:43.440 | management, you see what they're building, you see their revenues

01:04:45.880 | growing, their profits are growing, they're making great

01:04:47.680 | products, people are happy with what they're doing. But the

01:04:50.680 | stock's really expensive, you don't want to buy the stock.

01:04:52.960 | Suddenly the stock drops by 80%. Nothing about the business has

01:04:57.160 | changed. It's just that the market is paying less to own

01:04:59.760 | shares in that company. That's a great time to buy that stock. I

01:05:03.560 | think that's the moment we're in in Silicon Valley. Everyone's

01:05:05.800 | like, Oh my god, it's over. There's a things are terrible.

01:05:09.120 | Just because the asset prices of the shares in companies has gone

01:05:13.400 | down, does not mean that the quality of the businesses has

01:05:16.720 | changed, or that there isn't fundamental value being created

01:05:19.840 | in Silicon Valley. In fact, the contrary point to sexist comment

01:05:24.960 | is that it is a great time to be buying these shares. And it is a

01:05:28.280 | great time to be investing. And it is a great time because as

01:05:31.960 | we've talked about countless times, there are extraordinary

01:05:34.320 | technologies, from AI, to biotech becoming software, to

01:05:39.320 | fusion to novel applications with AI and SAS, and on and on

01:05:43.680 | and on many of the amazing things we've talked about that I

01:05:45.800 | think can and will affect many industries and billions of lives

01:05:48.560 | are being built today, and they're not going to stop being

01:05:50.880 | built. And you can now buy the stock at 80% off. So, you know,

01:05:55.560 | if you're investing today, and if you're a builder today, as

01:05:58.560 | long as the capital keeps flowing to support the building

01:06:00.920 | work, which I think to some degree it will because there's

01:06:03.360 | still enough of it sitting there. You're not going to have

01:06:05.560 | a lot of these crazy growthy rounds with high prices and all

01:06:07.920 | the nonsense that went on the last couple years. But there's

01:06:10.320 | certainly a lot of opportunity to greet real business value.

01:06:13.120 | And right now an opportunity to buy shares pretty cheap, and

01:06:16.720 | participate meaningfully in that value creation.

01:06:18.480 | I'll tell you the thing I'm seeing on the field and like

01:06:20.680 | playing the game on the field is something we've been talking

01:06:22.800 | about for the last year. We started a program called founder

01:06:25.920 | dot university and it's basically a 12 week course on

01:06:28.640 | like how to build your MVP. We had 350 people join the discount

01:06:32.440 | code people can use to this discount code. It's it's free

01:06:35.560 | for founders basically if they if it's free for founders if

01:06:37.920 | they come to the 12 weeks. But anyway, what I did was I said

01:06:41.120 | ww no, it's founder dot university because it's an

01:06:44.000 | extension but in the words of of sacks, let me finish. Please let

01:06:51.360 | me finish. What we did was we just said anybody who gets to an

01:06:55.120 | MVP and it's two or three builder co founders will give

01:06:57.960 | them a 25 k check. And I did 20 or 30 of these 25 k checks in

01:07:02.680 | the last couple of months of just the founders right now who

01:07:06.360 | have been laid off by other companies. They're dogged,

01:07:09.240 | pragmatic, absolutely customer centric product centric founders

01:07:14.600 | whereas the last five years have been filled with theatrics and

01:07:18.320 | white papers and ICOs and just nonsense and absurd valuations

01:07:22.400 | and people wanting credit for work not done. And now people

01:07:26.040 | are actually building MVPs and they're dogged product driven

01:07:29.720 | founders, customer centric mission driven founders and it

01:07:32.320 | feels to me that first

01:07:33.880 | 10 all over again. That first part is so well said people

01:07:37.640 | wanted all this credit for work not done. And for progress not

01:07:41.360 | achieved. That game is over.

01:07:43.600 | Finished, finished, which means if you are a product led CEO,

01:07:48.240 | and you're a mission driven CEO who actually built something,

01:07:50.560 | you stand out so much in this ecosystem, and have people

01:07:54.240 | begging for money, sending me long emails and decks and total

01:07:57.960 | addressable market, I'm just like, can you just build a

01:07:59.960 | product and show me that you can actually deliver a product. And

01:08:03.080 | then we'll start the process of the rewards based system here,

01:08:07.360 | you know, the the reward based system in Silicon Valley is so

01:08:11.560 | magical when it works, you get money from founding university,

01:08:14.960 | or, you know, tech stars or Y Combinator, then go to a seed

01:08:18.240 | fund, then go to a series a fund, that milestone based

01:08:21.120 | funding was so broken. And now it's back. And it's so

01:08:25.160 | functional when it's working. It's just a magic of Silicon

01:08:27.640 | Valley is when people work and get rewards, work and get

01:08:30.400 | rewards. And it just creates this great pace and dynamic that

01:08:33.760 | I'm glad to see. Just as we wrap here, everybody's been begging

01:08:37.560 | for a science corner enough about the chaos in the world.

01:08:41.640 | Everybody wants the sultan of science to tell us and educate

01:08:46.720 | us about something. And Saks needs to use the loo anyway. So

01:08:50.240 | let's do a science corner here. Room temperature, super

01:08:54.680 | conductors, you sent me a link, I read the abstract of this

01:08:57.640 | paper. And I don't know which language I need to put this into

01:09:01.840 | Google Translate, but I couldn't understand any of it. So I

01:09:06.000 | literally read the abstract and I was like, I couldn't get

01:09:08.240 | through the first two sentences without having to start doing

01:09:11.640 | searches. I'll start with just like the simple explainer on

01:09:14.360 | superconductor. He's, you know, materials that conduct

01:09:19.400 | electricity are called conductors. So conductors,

01:09:22.480 | electrons move through them like a copper wire. That's how

01:09:25.120 | electricity flows. And all conductors have some amount of

01:09:30.520 | resistance, meaning not all the electrons kind of flow through

01:09:33.280 | at a perfect rate, they bump into the atoms in the material

01:09:37.360 | in the wire, and they generate heat, you know, you've ever felt

01:09:39.720 | a wire while electricity is flowing through it, it gets hot,

01:09:41.560 | right. So that's because the conductor has some resistance,

01:09:44.880 | which means the electrons bump into the walls of the atoms in

01:09:48.120 | the material, they generate heat and you lose electricity, you

01:09:50.840 | lose energy, you lose power. And so in 1911, it was discovered

01:09:56.200 | when mercury was reduced to a very, very cold temperature,

01:10:00.160 | that there was a point at which the material conducted

01:10:04.840 | electricity with absolutely no resistance. So the electrons

01:10:09.160 | flowed through the material, completely unbounding on, you

01:10:13.800 | know, not bouncing into the material, not generating any

01:10:16.040 | heat. And having no resistance mean you're losing no power in

01:10:20.080 | transmission of that electricity, but a number number

01:10:22.320 | of other super interesting effects occur. Number one is

01:10:25.560 | that magnetic fields now reflect off of that metal perfectly. So

01:10:30.080 | if you put a magnet, you ever seen that image of a nick, we

01:10:32.960 | could probably pull one up in the YouTube video, we put a

01:10:35.080 | magnet on top of a superconductor, it actually

01:10:37.080 | floats. Because the magnetic field like the north and the

01:10:40.280 | north push against each other and it floats up. So

01:10:42.920 | superconducting materials kind of became this fascination in

01:10:46.640 | the early 20th century, that oh my god, if we can actually make

01:10:49.760 | materials that superconduct, there are all these amazing

01:10:52.400 | benefits. One of the benefits is you could have no loss in

01:10:55.160 | electricity being transmitted. Today, 15% of power is lost in

01:10:58.800 | the transmission from the power station to your home. You could

01:11:01.560 | also do interesting things like create maglev or frictionless

01:11:04.240 | trains that float, you know, like magnets floating off the

01:11:07.720 | ground on top of a superconducting track. And by

01:11:10.720 | having no friction, you could push the track the train once

01:11:14.000 | and you wouldn't need to use any energy to move it along. So you

01:11:16.160 | could have basically powerless transportation. You could have

01:11:20.000 | really powerful new microprocessors. So a

01:11:24.960 | superconductor microprocessor instead of a traditional

01:11:27.760 | semiconductor microprocessor would use just 1% of the energy

01:11:32.400 | of a semiconductor microprocessor. Think about

01:11:34.920 | that all the AI stuff we're talking about all the chips that

01:11:37.400 | we're talking about dropping the energy needs by 99% if those

01:11:41.560 | chips were made from a superconducting material. And

01:11:43.640 | one of the more interesting applications of superconducting

01:11:45.680 | materials could be infinite battery storage. So you could

01:11:48.320 | take a superconductor, turn it into a coil, and the electricity

01:11:51.280 | would just flow through it infinitely because it would

01:11:52.800 | never turn into heat. And then when you're ready for that

01:11:55.520 | power, you just plug in and you get the power out the actual

01:11:58.080 | loss of energy in a superconductor battery, less

01:12:01.120 | than 5%. And that's compared with, you know, significantly

01:12:04.120 | more energy loss used in chemical systems. And you

01:12:06.400 | wouldn't need to kind of get all the materials that we're

01:12:08.080 | struggling to get now to generate batteries. So the idea

01:12:11.040 | of generating like superconductors and industrial

01:12:13.080 | scale has always been super interesting today, the way that

01:12:16.280 | we generate superconducting materials is we have to make a

01:12:18.800 | material super, super cold. In 1987, a physicist named Chu

01:12:24.280 | developed one of the first ceramic superconductors where

01:12:27.160 | they discovered a new way of generating superconductivity. It

01:12:30.280 | wasn't just taking a metal and cooling it down very, very cold

01:12:33.480 | because when you get it very, very cold, the atom stopped

01:12:35.840 | moving, and the electrons inside pair up and it's called Cooper

01:12:39.000 | pairing and they flow through. And he said, we could actually

01:12:41.560 | do this with a hotter temperature. And he demonstrated

01:12:44.360 | this in a ceramic yttrium barium copper oxide super confusing

01:12:47.920 | name. But basically, he took a bunch of materials and baked

01:12:50.360 | them in an oven. And they turn into this really interesting

01:12:52.560 | material that became superconducting. And then the

01:12:54.560 | race was on. Because what he did is he made a superconductor that

01:12:57.680 | could superconduct at the temperature of liquid nitrogen.

01:13:00.080 | And liquid nitrogen is really cheap. So we can just use and

01:13:02.840 | that's actually how all MRI machines run today. If you have

01:13:05.440 | superconductors that reflect the magnetic fields in the soup in

01:13:08.160 | the MRI machine, and they're using liquid nitrogen to stay

01:13:10.880 | cool. And so there's a lot of industrial applications today

01:13:14.000 | that use superconducting materials using liquid nitrogen.

01:13:16.520 | But in order for us to do all the stuff I mentioned, like

01:13:19.080 | maglev trains and infinite battery storage, and

01:13:22.440 | superconducting microprocessors, we have to get superconductors,

01:13:26.200 | we have to discover a material that can superconduct at room

01:13:30.760 | temperature, so that we can sit with it in a computer on our

01:13:33.800 | desktop, or we can have it run on a railroad track. Or, you

01:13:37.520 | know, we can put it in our backyard to store energy. And

01:13:40.920 | there's been this race, and there's all these different

01:13:42.720 | classes of materials that physicists and material

01:13:45.240 | scientists have spent decades trying to figure out what can

01:13:48.840 | superconduct at room temperature, we started with

01:13:50.760 | metals, you know, copper, and we tried carbon nanotubes and

01:13:53.760 | fullerene tubes, we had all these different ceramics, like

01:13:57.120 | like was like I talked about, and there have been literally

01:13:59.920 | 10s of 1000s of ceramics that people bake in ovens and try and

01:14:03.780 | see how superconducting they are. Basically, you take the

01:14:06.200 | material, and you cool the temperature and you measure the

01:14:09.040 | resistance. And as soon as it hits superconductivity, boom,

01:14:12.840 | there's this magic moment where it drops to zero, and it becomes

01:14:15.680 | superconducting. And there's this big changeover effect. So

01:14:18.840 | everyone's trying to find that temperature, which can happen at

01:14:21.240 | room temperature. And people have found superconductivity on

01:14:24.880 | the surface of DNA and organic molecules. But you can't scale

01:14:28.200 | that people have found, you know, superconductivity and all

01:14:31.360 | these weird kind of material on the surface of things, but no

01:14:34.100 | one's ever been able to industrialize it. In 2015, there

01:14:37.100 | was a new kind of material called a hydride, which is

01:14:39.660 | basically taking a thin metal and putting it in hydrogen gas

01:14:44.440 | and kind of baking it for a couple of days, and the

01:14:47.060 | hydrogen sticks to the metal. And then you would use this

01:14:49.580 | hydride as a new kind of conductor and hydrides, it turned

01:14:53.940 | out had really good superconducting potential, they

01:14:56.660 | would superconduct at room temperature, but they needed

01:15:00.500 | super high pressure. So you'd actually have to leave them in

01:15:03.000 | like, something that's like hundreds of times the pressure

01:15:05.520 | of the atmosphere. And so that that's not really technically

01:15:08.300 | and industrially feasible either. So this guy named Ranga

01:15:11.600 | Diaz published a paper a couple of weeks ago that got a ton of

01:15:15.600 | press, and a ton of controversy. And basically, he said, Look,

01:15:20.000 | I've got this new hydride. And it's I've got this really, you

01:15:23.880 | know, weird metal that no one ever talks about. And I've baked

01:15:27.360 | it with this with hydrogen gas. And this hydride can actually

01:15:30.800 | superconduct at, you know, room temperature, and at only one

01:15:34.460 | gigapascal, which is still greater pressure than room

01:15:36.900 | temperature. But it basically starts to show on the chart of

01:15:39.960 | are we getting there? Can we actually get there that maybe we

01:15:42.500 | are. And so this paper was published in nature a couple of

01:15:46.120 | weeks ago, and it got a ton of a ton of coverage because

01:15:50.020 | everyone's like, Oh, my gosh, the problem is this particular

01:15:52.740 | individual. You know, the lead researcher Ranga Diaz on the on

01:15:59.060 | the paper, he's pretty controversial, because he made a

01:16:02.560 | room temperature superconducting claim back in 2020, in a paper

01:16:06.160 | he published in nature. And after he made that that claim, a

01:16:10.080 | lot of scientists tried to replicate what he did, and they

01:16:12.360 | were not able to. And then the journal retracted his paper. And

01:16:16.640 | he had a method that he took data noise out of the

01:16:19.860 | measurement system he was using. And the way that he took the

01:16:22.320 | data noise out, people said actually skewed the results and

01:16:24.680 | made it look like it was superconducting when maybe it

01:16:26.900 | wasn't. And he actually had a talk that he did that was

01:16:30.880 | published on YouTube, a year later, where he said he raised

01:16:33.600 | $20 million from Sam Altman and Daniel Eck and a bunch of other

01:16:36.360 | investors. And it turns out that also wasn't true. And then he

01:16:38.940 | came back and said, Well, I didn't actually raise the money.

01:16:40.800 | I was talking with them about raising the money. So this guy's

01:16:43.580 | kind of a sketchy character in the space. But the temperature

01:16:47.680 | at which he was able to generate or claims to have generated and

01:16:50.700 | he did get peer review and did get published. A superconductor

01:16:55.200 | is at room temperature, it's at slightly high pressure. But if

01:16:59.720 | it's real, and it does get repeated, it's one of the next

01:17:03.160 | steps that we're almost going to be getting to this point of true

01:17:06.200 | room temperature superconducting materials. And then this whole

01:17:09.000 | industry will blow up transmission lines, battery

01:17:12.120 | storage, maglev trains, superconducting microprocessors.

01:17:15.920 | You know, many new industries can and will emerge from this

01:17:19.600 | material discovery if it's proven to be real. So you know,

01:17:22.780 | it's a super interesting storyline, a lot of people in

01:17:25.460 | the material science world and scientists, chemists, physicists

01:17:28.420 | are kind of going crazy about this. And there was a survey

01:17:32.900 | done by quantum magazine. And half the scientists were like,

01:17:35.580 | this is bullshit. And the other half was like, this is going to

01:17:37.700 | change the world. So we don't really know yet where this is

01:17:40.220 | all going to settle out. But I thought it was worth kind of

01:17:42.040 | talking about and bringing it up. Because if room temperature

01:17:45.260 | superconductivity is really realized in the next decade,

01:17:48.180 | it's another one of these kind of black swan technology

01:17:50.320 | discoveries that we none of us are thinking about right now.

01:17:52.920 | But it totally transforms all these markets. And very quickly

01:17:56.520 | kind of increases like we were talking about earlier

01:17:58.600 | productivity makes renewable energy super, super cheap, makes

01:18:02.340 | computing power 99% less power intensive, AI chips will explode

01:18:06.680 | using this technology. So a lot of super interesting applications

01:18:09.780 | if room temperature superconductivity comes to

01:18:11.400 | light. Super interesting story. I thought we should share it and

01:18:14.280 | talk about

01:18:14.700 | yeah, Chamath, I would love to get your insights on it and then

01:18:18.060 | sacks, I would like to understand how many emails and

01:18:20.280 | what you ordered from Uber eats during that segment. Go ahead,

01:18:22.380 | Chamath.

01:18:22.600 | Venkat Viswanathan, who runs a battery group at Carnegie Mellon

01:18:27.200 | introduced me to Ranga two years ago, me and my partner, Jay, we

01:18:30.640 | were like, holy shit, this is outrageous. And we tried to spin

01:18:34.960 | it out into an actual company. But the University of Rochester

01:18:40.360 | blocked it. And so we've been following this guy for two years

01:18:44.280 | and all the trials and tribulations, but it's a really,

01:18:47.280 | really exciting thing. If it does come to you got capital

01:18:50.160 | blocked, explain why you would get capital blocked in a

01:18:53.160 | situation like that. Why wouldn't they allow you to spin

01:18:55.440 | it up? It is interesting, because like typically

01:18:57.600 | universities have a tech transfer office, and you can do

01:19:00.080 | these deals pretty cleanly. So you know, when you go to Stanford,

01:19:02.760 | the tech transfer office is quite sophisticated at MIT, it's

01:19:05.400 | quite sophisticated. There are these pretty standardized deals

01:19:07.840 | and, and what is the standard deal? Explain to the audience

01:19:12.240 | how a tech transfer deal would work? And how does the

01:19:14.520 | university make money from it?

01:19:16.280 | If you're a prof and you invent something, or even if you're a

01:19:18.720 | student, it's technically owned by the school. And so if you

01:19:22.120 | want to commercialize it, you go to them and use basically say,

01:19:25.000 | here's a capital partner of mine, and we want to go and

01:19:27.400 | start a company around it. And what they will normally say is,

01:19:30.280 | Okay, great, give us a piece of equity and give us some royalty

01:19:34.240 | in some cases, depending on how much especially the equity tends

01:19:37.920 | to be in the mid single digit percentages, the royalties tend

01:19:40.920 | to be in the mid single digit percentages, it depends on how

01:19:43.640 | much you're making. So okay, yeah, call it 5567%. But it can

01:19:48.280 | be a lot when you think about a, you know, a school like Stanford

01:19:51.560 | who's spinning out hundreds of these things a year. But if

01:19:56.240 | you're, if you're a school that doesn't historically do a lot of

01:19:59.680 | tech transfer, or has a lot of cutting edge R&D, you wouldn't

01:20:03.720 | have that team. And so Rochester didn't necessarily have it now

01:20:08.400 | look, Ranga is probably getting bombarded by 30 other people

01:20:11.080 | who'll pay 10 times more than what I was trying to pay 18

01:20:13.120 | times. So that's an interesting thing. And I think there'll be

01:20:15.360 | some there'll be some,

01:20:16.320 | what's the greatest Does anybody know what the top tech

01:20:19.200 | transfers of all time were like, was Google a tech transfer

01:20:22.960 | freeberg? Do you know like, yeah, because he drank was out

01:20:25.680 | of the what it's down on a day. No, yeah, Larry and Larry and

01:20:28.880 | Sergey gave Stanford I think one of the Stanford Yeah, they

01:20:31.440 | gave him a percent. Yeah.

01:20:32.400 | Wow.

01:20:34.160 | Because back rub was written while Larry was a PhD there. So

01:20:40.040 | they had some part of it. Carnegie Mellon ranked as top

01:20:43.320 | tech transfer university I'm just seeing here in terms of the

01:20:45.800 | rankings, University of Florida, Columbia, Stanford, Harvard,

01:20:49.040 | it's very, some of them are terrible, like, and some of them

01:20:52.880 | are cronyism. So like, you go to some of the universities and the

01:20:56.280 | tech transfer offices have deep relationships with certain VCs

01:20:59.400 | and investors that they'll only work. And they always get first

01:21:02.440 | picks and first dibs, and they're super tight with them.

01:21:04.520 | They don't run a real market process. And then some tech

01:21:07.720 | transfer offices just give away the farm for nothing. And then

01:21:10.920 | some tech transfer offices think that they own it and they should

01:21:13.120 | get paid 60% royalties for the thing. It's all over the map.

01:21:16.960 | And some of them are sophisticated and some of them

01:21:19.120 | are not. So it's it's actually quite surprising, J. Cal, how

01:21:24.160 | different all the universities are in terms of their level of

01:21:27.240 | sophistication and the types of deals they'll do. But I will say

01:21:30.760 | this work in superconducting research. It's another good

01:21:33.600 | example going up to going back to the point a couple episodes

01:21:36.920 | ago about the importance of fundamental research and the

01:21:39.280 | importance of, you know, the support from academic

01:21:44.000 | institutions and governments and other aspects when you're still

01:21:47.160 | not sure what the technology is, that to do that fundamental

01:21:51.160 | discovery work, I think is a good collective social benefit.

01:21:54.240 | And then to industrialize it and commercialize it requires, I

01:21:57.320 | think, a market based approach, which is you take that

01:21:59.720 | capability, try and build a business find customers make

01:22:01.960 | money. And that's really how you get it to be funded to be

01:22:04.360 | scaled. Because you're never gonna you shouldn't have to put

01:22:06.800 | you know, government and academic money behind that sort

01:22:08.880 | of effort, but private market participants should. And so you

01:22:12.920 | know, it's interesting. I mean, I think I'm not holding my

01:22:16.200 | breath. I've been, you know, I did a science project in 1993,

01:22:20.760 | when I was probably 12 or 13 years old, on superconductors.

01:22:24.400 | And I got a yttrium barium copper oxide disk. And I got some

01:22:28.600 | liquid nitrogen from UCLA. And I poured it on the disk, and I

01:22:31.040 | floated a magnet above it. And I had a poster board and a computer

01:22:33.640 | presentation back then. And I was super enthralled about the

01:22:36.680 | future of superconductors. And exactly what I said today is

01:22:39.160 | what I said back in 1993. So you know, 30 years ago,

01:22:42.240 | it was so busy dating, I didn't think you had time for

01:22:44.600 | superconductor experiments.

01:22:46.000 | Yeah, look, I don't think I don't think that this stuff has

01:22:49.320 | really, it's been, it's been like fusion, it's always been a

01:22:52.600 | promise around the corner. physicists have always had hope

01:22:54.720 | we've taken incremental steps towards it. But it's always felt

01:22:57.600 | like one of those things where you're always getting 50% closer

01:23:00.280 | to the wall. It's like you're never actually reaching the wall.

01:23:03.400 | And so anecdotally, one, yeah, by the way, I will say one area

01:23:07.120 | that that that a lot of people think holds a lot of promise for

01:23:09.640 | superconducting research is in quantum computing, because you

01:23:12.680 | can actually model on a molecular level, what might be

01:23:15.440 | going on. Right now, the BCS theory is this theory on Cooper

01:23:19.400 | pairing that happens in ceramics is the only way that we really

01:23:21.960 | understand how superconducting actually works, why it works,

01:23:24.720 | why there's no resistance at certain temperatures for certain

01:23:27.280 | types of materials. For most materials, we have no friggin

01:23:30.040 | clue why it happens. We don't understand the physics of it.

01:23:32.600 | There's something going on on a quantum mechanical level that we

01:23:35.000 | just don't get. And so if we can understand it better through

01:23:38.040 | quantum modeling, using quantum computers, all of a sudden, we

01:23:41.280 | may be able to actually start to come up with ideas for molecules

01:23:44.520 | and crystal structure that would allow us to make superconducting

01:23:47.160 | material that we simply don't have enough time in our lifetime

01:23:50.000 | to run all the experiments in a lab today, and we can simulate

01:23:52.600 | it. And so that's why quantum computing could play a real role

01:23:55.560 | in advancing our ability to do discovery and superconducting

01:23:58.240 | materials. And like I talked about, these are like not just

01:24:01.240 | one, but like two or three order of magnitude improvements in the

01:24:04.120 | efficiency of certain systems of industry on earth today. So it

01:24:07.760 | shows how the compounding benefits of technology and

01:24:09.920 | things you cannot see around the corner can suddenly cause these

01:24:12.880 | explosive growth moments in technology in an industry. I

01:24:15.960 | don't know what when quantum computing gets here, when it

01:24:18.440 | gets here, it might discover superconducting. And then when

01:24:20.760 | that gets discovered, boom, energy costs drop by 99%

01:24:23.760 | computing goes up by 100 fold. So there's these amazing things

01:24:26.560 | that are still like in front of us that each one of which could

01:24:29.240 | be you know, really great exponential triggering events.

01:24:31.480 | And we're seeing a little milestone today. But yeah, I

01:24:33.880 | don't know.

01:24:34.160 | Saks reaction.

01:24:35.960 | Sounds good.

01:24:38.160 | Saks, how many moves did you play in your 12?

01:24:42.480 | Chess games with

01:24:44.960 | Friberg was talking about

01:24:47.840 | superconducting. How many points did you go up? All right, look,

01:24:49.800 | I got shit. Let's go.

01:24:51.040 | Oh, sex. All right, listen, this has been a great episode. Thanks

01:24:57.040 | for the best comment on the Atlantic article that says Ron

01:25:00.680 | DeSantis has peaked already. Oh, don't worry. Oh, don't do it.

01:25:06.000 | Don't do why you got to troll him.

01:25:07.320 | See that but it's in the Atlantic. Oh, you want to know

01:25:10.720 | why the Atlantic suddenly has turned on him is because they're

01:25:13.480 | the biggest backers of the war. They those guys have all these

01:25:18.000 | like neocons over there. And so he gave a statement saying that

01:25:23.680 | you know, our support for Ukraine shouldn't be a blank

01:25:26.040 | check and some other comments expressing, let's say

01:25:29.200 | skepticism of what we're doing over there. And that was totally

01:25:32.520 | unacceptable to them. So all these neocons are registering

01:25:34.920 | disappointment. But I would argue that's an electoral asset,

01:25:38.720 | not a liability.

01:25:39.600 | I have a prediction given what's going on with these banks and

01:25:42.200 | what's going on in this kind of a I think we all agree, the soft

01:25:45.800 | landing concept is over, we're going to be in a recession. The

01:25:48.760 | war is going to end there because we're not funding this

01:25:51.640 | and American the American public is not going to want to see

01:25:55.560 | 10s of billions of dollars go into Ukraine. And to find to

01:25:58.840 | fund this war in year two or three

01:26:00.320 | hundreds of billions.

01:26:01.080 | I'm just saying it every month. Yeah.

01:26:03.280 | I know the spending run rate of this war is actually greater

01:26:06.480 | than what we did in Afghanistan and Afghanistan ended up being

01:26:09.120 | a 20 year multi trillion dollar operation that just flushed all

01:26:14.360 | that money down the drain. So yeah,

01:26:16.440 | I mean, we're in a greater run rate than Afghanistan. Yeah.

01:26:19.680 | Do we know what the monthly run rate is for this? Oh my god,

01:26:23.000 | how did they pass back?

01:26:24.440 | We've appropriated over 130 billion Chamath and Afghanistan

01:26:28.360 | we spent 2 trillion over 20 years. So 100 million a year run

01:26:31.760 | rate. And this is what a monumental waste of money that

01:26:34.840 | was and now look at the financial crisis we're in. Can

01:26:37.600 | you imagine if we could have 2 trillion back? I mean, all these

01:26:40.480 | trillions

01:26:40.960 | we take it back instantly, we would take that

01:26:43.160 | all those trillions and trillions we squandered on

01:26:45.720 | stuff that didn't matter. And now we're paying the price for

01:26:48.120 | it. That could be education could be universal health care

01:26:51.040 | can be paying down the debt,

01:26:52.080 | how about paying down the debts, we don't have all this

01:26:53.480 | inflation.

01:26:54.200 | Exactly. Let's think logically here, the number one issue for

01:26:57.520 | this country in the next election, I am with Friedberg

01:27:00.040 | his great prediction from the year end show is we need a

01:27:03.800 | president, we need an administration that is fiscally

01:27:06.760 | responsible, and controls the balance sheet in a logical

01:27:11.200 | fashion, like the last two administrations have not seemed

01:27:14.440 | capable of doing I am with Friedberg single issue voter

01:27:17.320 | balance the budget, get spending under control, austerity

01:27:20.400 | measures, hashtag. Alright, for the Sultan of science,

01:27:23.560 | sorry, what's that? Can you repeat that?

01:27:25.720 | What I wanted to say, Chamath is there are there any plugs for

01:27:29.480 | the remaining part of the episode? Mr. Beast is curing

01:27:32.680 | blindness and buying people's shoes? Has he been cancelled

01:27:35.960 | yet?

01:27:36.240 | Thanks. Aren't you excited about superconductors and the benefit

01:27:39.000 | for AI and energy storage and energy costs and humanity? Yeah,

01:27:43.360 | what does it do to burn rate of a SAS?

01:27:45.000 | Yeah, but I'm not I'm not like an expert at assessing like hard

01:27:48.960 | science or hard tech. I mean, I'm a software investor.

01:27:51.960 | I'm just a simple man. I'm just a software investor.

01:27:54.440 | Alright, everybody for the rain man himself, David sacks, the

01:27:57.760 | dictator Chamath Pali hoppity. And the Sultan of science, the

01:28:02.320 | prince of panic attacks no more. Mr. David Friedberg. I'm the

01:28:05.800 | world's greatest moderator. Undisputed. Congratulations,

01:28:08.960 | everybody. On another successful episode and Friedberg when are

01:28:13.240 | we locking in the date for all in summit 2023? My replies my dms

01:28:18.240 | are filled people want to know. Do you have the date?

01:28:21.720 | Soon soon we had a parking issue where they don't want us parking

01:28:24.160 | there. So as soon as we don't need to park there. Everybody

01:28:27.040 | that's what we told so now they've gone back to their

01:28:28.720 | committee to get approval for us doing it without parking and just

01:28:31.160 | doing no parking or walking shuttles or people? Uber, Uber,

01:28:34.800 | Uber, Uber. Let's get that we should hopefully if if they

01:28:37.960 | accept it, then we are okay. How many shuttles do we have to take

01:28:41.360 | to Uranus? Oh, yeah, exactly. How am I the prince of panic

01:28:44.920 | attacks? I think you're the king of caps locks at this point.

01:28:48.440 | They were called me J caps. J caps was the best one I heard

01:28:51.800 | talking about panic attacks. Jake held this weekend, man

01:28:54.400 | panicking, panicking. I was a sheer terror. Sure. I have

01:28:58.400 | literally gotten rid of the caps lock. Everybody relax. You can

01:29:01.600 | follow me twitter.com slash Jason. We'll see you all next

01:29:03.480 | time. Bye bye. Bye bye.

01:29:05.320 | Let your winners ride. Rain Man David

01:29:10.720 | we open sources to the fans and they've just gone crazy with it.

01:29:18.120 | Love you.

01:29:18.440 | besties are

01:29:27.680 | dog taking a

01:29:30.920 | driveway

01:29:31.640 | should all just get a room and just have one big huge orgy

01:29:40.040 | because they're all

01:29:40.440 | like this like sexual tension that they just need to release

01:29:43.760 | somehow.

01:29:45.320 | What you're about to be your fee.

01:29:49.880 | Good. Good. We need to get merch.

01:29:51.840 | These are

01:29:52.240 | ♪ I'm doin' all in ♪

01:29:57.240 | ♪ I'm doin' all in ♪

01:30:03.180 | you

01:30:03.640 | you

E120: Banking crisis and the great VC reset

Chapters