Morning Brew Daily - Wall Street Battles Banker Burnout & Is OpenAI Really Worth $150B?

Episode Date: September 13, 2024

Episode 409: Neal and Toby discuss Bank of America's and JPMorgan’s latest efforts to curb young bankers’ hours after increased scrutiny of Wall Street’s history of burnout. Then, Boeing’s new CEO Kelly Ortberg is begging its union to accept a deal to avoid a potentially catastrophic strike for the embattled company. Plus, OpenAI is looking to raise another $6.5B to bring its valuation to a whopping $150B as it launches a new model that is better at “reasoning.” Next, the once sought after gaming industry has faced a tough string of layoffs that is making it lose its luster. Meanwhile, Apple wants to tap into the health industry, starting with its AirPods that now be used as a hearing aid. Lastly, ever wonder what the National Security Agency is up to? Now the confidential agency is airing out all its dirty laundry with the launch of its own podcast. Juicy. Subscribe to Morning Brew Daily for more of the news you need to start your day, share the show with a friend, and leave us a review on your favorite podcast app. Visit https://www.massmutual.com/ for all your financial planning needs Get your Morning Brew Daily T-Shirt HERE: https://shop.morningbrew.com/products/morning-brew-radio-t-shirt?_pos=1&_sid=6b0bc409d&_ss=r&variant=45353879044316  Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Friday the 13th 02:30 - Bankers Hours Capped 07:15 - Boeing Strike 10:30 - OpenAI $150B Valuation  16:20 - Gaming Industry Layoffs  20:05 - AirPods as Hearing Aids  23:15 - The NSA Launches a Podcast Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today, if it was even possible, Boeing's year just went from bad to worse after 33,000 workers just went on strike. Then you will not believe which government agency just launched a podcast. It's Friday, September 13th. Ooh, let's ride. It is Friday the 13th spooky.

We all have our superstitions, but fear of the number 13, Triskeedophobia, is one of the most influential in society, so influential, in fact, that the vast majority of New York high-rise apartments do not have a floor 13 labeled. According to the New York City Department of Finance, just 13.5% of New York condos with more than 13 stories have a 13th floor address. They just skip it and call it 14. Toby, would you be freaked out if you were living an apartment 13F? I mean, I think I'm a little Triske-Decophobic.

Definitely go out of my way to avoid. void 13s. I never stop the microwave at 13 seconds. Also, never leave the TV volume at 13 either. So in my head, I know it's fine, but my heart tells me not to do it. I'm not alone either. A recent Gallup poll asked if Americans would be bothered if they were staying on the 13th floor of a hotel and get this. Exactly 13% responded saying it would bother them. That to me is spooky. Now let's take a moment to hear from our sponsor, Mass Mutual. I've got to admit something. One time in college, our communal dorm faucet was leaking,

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UN must be 21 to enter. Two of the biggest investment banks in the United States, J.P. Morgan and Bank of America made moves to address the notoriously grueling workload of junior bankers after coming under fire. for overworking young employees to the point where their physical and mental health suffers. J.B. Morgan is reportedly capping junior investment banking hours at 80 a week in most cases, the first time it's instituted a time limit, while Bank of America is rolling out an internal timekeeping tool that requires junior bankers to keep close tabs on how much they are working.

These new policies follow the May death of a Bank of America investment banker, a green beret named Leo Lucennis, who died of a blood clot while, working 100-hour weeks to complete a $2 billion deal. His death was not directly linked to his workload, but it still prompted an outcry among investment bankers this summer, who discussed being overworked and worse on social media. Then in August, the Wall Street Journal published an investigation where they spoke to three dozen people familiar with Bank of America's policies

who said that managers routinely pressured junior employees to lie and underreport their hours twerked so they wouldn't get flagged to H.R. are, Toby, the concept of work-life balance has never really existed in the high-octane world of investment banking, but perhaps there's growing acknowledgement from these banks that 100-hour weeks can literally be deadly. Yeah, and just think about an 80-hour week for a second. That's roughly six days working from 8.30 a.m. to 10 p.m., toss in some short breaks for meals and going to the bathroom there. And then you factor in the fact that young bankers have been known to put in 120 hour a week. So somehow they're squeezing an additional 40 hours into that schedule. It really is

just untenable and it seems inhumane when you really start to consider how much work that really is. So they come out and said, we're going to put a cap on bankers hours at 80 hours a week. But a lot of people said, read the fine print here. There are a lot of exceptions where if you are working a live deal, which is the vast majority of the time where these workloads get up to that 80 to 100 hour range, they can be accepted from that 80 hour a week barrier. So it's good to have this discussion around it. Who knows if it will actually lead to meaningful change in the industry? But it truly is just insane to think about what these bankers are being put through.

Yeah, I mean, this discussion has been going on for years. I remember the last time it really went to the public for was in 2021. Goldman Sachs conducted this internal interview of junior bankers. This was during 2021 when there were SPAC deals, galore and the live deals you were talking about. There were many of them, and they brought these workers into the office and really grinded them. Well, they did the survey of 13 junior bankers, and it was startling. It was spread all across social media because the first-year analysts at Goldman Sachs said they were facing inhumane conditions, working 100-hour weeks, and were

facing abuse from colleagues that severely affected their mental health. This led to some sort of awakening within the industry. But it seems like that just always reverts back to the mean when you say, okay, you got to come in. There's just this culture of grinding and going above and beyond because it seems like a right of passage. There's feels like there's multiple layers here. There's the management of the bank who says we respect our employees' hours. You have to cap it at 80 hours a week. Then there's the level of managers that say, hey, I went through this and you have to do it to at least have Bank of America, according to the Wall Street Journal investigation. They told people to lie about the hours they worked. And young analysts are willing

to do that because they want to get ahead and become managing directors and get that $1 million paycheck. So it seems like this culture is sort of rotten from the core. We'll see whether these policies make a change. Yeah, Bank of America is trying to fix it with just a new time recording system. Typically, you used to record your hours in weekly, but now they're saying do it daily. Let's see how many hours you are working per day. Also, detail which deals specifically you are working on and which senior bankers are overseeing those deals as way. So maybe trying to trace it back to if there is a specific senior banker that is overworking his associates in or his or her associates in a certain way. So just crazy, though, that we're talking about human

beans here. And we're talking about pushing them to the very brink of if they even have time to go to the bathroom. So, I mean, Neil, you work long hours as well. It's a little bit of a different environment here. But, I mean, it does show that you do need to take a step back every once in a while and say, like, hey, this is my life here. It's not just numbers on a page. You know, when you wake up and you just know that today is not your day? Well, Boeing has been living through that feeling for years now, and last night things went from bad to worse to worserer for the struggling plane maker. First, a union that represents 33,000 of its workers voted last night against a new labor contract, then separately voted to go on strike to try and win a better deal. Boeing and

union leadership had reached a tentative agreement late last week that included a 25% wage increase, plus a commitment to build its next aircraft in the Seattle area after removing some production to a non-union factory in the south. But if you've ever seen housing prices in Seattle, you'll know why the union thought a 25% pay bump was not enough. They are instead sinking closer to a 40% raise. Neil New CEO, Kelly Ortberg, has been on the job for only about a month now. Tough way to start your tenure, though. Seriously, I mean, this is going to be devastating for Boeing. The longer it goes on. The last strike was in 2008. It shuttered plans for 52 days. That hit revenue by an estimated $100 million per day.

T.D. Cowan, a bank, said that a 50-day strike now could cost Boeing an estimated $3 billion to $3.5 billion of cash flow. They don't have that much cash flow at all. They are already $60 billion in debt. There was that mid-flight panel blowout back in January. The FAA capped Boeing's production. This is how they make money. They make planes and then sell them.

If they can't make planes, which they can't now, because now the best-selling 737, the 760s, and the 777 are all stopped production. They make the 787 down in South Carolina at that non-union plan, but the best-selling planes for Boeing are just not being made right now. It could not be worse. Timing management really needs to get to the table and come back with an offer that the union members accept because the union leaders accepted a 25% pay raise. And this was historic.

This was a historic pay raise. But the workers felt like they were shafted in a previous agreement. and they're saying you're not doing enough to ameliorate that. Yeah, that 25% number actually came from matching the big three automakers. They got a 25% raise, but a lot of workers, one, they live in primarily the Seattle area, which is one of the most expensive housing markets in the country. But then also, too, there is just a lot of built-up resentment over the years. The last time these union deals were negotiated, they felt Boeing was reporting record profits,

and they were threatening to build more non-union factories in the south, so they may have agreed to contracts that they weren't exactly happy with. And you see that resentment, plus the year Boeing's had. Of course, resentment's going to build up amongst your employees, and you see that in how not even close this vote was. I mean, 95% of voting workers rejected the proposed content, and then 96 approved the work stoppage as well. So it's a clear sign that things, I mean, we all know things aren't going well at Boeing,

but this is just another sign of that. Last night, OpenAI CEO Sam Altman was interviewed by Oprah, and it wasn't even the biggest thing going on for the company this week. Okay, you're right. An Oprah special is always the biggest thing going on. But it has been a whirlwind few days for the maker of Chat GPT. On Wednesday, Bloomberg reported that OpenAI was looking to raise an inconceivable $6.5 billion at a valuation of $150 billion, which would make it the second most,

valuable private company in the world after Bite Dance, the owner of TikTok. It's also $70 billion more than OpenAI was worth just nine months ago. And then yesterday, OpenAI released one of its most hype products yet, the first model that it says has reasoning abilities similar to a person called 01 and codename Strawberry. The model represents progress toward OpenAI's ultimate goal of creating an AI system that meets or exceeds the intelligence of humans. Oh, I forgot. One more thing on OpenAI's calendar. Altman was at the White House yesterday with other AI CEOs to discuss increasing America's energy infrastructure to support the AI boom because AI is thirsty for energy and this country does not have enough of it to go around. Toby, Open AI has no chill. They have no chill. They've been busy. And if you zoom out a little bit, Open AI has had a little bit of a rough couple of months. I mean, as rough as you can say for a $150 million startup now. But because remember, a significant portion. of their safety team resigned, Ilius Dutskever,

which is who is one of the top minds and one of the co-founders in AI left to start his own company. They're still fighting these copyright battles. They still are running up into technical challenges. And then more broadly, anti-AI sentiment has just been bubbling up across the masses. So it needed a win, but it got a lot of wins this week. I mean, that Oprah special maybe brings AI to an even broader audience.

This round is absolutely gargantuan. we can get into that more. And this new model is pretty cool as well. Yeah, let's talk about the round. So if Open AI is raising money at a $150 billion valuation, and this deal has not come to fruition yet, it was just reported, that is more than the market capitalization of 88% of S&P 500 firms. So if this round happens at $150 billion valuation, Open AI will be worth more than Goldman Sachs, Uber, or BlackRock, and it would be twice as valuable as Intel, which used to be one of the biggest chip makers around. But the thing is, you're framing it as like a big win, but I don't know because they need it. It's not like they are doing this just to bump up their

valuation. They need the money because AI is so expensive to train these models and do all this computing power. Open AI is reportedly burning through $7 billion a year. They hired a thousand more people in the past year. So their expenses are through the roof and they need a capital infusion. and it looks like they're going to get one of more than $6 billion. Let's talk about this new model, though. The big buzzword in the AI industry is reasoning, and it looks like 01 can do it better than maybe chat GPT has in the past. It uses this technique that's called Chain of Thoughts,

where it goes through a number of different prompts and summarizes what it thinks is the best response to that. So it will actually show its work, too. I mean, we're always taught to show our work in math class. A lot of the questions that they wanted this model to be able to answer, are these multi-step math problems as well. So it's a little bit of a different experience. You're not going to get this instantaneous answer anymore.

You might take a few seconds as the model thinks or computes, whatever you want to call it. And then one of OpenAI's engineers said that right now, O-1 thinks for seconds, but in the future, they want it to think for hours, days, even weeks, to solve problems like create a new breakthrough cancer treatment or solve the Riemann hypothesis. So they want people to not just think of AI as making chatbots, but think of these reasoning

organisms that can solve the big questions of our time. So this is an important step in that direction. Up next, it is a tough time to be working in the video game industry right now. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting $179, like the next grill 3 burner gas grill. Or get $50 off to select one. Weber Spirit Grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together.

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Hilton, for this day. Getting a job in the video gaming industry represents a dream come true to many, but keeping a job, that can be tougher than defeating the Eldon Beast. The latest example of gaming industry malaise comes from Microsoft, who announced it is laying off around 650 employees from its Xbox division

in an effort to cut costs after its $75 billion acquisition of Activision Blizzard. It's not just Microsoft either. All around the gaming industry, things are getting skinnier. Following decades of slow and steady growth, demand shot up during the pandemic, which caused some companies to overhire. Plus, there is another hungry mouth-to-feed artificial intelligence. Microsoft spent $19 billion. on capital expenditures in this past quarter alone,

so it's looking to trim costs elsewhere. And more often than not, they are looking to their gaming division. The announcement yesterday is on top of cutting 1,900 workers at the start of the year, plus it is shuddering three studios. Neil, the final boss of working for your dream job is actually just layoffs.

I mean, the video game industry is going through it right now. More than 11,500 people in the industry have lost their jobs in 2024, which already, it's just, September. That's more than the entirety of 2023 and 2022. You mentioned that it had a major boom in 2021 during the COVID lockdowns and then it had this crash and now it's back to minimal growth. In many ways, I think it represents what happened to the tech industry. There was that huge boom during COVID. Everyone hired a lot of people. There was this retrenchment. But now tech is zooming

ahead because of AI, but video games don't have AI. And there are certain headwinds that are facing the video game industry like people are playing games for longer. Consumer spending is down on video games. So there are just so many layoffs. I mean, one analyst at Wedbush said, I've been covering the video game industry for 25 years. I've never seen this level of layoffs. It's also a warning sign for workers who look at their company combining with another one and you're like, oh, well, that's going to inevitably lead to layoffs because there has to be some cost cutting. And you're seeing this example 1A in this Microsoft acquisition of Activision, Blizzard. They bought it for $75 billion.

And they're like, all right, well, we have to trim because that is a lot of money. We're also spending on AI a lot and video game studios and employees are just getting the ax. I do think that we are still feeling a hangover from the pandemic, though, because for the longest time, video games was a relatively stable career because it just experienced this very slow and steady growth. but then once you look at the growth stats from that time, in 2023, only the gaming industry grew 1.8%. Go back to 2020, it grew 23.4%. So just totally threw everything out of wax because all of a sudden, all this money was coming in. So many more people were gaming. But when that happens, it just upsets the balance. It upsets that slow and steady growth that you've been used to. And it created just like this massive spike that led to overhiring that we saw.

a bunch of industries, but specifically video gaming. So it is tough because it's also just not the crown jewel in Microsoft's portfolio by any stretch. I mean, AI is just eating up so much of its CAPX. So of course, when you're going to go down the list and say, where can we cut costs, they look to their gaming division. So just a tough time to be in an industry that a lot of people associate with their identities as well. Like if you're a gamer and you work in video gaming, it feels really, really tough to be laid off because you identify as a game. gamer. So it's not a great time to be in the industry. I'm sure it will bounce back because people still love video games. Right. People still love video games. And so hopefully they'll continue to

spend and they find a business model that supports workers. It's been five days since Apple's big hardware event and people are still talking about one product that could be an absolute game changer for millions of people. It's not the new iPhone. It's not even a new gadget. It's an update to the two-year-old AirPods Pro 2 that turned the earbuds into a hearing aid that anyone can access. Experts say it could help lots more people address their hearing loss at an unmatched price. The details. Apple said it will roll out clinical grade hearing aid capability to the earbuds in a free software update this fall after it got FDA approval yesterday. Once it arrives, people will be able to take a five-minute hearing test at home

to determine the extent of their hearing loss. then they'll get a personalized hearing profile that will extend across the Apple ecosystem. So say you're listening to music on your iPhone or a Mac, it'll tinker with the audio to fit your specific needs. Pretty cool. One caveat, the AirPods hearing aids are for people with mild to moderate hearing loss, not those with more severe cases. But still, hearing experts say bringing a hearing aid to a device already used by so many people could out millions who have avoided dealing with hearing loss due to the social stigma. Yeah, there's three big unlocks here. One is that you don't have to go see a doctor to get prescribed hearing aids anymore. You can take Apple's five-minute hearing tests at home much easier.

Two, people have AirPods in all the time now. It's very much a part of accepted society. So those, if you do have hearing loss, you might feel a little bit less stigma around just having an AirPod in when having a conversation. And then three, the price as well. AirPod pros, twos are around $250. That is much cheaper than any of the other over-the-counter hearing aid options out there. Sony has a pair, but that's over $1,000. Jabra also has one for around $1,000.

And then when you compare it to like a prescription hearing aid, those can be upwards of $2,300. So price, accessibility, and just ease of use are three reasons why people are really excited about it. It also puts a spotlight on this under the radar FDA decision in 2022. that allowed hearing aids to go over the counter for the first time. Now we're seeing with Apple rolling this out, basically what the FDA did was drop prices by more than 90% because prescription hearing aids cost $3,000, $4,000.

And now you're seeing hearing aids, you know, looped in with this Bluetooth product that is now at just $250. So you've got to look back at the decision and say, wow, this really brought hearing aid costs so much down. There's 30 million people with hearing loss in the United States, and a fifth of them don't do anything about it because they just don't do it. You don't know if you have it. You just live with it. But that can deteriorate and it can lead to social isolation.

It can lead to depression, which could lead to dementia. So really getting these in your ears sooner or later before it gets worse is really important. Health experts say Apple's software update here. It really is just a software update. could be, you know, a big game changer. In the shadows where secrets whisper, an unseen guardian shields our nation from peril at home and abroad. The NSA moves like a phantom across the globe,

listening, watching, monitoring every heartbeat of information. And now it's just launched a podcast. Seriously, the National Security Agency is breaking out the microphones to reveal details about its work that it once considered too sensitive or too secret. it's time for the NSA to take some credit, which is a real quote said by a real retired NSA officer about the pod. Now, other than the fact that they are coming for MBD's turf with this announcement,

you got to give the NSA some credit. They named the show No Such Podcast, playing off the joke that NSA stands for No Such Agency. And no, I'm not just giving them props because they have my computer tapped right now. One of the first episode delves into the role of the NSA in the hunt for Bin Laden, and it gets really deep into the weeds here, Neil. Yeah, I mean, I'm a little scared NSA is coming after us across multiple axes. And that fear, like, what do you, when you think of NSA, what do you think of? Just that they're omnipresent.

And Snowden. And Snowden. So, like, the connotation that people have around NSA, they realize that it's maybe not the most positive thing in the world. So they're launching this podcast definitely as a marketing tool to change their perception within the public. There also is likely a secondary motivation here, which is recruiting, because they want the best tech minds in the world there, solving cryptographic things, breaking codes, all across the world, wiretapping, whatever. So they are competing in the labor

marketplace with Google, OpenAI, all these other tech companies, and they want to be seen as a viable employer. Hey, we're doing cool things. Hey, do you want to catch Bin Laden? Like, hey, we did that, and we're going into depth about what we did. I think the main question is how much of this is more of a propaganda play as opposed to actually interesting content. But reviewers said, well, at least the Ben Laden episode was super interesting. It shows how they tracked this courier to the compound in northwest Pakistan. And they got into more of the sort of the signal detection that the NSA does across the world,

which is, you know, detecting, like snoop. I don't know how else to say this, but like snooping in on text. calls and other digital communications. By the way, we have a great team of producers and editors who clean our show up and our stumbles, but imagine how high stakes is doing that for the NSA podcast. Oh, whoops, you forgot to edit out that piece of classified info, national security threat right there. So it is interesting to just have the juxtaposition of this very secretive agency at launching

a podcast. But, you know, the saying is every company is a media company at some point. They are competing for labor. They are competing for the best workers. So I'm sure someone proposed the idea in some room and everyone's like, really? But now it's come to fruition. And they're going to publish about six to eight more episodes going forward once a week. So if you're feeling bored, you've done Morning Brew Daily.

You've gone through our whole catalog, maybe tune into the NSA. And they aren't the first government agency to launch a podcast. The Langley Files is from the CIA. The Defense Intelligence Agency has a podcast back in 2020 called Connections. The FBI, as far back as the 1930s, had a radio program run by Jay Edgar Hoover. So this is a playbook that has been run back for decades for these government agencies, trying to reach the public with their message. And now it's just evolved into the way media works now, which is a podcast.

Let's wrap it up there. Thanks so much for starting your morning with us. Have a wonderful Friday the 13th and an even better weekend. For any feedback questions or comments on the show, send an email to Morning Brewed Daily at morningbrew.com. Also, don't hesitate to share Morningbrewdaily with your friends, family, and coworkers. If you need some inspo, Toby is here to help. This is not so much about who you share it with, but how you share it.

Now that we have the NSA as competition, we got to take things off line. So no more group texts, no more DMs, keep it strictly verbal, please. Operation Security is paramount now. Good luck out there. Word of mouth. Let's roll the credits. Emily Milliron is our executive producer. Raymond Lou is our producer.

Olivia Graham is our associate producer. Yuchinawa Ogu is our technical director. Billy Minino is on audio. There is no such thing as hair and makeup. Devin Emery is our chief content officer, and our show is a production of Morning Brew. Great show today, Neil. I wish you all well.