1 00:00:02,720 --> 00:00:09,360 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. I've been up since 2 00:00:09,400 --> 00:00:12,360 Speaker 1: like three point thirty this morning because I saw a 3 00:00:12,440 --> 00:00:14,280 Speaker 1: raccoon and barked at him, and then we have to 4 00:00:14,280 --> 00:00:15,800 Speaker 1: go outside and chase the raccoon. 5 00:00:16,360 --> 00:00:17,040 Speaker 2: And that took. 6 00:00:18,400 --> 00:00:20,040 Speaker 1: That just woked me up, and then I just didn't 7 00:00:20,079 --> 00:00:21,840 Speaker 1: get back to sleep. I get it pretty early anyway. 8 00:00:22,079 --> 00:00:22,720 Speaker 2: That's brutal. 9 00:00:22,960 --> 00:00:25,360 Speaker 1: My kid's got to boss them. Mostly, I have always 10 00:00:25,400 --> 00:00:29,920 Speaker 1: been pretty good sleepers. The dogs turn today. 11 00:00:30,160 --> 00:00:32,080 Speaker 2: I feel like we should note that we're in two 12 00:00:32,120 --> 00:00:33,400 Speaker 2: separate places right now. 13 00:00:33,600 --> 00:00:37,280 Speaker 1: We're in two separate places. I'm in the Bloomberg podcast studio, 14 00:00:37,280 --> 00:00:38,160 Speaker 1: which is really cool. 15 00:00:38,320 --> 00:00:42,320 Speaker 2: I'm at home, so I actually feel somewhat prepared for this, which. 16 00:00:42,159 --> 00:00:44,560 Speaker 1: Is oh wow. I don't. It's gonna be great. It's 17 00:00:44,560 --> 00:00:45,520 Speaker 1: gonna be all you. 18 00:00:45,840 --> 00:00:49,560 Speaker 2: I don't feel that prepared. But let's let's dive in. Hello, 19 00:00:49,800 --> 00:00:52,559 Speaker 2: something huge, Oh wait, we have to we have. 20 00:00:52,520 --> 00:00:54,480 Speaker 1: To do you don't have to go ab something huge. 21 00:00:54,240 --> 00:00:59,760 Speaker 2: Happened, something huge, the introduction. People know who we are, 22 00:01:00,160 --> 00:01:01,000 Speaker 2: we speak for ourselves. 23 00:01:01,080 --> 00:01:04,400 Speaker 1: Hello's Somebody's the thodcast, the stuff with the money. I'm mad, 24 00:01:04,520 --> 00:01:06,319 Speaker 1: let's kitty, let's go all. 25 00:01:06,319 --> 00:01:10,959 Speaker 2: Right, let's go Warren Buffett. 26 00:01:11,000 --> 00:01:16,839 Speaker 1: Wow, I tell you it happened over the weekend. Berkshire Hathaway. 27 00:01:16,920 --> 00:01:18,959 Speaker 1: Cheryloy reading Warren Buffer was like, by the way, I'm 28 00:01:18,959 --> 00:01:21,760 Speaker 1: out at the end of the year, and you know, 29 00:01:22,400 --> 00:01:24,400 Speaker 1: as happens on the weekend. I'm like, I got to 30 00:01:24,480 --> 00:01:28,120 Speaker 1: write about this. On Monday, my WORFA was like, this 31 00:01:28,240 --> 00:01:30,640 Speaker 1: really news. It's a ninety four year old man retiring. 32 00:01:30,840 --> 00:01:34,959 Speaker 2: It's like, yeah, it is kind of funny and charming. 33 00:01:35,000 --> 00:01:37,600 Speaker 2: How shocking it was, I mean not shocking, but still 34 00:01:37,680 --> 00:01:41,680 Speaker 2: the only theme. Everyone was surprised, even though we also 35 00:01:41,760 --> 00:01:44,880 Speaker 2: knew who his successor was going to be. Yeah, because 36 00:01:45,319 --> 00:01:47,160 Speaker 2: it's been teased since like twenty twenty one. 37 00:01:47,520 --> 00:01:52,360 Speaker 1: Not to be morbid, but like, if you are well regarded, 38 00:01:52,920 --> 00:01:58,240 Speaker 1: successful person who is working successfully at age ninety four, 39 00:01:58,400 --> 00:01:59,960 Speaker 1: people have a reason not to expect you to retire. 40 00:02:00,520 --> 00:02:02,080 Speaker 1: That's like I'm going to be carried out, you know. 41 00:02:02,160 --> 00:02:03,440 Speaker 1: So it's interesting that is your time. 42 00:02:03,640 --> 00:02:05,760 Speaker 2: But at the same time, I feel like one of 43 00:02:05,760 --> 00:02:08,880 Speaker 2: your legacies will be how well you pick your successor. 44 00:02:09,600 --> 00:02:11,720 Speaker 1: That's true, but you're right, I mean, we knew who 45 00:02:11,720 --> 00:02:13,720 Speaker 1: the successor was, but yeah, it's like having a sort 46 00:02:13,720 --> 00:02:15,480 Speaker 1: of orderly transition is useful. 47 00:02:15,720 --> 00:02:17,400 Speaker 2: I kind of want to talk about Craig Abel. I 48 00:02:17,400 --> 00:02:21,200 Speaker 2: mean not to be disrespectful to Warren Buffett, but he's 49 00:02:21,520 --> 00:02:25,280 Speaker 2: interesting in that he doesn't have much of an investing background. 50 00:02:25,520 --> 00:02:27,680 Speaker 2: Like you think about do you think about Charlie Munger, 51 00:02:27,720 --> 00:02:31,160 Speaker 2: you think about Warren Buffett, you think about fantastic investors, 52 00:02:31,400 --> 00:02:34,320 Speaker 2: And he doesn't necessarily have that resume. He's more of 53 00:02:34,320 --> 00:02:36,280 Speaker 2: an operator, like a business operator. 54 00:02:36,919 --> 00:02:43,079 Speaker 1: It's so unique to have a big company that is 55 00:02:43,120 --> 00:02:46,160 Speaker 1: sort of best known as a vehicle for a guy's 56 00:02:46,320 --> 00:02:48,840 Speaker 1: stock picks, and like the guy who made the stock picks, 57 00:02:49,080 --> 00:02:50,880 Speaker 1: it's really good at making stock picks, right, And so 58 00:02:50,919 --> 00:02:54,000 Speaker 1: it's like there's a lot of value created in that company. 59 00:02:54,000 --> 00:02:56,320 Speaker 1: But also you know, they bought a lot of companies 60 00:02:56,320 --> 00:03:00,919 Speaker 1: that they operate and manage, and it would be surprising 61 00:03:01,000 --> 00:03:03,440 Speaker 1: if they took that giant company and transitioned it to 62 00:03:03,600 --> 00:03:06,799 Speaker 1: like the second greatest stockpicker ever, right, Like it sort 63 00:03:06,840 --> 00:03:09,800 Speaker 1: of makes sense to be like, well, like railroads and transcommusation, 64 00:03:11,040 --> 00:03:13,600 Speaker 1: we should make the CEO a guy who knows how 65 00:03:13,600 --> 00:03:16,240 Speaker 1: to run railroads and hopefully the stock picking will take 66 00:03:16,240 --> 00:03:18,400 Speaker 1: care of itself. But like it would be weird if 67 00:03:18,440 --> 00:03:20,200 Speaker 1: they picked a guy with a stockpicking back gund because 68 00:03:20,200 --> 00:03:21,160 Speaker 1: you'd have to run a company. 69 00:03:21,440 --> 00:03:24,360 Speaker 2: Yeah, that's what he's going to do. I mean, I 70 00:03:24,400 --> 00:03:27,640 Speaker 2: read something I forget who it was from which publication, 71 00:03:27,800 --> 00:03:29,799 Speaker 2: but you know, you think about Berkshire Hathaway. It has 72 00:03:30,960 --> 00:03:33,919 Speaker 2: lessened its reliance on like the insurance side of things. 73 00:03:33,960 --> 00:03:36,560 Speaker 2: It's a lot of the energy business now, and that's 74 00:03:36,600 --> 00:03:41,000 Speaker 2: obviously where greg Abel, that's his sandbox. At the same time, though, 75 00:03:41,040 --> 00:03:45,000 Speaker 2: it is fun to think about what Berkshire Hathaway under 76 00:03:45,040 --> 00:03:47,360 Speaker 2: greg Abel could look like. There's a lot of speculation 77 00:03:48,080 --> 00:03:51,160 Speaker 2: that maybe we could see some spin offs. It's this huge, 78 00:03:51,320 --> 00:03:55,000 Speaker 2: sprawling conglomerate with like four hundred thousand employees. Do you 79 00:03:55,040 --> 00:03:58,040 Speaker 2: start to break things apart a little bit? So far, 80 00:03:58,080 --> 00:04:00,720 Speaker 2: greg Able seems to be saying that obviously they're going 81 00:04:00,760 --> 00:04:03,280 Speaker 2: to continue on the track they're on. But it's fun 82 00:04:03,320 --> 00:04:04,080 Speaker 2: to imagine. 83 00:04:04,240 --> 00:04:06,240 Speaker 1: It's pretty early days for him since. 84 00:04:06,040 --> 00:04:08,520 Speaker 2: He's not in charge, you know, but he's had a 85 00:04:08,560 --> 00:04:10,800 Speaker 2: long time to think about it. And it's true it 86 00:04:11,920 --> 00:04:15,360 Speaker 2: doesn't take over until January first of twenty twenty six, 87 00:04:15,520 --> 00:04:19,080 Speaker 2: but I don't know. I imagine in his idle day dreams, 88 00:04:19,080 --> 00:04:20,440 Speaker 2: he thinks about what he's going to do. 89 00:04:20,800 --> 00:04:22,920 Speaker 1: It is in so many ways a weird company, including 90 00:04:22,960 --> 00:04:25,880 Speaker 1: just being a sprawling conglomerate is not really you know, 91 00:04:25,920 --> 00:04:28,920 Speaker 1: hasn't been in vogue for forty years now. And there 92 00:04:28,920 --> 00:04:31,040 Speaker 1: are a lot of things that Berkshire gets away with 93 00:04:31,279 --> 00:04:34,560 Speaker 1: or like is beloved for because of Warren Buffett's presence. 94 00:04:34,560 --> 00:04:36,960 Speaker 1: But without Warren Buffett's presence, you know, at some point 95 00:04:36,960 --> 00:04:39,440 Speaker 1: someone's gonna be like, wow, we could use capital more efficiently. 96 00:04:39,520 --> 00:04:42,680 Speaker 1: We could you know, have a cleaner story to tell 97 00:04:42,680 --> 00:04:44,720 Speaker 1: toone because the story you tells the investors now was like, ah, 98 00:04:44,800 --> 00:04:46,800 Speaker 1: look it's Warren Buffett, right, but like you can't tell 99 00:04:46,800 --> 00:04:48,240 Speaker 1: that story anymore, and then you have to tell a 100 00:04:48,279 --> 00:04:51,200 Speaker 1: story like you know, ooh or an energy company or whatever. Right, 101 00:04:51,279 --> 00:04:55,560 Speaker 1: you go from having this very straightforward, very widely appealing 102 00:04:55,640 --> 00:04:57,920 Speaker 1: story about Berkshire Hathlo to being like, well, we do 103 00:04:58,120 --> 00:05:03,480 Speaker 1: mobile homes and you know we have candy candy, Yeah, 104 00:05:03,600 --> 00:05:05,560 Speaker 1: we want a big chunk of apple for some reason. 105 00:05:05,600 --> 00:05:08,800 Speaker 1: You know, it's like when it's like all of this 106 00:05:08,920 --> 00:05:11,360 Speaker 1: disparate stuff is stuff that Warren Buffett likes. Everyone, Oh, 107 00:05:11,400 --> 00:05:14,280 Speaker 1: Warren Buffett likes it, but it's like all this disparate 108 00:05:14,320 --> 00:05:17,080 Speaker 1: stuff that Warren Buffett liked a long time ago, then 109 00:05:17,120 --> 00:05:18,760 Speaker 1: it's like a less compelling story. 110 00:05:19,720 --> 00:05:22,919 Speaker 2: Also a question maybe they'll have to confront is you know, 111 00:05:22,960 --> 00:05:25,680 Speaker 2: we don't pay a dividend, which is fine because you 112 00:05:25,720 --> 00:05:27,880 Speaker 2: had Warren Buffett there, But now maybe they'll start paying 113 00:05:27,880 --> 00:05:29,120 Speaker 2: a dividend. I don't know. 114 00:05:29,880 --> 00:05:31,280 Speaker 1: Yeah, it's the thing I think about a lot, right, 115 00:05:31,320 --> 00:05:35,280 Speaker 1: Like I write often a headline, a section header. People 116 00:05:35,320 --> 00:05:38,320 Speaker 1: are worried about stock buybacks, right Like, there's this idea 117 00:05:38,360 --> 00:05:41,839 Speaker 1: that like, either a company allocate's capital, right like, it 118 00:05:42,000 --> 00:05:45,200 Speaker 1: has money and it uses that to invest in building 119 00:05:45,279 --> 00:05:47,720 Speaker 1: factories or buying other companies or doing whatever it does 120 00:05:47,760 --> 00:05:51,000 Speaker 1: with the capital, or it returns the capitol to shareolders 121 00:05:51,040 --> 00:05:53,680 Speaker 1: and says you would do a better job of investing 122 00:05:53,720 --> 00:05:58,200 Speaker 1: this capital than we would. Right Nobody is agitating for 123 00:05:58,320 --> 00:06:02,000 Speaker 1: Berkshire to return capital. The shit sareholders because if you're 124 00:06:02,000 --> 00:06:05,320 Speaker 1: an investor in Berkshire, you're not buying a piece. You're like, oh, 125 00:06:05,320 --> 00:06:07,039 Speaker 1: I'm making you like a very focused bet on like 126 00:06:07,200 --> 00:06:08,960 Speaker 1: energy or whatever. Right You're not like I just want 127 00:06:09,000 --> 00:06:11,040 Speaker 1: like their energy exposure. You're buying because you want Warren 128 00:06:11,040 --> 00:06:14,600 Speaker 1: Buffet exposure. And you're buying it because you're certain that 129 00:06:14,680 --> 00:06:17,520 Speaker 1: Warren Buffett is a better alligator of capital than you are. Right, 130 00:06:17,600 --> 00:06:20,480 Speaker 1: you're buying it because you want Warren Buffett, you know 131 00:06:20,520 --> 00:06:23,400 Speaker 1: who has the giant cash pile. You're willing to wait 132 00:06:23,440 --> 00:06:25,080 Speaker 1: around until he finds what he wants to do with 133 00:06:25,120 --> 00:06:27,320 Speaker 1: that cash pile because you're certain that he's going to 134 00:06:27,320 --> 00:06:28,960 Speaker 1: do a better job invest in that cash pile than 135 00:06:29,000 --> 00:06:33,680 Speaker 1: you are. But like most companies, there's some shareholder agitation 136 00:06:33,800 --> 00:06:38,680 Speaker 1: to say, look, you CEO of a company, if you 137 00:06:39,160 --> 00:06:41,000 Speaker 1: hang on to a lot of cash, you'll probably to 138 00:06:41,080 --> 00:06:43,240 Speaker 1: play it in some wasteful way. You'll probably like do 139 00:06:43,360 --> 00:06:46,120 Speaker 1: some vanity project or like invest in some dumb idea. 140 00:06:46,240 --> 00:06:48,320 Speaker 1: You should returned the cash to shareholders, and the shareolders 141 00:06:48,360 --> 00:06:50,120 Speaker 1: will do a better job of figuring out what to 142 00:06:50,120 --> 00:06:52,279 Speaker 1: do with the cash then you will. Yeah, and once 143 00:06:52,320 --> 00:06:54,600 Speaker 1: Warren Buffet Lelys called those normal pressures kind of come 144 00:06:54,640 --> 00:06:55,040 Speaker 1: into play. 145 00:06:55,200 --> 00:06:57,120 Speaker 2: For those keeping track at home, the cash pile is 146 00:06:57,120 --> 00:06:59,720 Speaker 2: currently a like three hundred and fifty billion dollars, so 147 00:07:00,320 --> 00:07:01,159 Speaker 2: it's quite a bit. 148 00:07:01,520 --> 00:07:02,440 Speaker 1: That's a big dividend. 149 00:07:02,680 --> 00:07:05,640 Speaker 2: I'm interested to see what happens to the shares in general. 150 00:07:06,000 --> 00:07:09,680 Speaker 2: We talk about the so and so premium on the 151 00:07:09,720 --> 00:07:12,920 Speaker 2: show frequently. Usually it's the Elon Musk premium. In this 152 00:07:13,000 --> 00:07:16,000 Speaker 2: case it's the Warren Buffett premium, which ties into the 153 00:07:16,000 --> 00:07:17,960 Speaker 2: discussion over the dividend nicely. 154 00:07:18,440 --> 00:07:20,040 Speaker 1: Yeah, I don't have a great empirical sense of how 155 00:07:20,040 --> 00:07:22,600 Speaker 1: big the Warren Buffet premium is. I've heard people argue 156 00:07:22,640 --> 00:07:25,000 Speaker 1: that it has historically been large and it's smaller now 157 00:07:25,040 --> 00:07:30,440 Speaker 1: because even like three months ago, like you were discounting 158 00:07:30,440 --> 00:07:33,280 Speaker 1: your relatively short period of the Warren Buffett premium, right, 159 00:07:33,360 --> 00:07:35,480 Speaker 1: You're like, well, Warren Buffett will be investing this money 160 00:07:35,480 --> 00:07:39,200 Speaker 1: for some period of time, but not perpetuity. But yeah, 161 00:07:39,680 --> 00:07:42,000 Speaker 1: it's interesting to see what the Buffet premium will sort 162 00:07:42,040 --> 00:07:43,600 Speaker 1: of watch out to be. 163 00:07:43,840 --> 00:07:47,800 Speaker 2: So we're talking about greg Abel, the successor to Moren 164 00:07:47,840 --> 00:07:54,040 Speaker 2: Buffett in Berkshire Hathaway, but perhaps a less formula has 165 00:07:54,080 --> 00:07:57,200 Speaker 2: also emerged this week. Can I guess, please. 166 00:07:58,520 --> 00:07:58,720 Speaker 1: Guess? 167 00:07:58,720 --> 00:08:01,880 Speaker 2: Friend of the show, black Man Bill Ackman. He's executive 168 00:08:01,920 --> 00:08:04,120 Speaker 2: chairman of Howard Hughes. He finally did. 169 00:08:04,320 --> 00:08:06,680 Speaker 1: He's striking while the iron is hot, Like these are 170 00:08:06,720 --> 00:08:10,080 Speaker 1: like simultaneous actions, right, like he like strike his deal 171 00:08:10,160 --> 00:08:15,600 Speaker 1: with Howard Hughes to take like almost control forty. 172 00:08:14,080 --> 00:08:20,240 Speaker 2: Seven of Howard Hughes holdings. So he is weighing plans 173 00:08:20,240 --> 00:08:24,560 Speaker 2: to build and insure expand the real estate company's remit 174 00:08:24,680 --> 00:08:28,000 Speaker 2: and as he stated plenty of times before, he's trying 175 00:08:28,040 --> 00:08:32,520 Speaker 2: to basically model himself after Berkshire, Hathaway become a modern 176 00:08:32,600 --> 00:08:36,880 Speaker 2: day Berkshire. And the timing was interesting. Buffett announced this 177 00:08:37,240 --> 00:08:40,120 Speaker 2: over the weekend and then this news for Bill Ackman 178 00:08:40,240 --> 00:08:43,160 Speaker 2: broke on Monday. So maybe they just guess at the 179 00:08:43,200 --> 00:08:44,440 Speaker 2: time their real rush. 180 00:08:44,240 --> 00:08:47,520 Speaker 1: To get get it done, Like it's like twenty four 181 00:08:47,520 --> 00:08:48,960 Speaker 1: hours to start the new. 182 00:08:49,160 --> 00:08:50,079 Speaker 2: Four hour turnarounds. 183 00:08:50,160 --> 00:08:53,920 Speaker 1: Yeah, it is like Berkshire in the sense that it 184 00:08:54,040 --> 00:08:57,120 Speaker 1: is not an insurance company that he is acquiring control 185 00:08:57,160 --> 00:09:02,160 Speaker 1: of in order to eventually at an insurance company like Berksure. 186 00:09:02,160 --> 00:09:04,120 Speaker 1: Hathway started as a textile company and then like you know, 187 00:09:04,440 --> 00:09:07,600 Speaker 1: a wired insurance and insurance turned out to be a 188 00:09:07,720 --> 00:09:11,000 Speaker 1: big part of Buffet's success, right because you have like 189 00:09:11,080 --> 00:09:14,040 Speaker 1: the sort of like cheap non callable leverage that allows 190 00:09:14,080 --> 00:09:16,839 Speaker 1: you to make a lot of interesting bets. The Lackman 191 00:09:16,880 --> 00:09:19,280 Speaker 1: would also like to do that but acquiring and ensure 192 00:09:19,360 --> 00:09:23,040 Speaker 1: it would be too easy, so he acquired a real 193 00:09:23,160 --> 00:09:26,480 Speaker 1: estate company to build his Berkshire out of. I don't know, Yeah, 194 00:09:26,559 --> 00:09:29,160 Speaker 1: it is interesting to me as a guy who like 195 00:09:29,200 --> 00:09:31,920 Speaker 1: reads and writes about like hedge funds and high ricercy 196 00:09:32,000 --> 00:09:35,680 Speaker 1: trading prims and stuff. How are the eard Warren Buffett 197 00:09:35,720 --> 00:09:38,240 Speaker 1: is for doing this like really old school thing, which 198 00:09:38,280 --> 00:09:43,079 Speaker 1: is like fundamental analysis, long term buy and hold long 199 00:09:43,200 --> 00:09:44,720 Speaker 1: investing in stocks. 200 00:09:44,760 --> 00:09:44,920 Speaker 2: Right. 201 00:09:44,920 --> 00:09:46,800 Speaker 1: I mean he also, you know, as we're talking about, 202 00:09:46,800 --> 00:09:48,719 Speaker 1: like he also runs a conglomerate, right, and there's a 203 00:09:48,720 --> 00:09:51,240 Speaker 1: lot of operating businesses there. But like he's famous for 204 00:09:51,320 --> 00:09:53,400 Speaker 1: being like ooh, I like coke. I'll buy coke and 205 00:09:53,440 --> 00:09:55,520 Speaker 1: coke COO's op. Right, and he holds it for decades. 206 00:09:56,080 --> 00:09:58,320 Speaker 1: And when you look around it like people who are 207 00:09:58,320 --> 00:10:02,120 Speaker 1: financial celebrities these days forty years ago, like Warren Buffett 208 00:10:02,120 --> 00:10:04,920 Speaker 1: was the best of a group of people who are 209 00:10:04,920 --> 00:10:07,640 Speaker 1: competitors in that business. Right, Like you know you would 210 00:10:07,640 --> 00:10:10,560 Speaker 1: comp him to like celebrity mutual fund managers. Right, but 211 00:10:10,600 --> 00:10:12,800 Speaker 1: you look at it like financial celebrities these days, there's 212 00:10:12,800 --> 00:10:14,880 Speaker 1: not a lot of that, you know, It's mostly like 213 00:10:15,520 --> 00:10:18,720 Speaker 1: people who run hedge funds and are not giving you 214 00:10:19,080 --> 00:10:21,040 Speaker 1: long exposure to large cap equities, but that they are 215 00:10:21,080 --> 00:10:24,240 Speaker 1: doing some more complicated, more market neutral, more like alpha 216 00:10:24,280 --> 00:10:27,680 Speaker 1: generating thing. Stockpickers not stock pickers, and certainly not like 217 00:10:27,840 --> 00:10:30,920 Speaker 1: very long term stockpickers. And the guy who has really 218 00:10:31,040 --> 00:10:34,240 Speaker 1: positioned himself as being that is Bill Ackman, right, Like 219 00:10:34,440 --> 00:10:37,400 Speaker 1: you look at his fund and it's you know whatever, 220 00:10:37,440 --> 00:10:39,400 Speaker 1: it's like twelve or fourteen names that don't turn over 221 00:10:39,480 --> 00:10:41,600 Speaker 1: that often, right, And I'll tell you know, they do 222 00:10:41,880 --> 00:10:43,680 Speaker 1: derivative stuff on the side to the kind of like 223 00:10:43,720 --> 00:10:46,320 Speaker 1: smooth returns, but like the main business is like long 224 00:10:46,400 --> 00:10:50,160 Speaker 1: term fundamental stock picking. So it is interesting that he 225 00:10:50,200 --> 00:10:51,920 Speaker 1: wants to get into the Warren Buffett game and he's 226 00:10:51,960 --> 00:10:54,480 Speaker 1: like the only person who's doing the thing that Warren 227 00:10:54,480 --> 00:10:56,120 Speaker 1: Buffett was doing, which I think is you know, kind 228 00:10:56,120 --> 00:10:58,480 Speaker 1: of passe in many respects, but you know, it still 229 00:10:58,559 --> 00:10:59,720 Speaker 1: has an obvious appeal. 230 00:11:14,880 --> 00:11:18,120 Speaker 2: If you thought the Berkshire Hathaway was an unusual company 231 00:11:18,240 --> 00:11:21,920 Speaker 2: not a normal company, boy, do I have a corporate 232 00:11:22,000 --> 00:11:23,559 Speaker 2: structure for you? Open ai. 233 00:11:24,120 --> 00:11:26,640 Speaker 1: See I think that open aa is a normal tech company, 234 00:11:26,840 --> 00:11:30,360 Speaker 1: Like I think open a is totally normal. Open Ai 235 00:11:31,120 --> 00:11:35,640 Speaker 1: is a private tech company that is backed by venture capitalists. 236 00:11:35,720 --> 00:11:38,800 Speaker 1: And also Microsoftware is a big stake and like Softing, Right, 237 00:11:38,840 --> 00:11:41,320 Speaker 1: so the classic capital structure except for Microsoft like venture 238 00:11:41,320 --> 00:11:43,440 Speaker 1: capitalist and has like a giant slug up money from Softing, 239 00:11:43,920 --> 00:11:47,720 Speaker 1: and it is run by a charismatic visionary CEO, Sam Altman, 240 00:11:48,280 --> 00:11:55,120 Speaker 1: And the explicit proposition of the company to like investors is, look, 241 00:11:55,160 --> 00:11:58,559 Speaker 1: we're not going to like be focused on maximizing profits 242 00:11:58,600 --> 00:12:00,320 Speaker 1: for you in the short term. We're not going to 243 00:12:00,360 --> 00:12:03,680 Speaker 1: be run as a business. We have a vision about 244 00:12:03,679 --> 00:12:05,920 Speaker 1: what is good for humanity, and we're going to pursue 245 00:12:05,960 --> 00:12:07,760 Speaker 1: that long term vision. And when I say we, I 246 00:12:07,760 --> 00:12:09,520 Speaker 1: mean Sam Altman has a vision for what is good 247 00:12:09,520 --> 00:12:11,199 Speaker 1: for humanity and he's going to pursue that long term 248 00:12:11,240 --> 00:12:15,320 Speaker 1: vision and shareholders will not have much ability or desire 249 00:12:15,440 --> 00:12:18,080 Speaker 1: to meddle with that in the pursuit of short term profits. 250 00:12:18,120 --> 00:12:21,360 Speaker 1: And that's like very explicitly the proposition that like Facebook 251 00:12:21,400 --> 00:12:23,720 Speaker 1: put in its ip of perspectives, and that has become 252 00:12:23,760 --> 00:12:26,320 Speaker 1: like standard in Silicon Valley, right, It's like what you 253 00:12:26,440 --> 00:12:31,280 Speaker 1: want as a venture capitalist is a visionary CEO with 254 00:12:31,400 --> 00:12:34,960 Speaker 1: a like mission that is not the short term pursuit 255 00:12:34,960 --> 00:12:37,680 Speaker 1: of profit but has some grand vision of like humanity's 256 00:12:37,679 --> 00:12:40,200 Speaker 1: future and you want to invest in that and kind 257 00:12:40,200 --> 00:12:41,960 Speaker 1: of like take your hand off the wheel and let 258 00:12:41,960 --> 00:12:47,120 Speaker 1: the visionary CEO cook. And that's what's happening here. But 259 00:12:47,160 --> 00:12:49,959 Speaker 1: it's like it's like a nonprofit. There's like all this stuff, 260 00:12:50,559 --> 00:12:53,640 Speaker 1: but like that's what's happening, right. Like the news is 261 00:12:53,640 --> 00:12:57,720 Speaker 1: that like open Aye is a nonprofit that controls a 262 00:12:57,720 --> 00:13:00,800 Speaker 1: for profit basically, and they were going to convert to 263 00:13:00,800 --> 00:13:03,080 Speaker 1: being a regular for profit and now they're not, and 264 00:13:03,200 --> 00:13:05,959 Speaker 1: instead they're gonna be you know, there's gonna be like 265 00:13:06,000 --> 00:13:08,080 Speaker 1: a for profit company and it's gonna be pretty normal, 266 00:13:08,120 --> 00:13:10,960 Speaker 1: and it's gonna have shareholders and one of the big 267 00:13:10,960 --> 00:13:14,559 Speaker 1: shareholders will be the open AI nonprofit. But the nonprofit 268 00:13:14,600 --> 00:13:17,240 Speaker 1: will control it, right, it will have I've said it'll 269 00:13:17,240 --> 00:13:20,320 Speaker 1: have super voting shares something that like rhymes with that, right, 270 00:13:20,360 --> 00:13:22,199 Speaker 1: Like maybe it'll have super voting shares. Maybe it'll have 271 00:13:22,200 --> 00:13:24,240 Speaker 1: a contractual right to appoint the board, but it'll appoint 272 00:13:24,240 --> 00:13:28,400 Speaker 1: the board of the for profit. And you know who 273 00:13:28,440 --> 00:13:31,719 Speaker 1: will run the nonprofit, Well, there's a nonprofit board and 274 00:13:31,760 --> 00:13:33,960 Speaker 1: like the board will sort of perpetuate itself, right, Like 275 00:13:34,000 --> 00:13:36,360 Speaker 1: the current board will pick future board members, and like 276 00:13:36,400 --> 00:13:39,640 Speaker 1: the board is like I don't want to say handpicked 277 00:13:39,679 --> 00:13:42,200 Speaker 1: by Sam Altman, but like there was a nonprofit board 278 00:13:42,240 --> 00:13:44,199 Speaker 1: that fired Sam Altman and then he came back, and 279 00:13:44,240 --> 00:13:46,080 Speaker 1: as a condition of him coming back, he fired that 280 00:13:46,120 --> 00:13:49,840 Speaker 1: board and replaced it with his board. So you know, 281 00:13:50,480 --> 00:13:53,520 Speaker 1: who's gonna disagree with his vision of what's best for humanity? 282 00:13:53,600 --> 00:13:56,640 Speaker 1: Like SoftBank probably not so. I just think it's like 283 00:13:56,679 --> 00:13:58,679 Speaker 1: a very normal tech company with like a lot of 284 00:13:58,960 --> 00:14:02,120 Speaker 1: weird like thing. Yeah, it's a story that like you've 285 00:14:02,120 --> 00:14:03,760 Speaker 1: heard before about Facebook. 286 00:14:03,360 --> 00:14:05,360 Speaker 2: You know, I find it a little bit exhausting, Like 287 00:14:05,400 --> 00:14:08,440 Speaker 2: the lip service. Maybe it's not lip service, but that 288 00:14:08,640 --> 00:14:12,240 Speaker 2: these visionary founders pay to like bettering humanity makes a 289 00:14:12,280 --> 00:14:14,480 Speaker 2: little bit more sense when you're talking about the mission 290 00:14:14,480 --> 00:14:17,920 Speaker 2: of open Ai. The mission of Facebook is pretty rich. 291 00:14:18,040 --> 00:14:19,840 Speaker 2: I mean when you phrase it that way, it just 292 00:14:19,840 --> 00:14:20,720 Speaker 2: sounds like another form. 293 00:14:20,760 --> 00:14:23,040 Speaker 1: I believe it in some form, you know, it's. 294 00:14:24,000 --> 00:14:26,080 Speaker 2: It kind of it rhymes with it. 295 00:14:26,080 --> 00:14:28,560 Speaker 1: It's like very grandiose, right, Yeah, it's in many ways 296 00:14:28,560 --> 00:14:32,320 Speaker 1: like one person's idiosyncratic vision of benefiting humanity. Right, there's 297 00:14:32,320 --> 00:14:35,440 Speaker 1: a broad category of ways that AI can go where 298 00:14:35,480 --> 00:14:37,560 Speaker 1: Sam Altman will be like that was great for humanity, 299 00:14:37,560 --> 00:14:39,320 Speaker 1: and everyone else will be like, no, it wasn't right, 300 00:14:39,400 --> 00:14:41,720 Speaker 1: Like that's like a distinctly possible outcome. 301 00:14:42,040 --> 00:14:45,240 Speaker 2: Yeah, so how it stands right now? So Sam Altman 302 00:14:45,440 --> 00:14:50,160 Speaker 2: wanted to completely separate from the nonprofit board his nonprofit 303 00:14:50,240 --> 00:14:54,280 Speaker 2: over verseers. That's not happening. They're now a PBC, which 304 00:14:54,800 --> 00:14:57,440 Speaker 2: it seems like wasn't a common structure until you started 305 00:14:57,480 --> 00:14:59,920 Speaker 2: seeing these AI labs. 306 00:15:00,320 --> 00:15:02,360 Speaker 1: Yeah, there were a bunch of them. Like it's been 307 00:15:02,400 --> 00:15:04,200 Speaker 1: a thing for like more than a decade. 308 00:15:04,280 --> 00:15:04,520 Speaker 2: Nap. 309 00:15:04,600 --> 00:15:07,600 Speaker 1: Yeah, the non open AI AI labs got really into 310 00:15:07,760 --> 00:15:10,520 Speaker 1: being public benefit corporations. The idea of a PBC is 311 00:15:10,560 --> 00:15:13,680 Speaker 1: that you can run the company. The board can run 312 00:15:13,680 --> 00:15:16,280 Speaker 1: a company with like the explicit ability to consider things 313 00:15:16,280 --> 00:15:18,680 Speaker 1: other than shareholders right to consider the good of humanity, 314 00:15:18,920 --> 00:15:20,600 Speaker 1: which I kind of think companies can do. Anyway, I 315 00:15:20,840 --> 00:15:23,040 Speaker 1: don't know how material it is to be a PBC, 316 00:15:23,640 --> 00:15:25,480 Speaker 1: I mean, reading between the lines, just the teeny bit. 317 00:15:25,680 --> 00:15:27,840 Speaker 1: They wanted to be a for profit company where the 318 00:15:27,840 --> 00:15:32,200 Speaker 1: nonprofit board owned a minority of the shares and a 319 00:15:32,280 --> 00:15:36,720 Speaker 1: majority of the directors were elected by normal shareholders, and 320 00:15:38,600 --> 00:15:42,120 Speaker 1: what they have now gotten is that, except that the 321 00:15:42,160 --> 00:15:45,320 Speaker 1: nonprofit board controls the for profit board controls the you know, 322 00:15:45,440 --> 00:15:49,040 Speaker 1: as a majority of voting stake in the for profit company, 323 00:15:49,080 --> 00:15:50,520 Speaker 1: and so it gets to a point the board of 324 00:15:50,520 --> 00:15:53,040 Speaker 1: the for profit company. But it's a pretty minor difference, 325 00:15:53,080 --> 00:15:56,320 Speaker 1: I think, well, sorry, it's not a minor difference. It's 326 00:15:56,360 --> 00:15:59,000 Speaker 1: a minor structural difference. It's a major difference whether the 327 00:15:59,000 --> 00:16:01,440 Speaker 1: company is sort of alter controlled by a board answerable 328 00:16:01,480 --> 00:16:06,160 Speaker 1: to shaholders, or ultimately controlled by a board you know, 329 00:16:06,640 --> 00:16:10,320 Speaker 1: answerable to the good of humanity as somewhat filtered through 330 00:16:10,400 --> 00:16:12,000 Speaker 1: Sam Maltman's visions. 331 00:16:12,480 --> 00:16:14,920 Speaker 2: I don't know. Again, it kind of reminds me of 332 00:16:15,400 --> 00:16:18,320 Speaker 2: ESG because you think about oil companies getting dinged for 333 00:16:18,480 --> 00:16:22,280 Speaker 2: not prioritizing shareholders and starting to like care about the environment. 334 00:16:22,760 --> 00:16:25,760 Speaker 2: Maybe if they were PBCs, they would be insulated from 335 00:16:25,760 --> 00:16:26,480 Speaker 2: those critiques. 336 00:16:26,720 --> 00:16:28,240 Speaker 1: Yeah. I think it'd be hard to convert a whole 337 00:16:28,240 --> 00:16:30,720 Speaker 1: company to a PBC, but it would be interesting to try. 338 00:16:30,960 --> 00:16:33,200 Speaker 2: Yeah, it would be fun. If I were starting a 339 00:16:33,240 --> 00:16:36,520 Speaker 2: company right now, I would probably structure myself as a PBC. 340 00:16:36,720 --> 00:16:38,960 Speaker 2: It seems like it just gives you a layer of protection. 341 00:16:39,280 --> 00:16:41,760 Speaker 1: Yes, yes, exactly like a PBC. This is what I'm 342 00:16:41,760 --> 00:16:43,480 Speaker 1: saying about. Like the vision if you're any like a 343 00:16:43,520 --> 00:16:47,200 Speaker 1: PBC at the margin, makes you less answerable to shareholders 344 00:16:47,240 --> 00:16:49,000 Speaker 1: and gives you more ability to be like, no, we're 345 00:16:49,040 --> 00:16:51,800 Speaker 1: considering other stakeholders or other interests, right, and like that's 346 00:16:52,440 --> 00:16:56,080 Speaker 1: always additive to the flexibility of a CEO and a board. 347 00:16:56,160 --> 00:16:56,240 Speaker 2: Right. 348 00:16:56,280 --> 00:16:58,360 Speaker 1: It always gives you an ability to say no to 349 00:16:58,400 --> 00:16:59,760 Speaker 1: something you don't want to do because you're like, oh, 350 00:16:59,760 --> 00:17:03,840 Speaker 1: we can a difference stakeholder, right, Like it's insulation from pressure, right. 351 00:17:04,560 --> 00:17:08,679 Speaker 1: And it is phrased or interpreted as like, this company 352 00:17:08,680 --> 00:17:12,000 Speaker 1: has more obligations because it has obligations to humanity as 353 00:17:12,040 --> 00:17:13,919 Speaker 1: well as sharelders, But in fact, it means it has 354 00:17:13,960 --> 00:17:15,800 Speaker 1: fewer obligations because it means it doesn't have like a 355 00:17:15,800 --> 00:17:18,240 Speaker 1: binding obligation to shaolders in the same way that a 356 00:17:18,280 --> 00:17:21,600 Speaker 1: regular company does. And like the obligations to humanity are 357 00:17:21,600 --> 00:17:23,320 Speaker 1: not particularly binding, and so you just get to make 358 00:17:23,320 --> 00:17:25,760 Speaker 1: more decisions based on what you want to do rather 359 00:17:25,800 --> 00:17:29,400 Speaker 1: than what the s shelders want. This is my cynical take. 360 00:17:29,960 --> 00:17:32,840 Speaker 2: I like this, so, I mean, I don't know, it's 361 00:17:32,920 --> 00:17:36,040 Speaker 2: just it's a it's humanity is a broad church, and 362 00:17:36,080 --> 00:17:38,040 Speaker 2: what's good for it is open to interpretation. 363 00:17:38,320 --> 00:17:39,800 Speaker 1: I do. I'm gonna say two other things about this. 364 00:17:39,840 --> 00:17:43,760 Speaker 1: So one, I'm saying that open AI is now in 365 00:17:43,800 --> 00:17:45,800 Speaker 1: a position where it can do what it thinks is 366 00:17:45,880 --> 00:17:48,280 Speaker 1: best for humanity based on Sam Waltman's vision or what 367 00:17:48,359 --> 00:17:51,080 Speaker 1: is best for humanity. That's not quite true. So first 368 00:17:51,080 --> 00:17:52,679 Speaker 1: of all, there is a board, and the board you know, 369 00:17:53,200 --> 00:17:56,320 Speaker 1: has to exercise its own independent judgment, and like you know, 370 00:17:56,400 --> 00:17:58,399 Speaker 1: it's not totally under the control of Sam Waldman, who 371 00:17:58,480 --> 00:18:00,639 Speaker 1: is not a sheldering, because only whatever moral power he 372 00:18:00,680 --> 00:18:02,920 Speaker 1: brings to it, and like one board seat, moral power 373 00:18:03,000 --> 00:18:05,480 Speaker 1: is quite big because when he got fired, all the 374 00:18:05,480 --> 00:18:07,679 Speaker 1: board got fired too. But anyway, but the other person 375 00:18:07,720 --> 00:18:11,640 Speaker 1: who has a lot of say over open AI's vision 376 00:18:11,680 --> 00:18:14,679 Speaker 1: for humanity is the Attorney General of the state of California, 377 00:18:14,800 --> 00:18:18,399 Speaker 1: also other attorneys like Delaware, but like largely California. Because 378 00:18:18,400 --> 00:18:21,280 Speaker 1: open a is controlled by a nonprofit, the nonprofit is 379 00:18:21,520 --> 00:18:26,359 Speaker 1: subject to like state attorney general jurisdiction, and the attorney generals, 380 00:18:27,280 --> 00:18:30,719 Speaker 1: particularly of California, had a lot of input into this 381 00:18:30,720 --> 00:18:33,879 Speaker 1: this for profit conversion. And I think still do like 382 00:18:33,960 --> 00:18:37,840 Speaker 1: get to sign off on like the current structure, and 383 00:18:38,320 --> 00:18:43,440 Speaker 1: they presumably have some power going forward. If, like open AI, 384 00:18:43,880 --> 00:18:48,920 Speaker 1: the nonprofit says we are going to appoint Skydeat to 385 00:18:48,960 --> 00:18:51,800 Speaker 1: the board of the public company so it can slay humanity, 386 00:18:51,840 --> 00:18:54,080 Speaker 1: the California Attorney General can be like, no, that's not 387 00:18:54,400 --> 00:18:56,880 Speaker 1: in the best interests of humanities who don't do it right. 388 00:18:57,320 --> 00:19:02,080 Speaker 1: There's some oversight of nonprofits that exists here that wouldn't 389 00:19:02,160 --> 00:19:04,840 Speaker 1: exist if it was just a regular public company. So 390 00:19:05,480 --> 00:19:08,520 Speaker 1: I don't know how that's going to work. I don't 391 00:19:08,560 --> 00:19:14,000 Speaker 1: normally think that's super activist oversight, but because of all 392 00:19:14,040 --> 00:19:15,960 Speaker 1: the weird, you know, stuff that has gone on with 393 00:19:16,000 --> 00:19:19,120 Speaker 1: open AI, you know, you know, the California Attorney General 394 00:19:19,200 --> 00:19:21,439 Speaker 1: is paying close attention, and so there is some opportunity 395 00:19:21,440 --> 00:19:24,159 Speaker 1: for that oversight to matter. The thing I think is 396 00:19:24,160 --> 00:19:26,040 Speaker 1: interesting is, like, you know, I've said, this is a 397 00:19:26,040 --> 00:19:28,680 Speaker 1: normal company with a founder with a vision, blah blah blah. 398 00:19:28,800 --> 00:19:30,439 Speaker 1: But the one thing that makes it not normal is 399 00:19:30,440 --> 00:19:35,040 Speaker 1: that Sam Altman owns zero shares of this company, and 400 00:19:35,119 --> 00:19:37,080 Speaker 1: I don't know how that plays out, right, Like, one 401 00:19:37,119 --> 00:19:39,479 Speaker 1: possibility is that he will get some shares, right, like, 402 00:19:39,720 --> 00:19:42,880 Speaker 1: at some point during this reorganization, he will say, as 403 00:19:42,920 --> 00:19:45,439 Speaker 1: he sort of said before, like in previous iterations, he 404 00:19:45,480 --> 00:19:49,840 Speaker 1: will say, the shareholders, you know, Microsoft SoftBank, However, the 405 00:19:49,840 --> 00:19:52,679 Speaker 1: shows really want me to own stock so that I 406 00:19:52,720 --> 00:19:56,520 Speaker 1: have properly aligned incentives, and so over my objections, I'm 407 00:19:56,520 --> 00:19:59,560 Speaker 1: taking you know, twenty billion dollars worth of open a stock, right, Like, 408 00:19:59,560 --> 00:20:01,880 Speaker 1: that's a pop thing that could happen. But it's hard 409 00:20:01,880 --> 00:20:04,840 Speaker 1: with this reorganization because now there's this two tier structure 410 00:20:04,880 --> 00:20:08,560 Speaker 1: where the nonprofit controls the for profit, and historically open 411 00:20:08,600 --> 00:20:11,040 Speaker 1: ai is nonprofit board has not been allowed to own 412 00:20:11,040 --> 00:20:13,320 Speaker 1: stock in the for profit in order to keep its 413 00:20:13,400 --> 00:20:18,040 Speaker 1: incentives pure, and that reasoning still applies. I don't know 414 00:20:18,040 --> 00:20:20,280 Speaker 1: if they'll still do that, but like it still makes 415 00:20:20,320 --> 00:20:22,439 Speaker 1: sense to say, if you're on the board of the 416 00:20:22,480 --> 00:20:25,560 Speaker 1: nonprofit that is trying to make sure that open ai 417 00:20:25,760 --> 00:20:28,520 Speaker 1: does things that are best for humanity, you shouldn't have 418 00:20:29,240 --> 00:20:33,040 Speaker 1: a huge economic stake in the for profit subsidiary, because 419 00:20:33,080 --> 00:20:36,240 Speaker 1: that would, you know, lead you to make decisions in 420 00:20:36,280 --> 00:20:38,320 Speaker 1: the best interests of profit rather than the best interests 421 00:20:38,320 --> 00:20:40,320 Speaker 1: of humanity. So I think it actually would be kind 422 00:20:40,359 --> 00:20:42,240 Speaker 1: of hard to give him a big slug of stock 423 00:20:42,280 --> 00:20:44,399 Speaker 1: now though I don't really know, and then like, you know, 424 00:20:44,440 --> 00:20:47,080 Speaker 1: how else can he get paid? I mean, my impression 425 00:20:47,119 --> 00:20:50,760 Speaker 1: is that he does not want for material comforts for 426 00:20:50,840 --> 00:20:52,719 Speaker 1: a variety of reasons. You know, he has that a 427 00:20:52,840 --> 00:20:55,439 Speaker 1: career as a you know, founder and venture capitalist before 428 00:20:56,320 --> 00:20:58,800 Speaker 1: open Ai. But he also like you know, like has 429 00:20:58,840 --> 00:21:00,800 Speaker 1: all sorts of stakes and also it's of ai j's 430 00:21:00,800 --> 00:21:03,320 Speaker 1: and business like, there's a lot of ways for Sam 431 00:21:03,359 --> 00:21:07,359 Speaker 1: Altman to fund his lifestyle that are you know, kind 432 00:21:07,400 --> 00:21:10,800 Speaker 1: of float around open ai and compose potential conflicts of interest. 433 00:21:10,840 --> 00:21:13,399 Speaker 1: So it'll be interesting to watch that because he's not 434 00:21:13,480 --> 00:21:16,240 Speaker 1: Mark Zuckerberg er Elon Musk or whatever, where his wealth 435 00:21:16,359 --> 00:21:19,160 Speaker 1: is a you know, twelve digit steak in Open Ai. 436 00:21:19,480 --> 00:21:22,480 Speaker 2: I don't know Sam Almon at all obviously, but I 437 00:21:22,520 --> 00:21:24,560 Speaker 2: do wonder if like he had a time machine and 438 00:21:24,600 --> 00:21:28,880 Speaker 2: he could go back to the founding moments and he 439 00:21:29,200 --> 00:21:32,119 Speaker 2: alone was making the decisions, how would he have set 440 00:21:32,359 --> 00:21:35,800 Speaker 2: open ai up? Would he have just completely skipped all 441 00:21:35,800 --> 00:21:39,879 Speaker 2: this nonprofit drama they're PBC now, But does he wish that, 442 00:21:40,000 --> 00:21:41,920 Speaker 2: you know, he had just founded it or it had 443 00:21:41,960 --> 00:21:44,000 Speaker 2: been founded as a normal company and he was a 444 00:21:44,000 --> 00:21:46,560 Speaker 2: normal startup CEO and it exploded this way. 445 00:21:46,920 --> 00:21:49,120 Speaker 1: It's hard. I think that probably he would have liked 446 00:21:49,160 --> 00:21:51,639 Speaker 1: to skip all this drama and like getting sued by 447 00:21:51,640 --> 00:21:55,280 Speaker 1: Elon Musk and being subject to the oversight of state attorneys. 448 00:21:54,880 --> 00:21:57,320 Speaker 2: General, getting ousted and then brought back in. 449 00:21:57,720 --> 00:22:00,720 Speaker 1: Yeah, getting ousted and brought back happened to a for 450 00:22:00,840 --> 00:22:01,880 Speaker 1: profit ceo as well. 451 00:22:02,080 --> 00:22:05,280 Speaker 2: That's true, and it probably helps with your ORO points. 452 00:22:05,640 --> 00:22:08,080 Speaker 1: Oh yeah, it definitely entrenches his power when he's asked 453 00:22:08,119 --> 00:22:09,680 Speaker 1: it and has to be brought back in twenty four 454 00:22:09,720 --> 00:22:12,159 Speaker 1: hours because like otherwise the company would collapse. Like that 455 00:22:12,200 --> 00:22:15,320 Speaker 1: makes him like pretty essential. But no, I think it 456 00:22:15,400 --> 00:22:17,280 Speaker 1: was a mistake to start it as a nonprofit in 457 00:22:17,320 --> 00:22:19,800 Speaker 1: the sense that they thought it would be less capital 458 00:22:19,840 --> 00:22:22,680 Speaker 1: intensive to build large language models than it was, and 459 00:22:22,760 --> 00:22:26,240 Speaker 1: so they you know, we're like, we're going to do 460 00:22:26,359 --> 00:22:28,960 Speaker 1: this research funded by donations, and then they realized, oh no, 461 00:22:29,040 --> 00:22:31,680 Speaker 1: we need like tens of billions of dollars of donations 462 00:22:31,680 --> 00:22:32,879 Speaker 1: and we're not going to get that, so we have 463 00:22:32,920 --> 00:22:35,439 Speaker 1: to be a for profit. So I think in that 464 00:22:35,480 --> 00:22:38,800 Speaker 1: sense very clearly they would have rather started as a 465 00:22:38,800 --> 00:22:42,040 Speaker 1: more normal company so that they could raise money efficiently 466 00:22:42,080 --> 00:22:44,520 Speaker 1: without getting sued. By Elon Musk. The only caveat to 467 00:22:44,560 --> 00:22:46,840 Speaker 1: that is, like I do think that, like, especially in 468 00:22:46,880 --> 00:22:48,840 Speaker 1: the early days, and I think even a little bit now, 469 00:22:49,320 --> 00:22:52,000 Speaker 1: the overlap between like top AI researchers and people who 470 00:22:52,080 --> 00:22:56,280 Speaker 1: worry about AI alignment is pretty significant. And I think 471 00:22:56,359 --> 00:22:59,520 Speaker 1: early on it was like important to be a nonprofit 472 00:22:59,560 --> 00:23:02,560 Speaker 1: in order to attract people and like motivate people to 473 00:23:02,600 --> 00:23:05,720 Speaker 1: say we're not just like a company, We're building AI 474 00:23:05,840 --> 00:23:08,159 Speaker 1: for the benefit of humanity. I think is good for 475 00:23:08,160 --> 00:23:11,240 Speaker 1: getting researchers. I'm not sure it is anymore. I think 476 00:23:11,280 --> 00:23:14,040 Speaker 1: it was helpful early on, and I'm not sure that 477 00:23:14,200 --> 00:23:17,000 Speaker 1: they would have had the success they have had if 478 00:23:17,000 --> 00:23:19,480 Speaker 1: they are a pure for profit. But you know, there's 479 00:23:19,600 --> 00:23:23,000 Speaker 1: enough like counterexamples where like you know, Google also building ahead, 480 00:23:23,560 --> 00:23:25,359 Speaker 1: so I think probably it would have rather started as 481 00:23:25,359 --> 00:23:25,920 Speaker 1: a for profit. 482 00:23:26,400 --> 00:23:28,600 Speaker 2: One thing I was curious about as I was reading 483 00:23:28,840 --> 00:23:32,000 Speaker 2: one of your columns about this was that this caped 484 00:23:32,000 --> 00:23:35,760 Speaker 2: profit model. The company said that it worked when there 485 00:23:35,880 --> 00:23:40,800 Speaker 2: was really only one company building generative AI, but in 486 00:23:40,840 --> 00:23:42,960 Speaker 2: this era where you have, you know a lot of 487 00:23:43,000 --> 00:23:45,000 Speaker 2: companies who are doing this, that they need to switch 488 00:23:45,040 --> 00:23:47,080 Speaker 2: to the PBC model. I wasn't quite sure how to 489 00:23:47,119 --> 00:23:50,880 Speaker 2: read that, Like, why wouldn't the PBC model make sense 490 00:23:50,880 --> 00:23:53,200 Speaker 2: from the beginning? Why would a capped profit model ever 491 00:23:53,280 --> 00:23:53,800 Speaker 2: make sense? 492 00:23:54,200 --> 00:23:56,720 Speaker 1: I love the cap profit model I've written about Sam 493 00:23:56,720 --> 00:23:59,480 Speaker 1: Alban I've described, but you as a business negging, like 494 00:23:59,520 --> 00:24:04,800 Speaker 1: a lot of what happens at open ai is they're like, oh, 495 00:24:04,880 --> 00:24:07,800 Speaker 1: you know, we're just gonna make too much money and 496 00:24:07,880 --> 00:24:11,800 Speaker 1: it's gonna like destroy the meaning of money. And so 497 00:24:11,840 --> 00:24:14,360 Speaker 1: we're just warning you about that if you invest with us, 498 00:24:14,520 --> 00:24:16,600 Speaker 1: we're gonna give you so much money back that like 499 00:24:16,720 --> 00:24:19,120 Speaker 1: money will lose all meaning. And people are like, oh, 500 00:24:19,119 --> 00:24:21,399 Speaker 1: that sounds really good, right, And so there's a lot 501 00:24:21,440 --> 00:24:22,680 Speaker 1: of ways to express that, and one of them is 502 00:24:22,680 --> 00:24:25,199 Speaker 1: the cap profit be like, guys, I'm really sorry to 503 00:24:25,240 --> 00:24:28,840 Speaker 1: tell you, but once we hit a trillion dollar valuation, 504 00:24:29,040 --> 00:24:30,800 Speaker 1: we can't give you any more money. And people like, wow, 505 00:24:30,840 --> 00:24:32,600 Speaker 1: that sounds pretty good, right. But then, like you know, 506 00:24:32,640 --> 00:24:34,640 Speaker 1: you have all these computing AA companies and they're like, well, 507 00:24:34,640 --> 00:24:36,640 Speaker 1: we're aiming for a ten trillion dollar valuation. You get 508 00:24:36,640 --> 00:24:38,080 Speaker 1: all of it, right, And then it's harder to sort 509 00:24:38,119 --> 00:24:40,399 Speaker 1: of use the cap profit model. But when open ai 510 00:24:40,600 --> 00:24:43,639 Speaker 1: was the only game in town, those warnings were so 511 00:24:43,960 --> 00:24:48,840 Speaker 1: like grandiose that I think they were appealing to investors also, 512 00:24:48,880 --> 00:24:50,600 Speaker 1: like you know, even if they weren't appealing, even they 513 00:24:50,600 --> 00:24:52,320 Speaker 1: were bad people, Well, this is the only game in town. 514 00:24:52,320 --> 00:24:54,360 Speaker 1: Like if you know, if I want AI exposure, I'll 515 00:24:54,359 --> 00:24:56,159 Speaker 1: get this AI exposure up to a cap as opposed 516 00:24:56,200 --> 00:24:57,920 Speaker 1: to nothing. Right, but if they're not the only game 517 00:24:57,960 --> 00:24:59,440 Speaker 1: in town, people rather not of the cap. 518 00:25:00,000 --> 00:25:03,439 Speaker 2: Now they're competing with anthropic to learn like thirty billion 519 00:25:03,440 --> 00:25:08,639 Speaker 2: dollars from soft Bank, so soft Bank would want something cleaner. Yeah, absolutely, 520 00:25:09,080 --> 00:25:28,680 Speaker 2: that makes sense. Shall we take a hard left turn 521 00:25:28,760 --> 00:25:30,119 Speaker 2: and talk about medicaid? 522 00:25:31,000 --> 00:25:32,680 Speaker 1: Right, like the other end of the spectrum. 523 00:25:32,720 --> 00:25:36,239 Speaker 2: What a great racket state governments and hospitals have going on. 524 00:25:36,920 --> 00:25:40,760 Speaker 1: I used to be an equity of his banker, and 525 00:25:41,480 --> 00:25:44,160 Speaker 1: one thing that I did. I'm not going to get 526 00:25:44,160 --> 00:25:47,479 Speaker 1: into the details convertible bond call options over this, but 527 00:25:47,560 --> 00:25:49,439 Speaker 1: like what you do is you're like you go to 528 00:25:49,440 --> 00:25:50,879 Speaker 1: a company and you're like, we're going to sell you 529 00:25:50,920 --> 00:25:52,480 Speaker 1: it's a product, right, and then it costs you like 530 00:25:53,119 --> 00:25:54,840 Speaker 1: sixty million dollars. You're ready to check to us for 531 00:25:54,880 --> 00:25:59,720 Speaker 1: sixty million dollars and the irs will cut your taxes 532 00:25:59,720 --> 00:26:02,560 Speaker 1: by eighty million dollars. And also the product has other 533 00:26:02,640 --> 00:26:06,560 Speaker 1: nice features, but like you know, the IRS will more 534 00:26:06,600 --> 00:26:08,720 Speaker 1: than pay you for the product. This is always true, 535 00:26:08,720 --> 00:26:11,040 Speaker 1: but it is occasionally true sometimes that iOS would pay 536 00:26:11,080 --> 00:26:13,640 Speaker 1: for half of the product. Derote as banker for years 537 00:26:13,640 --> 00:26:15,119 Speaker 1: before I figured out what I was doing, But like 538 00:26:16,359 --> 00:26:17,879 Speaker 1: when you sort of figure out what you're doing, like, 539 00:26:17,880 --> 00:26:20,040 Speaker 1: oh my gosh, Like all products should be like this. 540 00:26:20,119 --> 00:26:22,000 Speaker 1: All products should be like two people get in a 541 00:26:22,080 --> 00:26:23,680 Speaker 1: room and one of them is like, I'm going to 542 00:26:23,760 --> 00:26:26,040 Speaker 1: sell you this thing, and someone else is going to 543 00:26:26,080 --> 00:26:28,280 Speaker 1: pay for it, and then like you know, like you 544 00:26:28,359 --> 00:26:31,240 Speaker 1: have a great time because like you're not like fighting 545 00:26:31,280 --> 00:26:33,080 Speaker 1: to divide the pie because like someone else is like 546 00:26:33,080 --> 00:26:36,639 Speaker 1: providing you the pie. That's what's happening in Medicaid, right, So, 547 00:26:36,720 --> 00:26:38,640 Speaker 1: like what I wrote about this week is like there's 548 00:26:38,640 --> 00:26:41,320 Speaker 1: a Times article about Republicans in Congress trying to get 549 00:26:41,400 --> 00:26:48,560 Speaker 1: rid of the Medicaid provider tax racket loophole. One state 550 00:26:48,600 --> 00:26:51,320 Speaker 1: government calls it meta scam, but basically the idea is 551 00:26:51,320 --> 00:26:55,720 Speaker 1: like Medicaid is like hospitals or doctors or frequently like 552 00:26:55,800 --> 00:27:00,200 Speaker 1: managed care organizations provide medical care to people who can't 553 00:27:00,200 --> 00:27:04,520 Speaker 1: afford it under or insured under medicaid, and they charge 554 00:27:04,680 --> 00:27:07,440 Speaker 1: the government for that. And typically the way it works 555 00:27:07,560 --> 00:27:11,320 Speaker 1: is that the state government pays some portion of the 556 00:27:11,359 --> 00:27:14,000 Speaker 1: cost and the federal government pays some other portion of 557 00:27:14,080 --> 00:27:16,800 Speaker 1: the cost. It's like, I think it averages to the 558 00:27:16,840 --> 00:27:19,480 Speaker 1: federal government pays sixty percent, the state government pays forty percent, 559 00:27:19,960 --> 00:27:23,840 Speaker 1: and the state is sort of like in charge of 560 00:27:24,440 --> 00:27:30,119 Speaker 1: negotiating with the hospitals. And so someone figured out that 561 00:27:30,440 --> 00:27:34,560 Speaker 1: if the state is paid more, then the federal government 562 00:27:34,600 --> 00:27:37,199 Speaker 1: would match more, and then the state would have, you know, 563 00:27:37,400 --> 00:27:39,440 Speaker 1: a higher cost, but it would get more money from 564 00:27:39,440 --> 00:27:42,000 Speaker 1: the federal government. And then what the state can do 565 00:27:42,119 --> 00:27:45,480 Speaker 1: is it can tax the manage care organizations or the 566 00:27:45,520 --> 00:27:48,040 Speaker 1: hospitals or whoever is provided in care. It can impose 567 00:27:48,040 --> 00:27:51,760 Speaker 1: a special tax on them that takes back the money 568 00:27:51,760 --> 00:27:54,160 Speaker 1: that the state paid. So ultimately the state is paying 569 00:27:54,240 --> 00:27:57,080 Speaker 1: less and the federal government is paying more, and like 570 00:27:57,240 --> 00:28:00,919 Speaker 1: there's like a refund or a payback from the hospitals 571 00:28:00,920 --> 00:28:05,440 Speaker 1: paying the tax to the state. And someone figured this out, 572 00:28:05,640 --> 00:28:08,000 Speaker 1: and someone figured out in the eighties, and like in 573 00:28:08,040 --> 00:28:12,240 Speaker 1: the nineties, Congress passed laws basically regulating how you could 574 00:28:12,280 --> 00:28:15,080 Speaker 1: do this, and the states have gotten better and better 575 00:28:15,119 --> 00:28:18,240 Speaker 1: at gaming the regulations ever since, and they like cheapen 576 00:28:18,280 --> 00:28:20,359 Speaker 1: the cost of Medicaid to the state by like finding 577 00:28:20,400 --> 00:28:22,399 Speaker 1: ways to make the federal government pay more than it's 578 00:28:22,440 --> 00:28:26,440 Speaker 1: supposed to. And now Congress is looking again into eliminating 579 00:28:26,480 --> 00:28:27,840 Speaker 1: that because it does look like cheating. 580 00:28:28,240 --> 00:28:32,000 Speaker 2: Apparently House Speaker Mike Johnson has backed away from this 581 00:28:32,200 --> 00:28:36,080 Speaker 2: because it would be so politically toxic for Republicans in 582 00:28:36,080 --> 00:28:36,760 Speaker 2: swing states. 583 00:28:37,320 --> 00:28:40,000 Speaker 1: Yeah, because it's like a scam. Yeah, but it's a 584 00:28:40,000 --> 00:28:43,600 Speaker 1: scam in the service of providing medical care. Like, it's 585 00:28:43,640 --> 00:28:45,479 Speaker 1: a scam, but it's not like the state governments are 586 00:28:45,560 --> 00:28:47,560 Speaker 1: using it to buy Lamborghinis, right, It's like they're using 587 00:28:47,600 --> 00:28:50,280 Speaker 1: it to provide medical care while like not squeezing their 588 00:28:50,320 --> 00:28:51,000 Speaker 1: budgets too much. 589 00:28:51,080 --> 00:28:51,240 Speaker 2: Right. 590 00:28:51,360 --> 00:28:54,640 Speaker 1: And if you take away this scam, then the states 591 00:28:54,640 --> 00:28:57,240 Speaker 1: that do it have to either like cut back drastically 592 00:28:57,280 --> 00:29:01,520 Speaker 1: on Medicaid or like raise their taxes. And yeah, nobody's 593 00:29:01,520 --> 00:29:03,480 Speaker 1: that excited to do that. And so that's why this 594 00:29:03,480 --> 00:29:06,640 Speaker 1: this scam has persisted because it achieves a basically acceptable 595 00:29:06,680 --> 00:29:08,920 Speaker 1: political outcome. Right, either someone has to pay for this 596 00:29:08,960 --> 00:29:10,640 Speaker 1: care or it has to not be provided and like 597 00:29:11,000 --> 00:29:12,640 Speaker 1: either of those things are sort of toxic, and so 598 00:29:12,760 --> 00:29:14,440 Speaker 1: making the federal government pay for it is kind of 599 00:29:14,440 --> 00:29:17,920 Speaker 1: like the easiest choice, and they're doing it in a 600 00:29:17,960 --> 00:29:20,520 Speaker 1: scammy way. And you could imagine a world in which 601 00:29:20,720 --> 00:29:22,880 Speaker 1: the federal government said, you know, instead of all this 602 00:29:23,000 --> 00:29:26,480 Speaker 1: like gamesmanship, what we're gonna do is federalized medicaid and 603 00:29:26,520 --> 00:29:27,960 Speaker 1: we'll just pay for all of it and will negotiate 604 00:29:27,960 --> 00:29:31,160 Speaker 1: the prices ourselves and it'll be easier. But that doesn't 605 00:29:31,160 --> 00:29:33,040 Speaker 1: seem that likely to happen in the near future, and 606 00:29:33,080 --> 00:29:33,440 Speaker 1: so you. 607 00:29:33,440 --> 00:29:37,720 Speaker 2: Have this scamming no, and in the meantimes, it seems like, 608 00:29:37,920 --> 00:29:40,960 Speaker 2: you know, they're happy to just let this persist as 609 00:29:41,000 --> 00:29:44,320 Speaker 2: it is. It's funny, so forty nine states employ this. 610 00:29:44,360 --> 00:29:45,800 Speaker 2: I mean New Hampshire, I think, is the one that 611 00:29:45,840 --> 00:29:47,760 Speaker 2: calls it meda scam but basically. 612 00:29:47,880 --> 00:29:49,920 Speaker 1: Invented in New Hampshire. Yeah. 613 00:29:50,000 --> 00:29:52,320 Speaker 2: Do you know the one state that does not use 614 00:29:52,360 --> 00:29:53,680 Speaker 2: medicaid providers taxes? 615 00:29:54,040 --> 00:29:54,920 Speaker 1: Isn't it Alaska? 616 00:29:55,360 --> 00:29:58,880 Speaker 2: It is Alaska? And I find that charming. Yeah. I 617 00:29:58,880 --> 00:30:02,360 Speaker 2: was reading a CBS News article about this, and I 618 00:30:02,360 --> 00:30:04,520 Speaker 2: thought this was interesting. I think in the article, one 619 00:30:04,600 --> 00:30:07,520 Speaker 2: of the health providers they talked to said that we're 620 00:30:07,560 --> 00:30:10,320 Speaker 2: still losing money on Medicaid patients, but it goes from 621 00:30:10,320 --> 00:30:14,479 Speaker 2: like sixty percent coverage to eighty percent coverage or how 622 00:30:14,520 --> 00:30:17,800 Speaker 2: much they're actually getting paid. But they quoted a Colorado 623 00:30:17,840 --> 00:30:20,880 Speaker 2: based health system, link in Health saying that it paid 624 00:30:21,000 --> 00:30:24,320 Speaker 2: five hundred thousand dollars in provider taxes, but it netted 625 00:30:24,360 --> 00:30:27,440 Speaker 2: more than three point six million dollars extra from Medicaid 626 00:30:27,440 --> 00:30:30,640 Speaker 2: according to its CEO, which is like fifteen percent of 627 00:30:30,680 --> 00:30:31,280 Speaker 2: its budget. 628 00:30:31,440 --> 00:30:33,800 Speaker 1: And that's how it's supposed to work. Like, the regulations 629 00:30:33,840 --> 00:30:36,440 Speaker 1: around how states are allowed to do this are complicated, 630 00:30:36,600 --> 00:30:39,920 Speaker 1: but the basic idea of the regulations is that if 631 00:30:39,920 --> 00:30:42,880 Speaker 1: you have a provider tax, you're supposed to redistribute money 632 00:30:42,920 --> 00:30:47,160 Speaker 1: from like non Medicaid hospitals to like Medicaid hospitals. So 633 00:30:47,240 --> 00:30:51,760 Speaker 1: it's supposed to actually improve the allocation to Medicaid. Right, 634 00:30:51,800 --> 00:30:54,240 Speaker 1: it can't just be a refund from Medicaid. It has 635 00:30:54,280 --> 00:30:57,160 Speaker 1: to be helpful to the hospitals that tread a lot 636 00:30:57,200 --> 00:31:00,200 Speaker 1: of Medicaid patients. States have found ways to abuse that, 637 00:31:00,000 --> 00:31:01,840 Speaker 1: but that's not even true. But like, that's the basic 638 00:31:01,960 --> 00:31:04,360 Speaker 1: idea is it's supposed to be good for the hospitals 639 00:31:04,360 --> 00:31:05,640 Speaker 1: that treat a lot of Medicaid patients. 640 00:31:07,160 --> 00:31:09,040 Speaker 2: I just like this as an example of a tax 641 00:31:09,120 --> 00:31:11,720 Speaker 2: that hospitals or anyone else is happy to pay. 642 00:31:12,000 --> 00:31:13,600 Speaker 1: I love it as an example of like gams and 643 00:31:13,640 --> 00:31:16,680 Speaker 1: ship right, and like I do the analogy to like 644 00:31:17,240 --> 00:31:20,440 Speaker 1: cope assistance programs, which is like drug companies. If you 645 00:31:20,480 --> 00:31:23,360 Speaker 1: have insurance to buy like traumaceuticals, and you have a 646 00:31:23,400 --> 00:31:27,040 Speaker 1: twenty percent COPE, then a drug company will be like, well, 647 00:31:27,080 --> 00:31:30,080 Speaker 1: we'll make the cost of the drug ten thousand dollars, 648 00:31:30,200 --> 00:31:31,720 Speaker 1: and then you'll have a two thousand dollars cope, and 649 00:31:31,760 --> 00:31:33,840 Speaker 1: we'll just give you the two thousand dollars cope. We'll 650 00:31:33,840 --> 00:31:35,480 Speaker 1: just we'll pay it for you. And then the insurance 651 00:31:35,480 --> 00:31:37,680 Speaker 1: company will pay the drug company eight thousand dollars and 652 00:31:37,680 --> 00:31:39,240 Speaker 1: the drug company will be better off than if it 653 00:31:39,280 --> 00:31:40,560 Speaker 1: had just charged to do a normal and that for 654 00:31:40,600 --> 00:31:43,120 Speaker 1: the drug. And like that's also regulated, but it's also 655 00:31:43,160 --> 00:31:44,320 Speaker 1: like a thing you can do a little bit at 656 00:31:44,360 --> 00:31:44,800 Speaker 1: the margins. 657 00:31:44,840 --> 00:31:45,040 Speaker 2: Right. 658 00:31:45,280 --> 00:31:47,440 Speaker 1: But the other analogy I was thinking of, and this 659 00:31:47,520 --> 00:31:49,080 Speaker 1: is like a tax that people are happy to pay 660 00:31:49,680 --> 00:31:53,280 Speaker 1: sort of is a salt tax deduction. Right, So like 661 00:31:53,440 --> 00:31:57,320 Speaker 1: historically Americans have been able to deduct their state and 662 00:31:57,360 --> 00:32:00,880 Speaker 1: local taxes on their federal taxes. So if you pay 663 00:32:00,920 --> 00:32:03,120 Speaker 1: ten thousand dollars or state taxes, that reduces your federal 664 00:32:03,120 --> 00:32:06,440 Speaker 1: income by ten thousand dollars. And in the first Trump administration, 665 00:32:06,480 --> 00:32:08,600 Speaker 1: I think they capped that at like ten thousand dollars. 666 00:32:08,840 --> 00:32:09,920 Speaker 1: If you make a lot of money and live in 667 00:32:09,960 --> 00:32:11,480 Speaker 1: a high tax state, you can't deduct all of your 668 00:32:11,520 --> 00:32:15,480 Speaker 1: state taxes, and people, you know immediately got to work 669 00:32:15,720 --> 00:32:20,440 Speaker 1: figuring out how to game that. And one classic effort 670 00:32:20,560 --> 00:32:23,440 Speaker 1: that I've written about is that the state could set 671 00:32:23,480 --> 00:32:25,680 Speaker 1: up a charity, right, and the charity is in the 672 00:32:25,680 --> 00:32:28,080 Speaker 1: business just like providing state programs. Right, the charity is 673 00:32:28,080 --> 00:32:30,000 Speaker 1: just an arm of the state, and you can make 674 00:32:30,000 --> 00:32:31,800 Speaker 1: a donation to the charity, and if you make a 675 00:32:31,840 --> 00:32:35,720 Speaker 1: donation to the charity, it's deductible from your federal taxes. 676 00:32:35,880 --> 00:32:38,200 Speaker 1: And it also reduces one for one your state taxes, 677 00:32:38,240 --> 00:32:40,480 Speaker 1: because they'll say, oh, that just counts a state taxes, 678 00:32:40,520 --> 00:32:43,680 Speaker 1: so like, it's not a state tax for federal income 679 00:32:43,720 --> 00:32:47,680 Speaker 1: tax purposes, but it reduces your state taxes. People tried 680 00:32:47,680 --> 00:32:50,360 Speaker 1: that and the irs said no, So that doesn't work. 681 00:32:50,360 --> 00:32:52,000 Speaker 1: But it's a good effort. But the one that I 682 00:32:52,040 --> 00:32:55,720 Speaker 1: really like is if you have business income in that 683 00:32:55,840 --> 00:32:58,240 Speaker 1: pass through a business so like most classically, if you're 684 00:32:58,240 --> 00:33:01,040 Speaker 1: a partner at a law firm, partner at law firm, 685 00:33:01,400 --> 00:33:03,920 Speaker 1: you get your share of the partnership's income just as 686 00:33:03,960 --> 00:33:06,479 Speaker 1: your personal income. Like that's normally how it works, Like 687 00:33:06,520 --> 00:33:08,760 Speaker 1: it just goes on your personal tax return and you 688 00:33:08,800 --> 00:33:12,600 Speaker 1: pay taxes on it. But states figured out that they 689 00:33:12,640 --> 00:33:17,640 Speaker 1: could make the state tax live at the business level. 690 00:33:17,720 --> 00:33:19,840 Speaker 1: So the business pays the state tax, the business can 691 00:33:19,880 --> 00:33:22,480 Speaker 1: deduct the state tax for federal purposes because it's a 692 00:33:22,480 --> 00:33:26,520 Speaker 1: business expense, right, and then you as a partner, get 693 00:33:26,640 --> 00:33:29,920 Speaker 1: lower federal taxes and so like, law firm partners and 694 00:33:30,000 --> 00:33:34,760 Speaker 1: like some other partners of businesses can sometimes avoid the 695 00:33:34,840 --> 00:33:39,200 Speaker 1: state and local tax deduction cap by like a negotiated 696 00:33:39,400 --> 00:33:42,320 Speaker 1: tax that they've worked out with their state. So like, 697 00:33:42,400 --> 00:33:46,000 Speaker 1: there's a lot of this where like state tax authorities 698 00:33:46,040 --> 00:33:49,960 Speaker 1: and people and businesses try to work out ways to 699 00:33:50,000 --> 00:33:52,640 Speaker 1: maximize their own take at the expense of the federal 700 00:33:52,680 --> 00:33:54,680 Speaker 1: tax take. And this is one of them. 701 00:33:54,720 --> 00:33:56,960 Speaker 2: It's just another example of that that game and ship. 702 00:33:57,760 --> 00:33:59,720 Speaker 1: As I started by saying, like this is my career 703 00:33:59,760 --> 00:34:02,920 Speaker 1: for I love I love people. Dividing up text. 704 00:34:02,800 --> 00:34:05,960 Speaker 2: Benefits our listeners can't see. But there's a certain sparkle 705 00:34:06,120 --> 00:34:11,000 Speaker 2: in math. As he describes this, it's. 706 00:34:10,760 --> 00:34:16,279 Speaker 1: Like a lot of tiredness in my eyes. And that 707 00:34:16,400 --> 00:34:17,560 Speaker 1: was The Money Stuff Podcast. 708 00:34:17,680 --> 00:34:19,719 Speaker 2: I'm Matt Luvian and I'm Katie Greifeld. 709 00:34:20,080 --> 00:34:22,120 Speaker 1: You can find my work by subscribing to The Money 710 00:34:22,120 --> 00:34:24,000 Speaker 1: Stuff newsletter on Bloomberg. 711 00:34:23,560 --> 00:34:26,200 Speaker 2: Dot com, and you can find me on Bloomberg TV 712 00:34:26,400 --> 00:34:30,040 Speaker 2: every day on Open Interest between nine to eleven am Eastern. 713 00:34:30,160 --> 00:34:31,840 Speaker 1: We'd love to hear from you. You can send an 714 00:34:31,880 --> 00:34:35,080 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 715 00:34:35,160 --> 00:34:36,560 Speaker 1: question and we might answer it on air. 716 00:34:37,080 --> 00:34:39,280 Speaker 2: You can also subscribe to our show wherever you're listening 717 00:34:39,320 --> 00:34:41,359 Speaker 2: right now and leave us a review. It helps more 718 00:34:41,360 --> 00:34:42,239 Speaker 2: people find the show. 719 00:34:42,920 --> 00:34:45,719 Speaker 1: The Money Stuff Podcast is produced by Anna Maserakus and 720 00:34:45,760 --> 00:34:46,520 Speaker 1: Moses Onen. 721 00:34:46,800 --> 00:34:48,680 Speaker 2: Our theme music was composed by Blake. 722 00:34:48,480 --> 00:34:52,400 Speaker 1: Maples, Brandon Francis Nudimss our executive producer, and Stage Bauman 723 00:34:52,440 --> 00:34:54,880 Speaker 1: is Bloomberg's head of Podcasts. Thanks for listening to The 724 00:34:54,920 --> 00:34:57,960 Speaker 1: Money Stuff Podcast. We'll be back next week with more stuff. 725 00:35:00,760 --> 00:35:02,560 Speaker 1: The l