WEBVTT - Archegos Blowup Likely To Draw SEC Scrutiny On Leverage 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day we bring 0:00:06.960 --> 0:00:11.480 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.799 at Bloomberg dot com slash podcast. Well, the story of 0:00:22.840 --> 0:00:26.160 the morning certainly has been this Archegos Capital Management, the 0:00:26.239 --> 0:00:29.840 unwinding of this fund and the volatility that it's caused 0:00:30.200 --> 0:00:32.280 a handful of names, including some of those big media 0:00:32.360 --> 0:00:36.200 names like Viacom, CBS and Discovery, as well some tech names, 0:00:36.320 --> 0:00:37.640 and the in in fact it's had on some of the 0:00:37.680 --> 0:00:41.760 relationship banks. Let's get the latest with Shawnalie Bassek, Bloomberg 0:00:41.800 --> 0:00:44.080 Wall Street reporter fanale Thanks so much for joining us here. 0:00:44.080 --> 0:00:47.640 It's really been the story over the last several days 0:00:47.720 --> 0:00:50.159 here about what happened. What do we what's the latest 0:00:50.240 --> 0:00:53.639 on Archaegas Capital Management. Yeah, well, first of all, it's 0:00:53.720 --> 0:00:56.080 the fallout we're seeing of the banks, but also what 0:00:56.200 --> 0:00:59.120 an ugly day for Viacom. I mean the share is 0:00:59.160 --> 0:01:02.600 still dropping. You know, I've spoke to a bunch of 0:01:02.640 --> 0:01:06.120 investors today that playing these media stocks and obviously not 0:01:06.280 --> 0:01:09.160 so thrilled with the moves you're seeing in the market 0:01:09.200 --> 0:01:12.360 and really just the violent fundamentals, um, you know, the 0:01:12.440 --> 0:01:16.040 violent swings you're seeing underneath the surface. Y, especially among 0:01:16.160 --> 0:01:20.800 the investors that bought a secondary offering that Viacom issue. 0:01:20.959 --> 0:01:26.360 Just uh, I guess on March five dollars to share 0:01:26.360 --> 0:01:28.640 they bought stock and now the stocks stating at forty four. 0:01:28.720 --> 0:01:31.800 So a lot of unhappy investors out there, I'm sure, yeah, absolutely, 0:01:31.880 --> 0:01:33.200 And I mean if we need to take a big 0:01:33.240 --> 0:01:35.080 step back, I mean a lot of this was bought 0:01:35.120 --> 0:01:39.319 on by this family office run by you know, of 0:01:39.440 --> 0:01:42.000 Bill Wong, who was embroiled in an insider trading a 0:01:42.000 --> 0:01:46.120 scandal and then was able to really get all of 0:01:46.160 --> 0:01:51.720 this exposure on leverage from multiple banks. UM. Really a 0:01:51.800 --> 0:01:55.640 huge family office, despite not many people having heard much 0:01:55.680 --> 0:01:58.680 about him before, not since two thousand twelve. I mean, 0:01:58.720 --> 0:02:03.320 he's a family office, be because he um settled wire 0:02:03.480 --> 0:02:08.720 fraud charges, right, and it's interesting that he's even trading 0:02:08.720 --> 0:02:13.040 with Goldman Sachs and others because we know that um, 0:02:13.080 --> 0:02:17.440 the compliance uh people at Goldman Sachs on numerous occasions 0:02:17.760 --> 0:02:20.360 had told the their bankers, no, you can't work with 0:02:20.400 --> 0:02:24.960 this guy anymore. Yeah, And ultimately that kind of moratorium 0:02:25.080 --> 0:02:27.880 ran out, and it was Goldman Sacks, it was Morgan Stanley, 0:02:27.919 --> 0:02:30.519 it was no Mura, it was Credit Sweets, even Deutsche 0:02:30.520 --> 0:02:33.840 Bank at one point. So you really had a range 0:02:33.840 --> 0:02:37.720 of banks show up and really enable the this um 0:02:37.840 --> 0:02:43.280 person really amassing humongous family office that has now a 0:02:43.360 --> 0:02:46.800 mass these major positions on leverage by means of the 0:02:46.840 --> 0:02:50.480 banking system that has supported him and Shinali, what do 0:02:50.520 --> 0:02:53.480 we know about the use of swaps in this transaction? 0:02:53.520 --> 0:02:55.040 I guess one of the big issue for a lot 0:02:55.040 --> 0:02:58.160 of people's, you know, particularly investors of some of these 0:02:58.200 --> 0:03:01.600 names like Viacom, CBS and the Discovery, like why are 0:03:01.600 --> 0:03:05.400 these stocks going up so dramatically when the fundamentals do 0:03:05.480 --> 0:03:07.639 not support it? You even it prompted the company the 0:03:07.720 --> 0:03:10.840 issue stock, it prompted analysts that downrade the stock, and 0:03:10.840 --> 0:03:13.079 it was all because we didn't really know who the 0:03:13.120 --> 0:03:15.640 buyer was, and it was because of these swaps. What 0:03:15.639 --> 0:03:18.040 do we know? Yeah, it's a great question. These swaps 0:03:18.200 --> 0:03:21.200 um you know, the arcane type of financial product called 0:03:21.200 --> 0:03:23.680 contracts for difference. And you know, big hat tip to 0:03:23.760 --> 0:03:26.560 Tracy Allaway on our team for really running through the 0:03:26.600 --> 0:03:30.240 issues here. It's very unclear as to you know, what 0:03:30.440 --> 0:03:34.200 the rules are around these swaps across borders. Right, We're 0:03:34.200 --> 0:03:37.120 not even just talking about a US story here, and 0:03:37.200 --> 0:03:40.120 the SEC did say they are in contact with the banks, 0:03:40.120 --> 0:03:43.720 they are looking at the issue here as a major 0:03:43.800 --> 0:03:48.800 financial regulation nerd. I've got to say that Gary Gensler 0:03:48.880 --> 0:03:53.360 led SEC moving forward, I'd be pretty upset about what 0:03:53.520 --> 0:03:57.440 happened here, and I'd also be looking moving forward around 0:03:57.600 --> 0:04:01.680 why the leverage outside of the banking system has just 0:04:01.800 --> 0:04:04.760 gone so far and away such that we're seeing one 0:04:04.760 --> 0:04:08.680 of the biggest blow ups since LTCM. What does this 0:04:08.760 --> 0:04:11.240 mean for Wong? What does this mean for our gos? 0:04:11.440 --> 0:04:17.240 Is is this the end for that family office? I mean, 0:04:17.800 --> 0:04:19.839 I want to see who banks with him again, Matt, 0:04:20.400 --> 0:04:24.320 And I mean after something like this, you know how, 0:04:24.680 --> 0:04:26.120 I think there will be much more to come in 0:04:26.120 --> 0:04:29.320 the coming days on exactly how this happened. That that 0:04:29.320 --> 0:04:31.279 that reminds me is there more to come in terms 0:04:31.320 --> 0:04:34.120 of unwinding? Do you think I do think that we 0:04:34.200 --> 0:04:36.279 have to be watching this closely I do think there's 0:04:36.320 --> 0:04:38.440 more to come. One sign of faith that was given 0:04:38.440 --> 0:04:40.719 by a hedge fund manager just this morning was, you 0:04:40.760 --> 0:04:43.160 know the vix is still pretty low. Right, you're not 0:04:43.240 --> 0:04:46.279 seeing these uh this these massive swings go into the 0:04:46.320 --> 0:04:49.200 broader market and it's entirely But will you see a 0:04:49.200 --> 0:04:52.800 few more hedge funds lose a lot of money? Probably? Yeah. 0:04:52.800 --> 0:04:54.880 I mean first it was meme stocks and we could say, Okay, 0:04:54.920 --> 0:04:59.000 that's just a bunch of retailers playing around because the board, Uh, 0:04:59.480 --> 0:05:03.839 now we've got this issue. Um, have we heard anything 0:05:04.040 --> 0:05:06.760 from the regulators in general? It just feels like you 0:05:06.800 --> 0:05:09.280 were mentioning shy. It just feels like if I were 0:05:09.279 --> 0:05:12.680 Gary Gensler coming in here, Um, I got some work 0:05:12.720 --> 0:05:14.440 to do here. There's a lot of things for me 0:05:14.520 --> 0:05:16.400 to look at, right, and let's let our memories be 0:05:16.480 --> 0:05:20.880 longer too, Because at the end of early before even 0:05:20.880 --> 0:05:23.839 the markets one hey, riot wire, we were seeing hedge 0:05:23.839 --> 0:05:26.000 funds trade at you know, like a hundred to one 0:05:26.160 --> 0:05:29.200 sometimes leverage when they were trading in treasury markets, to 0:05:29.240 --> 0:05:31.960 the point that it caused pressure on some of the 0:05:32.000 --> 0:05:35.040 safest funding markets in the world. So you know, it's 0:05:35.040 --> 0:05:38.280 not even just game stop or you know this this 0:05:38.360 --> 0:05:41.360 issue that we've seen with archegos. How is it that 0:05:41.400 --> 0:05:44.440 you see so many issues in the hedge fund industry 0:05:44.720 --> 0:05:47.560 in regard to borrow money in in just a year 0:05:47.560 --> 0:05:49.960 and a half. Yeah, so leverage is definitely give me 0:05:50.040 --> 0:05:52.480 a point. Um the gnsler is going to focus on 0:05:52.560 --> 0:05:56.440 in terms of regulation, is there anything else? Is there 0:05:56.440 --> 0:06:00.320 anything else? Well yeah, well yeah, yeah, Well there's Jenny Yellen, 0:06:00.400 --> 0:06:03.159 there's f stock, right, I mean, are they going to 0:06:03.240 --> 0:06:07.120 be clamping down on the non bank financial system in 0:06:07.160 --> 0:06:10.159 a big world? And also disclosure? Right, Remember Gary Gansler 0:06:10.160 --> 0:06:14.400 was former CFTC that was the main overseer swaps market. 0:06:14.480 --> 0:06:16.360 That's exactly what I'm thinking in shale. When you see 0:06:16.360 --> 0:06:20.080 the words secret um in regards to assets then in 0:06:20.120 --> 0:06:23.240 a headline, then you know that there's gonna be at 0:06:23.320 --> 0:06:27.080 least one or two Congressmen thinking this is a problem. Yeah, exactly. 0:06:27.160 --> 0:06:29.280 It's the most read story on Bloomberg today, so it's 0:06:29.320 --> 0:06:31.200 got to be in the back of everybody on Sunday 0:06:31.320 --> 0:06:34.599 and Saturday and Friday. It's been the eight of the 0:06:34.640 --> 0:06:38.120 top ten most dread stories over the weekend. So definitely, UM, 0:06:38.240 --> 0:06:42.880 a fascinating scoop there, and uh, who we all props 0:06:42.880 --> 0:06:47.719 to is this Eric Shatsker with Eric Schrie, Sophia Horte 0:06:47.839 --> 0:06:50.320 coast to Tracy Alloway Bay who we have a whole 0:06:50.480 --> 0:06:54.760 team on this one, all right, and remember, you know 0:06:54.800 --> 0:06:58.120 it's interesting. We're gonna have you know, a return, a 0:06:58.240 --> 0:07:00.840 story and a show on four thirty Wall Street time 0:07:00.839 --> 0:07:03.880 on Bloomberg Radio and television, really diving into this issue, 0:07:03.960 --> 0:07:07.760 so make sure to tune in for that. There was 0:07:07.880 --> 0:07:11.560 recently a really cool deal done by a Canadian electric 0:07:11.600 --> 0:07:17.520 vehicle manufacturer. Electro Mechanica had UM from the beginning, done 0:07:17.520 --> 0:07:20.440 all of its production in China, but now the company 0:07:20.600 --> 0:07:24.960 is opening a location in Arizona. And we've got the 0:07:24.960 --> 0:07:27.520 guy who did that deal for b d O on 0:07:27.560 --> 0:07:30.920 the air, Tom Stringer, Corporate real Estate Advisory Managing Director 0:07:31.360 --> 0:07:35.200 UM running site selection and incentives there. And Tom, let's 0:07:35.240 --> 0:07:38.000 talk about before we did the back to work, UM, 0:07:38.040 --> 0:07:41.200 you know, back to school uh discussion, let's talk about 0:07:41.240 --> 0:07:45.560 Electro Mechanica, UM, how you got them into the US, 0:07:45.680 --> 0:07:49.200 into Arizona and why they're building there instead of another 0:07:49.240 --> 0:07:52.960 plant in China. Well, good morning, guys, thanks for having 0:07:52.960 --> 0:07:57.120 me back. Really appreciate it. Very interesting story. Um, certainly 0:07:57.120 --> 0:07:59.520 it's a it's one that's part of a frothy ev 0:07:59.720 --> 0:08:02.080 market it right now. But you know, we started looking 0:08:02.080 --> 0:08:04.360 at the project a couple of years ago. UM, the 0:08:04.400 --> 0:08:07.560 market for evs was still really just emerging. Obviously Tesla 0:08:07.640 --> 0:08:10.960 had had established itself, but other players were really just 0:08:11.040 --> 0:08:13.000 sort of coming up to bat at that point in time. 0:08:13.480 --> 0:08:15.560 And we were in the midst of the tarif from 0:08:15.560 --> 0:08:18.560 the trade discussions, UM, which caused right a lot of 0:08:18.640 --> 0:08:21.080 ripples and people were having to make adjustments for that. 0:08:21.240 --> 0:08:24.560 So access to the North American market, solidifying the supply 0:08:24.720 --> 0:08:27.840 chain were really kind of strategic decisions that the company 0:08:27.920 --> 0:08:31.360 was making early on. And by the time we got 0:08:31.360 --> 0:08:34.040 through the project and COVID had read its ugly head 0:08:34.480 --> 0:08:37.199 and then market demand and awareness really poor EVS in 0:08:37.240 --> 0:08:41.000 the US really just surged dramatically. It was looked like 0:08:41.000 --> 0:08:43.600 a very strategic decision that was made two years ago. 0:08:43.840 --> 0:08:47.320 Now these these a lot of these sites are going 0:08:47.400 --> 0:08:52.360 up in Texas, California, Arizona. Does the sun have something 0:08:52.360 --> 0:08:55.920 to do with that? Well, I don't think anybody dislikes 0:08:55.960 --> 0:08:58.400 warm weather. Certainly into the winner that we've had here, 0:08:58.400 --> 0:09:01.160 in the northeast. So that's checked on for those locations. 0:09:01.200 --> 0:09:02.839 But I think if you look at the states that 0:09:02.880 --> 0:09:05.960 are really emerging as EV powerhouses and you hit the 0:09:06.000 --> 0:09:07.840 nail on the head, I would say, you know, you Texas, 0:09:07.880 --> 0:09:12.439 Arizona in particular, which had really no automotive manufacturing industry 0:09:12.520 --> 0:09:15.800 prior to too Lucid, to Nicola now electro Mechanic and 0:09:15.880 --> 0:09:18.839 some others. Um, you're looking at southern states that are 0:09:18.880 --> 0:09:24.240 aggressive in economic development in terms of corporate recruitment, job training, UM, 0:09:24.280 --> 0:09:28.880 aggressive tax and incentive policy, terrific utility rates, and frankly, 0:09:29.360 --> 0:09:32.320 with warm weather and good tax rates from a first 0:09:32.360 --> 0:09:35.800 lincome standpoint, places people in talent really want to go. 0:09:36.280 --> 0:09:39.400 So those have been very attractive kind of benchmark points 0:09:39.400 --> 0:09:42.920 for those locations. Hey, Tom, you mentioned earlier, you know, 0:09:43.000 --> 0:09:45.960 the push for some companies to bring their supply chains 0:09:46.520 --> 0:09:50.400 um maybe on shore in the US UH, and that 0:09:50.480 --> 0:09:53.880 was certainly a big discussion point during the Trump administration. 0:09:54.280 --> 0:09:56.439 Where are we now that we have a new administration. 0:09:56.679 --> 0:10:01.720 Are companies still moving that way or they reassessing? No, 0:10:01.920 --> 0:10:04.240 I think it's a it's a good bit of continuity 0:10:04.280 --> 0:10:06.880 between the administrations. You know, anytime you can get Republicans 0:10:06.880 --> 0:10:10.160 and Democrats degree on anything, watch out, it will probably happen. 0:10:10.280 --> 0:10:13.959 But this one seems to be um really taking hold 0:10:14.000 --> 0:10:18.760 because the markets and commercial industry and and frankly consumers 0:10:18.760 --> 0:10:21.360 were driving it more so than any policy decisions. So 0:10:21.400 --> 0:10:24.199 here we have the policy decision makers chasing the markets, 0:10:24.240 --> 0:10:27.440 which usually makes for very good policy. Um. So there's 0:10:27.440 --> 0:10:30.000 a lot of continuity. I think you saw great investment 0:10:30.360 --> 0:10:33.320 also again in Arizona with Intel just last week with 0:10:33.400 --> 0:10:36.719 the twenty billion dollar chip fab facility, and that was 0:10:36.800 --> 0:10:40.800 facilitated by both administrations, both the Trump administration starting it 0:10:40.800 --> 0:10:43.240 and the Biden administration coming on and taking hold to 0:10:43.320 --> 0:10:46.199 help the state of Arizona drive that home. So, UM, 0:10:46.240 --> 0:10:49.000 some good continuity in in the kind of will will say, 0:10:49.200 --> 0:10:53.160 um resetting of supply chains. Uh, that's that's really going on. 0:10:53.280 --> 0:10:56.080 So we're an implementation now, it's not just policy anymore 0:10:56.200 --> 0:10:58.559 thought process. I just want to jump in and I'll 0:10:58.559 --> 0:11:03.200 tweet out a picture of the Electro Mechanica solo car. 0:11:03.400 --> 0:11:06.000 It's so cool. It's a little three wheeler with an 0:11:06.000 --> 0:11:09.120 awesome trunk. I recommend googling it, but again I'll send 0:11:09.120 --> 0:11:12.160 it out on Twitter. Tom let's get to the bank news, 0:11:12.200 --> 0:11:14.800 which is, you know a lot of our listeners obviously 0:11:14.840 --> 0:11:18.559 working in banks, tired of being at home with their 0:11:18.640 --> 0:11:20.880 kids or in the case of the younger workers, with 0:11:20.920 --> 0:11:23.160 mom and dad. They want to get back to the 0:11:23.200 --> 0:11:26.000 excitement of the office, or maybe they don't. What are 0:11:26.040 --> 0:11:30.319 you hearing, Hey, great question, I think all of us now. 0:11:30.360 --> 0:11:33.040 A year in UM, it was super positive. At first, 0:11:33.080 --> 0:11:37.560 it was unbelievable how quickly corporate America, financial institutions, government 0:11:37.600 --> 0:11:41.280 really shifted gears and and kept productivity up and shifted 0:11:41.280 --> 0:11:43.679 to it to working at home. UM. I think we've 0:11:43.679 --> 0:11:46.400 certainly realized there's some advantages to it, but there's certainly 0:11:46.440 --> 0:11:49.360 some limitations, and those limitations are starting to kind of 0:11:49.400 --> 0:11:52.040 pray the edges of it. I think people are excited 0:11:52.120 --> 0:11:54.720 to get back. I think it's gonna look a little different. 0:11:54.840 --> 0:11:57.160 That's one thing that's been consistent. You hear that term 0:11:57.280 --> 0:11:59.840 hybrid thrown out there are probably a thousand times today 0:12:00.080 --> 0:12:03.640 every leader that gets asked this question. That's because it's right. 0:12:03.679 --> 0:12:06.960 We've proven our cost effect that it is to allow 0:12:07.000 --> 0:12:10.000 people to work from flow from home and have flexibility, 0:12:10.120 --> 0:12:12.440 and that access to talent really means you can recruit 0:12:12.480 --> 0:12:14.160 somebody to work in New York, but they could be 0:12:14.400 --> 0:12:16.440 in Iowa or across the other side of the world. 0:12:17.000 --> 0:12:19.800 And that's a huge advantage for companies and a challenge 0:12:19.800 --> 0:12:22.839 for jurisdiction. So I think as we start to come back, 0:12:23.360 --> 0:12:27.080 flexibility is going to be extremely important. Probably less square 0:12:27.080 --> 0:12:30.920 footage in the central business district is something that's definitely emerging, 0:12:31.600 --> 0:12:33.680 and that's the challenge that's going to have to be addressed. 0:12:33.679 --> 0:12:36.200 In those higher cost jurisdictions, They're gonna have to get 0:12:36.240 --> 0:12:39.920 into economic development a lot more aggressively because all those 0:12:40.000 --> 0:12:42.679 jobs won't come back. Um, there was a great static 0:12:42.760 --> 0:12:45.559 in that from the Journal the other day that office 0:12:45.600 --> 0:12:48.680 occupancy physical occupancy in New York City, for example, is 0:12:48.760 --> 0:12:52.160 down eight four from last year, and I mean that 0:12:52.320 --> 0:12:54.880 is just a devastating when you think of the number 0:12:54.920 --> 0:12:58.760 of turkey sandwiches and bagels that are not consoled and 0:12:58.880 --> 0:13:01.840 how that affects right the rest of the region. Yeah, 0:13:01.880 --> 0:13:04.080 we'll have to see how people come back, certainly in 0:13:04.360 --> 0:13:06.560 some of these urban markets. Tom Stringer, thank you so 0:13:06.640 --> 0:13:09.360 much for joining us. Tom Stringer's corporate real Estate Advisory 0:13:09.360 --> 0:13:13.000 Managing director for Site Selection and Incentives at the firm 0:13:13.160 --> 0:13:16.000 b DO based in your giving us some thoughts about 0:13:16.040 --> 0:13:18.240 how the supply chain coming closer to home for a 0:13:18.240 --> 0:13:21.120 lot of US companies and what that means for infrastructure 0:13:23.640 --> 0:13:26.800 time for Bloomberg Opinion. We rejoined today by Chris Anderson, 0:13:26.920 --> 0:13:29.960 CEO and co founder of three D Robotics based in 0:13:30.040 --> 0:13:33.440 San Diego, and the topic really is some of these 0:13:33.440 --> 0:13:36.560 big tech companies, are they media companies that are responsible 0:13:36.600 --> 0:13:40.480 for the content or are they simply technology platforms uh 0:13:40.520 --> 0:13:44.800 and sourcing and hosting user generated content therefore uh not 0:13:45.040 --> 0:13:47.920 liable for that content. Chris, thanks so much for joining 0:13:48.000 --> 0:13:49.880 us here. We we just had some of those big 0:13:49.880 --> 0:13:53.439 tech CEOs Facebook, Google and others in front of Congress. 0:13:53.559 --> 0:13:58.319 Yet again, I don't think anything of substance was achieved. 0:13:58.920 --> 0:14:01.800 What's your view on how maybe some of these you know, 0:14:02.840 --> 0:14:06.040 big tech copies should be thinking about the content that's 0:14:06.080 --> 0:14:10.079 on their platforms. Yeah, you're you're right. There was nothing 0:14:10.080 --> 0:14:12.680 of substance achieved in there, and there never is and 0:14:12.880 --> 0:14:15.880 these sort of things they're largely theater um. The problem 0:14:15.880 --> 0:14:18.640 is that there's a, you know, a fundamental disconnect between 0:14:18.640 --> 0:14:20.400 the role of the platform, which is really what they 0:14:20.400 --> 0:14:24.240 call common carrier. They you know, there's the user created 0:14:24.280 --> 0:14:29.320 content is impossible to uh to to edit the way um, 0:14:29.360 --> 0:14:32.880 you know, professionally created content is um. And then then 0:14:32.920 --> 0:14:36.280 then the their power which is now you know, greater 0:14:36.400 --> 0:14:39.200 than than the newspapers um. And so the you know, 0:14:39.240 --> 0:14:41.200 the question is is it's is it going to be 0:14:41.280 --> 0:14:44.040 some sort of oversight board like Facebook you're creative? Well, 0:14:44.040 --> 0:14:46.320 that doesn't scale. Is it going to be you know, 0:14:46.440 --> 0:14:51.440 actually imposing requirements on them that they responsible for all 0:14:51.440 --> 0:14:53.560 the content? Well, that doesn't scale. Is it breaking them 0:14:53.600 --> 0:14:56.000 up like an antitrust? Well, that doesn't really solve the problem. 0:14:56.000 --> 0:14:59.160 And we recommend that actually a um, you know, a 0:14:59.200 --> 0:15:01.800 concept from the new paper ages is the best one. 0:15:03.480 --> 0:15:07.600 So what's the what's the concept? Well, back back when 0:15:07.720 --> 0:15:11.400 in when newspapers were the dominant cultural force for politics 0:15:11.400 --> 0:15:14.800 and and and and and news in America, newspapers took 0:15:14.800 --> 0:15:17.680 their responsibilities pretty seriously, and they were considered the fourth 0:15:17.720 --> 0:15:20.480 the state, you know, after the after the three states 0:15:20.480 --> 0:15:22.040 of government, the fourth the state was like the gate 0:15:22.120 --> 0:15:25.120 keeper that rather the the the you know, the the overseer, 0:15:25.200 --> 0:15:27.680 the you know, the people of the institution that kept 0:15:27.720 --> 0:15:30.040 them honest and so newspapers have created the role of 0:15:30.120 --> 0:15:34.000 om Boozman and on Woodsman is an independent UM and 0:15:34.440 --> 0:15:37.640 you know, person and employee often whose job it is 0:15:37.680 --> 0:15:40.400 to not only respond to complaints from the public, but 0:15:40.440 --> 0:15:43.920 also to examine the institution from the inside, UM a 0:15:43.920 --> 0:15:46.440 little bit like for example, an inspector general might be 0:15:46.800 --> 0:15:50.160 UM within government. And most newspapers had on Boodsman, and 0:15:50.280 --> 0:15:51.920 you know, and they just they just kept an eye 0:15:51.960 --> 0:15:54.760 on you know, they watched the Watchman if you will, UM. 0:15:54.760 --> 0:15:57.680 And now, over time, as newspaper industry has declined, the 0:15:57.840 --> 0:16:00.480 role the om Boodsman has gone away. The New are Times, 0:16:00.480 --> 0:16:03.280 for example, which called there's a public editor. They got 0:16:03.360 --> 0:16:05.840 rid of their last one in two thousand and seventeen. 0:16:06.200 --> 0:16:09.240 And yet and so, and that's appropriate as as newspapers 0:16:09.280 --> 0:16:12.000 became less of a central figure in our you know, 0:16:12.040 --> 0:16:15.160 our public discourse. But Chris, it's also in a newspaper, 0:16:15.240 --> 0:16:18.000 you can't Paul and I can't write in and say 0:16:18.000 --> 0:16:21.280 whatever we want in the New York Times the addition 0:16:21.360 --> 0:16:24.720 coming out tomorrow, right. They they really are in charge 0:16:24.720 --> 0:16:28.160 of their own content. Whereas Facebook is more like Speaker's 0:16:28.240 --> 0:16:32.080 Corner in Hyde Park. Anybody can go there with a 0:16:32.120 --> 0:16:37.960 soapbox and spew whatever kind of lies misinformation he or 0:16:38.040 --> 0:16:42.480 she wants, and they often do. That's the problem, right 0:16:42.520 --> 0:16:46.280 exactly what the analogy is that that a newspaper, you 0:16:46.280 --> 0:16:49.640 you know, the writers the words are our subject, your control, 0:16:49.640 --> 0:16:52.600 their employees. For social media, what you have instead is 0:16:52.680 --> 0:16:56.040 policies and algorithms. The you know, they can't control the words, 0:16:56.080 --> 0:16:58.160 they can control their algorithms and how they promote the 0:16:58.200 --> 0:17:00.960 words to other people. And they control policies about what 0:17:01.040 --> 0:17:03.720 moderation rules will be applied to take words down if 0:17:03.720 --> 0:17:06.720 they're considered hate, speecher or whatever. And so the ambutsman 0:17:06.880 --> 0:17:10.560 role here is more technical and and sort of policy oriented. 0:17:10.600 --> 0:17:12.400 So in this case, for example, let's say that there's 0:17:12.440 --> 0:17:16.600 a intrinsic bias in in Facebook's algorithms, Well, you know, 0:17:16.640 --> 0:17:20.240 an ambutsman could spot that from from both inside and outside. 0:17:20.240 --> 0:17:22.200 They not only can see the damage on the outside, 0:17:22.200 --> 0:17:24.359 but they can see what's causing it, the root cause 0:17:24.400 --> 0:17:27.280 on the inside and recommended change. Non botsman would then 0:17:27.320 --> 0:17:30.240 have the ability to make public recommendations. The company would 0:17:30.280 --> 0:17:34.000 be obligated to respond to those um those recommendations with 0:17:34.200 --> 0:17:37.680 a certain time period etcetera. So that's something that that 0:17:38.040 --> 0:17:40.960 an outside institution which doesn't have access to the algorithms, 0:17:41.040 --> 0:17:44.080 can't do, and an inside, a purely inside institution might 0:17:44.119 --> 0:17:46.760 have a conflict of interest from doing themselves, such as 0:17:46.840 --> 0:17:50.160 an internal ethics group. Non Buosman states straddle the two 0:17:50.200 --> 0:17:54.720 worlds and has perspective on both. It's interesting, this is 0:17:54.920 --> 0:17:59.160 the seriousness of this issue here is getting ever more 0:17:59.200 --> 0:18:03.600 apparent here. Uh, it impacted presently the election. In fact, 0:18:03.600 --> 0:18:05.760 we're having a guest coming up later in the show 0:18:05.840 --> 0:18:09.840 this morning, Jack Divine, former chief of ci CIA's worldwide operations. 0:18:09.880 --> 0:18:13.199 He's actually written a book about what a threat Russia 0:18:13.280 --> 0:18:16.679 poses in the cyber world. Uh, and again calling to 0:18:16.720 --> 0:18:21.080 mind the election. So, Chris, the question is, can we 0:18:21.200 --> 0:18:25.320 really depend upon these platforms to self police given how 0:18:25.359 --> 0:18:30.400 serious this issue is? What the answer is by themselves? 0:18:30.560 --> 0:18:32.800 You know? No? And And the reason is is not 0:18:33.000 --> 0:18:35.560 just that they're you know, might have conflicts of interests 0:18:35.640 --> 0:18:38.720 or financial you know, reasons to do this. The answer 0:18:38.760 --> 0:18:41.399 is that this is really their DNA. They're they're all 0:18:41.440 --> 0:18:44.879 about growth, you know, They an engagement and the problem 0:18:44.920 --> 0:18:47.520 is that growth and engagement sometimes leads to toxic behavior. 0:18:47.520 --> 0:18:48.720 As a matter of fact. You know, as we know, 0:18:48.760 --> 0:18:51.640 we're sort of driven to negative, negative news, and so 0:18:51.760 --> 0:18:53.679 you know, newspapers have the same problem. They sort of 0:18:53.680 --> 0:18:55.480 you know, push negative news because it was more if 0:18:55.520 --> 0:18:58.840 it leads, it leads, If it bleeds, it leads, exactly. 0:18:59.080 --> 0:19:00.760 So we can't count on them to do it themselves. 0:19:00.840 --> 0:19:04.000 We do need some sort of independent oversight at a 0:19:04.000 --> 0:19:07.199 certain scale. Obviously every little startup doesn't doesn't need this, 0:19:07.280 --> 0:19:09.840 but a certain scale you're considered in the big leagues. 0:19:10.119 --> 0:19:13.680 Call it million, you know, active users or a hundred millions. 0:19:13.680 --> 0:19:15.920 You know, we know it when we see it at 0:19:15.960 --> 0:19:20.480 that scale. There's a public responsibility, but there's not a competence. 0:19:20.520 --> 0:19:23.439 We can't assume they have a competence to themselves. We 0:19:23.600 --> 0:19:25.800 you know, we're looking for different methods. Congress doing it 0:19:25.800 --> 0:19:29.040 for them isn't gonna work. Antitrust isn't gonna work. You know, 0:19:29.119 --> 0:19:32.560 Facebook's oversight board is completely overwhelmed. They had two d 0:19:32.640 --> 0:19:35.359 and twenty thousand complaints over the last three years and 0:19:35.400 --> 0:19:38.800 they've resolved and they've looked at seven of them. But Chris, 0:19:38.840 --> 0:19:40.520 your idea is a good one. I mean, is there 0:19:40.560 --> 0:19:44.720 any possibility that it gets traction and ombudsman that straddles 0:19:44.760 --> 0:19:49.840 both worlds and controls the algorithms and you know, uh 0:19:50.320 --> 0:19:54.040 watches the watchers. Well, it's clear that Congress wants to 0:19:54.080 --> 0:19:56.320 do something. They want to pass the law. Um, you know, 0:19:56.359 --> 0:20:00.000 getting rid of the two thirty protections is like an 0:20:00.000 --> 0:20:02.800 an H bomb. It's it's not gonna work. So you know, 0:20:02.880 --> 0:20:04.720 they can need to bring up you know, Mark Zuckerberg 0:20:04.760 --> 0:20:07.760 gonna tie every every three months, and they know, have 0:20:07.880 --> 0:20:10.320 that little that little circus, or they can pass a 0:20:10.359 --> 0:20:13.920 while requiring them to have this independent board member called 0:20:14.040 --> 0:20:17.320 non budsman called you know, a public editor. Whatever they want, 0:20:17.640 --> 0:20:20.600 and that seems structural, It seems easy to do. And 0:20:20.600 --> 0:20:23.679 then you know what the experiment play out. Is there 0:20:23.800 --> 0:20:30.080 appetite in Washington for that? Is there appetite for for action? Yes? 0:20:30.359 --> 0:20:33.119 Is it an non budsman per se. Let's hope far 0:20:33.480 --> 0:20:36.479 our o edit hasment influenced there. And I wonder if 0:20:36.480 --> 0:20:39.720 there's appetite and Silicon Valley, because on the one hand, 0:20:39.760 --> 0:20:41.679 they want to get rid of this problem, then they 0:20:41.680 --> 0:20:43.400 don't have to deal with the idea that they would 0:20:43.400 --> 0:20:45.800 have to break up our to thirty. On the other hand, 0:20:46.000 --> 0:20:50.040 they want growth and engagement exactly. I think it's an 0:20:50.040 --> 0:20:52.399 appetite to get to I mean, they want to do 0:20:52.440 --> 0:20:54.520 the right thing. They're just not really set up to 0:20:54.560 --> 0:20:56.520 do the right thing, and all the incentives are wrong. 0:20:56.880 --> 0:21:00.719 So if they could have a a a surgical you know, 0:21:01.000 --> 0:21:03.480 um effective solution, which is to say, one of the 0:21:03.520 --> 0:21:06.520 board members have to be independent, has to be responsible 0:21:06.520 --> 0:21:08.280 for this, has to be accountable to the public, but 0:21:08.359 --> 0:21:11.760 a visible internally, I think they'd love it. It reminds 0:21:11.760 --> 0:21:14.439 me of when Google decided they needed an adult in 0:21:14.480 --> 0:21:17.600 the room and they brought in actual Eric Schmitt. Chris, 0:21:17.600 --> 0:21:19.560 thanks so much for joining us, real pleasure're talking to you. 0:21:19.600 --> 0:21:22.840 Fascinating stuff. Chris Anderson, CEO and co founder of three 0:21:22.880 --> 0:21:28.159 D Robotics, also writing one of our pieces on Bloomberg Opinion. 0:21:28.200 --> 0:21:30.760 If you want to see the work of our opinion people, 0:21:30.920 --> 0:21:34.679 just type in O, P, I N GO on your 0:21:34.720 --> 0:21:40.480 Bloomberg terminal. Let's talk about weed a little bit, because 0:21:40.600 --> 0:21:46.639