All-In with Chamath, Jason, Sacks & Friedberg - E78: VC fund metrics that matter, private market update, recession, student loans, Bill Hwang arrest

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Is there going to be an open mic night in…

We were going to have you speak, Friedberg, but we realized you’re not capable, so…

We want the show to be entertaining.

That’s not personable, Friedberg.

You guys are missing out.

I’ll tell you guys what makes my stand-up comedy so good.

Oh God, here we go.

Oh my God, we’re back on this. Jesus Christ.

It’s my creative sensibility. So if I have some time to prep

and write my script and read my own creative insights…

Yeah, okay, bring one joke next week.

J. Cal, for all the time we’ve spent together on this podcast,

you know so little about me. It’s so depressing, I got to be honest.

Well, you know, here’s the thing about friendship.

It’s a two-way street, you got to open up a little bit.

We got to go out and get drunk one night.


I just want to give a shout out to this guy, Andrew Lacey.



Shout out.

He is the CEO of a company called PreNuvo.

Oh yeah.

Can you just flash it on the screen?


I went to PreNuvo and what they do is they do a head-to-toe MRI scan in 45 minutes

and they use a bunch of machine learning and image recognition

to help a radiologist interpret these MRIs in real time beside you.

It’s a service that you have to pay a few thousand dollars for.

There’s a location in Silicon Valley in Redwood City and a couple of others

and we mentioned it.

But the reason I’m bringing this up is he sent me an email yesterday

and he said, I just want to thank you and the besties for mentioning PreNuvo

because we had a bunch of people come and he said,

we found no less than 11 life-saving diagnoses.


11 people.

11 individuals listening to the pod.

Pod saves lives.

Went to PreNuvo after hearing about it, had a head-to-toe MRI,

found all kinds of issues from a brain tumor and brain cancer

to stomach cancer and other things and was able to get the care that they needed.


Anyways, I just want to give a shout out to him for doing a lot of really important work

and for the folks that are listening that have some money set aside and can afford to do this,

I would just really encourage you.

We have no financial stake in it, nothing other than we are users of it.

But check out and shout out to Andrew and his team there.

Okay, here we go.

Three, two, let’s start the show.

The war in Ukraine has him insane in the membrane and Biden’s new disinformation council

is going to have him detained.

To calm him down from tanking Solana, he started smoking that marijuana.

You know him as the rain man.

He’s here again.

David Sachs.

How you doing?

Have a good week?

Yeah, not bad.

All right.

Big energy this week, huh?


In high school, he had no friends, but thanks to the pod, undergrads are in his DMs.

All forms of steak.

He’s a Persian.

He’s the vanguard of all the virgins.

The queen of quinoa.

The sultan of science, David Friedberg.

Wait, I missed like half of that because Tremont was laughing so hard.

I can do it again.

Do it again.

Do it again.

Let me try from the top.

In high school, he had no friends, but thanks to the pod, undergrads are in his DMs.

All forms of steak.

He’s a Persian.

He’s the vanguard of all the virgins.

The queen of quinoa.

The sultan of science, David Friedberg.

Just for the record, there’s no undergrads in my DMs, but I appreciate the intro.

All right.

We’ll check.

All right.

In three, two, he’s trying.

Mark Friedberg is tweaked and the show hasn’t started.

I think I’m taking over intros next week.

Okay, do it.

I’m at least going to do J-Cal.

Please, by all means, next week, you do mine.

You’re a comedian who has a chance to prepare in advance and think your thoughts.

Go ahead, big boy.

Give me a week.

You got it.


Cheers next week.

Let’s see these latent stand-up skills in action.

Yeah, absolutely.

He’s been hiding them from us.


I don’t know a lot of stand-ups who hide their ability.

You know the funny thing about hiding something and not having something?

From the outside in, they look the same.

You can’t tell the difference.

Sorry, J-Cal, I’ll go over to you.


He’s dropping annual letters in luxurious sweaters.

As far as the specs go, well, it can only get better.

The dictator himself, Jamaal Falihafetih.


I cannot comment on the specs.

Oh my God.

I mean, this is getting brutal.

Who’s writing these?

Oh my Lord.

All right, everybody.

It’s been a big week.

Did you read my annual letter, any of you three assholes?

I saw your commentary.

No, that’s a no.

That’s a no.

I get it.

I get it.

I reviewed the table where you listed all your results.

And I actually sent it to my team.

I was like, this is a really nice way of summarizing a firm’s results over a long period of time.

Because you had every fund, and your totals, and all the key metrics.

Well, can I talk about that for a second?

Yes, please.

What’s incredible about what you’re saying, Sax, is I was interested in a bunch of other

funds that I’m invested in and their returns.

And then I’ve also seen a bunch of leaked fundraising decks of all kinds of other firms,

from Growth Stage to Crossover to PE.

And it’s incredible that they are not standardized, right?

Some people only show gross IRR.

Some people show net IRR.

Some people don’t show the total value of the paid-in capital, which means if you have

a $100 fund, what is the total value of all of its holdings?

Some people don’t show DPI, which is distributions of paid-in capital, which means, okay, for

every dollar you’ve taken in, how many dollars have you sent out?

If you don’t show all of them, what was shocking to me is how much you can kind of hide, and

play, and manipulate the numbers.

And one of the most crazy things that I saw is that there are these late-stage funds that

write into their fundraising decks that what they actually use are lines of credit to juice


So what they do is, if they’re about to do a deal, they’ll actually get a loan from a

bank, put that money into a company, wait until it’s about to get marked up, and then

what they do is they actually call that original money from their LPs and pay back their capital

call line of credit.

So what does it do?

It inflates IRR.

But this is why, if you see the other numbers, it still shows that it’s kind of like not

doing much of anything.

So if you ever see multi-hundred percent IRRs or high, huge IRRs with zero DPI and a marginal

TVPI, it’s folks that are playing games to trick LPs.

Just a heads-up to everybody.

That is so weird.

So what you’re saying is, just to summarize for people in the audience who don’t understand,

hey, we get judged on the rate of return each year.

So if the stock market does 7% or 8%, we’re expected to do triple that.

So we got to hit 20%, 25% each year.

Now, the clock starts ticking when the money gets called from the LPs, the partners, and

gets put into the company.

So if you invest in your tour of your fund, you pull the money down from the LPs, you

put it into YouTube, whatever it is.

What you’re saying is, they will take a loan against that future money from a bank at an

absurdly low interest rate, let’s say 1% or 2%.


They make the YouTube investment.

Then two years later, YouTube has a price round that marks it up 20x.

Then they put your cash in, in year three of the fund, year two, and pay back the loan.

Now they’ve paid 2% two years in a row, but the thing’s gone up 20x.


What a…

That’s dirty.

Well, so it’s dirty enough that the SEC has actually now introduced legislation, it was

in February, that basically is going to try to uncover all of this nonsense.

And so you’ll have to be much more transparent.

So the format that I used, in my opinion, is the most transparent way of not being able

to hide the cheese.

You show all the critical elements together in a simple table that will make it very obvious

who’s playing games and who can actually make money.

So there is a semi-legitimate version of the loan thing, which is, where this comes from

is a capital call loan.

So we’re making a bunch of investments throughout the quarter, a million dollars here for a

C deal, 10 million for a series A. That’s happening all the time.

You don’t necessarily want to hit your LPs with capital calls for every single little

small investment.

So what we do is you get a capital call line from SVB or something like that, and then

you do one capital call per quarter.

And so they will loan you the money for one, two, three months, but it’s not for a year.

But the reality is if you have a reasonably well-developed infrastructure, you have a

cash forecast of what deals you may or may not close with probabilities.

And so you know what the weighted amount of capital you need to have on your balance

sheet is.

So I agree with you to have a small amount at the edges to pay for expenses, to pay for

salaries while you clean up at the end of a quarter.

Completely reasonable.

But if you’re making, you know, five or 10% commitments into a company and you’re using

this as a way to basically create subterfuge and hide, I think that that should not be



The number of capital calls is annoying for people, yeah.


Anyway, I did share that table with our team too, because I did like the format quite a


I bookmarked it.

I think we’ll start using it.

I’m reading it this weekend.

It’s very hard for funds who are not performant to use that format.

Now yours, you are very highly performant, so you can use that format.

But I don’t think people that have not returned money or have fake paper markups can use that

format because it is too simple.



At the end of the day, what metric do we all look at when we are LPs in a fund?

Well, this is what I put down.

I put down the ones that I look at for everybody else that I’m an LP in, you know?

So what one is that for you?

Multiple on cash investment?

No, I need to look at the totality of it.

I need to understand what is your gross and your net IRRs.

Those are important things to understand because it shows how efficiently you put the money

to work.

Of course.

But then ultimately, then the other two things that really matter is what is the total value

you’ve created and then what percentage of that have you given back to me?

Because that allows you to understand how much paper value this.

So for example, today, let’s just say you had a fund that had a TVPI, total value of

paid-in capital of a 5x.

A 5x on a fund is incredible.

But if you’ve distributed none of that, well, guess what?

If we’re sitting here in May of 2023 or 2022, rather, the total value of your paid-in capital

is not really 5x.

It may be only 3x and it may be actually 2.5x considering what the markets have done

to these companies, right?

And so it allows me to really understand how performant funds are in not just being a part

of the game, but actually generating realizations.

And this is the hardest part.

As I told you, Jason, this past quarter, I think I passed 2x across my funds when I was

managing outside capital.

And I think, my gosh, it took me 11 years.

It’s hard.

To return 2x the money.

And that means I’ve returned $2.5 billion.

You know how hard that was?


I mean, you got to time the exit.

You have to have the ability to exit.

You can’t even time the exit.

You have to be constantly managing and working your portfolio.

Sometimes you’re selling in secondary transactions.

Sometimes you’re actually trading up in private markets where you help this company merge

with another private company.

Other times, if I think about it, the number of IPOs I’ve had is relatively diminutive.

So how do you make $2 billion where I’ve only had one IPO, which has been Slack?


So this is a really, really hard business.

And it was just a reminder that in the last four or five years, managing capital has seemed

relatively easy.

But in these next few years, you’re going to see who’s really, really good.

It’s kind of that old Warren Buffett quote.

You can see who’s naked when the tide goes up.

I mean, said another way, the last five years, raising a fund has been really easy.

And writing checks has been really easy.

And now comes, you know, Act III, which is returning a multiple on the money you easily

collect it.

And boy, is that hard.

And I, you know, I, all of these new LPs.

The other thing that I want to tell you is one thing, though, all these LPs send me,

even though I’m not an LP and a potential, they send potential LPs their performance

because they’re so proud of it, like quarterly.

I’m like, not even in this fund.

And they have these crazy markups, crypto investments, this, whatever.

But they’ve returned no capital.

And so it’s like, just to give you a sense of it, if you look at the most fantastic organization

in the world, if it were an investment manager, which is Berkshire, their long run 50 year

track record is, you know, around 20%, right?


If you look at the most successful asset manager in the world, and I would put Blackstone at

that just incredibly good and best in class and probably three enormous parts of the worldwide

economy, real estate, credit, and private equity.

You know, their long run track record is that on 200 and some odd billion dollars of private

equity and another hundred billion dollars of, of, of real estate, they’ve returned

two X.

So that’s what the upper bound is, you know, doubling people’s money and generating 15

to 20% is the best you can expect if you are really excellent and long lived.

That’s the best.

What do you look at Freeberg when you’re an LP?

What number do you care about?

Because you LP other funds and I think all of us do at times.

I made my first venture fund investment in 2006.

And I, I am still getting distributions from that fund.

And I’m looking at it.

I’m like, this is a 2.4 X over that period of time.

I’m like, what the hell?

Why did I even put this money into this fund?

I guess this makes sense for pension funds and, you know, very large balance sheet,

long range investors that need to kind of diversify.

But as an individual, I should have put my money and have had liquidity on it for 16

years rather than have it locked up and a bunch of private companies sloshing around

and, you know, kind of dribble out.

And at the end of all this, I only get two and a half times my money back.

Two and a half times your money in 16 years.

What’s that IRR?

It’s like low teens.


Not a great deal.

No, it’s lower.

You would have been better owning the S&P 500.

That’s right.

And so for me, I think the key, the metric, the only metric that matters, which I think

you’re saying Chamath, is how much cash I got out relative to cash I put in.

And so initially my IRR is negative 97%.

And then it goes up to negative 80 and then negative 60 and negative 30 and negative 20.

And now it’s 14% because I finally got more money out than I put in.

And so it doesn’t feel to me like, you know, just generally private investing,

everyone gets excited because we all get sold stories and individuals all get sold stories of

you put $1 in, you get $100 in.

I mean, J. Cal wrote a book called How I Made $100 Million from whatever you invested in Uber.


And that story, I think, gets everyone kind of excited.

But the reality is, the vast majority of the time, and if you diversify your bets like this,

you’re going to end up waiting a long time to get your money back.

You’re going to be locked up.

And a top performing fund is returning two and a half x after 15 years, which is not much better

than kind of investing in the S&P where you could sell that anytime you want and use that cash for

any purpose you want.

Well, if you did $100,000 investment, and you return 260,000 in 15 years,

I’m on an IRR calculator right now, internal rate of return at 6.58%.

Yeah, better off than the S&P.

Um, yeah.

I mean, and if you did QQQQ, depending on, yeah, how hot the market was then, yeah.

And you get to sell-

It’s really, really, really hard to actually make money.

There are always going to be periods where people look like geniuses and have markups.

But you can really see when people have skill after a decade and a couple of up and down cycles.

Same with hedge funds, by the way, right?

Hedge funds put up a score every year.

And in certain macro cycles that can last many, many years,

everyone looks like they’re doing well.

And then all of a sudden, tides go out and you lose more than you made over that period of time.

And then you realize, holy crap, I was actually in an insurance business,

where you get paid some small premium every year.

And then you have some massive loss one year.

And that massive loss, it turns out your underwriting wasn’t good because you lose more

than the sum of all of the premium you collected over that period of time.

And unfortunately, a lot of investing looks like this, which is

you have small returns for a long period of time, and then some massive loss.

And the whole business makes you look like, along the way, a genius.

But the reality is over any long cycle, most folks end up in a bad position.

And they end up-

You know, the SEC, by the way, has solved this for mutual funds, right?

And ETFs.

There’s very strict standard reporting.

And I do think that as, for example, if you go to the big banks,

sorry, Sachs, interrupt.

I just want to finish the last thought.

If you go to the big banks and you have, if you’re an individual,

like a doctor or a dentist or somebody, and they will aggregate and pool capital

and put it into these funds on your behalf, as an example.

So it looks like JP Morgan or Goldman Sachs is a 50 or $100 million LP in one of these big funds.

But in fact, it’s just the sum of a bunch of folks on their platform.

It stands to reason that if the SEC can actually mandate standardized reporting

for private investing, it would actually be a really good thing because all of these games

will, and probably currently are, as far as I’ve seen in these presentations,

tricking a lot of folks to put their hard-earned money into things that

actually will never make money.

And it’s because if you selectively cherry pick how you present this data,

you can tell a partial truth.

So, you know, I would really, I would love, I’m happy to be compared to any organization,

but every time I hear somebody chirping about how good they are,

my only comment is, I just want to see your table in the same format as my table,

and we can compare it because it allows me to really understand.

Yeah, liquid returns.

And by the way, the point I made earlier about when markets are generally good,

hedge fund, public market investors generally can look like they’re doing well by

having a good marginal return above the benchmark every year,

and then one year have a big drawdown,

and suddenly they realize that their underwriting wasn’t that good.

The same can be true in private investing in the opposite way,

in the sense that you’ll put in small checks, small checks,

and lose money and lose money and lose money and then have one big banger,

and you get 100x return, and you look like a genius,

because your whole portfolio looks good.

But you fast forward and you keep doing that for another 10 years,

all those small checks may not even add up to the banger.

And that’s the flip reality that you realize.

And by the way, I think that’s a good analogy for the difference

between public and private investing.

You have similar cash flow economics,

where you can have small returns and then a big loss in public.

And you can have small losses and then a big return in private.

And the timing of when you present your data can make anyone look good.

If you catch a good hit at the right time,

or you don’t have a bad hit at the wrong time.

And then the framing over a long enough period of time,

I think really becomes the key measure.

And the reality is most people don’t make it long enough in their career

to actually present true results in how they really do underwrite.

And by the way, to the extent anybody’s listening

is able to invest in these private funds.

I think Jason mentioned this superficially.

So let me just dig into it,

because I think it’s really, really thoughtful what he said,

which you should understand.

If you have the option to invest in a private fund,

you have to understand that that private fund

has two huge negative things working against it

relative to investing in the S&P 500.

So you could put your money into a Vanguard ETF,

or if you could put your money into a private fund,

you need to realize two things.

Number one is it is illiquid, not just for 10 years,

but it could be illiquid for 12 or 14 or in,

you know, Friedberg’s case, 16 years.

So you need to get paid a premium for owning that.

And then the second is depending on the business model,

you may have very high failure rates,

which means that you need to really hit

these outsized Grand Slam home runs.

And if you don’t, then you’re going to be worse off

than if you had invested in the S&P 500.

So that deserves a premium.

And so Jason’s right, which is the S&P is between 7% and 8%

over long periods of time, predictable compounding.

You have to add another 7% to 8% for this illiquidity premium,

and another 7% to 8% for the business model viability of,

for example, being in venture.

When you add those three things together,

you do need to get paid, basically,

in the low to mid 20s returns to be justified.

Otherwise, you are much better off just owning the S&P 500.

Much, much, much better off.

Sachs, what do you look for when you’re LPing?

And now that you have many large funds,

what do you think LPs are looking for now?

And what do you advise them to stay focused on?

The number one metric that matters is DPI,

which is the ratio of distributions to paid-in capital.

And it’s basically money in versus money out, right?

At the end of the day, that’s all that matters is

how much money did you put in the fund?

How much money did you get out?

The issue is that to Chamath’s point,

these are 10 to 12-year funds,

and it takes a long time to get distributions.

So all the other metrics are basically triangulations

or approximations of what you think the fund’s going to do

until you actually get to distributions.

So I would say in the long term, it’s all DPI.

In the short term, you look at TVPI,

the total value to paid-in capital.

So it’s basically what’s the marked-up value

of all the positions in the portfolio

versus how much cash has gone in.

And then the big question is,

does the TVPI turn into DPI?

Does the total value turn to distributions?

To explain that to people,

if Chamath had invested in Slack,

but there hadn’t been an outcome,

it could be on the books for a billion-dollar position.

So the TVPI is looking really great.

But until that company goes public

and the shares are distributed,

the LPs haven’t realized it.

So it could be ephemeral,

or it could go down significantly,

as we’ve seen with public markets.


So in the last four months,

we just returned our fund one

in terms of real distributions.

I think we have a DPI of 1.1 or 1.2 on that fund now.

The TVPI is four to five.

But it feels great just to distribute the entire fund out.

I literally, in my first two funds,

I think we did that as well.

And it’s a really great feeling.

And sometimes selling 10% or 20% of a position early

and getting over that hurdle

and just getting into the one to two X,

that’s a pretty great feeling.

By the way, just to talk about how difficult it is

to convert paper gains into real gains.

Let’s just say, Jason, in your example,

you had a fund that had these huge paper gains,

but haven’t distributed anything coming into this year.


Here’s a little interesting data

about the ultimate buyer of all of these tech stocks,

which is the NASDAQ, right?

People that buy stocks in the NASDAQ.

Listen to this as of yesterday.

More than 45% of stocks on the NASDAQ are now down 50%.

So basically one in two.

More than 22% of stocks on the NASDAQ are down 75%.

So almost one in four and more than one in five.

And then more than 5% of stocks, so one in 20,

on the NASDAQ are down 90%.

So you can use this to actually get a blended average.

But what it means is that the ultimate buyers of tech stocks

are taking a 60% discount to what they were able to buy

even just four months ago.


So there is no public mark

that will support a private mark

unless it’s also discounted by at least 60%.

Now think about that when you talk about

this entire panoply of companies that have been overfunded,

many who are under executing

and burning enormous amounts of money,

who now have to come back out to the market.

Any sophisticated buyer will have to tell them the truth,

which is, I’m sorry guys, but the data says

there’s a 60% discount to this mark.

Are you willing to accept it or not?

Otherwise the lights are going to go off.


And these marks only happen,

at least in the private markets and venture funds,

when a transaction occurs.

So if somebody raised a bunch of money,

as we talked about in previous episodes,

at a billion dollars,

and they’re now worth 500 million,

that’s only going to work itself out in fund documents

and reports for a year or two later

when the next transaction occurs.

So there is a lagging effect.

One thing I just want to bring up

before we go into maybe GDP

or the Bill Hwang situation

is what we talked about on this pod last year

about what was going to happen in private markets.

I’ve been seeing the last two or three weeks,

and I don’t know, Sax and Freeberg,

what you’re seeing in private markets,

but really acutely,

people who are going out and skipping rounds,

this like,

I’m going to just skip my seed round

and just do a series A.

I don’t have product market fit.

I’m going to get credit for work that hasn’t been done.

I’m going to raise 10 million without product market fit.

Oh, my Lord, has this,

has the dialogue changed?

I’ve been on many calls with founders

who’ve met with 50 VCs,

and the conversations are moving to,

you know, how many months to break even?

And, you know,

how many customers do you have?

And how have they increased?

And let’s talk about the churn.

It is getting super pragmatic out there.

If you’re a founder,

and we said this a year ago,

but it’s worth stating here,

this is not the moment I would try to over-optimize.

If you have a term sheet or money on the table,

I would close it.

Just, you know, founder to founder.

What are you seeing, Saxe?

Yeah, I mean, it’s gotten a lot harder,

I think, especially at the growth rounds.

We actually have signed

two growth term sheets recently,

and it was much harder for us

to do growth rounds last year,

just because you had these huge mega funds

come in at crazy valuations.

But now they’re kind of licking their wounds,

and we’re starting to see

some really attractive growth opportunities.

Everyone else has backed off.

So it’s interesting.

Yeah, it’s changed quickly.

Yeah. Now, one thing,

so, you know, Travath raised a good point about,

you know, private,

not only are private valuations sort of sticky,

but private marks are sticky.

And, you know, companies only get remarked

every couple of years.

And so whereas the public markets

get remarked every day.

So it is hard to know,

like, what is the proper valuation

of a company that raised money last year?

Because, yes, valuation multiples

have come way down,

but then also they may have grown,

and their performance is better.

So the analysis that I saw Jason Lemkin do

in his LP newsletter,

and we’re basically repeating it

for our entire portfolio,

is to calculate,

what was the ARR multiple that you paid?

Basically, valuation divided by ARR.

What was that entry multiple?

And what is it today?

And so we’re doing that

across our whole portfolio.

So what you see is…

Sorry, sorry, Sax.

Sorry, sorry, Sax, clarification.

LTM ARR, or, you know,

NTM ARR, which one?

Basically, you look…

Last 12 months, next 12 months?

Yeah, no, you just look at

their current ARR, which is,

you know, run rate,

their current run rate revenue.

Yeah, exactly.

So take January, you times it by 12?

Or in this case, April.

Yeah, basically, yes.

You take the current month

and multiply by 12.

But they have to be annual commitments, right?

So if it’s not,

it has to be annually recurring revenue.

If they’re not,

if it’s not an annual commitment

with an expectation that’s recurring,

you can’t count it.

So for example,

you don’t count professional

services revenue in that, in any event.

So the point is,

you basically calculate

what was the multiple

that you paid at,

you know, entry in the company.

And what is it today

as a function of the current valuation?

And what we see is, yeah,

there’s a lot of companies

that we got into,

I don’t know, two years ago

at a valuation multiple

that you couldn’t defend today.

60 times, 80 times, 100 times.

But the multiple today

is more like 10 or 20 times,

because it’s actually grown really fast.

So you need to look at

both sides of the equation.

And that’s the analysis

we’re running for every company

in our portfolio.

And then, you know,

LPs can decide how to market.

I mean, the most important thing is

what’s the next investor,

if they need more capital,

going to market at?

Well, the question is,

are you growing faster

than valuation multiples are falling?


And then can you,

that means you could have a down round,

a neutral round,

or possibly an up round,

but it doesn’t.

So are you starting to see people

or people discussing on the board level

or in your firm?

Hey, maybe we take a sideways round,

a neutral round.

We just go to last year’s price

and top off another 10 million.

Are you seeing that?

I’ve told some of the boards I’m on,

just keep fundraising,

just keep the round open

and top off if there’s money available.

Because, you know,

especially if you raised around

eight months ago, six months ago,

those prices,

like if people are still willing

to invest in those terms,

that’s a good deal.

I literally had this conversation

with the founder this week

where they had raised that

in a great valuation

and they turned money away.

Because they were like,

Yeah, that was a mistake.

We’re still growing.

So why would we take the money now

if our valuation is going to be,

you know, double in nine months?

And now it looks like,

yeah, maybe, you know,

that extra one to $5 million

would have been good to lock up.


So adding to these headwinds,

I think we’ve been talking

about the possibility

of a recession

for those new to the concept

of recession

if you’re under the age of 30

and haven’t really lived through one

as an adult.

It’s two quarters,

the official definition,

two quarters of negative growth

of the GDP.

Well, it turns out US GDP

fell 1.4% in Q1.

And Q4, we had a 6.9% growth rate.

Q1 was the weakest

since the spring of 2020

when COVID hit.

Nick, cue the clip

where Sachs and I basically said,

this may happen in January of this year.

So the concern is that,

you know, with the losses we’re seeing,

and I mean, every day,

it just keeps like you see more red

that this could turn into a recession.

You know, popping of bubbles

is usually followed by a recession.

So I think, you know,

the fortunes of the economy

could turn really quickly here.

And that is the marginal risk.

The marginal risk

is actually for recession.

David is saying something

really important.

The risk, in my opinion,

is not of runaway inflation anymore.

The Fed is now in this

really delicate situation

where China cut rates last week.

We have an FOMC meeting,

the Open Markets Committee

that sets rates on Wednesday,

I think of this coming week.

What is he supposed to do?

The risk is to a recession

because if we overcorrect.


And the leading indicators

all around the world

tell us that their economies are weak,

then inflation may have actually been

much more transitory than we thought.

And right now we have to decide

because if we overcorrect,

we’re going to plunge

the United States economy

into a recession.

There’s a lot of data here.

And obviously this is.

When this data is always

in the review mirror,

so obviously we’re talking about Q1,

it takes a while to collect this data.

And there’s a lot of different factors

going on at the same time,

obviously COVID and obviously supply chains.

Consumer spending rose at a 2.7%

annual rate in Q1,

a slight acceleration from Q4.

There was also a 9.2%

rise in business spending.

So we have a lot of spending going on.

Who knows if that is spending

that actually occurred

in the previous quarters

and because of supply chains,

like people’s cars are being delivered,

people’s machines and manufacturing equipment

is being delivered now.

We had negative GDP in Q1

for a whole host of reasons

that can effectively be summarized

by the fact that we are still trying to

restart an economy

at the tail end of a pandemic,

and we’re doing it in fits and starts.

And so we have these small bursts

of incredible GDP,

which we had last year,

and then contractions in the economy.

The thing that’s always been true

about the United States

is that we are a consumer-driven

economic engine,

which means that as long

as people feel confident

and they’re buying things,

the economy tends to do well

and we tend to move forward as a society.

When consumer confidence ebbs

and people contract their spending,

we are in a world of hurt.

The last couple of years,

we’ve had a lot of consumer savings.

We’ve had a lot of money

that’s been pent up in the system,

whether it’s stimulus checks

or loan forgiveness,

or all of this stuff

has allowed people to feel much richer.

And as a result,

they’ve started to spend in drips and drabs.

The problem now is that

because prices are so high,

all of those savings

have largely been depleted.

I just sent you guys a text

in the group chat

of what consumer spending looks like

in consumer savings, rather.

And it tells a really, really scary story,

which is that

the savings boom is largely over.

Personal savings rate fell to 6.2% in March,

the lowest since 2013.

And so what does that mean?

Well, it means that the setup is there

for us to sort of really contract

what we are able to spend as a society.

So I think now the odds

even push further in this direction

that we could have more quarters

of negative GDP.

And all of a sudden,

we’re back to what we talked about before,

which is a 2019-like scenario

where the government,

or the Fed specifically,

races forward to tackle inflation.

And in 2018 and 19,

it turned out to be a head fake.

And by the way,

in 2019, the stock market ended up

more than 30%,

up 32% or something like that.

Crazy numbers.

Here, and by the way,

back then in 2019,

China turned over.

It looked like it was going to be

a fast-moving economic recovery for China.

And instead, they sort of slowed down.

We have the same thing here.

We have a quarter of negative GDP.

We have China in lockdowns.

We have every company

that’s in the manufacturing

supply chain ecosystem

telling the world

that we don’t really know

what this is going to look like.

Intel today actually said

there’s going to be shortages

in chips through 2024.

So I think it could be

a very difficult path ahead for the Fed.

How do you raise rates

400 basis points

into a slowing economy?

You could raise basis points 75,

you know, 75 bps,

maybe 100 bps,

but it gives them

very little freedom to operate

without really tanking the economy.

There’s also another point

to highlight here,

which is in some of this data,

that was released,

there was a strong indication

that there are real issues

right now with inventories.

I don’t know if you guys

have tried to buy an appliance

or a car lately,

or a piece of furniture,

but like…

I tried in the Q4 to buy a car

and it was absurd.

I mean, right now,

there’s like one year delays

to get a frigging couch.

I mean, like everything

in the global supply chain,

somewhat related to the kind of

big inflationary pressure

that hit us at the end of last year.

And then everyone placed orders.

All the factories kind of

had to produce a lot.

They all couldn’t keep up

through to what’s going on

in China right now,

where there’s lockdowns

and factories are shut down.

I have several businesses

in the hardware space

that are actively searching

and frantically trying to find

components, suppliers,

specific parts,

even basic raw materials

like aluminum

are very hard to get ahold of.

And so there’s also

a very challenging inventory

and supply chain problem.

When that happens,

I can’t actually wire money

and buy aluminum

because I’m waiting

for aluminum to show up.

I can’t wire and buy

the microchips I want.

I can’t wire money

to my car dealership

and buy money.

So that doesn’t get credited

on the GDP counter

because those sales

didn’t close that quarter.

And as we saw with Amazon

recently and others,

and Apple just said

that they’re expecting,

I think, close to a $10 billion

hit this quarter

because of supply chain issues.

A lot of folks want to spend

the spending interest is there.

The capital flows are there.

It’s just that the supply chain

is clogged up

and we’re so dependent

on getting atoms

and molecules moved around,

and they’re all kind of held up

in different places

that folks simply

can’t get their purchases in.

And so the revenue

triggers don’t get hit.

And so the numbers

don’t look good

from a growth perspective,

but it doesn’t necessarily mean

that the demand isn’t there.

This is a significant

inventory problem

and supply chain problem

that’s driving a lot of this

adversity right now

in the market, it seems.

And interestingly,

by the way,

that doesn’t mean,

that doesn’t mean

that we’re not going

to have a recession

because when I’m not able

to spend money on Apple,

Apple spending less

on their suppliers,

they’re spending less

on their suppliers.

So there is a trickling effect

of capital flows

and the recessionary effect

may be hit.

But there is capital

and there is demand

for consumption.

It’s just that we’re really

clogged up right now.

Well, and the consumer

confidence index

has been on a bit

of a roller coaster.

We were at 130

before the pandemic.

For the year of the pandemic,

we were down in the high 80s,

87, 88, 89.

We rocketed back up,

you know, in 2021,

people started to feel like,

oh, we’ve got these vaccines,

things are going to go

back to normal,

rocket back up to 128.

And it’s been a slow tick down

to where we’re now at 107.

And so I think consumers

don’t know what to think.

They don’t know if,

you know, inflation

is transitory.

They don’t know if gas

is going to be $7 or $4.

They don’t know

if they should spend a big,

spend on a big vacation or not.

And so this, I think,

in terms of people’s planning,

I don’t know if people can plan

how their own personal budgets,

right? And I think that’s

on the confidence thing

to Chamath’s point.

We need to have

a predictable economy,

you know, and it can’t be this


to use a term.

Sax, what do you,

what do you think about

what we’re seeing here

in terms of,

we’re obviously

either in a recession

or dip, you know,

dancing around it.

We’re basically,

you know, on the edge

of the cliff right now.

I think it’s probably

the most accurate.

I tweeted in February.

Hey, anyone noticed

that we’ve just entered

a recession and I got dunked

on by all the professional

economists and, you know,

all these people,

but the experts,

the experts,

the experts,


And now it’s like

the data just came out

negative 1.5%

economic growth in Q1.

So what I wrote at the time

was exactly right.

And, you know,

I don’t know how the threat,

the Fed threads this needle.

I mean, we’ve got

a slowing economy

with negative GDP growth.

You’ve got inflation

is still rampant.

It’s not as,

I don’t think it’s gonna be

as high as last year,

just because we’re lapping

a much bigger number

from last year.

So on a year over year basis,

the comps are,

you know, you start

at a higher price level,

but inflation is still there.

So, you know,

I don’t know what

you do about that.

It’s, it’s a really

tough situation.

And when you have this

kind of wealth destruction

in the stock market,

I mean, you know,

there was a good tweet

that Jamal, you shared,

but you put it up on the screen.

I mean, so much like wealth

has been destroyed.

You don’t necessarily see it

if you just look at

the big cap indices,

but you look at all the engines of

sort of growth and prosperity,

the small caps,

the recent IPOs,

the growth stocks,

they’ve been absolutely hammered.

It really hasn’t been this bad

since the dot-com crash of 2000,

like, and not just the,

like April period,

but like all the way in October

where it kept going.

And then the 2008,

yeah, the 2008 real estate crash.

So we’re already,

like top three worst situations

for growth stocks

in the last 20 years.

And when you have

that kind of like wealth destruction,

it eventually trickles down

into the economy

because people just feel,

you know, companies

start cutting budgets.

People have less money.

The spending goes down.

That dynamic that,

that we’re referring to

in this tweet in that image

is called dispersion,

which means,

you know, people may be confused

when you hear

why are all these stocks down so much,

but the indices are not down as much.

And it’s exactly for the reason

that David just said,

which is that

underneath the surface,

the mega cap techs

consume so much of the market cap

of these indices.

So, you know, the Googles,

the Microsofts,

the Apples,

and the Teslas.

Those four just clog up

an enormous percentage.

I think it’s approaching

40% of these,

of these indices.

And so underneath the surface,

you have dispersion,

which means you have

these tail of two kinds of stocks.

You have these four big mega caps,

and then you have everybody else.

And the mega caps

are generating so much cash

that they’re just basically

keeping the market afloat.

So at this point,

maybe there’s a small silver lining.

And that silver lining is that

to be bearish right now

is effectively not being bearish

these growth stocks,

because as we said,

they’ve been just decimated.

At this point,

to be bearish the indices

means very specifically

to be bearish those four names

and only those four names.

And so that may actually mean

that the market

has effectively crashed already.

–Yeah, but by the way,

I’m not necessarily bearish

on growth stocks from here,

because like you said,

they’ve already been beat up so badly.

The stock market’s

usually a leading indicator.

What I’m bearish about

is just the state of the economy,

because the stock market

trades down on expectations.

So it was already trading down

months ahead of the slowdown

in the real economy.

–The market knew in December.

The market knew in November.

The recession was coming.

–In like around November 6th of last year.

–They knew it was coming in.

–The market knew

when we talked about the sales

that Bezos and Musk did,

when we sold equities,

we were saying,

like, it’s like,

you can’t keep all of your money

on the table all the time

unless you have

the durational wherewithal,

meaning you’re just not time-bounded

and you can just be there forever.

And not everybody’s in that position.

–An endowment could be in that position,

but individuals with…

–No, an endowment is not

because they have to create

distributions every year, right?

–Well, I’m talking about the mega-endowments

where they, you know,

Ford or Harvard may not need to do this.

But yeah, smaller ones

might actually be operating,

you know, Memorial Sloan Kettering

might actually be operating

their budget from it.

–Yeah, but just to go back to David’s point,

like, it’s a really difficult spot.

Like, what is the Fed supposed to do?

So they’re probably going to tighten

50 basis points in May.

That’s relatively well expected.

We’ll be able to digest that reasonably well.

But what do they say to David’s point?

You know, if they all of a sudden go on

a crazy program of quantitative tightening,

right, and what is that again?

That’s when, you know,

we were spending,

they were spending,

they were printing,

you know… –Money.

–…billions and billions of dollars

going into the market,

buying securities

and giving people the money, right?

That’s called quantitative easing.

Now we’re doing the opposite,

right, where they’re selling

and they want the money back.

Now, the problem is what that does

is that removes liquidity from the market.

And when you remove liquidity

from a market,

you actually make it

a little bit more fragile,

a little bit more precarious,

a little bit more price sensitive.

And so it puts us

in a very tough situation

when the economy is slowing,

when these guys may be raising rates,

and then at the same time

removing money from the system,

it may be a lot for all of us to handle.

And so I think that they’re under

a really difficult set of decisions.

There is a business cycle,

and, you know,

there are always recessions periodically

every seven to 10 years,

but they have really magnified this

because you had the Fed for years

maintaining interest rates really too low

and doing quantitative easing during a boom.

And then the federal government

was printing trillions

and trillions of dollars,

and they didn’t stop.

It was one thing to do it

during that sort of COVID recession.

But then last year,

they printed that last two trillion,

and that’s what set off

this wave of inflation.

So, you know,

when I was like in school

learning about economics

and they would tell us

that all these government programs

and actions are like

automatic stabilizers

or what have you,

like the government helps

balance out the business cycle.

No, the government

like magnifies the business cycle.

They’ve made this so much worse.

Well, they’re putting their hand

on the steering wheel, right?

It’s like, let the economy drive,

let the free market do this.

And if you start,

you know, you might oversteer

The federal government is great

at setting incentives, right?

And creating like tax credit programs

and incentives for private enterprise

to invest money.

But when they act

as a direct market participant

and start to actually direct capital flows

and make decisions

about how the capital market should work,

it never ends well,

because this is not what they’re good at.

Well, I think there’s also another,

I mean, just to counter that,

there’s also this other issue

of not just incentives,

but when they create a free capital

that then allows a market

to find a way to take advantage

of that free capital.

And that’s effectively

what we’ve seen happen

with Medicare, Medicaid,

as well as with the student loan program.

And, you know, I don’t know

if we’re going to get

to the student loan program today.

But I think, you know,

to your point, Chamath,

one of the things that’s happened

with the cost of education

in this country

is that the federal program,

which was, you know,

and I took a bunch of notes here

to talk about this today.

But the federal government

began guaranteeing student loans in 1965.

It’s called the Federal Family Education

Loan Program.

And that program made capital available

for students to borrow,

to spend on universities

or whatever education

they want to go get

of their own choice.

And the idea being that

that will give them the ability

to go make more income

and extend their careers

and educate the workforce.

And the problem is that

when that capital was made available,

a lot of private universities

started to emerge

and private for-profit colleges

started to emerge.

And in the years

since that program was introduced,

I just want to give you guys

some crazy statistics.

So in the 1969-70 era,

the cost for a public four-year college

was 1200 bucks a year.

That’s room, board, tuition and fees.

And in 2020,

that cost rose to $21,000.

And here’s the other crazy stat

for private four-year college

in 1970, 2500 a year.

2019-2020, $46,000 a year.

And so that capital basically allowed

these for-profit organizations

or these organizations

that are trying to grow their endowments,

which are effectively like for-profits,

to charge any price they wanted.

And the consumer, the student,

would be able to get free capital

to fund that quote-unquote education

because it was available to them for free

from the federal government.

And so the federal government

created a bubble in education cost.

And that bubble in education cost

has now overburdened 15%

of American adults with student loans,

that many of which would,

they would never be able to pay back.

And now we’re in this really awkward situation

of saying,

hey, maybe we should forgive those loans

because it’s unfair

that people are burdened by this.

And doing so obviously

doesn’t solve the fundamental problem,

which is that making those loans available

in the first place

creates an inflationary bubble effect

in the end asset.

And the end asset in this case is education.

But we’ve seen the same thing with housing.

And we’ve seen the same thing

with pharmaceutical drugs

and medical care and other services.

So any place where the federal government

steps in and says,

I will provide a backstop,

I will provide free capital

to support and create a quote-unquote

incentive for this market to accelerate,

you end up with these inflationary bubble.

You’re going to have people game the system,


You get whatever University of Phoenix types

and even the large universities

raising tuition to observe things.

And people take these loans, Chamath,

before their frontal lobes

are even fully developed.

And they have long-term understanding

of the ramifications of this.

So where do you stand on this, Chamath?

So there’s an interesting article

in The Atlantic about who really wins

when you forgive student loan debt.

And I just pulled out some facts.

So I’m just going to look down here

and read them just so I get them right.

It said in the article,

13% of the US population

carries federal student loan debt.

Grad students account for 37%

of that federal student loan dollars.

Currently, it’s $1.6 trillion

of total student debt

versus about $10 trillion

of mortgage debt.

So the average debt has gone

from about $25k in 2012

to $37k in 2022.

So, you know,

almost a 50% increase in a decade.

The majority of student debt

is held by white borrowers.

Only 23% of Black Americans

age 24 or greater

have a college degree in 2019.

So the majority of the Black population

would not be directly benefited

by student loan forgiveness.

In 2020, the median weekly earnings

for someone without a high school diploma

was $619.

For those with some college

but no degree,

that number was $877.

For those with a bachelor’s degree,

it was $1,305.

And that number continues to grow

for master’s and professional degrees

and PhDs.

Interestingly, the last two points,

the Gallup organization

who ran a poll

is unable

to report the percentage of Americans

who have mentioned student debt

or student debt cancellation

because it hasn’t garnered

enough mentions to do so.

In 2022, according to the article,

across four Gallup polls,

just one respondent

mentioned student debt

as the most important problem

facing the nation, unquote.

And then last thing is here

is that 43%

of the 2020 Biden electorate

graduated from a four-year college

or university

versus 36% of Democrats in 2012.

So, you know,

one of the takeaways is that

this may be an issue

that affects

a certain percentage of the Dems

who went to college,

but it may not represent

a plurality of all Democrats

and it doesn’t represent,

you know, a majority of all Americans.

They sure are vocal though

to your point, I think.


I mean, look, this is,

I think that there are two motivations,

political motivations

for doing this now.

They’re pretty obvious.

And then I just want to say three things

on kind of the concern about this

and why I feel very strongly

that if we don’t fix

the underlying system,

you cannot forgive student loans.

You have to fix the system

before forgiving student loans.

Fix it first.

What’s the number one fix, Friedman?

Well, so let me just say

the two motivations.

The two motivations, number one,

this is a stimulus.

So this morning,

the Biden administration said

that they were thinking

about taking executive action

to make the first $10,000

of student loans forgiven.

So if you do the math

across 43 million people,

that’s a roughly half trillion dollar


What happens?

That half trillion dollars,

much like we saw last year,

becomes a stimulus payment.

It is money that people now have

that they didn’t have before.

It is capital that they

or freedom from debt

that they didn’t have before.

And it will stimulate the economy.

So there is a very

important economic incentive

here to do this,

which is if we do it,

it will be stimulating to the economy.

And people will spend more

and the economy will grow.

By the way, that’s it.

That’s a two and a half percent

boost to GDP, right?

So half a trillion dollars

of free money just flushes

into the system.

The second thing is

that it will help in the midterms

is their point of view, right?

So they’ve obviously done

they’ve done the polling here,

and it’s like, hey,

when I was in junior high,

the kid that ran for class president

was like, I’m going to make everything

in a vending machine free.

Guess what?

That kid got voted in.

So, you know, the idea that

you’re just going to give everyone free,

give your loans back to you for free.

Everyone’s like, my gosh,

this is the best thing ever.

Elizabeth Warren, you’re a genius.

You know, Bernie Sanders,

you’re a genius.

Joe Biden, you’re a genius.

Let’s say yes.

And so they believe through polling

that this is going to help

them in the midterms.

But the challenge is,

if we don’t solve the problem,

if there’s no standard of value,

of an education,

if there’s no standard around

whether or not a specific

accredited university

increases your income

and earning potential as an individual,

or increases the opportunity

for you as an individual,

you are wasting money.

You are giving federal dollars

to private companies

who are profiteering from that,

and the individuals

are not going to benefit from it.

And I think that we’re seeing this,

sorry, and we’re seeing this

structurally continue

in a lot of other places

where the federal government

doesn’t hold itself accountable

to the standards of how their stimulus

is meant to benefit the individuals

that it is being funded for.

The individuals are not getting

a good education in many cases.

They’re not earning more

by getting this education.

Chamath’s data speaks to the average,

but a large percentage of people

go to crappy universities

that don’t improve

their earnings potential.

And then the federal government says,

here’s this free money,

that private university

just made a bunch of money,

and no one’s better off.

And guess who’s ended up paying for it?

Taxpayers are going to end up paying

that private company a bunch of money

because we’re going to forgive

all the loans.

And so we have to have a standard around

whether or not a dollar

should be loaned to pay for education

at a specific university

by having that university prove

that it improves the potential.

And by the way, if you stop

the federal student loan program today,

fewer people would go to college.

And if fewer people went to college,

guess what would happen?

Colleges would drop their tuition.

The reason they’re able to raise demand,

supply and demand,

and the reason they’re able

to raise their tuition

is because there’s so much demand

because there’s free money.

And so if we actually saw

the federal loan program cut back

or put these standards in place,

the cost of tuition

would actually decline.

And profiteering would decline.

People would get a better education

and the taxpayers would be better off.

End of diatribe.


No, no, I think it’s completely legitimate,


We talked on a previous episode

about how people make

things like immigration,

you know,

such a charged philosophical debate

when there are point based systems

being used in Canada,

Australia and other places

that make it much more logical.

Do you think the solution here

is to Freeberg’s point

of just,

and I’m interpreting Freeberg’s point as

what is the value of this degree?



Nurses can take out 100% of their loans

because we know there’s a nursing shortage.

You know, philosophy,

graduate students

maybe can’t take out

more than $5,000 in debt

because we don’t

see a bunch of job openings for that.

Getting a history degree

at Trump University

is a lot different

than getting a nursing degree.

So Saks,

what’s the solution here?

And then we’ll give you

your swing at bat

in terms of buying votes.


Let’s go solution first

before we go partisan.

Look, I think that a loan

only makes sense

when it generates ROI, right?

It makes,

you’re going to generate more income

on the other side of that loan

to make that loan worthwhile.

And the problem here

in too many cases

is these kids go to these schools,

they spend five years there,

they get a degree

in some woke nonsense.

And of course,

it doesn’t help their earnings power.

I mean, that’s a fundamental issue here

is that these degrees

are worthless, right?

I mean, if you go to college

to get, you know,

to become a doctor

or maybe a computer programmer

or something

where the skills have value,

then of course,

you can pay back the loan

because you get a gainful job.

But otherwise,

if you just major in fine arts at Harvard

or something like that,

I mean, you basically graduate,

you get a job at what?

The New York Times is your dream.

You can’t pay back your loan.

You’re saddled with this enormous debt.

And think about

the cultural impact that has.

You have this young generation

who believes in socialism.

And I think this is a big part

of the reason why

is they have no capital

and they have no ability

to accumulate capital

because they’re so saddled with debt.

So to interpret what you said,

Saks, hard to believe in capitalism

if you got no capital,


If you start,

if you start the race

at negative $250,000 in debt

to get a degree

that was basically worthless for you.

Yeah, so the system is cool.

I think maybe what we do

is we reform the debt.

I’d actually be OK with

forgiving the debt in some instances

if you got a reform of the system.

In other words,

if we stop funding

these worthless degrees,

but if you’re basically

going to acknowledge that,

hey, we need debt forgiveness

because these degrees are worthless.

Why would you keep funding those degrees?

So, you know, we need to have

like a more honest,

comprehensive solution here.

The other thing we should do actually

is one really crazy

part of bankruptcy law

is that student debt

is one of the only types of debt

that’s not dischargeable in bankruptcy.

I don’t know if you guys know that,

but under George W. Bush’s presidency-

Yeah, explain it to everybody.

Yeah, basically, look,

if you ever get to the point

where you have too much debt

and you can never pay it back,

you declare bankruptcy

and then the court starts you over from zero.

So you can at least

start building some wealth, right?

But you lose credit, but you lose credit.


No one’s going to want to

give you credit after that,

but at least you’re not

so deep in the hole

you can never recover.

So that’s the point of

personal bankruptcy.

But the crazy thing is that

in bankruptcy,

you cannot get your college debt,

your student debt canceled.

You can get your credit card debt canceled.

You can get other types of debt canceled.

You can’t get your student loans canceled.

It’s crazy.

So that’s one thing

they should fix immediately

is make these debts dischargeable-

If it was private market sacks,

you wouldn’t need to do that, right?

The reason that’s the case

is because it’s federal dollars

that are funding those loans.

But if it was private market dollars,

people actually,

if banks and lenders took a loss

when people couldn’t pay back the loans,

then the market would work itself out.

The problem is,

it’s the federal government stepping in

and trying to be a market maker.


And it creates this totally crazy incentive.

Right. It creates double distortions.

On the one hand, like you said,

it basically means that

because government money is funding everything,

the tuition goes up

because colleges take advantage of it.

But then also,

nobody’s really making a smart ROI decision

about whether-

a smart underwriting decision

about whether this loan is worth making,

whether it actually stands

a reasonable shot of being paid back.

There is such an easy free market solution here.

It’s called an ISA.

It stands for Income Sharing Agreement.

This is where you give a loan to somebody

and you get a percentage of their income

over a period of time

capped at a certain multiple,

say 2x.

And what this does is

it aligns the person giving the loan

with the job that’s expected to come

from the education.

You already have that.

You already have that.

It’s called taxes.

Yeah, but here’s the problem.

Nobody’s watching the store.

So nobody’s looking at it saying,

I will give an ISA

at this percentage return for nursing.

Nursing happens to-

I gotta pay 50% of my income every year

to the federal go-

to the government.

Like, I pay taxes.

The thing we have to remember is like,

if the federal government tries to do this,

it really is just about buying votes

going into a midterm election.

And here’s why.

If you arbitrarily give a bailout

of one sliver of the population,

unless that sliver is really, really large,

which we know it is not,

it’s going to really anger everybody else.

Think of all the people

that are tradespeople,

working class people

who don’t have a college degree.


What are they going to think?

What about all the people

that just finished paying off their debt?

What are they going to think?

It’s going to upset so many people.

And ultimately what this is

is a bunch of coastal elites

who are miscast in jobs

and saddled with debt

is pushing for a program

that isn’t a broad-based mechanism

to create equality at all.

It’s just a get-out-of-jail-free card

for a small group of people

who unfortunately

were taken advantage of.

And this is the thing

that we’re losing sight of.

You can only pay back a loan

if you’re making more money than you owe.

And the fact that this exists

shows that these loans

were really poorly constructed

and they were given in instances

where they should not have been.

In the private markets,

we’ve seen that happen,

but we go through a cleansing mechanism

to sort it out.

That’s literally what happened

during the 2008 real estate bubble.

People gave mortgages to people

who could not pay them back.

If I, as a lender,

think that you’re not going to be able

to pay back the loan,

I don’t give you the loan.

That’s the simple mechanism

that exists in free markets.

And part of the issue

is a lot of people got loans

thinking without doing the calculation,

will I ever be able to pay this back?

And they took the loan

to get an education.

The other binary concept

that I will just make money,

but let me ask one other question of you guys.

At what age and at what level

do you think individuals

should take responsibility

for the decisions that they’re making

when they take on personal debt?

Because we see ourselves

getting in the cycle

where consumers are given debt.

They don’t think about

the consequences of that debt down the road

or do the analysis themselves.

And maybe they’re not equipped to.

And they’ll take out a loan on a car,

on a house,

on a…

No, but the problem is…

And on a loan, on an education.

But here’s the thing,

like education is a very dangerous thing

because we put so much societal credit

and external signaling to it.

And we give everyone effectively

the same quantum of risk.

But that’s not true for a credit card,

nor is it true for a car loan.

So the private markets are efficient

in that when you first

try to get a credit card.


You don’t get an Amex,

Centurion or Platinum card.

You’re given a Chase Sapphire card

with a $500 limit.

And you earn the right to borrow more.

Same if you applied for a car loan.

The same with a mortgage.

It’s based on a down payment.

So there’s differential risk pricing.

And if you don’t have

differential risk pricing,

you’re getting a lot of people…

How would you add it to education?

The market would figure it out.

The market would

because you would

differentially price the risk.

As you guys…

You’re literally a brainstormer right now.

Like, what are your grades?

Well, no…

What courses did you take?

Whatever it is.

We’re not going to get it right.

The market will get it right.

But the market would figure it out.

The problem is…

Sorry, the incentive was…

And this is a really important point.

If you guys read Ray Dalio’s book,

which we’ve talked about a number of times,

he’s identified and highlighted

that a growing economy

in a successful country

improves by improving education

and having more people

get higher education,

generally speaking.

And so the initial incentive,

the initial intention

behind the Federal Student Loan Program

was a good one,

which was to give people

access to capital

that the private markets

were not providing at the time

so that they could go out

and get a higher education.

We could improve

the education of our workforce

and we could grow our economy.

Nowadays, the question

that we always forget…

Remember, we always get one step away

and then two steps away

and five steps away

and we miss the point.

We’re in that moment now

where the question really is,

is the Federal Student Loan Program

doing more harm than good?

Are we actually creating value

from our higher education system

in this country or not?


No, but most importantly,

is the private market there?

Because you look at the total debt outstanding,

$1.7 trillion.

There would be a private debt market.

Freeberg, don’t sell beyond the clothes.

The answer is no.

We have a massive employment gap, okay?

The data tells you

in every single which way possible

that we are not educating

our young people

to take the jobs that are needed

for a high growth,

functionally moving economy.

We know that.

So we are miseducating these folks

and then we are giving them

access to enormous amounts of debt

that they have no reasonable chance

to pay back.

And I think that that should be fixed

by fixing the incentives

of the universities.

You are right.

Universities today

are for profit,

asset management businesses

wrapped by this philanthropic

do good or nonsense

that they try to tell people

to get you to go there

and pay $50,000 a year in tuition.

It’s a joke.

And they’re compelling people

to think that these degrees

are actually going to make them

successful humans.

They come out miseducated

and undereducated

and incapable of servicing

the economy’s needs separately.

The other thing,

if you take a step back

and take student loan

off the table for a second

and just say

any consumer handout

that touches less than,

you know,

40 or 50% of the economy

or of the population of a country

is very precarious.

So student debt,

in this case,

15% of the US population.

It’s a lot of people.

But it also means that

there’s 85% who don’t benefit.

What will those 85% of the people

say when they have to foot the bill

for the first 15%?

And then what do you think happens

with other kinds of debt?

What happens when the oil lobby says,

forgive our debt

because we’re in a national energy crisis?

What will all the climate folks

think about that?

It’s no accountability.

Well, it creates a slippery slope.

And my last point on this is,

to the extent that we actually want

to forgive student debt,

I’m fine if that’s the law of the land.

That’s great.

It should go to the floor,

and it should be debated in Congress,

and it’s a law that should be passed.

But it should not be by executive edict

trying to back in to buying votes

in a midterm election.

It’s gross.


Well, by the way,

just on the politics of that,

I think this could potentially hurt them

because, Jamal, to your point,

this is basically a bailout

of the woke professional class.

It’s the underemployed graduates

of these universities who, again,

are members of the professional class.

They majored in things

that didn’t increase their earnings potential.

Meanwhile, the majority of the country

is working class.

Something like two-thirds of the country

is still working class,

meaning non-college educated.

And they’re going to have to pay

for this bailout.

And one way or another,

either through higher taxes

or more deficit spending or more debt,

the burden of this bailout

is going to fall on them.

And why should they have to pay

to bail out the professional class?

Clearly, somebody working in retail

is paying for somebody’s graduate school degree

in creative writing or something.

It’s completely and profoundly unfair.

To the answer to Freiburg’s question,

we actually know when executive function

fully matures in adults,

it’s 25 years old.

And that’s when you can actually

make long-term thinking.

So there is an argument

that people should not be allowed

to take these loans

that are not even,

that you can’t get out of.

Or there should be some cap

on the amount of loans you can take

because people at the age of 17, 18, 19, 20

are absolutely not able

to make these decisions.

There are other programs as well that work.

So in Canada,

I went to a school called

the University of Waterloo.

Fantastic engineering school.

The reason I went there

and I did electrical engineering there

is that they had a program

where after the first year,

so the first year looks like every other year

at every other school, okay?

But you’re there for two semesters

from September to May.

But after that, you start working

and you alternate four months of work

with four months of school.

And you get paid for that work.

And what it allowed me to do

was graduate with meaningfully less debt,

but it also allowed me to graduate

with a commercial skill set.

And I was able to get a job.

And in that moment, actually,

I was working at a bank

and I got profoundly lucky,

which is I worked for an individual

and I was trading interest rate derivatives

and I was learning to trade

technology stocks on the side.

And this guy, Mike Fisher,

incredible human being.

And I made in one year,

like $25,000 or $30,000 for him.

Yum, yum. Zip, zip.

He wrote me a check and he said,

here, you have $25,000 of student debt.

Go pay it off right now.

I’ll let you cash out this whole book.

I graduated with about $28,000 of debt.

I had about $8,000, I think.

I had somewhere between $10,000 and $15,000,

$10,000 and $20,000.

And then I got my first bonus check

after my first year of work after undergrad.

And I paid off all my debt

and it felt incredible.


It was amazing.

When I paid off my debt,

I’ve never been in debt since.

I walked downstairs to the bank

and I gave them the check and I endorsed it.

And I said, here’s my student loan number.

And I was like, oh my God, I was free.

It’s like, it was an enormous sense of relief.

For me, it was credit card debt.

I had accumulated all the credit card

because I went to Cal.

It was like four grand a year to go to college.

It was a lot cheaper back then.

If I didn’t go to Waterloo,

I would have had double the debt

because I wouldn’t have had work.

But then also, like I think about all these scenarios,

I wouldn’t have had two years of work experience.

I may not have gotten the job

that I did at Bank of Montreal at the time.

That may not have been able to

give me a chance to meet Mike Fisher.

Hey, all these things could have happened.

So you can’t rely on the luck of the butterfly effect

so that you have a reasonable shot

of building a good life, right?

So there are all these things in universities

that I think are really mismanaged today.

And they go and work against

what is right in society.

So I’ll give you another example.

The dean of the engineering school

and the president of University of Waterloo

was here this week with me.

And I asked them,

tell me about these global rankings.

And they said, you know,

it’s just a really difficult game.

They said, if we wanted to compete

to try to get high on the list,

we would have to do the things

that would undo all the things

that made us great and unique in the first place.

And I was like, you know what?

I am such a huge supporter of this school.

Please just continue to do what you’re doing.

And I’m so proud that they have the strength

to just stand on their own two feet.

But every other school is running this shell game

of, you know, gerrymandering all of these statistics,

trying to get high on the list,

to trick some parent,

to force their kid to go to some school,

to then graduate with $200,000 of debt,

to get a job that doesn’t then give them

any line of sight to paying it off.

It is, I don’t think it’s their kids’ fault,

but you have to reform the system.

And I think the first thing you need to do

is look inside these universities

and hold these folks accountable.

I mean, these incentive systems are just crazy.

Speaking about crazy,

we talked about Bill Hwang and his-

That’s your transition?

That’s your transition?


They can’t all be as elegant and smooth.

Here’s Jekyll.

He’s looking at the agenda for today

and he sees Bill Hwang and he’s like,

okay, how do I do this?

How do I do this?

The Hwang-er.

The Hwang-er.


I mean, he pulled the Hwang.

Crazy, the linkage is craziness.

Okay, go.

I mean-

No, no, no, hold on.

The linkage is trillions and billions.

Trillions and billions.

Speaking of trillions and billions-

Speaking of trillion dollar mistakes,

we got a-

Hwang and his CFO were arrested on Wednesday

and charged with racketeering,

wire fraud, and conspiracy.

We talked about this when it happened.

His firm, Archegos,

I think it’s Archegos.

Archegos, Archegos.


His poorly named firm and family office,

we covered this in real time

back on episode 28,

they famously lost $20 billion over two days

when they were margin called

back in March of 2021.

He worked at Tiger Management, yada, yada.

And it was at the time reported

that they were trading billions of dollars

at over 5x leverage.

According to the SEC complaint,

at its peak, the firm was managing $36 billion

with $160 billion of exposure,

which is 4.5x leverage.

But Archegos, or however it’s pronounced,

started with only $1.5 billion in assets

in March of 2020.

So Hwang flipped $1.5 billion in capital

into $160 billion of exposure in 12 months,

essentially trading somewhere

in the neighborhood of $100 to $1 at its peak,

according to this complaint.

A bunch of banks have lost money

because they were supporting this.

Credit Suisse lost $5.5 billion,

Morgan Stanley lost $1 billion,

UBS, $774 million.

The New York Times described it as,


orchestrating a stock manipulation scheme

that relied on them masking

and concealing the enormous risk they had taken.

Chamath, you had some thoughts on this, I think.

So first, I think we should probably explain

how he did this, right?

So that’s everybody’s question is,

how did the banks let this happen?

Well, I think first, it’s what’s the mechanism.

So there are ways in capital markets

to take really extreme bets.

This way is what’s called a total return swap.

And so the basic way that this works

is you have two people on each side of a trade.

And what you basically say is,

let’s agree on what’s called a reference asset.

So I’ll just use an example.

Let’s just say it’s,

I think Discovery was one of the companies

that they were trading.

So Discovery Communications.

Let’s look at, that’s the reference asset, that stock.

And what I’m going to do is buy protection.

And what you’re going to do is sell protection.

And essentially what happens is,

as the stock goes up and down,

you’re going to net the difference

between these two people.

And when you do it that way via a derivative,

so what it forces the person to do,

the bank in this case,

is to go out and buy the stock, okay?

So that they are hedged in case the price goes up a lot

because they have to pay that difference,

in this case, to Bill Huang.

And if the price goes down,

Bill Huang has to pay that difference back to the bank.

So what happened is that he went to three different banks,

Morgan Stanley, Goldman Sachs, and Credit Suisse,

and effectively what he did was he bought,

he made these bets across a handful of names,

but he did it with so much leverage

that he ended up owning 60 or 70% of some of these companies.

And in March of last year,

when the stock market turned over,

he owed them enormous amounts of money,

so much so that these banks had to unwind these trades,

which caused further downdrafts in the stock

and almost spilled over to the broader stock market.

Jason, the numbers from the SEC complaint are pretty crazy.

As of March 31st of 2020,

they had $1.6 billion invested

on a gross exposure of $10.2 billion,

which what that means is they were able to go

and lever up this $1.6 billion

to behave in the market as if they had $10.2 billion.

By January 1st of 2021, so nine months later,

they had $7.7 billion of invested capital,

so they’d done really well, right?

They’d made 70% on this 10 billion,

but they levered that up again,

and so they had gross exposure of $54 billion.

And then just, I think, three months later,

by March 22nd,

they had $36 billion of invested capital,

meaning they had $36 billion of cash.

This guy had taken 1.6 and spun it up

to $36 billion in basically-

Yum, yum, this guy went like 20x.

In a year, but then he had levered that up again,

and he had $160 billion of gross exposure.

And then the market turned, and he owed all this money,

and so all these folks had to get out of it.

But basically-

They also alleged that he was trying to do short squeezes

on the stocks to try to make them goose even more.

So there was massive manipulation

because of his position size, correct?

Yes, so this is what happened.

But then here’s how it is allowed to happen.

So if you try to do the same thing in interest rates,

in the interest rates market versus the equities market,

it’s not possible.


If I wanted to go and buy a credit default swap,

effectively think of that as the same kind of thing he did,

but on the debt of a company,

on the debt of discovery.

What I would do is I would be able to enter

into that trade with a bank,

but it goes into a clearinghouse.

And that clearinghouse is able to tell all the banks

how much risk is building up in the system.

And the reason we implemented this clearinghouse

was to make sure coming out of the great financial crisis,

none of that chaos ever happened again.

But we did not include the equity markets

in that clearinghouse and in the laws that regulate it.

And so what this is,

is a very shadowy gray part of the market

that is poorly regulated,

that has very little oversight.

So what do the banks do?

The banks say to you,

if you want to put this thing on,

give me a balance sheet so I understand what the risk is.

A piece of paper, a report.

And I think what they’re alleging

is that these guys lied

so that any individual bank,

in this case, Goldman, Morgan, and Credit Suisse,

had no idea because they kind of doctored

these reports to each other.

And that’s why all this risk built up in the system.

It would be solved if you had a clearinghouse

for equity derivatives,

the same way you have for interest rate derivatives.

It is crazy to think that somebody was doing this

and thought they would get away with it

and had been up 20x.

The psychology of these people,

the Madoffs of the world,

I just find fascinating.

Why wouldn’t he if he’d 20x?

We just talked, by the way,

we talked about how the four of us,

we talked about how the four of us are grinding

to return 2x of our money in 10 years.

Yes, and this guy’s like, YOLO.

He’s 7x or 10x, you know, $1.6 billion.

And it was not enough.

It’s not enough.

I mean, people have,

but what do you think the psychology of this is?

I have no idea.

That’s what I’m trying to figure out, Sax.

What’s the psychology of somebody who tries to do this?

They’re already a billionaire.

They’ve already got their jet.

They could go anywhere.

They could have anything.

They could buy any home.

They could go on any vacation.

That’s the thing I never understand about these people

is like, this has got to be

some crazy sociopathic behavior.

Jekyll, did you always want a jet?

By the way, the guy-

I just got a business select on Southwest.

When you started your career,

what did you want?

The Knicks.

That’s what I still want.

Well, when you started, you wanted a house, right?

And then you got the house

and you wanted the home in Tahoe

and then you, or the home, you know, the vacation home.

And then, and then you want the jet.

And then, I mean, I don’t know why this is confusing.

Well, no, but I don’t want it enough

to put my entire freedom at risk or to cheat.

Apparently this dude was a Christian.

I’ll put that in quotes.

Cause I don’t, I mean, I don’t know.

Doesn’t sound like Christian behavior.

Ran, ran Bible study and stuff in the mornings.

He lived in some modest house in Jersey, blah, blah, blah.

But you know, he was a bit of a freaky deke.

What does that mean?

So weird.

I mean, the guy couldn’t get enough.

By the way, the dude was pinched in 2012 for insider trading

and had to pay a settlement

and like give back everybody’s money.

He got pinched.

It’s crazy.

It is what it is.

You know, you never rat on your friends.

The guy got pinched.

He got pinched.

Yeah, he got pinched.

When you grow up in the streets, you know that.

What happened to this guy?

I got pinched.

He got pinched.

When you grew up in the streets.

The guy ate cheese.

He didn’t rat on, he ratted on his friends.

Manchego, he ran out of the Manchego.

He tried to steal some Manchego and he ratted on his friends.

Now the CFO got pinched, too.

They flipped him.

This is super deranged.

Speaking of deranged.

Transitions tonight.

Where are we going?

Where are we going?

You know what someone needs to do?

Someone needs to take all of Jekyll’s transitions

from the last couple of shows

and just put them together in a row.

Yeah, just a super crazy.

Speaking of deranged.

Okay, speaking of deranged.


On Wednesday, the Department of Homeland Security.

Speaking of billions.

Announced a disinformation governance board.

Disinformation governance board.

According to the announcement,

the board will immediately, immediately

begin focusing on misinformation aimed at

migrants at the US Mexican border.

The board will be led by disinformation expert

Nina Jankowicz.


He has researched Russian misinformation tactics

and online harassment.

This is also the woman who sings

show tunes on TikTok.

Jekyll, I feel like you should be running.

You should be running our disinformation board.

You always have such a strong opinion.

And you have such a nose for

what’s BS and what’s not.

Here’s what’s going on here.

So first of all,

this woman claims to be an expert in disinformation.

Let’s evaluate that claim.

She was an active pusher of the Steele dossier,

which turns out is disinformation

for which people are now under indictment.

She also was active in trying to censor

the Hunter Biden laptop story,

which as it now turns out was not disinformation.

It was absolutely true,

as acknowledged by the New York Times,

the Washington Post.

You would think that these blemishes on her record

might disqualify her

from being an expert on disinformation,

but actually in the view

that people are hiring her,

these are actually qualifications

because they are not interested in the truth.

The reason this department is set up

and what they mean by disinformation

is they have hired her

to push partisan political points.

That’s what’s going on here.

That’s what disinformation is.

Now, it used to be

that if you disagreed with somebody,

you would just say,

listen, I disagree with you,

or maybe you’re an idiot,

whatever, you’re wrong.

But now the way that these debates

are set up and the way they work

is they don’t just say you’re wrong,

or that’s not true.

They try to label you as disinformation

so you can get you censored.

And the point of hiring

this disinformation czar

is basically to censor the,

basically to shut down the debate.

That is basically the whole point

of the censorship.

Do you think there’s any timing here

with Elon Biden?

Yes, of course.

It’s, well, there was

a great tweet about this.

I mean, I love conspiracy sacks, by the way.

I don’t think it’s conspiracy theory.

There was a great tweet about this

that we live in a future

where it’s like a mashup

of George Orwell and Ayn Rand.

Because here you have Elon Musk,

the heroic lone entrepreneur

trying to rescue freedom of speech.

At the same time,

you have this Orwellian ministry

of truth being created

by the federal government.

I mean, no awareness of naming.


It’s just bizarre.

But the disturbing thing about it is-

Disinformation governance board

is such a dystopian name.

The thing about it

that’s a little bit scary here.

I know you play the video

of her doing show tunes

and it seems sort of silly.

But the thing that’s scary is

that this is under

the Homeland Security Department.

That’s another weird wrinkle.

Why is that there?

It’s the most militarized department

in our government.

So it’s really scary

to put the ministry of truth

under the department

that has all the soldiers

and all the weapons.

It’s not the name of it,

but it’s close.

Pretty darn close.

Now, why is it there?

I’ll tell you why.

Because this was built up to,

there was a-

The ministry of truth.

Shout out George Orwell.

A couple of months ago,

there’s a news story

that we might’ve covered on this pod

where the Homeland Security Department

redefined disinformation to comprise,

they said it represented

an escalation of the terror threat level.

So in other words,

they basically said that disinformation

was tantamount to terrorism.

Remember that?

Didn’t we talk about that?

This is the payoff to that.

First, they define,

they basically define the other side

as being disinformation,

of the debate,

as being disinformation.

Then they define disinformation

as basically terrorism.

Then they have the Homeland

Security Department,

which is supposed to be

responsible for terrorism,

create this ministry of truth.

This is what’s going on here.

It’s really weird.

Just to remind everyone,

there was concern in the last election.

I’m going to play devil’s advocate

as I often find myself doing here.


Just to try and explain the world,

that’s the reason

I often play this role,

because I’m trying to understand the world.

But, you know,

there was a real concern

that, you know,

the Russian government was using,

you know, information warfare

and propaganda through social media

to influence voting.

And that that is considered

a security threat

to the integrity of our elections.

Therefore, this is a homeland security issue.

And there is a question mark,

of course, that everyone has

on how far are they going to go

once you set this precedent?

When would they ever stop

in terms of quote, unquote,

policing information

and policing what’s true

and managing internal propaganda

and internal media

delivered to us by the government?

That’s the other side of the coin.

But the primary side of the coin,

the initial side,

the initial representation

that I think folks do have concerns around

is how do we keep foreign actors

from creating misinformation campaigns

that go viral and influence elections?

And Saks, I don’t know if you think

that that’s a concern

we should or shouldn’t have,

but how would you address it

if you were the president?

And that was the challenge,

you know, to like,

how do we stop that from happening?

The foreign actors

interfering in our elections

is certainly a concern

we should have

if it was actually happening

on a big scale

or in a meaningful way.

I mean, this is basically,

look, this is basically a hoax, okay?

John Durham is basically out there

making indictments right now,

proving the extent of this hoax.

It started with the whole steel dossier,

which was a piece of campaign

opposition research

that was manufactured

by Hillary Clinton’s campaign.

The lawyers who basically produced it

are under indictment,

and that’s where this whole thing

of Russian disinformation came from.

And the only proof for that thesis

is that supposedly the Russians

bought $100,000 of Facebook ads

on Facebook.

So I’m not denying that that occurred,

but it was relatively minor.

It was a drop in the bucket

of all the activity going on

around the last election.

Wait, to be clear, to be clear,

that was just the ads

that were bought with,

with like credit cards

that said like FSB on it.

Way to go, Facebook security team.

You probably, you know,

didn’t count all the number of credit cards

that were stolen.

I’m pretty sure the Russians

are capable of stealing

John Smith’s credit card

and using that to buy ads as well.

Well, I saw, I looked at those ads.

Are you seeing those ads?

They were ludicrous.

They weren’t going to convince

anybody of anything.

I mean, they had like Jesus

and the devil arm wrestling each other,

and the Jesus figure was basically saying,

and you know, it was just absurd.

I mean, the Jesus figure was saying that-

Okay, wait, to be clear, it happened,

and you’ve now stepped back

your position on like,

it just wasn’t at scale to your opinion.

I think, I think, look,

the scale interference in the election

was committed by big tech.

I mean, they censored

the Hunter Biden story

two weeks before the election.

It turns out that’s a completely true story

that Hunter Biden has extensive

business dealings in Ukraine,

the country we are now-


But we are now deeply involved

in a war there.

And that story,

the electorate had the right

to take that into account.

Big tech censored that story.

So look-

There was a reason for that.

May I respond to that?

Just to give people like

making a very difficult decision,

you have to remember,

Trump asked Putin on stage

to hack Hillary’s emails, and they did.

Then he asked the Ukraine

to take action against the Bidens,

or he wouldn’t give them support.

He was impeached for that.

So if you put yourself in the,

and I’m not saying Twitter

made the right decision here,

but there was,

and there was also sexual material,

you know, people’s nudes,

and hacked material,

and nudes are against

the terms of service.

So I think two things

happened concurrently.

One, listen,

the people working at Twitter

are 98% liberal.

They don’t want Trump.

They saw it as an existential threat.

And then two,

they don’t want to link

to hacked material.

Oh, really?

Well, hold on a second.

Hold on.

During the whole Canadian-

Hold on, let me finish, let me finish.

Let me finish this point.

No, I have to finish my point.

The third point,

and then I’ll let you go,

is that in addition to all that,

Hunter Biden is completely a grifter.



I agree with you on that one.

So look,

during the whole Canadian trucker thing,

remember when all the people

who contributed to those Canadian truckers,

they got doxed.

I mean, basically there was a hacker

who leaked all the people

who had donated,

and social networks were happy

to print all that information.

So this idea that they censor

hacked information is nonsense.

The Libs of TikTok account

just got doxed by Taylor Lorenz.

Look, whether you think

that was a good idea or not,

the point is these principles

are invoked very selectively

when there’s a story

they want to suppress.

And the New York Times

and the Washington Post

have both not come out

and said that the laptop was real,

it’s been authenticated,

the story was real,

and this whole idea

that it was disinformation,

that was just invented.

I mean, it was just invented.

Well, no, hacked.

It wasn’t that it was disinformation,

it was that it was potentially hacked.

And you and Trump,

Nothing was hacked.

Here’s the thing,

Trump set the stage for that.

And the people at Twitter and Facebook

who also made these decisions,

they were informed

by three later agencies,

Department of Justice

and FBI, etc.

Hey, this is potentially

hacked material

designed to interfere

with the election.

Listen, Nina Jankovic

and other Democratic

Party operatives

just made up out of whole cloth

that the Hunter Biden story

was disinformation.

It was true.

It’s been acknowledged as true.

The Washington Post is true.

I mean, I think this is true.

So hold on.

So it goes to my point.

Social media can improve.

No, it’s not about improving it.


Well, no, no,

I didn’t fear my sentence.

I think this is where

social media can improve,

which is if they had to explain

every one of these decisions

they make in full

in transparency,

I think that’s something

Elon could bring to this party,

which is if you’re

going to block something,

we need to know why.

And they’d never explain why

and who made the decision.

And I think that that transparency

would benefit situations like this.

If the DOJ or FBI told them,

this is hacked material,

then they got to go to the DOJ

and FBI and say,

you got to give us cover here.

If this is, in fact,

hacked material,

you told us not to print it.

We’re not going to print it.

But it was just bizarre

that one publication got dinged,

like the New York Post.

It didn’t.

The oldest, the oldest

newspaper in America,

the oldest newspaper in America.

Also not the bastion of like.

It doesn’t matter.

That’s not for you to decide.

It’s not for Twitter to decide.

It’s a legitimate publication

that had a true story.

And I don’t disagree.

And it was relevant to the election

and the American people

should have been able

to take that into account.

And people like Nina Jankovic,

whatever, our new czar

of the Ministry of Truth,

she was out in the forefront,

basically calling

that story disinformation.

Meanwhile, she’s pushing

the Steele dossier,

which really was.

If that story was confirmed,

would Biden have won?

I don’t know.

I don’t know the answer to that.

But the point is that

this shouldn’t have been suppressed.

That was that was

election interference.

Now, Elon came out this week

and specifically tweeted that,

that that was basically a mistake.

Jack also said it was a bad.

Jackman said it was a mistake, too.

And Elon repeated the same thing

that they shouldn’t have done that.

I think everybody can agree

it’s a bad call in hindsight.

Of course.

But in hindsight, right.

But what was the reaction

to what Elon said?

He was accused by virtue of criticizing

the policy decision that Twitter made,

that that was supposedly

targeted harassment

of the legal counsel at Twitter

who made the decision

who gets paid $17 million a year

to make those decisions.

Do you guys see this debate?

This happened last year,

this last week.

So the point is that

if you criticize somebody

who’s on a certain side of the debate,

that’s harassment.

But he didn’t even mention her by name.

This is how absurd

this discourse has gotten.

Can I make a prediction?


Prediction’s great.

I think people misunderstand

Elon’s incentives for buying Twitter.

So, and I haven’t talked to him about this.

So I’m just making a complete

subjective prediction.

I think he’s going to buy Twitter.

I think he’s going to clean it up.

I think he’s probably going to generate

something like a two X on this.

We talked about how

that’s like a good terminal valuation

in six or seven years.

That basically puts that asset worth

at around $100 billion.

In the meantime,

he’s going to open source

as much as possible.

I think he’s going to make it very difficult

for misinformation and disinformation

to get very far.

He said he’s going to authenticate

every human being that uses the platform.

He said all of these things publicly already.

And then here’s the master stroke.

And again, this is just me speculating.

I think he’s going to donate it

into a foundation and a trust.

And I think it’ll be

an incredibly powerful competitive

alternative to all these

other for profit businesses,

because everything you guys

are talking about

is the incentives that get perverted

when you have to layer economics

inside the New York Post,

inside the Washington Post,

inside the New York Times,

the Wall Street Journal.

Everything eventually devolves

to clickbait, to hearsay,

to doxing, to whatever

can get you more revenue.

But if you can take it

off the table and run these things

as a public trust,

you can actually win back

a bunch of confidence.

And a lot of these edge cases go away.

Now you would say,

why would anybody do that?

Well, I think the real answer

is because then if he were

to donate it into a foundation,

he’d get $100 billion credit

that he could use,

you know, to offset the gains

when SpaceX or Starlink go public.

Interesting theory.

Interesting theory.

There you go.

Well, I agree with everything

except for the donation part,

because he’s raising

20-something billion from

private equity partners and lenders.

He’ll pay the debt off.

He’ll own it 100%.

And he’ll pay people

a very fair living wage.

And it’ll attract people

that want to seek out the truth,

that want to work in

an apolitical environment.

He’s already said

that 10% of the extremes,

you know, are both equally crazy.

He’s going to force this thing

to be rational and predictable.

It’s an interesting prediction.

I think it goes public again,

and it goes to five times evaluation.

Are we going to be able to ask him

these questions in Miami?

Sure. Why not?

So let me ask you guys a question.

What would you do?

Because a lot of people have pointed out

in response to

what has obviously become

a very polarizing set of discussions

this week around

what should be censored,

what should be banned,

what shouldn’t, etc.

Elon’s going to let bullying

and hate speech kind of proliferate.

Other people have said

we need to release,

you know, the restrictions

and let people say what they want to say.

Freedom of speech has no bounds, etc.

What do you guys think about the argument

that there does need to be

constraints and boundaries set

around things related to health

and safety?

Meaning if someone is making

calls to violent action,

should that be censored, Saks?

And how do you make that interpretation

because it becomes

a fuzzy gray interpretation?

And then separately, like

when there are scientific papers

that say one thing

and someone says that’s not true

and says something else,

how do you kind of decide

whether or not that should be

allowed or censored on the platform?

Because I think those are two

very key issues that

we got to take them separately.

Let’s do violence first.

Saks, there’s plenty of precedent

in law.

Just explain the violence.

Look, the biggest straw man around

this was the whole Trump argument, right?

It was like he was inciting violence

was the argument that was being made.

But like, generally speaking,

is that an appropriate form of censorship

on this private platform?

And if so, how do you set that standard?

Let’s start here with

you hear this argument a lot,

which is that if Elon brings

free speech back to Twitter,

then we’re going to have

all this horrible content on there.

You’re going to have violence,

you’re going to have racism,

you’re going to have harassment,

you’re going to have all, you know,

all these bad things on fraud.

The truth of the matter is that

it’s really a straw man argument

because what it’s basically arguing

is that free speech means anything goes,

but free speech does not mean anything goes.

There’s we have 230 years

of Supreme Court case law,

basically discussing this question

of what speech is protected

and what’s not.

And the Supreme Court

has ruled that there’s nine

major categories of speech

that are not protected

by the First Amendment.

Why? Because that speech

is considered to be dangerous

in one degree or another.

So, for example,

you can’t commit fraud

like, you know,

the Archegos guy or whatever

and then say, well,

that speech was protected

by the First Amendment.

First Amendment doesn’t protect fraud.

First Amendment doesn’t protect

incitement to commit violence

or a crime.

You know, it doesn’t protect

fighting words.

So you could ban, you know,

all ethnic or racial slurs

on these social networks

under the concept of fighting words.

So I think if you actually look

at Supreme Court case law,

well, what I would do is I,

instead of just making up

the content moderation policies

as I went along,

I would look at the cases

where people have been wrestling

with these decisions for decades.

And I would create a content

moderation policy

inspired by First Amendment case law,

where I would take

these nine categories

of sort of dangerous speech

or harmful speech,

and I would operationalize those.

So, for example,

you can’t defame people

you know, the First Amendment

doesn’t protect you

against claims of defamation.

Would you make people go to court,

though, in order to take it down?

Right. So this is where the word

operationalize really comes in.

It’s not practical

for a social network

to require a court level

burden of proof

to prove defamation, right?

So what I would do is I would say

that if you are a person

who claims to be defamed,

you could file a report on Twitter

and provide the tweet

and provide, you know,

some explanation.

And as long as it looks

like a culpable claim of defamation,

meaning the person is attacking you

in a way that seems out of bounds,

then potentially

that can be taken down.

You don’t have to subject it

to a jury trial

or something like that.

So what I would do is I wouldn’t,

you can’t literally

impose First Amendment case law,

but I would use it

as the basis for defining

a content moderation policy.

Can I just say something?

I think one of the best things

about being your friend

is sometimes you say stuff

that is so powerfully

smart and elegant

because it’s so simple.

Basically what Saks said

for everybody else,

because this is how I,

he’s like,

the PRD for content moderation

has existed.

It’s called the Constitution.

It’s just that nobody

in any of these companies

has taken an effort

to actually try to write code

that maps to this PRD,

where the PRD is the Constitution

whose rights have been established

for hundreds of years.

By PRD, you mean

product requirements document.

Yeah, sorry, yeah.

Yeah, it’s what a product manager

would use.

Yeah, exactly.

Instead of them making this up

as they go along,

I would look to the categories of speech

the Supreme Court has already

ruled out as being dangerous.

Write a PRD, write a PRD.

Let’s just do the health one, Saks.

So there’s a scientific paper

that says this drug

doesn’t cure COVID.

And then someone goes on Twitter

and says, take this drug,

it cures COVID.

And I know you’re not obviously

a constitutional lawyer

at this point in your career,

but how would you kind of think

about that?

And how do you think that

that would ultimately resolve

in this regulatory framework?

That’s a debate that should exist.

I mean, I don’t know why

we need to suppress that debate.

So if someone says declaratively

on Twitter,

this drug will cure COVID,

which by the way,

And it trends.

And just to be clear, by the way,

you know, the FDA actually regulates

claims like that on boxes

and material and in a commercial setting.

And if you’re making money off Twitter

and you’re getting a lot of followers

and then you make more money

by putting out a tweet that says,

Yeah, but you’re not making money

off the drug.

Yeah, right, exactly.

If the person is selling the drug,

Roche should never say that.

Right. So if someone went on Twitter

and they said, take this drug,

it cures COVID,

but there’s a site.

You’re confusing facts and authority.

Twitter is riddled with people

that have zero authority

that spit out what they think are facts.


So I think what you’re speaking to

is something very different,

which is if you’re going to design

a social network,

I’ve been part of helping to design one.

So let me just give you

my two cents on this topic.

There are layers of decision making

that need to go into an algorithm

to get to a sense of rank.

Rank means,

do we believe with some

reasonable probability distribution

in some probability distribution

that this thing

is worth showing to somebody else?

And the way that you get there

is through multiple layers.

So there’s obviously a layer

where you can get signal

relative to the authenticity

of the person and individual

making the claim.

Is it a bot?

Is it a real person?

Then there’s a separate layer,

which is how roughly accurate

do we think this is?

Then there’s another layer,

which is, is this person believable

in making all of those statements?

And my point is,

there are different subsystems

you build for those things.

He has already said

all these algorithms

are going to be open sourced.

And what you’re talking about

is authority.

You should allow people

to say stupid things.

It’s not illegal.


Yes. A person can be

on a street corner saying,

Jesus is the son of God

and he will save your soul.

Saks doesn’t have to believe him.

And somebody can say that on Twitter.

The issue here is,

does it trend?

And do you show it to people,

the algorithm?

And if you fix those problems,

then who cares if a person says,

hey, listen.

Twitter has an authority problem

and a ranking problem.

And the authority problem

comes from the fact

that there’s all kinds of long tail,

non-human individuals in the system.

So solve for identity.

And this problem can get easier solved

and solve for trending.

And if you guys were running Twitter,

you would not put on

these COVID-19 warnings.

This is misinformation.

I like labels.

And rely solely on CDC guidance

and recommendations

and FDA approvals

when it comes to treatments

and vaccines and risks and so on.

What I would do is let anyone

say whatever they wanted.

You can say what you want,

but you can put a label.


I’m not arguing for the kids.

I’m just trying to get clarity here.

Yeah. He’s just asking the question.

I would, what I would do is

and I’m going to use taxes.

I would label it.

And I would, I wouldn’t label it

right or wrong.

I’d say ivermectin is a drug.

Here’s the Wikipedia page.

Hold on.

Here’s the Wikipedia page on ivermectin.

Let’s say there’s a lot of confusion

about ivermectin, which there was.

You could just put anytime

anybody says the word ivermectin.

I here’s a sentence

of what ivermectin is.

Here’s the Wikipedia page,

the CDC page,

the UK government’s page, DHS,

whatever for more information

about this topic.

So I just want to, not a warning.

Yeah. I just wanted to learn more.

J Cal, I want to disagree

with what you’re proposing.

Okay. Cause it is the topic.

The juror, it was the one-off

that then triggered the ability

for everyone to bifurcate

on their point of view

on what should or shouldn’t be done.

As opposed to having a universal standard

that is universally applied.

That doesn’t speak specifically

to just the COVID-19 pandemic

or just ivermectin,

or just what Trump said or didn’t say.

But each one of these things can

and should be universally standardized

and then universally communicated

and then treated with universal standards

across everyone and every topic,

rather than have each of these breakouts

where you’ve got someone at Twitter

scratching their head saying,

this seems to be an important topic.

Let’s come in and annotate it.

Let’s create a classification for this.

And that’s where everyone gets riled up.

In my opinion.

I think if there was a universal standard

that was universally applied

without judgment to the topic.

Give an example.

Go ahead.

Can I address this?

Well, vaccines is another good example,

but yeah.

First of all, nobody contradicted the CDC

more than the CDC itself.

It constantly put out revisions

of its old opinions.

First, it said that COVID

was not spread human to human.

Then it obviously said that it was.

It basically was against masks

and it was for them.

And on and on and on it went, okay.

The idea that you cannot criticize

your government or an agency

of the government is absurd.

But that is the type of censorship

that was being leveled

in these social networks

is that basically they are preventing

us from criticizing the so-called experts.

That is precisely the kind of censorship

that should not exist on these networks.

That is precisely the kind of debate.

What about labeling?

In the way I talked about it,

like the problem with more information,

the problem with labeling is,

once again, it’s done selectively.

And the people at Twitter

basically decide who they think

is right in a debate.

And they basically want to act

as a referee to raise the hand

of one of the participants of the debate,

raise their hand over their head,

and declare them the victor.

Now, it’s a lot better to label

than to just censor

the other side’s point of view.

But still, it is a form of soft censorship.

The labeling I described where,

and which happens on our podcast

on Spotify, where it says,

here’s the COVID Information Center,

you know, for more information.

And they give a range of,

so if it’s executed in that way,

do you oppose it?

If there’s like a very confusing

public interest going on?

If you were to algorithmically post

related stories or something like that,

and it was done in a completely fair

and speech neutral way,

and it was just as a feature of Twitter,


But if you have employees at Twitter

sitting around discussing issues

and deciding who the winner is

in various debates,

and then putting their thumb

on the scale to tilt the debate

towards those people,

that’s not what they should be doing.

Now, you know, and that is basically

what they’re doing with censorship.

If you look again,

let’s go back to this topic

of misinformation,

because this is really

the crux of the debate, okay?

Once again, on the basis

of First Amendment case law,

you could remove offensive material

on Twitter on the basis

that it is, you know, fighting words,

it’s a slur, it’s harassment,

incitement to violence.

You could, it’s fraud, okay?

Inauthentic that the account

is not who they purport to be.

You remove all the bots.

So all that content can get removed.

So what is really left then?

It is basically this idea

of misinformation, this idea

that we are going to declare

one party the victor in this debate.

And I think that is what is so offensive

about this mystery of truth,

that Homeland Security is setting up.

It’s what’s so offensive

about the censorship that Twitter

has been practicing,

which is they are trying

to end the debate.

They’re trying to say, look,

this is the person

with the, on the side of truth.

And that is not what

they should be doing.

It’s up to the marketplace

to decide what the truth is.

All right.

There you have it, folks.

Do you disagree with that?

I agree with you.

To your point, David,

I do think in a situation

where the public good,

and there’s confusion in a situation,

sending people to more information

isn’t a bad idea.

I do think a lot of this,

there were thumbs on the scales

and it wasn’t transparent

what was happening.

I think if you add transparency,

so I think every time

there’s an action that’s taken,

it should say agent number

and what their agent number is,

took this action on this tweet

for this reason.

And then data scientists can look

at all the actions that occur

and then say, look,

we’re looking at this agent number

and here’s their manager’s agent number.

And here’s why they took down this post.

You know, then at least

you could have a starting point

to figure out what’s going on.

We don’t even have enough information

to know what thumbs are on what scales,

if at all, or to what extent.

And I would like to see transparency first

so we could have a more informed decision.

And then sending people

to trusted information sources,

a group of them isn’t a bad idea.

I think what’s trusted.

Yeah. I mean, and so to your point,

you don’t need to look to a podcaster,

a social network or the government

to find truth in the world.

You have to have a process yourself.

That’s part of what this podcast is.

It’s for people to develop

part of being an adult.

Yes. You have to come up

with your own process

of coming to the truth.

You could trust,

some people trust the government agencies.

Some people trust Joe Rogan

or a podcast or this podcast.

Some people trust a folk singer.

Trust yourself.

That’s the number one thing

you have to learn how to do

as an adult in life,

taking all this information

and make a reasonable decision

to take ivermectin

or to not take ivermectin

is a perfect example.

People said there’s no downside to it.

People have been taking this drug forever

and it’s cheap.

And then another group of people said,

well, you’re taking horse medicine.

It’s like, no,

that’s something completely different.

And the whole conversation became,

I felt very easy to parse.

When you think about

doing your own research,

do your own research, right?

And talk to your doctor,

do your own research,

but you can’t do your own research

if you’re not permitted

to see everything.

And, and you think about

like with drugs,

think about how many drugs

over the last 30,

40 years have become the basis

for product liability lawsuits

because they had unintended side effects

or consequences.

And they revised the use of those drugs

or drugs were taken off the market.

If people weren’t allowed

to question those things,

because supposedly the experts

had ruled on the issue

and ended the debate,

how would we have gotten

a correction on that?

How would we have gotten to the truth?

So just because the experts say something

doesn’t mean that is true.

There’s pros and cons to this.

We have kids getting, tons of kids

taking all kinds of SRIs

and antidepressants

and all kinds of drugs.

Parents have to make difficult decisions.

Adult need to make difficult decisions.

Do they do this?

Do they not?

And by the way, there’s no,

we don’t know.

We’re doing large scale

experimentations on the population

in real time with drugs.

It is a decision you have to do

the pros and cons for.

The medical establishment,

the medical establishment

at one point in time

thought it was a good idea

to lobotomize people.

Like they were doing that

as like a medical procedure.

So these people can be wrong, you know,

this idea that we’ve arrived

at the end of history

and we know the truth.

Here’s all truth.

No new facts are being,

or no new knowledge is being created.

For fuck’s sake.

I mean, is red wine good for you

or bad for you?

Because every three

or four fucking years,

coffee and red wine are good for you

or bad for you,

depending on the year.

Well, I saw,

I saw a longitudinal study

that just came out that said

there are no caloric benefits

of intermittent fasting.

Now there’s a lot of people

that would be up in arms with that.

What are you supposed to do if,

if, you know,

maybe there’s some value

to organ health.

Maybe there’s some value

to managing your glycemic index.

But again, the point is

there are study upon study.

There’s work going on all the time.

All these things

are in an area of gray.

And so if all of a sudden

you jump down one person’s throat

and basically become very judgy

because you think that

the total bounded body of knowledge

has already been created,

you are making an enormous mistake.

I mean, Steve Jobs thought

he could cure his own cancer.

I mean, intelligent people

are free to make bad decisions.

He was one of the most intelligent,

talented people in the world

who by all accounts

might have survived longer

if he had trusted.

He went to this very specific method

of juicing.

You know, there’s a,

there’s a certain sliver of folks.

There’s a really incredible documentary

actually on Netflix

if you want to understand it

of people that went down this path

of juicing,

they’re trying to eliminate their cancer.


The irony is that the people

who are, I think,

some of the stupidest people,

like that woman singing show tunes,

like these are the people

who are making these determinations

over what is true and what is false

and what is labeled as information

and what we get to discuss.

It’s crazy.

It’s riddled with bias.

It’s riddled with bias.

You have to make your own decisions

in these cases.

And, you know, like,

it’s great to have smart friends

to have a dialogue with.

No, but it’s a beautiful dialogue.

It’s the beautiful thing

about being an American

and working so hard

to get to this country

is the independence

and the freedom to be your own self.

I mean, why is that such a bad thing?

And why would anybody

want to give that up

to a nameless, faceless blob

in an organization?

Well, and the response

you get back from people is.

I’m not abdicating my ability

to think for myself

to this rando woman

singing show tunes.

And then people say like,

oh, well, the response I got

when I said just entrust yourself

is like, well,

what about all these bros

who are listening to Joe Rogan

and they’re making decisions

on their health,

according to Joe Rogan?

I’m like, I’m like, yeah,

it’s called personal responsibility.

I’m not responsible

for Joe Rogan’s listeners.

The same person that told you

that is probably microdosing

and thinking ayahuasca

is the solution to every problem

they’ve ever had.

Intermittent fasting and microjuicing.

And from the childhood trauma

they had when they didn’t win

their, you know, soccer medal

and nobody knows

he didn’t get into Harvard.

So they’re on ayahuasca every day.

I mean, give me a break.


Nobody knows.

No, we all know so little.

Here’s what we know.

You live, you die.

The end.

And we’re all just trying

to do our best.

And so why don’t we all

just try to have

a reasonably decent time

and be nice to each other?

All right, everybody.

It’s been an amazing episode.

We will see you in Miami,

which will be absolutely fun

and thrilling.

Sold out.

Our first all-in assignment.

And last,

because I don’t know

who the fuck’s going to do

this work next time.

You will.

You’re doing an amazing job.

I’ll continue it.


I love you, boys.

Oh, man.

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 somehow.