E121: Macro update, Fed hike, CRE debt bubble, Balaji's Bitcoin bet, TikTok's endgame & more

Chamath Palihapitiya 0:00 What are you eating, Friedberg? Is that buffalo jerky? What is that?

Jason Calacanis 0:02 It's a red pepper.

David Sacks 0:03 It is not the biltong, that's for sure.

Jason Calacanis 0:05 I didn't have time for lunch. I got, I got pistachios, and I got a red pepper.

David Sacks 0:08 Oh, me too. Oh, wait, wait! Look at this.

Jason Calacanis 0:09 Hey!

David Sacks 0:09 Look. Hey!

Jason Calacanis 0:10 Oh!

David Sacks 0:11 (laughs) Let's see. Is that our branded pistachios? (laughs)

Chamath Palihapitiya 0:13 Aren't these the best pistachios?

Jason Calacanis 0:16 Look it up.

David Sacks 0:16 They're the best.

Jason Calacanis 0:16 You got salt, salt and vinegar. Yeah, that's the best.

David Sacks 0:18 Salt and vinegar. Yeah, yeah, they're the best.

Jason Calacanis 0:19 Yeah.

David Sacks 0:19 Are those unpeeled pistachios? (laughs)

Jason Calacanis 0:22 (laughs)

David Sacks 0:23 These guys are so rich people peel their nuts.

Chamath Palihapitiya 0:25 People have been peeling my nuts since the Facebook IPO.

Jason Calacanis 0:29 (laughs) I'm going all in.

David Friedberg 0:30 Let your winners ride.

Jason Calacanis 0:33 Rain Man David Sachs. I'm going all in.

David Friedberg 0:38 And I said we open sourced it to the fans and they have just gone crazy with it.

Jason Calacanis 0:42 Love you, Wes Eisinga. Queen of quinoa. I'm going all in.

David Sacks 0:46 Hey, everybody, welcome to episode 121 of the world's greatest podcast, the All In podcast, with me again, of course, The Dictator himself, Chamath Palihapitiya, The Sultan of Science, David Friedberg, and The Rain Man himself, yeah, definitely, David Sacks. Gentlemen-

Chamath Palihapitiya 1:06 And you-

David Sacks 1:06 ... how are we doing?

Chamath Palihapitiya 1:07 ... the world's greatest-

David Sacks 1:07 Oh.

Chamath Palihapitiya 1:08 ... genuflector. (laughs)

David Sacks 1:09 (laughs) Strike, strike, strike. The world's greatest moderator is here.

Chamath Palihapitiya 1:12 (laughs)

David Sacks 1:12 Oh, this... You guys, I gotta tell you something, the grift is on. A lot of corporate gigs for me to moderate. I don't even have to prepare. I just show up and moderate. Ah. So great.

Chamath Palihapitiya 1:22 What is that? What, what is an example of such a, such a gig?

David Sacks 1:25 There's a lot of corporations and conferences that pay a pretty penny to have the world's greatest moderator come and interview people.

Chamath Palihapitiya 1:32 This is like the Used Car Parts Association of America having a convention.

David Sacks 1:35 It'll be like, I did one with like a thousand litigators at an attorney conference for like the SaaS software they all use, and it was a wonderful fireside. You know, it's just great. This is like the grift is on.

David Friedberg 1:46 Do you have to-

David Sacks 1:46 No ads.

David Friedberg 1:47 Uh, do you have to fly commercial or they fly you private?

David Sacks 1:50 It's commercial at this point. Yeah.

David Friedberg 1:52 That's okay then.

Chamath Palihapitiya 1:52 What does your, what does your rider say? What kind of-

David Friedberg 1:54 (laughs)

Chamath Palihapitiya 1:54 Do you want... Do, do you ask for spiced salted macadamia nuts?

David Sacks 1:57 (laughs)

Chamath Palihapitiya 1:58 What do you ask for?

David Sacks 1:58 I do not have them peel my nuts. No. What I do is I blend the travel cost into the speaking fee, and then nobody knows when I'm in or out, what hotel I'm staying at or whatever, but basically I'm back on the road, folks. I'm back on the road meeting people.

David Friedberg 2:11 Do you get like a trailer or do you get, you know-

Chamath Palihapitiya 2:14 No, no, no, what he's saying is-

David Friedberg 2:16 ... to, to choose? What's the stuff?

Chamath Palihapitiya 2:16 No, what he's saying is he gets a $2,500 travel budget, and instead he comes the day of and leaves the day of saving and netting himself an extra 2,500.

David Sacks 2:25 Well, you know-

David Friedberg 2:26 (laughs)

David Sacks 2:26 ... uh, you can optimize if you're saying optimize, I did use... I had... You know, during COVID, I, I racked up a million and a half, two million of these United points, and I have just been grinding those United points down. So shout out to United and the pandemic. All right. There's a lot of news.

David Friedberg 2:41 You see? You're right, Chamath. It's even worse than that.

David Sacks 2:43 It's even worse than that.

David Friedberg 2:43 He's charging them for travel expenses when he's not even paying anything.

Chamath Palihapitiya 2:46 Maybe Jason's part-

David Sacks 2:47 Precisely, that's not optimizing.

Chamath Palihapitiya 2:48 Maybe Jason's part, part of the, part of the grifter is using the Cash App to commit fraud and murder.

David Sacks 2:52 Oh, good Lord.

Chamath Palihapitiya 2:54 (laughs)

David Sacks 2:54 I mean, that Hindenburg report is-

Chamath Palihapitiya 2:57 (laughs)

David Sacks 2:57 I mean,

David Sacks 2:58 it's a work of art, but we gotta start with the Fed hiking rates by 25 basis points, uh, and the general feeling in the country that maybe the Fed doesn't know what they're doing, and maybe it's time for regime change. The Fed increased rates by 25 basis points yesterday, Wednesday. So the Fed has increased the federal funds rate from nearly zero in March of 2022 to now the range of 4.75 to 5%, fastest rate hike since the '70s. Speculation the Fed might pause rate hikes or even cut to the- the recent banking failures didn't happen. So if you bet that they were gonna pause, you were wrong, and if you bet they were gonna cut, you were also wrong. But the market has ripped a bit a day after. I- which people are trying to figure out in the group chats. Doesn't seem like anybody has a theory here. But let's start with Sax, maybe an explainer, a little bit on how the Fed works. There's a board there. People serve a 14-year term. I guess they replace somebody every two years. And Jerome Powell was placed in 2018 by Trump, and I guess there's a lot of hand-wringing now that they were late on inflation, obviously, and then they went too fast and maybe now they're not slowing down enough. So what's your take on it objectively, Sax? Putting aside-

David Friedberg 4:30 Yeah.

David Sacks 4:30 ... partisanship and, you know, for this administration versus that administration. Just objectively, do they know what they're doing and how could they do a better job?

David Friedberg 4:38 No, I don't think they know what they're doing. They clearly reacted way too late to the inflation. We've talked about this before. We had that surprise inflation print in the summer of 2021, 5.1%. They said it was transitory. They didn't react until November. They continued QE for another six months, and they suddenly got hawkish in November of 2021, and they didn't even start the first rate increase until March of 2022. So they were really asleep at the wheel and late to react to the inflation by about nine months. Now, I think they're potentially making the opposite decision, which is they are late to recognize what stress and distress the economy is under right now, and Powell had... There, there was three choices they could have made at this meeting. They could have raised rates, which is what they did; they could have cut rates, which they didn't; or they could have done nothing, basically held pat; and the argument for raising rates is just that, well, we have this inflation problem, we need to keep raising interest rates until, uh, the rates are above inflation and that will bring inflation down, then you can start to lower rates. That's sort of the conventional view. I think the problem with that view is it ignores that we've just seen a run of bank failures and there's tremendous stress building up in the banking system from unrealized losses on long-dated bonds, also unrealized losses on commercial real estate loans.... and we've barely scratched the surface of seeing that problem. That's, I think, the next shoe to drop in this whole thing. So, I think that the right decision here was to either cut rates or to stand pat. You may have seen that Elon said, "Listen, we should be cutting rates here. There's way too much latency in this inflation data. The economy is seizing up and we don't need to be raising rates right now, we actually need to be cutting them." I think that probably if it were me looking at the upside, downside of these decisions, I probably would have just stood pat because, again, we've just seen this banking crisis. Why won't you just wait one month to see? Maybe there is latency in the inflation data, maybe the banking crisis is not over. Why won't you just stand pat for one month? You can always raise rates in a month. I think that this move here could, in hindsight, be seen as the straw that breaks the camel's back.

David Sacks 6:53 Chamath, would you have paused and waited to see another card, uh, and then watched the hand develop or do you think they're doing the right thing by raising or should they have cut?

Chamath Palihapitiya 7:02 I think they did the worst thing possible, which is they took the middle path. If you think about what the Fed has the ability to do, they obviously have the ability to raise and lower interest rates, but what we don't talk about is they have a balance sheet that can absorb assets. For the last 10 or 15 years, we've had a phenomenon called quantitative easing. And for folks that have- don't understand what that means, that is essentially the Federal Reserve buying assets out of the market and giving people money for it, so that that... people can then go and buy other things with that money. Last June, they started what's called quantitative tightening, which is essentially reversing that policy and restricting the liquidity in the system. So, if you look at those tools and you sort of play a game tree on what the Fed could have done, I think that you have two choices. One is you massively let inflation run amok where you have no tools to fix or you have massive illiquidity in the financial system, but you actually do have tools to fix that, which is through some combination of quantitative easing and tightening depending on how much liquidity you want in the system. So, I think, actually, I disagree with Sax. I think they should have done the opposite. They should have raised 50 bps. It would have created a little bit more chaos in the short term, but it would have set us up to understand what was fundamentally broken and still give the Federal Reserve the ability to use their balance sheet and use liquidity in the future to solve the problem. They took the worst option, which is neither did they cut nor did they raise enough. And so this problem that Sax represents actually is the fundamental problem now, which is you won't have enough clarity in signal to really know whether this 25 basis point enough. Look, I've maintained now for nine months that rates are going to be long, higher than we like and longer than we want. And so I think it's high time that we acknowledge that we have a sticky inflation problem whose back we have to break. We've known since Volcker era what we need to do to do that, which is you need to get interest rates to be greater than terminal inflation, which means that a 5% Fed funds rate is insufficient. So, we're gonna need to see a print of five and a half, 5.75%, and that's when you're gonna have enough contraction, and then the Fed can come back with liquidity. But if they don't take these steps, we're gonna be in this very choppy, neither here neither there situation, and I think that is what causes the real damage because it's the corrosive effects of uncertainty and what that does to lending, to risk-taking, and that I think is really bad for the economy.

David Sacks 10:04 Freberg, where do you land? We have Sax saying they should have stood pat. We have Chamath saying either go hard, take the medicine.

Jason Calacanis 10:11 I don't know. I'm not, like, an economist on judging the balance that they're trying to weigh right now. I think everyone's got a different... Y- you can hear a cacophony of opinions on this one. What I'm more interested in is, you know, we talk a lot about the banking crisis underway, and I know we're going to talk about this question on commercial real estate in a minute. But if you look at the yield on the 10-year Treasury, I think, um, coming out of this past two weeks, you know, the yield on the 10-year Treasury dropped from 4.1% down to, looks like it closed at 3.4% today, nearly a 0.7% decline in the past two and a half, three weeks. And that's also off of 3.8% since the start of the year. And remember when we talked about the impact on asset values of banks, I think if you look holistically at the roughly $7 trillion of assets held at banks, some, you know, whatever the, the, the set of banks that are, that we looked at, the average kind of equity ratio is about 15%. So, you know, a 2%, or sorry, a 3% adjustment over 10 years on the Treasury impacts the value of a chunk of that portfolio down 25%, which starts to put you into dangerous territory, and there's obviously a distribution of what that does to certain banks that are overweight, you know, 10-year bonds, whether they're loan obligations on mortgages or Treasuries or corporate bonds or real estate bonds, uh, real estate debt. And so the more encouraging point that I think we should pay attention to is, does the market tell us that these short term rate actions are driving down the long, the medium and longer term rates in a way that will improve the balance sheets of all these institutions that own a lot of this debt?... particularly the banks and, and funds and so on. And, you know, I'll do the, the math here real quick, but just in the last two weeks, the impact on the 10-year Treasury has probably had a pretty sizable impact. You know, we talk about unrealized losses, it's reduced those unrealized losses, it's improved them. So, I think that that's, like, the more important metric to be tracking is, you know, if you look at all the assets that we're all worried about right now, are they going up in value or down in value in a way that introduces more stability into these kind of banking systems that we care about? And I think right now, it looks like maybe things are improving, um, and that might be part of the optimism around, you know, equity markets and folks buying and so on.

David Sacks 12:50 Yeah, and so this is, I guess, where people have started to talk about the next shoe to drop. We obviously had this time-based liquidity issues with Silicon Valley Bank. Now, the Wall Street Journal is talking about commercial real estate and how much debt there is. Uh, since COVID, obviously, people are doing more remote work, a lot of the skyscrapers, it's not just San Francisco, but in many locations, remain empty or underutilized. People are now having their leases come up. Uh, every year, more and more of these leases will become vacant and then we'll see if these buildings are worth what people paid for them. Smaller banks hold around 2.3 trillion in commercial and real estate debt, including rental apartment mortgages. Almost 80% of commercial mortgages are held by banks according to this Wall Street Journal story. Sachs, you are an owner of some commercial real estate and, uh, you play in the space, you have a lot of firsthand knowledge. What, what is your, putting aside your personal holdings or exposure, what is your take on what you're seeing? What is the game on the field right now in terms of commercial real estate in San Francisco and beyond?

David Friedberg 13:59 Well, if you talk to the commercial real estate guys, they'll tell you that the situation is dire. Um-

David Sacks 14:03 Dire.

David Friedberg 14:04 There's two... Dire. The, there's two problems. First, there's a credit crunch going on. So there's just no credit available. If you're a commercial real estate developer and you have a building and you wanna refinance your construction loan or put long-term debt on a building, you just can't do it. I mean, the banks are not open for business. They literally don't want the business. And I think that comes back to the fact that banks right now are hunkered down in a defensive posture, they're seeing deposits flee from their banks, unless of course you're one of the top four-

David Sacks 14:35 Does that, does that freeze on the banks predate the Silicon Valley Bank crisis and it was exacerbated? Were, were people having a hard time getting loans before that?

David Friedberg 14:44 It predates it, but definitely what you're see- what you saw with SVB and these other banks, including Credit Suisse, is that, you know, banks now are getting much more paranoid. And that's why you saw that if you look at the, the discount window, which is when the banks go to the Fed as lender of last resorts and basically post collateral to get liquidity, we had the biggest spike in discount window borrowing since the 2008 financial crisis. Yeah, that line (laughs) on the right side, that is, that is a spike in one week's borrowing. This exceeds anything that happened in 2008. The warning signs should be flashing red over something like this. Now, to bring it back to commercial-

David Sacks 15:25 And to be clear, that's banks who have real estate exposure going to the Fed, going to the government saying, "Hey, can we get some money to cover these?"

David Friedberg 15:34 It's not specifically about real estate, it's more about bank liquidity.

David Sacks 15:37 Bank liquidity.

David Friedberg 15:37 The banks are saying, "We don't have enough liquidity right now to cover our needs," which are highly volatile right now because basically depositors are moving out of community and regional and small banks into the big four so-called systemically important or SIB banks. So, what's happening is that, again, banks are hunkering down, they're getting very defensive, they do not wanna make new loans because they can't tie up assets, they are trying to stay liquid themselves. So that's what's happening now in sort of with respect to new lending. And then on the other side of it, you have existing loan portfolios. There's something like $20 trillion of commercial real estate debt, and most commercial real estate lending is done by small banks, by community banks. So they are sitting on these huge CRE loan portfolios. And I think something like 300 billion needs to be refinanced or is coming due in the next year. Normally, that's rolled over and refinanced. There was separately, there was a study showing that unrealized losses in these loan portfolios in the banking system may be around $2 trillion. It was a study that was reported on by the Wall Street Journal. So, in the same way that we had huge unrealized losses in these long-dated bonds, I think we also have huge-

David Sacks 16:54 At Silicon Valley Bank specifically, that's where we saw it.

David Friedberg 16:56 They were the worst offender, but-

David Sacks 16:58 Yeah.

David Friedberg 16:58 ... it's a, it's a systemic problem. I think similarly, we have huge unrealized losses in commercial real estate loan portfolios. And this is, I think, even a more subtle and pernicious problem because with securities like T-bills or mortgage bonds, it's very easy to know what the unrealized losses are. The reason why they hadn't realized the losses was not 'cause they didn't know what they were, it was because of a stupid accounting rule that said they didn't have to realize the losses if they were, were, quote-unquote, "holding them to maturity." With these loan portfolios, we don't know how big the exposure is, and we won't know until you start seeing some defaults and repricings of assets. And you actually see-

David Sacks 17:38 Really, commercial real estate is a much more dynamic market, right? You have to have a buyer there, you have leases, you have leases coming off at different times, you have subleases occurring, and you have the owners of them flipping them, right? And, and refinancing them constantly to buy new buildings. And so-

David Friedberg 17:53 Right. And, and th- and those loans aren't as liquid, right? With a mortgage bond, those are basically a bunch of loans, mortgage, home mortgages typically, that have been packaged up and turned into-

David Sacks 18:04 Mm.

David Friedberg 18:04 ... a security and there's a liquid marketplace to trade them. In the case of these loan portfolios, there may not be a liquid marketplace so you don't really know...... how impaired that loan portfolio is until you actually get to a place where-

David Sacks 18:17 When will we know? Wha- 'cause tha- that's the thing I'm wondering. We- I saw a lot of headlines, you know, Pinterest bought themselves out of their new headquarters in the Bay Area, San Francisco, I believe, specifically. I heard Facebook got rid of a couple billion dollars and wrote down some expansion. Amazon is selling buildings. They had gotten a ton of buildings and we saw last week they got rid of another 9,000, or they're planning another 9,000 RIF, and they can't get people to come back to the office.

David Friedberg 18:42 Right.

David Sacks 18:42 So, how bad is the overbuild, I guess, is the question-

David Friedberg 18:46 Well, yeah.

David Sacks 18:46 ... because that will be the driver of the value of these buildings. 'Cause-

David Friedberg 18:50 Right. Well, look at-

David Sacks 18:51 ... if there's too much supply, then what are these buildings actually worth? Are they worth $90 a square foot? What if there's no-

David Friedberg 18:56 No.

David Sacks 18:56 What if Amazon doesn't want more space?

Chamath Palihapitiya 18:57 You can see it in the credit default spreads of these banks. It's in the water table already, so y- you can, Nick, you can just throw it up. If you look at any bank that's lending and that has a portfolio, this is Deutsche Bank's, you know, euro-denominated CDS, but it's the same for Barclays, it's the same for Soc Gen, it's the same for a bunch of American banks. There is a risk in the system that Sachs articulated that is now getting priced in. There are all kinds of loans whose payments, which the banks need, cannot necessarily be insured, which means that then there could be illiquidity there, there could be a flow of deposits out from those banks, which would then make their ability to pay their debt holders lower. You also have this complicated issue already, where it's really like the first time in a long, long, long time where debt holders actually got wiped out in the Credit Suisse debacle before the equity holders did, and that's created all kinds of ripple effects. So, this credit bubble is here and it's being manifested right now in these very sophisticated parts of the market, and eventually, they'll ripple to the broader economy at large. But how a person feels this is, they're not gonna be able to get a car loan or a mortgage or the interest rates they pay will go up. And then how bondholders will react to all of this stuff is they'll just start to find different assets, probably the front end of the curve, money market, cash, gold, and they'll just abandon all these assets. And then the other problem is that it's just really, really bad for risk assets. So, the things that we invest in-

David Sacks 20:44 Startups, technology companies, yeah.

Chamath Palihapitiya 20:46 ... either in a world of inflation run amok because the Fed isn't hiking fast enough, which just destroys future cash flows, or in a world where the Fed pivots in a moment like this, and Nick, you can show the second chart, both result in the same outcome, which is that you just see these massive drawdowns in the value of risk assets. So, we're in a really complicated moment, and this is why I think, again, the Fed needed to take leadership this past week and actually do the hard work of either cutting 50 bps or raising 50 bps. And this middle path is the absolute worst path, because trying to thread a needle in this complicated economy, I think, is just gonna be impossible. And then what happens is, then the markets move around them, right? The markets have completely said, "We now discredit what you did." And they're basically banking that the Fed will be forced to cut rates massively in short course, because the crisis will be so severe that it'll outweigh the risk of inflation. Think about that.

David Sacks 21:57 Ah. Yeah. So, all of this real estate comes on the market. There's no buyers for it. The mortgages are due. Does that mean a commercial real estate owner just basically gets foreclosed on and they hand the keys back to the bank? Or the banks, as this-

David Friedberg 22:13 Yeah.

David Sacks 22:13 ... Wall Street Journal story was sort of alluding to, that the Fed will say, "You know what, we'll just extend, we'll backstop this real estate, which happened in the last bubble, and we hope that over time it works itself out and demand returns." Now, of course, that's different than a post-COVID world, so this time could be different. Wh- what happens in the case of 2024, 2025, all these office spaces are returned and the keys are handed back?

David Friedberg 22:41 Yeah. So, okay, so, so Jason, you asked a question like, how- how does this problem manifest? Let me describe it from the point of view of that real estate owner. Uh, there's basically two problems. One is that you have a tenant who's in a long-term lease, five, seven, 10 years. That lease rolls so that, that lease comes due. Now they don't need the space anymore. You know, we know that, take San Francisco, which has got to be the worst market for Siri in the country right now, that something like 30 to 40% of the space is vacant. So, that's either space for rent or space for a sublease, because no one's using it, so they put it back on the market. Well, all those subleases, they're still paying rent because they have a contract. So, what happens is, as those leases roll, now all of a sudden you don't have to pay rent anymore, so you're gonna stop. Or if you still need the space, you're gonna negotiate a much, much lower rent. So now, all of a sudden, the real estate owner can't make their debt service covenant ratios. The income from the building is just substantially less. They can't make their debt service-

David Sacks 23:38 Let's pause on that and explain that ratio to folks. You have a certain amount of debt you own, let's say, Salesforce Tower. In Salesforce's case, they're subleasing 125,000 square feet. Let's say they were into that for 500 million. What is this debt service ratio? Explain that to the audience.

David Friedberg 23:54 When the bank underwrites the loan, they just figure out w- the interest that you got to pay on the loan relative to the value of the building or the income that it's generating. But all those ratios are upside down now because the value of the buildings, the rent has gone down so much because there's so much vacancy. I mean, when these loans were underwritten, San Francisco had like a 5% vacancy rate.

David Sacks 24:14 Wow.

David Friedberg 24:14 And now it's like 30 to 40%. There are just no tenants.

David Sacks 24:17 Hmm.

David Friedberg 24:18 And then, you know, in parallel with that, Jason, you've got all these cases where-You not only have tenants or leases rolling, you have loans rolling. You know, again, if the owner of the building has either a construction loan or like, a long term debt and that needs to roll, they have to refinance it.

David Sacks 24:33 Mm-hmm.

David Friedberg 24:33 And if they can even get credit, which they may not be able to because of this crunch, they're gonna be paying a lot more for it. So now all of a sudden, the income statement for that building doesn't make sense. Think about it, your borrowing costs are higher and your revenue is lower, so now all of a sudden the building's underwater. So where does that end up? Well, they default on the debt and the bank ends up owning the building. So then what happens is you end up with, you know, all of downtown San Francisco owned by a bunch of banks. What are they gonna do with it? They don't wanna be in the real estate business, so they have to fire sale those buildings in a bunch of auctions at rock bottom prices, because by the way, there's no cash or liquidity out there, so who are the buyers gonna be?

David Sacks 25:10 Who's the buyer? Yeah, I was gonna-

David Friedberg 25:11 Nobody.

David Sacks 25:11 ... go back over again.

David Friedberg 25:11 There are no buyers. We have a 30% vacancy rate. There's no, uh, renters, so-

David Sacks 25:15 So what happens? Detroit, like, is it just like a dead city?

David Friedberg 25:19 And then the tax base collapses in the city because so much of the tax base is dependent on, you know, real estate. So listen, I think they're gonna have to work this out. I don't think they can just let the free market take its course here, because you're gonna end up with the scenario I just painted. So I think what hopefully would happen, maybe, is that the- the banks do some sort of deal with the real estate owners that, you know, they- they blend and extend or whatever. But in order to do that, they're gonna need to be back stopped by somebody. And that's the Fed.

David Sacks 25:46 Friedberg, what are your thoughts, just writ large as it were on the commercial real estate space? Yeah, that'll probably be, uh- 'Cause it's $90 a... It was $90 a square foot, right? For class A Sacs in the city? Is that the price?

David Friedberg 25:57 Yeah, I mean...

David Sacks 25:58 What's that gonna be?

David Friedberg 25:59 60, 70, 80, 90 bucks a foot depending on what kind of building you're talking about.

David Sacks 26:02 Yeah.

David Friedberg 26:02 I mean, you have all these empty office towers, so look, I- I never invest in office towers. I do small boutique kind of brick and timber spaces in, um, Jackson Square. We're doing okay, 'cause people still wanna be in those spaces, but these office towers on Market Street or in SoMa, I mean, which is where all the investment went during the boom, nobody wants to be in those buildings anymore.

David Sacks 26:23 Mm-hmm.

David Friedberg 26:23 And it doesn't help that the city has allowed this giant, you know, open air drug market to metastasize right outside their door.

David Sacks 26:31 Mm-hmm. Friedberg?

Jason Calacanis 26:32 Yeah, I think it's inevitable we'll have probably two to $3 trillion of federal money, you know, spent to back stop and support the asset. I mean, that's the general theme here in case everyone isn't paying attention at home, is that the Fed, the US government will continue to print money and create programs, uh, to effectively support asset values such that there isn't a crippling economic ripple effect. And this is the danger of debt... spiral of debt. And it's why I always talk about how concerned I am about global debt levels, and particularly debt levels in the US, but really global debt levels. I'll- I'll say this statistic again, and over and over again, 360% global debt to global GDP. But, you know, even within some of these asset classes, a significant amount of debt has been used to fuel asset prices and to fuel equity value. And then that equity value gets levered and reinvested and so the rippling effect and the economy of declining a- asset value can be magnified through leverage. And i- unfortunately, debt in general forces growth. Without growth, uh, debt fails. And so when we've used debt to demand growth on a macro perspective, uh, it causes, you know, significant stress and strain on the system when you're going through periods of like we are right now, what should be natural recessionary effects from COVID and shutting down the economy or natural asset price declines because of that, and we can't let it happen because if it were to happen, the rippling effect would be crippling. So this is a good example, you'll probably... I don't know what the facility will look like, maybe the government passes some congressional bill that says, "Hey guys, here's $3 trillion to support, you know, all this real estate. Here's another, you know, two trillion to support banks and, you know, giving them liquidity." Because the other problem, as you guys know, is most people's... M- most of the population in the US has most of their assets, uh, their asset value or their equity value in their home. And those home prices are supported by residential loan programs. And, you know, if you actually, uh, have a massive write down on the value of that asset class, that's when, you know, everything kind of falls apart. So, you know, we will continue to be buoyed by that- that- that- that kind of inflationary behavior, unfortunately. Balaji, I think has it right, and we'll talk about his bet in a minute-

David Sacks 28:57 Yeah.

Jason Calacanis 28:57 ...that there has to be money printing to get out of this hole. I don't know if it's necessarily in this moment hyperinflationary as he predicts. You know, he uses the Deutsche Mark and the Weimar Republic as this kind of storyline that this is what's about to happen in the US. The truth is, it looks a little bit more like the pound sterling at the end of the British Empire, where, you know, there's certainly a- an inflationary and devaluation effect that arises, but it's not... It is the reserve currency of the world today-

David Sacks 29:23 Well-

Jason Calacanis 29:23 And so i- it's really hard to kind of just say, "Hey, it's going to be hyperinflationary and the value is gonna go to zero." It's just not gonna happen.

David Sacks 29:29 So that seems to be the bet-

Jason Calacanis 29:30 Of the- of the dollar. Of the dollar.

David Sacks 29:31 Yeah. Yeah.

Jason Calacanis 29:31 So it's... It's really hard to kind of just say, "Hey, it's gonna be hyperinflationary and the value is gonna go to zero." It's just not gonna happen.

David Sacks 29:31 So that seems to be the bet. Yeah. Yeah.

Jason Calacanis 29:31 Of the dollar. Of the dollar. Yeah.

David Sacks 29:32 So that seems to be the bet now chimoff, that some folks are predicting, catastrophizing, "Hey, this is the end of US supremacy, the end of the dollar." Of course, modern monetary theory seems to state you can just keep printing dollars and make a couple trillion dollar coins and back stop it. And, by the way, TARP was profitable modestly for the United States, and the backstop of real estate totally worked. So where do you land on this? Do you think these backstops and modern monetary theory stating that you can just print money, you- you own your own fiat currency is gonna work? Or as we pivot to the billion dollar... I'm sorry, the million dollar Balaji Bitcoin bet that this is the end of days?

Chamath Palihapitiya 30:14 I- I think it's not the end of days, but I- I think you're conflating a bunch of things together. So, look, MMT-

David Sacks 30:19 Yes, I am. Yes.

Chamath Palihapitiya 30:21 ... was, in hindsight, idiotic. In the moment, it never quite made sense but in hindsight, it's clearly idiotic and-I think that we can properly dispense with that. But the reason that we print so much money is sort of what Friedberg says, which is that we just want a well-functioning society and the simplest and shortest way to do that is to make sure that there aren't any winners and losers anymore. And the most effective way to do that in the markets is with money. Print a bunch of money and there are no more winners and losers, and so everybody can kind of win. Some people may m- may win more but nobody really ever loses. So I think that's the, that's the MO that we're operating under. The thing is I don't think that-

David Sacks 31:09 There's something unhealthy to that, Chamath. You're sort of alluding to-

Chamath Palihapitiya 31:11 Yeah, but-

David Sacks 31:12 ... no losers.

Chamath Palihapitiya 31:13 That's a more philosophical and a commentary on capitalism and a bunch of other things. And you're right, I don't think it makes sense. I do think you need winners and losers to really make society function well. But the other part of it is, like, does it reinforce or does it decay US dollar hegemony? And I think it actually reinforces it, and the reason is just very practically speaking when you look at how dependent other people, other countries are on the US dollar, in times of stress they actually become more dependent, and that has a lot to do with their borrowing patterns, the amount of dollars central banks need outside the United States. And so what did you see in a moment of stress? Actually, the Fed opened up swap lines to all the central banks that they work with, uh, their most important operating partners, so Europe, Canada, Japan, et cetera, Switzerland, and they moved the liquidity window from weekly to daily and they pounded the swap lines. So I don't know, I think that most people that, that kind of like... It's like a boy crying wolf, maybe at some point somebody will be right but you're gonna lose so much money trying to take a point of view around this topic that it's more practical to just look at dollar flows. And dollar flows go up in moments of stress, not go down, and they go up in a distributed manner across the monetary plumbing of the world.

David Sacks 32:35 All right, so let's explain the Balaji bet since that trended and he is the boy who, as you're saying, cried wolf this past week.

David Friedberg 32:43 Cried Bitcoin. (laughs)

David Sacks 32:44 Yeah, the boy cried Bitcoin, very well said. (laughs) So a friend of the pod, Balaji, on March 17th predicted that Bitcoin will reach $1 million in 90 days due to US hyperinflation. Hyperinflation is defined as prices going up 50% month over month, just so we're clear on exactly how dramatic that is. He made the bet on March 17th against a pseudo-anonymous, uh, Twitter user, James Medlock, who said they would bet $1 million that the US would not experience hyperinflation. So Balaji sort of inserted Bitcoin into that bet. It wasn't a Bitcoin bet, uh, then, and I think he's done two of these bets. So he's betting two million in total on Bitcoin hitting one million by June 17th, which there's probably no chance of that happening, or a very tiny chance. I'll ask the panel in a second. Bitcoin was trading at, uh, $25,000, $26,000 at the time. It's now trading at over $28,000. And Balaji has been on every podcast known to man (laughs) in the last 72 hours talking about this. I've watched one or two of them, and it's a pretty out there argument, I think. Uh, you can just type in Balaji on YouTube and watch any of the 20 he's done. (laughs) Uh, he believes regional banks are insolvent. He thinks the Feds need to, is gonna need to print a massive amount of money, like we've said here, do more QE and then cut rates. It all seems reasonable, but that, that will lead to hyperinflation.

Chamath Palihapitiya 34:12 (laughs) It's not, it's not reasonable. (laughs)

David Sacks 34:14 Well-

Chamath Palihapitiya 34:14 It all seems possible.

David Sacks 34:15 No, no, it's not that it's reasonable, but we just print- we just printed that-

Chamath Palihapitiya 34:18 Yeah.

David Sacks 34:18 ... they're gonna cut rates. We just discussed, they're gonna eventually cut rates and there'll be more QE. So that part is reasonable, um, just that one little piece. But then he believes, is the part that is (laughs) kind of out there, that hyperinflation's gonna devalue the dollar and this is the time. Um, he does not, and I made a bunch of... I- I asked him this a bunch of times and, and he would not be honest about it, uh, or didn't wanna answer my question. I said, "Hey, what percentage are you in Bitcoin?" Somebody says he's 99% in Bitcoin. He- he will not confirm. And so I was like, "Well, if you own 1,000 Bitcoins, if this goes up, you know, a very small amount, four or 5%, you're gonna pay for the bets and, uh, are you talking your own book here or not?" Sachs, what do you think of this overall bet?

Chamath Palihapitiya 35:01 (laughs)

David Sacks 35:01 Is it a stunt?

David Friedberg 35:02 Yeah.

David Sacks 35:02 H- he's saying like, this is the lifeboats moment, and just to add to it-

Chamath Palihapitiya 35:06 (laughs)

David Sacks 35:06 ... he says you have to leave the United States and get to Singapore, uh, or a place, or if you're gonna stay in the United States, you need to get to Wyoming or Texas or somewhere that explicitly allows Bitcoin because the closer you are to the United States banking system... What happened to Silicon Valley Bank on that fateful weekend where people couldn't get their cash and were gonna have to, you know, uh, miss payroll? He says that's the dry run for the entire US banking system. Sachs?

David Friedberg 35:31 So first of all, I don't think you can disparage Balaji because someone who cries wolf says this repeatedly and makes a dire prediction repeatedly and is wrong. And we can't say yet that Balaji is wrong. Do I think that we're gonna have a million dollar Bitcoin in 90 days? I personally find that very unlikely, but you can't say yet. Uh, he stuck his neck out making a prediction that will be easily falsified if he's wrong. Second, the last time that Balaji made a dire prediction-

David Sacks 36:00 Yeah.

David Friedberg 36:00 ... was COVID, and he was right about that.

David Sacks 36:03 He was right about that one. (laughs)

David Friedberg 36:03 So you can't say that this is just, like, a doomer who throws out crazy predictions and is always wrong. He's actually pretty selective about his-

David Sacks 36:10 He nailed that one.

David Friedberg 36:11 ... predictions.

David Sacks 36:12 Yeah.

David Friedberg 36:12 Yeah, there is a tweet from January 30th of 2020 in which he basically predicted a pandemic based on a coronavirus and laid out a whole bunch of consequences that mostly came true.

David Sacks 36:24 Hmm.

David Friedberg 36:25 Which is why we're talking about this. This is not just some, like, random person, like, he actually has-

David Sacks 36:29 Yes.

David Friedberg 36:30 ... a pedigree and a track record.... but here's my view on it, is-

Jason Calacanis 36:33 (laughs) In doom and gloom.

David Friedberg 36:35 Yeah, he is- He-

Guest 36:36 Yes, him and Nassim Taleb, the two of our opening speakers at the Halen Summit 2023. (laughs) Those will be our bookend speakers. Book them now.

David Friedberg 36:43 Yeah, anyway.

Guest 36:44 (laughs)

David Friedberg 36:45 So, so, so look, now, wha- what do I think about it? I, um, I, I posted my own theory today, which I would call sort of Balaji Lite, (laughs) um, which is, um... Okay, look, if you, if you think about this spike in interest rates that we've had, and that Jemaa thinks will actually continue quite a bit longer, there are three main effects that it indisputably has. Number one, undercuts the value of long-dated bonds. Number two, it's made lending much more expensive, particularly for big purchases like real estate. Number three, it's increased government lending costs. Okay? Now, play that through the financial system. What does that mean? Well, if the value of long-dated bonds has sharply decreased, well, that's led to this banking crisis with the unrealized losses. That's already happened. Number two, it's made lending more expensive, the credit crunch and CRE. We're beginning to see that, and I believe that's going to play out as a second crisis of this larger financial crisis. And then number three is the increase in government borrowing costs. That will eventually play out in terms of being a government debt crisis of some kind. And I think it'll involve, you know, a spike in borrowing costs at the federal level, it'll involve sovereign debt issues internationally. I think it'll involve budget deficits at state- at states and cities. So, I think there's three phases to this financial crisis. We're in phase one, and I think CRE and government debt are the next two phases. And I think, I think a lot of that lines up with what Balaji thinks. Where I disagree with him is, I don't think we can know what's going to happen in 90 days. I think that the CRE crisis is highly deflationary. It's gonna create distress everywhere in the economy. That is gonna lead to a massive reduction in liquidity. I think that the government debt crisis, assuming the government wants to inflate and monetize the debt as a way to solve that problem, that will be highly inflationary. But when these things play out, we can't know. I think that's what makes this really hard is, I think jumping all the way to the sort of finish line and saying, "We're gonna have a million-dollar bitcoin in 90 days 'cause the US dollar is worthless," I think that's premature. I think this could play out over the next couple years.

Jason Calacanis 38:47 We have a real problem if bitcoin is the exit ramp for-

Guest 38:53 Why?

Jason Calacanis 38:53 ... an inflationary crisis because it- it's not accessible enough, it's not easily transactable for- for fu- I'm, I'm sorry to be negative to the bitcoin maximalists. I'm generally in favor of this kind of independent storage system, uh, that's outside of government and state control. I think there's just this unfortunate reality. I mean, we saw what the Wells noticed at Coinbase today. They just, uh, arrested that- that crypto guy and-

Guest 39:19 Do Kwon was arrested in-

Jason Calacanis 39:21 Do Kwon.

Guest 39:21 ... Montenegro, of all places.

Jason Calacanis 39:22 Montenegro, great country. Kraken won't let you wire money in or out as of, I think, Monday or Tuesday. And so, you know, it- it's clearly becoming kind of a less accessible system of storage. Now, what's more accessible? Well, I do think that one of the reasons we're seeing the market move the way it does is 'cause folks are shifting their risk assets around quite a bit right now to figure out where's a good place to put money. I was talking with an asset manager, you know, this morning, and, you know, they had a very strong point of view. Folks are- are moving capital away from what they think are gonna be most impacted by the risk of this kind of massive inflationary event that may arise, or this massive banking crisis that may arise, or this massive real estate crisis that may arise. And there are other places to then put your capital that's not just bitcoin. And sure, maybe some of these things are dollar-denominated, but for example, there are many businesses that sell products in non-dollar-denominated currencies globally. And while they report and trade on US stock exchanges, you're buying a security interest in a business that generates most of its income by selling-

Guest 40:27 You're referring to Apple?

Jason Calacanis 40:28 I'm referring to many different companies.

Guest 40:30 Yep.

Jason Calacanis 40:30 And so there are many companies that get the bulk of their revenue, the bulk of their sales internationally. There are also many companies that will benefit in an inflationary environment, businesses that are tied to other types of real estate, businesses that are tied to certain capital equipment where consumption will not go down unless there's, you know, significant, massive, you know, global socioeconomic shock. And so, I think that that's kind of a lot of what's going on right now. It's less about, "Hey, bitcoin's the only place to go and be safe," and it's more about, "Let me reallocate my risk assets a little bit, you know, to places that may be benefit, may benefit from or may be better guarded from a massive kind of inflationary shock," um-

Guest 41:08 Let me ask you-

Jason Calacanis 41:08 ... and let me just say, let me say one more thing.

Guest 41:10 Yeah.

Jason Calacanis 41:10 I think one of the biggest risks that is not being talked about is the debt ceiling vote that's due in June. In June, Congress needs to pass an increase in the debt ceiling because the amount of debt that the US... that the federal government is gonna have to take on in order to meet our budget deficit and refinance our debt and pay our obligations historically means that we're gonna have to have more than what we're, uh, you know, we've approved to date in terms of the total amount of debt. Now, this has historically been a last-minute vote, you know, crazy dramatic thing that drives markets nuts. The Hill had a, a public opinion piece from Peter O'Rourke and Mary Spade, but I think they make a good point. You know, I've talked to a lot of folks who are, call it in the fixed income market, but also folks who are in the equities markets publicly who are pretty nervous about this debt ceiling vote. And if it does look like the Republican, uh, Party takes a very hard line and says... 'cause this is the current party line. "If you don't agree to massive deficit cuts or spending cuts, um-"

Guest 42:22 Austerity.

Jason Calacanis 42:23 "... and, and really commit to that, um, in a bill that we can pass that then also approves the increase in the debt limit, we are not gonna approve increasing the debt limit."And, you know, what this opinion piece argues, I think is a very good middle of the line solution, which is, you know, come up with points of view, uh, and actually document those points of view on, um, making sure, uh, that government spending is effectively accountable, that there's no more wasteful spending. And that there are certain programs that both parties can very quickly agree to as being, you know, very wasteful. And if you start there, you maybe get enough across the line that both parties kind of say, "This makes sense, let's do this. And then we can kind of increase the debt limit." 'Cause in the absence of that, the US will have to default on debt, this has always been the big threat, it's never happened. And if that happens, or there is the looming threat of that happening, combined with the banking crisis, combined with, you know, the, the, the liquidity crisis, combined with the real estate crisis that may be boom- emerging here-

David Sacks 43:20 Let me ask you a question that's kind of ...

Jason Calacanis 43:21 ... you could have things really melt down.

David Sacks 43:23 ... funny Freeburg.

Jason Calacanis 43:23 So, look, I'm s-

David Sacks 43:23 Because-

Jason Calacanis 43:24 Yeah, I just wanna get-

David Sacks 43:24 I just want to get-

Jason Calacanis 43:24 I think, I think this is the biggest, like, black swan. It's not a black swan, but this is the biggest kind of elephant in the room right now, is-

David Sacks 43:30 I got it, yeah.

Jason Calacanis 43:30 And I think that if ... And, and sorry, let me ... I think if people in DC could get together today, and if you could, instead of doing the typical last minute, 24-hour vote, a day before the debt ceiling needs to be increased-

David Sacks 43:40 Yes, be thoughtful and do it now.

Jason Calacanis 43:41 If this can, if this could be addressed today, it could start to put in some of the layers of backstop and coverage and protection and safety that the markets, I think, really need to manage some of the trepidation in the, in the, in the weeks and months ahead.

David Sacks 43:54 I wanna jump to the crypto crackdown and get your opinion on that, Sax first, but I wanna do a clarifying point here with Freeburg. You have been in the Ray Dalio end of empires, empires collapse, and that, hey, maybe the US is winding, uh, down its supremacy and Balaji was pretty much saying, "Yep, this is the moment." Where ... Is there any light between your position of like, "Hey, Dalio's correct, this is the end of the empire," and Balaji's like, "It's the end of the empire right now?" Where do you stand on that, Freeburg?

Jason Calacanis 44:26 So, I mean, I've always ... I've been concerned. I've told you guys this for, like, three years, and I've obviously promoted this book for two and a half years. And Dalio's points of view, with lots of kind of empirical wisdom behind it, I think indicate that the US is on a path and the way we spend and the way beha- we behave and the way markets are reacting, I think indicates that a lot of what has happened historically is happening now in the US. Now, it doesn't ... I don't, I don't know if it's gonna happen overnight. That, that's where I would have light with Balaji.

David Sacks 44:55 Hm. Okay.

Jason Calacanis 44:56 The notion of kind of hyperinflation, again, I think means that ... So, so think about all the US dollar holders around the world. It would be a shock for the collective system. I- it would require the collective system to collectively agree to get off the dollar very quickly for that to really happen.

David Sacks 45:16 Yeah.

Jason Calacanis 45:17 In the meantime, I do think there will be inflationary effects. I do think there will be massive kind of asset value shocks. But I'm not sure there's gonna be this kind of, like, Weimar Republic, Deutsche Mark-

David Sacks 45:27 Hm. I got you. Okay.

Jason Calacanis 45:27 ... hyperinflation thing.

David Sacks 45:28 All right.

Jason Calacanis 45:28 Because it is the reserve currency and it is so widely held by everyone. It would require collective giving up. It also seems like there may be ... You know, we talked a lot about the Petro yuan trade, which I think is critical to see that actually happen. I think that's gonna be the linchpin.

David Sacks 45:42 Got it.

Jason Calacanis 45:43 Maybe that catalyzes this. And that seems to be a little bit tightrope right now too. It doesn't seem super definitive that Saudis are embracing China. There, there's obviously this behavior with, with Saudi Arabia around-

David Sacks 45:52 There's a little saber out of rattling around that, yeah.

Jason Calacanis 45:54 But there's, there's s- You know, it, it's not as definitive right now. I think that, that needs-

David Sacks 45:57 Okay.

Jason Calacanis 45:57 ... to happen to kind of really catalyze that.

David Sacks 45:59 Let's get our tinfoil hats on here for a second in relation to the Balaji bet. There has been a lot of action against crypto. Obviously, authoritarian countries took control of crypto long ago, China banning it, et cetera. North Korea, other, other, uh, authoritarian places kind of tightened their grip on it. Now, here in the United States, Coinbase got a Wells notice. Uh, that is a warning basically and giving you a last chance to kind of respond to the SEC. And this was based on their loaning programs. And on top of that, a number of other crypto crackdowns have occurred. We saw celebrities getting smacked down and getting fines and doing settlements. This has led Sax to a theory that the United States government wants to break the back of crypto. Crypto has done a great job of breaking their own back with plenty of crypto grifts, insider trading, and all kinds of shenanigans with FTX and front running and painting the tape. Any grift or criminal activity possible seems to have been exploited. Do you think that these two things are in some way coordinated or there's a coordinated effort by the US government to destroy and kill crypto as an off-ramp for the US dollar while the US dollar is dealing with these crises? Sax?

David Friedberg 47:18 Well, there's a really interesting article that was just published on Substack by Nick Carter, who, I guess a guest writer on Mike Sallana's Substack called Pirate Wires. There's a follow-up piece to an article he wrote six weeks ago, where he laid out the ... An operation by the Biden administration called Operation Choke Point, which made the case that the Biden administration was quietly attempting to ban crypto. And now, you know, a month later, there's all these things that are ... All these steps that the administration is, is taking to go after crypto. And he, you know, he lays out a bunch in a bullet point list. So, the SEC announced a lawsuit against crypto infrastructure company Paxos. Crypto exchange Kraken settled with the SEC. SEC Chair Gensler openly labeled every crypto asset other than Bitcoin to security. Senate Committee on Environment and Public Work- Works held a hearing, lambasting Bitcoin. Biden administration proposed a bill that singles out crypto miners for owner's tax treatment. New York Attorney General declared Ethereum, which is the second-largest crypto asset, a security. That's a huge change, by the way.

David Sacks 48:21 Yeah.

David Friedberg 48:21 SEC continued its anti-consumer protection efforts by doubling down their attempt to block a, a spot Bitcoin ETF. OCC let crypto bank Protego's application for a nat- national trust charter expire.... and then the SEC just sent Coinbase a Wells Notice. So, I think it's hard to s- to argue that there isn't a concerted effort now to crack down on crypto by a wide variety of government agencies and authorities, starting with Gensler at the SEC, who seems incredibly hostile to crypto. So now, the, the only question is, is this correlated with the stress that the banking system is under or is it just a coincidence? And that, I don't know, but I think the argument Balaji would make is that, at the same time, they're gonna deflate the dollar. They're gonna make it harder for you to find an off-ramp. And, um, he actually brought up a historical example that I wasn't aware of. I think it was called Executive Order 6201, which is FDR, way back in the 1930s, actually had an executive order that confiscated all the gold, private gold bullion in the country. And they seized the gold bullion, making the accusation that private citizens were hoarding too much gold. So, in any event, this is the theory. I don't know whether it's true or not. It could be a coincidence.

David Sacks 49:43 Chamath, do you think that this is correlated in any way with, uh, the crisis or is just the fact that FTX blew up and all these other things blew up and the public is really upset that they lost a lot of money on this and the SEC has got to cover and be a little bit more, uh, active instead of reactive when it comes to dealing with the crypto losses that consumers had?

Chamath Palihapitiya 50:04 That's the latter. I mean, I think that there is a rumor going around, I don't know how true it is, that FTX was days away from getting a critical approval by the SEC to actually even further legitimize their US exchange before they went out of business. So, I think Gensler had to pivot very hard from, at a minimum, being very pro-FTX, and there's all kinds of stories about his interrelatedness with Sam and his family, to very anti-bit- or anti-crypto in general. That's clearly happened. But look, I think that this is, like, a lot of tin hatting, which I don't think is very productive.

David Sacks 50:42 Mm-hmm.

Chamath Palihapitiya 50:42 If you look at the total number of non-zero Bitcoin wallet addresses in the world, and let's be extremely generous and say it's 100 million, there are still 7 billion people in the world. And so, I just think everybody that tries to speak about the fragility of the US and worldwide banking system is right but... And that part, I think, is quite lucid and unemotional, but every time they try to connect it to Bitcoin, they sound like a crazy person because-

David Sacks 51:17 Yeah.

Chamath Palihapitiya 51:17 ... they're just talking their book.

David Sacks 51:18 And that is exactly the case, by the way, with this kid, Nick Carter, yeah.

Chamath Palihapitiya 51:22 And the best example to demonstrate this is in all of this chaos, if Bitcoin or crypto assets, in general, were truly a legitimate off-ramp and salvation from US dollar hegemony and all of this stuff, why isn't Bitcoin at least at 35,000 a coin right now? It's barely above 28,000. It really hasn't moved that much. And I think the real answer is that most people in Bitcoin are not trying to hedge their existing fiat currency exposure. They're just picking off people in retail. (laughs) And they're just day trading this thing.

David Sacks 52:04 Well, I think that's-

Chamath Palihapitiya 52:06 I mean, how else do you explain, how else do you explain an asset that has not absolutely ripped in the face of all of this terrible news about the financial system? And I think the answer is because it's still a cul-de-sac of users, it's not broadly available, not broadly adoptable, not broadly used. I, I still believe that it's valuable. I was the earliest proponent of Bitcoin.

David Sacks 52:28 You got in early.

Chamath Palihapitiya 52:29 2011.

David Sacks 52:29 Yeah.

Chamath Palihapitiya 52:30 2012. So, I believe that there's a place for it in, in one's portfolio, but I just think connecting these dots misses the point. And I think the point is much, much bigger than a crypto off-ramp. The point is that we have a lot of systemic shocks that are building up in the system. We have broken a ton of the systems that cause the financial infrastructure in the world to work properly, and we are just starting to uncover how they're broken. So, I think we need to focus our energy on that and dial down a little bit of the Bitcoin maxi stuff because it distracts from a really important set of topics that are more inclusive and actually touch 7 billion people.

David Sacks 53:11 We have to do the cleanup work. And just to-

Chamath Palihapitiya 53:13 It's a good, good point, Chamath.

David Sacks 53:14 ... be perfectly clear here.

Chamath Palihapitiya 53:15 Yeah.

David Sacks 53:15 Nick Carter is a career crypto. He's on his third fund, his $250 million third fund, uh, according to a quick Google search. He's a partner at Castle Island Ventures, and I believe Balaji believes what he's saying, and at the same time, is massively in Bitcoin and the $2 million he'll obviously lose in this bet, or the 99.9% chance, and he said that already. I think he believes he's doing a service, just like he did believe he was doing a service with COVID. So, I do not doubt his intent, but I believe it's... His book is based on this and the $2 million will be easily paid off by his increase.

Chamath Palihapitiya 53:55 Yeah, yeah. He's a, he's a very smart, he's a very smart and good guy. My point is, put this in the who cares bucket and get back to the facts. Friedberg mentioned it, we have a debt ceiling problem that's in the offing. Sachs mentioned it, we have a commercial real estate crisis. We just talked about the fact that he didn't raise rates enough, nor did he cut enough. So, we're in this weird middle path that, that Jay Powell were talking about. So, those are the facts on the ground that I think we should focus on because those will have implications to how people can borrow, start businesses, capitalize risk assets. That's a big problem.

David Sacks 54:27 I guess the moral hazard comes up, Sachs. And the critique, I think, uh, that people have had, uh, of you, you know, focusing on bank bailouts, et cetera.... has been, you have been anti-bailout and now, hey, maybe backstopping the deposits, not backstopping the bank. The shareholders lost, you were very clear about that. But let's talk about moral hazard here for a minute. E- are we sort of getting-

David Friedberg 54:54 I'm not for bail- I'm, when did I say I was either for or against bailout?

David Sacks 54:56 I just clearly stated you were not. I just clearly stated you're not. I'm saying this is the critique that people have had of you, so I'm giving you a chance to address it.

Chamath Palihapitiya 55:03 Why, w- why are you giving him people's critiques of him? Nobody-

David Sacks 55:06 When, because-

Chamath Palihapitiya 55:07 Come on.

David Sacks 55:07 ... I want him to talk about the future moral hazard of-

Chamath Palihapitiya 55:09 What, what people?

David Sacks 55:10 ... more and be-

Chamath Palihapitiya 55:10 User76542 on Twitter? Who cares what that person thinks?

David Friedberg 55:13 (laughs)

David Sacks 55:13 And... okay. I, I was also thinking about the Wall-

Chamath Palihapitiya 55:15 W- why do you give, why do you give these-

David Friedberg 55:15 Let me, let me jump in, so people-

David Sacks 55:16 I, I was also thinking about the Wall Street Journal, the New York Times, and everything.

Chamath Palihapitiya 55:20 ... any air time.

David Friedberg 55:20 Let me jump in and just clarify. I was really clear that SVB's shareholders-

David Sacks 55:24 Yes.

David Friedberg 55:24 ... should be wiped out.

David Sacks 55:25 Yes.

David Friedberg 55:25 Their bond holders should be wiped out.

David Sacks 55:27 As I just said.

David Friedberg 55:27 Their management stock options should be wiped out. In fact, if it turns out that they should have known the thing was about to go under, I think their stock sales should be clawed back. So I'm not in favor of bailing out SVB. I don't care about SVB.

David Sacks 55:40 Yes, of course. Now, let's do that for commercial real estate.

David Friedberg 55:42 No, the question is what you do with deposits and depositors.

David Sacks 55:45 Correct. Let me know that.

David Friedberg 55:45 I think there is a real debate about how you treat depositors in a banking crisis. And I think there are two views on that. There is kind of an old-fashioned view and then there's kind of a more modern regulatory view. The old-fashioned view is that if your money is in a bank and that bank goes under and, you know, you're over the FDIC amount, you lose your money. And we need people in the system to lose their money because that creates discipline on the banks. It'll make those depositors do a better job shopping for the right bank. That's kind of what I would call the old-fashioned hard-line view. There's a more modern regulatory view, which is that... listen, the typical depositor, even a fairly sophisticated depositor like a small business or even a high net worth individual, they're not in a position to evaluate the balance sheet of these banks. How are they gonna figure out if there's, like, toxic assets that are hidden on the balance sheet of these banks?

David Sacks 56:42 The regulators didn't see it (laughs) with Silicon Valley Bank-

David Friedberg 56:45 Right.

David Sacks 56:45 ... and a lot of these banks, so.

David Friedberg 56:46 You don't really get that much more moral hazard by putting the depositor on the hook for, for that. Remember, the management of the bank already is penalized severely by losing all of their stock and all that stuff.

David Sacks 56:56 Yeah, so I- I'm trying to get to, before Chamath interrupted me-

David Friedberg 56:59 Right.

David Sacks 56:59 ... I'm trying to get to the bigger moral hazard picture here-

Chamath Palihapitiya 57:01 Fuck you, Jason.

David Sacks 57:02 ... which is... fuck you, before you interrupt me. But the point... eat your nuts for a second. The point I'm trying to get to is, should commercial real estate, should that be bailed out? How should society look at that next card that you are saying is gonna tip over? How would you handle that piece? Should they-

David Friedberg 57:18 Okay, well, let me just finish the thought on, on, on depositors.

David Sacks 57:20 Yeah.

David Friedberg 57:20 So the modern regulatory view is that when you open a bank account, you shouldn't have to think about the bank's balance sheet. You just want it to be safe. You don't want all the brain damage. And, and look, I think there's a lot of merit to that argument. As it turns out, I mean, I've been trying to look into this, how much would it cost the system to just fully insure depositors? It turns out that we have about 17.5 trillion in deposits in the US, almost eight- 18 trillion. And one of the misnomers you'll hear is, well, it would cost us 18 trillion to basically insure all the depositors. That's not true, because-

David Sacks 57:52 That's not true.

David Friedberg 57:52 ... first of all, 10 trillion-

David Sacks 57:54 People don't even know-

David Friedberg 57:54 ... is already insured under FDIC.

David Sacks 57:56 Right.

David Friedberg 57:56 It's only about 7.5 to 8 trillion that's left.

David Sacks 57:59 It's less than half is left, okay.

David Friedberg 58:01 Yes, right. Exactly. It's about, it's, it's around 8 trillion. So...

Chamath Palihapitiya 58:04 Isn't it shocking the innumeracy of people that make these claims?

David Friedberg 58:08 I know, it's crazy.

Chamath Palihapitiya 58:09 It's unbelievable. It's, it's...

David Sacks 58:09 Well, no, this is what we're... this is why you all podcast is basic math.

Chamath Palihapitiya 58:12 Basically, they've failed top 20 or top 10 in the world-

David Sacks 58:13 Oh, my God. ... because we're actually breaking down the numbers.

Chamath Palihapitiya 58:16 Oh, my God.

David Friedberg 58:16 Right.

David Sacks 58:16 So continue.

David Friedberg 58:16 By the way, the, the leading proponent of this theory that we should just basically, not bail out, but backstop the deposits is Bill Ackman.

David Sacks 58:24 Insure.

David Friedberg 58:24 And he's been making, I think, a pretty compelling case that if you don't protect deposits at small banks, all the money's gonna flow to the top four banks. That's already in process now, but-

David Sacks 58:33 Of course, why wouldn't you? That's happening. Yeah, we're watching it happen.

David Friedberg 58:35 Right. So I've been trying to figure out how much it would actually cost us to do that. And what I've realized is that it's not 18 trillion. It's, it's 8 trillion. But by the way, that's the amount of deposits, that's not the risk premium. So if you look at FDIC at the end of last year, there was about 130 billion that have been paid into the FDIC fund by premiums paid by these banks. So in other words, the insurance premium paid by banks was about 1.3%. So if you were to now additionally cover the whole thing, all the deposits, it would be another roughly 100 billion of premiums paid by these banks. That seems very manageable to me, actually. The question is, is the FDIC fund adequate?

David Sacks 59:19 Mm-hmm.

David Friedberg 59:19 And I think we're about to find out. It may be the case that a 1.3% insurance premium grossly, you know, understated the true risk of putting your deposit in a bank, and we're about to find out that the FDIC is inadequate. I don't know the answer to that question.

Chamath Palihapitiya 59:33 Well, I think this boils down-

David Friedberg 59:34 But-

Chamath Palihapitiya 59:34 ... to the profitability that an equity shareholder of a bank expects of them. And to your point, is it viable for large G-SIBs to guarantee 100% of their deposits? Absolutely. The implication of that will be an enormous hit to their short-term profitability and their return on invested capital. It would just take a massive hit. And so as a result, the stocks of those banks would fall pretty precipitously, which would have a real negative impact on the executives and the CEOs of those banks and the shareholders that own those bank equities. So I think ultimately, it'll come down to that decision, which is that if you do wanna protect the depositor in the American banking system 100% for every dollar, and do it in a simple way, it will come at the sake of the equity holders of the banks. And-

David Sacks 1:00:28 And-

Chamath Palihapitiya 1:00:28 ... if you're willing to make that trade-off, then you can guarantee 100% of the deposits. If you do not wanna make that trade-off, then the equity holders will still retain more value than they would otherwise.

David Sacks 1:00:39 In Freeburg, we've seen a couple of examples of the market, the free market, looking at the situation and making new products and services.... Wealthfront, Mercury Bank both talked about load balancing across 12 accounts, $3 million, so that would make some people who had over 250K just instantly be backstopped and insured. And then (laughs) where, you know, there's discussion of, um, we- I talked about last week, "Hey, why don't you just have a vault where you pay a bank to hold your money safely?" I got a ton of responses from All In fans pointing out multiple banks and services that have been trying to do this, and also crypto solutions. So is it gonna be a free market solution you think, or ... And we're starting to see them emerge, that maybe covers this gap a little bit, Friedberg? And then what are your thoughts just generally on should we backstop the banks and the deposit- I'm sorry, not the banks, the depositors, to be clear.

Jason Calacanis 1:01:32 So if we just quickly analyze the function of a bank, they loan money to either residential real estate buyers, like homeowners, or commercial real estate buyers, or businesses that need it. I think the majority of the capital goes to residential real estate. And if they can't loan enough money, they typically buy bonds, right? They buy other people's loans in the form of bond securities, like treasuries or asset-backed securities or other things like that, um, mortgage-backed securities. So they use the cash to make those investments to, to, to make those loans and then they obviously earn a return on that. You know, I think we've talked about this in the past, the thing that, that Balaji, I think, has misstated, and, and it would be good to have a conversation with him about this publicly, 'cause I, I have listened to some of his interviews in the last couple of days. He says the banks are ... They don't have the money that you, the depositor, thinks that you have. And so what he's saying kind of implies that there is no money, that there is no asset value there at all. He uses Sam Bankman-Fried and FTX as an example. That the money that was given to Sam Bankman-Fried's, you know, exchange fund was used to buy assets that then very quickly declined in value by 99%. But he held them on the book at 100% and then he reinvested the money in all sorts of other different stuff. And in the case of the loans made by banks, and the assets that they as a result hold, the value may have dropped by 25% in kind of the worst case, which is, you know, the Silicon Valley Bank tenure treasury bond scenario, where they bought, you know, all- $20 billion worth of treasury bonds. And, and, you know, they, they took a big hit on that. But it doesn't mean that there's no asset value. It means that the value has declined. And typically, there's a buffer between the asset value that the banks are meant to hold and the deposits that they owe back to their customers. And if that buffer gets exceeded, then the bank is technically has negative equity. And if all the, you know, depositors said, "I want my money back," and they went and sold those bonds into the market, they wouldn't be able to make the depositors whole. But it doesn't mean the depositors end up with zero. It means instead of getting 100 cents on the dollar, they get 93 cents on the dollar, 88 cents on the dollar. And it would require an orderly dissolution of the bank's assets, selling those bonds into the market, to generate the cash to pay back the depositors. So the reason we've seen this kind of, this fed vertical spike number is because assets are moving so quickly, depositors are moving their value so quickly from one bank to another, that in order for the banks to make the cash available to those depositors, they've had to borrow from the Fed. And then they're going into the market and doing this kind of ... They should be doing this orderly asset sale of the bonds to generate the cash to pay back the Fed, which is basically where they-

David Sacks 1:04:26 So it's just musical chairs. Money is moving around-

Jason Calacanis 1:04:28 ... they borrow the money back.

David Sacks 1:04:28 ... causing these problems. It's musical chairs-

Jason Calacanis 1:04:30 'Cause you can't-

David Sacks 1:04:30 And if the musical chairs stop, then we don't have this problem, correct?

Jason Calacanis 1:04:34 So if people stopped moving, uh, deposits around, then you're right. The banks wouldn't need to borrow money to give depositors their money and then go do the work of selling the bonds in the market and so on.

David Sacks 1:04:44 And why are people, Friedberg, moving their money around? Because of the FDIC-

David Friedberg 1:04:48 Because it's uninsured.

David Sacks 1:04:48 ... move ... Because it's not insured.

David Friedberg 1:04:49 Because it's uninsured.

David Sacks 1:04:49 So here we go. So you just insure it and this whole thing stops. So it costs them nothing to just say that, right? Sacks-

David Friedberg 1:04:54 Yeah. So here's the thing, Jacob. You mentioned this case that you hear a lot of people saying, "Well, why don't you just take your two and a half million dollars and break it up into 10 accounts of 250?"

David Sacks 1:05:03 Which is what people are doing, yeah.

David Friedberg 1:05:05 Yeah. Well, look, it's not feasible. We need to run a big payroll at the end of the month and you got payables. It's administratively too complicated. And by the way, what have you accomplished doing that? You haven't solved anything. So at a minimum-

David Sacks 1:05:16 But who hasn't accomplished? For, for the startup, it has accomplished. I'm just giving that prediction.

David Friedberg 1:05:19 Right.

David Sacks 1:05:19 The system. Yeah.

David Friedberg 1:05:20 Why won't you just raise FDIC to two and a half million? Or have FDIC be based on the number of employees in your company? Or allow a higher class, a business class of FDIC that goes up to, say, 5 million-

David Sacks 1:05:32 FDIC Pro.

David Friedberg 1:05:33 Yes, exactly. Goes up to 10 million. And in exchange, the quid pro quo has to be that the bank can't put that money in risky assets. It's so simple.

David Sacks 1:05:41 Why, why is this not ... This is so obvious. FDIC Pro-

Jason Calacanis 1:05:43 Also, sorry, sorry, just hold, hold on a second.

David Sacks 1:05:45 It would just solve this whole problem.

Jason Calacanis 1:05:45 Jake, the reason I walked through that whole explanation is 'cause I wanna answer your question. I'm sorry it took so long, but like-

David Sacks 1:05:50 Yeah. Yeah.

Jason Calacanis 1:05:50 ... I want to highlight that. Because that is what an insurance underwriter, put aside the FDIC and put aside banks and put aside the government's role.

David Sacks 1:05:57 Yes.

Jason Calacanis 1:05:58 That's what an insurance underwriter's job would be. They would look at the volatility and the pricing on the bonds that the bank holds and they would determine ultimately two things: probability of loss and severity of loss. And the probability is how likely is it that you end up in neg- negative equity and that you have people requesting money and you have to sell those bonds at a loss very quickly. And then the severity is how much would you actually lose? So if, if, you know, the Fed raises rates by 3% and your entire book is tied up in 10 year bonds, you see a 25% decline in the value of your bond portfolio. That's as bad as it gets. If you start with a 10% buffer, now you only have 85% of the money you owe the depositors. So your loss is 15 cents on the dollar. So the insurance company would say, "What's the probability of that event happening? How much should we underwrite it for? What should we charge as a premium to do that?" And that's ultimately how the rates would get set. Now, the problem with most insurance, uh-... models around this sort of a problem set, is that these are the extreme tail events that have never happened. And so the insurance, to Sacks' point, is super cheap, leading up to the ins- extreme tail event. And then everyone's like, "Oh my gosh, we underpaid for so many years. We didn't realize how severe the losses could have been. We didn't realize how significant this was gonna be." And as a result, you now see this kind of multiplying effect because people are like, "Oh my gosh, if it happened to them, it could happen to me. Let's all sell," and it gets worse and worse and worse. And so, you know, the real rate for the insurance going forward will now have to take into account this massive risk. But the game theory problem is, as Sacks has pointed out, if you just insure everyone, the cost of the insurance actually goes way, way, way, way down, 'cause now you don't have this money movement problem. And so, you know, the, the point is, the more you insure at this point, (laughs) the cheaper the insurance will actually be, i- if you're an actuary or free market underwriter, you know, ca- free market kind of, you know, underwriting process on this thing, 'cause now the probability of having this bank run goes way, way down, and therefore the cost of the insurance should go way down. And so the, the, the irony is, if you actually did... And this is getting super technical, but if you actually looked at the statistical model and said, "How much is this gonna cost to insure every deposit?" It gets much, much cheaper the higher the, the deposits that you're willing to, to insure would be. That's my sense of what the free market would do here, and it's certainly what I think the federal government should probably think about doing if they're gonna continue to play a role in backstopping banks.

David Sacks 1:08:21 The net net is (laughs) people... Startups right now are doing five to ten banks. I'm watching it happen. They're doing all these sweep accounts. They're doing multiple accounts. So the government, if it doesn't raise the FDIC limit, is basically just creating extra work for everybody and it's gonna be the same outcome. So this, people are gonna, the street will find its own use for technology and how to hack this, and that's what happening with these services-

David Friedberg 1:08:45 Yeah. So-

David Sacks 1:08:46 ... in realtime.

David Friedberg 1:08:46 ... just to steel, man, the, the old-fashioned view or the traditional view of this, they would say that, "Well, you want those startups being paranoid. You want those startups doing the work of disciplining these banks by moving their money elsewhere if they detect a problem." However, the problem with that is, you get these bank runs. That is what a bank run is, in part-

David Sacks 1:09:07 Yeah.

David Friedberg 1:09:07 ... is people moving their money because they're fearing that the bank is not doing a good job with their-

David Sacks 1:09:11 Yeah.

David Friedberg 1:09:12 ... loan portfolio. So, this is why in the, let's call it the olden days, before FDIC, we had bank runs and panics all the time, and that's why FDIC was invented. So, there's a hugely destructive problem that comes along with placing the depositor in charge of disciplining the banks. And I would argue that the depositor's not the best person to do it, it's the regulator. Just to kind of layer on what, what Friedberg was saying, I think there's, like, a fundamental market failure with banking in the sense that the depositor or the consumer and the bank think they're getting two completely different things. When you open a bank account or a checking account, you think you're getting a checkbook, an ATM card, a place to do payroll, run, you know, and payables.

David Sacks 1:09:58 It's a service.

David Friedberg 1:09:58 It's a service, and maybe you make a little bit of, of interest, but it's not even your main motivation. Okay, that's what you think you're getting. Your money, most of all, is safe, because you're not signing up with a service provider to have-

David Sacks 1:10:08 Of course not.

David Friedberg 1:10:09 ... any chance of losing your money.

David Sacks 1:10:10 You're not gambling.

David Friedberg 1:10:11 Okay? Right, but now what does the bank think it's getting? You know what the bank thinks it's getting? An unsecured loan that they can then turn around (laughs) and invest in whatever they want or whatever the law allows them to.

David Sacks 1:10:19 So there's a disconnect between the parties in the transaction, yeah.

David Friedberg 1:10:22 So there's a total disconnect. Exactly.

David Sacks 1:10:23 Yeah.

David Friedberg 1:10:23 It's a total disconnect.

David Sacks 1:10:24 All right.

David Friedberg 1:10:24 And moreover, the way the management of the bank is compensated is that they only have to pay back your loan. Your deposit basically is their loan at par, and anything they make on a bet that they make with that money, they get to keep. They get to keep all the upside. Their stockholders and management get to keep that. It inve-

David Sacks 1:10:41 And those incentives are what are driving this, and that's what-

David Friedberg 1:10:44 Th-

David Sacks 1:10:44 ... drove the risk, in all likelihood, at Silicon Valley Bank. They were getting $200 billion, whatever percentage point they got, Chamath, but somehow the executive team-

David Friedberg 1:10:53 This, this is just a thought, yeah.

David Sacks 1:10:53 ... was compensated for it.

David Friedberg 1:10:55 ... yeah, their, their, their incentive, it's not just them, but the whole banking system creates the incentive, they're highly leveraged. The deposits are, from their standpoint, are leveraged. They're leveraged ten to one. So their incentive is to go to the casino and gamble, 'cause they get to keep all the upside. And if they lose it, it's basically someone else on the hook.

David Sacks 1:11:12 Final word, Chamath.

Chamath Palihapitiya 1:11:14 In early May, the Fed will release their investigation into Signature Bank and SVB.

David Sacks 1:11:22 Okay.

Chamath Palihapitiya 1:11:22 Powell said that this week. I think it'll be really interesting to see how much honesty they both put into the report and then whether the entirety of that report is made available to the rest of us to read. But I think Sacks has very elegantly summarized what's happening, and it doesn't take a genius to figure out that this doesn't make sense. (laughs) And so the question is-

David Friedberg 1:11:49 Right. (laughs)

Chamath Palihapitiya 1:11:49 ... what is the tolerance that we have for changing something that clearly is mischaracterized? What consumers think they're getting and what banks are then doing are two totally different things. And if the Fed actually is really, really honest and really lays bare everything that happened, it'll be very hard to not legislate changes based on it.

David Sacks 1:12:14 And this, your best, uh, swing at a legislative change would be what, Chamath? What is the, what is the low-hanging fruit? What's the layup here?

Chamath Palihapitiya 1:12:23 Well, I think we've seen this happening in other markets for a while, which is that banks have become, in fairness to them, much, much better at risk management post-Dodd-Frank, post-great financial crisis. And the result of that is that there's been a lot of emerging private credit markets, because most, a bank is about lending, right? They're not really buying equities, they're lending money. They're a debtor in possession of something, right? And there's been a, just a massive explosion of private credit, and it started in the most obvious areas. It started in things like CLOs, it started in asset-backed securities, solar, car loans, credit cards, mortgages, private equity-backed deals. So, I think the...... rational answer is that banks need to protect a 100% of deposits, and that if they want to have extracurricular (laughs) activities, if you will, they need to be able to raise money from investors, put that to work in a really fair and transparent way, and then share in the profits between all of the related parties that are involved in that transaction. No different than any other risk-taking organization. And I think that this is now what we've probably shined a light on, is in really odd loophole that just needs to get closed in 2023.

David Sacks 1:13:51 There's such easy, uh, hygienic changes here to make. Yeah.

Chamath Palihapitiya 1:13:54 Like let's put it in a different way. If you raised money for a liquid hedge fund that had quarterly redemptions, and then violated the LPA and stuffed it into private companies that had 10-year illiquidity, there would be hell to pay.

David Sacks 1:14:10 Yeah.

Chamath Palihapitiya 1:14:10 And vice versa. If you raise money on 10-year illiquid, locked up capital on the presumption you were going to invest in startups, and then instead put it in the stock market thinking that you could flip it and make some money, you would have violated the LPA and there'd be hell to pay. Similarly, I think what Sacks is stating is that there is a mismatch of what the depositor, in this case, the investor expects and what the risk manager is doing. And I think that you have to correct that one way or the other, make it u- abundantly clear that we're never going to ensure 100% and deal with that risk or make it 100% and deal with the fallout, which is largely about, uh, wiping out a lot of equity value in banks.

David Sacks 1:14:53 LPA equals Limited Partnership Agreement-

David Friedberg 1:14:56 Right, and j- just-

David Sacks 1:14:57 ... for those who are wondering.

David Friedberg 1:14:57 ... to, just to clarify one thing, I'm not saying that these bank managers are all going to the casino and gambling the money. I think that they are generally more responsible than that. What I'm saying is that the incentives created by this crazy system we call banking create a weird incentive for them to gamble because they're so highly levered. From their standpoint, your deposits are their leverage.

Chamath Palihapitiya 1:15:18 Everybody but the GSIBs because I think the GSIBs, there's so much scrutiny. If you look at how well runs Citi, BofA, Wells and JPM are relative and contrast them to the sub-GSIBs, it's like night and day. And so the other thing that I think we've realized is, who thought it was a good idea to raise the bar on eligibility from 50 billion of assets to 200? Clearly, now that made no sense. It makes more sense to actually categorize every bank as systemically important, maybe not globally, but at a minimum to the US economy because these people play a vital function in society and they were allowed to take a much more aggressive risk posture because they were able to lobby the government to change

Chamath Palihapitiya 1:16:04 the rules.

David Sacks 1:16:04 The CEO of TikTok which claims to be an American company now, or an international company, was in front of Congress today. His name is Shou Chew. This is the first time he's really, I think, spoken publicly in an extended period. Four and a half hours, he was grilled, and it was absolutely brutal. It's the first time I've seen a congressional hearing (laughs) that was bipartisan in a long time. And he said that, quote, uh, "The bottom line is this is an American da- this is American data on American soil by an American company overseen by American personnel," and then was immediately squirrelly when asked if Chinese employees, including engineers, have access to this US data and he said, "This is a complex subject," over and over again. He was evasive and this did not look good for TikTok.

David Friedberg 1:17:03 Well, I think-

David Sacks 1:17:03 The question now becomes does it become divested and go public or does it get shut down?