银行业危机与风投大重置

Jason Calacanis (00:00:00): Alright, everybody. Welcome to the all in podcast. And with me again this week, The Sultan of Science, The Principle Panic, The Queen of Kinwa, David Friedberg, the dictator, Tremoth Palihapitiya wearing a beautiful Mister B sweater, and David Saxx, the rainman himself. Chamath Palihapitiya (00:00:18): Thanks for coming to my Laura Piannon dinner on Tuesday, Jake. Jason Calacanis (00:00:21): That was wonderful. Thanks. At least one best he showed up for you. Wonderful. Wonderful dinner. I sat as far away from the Laura Pionna people as possible in the arranged seating. Thank you for that. I guess maybe you were like, I'm gonna contain the damage. Chamath Palihapitiya (00:00:34): Bernard Arnaud Arnaud said, put put the all caps got at the end. And I said, okay. Jason Calacanis (00:00:38): Yeah. He still hurt me. I was like, check off. some -- What's the amuse booj? Chamath Palihapitiya (00:00:44): Jake Alex joke at dinner every time he said something he yelled like he was in off the couch. Jason Calacanis (00:00:50): I He's like, yeah. I want another butterscotch pudding. The butterscotch pudding is delightful. Sean's like, I I'm 4 feet away from you. David Friedberg (00:01:00): You take the cap slot. Chamath Palihapitiya (00:01:02): Sean was so embarrassed. Chef Sean crushed it. Chef Sean crushed it. Jason Calacanis (00:01:05): Sean crushed it once again. David Sacks (00:01:06): Were you sounding alarms when the restaurant, like, almost ran out of something? Alert. Alert. Alert. Restaurant is running low on see. Jason Calacanis (00:01:14): We're dangerously love caviar on this one as far as this. Speaker 5 (00:01:19): The let your winner ride. Rainman, David Saffens. Speaker 6 (00:01:26): And I said -- We open source it to Alright, everybody. Speaker 5 (00:01:30): Welcome to the pod. Where Jason Calacanis (00:01:35): are we know, try to inform you. We try to make some jokes here. I just wanna make what is a little bit of an opening statement here. It's not an apology, and it's not a victory lap in any way. But there's been a lot of attention, I think, on the last episode of the pod and perhaps some tweeting from 2 of the 4 besties this past weekend. I saw and I you know, I'll let you speak for yourself here, Saxx, and we're gonna get into the timeline of what's occurred And then what are potential outcomes here in solutions to the banking issues that we've witnessed in? What is a week since the bank run on Silicon Valley Bank and the shutdown on Friday. But what I saw, and, again, speaking only for myself here, was absolutely terrifying up close and personally watching people pulling money out of banks and watching people have to set up loans to hit their payroll. And this was like one of those surreal moments in in a movie where, like, a meteor is coming towards Earth, and you see it in the telescope and nobody else sees it or only a small number of people in the observatory see it. And I think part of the reason people listen to this podcast is because we are insiders and speaking again just for myself, I'm always trying to be exceptionally candid and transparent with the audience. Additionally, I make jokes. So sometimes you might laugh during this podcast, or you might laugh when you're reading my tweets, And that's part of what I do. Now I also realize that we have an audience now that is larger than I think any of us expected for this podcast. I certainly magnitude larger than I expected. And frankly, I didn't know if this podcast was gonna make a past 50 or a 100 episodes, and my Twitter following count doubled since we started this podcast and -- That's because that's because you Chamath Palihapitiya (00:03:14): tried to ruin the putt. Jason Calacanis (00:03:16): I think it was because of the caps locks. But, anyway, putting all that aside, what I would like to say as well is, like, we are living in a situation that is unprecedented, I think the alarm bell I sounded, you know, was because I saw a fire. We'll get into the timeline here, but I sounded that alarm bell after Silicon Valley Bank was put into receivership. And when I saw additional bank runs occurring, I wouldn't change it. I think these were the right the right thing to do was to inform folks. Now I did use all caps, perhaps a little too much. That was a little bit of a bit people didn't understand that. Maybe I need to adjust my communication style now that this thing is so popular, but I stand by my mode of operating in the world, which is I always wanna be candid with people. I always wanna tell the truth. And, yes, sometimes I I make jokes about life and you know, dealing with these stressful situations. That's it. It's not an apology. It's more of an explainer. And, yeah, maybe I need to adjust the caps lock or or how I deliver stuff, but I stand by the message of what I said. And I think it's important for us to maybe look at the series of events and misinformation that has spread because there are people literally blaming venture capitalists for the bank run that is now systematic and the the balance sheets of multiple banks around the world. And I think Saks would be great for you to maybe just comment on the week that was and the timeline of events. Speaker 5 (00:04:39): Yeah. David Friedberg (00:04:39): So as usual, you're not apologizing. Jason Calacanis (00:04:41): No. Absolutely not apologizing, but we'll recognize that this platform is bigger and that maybe on the margins I could adjust my communication strategy. But, Chris, there's a lot of people who don't know that I make jokes, and maybe people don't understand when I'm joking and when I'm serious. Right? And so -- Right. -- Chamath Palihapitiya (00:04:56): Jason, what would you change? David Sacks (00:04:58): Was there anything you'd change? Speaker 7 (00:05:01): Come on. Jason Calacanis (00:05:02): I think I might not have used a Mad Mac image and GIF about the end of the world because people are too stupid to understand that's a joke and a fictional movie. Chamath Palihapitiya (00:05:12): I see. So you find yelling effective? Jason Calacanis (00:05:15): It depends. David Sacks (00:05:16): Well, Jay Kal, I agree that I don't think you have anything to apologize for in terms of the substance of what you're trying to get across. Cypressy could have done without the all caps. Jason Calacanis (00:05:25): It was a bit. David Sacks (00:05:26): Yeah. What you're basically saying is nobody should listen to you because you're not that important. And I wholeheartedly agree with that. Jason Calacanis (00:05:34): No. I'm saying, understand I might make a joke. Consider me worried Speaker 5 (00:05:37): about the overall category. David Sacks (00:05:39): Yeah. Alright. Let let's go back let's go back and look at the timeline. because there are now serious accusations, and I would call it really scapegoating of it. And it wasn't just you. It was me and Bill Ackman fact, the Wall Street Journal editorial board, which I respect a lot, mischaracterize what me and Actman were trying to do in terms of drawing attention to a regional banking crisis in progress or run on the banks. They called it spreading panic. I don't know how you tweet or publicly discuss a run on the bank that's currently happening needs to be addressed with an immediate federal intervention. I don't know how you can discuss it without then having someone else mischaracterize it as trying to spread a panic. But, Jake, how the the Wall Street Journal at Turbo didn't mention you. So you're off the hook. Jason Calacanis (00:06:26): They don't they David Sacks (00:06:26): they didn't know who you are. Speaker 5 (00:06:27): Thank you. David Sacks (00:06:27): But -- Thank you. Chamath Palihapitiya (00:06:29): Thank you. David Sacks (00:06:29): But but no. But seriously, so I went back and looked at the timeline of all of this. And so first of all, we have to understand that this banking crisis now has swept in 5 banks, 5 bank failures. 1st, there was Silvergate, then everyone dismissed that because it was some weird crypto bank. Then it was SVB But everyone sort of dismissed it because they said it was based on Panic VCs rather than a systemic problem in the banking system. Then it was Signature Bank, which got cease on Sunday, which I think utterly refuted the idea that this was just a Silicon Valley problem. Then you had the feds step in and backstop First Republic. which would have been the next domino to fall if it wasn't backstopped. And then 5, you had Credit Suisse. Basically, again, avoid an outright failure because they got backstopped by the Swiss government. So we now have 5 banks in roughly a week, and these are not small banks. They're Credit Suisse is a is a GSIB, a globally systemically important bank. And the other ones are top 20, top 30 type banks. We're talking about Jason Calacanis (00:07:29): 100 David Sacks (00:07:30): of $1,000,000,000 in deposits. So clearly, there's a larger phenomenon going on here. And frankly, it's being caused not by, like, anything VCs did because VCs are just depositors. We're just one class of depositors. And depositors are not to blame for what's going on here. What's going on is that these banks have huge unrealized losses on their balance sheet, and the losses have come from the Sun's spike in interest rates. That's what's going on. The sun spike in interest rates is because you've had the most rapid fed tightening cycle in our lifetimes. In the last year, the fed funds rates gone from roughly 0 to almost 5%. that has broken a lot of things. And the banks which have broken first are the ones that had pre existing problems and they had horrible risk management. But that's who gets broken first in a stress test, right, is the most poorly run banks, the ones with preexisting issues. But just because they went first doesn't mean that others don't have similar kinds of issues. Now I'm not saying this in any way to be panicking, maybe those banks will be fine. But there are larger issues in the banking system that are worth talking about in. To the point about whether VCs could have spread this, Jay Kal, you're absolutely right about the timeline. I mean, I went back and checked. I personally never tweeted anything about s g b until Friday afternoon when SVB was already in receivership and the run on the bank had already started with signature in First Republic, and we could see it with our own eyes. And then this pod didn't drop. The one where he talked about this problem didn't drop until Saturday morning when the banks were already closed. And by Sunday night, the Fed had acted and basically implemented our recommendations, which was to basically intervene. So I don't know how you can blame this search for scapegoats is getting out of control, and it's just not actually accurate. Jason Calacanis (00:09:14): And, you know, the it's convenient to make tech, which is hated right now, Jamov and Friedberg, you know, the scapegoat, Venture Capital's obviously the the part of tech that people might hate the most or the easiest target. But let's talk about The Fed raised those rates because of inflation, and inflation happened because of out of control spending due to COVID. and then the the 2nd administration. So you had a Republican administration that spent a lot of money. And then a democratic administration, Chamath, that spent a lot of money. So maybe we could even go backwards from fed, fund rate, going, Speaker 5 (00:09:47): you Jason Calacanis (00:09:47): know, what looks like parabolic when you look at the chart, Maybe you could speak to what got us to the Fed making those decisions, Chomov or Friedberg. Maybe I can Chamath Palihapitiya (00:09:55): just do a little cleanup on what Saks said. I think the issues at Credit Suisse are different than the issues at First Republic and the issues at First Republic are different than those other 3 banks. The other 3 banks David that you mentioned, Signature Silicon Valley Bank, and Silvergate, all had very traditional liquidity crises. Right? We talked about this last week, which is duration mismatching where You have depositors who want their money today, but you have assets that mature in 10 years And as a result, you have huge unrealized losses if you all of a sudden cash them out today versus waiting 10 years. I think what's happening at First Republic is really just about making sure that that loan book and the depositors can get parked into a combination set of banks that can take care of the balance sheet so that there are no more liquidity issues. At Credit Suisse, they have an enormous amount of liquidity. What that was was, I think, a lot of speculation around whether they would default on their bonds or whether they would theoretically need more liquidity, but the balance sheet itself was not only liquid but also very solvent. So I think that was just more of a panicky reaction to comments from a 9.9% shareholder. who just said that they can't put in any more equity. But even then, I went back. This is the chairman of the Saudi National Bank. He was asked on Bloomberg, would you give Credit Suisse more money? And he had a very reasonable answer, but it was snapshotted in a very awkward way. The first sentence was under no circumstances. Would he do that? Okay. Now if you stop there, you could be panicked. But the rest of it made a lot of sense, which is he said, look, in Saudi Arabia, if we go above Jason Calacanis (00:11:43): 10%, Chamath Palihapitiya (00:11:45): We have to go through regulatory approvals domestically, and there are regulatory approvals abroad. That's a big hill to climb, and all of a sudden, it no longer becomes a investment, it becomes a somewhat political investment, and so we're very happy at 9.9%. That was the totality of his statement, but if you just cherry pick the first 45 seconds and ran with it, which people on the Internet did, this is sort of what caused that second level wave panic at a G SIB. And then the Swiss National Bank stepped in and I think that that panic has largely gone. Okay. So what is the real issue? The issue again is I think we have had a bit of supervisory failure here. Right? Because we all know this in any industry. If you let Calacanis go totally unchecked, shareholders will demand immediate profits today. It happens in every industry. except in ones where you can basically gamble on future profits. And that's what tech does. But every other shareholder in every other asset class demands money today and that's the same for banks. The problem is the banks are a highly regulated business. They are supposed to be supervised by the regulators. And this is a very clear example where why is there not a real time spreadsheet. I mean this is not complicated stuff where assets and liabilities and duration mismatching can be known on a real time basis the San Francisco Fed, Mary Daley, should have a report that's escalated to her when SVB got over their key tips, which they did in queue 4 of 2022. So I think the real question that has to be examined is where were these folks for the last 4 months when they could have done something Not just about this, but rules in general for all banks that are not the G SIPs. And I think that's a very important question that politicians need to get to the root of. Jason Calacanis (00:13:34): Friedberg, we discussed this article from Seeking Alpha, which came out on let me get the exact date here, December 19th. Title of this Seeking Alpha story is SVB Financial Colon BlowUp Risk. And the summary in 3 bullet points says bullet point 1, potential losses in loan portfolios could severely impair book equity. Number 2, unrealized unrealized losses in whole to maturity portfolio already equal to book equity, number 3, funding environment for startups where pressure deposit base adding even more pressure to the balance sheet. In other words, start ups spending money to cover their burn rate, Friedberg. And, obviously, we had the Dodge Frank Rules lessened or loosened under the previous administration, and that specifically was driven by Silicon Valley Bank that had a big part in So looking back on this and and people do wanna place blame, let's talk about the effects that occurred because this was hiding in plain sight. literally in December in an article that looks like it was written by somebody who went into a time machine and said, how do I warn people in December about this? Maybe you could talk about the Fed's interest rates, the spending, and what led up to this look. Issue with the banks. David Friedberg (00:14:48): You guys remember when we started this podcast, 3 years ago, we were like, they're gonna shut down the economy. There's gonna be crazy second and third order effects of doing that. No one knows what they're gonna be. Here they are. And I think that's, like, the root of what is a rippling effect. You can't shut down the global economy. and stop trade and stop people and have the government step in to write a giant check and not expect that you're gonna have to cash that check at some point. That's effectively what I think we've been kicking down the the road here. The way we initially tried to resolve the problem was to drop rates to 0. and then spend our way, you know, back to a growing supported economy. And then overshot ended up with, you know, too much stimulation Too much stimulus, too lower rates for too long, responded too quickly with blast back. At the end of the day, there was a giant gaping hole blown into the global economy when we shut down the world from COVID. There's no blame. It's just what happened. And when that happened, there was a massive cost that had to be born at some point, and it's gonna get born at some point. And the rippling in a pond. You don't know where the ripple is gonna hit, what part of the pond, what leaves it's gonna hit. That's what's going on still. And it's such a dynamical system. It's so hard to say with linear certainty, this is what should be done and what could have been done and what they should have done at the time. no one had that predictive capacity back then. They did what they needed to do. People thought that they should have stink drop rates. They said that we should have written all these stimulus check. Some people said you shouldn't. Some people said you did. Certainly, some people are being proven right and some people are being proven wrong. But at the end of the day, the economic loss that was realized at that period of time, we're still trying to get out of it and we're still recovering from it. And I think that's a big part of what's being eaten up right now. you're gonna see it in the wipeout of certain equity. David Friedberg (00:16:47): You're gonna see it in the wipeout of these Speaker 5 (00:16:48): banks, of the assets that they hold and and these David Friedberg (00:16:53): portfolios. and the effects of that are obviously, you know, still being felt. Jason Calacanis (00:16:58): Sachs, do you agree that mistakes that this there isn't somebody to blame because it is clear Chamath Palihapitiya (00:17:07): that the fed Jason Calacanis (00:17:08): said inflation is transitory. That was wrong. And then they went faster than in history to raise the rates. Those seem like, 2 glaring mistakes. And then the Todd the Dodd Frank loosening under Trump and with Silicon Valley Bank pushing them That seemed like a really big mistake. David Friedberg (00:17:25): By the way, I wasn't saying the feds not to blame for not raising rates fast enough. Okay. That that was because you guys remember I was the first person to talk about -- Sure. what Stan Druckenmiller had said that they're not raising rates fast enough that we've got massive inflation. We should have been raising rates. I was the first person on this show to be, you know, barking that. So don't don't forget, like, I was there -- Okay. Jason Calacanis (00:17:43): -- David Friedberg (00:17:43): like, pretty early. What I was pointing out was, like, we shut down the economy during COVID. The global economy -- Yeah. Jason Calacanis (00:17:48): I gotcha. And that is the main cause. David Friedberg (00:17:50): That is cannonball that got blown through the ship. Got it. And everything else is plumbing and patching and work to try and keep the ship afloat, and we're still dealing with that. And at the same time, as you guys know, We've been loading the ship up with debt, the global ship, the global economy with debt, 360 percent global debt to global GDP ratio right now. And as that chip has gotten heavier and heavier to have a giant hole blown in the side while you're trying to do all this patchwork with all this dead wing on it, it's a critical challenge. And the shipments that we're feeling acutely here, they're feeling it in Europe now, and we're certainly gonna see the global ramifications as we try and fix this economic catastrophe that was caused by COVID at the same time that we've been spending our way into a happier future that it turns out We have to pay the bills for at some point. Jason Calacanis (00:18:35): Sacks your response. David Sacks (00:18:36): The question of who you blame for this banking crisis has really become a political warsaw test. And I've seen that there are 6 different parties that people want to blame in this situation. And there's some merit to all of them, but the degrees are very different. Number Jason Calacanis (00:18:51): 1, David Sacks (00:18:51): you've got the banks. Jason Calacanis (00:18:52): Go through them. David Sacks (00:18:52): Okay. Number 1, the bank management of all these different banks. Clearly, very poor risk management, didn't do a good job they are to to blame. However and and Chamath is right about these banks. They differ in the details. But The point is that they're all operating under conditions of extreme stress. Where did that come from? Number 2, the Fed's rapid rate tightening cycle. Clearly, I think that the the the combination of poor risk management with the spike in interest rates that basically has precipitated this larger problem. Number 3 is I think the Biden administration spending, which in fairness started with COVID before Biden. The Biden really intensified it. And then I think it really compound the problem in the summer of 2021 by claiming that inflation was transitory when it wasn't. That allowed them to keep spending and keep printing money and kept Kiwi going for another 6 months. That created the bubble of 2021. Everything got super frothy, and then that made the rate hike cycle even more vicious because you started 6 months later. They could've started 6 months earlier, and it could've been more gradual. And I think that really was a disaster for the economy. Okay. Number 4, the d reg in 2018. I think Elizabeth Warren and Rokana have made what I would call a compelling case that the d reg in 2018 have contributed to this problem. I think in hindsight, creating a 2 tier system of banks, where one tier are the systemically important banks who are completely guaranteed and backstop by the federal government, and then a sort of lower tier, a second tier of regional banks was a poison chalice for the regional banking system because in the short term, it meant they were more lightly regulated, which maybe appropriate for, you know, smaller banks that aren't these mega banks. However, it it has also now, I think, created a situation where people are less confident about them. And so the money flows are going from the regional banks to the to someically important banks, the SIP. So like I said, it might be a double edged sword. And we're gonna have to look at those regulations and figure out what's the right regulatory regime to create confidence in the regional banking system. David Sacks (00:20:56): We want a thriving regional banking system. And so the question is what's the right regulations that get us there. And then the the final 2 that we can talk about later are I'm hearing wokeness getting blamed, which Listen, I think that Wokeness was a distraction. There were a lot of crazy programs happening at these banks. But listen, if Wokeness was the key factor, whole fortune 500 would be out of business because because they all do this stuff. They all do this stuff. So I think I think we're going back to the well a little too often on that critique and I like an order. I don't wanna burn that critique out because I I think that wokeness is bad, but it's not the key reason why this stuff happened. And then the last group that gets Jason Calacanis (00:21:32): -- And for Wokness, we could also maybe frame it as ESG more broadly as the distraction because Wokness is charged ESG is real. David Sacks (00:21:40): Yeah. What I what I would say for sure is that if these banks have spent as much time on risk management as they did on ESG or on Woke, then this crisis wouldn't happen. So -- Yeah. Jason Calacanis (00:21:48): -- David Sacks (00:21:48): definitely a distraction but not not the thing that, like, specifically caused it. And then just the final thing is VCs. And I just can't fathom at this point, given the multiple bank failures, given that we see the larger problem of unrealized losses on bank balance sheets, that somehow any class of depositors would be blamed for this. That just makes no sense to me. Chamath Palihapitiya (00:22:08): Chamath, I think the VC, the critique is specific Silicon Valley Bank because I think and this article was in The Wall Street Journal. But what it shows is a really complicated inter client relationship between VCs And Silicon Valley Bank, where, you know, VCs were given very cheap interest rate loans they were given GP call lines of credit. They were given LP lines of credit, and then those same VCs would be directing their companies to put their deposits inside of SVB who would then take those deposits and David Friedberg (00:22:37): buy -- Perhaps. Jason Calacanis (00:22:37): -- Chamath Palihapitiya (00:22:37): and buy risk. Yeah. And while the reality is all of this stuff will come to light because I think it will get exposed as we go through congressional hearings on all of this. But I think the I think pointing the finger at VCs in this specific case is somewhat warranted because there was a little bit of people working in lockstep together and there was a lack of functional responsibility around how to be a true fiduciary So if you come to a board and your founder is twenty two years old and you give that person 15 or $20,000,000, I think it makes a fair amount of sense that you are supposed to be the more sophisticated financial person in that room. And if you have incentives that aren't properly disclosed to that CEO and now a set of decisions are made, I think that that There should be some accountability for that or at least some exploration of why that happened. Jason Calacanis (00:23:29): I just wanna make sure the audience understands this because it's a bit in the weeds, and it's a bit inside baseball. what you're saying Shamoff is, if I can summarize it, there are people who are the adults in the room, venture capitalists. They have deposits at Silicon Valley Bank. They also might have loans that are fantastic with Silicon Valley Bank. I had a mortgage for this office from Silicon Valley Bank, and I talked about how on the last episode, how great it is. They come. They open wine with you. It's white glove service that you wouldn't get at another bank. And Then they might have loans against what's called the GP carry or the GP share or they might have mortgages. And so there's a conflict there. If you're a venture capitalist and you're directing a twenty two year old CEO to Silicon Valley Bank, maybe you're doing that is I guess you're saying could be explored. David Sacks (00:24:16): No. The bigger conflict of interest. Chamath Palihapitiya (00:24:17): And in some cases, Silicon Valley Bank is a limited partner in all of these funds. My point is David Sacks (00:24:22): that all of these things interest. Jason Calacanis (00:24:23): Okay. Hold on. We have to explain that. So imagine Chamath Palihapitiya (00:24:26): a situation. You go and start a fund. Silicon Valley Bank comes to you and says, Let me be a limited partner and invest with you. Let me give you some amount of money. I don't know where that money comes from from Silicon Valley Bank, but David Friedberg (00:24:38): they -- Yep. Chamath Palihapitiya (00:24:39): Well, let's be realistic. More like 25, 50,000,000, a 100,000,000. Okay? This is a lot of -- Okay. Jason Calacanis (00:24:44): -- Chamath Palihapitiya (00:24:44): so a 1,000,000 kind of is whitewashing this problem. So you give them a reasonable amount of money. They're like, wow. I'm I have tremendous loyalty for you. Thank you. Well, do you need anything else? Do you need personal loans? Do you need lines of credit for your business? Sure. Why not? I take those 2. And invariably on the back end, now your loyalty obviously builds up. Again, nothing none of this is wrong, but this is what's happening. And then you tell your companies to keep your deposits there. Maybe the cash management program is not as strong as it would have been if you were more circumspect and you didn't have those incentives to direct people to one institution only. In any other part of the market, so in the public markets as an example, There is such a bar for disclosure. Okay. And I cannot stress this to you enough. Related party transactions, all of this stuff We have to tell everything, not just for us, but even if our, like, sister or brother or mother may have a transaction with an entity that we're doing a deal And it just isn't the case in private markets. And so it's not to say that anything untoward happened. But when people point the finger at VCs, I think they are pointing to this whole set of issues and asking the question, shouldn't there have been more disclosure and transparency around it? And now that this has come to pass, shouldn't we explore it? And I think that's what the Wall Street Journal did. They started pulling on this sweater thread and my guess is that you're going to find a whole ball of yarn at the end Jason Calacanis (00:26:07): of Sachs, what do you think of this? David Sacks (00:26:08): I think Chamath makes a fair point that if VCs have SVB as an investor and then they're directing startups to use SVB that is a conflict that should be disclosed. By the way, we never did either one of those things. We never had SCB as a limit partner and we also never direct our starts to bank at SVB. I don't know why we'd ever do that. Moreover, I always try to talk founders out of taking venture debt whether from SVB or elsewhere. So listen Yeah. Speaker 7 (00:26:35): We'd be clear about that. And to Jason Calacanis (00:26:36): be clear, so we never directed anybody to a specific bank. David Sacks (00:26:39): I know. Jason Calacanis (00:26:39): I always told people to get 2 or 3 banks and have redundancy. David Sacks (00:26:42): Totally. Totally. I mean yeah. Totally. And, look, founders have multiple VCs typically on their board. So the idea that, like, any one VC directs them, which bank to use, this is not That's not realistically what happens at these startups. But, look, I think Chamath is right that when there is a bank failure or any kind of failure this big, then all the practices are gonna be under a microscope, and there's gonna be some scrutiny of this. There we go. And maybe there should be. But my larger point is we're now operating in an environment in which clearly there's a larger set of stresses on the banking system. We've already had now 5 bank failures or near failures. Moreover, do any of us believe that this is over? Or do we believe there are more shoes to drop if we believe that there are more shoes to drop, we may not know exactly what they are. But but I think all of us probably believe Jason Calacanis (00:27:28): -- Speaker 5 (00:27:29): Wow. -- that David Sacks (00:27:29): we're not the end of this. But but but just to finish the thought, If we believe there will be more shoes to drop, then clearly, the issues cannot just be limited to Silicon Valley. They have to be a larger set of issues. Chamath Palihapitiya (00:27:40): There I think that it's important to understand the facility that the Fed created. So what the Fed did this weekend is essentially create a buyer of last resort again. Now how did they do this? So all of these banks basically have assets that they bought for a dollar and are now worth 95¢, and that's what's creating this whole issue or 80¢ or 85¢. You you pick the number, but they're not worth the dollar that they bought. What the Fed basically said is, okay. Give me that asset. Give me that bond. I will value it at a dollar, and I will give you a dollar as a loan, and you will pay me interest. And the interest rate, I think, is what's called OIS, and they added 10 basis points on top. So I think it's about Jason Calacanis (00:28:22): 4.9%. Chamath Palihapitiya (00:28:24): So what it allows all of these banks and if you take all of the banks that are not the top 4 in America. So the top 4 are JP Morgan, BofA, City, and Wells. So just ignore those for one second. The other end banks, if you look at all of the assets that are underwater, because of all the rate hikes that Saks talked about. And you add up all those losses, that is about Jason Calacanis (00:28:47): $2,000,000,000,000. Chamath Palihapitiya (00:28:49): And the Fed didn't denounce that there was a beginning and an end to this program other than saying these would be 1 year loans. And so I think the exposure for the American banking system at a minimum is gonna be this $2,000,000,000,000. because now the incentive, if you're a banker right now running one of these banks that has not gone under, is to immediately go to the Fed Put all of those assets to them. Get alone. And now take that and buy different assets, different bonds, different US treasuries that are yielding much more than what your old treasuries were yielding. And I think that's the arbitrage that we've unfortunately created. And the other question now though, however, is what does that mean for the top 4 banks? Right. Because if it's 2,000,000,000,000 for everybody else but the top 4, What's the gap for the top 4? That looks like it's somewhere between a 1,000,000,000,000 and 2,000,000,000,000. So that's another amount of money we're gonna have to fill or the Fed will have to backstop. And then, as Friedberg said, these checks always come due. What do we do in a year? Because in a year, the problem is the only way to make the banks in a position to repay this much money in 1 year is to cut interest rates so massively that these assets massively inflate, and now all of a sudden, you're in a position to cover this. Jason Calacanis (00:30:19): So it's just very -- -- what that Delta is because it's about they're down 15%, 10% in book value these longer term trends. Chamath Palihapitiya (00:30:27): security? Again, it depends on what they bought. We don't really know enough details, so I don't wanna guess. But if you own these 10 year treasuries, you could be off 10 or 15%. If you own Mortgage backed securities, it could be off a little bit more. If you own short term securities, they're off Jason Calacanis (00:30:41): a little bit less. But these are with the government Chamath Palihapitiya (00:30:43): You get a loan collateralized by these assets. So you're still holding them. Right? Jason Calacanis (00:30:47): Yes. And they mature. So if the Fed Chamath Palihapitiya (00:30:50): takes an emergency posture and says, okay, guys. We want to avert a crisis in a year from now, and we're going to cut rates. These assets that these banks own will be worth more which will allow them to repay the loan. As far as I can tell, all we've done is we've kicked the can down the road for a year, But I I do think it's important for people to realize this doesn't solve the problem. It just means that mark your calendar for a year from now We have a problem on March Jason Calacanis (00:31:19): 15 2024 Chamath Palihapitiya (00:31:21): because all those folks that took money, what do Jason Calacanis (00:31:24): we do? Yeah. And so a year to work it out, Friedberg would seem like a good idea because the Fed is fighting inflation, they seem to have gotten some portion of it under control. It's not out of control, right, inflation. And maybe if they can slowly you know, either start rate cuts or pause. So let's shift the discussion to, hey. What are the changes we need to make to the system? how do we think this plays out over the next year? Friedberg had one suggestion, which was all of these banks, should have a disclosure statement, mark to market, every day, week, month, quarter, whatever it is. Just like circles USDC, their stablecoin, has a page with their disclosures of all their holdings. So that seems to be a very productive one. We should have them mark to market, the the Dodd Frank stuff, as Sachs said, you know, Elizabeth Warren, probably correct. We need to reverse that. So those are 2 very tangible suggestions. Speaker 5 (00:32:20): What do Chamath Palihapitiya (00:32:20): we need to have a real time dashboard? We need to have a Speaker 5 (00:32:23): real time dashboard. We need to have Chamath Palihapitiya (00:32:23): a real time dash board at every single Fed that allows them for every bank that they supervise to Speaker 5 (00:32:29): know in real time. Chamath Palihapitiya (00:32:29): They could choose to ignore it I'm not sure that should be true, but they are their supervisors. They should see it. They should choose to ignore Jason Calacanis (00:32:40): it, but they should not not have it. Freeburg, what are your suggestions going forward as to how we can learn from this situation? Forget about the cannonball as you vividly expressed there, I think, very well, a great analogy. But just going forward, how do we keep the ship from taking on water if we do have a cannonball hit it again. David Friedberg (00:33:03): Oh, we got a hard that's a hard equation to solve. We got a lot Chamath Palihapitiya (00:33:08): of that's David Friedberg (00:33:08): why I'm Jason Calacanis (00:33:08): asking you. That's why I'm asking you the man's suggestion. We got David Friedberg (00:33:11): a lot of a lot of a lot of demands for money. You guys see I I think there's a lot of things that are seem unrelated that are all pretty related right now. There's a massive protest underway by labor in France. There's a massive protest underway in the Netherlands. There strikes on the underground in London. When we talk about global debt, and US debt. We often, I don't think, account for all the debt, which also includes promissory obligations made to a workforce, a global workforce that's been working for decades, individuals that have spent their whole lives committed to some company or to some government working, the expectation that they're gonna retire and have some benefits paid to them. And there's this massive underfunding of those benefits and those pools of capital. We very quickly talk about unfunded pension liabilities. But when you actually kind of account for the number of people and the amount of capital, that those people are expecting, that the workforce the global workforce is expecting to be paid to them in retirement, both public and private. It's a massive amount of money that's not funded today. And you start to see the cracks in the system when that population says, my pension payments are not keeping up with interest, with inflation, or when there's a threat that pension payments or retirement benefits are gonna kick in at a later age or you're not gonna get them fast enough or you're not gonna get as many as you thought you were gonna get. We have that problem in the United States in the form of Social Security and these underfunded pension liabilities. That is the critical macro tension in this equation that I think drives the real problem that's gonna come to a head at some point. We blew a hole in the in the in the boat, but we're also forgetting that there's, like, a massive amount of weight that's gonna drop on the boat. David Friedberg (00:35:07): And I think that it's a really hard equation to solve. We can talk about keeping banks solvent and all this sort of stuff. At the end of the day, the central bank it appears in the United States and probably globally, it's gonna be one big bank. Right? They're basically gonna take on the whole balance sheet themselves. And and at the same time, you've got a lot of folks saying, I wanna get paid more. I have obligations due to me. And guess what? You know, Jason here important statements historically about the importance of democracies Ultimately, you know, the members of that democracy are gonna say, this this is a benefit that that the majority are owed. and that's gonna pull things out. I think the only stop gap well, I'll just say one thing. The only stop gap in the next decade is gonna be significantly higher tax rates in the United States. I I don't see how you're gonna fulfill the tension gap that's underway right now with respect to where productivity is going and where capital markets are going. and where the demands are on the system from people requiring additional capital to come out to them without taxing assets away from the asset holders. this would be corporations and high net worth people. And I think that's why you see the Biden proposal. We may not like it, but at the end of the day, it's gonna be the only way to create a stopgap that's that's that's gonna avoid massive inflation in the near term. Reducing -- Hold David Sacks (00:36:24): on. -- the Biden proposal. Jason Calacanis (00:36:26): Hold on hold on one second. Let me just say David Friedberg (00:36:28): the only other way only other I'll just say one more thing, Jake. I mean, you know, the only other way besides, you know, a massive long term tax regime to fill the hole would be some extraordinary productivity gain. And this is where we can all have a hope and a dream and an investment and an effort around technology. AI, automation, people think that they're fine. Jason Calacanis (00:36:46): -- David Friedberg (00:36:46): just a job. Energy. But if you can get energy down below 3¢ a kilowatt hour, and you can scale its production by tenfold. If you can automate a lot of labor, if you can get AI to do a lot of stuff that we do today, Productivity will go through the roof. The economy will grow fast enough to get out of the debt bubble and meet all of these liability obligations. So there are three ways. Yeah. Just to summarize. I think I think I to me to me, that's the long term. The medium term is gonna be this tax stopgap, this very high tax stopgap, then the short term is gonna be all the shenanigans that we're talking about. Jason Calacanis (00:37:17): Okay. I'll go to you in a second, Sax. So just to recap, there is actually a third way too. There are three ways productivity, as you very astutely point out, and we we just highlighted some of the ways productivity could help, whether it's energy, AI, etcetera. The second is, of course, increasing taxation on the people who are at the top of the pile would be the likely solution. The third is also austerity. Cutting spending in some way But let me also propose one thing here. As we look forward to what do people want out of a bank, and how should startups or just individuals deal with bank runs and their trust in banks to Tremont's point? I've been I was thinking about this over the weekend and and this discussion that we would have based on a lot of things you said, Saks, which was people just deposited their money, and they don't have the ability to assess if a bank is solvent because the FDIC can't do it, and it's their full time job. It's their mandate to make sure these banks are solvent. So how is a consumer gonna be able to do that even a startup founder or even a sophisticated investor like Ackman or any of us -- Yes. -- to be, in fact, sophisticated. So let me pause for a second here and pause at something. We don't want a bank. We want a bank vault. Consumers do not want their deposits to be used for shenanigans. Just like many people would rather pay for a social network than have their privacy data sold. So I think we should bifurcate banks into bank vaults and banks. Banks can do what they want with your deposits. You get free checking. But what I want in a bank, what I want my startups to use, what want my venture firm to use is I want to pay the bank for services. Whether it's 10 basis points, 25 basis points, $500 a month, I would rather see my startups pay a $1000 a month in banking fees, $2000 a month on banking fees for $2,000,000, whatever it is, and pay for each check, pay for wires, pay for white glove service, whatever they choose, but not allowed the banks to take that money and loan it out or do things with it. I just want a vault, and I think a vault service is what the majority of consumers want. And given what we're seeing with 2 insane bank run bailouts in our lifetimes as adults for those of us who are in Gen X, 2008 and now, we would rather pay for services. And I I leave it to you, Saks. Jason Calacanis (00:39:34): Is this a potential solution? because I don't hear anybody saying, give me a bank vault. And why does that service not exist in the world? David Sacks (00:39:41): Yeah. Look. What people really want are they want a service provider who gives them the ability to make payments which if you're a small business is payroll and payables, things like that. They want a money market fund to basically earn interest and and they want all that to be safe. I mean, it's it's very simple. The idea that when you go open a checking account at a bank, that you are making an unsecured loan to that bank, that is not something that any consumer or small business understands. That whole model I think is completely obsolete and outdated. And what I heard so many people say, and I think this is not sincere. I think it's just because they hate tech. is that depositors should take it on the chin because somehow they made a stupid decision when they opened the checking account. It's like, are you kidding me? Listen, what what do you want the process to be? You want consumers and small businesses when they open a bank account to have to review the financial statements of that bank, try to figure out all their disclosures, where their assets are, whether they have toxic assets on the books. And if they don't do a good enough job doing that, If they're not smart enough to do that, then you want them to be disciplined. This is the word that I kept heard being used as we need to discipline -- Yeah. Jason Calacanis (00:40:55): -- David Sacks (00:40:55): the depositors. The depositors are not in a position to evaluate the balance sheet of these banks. That's what the feds are supposed to do. That's what the regulators are supposed to do. That's what Moody's is supposed to do. And you're telling me that a bank that had an a rating from Moody's the week before and had an FDIC seal of approval that somehow they got it wrong. and the feds got it wrong, but the customer is supposed to get it I mean, come on. That's ridiculous. Jason Calacanis (00:41:21): In related news, Chamath, I would like an airbag in my cars to protect my family, but I don't want to evaluate the airbag technology and unpack it and make sure that it's got the right Right. David Sacks (00:41:32): because there's 2 parts. Yeah. Well yeah. Take care. Let me finish the point. It's about consumer protection here. And I don't care who the depositor is. If they're banking system is going down because the feds haven't done their job. I mean, Powell, 2 days before the bank failures, was testifying that he didn't see stress in the banking system. So either he was lying or asleep at the wheel. Jason Calacanis (00:41:52): Sleep at the wheel. Like I said, David Sacks (00:41:53): the feds had given the seal of approval to SVB and all these other banks. They had all passed the regulatory exams. And so to now put it on the deposit when the fed screws up and the regulators screw up, And Washington screws up by printing all of this money and creating this inflation that we've had. Again, out of all the six parties that you could blame, I just think it's the the least culpable. Jason Calacanis (00:42:16): Chamath, should there be a service that provides no interest, but is just a custodian of money that is absolutely protected. Where is the bank vault product in the world? Does it exist? because I can't seem to find it. Some people seem to say, I think, Friedberg, you alluded to this maybe in the group chat. that if you have a brokerage account, that's kind of similar to what I'm saying, but it doesn't have it. I don't want any interest. I don't need any interest for putting this money in the bank for a start up. They're not in the business of making 1 to 5% and optimizing for that. I have founders who are now sending me 5 page memos. David Friedberg (00:42:49): If they can't if we have bank if yeah. If the bank can't use your money, they're gonna charge you. So remember, I want to Jason Calacanis (00:42:55): be charged. That's the service I want. David Friedberg (00:42:57): But but I think this is this is an important point. A bank is a service provider. They spend a lot of money building technology, having people that work there providing service and infrastructure. So for the services that they're offering, if you're not gonna let them use your money to make investments with your money and they can participate on that gain Jason Calacanis (00:43:12): -- They have to charge David Friedberg (00:43:13): you. they charge you. And I think that's really worth that. David Sacks (00:43:16): But but Freeburg Freeburg is not a service provider under the current laws. You understand how it works now is that what we're being told is that when you went to the bank thinking you were just getting a service provider. And frankly, largely a commodity service provider Jason Calacanis (00:43:29): -- David Friedberg (00:43:29): You get yeah. You're being told. -- manager. You're gonna ask that manager. Yes. David Sacks (00:43:31): And you're being told that you actually made a risky investment decision. Think about that. When you opened a checking account, you weren't just trying to, you know, again, use a vendor. You were actually making a risky investment decision. That's what they're trying to say. And you deserve to lose your money if you chose poorly even though nobody else could figure it out, none of the experts can figure Speaker 5 (00:43:50): it out, David Sacks (00:43:51): none of the regulators could figure Speaker 5 (00:43:51): it out. David Friedberg (00:43:52): You should talk about the the the challenges of your system to someone who lives in Argentina. it's far worse in other parts of the world, and we've come a long way in the last 100 years. We talked about 500 or 600 bank failures on average per year in the 19 twenties. So I'm not saying that, hey. That's not the case, but there's always been to some degree risk when people are giving their capital over to someone else. And we've certainly made huge strides in progress. But I think, Jake, out to your point, you know, there is a a point of privilege now that people are saying, I wanna have a position where I know that my money is not gonna get used, not gonna get moved, gonna be completely safe. In a democracy Jason Calacanis (00:44:22): -- What would you pay for that? What's the price, Freeburg? What would you pay for that? because right now, we're basically giving every crypto entrepreneur at Zellelet you know, basically, the high ground because they could make this product, I would pay 10 basis points, literally $10,000 a year per 1,000,000. Is that right? David Friedberg (00:44:38): Yeah. Remember when you thought Jeff Bezos was gonna be president? Jason Calacanis (00:44:41): I still think it's distinct possibility. Anyway, what what did you pay for this project? Chamath Palihapitiya (00:44:46): I'm just -- -- or like Bloomberg or Basis. I don't wanna speculate on new products. It's kind of a dumb tangent. I think the thing that you're bringing up though is Dump tangent. Okay. Why doesn't a product like this exist? And I think that it was very well explained. It's that every for profit business is in the business of making money and there are physical costs that you have to bear. In the case of a bank, there is physical infrastructure literally bricks and mortar that go into making the branches. There are lots of people. There is lots of software There's lots of complex back office and middle office things that banks have to do in order to accept money. That has a cost. So I don't see how it will be very easy for somebody to create a bank that just stores your money for you. Without you being charged quite a lot of money, unfortunately. I think that there has to be a different way to solve this problem. And I think that what we did after the great financial crisis was the regulators wrote down all kinds of new rules. But the crazy thing in 2008 where those rules were written on paper. And now we're in 2023 and these rules can be written in soft ware. And so I think what it requires is some amount of tactical real time intelligence. That regulators need to have over those that they regulate. And I don't know why we're so afraid of demanding that the next time some of these complicated real time laws are written in law that they also need to get written in code. And I think that that's a practical solution. It should be the case that every bank that's supervised by the Fed. has a dashboard that has all of the key levers that allows what you said Jason to happen, which is a real time mark to market. Should those or should those be or should they not be disclosed to shareholders? Chamath Palihapitiya (00:46:45): That's a different discussion. But the regulator should have a 100% transparency into how these organizations run because as Saks said, they are an enormously critical institution that at best case after this fiasco, what we've realized is very poorly misunderstood by consumers. And that at at the worst case is being mismarketed to us. Yeah. Jason Calacanis (00:47:08): And I think Speaker 5 (00:47:09): that that Chamath Palihapitiya (00:47:09): shouldn't be allowed. David Friedberg (00:47:10): We're we're also missing the other side of the balance sheet. We we haven't talked about it at all. but banks play a really critical and important role as lenders. Banks act as the channel for lending capital to small businesses for lending capital to individuals to buy homes. It's the primary place where capital is provided to help fuel economic growth and prosperity, particularly in the United States, where we have such a liquid, fluid, and available mortgage market to support home buying in America. And the absence of you know, Jason, what you're talking about, having the ability to use deposits to make loans and have what banks have fundamentally been in this country for over a 100 years, which is taking short term deposits to make long term loans and making sure that there's some degree of balance and availability of liquidity to support transactions. And, ultimately, mortgage securities came out of the need to generate more liquidity by banks to support depositors. And, obviously, there was all these inflationary things that happened in that market and bubbles that happened. but it's an important role that banks play. And the lending aspect of banks, if it gets stifled too much, because we swing too far the other way, can actually have a really adverse effect on economic growth and prosperity and the ability for people to to afford homes in this country. So that's the other side of the coin on where things can go bad. David Sacks (00:48:25): So this is where I find, like, the the current banking model to be sort of, like, weird and maybe obsolete and definitely not what consumers expect. So for example, if you go to a bank and you put your money in a deposit account and then they loan it out to make mortgages, do you realize that you're an investor in those mortgages as the as the depositor? I don't think you'd do. Chamath Palihapitiya (00:48:45): I mean -- What what they what they do is they take those mortgages, they package them up, they sell them, and they get an origination fee and they get the money back. David Friedberg (00:48:54): Not all Chamath Palihapitiya (00:48:55): they're not take that's Jason Calacanis (00:48:55): -- David Sacks (00:48:55): They're not always, but maybe they should be maybe they should Speaker 5 (00:48:58): have to Jason Calacanis (00:48:58): -- David Friedberg (00:48:58): BofA Wells Fargo do not. Exactly. So BofA Wells Fargo, for example, They they do a lot of that. But if you look at First Republic, they have a $90,000,000,000 loan portfolio on their balance sheet that they've not packaged up and sold. So the the packaging and selling of mortgages generated the liquidity that the banks needed, but there's a cost to that. So a lot of banks will try and balance out their loan portfolio where they'll package some of it up and sell it. But when they do that, they take a loss. They or they they pay David Sacks (00:49:21): a fee. They should be required to do that because -- Yeah. That might be -- Yeah. Jason Calacanis (00:49:24): -- David Sacks (00:49:24): because, I mean, look, to the point about mark to market assets, it's very hard to mark an asset to market unless it's liquid and publicly traded. Let David Friedberg (00:49:32): me give you an economic point. I think that there's about $7,000,000,000,000 in deposits in banks. So if what you guys are saying happened, you're basically sucking $7,000,000,000,000 out of the system that's being used to fuel purchasing in the form of loans. And you're taking that set or call it a 10% discount to that. So about call it $6,000,000,000,000. And you're saying, we gotta go find a market for Jason Calacanis (00:49:52): $6,000,000,000,000 David Friedberg (00:49:53): of loans. then we're gonna have $6,000,000,000 of cash sitting in a bank account doing nothing. And that that challenge is the Speaker 5 (00:49:59): way we do. David Sacks (00:49:59): That cash would go into money market funds. So in other words, like, you'd package up all those mortgage bonds, you create a mortgage bond security. And then if consumers if depositors want that product, they'll just buy And what is the money but they'll they'll just buy hold on. what is the money market? Yeah. David Friedberg (00:50:12): But what is the money market? It's it ends up being the same thing where money is you you earn interest on cash that's being used to make investments elsewhere. ultimately, if you wanna earn interest on your cash, it has to be loaned out somewhere to someone. David Sacks (00:50:24): I understand. But what I'm saying is look. I'm just brainstorming here. I don't know, I don't have the answer. Right? Jason Calacanis (00:50:30): Spitballing and -- Yes. David Sacks (00:50:31): Exactly. I'm not saying this is what should be done. I'm just kinda asking whether it might make more sense. What if on the depositor side, all of the things you put your money in are money market funds? And then when the bank goes out and does its lending business, it does ultimately, at some point, have to package those up and they get turned into securities. You know? David Friedberg (00:50:48): Exactly. But money market funds you know where that cash goes? So when you when you invest in a money market fund, you're you're giving, like, money to someone who's using it to make a loan. Like, it is also Jason Calacanis (00:50:57): -- David Sacks (00:50:57): I understand, but then the deposit would never be a risk. Jason Calacanis (00:51:00): -- be mark to market as Saks's point. The deposit David Sacks (00:51:02): would never be at risk. It would never be at risk to bank failures. David Friedberg (00:51:04): I just wanna give You're shifting the risk equation to the fund manager or the money market instead of the manager or the bank. And and at the end of the day, that money has to be loaned out. David Sacks (00:51:11): Just the owner of that security, that money market fund, that would take the hit. Jason Calacanis (00:51:17): Okay. Just as we wrap here, because I wanna talk on some other issues as well. There there's two things that are super tangible that founders can do right now are people who want to mitigate against these kind of issues. The there's something called ICS. In short, cash sweeps these are accounts that automatically, you know, will put your money into multiple FBI insured institutions. 250 k at a time. We talked about this previously. There's a bunch of folks doing that in FinTech. I won't give any of them free plugs here, but you you can just go look and search for ICS. There is also maybe some thought here that the FDIC 250 k limit maybe that's outdated. Certainly, for businesses, it is. So maybe that should double or triple, and, obviously, that cost would be spread out. And then, finally, you can go to treasuriedirect.gov right now and by short government debt. And I literally have startups doing this who have major treasuries. They're going there and buying short duration stuff Speaker 5 (00:52:10): themselves, holding it themselves so Jason Calacanis (00:52:10): they don't have to worry. This is part this is provided by the government is my understanding, and people are buying direct from the government David Sacks (00:52:22): I personally am not a fan of start ups buying t bills because of the duration mismatch problem. They always underestimate when they're gonna need their cash. And so I don't like tying up cash in the box. a giant treasury. David Friedberg (00:52:37): Yeah. I agree with you. But this is for David Sacks (00:52:38): giant treasury as usual. I see the the time. Whenever they try to let me just say when stars try to create laddered bond portfolios, they end up needing the money sooner than they thought. What I'd much rather see start up do, is by a Jason Calacanis (00:52:49): 100% David Sacks (00:52:51): UST bill backed money market fund run by the absolute biggest of the big financial institutions because you can get in and out of it at any time you want and without paying a fee. And that's so much better than trying to manage your own bond portfolio. Let a professional fund manager do it? Jason Calacanis (00:53:06): Well, there are people who do provide this kind of bond ladders. I'm just telling you what the best practice advice going around is. David Sacks (00:53:12): ticker symbol through, like, a brokerage account. Jason Calacanis (00:53:15): Sure. Or multiple ones. Right? And and but now this is, I think, speaks to Shamoff. The fact that we have startup founders and people having to measure, manage a treasury this gradually? Is this a failure, or is this what should be happening? Should we have to have treasuries in the $10,000,000 or $20,000,000 range be this granularly manage, or should this just be FDI FDIC rates, you know, should be just a 10 x? Well, in the absence of reg regulatory changes Chamath Palihapitiya (00:53:48): that protect this money, you need to have a financially sophisticated actor on the board. And, again, I go back to that should be your venture capitalist. And that person should not have conflicts of interest with the banks that they direct you to. But, I mean, I don't think that that's a very controversial statement. Jason Calacanis (00:54:08): Yeah. It's just not happening. And I I am just flabbergasted that people are not even doing the basic blocking and tackling here of having 3 or 4 accounts. I've always had 3 or 4 banking relationships, always had it split up. Should we move on to some of the other pressing issues there? Was a a really interesting founders fund story about them breaking their latest fund in half, and then there is Stripe closing their funding. Which one would you gentlemen like to go to or a different story on the docket? Chamath Palihapitiya (00:54:34): I think there are There are 4 things that are very interrelated -- Okay. Jason Calacanis (00:54:38): -- Chamath Palihapitiya (00:54:39): in startup land. So founders fund took their just to make the math simple because I'm gonna get the numbers not exactly right, but it's like a $2,000,000,000 fund that they're gonna break into $2,1,000,000,000 fund. So I think that's -- It's Jason Calacanis (00:54:51): a $1,800,000,000 fund. gonna break it into $29,000,000 funds. It's their 8th fund. It's being cut in half, and it'll become 8 and 9. Chamath Palihapitiya (00:54:58): I think what that speaks to is valuations and the marks that we think we have for our existing companies and the future value that smart investors like this see All roads lead to it's this we're in for a slog, and so trying to put a $2,000,000,000 fund to work doesn't seem to make a lot of economic sense some of the smartest people in the room. So that's that's that. The second thing is -- -- there? Jason Calacanis (00:55:23): It says according to Axios. Peter Till led this charge, and he is the the contrarian contrarian. He was the one, according to Axios, that led that cut of the fund size with Summit founder's fund, according to the reports, opposing him. Chamath Palihapitiya (00:55:37): I'll say the more important thing. which in Peter and I are the same we're the largest I'll piece in our funds. And so, you know, as the largest I'll piece in our funds, I think this is a no brainer decision. Number 2, Stripe basically takes a 50% haircut, which is the single best run most highly valued company in Silicon Valley. Again, that's going to eviscerate Jason Calacanis (00:55:58): -- Private company. Yeah. -- Chamath Palihapitiya (00:56:00): a lot of TVPI and a lot of people's portfolios, a lot of theoretical money that LPs were gonna get. I think the third thing is there is a person that went and filed a FOIAA request that UC Berkeley to get Sequoia's returns and it turns out that the best investor in the game quote unquote since Jason Calacanis (00:56:24): 2018 Chamath Palihapitiya (00:56:26): has not really done that well. And I think in the University of California, invested over $800,000,000 in Sequoia since 2018, and I think has returned, what, some 40,000,000 bucks on that number. And then the 4th which just came out today is that Tiger wrote down the value of their private book by Jason Calacanis (00:56:47): 33%. Chamath Palihapitiya (00:56:49): for 2022. And so, you know, I think Tiger's AUM basically has gone from a 100000000000 to 50,000,000,000. in a year. Jason Calacanis (00:56:56): There's one more note to add to that. YC basically let go of their growth team this week, Y Combinator, for people who didn't know how was called the continuity fund. They were doing late stage investing, and that got cut, which is a signal, and and the 17 employees are gone now. And Gary Tan, I think, is making the right decision. You know, they have to focus on what they're great at, which is the earliest stage of the company, and they had conflicts with this one. Chamath Palihapitiya (00:57:19): Look now. This is the most interesting thing for me in the following way. I think the y combinator unicorn hit rate is Jason Calacanis (00:57:27): 6%. Chamath Palihapitiya (00:57:28): Right? So every 100 companies that come out of YC, which costs only about $10,000,000 to seed, right? 6 of them become worth a $1,000,000,000 or more, and obviously, some become worth much, much more. And so if you see how difficult it is even for a growth fund that's attached to that funnel to be successful and make money. Because, obviously, if this thing was done in cash, you would not have cut it. I don't I don't think anybody would do that. So I think it was a very challenging strategy at a challenging moment in time. And so I applaud these guys for having the discipline to do it, but If you take them all in totality, it is a complicated place in venture capital and start up land. Holy macro. Like It's a reset. a, it's tough to make money. b, a lot of folks may not know exactly what they're doing. c, a bunch of valuations are totally wrong. and d, we're gonna have to start doing the cleanup work now of resetting all of it, which just takes years as you guys remember in 2000. It took us It took us 5 years to fix this. Jason Calacanis (00:58:29): Yeah. It's a hard reset. Saks, what what do you when you look at these in totality, what would you say? David Sacks (00:58:34): Well, I agree with what Shamazda said. I mean, it is gonna be a hard period with a lot of resets, a lot of restructuring, a lot of cap tables. There's a lot of mess to clean up. All of that being said, I think I'd rather be an investor today than an investor 2 years ago or 1 year ago because at least the valuations have correct it to some degree. And then also, we have this really interesting AI wave happening now, and there's a lot of opportunities to invest in that. new, you know, cycle. So at least there's like an interesting product cycle. It's getting me excited to go to work and see these new demos from all these different companies. Whereas, you know, you go back a year or 2 and just the product innovations didn't seem as world changing as it does now. So I think that as bad as things are, my guess is that the new vintages of VC are gonna be better than, you know, call it 2021 for sure. Chamath Palihapitiya (00:59:28): That's not gonna be a high bar. David Sacks (00:59:31): It's not a high bar, but still -- Well, Speaker 5 (00:59:32): I Jason Calacanis (00:59:33): that's the thing right now. David Sacks (00:59:34): Actually, Tamara Tamara, this is a contradiction. Jason Calacanis (00:59:36): -- Chamath Palihapitiya (00:59:36): trash. crush. David Sacks (00:59:37): This is the contradiction is that it felt better to be a VC in 2021. But in hindsight, we know that the vintage is gonna be not good Whereas Chamath Palihapitiya (00:59:47): today How many? David Sacks (00:59:47): Hold on. But today, it feels not great to be a VC, Speaker 5 (00:59:51): but I David Sacks (00:59:51): think the vintages will be a lot better. Chamath Palihapitiya (00:59:53): But anybody would tell you that at some point, you're gonna have to divorce yourself from emotion to be a reasonably good investor over long periods of time. How many data points do we need to realize that too many people were put into this game that may not have known what they were doing? And we're gonna have to go and work through all of those excesses. And I think it's just gonna take a lot of time. US Limited partners are in a really difficult spot. European investors I think are probably in a pretty difficult spot. There are a couple of bright bright points around the world of folks that are still optimistic and doing well. I think Middle East is 1. Southeast Asia is another. But other than those, it's just a whole group of folks that just have to get completely re underwritten from 1st principles. Even when you have an incredible platform like Sequoia, Jason Calacanis (01:00:44): 5 Chamath Palihapitiya (01:00:44): years of no returns on $800,000,000,000 for somebody like UC Berkeley What it really means without commenting on Sequoia's performance is that UC Berkeley is effectively out of business in being a limited partner for the foreseeable future. Jason Calacanis (01:00:58): Right? And I think that Chamath Palihapitiya (01:00:59): that has that has implications. So even if you think these vintages are great, I don't think they're open for business. And and frankly, even if they wanted to be open for business, how do you go to an IC when they look at all of the totality of those dollars that have not made anything do you justify the next Jason Calacanis (01:01:16): 800,000,000,000? I just think it's very hard. While I agree that LPs are out of it, I think the story was garbage because it all funds go through a j curve, and they're literally talking about the majority of the funds in that vintage, 2008, 2019, 2000 2021, they're all in literally the definition of the j curve, the 3rd 4th 5th year. Chamath Palihapitiya (01:01:33): One of the most important things you need to be able to do is measure How long does it take the delta t to Jason Calacanis (01:01:40): 90% Chamath Palihapitiya (01:01:41): of calling committed capital? And how long does it take the delta t to return 1 x DPI? I can tell you, Jason, if you're a reasonably good fund, those numbers should be between 5 7 years for both, Jason Calacanis (01:01:53): which none of those funds have hit. The average for a normal venture fund is around 5 to 7 Chamath Palihapitiya (01:01:57): years to call 90% of the capital and around 5 to 7 years to return 1 x DPI. I'm just telling you that's what the average is. And if you talk to firms. So all I'm saying is there is a period of time We're in the absence of getting money back. Again, this is not a Sequoia thing. It just means that there was an entire cohort and years of capital allocation that is not necessarily in a j curve, it's impaired. Because if after 5 years you've if after 5 years you've returned nothing, Sometimes you just have to see the writing on the wall. Jason Calacanis (01:02:35): Sacks, explain the j curve one more time for folks, and then what is your analysis of that Sequoia story. David Sacks (01:02:40): Well, the J curve, the theory behind it, is that when you start deploying a new fund, you're drawing fees down to pay for the firm, and the investments you've made have not been up yet. So the value of the fund is actually going down because some of it's getting eaten up in fees and you haven't really had a chance for any of those investments to be successful. And then what Jason Calacanis (01:03:00): happens -- -- happen early. Right? Speaker 5 (01:03:01): Well, I David Sacks (01:03:02): don't even know about that. I just I just think it's they haven't had a chance to get marked up. But then what happens is you start getting markups, and now at least on paper, the value and the fund goes up. And then, hopefully, those markups eventually turn into distributions or DPI like Chamath is talking about. Yeah. We have a vintage Jason Calacanis (01:03:18): 2017, 2018 David Sacks (01:03:19): fund that's actually fully returned at this point. Jason Calacanis (01:03:22): You exited some secondaries or acquisitions No. David Sacks (01:03:24): We just had some we just had some exits. But, look, I think that is a little bit on the early slash lucky side. But we haven't really seen much of the j because you know, you should be getting markups within 2 years, I think, on your investments if the companies are looking good. At least historically, that was the case Jason Calacanis (01:03:42): Friedberg, any any thoughts on this collection of stories with venture basically having the great venture reset? the end of the super cycle the beginning of the next. It's happening. Yeah. Okay. We're in the thick of it. David Sacks (01:03:56): But, by the way, I would just go back to the point that with all the problems Chamath is is talking about, the reset and the wipeout that needs to occur, I think this is still I think that's part of what makes this at better Jason Calacanis (01:04:08): time -- Absolutely. -- David Sacks (01:04:09): to be an investor. David Friedberg (01:04:10): This is what I'll say about that, Saks. I think I agree with you. I disconnect asset values and asset prices from fundamental business value being created So the market bid stuff up, prices went up. That doesn't really mean that businesses aren't fundamentally good, that there aren't amazing technology businesses being built today that are gonna affect billions of lives tomorrow. If you are tracking a public company stock, and you like the business. You spend time with management. You see what they're building. You see their revenue is growing. Their profits are growing. They're making great products. People are happy. with what they're doing. But the stock's really expensive. You don't wanna buy the stock. Suddenly, the stock drops by 80%. Nothing about the business has changed. It's just that the market is paying less to own shares in that company. That's a great time to buy that stock. I think that's the moment we're in in Silicon Valley. Everyone's like, oh my god. It's over. These things are terrible. Just because the asset prices of the shares in companies has gone down does not mean that the quality of the businesses has changed or that there isn't fundamental value being created in Silicon Valley. In fact, the contrary point to Saks's comment is that it is a great time to be buying these shares, and it is a great time to be investing And it is a great time because as we've talked about countless times, there are extraordinary technologies from AI to biotech becoming software to fusion, to novel applications with AI and SaaS, and on and on and on, many of the amazing things we've talked about that I think can and will affect many industries and billions of lives are being built today, and they're not gonna stop being built. And you can now buy the stock at 80% off. So, you know, if you're investing today and if you're a builder today, As long as the capital keeps flowing to support the building work, which I think to some degree, it will because there's still enough of it sitting there. You're not gonna have a lot of crazy growthy rounds with high prices and all the nonsense that went on the last couple of years. But there's certainly a lot of opportunity to create real business value And right now, an opportunity to buy shares pretty cheap and participate meaningfully in that value creation. Jason Calacanis (01:06:18): I'll tell you the thing I'm seeing on the field and, like, playing the game on the field is something we've been talking about for the last year. We started a program called founder Dot University, and it's basically, like, a 12 week course on, like, how to build your MVP. had 350 people joining the David Friedberg (01:06:32): last one. -- discount code people can use to Jason Calacanis (01:06:33): -- David Friedberg (01:06:33): This number is Jason Calacanis (01:06:34): discount code. It's it's it's free for founders, basically. If they if it's free for founders if they come to the 12 weeks. anyway, what I did was -- Go to w w w. No. It's stratterdot university because it's an extension. But oh, in the words of of Saks. Let me finish. Please let me finish. What we did was we just said anybody who gets to an MVP and it's 2 or 3 builder cofounders, we'll give them a 25 k check. And I did 20 or 30 of these 25 k checks in the last couple of months of just the founders right now who have been laid off by other companies, their dogged, pragmatic, absolutely customer centric product centric founders, whereas the last 5 years have been filled with theatrics and white papers and ICO's and just nonsense and absurd valuations in people wanting credit for work not done. And now people are actually building MVPs and they're dogged product driven founders, customer centric mission driven founders, and it feels to me like 2010 all over again. Chamath Palihapitiya (01:07:35): That first part is so said people wanted all this credit for work not done and for progress not achieved. That game is over. Jason Calacanis (01:07:44): finished. Finished. Which means if you are a product led CEO and you're a mission driven CEO who actually built something, you stand out so much in this ecosystem and have people begging for money sending me long emails and decks and total addressable market. I'm just like, can you just build a product and show me that you can actually deliver a product? And then we'll start the process of the rewards based system here. You know, the the the the reward based system in Silicon Valley is so magical when it works. You you get money from founder University or, you know, Techstars or Y Combinator, then go to a seed fund, then go to a Series A fund. that milestone based funding was so broken, and now it's back. And it's so functional when it's working. It's just the magic of Silicon Valley is when people work and get rewards, work and get rewards, and it just creates this great pace and dynamic that I'm glad to see. Just as we wrap here, everybody's been begging for a science corner. Enough about the chaos in the world. Everybody wants the Sultan of Science to tell us and educate us about something, and Saks needs to use the loo anyway. So let's do a science corner here. room temperature, superconductor. You sent me a link. I read the abstract of this paper, and I I don't know which language, I need to put this into Google translate, but I couldn't understand any of it. So please I literally read Speaker 7 (01:09:06): the abstract, and I was like, I I couldn't get through the first two sentences without Jason Calacanis (01:09:10): Have you -- Okay. -- start the resurgence. I'll start with just, David Friedberg (01:09:12): like, the simple explainer on superconductor. Please. You know, materials that conduct electricity are called conductors. So conductors electrons move through them like a copper wire. That's how electricity flows. and all conductors have some amount of resistance, meaning not all the electrons kind of flow through at a perfect rate, they bump into the atoms in the material in the wire, and they generate heat. You know, you've ever felt a wire while electricity is flowing through. It gets hot. Right? So that's because the conductor has some resistance. which means the electrons bump into the walls of the atoms in the material. They generate heat, and you lose electricity. You lose energy. You lose power. And so in 1911, it was discovered when mercury was reduced to a very, very cold temperature that there was a point at which the material conducted electricity with absolutely no resistance. So the electrons flowed through the material completely unbounding, un you know, not bouncing into the material, not generating any heat. And having no resistance mean you're losing no power in transmission of that electricity. But a number number of other super interesting effects occur. Number 1 is that magnetic fields now reflect off of that metal perfectly. So if you put a magnet, you ever see that image of a and, Nick, we could probably pull one up. In the YouTube video, we put a magnet on top of a superconductor. It actually floats. because the magnetic field like the north and the north push against each other and it floats up. So superconducting, materials kind of became this fascination in the early 20th century that, oh my god, if we can actually make materials that superconduct, there are all these amazing benefits. One of the benefits is you could have no loss in electricity being transmitted. David Friedberg (01:10:56): Today, 15% of power is lost in the transmission from the power station to your home. You could also do interesting things like create maglev or frictionless trains that float, you know, like magnets floating off the ground on top of a superconducting tract, And by having no friction, you could push the the train once, and you wouldn't need to use any energy to move it along. So you could have basically powerless transportation. you could have really powerful new microprocessors. So a superconductor microprocessor instead of a traditional semiconductor microprocessor, would use just 1% of the energy of a semiconductor microprocessor. Think about that. all the AI stuff we're talking about, all the chips that we're talking about, dropping the energy needs by Jason Calacanis (01:11:39): 99% David Friedberg (01:11:41): if those chips were made from superconducting material. And one of the more interesting applications of superconducting materials could be infinite battery storage, so you could take a superconductor, turn it into a coil, the electricity would just flow through it infinitely because it would never turn into heat. And then when you're ready for that power, you just plug in and you get the power out. The actual loss of energy in a superconductor battery to less than 5%. And that's compared with, you know, significantly more energy loss used in chemical systems, and you wouldn't need to kind of get all the materials that we're struggling to get now to generate batteries. So the idea of generating like superconductors in industrial scale has always been super interesting. Today, the way that we generate superconducting materials is we have to make a material super, super cold. In 1987, a physicist named Choo developed Jason Calacanis (01:12:24): 1 David Friedberg (01:12:25): of the first ceramic superconductors where they discovered a new way of generating super conductivity. It wasn't just taking a metal and cooling it down very, very cold because When you get it very, very cold, the atoms stop moving, and the electrons inside pair up, and it's called Cooper Pairing, and it flow through. And he said, we could actually do this with a hotter temperature And he demonstrated this in a ceramic ethereum barium copper oxide, super confusing name. But, basically, he took a bunch of materials and baked them in an oven, they turned into this really interesting material that became superconducting. And then the race was on. because what he did is he made a superconductor that could superconduct at the temperature of liquid nitrogen. and liquid nitrogen is really cheap. So we can just use it. That's actually how all MRI machines run today. If you have superconductors that reflect the magnetic fields in the soup in the MRI machine, and they're using liquid nitrogen to stay cool. And so there's a lot of industrial applications today that use superconducting materials using liquid nitrogen. But in order for us to do all the stuff I mentioned, like maglev trains and infinite battery storage and superconducting microprocessors, We have to get superconductors. We have to discover a material that can superconduct at room temperature. that we can sit with it in a computer on our desktop, or we can have it run on a railroad track, or, you know, we can put it in our backyard to store energy. And there's been this race, and there's all these different classes of materials that physicists and material scientists have spent decades trying to figure out what can superconduct at room temperature? We started with metals, you know, copper, and we tried carbon nano tubes and full grain tubes. We had all these different ceramics like like, was like I talked about, and there have been literally tens of 1000 of ceramics that people bake in ovens and try and see how superconducting they are. Basically, you take the material and you cool the temperature and you measure the resistance, and as soon as it hits super conductivity, boom. There's this magic moment where it drops to 0, and it becomes superconducting. and there's this big changeover effect. David Friedberg (01:14:18): So everyone's trying to find that temperature, which it can happen at room temperature. And people have found superconductivity on the surface of DNA and organic molecules, but you can't scale that. People have found, you know, super conductivity and all these weird kind of material on the surface of things. no one's ever been able to industrialize it. In Jason Calacanis (01:14:36): 2015, David Friedberg (01:14:36): there was a new kind of material called a hydride, which is basically taking a a thin metal and putting it in hydrogen gas and kind of baking it for for a couple of days, and the hydrogen sticks to the metal and then you would use this hydride as a new kind of conductor. And hydrides, it turned out, had really good superconducting potential. They would superconduct at room temperature, but they needed super high pressure. So you'd actually have to leave them and, like, something that's like hundreds of times the pressure of the atmosphere. And so that that's not really technically an industrially feasible either. So this guy named Ranga Diaz published a paper a couple weeks ago that got a ton of press and a ton of controversy. And basically, he said, look, I've got this new hydride. And it's I've got this really, you know, weird metal that no one ever talks about, and I've baked it with this with hydrogen gas. And this hydride can actually superconduct at, you know, room temperature and at only 1 gigapascale, which is still greater pressure than room temperature. But it basically starts to show on the chart of are we getting there? Can we actually get there that maybe we are. And so this paper was published in Nature a couple of weeks ago, and it got a ton of a a ton of coverage because everyone's like, oh my gosh. The problem is this particular individual you know, the the the lead, the researcher, Ron Gandias on the on the paper, he's pretty controversial. because he made a room temperature superconducting claim back in Jason Calacanis (01:16:05): 2020 David Friedberg (01:16:05): in a paper he published in nature. And after he made that that claim, A lot of scientists tried to replicate what he did, and they were not able to. And then the the journal retracted his paper. And he had a method that he took data noise out of the measurement system he was using. And the way that he took the data noise out, people said, actually skewed the results and made it look like it was superconducting when maybe it wasn't. And he actually had a a talk that he did that you that was published on YouTube a year later where he said he raised $20,000,000 from Sam Altman and Daniel Ek and a bunch of other investors. And it turns out that also wasn't true. And then he came back and said, well, I didn't actually raise the money. I was talking with them about raising the money. So this guy's kind of a sketchy character in the space, but the temperature at which he was able to generate or claims to have generated, and he did get peer review and did get published. superconductors is at room temperature. It's at slightly high pressure. But if it's real and it does get repeated, It's one of the next steps that we're almost gonna be getting to this point of true room temperature superconducting materials. And then this whole industry will blow up. transmission lines, battery storage, maglev trains, superconducting microprocessors. You know, many new industries can and will emerge. from this material discovery if it's proven to be real. So, you know, it's a super interesting storyline. A lot of people in the material science world and scientists chemists, physicists are kinda going crazy about this. And there was a a survey done by Quantum Magazine and half the scientists were like, this is bullshit, and the other half was like, this is gonna change the world. So we don't really know yet where this is all gonna settle out, but I thought it was worth kind of talking about and bringing it up. Because if room temperature superconductivity is really realized in the next decade, it's another one of these kind of black swan technology discoveries. that we none of us are thinking about right now, but it totally transforms all these markets and very quickly kind of increases like we were talking about earlier productivity, makes renewable energy super, super cheap, makes computing power 99% less power intensive. AI chips will explode using this technology. So A lot of super interesting applications if room temperature superconnectivity comes to light. David Friedberg (01:18:12): Super interesting story. I thought we should share it and talk about Jason Calacanis (01:18:14): -- Yeah. Chamath I would love to get your insights on it, and then Saks, I would like to understand how many emails and what you ordered from Uber Eats during that segment. Go ahead, ma. Chamath Palihapitiya (01:18:23): Vankot Viswanathan, who runs the battery group at Carnegie Mellon introduced me to Runga 2 years ago. Me and my partner, Jay, we were like, holy shit. This is outrageous. and we tried to spin it out into a natural company, but the University of Rochester blocked it. And so we've been following this guy for 2 years and all the trials and tribulations, but it's a really, really exciting thing if it does come Jason Calacanis (01:18:49): to us. You got capital blocked explain why you would get capital blocked in a situation like that. Why why wouldn't they allow you to spin it up? Chamath Palihapitiya (01:18:55): It is interesting because, like, typically, universities have tech transfer office, and you can do these deals pretty cleanly. So, you know, when you go to Stanford, the tech transfer office is quite sophisticated. At MIT, it's quite sophisticated. There are these pretty standardized deals and and roll the percentages. Jason Calacanis (01:19:09): What's what is the standard deal? Explain to the audience how a tech transfer deal would work, and how does the university make money from it? Chamath Palihapitiya (01:19:16): If you're a prof and you invent something or even if you're a student, it's technically owned by the school. And so if you want to commercialize it, you go to them and you basically say, Here's a capital partner of mine, and we want to go and start a company around it. And what they will normally say is, okay, great. Give us a piece of equity and give us some royalty in some cases depending on how much. Especially the equity tends to be in the mid single digit percentages. The royalties tend to be in the mid single digit percentages. It Jason Calacanis (01:19:43): 5% -- Speaker 5 (01:19:43): Okay. Chamath Palihapitiya (01:19:44): Yeah. Call it 5, 5, 6, 7%. But it can be a lot when you think about a, you know, a school like Stanford who's spinning out hundreds of these things a year, But if you're a school that doesn't historically do a lot of tech transfer or has a lot of cutting edge r and d, you wouldn't have that team. And so Rochester didn't necessarily have it. Now look, Runga's probably getting bombarded by the other people who'll pay ten times more than what I was trying to pay 18 months ago. It's a really interesting thing, and I think there'll be some there'll be some -- What's Jason Calacanis (01:20:15): the rate? Does anybody know? what the top tech transfers of all time were? Like, was Google a tech transfer or Friedberg? Do you know? Like -- Yeah. -- because Trade Track was out of the what it's there Chamath Palihapitiya (01:20:25): for a day. No. Yeah. Larry and Larry and Sergey gave Stanford, I think, Jason Calacanis (01:20:28): 1%. -- David Friedberg (01:20:29): gave Stanford. Yeah. They gave him a percent. Yeah. Warrick's really good about that, though. Because back Chamath Palihapitiya (01:20:35): rub because back rub is written while Larry was a PhD there. So, technically, they you know, they had some part of it. Jason Calacanis (01:20:41): Carnegie Mellon ranked as top tech transfer university, I'm just seeing here in terms of the rankings, University of Florida, Columbia, Stanford, Harvard. David Friedberg (01:20:49): It varies so much. Some of them are terrible. Like and and some of them are cronyism. So, like, you go to some of the universities and the tech transfer offices have deep relationships with certain and investors that they'll only work with. And they always get first picks and first tips, and they're super tight with them. They don't run a real market process. And then some tech transfer offices just give away the the farm for nothing. And then some tech transfer offices think that they own it and they should get paid 60 percent royalties for the thing. it's all over the map, and some of them are sophisticated and some of them are not. So it it's it's actually quite surprising, JCal, how different all the universities are in terms of their level of sophistication and the types of deals they'll do. But I will say this work in superconducting research It's another good example going up to going back to the point a couple episodes ago about the importance of fundamental research and the importance of you know, the support from academic institutions and governments and other aspects when you're still not sure what the technology is that to do that fundamental discovery work, I think, is a good collective social benefit. And then to industrialize it and commercialize it requires, I think, a market based approach which is you take that capability, try and build a business, find customers, make money. And that's really how you get it to be funded, to be scaled because you're never gonna you shouldn't have to know, government and academic money behind that sort of effort, but private market participants should. And so, you know, it it's interesting. I mean, I think I'm not holding my breath. I've been you know, I I did a science project in 1993 when I was probably twelve or thirteen years old. on superconductors. And I got a yttrium barium copper oxide disk, and I got some liquid nitrogen from UCLA, and I poured it on the disk, and I floated a magnet above it. And I had poster board and a computer presentation back then, and I was super enthralled about the future of Supercnuggets. And exactly what I said today is what I said back in Jason Calacanis (01:22:40): 1993. David Friedberg (01:22:41): So, you know, 30 years ago, it was so busy dating. Chamath Palihapitiya (01:22:43): I didn't think you had time for superconductor experiments. David Friedberg (01:22:46): Yeah. Look. I don't think I don't think that this stuff has really it it's been a it's been like fusion. It's always been a promise around the corner. Physicists have always had hope. We've taken incremental steps towards it. But it's always felt like one of those things where you're always getting 50% closer to the wall. It's like you're never actually reaching the wall. And so Jason Calacanis (01:23:03): -- David Friedberg (01:23:04): Addictorian. -- 1? Yeah. By the way, I will say one area that that that a lot of people think holds a lot of promise for superconducting research is in quantum computing because you can actually model on a molecular level, what might be going on. Right now, the BCS theory is the theory on coopering that happens in ceramics. It's the only way that we really understand how superconducting actually works why it works, why there's no resistance at certain temperatures for certain types of materials. For most materials, we have no frigging clue why it happens. We don't understand the physics of it. There's something going on on a quantum mechanical level that we just don't get. And so if we could understand it better through quantum modeling using quantum computers, all of a sudden, we may be able to actually start to come up with ideas for molecules and crystal structure that would allow us to make superconducting material that we simply don't have enough time in our lifetime to run all the experiments in a lab today, and we can simulate it. And so that's why quantum computing could play a real role in advancing our ability to do discovery in superconducting materials And like I talked about, these are, like, not just 1, but, like, 2 or 3 order of magnitude improvements in the efficiency of certain systems of industry on earth today. So it shows how the compounding benefits of technology and things you cannot see around the corner can suddenly cause these explosive growth moments in technology in an industry. I don't know what when quantum computing gets here. When it gets here, it might discover superconducting. And then when that gets discovered, boom, energy cost dropped by 99%. Computing goes up by a 100 fold. So there's these amazing things that are still, like, in front of us that each one of which could be, you know, really great exponential triggering events. And we're we're seeing a little milestone today, but, yeah, Chamath Palihapitiya (01:24:33): I don't know. Sachs reaction? David Sacks (01:24:37): Sounds good. Jason Calacanis (01:24:39): Sacks, how many moves did you play in your 12? chess games with -- Did you read a David Sacks (01:24:45): little -- -- guys. I love what Jason Calacanis (01:24:46): FreeBird was talking about superconducting points did you go up? Alright. David Sacks (01:24:49): Look. I got shit snook Jason Calacanis (01:24:50): a while. Speaker 5 (01:24:50): Let's go. Jason Calacanis (01:24:53): Oh, Saxx. Alright. Listen. This has been a great episode. Hey, Saxx thanks for the best of you. Chamath Palihapitiya (01:24:57): Comment on the Atlantic article that says Ron DeSantis has peaked already? Speaker 5 (01:25:03): Don't Where'd you say that? Jason Calacanis (01:25:04): Uh-oh. In the Atlantic. Don't do it. Don't do it. Why you gotta troll them? David Sacks (01:25:07): It shows 90 minutes. -- see that, but it's in the Atlantic. you wanna know why the Atlantic suddenly has turned on him? It's because they're the biggest backers of the war. They those guys have all these, like, Neocons over there. And so he gave a statement saying that, you know, our support for Ukraine shouldn't be a blank check and some other comments expressing let's say, skepticism of what we're doing over there. And that was totally unacceptable to them. So all these neo cons are registering disappointment. But I would argue that's a electoral asset, not a liability. Jason Calacanis (01:25:39): I have a prediction given what's going on with these banks and what's going on in this kind of a I think we all agree. The soft landing concept is over. We're gonna be in a recession. The war is going to end there because we're not funding this, an American the American public is not gonna wanna see tens of 1,000,000,000 of dollars going to Ukraine, and to to fund this war in year 2 or 3 -- David Sacks (01:26:00): Hundreds of billions. Jason Calacanis (01:26:01): Well, I'm just saying every month. Yeah. David Sacks (01:26:03): I know the spending run rate of this war is actually greater than what we did in Afghanistan. and Afghanistan ended up being a 20 year multi Jason Calacanis (01:26:11): $1,000,000,000,000 David Sacks (01:26:12): operation that just flushed all that money down the drain. So yeah. I mean -- Are Speaker 5 (01:26:16): you serious Chamath Palihapitiya (01:26:17): we're in a greater run rate than Afghanistan? Yeah. Jason Calacanis (01:26:20): Do we know what the monthly run rate is for this? Oh my god. How is it possible? -- pay us back David Sacks (01:26:24): we've appropriated over a 130,000,000,000, Shamoff. And Afghanistan, we spent 2,000,000,000,000 over 20 years. So it's a 100,000,000,000 a year run rate. Jason Calacanis (01:26:32): Yeah. This is -- David Sacks (01:26:33): Think about what a monumental waste of money that was. And now look at the financial crisis we're in. Can you imagine if we could have 2,000,000,000,000 back I mean, all these trillions David Friedberg (01:26:41): that we just squandered -- Instantly. Jason Calacanis (01:26:42): We would take Speaker 5 (01:26:43): that back David Sacks (01:26:43): to system. -- and trillions we squandered on stuff that didn't matter. And now we're paying the price for it, Jason Calacanis (01:26:48): That could be education. It could be universal health care. It could be paying down the debt. How David Sacks (01:26:52): about paying down the debts? We remember all this inflation. Jason Calacanis (01:26:54): Exactly. Let's think logically here the number one issue for this country in the next election. I am with Friedberg, his great prediction from the year end show. is we need a president, and we need an administration that is fiscally responsible and controls the balance sheet. in a logical fashion, like the last 2 administrations have not seen capable of doing. I am with Friedberg, single issue voter, balance the budget, get spending under control. austerity measures, hashtag. Alright. 4, the Sultan of Science. Chamath Palihapitiya (01:27:23): Sorry. What's that? Can you repeat that? Jason Calacanis (01:27:26): What I wanted to say, Jamal, is there are there any plugs for the remaining part David Friedberg (01:27:30): of the episode? Mister Beast is curing blindness and buying people shoes. Has he been canceled yet? Zach, aren't you excited about superconductors and the benefit for AI and energy storage and energy costs and humanity? Chamath Palihapitiya (01:27:43): Yeah. What does it do to burn rate of a SASCO? David Sacks (01:27:45): But I'm not I'm not, like, an expert at assessing, like, hard science or hard I mean, I'm a software investor. David Friedberg (01:27:51): I'm just a simple man. I'm just a software investor. Jason Calacanis (01:27:54): Alright, everybody. For the rain man himself, David Sacks, the dictator, Shamoff, Palihapitiya, and the sultan of science, the prince of panic attacks know more. Mister David Friedberg, I'm the world's greatest moderator, undisputed. Congratulations everybody. on another successful episode. And Friedberg, when are we locking in the date for all in summit 2023? My replies, my DMs are filled. People wanna know. Do you have the date? Sue and David Friedberg (01:28:21): Sue. We had a parking issue where they don't want us parking there. So as soon Speaker 5 (01:28:25): as we get them here Jason Calacanis (01:28:25): -- We don't need to park there. David Friedberg (01:28:26): Everybody -- That's what we told now they've gone back to their committee to get approval for us doing it without parking and just doing shit over Jason Calacanis (01:28:32): or walking. Shout all Uber Resort people. So yeah. Uber. Uber. Uber. Let's get that information. Hopefully, David Friedberg (01:28:37): If they accept it, then we are okay. Chamath Palihapitiya (01:28:39): How many shuttles do we have to take to Uranus? David Friedberg (01:28:42): Yo. Yeah. Exactly. How am I the prince of panic attacks? I think you're the king of caps lock. at this point. Jason Calacanis (01:28:48): They were calling me Speaker 7 (01:28:49): J caps. J caps was the best one David Friedberg (01:28:51): I heard. Talking about panic attacks. J cal this weekend, man. Panicking. Panicking. Jason Calacanis (01:28:55): I I was in sheer terror. sheer terror. I have literally gotten rid of the caps lock. Everybody relax. You can follow me twitter .com slash Jason. We'll see you all next time. Bye bye. David Sacks (01:29:04): Bye bye. Speaker 5 (01:29:06): Select your winter's ride. Rainman, David Saffens. Speaker 6 (01:29:14): We open source it to the fans, and they've just gone crazy lately. Speaker 5 (01:29:23): like, white hair winter's lying. Besties are gone. Oh, thirteen. That is why a dog came man. Oh, man. Chamath Palihapitiya (01:29:35): I might have a casual media analyst. Speaker 5 (01:29:37): We should all just get a room and have one big huge order because they're all these useless. It's like this, like, sexual tension that we just need to release them out. What? You're the big b. What? Your feet. What? Jason Calacanis (01:29:50): Where did you get Merckies are back?