I’m going all in, where you’ll be, where you’ll be, where you’ll be, I’m going all in, don’t let your winners ride, Rain Man, David Sachs, I’m going all in, and it said, we open sourced it to the fans and they’ve just gone crazy with it, I’m going all in
Alright everybody, welcome, it is the podcast you’ve been waiting for, the all in pod emergency episode 20, the number 11 podcast in the world, number one in tech, number 11 overall, Joe Rogan, Sway, Pivot, NPR, Rachel Maddow, left in the dust, welcome to the number 11 podcast in the world, can you believe it?
Besties with us, the queen of KNY himself, David Friedberg, Rain Man, David Sachs, hot off the banger by Young Spielberg, closing up episode 19, and of course, the dictator, Chamath Palihapitiya, how we doing boys?
Lovely, how are you Jacob?
Lovely, lovely, it’s a lovely Tuesday, emergency pod
And Sachs retired from Kraft Ventures to pursue his dream of being a Fox News host, how’s that going for Sachs now that you’ve got full media blitz?
Well yeah, I’ve been invited, I was on Bloomberg, I’ve been invited on CNBC tomorrow, I might even be on Fox on Thursday, so everybody, maybe Tucker, everybody wants a piece of the besties, everybody wants a piece
Unbelievable, we were pariahs in our own industry and now we’ve transcended tech and taken our rightful position, I got invited on CNN, which is crazy
On what show?
The guy with the British accent, he kind of does the
No, there’s another guy who does CNN International and they were doing like a whole thing
Oh that guy, yeah, yeah
Yeah, you know the guy with the glasses
He’s funny that guy
He’s pretty funny, yeah, I didn’t do it, I really do not want to speak for Robin Hood, but we do need to pick up where we left off in episode 19, which a lot of people were wondering, Chamath, are we still friends?
Are we still besties?
We are, but I do want to say one thing, Jason and I talked this weekend and he said something to me which I actually thought about a lot, which is that, hey Chamath, when you get that emotional, you know, I think the point of what you’re saying gets lost, and I had a lot of time to think about that
So one, I wanted to say, J. Cal, if anything I said, you know, hurt your feelings, I want to say I’m sorry, I think you are the most incredibly loyal person and that, you know, spans friendship to being an investor too, so I just wanted to say I’m sorry to you
And to be quite honest with you, when I listened to a couple of my comments, I was like, wow, you know, I was a little emotional
And I think it didn’t need to be that super extreme. I think, you know, the thing that it touches for me is like, I forget sometimes maybe where I’m at today, and I go back to where I was 20 years ago, or how I felt as a 16 year old. And I channeled that a little bit. So anyways, J. Cal, I just want to say I love you with all my heart, and I’m sorry.
I love you too, Chamath, and you know, it did get a little bit personal. And we’re all passionate about, you know, our positions. And, you know, it was a little difficult for me because I’m trying to give my guys, my team, Robin Hood, the benefit of the doubt. And it wasn’t an easy week, obviously, to do that. But just to recap here.
Sunday, Vlad was on clubhouse with Elon Musk, our pal, who almost blew up clubhouse. And there were so many people trying to get into that room. And I think it tops out at 5000 on clubhouse that people were holding their phones up to their YouTube accounts. I think that’s probably how most of us listen to it was the YouTube people were just syndicating it live to YouTube. But Elon did a tremendous job interviewing Vlad, which is leads to a really interesting topic, David, about
objects just routing around the press and going directly. I mean, Elon is now the best interviewer in the business. And he basically said, Listen, did you have a gun to your head? And I think it was pretty much that, according to the reports that have come out the Depository and Trust and Clearing Corporation, which is Wall Street’s main clearinghouse for stock trades demanded $3 billion in additional collateral from Robin Hood, which they said was an order of magnitude more than usually required. We all know they raised 2.4 billion this
week on top of the 1 billion from Wednesday on top of the $600 million credit line, that’s 4 billion in cash. Apparently, the requirement for them went from 3 billion to 700 million. So it seems like that’s, there’s some equaling out of what they have to cover. And the GME short interest dropped in half today. It’s Monday, I’m sorry, it’s Tuesday, but yesterday had dropped in half the squeeze seems to have settled down. Wall Street bets is clearly one. And of course, episode
Jason did super. I didn’t listen to it. But did. Do you guys think that Elon and Vlad got to the truth? Like, was it clear?
Yeah. So I thought that the interview was was a bit curious. Because it took Elon several tries to get Vlad to say the quite frankly, the obvious answer. Elon set it up saying, you know, what I think all of us were thinking, which is, look, were you either forced to do this? Or is it an action that you decided to take? And if so, why?
And, you know, and Elon kept trying to get him to say, yeah, we were forced to do this. And Vlad wouldn’t quite say that he gave these very vague, ambiguous answers, which is why Elon finally said, Listen, did you have a gun to your head or not blink twice, you know? And so it was, I don’t know whether it was a function of miscommunication, or whether we just don’t know all the facts yet. But I don’t feel like the interview, put everything to rest the way that it easily could have.
And I and you look, I don’t want to be, I don’t want to pile on to the situation. I, you know, I’m, I’m pro founder, I’m going to give Vlad and Robin Hood the benefit of the doubt here. I think probably they were compelled in some way to do this. I don’t think they wanted to do it. But, you know, if we’re going to make this a teaching moment, what I would say is like to any founder, if you’re ever in the position of having to take an action that is inimical to your stated mission, right, and their stated mission is freedom to trade,
what was the word you used? inimical?
inimical, anathema. Sure. Yeah. If you’re going to basically violate your stated mission, you either need to post the government order that required you to do that. Or you need to post a very well reasoned blog explaining why you’re doing that. And, you know, if I were Robin Hood, and I got a call in the middle of the night, saying that you have to basically take this trade offline, I would say, Well, give that to me in writing, because I’m gonna have to post that on my website, right? If I don’t have a choice about that.
I, you know, I need to be able to refer back to this industry order that I’m receiving. And the fact they didn’t do that, and the fact that they didn’t post a blog explaining the reasons behind the choice, and in fact, Vlad’s now had to go back three times to explain it. I think that’s created this world of problems for them.
There’s a difference between this being a regulatory requirement and a commercial requirement. Correct. Like, if you think about the, you know, the the law, the regulatory body that oversees the law that that that kind of oversees what they’re doing business wise, the SEC or whomever could have come in and said, Here’s the here’s what I’m telling you, you have to do, I’m your regulator. But what happened was there, there are these clearing firms that they partner with that said, I need you to post more capital.
And rather than post more capital, or take the risk of going bankrupt, they said, we are going to restrict trading to minimize the capital requirements that we have on our book. And so if you think about what that decision comes down to, it’s a decision of either our customers are going to lose money, or we’re going to lose money. And, and I know that it’s not that black and white. But, you know, it’s very difficult to kind of explain the nuance of what took place there.
But it really was a point of like, we are going to lose money, or we are going to go bankrupt, or our customers are going to have to lose money. And that’s such a tough decision. I can’t imagine any executive, any of us being in that situation, and deciding do you protect your shareholders? Or do you protect your customers? And how much do you let your shareholders lose? How much do you let your customers lose? And it was a very complicated situation that they found themselves in, because their business model was predicated on this clearing, you know, on this model that they ran, that, when suddenly, you know, they’re going to go bankrupt.
And suddenly, a lot of risk came on the book, they didn’t have the capital to cover it. And they had to basically, you know, limit their customers as a result, it was a pretty ugly situation.
But David, well, to say one thing, I actually think that if the choice is simply between you losing money, you the company, or your customers, or your users losing money, I think that’s an easy choice. I think the company eats it. Look what Airbnb did during COVID, right? When they had a whole ton of cancellations, because of COVID, they ate all those deposits, they made good on that. And I actually think if that’s all that was involved, that was a big mistake. I think Robinhood should have eaten it.
Chamath, you want to chime in here as we go around the horn?
Look, I think here’s what we’ve learned, which is that there’s all kinds of ways in which this financial infrastructure works that none of us really understand. It turns out that it may have also included the people running Robinhood, to be quite honest. And so, you know, we know what payment for order flow is. Now, we know that, you know, some companies like public have completely eschewed it. You know, folks like Robinhood make a ton of money from it.
I think it’s clear that, you know, Elizabeth Warren to AOC, to whomever are going to now spend a bunch of time talking about it, it may or may not change. But before the problem with the whole situation of GameStop actually doesn’t really surround that, because it’s more of a symptom, the real problem was what led up to it. And what led up to it was, you know, the insistence that a bunch of organizations needed access to a preferential set of data, so that they could theorize and
theoretically participate in that order flow before. And the second was that the rules for, you know, certain organizations are different than those for banks. And so, you know, hedge funds can lever themselves up to such a massive degree, that you create that, you know, LTCM type of issue, where, you know, you take 5 billion, and all of a sudden, you have 1.5 trillion. So that shouldn’t happen, right? So we need to figure out how we can actually deal with those systemic issues upstream. And then we need to have better
disclosure downstream, so that consumers can choose, hey, listen, if you want, you know,
PFOF, by the way, as I’ve learned in the last couple days, payment for order flow is actually
not necessarily such a bad thing in certain cases, because it actually guarantees better price
execution, in some cases, but that’s not always true for options. I think it’s somewhat more true
for stocks, there are, you know, for example, like Jason, when you asked me, you know, I asked the
team at SoFi, like, you know, what’s the, how much, how much is, how much is made on payment
for order flow? And the answer was $1.5 million. And the forecast for next year was like 400k.
So that’s materially different than $400 million, right? So you start to figure out like, okay,
how should we think about these problems? And I think that’s what we have to face,
we have to get answers to these questions.
Yeah, there’s definitely going to be a lot of investigations into this. And
thinking it through, I think there are kind of three possibilities here.
When you, when we analyze this, now that we’re a week out from it, I think, all going down,
which is, was there poor communications or other non disclosures in place, right? We’re trying to
figure that out with Robin Hood, it feels like there’s both right there, there could very well
be non disclosures with this private company, the DTCC. I mean, obviously, they could have
optimized communications. And then was this a black swan event? Or to your point, is it poor
preparedness? Chamath, we have to figure that out. How prepared are these companies to deal
with this kind of stuff? And then is it really bad optics that Citadel and all these people are
involved? Or is it a conspiracy, a grand conspiracy? And then if there’s going to be an
investigation, it’s going to be pretty hard to cover up any conspiracy, right?
Can I offer one idea, I think that there are certain, there are certain parts of the economy,
or, you know, the way in which the world works, where you, you can’t distinguish,
you know, bad operational capability and black swan events. I’ll give you an example,
airplanes. There is just no situation where you can say a plane crash was a black swan event and
you move on. Right. And we decided that a long time ago. And so as a result, just the amount of
risk management and compliance is so high that every time something like that happens,
it’s an enormous process. And we’ve seen that in the 737 thing for Boeing.
Yeah, 737 Max, by the way, that just got settled, too, for just 2.5 billion,
which is kind of crazy. Those planes are back on and nobody went to jail.
Right. So that’s an example. At the other end of the example, you know,
we have things that have happened, like on Facebook and Twitter and Instagram and Snapchat,
which is like, hey, all of a sudden, like, you know, certain kinds of content or certain things
happened, like the Christchurch mass shooting. The societal judgment there was that that was a
black swan event, you know, we don’t need rules and regulations. And so I think that another
important question that we have to ask is, is the financial plumbing that, you know, sort of allows
the capital markets to work and specifically the financial plumbing that allows retail normal folks
to participate in order to try to make money and get ahead? Should that be deemed more like
what you said, Jason, black swan, like infrastructure, where it’s like sometimes
shit happens, and we just move on? Or is it more like an airplane crashing where you say,
none of this stuff should be allowed to happen?
Can I can I add one more point to that, which is, I think that it’s frankly spin
to be trying to characterize concerns about what happened as a conspiracy theory.
You know, I heard Vlad use that word and Jason, now you’re you’re echoing the company’s talking
points. The reason this is not a conspiracy is because Citadel is on both sides of the trade.
It’s a conflict of interest. We should be using the word conflict, not conspiracy. Now, the
question is, how do we interpret that conflict of interest? You have company, you have Citadel
providing payment for order flow. So they’re basically executing Robinhood’s trades,
they’re their biggest customer. And then at the same time, they’re moving in
and they’re backing up Citron and Melvin. So they’re on both sides of this trade. How does
that work? How can we not have questions about that? And to then characterize that? Oh, it’s
a conspiracy theory. If you have questions about it, really?
No, I’m totally fine with people having investigating if there is a conspiracy,
right. And the conspiracy that people were floating is Robinhood was told to stop trading
these stocks by Citadel. That did not happen. If that did happen, that would be explosive and
impossible to cover up. What it was is just as DTCC have some influence or to Citadel have
influence on the DTCC? You know that those are the questions that I think remain unanswered.
The DTCC is a cooperative. So it’s a collection of its member organizations. So by so I think
what we’ll we’ll find out which organizations were part of DTCC, who made the decision,
who then told Robinhood, you know, we’ll also find out, by the way, who put in the money to
Robinhood, you know, did they have a direct beneficial interest in them having these DTCC
make that decision. And so I think we’re David’s right is like, imagine this conflict of interest.
I now let’s just use me as an example, I as social capital, I am buying their order flow.
I am also a member of the cooperative. I’m also backstopping their investment. And now all of a
sudden, you would say, well, Chamath, your hands are way too messy here, right? Like your your
fingers are in a lot of pots. And how do I know what do you know, exploding message on signal
wasn’t sent? You don’t know? You don’t know? Yeah, all we do know is that you had all these insiders,
right? You had, you had Citadel, you had, you know, this industry consortium, whether it’s the
collective or Citadel individually, they were under pressure by the industry. And at the same
time, you had these outsiders, you had these Reddit kids, who had basically taken them for
$20 billion, right? They had finally figured out a way to beat the insiders at their own game.
And just at the moment that these outsiders were winning, and about to deliver the coup de gras
and bust these guys out of the business for good. Somehow the insiders managed to tip the board over
and start a new game. That is what people are reacting to. And look, I mean, you know, I’m not
saying that I don’t know why Vlad would have done it unless he was frankly forced to do it, right?
Because why would he? So I’m not blaming him. But there is something fundamentally very corrupt
at the way that the system and these insiders who have all the power and all the money,
when they finally got threatened, they basically figured out a way to turn the board over the
outsiders. By the way, the the other thing that isn’t getting covered, and this is going to be
the tragedy of this is, none of us really knows the cost of the $3.4 billion that they took in.
I’ll tell you the only group of people that are for sure going to get completely creamed in this
which are employees. Right? I mean, we know that you think they’re going to get too much preference
stack because they got they got diluted. Oh, my gosh. I mean, how do you not put three? Do you
put $3.4 billion in at par who would do that? Yeah, I think that’s what’s exactly happened.
I don’t have inside information. But I think that’s exactly what happened. Yeah,
that’s my I mean, if I think that or perhaps a discount to the IPO, which is eminent from what
I’ve been reading online. Yeah, talk about terrible timing, too, right? I mean,
they were trying to go public this year, Mike, like this may be terrible timing,
or maybe perfect timing. I mean, it may be that, Jason, if it turns out that they were able to,
I mean, then it then it creates a whole host of issues, which is how stupid are these investors,
but if that is, in fact, what happened, because you look at the, for example, the
the pound of flesh that you know, Silverlake got out of Airbnb, what a brilliant trade. I mean,
so like, if there was one organization, explain it to me. That was my deal of the year from last
year from our from our bestie awards. Yeah, go ahead. Explain it freeberg. Yeah, they put in
debt, and then they got warrants. And the warrants ended up making them silver Lake
Forex. It’s insane. They made they made like three $4 billion.
Right, but the company’s worth over 100 billion now. So as downside protection during a pandemic
that could have gone on for three years. No, no, that’s the whole point. If you think about
if you think about the trade of the great financial crisis, it was Warren Buffett putting
capital into Goldman Sachs, which was and Swiss three, he did the same deal. Yeah,
he did 5 billion into each of them the same weekend. Exactly. And he said, Hey, guys,
everything is fine. These guys are going to be fine. They’re backed by by Berkshire. And it
turned out everything was fine. And, you know, he made he made an incredible fortune. And I think I
mean, on top of his already fortune. So the point is, he made a great trade. I think that in the in
the silver Lake example, they did the exact same thing. They were like, Hey, guys, we believe in
this, everything’s going to be fine. And when all of us were literally losing our mind, because we
were stuck in our apartments and houses thinking the world is going to end. Silver Lake saw they
had clarity, they did a deal, which was the trade of the year, David’s right. And so similarly,
you would have thought that this moment was the opportunity for the trade of the year of 2021.
I mean, we’re early on, but all I know is I’ve been getting increasing offers for my Robin Hood
shares in the secondary market, you know, throughout two questions here, we have been
having a hard time understanding who’s short, what the short interest is. There’s a bunch of like
data companies that are providing estimates. And maybe the data is only clear best, you’re right,
the best source of data that I have access to is a company called market m a r k it,
they’re, they’re, they’re quite large. But as of this Friday, the short interest was still,
I think about 50% in GameStop. And so it’s been it’s been ebbing down, I didn’t check today.
Well, the report was it got cut in half, again, and that there was a very small short interest
now, but the stock dropped another 60% today. So obviously, if you’re short the stock, you may start
buying and taking your profit and your gains and going home at this point and moving on. So do we
need to? Is this going to start a discussion of transparency and shorting? And should all that
information be short? Should you be allowed to short more than the shares that are available
or that are available in the flow? I think and should we readdress shorting in general?
No, there’s a there’s an even I think shorting is a healthy component of the market. And I
wouldn’t I would leave it alone. Because there I think there are some legitimate organizations
that short for three reasons. Reason number one is that they are developing a market neutral
strategy for their clients. And people are should be allowed to pay for that, right? Number two is
people are directionally betting on a trend or investing on a trend. And they are trading that
against potentially some other position where they are long. So that’s an explicit view less
about being market neutral. And then the third is that some people see outright frauds, and they’re
trying to vote loudly that, hey, listen, there’s something untoward happening here. So I think
shorting is really good. I actually think the simpler solution. And listen, and tell me if
you guys agree is just go to t plus zero settlement. Why all these margin requirements
go away altogether. The problem, the reason why we have all these margin requirements is all of a
sudden you have this weird 2048 hour period that you know, it’s like, oh, wait, who’s got the
shares? Do I have the shares? No, do you have the share? So they did I lend them to you? Did you
lend them to me? Are you going to pay me first? Am I going to pay you first? And instead, you know,
this is the kind of thing where it’s like, in 2021, this should be real time and automatic.
Every, every share should be every share should be ID right? And then you should know exactly
where it is. You know, by the way, there’s another point that there’s another point that
Chamath didn’t make, which is that there is a benefit to the long holders and equities.
When there is shorting of that equity in the market, which is that they’re getting paid
borrow on those shares. So for folks that don’t realize or their broker is, but you can access
that borrow. If you own shares in a company that you’re going to keep holding, let’s say you own
some shares in Amazon, and someone else wants to short Amazon, they have to borrow those shares
from someone, and they’re paying a fee, an interest rate to borrow those shares. And so the cost to
short a stock is actually not zero, you have to pay a borrow to borrow someone else’s shares.
So if you’re holding those shares in Amazon, you can actually make money. If you have the
appropriate broker relationship for those shares being sold short by someone else. And so this
isn’t just a people are coming in the market and slamming down stocks, they are paying the people
that are long the stock for the right to borrow their shares and sell them ahead of you know,
buying them back later. And so in the case of GameStop, I think the cost of borrow got so high
that you’re basically paying 30 40 50 60% you know, interest rate to borrow GameStop
shares to sell them short because there was so much interest in selling short.
But there, you know, there is a market dynamic in the cost to sell short that,
you know, that doesn’t come at a kind of negligible or free cost.
The my initial my introduction to shorting in that example was when I first bought Tesla
that, you know, my broker said, you know, Chamath, if you lend your shares out,
you can make 24%. I remember this conversation 24% a year interest, right? And I thought,
Oh my god. And then I said, Well, what am I really doing? And he’s like, Well,
you’re allowing people to bet against Tesla. And I said, No. And I just kept the shares.
And I was like, I’m never going to allow people to really. And since then, to be clear, I’ve never,
I’ve never ever, ever allowed my shares to be borrowed ever. And it’s just a philosophical
decision. I don’t like shorting. But I believe that you should be allowed to do it.
I mean, if you’re going to be a long holder, anyway, you’re saying I’m going to hold these
shares for five years, 10 years, whatever, I just, you know, it’s a way to juice your returns.
It’s true. It’s how a lot of people think about especially mutual funds that own
large positions and stocks, they’ll, they’ll make really good juice returns,
because they’re getting paid to borrow.
David, it gets even better if you’re if you’re running a levered book, because then you know,
you take a buck, you spin it up to six bucks, you buy six bucks at Tesla. Now, all of a sudden,
you’re earning 24% on six shares, even though you’ve notionally bought one share.
Right? I’ve still never done it. I can’t I can’t bring myself to do it. I just feel like it’s just
so smart. I just can’t do it. I just like it’s like, how can you be long and then bet against
your own company? I guess?
Well, yeah, it doesn’t make sense. But tomorrow, I’m sorry, sax, should we limit the amount of
shares that can go short against a company in some way? And should we add a transparency where
if you short more than x percentage of those shares, we know your short position,
because that seems to be also very confusing here. There are people speculating on Twitter,
that the Wall Street bets crew and I have no knowledge of this or other hedge funds came in
and saw this mess. And that what we’ve seen the last couple of days, where other people shorting
had 300. Or it could have even been the same traders or some portion of the traders who ran
this up with the short squeeze, then flip their position from long to short.
Yeah, I look I clearly we need more transparency, we need to resolve some of these conflicts of
interest prevent them from happening. I think a lot of the users of Robinhood didn’t understand
that they were the product, not the customer. That that is a real issue. But let me let me
kind of uplevel this and speak to the politics of this because something really interesting happened
you had everybody from AOC to Ted Cruz, basically denouncing what happened here taking the side of
Wall Street bets against these Wall Street moguls. And so what you’re seeing now is a new fault line
in American politics in the post Trump era. It’s not just about left and right anymore. It’s about
insider versus outsider. And I think this is going to be a major, major theme that we see.
And let me actually I want to I want to share something, you know, I just wrote a blog post
called the insiders game about this idea. And I found a passage in Elizabeth Warren,
Elizabeth Warren’s book, which is really interesting, because it describes how the
insiders game works. And the person who described it to Warren, is Larry Summers,
none other than Larry Summers, who was the former Treasury Secretary under Obama,
he was president of Harvard, he’s the consummate insider, and he taught the insiders game to
generations of Harvard students. So here’s what he said, he presented Warren with a choice,
he said to her, she said, I could be an insider, or I could be an outsider.
This is from her memoir, in 2014, a fighting chance. She wrote, outsider recording Larry
Summers, outsiders can say whatever they want, but people on the inside don’t listen to them.
insiders, however, get lots of access and a chance to push their ideas.
People powerful people listen to what they have to say. But insiders also understand one
unbreakable rule, they don’t criticize other insiders. That is the insiders game. It’s a
protection racket, where these powerful insiders, these powerful elites of Wall Street, of big
business, big media and politics, they get together, and they protect each other, no matter
how incompetent they are, how corrupt they are. Silicon Valley, Silicon Valley, they’re involved
in this too, but big tech. And this is the revolution, I think that’s going to happen.
I think Trump was kind of a forerunner of that is that we are going to see a movement
of people across this country who are sick and tired of the insiders game. And they’re
going to rise up and vote these insiders out of office and put in some new people
who aren’t beholden to these powerful special interests.
What you’re speaking to is populism, right, Saks?
You can call it populism. I call it insiders versus outsiders.
I think it’s, it’s going to be very important for folks to not be a career anything,
meaning career executive, career politician, career regulator, career, what if every year
in sort of like, if you can put that word in front of your sort of existence, I think what
people will see is someone who, as you said, thrives on being an insider. And I think that
there’s just going to be a ton of distrust career school administration official, you know,
career admissions person, career, anything now is not what you want to be, you want to be sort
of a little bit more dynamic, because you can have multiple arcs to your life, and you’re
not beholden to anybody.
I mean, I think it’s a it’s not as black and white as institutions are bad, or institutions
are good. There are there are many examples where the institutional framework allows for
continuity and performance over time. You know, a lot of Trump’s rhetoric, and I, you know,
and I, you know, I know that we’re, we’re past the Trump era at this point. But there was a lot
of conversation about this notion of a deep state, because there was frustration with how some or
many of these institutions, government institutions were operating. But if not for that deep state,
we may have found ourselves in a lot of very ugly situations over the last four years,
that there really were layers and layers of career public servants that did incredible
and incredibly heroic things to preserve democracy to preserve the rights that we all
hold dear in the Constitution. And those were, you know, really important roles. And the
institution played a really important role in providing continuity and providing trust and
security. And so I think it’s easy to bash institutions when things aren’t working
perfectly. But we also have to keep in mind that it’s not that all institutions are always bad.
It is absolutely true that there is corruption, but there’s certainly benefits that we have to
kind of not not allow populism to become a runaway framework for how we deal with everything
we’re frustrated with. I’m not saying that I think I think what I’m saying is institutions are
critically important. But now I think we have to change the rules for how you can be a part of
them and then how long you can stay. So for example, like if the rule was, you know, you can
only be a two term politician. Wow, that would be what a cleansing effect that would have on anybody
that chose to serve in politics, up and down the board, you know, at the federal level at the state
level, two terms in and out, California, California has that, you know, we have a 12 year limit,
right, in the State Assembly and Senate. And so, you know, I think we’re seeing that happen in
progressive places like California. You know, obviously a good segue. But very, I think very
much agree that that the notion that there needs to be, you know, we talked about this last time,
we need to ensure that the institutions don’t become beholden to special interests,
and, and that there isn’t accountability, because the failure, the lack of accountability
is really where things bloat over time, because you just add stuff on you don’t ever
take stuff apart. And, and ultimately, you have kind of an inept, non functioning institution.
So let me give you the report card on California, and then we can figure out
if term limits can’t fix it, what can fix it. So here’s just some data points.
First, I’ll do one section for section number one economy and jobs, nearly the highest unemployment
rate in the US at 8% plus highest poverty rate in the US 18 and a half percent of all Californians
highest income taxes in the US 13.3% $30 billion of potential fraudulent unemployment benefits
from 2020 11 billion already determined fraudulent doubled the oil doubled the oil and gas drilling
permits instead of incentivizing, you know, maybe climate or biotech or tech jobs,
a $227 billion spending pan spending plan for 2021. In terms of quality of life, highest
homelessness in the country, worst graduation rate in the country around 17% of students in
California don’t graduate the worst slash highest cost of living in the country and the worst
wildfires in the country 1.8 million plus acres burned on COVID-19 third highest rate of COVID-19
infections in the world 658 cases per 100,000 people, and then the worst vaccination deployment
in the US around 50%. And then culturally, I didn’t know this. I don’t know if you guys know
this. But here are the number of companies. This is just a subset that have left California, Toyota,
Charles Schwab, Tesla and Oracle in some way, shape or form, which is estimated now to have
cost California $77 billion of future revenues and 300,000 jobs over the past few years,
nearly 3 million people have left the state 53% of Californians want to leave the state and 63%
of Californians believe the American dream is dead. Okay, so if let’s let’s go and figure out
okay, so if if term limits at 12 years don’t work, what do we do? Well, I think I think we have to
have politicians who stand up to special interests aren’t in the pocket of special interests. I mean,
the problem we have in California, the biggest problem, the reason why California is such a
mess is that we have government of the special interest by the special interest for the special
interests. I mean, the politicians in Sacramento that we have a one party state effectively,
and they are beholden completely to these special interests. Look at the deals they make. I mean,
so example in California, we have over 340,000 public employees who make over $100,000 a year
that cost taxpayers over 45 billion. Okay. And you know, we have lifeguards making a quarter
million dollars a year. It’s crazy, right? I mean, because the people making these deals are
are in the pocket of these of these government unions, they’re the biggest contributors to
California politicians. And, you know, this is my fundamental, I guess, concern or beef with
with Gavin Newsom is that, you know, fundamentally, you know, he’s worked his way up the ladder of
California politics, by, you know, by basically benefiting from these special interests
throughout his rise, you know, you step by step, he’s never challenged the insiders,
or any special interests. He just kind of caters to this political class. And so,
that’s why I think fundamentally, he’s not going to be part of the solution.
It just feels like every job he’s had in politics is just a stepping stone to get to the next step.
And even the governorship now is just a stepping stone to get to whatever’s next.
And I think, you know, Californians are tired of being stepped on in this way.
I mean, there are some structural challenges in the state, right, guys, I mean, like,
we should not forget the fact that there are some voter mandated, supported propositions that have
passed over the last couple of decades, that really create a structural challenge in terms
of how do you allocate resources and capital and how can you effectively govern in this state?
You know, the three that are often highlighted is prop 13, which passed in 1978, which is the state
property tax limits. We’ve talked about that one. I believe in the past, there was a proposition for
in 1979, that limits the amount of money that states can appropriate, that the state can
appropriate and then prop 98, which passed in 1988. And this is the big one. Prop 98 has been
challenged in courts. And there have been, you know, many, many kind of efforts at finding
loopholes and getting around it and litigating it. But it mandates funding levels in the state
from pre-k through community colleges. And it creates a structure that is really difficult
to navigate around and really difficult to operate or manage. It’s almost as if you guys
were running a private company. And your board said, here’s how much you as the CEO have to spend
this year. And here’s how you have to spend it. It is such a difficult decision, you know, for the
governor to have to kind of say, well, you know, I’m going to make some changes to that because
he’ll end up in court. And so, you know, I want to just kind of highlight that there are structural
challenges to the way the state operates. And obviously, to get a lot of things done, you still
have to pass through the state assembly and the state senate. And it’s not as simple as making,
you know, better decisions in the governor’s mansion. I think there’s a lot that we have to
kind of resolve structurally in the state. It’s going to take a long frigging time and a lot of
cooperating parties to get there. And so, you know, I know for those of us who are very much about
making fast, quick, and accurate decisions, you know, good decisions, this is a really difficult
place to do that, the state, the way the laws have been set up and the way that the legislature
has oversight. Well, I mean, look, you’re right, but this is why we need real leadership. We need
somebody who’s going to come forward and say, listen, we need to change this proposition.
Another one we need to change is Prop 47 that decriminalized a whole bunch of behavior. I mean,
crime is exploding in the state. That proposition needs to be looked at as well. I mean, we need
somebody who’s going to come at government from a completely different perspective, which is
to think about the citizens of California, first of all, to pay attention to the middle class of
California, and to think about us as consumers of government services who need to be satisfied.
And right now we have, if you were to think about the services government’s providing,
people are churning off of it. We had net immigration of 135,000 people net left the state,
right? You know, 40,000 families in California pay about half the taxes.
If say 10,000 of them leave, we’ve got a giant hole in the budget that no one knows how to
replace. And we have no idea how many people have even left, how many families have left the state.
So, we really need leadership here to not just go along with the special interests
who are in power and who are willing to stand up and push for some of these reforms.
By the way, I think it’s worth just highlighting some of these numbers because they also speak to
the structural challenge in the state. The state of California generates about $140 billion in
revenue. 70% of that comes from personal income tax. And as Saxe pointed out, half of that comes
from the top 1% or 40,000 households. It is a heavy weighting. And by the way, that top tax
rate of 13.3% applies to households over a million dollars of income. And for those that don’t know,
you know, there’s income strata that are defined by the state. And depending on what strata you
end, you pay a different tax rate. The highest strata is making over a million dollars a year
where you pay 13.3%. And that’s where these 40,000 households cover most of that budget.
And 20% is sales and use tax and 10% is corporate tax. To speak to the corporate tax rate for a
second, you know, that’s 10% of our revenue as a state. We charge a 9% average corporate tax rate
in the state to operate. That’s incredibly high. And it’s one of the reasons besides kind of the
challenge that Elon and others kind of made very public here over the past year. But that corporate
tax rate makes it very difficult to operate in the state relative to other states that are offering
no tax rate, lower cost of labor, and less of a regulatory burden to operate. And it’s why we’re
seeing an exodus not just of people from the state, because the services are obviously not
being well managed, but also of businesses, you know, finding a better place to operate.
In Canada, there’s an approach that I think is really useful here, which is that, you know,
the Canadian government offers credits called shred credits. I can’t remember if it’s at the
federal level, but it’s definitely in the state of Ontario, because I’ve used this for for some
of our companies, you hire engineers, and you can basically capitalize their salary,
and you can offset their costs so that when you’re a young company, you’re effectively playing
zero tax, or if you’re a small company, you effectively pay zero tax. And that seems
really right, you know, where you’re a small business person, and you know, you’re holding,
you know, 510 employees, and you’re making, you know, a million bucks a year in revenue,
whether you’re a restaurant or a software company, you basically pay nothing.
But then at the other end of the spectrum, you know, when those credits, when those credits
burn off, theoretically, if you’re a Facebook or a Google or an Amazon, now, all of a sudden,
you know, you can pay a much larger percentage of, of what to do. And I think that there’s all
kinds of progressive tax schemes that work on the corporate side. There’s a bunch of tax credits that
you can use to sort of incentivize certain kinds of jobs. And I think you’re just much better off
because then, you know, these companies can’t leave if all the people want to stay in one place,
I want to highlight one more structural problem. So even if you do resolve that,
even if you do resolve these propositions that have passed, that have passed in the past,
and are causing us problems in terms of budgeting and ability to budget adequately going forward,
one of the other challenge and even if you do resolve the tax structure to generate a more
balanced revenue model that allows for innovation and allows for employment allows for opportunity,
we have a, this is an interesting stat I found this week. What, what, how many Americans,
I’ll just say the number one out of nine Californians are a member of a public pension
fund in the state of California, one out of nine. And the public pension funds in California,
as of the last reporting, are roughly $250 billion underfunded relative to the payment
obligations they have to their members think about that for a second. So not only does the
state have a lot of debt, we’ve got a $250 billion hole for paying people money that they
believe their own in the future. And that is creating a massive problem where the state
needs to figure out how do we fill that hole? How do we meet these obligations to our citizens
who worked who earned what they believe to be a fair income stream for the rest of their lives
that they may not ever get, you know, and so, so we’ve got both the legislative problem in terms
of how the state is structured. We’ve got these propositions that have passed that kind of,
you know, buckle down the governor and buckle down the decision makers in terms of what they
can and can’t do legally. We’ve got an income generation problem with respect to concentration.
And we’ve got some of these, you know, heavy burdens on us like health services, but also
this underfunded pension liability, that is almost like such a priority. And no one’s really paying
attention to it because the sirens are going off. And meanwhile, the service providers in the state
are completely effing up the service that they’re supposed to be providing. You know,
highlighted a bunch of great ones in terms of fire response and whatnot at the beginning. And
obviously, the vaccine rollout we know is just completely flawed. But, you know, here’s another
interesting stat, the California EDD, this is the link I just sent out, by the way, on our on our
zoom chat, but there’s $114 billion in unemployment claims paid since COVID. This is an insane
statistic, but it looks like roughly 27%, or $30 billion of fraudulent claims were paid by the EDD
on those unemployment claims. So the folks that are actually running these institutions themselves
aren’t even operating well. You know, not to mention the actual huge liabilities the state
has accrued over the years and the structural deficiencies. So as much as I would love to,
you know, kind of propose that we could all come up with a simple solution. This is a complex
friggin set of problems that probably require several books to resolve. And I just want us
to be honest and real about that, that this is, you know, this is going to be a challenging issue,
probably for decades to come for this state to get itself out of the holes it’s dug itself into,
you know, one thing I’ll say is, as goes California, so goes every other state, and so
goes America. Because if there’s one state that theoretically you think would have been positioned
from a human capital perspective to figure these out and political will, it’s this state. And if
this state can’t figure it out, we’re in a whole fuck ton of trouble. Well, we’re not doing a very
good job figuring it out right now. That’s why we need to make a change. I mean, David, you’re right
about the magnitude of the problems, the challenges, but it all starts with some sort of,
you know, outsider rebellion. And that’s what’s going on with this recall. That’s why we have
to support it. It’s why I support it. It’s not going to be the end of the, it’s not the, it’s
the beginning of the solution, not the beginning of the beginning, the beginning, it’s the beginning
of the beginning, but we need to create an institution to solve the problems over time,
right? It’s going to be, it’s going to be the coalescence of what you’re pointing out,
which is the, the, you know, the, the, the will of the strong, the will of the rebellion
to figure this out and resolve it over time. Well, the institution may be the all-in pot, but,
but, but let me, let me build on, yeah, but let me, let me build on, yeah, I would,
actually, Jay Kyle, you posted a tweet saying, what should we call our party? And
anyway, my suggestion was the outsider party. Yeah. But let me, let me build, let me build on,
on Freeberg’s point about the pensions. Okay. Where did these giant underfunded
pension obligations come from? Because I think that’s a really important point to explain.
So here’s what, what basically happens. If you’re a government worker in California,
you could typically retire after 20 years with all of your benefits and, and not just
a hundred percent of your salary, but the salary you made in your last year. And so what happens is
when people get to that 20-year mark, they get a lot of overtime. And so that’s why we’ve seen
articles about people retiring, you know, after, you know, if you’re retiring after 20 years,
you could be in your forties. Okay. Well, wait, don’t you get half pay for your pension? So they
double up their overtime, they get to 250K, then they get a pension of 125. You don’t get your full
salary every time you get your half salary. There’s a, there’s a complicated formula,
but the point is you can stuff it with overtime and it’s very generous. And then they can go,
because they’re still in their forties, they can go get another government job somewhere else
and then stack that pension on top. And then by the way, it doesn’t just last until they die,
but it lasts until their spouse dies. So now there was a proposal years ago to move this whole system
to like a 401k type of system. And it was squashed by who? The unions and Newsom opposed it because,
you know, he doesn’t do anything that the unions don’t want. And so we have these completely
unsustainable pension liabilities, everybody can see this train wreck coming, but nobody has the
guts to stand up the unions and do something. Yeah, I mean, there’s very few careers that
still offer pensions, even the New York Times, you know, over a decade ago, got rid of their
pension because people live too long, they retire too early. And then the cost of health care is
just so ginormous here, that it’s going to crush any pension fund. So you have to move to a 401k.
And we’re, it’s kind of hard to say to a cop, or a firefighter who’s running into a burning
building or putting themselves in harm’s way that they don’t get one because it’s such a high risk
job. But we really do need to think of something more reasonable, like a 401k. And that’s coming
from my entire family is, you know, cops and firefighters and of service in New York City.
And they all have pensions. And you are right, David, there is a tradition of trying to get a
little extra overtime, because they average out usually the last three or four years to give your
average salary, the to base your pension off of. And then of course, you can do another job or go
work, go from a firefighter to a cop, vice versa, garbage, sanitation worker to get those things.
We didn’t talk about the nimby ism, and how extraordinarily hard it is to build homes here
and how extremely expensive it is. A lot of the young people who are thinking of coming to
California are looking at the housing prices, they want to come here to start companies,
they love the California vibe, but the housing is a non starter, you can’t live in the peninsula,
or anywhere in the wider Bay Area unless you are, you know, a dual household income with what 400
500 $600,000 minimum, minimum, and that’s not even counting private school, but you’re talking about
where are there sub $1 million homes within the proximity of the Bay Area, they don’t exist.
You go to Austin, and I’ve been looking at Austin real estate just coincidentally,
and there are many homes that are $300,000 that are $400 a square foot everywhere within
3040 minutes of downtown Austin, and that’s where young people are going. And then finally,
if we look at our to law and order, David, we are not treating fentanyl like the super drug it is,
you know, it’s one thing to have drug reform and to have prison reform, we know these are
important, but you can keep that in your mind, that we want to make a more just legal system
while at the same time, not allowing people to deal fentanyl. And if you just type into Google,
fentanyl versus heroin, lethal dose, and click on the image search, you will see two vials,
and it’s a very famous photo, where there’s like, you know, a pinch of, you know, heroin,
that’s the lethal dose. And then in the other vial, there are like seven grains of fentanyl,
and that’s the lethal dose. And we are conflating a homeless problem with a super drug.
Yeah, can I can I add to that? So, so, so, you know, I was on the side of decriminalizing
cannabis. And I think that there were, and I think that there, we we overcharge too many people for
drug crimes when they were just users and should have been in treatment. And that’s why I think
there’s been a reaction against over incarceration. And I understand that. But I agree with you that
fentanyl is in a separate category. It is the super drug. And here’s the problem. It is so
powerful. It is so addictive. It is so destructive. Nobody can hold down a job and get off that drug
once they start once they start taking it. I mean, it’s just game over. So they end up living
in the streets and turning to crime and petty theft to support their habit. And that’s the
situation we’re in today. And we have this growing mass, this massive numbers of people
living in the streets addicted to the super drug. And we got to stop it. We got to get tough on this
because it’s just, you know, right now, the solution that our DA seems to be pushing,
whether it’s Gascon in LA or Chase Abudin in San Francisco, is they’re just not prosecuting
anything. You know, we had Prop 47 downgrade a whole bunch of property felonies to misdemeanors.
And now the DAs are prosecuting the misdemeanors. So they basically just decriminalize burglary.
And so you’ve got all these, you know, drug addicts, living on the streets committing
these crimes, and they need to be in treatment. So I think part of what we need to do here,
I actually think this is a big investment California needs to make, we need giant
treatment centers to address this problem. And if somebody gets caught committing a crime,
and they’re addicted to drugs, I don’t want to send them to jail, but I would make them go to
treatment, we have to think about true compassion, true compassion for somebody who is addicted to
fentanyl, is getting them off the street and getting them into a rehab program, or giving
them the choice of going to jail for the crimes they may have committed so that there is this
pressure to go into treatment. Just to give you a stat in 1999, we had like 18,000 overdoses,
we’re now over 70,000. And if you look just in San Francisco, we’re talking four or five times
the number of overdose, overdose deaths to COVID deaths. This is a level of human suffering that
just makes no sense. And it’s such a nuanced discussion, right? You can’t, you can you have
to be able to hold into your brain that cannabis, you know, psychedelics, MDMA, psilocybin,
you have a long list. I have a long list here of the drugs that you want to be recreational.
Here are the drugs. I’m a fan of good. Here are the drugs that I don’t take bad.
No fentanyl, I think you just have to look at the the chance of recovery, and the chance of
addiction and fentanyl and heroin are just tragedies, tragedy.
We also have to like have the courage to actually not look at just the symptom. Like,
I think treatment centers are a great idea. I think not sending people to jail is like an obvious
idea. I also think if you take two or three steps back, and you think about what are the two things
that send people off the rails? Number one, I think is lack of a job. And then number two is
a lack of mental health resources. You put those two things together, it’s you’re done. It’s like
it’s like kindling and it’s like kerosene and a match all in one and boom, it goes and you know,
we didn’t need to know that answer because you saw that over the last decade building up in the
Rust Belt. So we knew that that was the those are the boundary conditions for this. So how do you
get people back to work? How do you actually give some men, you know, the crazy thing about Reagan,
I mean, we all forget, but Reagan was the one that defunded all of the mental health institutions,
you know, when he was governor of California and sent all these folks spilling into the streets?
Well, think about how many jobs that would create if we brought back, you know, psychiatric
facilities and made them free. This is where if we look at healthcare, not having a national
healthcare program, especially for mental health, is costing us more on the other side, when it
comes to suicide, mental point, like if we’re going to spend money, and if we’re going to be
in debt, be in debt for the right reasons. Like sure, find a way to be accountable and
transparently spend money. That’s fine. Spending money is fine. Government should not be for
profit. You know, government should, I don’t even think government should be breaking even,
I think that government should be generally running at a loss. And then the net GDP,
as long as that’s positive and accretive, we’re doing right as a society, right? So
government should be doing the things that they need to do for people to have an even starting
line. But I just want to Yeah, go ahead. Sorry, tomorrow. No, I was just gonna say that that’s
where we get it wrong. Because like, we, you know, we like pat ourselves on the back when
the government turns a surplus. And then we know we like explode when a government runs a deficit
instead, they’re managing to the political theater of a number instead of really understand how to
run a business. But I just want to be clear, like, the entire premise of how that is run,
and how we think about this from an economic point of view, is that we have to have GDP growth.
And if you don’t have GDP growth, the whole formula fails. So let’s just break this down
in a simple way. If I’m working, and I’m making 60 grand a year, I can take out some credit card
debt, knowing that I’m going to make an extra 10% next year, an extra 10% the year after,
if I know my income is going to climb, I can afford to take on some debt, which means spending
more than I’m making right now, because I know that in the future, I’ll be making more than I
am today, and I’ll be able to pay down that debt. And so the whole premise of how we run government
is, we should run at a deficit, we should accrue debt, we should build infrastructure. But in order
for that work to work, I have to increase my tax revenue in the future. And there’s two ways to do
that raise taxes, or see significant GDP growth. And if you raise taxes, you suffer the problem
that California may be suffering now, which is very high net worth people leaving the state,
which is going to cause a collapse in the revenue stream, and the whole system fails.
If you want GDP growth, well, you have to kind of enable the system to allow for GDP growth,
which means reducing taxes and growing housing. But the problem is the life that people want to
live doesn’t necessarily mean that we need to have and so this goes back to the housing question,
do we need to have more business growth in the state? Therefore, do we need to reduce tax rates
to encourage business growth? And by doing so, we have to also build more housing. And the reason
people want to build more housing is because they want to see more business here. And the whole
premise is kind of flawed. If at the end of the day, getting more business here means you also
have to lower tax rates and cause all those problems. It’s also how you have community.
And it’s also how you have diversity. Like nobody wants to live in a model culture where
everybody’s really, really poor, or everybody’s really, really rich. I grew up it’s so sickening.
I grew up in a place where everybody was really, really poor. I now live in a place where everybody
is really, really rich. And the model culture sucks. And instead, what you want is you want
transitions, you want people moving up, you want people moving down, you want the hard luck story,
you want the gut lucky story, you want it all. And this is where we’ve lost it. I’m going to
ask you a question, Friberg. Are you saying that if 40,000 people left California, we would blow
a $70 billion hole in the budget? No, we would we would blow a yeah, about 40,000 count for half
the income tax. So it’s about 35% of 140. Yeah. So we would we would blow a 50 $60 billion hole
in the budget. 40,000 people 40,000. Yeah, out of 60 million 40,000 homes,
40,000 homes out of 60 million 40 million out of 40 million. Yeah. Yeah.
40,000 similar thing happened to New Jersey and Connecticut when they had everybody moving down
to Florida. And so this is not unprecedented, especially with hedge funds and really high
taxpayers. You know, but what I’m Yeah, what I’m asking is, is there a better way where you don’t
have to depend on GDP growth to balance your budget and to provide the social services you
want to provide to the state? You know, of course, of course, not yet all it all starts with having a
healthy economy. I mean, always, right? Because that’s what generates the prosperity to pay for
all the social programs. And it’s to pay ahead of the curve, right? That’s my point is like,
we’re always paying ahead of the curve, which forces us to find GDP growth, which is how we
get stuck in these cycles and these problems. And this is true, not just of the state, but of
nations as well. And the US faces this and others, but by spending ahead of the curve by creating
infrastructure by creating social services, by setting up these pension obligations, the only
way to get out of the debt you’ve just taken on is to grow. And that creates all of the systemic
problems that ultimately lead to populism and all of these kind of frameworks for failure
that are going to ultimately end. Hold on, I disagree with that. Look,
growth is a precondition for everything else that’s good. Okay, growth, growth needs to be
managed. Okay, but it doesn’t growth is not the problem here. The problem is a set of policies
that are actually killing growth and driving entrepreneurs and innovators out of the state.
We saw Elon Musk leave the state why he said that California was starting to take its success for
granted. And I’ve been winning too long. Okay, California needs to realize it’s in a highly
competitive situation now. And because of COVID, you can work from anywhere and Austin has become
a tech hub and Miami has become a tech hub. And those states have no income tax. And we have
politicians in California just keep raising taxes as if we’re not competing against these other
states. Well, we are and people are leaving. We’re seeing a mass exodus here. We’ve got to realize
that we can’t raise tax rates beyond the point where people are willing to bear them.
This is the this is your I think your best point, David, is that what the great pause
did was it let people reassess their lives? How many people do we know who either left the state
change job, you know, broke up with the spouse, whatever it is, people reassessed everything in
their life. And what people uniformly came to was, why am I paying this much and getting this little
in the Bay Area in California, when I could get twice as much three, basically three times as
much in Austin or Miami, and not pay this amount of taxes, and be happier. And that is an existential
problem for the Bay Area. If you know, this is not just Elon Musk, or Larry Ellison, Oracle,
it’s also rank and file developers, and the developers don’t need to be in the office.
So you could have this massive middle leave to that nobody anticipates. And if all the developers
said, you know what, I want to be on the Reno side of Lake Tahoe, you know, I want to be in
Austin or wherever I’m paying less taxes, and I’m making the same money, and I got a better quality
of life. What do you guys think happened? So J. Cal, what what happens to California or Connecticut
or New Jersey? And what happens to Florida? Just tell me what I think it’s a death spiral for New
York and for California, where it unless the representatives in government start to represent
the people who are voting and living there, and voting their interests, as opposed to the special
interest to David’s point about the insiders, we have disconnected what the citizens of California
want from what the government officials are providing. They’re just not in sync. They’re
basically kowtowing to teachers unions or special interests, and not the people who are building
companies or just people living here, people want to build housing, and they won’t let them.
You can’t build apartments in Palo Alto or, you know, anywhere in the city. I mean, this is crazy.
You’re right. And the only middle class that’s gonna be left in California pretty soon,
are government workers. I mean, that’s it. That’s the only people gonna be making over $100,000 a
year in California are the government workers, because everyone who’s middle class who’s running
a business is just is finding it too difficult, and too difficult to earn with the level of
taxation that’s run their business, and their regulation, regulation, and they’re leaving.
I mean, just think about the regulation issues of doing any real world. I mean, you’ve done
construction in San Francisco. We’ve had businesses that are real world businesses with storefronts.
It’s, it’s jumping over hurdle after hurdle after hurdle. I have an idea down. It’s brutal.
What if whenever you started a company in California, you got, you know, three or four
years worth of tax credits for engineers in return for 1% of the equity that California
was not allowed to sell? Sure. I mean, some equity upside would be great.
I have an idea. Chamath, how about you run for governor?
Yeah, Chamath. There’s an idea. Why don’t you?
Isn’t that why we’re doing the emergency pod?
Saks, Saks, Saks, I think you should run.
We’ll be right behind you.
Have we disparaged you too much? Or has this been too difficult?
Let me let speaking of politics, though, I do I do need to tell the story. This is a complete,
complete non sequitur in 2012. 12 or 13. I can’t remember which year Mike Bloomberg
invites a bunch of us from technology to, to the White House Correspondence Center.
We’re like, yes, the White House Correspondence Center.
Of course, I went once a year. So, you know, myself, Ian Osborne,
Hossein Rahman, the founder of Jawbone. And I have two amazing stories about this,
my experience at the White House Correspondence Center.
Number one, well, three, number one is like, the dinner itself is kind of like a prom,
just because there’s just so many people, right. And so, you know, you have to have a rubber chicken
dinner, because there’s like 1000 people in the room. But the second was that Ella McPherson was
there. And I’ve never seen more incredible hair in my life. Just I have this image of this person’s
hair. And it was like the thickest. Like it was like, curly, but like it looks so soft. And this
is the most incredible hair I’ve ever seen. I think those are called extensions or a wig,
but go ahead. It didn’t look like that. It looked like real hair, but it just looked incredible.
Like like a lion, like the mane of a lion. And then the third story is I were in a reception,
there’s an after party at the French ambassador’s place, I start talking to this person randomly,
and there’s like all these stars everywhere. But I just start talking to this to this person. And
you know, she’s very chatty, and I’m chatty, chatty, chatty, blah, blah, blah, blah, blah,
we’re talking, talking, talking. And then at the end of this, like sort of like five minute
conversation, and we had not really introduced each other. She just kind of said, Hey, and I said,
Hi. And so we started talking. She says to me, you mind if we take a picture? And I’m like,
yeah, of course. And I and I had no idea what was coming. So I was like, so we take a picture.
And she serves to me and she says, you know, I think you’re really fantastic in parks and recreation.
Thought I was Aziz Ansari. Jesus Christ, how does this happen?
At least she didn’t call you Urkel. That was her second choice.
Oh my gosh. I love you in parks and rec. Anyways, that’s my that’s my interaction with politics.
I think you’re ready for politics, because you just avoided the question.
Let’s be really honest, like, I’m not ready to do any of that I what I need to do is I need to
figure out, you know, a my business and where it’s going. And then B, I do think it’s worth figuring
out what are the conflict of interest laws? And what do you have to do if all of this were to
come to pass? Because I could not make a credible decision unless I knew that. Because I just have
things that I want to do. And that to me are the most important things. Like I’ll just be really
honest with you, like I’m working on something in batteries that I think is, it’s important for a
lot of places much, you know, more than just California. And so like, if I have to abandon
this battery project, I wouldn’t do it, you know, just that simple. So I got to figure that out.
And you got to write down all the illegal things you’ve done on a piece of paper and all the
illegal things you’re doing on a daily basis. And then we got to make sure you have a case of
moleskins because I can start filling that in. They’re never going to get uncovered.
Yeah, the oppo research has begun, right?
That’s what the dinner on Thursday should be about should start the oppo research program.
Oh, my gosh. That’s a that’s a that’s a long program.
But there’s certainly there’s certainly a groundswell and interest, right? sex. And
there’s certainly Oh, yeah, it’s crazy. Like, I think I think Chamath has a lot of folks that
love his passion and the way he speaks to them. And that, you know, he has a real
sense for what I think people are feeling and can speak to that and obviously has experience
and kind of making decisions and allocating resources, right. So, you know, I think there’s
a lot of interest, Chamath and a lot of drive to see you here’s here’s, you know, shit or get off
the pot. Here’s what I’ll say. Here’s what I’ll say. I’ve grown up with nothing. And getting to
the other side. I’m completely convinced that poverty is a disease that it is, except in this
disease, it is systematically reinforced. You know what I mean? So Jason stopped talking to
Bob is good. Yeah. And I would like to say, all Americans and the citizens of California came
from nothing. I came. I would eat rice three days a week. And then I would eat the plate the other
four. By the way, the the reality is that if I were to do it, if like all the checks came back,
and it seemed like it was a plausible thing, I would only do it for the 18 months and just kind
of, you know, but you’d have to get elected on a mandate where it was so clear that it’s like all
of California wanted these five or six laws to pass. Like, I think it’s like, you’re not running
a candidate, you’re running a platform. So it doesn’t matter who it is. You know, whoever goes
in, it could be me, but it could be frankly, Kim Kardashian, or the rock or David Sachs.
I think what’s really important is we should get alignment on a handful of laws that change the
trajectory of the state. And the reason why that’s important is if those laws can pass,
and the state turns around, then that’s a roadmap for the other 49 states. And I think that’s a big
deal. That’s a really big deal. I think it’s about getting adoption of a playbook, a playbook,
a playbook to fix California. And if that playbook is something that a group of people from different
parties and different backgrounds can coalesce around, and you know, publish that playbook in
a way that’s easily understood, and, and you can take it and run it. Let’s pick what our
item would be. For me, it’s the building of multi family unit housing, I think would be
in my top three. What’s in your top three sacks? Well, if if I were to write a, a, a sort of
catchphrase for for a campaign, it would not be make it make California great again, but it would
be something more like tough and tolerant. Because that’s what I think California wants. So tolerant
on LGBTQ rights, you know, tolerant towards people of different nationalities towards immigration,
you know, tolerant on social issues, but I think what California is really want now is tough
on crime, tough on hard drugs, negotiate tougher deals with these unions and special interests who
are just pillaging the state. And then, you know, and frankly, tougher on the politicians, because
they’re making it too tough on the people to, you know, to live and to run their businesses.
And, you know, we need to make it easier on the people and tougher on the politicians.
Freebird, what do you got in your top three items? If we could only put three items on the docket,
you know, one, two, and three, I think, from creating much more affordable housing,
through multifamily, you know, going up, as opposed to building out, and just allowing,
you know, anybody who wants to add a couple of stories, add a couple of stories, and just more
housing would lower the price of housing. And maybe we have to change, you know, the taxation
and maybe re evaluate the value of homes, because right now you buy a home in 1970, for 50k, you’re
paying 1% of that for the rest of your life, right? Which then makes it impossible to move.
And you got two people living in a 5000 five bedroom square foot home, because they can’t
move because their tax basis is so low on it, right? What do you got freeberg?
I mean, I look the challenges with any one of these things, you have to balance it. It’s like
we talked about last time, you know, we talked about adding a transaction tax to trading on
markets, but you also have to get rid of the capital gains tax. Right? If you’re gonna get
rid of that, you know, that that proposition that locks in the property tax rate, I think it’s prop
13, right sex, if you’re going to get rid of prop 13, you’ve got to phase it out over time. But to
create the opportunity on the other side, which means how do you create more affordable housing
at the same time that you get rid of prop 13, you’ve got to enable, as you pointed out, the
ability for more rapid housing to be developed and dropping regulatory constraints, and maybe
removing some of the union pricing and some of the work that gets done in the supply chain, and so on.
And so, you know, I think it’s about the balance trade off amongst these things,
you know, if we’re going to talk about trying to keep the top 40,000 households in California,
and you’re going to drop the tax rate on them to keep them here, which is an extremely controversial
anti populist move. And, you know, right now, you’d have to find another way to kind of resolve
that gap, or at the same time, kind of reduce the cost of our top cost is education. So you need
education reform. Our second top cost is healthcare, and other related services, and how do you resolve
that, that there’s a lot of structural things. And there’s probably a checklist of 10 things
that you would say, let’s go negotiate better prescription drug prices. Let’s make, you know,
the services more efficient, meaning how many patients does a doctor get to see per hour,
per day, per year, per week, whatever, there’s all these things that you kind of go through,
and you can make each one of those dollars that are being spent more efficient. So as much as I’d
love to kind of rattle it up to three different things, this is a management problem. And you
know, as those of us who have run businesses that are struggling or challenged to have experienced,
there isn’t one thing to do to fix a problem when something is not operating well.
But you really it really does come down to talent. And so you know, I would think that the people
that are sitting in those assembly and Senate seats need to be the right people. And the person
sitting in the governor’s mansion needs to be the right person who will surround him or herself
with the right people who are operators and managers and leaders who know how to resolve
these problems and go through and do just like that guy did and Dave with the napkin. And you
know, right out, look, here’s the 10 simple things we can do to fix HHS. And here’s the 10 simple
things we can do to fix higher education, and go in and cut half the expense. And if you cut half
the expense, you have a lot of things you can start to do. And so yeah, I don’t have a simple
answer for you, J. Cal, but I think it comes down to balance. Would you say and I school vouchers,
since you brought up education, or the quickest solution there is to create more competition
quickly, by giving parents the ability to take their voucher and go to whatever school they want?
I’ll be honest, I haven’t read enough on school vouchers to know the ramifications of the program,
programs that have been proposed. So I’m not going to be very well, very thoughtful on that.
Well, I’ll speak in favor of the idea of giving parents more choice. I mean,
these schools are being are they being run for the students or for the special interest? Because
right now, the parents don’t really get any choice. I mean, look, if we can recall the governor,
why can’t we? Why can’t the parents of a school recall the headmaster? I mean, why don’t we give
them the ability to circulate a petition if they’re unhappy? I think in the case of the
governor recall, if we get 12% of voters to sign the recall petition, then you get a recall election.
So what if you had a system where the parents of a school could sign a petition, and then they vote?
And if the majority of the parents vote to recall a school, then they can basically replace the
headmaster and run it in a different way. Why shouldn’t they have that choice? It’s crazy to me.
Let me give you a little math that is did on my calculator here. So the average student
in California costs $18,000 a year, roughly, okay. And we have a classroom size on average
of about 25 students, it’s actually higher than the national average. So you multiply 18,000 by
- That’s $450,000 per classroom. Okay, now, how much does a teacher cost? I mean, okay,
no, that’s the average in California. For teachers. It’s like, let’s say, let’s say,
let’s say that we pay teachers extremely well, let’s say we paid the teachers 100,000 a year,
because we all believe in having great teachers, okay, that would still leave $350,000 left over.
And remember, you don’t have the real estate cost, right? The state already owns all these schools.
So where is the money going? We’ve systematically entrenched poverty. I think that what happened to
you, Friedberg, or Sachs, or me or J Cal, I don’t think it’s possible anymore. And I think that we
are aberrations. And I think that folks that are younger than us would look at us. And they look at
us, I think, in part, because they’re like, God, I would love to have that shot. And I don’t think
they know where to start. And I think they also see a system that feels very much rigged against
them. So by Bitcoin, I mean, this is why they were attracted to buying Bitcoin. We’re doing
what they did with GameStop. And why Wall Street insiders versus outsiders, they feel like they
have this opportunity to show the man and they don’t this why they don’t want to take on school
debt. I mean, I don’t blame millennials for being disgruntled. If they got 100 or 200k in debt,
and they were told this degree would get them, you know, this would be their ticket. And it was
it’s a lot of disconnected. It’s a lot. It’s a great lie. It’s a great lie. And so, you know,
that’s, that’s one of the big lies. And I think we’re sacrificing it now. Because like,
you know, we’re, we’re, we’re making this great sacrifice, because we’re exposing these lies to
be exactly as they are. So I mean, if you if I had to pick a couple things, Jake, I would say,
the most important thing for me is school vouchers tied to like, I would increase public school
salaries, you pick your number, I don’t really care what it is 100 grand 125 grand. But you need
to tie it to school vouchers so that any parent can put their kid into the best school that is
for them, or start their own school. Like there needs to be competition, or start five parents
get together and they each get an 18 18k voucher, they can spend 100,000 on a teacher to teach five
students. And if they hit their goals, like, they’re going to do better what what five parents
even the you know, the most disadvantaged parents would take advantage of this.
To me, that would be the that’s like the first above all else, because I think it creates
accountability. And it allows our kids to have a decent shot. The second thing I would probably do
is I would actually just cut all taxes to zero on the personal side, but I would introduce a
progressive taxation system for corporations. And I would try some of these novel things like
getting equity in turn for in turn for credits and allowing folks to capitalize certain expenses. I
mean, these are like, I know people think that’s also stupid. But like, you know, if all we did
was just own 1% of Apple, Google, Facebook, you’d have $3 trillion, $4 trillion, trillion with a T,
you know what I mean? Well, not you, that’s 4 trillion a market cap. But you know, you know
what I’m trying to say? Like, if you control 1% of that, it goes a long way. So there’s that. And
then I do think that there’s something that we need to do for people to be able to live. I remember
interviewing somebody. And you know, he’s what he said to me just made me so sad. He’s like, I,
you know, he drives an hour and a half into work every day, and then drives an hour and a half
home. And I was like, how is this possible? And I just thought to myself, like, what does that do
to you and your family? He goes, I don’t see my family. And I’m like, well, can’t we just increase
your salary? And you know, that’s not possible because of the job that he had. And then he
couldn’t afford to live. And so all these things just build up in the system. So those would be my
three things. It sounds like we have a bestie platform. We, we, we need to figure out who the
best candidates going to be, hopefully, we can convince them off to do it. But the next thing,
but the first thing we got to do is, we got to make sure this recall happens. There’s another
five weeks or so to gather signatures. So everybody should check out the website. It’s
RescueCalifornia.org. It’s RescueCalifornia.org. If you have the means to donate, please do. I
donated $50,000 to it, they are taking donations. And even if you’re out of state, but believe in
this cause, like Tomas said, what happens in California, or as California goes, so goes the
nation. You know, it would be a really good thing to send a message, even if you’re out of state,
to these special interests who are ruining the state that this isn’t going to be tolerated,
because every politician in the country is going to hear that. And they’re going to start realizing,
oh, I can’t just pay attention to the insiders. I need to start paying attention to the outsiders,
to the majority of citizens who’ve never been organized before, but now they are getting
organized. And so we need to send this message. That is the first step. We’re not going to get
any positive change in this state until the politicians are held accountable. And this
recalls the starting point for that. And if you take a picture with the form, and CC your besties,
we’ll follow you back or retweet or like you some combination of that. I saw a couple people did it
after the last pod. So print out the form. And go ahead and take the next the next the next
podcast. Just for everybody to know, Episode 21, we are going to start by reading mean tweets.
There have been some there have been some unbelievably vicious tweets targeted you
typically at Jason. And then and then at me a little bit of David Sachs, but finally,
really, they went after the queen, we’ve broken the seal and the queen has been targeted.
Really? He was called he was called what he was called sanctimonious on Twitter,
we’re gonna make him read his tweet to kick off Episode 21. And we will see you all next time
on the oil and podcast. Love you guys. Let your winners ride.
Rain Man David Sachs. And it said we open source it to the fans. And they’ve just gone crazy with
love us queen of
besties are gone.
We should all just get a room and just have one big huge orgy because they’re all just useless.
It’s like this like sexual tension that they just need to release.