All-In with Chamath, Jason, Sacks & Friedberg

Industry veterans, degenerate gamblers & besties Chamath Palihapitiya, Jason Calacanis, David Sacks & David Friedberg cover all things economic, tech, political, social & poker.

E78: VC fund metrics that matter, private market update, recession, student loans, Bill Hwang arrest

E78: VC fund metrics that matter, private market update, recession, student loans, Bill Hwang arrest

Sat, 30 Apr 2022 07:55

0:00 Bestie intros

4:32 Understanding VC fund metrics that matter, state of private markets

29:37 Recession possibilities, Q1 negative growth

44:56 Student loan forgiveness, fixing the underlying system, solutions

1:09:52 Archegos founder Bill Hwang arrested and charged with fraud and racketeering

1:19:08 New Disinformation Governance Board

1:30:23 Predictions for Elon's Twitter vision, policing speech on social media using existing case law

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Is there gonna be an open mic night in? We were going to have you speak Friedberg, but we real nice. You're not capable, so we want the show to be entertaining. Yeah, it's not. That's not personal free. You guys are missing out. I'll tell you guys what makes my stand up comedy so good. 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. OK, bring one joke next week. Check out for all the time we've spent together on this podcast. You know so little about me. It's so, it's so depressing, I gotta be honest. Well, you know, here's the thing about friendship. It's a two way St you gotta open up a little bit. We gotta go out and get drunk one night. Absolutely. Let your winners ride. Man David. We open sources to the fans and they've just gone crazy. We. I just want to give a shout out to this guy, Andrew Lacey. OK, OK, shout out. He is the CEO of a company called Renuevo. Oh yeah, can you just flash it on the screen? Renuevo? I went to pre Nuvu 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 $1000 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 e-mail yesterday and he said I just want to thank you and the besties for mentioning Pre Nouveau. Because we had a bunch of people come and he said we found no less than eleven life saving diagnosis, 1111 people, 11 individual listening to the pod pod saves lives went to Pre Nouveau. After hearing about it, had a head to toe MRI found, you know, 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. Amazing. Anyways, I just want to give a shout out to him for 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. OK, here we go, 32, 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 sacks. How you doing? Have a good week. Yeah, not bad. Alright, well, big energy this week, huh? OK. 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 king of quinoa, the Sultan of Science, David Friedberg. Wait, I missed like half of that because traffic is laughing so hard. I could do it again. Do it again, do it again. Let me try from the top. Outtakes. In high school he had no friends, but thanks to the pod, undergrads are in his DM's, all forms of stake. He's a virgin. He's the vanguard of all the virgins, the Queen of Quinoa, the Sultan of Science, David Freiberg. Just for the record, there's no undergrads in my DMS, but I appreciate the intro. Alright, we'll check. Alright, 3/2. Free furnace St in the show hasn't started. I think I'm taking over intros next week. OK. Billy's gonna do jakal. Yeah, 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. OK. Yours next week. Let's see these latent stand up skills in action. Yeah, absolutely. He's been hiding them from us. Yeah, 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 and they look the same. You can't talk different. Sorry, Jake. I'll go over to you. OK. He's dropping annual letters in luxurious sweaters. As far as aspects go, well, it can only get better. Dictator himself. Chamath Polly hoppity. Ouch. Cannot I cannot comment on the specs. Oh my God. I mean, this is getting brutal. Who's writing these? Oh my Lord. Alright everybody, it's been a big week. Last night did you did you read my annual letter? Any of you 3 ********. I I saw your. No, that's no. That's a no. I got 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, you know, a firm's results over, you know, a long period of time because you had every fund and your totals and and all the key metrics. Well, can I talk about that for a second? Yes. You know what's, what's incredible about what you're saying? Sax is I 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? Hmm. Some people only show gross IRR. Some people show net IRR. Some people don't show the total value of the painting capital, which means, you know, if you have $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 OK, for every dollar you've taken in, how many dollars have you sent up 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 IRR. 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 jobs and pay back their capital called line of credit. So what does it do? It inflates IRR. But This is why if you don't, if you see the other numbers, it still shows that it's kind of like, you know, not doing much of anything. So if you ever see multi 100% IRS or high huge IRS with zero DPI. And a marginal TV API, it's folks that are playing games to trick LP's. Just a heads up to that is so weird. So what you're saying is just to summarize, for people 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 2025% each year. Now the clock starts ticking when the money gets called from the LP's, the partners, correct? And gets put into the company. So if you invest in your tour of your fund, you pull the money down from the. As 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%, correct. 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 fun year two and pay back the loan. Now they've paid 2% two years in a row, but the thing's gone up 20X, correct? What a that's that's dirty. Well, so. It's 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 that there is a semi legitimate version of the the loan thing. Which is, you know, where this comes from is a capital call loan. So you know, we're making a bunch of investments throughout the quarter of $1,000,000 here for a seed deal, 10 million for a Series A. You know that's happening all the time. You don't really want to hit your LP's 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 call per quarter and so they will loan you the money for, you know, 123 months, but it's not for a year, but the, 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. 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 1/4. Completely reasonable. But if you're making, you know, 5 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 allowed. Yeah, yeah. The number of capital calls is annoying for people. Yeah. Yeah. Anyway, I did share you that table with our team to because I did like the format quite a bit. I I I think we'll start using it this weekend. It's very hard for funds who are not performant to use that format that yours you're, you're you are very highly performant. So you can use that format. But I don't think people that have not returned money or or have fake paper markups can use that format because it is too simple. Yeah, yeah, I I at the end of the day, what metric do we all look at when we are? Peace 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 LPN, you know? So one is that for you? I, I, I love multiple on cash investment. I, I, I need to look at the totality of it. I need to understand what is your gross and your net IRR's. Those are important things to understand because it shows how efficiently you put the money to work. But then, 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 TVI 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 you're paid in capital is not really 5X. It may be only three X and it may be actually 2 1/2 X 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, like 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 1/2 billion dollars. You know how hard that was? Yeah. I mean, you gotta time the exit. You have to have the ability to exit. You can't even time the exit. You have to. 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, you know, if I think about it, the number of IPO's I've had is relatively diminutive. So how do you make $2 billion where I've only had one IPO, which has been slack? Yeah. So this is a really, really hard business and it was just a reminder that you know 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, you know, you really, you know, you you can see who's naked when the tide goes out. 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 three, 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 LP's. The other thing called to tell you one thing, all these LP's send me, even I'm not an LP and a potential. They send potential. Is there a 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 to give you, just to give you a sense of it, if you 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 gross. If you look at the most successful asset manager in the world and I would put Blackstone at that, just an incredibly good and best in class and probably 3 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 $100 billion of of. Of real estate, they've returned 2X, 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 are you look at free bird when you're in LP? What number do you care about, cause you up on the funds and and I think all of us do at times. I made my first venture fund investment in 2006. And I am still getting distributions from that fund and I'm looking at, 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 and 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 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 2 1/2 times my money back, 2 1/2 times your money in 16 years. What's that IRR? It's like low teens. Yeah, not a great deal. No, no, it's lower. It would have been, you would have been better owning the S&P 500. That's right. And so for me, I think the the the the key, the 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 my IRR is -, 97% and then it goes up to -, 80 and then you -, 60 and -, 30 and -, 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 the the just generally private investing everyone gets excited because we all get sold stories and individuals all get sold stories of you put a dollar in you get 100 bucks. I mean Jakal wrote a book called How I made 100,000,000 bucks from. Whatever. You invested in Uber? Yep. And 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 2 1/2 X after 15 years, which is not much better than kind of investing in the S&P where you could solve that anytime you want and use that cash for any purpose you want. Well, if you did $100,000 investment. And you returned 260,000 in 15 years. I'm on an IR calculator right now. Internal rate of return, it's 6.58%. Yeah and yeah. And if you did QQQQQ depending on. Yeah. How hot the market was then? Yeah. And you can really, 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 and the whole business makes you look like, you know along the way a genius. But the reality is over any any long cycle most folks end up kind of in a bad position and they end up, you know the C, by the way, has has solved this for mutual funds, right. And ETF's. You know there's there's very strict, there's very strict standard reporting and I do think that as you know for example like if you go to the big banks. Sorry sacks interrupt. I just want to finish last night if you go to the big banks. And you have if you're an individual like a doctor or a dentist or somebody and and they will aggregate in Pool capital and put it into these funds on your behalf as an example. So you know it looks like JP Morgan or Goldman Sachs is a, you know 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 not ever make money. And it's because if you selectively cherry pick how you present this data. You, you you can tell a partial truth. So you know, I would really, I would love. I'm happy to be compared to, 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, the, the benchmark every year. And then one year have a big drawdown and suddenly they realize that they're underwriting wasn't that good. The same can be true in 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 100 X 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 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. 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 to actually present true results in in, 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, uh, 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 invested in the S&P 500. So that deserves a premium. And so Jason's right, which is the S&P is between 7:00 and 8% over long periods of time, predictable, compounding. That's 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 adventure. 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. Do you? What do you look for when you're LP peeing and now that you have many large funds? What do you think LP's are looking for now, and what do you advise them to stay focused on? The 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 Tomas Point, these are 10 to 12 year funds and it takes a long time to get distribution. 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. No, I would say in the long term it's all DPI. In the short term you look at TV Pi, the total value to paid in capital. So 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 TV ITV, Pi turn into DPI? Does the total value turn people 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 TV Pi is looking really great. But until that company goes public and the shares are distributed, you know, the LP's haven't realized it. So it's it could be ephemeral or it could go down significantly, as we've seen with public markets. Yeah. So in the last four months, we just returned our fund one in terms of like real distributions. I think we have like a DPI of like 1.1 or 1.2 on that fund. Now. The TV API is like 4 to 5, so, but it's feels great just to distribute the entire fund out, literally. My first two funds, I think we did that as well and it's a really great feeling and you know sometimes, you know, selling 10% or 20% of a position early and getting over that hurdle and just getting into the 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 as coming into this year. OK, 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. 60%. 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 as 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. Yeah. 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, that a billion dollars, you know, and they're now worth. 500 million? That's only gonna work itself out in fun 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 Huang 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 sacks and freeberg what you're seeing in private markets. But really acutely, people who were going out and skipping rounds this, like, I'm going to, you know, 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 that has the dialogue changed? I've been on many calls with founders who've met with 50 VC's, 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 they increase. And let's talk about the turn it is getting. Super pragmatic out there if you're a founder and we 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 I would close it just you know founder to founder. What are you seeing sacks. Yeah it's gotten a lot harder I think especially at the growth rounds. We actually have signed two growth terms 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 is backed off. So it's interesting. Yeah. It's changed quickly. Yeah. Now what? One thing. So, you know, Toronto 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 there's a 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 AR multiple that you paid, basically valuation divided by AR, 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, socks clarification LTM AR. Or you know, NMR, which one, basically you last 12 months, next 12 months. Yeah, no, you just look at their current error which is, you know, run rate, their current run rate revenue. Yeah, exactly. 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 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 in 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 evaluation multiple that you couldn't defend today 60 * 80 * 100 times. But the multiple today is more like 10 or 20 times because it's actually growing really fast. So you need to look at both sides of the equation. And that's the analysis running for every company in our portfolio. And then, you know, LP's can decide how to, how to market. I mean the the most important thing is what's the next investor if they need more capital gonna market at. Well, the question is are you growing faster than valuation multiples or falling, correct. And then can you that means you could have a down round and 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? Some of the boards are on. Just keep fundraising. Just keep the round open. Top off if there's money available because you know, especially if you raced 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 that we're still growing. So, yeah, why would we take the money now if our valuation is gonna be, you know, double in nine months and now it looks like, yeah, maybe you know that extra 1 to $5 million would be good to lock up. OK. So adding to these headwinds, I think we. We've been talking about the possibility of a recession. For those new to the 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 that 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 clipboard, sacks 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're seeing more red that this could turn into a recession. You know, popping of bubbles is usually followed by by recessions or so I think, you know, the fortunes of the economy could turn really quickly here and that is, 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 FOC 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 over correct yes, 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 Q1A 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 or people's machines and. Manufacturing equipment is being delivered now. We add 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, right? 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, right? We've had a lot of money that's been pent up in the system, whether it's stimulus checks or. You know, loan forgiveness or all of this stuff has allowed people to feel much richer. And as a result, they've started to spend in dribs 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 and 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 set 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 they sort of slowed down. We have the same thing here. We have 1/4 of negative GDP, we have China and 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 and chips through 2024. So. I think, uh, I think it it it could be a very difficult path ahead for the Fed. How do you raise rates? 400 basis points into into a slowing economy, you could raise basis .75, you know, 75 bits, maybe 100 bits, 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 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 a hold 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 the 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, an 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 in supply chain problem that's that's driving a lot of this, this adversity right now in the market seems and interestingly and by the way that doesn't that doesn't mean sorry that doesn't mean that we're not going to have a recession because you know when when I'm not able to spend money on Apple, Apple spending less on their suppliers and spending less on their supplies. So there is a a trickling effect of capital flows and the recessionary effect may be hit but you know there is capital and there is demand for consumption. It's just that we're really clogged up right now. Well and 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, eighty 78889. We rocketed back up, you know, in 2021 people started to feel like, oh, we've got these vaccines, things are gonna 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 $7.00 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. Peoples 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 chamotte point. We need to have a predictable economy. You know it. It can't be this schizophrenic to use the term sacks. What do you what do you think about what we're seeing here in terms of? We're we're obviously either in a recession or did you know dancing around it. We're basically 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 we could the experts the exactly correct and now it's like the data just came out -, 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. That's 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 are you started a higher price level but inflation 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, and we there was a good tweet that jamath you shared, but she put 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. Process be sort of growth and prosperity. The small caps, the recent IPO's, the growth stocks, they've been absolutely hammered. It really hasn't been this crash of 2000. Like and and not just the like April. But like all the way in October where it kept going. And then the 2000 recession, 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. Construction, it eventually trickles down into the economy because people just feel, you know, companies start cutting budgets, people have less money, less 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 baby may be confused when you hear why are all these stocks down so much, but the 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 tax. Consume so much of the market cap of these indices, so you know, the Google's, the Microsoft's, 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 tale 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 markets usually a leading indicator, what I'm a, what I'm a a bearish about is just the state of the economy because the stock market is traded down, the trades down on expectations. So it was already trading down months ahead of the slowdown in the real economy. So now new in December, the market new in November recession was coming in like around November 6th of last year and they knew it was coming in. Yeah, Mark knew when we talked about the sales that Bezos and Musk did the, you know when we sold, 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 and endowment could be in that position. But individuals with no an endowment is not because they have to create distributions every year, right. They have to talk about the mega endowments where they, you know, for sure, you know, you know, forward or 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. 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, 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. Well and if you had a 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 maintain 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, because like, let the economy drive, let the free market do this. And if you start, you know, you might oversee our into 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 markets 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 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, I don't know if we're going to the student loan program. Today, but I think, you know, to your point, Tomov, 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, 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 or whatever education they want to go go get of their own choice. And the idea being that that will give them the ability to go make more income and and extend their careers and and educate the workforce. And the problem is that when that capital was made available, a lot of private universities. To emerge and private for profit colleges started to emerge and in the years since that that program was introduced, I just want to give you guys some crazy statistics. So in the 196970 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 the the other crazy stat for private four year College in 19 seventy 2500 a year. 2019-2020, $46,000 a year. And so that capital basically allowed these for profit organizations of these organizations that 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 UN quote 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. Soft 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 and doing so obviously doesn't solve the fundamental problem, which is that making those loans available in the 1st 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 UN quote incentive for this market to accelerate. You end up with these inflationary bubble, you're gonna have people game the system, right. You get whatever University of Phoenix types and and you even the large versity is 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 mathia? So there's a there's an interesting article in the Atlantic about who really wins when you forgive student loan debt. And I 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 today's total student debt, versus about 10 trillion of mortgage debt. So the average debt has gone from about 25 K in 2012 to 37 K 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 aged 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 $877.00. For those with a bachelor's degree, it was $1305.00. And that number continues to grow for masters and professional degrees and and PHD's. Interestingly, the last two points the Gallup organization who ran a poll is unable quote 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 quote just one respondent. Mentioned student debt as the most important problem facing the nation. UN quote. 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 sure are vocal though. To your point, I think. Yeah, I mean, look, this is I 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, 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 first. What's the number one fix for? Well, so so let me just say the two motivations, the two motivations. #1 this is a stimulus. So this morning the Biden administration said that they were thinking about taking executive action to make the 1st $10,000 of student loans forgiven. So if you do the math across 43 million people, that's a roughly half trillion dollar forgiveness. 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 were 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 a that's a 2 1/2% 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 the, they've done the polling here, right? And and it's like, hey, when I was in junior high, the kid that ran for class president was like, I'm gonna 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, your loans back to you for free, everyone's like, my gosh, this is the best thing ever. Elizabeth Warren, you're genius. You know, Bernie Sanders, your genius. Joe Biden your genius, let's say yes. And so they believe through polling that this is going to help 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 that we're seeing this sorry. And we're seeing the 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 to moths. 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 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. Sorry, no, no, I think it's completely legitimate, sacks. We talked on a previous episode about how people make things like immigration, you know, such a charge. 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 the solution here is to freeburg's point of just, and I'm interpreting freeberg's point as what is the value of this degree nursing great 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 $5000 in debt because we don't see a bunch of job openings for that. Getting a history degree, Trump University is a lot different than getting a nursing degree. This is sacks. What's the solution? Here. And then we'll let give you your, your swing at bat in terms of buying votes. Yeah, let's go solution first before we go partisan. Look, I think that alone 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 it. That's the fundamental issue here is that that these degrees are worthless, right? I mean, if you go, if you go to, if you go to college to get, you know, to become a doctor or maybe a computer program or something where the skills have value, then of course you can pay back the loan because you get a gainful job. But, you know, otherwise, if you just major in Fine Arts at Harvard or something like that, I mean, you're you basically graduate, you get a job at what the New York Times is your dream. You can't pay back your loans. 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 subtle with debt. So to interpret what you said, sex, hard to believe in capitalism if you got no capital, right. 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 cooling. I think maybe what we do is we reform the the debt I I had actually 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 a 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. Right. Under George W Bush's presidency. Explain it to everybody. Yeah. Yeah. Basically, look, when, when, if 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 this, 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. Exactly. No one's going to want to give you credit after that. But at least you're not so deep in the whole you can never recover. So that's the point of of a personal bankruptcy. But the crazy thing is that in bankruptcy, you cannot get your college debt. Student debt cancelled. You can get your credit card debt cancelled. You can get other types of debt cancer. You can't get your student loans canceled. It's crazy. So that's one thing they should fix immediately is make these debts discharged with 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. Right. And it creates this, this totally crazy incentive, right. It creates, it creates double distortions. On the one hand, like you said it, it basically means that because governments money is funding everything, the tuition goes up because college just take advantage of it. But then also nobody's really making a smart ROI decision about whether as 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 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, I gotta pay 50% of my income every year to the federal government. The government, like I pay taxes. The 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 1 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. Yeah, 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 a quality at all. It's just a get out of jail free card for small people, for a small group of people who unfortunately were taken advantage of. And this is the thing that we're not losing sight, we're we're losing sight of. You can only pay back a loan if you're making more money. When you owe and the fact that this exists shows that these loans were really poorly constructed and they were given an instances where they should not have been in the private markets. We have seen that happen, but we go through a cleansing mechanism to sort it out, right? We've gone. That's literally what happened during the 2008 real estate bubble, people gave mortgages to people who could not exactly pay them. 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, the other thing 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 and on on, on education. But 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. And that when you first try to get a credit card, sure, you don't get an Amex, Centurion or platinum card. You're given a chase sapphire card with a $500.00 limit and you earn the right to borrow more. Same if you applied for a car loan, the same with a mortgage that's based on a down payment. So there is 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 as you can literally brainstorm it right now, like what are your grades? Well, no, of course. Did you take whatever, whatever it is skills we're not gonna get it right. The market will get it right but the market would figure it out. The problem is and and and sorry the incentive was and this is a really important point. You know 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 and a successful. Uh, country. It 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 missed the point. We're in that moment now where the question really is, is the Federal student loan program doing more harm than good? Well, that's actually, that's why are we actually creating value from our higher education system in this country or not? No. And and and no, 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. Yeah. Freeburg don't sell beyond the close. The answer is no. We have a massive employment gap, OK. The data tells you in every single which way possible that we are not educating. For young people to take the jobs that are needed for a high growth, functionally moving economy, we know that. So we are miss educating 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. Intuition. It's a joke. And they come outing 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 students, student debt, in this case 15% of the US population, so 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 1st 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, what, what will all the climate for capability. It's no accountability. Well, it creates a slippery slope. And and 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 the law that should be passed, but it should not be by executive edict trying to back in to buying votes in a midterm election. That's gross sacks. 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, 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 earning potential. Meanwhile, the majority of the country is working class. Something like 2/3 of the country is still working class, meaning non college educated. They're gonna have to pay for this bailout in 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 Bailey? Like 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 freberg'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, eighteen, 1920 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 and 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, OK, but you're there for you know, 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 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 or $30,000 for him, 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 8000. I think I had a somewhere between 10 and 15,010 and 20,000. And then I got my first bonus check after my first. A year of work after undergrad and I paid off all my debt and it felt incredible, 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 pay. 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 for the. It's like it was an enormous sense of relief for me. It was credit card debt. I had accumulated all the credit card. I went to Cal. It was like 4 grand a year to go, but if 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. Yeah, 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 1st 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 2 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's 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, the the this incentive systems are just crazy. Speaking about crazy, uh, we talked about Bill Wang and his. That's your transition. Transition. Sorry, they can't all be as elegant and smooth. Here's jakel. He's looking at the agenda for today, and he sees Bill Huang, and he's like, OK, how do I do this? How do I hanger the hanger? Right. Yeah. OK you crazy crazy. The the linkage is craziness. OK, go. I mean, no, no, no, no. Hold on. The the linkage is trillions and billions. Trillions. Link Speaking of trillions and billions trillion dollar mistakes we gotta Wang and his CFO were arrested on Wednesday and charged with racketeering, wire fraud, and conspiracy. We talked about this when it happened. His firm Archway Ghosts. I think it's our chicos archegos archigos archigos his poorly named firm and family office. We covered this in real time back on episode 28. They famously lost $20 billion / 2 days when they were margin called. Back in March of 2021, he worked at Tiger Management, yadda yadda. 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 4.5 times leverage. But archegos, or whatever it's pronounced, started with only 1.5 billion in assets. In March of 2020, so Wang flipped 1.5 billion in capital into 160 billion of exposure in 12 months, essentially trading somewhere in the neighborhood of 100 to one ounce 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 a billion, UBS 774 million. The New York Times described it as quote, 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 that's everybody's question is how did the banks let this happen? So explain well, I think first it's what's the mechanism. So you know there are ways in capital markets to take really extreme bets. This way is called 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 the 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 let's, that's the reference asset, that's 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 what it forces the person to do, the bank in this case, is to go out and buy the stock, OK? Show 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 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 that 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 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, uh, 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 the sky, went like 20 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 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 its 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. Why? 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. 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 clearing house and that clearing House 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 clearing House and in the laws that regulate it. And So what this is, is a very shadowy Gray part of the 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 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, 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 20 acts. And the psychology of these people, the madoffs of the world I just find fascinating. Why wouldn't he? If he just thought, by the way, we we we talked about how the three, the four of us, we talked about how the four of us are grinding to return two weeks of our money in 10 years. And this guy's like, Yolo. He's 7X or 10X2, you know, $1.6 billion. And it was not enough. It's not enough. I mean, people have. I mean, what do you think the psychology of this is? Like, I've no idea. And that's what I'm trying to figure out, sacks. 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. Jaquel, did you always want to jet? By the way, the guy I just got a small Business Select on Southwest. When you started your career, what did you want? The next. And that's what I still want. Well, when you started, you wanted a house, right? Then you got the house and you wanted the the home in Tahoe and then you or the home, you know, the the vacation home. And then and then you want the ticket 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 because I don't. I mean, I don'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 deek. What does that mean? So weird. I mean, the guy could kill her, by the way, the the the dude was pinched in 2012 for insider trading and had to pay a settlement and, like, get back everybody's money. He got pinched. It's crazy. And what is what it is? You know? You never read that in your frantic. I got pinched. They got pinched? Yeah, you got pinched when you grew up in the streets. You know, that is what happened to this guy. I got pinched. He got when you grew up in the streets. The guy ate cheese. He didn't round. He ratted on his friends, and he ran out of the check. He tried to steal something, and he ratted on his friends. Now the CFO. Pinched toe. They flipped them. This is super deranged. Speaking of deranged. The transition. So there we going. Where are we going? You know, you know, someone needs to do, someone needs to take all of Jake health transitions from the last couple of shows and just put them together in a row. Yeah, just a second of crazy. Speaking of 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 Jankowitz. He has research, Russian misinformation tactics and online harassment. This is also the woman who sings show tunes on Tik, T.O.K JKL. I feel like I need this information. Be running. You should be running our disinformation board. You always have such a strong opinion. And you have 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 of the people are hiring her, these are actually qualifications because they are not interested in the truth. Where it the reason this department is set up and what they mean by this information is they have hired her to push partisan political points. That's what's going on here. That's what this information is now. It used to be that if you disagreed with somebody, you 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, ZAR is, is basically to censor the basically shut down the debate. That that is basically the whole point of the think there's any timing here with Elon, but yes, of course it's it's well. It's it's there was a great tweet about this. I love conspiracy sacks, by the way. I don't think it's conspiracy theory. It's there was a great tweet about this, that that we live in a future where it's like a mashup of George Orwell and Ayn Rand. Because here you have, you know, 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. So, I mean no awareness of naming. Yeah, it's just bizarre, but but the disturbing thing about it is information. Governance Board is such a dystopian name. The the the thing about it that's a little bit scary here. I know you play the video of 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 this is the most wrinkle. Why is that there? It's 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 the truth is not the name of it, but it's close. Pretty darn close. Now, now why is it there? I'll tell you why. Because this was built up to, there was a truth. Shout out George Orwell a couple of months ago as a news story that we might have covered on this pod, where the Homeland Security Department redefined disinformation to comprise that. They said it represented an escalation of the terror threat level. So in other words, they basically said that this information 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 disaffirmed if the debate as being disinformation, then they define disinformation as 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 I'm going to play devil's advocate, as I often find myself doing here, that just just to try and explain the world, that that's the reason I often play this role, because 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 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 UN quote 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 sex. I don't know if you think 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 the challenge, you know, to to like, how do we stop that from happening, foreign actors interfering in our elections? It's 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, OK? John Durham is basically out there making indictments right now, proving the extent of the soaks. 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, was a drop in the bucket of all the activity going on around the way. 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. Like, but who would go Facebook security? 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. I looked at those ads. I you seen 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 set and the, you know, it was just absurd. I mean the Jesus figure was saying that you want to be clear, it happened and you've now stepped back your position on like it just wasn't that scale to your opinion, I think. I think, look, the 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, sensor, that story. So look, there's 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, but which? 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. He was also second. Hold on, during the whole Canadian trucker. Wait, let me finish this point during the have to finish my point, the Third Point, and then I'll let you go. Is that in it? In addition to all that, Hunter Biden is completely a grifter. Go. OK, I agree with you on that one. Yeah, so look, during the whole Canadian trucker thing, remember when all the people who contributed to those Canadian truckers, they got docs? I mean, basically it 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 as nonsense. The lives of Tik T.O.K account to Scott Docs 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 discovered that it was potentially hacked. And you and Trump, nothing was hacked. Here's the thing. Trump set the stage for that. And the the, the people at Twitter and Facebook who also made these decisions, they were informed by three letter agencies, Department of Justice and FBI, et cetera. Hey, this is potentially hacked material designed to interfere with the election. Listen, it also true that Biden is events 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. It's true. The Washington Post is true. It is true. So hold on. So it goes to my point. Can improve. No, it's not about improving it. Look, well, no, no, I didn't hear 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 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 FBI told them, listen, this is hacked material, then they got to go to the DOJ. I say you gotta give us cover here. If this is in fact hack 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 it didn't. The oldest, the oldest newspaper in America, the oldest newspaper in America, not the bastion of like, it doesn't matter. That's not for you to decide. It's not for Twitter decide. It's legitimate publication that had a true story, and I don't think it was relevant to the election, and the American people should be able to take that into account. And people like Nina Jankowicz or whatever are new zar 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 wasn't. 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 should 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, that Jack also said it was a bad. Jack said it was a mistake too. And Elon repeated the same thing. That they shouldn't have done that, I think. And there was a great. It's a bad call in hindsight, yeah, 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, 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 even mentioned her by name, and this is how absurd this discourse has gotten. Can I make a prediction? Yes, prediction is great. I think people misunderstand Elon's incentives for buying Twitter, so and I haven't talked 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 2X on this. You know, we talked about how, yeah, you know, that's like a good terminal valuation in six or seven years that basically, you know, puts that asset worth it 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 doxxing, 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 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, very interesting. There you go. Well, I agree with everything except for the donation part because he's raising 20 something billion from private pay off the lender and then. OK, 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 are both equally crazy. He's going to force this thing to be rational and predictable. It's interesting prediction. I think it goes public again at and it goes to five times evaluation. Are we going to be able to ask him these questions in Miami? Sure. So let me ask you. My 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, etcetera. 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 the argument that there there does need to be constraints and boundary set around things related to health and safety? Meaning if someone is making calls to violent action, should that be censored? Sex? 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've got to take them separately. Let's do violence first, sacks. 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 gonna have all this horrible content on there. You're gonna have violence, you're gonna have racism, you're gonna have harassment. You have all, you know, all these bad things on fraud. The truth of the matter is that it is. 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 is we have 230 years, extreme court case law, basically. Discussing this question of what speech is protected and what's not, and there are the Supreme Court has ruled that there is nine major categories of speech that are not protected by the 1st 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 archigos guy or whatever, and then say, well, that speech was protected by the 1st 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 some court case law, yeah, 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 people, at the cases where people 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 of sort of dangerous speech or harmful speech and I would operationalize those. So for example, you can't defame people, right? You know, the 1st Amendment doesn't protect you against claims of defamation. Would you make people go to court though in order for them 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. 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 colorable claim of defamation, meaning the person is attacking you in a way that seems out of bounds, then. Potentially that could 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 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 sack said for everybody else, because this is how 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. Right, whose rights have been established for hundreds of years. By PRD, mean product requirements document. Yeah. Sorry. Yeah, yeah. That's what a product manager would use. Yeah, yeah, exactly. Instead of them making this up at all as they go along, I would look to the categories of speech the Supreme Court has already ruled out. Right. 3rd let's just do the health one sack. 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. What's the, what's your and I know you're not obviously a constitutional lawyer at this point in your career, but how would you kind of think about about that and and how would 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. With someone says declaratively on Twitter, this drug will cure COVID, which by the way, the 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, you're getting a lot of followers and then you make more money by putting out a tweet that says, but you're not, you're not making money off the drug. Yeah, right. Exactly. So if the person is selling the drug, Roche, 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 sign you're confusing facts and authority. Twitter is riddled with people that have zero authority that spit out what they think are facts, right. So I I think, 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. OK, 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. An individual making the claim. Is it a bot? Is it a real person? Then there's a separate layer which is how you know roughly accurate do we think this is. Then there is 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, right? Yes a person can be on a street corner saying Jesus is the son of God and he will save your soul. Sax doesn't have to believe him and somebody could say that on Twitter. The the issue here is does it trend and do you show to people the algorithm? And if you fix those problems then who cares if a person says hey listen 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 solved for trending and if you guys were running Twitter, you would not put on these COVID-19 warnings. This is misinformation and labels and and rely solely on CDC guidance and recommendations and FDA approvals when it comes to treatments and vaccines and risks and so on. I would, I would you would let anyone say whatever they wanted. The CDC. Wrong label. Yeah. By the way, I'm not. I'm not. I'm not. I'm just trying to get clarity here. Yeah. He's just asking the question. I what I would do is I'm not gonna do sex is I would label it and I would. I wouldn't label it right or wrong. I'd say Invermectin is a drug. Here's the Wikipedia. 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 of ivermectin, here's a sentence of what ivermectin is. Here's the Wikipedia page, the CDC page, the UK government's page. CHS whatever For more information about this topic so I just want to discuss warning yeah I just wanted to learn more. JKL, I wanna disagree with what you're proposing. OK. Because it is the topic that sure 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 did. To 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. Give another example of the topic. Give an example, go ahead. Address this. Vaccines is another good example. But yeah, first of all, nobody contradicted the CDC more than the CDC itself. It constantly, 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 mass and it was for them. And on and on and on it went OK, 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. That level in these social networks is that 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 about traveling 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 in 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 sensual 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 was like a very confusing public interest going on, if, if 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, fine. But if you have? Employees at Twitter sitting around discussing issues and deciding who the winner is in various debates and then putting their 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, this, this topic of misinformation because this is really the crux of the debate. OK, once again, on the basis of First Amendment case saw, 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, OK, inauthentic that the the account is not who they purport to be. You're move 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 Ministry 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, that 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 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 being in a 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 a Joe Rogan or a podcast, or this podcast. Some people trust the 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 do your research, do your own research, right, and 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 or 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 we have gotten to the truth? So just because the experts say something doesn't mean, and that is true. There's there's pros and cons. We have kids getting tons of kids taking all kinds of SSRI's and antidepressants and all kinds of drugs. Parents have to make difficult decisions, adulting 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 is like a medical procedure. So these people can be wrong, you know. And this idea that we've arrived at the the end of history and we know the truth, here's all truth is no, no new facts are being or no new knowledge is being created for ***** sake. I mean it's dangerous assumption is red wine good for you or bad for you? Every three or four ******* 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. Wrote 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. Was one of the most intelligent, talented people in the world who by all accounts might have survived longer. If he had trusted 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 their trying to eliminate their camp micronutrients. And the irony is that the people who are, I think some of the stupidest people like that woman singing show tunes that you 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 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, and Twitter should be 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. And a woman singing show tunes. Right. And then people say, like, Oh well, the response I got when I said doesn't trust herself was 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. Like I'm not responsible for Joe Rogan's listeners. If Joe, you know the same, the same person that told you that is probably microdosing. And thinking Ayahuasca is a solution to every problem they've ever had in fasting and micro juicing and from the childhood trauma they had when they didn't win their, you know, soccer medal and nobody knows didn't get into Harvard. So they are on Hiawassee every day. I mean, give me a break. Yeah, nobody knows. No, we, we we all know so little. So it's what we know. You live, you die at 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? Alright, 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 instrument and last because I don't know who the ****** going to do this work next time you will you doing an amazing job. Thank you. Bye bye. Love you boys. Let your winners ride, Rain Man, David sat. We open sources to the fans and they've just gone crazy with it. Why? Besties? My dog's driveway. We should all just get a room and just have one big huge order because they're always useless. It's like this, like sexual tension that they just need to release stuff out there. Beat your feet. Where did you get mercies?