E152: Real estate chaos, WeWork bankruptcy, Biden regulates AI, Ukraine's “Cronkite Moment” & more

1. 0:00 – 10:49

   Bestie intros, All-In CEO talk, and Chamath's research product

   1. JCJason Calacanis0:00

      Hey, everybody. Welcome to another episode of The All In Pod. The notorious threesome is here doing the show solo today.

   2. CPChamath Palihapitiya0:08

      (laughs) Threesome?

   3. JCJason Calacanis0:08

      Threesome.

   4. CPChamath Palihapitiya0:08

      Thruple. It's a thruple.

   5. JCJason Calacanis0:10

      It's a thruple. We have a thruple.

   6. CPChamath Palihapitiya0:11

      (laughs)

   7. DFDavid Friedberg0:12

      I think it's more like a cuddle puddle.

   8. CPChamath Palihapitiya0:13

      (laughs)

   9. JCJason Calacanis0:14

      (laughs) Okay. The Dictator, Chamath Palihapitiya, Rainman, David Sacks, Consultant of Science, Dave Friedberg. Happy to be here with you guys today. We are absent. J-Cal, taking the week off. Any other housekeeping?

   10. CPChamath Palihapitiya0:29

       Let's do it. Let's jump into it.

   11. DFDavid Friedberg0:30

       Well, you announced that we're gonna hire a CEO, right?

   12. CPChamath Palihapitiya0:33

       Oh, let's talk about that. How's it going, Friedberg, in our, uh, CEO search?

   13. JCJason Calacanis0:37

       Okay. I got to admit, I've had a few conversations but I gotta get through the list. There are 240 applicants so far.

   14. DFDavid Friedberg0:45

       Wow.

   15. CPChamath Palihapitiya0:46

       Wow.

   16. JCJason Calacanis0:46

       And there's some really, like, great people in there so we need to figure out how we're gonna manage this, but I think we're pretty excited.

   17. DFDavid Friedberg0:54

       I can't believe this. So many people want to work for us.

   18. JCJason Calacanis0:56

       (laughs) Okay.

   19. DFDavid Friedberg0:57

       That's insane.

   20. JCJason Calacanis0:58

       There's some really great folks. I think the... Chamath, you posted it and people were pretty positive, right? Generally positive. Not everyone, but general.

   21. CPChamath Palihapitiya1:04

       Yeah. It was re-... It was really positive. Yeah. I mean, I think that people were very excited about the fact that we were gonna try to kind of, like, professionalize this a little bit more.

   22. JCJason Calacanis1:14

       So let's just talk about that.

   23. CPChamath Palihapitiya1:15

       Mm-hmm.

   24. JCJason Calacanis1:15

       We did the All In Summit in September. We thought it went really well. Folks really enjoyed it. The survey data of the folks that attended was really positive. So we, we wanna do that and do more of that live, in-person stuff. We all have full-time jobs and other things to do, so we need someone to come and run this as a business and organize it and carry it forward a little bit for us. And so we're really excited to hopefully get someone that can scale this. No ads ever, no subscription fees, nothing's gonna change about the pod.

   25. DFDavid Friedberg1:49

       So it's a media and events business, and it might become a CPG business as well. Meaning... Was it CPGs? Consumer Packaged Goods?

   26. JCJason Calacanis1:58

       That's right, Sacks. (laughs) You are, (laughs) you are-

   27. CPChamath Palihapitiya2:00

       That is the correct use of the acronym, David.

   28. JCJason Calacanis2:02

       (laughs) Yeah.

   29. CPChamath Palihapitiya2:03

       Congratulations.

   30. JCJason Calacanis2:04

       Your first product, uh, would be what? Tequila?
2. 10:49 – 16:56

   Ukraine has its “Cronkite Moment”

   1. DFDavid Friedberg10:49

      And so I wrote a piece for Responsible Statecraft this week on Ukraine, which was based on a Time Magazine story that came out. And then I did a version of it on X, kind of a long post, which I called The Ukraine War's Cronkite Moment, which descr- the, the Cronkite moment in the Vietnam War was that Walter Cronkite, who was the top newscaster, America's most trusted man in the 1960s, he went on a fact-finding mission for himself to Vietnam, and he came back and he said the war is basically unwinnable. And that's when the public sentiment really turned against the Vietnam War. It still took us five years to get out of it. But what Cronkite said, there's a great quote from Cronkite which I've included at the end, where Cronkite says, "It is increasing clear to this reporter that the only rational way out will be to negotiate not as victors, but as an honorable people who lived up to their pledge to defend democracy and did the best they could." So, that, that's basically what happened in 1968. What happened this week is that Time Magazine wrote a cover story on Zelenskyy, where the main sources for the story were all of Zelenskyy's aides and advisors. And what they told the Time reporter was that, effectively, this war is unwinnable, and moreover, Zelenskyy is delusional. That was a word they used.Delusional in, in not confronting the battlefield realities that the Ukrainian army had been decimated, and delusional in the sense that he refuses to engage in peace negotiations with the Russians. He's utterly unmovable on this idea that Ukraine's gonna somehow prevail, and the troops in the field are basically saying that they cannot follow the orders they're being given. They literally... They, they can't advance. They're being ordered to advance, and the officers in the field, the frontline commanders are rejecting the orders because they've been decimated so badly and they, they consider the orders to be impossible. So I consider this to be the Cronkite moment of the war when Zelenskyy's own inner circle is saying that the war is lost. And the only question is when are we gonna realize that and start negotiating? Are we going to continue until the very end here with Zelenskyy in this psychological bunker that he's created? Or are we gonna recognize reality the way that Cronkite urged the nation to in 1968?

   2. JCJason Calacanis13:13

      Do you think these aides to Zelenskyy proactively reached out to the journalists to try and get this story published? How does a story like this come about that provides this kind of revealing insight on the supposedly inner chamber in Zelenskyy's operations that can shed so much light on the challenges, and with him, and with the-

   3. DFDavid Friedberg13:35

      Mm-hmm.

   4. JCJason Calacanis13:35

      ... operation? Like-

   5. DFDavid Friedberg13:36

      I think it's a really interesting question, and I think the starting point for understanding that is that this writer, Simon Shuster of Time Magazine, wrote the in-depth profile of Zelenskyy for Time's Person of the Year at the end of 2022. So this reporter cannot be accused of-

   6. JCJason Calacanis13:53

      Oh, so sorry. This is the per-

   7. DFDavid Friedberg13:55

      ... unfavorable coverage.

   8. JCJason Calacanis13:55

      This is the person that profiled Zelenskyy as Person of the Year?

   9. DFDavid Friedberg13:57

      Yes. Yes. Exactly.

   10. JCJason Calacanis13:58

       Oh, wow.

   11. DFDavid Friedberg13:59

       So I th-

   12. JCJason Calacanis14:00

       So they, so they... So through that, he probably had contacts in Zelenskyy's inner circle in doing his preparatory work for that article back then.

   13. DFDavid Friedberg14:07

       Absolutely. Yeah. He-

   14. JCJason Calacanis14:08

       And maintained those relationships and has a back channel now to be able to get this sort of insight.

   15. DFDavid Friedberg14:14

       Well, he was physically there. I mean, I think he-

   16. JCJason Calacanis14:16

       Right. That makes sense.

   17. DFDavid Friedberg14:16

       He was physically there to write the Person of the Year profile, and he was physically there to write this profile.

   18. JCJason Calacanis14:19

       So this is kinda legit. This isn't some, like, weirdly planted. This is, like, a legit source-

   19. DFDavid Friedberg14:23

       Well, that's my whole point.

   20. JCJason Calacanis14:24

       ... from a legit writer. Yeah.

   21. DFDavid Friedberg14:24

       Is that this, this reporter is... And, and Time Magazine obviously is mainstream media, and this writer has given favorable coverage to Zelenskyy in the past.

   22. JCJason Calacanis14:33

       Right.

   23. DFDavid Friedberg14:33

       And I believe that's what led to him having this kind of access to Zelenskyy's inner circle.

   24. JCJason Calacanis14:38

       Okay.

   25. DFDavid Friedberg14:38

       So you have to take all of that into account.

   26. JCJason Calacanis14:40

       The key question, Sachs, is does this change anything? So does this article change the sentiment of political leaders in the US or is nothing really different, that we still need to defeat Putin, continue to feed the war machine, continue to support the effort against Putin? Or does this start to beg the question, "Hey, maybe we need to look at this tactically and, and make a change?" Is anything actually gonna change from-

   27. DFDavid Friedberg15:04

       Well-

   28. JCJason Calacanis15:04

       Yeah, do you have any reason to think that?

   29. DFDavid Friedberg15:06

       In, in a certain sense, this article isn't saying anything that's new. I mean, the article basically says the same things that I've been saying, the same thi- the same kinds of things that Professor Mearsheimer's been saying, Professor Jeffrey Sachs. They're-

   30. JCJason Calacanis15:18

       Yeah.
3. 16:56 – 22:05

   Market outlook: are we in for a Q4 rally?

   1. JCJason Calacanis16:56

      to be.

   2. CPChamath Palihapitiya16:57

      Great for markets.

   3. JCJason Calacanis16:57

      Conflict is great for markets, you're saying?

   4. CPChamath Palihapitiya16:59

      No, no, no, no. The f- th- the fact that it seems like there's a terminal outcome and all we're debating is whether Zelenskyy sees it as actually very reassuring for the market because-

   5. JCJason Calacanis17:13

      Oh, you think the markets po- you think the markets are recognizing that there may be an end to the Ukraine conflict?

   6. CPChamath Palihapitiya17:18

      Well, yeah. I, I do think, I th- I do think in part. I don't think it explains why it's up necessarily today. I think that's more because I think... I, I mentioned this before, but the end of the fiscal year for mutual funds was October 31st and so there was a lot of selling going into October 31 just to capitalize tax losses and tax loss harvest, but that leaves them with a lot of cash. And so starting November 1st, w- which is day one of the new fiscal year, mutual funds are not allowed to really own cash. That's not why you pay them. And so they're gonna be active buyers, so that's why in the short term, the market is up. But if you think about the overhang of risk that we've had, right? You had one forever war and now the beginning of what potentially could be another forever war, that's definitely a dampener on market demand, right? And, and, and sentiment and investor confidence.... but if a story like this is true, it actually takes one of those big risks off the table, which is this idea that now, it's like every other kind of a thing, which is it's the reason we spend money there is not to win something that's winnable, it's just graft. It's just typical corruption.

   7. DFDavid Friedberg18:26

      Total graft. And the article says that. It quoted a Ukrainian official as saying-

   8. CPChamath Palihapitiya18:30

      Right.

   9. DFDavid Friedberg18:30

      ... that people are stealing like there's no tomorrow.

   10. CPChamath Palihapitiya18:33

       Right. Right, so that, that the US unfortunately enables in many places. That's not new. And so, to the extent that that's now more of the status quo, that's reassuring for investors because we're not talking about a war, we're just talking about bleeding more money, which I'm not saying is right, but it's morally more acceptable than the alternative. So, there you have it. That's generally good for markets. Now, that leaves, I think Israel/Gaza as a risk, and I think people, and I think the market still view that as a potential war. And the longer that goes on, I think that there's a very good chance that we de-risk that as well, as again, not a war, but part of that cycle between Israel and Palestine, which is conflict, timeout, conflict, timeout, conflict, timeout.

   11. DFDavid Friedberg19:28

       Yeah.

   12. CPChamath Palihapitiya19:28

       And so if what we think is now this is just a version of conflict, timeout, and the market de-risks that, then it's actually pretty positive for equities, for startups. Because now the Fed has a reason to actually say, "Okay, the economy is cooled off, inflation is calm, it looks like the markets are stable, let's cut rates," right? "Let's, let's reintroduce some demand into the market." It's generally a good thing. And if there's no reason to be risk-off, people will use that as a reason to be risk-on.

   13. JCJason Calacanis20:05

       Yeah. Well, treasury yields thir- the 30-year-

   14. CPChamath Palihapitiya20:08

       Cracked.

   15. JCJason Calacanis20:09

       ... is, yeah, it's down, uh-

   16. CPChamath Palihapitiya20:10

       Cracked 15 bips.

   17. JCJason Calacanis20:12

       ... 15 bips.

   18. DFDavid Friedberg20:12

       Two days.

   19. CPChamath Palihapitiya20:13

       40, 40 bips in, like, two or three days.

   20. JCJason Calacanis20:15

       Yeah, yeah, so it was-

   21. DFDavid Friedberg20:15

       Don't you think this is because the forecast or the outlook for Q4 or Q1 next year are starting to go down quite a bit? The people are starting to see more recessionary indicators.

   22. CPChamath Palihapitiya20:27

       I think that-

   23. DFDavid Friedberg20:27

       So you have this, like, peak 4.9% growth rate, and then re- inflation seems to be tamed quite a bit too.

   24. CPChamath Palihapitiya20:33

       I think, to be honest, the look-through on Q1 looks also pretty good and Q4 looks healthy as well. So for example, Shopify, their read-through on GDP was actually pretty healthy. Harley was on, I think it was CNBC, I saw this morning, basically saying he thinks consumer spending is still strong and it's still there. So, I think in terms of just, like, economic strength, I think it's pretty decent actually. I think what changed for the market was the Fed's rhetoric, and I think that they were holding onto this option that they were gonna show up out of nowhere with another 25 or 50 basis point increase, and I think that that's fundamentally now off the table, and I think that that's really heartening for the market, that's good for the market.

   25. DFDavid Friedberg21:15

       Growth stocks are ripping. Affirm and Palantir-

   26. CPChamath Palihapitiya21:18

       Ripping.

   27. DFDavid Friedberg21:18

       ... are up 20% today.

   28. JCJason Calacanis21:20

       Wow.

   29. CPChamath Palihapitiya21:20

       Ripping, ripping, ripping.

   30. DFDavid Friedberg21:21

       Yeah.
4. 22:05 – 41:38

   CRE chaos: SF's firesales, understanding the second-order effects from CRE debtholders

   1. DFDavid Friedberg22:05

   2. JCJason Calacanis22:05

      Well, let's talk about real estate because I think that's one of the biggest overhangs right now that hasn't fully been accounted for. There's, you know, $3 trillion of commercial real estate loans sitting out on commercial banks' balance sheets in the US today. $3 trillion. It's an insane number. And we were all talking over text the other day, as you guys know, about this building that's being shopped and got some attention on Twitter. I think the a- it's 115 Samsung. You guys know this building?

   3. DFDavid Friedberg22:36

      Yeah.

   4. JCJason Calacanis22:36

      I've lived in San Francisco for 20... How long have I lived there? 20-some-odd years now. So I know this building, and it's 125,000-square-foot building that's gonna likely be fully vacant in, call it, two to three years. So the guy puts it up for sale, the equity owner. He puts the building up for sale and he's basically, like, running an auction on it, and the brokers are all saying, "Hey, it's currently at 199 bucks a square foot, which translates to $25 million. It'll probably get done at 300 bucks a square foot, which is about $38 million for the building." The problem is if you look at the debt on the building, there's $53 million of debt. B of A owns that note. So Bank of America in 2016 issued a $54 million note on this building. If this deal closes at $39 million, the equity owner who's running this auction to sell the building makes $0. All that happens is that money pays down the debt and the debt only gets 70 cents on the dollar, and B of A has to take a writedown on the rest. So there's a rumor that in this particular case what's happening is the equity owner of the building is putting it up for auction to show the bank, "Hey, this thing's only worth 70 cents on the dollar for you on your debt, you should restructure my debt." So apparently there have been a lot of building owners that have been going to their banks and saying, "Hey, I want to restructure my note. I want to have longer payment terms, I want to keep the rates lower for longer, I want to have some of the debt forgiven." Anything they can do to get the cost of the debt down, because the overhang of the debt on all these buildings is so significant, these buildings cannot make money and the owners will never make money, so they're like, "Why am I even wasting my time?"So they have one option, which is to hand the keys back to the bank and say, "Here you go. You auction it and sell it. Good luck." And the other option is to go to the bank and say, "Hey, restructure my debt. Let's figure out a deal." Here's the problem. The three trillion dollars of debt that we just mentioned that's sitting on all the banks' balance sheets is all being held at par. They're not discounting it at all, and they're not marking it as being impaired in any way. So as soon as they have to start writing this stuff down, the banks' balance sheets all get impaired. And so there's a real risk in the market that I don't think's been fully accounted for that we're starting to see the cracks. And to Tuma's point, this might accelerate either fed action or, as I've mentioned in the past, I think the federal government steps in and starts to issue programs to support commercial real estate developers and owners. Sachs, I know you've been following this quite a bit. You know, maybe you could share your point of view, and if I'm off on this, in terms of how significant of a problem this is. This is, you know, how much of the three trillion of debt really is impaired, and by how much should it be impaired, do we think?

   5. DFDavid Friedberg25:13

      Massively. I think it's a huge problem. If you talk to anybody, any of these, uh, commercial real estate developers or sponsors, they'll tell you many of them are just kinda hanging on by their fingernails. I mean, it's really ugly. And you know how distressed things are when you actually look at some of these sales. That same account on Twitter that you posted, he's got like a, a tweet storm here showing about half a dozen of these sales that have happened in the last few months, and buildings are now selling for two to three hundred dollars a square foot in San Francisco. These are buildings that could have sold for a thousand bucks a foot, you know, a couple of years ago, and now they're selling for two to three hundred. The replacement cost, if you're trying to recreate these buildings from scratch, given how expensive it is to build in San Francisco and how complicated the entitlements process is, probably be twelve hundred, uh, plus a foot. So these buildings are selling for ten to twenty percent of their replacement cost. These are fire sales.

   6. JCJason Calacanis26:12

      If you look at the loans in the, in the San Francisco commercial real estate market, do you think that the loan value is probably impaired by 40%? 'Cause that's roughly what it would say on that 115 Samsung building is BofA would probably have to take a 30, 40% mark down on their debt.

   7. DFDavid Friedberg26:25

      Yeah.

   8. JCJason Calacanis26:25

      Do you think that's the right way to think about the numbers, 30 to 40% of debts?

   9. DFDavid Friedberg26:28

      Potentially. You could figure it out this way. A typical commercial real estate deal is about one-third equity and two-thirds debt. So if somebody bought a building at, call it, a thousand dollars a foot, they would have had to have put in, call it, 333 of equity, 666 of debt.

   10. JCJason Calacanis26:43

       Yeah.

   11. DFDavid Friedberg26:43

       Now, if that building's only worth, I don't know, 200, 250 a foot, there's $750 of loss per foot, right? And only thr- 333, roughly half of it, is equity. So the debt is taking a huge haircut there too.

   12. JCJason Calacanis27:00

       Yeah. Debt's about 40, 50%, right? Yeah, yeah.

   13. DFDavid Friedberg27:02

       Yeah, and no one wants to recognize that loss. The equity holders certainly don't because they get wiped out, and even the banks are reluctant to recognize that loss because who knows what that could trigger when their balance sheets are so impaired. So what everyone's trying to-

   14. CPChamath Palihapitiya27:17

       Where are these people gonna come from, Sachs? Where are they... Where... I-... This is my, this is my big problem with this argument is I, I think that numerically, you're right, that there is this bottoming or there is just, like, a lot of value to be had, right? The problem is, and I'll g-... And I'll give you an example of a company that I own. So it's not even a company that I'm just a minority investor in. We used to be in San Francisco, and we went virtual. Now all the salaries are pegged to San Francisco salaries, but now everybody's sort of, like, everywhere throughout the country. We don't have an office space, and I'm really struggling trying to figure out how to actually bring everybody together. And my choices were, I thought, "Okay, well, let me find what it would cost to actually run this place in San Francisco," and my, my opex would have gone up 15, 20% just for the building. So then I'm like, "Okay, well, where else can I go?" And it's like, well, I could go to a place like Las Vegas, and I could put the people there. It's an hour, so it's close by. We can fly there whenever we need to. It's got no tax, so maybe that's an advantage for the employees. And so I'm in this constant hamster wheel as an owner of a business. I can't get people into the office. If I do bring them into the office, it's super expensive and it bloats my opex. So I'm just trying to figure out, how does that get resolved for people like me so that we want to go back to San Francisco and rent those buildings that are so cheap?

   15. JCJason Calacanis28:45

       Those buildings are gonna have to get written down first. So I set up my company in 2006, and I was paying $22 a square foot for my first office in '06, and then we ended up getting a really nice office, and I think we ended up paying like 35 to 40 bucks a square foot by the time we moved to a super nice office around 2010. But around that time, which was also when GFC happened, the global financial crisis in '08, '09, and that's when rates dropped to zero. And that's also when all startups and tech companies said, "Hey, let's start setting up in San Francisco," because it's mostly young people that are engineers now. They mostly wanna live in the city. They mostly wanna be single and have a good life here rather than go live in suburban Silicon Valley. And so real estate shot up because rates were zero. All the tech companies were setting up. I mean, Sachs, you had, uh, Yammer in San Francisco, didn't you? Were you on the peninsula?

   16. DFDavid Friedberg29:34

       Yeah. Yeah.

   17. JCJason Calacanis29:35

       Yeah. And that was, like, the place to have your company was in the city, and so I would argue, like, if you go back to the '08, '09 era, that's really when San Francisco started to take off, and it was almost like a bit of an outlier of a bubble that started all the way back then. And then, you know, the ZIRP environment kept things moving up and up and up over the years that followed. I do think that this, like, this market will likely normalize back to pre-2010, pre-'09, and that's when rates were, like, in the 25 to 35 bucks a square foot range for, you know, tech real estate.

   18. CPChamath Palihapitiya30:05

       But are you saying that I will move back to that building and I'll, and I'll move my company back there?

   19. JCJason Calacanis30:10

       When it gets repriced, yes, I do think so.

   20. CPChamath Palihapitiya30:13

       Are you sure?

   21. JCJason Calacanis30:14

       I don't see how, I, I don't see how the market stays where it is. Yeah.

   22. DFDavid Friedberg30:16

       Tuma's argument is basically on the demand side, basically saying, "Where is all this demand gonna come from?"

   23. CPChamath Palihapitiya30:21

       I think you could give it to me for zero and I wouldn't bring my team back there. I'm just asking, like, again, the math all makes sense on a spreadsheet, but the big issue is, as an owner of a company, why would I ever bring my team back to that place? And I'm struggling even at, like...

   24. JCJason Calacanis30:35

       Oh, you mean because it's a nasty city because it's all messed up, the city is messed up generally?

   25. CPChamath Palihapitiya30:38

       Well, first of all, well, if you're, if you're asking me to bloat my OpEx 10%, 20%, the answer is absolutely not will I do that. Then if you're saying, "Well, Chamath, how about at zero?" Let's just go to zero, right?

   26. JCJason Calacanis30:48

       Yeah.

   27. CPChamath Palihapitiya30:48

       It's free. Take the building.

   28. JCJason Calacanis30:49

       Yeah.

   29. CPChamath Palihapitiya30:50

       I still wouldn't do it because then these people have to move from all around the country, come back here, and all of a sudden just live in a slimy dungeon.

   30. JCJason Calacanis30:57

       (laughs) Yeah.
5. 41:38 – 46:42

   WeWork will reportedly file for bankruptcy as soon as next week, Sacks makes the case for a turnaround

   1. CPChamath Palihapitiya41:38

   2. JCJason Calacanis41:38

      I don't wanna keep harping on San Francisco. Let's, let's move on to WeWork 'cause WeWork feeds into this real estate piece. I don't know if you guys saw this article that, uh, Wall Street Journal reported that WeWork is gonna file for chapter 11 as early as next week. They have a significant debt burden owed to SoftBank Vision Fund as part of their go public. They've signed leases in office buildings in San Francisco and elsewhere around the country. $10 billion in total lease obligations due starting in the second half of 2023 through the end of '27. And after that, an additional $15 billion starting in 2028. And as of June, WeWork had 70- 777 locations, including 229 in the US in major cities. The business made about, call it 840 million bucks in revenue last quarter. So that works out to, call it a three and a half billion dollar revenue run rate with, you know, $10 billion of lease obligations starting next year. So the business is just drowning in these lease obligations and to restructure 777 lease obligations in this environment that we're talking about while doing what Chamath is saying, lowering rents to attract employers to show up and actually rent space from them is...... obviously causing the business model to distort even worse than it has been historically.

   3. CPChamath Palihapitiya42:53

      They burned $8 billion of free cash flow in, since Q4 of tw- ni- 2019. $8 billion of free cash.

   4. DFDavid Friedberg43:02

      There's no question that, that WeWork has been a capital destruction machine. That being said, I actually think that some private equity player is gonna buy this out of bankruptcy and make a fortune.

   5. CPChamath Palihapitiya43:12

      I agree with that too.

   6. DFDavid Friedberg43:14

      Because out of those 777 locations, a lot of them are good locations and have good tenancy, they probably generate good revenue. The problem is that the leases are just bad, and bankruptcy gives you the power to break those leases or renegotiate them. So, a really smart private equity player would come in here and say, "Okay, we're gonna take these locations. We're gonna divide them into three buckets. Bucket number one is we're gonna get rid of them because they're just bad locations. We don't want them. There's just no occupancy. Bucket number two is we're gonna go to the landlord and say that, 'Sorry, like, this lease doesn't work for us. We will be willing to work for you as an operator of the space, and you'll pay us a fee and a rev share on whatever it makes, but we can't pay you a guaranteed rent.' So, that's bucket number two. And then bucket three, which will be the best locations, they'll go back to the landlord and say, 'Here's 60 cents on the dollar. We're willing to pay you this in, in rent. That's it. If that's not good enough for you, we're breaking the lease. We're out.' And those landlords are gonna have to accept it because who are they gonna get who's any better? And they don't even have the TIs, they don't have the capital to put some new tenant in there." And even if they could put someone in there, it's not gonna be at a rent that's much higher than 60 cents on the dollar 'cause WeWork made a lot of these top-of-market leases. So, I think the landlord will take the bird in the hand. So, think about it. Some private equity player goes in there, renegotiates all these leases, sheds the bad ones, and all of a sudden, the business is gonna make a lot of money. And the reason why it's gonna make money is because WeWork poured all of this, uh, capital into renovating these spaces and making them really nice. I mean, if you go into a WeWork, they are really nice spaces, and the reason for that is because WeWork spent billions of TI dollars making these things incredibly nice. Was that a wise investment? No, it was a terrible investment, but that money has been spent and already lost. That, that capital's been wiped out. So, whoever buys this thing out of bankruptcy now is gonna be the beneficiary of all of those ab- absurd TI dollars that were spent when Adam Neumann...

   7. CPChamath Palihapitiya45:20

      Oh, my God. You just convinced me. Let's go buy it.

   8. DFDavid Friedberg45:22

      (laughs)

   9. CPChamath Palihapitiya45:23

      Let's put it in a bid. Is it filed? Is it filed?

   10. DFDavid Friedberg45:27

       The brilliance of Adam Neumann was somehow convincing-

   11. CPChamath Palihapitiya45:29

       Wow.

   12. DFDavid Friedberg45:29

       ... all these investors to put in billions of dollars into TI money on the theory that it was a software business. This was never a software business. It's a-

   13. CPChamath Palihapitiya45:39

       (laughs)

   14. DFDavid Friedberg45:39

       ... real estate development company.

   15. CPChamath Palihapitiya45:41

       It was Regus.

   16. DFDavid Friedberg45:42

       It was Regus. (laughs)

   17. JCJason Calacanis45:44

       It was Regus.

   18. CPChamath Palihapitiya45:44

       It was Regus.

   19. JCJason Calacanis45:44

       So, so I got SoftBank put in a total of $16.9 billion in equity and debt-

   20. CPChamath Palihapitiya45:50

       Oh, my gosh.

   21. JCJason Calacanis45:51

       ... into WeWork. Isn't that incredible?

   22. DFDavid Friedberg45:53

       Who did?

   23. CPChamath Palihapitiya45:53

       Oh, my gosh. SoftBank.

   24. JCJason Calacanis45:55

       SoftBank, which is mostly through the Vision Fund, which is, as you guys know, 45% Saudi money.

   25. DFDavid Friedberg45:59

       It was Regus with much better design, but that design came at a huge expense, which was, again, this over-investment in, in TI dollars combined with the fact that they had no discipline around signing leases, and they have so many top-of-market lease deals.

   26. JCJason Calacanis46:15

       Yeah.

   27. DFDavid Friedberg46:15

       But again, that's all fixable for someone who comes in. Old saying in real estate, that it's the third owner who makes all the money. Like, the first owner who does all the ground up, they lose a fortune and they get blown out. Then the second guy comes in-

   28. CPChamath Palihapitiya46:28

       (laughs)

   29. DFDavid Friedberg46:28

       ... and thinks that they're gonna make it work-

   30. JCJason Calacanis46:30

       That's a great saying. (laughs)
6. 46:42 – 1:08:07

   Biden's Executive Order on AI: end game, regulatory capture, confusion over clarity as a strategy

   1. CPChamath Palihapitiya46:42

   2. JCJason Calacanis46:42

      Let's transition from one bubble to the most recent bubble, so AI regulation. Given the frenzy and frothiness and fearmongering on AI destroying the world, which I would personally argue is largely fear porn, the Biden administration took it upon themselves to try and be leaders in regulating AI and published an executive order on October 30th. This long-anticipated executive order covers a very broad range of matters in a 111-page order document. It covers very specific actions in very detailed terms, it uses technical terms of art, and I think it creates as much confusion as it does provide clarity. It's an executive order, so it's not legislation, and there is much in here that some would argue needs to be legislated. As an executive order, it can be overturned very quickly and easily by the next administration. It largely demands voluntary action from technology companies to submit their models, infrastructure, and tools for review, for proof of safety.

   3. CPChamath Palihapitiya47:46

      Don't forget the equity and inclusion.

   4. JCJason Calacanis47:48

      There's an equity и inclusion component, which is that your models have to account for-

   5. CPChamath Palihapitiya47:51

      Diversity, equity, and inclusion.

   6. JCJason Calacanis47:53

      Diversity, equity, inclusion. There's a phrase from the executive order. "The term 'dual-use foundational model' means an AI model that is trained on broad data, generally uses self-supervision, contains at least tens of billions of parameters, is applicable across a wide range of contexts, and that exhibits high levels of performance at tasks that pose a serious risk to security, national economic security, public safety, or any combination of those matters," none of which ultimately describes endpoints, none of which describes loss or applications. To me, this is the biggest problem I see with the executive order and with the approach to AI regulation broadly, particularly with what's being developed and has been leaked in what's... in terms of what's being developed out of the EU, which is that many of these government agencies, government actors are trying to define and regulate systems and methods rather than regulate outcomes and applications. For example, if you were to say you cannot commit fraud and falsely impersonate someone using software-You can rightly say that. It follows the rule of law, and we should be able to adjudicate that cleanly in courts. Instead, to have government agencies and have what this executive order describes as a Chief AI Officer in every federal agency, responsible for regulating the systems and methods of all the actors and all the private companies that are building software, to say, "This is the scale that your software can get to. You could have a certain number of parameters. If you're bigger than this number of parameters, we have to come in and check your software," creates an outlandish standard, and one that makes absolutely no sense, particularly in the context of the pace of AI's progression. Remember, the paper that was foundational to transformer model development, which is what a lot of people call AI today, which has developed these LLMs and so on, came out in 2017 and wasn't really widely adopted until 2018 as a standard. We're five years into this. So the way that we're making models, the types of models we're building, the scale of the models, the number of parameters being used, the pace at which these things is changing is staggering. We are only in the first inning. And so to come out and say, "Here are the standards by which we want to now regulate you, this is the size that the model can be, these are the types of models," it's gonna look like medieval literature in three years. None of this stuff's even gonna apply anymore. I'm just really of the point of view, as you guys know, that the market needs to be allowed to develop. If we don't allow our market to develop in the United States, India and China and Singapore and other markets will get well ahead of us in terms of their model development and their capabilities as a nation and their capabilities as an industry. And the more our government actors step in and try and tell us what systems and methods we are allowed to use to build stuff, the more at risk we are of falling behind. That's my general statement on the matter. I'll pass the, the, uh, the mic. I mean, Chamath, you were advocating for AI regs a couple months ago, I think, right? I mean, where does this fall with respect to what you were advocating for and what you were concerned about?

   7. CPChamath Palihapitiya50:53

      Well, I had a very specific lens that I viewed this stuff through, and they didn't really address it. I think that this was a little bit of a kitchen sink EO, and I think what probably happened was depending on... Look, I, I, I mean, I think the thing is like, look, they... When this process first started, it started in the Senate and it started with the majority leader, Chuck Schumer. And I met with Chuck, and then I met with Chuck's team, and then it morphed into this much bigger thing. And I think it morphed into a lot of people trying to do the right thing, meeting with a lot of very important and very famous people. And I think somewhere along the way, it just became this convoluted and confused document, because, uh, I do agree with you that it's not super coherent. There's a lot of arbitrary requirements, you know? Like, there's like... I think there's a requirement here that at a certain number of parameters, you have to like self-report yourself to the government, which is like, "What does that even mean? Why, why is that even important?" So it, it's, it's just a lot of random stuff. So it just seems like anybody who had the ear of the people writing this had a chance to write something in. So it's a little confusing. It's not going to do the job, and I think that you're right. In two or three years, we're gonna look back and this is gonna look medieval.

   8. JCJason Calacanis52:21

      I'll just say, I'll point out another point, just one of many that I could highlight in this document. I read most of it. They say, you know, there's gotta be legislation on watermarking AI content. Think about that for a second. What is AI content? We've been using Adobe Photoshop for 30 years to change photographs and change documents. We've been using various tools for doing audio generation and music. I mean, there's no music that doesn't run through a digital processor of some sort. There's no video, there's no movies that don't have some degree of CGI elements or some degree of post-production digital rendering integrated into the video itself. What makes something AI? Is it the fact that 100% of the pixels are generated by software? What if it's only 98%? Is Pixar AI? Because all of Pixar is made on computers. Is the autotuned hip-hop artist AI? Because his voice isn't coming through on the audio track. So what is AI in this definition? The fact that any piece of content needs to be watermarked if it's AI, I think is one of the most outlandish infringements on First Amendment rights I've seen and doesn't really understand any se- in any sense how software is generally used in the world today, which is frankly everywhere. And to say that now there is a certain definition of a certain type of software that we're gonna arbitrarily call AI, we wanna watermark the stuff, and we wanna get a stamp on that content so the government can track it and audit it, I think is absurd. Zacks, over to you.

   9. DFDavid Friedberg53:58

      Yeah, okay. Three, three quick points here. Number one, AI has been convicted of a pre-crime.

   10. JCJason Calacanis54:03

       (laughs)

   11. DFDavid Friedberg54:04

       This E- this EO, it describes, it describes this litany of horribles, this parade of horribles that's gonna happen unless, you know, the wise people in the central government, like Joe Biden and Kamala Harris, guide its development. So that's what the EO says it's gonna do, is guide the development of this technology, because if we don't, it's gonna result in all these horrible things happening. Steven Sinofsky, who was a key executive of Microsoft in the, I think going back to the '80s, wrote a really interesting blog post about this, where he, he was there at the beginning of the PC revolution with the dawn of the microprocessor in the '70s and '80s.

   12. JCJason Calacanis54:40

       Yeah.

   13. DFDavid Friedberg54:40

       And he pulled a bunch of books off his bookshelf from that time period, which were sort of these sci-fi books, like Forecasting Doom, Infringement on Privacy. One was called The Assault on Privacy. Another one was called Electronic Nightmare. Another one was called The Rise of the Computer State, and so on. And so it was also predicting all these horrible things that would come.... from the birth of the computer and it would put all of these people out of work and so on.

   14. CPChamath Palihapitiya55:05

       Totally.

   15. DFDavid Friedberg55:06

       But nobody allowed these fears to guide the development of the industry. There was no executive order at that time saying that we're gonna guide the development of the micro poss- processor to avoid all of these harms that haven't occurred yet, and instead we're taking a, a different approach here. And he makes the point that if the industry had been guided in that way, then it never would have achieved the potential that it ultimately achieved. And furthermore, he makes the point that a company like IBM would have been more than happy to work with the regulators to say, "Yeah, let's define a bunch of these rules to make sure that it doesn't go in this dark direction that everyone thinks it's gonna go in."

   16. CPChamath Palihapitiya55:44

       Can I-

   17. DFDavid Friedberg55:44

       And you would have gotten very extreme regulatory capture.

   18. CPChamath Palihapitiya55:47

       Can I precog one of the crazy lines in this thing?

   19. JCJason Calacanis55:50

       (laughs)

   20. DFDavid Friedberg55:50

       (laughs)

   21. CPChamath Palihapitiya55:50

       Here are the precogs. Well, here's one. When a foreign person transacts with an infrastructure as a service provider, so Azure, Google Cloud, Amazon, to train a large AI model with potential capa- with potential capabilities that could be used in malicious cyber-enabled activity, they propose regulation that requires that IaaS provider to submit a report. So if (laughs) you-

   22. DFDavid Friedberg56:15

       Hmm.

   23. CPChamath Palihapitiya56:15

       You have to know (laughs) , you have to know (laughs) if a foreigner is using your APIs on AWS and then file a TPS report-

   24. DFDavid Friedberg56:27

       Oh my god.

   25. CPChamath Palihapitiya56:27

       ... somewhere. What is going on? I have a clarifying question. What happens if you're a foreigner that's on an H1B at Facebook or, you know, Microsoft and you-

   26. JCJason Calacanis56:36

       Ah, good question.

   27. DFDavid Friedberg56:37

       Well, and then Chamath-

   28. CPChamath Palihapitiya56:37

       You're technically a foreigner.

   29. DFDavid Friedberg56:39

       Right. And then Chamath, meanwhile, remember when SpaceX is now being sued by the DOJ because they haven't employed enough foreigners?

   30. CPChamath Palihapitiya56:44

       (laughs)
7. 1:08:07 – 1:18:58

   Silicon Valley's shift right

   1. DSDavid Sacks1:08:07

   2. JCJason Calacanis1:08:07

      So I think, Sax, it's a... the point you're making is one that some folks in Silicon Valley have felt for a while, which that... is that a lot of the freedom and opportunity that the United States offers pioneers and entrepreneurs has been realized and borne out in Silicon Valley. That's feeling like it's been stymied in a number of ways. But the events in Israel couple of weeks ago, in my opinion, seems to have shocked a lot of people that are traditionally very liberal Democrats into being red-pilled. I have had a number of calls with individuals over the last few weeks that have historically been very die-hard blue liberal Democrats, have spent their, their time with NGOs, with nonprofits, with various efforts to promote liberal causes. And these are folks who may or may not be Jewish, but who have been so shocked by what's happened in Israel and how many liberal organizations have created this narrative around being pro-Palestinian in a way that is being deemed and is coming across as highly, and in many cases is, very much antisemitic. And so I've had folks say, "I'm giving up everything else I'm doing, and all I'm gonna do is change the causes I'm working on now, and I have just been red-pilled." Do you guys... And, and Chamath, you shared your story on our show a couple of weeks ago, the clip of you saying that went viral, on how you kind of recognized that maybe Trump was a good president in the context of what you're experiencing with the Biden administration now, or seeing with the Biden administration now. You seem to be, like, the case study that I'm now hearing more from Silicon Valley folks, yeah, about this, this shift. I think that over the last three or four years, my political positions really haven't changed that much. Mm.

   3. DSDavid Sacks1:10:12

      But I think what's happened is that the, the political party that I've historically been affiliated with has just kept lurching further and further to the left, and so it leaves me looking for a new home, I think. And I think that there are a lot of people that thought they were signing up for a set of beliefs around free speech, around being pro-reproductive rights, around being supportive of LGBTQ issues, but also supportive of a rational approach to the border and reasonable fiscal discipline. These are... all seem to just be totally out the window. So, I understand 'cause I've, I've actually talked to a lot of my friends, and my friends, some of them have been huge donors to both elite colleges and the Democratic Party, and they've paused all of it. And it's definitely given me pause, and I'm just trying to figure out where to go from here because I think the reality is that this is a really crazy situation. So I think that there's just a lot of people that are in the center that don't really belong anymore, the way that the Democrats represent themselves. So there's clearly something going on that we just need to get to the bottom of here, because I think it's not probably the Democratic Party that a lot of people thought that they belonged to.

   4. JCJason Calacanis1:11:39

      Do you have other friends and folks that you know that have traditionally been Democrat donors in Silicon Valley, Chamath, that you see are now maybe considering shifting where they're giving money to Republican Party candidates and causes? I think it's easy to say that amongst my friends, it's in the billions of dollars that's been paused. That's insane. That's a lot of money. Sax, y- you used to be part of a niche (laughs) ... in Silicon Valley (laughs) , Silicon Valley Republican niche. Is your niche growing?

   5. DSDavid Sacks1:12:11

      I think so. I actually made a list of, I think, eight issues that have driven the shift. And when you say there's been a shift right, I wouldn't say that there's been a shift all the way to the right, but I think there's been a shift from the left to the center.

   6. JCJason Calacanis1:12:25

      By the way, that statement is consistent with what I've heard personally from a lot of folks, which is I consider myself a centrist now that I see that some of these liberal causes are so... they're extreme from my point of view.

   7. DSDavid Sacks1:12:37

      Right. So let me rattle off what I think the key drivers are. Number one, reckless fiscal and monetary policies coming out of Washington. As Druckenmiller says, we've been spending like drunken sailors. Number two, the dismal state of San Francisco because of crime, drugs, homelessness, and so on, and we all know that's an extreme one-party government. Number three, the ruinous COVID policies. They botched the science, they harmed the educational development of kids, and they also harmed work culture by making employees feel permanently entitled to work from home. So that's number three. Number four, this long con of reg- regulatory capture in both Washington and Sacramento that we just talked about with AI. People are waking up to that.

   8. DFDavid Friedberg1:13:15

      ... number five, the betrayal of true liberal values like free speech and open inquiry, number six, the way that tech visionaries like Elon have been targeted for harassment by left-wing politicians. Remember, Biden said, "We need to look into this guy"? Well, Lorraine Gonzalez was even less subtle. She said simply, "F- (beep) Elon Musk." Number seven, the growing awareness that wokeness has gone way off the rails. Uh, we saw this even before the Israel-Hamas war, but now it's, uh, number eight, is this war. It's really thrown gasoline on the fire by showing that wokeness leads to this simplistic breaking up of the world into oppressor and oppressed categories. And what we're seeing is that there's a lot of people in the woke left who are basically cheering for a terrorist organization, and they're able to rationalize atrocities because of the simplistic woke dichotomy. That being said, I do think it's possible to support the desire for a Palestinian state, uh, a two-state solution without falling into that bucket. I want to be clear about that. But I think that there's been way too many people on the woke left who have blithely disregarded the atrocities and were basically cheering for Hamas from day one on this thing. And I think that has woken up a lot of liberals, both Jews and non-Jews, who saw Jews as allies on the left. And when they see Jews being attacked this way, that has led them to really, I think, question their, their priors on this.

   9. JCJason Calacanis1:14:41

      What did you think of the Kamala Harris announcement yesterday that they're launching a program to combat Islamophobia in the US at a time when my understanding is many of their Jewish donors are up in arms about their lack of action on antisemitism? I mean, it just seems, like-

   10. DFDavid Friedberg1:15:00

       Yeah, it just seemed tone-deaf. I mean, look, I have not seen... In this particular case, I don't think I've really seen outpourings of Islamophobia. To be clear, I'm against Islamophobia. I'm against hatred towards any particular group, including Muslims or Jews. To me, you know, any outpouring of hate towards a particular group is, is bad.

   11. JCJason Calacanis1:15:20

       Yes.

   12. DFDavid Friedberg1:15:20

       But yeah, this seems like a, a problem that we really haven't seen, so it seems a little bit tone-deaf. And look, this administration's been kind of stumbling around on, on this whole issue. It seems like they don't really know what to do.

   13. JCJason Calacanis1:15:30

       I don't know how to quantify it. I just think it's an anecdote.

   14. HCHost (uncertain which: Calacanis/Palihapitiya/Friedberg/Sacks)1:15:33

       What do you think?

   15. JCJason Calacanis1:15:34

       Um, no, I, I, like, I'm saying, uh, I don't, I don't know how to quantify it, but I think that the anecdote is a lot of folks didn't-

   16. HCHost (uncertain which: Calacanis/Palihapitiya/Friedberg/Sacks)1:15:41

       No, no, I'm saying what, what do you think? What do you feel?

   17. JCJason Calacanis1:15:45

       What do I feel?

   18. HCHost (uncertain which: Calacanis/Palihapitiya/Friedberg/Sacks)1:15:46

       Yeah.

   19. JCJason Calacanis1:15:47

       I mean, I'm not a party guy. (laughs) Taking a step back, this is getting ge- getting a little eht- esoteric, but I think humans organize into social systems. One social system is a family, one is a company, and I think that the government is a social system. The point of a social system is to get influence to achieve the things you want to achieve by aggregating together, by creating a tribe, by creating a system. And that's what a government is. It lets a lot of people pool resources to get things done as a group that you wouldn't otherwise be able to get done individually. Same with a company, same with a family, to support each other, et cetera. And I think that the problem with, uh, democratically-elected governments, or all governments for that matter frankly, is like any other system, they... And I've said this in the past, they have a natural incentive to grow. I met with a government person the other day, well-known government person, and I was struck by the, the tone. I- I've been struck by the tone on multiple people I've met from the government on, "Here's all the next things I'm gonna get done and here's how we're gonna grow and do more and be bigger." Just like if you're running a company, that's your incentive. That's your model of thinking. And like with your family, you want to grow the balance sheet for your family, you want to have another home, you want to take care, you want to build security, et cetera. So governments as an organizing system are no different. And so I, I think that in a democracy, over time, there is, as Sax points out, a group of folks who get elected, and as a result, like, a philosophy that endures in that system that is all about overcoming the power that is, that we all view there to be powers that are keeping us from doing the things we want to do. And I think that this is the ultimate manifestation of what happens, is that you push the government to be as big as possible with no end, and you push the government to destroy any system of power that gets in the way of those who are able to vote these folks in. And now, a lot of folks who thought that they were supporting liberal causes to help those in need are realizing that you're actually repressing minorities in the process, that there are minorities that are viewed to be powerful, like Jews, that there are minorities that are viewed to be unfairly advantaged, like those in the tech industry, that there are minorities who are viewed to be unfairly advantaged, like billionaires. And I know that this sounds insane to say that, those terms, but that's the objective, is to destroy any system of power, any individual of power that has any form of leverage over us. It's also why I think we've generally been techno-pessimistic in the West since the late 1960s, early '70s, is because technology has been viewed as this point of leverage for creating a power system for a minority of the people. So I, I generally view this as part of a longer arc and a natural kind of conclusion to this stuff. And, you know, I, I'm, I'm not trying to be super pessimistic about where things are going, because I do see that the, a lot of folks are now waking up to this reality and they're like... So my anecdote is I've had a lot of folks tell me in the last couple weeks, "We have to be thoughtful about how we elect and how we govern so that we create a more balanced, more thoughtful, and more-"

Episode duration: 1:28:37