E19: Robinhood's GameStop decision: Why did it happen and how can it be prevented in the future?

Narrator 0:00 I'm going all in. Where you'll be, where you'll be, where you'll be.

Jason Calacanis 0:07 Besties are back.

Narrator 0:08 I'm going all in.

David Sacks 0:11 We'll let your winner slide.

Jason Calacanis 0:13 Rain Man, David Sachs.

Narrator 0:15 I'm going all in.

David Sacks 0:18 And it's said- We open sourced it to the fans and they've just gone crazy with it.

Jason Calacanis 0:22 Love you, besties.

David Sacks 0:23 Queen of quinoa.

Narrator 0:24 I'm going all in.

Jason Calacanis 0:26 Hey, everybody. Welcome to the All-In podcast. It was a slow news week, so we decided we'd give you a special episode. We're gonna go around the horn with our special picks. We're each gonna pick three picks, everybody. We're gonna pick our favorite recipe, our favorite new hobby, and our favorite-

David Friedberg 0:43 (laughs)

Jason Calacanis 0:43 ... streaming guilty pleasure because there was no news. Uh, with us today, the Dictator Chamath Palihapitiya-

David Friedberg 0:50 (laughs)

Jason Calacanis 0:50 ... Rain Man, David Sachs, with his new track from young Spielberg, just ripping across the charts. Uh, young Spielberg at it again, this time with a, a track focused on the Rain Man himself, and the queen of quinoa, who everybody says we should upgrade to the king of quinoa, David Friedberg.

David Friedberg 1:08 That's so sexist. Why, why is that an upgrade? The queen of quinoa is better.

Jason Calacanis 1:11 I, I don't know. People just felt I was being... I, I don't know how people could say that anointing him as queen would be derogatory. I think these people are not woke and they need to be canceled.

David Friedberg 1:24 (laughs)

David Sacks 1:26 Jason, here you go again, making a lot of assumptions about people's pronouns.

David Friedberg 1:30 Yeah.

David Sacks 1:30 And-

Jason Calacanis 1:30 That's right. (laughs)

David Sacks 1:32 (laughs)

Jason Calacanis 1:32 They, they, queen of quinoa? They, they, of quinoa?

David Friedberg 1:34 I take, uh, I take no offense- I take no offense to your insults to me. And, uh-

Jason Calacanis 1:39 Yes.

David Friedberg 1:39 ... today I'm having the emotion of excitement and I am ready, uh, for the conversation.

Jason Calacanis 1:43 Good. We got-

David Friedberg 1:43 Yeah.

Jason Calacanis 1:43 ... the firmware upgraded. All right. So, um, I think we might as well start with, uh, I don't know if you guys caught this, but there's a re- a subreddit called, um, WallStreetBets. And what they do on (laughs) WallStreetBets is they find angles and, uh, a thesis, and then they bet on a stock. The stock they picked, uh, for the past couple of months has been GameStop (laughs) , and boy did they-

David Friedberg 2:06 Actually, Jason, hold on a second. Um-

Jason Calacanis 2:08 ... ram in, jam-

David Friedberg 2:09 That's, that's, that's not true. So,

David Friedberg 2:11 um, do you... Uh, I had actually, uh, a guy on my team put together two really important documents and I'm just gonna read them 'cause it's s- full of so much interesting shit. And then we can talk about, um, uh, the s-

Jason Calacanis 2:26 Where are these documents from? Th- You're saying from the WallStreetBets?

David Friedberg 2:30 No, no, no. I, I had a guy go in, uh, one of my team members, one of my colleagues, and go and summarize the entire saga from the beginning. And then we can talk about the, the corporatist scumbags at Robinhood and other fucking people over. (laughs) So let's, let's do that in that order. Okay?

Jason Calacanis 2:44 (laughs)

David Friedberg 2:44 Um- This is why they call him the Dictator. Let's, uh, let's start with the, the-

Jason Calacanis 2:48 Okay. Go ahead. Read your biased and, uh-

David Friedberg 2:50 No, no, no. Shut up, Jason.

Jason Calacanis 2:51 ... boring, uh, document.

David Friedberg 2:53 Listen.

Jason Calacanis 2:53 Go.

David Friedberg 2:53 You're, you're an idiot 'cause you, you just- (laughs)

Jason Calacanis 2:55 ... wanted to defend people 'cause you blindly stumbled into a fucking trade that actually made a little money. Lo and behold, you actually invested in a company that literally, they got on television yesterday, and they fucking lied to Americans right to their face. This is a company that was insolvent because... Now, let's just put a pin in the following data point, which I believe to be true. I know more about this than you do because I live in these markets. Okay? So I understand what it means to be putting on trades, to being short, to being gamma squeezed, to have longs, to do all of this risk management. You're an early stage investor, so I know the intricacies of this stuff and what's happening in here. This company was insolvent. They did not have the capital requirements to post the margin that was being asked of them by their partners. And so this was a platform level decision to ban and block people from trading securities. It costs individuals hundreds of millions, probably billions, maybe even tens of billions. And these motherfuckers should go to jail. Now, let me give you the timeline before we get into that. June 2019. In June of 2019, a WallStreetBets user named DeepFuckingValue began buying long-dated January '21 calls. What that means is, in June of '19, this person was betting that the stock would go up by January of 2021. He spent $50,000, um, which, by the way, today is worth about $25 million, okay?

David Friedberg 4:23 By the way, Shabbat, you sh- we should just highlight that there are forums where individuals that are trading stocks talk to each other and share tips and promote things to one another. That's where this was taking place.

Jason Calacanis 4:33 Yeah. And by the way-

David Friedberg 4:34 Yeah.

Jason Calacanis 4:34 ... those forums exist, uh, in the professional organized world too.

David Friedberg 4:37 Right.

Jason Calacanis 4:38 Amongst hedge funds, you know, I've been invited to idea dinners where we all get together and we talk about the ideas that we have, and we're all expected to do fundamental analysis. Uh, but some of those ideas are actually momentum-driven ideas. And a lot of the biggest dislocations in the market, just as a setup here, have been because of momentum-driven trading by organized capital. Okay? So we've, we've been stuck with this for a while. So, so this guy DeepFuckingValue posts this, and every month since, he's posted a screenshot of his position and he's titled it "GME YOLO Update". August 22nd of 2019, Michael Burry, who is this guy famous from, uh, The Big Short, who's the guy that caught the mortgage thing, he discloses a 3% position in the company, and he highlights that 90%, nine zero percent, of GameStop's 5,700 stores are free cash flow positive. That's like pretty good. He urges a buyback, and he notes that the company was trading at or near net cash levels. So he's making a deep value-oriented fundamental thesis as well.

David Friedberg 5:44 Shabbat, I think also it's worth saying what GameStop is, 'cause even my wife asked me, "What the hell is GameStop?" last night. GameStop is a retail store where people buy video games. I used to go to the mall all the time-

Jason Calacanis 5:53 And consoles.

David Friedberg 5:53 ... and buy video games there.

Jason Calacanis 5:54 Yeah.

David Friedberg 5:54 And consoles and headphones and other stuff.

Jason Calacanis 5:56 And they'll buy back your old games.

David Friedberg 5:57 And so the stock got beat up over the last couple years as people stopped going to malls and stopped buying stuff in stores, and everyone thought this- the company was gonna die. And so these guys observed that maybe there's real value in this company and it's making money-

Jason Calacanis 6:08 And digital downloads are-

David Friedberg 6:09 And digital downloads-

Jason Calacanis 6:10 ... now the standard.

David Friedberg 6:11 No one buys D- DVD-ROMs anymore or anything like that, so.

David Sacks 6:14 A- and, and the Chewy founder, who is very successful at e-commerce, came in...

David Friedberg 6:19 ... to run the company, so-

Jason Calacanis 6:19 I'm about to get there.

David Friedberg 6:20 Yeah, that's, that's... Yeah, okay. Got it.

Jason Calacanis 6:21 So I'm about to get there. Hold on.

David Friedberg 6:21 That's the best part of the story.

Jason Calacanis 6:22 So June 19 was the original post. August 22nd of '19, Michael Burry comes in and says, "I'm long." Then a year later, August 31st of 2020, Ryan Cohen, who is the founder of Chewy, takes an almost 10% position in GameStop. About two or three weeks later, on September 19th of last year, a member of Wall Street Bets writes a post on GameStop and he notes that GameStop has 120% short interest, which I'll get to in a second, so hold on. What, what does that mean, 120% short interest? And he defends the company as a result of a few things. He says, number one, there's a new console cycle coming, just as Jason mentioned. Number two, consoles are, are not going all digital immediately. GameStop loyalty programs have 55 million users. They have a strong balance sheet. Ryan Cohen just bought a stake and the shorts were underwater and would be forced to cover if the stock ran up. He predicted the convergence of all these factors would lead to a big squeeze. Now, November 16th of 2020, Ryan Cohen writes a letter to the GameStop board and he urges the company to conduct a strategic review and share a credible plan to capture market share in the gaming industry. He said that they need to evolve into a technology company that delights gamers and delivers exceptional digital experiences, I'm just quoting here, not remain a video game retailer that over-prioritizes its brick and mortar footprint and stumbles around the online ecosystem. November of 2020, someone in Wall Street Bets highlights that a hedge fund called Melvin Capital was going long GameStop puts. What does that mean? That they are synthetically shorting the stock by buying the right to sell it at a different price in the future, okay? Um, and that they had been long that position for more than four years, so all the way going back to 2016. Fast forward to now, 2021 of this year. January of 2021, GameStop strikes an agreement with Ryan Cohen and adds him to the board of directors and gives two of his affiliates, his former COO and, and CFO of Chewy also two board seats. They collectively, you know, bring their experience in e-commerce, online marketing, finance and strap planning. The stock goes up 13% on that day and closes at about 20 bucks a share. One day later, (laughs) and then over the next day after that, so for January 12th and 13th of 2021, there's a ton of activity around GameStop in Wall Street Bets, and now in Discord and in StockTwits, claiming that Ryan Cohen is gonna be the savior. And then by January 14th, so three days later, the stock closes at 40 bucks. So now it's up 125%. So now comes the set up, the pros versus the joes. From January 12th to today, there has basically been a battle by institutional investors on one side, shorting GameStop, and retail investors on the other, buying the stock and also buying the right to buy the stock, or what's called call options. And this is what has created this crazy nonsense we've seen. So on the institutional side, after, you know, retail drives the stock up, the institutional guys are like, "Hey, wait a minute. You know, Ryan Cohen's an idiot. You know, this company is fucked. Fuck these guys. They have too many, you know, cyclical and secular tailwinds." And they become so massively short that the infrastructure that's supposed to even count all the shares can't keep up and now they are short more than the actual number of shares that actually exist. So now they're 140% short. The joes, retail, they start to aggressively purchase all these call options, and on January 13th and 14th, um, the price keeps ticking up. Then a bunch of quant funds and momentum hedge funds notice all this activity and they also participate on the long side-

Narrator 10:34 (laughs)

Jason Calacanis 10:35 ... and then over the past seven trading days, we have traded over $100 billion of stock in GameStop, which is well in excess of what retail can support. So here's what's crazy to realize. A bunch of value-oriented, non-computerized, non-quantitative hedge funds short, retail notices a dislocation, initially fundamentally, but then momentum-oriented buys. Other hedge funds realize, also buy, and this is what's created this massive short squeeze. On January 19th, Citron Research, a research firm that basically tries to, you know, find shorts in the market, announces that they were short GameStop and they gave five reasons why it should go to 20 bucks. The stock was at 35.50 on January 19th. Then over the next two days, (laughs) GameStop calls hit an all-time high and it runs a two-day rally of almost 70%. And this is what really starts what's called a gamma squeeze, okay, which is what we saw in the first part of this week. So January 25th, Ken Griffin, Stevie Cohen, they inject almost $3 billion into Melvin Capital, the firm that was short, $2 billion from Citadel and 750 from, from Stevie Cohen. Stevie Cohen had a billion in it from before. And then now all of a sudden, the squeeze keeps happening, the squeeze keeps happening and then it starts to spill over to the rest of the market. Now all these hedge funds, these original hedge funds, they are getting called by the banks saying, "Hey, wait a minute. You've run over your collateral limits. You need to post more collateral. We need more money in your bank accounts." So now, not only do they have to cover GameStop, they have to cover all their other shorts, so those go crazy and they have to sell their longs' So now they're selling, you know, Facebook, Netflix, Alibaba. (laughs) And so those things are going down. That accordion is what's been happening in the market in the last couple of days. And then-... the coup de grâce is what happened on January 28th of 2021. Brokerage firms, and this is where, Jason, we should talk about this, like Robinhood and Interactive Brokers, 'cause in fairness, it wasn't just Robinhood, prevented their users from buying GameStop and a handful of other stocks. They were only able to sell, which resulted in such a one-way pressure, it caused a 44% selloff yesterday. Now, that's been reversed today. And so what it speaks to is a bunch of questions. There are questions as to whether or not this was mandated by the platforms or the regulators. Given the fact that it didn't impact all the brokerage accounts, it was a platform-level decision. So some organizations, like Robinhood, banned it, some organizations did not. And it could be that some of these platforms that banned it is likely because, and this is where we get to the insolvency question, didn't have enough margin, and so they knew that if they opened the doors, there would be a run on the bank, and there would be a run on Robinhood. And that's why they basically, I believe, had to stop, um, allowing people to trade. And it just shows how, um, how fragile, um, the whole system is. The last thing I'll say, and then we can talk about this is, uh, how does Robinhood make money? Which I think is also important to understand at this. Robinhood makes money through a mechanism that's called payment-for-order flow. So they don't make money from consumers, right? What they do is they watch and monitor your orders. They create a data file about that, and they give it to these prime brokerage, prime brokerage institutions, like Citadel, milliseconds before you do the trade. What that allows Citadel to do is if they see a lot of people buying, milliseconds before you buy, they can buy, and that allows them to make money. So to be clear, Citadel is responsible for 47% of all the payment-for-order flow volume. They paid Robinhood almost $60 million in the third quarter, okay? Um, plus another, I think, you know, seven-and-a-half million for S&P 500 stocks and 31 million for non-S&P 500 stocks. They paid them almost 100 million in the quarter or a $400 million run rate. So, if we had to summarize all of this in a nutshell, that's what we know. We know that it started out as people debating the true fundamental value of GameStop, and it morphed into a momentum trade where a bunch of folks got dogmatic about a short, a bunch of folks got dogmatic about being long, and the longs won. And in the middle, what happened was a bunch of firms basically decided at some point to gate the ability for people to transact in all of this, which I think caused a lot of economic disruption. And that was because they didn't have the margin requirements, and I think it's because they were insolvent, i.e. Robinhood. Jason, over

Jason Calacanis 15:38 to you.

Chamath Palihapitiya 15:39 Okay. Um, I think we probably agree on a lot of things here. Uh, thank you for the concise overview. We agree that WallStreetBets and retail investors are, uh, incredibly, um, powerful now, and we agree that that's a good thing. We also probably agree that there are shenanigans going on with shorting of stocks, i.e. 120% or 130% short, and we agree, I think, that some of these, uh, hedge funds do manipulate the markets with these. We all- also agree that it's unfortunate that, uh, in order to stay solvent, Robinhood apparently, uh, if this is the information, we don't have complete information right now, so the thing I do think that you're being tremendously unfair about, and I'll try not to make it personal, Chamath, is that you've been uncouth and you're attacking people without, with partial information. I'll let you respond to that in a minute. Um, and I think we agree that Robinhood is responsible, Robinhood is responsible for this revolution in retail trading. They created the platform and they created the innovation that got Millennials to, en masse, embrace trading stocks. How did they do it? They figured out a clever innovation of how to make it free and friction-free. They did that because they did this selling of the data and the order flow. Okay, we can debate whether that is fair or not, but Facebook did the same thing. They created a data business. They provided amazing products and services that you yourself built for five years and made a billion dollars off of, in order to make it free for consumers. Now, there are unintended consequences of any company at scale, whether it's Uber, Robinhood, Tesla, et cetera, and they all have to weather these storms. And I think that there are pieces of information that you do not have, Chamath. And for you to say that they're criminal and for you to say they're scumbags and to act this way, is, I think, unprofessional and does you a disservice and does your argument a disservice. And you did this as well with Uber, another one of my investments, and that company weathered the storm, and they've done great things in the world, and they- and I'm very proud-

Jason Calacanis 17:41 No, no, no, no, no, no, no, hold on. Hold on.

Chamath Palihapitiya 17:41 ... of that investment, and I will be very proud of what I believe that Robinhood will do.

Jason Calacanis 17:45 Uber fired their CEO and they brought in Darah who cleaned it up.

Chamath Palihapitiya 17:48 Oh, uh, uh, agreed, agreed, but they got there. And so, I believe-

Jason Calacanis 17:52 Well, let's see what happens.

Chamath Palihapitiya 17:53 Exactly.

Jason Calacanis 17:53 So what do you know that I don't know?

Chamath Palihapitiya 17:55 Well, I- I- I haven't talked to Vlad. I saw what he said.

Jason Calacanis 17:58 Who cares about Vlad? He lied on public... He lied on television, he lied on FOMO-

Chamath Palihapitiya 18:01 I, I don't believe he lied. I think it's very-

Jason Calacanis 18:03 ... he lied on CNN-

Chamath Palihapitiya 18:03 No.

Jason Calacanis 18:03 ... he lied on Fox. Where did he not lie yesterday?

Chamath Palihapitiya 18:05 No. No. What is the lie? What is the lie?

David Sacks 18:06 Well, Jason, let me actually-

Chamath Palihapitiya 18:07 Ba- ba-

Jason Calacanis 18:07 Jason, he was confronted-

Chamath Palihapitiya 18:07 What is the lie?

Jason Calacanis 18:08 ... he was confronted about-

Chamath Palihapitiya 18:10 I think-

Jason Calacanis 18:10 ... whether there was a liquidity crisis and he said to their face, "No, that is not true."

Chamath Palihapitiya 18:15 I think this is being misinterpreted and there'll be a clarification that'll occur. I think because they were able to draw down 600 million and because they were able to take down a billion-dollar investment from the top investors in the world, that they s- resolved their liquidity problem. Nobody in history has ever created this many retail investors than Robinhood. They are responsible for the movement. When they pitched me the company, they wanted to create this revolution. It is paradoxical that they are now the enemies of the revolution because they actually created and enabled this, and...... I pre- and they have been number one in the app store since this whole fiasco started.

Jason Calacanis 18:59 That's nothing, nothing you're saying convinces me.

Chamath Palihapitiya 19:01 And that-

Jason Calacanis 19:01 This is the, they are the Lehman Brothers or Bear Stearns of 2008 to me.

Chamath Palihapitiya 19:05 Uh, they will not be. They will get through this and there has, this is an unprecedented black swan event, I think we would all agree. Nobody has ever-

Jason Calacanis 19:13 That's exactly what Lehman and Bear said.

Chamath Palihapitiya 19:16 And-

Jason Calacanis 19:16 That is exactly what they said.

Chamath Palihapitiya 19:18 And this, uh, they will, I believe, Robinhood will ride it out because they throttled the number of people coming to the platform. Las Vegas is not designed for everybody in America-

Jason Calacanis 19:27 You're, you're being incomplete.

Chamath Palihapitiya 19:28 ... to come to Las Vegas in the same weekend.

Jason Calacanis 19:30 Will you admit-

Chamath Palihapitiya 19:31 And that's what's happened.

Jason Calacanis 19:31 Will you admit that a, that the tens of millions of people that had their hard-earned money inside of Robinhood was prevented from participating in trades that could have been executed other places because of an arbitrary decision by Robinhood that they added a minimum?

Chamath Palihapitiya 19:47 It wasn't arbitrary.

Jason Calacanis 19:48 Hold on.

Chamath Palihapitiya 19:48 They had to stay insolvent. How is that, how is that-

Jason Calacanis 19:51 Jason, they did. Jason.

Chamath Palihapitiya 19:51 ... an arbitral decision? Do you think they wanted-

Jason Calacanis 19:53 That's me telling you this.

Chamath Palihapitiya 19:54 ... to make that decision?

Jason Calacanis 19:55 Jason, that's me telling you that they were insolvent. That's not them saying it. This is what I'm saying. Right now-

Chamath Palihapitiya 19:59 The communication was not perfect, I'll agree. The communication was not perfect. They should have just said, "We had no choice but to stop this, or we would have been insolvent. We cannot take this many trades."

Jason Calacanis 20:07 Is that, but is that what we call lies when people's money gets fucked over? Just, it's inconvenient?

Jason Calacanis (pre-recorded / parody intro bits) 20:12 Let me just say one thing. I'm gonna inter- interject-

Chamath Palihapitiya 20:14 No. But-

Jason Calacanis (pre-recorded / parody intro bits) 20:14 ... your, your, your vigorous debate. Um, the, uh, the important thing I think to note is Robinhood makes money effectively, as Chamath pointed out, um, through arbitrage of pricing in the markets and by providing leverage to their clients so the clients can trade beyond their means. I used to, um, be an investor in a forex trading company. It was the largest forex trading platform in the world for retail investors. And 60% of those accounts went bankrupt, uh, over time. So there was a lifetime value on an account because the, uh, the customer would come in, they'd trade foreign exchange rates up and down. They would ultimately just get burnt up and that was it. Robinhood makes money when the market is non-volatile, when there isn't a lot of swings. Suddenly when there is a swing, and that's how they're able to provide their free pricing to people. They're making a, a spread. But suddenly when there is a swing and the spreads start to widen, they are actually exposed to losing money. So Jason, it's true what Chamath is saying, like they did face a liquidity crisis to some extent. That's why they had to draw down-

Chamath Palihapitiya 21:16 Agreed. We all agree. Yeah.

Jason Calacanis (pre-recorded / parody intro bits) 21:17 ... additional equity capital. But it was a function of their business model, right? Their business model provides great benefit and value in some extent during good times, but when times get bad, it's like, "Oh shit, things are at risk." And that's very similar to kind of the Lehman and, and, you know, Bear Stearns model.

Chamath Palihapitiya 21:32 I, I don't disagree. I don't disagree. I, I, I think this is an unprecedented situation with the number of participants. It reminds me of surge pricing with Uber during snowstorms and-

Jason Calacanis (pre-recorded / parody intro bits) 21:40 Right.

Chamath Palihapitiya 21:40 ... that also was an unintended thing that, you know, who, who knew that it would go up to $400 to take a ride? And that's something that companies will be faced with and they will have to then adjust, uh, and then make it work. And I think, you know, in, in the case of Robinhood, they should have just came up on Wednesday and said, "We can't take any more orders. We can't take any more new customers. We're, we're pausing signups. You'll be on a wait list because we will be insolvent if you guys make any more trades." And that would have, I don't know if you believe that would have-

Jason Calacanis 22:08 I agree with that.

Chamath Palihapitiya 22:09 And that-

Jason Calacanis 22:09 I agree with that.

Chamath Palihapitiya 22:09 Okay.

Jason Calacanis 22:09 So Jason, let me just explain the mechanics-

Chamath Palihapitiya 22:10 So that is poor communication from a rookie founder.

Jason Calacanis 22:12 Hold, hold on. It's not... Jason, it's beyond poor communication. People were blocked out of their accounts. Like there was hundreds of million incalculable amounts of economic loss that was born.

Chamath Palihapitiya 22:22 I don't know if that's gonna wind up being true because all these trades are occurring now and the stock is rock, is a rocket ship. Who's to say that it-

David Sacks (main long-form segments) 22:28 No, no. I mean, look. I mean, Jason-

Chamath Palihapitiya 22:31 And aren't the shorts all covered by now? That's what they've been saying-

David Sacks (main long-form segments) 22:34 No.

Chamath Palihapitiya 22:34 ... on CNBC.

Jason Calacanis 22:35 No.

Chamath Palihapitiya 22:35 There are still people... How do you know how many people are short right now and how many shares?

Jason Calacanis 22:39 It, it is because it's, the primes put the data together and they send it to us.

Chamath Palihapitiya 22:42 Do you have it handy? Because I've been looking for it online and they said 10 times the number of shares short have traded hands in the last 10 days or five days.

Jason Calacanis 22:48 Uh, I mean, Jason, I don't have tracks.

Chamath Palihapitiya 22:50 And so-

Jason Calacanis 22:50 I don't have it literally in front of me, but I could get it in the next hour.

Chamath Palihapitiya 22:52 Well, yeah, just text one of your people. You got all these researchers there. Um, go ahead, Zach.

Jason Calacanis (pre-recorded / parody intro bits) 22:57 (laughs)

David Sacks (main long-form segments) 22:57 Okay, look, I'm gonna try and thread the needle here. Um, I think J-Cal is right that, um, we shouldn't impugn people's motives without having all the information and furthermore, you know, building these, uh, rapidly scaling startups is really tough and it could have just been, you know, a function of, you know, not knowing how to deal with unprecedented growing pains. So I don't think, I don't want to be too judgmental about what happened-

Jason Calacanis 23:22 Can I just stop you there?

David Sacks (main long-form segments) 23:23 Hold on. Hold... Yeah, yeah.

Jason Calacanis (pre-recorded / parody intro bits) 23:24 Okay.

Jason Calacanis 23:24 No, but it's fi- finish my point.

David Sacks (main long-form segments) 23:25 That's not, no, but David, that's not... Can I, but you guys are not being accurate. They have known for decade, for years, sorry, dears, how this business work. When somebody buys a call option, they are legally obligated when they send that order through, they have to post margin on behalf of that person. So they saw this building. This happened in March of 2020. They went through this liquidity crisis. They've had to draw credit lines before. They saw it building in the system. So this was nothing-

Jason Calacanis 23:56 Right.

David Sacks (main long-form segments) 23:56 ... except negligence. Yeah, so, so I was about to, that, I hadn't gotten to the point where I was about to agree with you, Chamath. I mean, look, uh, all I'm saying is even if it was negligence, I'm not sure I would im- impugn all the motives to them. That, that's all I'm saying, that I'm trying to find some common ground with J-Cal on that point. But where I totally agree with you, Chamath, is with respect to the effects of their decision. I mean, the effects of that decision they made to stop trading, and specifically they didn't stop people from selling, they only st- stopped people from buying. So they shut down one side of the trade and the effect of that was we had these hedge funds from Wall Street, they were on the ropes, right? I mean, let's discuss who these guys are. These are the apex predators of Wall Street. They are in the business of shorting companies to destroy them. I mean, that is their business model. And they are not...... academic traders, okay, who are just speculating on an outcome. They engineer the outcome, right? Look at their tactics. Just watch the show Billions, right? They hire PR people. They hire private investigators. They're participating on these message boards, uh, spreading disinformation. Look at the he- the year of hell that Elon went, went through, right? They tried to destroy Tesla-

Jason Calacanis (pre-recorded / parody intro bits) 25:05 It's like five years. Yeah.

David Sacks (main long-form segments) 25:07 Yeah, exactly. They try to destroy, uh, companies to engineer that outcome. They create nothing. They're in the business of, of, of destruction. Now, the beautiful thing is you had these Reddit kids, these pirates, who published this manifesto, right, on Reddit, basically, b- being the heirs to occupy Wall Street. They recognize, "Look, occupying like a, a, a, like a physical space does nothing to these guys. We are gonna hurt them where it counts in their pocketbook. We are gonna get together and we're gonna basically create a trade mob that's even bigger than their cartel." And they did. They got 2.7 million people taking the other side of this trade. And then when the hedge funds doubled down, they said, "Fuck you. We're gonna double ... We're gonna triple down." And the guy on Reddit said, "Listen." He ... Uh, paraphrasing John Maynard Keynes, said, "We can be retarded longer than you can be solvent."

Jason Calacanis (pre-recorded / parody intro bits) 25:55 (laughs)

David Sacks (main long-form segments) 25:55 And they were winning. That was what they said, right? And they were winning the trade, okay? And Melvin was dead busted and Citron was on its way to being dead busted, and they had to go to big papa Stevie Cohn, okay, and Ken Griffin-

Jason Calacanis (pre-recorded / parody intro bits) 26:09 (laughs)

David Sacks (main long-form segments) 26:10 ... to get, to get their re-buys, to buy their re-buys-

Jason Calacanis (pre-recorded / parody intro bits) 26:13 (laughs)

David Sacks (main long-form segments) 26:13 ... to get back into the game, okay?

Jason Calacanis (pre-recorded / parody intro bits) 26:15 (laughs)

David Sacks (main long-form segments) 26:16 And then th- they had these guys on the ropes. They had them felted, okay? And then what happens? Just at the moment where they're gonna like basically bust them out of the game for good, Robinhood shuts down the buy side of the trade. And so what does that do? It gives these hedge funds time to regroup, to unspool the trade, to reposition, and save themselves, and to get out of the trade if they want to get out of the trade. You can never take that 24-hour time period back, no matter what Robinhood does now. And so I agree with Chamath. This was like-

Jason Calacanis (pre-recorded / parody intro bits) 26:46 Uh, don't you think, David-

David Sacks (main long-form segments) 26:47 This was tremendously disruptive.

Jason Calacanis (pre-recorded / parody intro bits) 26:47 ... on that point, I think it's ... I, I am in agreement that the hedge funds deserved to get their asses kicked 100%. I also, as I said, we don't have complete information of why, um, you know, Robinhood had to pause trading and the other platforms. And it was like five platforms, by the way, that had to stop or else they would be insolvent, because nothing like this has ever happened before. This is a run that nobody's ever seen. And now we're back in the game, and don't you think all this attention then drives more people to buy GameStop, which is what's happening today?

David Sacks (main long-form segments) 27:18 Well-

Jason Calacanis (pre-recorded / parody intro bits) 27:18 And that they're still gonna get crushed 'cause they're still gonna have to cover. I mean-

David Sacks (main long-form segments) 27:21 Yeah.

Jason Calacanis (pre-recorded / parody intro bits) 27:22 ... h- h- we, I don't-

David Sacks (main long-form segments) 27:22 I s- look, I, I, I, I don't ... Like, like I said, it, it ... Look, wh- where I agree with you is I think the consequences of this decision by Robinhood were ... I mean, they were really bad, right? I mean, we finally had these shorts on the ropes where they deserve to be. Finally, they're getting a taste of their own medicine.

Jason Calacanis (pre-recorded / parody intro bits) 27:38 Yes.

David Sacks (main long-form segments) 27:38 And it was really bad to pull the plug on, on the, the, the, the runners-

Jason Calacanis (pre-recorded / parody intro bits) 27:41 I, I wish that ... And they wish they didn't have to-

David Sacks (main long-form segments) 27:43 W-

Jason Calacanis (pre-recorded / parody intro bits) 27:43 ... I'm sure.

David Sacks (main long-form segments) 27:44 W- okay, exactly. And I don't know what went into that decision. But here's the thing that I think kind of stinks about it, is the point that Chamath is making about who is doing the, the trade execution for Robinhood? Those trades are flowing to Citadel.

Jason Calacanis (pre-recorded / parody intro bits) 28:01 Well, that's part of it.

David Sacks (main long-form segments) 28:02 Now, who is ... That's part of it, but 40, 47%. But who is now on the short side of the trade? Citadel went in and bailed out Melvin and Citron. And so they're on both sides of this trade. Now, how does that make sense?

Jason Calacanis (pre-recorded / parody intro bits) 28:15 Well, Citadel-

David Sacks (main long-form segments) 28:16 And, and-

Jason Calacanis (pre-recorded / parody intro bits) 28:16 Yeah, but I mean it, it ... Go ahead.

David Sacks (main long-form segments) 28:17 What, what, what I would like to know specifically, okay, is did anybody from Citadel reach out and touch Robinhood? Did anybody at Citadel put in the fix and say to Robinhood, "We're gonna cut you off."

Jason Calacanis (pre-recorded / parody intro bits) 28:31 Of course that's a valid question, valid question.

David Sacks (main long-form segments) 28:32 "We're gonna ... We're gonna cut you off, you know, unless you freeze out the buy side." Now, look, 99% chance that didn't happen. I don't know. But that is a legitimate question we need to know the answer to that.

Jason Calacanis 28:41 Actually, can I, can I just tell you? It ... The, the question is important, uh, but the way that you phrase it is you call them and you basically say, "Listen, uh, you need to post $500 million of margin." "Why?" "Oh, well, these trades ... Uh, you know what? We're gonna arbitrarily change the margin requirements." "Okay." "Oh, hey, you need to raise, uh, you need to post ..." So then what they did was they pulled all the credit lines. Okay? They post margin. Trades are still happening like crazy, right? All these people are buying GameStop calls. They have to go because look, when you buy a call, when you as a user, when David Friedberg, Quinoa buys a call, Robinhood becomes synthetically shorted, right? Robinhood doesn't have the share to sell you, but it's giving it to you. So they're technically short. They gotta go buy it. Okay? So this is what creates this dynamic where Robinhood knew. They knew every second of every moment what was happening and more importantly what could happen. At a minimum, it's negligence, and at a maximum, it's the fix.

Jason Calacanis (pre-recorded / parody intro bits) 29:42 Well, it was-

Jason Calacanis 29:43 And it, and it-

Jason Calacanis (pre-recorded / parody intro bits) 29:43 It was-

Jason Calacanis 29:43 And it-

Jason Calacanis (pre-recorded / parody intro bits) 29:44 It was fine to do it before the market started to swing volatile, right? And, and so when the market wasn't high volume and when it wasn't volatile, it didn't matter, because they had appropriate levels of surplus capital or statutory capital or whatever the definition is in this market, uh, to be able to cover the, quote unquote, "VAR," or the value at risk, of their portfolio of their customers' worst case outcome. But as soon as that spiked, as soon as the VAR spiked, they had to go get more capital. And so what do you do if you're the manager of Robinhood in that situation where your clients, who've been making you a bunch of money by trading stocks over the last couple of years, suddenly they all get themselves in a bind where the VAR on the portfolio is more than the cash Robinhood has to clear? Assuming all these people go bankrupt, that's where Robinhood had to scramble. And so in that circumstance, they drew down debt and they had to go get a billion dollars of equity, but if you guys were running that business ... And I'm not speaking for Robinhood's ... Uh, I'm not making the case for Robinhood, but what would you guys have done in that circumstance? You know, suddenly all your ... And, and by the way, I'm saying they, they created the problem for themselves because they allowed people to trade on margin with low bank ... with low account balances and volatile stocks prior to this. It got away from them and this week-

Jason Calacanis 30:56 You can't ... You cannot run a business like that-... and be selective and arbitrary. You can't say some stocks on certain days-

Jason Calacanis (pre-recorded / parody intro bits) 31:03 Right.

Jason Calacanis 31:03 ... some stocks on other days, some options over here, some puts over there. That means you're a fucking moron. And you don't deserve to run that business.

Jason Calacanis (pre-recorded / parody intro bits) 31:10 But what do you do on, what do you do on Tuesday or Wednesday when all of a sudden your exposure-

Jason Calacanis 31:13 It's not Tuesday or Wednesday. This... If you were a reasonable manager of a business like this, this conversation would have been happening at a board meeting quarters ago.

Jason Calacanis (pre-recorded / parody intro bits) 31:22 I, no, but I dis- I di- oh.

Jason Calacanis 31:23 Hold on a second, let me finish, please, okay? It ch- it needs to happen quarters ago. And in quarters ago, what they would have said is, "Hey, guys, we've run some scenario analyses. We've done some sensitivity analyses. Here's what happens if all of these things can go against us." That's a typical stress test that a bank has to do. Right? When you're a structurally important bank, you have legislation that forces you to be under these conditions where you have to make sure that, that you can understand some of these scenarios and then you have to have-

Jason Calacanis (pre-recorded / parody intro bits) 31:50 Same, same with any, any trading entity or insurance company, they all have to have that analysis of what's the worst-case scenario and how do you plan for it?

Jason Calacanis 31:56 And you have to, you... And by the way, coming out of 2008, we actually legislated that we needed to have these two and three sigma, you know, event scenario planning and you needed to have proper credit. So here's what happened really. Number one, it was under-equitized.

Jason Calacanis (pre-recorded / parody intro bits) 32:11 Right.

Jason Calacanis 32:11 Right? At a minimum, the business was massively under-equitized.

Jason Calacanis (pre-recorded / parody intro bits) 32:13 Relative, relative to what they were letting their customers do.

Jason Calacanis 32:16 Exactly.

Jason Calacanis (pre-recorded / parody intro bits) 32:16 Right? And that, that's really important because the point is they let people trade with high margin and they let people trade in volatile stocks and it was working until the volatil-

Jason Calacanis 32:24 Not, not, not just stocks, but options-

Jason Calacanis (pre-recorded / parody intro bits) 32:26 Options.

Jason Calacanis 32:26 ... which is what, which is what creates the real spin-up. Uh-

Jason Calacanis (pre-recorded / parody intro bits) 32:28 The, the feedback loop that blows this whole thing up.

Jason Calacanis 32:31 And then, and then number two is they don't know what they're doing.

Jason Calacanis (pre-recorded / parody intro bits) 32:36 I think one thing to, that's really important, I, I just want to say this, we should stop pretending that trading in stocks is investing in businesses. And, uh, this is something (laughs) we've said for a long time on Wall Street, but stocks, shorting, margin, and derivatives, those, um, those four things no longer look like what the capital markets were originally set up for, which was to help capitalize businesses and allow people to exit their investment and helping to capitalize that business to another investor that wants to come along. It has effectively become a synthetic casino or a synthetic gambling model that lets people trade things up and down. And this has been the mainstay of Wall Street for the last couple of decades. And as you pointed out, Sax, uh, it really is a leech on the system, because the amount of money that trading firms and traders and hedge funds make doing this ultimately is taking away from capital that could be invested in actual businesses that could drive job growth, drive economic prosperity, drive innovation. And, um, the volatility that I think we've seen is the ultimate feedback loop that emerges from when you allow a casino to operate that sits under the guise of being business capital and investing in businesses. It's not. I'll give you guys a statistic. I downloaded the data, uh, from CBOE that analyzes how much volume was traded across all the equity markets last year in the US. Stocks traded, uh, total volume last year, are you guys ready for this? $121 trillion of notional, um, across 2.7 trillion trades. Do you think that $121 trillion of notional equity value trading provided capital to businesses anywhere close to 1% of that total amount of trading volume? It really is a synthetic instrument that allows people to participate in, "I bet that something is gonna go up and I bet that something is gonna go down," with other people of a, of a similar ilk, and one person makes money and one person loses money, and at the end of the day, the underlying business entity doesn't benefit whatsoever. And you see it when shorts go against businesses, like happened with Elon and Tesla, and you see it when derivatives like CDOs blow up the fucking housing market, where people basically trade these derivatives that sit on top of housing and that capital did not find its way into homes to help people buy homes. It ultimately led to the, uh, uh, collapse of the, uh, housing market.

Jason Calacanis 35:02 The only, the only reason that Lehman and Bear Stearns was shut down was in 2007 and '8 when they were in a liquidity crunch in the same thing and they basically had all these trades blowing up against them and they couldn't collateralize them, was that the people on the other side were hedge funds. And that's why, you know, they were put into the Fed and that's why we were able to basically, like, you know, come out relatively unscathed. And what I mean by relatively unscathed is like a global calamity. Um, the, the, the tragedy of this is that this is the tragedy of the commons. It's like, you know, there is no organization of people that can say, "Hey, listen, I'm really rich and wealthy and what happened here was wrong," even though it's probably on the same scale. Um, and so everybody that was a participant in it is in- in my opinion, I think is guilty of all of this. They were, they were complicit in the robbing of America.

Jason Calacanis (pre-recorded / parody intro bits) 35:52 Do you think calls and puts, um, should, and shorting should be allowed should those markets exist?

Jason Calacanis 35:57 I, I, I do have a sense of common sense solutions and let me, uh, let me kind of give you them and then you can tell me what you think. So the first is we need to use modern technology. Let's just start with that, right? To ensure that, you know, one share of stock, right, isn't loaned out multiple times so that you can't have a scenario where you have more than 100% shorting risk.

Jason Calacanis (pre-recorded / parody intro bits) 36:17 That's a no-brainer, right? I mean-

Jason Calacanis 36:18 That's a no-brainer.

Jason Calacanis (pre-recorded / parody intro bits) 36:18 So you still support shorting, Chamath?

Jason Calacanis 36:20 Yeah. But let me, let me just go through the list and then you can tell me what you think. If, if high frequency firms can trade tens of millions of shares per day, there's no reason why we can't reconcile who the beneficial owner of every share is. So maybe that's a... You know, now maybe we found the first obvious use case for a blockchain, right? Um, like you can't borrow a share unless you can prove beneficial ownership in a, in a, in a, you know, nanosecond, which can only be done on a, you know, decentralized ledger. But the point is, number one is, we need to rebuild this infrastructure. You can't have 136% of a company be short. That makes no sense. The second, what we've learned is that, again, the sa- it's like are we gonna basically have these blowups every 10 years before we actually address the elephant in the room, which is leverage?... like, you need to have leverage limits. So for example, banks coming out of '08 have super strict oversight and leverage limits, and because they're dubbed systematically important. We don't do that for hedge funds, and I think we need to. And I think that we need to have the ability to realize that these, these guys can cause systemic risks, right? So, um, just on this example, I don't know if you guys have ever heard about Long-Term Capital Management-

Jason Calacanis (pre-recorded / parody intro bits) 37:31 Yeah, yeah, the, the, the, the-

Jason Calacanis 37:31 ... LTCM, this guy John Merriweather.

Jason Calacanis (pre-recorded / parody intro bits) 37:33 ... Asian, uh, currency crisis, the whole thing collapsed.

Jason Calacanis 37:36 So-

Jason Calacanis (pre-recorded / parody intro bits) 37:36 There's a good, there's a good book on it.

Jason Calacanis 37:38 Well, so it's b- it's funny, but if you guys think this is the second financial calamity, it's not the fir- it's the third, because the first one happened in 1998. So in 1998, there was a firm called-

Jason Calacanis (pre-recorded / parody intro bits) 37:48 That was the, it was, it... The whole, the whole, uh, economic system was gonna collapse if the bailout-

Jason Calacanis 37:52 Right.

Jason Calacanis (pre-recorded / parody intro bits) 37:52 ... didn't happen.

Jason Calacanis 37:53 So listen to what these guys did. Long-Term Capital Management borrowed. They had $4.8 billion of capital that limited partners and investors gave them, okay? These fucking crooks were able to then borrow $125 billion, 125 billion on the 4.8 billion of notional. So they were able to lever themselves up 26 times-

Jason Calacanis (pre-recorded / parody intro bits) 38:19 By the way-

Jason Calacanis 38:19 Okay?

Jason Calacanis (pre-recorded / parody intro bits) 38:19 ... synthetic margin, right? No actual capital was allocated to these, uh, to, to this transaction, uh, set. It was all synthetic. Like, no, no money moved accounts when these trades happened.

Jason Calacanis 38:27 No money moved accounts.

Jason Calacanis (pre-recorded / parody intro bits) 38:29 So it was-

Jason Calacanis 38:29 And-

Jason Calacanis (pre-recorded / parody intro bits) 38:29 ... literally just writing stuff against debt that couldn't have existed.

Jason Calacanis 38:33 Yeah, so they, so they built 60,000 trading positions, and those individual positions represented, (laughs) again, 1.4 trillion-

Jason Calacanis (pre-recorded / parody intro bits) 38:45 Right.

Jason Calacanis 38:45 ... US dollars. (laughs)

Jason Calacanis (pre-recorded / parody intro bits) 38:47 Right.

Jason Calacanis 38:47 So you took... These guys in a room took 4.8 billion, got knucklehead over here to give them 125, and then got these knuckleheads to sell them positions. And all of a sudden, 4.8 billion equaled 1.4 trillion. And so then US, US, uh, regulators had to step in. They had to orchestrate a bailout from a consortium of banks, because they were concerned that if, if LTCM collapsed, the whole system would collapse, 'cause they didn't understand. So-

Jason Calacanis (pre-recorded / parody intro bits) 39:17 Right.

Jason Calacanis 39:18 So we have to, we have to put leverage limits on top of hedge funds. The third is we need to improve disclosure. The, the rules at the SEC right now is to discourage disclosure. That doesn't make any sense. We should force everybody to publish what they own on a weekly or monthly basis. You have the ability to do it. The technology is simple. So you need to impro- improve disclosure, because then watchdogs and other people can basically be looking at it all day and identifying these risks faster, not slower. Um, the third is we need to do something around open trading. Like, why is it that you're, you know, people are allowed to go to casinos? Why can you, um, you know, buy lottery tickets, um, but all of a sudden, like, we're gonna decide who's financially literate? A platform like Robinhood can decide what's bought and what's sold. I don't think that's fair. Um, and then, uh, the, the last thing is I think that we should have a short-term trading tax. Um, d- we tried to pass one in 2018, 10 basis points. If you had passed this 10-basis-point tax in 2018 on short-term trading, it would have created a trillion dollars, almost.

Jason Calacanis (pre-recorded / parody intro bits) 40:27 I did the math on this, 'cause I actually, uh, the reason I ran all the equity numbers was to figure this number out. So in the US, um, we generated $160 billion in capital gains tax last year. And if you look at the volume I described earlier, in terms of notional traded of equities and number of shares traded, if you charged 0.1% every time someone sold a share, on the value of the share they sold, it would equal the capital gains tax. So what you could do is you could charge 0.1% on every trade. It would reduce all of this high-frequency nonsense where people trade in and out of stocks. It would force people to trade for the longer term or basically invest in companies. And you could get rid of the capital gains tax. Think about that. If we didn't have to pay capital gains tax, and we were only taxed when we traded out of a stock 0.1%, you could see an incredible amount of capital making its way into businesses. And this would fuel economic growth and jobs and prosperity. Um, and so I think if you could pull that off, put the two together, a 0.1% sales tax on every share sold, and get rid of capital gains tax, uh, it'd be-

Jason Calacanis 41:30 The lobbyists-

Jason Calacanis (pre-recorded / parody intro bits) 41:30 ... incredibly powerful.

Jason Calacanis 41:31 The lobbyists got to that bill, but that 10-basis-point tax on high-frequency trading, it just means, like, "Look, if you're gonna trade a whole bunch of shit every eight seconds, you just have to pay 10 basis points in and out." $777 billion of incremental revenue to the federal government, and it was lobbied out. And I agree with you. And by the way, the-

Jason Calacanis (pre-recorded / parody intro bits) 41:49 More, more money goes in, more money makes its way into companies, right? And that's the be-

Jason Calacanis 41:53 Yeah.

Jason Calacanis (pre-recorded / parody intro bits) 41:53 You, you stop all the nonsense where people are basically trading to bet that something will go up in the short term, and you get people to make investments in the business as opposed to the momentum. Uh, and-

Jason Calacanis 42:02 The, lowering the capital gains rate is genius, 'cause I think that if you, if you are a retail investor, and you can- For every year you hold, if you can decrease your cap gains rate-

Jason Calacanis (pre-recorded / parody intro bits) 42:11 Exactly.

Jason Calacanis 42:11 ... by 20%-

Jason Calacanis (pre-recorded / parody intro bits) 42:12 Exactly.

Jason Calacanis 42:12 ... by the fifth year, now all of a sudden, retail folks aren't necessarily gambling, they're owning, and their cap gains rate would be zero after five years. That would be amazing.

Chamath Palihapitiya 42:21 I, I have a, a, a basic question. I'm interested in your position, Sax, and maybe even around the horn. What happens to the... If the short positions get covered, which they're going to be at some point in GameStop, I would think, or some large amount of them, when the short squeeze is off, what happens to the people who are buying in, you know, to the meme stock as a retail investor, let's say, over the next 10 days? Are they gonna be left holding the bags? Is there any way this company could be worth 20 billion or 25 billion? Because as Friedberg points out, they're, people are not buying GameStop. They're, they're trying to destroy a hedge fund, uh, who made a stupid, manipulative bet. Great. We all love the, the Robinhood story of that. (laughs) Not Robinhood TM, but the generic term Robinhood. Um-... what, what happens to those people? Are they gonna be the l-

David Sacks (main long-form segments) 43:09 It's-

Chamath Palihapitiya 43:09 ... last people holding the bag?

David Sacks (main long-form segments) 43:10 Probably.

Chamath Palihapitiya 43:11 I-

David Sacks (main long-form segments) 43:11 This is not gonna end well. There's no question about that. I totally agree with you that people engaging in this kind of speculation and buying at these prices, it's not gonna end well. Now, I do think that the Redditors actually had a brilliant strategy, right? When they noticed that these hedge funds were over short, over exposed, and they seized on that vulnerability, they did to the hedge funds what the hedge funds usually do to everybody else, which is find the Achilles' heel, right, and pile in.

Chamath Palihapitiya 43:36 Yeah.

David Sacks (main long-form segments) 43:36 So, I think the strategy started brilliant. Now, anyone who's piling into it, I'd be real careful, because I think the hedge funds have regrouped, you know, and, um, you know, the, the idea that you're gonna beat, beat them at their own game? You know, when, look, I mean, Citadel is executing your trades. I mean, right? That the trades are... The order flow is going from Robinhood to Citadel. They're not gonna be caught flat-footed. They're on the other side of this trade. And so, you know, I, I just think the house always wins. I'd be real careful about getting into it at this point.

Chamath Palihapitiya 44:08 I think what happens to

Jason Calacanis 44:08 Just so, just so you guys know-

Chamath Palihapitiya 44:10 ... well, really... Yeah, go ahead.

Jason Calacanis 44:10 ... Robinhood j- Robinhood just tweeted that now the, the list of, uh, restricted names is now up to almost 35 or 40.

Chamath Palihapitiya 44:18 I think it's worth, um, w- what-

Jason Calacanis 44:20 They're, they're randomly picking companies, guys. RLX? What is RLX? Uh, I think that's, uh, Ralph Lauren. Nope, you're not allowed to trade that. Um, SNDL, I don't know what that is, but you can only buy 10 shares.

Chamath Palihapitiya 44:32 Would a better solution, Chamath, be for them, if they can't handle this and they have the risk of ruin, to just say, "We're not adding any more accounts until we can digest all this and raise enough capital to float all this"? And do you think there's a chance the SEC is telling them, "You gotta pump the brakes on this, because we can't have a market crash." Two questions, Chamath.

Jason Calacanis 44:50 Um, I, I, I think that the, the, the issue isn't, um, Robinhood, uh, its ability to grow. It's that they don't have their ability to run their business. And so their incompetence is gonna cause them to, I think, have to deal with-

Chamath Palihapitiya 45:03 If they had 20-

Jason Calacanis 45:04 ... a bunch of reg-

Chamath Palihapitiya 45:04 Well, if they had $20 billion in cash right now, this would not be an issue, right?

Jason Calacanis 45:07 I think you're right.

Chamath Palihapitiya 45:08 Okay. So, assuming they could line that up, because that's probably what's going on right now, is a $10 billion, uh, investment is gonna go into this company pre-IPO so that they can actually take advantage of this situation and grow. So, uh, despite the fact that you have an ax to grind with them, because you have so far a competitor that's very far behind them, that had its own colossal problems, let's put that aside for a second, and you're talking your own book without even mentioning it, do you think that if they had that $10 billion- (laughs) ... they would just open up all the doors, or do you think maybe they'd just say, "Hey, we're not gonna add anybody else"?

Jason Calacanis 45:38 I think that what's gonna happen is they're gonna get sued into oblivion. I think that the class action lawsuits here, when people talk about the, uh, implied losses that, that they, that they had over the last 24 hours, David Sacks is right. You can't undo it. The thing is, like, what, in all of these other situations, like in the Uber fiasco, you know, you can't claim much damage, right? Because you can't measure it. You were, could have taken a bus. You could have taken a taxi. You know, you could have taken a Lyft. Um, maybe you could have walked. Who knows what it is? But the point is, that the, the economic impacts, um, I think were much less than maybe the psychological impact, right? Like, you were angry. Here, it's the exact opposite, which is that you prevented people from transacting in an open market, and when people signed up to use the service, that's what they thought they were signing up for. And they thought that, that the risk on the back end would be managed. You have to remember, it's not that the individuals did anything wrong by buying or selling. It's that Robinhood did something wrong by not being able to manage their business accurately. And then that then impacted the users to the tune of tens of billions of dollars. That has to get adjudicated. And so yeah, I think the right thing to do is to stop the business, hit the pause button, allow people to elegantly transfer their money out. And we have to remember, on the back end of this, whenever that you have one of these market failures, the clearing houses are allowed to instantaneously close your account and transfer it to another broker. Instantaneously, you have that right. And so the market does understand the systemic risk at some level. They just didn't push it all the way through to the end of retail. And so we're gonna have to unwind this and unscramble this egg, because it's a really, it's a really big problem.

Chamath Palihapitiya 47:19 H- yeah. You, you mentioned a-

Jason Calacanis 47:20 Growing, growing willy-nilly, because y- everybody's infatuated with valuations and blah, blah, blah. And y- and you move into a regulated market where you needed to understand capital constraints, you needed to understand modeling, you needed to understand three and four sigma events. It just means you're underprepared, which means, at a minimum, you can't be doing business until you get that shit under control.

Chamath Palihapitiya 47:42 Yeah, I, I, th- I actually think we're almost in sync on this. Um, you have a l- little bit of an ax to grind because of your other portfolio company, I think, but you still won't recognize that you have a-

David Sacks (main long-form segments) 47:52 No, no wait. Let's talk about-

Chamath Palihapitiya 47:53 ... horse in the race.

David Sacks (main long-form segments) 47:53 Wait, let's-

Chamath Palihapitiya 47:54 Because so far, I d- I just... Did they, did they finish resolving all of their harassment lawsuits?

David Sacks (main long-form segments) 47:59 (laughs)

Chamath Palihapitiya 48:00 Is that all resolved now or is that still open?

Jason Calacanis 48:02 Yeah, we've, we-

Chamath Palihapitiya 48:03 And then you took them public, so did, did you work all that out before you took them public?

Jason Calacanis 48:06 Yeah, Jason, we, we transitioned the CEO. We completely have hired a new team. Um...

Chamath Palihapitiya 48:11 Great.

Jason Calacanis 48:11 I mean, it's incredible, that business.

Chamath Palihapitiya 48:13 Great. So you- so your company, that you took public, can resolve issues, and you can give them time, and then you can, in fact, become their mentor, and you can become their savior to get them public and save that company.

David Sacks (main long-form segments) 48:25 Jason, you should know-

Chamath Palihapitiya 48:25 But Robinhood can't?

David Sacks (main long-form segments) 48:27 But, Chamath can't-

Chamath Palihapitiya 48:27 Robinhood can't?

David Sacks (main long-form segments) 48:28 Chamath can't talk about his company that's going public right now. So just as his lawyer-

Chamath Palihapitiya 48:32 Okay, fine.

David Sacks (main long-form segments) 48:32 ... I'm gonna step in and-

Chamath Palihapitiya 48:33 Okay, no, no problem.

David Sacks (main long-form segments) 48:34 ... make sure, make sure-

Chamath Palihapitiya 48:34 I just wanna point out-

David Sacks (main long-form segments) 48:35 Make sure you don't goad him into saying something he shouldn't say.

Chamath Palihapitiya 48:38 ... that all of our companies-

David Sacks (main long-form segments) 48:39 Yeah.

Chamath Palihapitiya 48:39 All of our companies, and I don't mean to create a lot of collateral damage here, but Sacks had a company that had challenges. Chamath had companies that have challenges. We've all had companies that had challenges. And I think focusing on what is the role of an investor when your company faces challenges, I think the role of the investor should be, and I take umbrage to you, Chamath, trying to dunk on me because I'm supporting an investment. I think it's a low blow. Uh, and I take it personally, I'll be totally honest. I am trying to work with the company to help them resolve the issues, and I need to be loyal to my founders. And I need to say, "Hey..."... h- how do we resolve this, how did we get here? A- and work with them-

Jason Calacanis (pre-recorded / parody intro bits) 49:13 Could you make-

Chamath Palihapitiya 49:13 And I'm sorry that I'm ride or die, but, uh, that's how I approach this, is I should be trying to be helpful as a shareholder-

Jason Calacanis (pre-recorded / parody intro bits) 49:19 Could you make the argument-

Chamath Palihapitiya 49:19 ... which I think you try to be too.

Jason Calacanis (pre-recorded / parody intro bits) 49:20 But could you make the argument that someone dunking on your company is the equivalent of a hedge fund shorting a company?

Chamath Palihapitiya 49:26 A-a-a I'm talking about my personal relationship with Chamath, which, you know, it's different than, you know, the, the public markets, right? Like-

Jason Calacanis (pre-recorded / parody intro bits) 49:32 I know, but I s- what I'm saying is, like, I think in the private markets, we hear a lot about venture investors, um, you know, often speaking good about their own companies. Where people really get irritated is when venture investors speak bad about other companies. It's the equivalent of the hedge fund short. And, uh, you know-

Chamath Palihapitiya 49:48 Yeah, I mean, it, it is dunking-

Jason Calacanis (pre-recorded / parody intro bits) 49:51 Jake L, I ... J- Jake L, I want ... I mean, Chamath may be dunking on Robinhood. I don't hear him dunking on you. I mean, really.

Chamath Palihapitiya 49:55 No, he just said, "I stumbled into the investment at the opening."

Jason Calacanis (pre-recorded / parody intro bits) 49:58 Well, you stumbled into Vlad in a bar. I mean, you know-

Narrator 50:01 That's true. (laughs)

Jason Calacanis 50:02 You told, you told ... Jason-

Chamath Palihapitiya 50:03 Vlad-

Jason Calacanis 50:03 ... you told the story. Jason-

Chamath Palihapitiya 50:04 Vlad-

Jason Calacanis 50:04 ... you told the story-

Chamath Palihapitiya 50:05 ... recognized me in a bar and came up and pitched me a startup.

Jason Calacanis 50:08 Fine, Jason, but you told the story flippantly on television that you ran into him at Antonio's Nut House.

Jason Calacanis (pre-recorded / parody intro bits) 50:12 (laughs)

Jason Calacanis 50:13 What do you want-

Chamath Palihapitiya 50:13 It's true.

Jason Calacanis 50:13 ... us to think? You didn't tell us-

Chamath Palihapitiya 50:15 It's true.

Jason Calacanis 50:15 ... "Hey, listen, I had, I had systematic scouts reach out based on traffic growth. I sat down, they pitched-"

Chamath Palihapitiya 50:20 That's not my ... That's not how I get deal flow.

Jason Calacanis 50:21 Fine, so-

Chamath Palihapitiya 50:22 I get deal flow by doing a podcast, which, by the way-

Jason Calacanis (pre-recorded / parody intro bits) 50:24 Jake L-

Jason Calacanis 50:24 Then, then, Jake L, if you want me to apologize for saying-

Chamath Palihapitiya 50:25 Your deal flow is through this podcast. (laughs)

Jason Calacanis 50:27 Jason, but Jason, if I ... If you want me to apologize for saying that you stumbled into it based on your public description on television-

Jason Calacanis (pre-recorded / parody intro bits) 50:33 (laughs)

Jason Calacanis 50:33 ... then I'm sorry.

Jason Calacanis (pre-recorded / parody intro bits) 50:34 (laughs) Yeah, look, Jake-

Jason Calacanis 50:36 But it doesn't, but it doesn't take away from what we have ... I'd, I think the investor's responsibility ... This is what I think is fundamentally wrong with Silicon Valley. We are people that basically do this, like, hero worship around founders, and it's stupid. I think we have a job as fiduciaries to the users and to the employees and to everybody else that doesn't have a voice, and most investors are incapable of actually pushing people to do the right thing. Okay? I've-

Chamath Palihapitiya 51:00 Oh, I'm pushing-

Jason Calacanis 51:00 I've-

Chamath Palihapitiya 51:00 ... to do the right thing, and I always have.

Jason Calacanis 51:02 I've learned the hard way, and in this example what I'm saying is, this problem should have been solved three and four quarters ago. And that's a governance failure.

Jason Calacanis (pre-recorded / parody intro bits) 51:10 So, yeah, I mean, look, yeah, you're ... So, Chamath, you're right about that, but, I mean, just to give Jake L a little support here, I mean, the reality is, I, you know, we've all been on the inside of these hyper-growth companies, and, you know, like, mistakes happen all the time because you're moving so fast, and yes, it should've, it should've been fixed, you know, but, but, you know, stuff happens. Now, the question is, when bad stuff happens, is it an integrity issue or is it negligence or is it just people running too fast? And I don't think we know that this was an integrity problem. I mean, it could have just been people running too fast.

Jason Calacanis 51:43 David, but David-

Chamath Palihapitiya 51:44 That's what I mean.

Jason Calacanis 51:44 ... you knew what the rules were, meaning, I, I don't think ... I think it is an integrity issue. The rules were not, uh, like, all of a sudden in a crystal ball and all of ... there's a magic eight-ball that spits out a rule. When you do a deal with DTCC, when you did a deal with your holding company for clearing, you signed contracts. Those contracts should have been modelable. This is an Excel problem. This is not, like, a-

Jason Calacanis (pre-recorded / parody intro bits) 52:07 I, like, I, I, I hear what you're saying and I'm saying I don't completely know. I want to get to the bottom of the relationship between Citadel and Robinhood and I want to understand if there was any undue influence there, okay? Or whether this was just a case of hyper-growth catching a company by surprise. I'm not defending them, I'm just saying I don't know, and therefore I think it's a little bit premature to be talking about giving this company-

Chamath Palihapitiya 52:29 I, uh, and I also-

Jason Calacanis (pre-recorded / parody intro bits) 52:30 ... death penalty.

Chamath Palihapitiya 52:30 ... don't think, is-

Jason Calacanis (pre-recorded / parody intro bits) 52:31 That's all.

Chamath Palihapitiya 52:31 ... is there even a possibility that this has ever happened in the history of the stock market or the modern stock market-

Jason Calacanis 52:37 Yes.

Chamath Palihapitiya 52:37 ... that 10 million new in ... Well, hold on, I didn't even say what it is. 10 million new retail investors came into a stock, you know, or millions of them a day, and that the stock traded 10%? I don't think that we've ever had social media collide with finance like this, and it's very reminiscent of our discussions with democracy and journalism censorship-

Jason Calacanis (pre-recorded / parody intro bits) 52:54 By the way, uh, yeah-

Chamath Palihapitiya 52:55 ... and, uh, and politics. We, we're having weird behaviors because of virality. And that-

Jason Calacanis (pre-recorded / parody intro bits) 53:00 I think that-

Chamath Palihapitiya 53:01 ... seems to be the common

Chamath Palihapitiya 53:02 theme.

Jason Calacanis (pre-recorded / parody intro bits) 53:02 ... I think, I think th- this is the most important learning from this experience. Forget about the fiduciary and the governance responsibility of these companies. Whether they were good or bad will be resolved over the next couple of weeks and months, I'm sure, as more information comes to light. But what's super interesting about what happened this week, and I think it's the most impactful societally over time, um, is that we're seeing this phenomena where, um, individuals in aggregate can believe something to be true and make it true. And, um, we saw this with Tesla, and I, I don't think Tesla got this level of notoriety because it was such a, uh, a longer play out cycle, but Elon, you know, was not hitting numbers that people thought he was gonna hit, margins, production volume, et cetera. People were shorting the stock. But enough people believed in the story that Elon told about what he wanted the future to look like that they bought the stock, and that gave him the ability to do shelf offerings, raise additional capital, and ultimately build the business and make it manifest in reality that he said would happen. And the same is true of Bitcoin. Um, and the same is true of Trump, and the same is true of storming the Capitol. In all of these cases there was a belief in something and there was an aggregation of individuals using social media as a mechanism for sharing and talking and engaging and creating a collective outcome that wouldn't have happened through a centralized system or a centralized process and wouldn't have happened in the traditional way where history defines the future. And I think that is what's so powerful about what's happening right now, um, and we're seeing it in financial markets but we're also seeing it play out in politics and we're seeing it play out i- in the real world, um, in a, in a remarkable way. And it goes back to this notion that, like, a stock is worth the underlying value of the company, and that, that's not true. People can dream a stock to be anything as they did with Tesla. At the time that people were buying Tesla stock, the historical performance of that business was not what hedge funds considered to be a, you know, a profitable, good business. It shouldn't be worth anything. But the belief in what it could be i- is what drove the value of that stock, and ultimately that value enabled that business to become true. Um, and it's just ... It's, it's amazing to see it happening, and I think the, the counter, which is really what makes this so striking, is the centralized institutions that are trying to block this from happening, and, um, the shutting down of Parler and the shutting down of Robinhood Trading are, are equivalent-... from my point of view, um, or at least equivalent, I think, will be perceived to be equivalent broadly, which is if a group of people get together and try and use an online service to make a change in the world by sharing and talking with one another and communicating a belief, a collective belief, and that gets yanked away from them, the institution that has the ability to yank it away from them is evil and it will force people to decentralize and it will enable new ways of trading, new ways of communicating, um, new ways of building. Um, and, and that's the profound change that I think this decade is gonna realize, and we're just seeing it start now.

David Sacks (main long-form segments) 56:00 I, I agree that Parler, or WallStreetBets is Parler 2.0, right? And, and what happened? As soon as WallStreetBets started th- which is the, the, the, the Reddit kids, they started threatening and they wounded these powerful insiders, these rich, you know, hedge fund magnates. What happened? They started getting banned off of Discord. They got Discord as a tech company to kick 'em off. How did that happen? They've been talking on there for months, and all of a sudden just magically right at the critical moment where they're also not allowed to trade, their free speech gets cut off? That's a de- that, that was deliberate. Now, and I'll tell you how it happens, is I guarantee you what these hedge funds did is they went through the Discord room and they screenshotted, you know, any post that they could plausibly characterize as, you know, hate speech or what have you. And, you know, and, and by the way, I mean, those, there's a lot of raunchiness in these rooms, but it's not hate speech and it's not organized for the purpose of hate. It's organized for the purpose of trades. But what they do is they weaponize these censorship rules and they go in and they screenshot and then they give it to Discord and they get these guys kicked off. And this is exactly what I've been talking about with censorship. It starts as something you like and then becomes something you don't. How many of the people who support these, you know, Reddit kids, were in favor of deplatforming Trump and Parler? And now they can see where it goes. This is a slippery slope, and we've only had to wait three weeks to see where it goes. It goes to the same place, which is when the people in power get threatened, they use these rules, they weaponize these rules to shut down the outsiders and the upstarts. That is a problem with censorship. That is why you cannot let the beast get started.

Jason Calacanis 57:42 I completely agree, and I think this is exactly why how, uh, I think where we came out was, you know, the deplatforming of Trump made no sense. I think the, the economic censorship of Robinhood makes no sense.

Jason Calacanis (pre-recorded / parody intro bits) 57:55 Yeah, and you can argue it's the right thing to do with a narrow context, but when you take the broader point of view of the implications, that's where this becomes really shaky and really scary, and I think really enables a decentralized movement that is gonna be a lot broader, um, than, uh, than folks are really realizing at this point. You know, folks don't want to be trading, um, on a system that tells them how to trade, and folks don't want to be communicating on a system that tells them how to communicate.

Chamath Palihapitiya 58:20 If I gave ... If I was running Robinhood and I said, uh, "We're gonna have two options. There's gonna be a Robinhood Diamond membership and you pay by the trade and, you know, you get these special features. And then the Robinhood Free, you know, you, you get, uh, your data is sold or however it works." Would that be a possible solution, I think, to the optics issue here where consumers could basically pick? Just like if Facebook or Instagram woke up one day and said, "For 9.95 a month, you can have none of your data, no advertising, ad-free," like Hulu does-

Jason Calacanis 58:53 I would, I would-

Chamath Palihapitiya 58:53 ... you know, Hulu, Hulu Premium.

Jason Calacanis 58:55 I would ... So here's the thing, J-Cal. Um, I, I hope your Robinhood investment is successful. I just think that there are now three moments in Robinhood's life. There is pre this week and it is what it is, it's an $11 billion unicorn. God bless them. Then there was this week where we have to frankly hold people accountable for the economic damage that they created this week because it is measurable. Okay? It's not the, it's not like missing a, you know ... Um, uh, it's, it's, it's not like, you know, surge pricing in Uber. It's not, you know, uh, Facebook growing too fast and allowing, you know, pictures of breasts getting posted and all that to catch up. It's not that. Okay? It's not a bunch of like disinformation that we can't really judge. This is very discretely judgeable. And so in this week, Robinhood existed as a different company, and I think that there's an implication for that. Then to your point, honestly, I agree with you, it's what happens from here. And I ... And they should survive, but they have to learn. And I think what they have to learn is you have to stop the account growth. You have to massively shore up the balance sheet, take the dilution, get the capital you need because let's be honest, I'm sorry, but nobody's gonna show up with five or $10 billion at 11 billion pre. They'll show up with five or $10 billion at three billion pre and they should take the money, and then they should allow the platform to work as intended or at least as perceived it to be intended to their users and then they should reopen to everybody.

Chamath Palihapitiya 1:00:18 What would you do, David, if you were in charge? And then let's move on to our next topic.

David Sacks (main long-form segments) 1:00:21 Well, I, I mean, I, I, I, I, I feel like we probably talked about Robinhood enough and I kind of want to back-

Chamath Palihapitiya 1:00:25 Yeah.

David Sacks (main long-form segments) 1:00:25 ... go back to the point that, that Friedberg was making, just kind of upleveling this a minute, which is-

Chamath Palihapitiya 1:00:29 Yeah.

David Sacks (main long-form segments) 1:00:29 ... I, I definitely think this is part of this ongoing populism versus the elites war. And social media is now the tool that the people use to organize themselves against these powerful elites. It's why we cannot allow censorship because it always comes down, uh, it, to benefit the powerful, the elites against the people who are trying to organize against them. That was for, to me, one of the biggest takeaways from this week. And, and look, the reason why people are organizing is they're asking the question, what is the societal benefit of these big hedge funds in relation to the enormous sum- sums of money they make every year? You go to like the Forbes rich list or whatever, and every year these guys are taking down the most money. They're not creating companies, you know, and, and Chamath is right, we can't have founder worship because they make mistakes too. But at least founders are creating things, right? They're taking big risks. They're, they're not providing risk capital like what we do, okay?... we're investors, but we're funding people's... You know, we're, we're, we're, we're taking the risk of writing checks to f- to start the guy who's got nothing, right? So, we're-

Chamath Palihapitiya 1:01:38 Or gal.

David Sacks (main long-form segments) 1:01:39 Or gal.

Chamath Palihapitiya 1:01:39 Yep.

David Sacks (main long-form segments) 1:01:39 You know, the- they, them.

Chamath Palihapitiya 1:01:41 Yep.

David Sacks (main long-form segments) 1:01:41 It's all, all good. Um- (laughs)

Chamath Palihapitiya 1:01:42 All of 'em. (laughs)

David Sacks (main long-form segments) 1:01:43 All of 'em.

Chamath Palihapitiya 1:01:44 (laughs)

David Sacks (main long-form segments) 1:01:44 So, so, but, but, b-

Chamath Palihapitiya 1:01:45 Trying to keep you from getting canceled here. (laughs)

David Sacks (main long-form segments) 1:01:47 But, but, but, but, but, but, but what, what exactly is the societal value of these hedge funds? Now, I know that they provide some price discovery and they provide greater liquidity to markets. But is that really worth them really being the richest players in the game? It doesn't make any sense. And then when they lose, like in 2008, they get bailed out.

Chamath Palihapitiya 1:02:06 It makes no sense.

David Sacks (main long-form segments) 1:02:06 And so something... It makes no sense. Something is wrong here. Now, is this a right-wing view, a left-wing view? It feels to me like there's a political realignment happening here, where the left and the right, we're all getting on board with this idea, and it's gotta get fixed.

Chamath Palihapitiya 1:02:20 Yeah, this, uh, this might be the legacy of Trump and the way, Sachs, that he created so much disruption over those four years that now we're actually finding out where the actual breaking points are in society and this is one of them. And the healthcare system is one of them, and freedom of speech is one of them, and we need to address each of these. A- and they're complex, but there is common ground. I mean, when AOC and Ted Cruz are both agreeing, uh-

David Sacks (main long-form segments) 1:02:42 Totally.

Chamath Palihapitiya 1:02:42 ... on the same issue-

David Sacks (main long-form segments) 1:02:44 Totally.

Chamath Palihapitiya 1:02:44 ... well, something's going on here. Like-

David Sacks (main long-form segments) 1:02:45 Totally.

Chamath Palihapitiya 1:02:45 ... I think we have to fight the real enemy. Chamath and I should not be fighting over this because I can tell you, if Chamath did the Series A in this, he would be backing up Robinhood like this-

David Sacks (main long-form segments) 1:02:53 Uh, yeah. (laughs)

Chamath Palihapitiya 1:02:54 ... to the end of the, end of earth. And that's totally fine, and I agree with that decision.

Jason Calacanis 1:02:58 No, Jason, I just, I just want you to know, number one, I love you with all my heart. And I-

Chamath Palihapitiya 1:03:01 Same.

Jason Calacanis 1:03:01 And I hope you make-

Chamath Palihapitiya 1:03:02 Same.

Jason Calacanis 1:03:02 ... I hope you, I hope you make-

Chamath Palihapitiya 1:03:03 Ditto.

Jason Calacanis 1:03:03 ... hund- hundreds and hundreds of millions of dollars. But there's a, it's just like, you know, you were, you just got upset with me because you thought I was kind of saying that you stumbled into it. I didn't mean it that way, I was just repeating the way that I heard the story. But something that touches me equally ferociously is this idea of, like, the little guy getting run over by some, like, you know, objective thing over here that makes a decision that's arbitrary, but, but also very-

Chamath Palihapitiya 1:03:28 I would 100% agreement with you.

Jason Calacanis 1:03:30 And so, like, the idea that, like, you know, somebody who's on an app all of a sudden gets censored, somebody that, you know, makes a post gets canceled, somebody that al- tries to make a trade, can't, all-

Chamath Palihapitiya 1:03:41 It feels unfair.

Jason Calacanis 1:03:42 It feels that each individual is suffering some pretty deep inequity.

Chamath Palihapitiya 1:03:47 Yes, agreed.

Jason Calacanis 1:03:48 And I, and I can't, I just can't stand that. It really just touches me in a way that tilts me and I get very-

Chamath Palihapitiya 1:03:54 W- and, and you know what? It's interesting. I think the reason I made the Robinhood investment is because my belief in the underdog and my belief in people's ability to come up from being poor or middle class to middle class or affluent. Friedberg, you haven't chimed in yet. Uh, as we wrap here and then move on to our second topic-

Jason Calacanis (pre-recorded / parody intro bits) 1:04:11 I think-

Chamath Palihapitiya 1:04:11 ... uh, we're at an hour. (laughs)

Jason Calacanis (pre-recorded / parody intro bits) 1:04:13 So it's, um-

Chamath Palihapitiya 1:04:14 (laughs)

Jason Calacanis (pre-recorded / parody intro bits) 1:04:15 So I just wanna say, um, you know, we talked about decentralization and, you know, w- we all feel the emotional response to the little guy getting screwed by the big guy that controls the system and we wanna fight the system. That's the basis of every great movie. Um, it, the, the, the... It's worth highlighting though that decentralization and what I would kind of characterize as swarming behavior, uncontrolled swarming behavior, can actually have negative consequences. And there's a reason systems exist. You know, um, w- when you put a bunch of people in a room, let's say you put 100 people in a room, and every time... And someone says the word door, and every time you hear the word door, you're supposed to repeat it. Within 30 seconds, the entire room will be, like, deafening with everyone screaming, "Door, door, door." And suddenly everyone will be screaming it. That's a feedback loop that occurs in an uncontrolled social system. And that's what's occurred with GameStop and it's what occurred with, with, with Bitcoin. So there are, as we've seen, remarkable outcomes when you allow systems to operate without centralized control and without centralized brake pads that, that kinda slow them down or, or put in place some rules and some obligations to how that system operates. The problem with decentralization and this swarming approach, uh, to, to resolution where lots of people basically work together individually, is you end up with things like cancel culture, where, um, before a judge and jury determines whether or not someone did something wrong, the community decides that person should be punished and shuts them down in the real world and their career and their life is ended and ruined. And we saw the same, and we saw the same with the Capitol riots. You know, people basically died because of the swarm that occurred where this idea that the el- there was fraud in the election became an echoing, deafening noise for these people, and they swarmed and killed people. And, um, the system by which you can actually have vigorous debate and the system by which you can actually have controls and processes and judges and juries and trials is what needs to be improved for this to work. Otherwise, people will go to decentralization and you will have a Lord of the Flies moment that engulfs civil society because the tools are there today. And so centralized systems can work, but they have to adapt and adapt quickly to be fair and to enable and to not, um, discriminate. Uh, otherwise, we're gonna see Lord of the Flies and we're gonna see decentralization being the solution to getting out of the system that's inhibiting us and we're gonna end up having really fucking ugly outcomes.

Chamath Palihapitiya 1:06:43 There's a psychological term for what you're describing, it's the diffusion of responsibility when, and also known as mob behavior. When a group of people collectively do something, their individual morality can evaporate. And the larger the group and the, uh, more intense the behavior, the less responsibility each person takes for it. So five people on the steps of the Capitol, you know, one person breaks a window, maybe somebody breaks it. But once you have 500 or 5,000 and one person breaks a window, now you got a much higher percentage of people who will start breaking windows and that's when tragedies happen. Of course, World War II-

David Sacks (main long-form segments) 1:07:15 Yeah.

Jason Calacanis (pre-recorded / parody intro bits) 1:07:15 Mm-hmm.

Chamath Palihapitiya 1:07:15 ... was the diffusion of responsibility with the Nazis.

Jason Calacanis 1:07:17 Completely agree.

David Sacks (main long-form segments) 1:07:18 Just, just take-

Jason Calacanis 1:07:18 Yeah, you're totally right.

Chamath Palihapitiya 1:07:19 Yeah.

Jason Calacanis 1:07:20 You're totally here, too.

David Sacks (main long-form segments) 1:07:21 Just one, just one quick point and then we can just move on.

Chamath Palihapitiya 1:07:23 Yeah.

David Sacks (main long-form segments) 1:07:23 So I think these, like, viral tools, these social networks, they enable two things. They enable mobs, but they also enable movements. I think the mobs are bad and the movements are good or-... they can be good, depending on what their manifesto and what their mission is. And so, I think we want to enable the movements, but we want to be really careful about the mobs. And, you know, one of the things that's kind of disturbing about Twitter is, I generally find that, like, the tweets that seem to go the most viral are the ones that are full of rage and anger. (laughs) And the ones that are trying to make more nuanced points just kind of get lost. And so there, there is something a little bit disturbing about the mob behavior, but, but the movement, the enabling of these new movements, I think is really powerful. And that's what WallStreetBets was, at least in the early stage. And they did not deserve to get shut down like that. All right. Let's-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:06 Social, social networks-

David Sacks (main long-form segments) 1:08:08 Let's-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:08 ... are a collective amygdala. They are not a collective cerebral cortex. And I think if someone can solve that problem and get people to think about the rational objective outcomes in a social way, in as engaging a fashion as it is to kind of be excited by the negative shit that excites the amygdala, um, you know, it could be really powerful, but that's probably another conversation.

Chamath Palihapitiya 1:08:27 W- we're gonna need politicians who-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:28 Yeah.

Chamath Palihapitiya 1:08:29 We're gonna need some level of politician who has some integrity and some expertise-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:33 (laughs)

Chamath Palihapitiya 1:08:33 ... if only there were-

Jason Calacanis 1:08:34 Well, don't you think, don't you think, Jacob-

Chamath Palihapitiya 1:08:36 Politicians with experience-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:37 He's making a, he's making a transition for you, Chamath. (laughs)

Chamath Palihapitiya 1:08:38 ... bold ideas-

Jason Calacanis 1:08:39 Wait, I was gonna say-

Jason Calacanis (pre-recorded / parody intro bits) 1:08:40 (laughs)

Jason Calacanis 1:08:40 Don't you guys think that what this means is that, uh, entrepreneurs now can really think about decentralization as the key feature? Like, in many of these markets or these systems where we have the centralized authority, we have to move to a much more decentralized, democratized way of doing things, whether it's stock trading or whether it's healthcare records, or whether it's, you know, education systems and degrees and accreditation. There, there has to be a way where you can't be canceled.

Jason Calacanis (pre-recorded / parody intro bits) 1:09:06 But with, with morally ... Yeah, but with morally and ethically inclined and/or legally inclined systems that ensure that the behavior of that system doesn't run amok. And, you know, that's really where things can, um, can go, can go awry, uh, as we've seen lately. Um, but it's a hard problem to solve. It, I, I don't think we're gonna solve it here today.

Chamath Palihapitiya 1:09:27 Just a, a final update. (laughs) Fif- I don't know if this is exactly correct, but I just asked on Twitter how many shares of GameStop are still short. Apparently, they're still 55 million (laughs) shares are so short, uh, of the 70 million or so, uh, sha- total shares and 47 million in the float, um, so something very bad could still happen here. I mean, the- these shorts have not been covered, so this is going to be an ongoing saga where, I think, every single platform if, if consumers keep buying these shares what is the end game? Does anybody have an idea or a prediction on the endgame here? And then we'll move on. What is the endgame if another five million people buy the shares or 10 million people buy it and it goes to a thousand or two thousand? What happens if GameStop is worth a hundred billion dollars?

Jason Calacanis 1:10:09 (laughs) This is such a great-

Chamath Palihapitiya 1:10:11 I mean, it could happen. It's a great question. It could happen.

Jason Calacanis 1:10:12 Well, can I tell you, Jason, what that means? Uh, there's a great article in The Information which Sam Lessin wrote. I don't know if you guys read it, but it basically said why did Tesla win. Now, this is not accurate, but I think his framing is relatively accurate, which is, people were buying Elon like they would buy a trading card.

Jason Calacanis (pre-recorded / parody intro bits) 1:10:30 That's right. That's right.

Jason Calacanis 1:10:31 And, and Tesla is a manifestation of Elon.

Jason Calacanis (pre-recorded / parody intro bits) 1:10:33 That's right.

Jason Calacanis 1:10:34 Um, and it actually is so visually ... It makes a ton of sense to me. Like, then I think, you know, why have, like, Richard Branson's businesses worked or why does the Jordan brand work, or-

Chamath Palihapitiya 1:10:44 Chamath.

Jason Calacanis 1:10:45 All the ... You know, at, at, at a smaller level. Yeah, at a smaller level, 'cause we're brands and we have these values and people can imbue their, their collective decision-making and support to the person versus the institution.

Jason Calacanis (pre-recorded / parody intro bits) 1:10:57 It's a belief. It's a belief in what that person represents too. You know, I can, uh ... Why did, uh, uh, MBS buy that fricking painting that wasn't even a Leonardo painting for a billion dollars, you know? There was some belief there. You know, is it really worth a billion dollars? It doesn't matter. At the end of the day, most assets are, most assets are purchased under the premise that I believe the price will be higher tomorrow than it is today. And if we all believe that, then we will all buy it today, and we will all find more people buying it tomorrow. That's what Bitcoin is. And-

Chamath Palihapitiya 1:11:29 Do we all agree though that GameStop is not Tesla?

Jason Calacanis (pre-recorded / parody intro bits) 1:11:32 I don't agree with your premise. I don't think that stocks necessarily need to be reflective of the underlying business. And that's what's so-

Chamath Palihapitiya 1:11:39 Okay. But what, what-

Jason Calacanis (pre-recorded / parody intro bits) 1:11:40 But, but no, just think about it. It's, that's what's so shocking about this week, because we've all been taught in these fricking economics books and these financial analysis books, "Oh, the stock is worth X dollars, this kind of cash flow." What company has ever paid out dividends that equal the amount that you paid to buy the fricking stock unless you lived in 1926? It hasn't happened. So everything we've been taught about DCFS and future cash flows and everything is nonsense. At the end of the day, every stock trades based on the assumption that someone will pay more for it than I am paying for it today. That is it. That is entirely what a stock is. And so if everyone's belief is completely uncoupled from the underlying asset that that stock is meant to represent, it doesn't fricking matter. And it highlights what's really going on. Trading stocks is not investing in businesses. And it is-

Jason Calacanis 1:12:25 Can I say-

Jason Calacanis (pre-recorded / parody intro bits) 1:12:26 Yeah.

Jason Calacanis 1:12:26 Can I say something else on top of this? Jason, what was the name of the ... Remember when we were talking about censorship? What was the name of the, the, the, the Left podcast that got canceled on Twitter?

David Sacks (main long-form segments) 1:12:35 Red Scare.

Chamath Palihapitiya 1:12:36 Uh, Red Scare.

Jason Calacanis 1:12:37 Red Scare. Is GameStop Red Scare or @TheRealDonaldTrump? And my point is, who the hell are we to decide?

Jason Calacanis (pre-recorded / parody intro bits) 1:12:46 Right.

Chamath Palihapitiya 1:12:47 How does it unwind? Let's do a prediction.

Jason Calacanis 1:12:48 But they both got ... All three got canceled. All three-

Chamath Palihapitiya 1:12:50 We're asked what's-

Jason Calacanis 1:12:50 ... got canceled. (laughs)

Chamath Palihapitiya 1:12:51 Sacks, what's your prediction? We're sitting here a year from now, full year out. What does GameStop January 2022 look like? What does the stock price look like? What does the business look like? What ... How does this all resolve itself?

David Sacks (main long-form segments) 1:13:04 You know, I'm, I'm not a public stock