All-In with Chamath, Jason, Sacks & Friedberg - E19: Breaking down Robinhood's GameStop decision: Why did it happen and how can it be prevented in the future?

Episode Date: January 30, 2021

Follow the crew: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/MikeSylvan Referenced in the show: David Sacks on Bloomberg https://www.youtube.com/watch?v=K2lJg4sxl2U Chamath for Governor https://www.chamathforca.com DeepFuckingValue's Reddit page https://www.reddit.com/user/DeepFuckingValue Show Notes: 0:26 Besties intro 2:11 Chamath breaks down the entire WallStreetBets/GameStop saga 15:38 Jason responds, debating Robinhood's liquidity crisis, Citadel's potential involvement & more 39:18 How can this be prevented in the future? Restructuring capital gains tax, censorship, where Robinhood can go from here 53:02 Major learnings from this week's events, risks of decentralization, do stocks need to be reflexive of the underlying business? GameStop's endgame 1:15:01 Chamath for Governor of California, Friedberg on leaders vs. managers & the problem with career politicians

I'm going all in with your beat, with your beat, with your beat, with your beat, 50s are coming. I'm going all in with your winners, ride. Rainman David Sack. I'm going all in. And it said we open source it to the fans and it just goes crazy. Love you guys. I'm queen of Kenwap. I'm going all the year.

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 going to go around the horn with our special picks. We're each going to pick three picks, everybody. We're going to pick our favorite recipe, our favorite new hobby, and our favorite streaming guilty pleasure, because there was no news.

With us today, the dictator, Chimoff Polly, ha, patia, Raymond David Sachs with his new track from Young Spielberg, just ripping across the charts, Young Spielberg added again, this time with a track focused on the Raymond himself, and the queen of Kinwa, whoever everybody says we should upgrade to the king of Kenwa,

did it so sexist, why is that an upgrade? The queen of Kenwa is better. I don't know, people just felt I was being, 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. That's what I'm saying. Jason, here you go again, would be derogatory. I think these people are not woke and they need to be canceled.

Jason, here you go again, making a lot of assumptions about people's pronouns. Yeah. I'm sure. They, they, they quit of kidwalk. They, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, they, firmware upgraded. All right, so I think we might as well start with, I don't know if you guys caught this, but there's a red subreddit called Wall Street Bets. And what they do on Wall Street Bets is they find angles and these this and then they bet on a stock. The stock they picked for the past couple of months has been GameStop and And, boy, do they?

Jason, hold on a second. Ram is, yes. That's not true. So, I had actually a guy on my team put together two really important documents, and I'm just going to read them, because it's full of so much interesting shit. And then we can talk about, where are these documents from? You saying from the Wall Street bats?

No, no, no, no, I had a guy go in, 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 corporate scumbags that Robinhood and other fucking people over. So let's do that in that order, okay? This is the why they call him the dictator. Let's talk with the...

Read your bias and... No, no, shut up, Jason. Boring the document. Go. You're an idiot, because you just want to defend people, because you blindly stumbled into a fucking trade that actually made a little money. Low 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. So I understand what it means to be putting on trades, to being short, to being gamma squeeze, 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 you. 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 cost 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 Wall Street Bets user named Deep Fucking Value began buying long dated January 21 calls. But 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, which by the way, today is worth about $25 million. By the way, 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. Yeah, and by the way, those forums exist in the professional organized world too. Right. Amongst hedge funds, 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. 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 been stuck with this for a while. So, this guy deep-f value 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 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% of GameStop's 5700 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. I think also it's worth saying what GameStop is because 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. And consoles and headphones and other stuff. And they'll buy back your old games. And so the stock got beat up over the last couple of years as people stopped going to malls and stopped buying stuff in stores and everyone thought the company was going to die. And so these guys observed that maybe there's real value in this company and it's making

money. Digital downloads are on the other side. No one buys DVD runs anymore or anything like that. So. And the chewy founder who is very successful at e-commerce came in to run the company. Yeah, that's it. That's the best part of the story. 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's the founder of Chouy, 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 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. Game stop 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

lights 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? 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, games stop strikes an agreement with Ryan Cohen and adds them 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 it about 20 bucks a year. One day later. And it 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 Brian Cohen is going to 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 setup, the pros versus the jose. 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. This is what has created this crazy nonsense we've seen. So on the institutional side, after retail drives a stock up, the institutional guys are like, hey, wait a minute, Ryan Coen's an idiot, this company is fucked, fuck these guys. They have too many 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 exists. So now there are 140% short. The Joe's retail, they start to aggressively purchase all these cobble options, and on January 13th and 14th, this 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. And then over the past seven trading days, we have traded over $100 billion of stock and game stock, 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 Announce is that they were short game stop and they gave five reasons why it should go to 20 bucks The stock was at 3550 on January 19th Then over the next two days, game stop 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, 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, two billion from Citadel and 750 from Stevie Cohen, they inject almost $3 billion into Melvin capital, the firm that was short, two billion from Citadel and 750 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 bank 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 game stop, 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, allie, blah, blah, 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 d'agra 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, because in fairness, it wasn't just Robinhood, prevented their users from buying GameStop in a handful of other stocks. They were only able to sell, which resulted in such a one-way pressure, it caused a 44%

sell-off 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,

they 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 allowing people to trade. And it just shows how fragile the whole system is. The last thing I'll say and then we can talk about this is how does Robinhood make money, which I think is also important to understand it 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 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. 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 a hundred million in the quarter or a four hundred million dollar 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 belongs one.

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 in solving. I.E. Robinhood.

Jason, over to you. Okay. I think we probably agree on a lot of things here. Thank you for the concise overview. We agree that Wall Street bets and retail investors are incredibly 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 hedge funds do manipulate the markets with these. We all also agree that it's unfortunate that in order to stay solvent, Robinhood, apparently, 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, Chimap, 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. 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 in 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, Robin Hood, Tesla, etc. And they all have to weather these storms.

And I think that there are pieces of information that you do not have, Chema. And for you to say that they're criminal, 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, whether the storm, and they've done great things in the world. And I'm very proud of that, and I will be very proud of what I believe that for Friday and the CEO, and they brought Indara who cleaned it up. and I'm very proud of that. No, no,. He lied on Fox. Where did he not lie? What is the lie? Well, Jason, let me... Jason, what have you...

Jason was confronted about whether there was a liquidity crisis and he said to their face, no, that is not true. I think this is being misinterpreted and there'll be a clarification, that'll car. 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 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 they have been number one in the App Store since this whole Fiasco starting. Nothing you're saying. It consensus me. This is the, they are the Lehman Brothers or Bear's Turns of 2008 to me. And they will not be. They will get through me. This is the, they are the Lehman brothers or bear's turns of 2008 to me. 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 exactly what Lehman and bear said. That is exactly what they said. And this, and they will, I believe Robin Hood will write it out because they throttle the number of people coming to platform. Las Vegas is not designed for everybody in America to come to Las Vegas in the same weekend. And that's what's happened. Will you admit that the tens of millions of people that had their hard earned money

inside of Robin Hood was prevented from participating in trades that could have been executed other places because of an arbitrary decision by Robinhood that they had it was an arbitrary. They had to stay insolvent. How is that? How is that an arbitrary decision? Do you think they wanted to make that decision? Jason, that's me telling you that they were insolvent. That's not them saying it. This is what I'm saying right now. 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 in solv, we cannot take this many trades. Is that what we call lies when people's money gets fucked over?

Just it's inconvenient. Let me just say one thing, I'm gonna interject. You're vigorous to date. The important thing I think to note is Robinhood makes money effectively, it's to Mods pointed out, 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

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 over time. So there was a lifetime value on an account because the customer would come in, they 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 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 Chimap is saying, like they did face a liquidity crisis to some extent. That's why they had to draw that at a additional. We all agree.

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, you know, there's certain. I don't disagree.

I don't disagree. I think this is an unprecedented situation with a number of participants. It reminds me of surge pricing with Uber during snowstorms. And that also was an unintended thing that, you know, 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 and then make it work.

And I think, you know, in the case of Robin Hood, 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 pausing signups, you're beyond 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 would leave that.

I agree with that. So Jason, let me just explain the mechanic. So that is poor communication for the rookie town. It's not. Jason, it's beyond poor communication. People were blocked out of their accounts. Like there was hundreds of incalculable amounts of economic loss.

That was poor. I don't know if that's gonna wind up being true, because all these trades are occurring now and the stock is a rocket ship. Who's to say that? No, no. I mean, look, I mean, Jason. And aren't the shorts all covered by now?

That's what they would say. No. No. There are still people. How do you know how many people are short right now? Eight. How many shares? Because it's the primes put the data together and they send it to us.

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 years. Jason, I don't have it. I don't have it literally in front of me, but I could get it in the next several.

Well, yeah, just text one of your people. You got all these researchers there. Good, that's it. Okay, look, I'm gonna try and thread the needle here. I think J.K.L. is right that we shouldn't impune people's motives without having all the information and furthermore, building these rapidly scaling startups is really tough and it could have just been a function of not knowing how to deal with unprecedented growing pains.

I don't want to be too judgmental. Can I just stop you there? No, but David, that's not, but you guys are not being accurate. They have known for decades, for years, sorry, deers, 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 except negligence.

Yeah, so I was about to, I hadn't gone to the part where I was about to agree with you, Jamath. I mean, look, all I'm saying is even if it was negligence, I'm not sure I would impune all the motives to them. That's all I'm saying. I'm trying to find some common ground with J. column that point, but where I totally agree with you, Tramoth, 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 stop people from selling. They only 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 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 spreading disinformation. Look at the year of hell that Elon went through, right? They tried to destroy Tesla.

Five years. Yeah, exactly. They tried to destroy companies to engineer that outcome. They create nothing. They're in the business of destruction. Now, the beautiful thing is you had these Reddit kids, these pirates, who published this manifesto, right, on Reddit. Basically, being the errors to occupy Wall Street, they recognize, look, occupying 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, paraphrasing,

John Maynard Kane said, we can be retarded longer than you can be solvent. And they were winning, that was what they said, right? And they were winning the trade, okay? And Melvin was dead busted and Citroën was on his way to being dead busted. And they had to go to big Papa Stevie Cone, okay, and Ken Griffin to get their rebice to buy their rebice to get back into the game, okay.

And then they had these guys on the ropes, they had them felt it, okay, and then what happens? Just at the moment where they're gonna, 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 wanna get out of the trade.

You can never take that 25 hour time period back, no matter what Robinhood does now. And so I agree with Jamoth. This was like, this was tremendous. David, on that point, I think it's, I am an agreement that the hedge funds deserve to get their assets kicked 100%. I also, as I said, we don't have complete information of why, you know, Robinhood had to pull us 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, and that they're still gonna get crushed,

because it's still gonna have to cover. I mean, we, I don't know. I so, look, I don't, like I said, look, 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. Yes. And it was really bad to pull the plug on the, the, the, the, the, the, the, the, the, the, they wish they didn't have to. I'm sure. 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 Tomat is making about who is doing the trade execution for Robinhood. Those trades are flowing to Citadel. Well, that's part of it. That's part of it, but 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? Well, Citadel, yeah. But, I mean, 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 in Robinhood, we're gonna cut you off. We're gonna cut you off,

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 be. Actually, can I just tell you, the question is important, but the way that you phrase it is you call them and you basically say, listen, you need to post $500 million of margin.

Why? Oh, well, these trades, you know, we're going to arbitrarily change the margin requirements. Okay. Oh, eight, you need to raise a, you need to post, so then what they did was they pulled all the credit lines. Okay. They post margin. Trade is still happening like crazy, right?

All these people are buying game stop calls. They have to go because look, when you buy a call, when you as a user, when David Friedberg Keenwab 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 got to go buy it. So this is what creates this dynamic where Robin Hood knew. They knew every second of every moment what was happening and more importantly, what could happen at a minimum, its negligence and at a maximum.

It's the fix. Well, it was and it was fine to do it before the market started to swing volatile, right? And so when the market wasn't high volume and when it was in volatile, it didn't matter because they had appropriate levels of surplus capital or statutory capital or whatever the definition is in this market to be able to cover the quote unquote,

var or the value at risk of their portfolio of their customer's worst case outcome. But as soon as that spiked, as soon as the var spiked, they have 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 declared, 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, I'm not making the case for Robinhood, but what would you guys have done in that circumstance? You know, suddenly all your, and by the way, I'm saying they created the case for Robinhood, but what would you guys have done in that circumstance? You know, suddenly, all you're, and by the way, I'm saying 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 in this way. You can't, you cannot run a business like that and be selective and arbitrary. You can't say some stocks on certain days, some stocks on other days, some options over here, some puts over there. That means you're a fucking moron. And what do you do on Tuesday or Wednesday when all of a sudden you're exposed to? Not Tuesday or Wednesday. If you are a reasonable manager of a business like this, this conversation would have been happening at a board meeting.

Quarters ago. Hold on a second. Let me finish, please. Okay. 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 forces you to be under these conditions where you have to make sure that you can understand some of these scenarios. And then you have to have 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. 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. Right? At a minimum, the business was massively under-equipped.

Relatively relative to what they were letting their customers do. Exactly. And 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 fall. Not just stocks, but options. Which is what creates the real spin up. The feedback loop that blows this whole thing up. And then number two is they don't know what they're doing. I think one thing that's really important, I just want to say this,

we should stop pretending that trading in stocks is investing in businesses. And this is something we've said for a long time on Wall Street, but stocks, shorting, margin, and derivatives. 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, SACS, 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 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 from CBOE that analyzes how much volume was traded across all the equity markets

last year in the US. Stocks traded a total volume last year. Are you guys ready for this? $121 trillion of no-sional across 2.7 trillion trades. Do you think that $121 trillion of no-sional 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 going to go up and I bet that something is going to go down with other

people 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 collapse of the... The only reason that Lehman and Bear Stearns was shut down was in 2007 and 2008, when they were in a liquidity crunch and 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 they were put into the Fed, and that's why we were able to basically come out relatively unscathed. But I mean, by relatively unscathates, it's like a global calamity. The tragedy of this is that this is the tragedy of the comments. It's like, 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.

So everybody that was a participant in it is in my opinion, I think, is guilty of all of this. They were complicit in the robbing of America. Do you think calls and puts and shortings should be allowed? Should those markets exist? I do have a sense of common sense solutions and 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 one share of stock isn't loaned out multiple times so that you can't have a scenario where you have more than 100% short. That's a no brain. That's a no brain. So you still support shorting, Shama. Yeah, let me just go through the list and then you can tell me what you think.

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. Maybe that's a, now maybe we found the first obvious use case for a blockchain, right? You can't borrow a share unless you can prove beneficial ownership in a nanosecond, which can only be done on a 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, this is 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 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 guys can cause systemic risks, right? So just on this example, I don't know if you guys have ever heard about long-term capital management. Yeah, the ACM, the Skyjohn Maryweather. The Asian currency crisis, the whole thing collapsed.

There's a good book on it. Well, so it's funny, but if you guys think this is the second financial calamity, it's not the third, because the first one happened in 1998. So in 1998, the whole economic system was gonna collapse if the bailout didn't happen. 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. By the way, synthetic margin, right? No actual capital was allocated to these to this transaction set. It was all synthetic. No money moved accounts when no money moved accounts. So it was literally just writing stuff against debt that couldn't have existed. Yeah. So they built 60,000 trading

positions and those individual positions represented again, 1.4 trillion US dollars. So you took these guys in a room, took 4.8 billion, got Nuckelhead over here to give them 125, and then got these Nuckelheads to sell them positions, and all of a sudden, 4.8 billion equaled 1.4 trillion. And so then US regulators had to step in, they had to orchestrate a bailout from a consortium of banks because they were concerned that if LTCM collapsed, the whole system would collapse because they didn't understand. So we have to put leverage limits on top of hedge funds.

The third is we need to improve disclosure. 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 improve disclosure, because then watch dogs and other people can basically be looking at it all day and identifying these risks faster or not slower. 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, you know, buy lottery tickets, but all of a sudden, we're gonna decide who's financially literate, a platform like Robin Hood can decide what's bought and what's sold. I don't think that's fair.

And then the last thing is I think that we should have a short-term trading tax. 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. I did the math on this because I actually, the reason I ran all the equity numbers was to figure this number out. So in the US, 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 charge 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 and 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. And so I think if you could pull that off, put the two together, 0.1% sales tax on every share sold and get rid of capital gains tax. The lobbyists. The lobbyist got to that bill, but that 10 basis point tax on high frequency trading.

It just means like, look, if you can 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 more money goes in, more money makes it's way into companies, right? And that's the bet. 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. The lowering the capital gains rate is genius because I think that if you are a retail investor and you can, for every year you hold, if you can decrease your capital gains rate by 20%, by the fifth year, now all of a sudden, retail folks aren't necessarily gambling their owning and their capital gains rate would be zero after five years. That would be amazing.

I have a basic question I'm interested in, your position sucks 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 it, 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 going to be left holding the bags? Is there any way this company could be worth 20 billion or 25 billion? Because as Friedberg points out, there are people are

not buying game stop. They're, they're trying to destroy a hedge fund, who made a stupid manipulative bet. Great. We all love the Robin Hood story of that, not Robin Hood TM, but the generic term Robin Hood What happens to those people? They're gonna be the last people holding the bag? Probably 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 these prices. It's not gonna end well now I do think that the redditors actually had a brilliant strategy, right? When they notice 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. 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. And the idea that you're gonna be be through at their own game, when, look, I mean, Citadel is executing your trades. I mean, right, the trades are, the order flow is going from Robinhood to Citadel. They're not gonna be caught flat foot. They're on the other side of this trade.

And so, I just think the house always wins. I'd be real careful about getting into it at this point I think I just see what you guys know Yeah, Robin Hood jit Robin Hood just tweeted that now the list of Restricted names is now up to almost 35 or 40 I think it's worth um They're randomly picking companies guys r-lx. What is r-lx? I think that's uh Ralph Lauren. Nope. You're not allowed to trade that.

SNDL, I don't know what that is, but you can only buy 10 shares. Would a better solution, Shamaaf, 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, Jamal.

I think that the issue isn't Robinhood's 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 a bunch of... If they had 20. Well, if they had $20 billion cash right now, this would not be an issue, right? I think you're right.

Okay. So assuming they can line that up, because that's probably what's going on right now, is a $10 billion investment is going to go into this company pre-IPO so that they can actually take advantage of this situation and grow. So despite the fact that you have an axiogram with them because you have so-fied competitor, that's very far behind them, that had its own colossal problems. Let's put that aside for a second. You're talking your own book without even mentioning it.

Do you think that if they had that 10 billion, they would just open up all the doors? Or do you think maybe they'd just say, hey, we're not going to add anybody else? I think that what's going to happen is they're going to get sued into oblivion. I think that the class action lawsuits here, when people talk about the implied losses that they had over the last 24 hours, David Sax is right, you can't undo it. The thing is, like in all of these other situations, like in the Uber Fiasco, you can't claim much damage, right? Because you can't measure it. You could have taken a bus. You could have taken a taxi. You know, you could have taken a bus. You could have taken a taxi. You could have taken a lift.

Maybe you could have walked. Who knows what it is. But the point is that the economic impacts, 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 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. Do 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 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 going to have to unwind this and unscramble this egg because it's a really big problem. Growing, growing willy-nilly because everybody's infatuated with valuations and blah, blah, blah. And you move into a regulated market where you need it to understand capital constraints, you need it to understand modeling, you need it to understand three and four sigma events. It just means you're under prepared, which means that at minimum, you can't be doing business until you get that shit under control. Yeah, I actually think we're almost in sync on this. You have a little bit of an extra grind because of your other portfolio company, I think, but you still won't recognize that you have a,

let's talk about worse in the race. Wait, wait, so far, I just did they, do they finish resolving all of their harassment, lawsuits? Is that all resolved now? Or is that still open? Yeah, we, we, you took them public. So did So did you work all that out before you took them public? Yeah, Jason, we transitioned the CEO. We've completely hired a new team. I mean, it's incredible. 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. Jason, you should Robin Hood can't. Robin Hood can't. Jamad can't talk about his company that's going public right now. So just as his lawyer, I'm going to step in and make sure. Okay, no problem. Just let me point down.

Make sure you don't go into saying something. He should have said that. All of our companies and I don't mean to create a lot of collateral damage here, but SACS had a company that had challenges. Jamad said companies have challenges. we all have companies that have 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 umbridge to you, Chimasek trying to dunk on me because I'm supporting an investment.

I think it's a low blow, 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, how do we resolve this? How do we get here and work with them? And I'm sorry that I'm right or die, but that's how I approach this is I should be trying to be helpful as a shareholder.

Could you make the argument? I think you try to be too. But could you make the argument that someone dunking on your company is the equivalent of a hedge fund shorting a company? I'm talking about my personal relationship with Chimath, which, you know, it's different than, you know, the public markets, right? I know, but I know what I'm saying is like, I think in the private markets, we hear a lot about venture investors, 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, you know, Jake, I mean, I mean, Chimath may be dunking on Robinhood. I don't hear him dunking on you. I mean, not really. I just said I stumbled into the investment at the opening. Well, you stumbled into Vlad and Abar.

I mean, you told the story. Jason, you told the story. Jason, you told the story. It came nice to me in a bar and came up and bitching in a store. But you told the story flippantly on television that you ran into Manitoneo's nut house. What do you want us to think? You didn't tell us, Hey, listen, I had systematic scouts

reach out based on traffic growth. I sat down, they bitch. That's not how I get deal flow. I get deal flow by doing a podcast. So Jason, then, Jake, I'll, if you want me to apologize for saying, your self flow. So Jason, then, Jake, if you want me to apologize for saying, your deal flow is through the podcast. But Jason, if you want me to apologize for saying

that you stumbled into it based on your public description on television, then I'm sorry. But it doesn't take away from what we have. 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. I'm pushing to do the right thing and I always learn 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 tough one to say. Yeah, I mean, look, yeah, so, Tremoth, you're right about that, but I mean, just to give J.K. a little support here, I mean, the reality is, you know, we've all been on the inside

of these hypergrowth companies. And, you know, like mistakes happen all the time because you're moving so fast. And yes, it should have, it should have been fixed, but 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. But David, that's what I mean. You knew what the rules were, meaning, I don't just been people running too fast. But David, that's what I was. You knew what the rules were. Meaning, I don't think, I think it is an integrity issue. The rules were not like all of a sudden in a crystal ball and all of it, 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 sign contracts. Those contracts should have been modellable. This is an Excel problem. This is not like a... 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 is 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 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 a best option. And I also don't think is there even a possibility that this has ever

happened in the history of the stock market or the modern stock market that's 10 million new, 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 at the stock trade hands end, I don't think that we've ever had social media collided with finance like this. And it's very reminiscent of our discussions with democracy and journalism censorship. By the way, and politics, we are having weird behaviors

because of virality. And that seems to be a kind of thing. 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, is that we're seeing this phenomena where individuals in aggregate can believe something to be true and make it true.

And we saw this with Tesla, and I don't think Tesla got this level of notoriety because it was such a longer play-out cycle. But Elon was not hitting numbers that people thought he was going 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. And the same is true of Trump, And the same is true of Trump. And the same is true of storming the capital. 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 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. 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 in the real world 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'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 profitable, good business. It shouldn't be worth anything. But the belief in what it could be is what drove the value of that stock

and ultimately that value enabled that business to become true. And it's amazing to see it happening. And I think the counter, which is really what makes this so striking, is the centralized institutions that are trying to block this from happening. And the shutting down of parlor

and the shutting down of Robinhood trading are equivalent, from my point of view, 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. That 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, new ways of building.

And that's the profound change that I think this decade is going to realize, and we're just seeing it start now. I agree that Wall Street bets is parlor 2.0 right and what happened as soon as Wall Street bets started which is 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 them off. How did that happen?

They've been talking on there for months and all of a sudden does magically write the critical moment where they're also not allowed to trade, their free speech gets cut off. That was deliberate. I'll tell you how it happens. I guarantee you what these hedge funds did is they went through the discord room and they screen-shot it, you know, any post that they could plausibly characterize as, you know, hate speech or what have you. And, you know, and by the way, I mean, 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 the 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 with 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 de-platforming Trump and parlor and now they can see where it goes. This is 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. I completely agree and I think this is exactly why I think where we came out was, you know, the de-platforming of Trump made no sense. I think the economic censorship of Robinhood makes no sense. Yeah, and you can argue it's the right thing to do with an arrow 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 going to be a lot broader than folks are really realizing at this point. Folks don't want to be trading 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. If I was running Robinhood, and I said, we're going to have two options. There's going to be a Robinhood diamond membership, and you pay by the trade, and you get these special features.

Then the Robinhood free, you get your data 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 work up one day and said, for $9.95 a month, you can have none of your data, no advertising, ad free, like Hulu, actually, you get Hulu premium. So here's the thing, J.K. 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 that it's not like missing, you know, it's not like, you know, search pricing in Uber. It's not, you know, Facebook growing too fast and allowing, you know, pictures of breasts

getting posted and not have 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 discreetly judgeable. And so in this week Robinhood existed as a different company. And I think that there is 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 going to show up with five or 10 billion dollars at 11 billion pre. They'll show up with five or 10 billion dollars 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 to be intended to their users and then they should reopen to everybody. What would you do, David, if you were in charge and then let's move on to our next topic?

Well, I mean, I feel like we probably talked about Robin Hood enough and I kind of want to go back to the point that that Freberg was making just kind of upleveling this a minute, which is 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 to benefit the powerful, the elites against the people who are trying to organize against them. That was, to me, one of the biggest takeaways

from this week. 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 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 Tremoth 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 risk. They're not providing risk capital like what we do, okay? We're investors, but we're funding people's, you know, we're taking the risk of writing checks to start the guy

who's got nothing, right? Or gal. Or gal, you know, they them. It's all good. All of them. All of them. So try to keep me forget a cancel here. But what exactly is a 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.

It makes no sense. 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 were all getting on board with this idea and it's got to get fixed. Yeah, this might be the legacy of trumpet away, SACS, 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, and they're complex, but there is common ground. I mean, when AOC and Ted Cruz are both agreeing on the same issue with something's going on here. Like, I think we have to fight the real enemy. Chimath and I should not be fighting over this because I can tell you if Chimath did the series A and this, he would be backing up Robinhood like this to the end of the end of Earth. And that's totally fine. And I agree with that.

And I just want you to know number one, I love you with all my heart. And I hope you make, I hope you make, I hope you make, a hundred and hundreds of millions of dollars. But it's just like, you know, 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 this 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. I'm 100% agree with you. 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 all tries to make a trade can't. It feels unfair. It feels that each individual is suffering some pretty deep inequity. Yes, can't. It feels unfair. It feels that each individual is suffering

some pretty deep inequity. Yes, I agree. 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, 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 middle class, to middle class or affluent Friedberg you haven't chimed in yet as we wrap here and then move on to our second topic. I think we're at an hour so it's um so I just want to say um, you know We talked about decentralization and you know We all feel the emotional response to the little guy getting screwed by the big guy that controls the system. And we want to fight the system.

That's the basis of every great movie. 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, when you put a bunch of people in a room, let's say you put a hundred 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's screaming door. Door, door, door, door, door, door, 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 Bitcoin. So there

are, as we've seen, remarkable outcomes when you allow systems to operate without centralized control, and without centralized breakpads that kind of slow them down or put in place some rules and some obligations to how that system operates. The problem with decentralization and this swarming approach to resolution where lots of people basically work together individually is you end up with things like cancel culture where 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 capital riots. People basically died because of the swarm that occurred, where this idea that there was fraud in the election became an echoing, deafening noise for these people, and they swarmed and killed people. And 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 discriminate. Otherwise we're going to see Lord of the Flies and we're going to see decentralization being

the solution to getting out of the system that's inhibiting us and we're going to end up having really fucking ugly outcomes. There's a psychological term for what you're describing. It's the diffusion of responsibility, 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 more intense the behavior, the less responsibility each person takes for it. So, five people on the steps of the capital, you know, one person breaks a window,

maybe somebody breaks it, but when you have 500 or 5,000 and one person breaks a window, now you got a much higher percentage of people start breaking windows. And that's when tragedies happen, of course, World War II was the diffusion of responsibility with the Nazis.

Yeah, you're totally right. You're totally. Just one quick point and then we can just move on. 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 they're manifest or 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. And the ones that are trying to make more nuanced points just kind of get lost. And so there is something a little bit disturbing about the mob behavior, but the movement, the enabling of these new movements, I think, is really powerful. And that's what Wall Street bets was, at least in the early stage, and they did not deserve to get shut down like that. Social networks 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 its engaging a fashion as it is to kind of be excited by the negative shit that excites the amygdala, you know, it could be really powerful, but that's probably how it comes.

Well, we're gonna need politicians, who we're gonna need some level of politician, who has some integrity and some expertise. Only. Well, don't you think, don't you think, politicians, we're making a transition for ideas.

I was gonna say, don't you guys think that what this means is that entrepreneurs now can really think about decentralization as the key feature. Like in many of these markets or these systems where we have these 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 education systems and degrees and accreditation, there has to be a way where you can't.

With morally and ethically inclined and or legally inclined systems that ensure that the behavior of that system doesn't run amuck. That's really where things can go rye as we've seen lately. But it's a hard problem to solve it. I don't think we're going to solve it here today. Just a final update. I don't know if this is exactly correct, but I just asked on Twitter how many shares of GameStop are still short. Apparently there's still 55 billion shares are so short of the 70 million or so total shares and 47 million in the float. So something very bad could still happen here. I mean, these shorts have not been covered.

So this is going to be an ongoing saga where I think every single platform, if consumers keep buying these shares, what is the end? Does anybody have an idea or a prediction on the end game here and then we'll move on? What is the end game? If another 5 million people buy the shares or 10 million people buy it and it goes to a thousand or two thousand. What happens if game stop is worth a hundred billion dollars? It's a great question. Well, can I tell you Jason what that means? There's a great article in the information which Sam Lesson wrote. I don't know if you guys read it, but it basically said why to Tesla win. Now,

this is not accurate, but I think his's framing is relatively accurate, which is people were buying Elon like they would buy a trading card. That's right. That's right. And Tesla is a manifestation of Elon. That's right. 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 is the Jordan Brand work?

Or, Chimoff? All the, you know, in a smaller level, yeah, at a smaller level. Because we're brands and we have these values and people can imbue their collective decision making and support to the person versus the institution. It's a belief. It's a belief in what that person represents too. You know, I can, why did MBS buy that frig freaking painting that wasn't even a Leonardo painting for a billion

dollars? There was some belief there, is it really worth a billion dollars? It doesn't matter. At the end of the day, most assets are purchased under the premise that I believe the price will be higher tomorrow than it is today. 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.

Do we all agree though that GameStop is not Tesla? 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, but no, just think about it. That's what's so shocking about this week, because we've all been taught in these friggin'

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 friggin' 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 friggin matter. And it highlights what's really going on. Trading stocks is not investing in businesses.

And it is, 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 left podcast that got canceled on Twitter? RedScare. RedScare. RedScare.

Is GameStop RedScare or at the real Donald Trump? And my point is, who the hell are we to decide? Right. How does it all work? Let's do our three gut canceled. All three gut canceled. What's your prediction? We're sitting here a year from now, full year out.

What does game stop January 2022 look like? What does the stock price look like? What does the business look like? What, how does this all resolve itself? You know, I'm not a public stock market trader. I'm just not, I just feel like it's not a day trader. I don't buy public stocks. It's just kind of like, to me, it's a distraction.

What do you buy? What will this end? You know, just buy Vanguard funds. Like guys, if you're listening to this program and you're wondering where to put your money, just buy Vanguard funds and stop worrying about it. Index, low fee stocks. Index, yeah.

Low fee index. Yeah. Yeah, I mean, if you want to bet specific companies, because you get enjoyment out of it, do it. But yeah, okay, so nobody has any idea what happens if it hits 100 billion around his ads. So I think that's, that's illustrative of my point, is that for somewhat intelligent people who have some degree of expertise in this area, we have no idea how this ends.

But this is a black spot. This is the point. It is a collective Ouija board moment. Everyone's got their hand on the Ouija board, and they're going to craft a sentence. Any one of us individually cannot predict what a collective group of 3 million plus people are going to do. And we try and struggle and think about the underlying value of a business, which is what these hedge funds have done historically. But at the end of the day, this thing is going to be worth what the market tells you it's worth. And what the market chooses to

do, we wouldn't know because we are not the collective 3 million. Jason, yeah. Yeah. So look, Jason, there's two questions, right? There's always this question of like, what should the price be? And then who gets to the side? And look, do I personally think GameStop is overvalued? Yes, of course, I think it's going to end very badly. But the question is who gets to the side and is the game going to be rigged by powerful insiders against outsiders? Just it's just like the same question with Parler, okay? Which is who gets it's not about which look we can say that there's certain views that are bad, okay? But the question is who gets the power to decide that? And that's what, that's the thing we have to ask is that second order question of who has the power to decide.

Is there any outcome that Amazon got to decide and Robin had got to decide and the victims were parlor and game stop? 100%. Okay, so this would be a good segue to move on. Apparently, we had a discussion on the last episode about running for governor. And I bought the domain name governor, chimoff.com.

I had governor, Jason.com. I got governor, sax, and governor, freedberg.com. And I redirected them. And you guys owned them. And they're redirected to your Twitter handles. And lo and behold, we wake up one day and Chimoff for CA Is live

Chimoff everybody wants to know jump the gun. We were gonna have a vigorous debate and decide which one I was good. Yeah, who's gonna run but somebody jumped in and I'm not saying other besties might not jump in other Besties could jump in the head domains Stay tuned. Stay tuned. No, Jason, we do not want to split the bestie vote. I think we got all the besties. This is the four musketeers. We're all behind Tomoth now. We do not want to split the bestie vote. So Tomoth is on you. Tell us what's going to happen now. What's going to happen? What's gonna happen now? What's gonna happen? But we are going to do an emergency pod and talk about exactly that.

So if folks want to know they're gonna have to tune in midweek. But we have to do it in the wake up emergency pod. Well, let's talk about the website. You put out the website coming up with it. We'll wrap on this, the website. You put out a platform. What's the action been? And no, these reactions have You put up. Coming up with it. We'll wrap on this. The website. You put out a platform. What's the action been? And no, these reactions have been

popping up. Midweek. Midweek. I want to be very clear. Midweek. But I'll just tell the quick stories. Three young people, these three amazing guys just built, they built it.

And I just retweeted it. I can say the tens of thousands of people have signed up for updates. I know that much. All these three guys, though, here's the, can I just, if I can tell, shout out to these guys, Rahul Samir and Aman, all these three guys, they don't live in California, two did, but had to leave. One wants to move, but can't, because you can't afford it.

And it's just such a microcosm of like, how beautiful California is a place is. And just what people think about when they think about the state is just so, it's so lovely. So for another time, but anyway, shout out to those guys for building the website. Thank you. So essentially, the entire market has now been driven

by a group of all in,, of the All-in Army, built a website. You retweeted it. And that's what this is all about. So there has been no paperwork filed. There is no action committee. However, it has traction. So it makes one wonder.

And, you know, I mean, there may be a shadow cabinet meeting. Maybe a shadow cabinet meeting. Maybe a shadow cabinet meeting. What's that? What's that? What's that? What's that? What's that? What's that? I mean, there may be a shadow cap in a meeting. Maybe a shadow cap in a meeting. There may be a shadow cap in a meeting. What is the chances? Well, I think Shamath by publishing that website just went down the escalator.

Wow. Who is a golden escalator? Golden escalator, Bob. He's gone down the escalator and who knows what could happen now? I'll tell you this. I went on, I'll do a plug. I went on Bloomberg.

Amazing hit. Amazing hit. It's on YouTube. We can put the link in the show notes. Yeah, put the link in the show notes, Nick. People need to watch that. I went through all the ways in which California is hurting. Newsom hasn't done a very good job. And I made my case for Jamoth.

So that's a prelude to what we'll talk about in the next pod. But the amazing thing is the outpouring. I mean, the number of people who have texted me, email me and Chamoth and all of us, like there's a groundswell happening now. 100%. So, you know, I would say all the fans of the pod who are now behind this, you guys are making it real.

Freeper, a manifest destiny here, what's going on? Is this another wisdom of the crowds or a mob or a movement? Ha ha ha. Who am I to say? Are you, are you in as chief science officer? Will you be our Dr. Fauci? You know, here, I think we should have a good debate on our next pod and hear the platform

and discuss the platform and, you know, here, I think we should have a good debate on our next pod and hear the platform and discuss the platform and you know, make sure that we all feel like this is, uh, this is where we should be. Um, and I think this is going to take a little bit of time, uh, to, uh, to build. Um, and I think, you know, the more we kind of build towards it, the more likely we are to have that groundswell that we're going to need. Well, let's give the all in. Let's give the all in. I will tell you, it seems pretty likely that this recall effort is going to get the signatures it needs.

So we can kind of put that in the sand that it's very likely we're going to end up seeing a recall election. Okay. So if people want to participate in recall Gavin Newsom, what do they do? Because that is the first step? Yes, absolutely. Yes, absolutely. A Chamoth governorship. You got to go, you got to go to rescuecalfornia.org.

Rescuecalfornia.org, go to that website, sign the petition, that is the first step. We are very, we only need a few hundred thousand more signatures. We have 1.2 million, we need 1.5 million. Go there, sign up, and then go to Chamoth Jamass website which is Jamass4ca.com and I'll make one more point and I think and I made this the other day on that clubhouse that sacks and I did I think we I made it before you joined. If you think about the difference between a leader and a manager. A manager is someone who typically delegates responsibility and authority. A leader is effective at synthesizing

multiple people's points of view and creates an opportunity defines a vision, defines an objective that is the synthesis of all the people that that report to him and for whom he is responsible or she. And I think what we've seen in California in particular and really across leadership positions or governing positions across the country during this pandemic is a failure of leadership because when times are predictable, if A, then B, it is easy to manage and it is easy to look successful.

I delegate down to the person who knows best and they are responsible for the outcome and they do it well. Great. All I'm doing is pointing to the right person to run something. The pandemic is difficult and it is unpredictable. It requires the synthesis of economic information, social information and health information. And more often than not, a person who typically acts like a manager points to the person they think should be in charge under the circumstance to make a decision. And that person is not equipped to synthesize

the economic and social ramifications of the decision. So what we have seen during the pandemic is most often, people in a governing position have pointed to the health officer or the medical person and said you make the decision. And that person does not necessarily account for the social and economic ramifications of the decision they're making. A health person knows how to save lives. The best way to save lives is shut everything down. And so the test of leadership during this pandemic has been a test of synthesis

and recommending an action that's associated with the understanding of the social economic and health implications of what's going on. And that's really where so many governing bodies and individuals have fallen apart during this pandemic. It's an inability to do that effectively. And I think that is what is needed going forward. It is a moment of test. It is a it is a moment of truth of the doubt about the difference between a manager and a leader and we're seeing across the nation. Who is what? And I think it is highlighting why some folks may not be best suited to do this. The second thing I'll say, and I know I'm on a little bit of a diatribe, but the second thing I'll say is career politics.

We've been waiting for your diatribe, by the way. I took 19 episodes ago. Career politicians, I think, simply should not exist. If you go back to the origins of this country, right, having your place in government, and we talked about this over email, having your place in government was meant to be something that everyone was supposed to take their turn doing. And the people that were sitting in political seats, it was supposed to be the merchant and the local farmer and the banker. And we were all supposed to take our turn Representing our communities representing our people in government and what we've seen is people who have made a career

Out of being a politician and the result of that is that their job depends on them getting reelected in order to remain in their career They have to get reelected and they ultimately end up making tradeoffs that don't necessarily represent the best long-term interest of their community. And this is broadly true across nations, across centuries. But it's particularly acute in the United States where we've seen such wealth creation over the last 250 years. And what's happened is when you have career politicians sitting in these seats for so long in an environment of severe wealth creation, you end up having governments that are ineffective and creating systems that fail us. And here we are. And what we need is to have someone go in that's not dependent on the traditional folks

that get people elected and fund elections and result in real elections. We need someone that can go in as an outsider and make a change. And so my advocacy for what's needed in California, and I think nationally, and that's a longer conversation, is to find those types of folks to come in and lead and be politicians that can take a leadership role, synthesize information, and not be worried about the re-election cycle and not have

anything to lose related to a career in politics. So I'm done. On that note, I want to say I love all of you. And let's do our emergency pod on Tuesday. And do you guys wanna play poker tonight? I'm still in town. I was playing that original graduation. You guys come down.

My mom's in town. I know you can't go out of town. My parents got vaccinated. Satsipooka. Yeah, Satsipooka. Yeah, I can play. I can play. Oh, here we go.

Oh, I'll see you guys at a once a play. He just. Yeah, sorry. Just one note. One note. If you do fill out, if you take, if you go to rescuecalfornyour.org, is that the name? Yes, yes. If you go there, you print out the petition

and you hold it up and take a selfie with your signature on it and you at the besties, we will like it, possibly retweet it and possibly follow you. So go ahead and take a picture of your printout with your name on it and that proves that you're part of the All in Army. And we will like it, we might follow you, and we might even retweet you. You can

get even full of besties, love you, and we'll see you all next time on the All in Pond. The All in Pond. See that couple's there Beachaborra. Hey everyone, everyone welcome to the All-In Part. Baby I'm the Rayman. I'm the Rayman, the wet my bee and the moneys. It's actually Venus. You know, a billion here, a billion there. Pretty soon you're talking to a real money. I'm the Rayman, the wet my bee and the moneys.

It'll come through to you and eat this. I love you, Saks. Baby I'm the Rayman. These are really big numbers. It's spread, the opportunity, that technology represents. I love you, I'm the Rayman. We're probably going to have four card cash ins on there. So we're going to have four besties on there.

I love you, I love you, I love you, I love you, I love you. That's his honor.