宏观更新、美联储加息、商业地产债务泡沫、巴拉吉的比特币豪赌、TikTok 终局

Chamath Palihapitiya (00:00:00): What are you eating Friedberg? Is that buffalo jerky? Jason Calacanis (00:00:02): What is that? David Friedberg (00:00:02): It's a red pepper. Jason Calacanis (00:00:03): It is not the Boltong -- I David Friedberg (00:00:04): didn't have time for lunch. I got I got pistachios. and I got a right jumper. Jason Calacanis (00:00:08): Oh, wait. Wait. Look at this. Fuck. Chamath Palihapitiya (00:00:10): Hey. Let's see. Are these the best pistachios? They're the best. David Friedberg (00:00:16): Salt Salt and vinegar. Yeah. Jason Calacanis (00:00:18): It's the best. -- vinegar. Yeah. Yeah. David Friedberg (00:00:19): They're the best. Jason Calacanis (00:00:19): Are those unpubiled pistachios? These guys are so rich People peel their nuts. Chamath Palihapitiya (00:00:25): People have been peeling my nuts since the Facebook IPO. David Friedberg (00:00:29): Oh, yeah. David Sacks (00:00:31): When winterwide. Jason Calacanis (00:00:33): Rainman, David, Saturday. And I said -- We David Sacks (00:00:38): open Hey, everybody. Jason Calacanis (00:00:46): Welcome to episode Chamath Palihapitiya (00:00:47): 121. Jason Calacanis (00:00:49): of the world's greatest podcast, the all in podcast with me again. Of course, the dictator himself Chamaov Palihapitiya, the Sultan of Science, David Friedberg and the rain man himself. Yeah. Definitely. David Sacks. gentlemen. Chamath Palihapitiya (00:01:06): How are we doing? The world's greatest genuflector. Oh, strike. Right. Right. Right. Jason Calacanis (00:01:10): The world's greatest moderator is here. Oh, this you guys, I gotta tell you something. The grift is on. a lot of corporate gigs for me to moderate. I don't even have to prepare. I just show up and moderate. Chamath Palihapitiya (00:01:22): So great. What is an example of such a such a gig? Jason Calacanis (00:01:25): There's a lot of corporations and conferences that pay a pretty penny to have the world's greatest moderator come and interview people. Chamath Palihapitiya (00:01:32): This is like the used CAR Parts Association of America, Jason Calacanis (00:01:35): having a -- It'll be like I did one with, like, a 1000 litigators at an attorney conference for, like, the SaaS software they all use. And it was a wonderful far side. You know? It's just great. This is like the Graft deserved. No ads. David Sacks (00:01:47): Do you have to fly commercial? Where do they fly private? Jason Calacanis (00:01:50): It's commercial at this point. Yeah. What does your what Chamath Palihapitiya (00:01:53): does your writer say? What kind of do you want do do you ask for spice salted macadamia nuts Jason Calacanis (00:01:57): or lobster? I do not have them peel my nuts. No. What I do is I blend the travel cost into the speaking fee, and then nobody knows when I'm in or out, what hotel I'm staying at or whatever. But Basically, I'm back on the road, folks. I'm back David Sacks (00:02:11): on the road. Do you get, you know -- No. Chamath Palihapitiya (00:02:14): No. No. What he's saying is no. What he's saying is he gets a $25100 travel budget. And instead, he comes the day of and leaves the day of saving and netting himself an extra 25100. Well, Jason Calacanis (00:02:26): you know, you can optimize. If you're saying optimize, I did use I had you know, during COVID, I I racked up a 1000000 and a half, 2000000 of these United points, and I have just been grinding those United points down. So shout out to United. and the pandemic. Alright. Just a lot of news. David Sacks (00:02:41): You say you're right, Shamont. It's even worse than that. David Friedberg (00:02:43): Stephen worse Jason Calacanis (00:02:44): than that. Chamath Palihapitiya (00:02:44): -- David Sacks (00:02:44): for travel when he's not even paying anything. Chamath Palihapitiya (00:02:46): Maybe Jason's part maybe Jason's part part of the part of the grifters using the Cash App to commit fraud and murder. Jason Calacanis (00:02:53): The Lord I mean, that Hindenburg reported I mean, it's a work of art, but we gotta start with the Fed hiking rates by 25 basis points And the general feeling in the country that maybe the Fed doesn't know what they're doing And maybe it's time for regime change. The Fed increased rates by 25 basis points yesterday, Wednesday, So the Fed has increased the federal funds rate from nearly 0 in March of Chamath Palihapitiya (00:03:22): 2022 Jason Calacanis (00:03:24): to now the range of 4.75 to 5%, fastest rate hike. Since the seventies, speculation the Fed might pause rate hikes or even cut due to the recent banking failures didn't happen. So if you bet that they were gonna pause, you were wrong. If you bet they were gonna cut, you were also wrong. But the market has ripped a bit a day after, which people are trying to figure out in the group chats. Doesn't seem like anybody has. a theory here. But let's start with Saks. Maybe an explainer a little bit on how the Fed works. There's a board there. People serve a 14 year term. I guess they replace somebody every Chamath Palihapitiya (00:04:07): 2 Jason Calacanis (00:04:08): years. and Jerome Powell was placed in 2018 by Trump. And I guess there's a lot of hand wringing now that they were late on inflation, obviously. And then they went too fast, and maybe now they're not slowing down enough. So what's your take on it objectively sucks? Putting aside partisanship and you know, for this administration versus that administration, just objectively, do they know what they're doing and how could they do a better job? David Sacks (00:04:38): No. I don't think they know what they're doing. clearly reacted way too late to the inflation. We've talked about this before. We had that surprise inflation print in the summer of Chamath Palihapitiya (00:04:46): 2021, 5.1% David Sacks (00:04:48): They said it was transitory. They didn't react until November. They continued Kiwi for another 6 months. And they suddenly got hawkish November of Chamath Palihapitiya (00:04:57): 2021, David Sacks (00:04:58): and they didn't even start the 1st rate increase until March of 2022. So they were really asleep at the wheel and late to react to the inflation by about 9 months. Now I think they're potentially making the opposite decision, which is they are late to recognize what stress and distress the economy is under right now. And Powell had there there was 3 choices they could have made at this meeting. They could have raised rates, which is what they did. they could have cut rates, which they didn't, or they could have done nothing. They see held Pat. And the argument for raising rates is just that while we have this inflation problem, we need to keep raising interest rates until the rates are above inflation, and that will bring inflation down then you can start to lower rates. That's sort of the conventional view. I think the problem with that view is it ignores that we've just seen a run of bank failures and there's tremendous stress building up in the banking system from unrealized losses on long dated bonds. Also, unrealized losses on commercial real estate loans. And we've barely scratched the surface of seeing that problem. That's I think the next shoe to drop in this whole thing. So I think that the right decision here was to either cut rates or to stand pat, you may have seen that Elon said, listen, we should be cutting rates here. There's way too much latency in this inflation data the economy is seizing up and we don't need to be raising rates right now. We actually need to be cutting them. I think that probably if or me looking at the upside downside of these decisions, I probably would have just stood Pat because, again, we've just seen this banking crisis. Why won't you just wait 1 month to see, maybe there is latency in the inflation data. Maybe that banking crisis is not over. Why won't you just stand pat for 1 month You can always raise rates in a month. David Sacks (00:06:47): I think that this move here could in hindsight be seen as the straw that breaks the camel's back. Jason Calacanis (00:06:53): Chamath, would you have paused and waited to see another card and then watch the hand developed? Or do you think they're doing the right thing by raising, or should they have cut? Chamath Palihapitiya (00:07:02): I think they did the worst thing possible, which is they took the middle path. If you think about what the fed has the ability to do. They obviously have the ability to raise and lower interest rates, but what we don't talk about is they have a balance sheet that can absorb assets. For the last 10 or 15 years, we've had a phenomenon called quantitative easing and for folks that have don't understand what that means. That is essentially the Federal Reserve buying assets out of the market and giving people money for it so that that people can then go and buy other things with that money. Last June, they started what's called quantitative tightening. which is essentially reversing that policy and restricting the liquidity in the system. So If you look at those tools and you sort of play a game tree on what the Fed could have done, I think that you have 2 choices. One is you massively let inflation run amok where you have no tools to fix or you have massive illiquidity in the financial system, but you actually do have tools to fix that which through some combination of quantitative easing and tightening depending on how much liquidity you want in the system. So I think, actually, I disagree with Sachs. I think they should have done the opposite. They should have raised 50 bps. It would have created a little bit more chaos in the short term. But it would have set us up to understand what was fundamentally broken and still give the Federal Reserve the ability to use their balance sheet and use liquidity in the future to solve the problem. They took the worst option. which is neither did they cut nor did they raise enough. And so this problem that Saks represents actually is the fundamental problem now, which is you won't have enough clarity and signal to really know whether this 25 basis point enough. Look, I've maintained now for 9 months, that rates are gonna be long, higher than we like, and longer than we want. And so I think it's high time that we acknowledge that we have a sticky inflation problem whose back we have to break. We've known since Volker era what we need to do to do that. Chamath Palihapitiya (00:09:26): which is you need to get interest rates to be greater than terminal inflation. Which means that a 5% fed funds rate is insufficient. So we're gonna need to see a print of 5 a half, 5.75%, and that's when you're gonna have enough contraction, and then the Fed can come back liquidity. But if they don't take these steps, we're gonna be in this very choppy neither here nor their situation And I think that is what causes the real damage because it's the corrosive effects of uncertainty in what that does to lending, to risk taking, and that I think is really bad for the economy. Jason Calacanis (00:10:04): Friedberg, where do you land? We have Saks saying they should have stood Pat. We got Schmott saying either go hard. take the medicine. David Friedberg (00:10:11): I don't know. I'm not, like, an economist on judging the balance that they're trying to weigh right now. Jason Calacanis (00:10:19): I think Everyone's David Friedberg (00:10:21): got a different you you can hear a cacophony of opinions on this one. What I'm more interested in is You know, we talk a lot about the banking crisis underway, and I know we're gonna talk about this question on commercial real estate in a minute. But if you look at the yield on the 10 year treasury, I think, coming out of this past 2 weeks, you know, the yield on the 10 year treasury dropped from 4.1% down to looks like it closed at 3 point 4% today, nearly a point Chamath Palihapitiya (00:10:52): 7% David Friedberg (00:10:54): decline in the past two and a half, three weeks. And that's also off of 3.8% since the start of the year. And remember when we talked about the impact on asset values at banks, I think if you look holistically at the roughly $7,000,000,000,000 of assets held at banks, some you know, whatever the the the set of banks that are that we looked at, the average kind of equity ratio is about 15%. So, you know, a Chamath Palihapitiya (00:11:23): 2% David Friedberg (00:11:25): or sorry, a 3% adjustment over 10 years on the treasury impacts the value of a chunk of that portfolio down 25%, which starts to put you into dangerous territory, and there's obviously a distribution of what that does to certain banks that are overweight, you know, 10 year bonds, whether they're loan obligations on mortgages or treasuries for corporate bonds or real estate bonds or real estate debt. And so the more encouraging point that I think we should pay attention to, is, does the market tell us that these short term rate actions are driving down the long the medium and longer term rates in a way that will improve the balance sheets of all these institutions that own a lot of this debt. particularly the banks and and funds and so on. And, you know, I'll do the the math here real quick. But just in the last 2 weeks, the impact on the 10 year treasury has probably had a pretty sizable impact. You know, we talk about unrealized losses. It's reduced those unrealized losses. It's improved them. So I think that that's, like, the more important metric to be tracking is, you know, if you look at all the assets that we're all worried about right now, Are they going up in value or down in value in a way that introduces more stability into these kind of banking systems that we care about? And I think right now, it looks like maybe things are improving, and that might be part of the optimism around, you know, equity markets and folks buying and so on. Jason Calacanis (00:12:50): Yeah. And so this is, I guess, where people have started to talk about the next shoe to drop, we obviously had this time based Liquidity issues with Silicon Valley Bank. Now the Wall Street Journal is talking about commercial real estate and how much debt there is. Since COVID, obviously, People are doing more remote work. A lot of the skyscrapers is not just San Francisco, but in many locations remain empty or underutilized. People are now having their leases come up. Every year, more and more of these leases will become vacant, and then we'll see if These buildings are worth what people paid for them. Smaller banks hold around 2,300,000,000,000 in commercial and real estate debt, including rental, apartment mortgages, Almost 80% of commercial mortgages are held by banks according to this Wall Street Journal story. Saks, you are an owner of some commercial real estate and you play in the space. You have a lot of firsthand knowledge. What what is your putting aside your personal holdings or exposure What is your take on what you're seeing? What is the game on the field right now in terms of commercial real estate in San Francisco and beyond? David Sacks (00:13:58): Well, if you talk to the commercial real estate guys, they'll tell you that the situation is dire. Dyer. There's 2 dire. The there's 2 problems. First, there's a credit crunch going on. So there's just no credit available. If you're a commercial real estate developer and you have a building and you wanna refinance your construction loan or put long term debt on a building, you just can't do it. I mean, the banks are not open for business. They literally don't want the business. And I think that comes back to the fact that banks right now are hunkered down in an offensive posture. They're seeing deposits flee from their banks. unless, of course, you're one of the top Chamath Palihapitiya (00:14:34): 4. Jason Calacanis (00:14:35): Does that does that freeze on the banks predate the Silicon Valley bank crisis and it was exacerbated. Were were people having a hard time getting loans before that? David Sacks (00:14:44): It predates it, but definitely what you're see what you saw with SVB and these other banks. including Credit Suisse is that, you know, banks now are getting much more paranoid. And that's why you saw that if you look at the the discount window, which is when the banks go to the fed as lender of last resorts and basically post collateral to get liquidity. We had the biggest spike in discount window borrowing since the 2008 financial crisis. yeah, that line on the right side, that is that is a spike in 1 week's boring. This exceeds anything that happened in 2008. the warning sign should be flashing red over something like this. Now to bring it back Jason Calacanis (00:15:25): to Bush -- That's banks who have real estate exposure going to the fed, going to the government saying, hey. Can we get some money to cover these? David Sacks (00:15:33): It's not specifically about real estate. It's more about bank liquidity. The banks are saying, we don't have enough liquidity right now to cover our needs, which are highly volatile right now because basically depositors are moving out of community, and regional, and small banks into the big 4 so called systemically important or SIB banks. So what's happening is that, again, banks are hunkering down. They're getting very defensive. They do not wanna make new loans. because they can't tie up assets. They are trying to stay liquid themselves. So that's what's happening now in sort of with respect to new lending. And then on the other side of it, you have existing loan portfolios. There's something like $20,000,000,000,000 of commercial real estate debt And most commercial real estate lending is done by small banks, by community banks. So they are sitting on these huge CRE loan portfolios. And I think something like Chamath Palihapitiya (00:16:29): 300,000,000,000 David Sacks (00:16:31): needs to be refinanced or is coming due in the next year. Normally, that's rolled over and refinanced. there was separately there was a study showing that unrealized losses in these loan portfolios in the banking system may be around $2,000,000,000,000. It was a study that was reported on by The Wall Street Journal. So in the same way that we had huge unrealized losses in these long dated bonds, I think we also have Jason Calacanis (00:16:54): at Silicon Valley Bank specifically. That's where we Chamath Palihapitiya (00:16:56): -- David Sacks (00:16:56): They were the worst offender, but it's a it's a systemic problem. I think, similarly, we have huge unrealized losses in commercial real estate loan portfolios. And this is, I think, even a more subtle and pernicious problem because with securities like t bills or mortgage bonds, it's very easy to know what the unrealized losses are. The reason why they hadn't realized losses was not because they didn't know what they were, it was because of a stupid accounting rule that said they didn't have to realize the losses if they're we're, quote, unquote holding them to maturity. With these loan portfolios, we don't know how big the exposure is, and we won't know until you start seeing some defaults and repricings of assets, and you actually Jason Calacanis (00:17:38): see real estate is a much more dynamic market. Right? You have to have a buyer there You have leases. You have leases coming off at different times. You have subleases occurring, and you have the owners of them flipping them, right, and and refinancing them constantly to buy new buildings. And so Right. David Sacks (00:17:54): And and and those loans aren't as liquid. Right? With a mortgage bond, those are basically a bunch of loans mortgage mortgages typically that have been packaged up and turned into Chamath Palihapitiya (00:18:04): -- David Sacks (00:18:04): Mhmm. Chamath Palihapitiya (00:18:04): -- David Sacks (00:18:04): a security and there's a liquid marketplace to trade them. In the case of these loan portfolios, there may not be a liquid marketplace. So you don't really know how impaired that loan portfolio is until you actually get to a place where Jason Calacanis (00:18:17): When will we know? What because that that's the thing I'm wondering. We I saw a lot of headlines. You know, Pinterest bought themselves out of their new headquarters in the Bay Area, San Francisco I believe specifically. I heard Facebook got rid of a couple $1,000,000,000 in wrote down, some expansion. Amazon is selling buildings. They had gotten a ton of buildings that we saw last week. They got rid of another 9000. Are they planning another 9000 in a roof? And they can't get people to come back to the office. So how bad is the overbuild, I guess, is the question because that will be the driver of the value of these buildings. because if there's too much supply, then what are these buildings actually worth? Are they worth $19 a square foot? What if there's no what if Amazon doesn't want more Chamath Palihapitiya (00:18:57): You can see it in the credit default spreads of these banks. It's in the water table already, so you can Nick, you can just throw it up. If you look at any bank that's lending, and that has a portfolio. This is Deutsche Bank's, you know, euro denominated CDS. But it's the same for Barclays. It's the same for SocGen. It's the same for a bunch of American Banks, there is a risk in the system that Saks articulated that is now getting priced in. There are all kinds of loans whose payments which the banks need cannot necessarily be insured, which means that then There could be illiquidity there. There could be a flow of deposits out from those banks which would then make their ability to pay their debt holders lower. You also have this complicated issue already where it's really like the first time in a long, long, long time where Debt holders actually got wiped out in the Credit Suisse debacle before the equity holders did. And that's created all kinds of ripple effects. So this credit bubble is here and it's being manifested right now in these very sophisticated parts of the market. And eventually they'll ripple to the broader economy at large. But how a person feels this is they're not gonna be able to get a car loan or a mortgage or the interest rates they pay will go up. And then how bondholders will react to all of this stuff is they'll just start to find different assets probably the front end of the curve, money market, cash, gold, and they'll just abandon all these assets. And then the other problem is that it's just really, really bad for risk assets. So the things that we invested Startups, Jason Calacanis (00:20:45): technology companies in? Chamath Palihapitiya (00:20:46): Either in a world that's inflation run amok because the Fed isn't hiking fast enough. which just destroys future cash flows or in a world where the fed pivots in a moment like this. And, Nick, you can show the second chart. both result in the same outcome, which is that you just see these massive drawdowns in the value of risk assets. So Weren't a really complicated moment and this is why I think again the Fed needed to take leadership this past week and actually do the hard work of either cutting 50 bps or raising 50 bps And this middle path is the absolute worst path because trying to thread a needle in this complicated economy I think is just going to be impossible And then what happens is then the markets move around them. Right? The markets have completely said we now discredit what you did and they're basically banking that the Fed will be forced to cut rates massively in short course because the crisis will be so severe that it'll outweigh the risk of inflation. Think about that. Jason Calacanis (00:21:58): Yeah. So All of this real estate comes on the market. There's no buyers for it. The mortgages are due. Does that mean a commercial real estate owner just basically gets foreclosed on and they hand the keys back to the bank or the banks as this Wall Street Journal story was sort of alluding to that the fed will say, you know what? We'll just extend. We'll backstop this real estate, which happened in the last bubble, and we hope that over time, it works itself out and demand returns. Now, of course, that's different than a post COVID world. So this time could be different. What happens in the case of Chamath Palihapitiya (00:22:34): 2024, 2025, Jason Calacanis (00:22:36): all of these office spaces are returned, and the keys are handed back? David Sacks (00:22:40): Yeah. So okay. So so, Jason, you asked a question like, how how does this problem manifest? Let me describe it from the point of view of that real estate owner. There's basically 2 problems. One is that you have a tenant who's in a long term lease 5, 7, 10 years, that lease rolls. So that that lease comes to you. now they don't need the space anymore. You know, we know that Texas and Francisco, which has gotta be the worst market for Syria in the country right now. That's something like 30 to 40 percent of the space is vacant. So that's either space for rent or space for sublease because no one's using it So they put it back on the market. Well, all those subleases, they're still paying rent because they have a contract. So what happens is as those leases roll, now all of a sudden, you know, pay rent anymore, so you're gonna stop. Or if you still need the space, you're gonna negotiate a much, much lower rent. So now all of a sudden, the real estate owner can't make their debt service covenant ratios. The income from the building is just substantially less. They can't make their debt service. Chamath Palihapitiya (00:23:38): -- Jason Calacanis (00:23:38): on that and explain that ratio to folks. You have a certain amount of debt you own, let's say, Salesforce tower. In Salesforce's case, there are subleasing a 125,000 square feet. Let's say they were into that for 500,000,000. What is this debt service ratio? Explain that to the audience. David Sacks (00:23:54): the bank underwrites the loan, they just figure out the interest that you gotta pay on the loan relative to the value of the building or the income that is generating. But all those ratios are upside down now because the value of the buildings, the rent has gone down so much because there's so much vacancy. I mean, when these loans were underwritten, San Francisco had, like, a 5% vacancy rate. And now it's, like, 30 to 40%. There are just no tenants. And then, you know, in parallel with that, Jason, you've got all these cases where you only have tenants or leases rolling. You have loans rolling. You know, again, if the owner of the building has either a construction loan or like a long term debt and that needs to roll. They have to refinance it. And if they can even get credit, which they may not be able to because crunch, they're gonna be paying a lot more for it. So now all of a sudden, the income statement for that building doesn't make sense. Think about it. You're borrowing cost are higher and your revenue is lower. So now all of a sudden, the building's underwater. So where does that end up? Well, they default on the debt. and the bank ends up owning the building. So then what happens is you end up with, you know, all of Downtown San Francisco owned by a bunch of banks. What are they gonna do with it? They don't wanna be in the real estate business. So they have to fire sale those buildings in a bunch of auctions at rock bottom prices because, by the way, there's no cash or liquidity out there. So who are the buyers Jason Calacanis (00:25:10): who are the buyer? That was exactly right. David Sacks (00:25:11): There are no buyers. We have a Chamath Palihapitiya (00:25:12): 30% David Sacks (00:25:13): vacancy rate. There's no renters. Jason Calacanis (00:25:15): So -- So what happens? Detroit, like, is it just like a a dead city? David Sacks (00:25:19): And then the tax base collapses the city because so much of the tax base is dependent on, you know, real estate. So listen, I think they're gonna have to work this out. I don't think they can just let the free market take its course here because you're gonna end up with a scenario I just painted. So I think what hopefully would happen maybe is that the the banks do some sort of deal with the real estate owners that, you know, they they blend and extend or whatever. But in order to do that, they're gonna need you backstop by somebody. And that's the Fed. Jason Calacanis (00:25:46): Fred, what are your thoughts? Just writ large as it were on the commercial real estate space because it's $90 it was $90 a square foot, right, for class a sacks in the city. Was that the price? David Sacks (00:25:57): I mean Chamath Palihapitiya (00:25:58): -- Jason Calacanis (00:25:58): What is that gonna be? Chamath Palihapitiya (00:25:59): -- 60, 70, 80, 90 David Sacks (00:26:00): bucks a foot depending on what building you're talking about. I mean -- Yeah. Chamath Palihapitiya (00:26:03): -- David Sacks (00:26:03): you have all these empty office towers. So look, I I never invest in office towers. I do small boutique kind of brick and timber spaces and Jack Square. We're doing okay because people still wanna be in those spaces. But these office towers on Market Street or in Soma, I mean, which is where all the investment went during the boom. Nobody wants to be in those buildings anymore. And it doesn't help that the city has allowed this giant you know, open air drug market to metastasize right outside their door. David Friedberg (00:26:31): Friedberg? Yeah. I think it's inevitable. We'll have probably 2 to $3,000,000,000,000 of federal money you know, spent a backstop and support the asset. I mean, that's the general theme here in case everyone isn't paying attention at home is that the Fed, the US government will continue to print money and create programs to effectively support asset values such that there is a crippling economic ripple effect. And this is the dangerous death spiral of debt. And that's why I always talk about how concerned I am about global debt levels and particularly debt levels in the US, but really global debt levels. I'll I'll say the statistic again and over and over again, 360 percent global debt to global GDP. But, you know, even within some of these asset classes, a significant amount of debt has been used to fuel asset prices and to fuel equity value. And then that equity value gets levered and reinvested. And so the rippling effect in the economy of declining act asset value can be magnified through leverage. and it unfortunately, debt in general forces growth without growth, Chamath Palihapitiya (00:27:43): debt fails. David Friedberg (00:27:45): And so when we've used that to demand growth on a macro perspective, it causes know, significant stress and strain on the system when you're going through periods of like we are right now, what should be natural recessionary effects from COVID and shutting down the economy or natural asset price declines because of that. And we can't let it happen because if it were to happen, the rippling effect would be crippling. So this is a good example. You'll probably I don't know what the facility will look like. Maybe the government passes some congressional bill that says, hey, guys. Here's $3,000,000,000,000. to support, you know, all this real estate. Here's another, you know, Chamath Palihapitiya (00:28:20): 2,000,000,000,000 David Friedberg (00:28:21): to support banks and, you know, giving them liquidity. Because the other problem, as you guys know, is most people's most of the population in the US has most of their assets their asset value or their equity value in their home. and those home prices are supported by residential loan programs. And, you know, if you actually have a massive write down of the value of that asset class, that's when, you know, everything kind of falls apart. So, you know, we will continue to be buoyed by that that that that kind of inflationary behavior. Unfortunately, Balaji, I think, has it right. We'll talk about it in Chamath Palihapitiya (00:28:56): a minute. that there has to David Friedberg (00:28:58): be money printing to get out of this hole. I don't know if it's necessarily in this moment hyperinflationary as he predicts. you know, he uses the Deutschmark and the Weimar Republic as this kind of storyline that this is what's about to happen in the US. The truth is it looks a little bit more like the pound sterling at the end of the British empire where, you know, there's certainly an inflationary and devaluation effect that arises, but it's not It is the reserve currency of the world today. Jason Calacanis (00:29:23): Let's -- And David Friedberg (00:29:23): so it it's really hard to kinda just say, hey. It's gonna be hyper inflationary, and the value is gonna go to 0. It's just not gonna happen. Jason Calacanis (00:29:29): So that seems to be the bet. -- of the dollar David Friedberg (00:29:31): of the dollar. Yeah. Yeah. Jason Calacanis (00:29:31): So that seems to be the bet now. Chom off at some folks are predicting catastrophizing, hey. This is the end of US supremacy, the end of the dollar. Of course, modern monetary theory, seems to stay. You can just keep printing dollars and make couple $1,000,000,000,000,000 coins and backstop it. And, by the way, TARP was profitable modestly for the United States. and the backstop of real estate totally work. So where do you land on this? Do you think these backstops and modern monetary theory stating that you can print money. You you own your own fiat currency is gonna work, or as we pivot to the Chamath Palihapitiya (00:30:06): $1,000,000,000 Jason Calacanis (00:30:08): I'm sorry. The $1,000,000 Balaji Bitcoin bet That this is the end of days. Chamath Palihapitiya (00:30:14): I I think it's not the end of days, but I I think you're conflating a bunch of things together. So look. MMT -- Yes. Jason Calacanis (00:30:20): I am. Yes. Chamath Palihapitiya (00:30:21): was in hindsight idiotic. In the moment, it never quite made sense, but in hindsight, it's clearly idiotic. And I think that we can properly dispense with that. But the reason that we print so much money is sort of what Friedbrook says, which is that we just want a well functioning society. And the simplest and shortest way to do that is to make sure that there aren't any winners and losers anymore. And the most effective way to do that in the markets is with money. Print a bunch of money and there are no more winners and losers. And so everybody can kind of win. Some people may may win more, but nobody really ever loses. So I think that's the that's the MO that we're operating under. The thing is I don't Jason Calacanis (00:31:09): think that -- -- unhealthy to that, Jamath. You're sort of alluding to Chamath Palihapitiya (00:31:12): No losers. That's a more philosophical and a commentary on capitalism and a bunch of other things. And you're right. I don't think it makes sense. I do think you need winners and losers. to really make society function well. But the other part of it is, like, does it reinforce or does it decay US dollar hegemony? And I think it actually reinforces it. And the reason it's just very practically speaking When you look at how dependent other people, other countries are on the US dollar in times of stress they actually become more dependent. And that has a lot to do with their boring patterns, the amount of dollars central banks need outside the United States. And so what did you see in a moment of stress? Actually, the Fed opened up swap lines to all the central banks that they work with their most important operating partners, so Europe, Canada Japan, etcetera, Switzerland. And they moved the liquidity window from weekly to daily, and they pounded the swap lines. So I don't know. I think that most people that that kind of like, it's like a boy crying wolf. Maybe at some point somebody will be right, but you're gonna lose so much money trying to take a point of view around this topic that it's more practical to just look at dollar flows and dollar flows go up in moments of stress, not go down, and they go up in a distributed manner across the monetary plumbing of the world. Alright. Jason Calacanis (00:32:35): So let's explain the apology bad since that trended, and he is the boy, boom. As you're saying, well, cried Wolf this past week. David Sacks (00:32:43): Friedberg Bitcoin. Jason Calacanis (00:32:44): Yeah. The boy cried Bitcoin. Very well said. So a friend of the pod, apology on March 17th predicted that Bitcoin will reach Chamath Palihapitiya (00:32:52): $1,000,000 Jason Calacanis (00:32:55): in 90 days due to US hyperinflation. Hyperinflation is defined as prices going up. 50% month over month, just so we're clear on exactly how dramatic that is. He made the bet on March 17th against a pseudonymous Twitter user, James Medlock, who said they would bet 1,000,000 that the US would not experience hyperinflation, So biology sort of inserted Bitcoin into that bet. It wasn't a Bitcoin bet then, and I think he's done 2 of these bets. So he's betting 2,000,000 In total, on Bitcoin hitting 1,000,000 by June 17th, which there's probably no chance of that happening or a very tiny chance I'll ask the panel in a second. Bitcoin was trading at Chamath Palihapitiya (00:33:38): 25, 26,000. Jason Calacanis (00:33:39): At the time, it's now trading at over Chamath Palihapitiya (00:33:41): 28,000. Jason Calacanis (00:33:43): And below has been on every podcast known to man in the last seventy 2 hours talking about this. I've watched 1 or 2 of them. And it's pretty out there argument, I think. And you can just type in biology on YouTube and watch any of the twenties done. He believes regional banks are insolvent. He thinks the feds need to he's gonna need to print a massive amount of money. Like we've said here, do more QE, and then cut rates. It all seems reasonable. but that that will lead to hyperinflation. Chamath Palihapitiya (00:34:12): It's not reasonable. Wow. Jason Calacanis (00:34:14): No. No. It's not that reasonable. We just print we just printed that Yeah. They're gonna cut rates. We just discussed. They're gonna eventually cut rates, and there'll be more QE. So that part is reasonable. Just that one little piece. But then he believes is the part that is kind of out there that hyperinflation is gonna devalue the dollar, and this is the time. He does not, and I made a bunch of I I asked him this a bunch of times, and and he would not be honest about it or didn't wanna answer my question. I said, hey. What percentage are you in Bitcoin? Somebody says he's 99% in Bitcoin. He will not confirm. And so I was like, well, view on a 1000 Bitcoins if this goes up, you know, a very small amount. 4 or 5%, you're gonna pay for the bets? And are you talking your own book here or not? Sachs, what do you think of this overall bet? Is it a stunt? Yeah. He's saying, like, this is the lifeboats moment. And just to add to it, he says you have to leave the United States and get to Singapore. or a place. Or if you're gonna stay in the United States, you need to get to Wyoming or Texas or somewhere that explicitly allows Bitcoin. Because the closer you are to the United States banking system, What happened to Silicon Valley Bank on that fateful weekend where people couldn't get their cash and were gonna have to, you know, miss payroll he says that's the dry run for the entire US banking system, Saxx. David Sacks (00:35:31): So first of all, I don't think you can disparage bulgy because someone who cries wolf says this repeatedly and it makes a dire prediction repeatedly and is wrong. And we can't say yet that biology is wrong. Do I think that we're gonna have a $1,000,000 Bitcoin in 90 days? I personally find that very unlikely, but you can't say yet. He stuck his neck out making a prediction that will be easily falsified if he's wrong. 2nd, the last time that Balaji made a dire prediction was COVID. And he He was right about that one. So you can't say that this is just like a doomer who throws out crazy predictions and is always wrong. he's actually pretty selective about his Chamath Palihapitiya (00:36:10): -- Jason Calacanis (00:36:10): Now that one. Chamath Palihapitiya (00:36:11): -- David Sacks (00:36:11): predictions. Yeah. There is a tweet from January Chamath Palihapitiya (00:36:14): 30 2020 David Sacks (00:36:16): in which he basically predicted a pandemic based on a coronavirus and laid out a whole bunch of consequences that mostly came true. which is why we're talking about this. This is not just some, like, random person. Like, he actually has -- Yes. Chamath Palihapitiya (00:36:30): -- David Sacks (00:36:30): pedigree and a track record. But here's my view on it. Chamath Palihapitiya (00:36:33): It's -- -- doom and gloom. Yes. Him and Nazir Talab, Jason Calacanis (00:36:37): the 2 of our opening speakers at the all in sum in 2023, Those would be our BookEd speakers. Book them down. David Sacks (00:36:43): Anyway, so so so look. Now, what do I think about it? I I I posted my own theory today, which I would call sort of bulgy light, which is Okay. Look. If you if you think about this spike in interest rates that we've had and that Jamal thinks Washi continued quite a bit longer, there are 3 main effects that it indisputably has. Number 1, undercuts the value of long dated bonds. Number 2, it's made lending much more expensive. particularly for big purchases like real estate. Number 3 is increase government lending costs. Okay. Now play that through the financial system. What does that mean? Well, If the value of long dated bonds has sharply decreased, well, that's led to this banking crisis with the unrealized losses. So that's already happened. Number 2, it's made lending more expensive to credit crunch and CRE where we aim to see that. And I believe that's gonna play out as a second crisis of this larger financial crisis. And then number 3 is the increase in government borrowing costs that will eventually play out in terms of being a government deck crisis of some kind. And I think it'll involve, you know, a spike in borrowing costs at the federal level and involve sovereign debt issues internationally. I think it'll involve budget deficits at states and cities. So I think there's 3 phases to this financial crisis. We're in phase 1, and I think Siri and government data are the next 2 phases. And I think I think a lot of that lines up with what biology thinks. Where I disagree with him is I don't think we can know what's gonna happen in 90 days. I think that the CRE crisis is highly deflationary. It's gonna create distress everywhere in the economy, that is gonna lead to a massive reduction in liquidity. I think that the government debt crisis, assuming the government wants to inflate and monetize the debt as a way to solve that problem, that will be highly inflationary. But when these things play out, we can't know. I think that's what makes this really hard is I think jumping all the way to the sort of finish line and saying we're gonna have a $1,000,000 Bitcoin in 90 days because US dollar is worthless. I think that's premature. I think this could play out over the next couple of years. David Friedberg (00:38:47): We have a real problem if Bitcoin is the exit ramp. Why? Chamath Palihapitiya (00:38:53): -- David Friedberg (00:38:53): for an inflationary crisis because it it's not accessible enough. It's not easily transactable for for I'm I'm sorry to be negative to the Bitcoin maximalists. I'm generally in favor of this kind of independent storage system. that's outside of government state control. I think there's just this unfortunate reality. I mean, we saw with the wealth notice to Coinbase today. they just arrested that that crypto guy Chamath Palihapitiya (00:39:19): -- Jason Calacanis (00:39:19): Go Kwan was arrested in Montenegro of all places. David Friedberg (00:39:22): Great country. Kraken won't let you wire money in or out. as of, I think, Monday or Tuesday. And so, you know, it it's clearly becoming kind of a less accessible system of storage. Now what's more accessible? Well, I do think that one of the reasons we're seeing the market move the way it does is because folks are shifting their risk assets around quite a bit right now to figure out where is a good place to put money. I was talking with a asset manager, you know, this morning, And, you know, they had a very strong point of view. Folks are are moving capital away from what they think are gonna be most impacted by the risk of this kind of massive inflationary event that may arise or this massive banking crisis that may arise or this massive real estate crisis that may arise And there are other places to then put your capital that's not just Bitcoin. And, sure, maybe some of these things are dollar denominated, but, for example, there are many businesses that sell products in non dollar denominated currencies globally. And while they report and trade on US stock exchanges, you're buying a security in a business that generates most of its income -- You're referring to many different companies. Yep. And so there are many companies that get the bulk of their revenue, the bulk of their sales, Internationally. There are also many companies that will benefit in an inflationary environment businesses that are tied to other types of real estate businesses that are tied to certain capital equipment where consumption will not go down unless there's, you know, significant massive, you know, global socioeconomic shock. And so I think that that's kind of a lot of what's going on right now. It's less about, hey. Bitcoin's the only place to go and be safe, and it's more about let me reallocate my risk assets a little bit. you know, to places that may be benefit bet may benefit from or may be better guarded from a massive kind of inflationary shock And -- Let me let me just say -- Let me say one more thing. I I think one of the biggest risks that is not being talked about is the debt ceiling vote that's due in June. In June, Congress needs to pass an increase in the debt ceiling because the amount of debt that the US that the federal government is gonna have to take on in order to meet our budget deficit and refinance our debt and pay our obligations, historically, means that we're gonna to have more than what we're, you know, we've approved to date in terms of the total amount of debt. Now this has historically been a last minute vote, you know, crazy dramatic thing. David Friedberg (00:41:49): that drives markets nuts. The hill had a a public opinion piece from Peter O'Rourke and Mary Speth, but I think they make a good point You know, I've talked to a lot of folks who are, call it, in the fixed income market, but also folks who are in the equities markets publicly, who are pretty nervous about the debt ceiling vote. And if it does look like the Republican party takes a very hard line and says because this is the current party line. if you don't agree to massive deficit cuts or spending cuts Chamath Palihapitiya (00:42:22): -- David Friedberg (00:42:22): Oh, sorry. Chamath Palihapitiya (00:42:22): -- David Friedberg (00:42:23): and and really commit to that in a bill that we can pass, that Ben also approves the increase in the debt limit, we are not gonna approve increasing the debt limit. And, you know, what this opinion piece argues is a very good middle of the line solution, which is, you know, come up with points of view and actually document those points of view on making sure that government spending is effectively accountable, that there's no more wasteful spending, and that there are certain programs that both parties can very quickly agree to as being, you know, very wasteful. And if you start there, you maybe get enough across the line that both parties kind of say this makes sense. Let's do this. then we can kind of increase the debt limit. because in the absence of that, the US will have to default on debt. This is always the big threats never happened. And if that happens or there is the looming threat of that happening, combined with the banking crisis combined with, you know, the the the liquidity crisis combined with the real estate crisis that may be emerging here. Jason Calacanis (00:43:20): Let me ask you a question that's gonna Chamath Palihapitiya (00:43:21): -- -- David Friedberg (00:43:22): really meltdown. So look. Because -- So, yeah, I think this one I think I think this is the biggest, like, black swan. It's not a black swan, but this is the biggest kind of elephant in the room right now. is and I think that and and sorry. Let I think if people in DC could get together today. And if you could instead of doing the typical last minute 24 hour vote, a day before the debt ceiling needs to be increased. Chamath Palihapitiya (00:43:40): -- David Friedberg (00:43:40): be thoughtful Jason Calacanis (00:43:41): and do it now. David Friedberg (00:43:41): If this could be addressed today, it could start to put in some of the layers of backstop and coverage and protection and safety that the markets I think really need to manage some of the trepidation in the in the weeks and months ahead. Jason Calacanis (00:43:53): I wanna jump to the crypto down and get your opinion on that Saks first. But I wanna do a clarifying point here with Friedberg. You have been in the Ray Dollyo end of Empires Empires collapse and that, hey. Maybe the US is winding down its supremacy, and apology was pretty much saying, yep. This is the moment. Where is there any light between your position of, like, hey, Dahlio is correct. This is the end of the empire. Embiology is like, it's the end of the empire right now. Where do you stand on that? Preaper. David Friedberg (00:44:26): So, I mean, I've always I've been concerned. I've told you guys this for, like, 3 years, and I've obviously promoted this book for two and a half years. And Dahlio's points of view with lots of kind of empirical wisdom behind it, I think indicate that the US is on a path and the way we spend and the way we behave And the way markets are reacting, I think, indicates that a lot of what has happened historically is happening now in the Jason Calacanis (00:44:47): US. Now David Friedberg (00:44:51): It doesn't I I don't know if it's gonna happen overnight. That that's where I would have light with apology. Okay. The notion of kind of hyperinflation again, I think means that so so think about all the US dollar holders around the world. It would be a shock for the collective system it would require the collective system to collectively agree to get off the dollar very quickly for that to really happen. Jason Calacanis (00:45:16): Yeah. David Friedberg (00:45:16): In the meantime, I do think there will be inflationary effects I do think there will be massive kind of asset value shocks. But I'm not sure there's gonna be this kind of, like, Wymar Republic, Deutsche Mart -- I gotcha. Chamath Palihapitiya (00:45:27): -- David Friedberg (00:45:27): hyperinflation thing. because it is the reserve currency, and it is so widely held by everyone. It would require collective giving up. It also seems Like, there may be you know, we talked a lot about the Petro you want trade, which I think is critical to see that actually happen. I think that's gonna be the linchpin Chamath Palihapitiya (00:45:42): -- Jason Calacanis (00:45:42): Got it. Chamath Palihapitiya (00:45:43): -- David Friedberg (00:45:43): maybe that catalyzes this. And that seems to be a little bit tight rope right now too. It doesn't seem super definitive that Saudis are embracing China. There there's obviously behavior with with cyber Chamath Palihapitiya (00:45:53): -- -- Jason Calacanis (00:45:53): a lot of rattling. David Friedberg (00:45:54): You know, it's it's not as definitive right now. I think that'll that looks to happen to kinda really catalyze Jason Calacanis (00:45:59): let's get our tin foil hats on here for a second. In relation to the apology that there has been a lot of action against crypto, Obviously, authoritarian countries took control of crypto long ago, China banning it, etcetera, North Korea. Other other authoritarian place has kinda tightened their grip on it. Now here in the United States, Coinbase got a Wells notice. That is a warning basically in giving you a last chance to kind of respond to the SEC, and this was based on their loaning programs. And on top of that, a number of other crypto crackdowns have occurred. We saw celebrities getting smacked down and getting fines and doing settlements. This has led Sachs to a theory that the United States government wants to break the back of crypto. Crypto's done a great job of breaking their own back with plenty of Crypto Griffs inside our trading and all kinds of shenanigans with FTX and front running and painting the tape. Any Grift or criminal activity possible seems to have been exploited. Do you think that these two things are in some way coordinated or coordinated effort by the US government to destroy and kill crypto as an off ramp for the US dollar while the US dollar is dealing with these crises. Sex. David Sacks (00:47:18): Well, there's a really interesting article that was just published on substack by Nick Carter, who, I guess, a guest writer on Mike Solana's substack called Pyra Wires. was a follow-up piece to an article he wrote 6 weeks ago where he laid out the an operation by the Biden administration called Operation chokepoint which made the case that the Biden administration was quietly attempting to ban crypto. And now, you know, a month later, there's all these things that are all these steps that the administration is is taking to go after crypto. And he, you know, he lays out a bunch in a bullet point list. So the SEC announced a lawsuit against crypto infrastructure company, Paxos. Crypto Exchange Kraken. So with the SEC, SEC chair, Gensler, openly labeled every crypto asset other than Bitcoin to security. Senate committee on environment and public work works held a hearing land basing Bitcoin. Biden Administration proposed a bill that singles out crypto miners for owner's tax treatment. New York attorney general declared Ethereum, which is the 2nd largest crypto asset to security. that's a huge change, by the way. Yep. SCC continues to anticonsumer Protection efforts by doubling down their attempt to block a a spot Bitcoin ETF OCC, let crypto bank Protego's application for a national trust charter expire. And then the SCC just Sancoin based on Wells Notice. So I think it's hard to to argue that there isn't a concerted effort now to crack down on crypto. by a wide variety of government agencies and authorities, starting with Gensler at the SCC who seems incredibly hostile to crypto. So now the the only question is, is this correlated with the stress that the banking system is under or is it just a coincidence? And that I don't know, but I think the argumentology would make is that at the same time, they're gonna deflate the dollar. They're gonna make it harder for you to find an off ramp. And he actually brought up a historical example that wasn't aware of. David Sacks (00:49:18): I think it's called executive order 6201, which is FDR. way back in the 19 thirties, actually had an executive order that confiscated all the gold private gold bullion in the country. And they seize the gold bullion making the accusation that private citizens were hoarding too much gold. So in any event, this is the theory. I don't know whether it's true or not. It could be a coincidence. Jason Calacanis (00:49:43): Chipoth, do you think that this is correlated in any way with the crisis or is just the fact that FDA blew up and all these other things blew up, and the public is really upset that they lost a lot of money on this. And the SEC has gotta cover and be a little bit more active instead of reactive Chamath Palihapitiya (00:50:00): when it comes to dealing with the crypto losses that consumers had. That's the latter. I mean, I think that there is a rumor going around. I don't know how true it is that FTX was days away from getting a critical approval by the SEC to actually even further legitimize their US exchange before they went out of business. So I think Gensler had to pivot very hard from at a minimum being very pro FTX, and there's all kinds of stories about his interrelatedness with Sam and his family. To vary anti bit or anti crypto in general, that's clearly happened. But, look, I think that this is like a lot of tin Hadding, which I don't think is very productive. If you look at the total number of non zero Bitcoin wallet addresses in the world, And let's be extremely generous and say it's a 100,000,000. There's still 7 billion people in the world. And so I just think everybody that tries to speak about the fragility of the US and Worldwide banking system is right. But And that part I think is quite lucid and unemotional. But every time they try to connect it to Bitcoin, they sound like a crazy person because they're just talking their book. Jason Calacanis (00:51:18): And that is exactly the case, by the way, with this kid, Nick Carter. Chamath Palihapitiya (00:51:22): Yeah. And the best example To demonstrate this is in all of this chaos. If bitcoin or crypto assets in general were truly a legitimate off ramp and salvation from US dollar hegemony and all of this stuff Why isn't bitcoin at least at 35,000 a coin right now? It's barely above 28,000. It really hasn't moved that much and I think the real answer is that most people in bitcoin are not trying to hedge their existing fiat currency exposure. They're just picking off people in retail. And they're just day trading this thing. I mean, how else Jason Calacanis (00:52:05): do you explain? Chamath Palihapitiya (00:52:06): How else do you explain an asset that has not absolutely ripped in the face of all of this terrible news about the financial system. And I think the answer is because it's still a cul de sac of users, it's not broadly available, not broadly adoptable, not broadly used. I I still believe that it's valuable. I was the earliest proponent of Bitcoin. 2011. Yep. 2012. So I believe that there's a place for it in in one's portfolio, but I just think connecting these dots misses the point. And I think the point is much, much bigger than a crypto offering. The point is that we have a lot of systemic shocks that are building up in the system. We have broken a ton of the systems that cause the financial infrastructure and the world to work properly and we are just starting to uncover how they're broken. So I think we need to focus our energy on that and dial down a little bit of the bitcoin maxi stuff because it distracts from a really important set of topics that are more inclusive and actually touch 7,000,000,000 people. We have to Jason Calacanis (00:53:11): do the cleanup work. And just to David Friedberg (00:53:13): It's a good He perfectly got here. Jason Calacanis (00:53:15): Nick Carter is a career crypto. He's on his 3rd fund his $250,000,000 third fund according to a quick Google search. He's a partner at Castle Island. Ventures, and I believe Balaji believes what he's saying And at the same time, is massively in Bitcoin. And the $2,000,000, he'll obviously lose in this bad or the 99.9% chance, and he said that already. I think he believes he's doing a service just like he did believe he was doing a service with COVID. So I do not doubt his intent But I believe it's his book is based on this, and the $2,000,000 will be easily paid off David Friedberg (00:53:53): by his increase. Chamath Palihapitiya (00:53:55): He's a very smart and good guy. My point is put this in the who cares bucket and get back to the facts. Friedberg mentioned it. We have a debt ceiling problem that's in the offing. Saks mentioned it. We have a commercial real estate crisis. We just talked about the fact that he didn't raise rates enough nor did he cut enough. So we're in this weird middle path that that Jay Powell we're talking about. So Those are the facts on the ground that I think we should focus on because those will have implications to how people can borrow, start businesses, capitalized risk assets, that's a big problem. Jason Calacanis (00:54:27): I guess the moral hazard comes up, Sacks. And the critique I think that people have had a a view, you know, focusing on bank bailouts, etcetera. has been. You have been anti bailout and now, hey. Maybe backstopping the Deposits, not backstopping the bank. The shareholders lost you are very clear about that. But let's talk about moral hazard here for a minute. Are we start of getting Chamath Palihapitiya (00:54:54): -- David Sacks (00:54:54): I'm not for bail. When did I say I was either Jason Calacanis (00:54:56): for against bailouts? -- you're not. I just clearly say you're not. I'm saying this is the critique people have had of you, so I'm giving you a chance to address -- Why Chamath Palihapitiya (00:55:03): why are you giving him people's critiques of him? Jason Calacanis (00:55:05): Wouldn't because Chamath Palihapitiya (00:55:06): -- David Sacks (00:55:06): Come on. Chamath Palihapitiya (00:55:07): -- I want him to Jason Calacanis (00:55:08): talk about the future moral hazard Chamath Palihapitiya (00:55:09): -- Jason Calacanis (00:55:09): What people? Chamath Palihapitiya (00:55:09): -- David Friedberg (00:55:10): more Chamath Palihapitiya (00:55:10): of that? -- 765421 Twitter. Who Jason Calacanis (00:55:12): can -- Person thing. Okay. I I was also talking about the wall. David Sacks (00:55:15): Wait. Let me I'm also Jason Calacanis (00:55:16): thinking about the Wall Street Journal, the New York Times and everything. David Sacks (00:55:20): Let me jump in and just clarify. I was really clear that SVB's shareholders should be wiped out. There are bond holders should be wiped out. There are management stock options should be wiped out. In fact, if it turns out that they should've known the thing was about to go under, I think there's stock sales to be clawed back. So I'm not in favor of bailing out SVB. I don't care about SVB. Jason Calacanis (00:55:39): Yes. Of course. Now let's do that for commercial real estate. David Sacks (00:55:42): No. The question is what you do with deposits and depositors. Correct. I think there is a real debate about how you treat depositors in a banking crisis. And I think there are two views on that. There is kind of an old fashioned view, and then there's kind of a more modern regulatory view. The old fashioned view is that if your money isn't a bank and that bank goes under and, you know, you're over the FDIC amount, you lose your money. And we need people in the system to lose their money because that creates discipline on the banks. It'll make those depositors do a better job shopping for the right bank. that's kind of what I would call the old fashioned hard line view. There's a more modern regulatory view, which is that Listen. The typical depositor, even a fairly sophisticated depositor like a small business or even a high net worth individual, they're not in a position to evaluate the balance sheet of these banks. How are they gonna figure out if there's like toxic assets that are hidden on the balance sheet of Jason Calacanis (00:56:42): these banks. -- didn't see it with Silicon Valley Bank in a lot of these banks. So Chamath Palihapitiya (00:56:45): -- David Sacks (00:56:46): You don't really get that much more moral hazard by putting the depositor on the hook for for that. Remember, the management in the bank already is penalized severely by losing of their Jason Calacanis (00:56:56): stock and also -- -- get to before Tramont interrupted me. I'm trying to get to the bigger moral hazard picture here, which is Jason. Fuck you. Before you interrupt me. But the eat your nuts for a sec. The point I'm trying to get to is, should commercial real estate? Should that be bailed out? How should the society look at that next card that you are saying is gonna tip over. How would you handle that piece? Should they -- Okay. David Sacks (00:57:18): Well, let me just finish the phone on on depositors. So the modern regulatory view is that when you open a bank you shouldn't have to think about the bank's balance sheet. You just want it to be safe. You don't want all the brain damage. And and look, I think there's a lot of merit to that argument. As turns out I mean, I've been trying to look into this, how much would it cost the system to just fully ensure depositors? It turns out that We have about 17 and a half trillion in deposits in the US, almost Chamath Palihapitiya (00:57:43): 8 18,000,000,000,000. David Sacks (00:57:45): And one of the misnomers you'll hear as well, it would cost us 18,000,000,000,000,000. to basically insure all the depositors. That's not true because Chamath Palihapitiya (00:57:51): -- Jason Calacanis (00:57:51): That's not true. Chamath Palihapitiya (00:57:52): -- David Sacks (00:57:52): 1st of all, Chamath Palihapitiya (00:57:53): 10,000,000,000,000 -- People don't even know -- -- already David Sacks (00:57:55): insured under FDIC. It's only about 7a half to 8,000,000,000,000, that's left. Jason Calacanis (00:57:59): Less than half is left. Okay. David Sacks (00:58:01): Yes. Right. Exactly. It's about it's it's around 8,000,000,000,000. So Chamath Palihapitiya (00:58:04): Isn't it shocking the innumeracy of people that make these claims? David Sacks (00:58:08): I know. It's unbelievable. Jason Calacanis (00:58:09): This is what we're this is why all the podcast is top Chamath Palihapitiya (00:58:12): 20 Jason Calacanis (00:58:12): or top 10 in the world because actually breaking down the numbers. David Sacks (00:58:16): Right. So continue -- The the leading proponent of this theory that we should just basically not bail out, but backstop the deposits is Bill Ackman. And he's been making, I think, a pretty compelling case that if you don't protect deposits at small banks, all the money is gonna flow to the top 4 banks. That's already core process map. Chamath Palihapitiya (00:58:33): -- Jason Calacanis (00:58:34): happening. Yeah. We're watching it happen. Right. David Sacks (00:58:35): So I've been trying to figure out how much it would actually cost us to do that. And what I've realized is that it's not 18,000,000,000,000. It's it's 8,000,000,000,000. But by the way, that's the amount of deposits. That's not the risk premium. So if you look at FDIC at the end of last year, there was about a Chamath Palihapitiya (00:58:51): 130,000,000,000 David Sacks (00:58:53): that have been paid in to the FDIC fund by premiums paid by these banks. So in other words, the insurance premium paid by banks was about Chamath Palihapitiya (00:59:02): 1.3%. David Sacks (00:59:04): So if you were to now additionally cover the whole thing, all the deposits, it would be another roughly 100,000,000,000 of premiums paid by these banks. That seems very manageable to me actually. The question is, is the FDIC fund adequate? And I think we're about to find out. It may be the case that a 1.3% insurance premium grossly, you know, understated the true risk of putting your deposit in the bank and we're about to find out that the FDIC is inadequate. I don't know the answer to that question. Chamath Palihapitiya (00:59:33): Well, I think this boils down to the profitability that an equity shareholder of a bank expects of them. And to your point, is it viable for large G SIBs to guarantee a 100 percent of their deposits, absolutely. The implication of that will be an enormous hit to their short term profitability and their return on invested capital. It would just take a massive hit. And so as a result, the stocks of those banks would fall pretty precipitously, which would have a real negative impact on the executives and the CEOs of those banks and the shareholders that own those bank equities. So I think ultimately, it'll come down to that decision, which is that if you do wanna protect the depositor, in the American banking system a 100 percent for every dollar and do it in a simple way. It will come at the sake of the equity holders of the banks. And if you're willing to make that trade off, then you can guarantee a 100% of the deposits. If you do not want to make that trade off, then the equity holders will still retain more value than they would otherwise. Jason Calacanis (01:00:39): In Friedberg, we've seen a couple of examples of the market, the free market, looking at the situation and making new products and services, Wellfront Mercury Bank, both talked about load balancing across 12 accounts, $3,000,000. So that would make some people who had over 250 k just instantly be backstopped and insured. And then where, you know, there's discussion of we I talked about last week, hey. Why don't you just have a vault where you pay a bank to hold your money safely? I got a ton of responses from all in fans pointing out multiple banks and services that have been trying to do this and also crypto solutions. So Is it gonna be a free market solution, you think, or when we're starting to see them emerge, that maybe covers this gap a little bit of Friedberg. And then what are your thoughts just generally on? Should we backstop the banks? and the deposit I'm sorry. At the banks, the depositors, to be clear. David Friedberg (01:01:32): So if we just quickly analyze the function of a bank, they loan money to either residential real estate buyers like homeowners or commercial real estate buyers or businesses that need it. I think the majority of the capital goes to residential real estate. And if they can't loan enough money, They typically buy bonds. Right? They buy other people's loans in the form of bond securities, like, treasuries or asset backed securities or other things like that or mortgage backed securities. So they use the cash to make those investments to to to make those loans, and then they obviously earn a return on that. You know, I think we've talked about this in the past. the thing that that biology, I think, has misstated, and and it would be good to have a conversation with him about this publicly. because I I have listened to some of his interviews in the last couple days. He says the banks are they don't have the money that you, the depositor, thinks that you have. And so what he's saying kind of implies that there is no money, that there is no asset value there all. He used a Sam Bankman Freed in FTX as an example, that the money that was given to Sam Bankman Freed's you know, exchange fund was used to buy assets that then very quickly declined in value by 99%, but he held them on the book at a 100%, and then he reinvested the money and all sorts of other different stuff. And in the case of the loans, made by banks and the assets that they, as a result, hold, the value may have dropped by 25% in kind of the worst case. which is, you know, the Silicon Valley Bank 10 year treasury bond scenario where they bought, you know, all $20,000,000,000 worth of treasury bonds. and and, you know, they they took a big hit on that. But it doesn't mean that there's no asset value. It means that the value has declined. And, typically, there's a buffer between the asset value that the banks are meant to hold and the deposits that they owe back to their customers. And if that buffer gets exceeded, then the bank is technically has negative equity. And if all the, you know, depositors said I want my money back, and they went and sold those bonds into the they wouldn't be able to make the depositors whole. David Friedberg (01:03:49): But it doesn't mean the depositors end up with 0. It means instead of getting a 100¢ on the dollar, they get 93¢ on the dollar or Chamath Palihapitiya (01:03:55): 88¢ David Friedberg (01:03:56): on the dollar. and it would require an orderly dissolution of the bank's assets selling those bonds into the market to generate the cash to pay back the depositors. So the reason we've seen this kind of this fed vertical spike number is because assets are moving so quickly, depositors are moving their value so quickly from one bank to another that in order for the banks to make the cash available to those depositors, they've had to borrow from the Fed. And then they're going into the market and doing this kind of should be doing this orderly asset sale of the bonds to generate the cash to pay back the Fed, which is what they should do. Chamath Palihapitiya (01:04:26): -- Jason Calacanis (01:04:26): musical chairs. Money's causing these problems as musical chairs. And if the musical chair stop, then we don't have this problem. Correct? David Friedberg (01:04:34): So if people stopped moving deposits around, then you're right. The banks wouldn't need to borrow money to give depositors their money and then go do the work of selling the bonds in David Sacks (01:04:44): the market. Jason Calacanis (01:04:44): People free -- That's a 1. -- moving their money around. because of the David Sacks (01:04:47): FDIC symbols. Because it's not insured. Jason Calacanis (01:04:49): So here we go. So you just ensure it, and this whole thing stops. So it cost them nothing to just say that. Right? David Sacks (01:04:54): Yeah. actually here's the thing. Jake, how you mentioned this case that you hear a lot of people saying, well, why don't you just take your 2 and a half $1,000,000 and break it up into 10 accounts Which Jason Calacanis (01:05:03): is what people are doing. Yeah. David Sacks (01:05:04): Yeah. Well, look, it's not feasible. We need to run a big payroll at the end of the month and you got payables. It's administratively too complicated. And by the way, what have you accomplished? doing that. You haven't solved anything? So I I don't know who has Chamath Palihapitiya (01:05:16): -- -- Jason Calacanis (01:05:16): in accomplished. For for the startup, it has to accomplish. I'm just giving them prediction. Right. The system. Yeah. David Sacks (01:05:20): won't you just raise FDIC to 2 and a half 1000000? Or have FDIC be based on the number of employees in your company? Or allow a higher class, a business class of FDIC that goes up to say 5,000,000. Pro. Yes. Exactly. It goes to 10,000,000. And in exchange, the quid pro quo has to be that the bank can't put that money in risky assets. Jason Calacanis (01:05:41): It's so simple. This is so obvious. FDIC per hold David Friedberg (01:05:44): on just stop, Jake. Chamath Palihapitiya (01:05:45): The re David Friedberg (01:05:46): the reason I walked through that whole explanation is because I wanna answer your question. I'm sorry it took so long, but, like, I I wanna highlight that because That is what an insurance underwriter put aside the FDIC and put aside banks and put aside the the government's role. Jason Calacanis (01:05:57): Yes. David Friedberg (01:05:57): That's what an insurance underwriter's job would be. they would look at the volatility in the pricing on the bonds that the bank holds, and they would determine ultimately 2 things probability of loss and severity of loss. And the probability is how likely is it that you end up in negative equity and that you have people requesting money and you have to sell those bonds at a loss very quickly? then the severity is how much would you actually lose? So if if, you know, the Fed raises rates by Chamath Palihapitiya (01:06:23): 3%, David Friedberg (01:06:24): and your entire book is tied up in 10 year bonds, you see a 25% decline in the value of your bond portfolio. That's as bad as it gets. If you start with a 10% buffer, now You only have 85 percent of the money you owe with the depositors. So your loss is 15¢ on the dollar. So the insurance company would say what's the probability of that event happening, much should we underwrite it for? What should we charge as a premium to do that? And that's ultimately how the rates would get set. Now the problem with most insurance models around this sort of a problem set is that these are the extreme tail events that have never happened. And so the insurance to Saks's point is super cheap leading up to the inch extreme tail event. And then everyone's like, oh my gosh. We underpaid for so many years. We didn't realize how severe the losses could have been. We didn't realize how significant this was gonna be. And as a result, you now see this kind of multiplying effect because people are, like, my gosh. If it happened to them, it could happen to me, let's all sell, and it gets worse and worse and worse. And so, you know, the real rate for the insurance going forward will now have to take into account this massive risk. But the game theory problem is, as Saks has pointed out, if you just insure everyone, the cost of the insurance actually goes way, way, way, way down. because now you don't have this money movement problem. And so, you know, the the point is the more you insure at this point, the cheaper the insurance will actually be, if you're an actuarial or a free market underwriter you know, a free market kind of, you know, underwriting process on this thing. because now the probability of having this bank run goes way way down, and therefore, the cost of the insurance should go way down. David Friedberg (01:07:56): And so the the the irony is if you actually did And this is getting super technical. But if you actually looked at the statistical model and said, how much is this gonna cost to insure every deposit, it gets much, much cheaper the higher the the the deposits that you're willing to to ensure would be. That's my sense of what the free market would do here. And it's certainly what I think the federal government should probably think about doing if they're gonna continue to play a role in backstopping banks. Jason Calacanis (01:08:21): The net net is people Startups right now are doing 5 to 10 banks. I'm watching it happen. They're doing all these sweep accounts. They're doing multiple accounts. So the government, if it doesn't raise the FDIC limit, is basically just creating extra work for everybody, and it's gonna be the same outcome. So these people are gonna the street will find its own use for technology and how to hack this. And that's what's happening with these services -- Yeah. Chamath Palihapitiya (01:08:45): -- Jason Calacanis (01:08:46): in real time. David Sacks (01:08:46): Just a steelman, the the old fashioned view or the traditional view of this, they would say that, well, you want those startups being paranoid. Do you want those startups doing the work of disciplining these banks by moving their money where if they detect a problem. However, the problem with that is you get these bank runs. That is what a bank run is in parts. is people moving their money because they're fearing that the bank is not doing a good job with their loan portfolio. So this is why in the let's call it the olden days before FDIC, we had bank runs and panics all the time. And that's why FDIC was invented. So there's a hugely destructive problem that comes along with placing the depositor in charge of disciplining the banks. And I would argue that the depositor is not the best person to do it. It's the regulator, just to kinda layer on what what Friedberg was saying. I think there's like a fundamental market failure with banking. in the sense that the depositor or the consumer and the bank think they're getting 2 completely different things. When you open a bank account or a checking account, you think you're getting a checkbook, an ATM card, a place to do payroll, run, you know, and payables. It's a service. It's a service. And maybe you make a little bit of of interest this time in your main motivation. k. That's what you think you're getting. Your money, most of all, is safe because you're not signing up with a service provider to have any chance of losing your money. Jason Calacanis (01:10:10): You're not gambling. Right. David Sacks (01:10:11): But now what does the bank think it's getting? You know what the bank thinks it's getting? An unsecured loan that they can then turn around and invest in whatever they want or whatever the law Jason Calacanis (01:10:19): there's a disconnect between the parties and the transaction. David Sacks (01:10:22): Exactly. It's a toll disconnect. And moreover, the way the management and the bank is compensated is that they only have to pay back Your loan, your deposit basically is their loan at par. And anything they make on a bet that they make with that money, they get they get to keep all the upside. Their stockholders in management get to keep that. Jason Calacanis (01:10:41): And those incentives are are driving this. And that's what drove the risk in all likelihood at Silicon Valley Bank. They were getting Chamath Palihapitiya (01:10:48): $200,000,000,000, Jason Calacanis (01:10:49): whatever percentage point they got, Shamalff Chamath Palihapitiya (01:10:51): -- David Sacks (01:10:52): Yeah. That's -- -- how they essentially accomplish -- -- confidential for it. Chamath Palihapitiya (01:10:55): -- David Sacks (01:10:55): their incentive. It's as them, but the whole banking system creates the incentive. They're highly leveraged. The deposits from their standpoint are leveraged. Their leverage 10 to Chamath Palihapitiya (01:11:04): 1. David Sacks (01:11:04): So their incentive is to go to the casino and gamble it because they get to keep all the upside. And if they lose it, it's basically someone else on the hook. Chamath Palihapitiya (01:11:12): Final worst month. In early May, the Fed will release their investigation into Signature Bank and SVB Okay. Powell said that this week. I think it'll be really interesting to see how much honesty they both put into the report and then whether the entirety of that report is made available to the rest of us to read. But I think Saks has very elegantly summarized what's happening. And it doesn't take a genius to figure out that this doesn't make sense. So the question is, what is the tolerance that we have for changing something that clearly is Mischaracterized. What consumers think they're getting and what banks are then doing are 2 totally different things and If the fed actually is really, really honest and really lays bare, everything that happened, It'll be very hard to not legislate changes based on it. Jason Calacanis (01:12:14): And this your best swing at a legislative change would be Chamath. What is the what is the low hanging fruit? What's the layup here? Chamath Palihapitiya (01:12:23): Well, I think we've seen this happening in other markets for a while, which is that Banks have become in fairness to them much Chamath better at risk management post Dodd Frank, post great financial crisis. And the result of that is that there's been a lot of emerging private credit markets because most of the bank is about lending. Right? They're not really buying equities. They're lending money. they're a debtor in possession of something. Right? And there's been an just a massive explosion of private credit. And it started in the most obvious areas. It started in things like CLOs. It started in asset backed securities. solar, car loans, credit cards, mortgages, private equity backed deals. So I think the rational answer is that banks need to protect a 100 percent of deposits. And that if they want to have extracurricular activities, if you will, they need to be able to raise money from investors put that to work in a really fair and transparent way, and then share in the profits between all of the related parties that are involved in that transaction no different than any other risk taking organization. And I think that this is now what we've probably shined a light on is in really odd loophole that just needs to get closed in 2023. There's such easy hygienic changes Like, Jason Calacanis (01:13:54): let's put Chamath Palihapitiya (01:13:54): it a different way. If you raised money for a liquid hedge fund that had quarterly redemptions, and then violated the LPA and stuffed it into private companies that had 10 year illiquidity. They would be hell to pay. Yeah. And vice versa, if you raise money on 10 year illiquid locked up capital on the presumption you were going to invest in startups, and then instead put it in the stock market thinking that you could flip it and make some money, you would have violated the LPA and there'd be hell to pay. Similarly, I think what Saks is stating is that there is a mismatch of what the depositor, in this case, the investor expects and what the risk manager is doing. And I think that you have to correct that one way or the other. Make it abundantly clear that we're never going to ensure 100% and deal with that risk. Or make it a 100% and deal with the fallout, which is largely about wiping out a lot of equity value in banks. LPA equals limited partnership Jason Calacanis (01:14:55): agreement. Right. David Sacks (01:14:56): And just to just to clarify one thing, I'm not that these bank managers are all going to the casino and gambling the money. I think that they are generally more responsible than that. What I'm saying is that the incentives created by this crazy system we call banking, create a weird incentive for them to gamble because they're so highly levered. From their standpoint, your deposits are their leverage. Chamath Palihapitiya (01:15:18): Everybody but the G SIBs because I think the G SIBs, there's so much scrutiny. If you look at how well run city, B of A, wells in JPM are relative and contrast them to the sub g sibs. It's like night and day. And so The other thing that I think we've realized is, who thought it was a good idea to raise the bar on eligibility from 50,000,000,000 of assets to 200? Clearly now that made no sense. It makes more sense to actually categorize every bank. as systemically important. Maybe not globally but at a minimum to the US economy because these people play a vital function in society and they were allowed to take a much more aggressive risk posture because they were able to lobby the government to change the rules. Jason Calacanis (01:16:04): The CEO of TikTok which claims to be an American company now or an international company was in front of Congress today. His name is Show Chiu. This is the first time he's really I think spoken publicly in an extended period 4 a half hours he was grilled. And it was absolutely brutal. It's the first time I've seen a congressional hearing that was bipartisan in a long time. And he said that, quote, the bottom line is This is an American date this is American data on American soil by an American company overseen by American personnel. And then was immediately Squearly when asked if Chinese employees, including engineers have access to this US data, And he said, this is a complex subject over and over again. He was evasive, and this did not look good for TikTok. David Sacks (01:17:03): The question Jason Calacanis (01:17:03): now becomes, does it become divested and go public, or does it get shut down, Saxx? David Sacks (01:17:09): I think his goose was cooked as soon as they asked him the question. preparation for this hearing, did you consult with any member of the CCP? And he could not just outright say no. Nope. So that's his goose was cooked as soon as he couldn't say no. Jason Calacanis (01:17:22): What do you think about the bipartisan nature of this? And what do you think the outcome is sex? David Sacks (01:17:25): Well, this is one of the rare things where it is bipartisan. I mean, there's there there is so much outrage and anger at this. I think that they should let the company divest it. I think it is divestiture or shutdown for TikTok. Since we're not communists here, I think they should be given the chance to fully divest to an American owned company. But look, I just wish that there was as much bipartisan consensus and outrage directed not just at Chinese spying of Americans, but on the American deep state spying on Americans because we just had hearings showing that the American government conducts elaborate spying operation surveillance of Americans on social media. This was all revealed in the Twitter files. And we got certainly no bipartisan consensus on that. Republicans were outraged, but Democrats tried to portray as some sort of spat between Trump and Chrissy Teiger. I mean, that's all they wanted to talk about. So I would like to see this problem comprehensively addressed. And that means I think TikTok going into the hands of an American company, but I also would like more assurances that American companies will not be working with the deep state to spy on us in a French or Jason Calacanis (01:18:38): Australian police. -- and Donald Trump. Who are two people you'd never invite to a dinner party? Friedberg, what are your thoughts? Is it gonna divest? Should it be forced to divest? Being intellectually honest about it? What are your thoughts on TikTok in America? David Friedberg (01:18:56): Yeah. I think I've shared this in the past. I think they're probably gonna have to spin this thing out. And if they hold any equity if the Chinese parent company holds any equity interests. It'll probably be nonvoting shares. And there'll be a mandate that the majority of the shares and some degree of oversight. Jason Calacanis (01:19:10): Do you believe that's the right thing to do? from a national security issue for America to force them to do that? David Friedberg (01:19:17): I don't know from a national security point of view. Chamath Palihapitiya (01:19:19): I really don't. I I David Friedberg (01:19:20): don't have an opinion -- From Chamath Palihapitiya (01:19:21): -- -- David Friedberg (01:19:21): national security and TikTok. I don't know. I I've I've always thought that TikTok was a really What's the right word? Like, it's like a firefly for, you know, Chinese invasion, and it feels like you know, it's a very easy kind of target for, I think, what is generally a a big kind of social consciousness right now. So, you know, whether or not there's actually, like, some national security points. If if there were, I'm pretty sure that national security person would have stood up and said, we need to stop this thing. I'm not sure I've heard that publicly. Jason Calacanis (01:19:58): Shamalff Chamath Palihapitiya (01:19:59): -- David Friedberg (01:20:00): But I but I but I will say, like, the my point of view from, like, just seeing the political behavior is that they're probably gonna mandate that these guys spin this thing out to US investors and and that they have you know, don't own any that the Chinese don't have any equity or management oversight or interest in it. Jason Calacanis (01:20:15): Shamovkin, China, itself, the Chinese government does not allow kids to play video games during the week and only 3 hours on the weekend. They're using apps like WeChat to dictate social score and social behavior whether it's smoking on a train or not paying your bills. and they are saying they will not divest. But anybody who is an investor in the company that had chance to go public for tens of 1,000,000,000 of dollars and eventually take on, and people believe that this is a viable competitor to Facebook and Instagram, This could be a company worth ultimately 100 of Chamath Palihapitiya (01:20:53): 1,000,000,000 Jason Calacanis (01:20:53): of dollars if you were an investor in China. You would want to IPO. You would want to get liquidity So if they are refusing to sell, what does that tell you as a market participant and participant and somebody who's been a capital allocator for over a decade? Chamath Palihapitiya (01:21:08): there's bigger problems in China than even TikTok US represents for them. I think it's probably what it means, so it's a pretty bad tell. I don't think divestiture is a real option because when you think about the details of that, how will the government be satisfied that the code base was separated elegantly, that there was no malware surreptitiously planted, How will you actually prove all of this to a degree that satisfies a legislator? So I think the pound of flesh that they want is more easily and more salaciously satisfied by shutting the thing down. So if I had to bet on what happens, I bet more on that. I didn't think TikTok did a very good job, and I think that there are some they were terrible today. Jason Calacanis (01:21:56): term. Chamath Palihapitiya (01:21:56): And I think that there are some real issues around how much control does actually flow back. I don't think that it was definitive He needed to be much clearer and adamant that this was an independent business that didn't have backdoors. to China and the CCP to appease Congress? He didn't do that. No. Jason Calacanis (01:22:17): He was like, I have to check-in on that. I'm not sure. Yeah. Chamath Palihapitiya (01:22:20): I think it was a little bit of the exact opposite. Actually, Saks is right. Like, that first question was just the death blow right from the beginning. It's like, uh-oh. This is not gonna go in a good place because they should have been able to see that that question was gonna get asked. And you need to have that asked and answered philosophy where the only answer is no. The only answer you could have given is no. And the fact that he wasn't able to say that It was a bit of a ethical employee as soon as soon as that was. In my mind, I was like, this thing is getting shut down. Because I don't think there's a shutdown. Yeah. There's no divestiture plan that can be technically audited in a short amount of time to appease these folks. They want a pound of flesh and then separately The bigger issue that I think you have to deal with is what does that mean for how other governments may be pressured to act? who wanna be on the pro US camp, and I think that that's a question because ByteDance and TikTok have presence beyond just China and the US? A third question is, How does the golden vote get used on the ByteDance board? And what do they do? And do they even want this thing public? explain golden vote. Essentially, they'll decide what happens to that company. And they have that in Alibaba. They have that, I think, at 10¢. I think they have that at ByteDance. So The Chinese government has a very strong hand in the direction of these business. And then the final point is that There's a secondary app that TikTok has called cap cut, which also is enormously popular in the United States, which is yet another potential backdoor for privacy or spying violations, whatever the US Congress wants to pin on them. So I think it's a very complicated moment for that business and their US asset. Chamath Palihapitiya (01:24:11): Sachs, it's pretty clear the CCP is making this decision. If they decide, let it burn, let Jason Calacanis (01:24:17): it get kicked out of the United States, What does that do in terms of game theory between the two countries and going forward? Because, obviously, they don't reciprocate. We're not allowed to have Google, Twitter, Instagram, whatever, in China. So is this just, you know -- What what David Sacks (01:24:33): what decision are you saying? What's what decision are you saying the CCP is making? Jason Calacanis (01:24:37): Well, the CCP has the golden vote. It's their decision to divest or not divest. Chomap believes David Sacks (01:24:42): they will Jason Calacanis (01:24:43): not divest. David Sacks (01:24:43): I believe Jason Calacanis (01:24:44): they will David Sacks (01:24:44): not divest. Chamath Palihapitiya (01:24:44): -- David Friedberg (01:24:45): saying that David Sacks (01:24:45): is they're not gonna have the choice. I don't I don't see what decision the CCP has in this. It's gonna be Chamath Palihapitiya (01:24:51): -- They don't divest. That's right. They're they're it's not a divestiture or don't divest. I think it'll be shut down. I think they're getting kicked out of the United States. Jason Calacanis (01:24:58): Okay. Do you but you believe they're gonna divest Saxx? David Sacks (01:25:01): I'm saying that that's what I would support. Jason Calacanis (01:25:04): just to give them the chance because Chamath Palihapitiya (01:25:06): -- -- Jason Calacanis (01:25:06): you think it's gonna happen. David Sacks (01:25:07): Tremont might be right. I'm not sure. But I I think they should be given the chance. And if you truly can't move the servers, to the United States and vet the code base. I feel like you could I think you could have an acquirer figure it out, you know. vet the code base, move the data centers, make sure there's no back doors. I think it's not impost hard but not impossible. Jason Calacanis (01:25:29): Okay. So let's go with the scenario that it gets kicked out of the United States is shut down. Are there any second or third order impacts? David Sacks (01:25:36): Yeah. It just rashes up the tension between the US and China, but we're already we're already there. Jason Calacanis (01:25:42): Yeah. David Sacks (01:25:42): We're already there. Jason Calacanis (01:25:43): No change. Alright. Listen. This has been an amazing episode. Oh, Chamath. Did your 3 d rocket company make it? to space. I saw they had a nice little lift off Chamath Palihapitiya (01:25:53): there. Thank you, Jason. I just wanted to give a shout out. This is, like, While all this chaos is happening in the world, it's amazing to see pretty incredible engineering. So last night, we did have a successful launch So relativity has a 85 percent three d printed rocket, which over time we wanna try to get to 95%, but it's the fuselage. It's the engines. It brings the cost of space flight down by an order of magnitude. It is a hugely disruptive idea And so what they tried to prove was that they could get this thing into space. And they accomplished a lot of goals. They got past Max Q. which is sort of the point at which the atmospheric pressure is the strongest on the fuselage, so we proved structural integrity. We got to main engine cutoff. We had stage 2 separation. So a lot of really important technical milestones were achieved. It allows them now to unlock a bunch of contracts that allow us, frankly, just to keep going and building. There's still a lot of work to do from here. We're building now the next generation rocket which is called Taron R and rocket engines, which can take instead of 1500 kilograms, about 20,000 kilos. So Enormously proud to have been around this journey. My partner Jay has been really the key person on it, but I just wanted to give a huge shout out to Tim Ellis and the team at relativity. It's super, super, super cool what they pulled off. Jason Calacanis (01:27:22): It's just amazing. how access to spaces being democratized and the prices are being lowered so dramatically. What's the impact that's gonna have ultimately Friedberg? You think, on humanity. I mean, obviously, going to Mars is this incredible feat technologically and just mind blowing. But What what do you think the the net result of all this space activity is gonna be for the human condition and the species? I mean, David Friedberg (01:27:48): I think there's a vibrant community of startups and money coming into this space right now. I do think all these guys are gonna have to in order to gain wider spread capital markets attention like Elon has had to do with SpaceX. They're gonna have to find business models that have kind of near term viability that don't depend on government contracts. Jason Calacanis (01:28:09): Like StarLink. David Friedberg (01:28:10): Like Starlink. Yeah. And so I think that's the key question. It it obviously these are very capital intensive businesses. They have very long horizons to hit their milestones. So there's certainly capital available in the early stages to make bets on whether or not they can get these milestones. But but, you know, the broader kind of attention in capital markets is gonna come from these things building real kind of businesses that generate value for consumers and markets. you know, one of the things that I think can unlock opportunity for this market overall is low cost energy, you know, if we can get below, call it, 1 cent to 3¢ kilowatt hour of power, call it 1 cent a kilowatt hour of power. I I forgot the exact relationship. you can get very cheap, you know, hydrogen and oxygen fuel sources. And so, you know, the it's it's funny if you actually play out the the scale factor for space for the space industry, much of it at at scale will get driven by the cost of electricity. it's another reason why there's gonna be, I think, a pretty tight coupling between the cost of power and, ultimately, the vibrancy of this market. Chamath Palihapitiya (01:29:22): You mentioned something important. The other key thing that we proved was that this is a pure Methalox engine, so CH4 and liquid oxygen. And it was not just stage 1, but also stage 2, which is unique. The only other folks that have tried to prove that you could have multistage methaloxes, China, and their most recent launch failed, but it highly simplifies the engineering problem at hand, especially the ground operations and whatnot and sort of, filling these rockets and making them viable. So that was another really big milestone. Jason Calacanis (01:29:52): The the producing of that fuel Friedberg requires energy. If that energy was cheap, it would be cheaper to make and process that fuel? That's right. David Friedberg (01:30:02): Yeah. There's a pretty pretty direct tie in, particularly with scale manufacturing on fuel that would be used in these rocket systems and and power prices here on earth. So if and as we get power prices down, either through scaled renewables or ideally fusion or some other kind of new technology Chamath Palihapitiya (01:30:18): -- -- Jason Calacanis (01:30:18): clear. Yeah. David Friedberg (01:30:19): Yeah. Or or nuclear fission or something, then the cost of, you know, fuel and the cost of these space programs goes down. And that ultimately I think the real question everyone asks is how do you get away from it just being government services businesses, which, you know, have a low multiple end markets. And, obviously, high dependency on 1 or 2 key customers? And how do you actually get private markets private market products moving? So tourism obviously makes a lot of sense. travel, you know, around the earth in 20 minutes or something or, you know, some people have talked about mining or colonies and, you know, who would fund that? Real estate it's unclear right now what the ultimate track. Chamath Palihapitiya (01:30:58): -- Jason Calacanis (01:30:59): traveling is a wild one. Yeah. I've talked to Elon about that, but the idea that you could have a rocket ship take off from Texas and then be in Tokyo, you David Friedberg (01:31:08): know, like, a number Jason Calacanis (01:31:09): of minutes later Chamath Palihapitiya (01:31:10): is -- I can only speak I can only speak for myself, but I would really like to visit Uranus Reeper. Jason Calacanis (01:31:17): Alright, everybody. For the favor, it came back. David Friedberg (01:31:19): Look at Chamath Palihapitiya (01:31:19): the look at the player here. He's got layers are for players, Saxie. Look at this. Jason Calacanis (01:31:23): He is he is 2 layers in. Can you get an mascot? David Sacks (01:31:25): It's subtle, isn't it? Chamath Palihapitiya (01:31:26): He's pulling a Steve Bannon. Oh. Jason Calacanis (01:31:28): Yeah. You gotta get more disheveled. Chamath Palihapitiya (01:31:29): He needs the 6 pens in the collab pens, no shave, and don't wanna sleep. David Friedberg (01:31:35): Do you have a stylist an actual person you page to press you. Chamath Palihapitiya (01:31:39): Nick, can you please put the picture of Steve Bannon where he wears the multiple polo shirts? Jason Calacanis (01:31:43): I'm gonna hand you David Sacks (01:31:44): this again. Are you gonna Jason Calacanis (01:31:45): use again? Need to stop. k. For next week's show Chamath Palihapitiya (01:31:48): -- -- David Sacks (01:31:48): attacking me. It's really weird. Jason Calacanis (01:31:49): Oh, yeah. Bannon, he thinks you're a venture a Volker capitalist or something. Was he there? Chamath Palihapitiya (01:31:53): Who's been attacking you? David Sacks (01:31:54): Anna was one of many people attacking me. Chamath Palihapitiya (01:31:57): On Twitter? David Sacks (01:31:58): I think on his podcast, but I think yeah. David Friedberg (01:32:00): You seem to have made a lot of a lot of new friends on Twitter lately. Chamath Palihapitiya (01:32:03): When you pass around half a1000000 followers, basically what happens is you become a politician. There will always be a fringe element of people. who need to manage their anxiety by venting. And that's what you're feeling. You'll live that now at 1000000 you know, followers, 2,000,010,000,000, whatever. There's always gonna be a small percentage. Jay Cal doesn't know this because he has mostly bots that are his Jason Calacanis (01:32:27): followers. true. Chamath Palihapitiya (01:32:27): Having a new account. When you have real people, this is what it is. You'll get this 1% or less than 1%, and just the number goes up. So I would ignore it Don't care. Don't worry about what user 747 -- Don't feed the Brigadoon. Don't care what 7 user 74786 has to say. Don't worry about it. Jason Calacanis (01:32:42): Yeah. Absolutely. David Friedberg (01:32:43): I love you. Alright. Chamath Palihapitiya (01:32:44): And I'm looking forward to seeing you on Thursday. Jason Calacanis (01:32:46): For the rain man himself, David Sacks, the Sultan of Science And Principal Panic attacks. Our pal, David -- Friedberg, and the host with the most gonna make -- What about me? What about me? Chamath Palihapitiya (01:32:59): -- Jason Calacanis (01:32:59): calling them, calling you the with the most. I'm adding something. The host with the most who's making me the shiso leaf tempura with Hokkaido. Chamath Palihapitiya (01:33:07): And you are the world's best genuflector. Jason Calacanis (01:33:09): I am the world's greatest guest, greatest house guest. If you need a house guest to look at your house Chamath Palihapitiya (01:33:14): -- Jason Calacanis (01:33:14): Oh my god. Chamath Palihapitiya (01:33:15): -- Jason Calacanis (01:33:15): Italy, Tokyo, Desecco, wherever you need a house guest, I'm ready to come and make it a good time. Chamath Palihapitiya (01:33:19): You're the modern Kato Kalin you're horrible. Jason Calacanis (01:33:22): Absolutely the best. Yeah. You keep inviting me every week. Chamath Palihapitiya (01:33:25): You are enjoyable, though. Love you, boys. Jason Calacanis (01:33:27): that's happened. Bye. Bye bye. David Sacks (01:33:30): We'll let your winners ride. Jason Calacanis (01:33:33): Rainman, David. David Sacks (01:33:38): We open sources to the fans, and they've just gone crazy labor. Jason Calacanis (01:33:43): besties are David Friedberg (01:33:53): my damn dog taking a notice in your driveway. David Sacks (01:33:55): We should all just get a room and Chamath Palihapitiya (01:34:02): have one big you, George, because they're all just useless. It's like this, like, sexual tension, but they just need to release it out. Jason Calacanis (01:34:08): What? You're the bee bee. flirt. David Sacks (01:34:11): You're a fee. Jason Calacanis (01:34:13): What? I couldn't feel it. Where did you get Merkeys are back?