Episode 55, The atomic number of cesium, our speed limit, I drive in the slow lane, no joke, not because I'm concerned about safety, but when I drive, I think and when I think I realize the unending misery that is life and the people younger than me are now running the country.
Jesus fucking Christ, I am a bad man without the Cape or Alfred BMI. Rob and support me had my back on this podcast. No idea where this is going. Go, go, go.
Welcome to the 55th episode of the Prof G show and today's episode, we speak with my job as a senior adviser to six three partners and former chief information officer and chief financial officer of Goldman Sachs. We discuss with Marty his thoughts on regulating big tech similar to banks and the trends playing out in our financial ecosystem. OK, OK. Before we bust into what's happening, we have a few housekeeping items.
The property pot is breaking into two episodes per week starting next week. Sort of like when my parents got divorced, minus all the history. My dad started his third marriage during his second marriage.
Hold me, hold me our office. Our segment will drop in your podcast feeds on Monday and our regular schedule programming with our guests. Interviews and insights from yours truly will continue to drop on Thursdays again. Office hours will drop every Monday from now on. What is the real please send your questions as a voice memo to officers of property media dot com. That's office hours at property media dot com. That's right.
We're going to twice a week because we're so successful. Oh my God. What a thrill to resist is futile. I'm like those AOL discs they used to include in cereal and on the seats of rent a cars. Just give up, just give in to the dog, just give in to the dog.
Like I used to let my dog on the couch. I used to I went for a long time saying, no, you can't come on the couch. And then I realize it's always a loving creature and I should let her on the couch. I'm your Zoet. Just let me on the couch twice a week, OK? Enough housekeeping. The Wall Street Journal reported last week that we work is going public via a SPAC merger. We've been talking a lot about buybacks or special purpose acquisition companies.
And we work has come back from the dead by announcing it's merging with both Acquisition Corp.. That sounds like, doesn't it? It's not.
The Chuck Norris exercise equipment chest arms prize buys shoulders at the same time. It's working the guts anyways.
The SPAC deal brings we work to a nine billion dollar valuation, including debt. All right. All right. So what do we think? I'm actually I'm not bullish on this, but as I said in my other podcast, I'm coash on it. Any time you talk about a company in the context of valuation or in the context of a stock, whether it's a good buy or not, you have to look at it in the context of its valuation.
So we work we're supposed to go public at a 50 to 70 billion dollar market capitalization. JPMorgan said it was worth seventy. Goldman said it was worth fifty. Which one? The learning there is that these guys have absolutely no fucking idea what they're talking about and they're just brokers trying to get this shit public and market it so they can take their seven percent and then manage the assets of the senior executive of that company. So I find investment banking research is really great.
It provides insight, but be clear, it doesn't provide a decision or validation on a price. Their job is just a market. The thing a crisis is a terrible thing to waste. And I think we work has taken advantage of the crisis and has cut costs dramatically. They've laid off 8000 employees. They have shifted from a messiah to a manager in terms of their CEO. Sandy Masrani is a skilled operator. He ran general growth properties and intelligent guy and has kind of rightsize the company.
It's still losing money. It's still losing money.
But they claim they claim or project that in Q4 of this year they will be profitable. In addition. In addition, covid-19 really plays to their strengths, specifically coming out of the pandemic. I think a lot of company, thousands of companies are going to decide that their approach to office space is just going to be different, that they would rather have a smaller footprint, but they would like it to be more aspirational, more enjoyable, facilitate community facility meetings, connections and relationships.
And I think that absolutely plays to the sweet spot of we work.
I know our company Section4 our online education company. We're going to be at sixty people sooner rather than later and we'll have fewer square feet per person. But those square feet will be nicer, more communal and will want to have access to more, you know, fun stuff, whether it's a lobby where they bring in speakers or just facilitates or just feels more fun with that kind of reclaimed wood in that fractured glass and that young millennial feel.
So I think we work is is really well suited to the post pandemic world. Also also strongest brand in the history of commercial real estate.
That's right. Let's repeat that strongest brand in the history of commercial real estate, a 12 trillion dollar asset class. And there really aren't very many strong brands. There's the World Trade Center. That's a brand. There's an Empire State Building, there's midtown. That's sort of a brand, sort of a commercial real estate brand. But you think about it, no one says, oh, I really want to lease office space in a Vornado or an equity office building.
There really no brands, so to speak.
So we work as a global brand. Nobody says, well, I'm going to get a Vornado, I'm going to lease or Vornado office space in Dallas. They say, well, I'm going to do we work. And it's they spent so much capital that they have a global brand. They do have a competence around creating this community atmosphere in an office space. So I think a post. A world is coming to we work and I like this stock well, I like it more or I hate it less, I should say, at nine billion versus 47 billion.
So here we are. Prediction prediction.
We work actually has a decent reception in the public marketplace. And if they if the performance matches the promise and they are in fact profitable in Q4, they could make the jump to light speed. And because they're seen as an innovator and what is traditionally been a fairly non innovative sector, they could have access to cheaper capital and begin to pull away. And what is a cheap capital, disruptive valuation versus a ridiculously fucking hallucinogenic valuation where they were supposed to be worth the value of General Motors, despite the fact they were losing 150 million dollars a week.
And I think they've cleaned up their corporate governance. I think they've cleaned up their management.
The bottom line is the bottom line is how can the dog go from being a bear to a ball?
Simple, simple. When the facts change, I change my mind. What do you do? Stay with us. We'll be right back for a conversation with Marty Chavez.
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Welcome back. Here's our conversation with my job as a senior adviser to six partners and former chief investment officer and chief financial officer of Goldman Sachs. Marty, where does this podcast find you? It finds me in the Berkshires way out of last exit of the MassPike, nice, that's where you're isolating, so to speak, or it's in the sky is where I had weekend place for many, many years and around March 10th. Things started getting a little gnarly.
And I just got kids in the car and we came out here and haven't been back and like it. And this is permanent home now.
It's hard to believe it's been a year or so.
Gosh, it's so, so moving on to more important things, the intersection of finance and software. So you've been at that kind of that fulcrum for 20 years. Give us your thoughts on the major themes taking place in our financial system. Well, there's a bunch of things happening, first of all, software eating the world, software is eating finance has been going on for a long time. The major theme is that the old dichotomies that we all got really used to of side versus sell side, trader versus quant market data provider market data, consumer market infrastructure providers such as an exchange operator versus the users.
All of those old dichotomies are going away and everything is becoming a software service and all the products are becoming services.
And to survive in this new economy, which is already happening, you have to be a world class producer of a small number of APIs and you have to be really a consumer of lots of other APIs. And if you don't offer your service in a computer accessible form by an API, I don't think you have a business. So this notion that every every company is a tech company you rode, speaking of tech, you wrote in The Economist, the big tech needs to be regulated like a big bank.
You said that open code, big tech is in disrepute, not unlike banks after the crash of 1921 and the Great Recession of 08. In both cases, regulators kind of came in, say more about the parallels between big bank regulation and how it can be applied to big tech.
Sure. Well, I'll just I'll start by observing that I think it is in the nature of every industry to say no regulation necessary here or we will self regulate. And certainly in the financial system, we saw that that that worked until it didn't. And I would certainly say right after and the aftermath of the 08 crisis, there was a systemic awareness in the financial service industry that regulation was coming. And so it became existentially important to go out and build some credibility with regulators starting from a deep negative well of a.
credibility and and work with the regulators to to actually, because we were the practitioners, we actually knew exactly how everything worked. And so, so often that knowledge up to the regulators and come up with with something that's workable. And so to my mind, we've had crises already in big tech, very difficult to assign responsibility. But if you look at whether it's a genocide or an insurrection or just the pollution of the infosphere with disinformation, a principal source of that is the the advertising led, the targeted advertising led digital model.
And there's every incentive to do the viral amplification of things that are going to lead to more advertising revenues. So there's an analogy to the derivatives business. With derivatives, you could arbitrarily amplify exposures and you could arbitrarily amplify profits because there was no constraint on the leverage. There was no constraint whatsoever. And so, of course, everybody did that. And then when it didn't work, well, who's going to end up holding the bag? It's society or it's it's the taxpayer.
And so the regulators, the financial regulators have been on a journey for a long time.
And regulation is obviously not new. But the big new super important and super valuable thing that came out of the financial crisis was the capital adequacy regulation. And as you know, there was just a couple paragraphs in the Dodd-Frank statute of 2010 that said there shall be stress tests. And the the regulator, the Federal Reserve, really went with that and created this incredible framework. And I'd say it's incredible because when people first started talking about it and saying things like, we will give the banks some adverse scenarios and then we will require that they simulate their business capital balance sheet, income statement, cash flows nine quarters in the future and show that they can still perform their lending in mass market making activities.
Even in that scenario, everybody looked at that to simulate the future for nine quarters and the regulators said, you know what, you guys are really good at math and you have a lot of computers and we're sure that you can do that. And of course, it's difficult to to demonstrate causality. But I would say that that capital adequacy framework, the Sekar framework, pushed the failure boundary very far out into the extreme tail. And so during this unbelievable pandemic, that and nobody thought we'd be here a year later.
But what is the one industry that just kept lending and making markets with almost no disruptions and no one really worried about it was the banking business. So that is the I mean, many people get credit for that. But the Fed and then all the people at the banks who worked to make that seemingly impossible framework a reality, there is an exact analogy to big tech.
It feels like it's just scenario planning or game theory. And our security agencies, our security apparatus, the military have been doing this forever. It feels like a reticence to do it is just basically acknowledging that there's shit could get very real, very fast here. So we'd rather just not a. Knowledge that those scenarios, can you apply the same sort of stress testing to big tech? Yes, now it's going to be hard, just like it was real hard when the Fed first proposed this framework for the banks, but that the key observation here is that big tech has the models, it has the scenario planning.
It has the algorithms that are already optimizing for revenue maximization like any good any good capitalist or nothing. I don't think there's anything nefarious going on. It's just revenue maximization under constraints. There just aren't too many constraints. And so that that framework already exists. Just as with the banks, there was already risk analysis, scenario analysis already in place. It just had to be massively upgraded and the banks had to share with the regulators some deep content and knowledge about how exactly they make money and how they lose money.
And the regulators challenge that the regulators are required, the banks to have internal to themselves organizations to challenge the scenario analysis. So you could just put all of that over, just as derivatives used to maximize with no constraints, no leverage constraints. Now there are some leverage constraints. And similarly, what kinds of constraints would you put on this advertising doom loop that right now just says if this piece of content is going to maximize revenues, we're going to show it to everybody?
Well, there has to be some offset to that.
So you worked at Goldman for a long time? I worked with Goldman, Goldman, they manage my assets. And the thing that strikes me about Goldman is that they're constantly if I want to deploy a certain strategy, they're constantly trying to assess my personal ability to withstand a black swan event. And they'll call me and say, all right, what's your net worth? And because they want to make sure, it seems to me that the folks in risk management there aren't just the kind of the bothersome nuisances stuck on a land of myths or stuck on an island of misfit careers.
They actually take risk management seriously. And then I can't believe I'm defending Goldman right now. But and then other other financial institutions, risk management is seen as just a nuisance. They're sort of the the narks the internal market. And then I think about big tech. And I just think anyone there, they don't even have risk management. That's just not that's just not the way they think.
And it feels like it's it's interesting. It's sort of opened my eyes that that all of a sudden risk management went from being a nuisance to a key component of a bank. And I think what you're saying is that the risk management, if you will, or scenario planning needs to be core central to kind of the senior management ranks of big tech. I'm putting a lot of words in your mouth, but would you say that that's that's in line with what you're with your thinking?
It is in line, Scott. I mean, one of the look, I spent a quarter century, half of my life at Goldman and is an amazing place where I was really just fortunate to arrive on the scene in 1993 when Goldman, early for all of the banks, said, we need we need to go out to Silicon Valley and we need to find people with software expertise, software, skill sets. And we need to get them in here because we see that risk management is the core of what we do.
And we need to do it in software. We need to put all the trades, all the positions, all the models, all the rest reports, all the time series in one piece of software where we can analyze it in every possible way and think of everything that can that can go wrong. And so Goldman told us, headhunter, go find entrepreneurs in Silicon Valley with PhDs in computer science from Stanford and ship them in. So I just turned up on that list.
I didn't know anything about risk management. I was a Silicon Valley computer geek and Goldman taught me. Now, I would say the one downside of that experience is that my job was literally to think of everything that could possibly go wrong and simulate it in software so that we could lose piles of money in software simulation every minute of every day and then wake up from the same and say, oh, thank goodness, that was actually a SIM and it was not reality.
And now back in reality, we can do something about that scenario because we've seen the possibility. And so in Silicon Valley, I would say in one way of thinking about it is if you don't have any downside, why bother with risk management? Right. Really is to say risk is the pain of being wrong. And I think the first step is to acknowledge that you might be wrong about something. Something you built with with a great intention is having some negative externality.
And you have to feel yourself as having something to do with that negative externality. And that's when you would start caring about risk management.
Let's talk a little bit about FinTech. You said on CNBC that the thesis of the class that you taught at Stanford last spring is that the future of fintech is banks.
Say more. Well, there's many ways of saying this. First of all, would you would you say to your spouse, I mean, I'm going to go to my FinTech and borrow some money to buy a house? Well, no, it's it seems to me that there are a few things. Health is one. Money is another that most people don't want to trust to hack or somebody who's just revenue maximizing. Right. They might be educated, not a hack at all, but their only goal is revenue maximization.
I think I wouldn't give them my money. And so when it comes to those important topics, people tend to want some good housekeeping, seal of approval, some constraints on revenue maximization. And I think, you know, I see I have to do is look at the Robinhood episode and you. And see the perils of simply disregarding everything that people have learned in the financial system. That's part one. And part two is banks have been building software for a long time.
And any bank who isn't really great, back to how we open the conversation at wrapping its products and services in computer enabled interfaces is not going to survive. And there's going to be a core of activities that need to be regulated. And if it looks like a bank and walks like a bank and does things that banks do. Mm hmm. It's a bank. And I cannot recommend to anybody. You have the strategy of let's call it fintech and pretend not to know anything about the banking regulation.
And then we can avoid the banking regulation. And already you're seeing this you're seeing companies that started in Silicon Valley embracing regulation, collaborating with banks. And the perfect example is the Apple credit card writers, as we all know. Yes, it's Apple's logo on the front. But if you turn it around and look at the back side, you see two other logos and one of them is Goldman Sachs and one of them is MasterCard. And I think that tells you everything about how this is going to evolve.
Apple does not want to be a bank holding company. It wants to say to the regulators, hey, you know, you want to know where we gave a three thousand dollar line to this person. Five thousand to that person. Go ask Goldman. We just called their API in the black box and then they did all those banking things go regulate them. And similarly, on the Goldman side, there's no way Goldman's going to go acquire all of those customers that Apple already has.
So it's a perfect collaboration. And I think you can see that as a paradigm for how the whole system is going to fall.
So I can feel a lot of the listeners. And so I'm with you. I think that when it comes to finance, when it comes to health care, when it comes to politics, when it comes to sexual orientation, we want the platforms. The most important thing is trust. There's a certain things we're willing to have our privacy violated if there's utility or a coupon at the end of it, except for certain things in those domains I just mentioned.
But I can feel people saying, you know, OK, Boomer, so stripe, PayPal, Coinbase, based on what it looks like are projections of its valuation, are worth more than Goldman Sachs.
Yes. And that is and I know David Solomon, I'm sure you know what I'm like.
How the hell did they let Coinbase happen? I mean, if I were a shareholder on the board of Goldman Sachs, I would just, quite frankly, say, how the fuck did we let Coinbase happen? They're making a market in an asset class and have garnered and are going to garner valuation that took us a century to build. How the hell did we let that happen? It feels as if the West Coast, to a certain extent so far, I don't say they're winning, but they're right.
At least if you feel like valuation is a function of being right or not, there are all these upstart companies and also ignoring regulation, but using technology and software that are going to be worth more than Goldman Sachs, aren't aren't they right. And quote unquote, we we as boomers and talking about trust and regulation, aren't we so far, aren't we on the wrong side of this trade?
Well, Scott, I don't want to I don't want to bring up that that tedious topic of your Tesla prediction. But there are standards that hurts.
Come on. You're an invited guest, by the way, Martin. Marty is bringing up the notion I said Tesla is going to get cut in half when it was at 50 bucks. And what's it at now? 600. I'm not wrong.
I'm just late. I missed it earlier. I mean, I'm sure just means I'm early. That's what I'm early.
Well, I don't know that the market valuation at a point in time is is a declares anything. It says something about some probability distribution. Right. Right. And look, I think know I know the entrepreneurs behind Coinbase and behind Strib, and they're they're brilliant entrepreneurs. And it is amazing what they built. And I think the the best operating model I have is the one I shared with you, which is there's APIs and the regulators. Oh, I didn't say this.
The regulatory boundary is going to coincide with an API. So there will be people producing APIs and they will say we are here inside this regulatory circle and you can count on us to stay in compliance with all those regulations. And you outside can do whatever you want. I think for Stripe and many others. Well, let's look at Coinbase. Coinbase has adopted the strategy of being totally regulatory compliant from inception, which I think has distinguished it and is not the only reason for its success, that it's definitely a contributor.
Stripe has done the same thing, but it's the money transmitter regulation. It's kind of the junior varsity of regulation, if you don't mind my saying that. Right. And then all the way at the other end of the scale is the Federal Reserve regulation for when you need to trust on that balance sheet that's on the other side. And I think it's just an open question how often PayPal's stripe and all of these others are going to as they as they continue to grow, will they become bank holding companies or will they not?
It's really a binary it's really a binary decision. I don't know the answer.
Yeah, I wonder if and when I think about. So it's fine to be wrong as long as you learn from it. And I was wrong about Tesla. And what I think I fail to appreciate is that innovators are now capturing so much multiple on not even their earnings because they don't have earnings, but on the revenues that they have such incredible access to such cheap capital that they can they can make their future.
And I wonder if a company like Coinbase, if they achieve 100 billion dollar market capitalization, if they'll be able to buy a lot of the legacy assets that the legacy players thought were Moat's. It just it's almost like a self-fulfilling prophecy when you have access to that kind of cheap capital. Let's switch gears and talk about crypto.
So it's it's about a one point six trillion dollar universe right now where give us your sense of of the crypto market where it's headed. Do you think it's overhyped? Do you think it's under hyped? What's your viewpoint generally on the category?
Yeah, so I see it as a fascinating exploration and experimentation. There is no question about that. Right. You have to be paying a lot of attention to it. I would start with the idea that money is an interest objective reality. It is a collective hallucination. It's like it's a wonderful hallucination. It's like the Constitution, right? There is a physical document, the Constitution of the US. But when we talk about the Constitution, we're talking about an idea that we all share.
And money is one of those things. And then you also think of another inter subjective reality, the sovereign. And this is this is going way back to to to political theory in which I am not an expert. But you can go way back to Leviathan and consider what is the sovereign and the sovereign is an end to subjective reality that has a monopoly on the use of force within its geographic boundaries or the boundaries it defines. And what is legal tender?
Well, legal tender is some other into subjective reality in which you have to pay your taxes and if you you can elect not to pay your taxes, but there are consequences for not paying your taxes. And so one of the things that I think is missing in this fascinating exploration of digital assets and of course, being a computer scientist, you know, you had me low that it's all going digital right there. No doubt in my mind about that.
I listened to one of your previous guests and I found myself and in violent agreement on this topic, this whole idea of digital assets and fees, super transformation, all going to be huge. But you can't I don't think today leave out the sovereign. And so, as an example, I happen to be talking to Le Figaro on the exact day that Facebook announced Libra. And so the journalist, of course, couldn't avoid asking, asking the question, what do you think of a Libra?
And I said, Sun Mustapa. It's not going to happen. Mm hmm. And she said, would you like to caveat that in some way? And I said, no, I wouldn't like to caveat it. You can write it down exactly like that, because Libra in its current form is equivalent to saying, hey, you pesky little sovereigns, you don't need to worry about money anymore. We will issue the new coin of the realm. Right.
And you can just leave it to us. That's a declaration of war if you're a sovereign, because this is one thing sovereigns do they have a monopoly on the use of force and they can make you pay your taxes and they can use force against you if you don't pay your taxes. And I think at some point in time, big tech may be ready to take on the sovereigns collectively, but that day is not today.
And so it was prize. Is Bitcoin a declaration of war?
No, it's not. Bitcoin is a commodity. Mm hmm. It's not money.
I don't think Bitcoin ever purports to be money. I think some people looked at it and thought, oh, this is a lot like money, but it was never designed for that. If you just look at the transaction processing capability, roughly ten transactions per second built in by the design of Bitcoin at that designer wasn't thinking of retail money transactions, which requires something like one hundred thousand plus transactions per second. So I think it's a big error to think of it as Bitcoin is in any way interfering with the sovereign any more than than iron or gold or semiconductors interferes with the sovereigns monopoly on getting you to pay your taxes in that currency.
I think it's a super interesting experiment. I am not a bitcoin. OK, let's let's back up as a computer scientist, I think Bitcoin is one of the coolest things ever. Right? When I first heard about it being such a geek and a theoretical computer science geek, I thought that's a solution to the Byzantine generals problem. From the late eighties. I had read all about this stuff. So it's super interesting from that perspective. But, you know, this is by now a tired argument.
And you can see it in my Stanford lectures. Look at the electricity consumption of Bitcoin, right? It's a it's an ESG catastrophe. So I don't think Bitcoin is going to take on the sovereigns. And I think it's going to continue to be interesting. And I applaud all the experimentation, but it's not going to be the new global money.
What about do you distinguish or what are your thoughts on NFTE and then Ether or Ethereum? Do you distinguish? So Bitcoin used a term I like consensual hallucination. It kind of defines any currency to people, decide to parties, decide something is worth something. And it's a powerful part of our economy, I think of kind of what Bitcoin is. But ether, yeah. Seems different and NFTE seem different. What are your views on those two things? They do seem different.
So someone money is a collective hallucination, but where gets real is when you find yourself in jail because you didn't pay your taxes in that money. So that breaks the circularity of a fiat. Right in theory. And the super interesting there, as you know, on a move away from proof of work, which is impossible, electricity consumption to proof of stake, it's it's a risky transition. But I think if the ethe to design super thoughtful, brilliant people working on it, and I think it will make that transformation.
Of course, what makes Ethereum super interesting and this is unbelievable. Branding is the concept of a smart contract. The grid, right, that and that's the difference. Now, as a computer scientist, I think you a pro programmable money. This is this this is so important. Scott, when money becomes programmable, it becomes a completely different thing. Right? It's not just you know, I've had people say to me, why are you so worried about the competitive aspects of digitizing the US dollar versus the Chinese digitizing the yuan?
Digital is just another format. And to me, that's like saying walking airplanes and rocket ships are just different transportation formats. Right. At some point it becomes a real different experience. And for me, the inflection point is when it becomes programmable, programmable, when it becomes Turing equivalent. Now it's exciting. It's also terrifying. There's an old theorem approved by my hero, Alan Turing, father of computer science, back in the 30s. The halting problem.
But how it translates for theorem is if anything is fully programmable, then it can be hacked and there is no way to make it hack proof. And so I think it's wonderful that it's fully programmable. I wonder what kind. Just as I wonder about the advertising, my business model, what kind of constraints on universal programmability do we want to place on it so that it can have acceptable cybersecurity properties?
That is a very hard trade off and nobody has solved that. I think nobody has even addressed really the digital privacy concern that I know is a concern of yours. It's one I share. And so, for instance, people will say, well, you know, Bitcoin is that no, Bitcoin is not that every transaction that's ever occurred in Bitcoin is there on the block chain. That's the point. And you could see the sender and the recipient that you've just got a long address.
That's a bunch of hexadecimal. But with a little bit of data mining and a little bit of thoughtfulness, you can map those to real world identities. And so coming up with a way that preserves digital privacy, that is also consistent with anti money laundering controls and so your client controls, that's a very hard problem. That's a trade off that we address right now by saying if you want to deposit nine thousand nine hundred ninety nine dollars in your bank in the form of cash, you can do that.
But at ten thousand dollars, there's a lot of reporting obligations that could go right. I think digital currency is going to have to be much more nuanced and it's going to have to make mathematically provable claims about the digital privacy. So there's even more exploration that needs to happen here before things like Ethereum become fully realized. That's your question on NFTE. This one I've been pondering. One of my close friends is an artist in L.A., said, Haima, you should I try make some art and issues.
Some lefties, you know, which artists can avoid seeing the multi-million dollars that are being created?
The IP creator. Yeah, any IP creator. And so it's super interesting. And I and I said to him, look, I don't know where this is going, but I would experiment with it for sure. And then I've been asking myself, well, let's think about stocks like you buy stock and some company. Have you ever seen I'm sure you own some publicly listed stocks.
Yeah, I do. And I don't have the certificate. So it's all it's all trust based. I think I said we were ahead of it, though.
It's been dematerialised and every the regulators have wanted it to be materialized. I remember during Hurricane Sandy, we realized that there were a bunch of paper share certificates for listed stocks in the basement. They got flooded at DTAC and after that, the word came down. No more of that stuff. So so if you think about what's happened with Scott stocks, right, you have a dematerialize certificate that gives you a legal claim on future profits.
I think we're already there with NFTE. Right. This is just a different form of it. It's just sort of the next step in that digital journey. We'll be right back. I'm about to lay down some cold, hard facts about hello, fresh fact number one with Hello Fresh and get dinner on the table in 30 minutes or less. Number two, they've got over 25 recipes for you to choose from each week. And most important fact of all, they're offering 12 free meals and free shipping.
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Talk a little bit about the GameStop and the meme movement. What are your thoughts there?
Well, OK, I'm I'm glad you asked. I know you you were the first person to say this and that. I heard and got me thinking about parallels between the advertising social media model and the social trading model for Hatzius.
There's really an analogy there. And if you look at what happened a few weeks ago and sort of came back in part two, I think it's really the same thing we've been talking about. Right. Do the regulatory mechanisms that work in the financial system imperfectly, but they have achieved some success. How do we map them over to tech? Because the software is eating finance, finance, tech, fintech banks, exchanges. It's all becoming the same thing.
Right. And the thing that is really concerning about the mean based trading to me being a finance geek. Is that. Robin Hood was severely undercapitalized for the risks it was running as a clearing broker with that virally, algorithmically amplified social trading business model. You know, your bro bought this stock. Maybe you want to buy to the gamification of it, right? OK, fine. But how it manifested was the fastest, most violent short squeeze that we've ever seen and and who even understands how the clearing regulation works and what it is to be a clearing broker.
Now, I had an amazing career experience of in the equities business and later the the whole trading business at Goldman. And so I learned and I have a lot of the gray hairs came from some of those learnings where things didn't go so well. Right. If you go back in history, you can look at the Knight Capital Group event that happened in August of 2012, where it went into the day as an exchange member, as a clearing House member in good standing, but then through a bunch of other trades, was no longer a clearing member.
At the end of the day, when it came time to pass the trades on to the clearinghouse so it could insert its guarantee. Right. This is all really geeky stuff, but it was a version of the same thing with Robin Hood, where the clearinghouse said, would you send us X billion dollars by noon Eastern Time today? And so it was fortunate for all concerned that Robin Hood was able to go to its investors and and banks and very quickly get that capital and send it over to DTC.
I, I shudder to think and I am not prone to hyperbole of what would have happened if they hadn't been able to do that. I think this is what people are missing. There would have been a chain reaction of trade and settlement failures. So all those shares you thought you bought or sold the exchange would come back and say, you know, so sorry, we broke those trades, but if you'd hedged it on the other side, you know, you could be really unhappy.
And so that was a crisis very narrowly averted. So I think there is the same theme that's pervasive across tech and the financial system. Our people capitalized for the kinds of risks that they're running, stress tests. I mean, you talked about it's the stress testing and who's going to hold the bag if it fails. And I think as a society, we absolutely have to say, no, we are not holding the bag. You who are the players in this system through taxes, through through stored liquidity, through stored capital?
You have to own all of that and you have to internalize it. And we're going to turn your models on you and get you to tell us how much tax you should pay and how much capital and liquidity you should hold to underwrite these risks. I would not go with antitrust regulation. I think it's the wrong remedy for misdiagnosis of the wrong problem. I'm not a legal scholar. I'm not going to opine on Section 230 of the CDA. I'm really old school that that's what taxes are for.
We figured out how to measure people who are polluting our rivers. We can figure out how to tax people who are opposing these new digital externalities.
So I would like to end these on a personal note. Word go back. Twenty five years. Our advice to your younger self. Well, well, let me let me let me let me be more specific. You're a remarkably successful man and I don't know you, but it seems like you're kind of living your best life. What what decisions influences helped put you on a path for that type of success?
Well, I. I love the question. And I was listening to one of your podcasts recently, and you were talking with your guest about how, wow, we are a lucky generation.
Yeah, I feel like. Just beyond fortunate, right, I I was born in 64 and when I was 10 years old, my dad, who worked at one of the National Weapons Laboratories in Albuquerque, New Mexico, where I'm from, it was like a moment out of the graduate. He's put his arm around my shoulder and said, Marty, computers are the future.
And it's so obvious now. Not obvious in nineteen seventy four. And he said, you'll be really good at computers. Go all in on computers. Then I showed up as an undergraduate and a professor in the biochem department said you're a computer scientist. The future of the life sciences is computational. You can be a biochem major and only do one white lab class. Everything else can be done in software simulation. And so I feel incredibly lucky. I had these people show up at my first job was writing simulation software for the Air Force weapons lab, which had just the government had just decided, you know what, it's bad to detonate neutron bombs in the Nevada desert.
We're really upsetting a lot of people and potentially hurting people. Why don't we detonate those bombs in software? Right. And that idea of building a simulated universe, I just sort of chanced into it when I was a kid. So I feel really lucky that that happened to me. Now, young people come to me for advice all the time, and I get it like I worry about this. I have young kids. I know you have young kids, too.
Definitely. It feels like the world changed very slowly from sort of nineteen sixty four to twenty ten and then it went parabolic. Yeah. And what do you do with your kids. What do you tell them. Well this is what I tell the kids. I can't tell you what to do with your life, but what I can tell you is you've got a lot of choices. I think all of your choices require you to be digitally literate.
I don't think the opposite choice is one that you want to take and imagine where you want to be ten years from now. Work backwards and take one step in that direction today. But don't worry about a 10 year plan. All these young people come to me with their ten year plans. I'm going to do this and that and that. That's never going to work. I never had this plan. I never thought of finance. I just thought I'm going to get really good at math and computers and good stuff will happen.
I think that advice is as true today as it was when I was a kid.
How old are your kids, Martin? Four and six. Any advice or learnings to four other dads around parenting? Well, I don't know that I want to call it an experiment, but I'm doing something with my kids that I, I always wanted for myself but didn't quite have it. So I'm of Spanish and Mexican ancestry. Hmm. Nobody would think of my Spanish as that of a native speaker. People tell me that I that I speak Spanish like a book or that I speak perfect Spanish, but oddly with the music of English.
And so I want my kids to speak to other languages besides English perfectly. I want them to be able to think and operate in those languages. And so I am investing hugely in that. So I got a four and six year old who speak perfect English, Spanish and Mandarin Mandarin, God help Mandarin and getting them to be perfect native speakers. And there is a project that I think as as the new Cold War gets going, people who can live in both worlds, I think are going to be essential to our survival.
Marty Chavez is a senior adviser to six street partners and recently retired from Goldman Sachs, where he held roles including chief information officer, chief financial officer and global head of the firm's security division has a resume that is incredibly impressive.
Last year, Marty was elected to serve as president of Harvard Board of Overseers for the twenty twenty one academic year as a gay Latino executive who occupied a rarefied space in historically homogenous industry and brought his perspective to help shape dialogues around exclusivity to corporate America. He joins us from his home in the Berkshires. Marty, appreciate your time.
Stay safe, Scott. Such a pleasure. Thank you. Well. Lots of happiness, I've been thinking a lot about the mass shootings that continue to happen, and unfortunately, there's just so many of them that we become numb to them.
And there is a frightening similarity across these mass shootings, and that is the mass shooters tend to be young men almost. I would categorize them as boys and they seem to have had trouble attaching to school, attaching to a job and most specifically attaching to a relationship. There's a Pew study that just came out that said in 2008, the number of men under the age of 30 that had not had sex, which is a key component of attaching to a relationship which kind of indicates they haven't had a relationship, was eight percent of men in the most recent study.
Just 13 years later, it's 27 percent.
And I think there's is very unhealthy dynamic that's taking place in America that has torn apart nations across the world. And that is the most dangerous person in the world, is a young man who is bored and lonely.
And unfortunately, when a young man is bored and lonely and turned to social media and starts blaming other people, most often women, for their loneliness or their failure or their inability to attach to a relationship, they become violent. And it is a male problem. When women are lonely and feel rejected by society, they don't pick up an AR 15. And let's be honest, it's almost always men who are the perpetrators of these horrific acts of terror.
And the question is, what do we do about it? And I think about cohorts where if we made investments in those cohorts, that would be the best or have the greatest return for society. I think the first and foremost as moms, we on the kind of the far left think it's OK to believe that men and women are the same. That's just not true. I think for thousands of years, women have had an instinct around the translates into shouldering an unfair burden or an unfair portion of the burden of child rearing.
And as a result, women will always be more involved in a kid's life and have more impact on a kid's life, which isn't to absolve corporations of putting in place the necessary policies to ensure that women have the same economic opportunities and in the corporate world as men do.
And I think we have to acknowledge that kids who are not looked after or kids who are in economically are food insecure households, we're going to end up paying for them, whether it's incarceration or unemployment or mental illness. You know, we can invest now and build a healthy next generation. And I think the best way to do that is to invest in moms who decide to stay home or who maybe decide to work but are taking care of kids.
As a single parent, I think that would be an enormously high ROIC for society. And in the second cohort is noncollege educated youth.
The percentage of wealth that people under the age of 40 command has dropped from 19 percent to nine percent in the last 30 years. The opportunities for young people have just been dramatically transferred to old people. Essentially, everything we do in our society is how do we take young people and transfer wealth from them to the wealthiest generation in history. And that is baby boomers who we transfer a trillion dollars a year from young people in the form of Social Security. So pop up can upgrade from Carnival to Crystal Crystal cruisers.
There should be a reverse Social Security.
We should start taxing the wealth, extreme wealth of people. Right. And that's typically older people who have acquired all the assets and then reinvesting in young people specifically around vocational programs for kids or young adults who don't really honestly or realistically aren't going to end up at a four year university, which, by the way, by the way, is two thirds of young people.
And this disproportionately is impacting young men.
Seven out of ten valedictorians in high school are girls. Women are now over indexing and college applications and vastly over indexing in terms of college graduates. And the wage gap has been closed between men and women under the age of 30. In other words, relative to their male counterparts, young women are thriving and young men are failing.
And there's also this weird dynamic that we don't like to talk about because it feels uncomfortable. But the reality is economically, men date horizontally and down and women date horizontally and up. Why is that? Because women are attracted to three attributes in a potential mate. The third is kindness. The second is intelligence. But no one is resources and it's instinctual. I want to take care of my kids. So if I meet with someone who has a lot of resources when we go into the cave for the winter, our kids are more likely to survive.
And unfortunately, a lot of young men who don't have their shit together and don't have access to opportunities are failing economically and are becoming increasingly less attractive to a group of women who are becoming more apt and more successful economically. In some in some, there's more and more men, young men out there that are less and less attractive to potential mates resulting. A third of young men who aren't attaching to relationships, they get angry, they go online, they get convinced that it's a woman's fault.
And I want to be clear, nobody is responsible for servicing these men. It is our responsibility as a society to ensure we don't end up like a third world country where all the money accretes to a certain class of people. What happened? What has happened in Sudan? Whenever you get to extreme wealth inequality, you end up with polygamy. And that is 10 percent of the men get 80 percent of the wives in the relationships. And that turns an entire underclass of young angry men into warriors who are violent and begin revolutions and start attacking their neighbors and start killing each other.
That is where we are headed. Marshall Plan for moms. Let's reinvest in our youth and let's reinvest in young people and give them opportunities for non college bound young people. Why? Why the most dangerous person on the planet as a young, bored, angry male who turns to the algorithms of amplification to convince him to convince him that it's someone else's fault?
And then what do you know? We give them access to weapons of war. It is the same person over and over. Let's put the woak bullshit aside. Let's acknowledge the problem. It's absolutely about gun control, but it's also about investing in our youth.
Our producers are Caroline Chagrinned, Andrew Burrows, if you like what you heard, please follow, download and subscribe. Thank you for listening to the property show from the Vox Media Podcast Network.
We'll catch you next week on Monday and Thursday, two days.
Does Diaz part of the Parro bad Spanish for two days for the dog.
Resistance is futile.