All-In with Chamath, Jason, Sacks & Friedberg - E20 Robinhood wrap up, Insiders vs. Outsiders, California's failing report card & how to fix it

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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, Friedberg?

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

Piers Morgan?

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

  1. 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 It’s 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.