WEBVTT - Michael Lewis on the Prof G Pod 0:00:15.316 --> 0:00:25.156 Pushkin. Hey there everyone, it's Michael Lewis. We're about to 0:00:25.196 --> 0:00:27.596 go on a brief holiday break. It against the rules, 0:00:28.076 --> 0:00:30.356 but we have some banger episodes in the works about 0:00:30.356 --> 0:00:32.956 the rise of sports gambling in the United States and 0:00:32.996 --> 0:00:35.876 the ride we might be about to go on. For instance, 0:00:35.876 --> 0:00:38.876 I said to LJ, my producer, to Kansas, where she 0:00:38.916 --> 0:00:42.236 meets up with college students not only drinking while underaged, 0:00:42.516 --> 0:00:45.916 but possibly even gambling on sports. And we take a 0:00:45.916 --> 0:00:48.596 little tour of countries where gambling is even more entrenched 0:00:48.636 --> 0:00:51.676 than it is here, just to see how god forsaken 0:00:51.756 --> 0:00:54.996 things could get here if we really try. And then 0:00:55.036 --> 0:00:57.116 I try to redeem myself by learning a thing or 0:00:57.156 --> 0:00:59.636 two about how we can gird our brains to resist 0:00:59.636 --> 0:01:03.836 the onslaught of addictive temptations. But that's all to come. 0:01:04.156 --> 0:01:06.116 In the meantime, I can offer you a little treat. 0:01:06.796 --> 0:01:09.076 One of the great pleasures I've had while making the season, 0:01:09.156 --> 0:01:10.796 and it is a chance to talk with other folks 0:01:10.796 --> 0:01:14.756 about our reporting. Just recently I spoke with Scott Galloway 0:01:14.756 --> 0:01:18.356 on his podcast. Scott's a professor of marketing at the 0:01:18.436 --> 0:01:21.956 NYU Stern School of Business and a very smart guy. 0:01:22.836 --> 0:01:25.116 We talk about the sports gaming industry, of course, but 0:01:25.276 --> 0:01:28.556 also about a whole bunch of other things. Anyway, here's 0:01:28.556 --> 0:01:32.636 my conversation with Scott Galloway on his show Prof g. 0:01:38.236 --> 0:01:39.756 Michael. Where does this podcast find you? 0:01:40.596 --> 0:01:43.876 Smoke Tree Ranch off the side of Palm Springs, which 0:01:43.916 --> 0:01:48.156 is a gated community created by Walt Disney and some 0:01:48.276 --> 0:01:49.756 of his pals way back when. 0:01:50.476 --> 0:01:53.036 Wow, let's buzz right into it. In the latest season 0:01:53.076 --> 0:01:56.156 of your podcast Against the Rules, you investigate sports betting, 0:01:56.156 --> 0:01:57.756 which we talk a lot about here on the pod, 0:01:57.996 --> 0:02:01.396 which you refer to as a great social experiment. Walk 0:02:01.476 --> 0:02:03.756 us through the state of play of this experience and 0:02:03.796 --> 0:02:04.876 where you think we're headed. 0:02:05.516 --> 0:02:10.156 So in nineteen ninety two, Bill Bradley said, it created 0:02:10.596 --> 0:02:14.276 essentially a federal ban on sports betting. It exempted Nevada, 0:02:14.276 --> 0:02:16.356 but basically it has been against. It was against the law, 0:02:16.996 --> 0:02:21.916 and the Supreme Court repeal that in twenty eighteen, and 0:02:22.196 --> 0:02:25.556 the new law of the land is states can legalize 0:02:25.556 --> 0:02:27.596 it if they want to, and thirty nine states have 0:02:28.236 --> 0:02:32.116 and about two thirds of the American population has access 0:02:32.196 --> 0:02:36.516 to sports betting on their phones. About one third still doesn't. 0:02:36.796 --> 0:02:41.116 And the industry here is dominated by two companies, fan 0:02:41.196 --> 0:02:44.996 duel and draftings. They have a little hard to say exactly, 0:02:45.076 --> 0:02:48.836 but say roughly seventy percent of the market. And they 0:02:48.836 --> 0:02:51.156 were before they were sports gambling companies. They were daily 0:02:51.196 --> 0:02:54.316 fantasy sports companies, which gave the actually was the perfect 0:02:54.636 --> 0:02:59.076 the perfect thing to be before mobile sports gambling is legalized. 0:02:59.076 --> 0:03:02.236 As a daily fantasy sports company, you know all the customers, 0:03:02.276 --> 0:03:06.076 you have data on all the customers. Sports bets in 0:03:06.116 --> 0:03:09.996 America have skyrocket. It's a little again, a little hard 0:03:09.996 --> 0:03:11.636 to say. It is hard to know what numbers to 0:03:11.676 --> 0:03:15.396 trust because there was an illegal market that presumably is 0:03:15.436 --> 0:03:16.916 not quite as big as it used to be, but 0:03:17.556 --> 0:03:20.076 it's gone from the legal market, has gone from a 0:03:20.076 --> 0:03:23.756 few billion to over one hundred billion a year, and 0:03:24.276 --> 0:03:30.156 there's just starting to be some academic research showing the 0:03:30.516 --> 0:03:32.956 social effects of this. I mean, it's kind of cool. 0:03:33.076 --> 0:03:35.676 This the way it's rolled out has created these natural 0:03:35.716 --> 0:03:38.236 experiments that you have because you have states that are 0:03:38.236 --> 0:03:40.556 side by side. One is legalized that one has not 0:03:40.676 --> 0:03:42.916 legalized it, so you can sort of you can sort 0:03:42.956 --> 0:03:47.516 of tease out the effects of legalizing it. But bankruptcies 0:03:47.516 --> 0:03:50.756 are up, savings rates are down. If it follows the 0:03:50.796 --> 0:03:52.996 path that have followed in the United Kingdom and Australia, 0:03:53.076 --> 0:03:56.116 suicide rates will be up, so there's some social costs 0:03:56.196 --> 0:03:59.956 to it all. But I think, like really early days, 0:04:00.036 --> 0:04:02.076 I mean, you know, it's only been legal for six years. 0:04:02.116 --> 0:04:04.196 There were companies that have really only been up and running 0:04:04.196 --> 0:04:07.796 in most states for just a few years. It's kind 0:04:07.796 --> 0:04:10.516 of not hard to make some predictions about where it's going, 0:04:10.956 --> 0:04:11.996 but it's not there yet. 0:04:12.916 --> 0:04:15.516 So I'm a glass half empty kind of guy. But 0:04:15.916 --> 0:04:19.436 you cited some stats. I've seen twenty to thirty percent 0:04:19.476 --> 0:04:22.996 increase in bankruptcys and states illegalize it. I see young 0:04:23.036 --> 0:04:25.556 men with kind of less structure in their lives who 0:04:25.556 --> 0:04:27.396 are more prone to addiction. I think six out of 0:04:27.436 --> 0:04:31.796 seven gambling addicts are men. My understanding is gambling has 0:04:31.796 --> 0:04:34.556 the highest suicide rate because if you're addicted to meths, 0:04:34.556 --> 0:04:36.356 people figure it out and try and intervene. You can 0:04:36.396 --> 0:04:38.676 get in way over your skis with gambling and nobody knows, 0:04:38.716 --> 0:04:41.436 and you decide there's only one way out. I'll use 0:04:41.476 --> 0:04:43.516 an academic. I think this is a fucking disaster. 0:04:43.796 --> 0:04:47.516 Your thoughts, yeah, I'm totally with you. This is why 0:04:47.556 --> 0:04:51.196 I was trucked to the subject. I couldn't believe. Well, look, 0:04:51.596 --> 0:04:56.436 once it's legalized, I'm a little shocked by the insensitivity 0:04:56.476 --> 0:04:58.676 of the social to the public health crisis it's going 0:04:58.676 --> 0:05:04.156 to trigger because it's essentially a wild West in how 0:05:04.236 --> 0:05:06.636 you can get to the customer. And they aren't, you know, 0:05:06.676 --> 0:05:10.876 the sports gambling companies, they were mistake for casino companies 0:05:11.676 --> 0:05:13.156 that people kind of thought, oh, it's going to be 0:05:13.196 --> 0:05:17.836 like a casino business, so that the kind of vague 0:05:18.396 --> 0:05:20.916 with the house takes about roughly five percent. It's always 0:05:20.956 --> 0:05:23.836 been kind of five percent, will remain kind of five percent. 0:05:24.196 --> 0:05:27.356 This number keeps going up with these companies, it's like 0:05:27.356 --> 0:05:32.396 at fifteen percent. And effectively, what they are doing is 0:05:32.956 --> 0:05:37.316 mining the entire US population for people willing to make 0:05:37.396 --> 0:05:42.116 stupid sports bets. And they have a finely honed ability 0:05:42.476 --> 0:05:45.756 to identify anybody who actually knows what they're doing, like 0:05:45.836 --> 0:05:48.716 the sharp gambler, someone who actually might have some edge 0:05:48.756 --> 0:05:51.996 in a sport, and toss them out or limit them 0:05:51.996 --> 0:05:54.476 to the point where they're effectively tossed out, so that 0:05:54.716 --> 0:05:57.236 their business is built on people who don't know what 0:05:57.276 --> 0:06:01.596 they're doing. And it's further in a way that you know, casinos. 0:06:01.596 --> 0:06:03.756 When you're in a casino course is manipulating you in 0:06:03.796 --> 0:06:06.716 all kinds of diabolical ways. But when the casino's in 0:06:06.756 --> 0:06:09.476 your pocket, it's like your whole life is in the 0:06:09.516 --> 0:06:13.116 casino kind of thing. And they have an ability to 0:06:13.116 --> 0:06:16.476 sort of like nudge people into doing stuff that they 0:06:16.636 --> 0:06:18.956 just wouldn't think to do it it is and it's 0:06:18.996 --> 0:06:21.316 making the number and dumber bets and you kind of 0:06:21.316 --> 0:06:24.436 think about, Okay, like what's the disaster going to look like? 0:06:25.316 --> 0:06:29.516 It's not just men, it's young men. Young men are 0:06:29.596 --> 0:06:33.916 the real target. The Lancet of the Medical British Medical 0:06:33.956 --> 0:06:37.276 Publication just came out with a study that said, I mean, 0:06:37.316 --> 0:06:39.436 this number is so high that I want to just 0:06:39.756 --> 0:06:43.116 pause before I say it, but the twenty six percent 0:06:43.436 --> 0:06:46.356 of young men who were exposed to gambling develops some 0:06:46.396 --> 0:06:50.356 sort of gambling problem that seems very high. But even 0:06:50.396 --> 0:06:55.236 if it's half that, It's like the NCAA, whose new president, 0:06:55.356 --> 0:06:59.076 Charlie Baker, was just shocked by the gambling activity he 0:06:59.116 --> 0:07:02.556 was seeing on campuses, commissioned to study to see how 0:07:02.596 --> 0:07:05.036 many people were doing this, and more than sixty percent 0:07:05.036 --> 0:07:07.276 of young men on college campuses is a sports gambling. 0:07:07.436 --> 0:07:10.236 So you do the mad It's like, you got it. 0:07:10.236 --> 0:07:13.636 We're like, it's almost like we're creating a pool of 0:07:13.676 --> 0:07:18.116 future gambling addicts. And you're right, it's very interesting. You're 0:07:18.196 --> 0:07:21.196 right about like when you think about what's going to 0:07:21.276 --> 0:07:25.556 stop this train, if you compare it to like opioids, 0:07:26.316 --> 0:07:30.156 Like opioids was able to run for twenty years before 0:07:30.196 --> 0:07:33.316 anybody really put a stop to it, and and seven 0:07:33.356 --> 0:07:35.636 hundred and fifty thousand people die, and it was about 0:07:35.676 --> 0:07:38.836 as visible an epidemic as you can have. This is 0:07:39.236 --> 0:07:43.516 it's invisible. You don't see what's happening to people until 0:07:43.796 --> 0:07:46.036 So you wonder, if it takes twenty years for the 0:07:46.076 --> 0:07:49.716 society to get its hands around the opioid industry, how 0:07:49.756 --> 0:07:50.996 long is it going to take it to get its 0:07:50.996 --> 0:07:54.636 hands around the gambling industry. So, I yes, I agree 0:07:54.676 --> 0:07:56.796 with you. It's like, how on earth do we let 0:07:56.836 --> 0:07:59.476 this happen? But it's of a piece with other things 0:07:59.516 --> 0:08:00.436 we have let happen. 0:08:01.196 --> 0:08:02.756 I mean, when I think about it, it's not only 0:08:02.876 --> 0:08:05.756 My fear isn't only about gambling addiction. But when you 0:08:05.796 --> 0:08:08.476 put kind of an on demand DOPA bag in young 0:08:08.556 --> 0:08:12.476 people's pockets, just as they're kind of hardwiring their brain 0:08:12.676 --> 0:08:17.476 and learning about life and reward that we're just setting 0:08:17.516 --> 0:08:20.916 them up to be just fucking dopa monsters. And if 0:08:20.956 --> 0:08:22.676 they can't get it from gambling because they run out 0:08:22.676 --> 0:08:25.316 of money, they're going to find it somewhere else. Have 0:08:25.396 --> 0:08:27.956 you seen any of My thesis is we are literally 0:08:28.076 --> 0:08:32.996 unleashing into the economy, into the world, millions of dopa 0:08:33.516 --> 0:08:37.076 monsters that will are just going to find whatever way 0:08:37.116 --> 0:08:42.836 they can opiates sex porn, online shopping. They're just going 0:08:42.916 --> 0:08:46.796 to be so hungry for that rush because their brains 0:08:46.796 --> 0:08:50.396 will have been wired to expect that rush, that it's 0:08:50.436 --> 0:08:53.636 going to have all sorts of ramifications outside of gambling. 0:08:53.636 --> 0:08:55.196 Am I catastrophizing here? 0:08:56.276 --> 0:08:59.396 I mean, it doesn't sound unreasonable to me. My first 0:08:59.396 --> 0:09:03.516 thought when you started down that little path was it's 0:09:03.556 --> 0:09:06.636 interesting that sports used to be a place where you 0:09:06.796 --> 0:09:10.356 learned the slow rewards that come from a modification. 0:09:10.556 --> 0:09:10.996 Yeah. 0:09:11.076 --> 0:09:14.756 Yeah, you learned the opposite thing, and that we're turning 0:09:14.996 --> 0:09:17.996 that this mechanism that used used to take young men 0:09:18.636 --> 0:09:22.116 and teach them a certain lesson, and were you taking 0:09:22.116 --> 0:09:25.596 it to teach a different lesson. So it was disturbing 0:09:25.716 --> 0:09:28.436 enough to me that I have. My youngest is a 0:09:28.436 --> 0:09:31.116 seventeen year old son. Like I gave him some money 0:09:31.196 --> 0:09:34.876 and an adult supervision so he could learn how to 0:09:35.036 --> 0:09:39.876 navigate this world, because it does feel like, not only 0:09:39.996 --> 0:09:44.236 are we creating a world of you know, dopamine addicts, 0:09:44.396 --> 0:09:48.716 but the signal you send, especially to young men because 0:09:48.716 --> 0:09:51.516 it's so susceptible to this, is the world actually doesn't 0:09:51.516 --> 0:09:54.876 give a shit about you, that it's out to get you. 0:09:55.396 --> 0:09:57.396 When I got into this, when I started working on 0:09:57.476 --> 0:10:02.396 the story, what motivated me was the book I wrote 0:10:02.436 --> 0:10:04.796 about stuff I'd learned in the book I'd written about 0:10:04.836 --> 0:10:07.516 the pandemic. I got interested in it because the US 0:10:07.596 --> 0:10:10.596 response in the beginning was just so appalling, and we had, like, 0:10:10.676 --> 0:10:12.956 you know, twenty percent of the world's deaths with four 0:10:12.996 --> 0:10:15.516 percent of the world's population in the first six months. 0:10:15.636 --> 0:10:18.516 And I learned in the in the process that this 0:10:18.596 --> 0:10:21.196 is that in the few years running leading up to 0:10:21.236 --> 0:10:25.396 the pandemic, we'd had experienced the decline of life expectancy 0:10:26.116 --> 0:10:28.356 in three straight years, and that had not happened since 0:10:28.436 --> 0:10:31.596 nineteen eighteen. And I thought, well, the pandemic's happening in 0:10:31.596 --> 0:10:33.996 the context of a society that's already not taking care 0:10:34.036 --> 0:10:39.756 of its people, that some basic failure is occurring, and 0:10:39.796 --> 0:10:43.076 this feels like part of that. That it's like it's 0:10:43.076 --> 0:10:47.556 a public health problem, and that it's not that hard. 0:10:47.676 --> 0:10:51.076 Even if you can't do anything about legalizing sports gambling, 0:10:51.916 --> 0:10:53.836 it's not that hard to do some things to blunt 0:10:53.916 --> 0:10:57.476 its effects. So here's my solution. I'm trying to work 0:10:57.516 --> 0:11:00.876 within the constraints of the society. I don't think actually 0:11:01.476 --> 0:11:04.876 me going off about how diabolical it all is is 0:11:04.916 --> 0:11:08.116 going to help anything. They're doing something that I think 0:11:08.196 --> 0:11:11.716 is kind of interesting the company, the sports gambling companies 0:11:12.356 --> 0:11:15.876 they are because they're so good at chucking out of 0:11:15.916 --> 0:11:18.876 their business as anybody who knows what they're doing. They're 0:11:18.916 --> 0:11:22.596 isolating people who don't know what they're doing. So, by definition, 0:11:22.956 --> 0:11:26.916 if you have an account in good standing at FanDuel 0:11:26.916 --> 0:11:28.796 and DraftKings and you're doing a lot of sports betting, 0:11:29.236 --> 0:11:31.276 you have signals of the world you don't know what 0:11:31.316 --> 0:11:34.596 you're doing. I think that if we get that message 0:11:34.636 --> 0:11:37.796 out and that if you say, like, if you're looking 0:11:37.836 --> 0:11:39.756 for someone to manage your money, the first question you 0:11:39.756 --> 0:11:41.716 should ask them is they have account in good standing 0:11:41.716 --> 0:11:43.756 and FanDuel and DraftKings that they do. You should never 0:11:43.756 --> 0:11:47.796 give them your money to manage that. If you make it, 0:11:47.836 --> 0:11:51.316 if you make it a point of shame that you're 0:11:51.636 --> 0:11:55.676 in good with the industry, that you might stigmatize it 0:11:55.756 --> 0:11:57.996 in a way that makes it less dangerous. 0:11:59.756 --> 0:12:09.556 We'll be right back your book going infant. I'll under 0:12:09.596 --> 0:12:12.316 some of what I call the same texture of criticism 0:12:12.356 --> 0:12:15.116 as Walter Isaacson's biography and Elon Musk and that of us. 0:12:15.156 --> 0:12:17.596 You were kind of seeing lessly as having a front 0:12:17.676 --> 0:12:20.196 row seat, but not seeing what was going on. Do 0:12:20.276 --> 0:12:21.996 you think that's a fair criticism. 0:12:22.476 --> 0:12:25.116 I didn't write it until after it all collapsed. When 0:12:25.116 --> 0:12:28.836 I sat down to write the first words, there wasn't 0:12:29.116 --> 0:12:31.276 much I didn't know had happened. I mean, very little 0:12:31.356 --> 0:12:33.796 happened came out of the trial that wasn't already kind 0:12:33.836 --> 0:12:38.476 of known. But it is true that I was there 0:12:38.996 --> 0:12:42.796 a fly on the wall from kind of end of 0:12:42.836 --> 0:12:48.316 two thousand and twenty one through the collapse of November 0:12:48.356 --> 0:12:51.996 twenty twenty two. And if you'd have said he has 0:12:52.196 --> 0:12:56.196 the money, the customer's money in Alameda, I would have said, 0:12:56.436 --> 0:12:59.196 you're insane. There's no way that would be so dumb. 0:12:59.876 --> 0:13:04.356 So I did poke. Everybody did this, everybody who saw 0:13:04.396 --> 0:13:06.756 the structure of the business. He's got his own private 0:13:06.756 --> 0:13:10.636 hedge fund on our trading on the side of it 0:13:10.956 --> 0:13:14.956 in exchange, and he owns them both. I did ask 0:13:15.076 --> 0:13:18.916 lots of questions about conflicts of interest, but what I imagine 0:13:18.796 --> 0:13:21.196 would be the problem wasn't the problem. I imagine the 0:13:21.196 --> 0:13:24.396 problem was that his trading firm would have the same 0:13:24.436 --> 0:13:29.316 sort of privileged access to the exchange that high frequency 0:13:29.316 --> 0:13:32.436 traders get on the New York Stock Exchange, and privilege 0:13:32.796 --> 0:13:35.396 access to data and so on, so front running whatever, 0:13:36.076 --> 0:13:40.996 and that wasn't the case. I did not see that, like, oh, yeah, 0:13:41.036 --> 0:13:44.796 the money's in the wrong place, so that's true. Did 0:13:44.836 --> 0:13:47.756 I in retrospect think I should have seen it? 0:13:48.756 --> 0:13:48.916 Not? 0:13:49.036 --> 0:13:51.876 Really, no one else saw it either. You know, there 0:13:51.956 --> 0:13:55.556 wasn't the interesting thing. There are many interesting things about 0:13:55.556 --> 0:13:58.956 the story, but one interesting thing is, Yeah, a lot 0:13:58.996 --> 0:14:02.276 of people said, I wonder if they're shady like FTX, 0:14:02.476 --> 0:14:06.156 But that's the in crypto, that's easy. Like as a heuristic, 0:14:06.236 --> 0:14:10.156 if you're a successful crypto business, you're you know, you're 0:14:10.236 --> 0:14:13.516 largely unregulated, and you're twenty six years old and no 0:14:13.556 --> 0:14:18.316 one's paying that much attention the specific criticism, Oh he's 0:14:18.356 --> 0:14:22.236 got the customer's money in his hedge fund. No one said. 0:14:22.436 --> 0:14:26.596 Zero people said so, not even any ad whatever, one 0:14:26.636 --> 0:14:31.236 hundred and something professional investors who owned a piece of them, 0:14:31.236 --> 0:14:33.436 and they didn't say it. So I don't know. I 0:14:33.436 --> 0:14:35.716 don't know. That would have been very hard. I don't 0:14:35.756 --> 0:14:37.156 know how you would have detected that. 0:14:37.876 --> 0:14:39.996 Well A couple follow up questions there, so when I'm 0:14:40.036 --> 0:14:41.756 sort of follow the story a little bit from an 0:14:41.756 --> 0:14:44.196 adjacent I actually bought claims. 0:14:43.876 --> 0:14:47.676 I know this. You bought the claims, and if I 0:14:47.676 --> 0:14:51.356 could have, I would have. Oh right, oh my god. 0:14:51.716 --> 0:14:53.996 I mean it just seemed pretty obvious that they weren't 0:14:53.996 --> 0:14:55.236 worth ten cents on the dollar. 0:14:55.516 --> 0:14:57.316 Well I wasn't that smart. I bought him for twenty 0:14:57.356 --> 0:14:59.956 three cents. But because it's better to be lucky than good, 0:14:59.996 --> 0:15:02.796 because of the surge and crypto, they're now probably the 0:15:02.796 --> 0:15:04.556 payout's going to be somewhere between one hundred and twenty 0:15:04.636 --> 0:15:06.276 cents on the dollar one hundred and fifty cents, and 0:15:06.316 --> 0:15:09.236 other than other than patting myself on the back for 0:15:09.316 --> 0:15:11.156 one of the few good investment decisions I've made in 0:15:11.196 --> 0:15:14.156 the last year, if everyone gets their money back. Now, 0:15:14.196 --> 0:15:18.116 granted he committed fraud. He took customer accounts from people 0:15:18.116 --> 0:15:20.836 who thought they were investing, you know, putting their money 0:15:20.876 --> 0:15:23.116 in a deposit, not even investing, and then he used 0:15:23.116 --> 0:15:25.676 it to take risks they had not signed up for. 0:15:26.236 --> 0:15:29.716 So that's illegal, but one given that everyone's given their 0:15:29.756 --> 0:15:32.916 money back. Given I don't understand the difference between what 0:15:33.116 --> 0:15:35.356 Sam bankman Free did and what John Corzon did at 0:15:35.516 --> 0:15:36.196 MF Global. 0:15:36.236 --> 0:15:40.156 I think it was called you're taxing my memory there? 0:15:40.196 --> 0:15:42.556 But yeah, remember that, Yeah, you do it with the 0:15:42.596 --> 0:15:42.996 same thing. 0:15:43.196 --> 0:15:44.676 Can I back you up a set? Because I really 0:15:44.676 --> 0:15:47.996 wanted to ask you about this. I was I took 0:15:48.036 --> 0:15:52.916 a keen interest in the market in claims on FTX 0:15:53.156 --> 0:15:56.596 because because it seemed really clear to me that what 0:15:56.636 --> 0:16:00.756 the bankruptcy people were saying are signaling. It's like it's 0:16:00.796 --> 0:16:03.836 this dumpster fire and there's nothing there and boy, just 0:16:03.916 --> 0:16:08.196 be incinerated all this money that that wasn't true. And 0:16:08.556 --> 0:16:12.116 it was to me how cheaply these things traded it first, 0:16:13.196 --> 0:16:17.436 how did you even think to buy claims? 0:16:18.436 --> 0:16:22.276 I'm fascinated by I've invested across every asset class from 0:16:22.556 --> 0:16:25.596 Angel to venture to growth the public, and by far 0:16:25.716 --> 0:16:28.476 the best asset class is distressed. Is similar to biology. 0:16:28.516 --> 0:16:30.276 People don't want to hang around old people, so the 0:16:30.316 --> 0:16:33.796 best businesses are businesses dealing with old people, and the 0:16:33.796 --> 0:16:36.796 best asset class is distressed. So I look at bankruptcy 0:16:36.796 --> 0:16:38.796 filings and I was fascinated by this. I got the 0:16:38.796 --> 0:16:41.596 bankruptcy filing from the court. I read through it, and 0:16:41.676 --> 0:16:45.276 in the bankruptcy claim it listed all their assets cash, 0:16:45.556 --> 0:16:47.716 some bitcoin, et cetera. And one of the assets that 0:16:47.836 --> 0:16:50.556 just popped out to me is they had invested five 0:16:50.596 --> 0:16:54.796 hundred million dollars in Anthropic. Anthropic is the number two 0:16:55.116 --> 0:16:58.156 AI company LM, and I couldn't find for the life 0:16:58.156 --> 0:17:01.116 of me what evaluation was that they invested at, but 0:17:01.196 --> 0:17:03.356 I figured it was somewhere between three and five billions. 0:17:03.396 --> 0:17:06.036 So I took the most conservative, which meant a number, 0:17:06.076 --> 0:17:09.716 which meant that one of the things that the that FDx, 0:17:09.756 --> 0:17:13.556 a bankrupt FDx had that wouldultimately be distributed to the 0:17:13.636 --> 0:17:18.396 claimants was ten percent I assumed of Anthropic. I valued 0:17:18.436 --> 0:17:24.076 Anthropic at four at approximately approximately forty billion, So I 0:17:24.076 --> 0:17:27.596 thought the steak is worth four billion claimants. Total claimants 0:17:27.676 --> 0:17:30.716 nine billions. So just they at stake and anthropic I 0:17:30.836 --> 0:17:33.436 valued at forty four cents on the dollar, claims were 0:17:33.436 --> 0:17:36.276 selling for twenty two cents. To me, this was the 0:17:36.276 --> 0:17:36.956 easiest trade I. 0:17:36.916 --> 0:17:40.316 Ever made, And why do you think other people didn't 0:17:40.356 --> 0:17:41.076 make that trade? 0:17:41.676 --> 0:17:44.516 Occasionally you find something I don't know. This doesn't happen 0:17:44.556 --> 0:17:46.236 to be very long. I'm like, oh my god, they've 0:17:46.276 --> 0:17:48.716 missed it. And that is people didn't see the five 0:17:48.796 --> 0:17:50.916 hundred million dollar number. They could see the five hundred 0:17:50.916 --> 0:17:53.996 million dollars. What they couldn't see was the numerator of 0:17:54.036 --> 0:17:56.476 the denominator, and that was the valuation they invest that 0:17:56.636 --> 0:17:59.956 they invested at. And I thought, there's no way they 0:17:59.996 --> 0:18:03.316 don't own at least ten percent of this thing. And 0:18:03.356 --> 0:18:05.516 then you have to value another unknown and that is 0:18:05.556 --> 0:18:07.756 what is that ten percent now? But I thought it's 0:18:07.796 --> 0:18:11.636 worth probably forty sense a minimum of twenty three cents. 0:18:11.636 --> 0:18:14.756 So all the crypto, all the cash, everything else was 0:18:14.796 --> 0:18:15.756 just gonna be gravy. 0:18:16.756 --> 0:18:20.036 To my bewilderment. People weren't paying attention it was. I mean, 0:18:20.076 --> 0:18:23.196 what he did. He didn't take whatever it was, eleven 0:18:23.236 --> 0:18:26.276 billion dollars of customer assets and spend it on you know, 0:18:27.316 --> 0:18:30.796 blow and hookers and private jets. He put five billion 0:18:30.836 --> 0:18:34.436 of it into into venture capital investments and this was 0:18:34.516 --> 0:18:37.596 just one of them. And there was this pile of stuff. 0:18:37.636 --> 0:18:39.916 And I keep waiting for someone to come and ask 0:18:39.956 --> 0:18:44.396 the question, how good a VC was? Sam Bankman Free 0:18:44.756 --> 0:18:47.076 he was doing it it Listen, he was, you know, like, 0:18:47.116 --> 0:18:49.676 how how well did he perform compared to his peer group? 0:18:49.996 --> 0:18:53.076 Because it wasn't He has a piece of You may 0:18:53.076 --> 0:18:54.876 not even know this. He's a piece of space X 0:18:54.956 --> 0:18:57.516 in there. He has it through Michael Kievs, but so 0:18:57.596 --> 0:19:00.116 you don't see it. But he's got he's got pieces 0:19:00.156 --> 0:19:04.116 of some really valuable stuff, even if even if crypto 0:19:04.276 --> 0:19:07.316 goes to zero, and and never mind all the crypto 0:19:07.356 --> 0:19:11.556 businesses he bought. So so so one last question is 0:19:11.596 --> 0:19:15.476 because I'm just I'm curious, because I haven't because I 0:19:15.556 --> 0:19:17.556 knew you made this trade. Someone told me about you 0:19:17.596 --> 0:19:19.236 being in the market, and I thought, well, that's kind 0:19:19.236 --> 0:19:21.916 of that's kind of cool. Did you worry at all 0:19:22.436 --> 0:19:27.756 that the bankruptcy process itself was going to incinerate your profits, 0:19:28.276 --> 0:19:30.756 that it was so expensive, it would be so expensive 0:19:30.796 --> 0:19:33.076 that you would just you wouldn't end up seeing you 0:19:33.116 --> 0:19:34.876 should have seen the money, but in the end it 0:19:34.916 --> 0:19:37.196 would go in the pockets of Solo them and Cromwell lawyers. 0:19:38.316 --> 0:19:40.436 That's that's a great question. But part of the analysis 0:19:40.436 --> 0:19:42.276 I did want to put together the spreadsheet was it's 0:19:42.316 --> 0:19:45.196 the same administrator that handled Enron, and I estimated the 0:19:45.196 --> 0:19:48.836 cost at about a billion dollars and I thought, okay, 0:19:48.916 --> 0:19:52.516 if if just the anthropic steak is where it's four billion, 0:19:52.596 --> 0:19:55.876 the coins are worth three I saw seventy cents on 0:19:55.916 --> 0:19:58.156 the dollar, and then take out a billion, so sixty 0:19:58.196 --> 0:20:00.796 cents on the dollar. And then what it ends up. 0:20:00.836 --> 0:20:02.236 It looks like the payout and a lot of the 0:20:02.276 --> 0:20:04.956 stakes were talking about have already been sold. But it 0:20:04.996 --> 0:20:07.836 looks to me what they're saying, the court administrator saying 0:20:07.916 --> 0:20:09.636 that they now think they're going to I get somewhere 0:20:09.636 --> 0:20:11.676 between one hundred and twenty one hundred and sixty cents 0:20:11.676 --> 0:20:14.236 on the dollar. A lot of that because crypto has surged. 0:20:15.036 --> 0:20:17.156 But the lesson I take away from all of this, 0:20:18.116 --> 0:20:20.316 and this is a larger lesson about investing in life, 0:20:20.436 --> 0:20:23.676 is the greatest return on invested capital is inversely for 0:20:23.756 --> 0:20:26.636 related to how sexy something is. This isn't true of sports, 0:20:26.636 --> 0:20:28.796 which you know better than me, because there's no shortage 0:20:28.836 --> 0:20:31.676 of billionaires with midlife crises, and it's a regulated monopoly 0:20:31.716 --> 0:20:35.436 the control supply. But generally speaking, outside of sports, the 0:20:35.436 --> 0:20:39.116 best asset classes are the least sexy, and this was 0:20:39.276 --> 0:20:43.116 a really unsexy investment. Everybody thought this thing it had fraud, 0:20:43.796 --> 0:20:46.156 it had crypto, which was out of vogue. This thing 0:20:46.196 --> 0:20:50.076 was supuzzedly going to zero, and any reasonable diligence said, no, 0:20:50.316 --> 0:20:52.316 this is this is all upside. 0:20:53.116 --> 0:20:55.236 I didn't really answer your question about what was different 0:20:55.236 --> 0:20:57.756 from between what he did andto what John Corzin did, 0:20:58.076 --> 0:21:01.876 and you've taxed my memory about what John Corzin did. 0:21:01.916 --> 0:21:03.996 But I do think, what do I think? I think 0:21:04.036 --> 0:21:08.236 that there's a kind of misapprehension in the general tenor 0:21:08.396 --> 0:21:13.556 of the response to Sam Bankman freed that people still 0:21:13.596 --> 0:21:18.876 talk about it as if what he did was intentionally 0:21:18.916 --> 0:21:22.516 set up a business to steal customer money, stole the 0:21:22.516 --> 0:21:25.076 customer money, and the customers don't have any money now. 0:21:25.596 --> 0:21:28.756 And what he actually did was set up a business 0:21:28.756 --> 0:21:30.996 that was I mean, it was jenkinitly set up in 0:21:30.996 --> 0:21:34.236 the first place, but it was clearly not start. It 0:21:34.316 --> 0:21:38.156 didn't start as a fraud was in and of itself, 0:21:38.276 --> 0:21:40.916 a successful business if he'd just not done the idiot 0:21:40.916 --> 0:21:44.276 things he'd done with his edge fund and then got 0:21:44.356 --> 0:21:48.396 himself in a pickle in June of twenty twenty two 0:21:48.556 --> 0:21:52.116 when crypto lenders asked for the ten billion dollars they'd 0:21:52.156 --> 0:21:54.356 lent him back, and instead of just telling them I 0:21:54.396 --> 0:21:56.996