Lieutenant General Russel Honoré: Preventing Future Attacks | SALT Talks #227

"I’m very concerned about extremism among the military, armed forces and veterans. Domestic terrorists have leaned on this vigor for patriotism… they've exploited it to the point where they've found believers.”

Retired Lieutenant General Russel L. Honoré was brought in to review the security failures surrounding the January 6th Capitol attack and offer recommendations. He gives his thoughts around the insurrection and warns about a scenario where more lives could’ve been lost. LTG Honoré expresses his concern about the rise in extremism, especially among police, military and veterans. He sees internal fractures as damaging to a nation that has lost a shared sense of purpose, exacerbated by disinformation and misinformation. He offers some of the lessons he’s learned about leadership over the course of his distinguished 30+ year military career that included famously his vital leadership in the aftermath of Hurricane Katrina.

LISTEN AND SUBSCRIBE

SPEAKER

Lieutenant General Russel Honoré .jpeg

Russel Honoré

Leader

U.S. Capitol Complex Security Review

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro and background

6:30 - Capitol attack security review

10:02 - Extremism among police and military

14:12 - Country’s internal fractures

27:43 - Capitol security mistakes and recommendations

36:05 - Leadership and human behavior

TRANSCRIPT

John Darcie: (00:08)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these talks the same as our goal at our salt conferences, which we're excited to resume in September of 2021 here in our home city of New York. But that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very delighted today to welcome, uh, Lieutenant general Russell L honorary to salt talks, uh, Lieutenant general Ray, uh, helps organizations develop a culture of preparedness and creates the mindset of problem solving. Take charge, take charge leaders in the age of COVID 19 and the U S Capitol complex breach.

John Darcie: (01:05)
Uh, he's an American hero who helped, uh, new Orleans city recover from catastrophe after hurricane Katrina. He's been chosen to lead the security review of the U S capital security infrastructure, uh, inter-agency processes, uh, procedures and command and control, uh, general honor rate now shares candid and colorful leadership views on how government resources, the private sector, and we, as individuals can work together to overcome the current challenges facing the world as the commander of the joint task force, Katrina, uh, Lieutenant general Honore Ray became known as the category five general for his striking leadership style in coordinating military relief efforts in the post hurricane new Orleans. He's a decorated 37 year army veteran and global authority on leadership. Uh, when hurricane such as Harvey Irma and Maria approach news networks like CNN, Fox, MSNBC, and CBS consider him their go-to expert on emergency and disaster preparedness. And just to reiterate what Anthony said, uh, before we went live, he's truly an American hero and one of the best among us. So we're extremely grateful for your time, general and grateful to have you here on salt talks hosting today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital a, which is a global alternative investment firm. He's also the chairman of salt. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:24)
Well, John, thank you general. I know you're from a very small family and so I want to start right there. Tell us about that family of yours. Where were you born, sir? Uh, how many kids were in that family and, uh, and how did you get yourself into the American military?

Russel Honoré: (02:41)
Well, good boy is great to be with you honor to be with you. I was born in a little place called Lakeland, Louisiana as right at the end of the Bush road, right next to the Alamo plantation of big sugar farm, where we, uh, formed about a hundred acres on a subsistence farm. And I say subsistence opposed to sharecropper's farm because that was a different setup. We rented land. My father and mother had 12 children. I was number eight street boy in the family. And, uh, growing up, uh, poor in south Louisiana on a subsistence farm. Uh, you miss some of the skills I needed to adapt and overcome in the army. Uh, when you're poor and you live on a subsistence farm, you learn how to fix things. Tony Anthony, uh, w w one time we had two televisions to old black and white TV and one had sound and one had a pitcher and the young and the dumbest was setting up that mood and Tanner.

Russel Honoré: (03:41)
I was some aluminum fall on it. So when I came in the army, those skills, uh, were useful to me because you learned to adapt and overcome, but growing up also in that family, you're a little stand there's a hierarchy, uh, in, in the group because a family of 12 is like a team, or it could be like a herd if you get out of line. And, uh, that was a, a productive way to grow up. I wouldn't want to do it that way again, because there was many downsides to it, but it certainly, uh, add to the old adage. You know, you don't sharpen a knife with a clause, you sharpen it with a stone. And it taught us all, some lessons that what we get out of life, we're going to have to earn. And it reinforced what our public school teachers told us.

Russel Honoré: (04:33)
Anthony, if you get an education, nobody can take that from you. And you can do anything you want in America. If you get an education and apply yourself, that's it. I was the first one in my family to be able to graduate from college. Uh, but also say all my other brothers, uh, were more wealthy than I was because I chose to come in the army and, you know, get rich in their heart. They will mostly in the trades. Uh, it ended up being contractors, build houses and in the skill. So that's a basic root of my big go-to. What is known now as segregated schools. Again, uh, some people, uh, we spent a long time to get rid of them the second equal, but I think I learned some great lessons from that and they continue to serve me today. And that is, uh, you can't drive this bus looking in the rear view mirror. We got to look forward. We have to take those experiences and use them to not let bad things happen again, but let's move forward. Let's improve our country. And let's treat everybody with dignity and respect is what I learned from many spirits. And I apologize for that long answer.

Anthony Scaramucci: (05:45)
No, I loved it. I wanted to let you keep going. I think it's a brilliant answer. And it, it speaks to your compassion and your empathy for people. And also your aspirational thinking. I want to shift gears though, sir, because, um, we're in a time of a peril for our democracy. That's just my opinion. So I'll share that with you in January. Uh, it was actually my 57th birthday, the 6th of January. Uh, we witnessed a insurrection at the nation's Capitol, um, speaker Pelosi appoint to you to lead a review of the security failures during that insurrection. Uh, why, why do you believe, sir, that it's important to take into account? What happened on that day

Russel Honoré: (06:31)
Is important because if it was not for the work at the tactical level, the front line officers, uh, as well as the DC police, metropolitan police force and a couple other small tactical boobs that didn't happen. Uh, this could have been a total disruption about democracy while it delayed it in terms of time. And it's an embarrassment to our nation because we go around the world preaching to other nations, the peaceful transfer of power. And here we are United States of America. Who've preached everybody about peaceful trade for a poem. We not having one. We lost our innocence that day.

Russel Honoré: (07:26)
And just, just one more point on that had those officers had not put their body on the line at the, and the insurrectionists that God do. Those two boxes. I don't think he would have, uh, changed the outcome of the election, nothing else, but it's certain the hell would have been a major disruption. Or if the mob had gotten to the vice president or to the speaker, it would have turned into a bloody affair by that time. And I'm glad it did not turn into a bloody affair, but it leads to the point. We can not let this happen again.

Anthony Scaramucci: (08:08)
We, we had a situation where the rioters entered the Capitol building. Some of them look like they had weapons and zip ties on them out. How close do you think the situation was to becoming exponentially worse?

Russel Honoré: (08:26)
Uh, again, I thank you for the principals have been attacked or had been, uh, uh, taken that would have made it exponentially. And I think it would have been at that point in time where a shooting would have started at a lot higher rate than we saw with that one person who got shot, trying to get into the flow on the floor, that in spite of everything had had this happen in any other country that I know of. And you could just name one. Uh, there would've been a lot of people did that day. And I think all of, uh, uh, cultural shift to try to get officers to deescalate things or not be a degree, not realize we might've gone a little too far, cause we didn't have the not lethal weapons ready. They weren't properly trained on them. They weren't probably maintain. And I think there's some soul searching going on in the federal law enforcement community. There's certain lines we cannot allow to be violated. And if you violate those lines in my new mantra to the Capitol police hold the line, there's some lines that cannot be broken and bomb rushing. The capital is one of them because when the Capitol close of democracy stopped,

Anthony Scaramucci: (09:58)
Are you, are you concerned about the rise of extremism in the United States?

Russel Honoré: (10:03)
Yes. In a Bergen son of an among our people in the military and people in the armed forces and our veterans, uh, for a long time, culturally, we have held, uh, law enforcement people are veterans and those who serve in the military, they're in the highest esteem. But what we're finding out in reports released by the FBI and other government agencies and the department of defense, uh, the people who want to, uh, the domestic terrorists crowd has leaned on this, uh, vigor for patriotism and saving the nation. And we're the last line to police the veterans and those in uniform. And they have exploited that Anthony to, to a point where they have found believers in the military, they found believers in the veterans. And if I believe in subservient police that in order to save the nation, uh, Bemis joined this movement to challenge the results of an election, which is the basic underpinning of a democracy.

Russel Honoré: (11:29)
You know, democracy is based on trust. Look at many things we do based on trust. You know, we, we get on the phone, we give somebody out number and they take money out of our account. You know, w we go to the polls, we hit a button and we vote who we want. Imagine all that's based on trust. And the insurrection is I've to take out innocence because without trust in a democracy, the democracy won't work. But when that trust is challenged, as it was after the 2012 and 11 election, and the process work judges, uh, defense attorneys and attorneys on both sides go in and they run the machines and it still is no trust because of this agitation that they didn't like the results of the election. And we lose that level of trust in America. We might still have them a democracy, but it won't be worth living in that.

Russel Honoré: (12:31)
There has to be a level of trust that when government officials stand up and tell the American people something, that it is the truth, the way they know it now, because the truth does change. I'm not stupid. You know, when we looked at this COVID thing, we been through the true change many times, uh, but we also know there was some misinformation put in there that caused people to question when they see relatives die. And they're not sure if they get the real truth or they get another version of some misinformation thrown at them. So again, I apologize for long answer there, but that was a barrier. I was a very deep question. You asked

Anthony Scaramucci: (13:17)
Great answers general. I, I, I'm not interrupting you because I want to hear what you have to say. You have some brilliant insight. I don't want to make this political. I know this is really about the security issues and the security shortcomings inside the Capitol. But I'm wondering if the information issue that you're describing, not just related to COVID, but also the political information and the facts that get misconstrued, uh, where we as a nation sometimes now are, are actually, we can't even argue or debate because we can't even agree on the facts are. And so what, I'm, what I'm wondering, based on your experience, your love of country, what are some things that the United States can do to try to reconnect itself and to bring back that civic virtue, uh, that, that you've basically lived your life by how do we do that, sir?

Russel Honoré: (14:13)
Well, I'm not quite sure if I have a good answer for that. That's why we've got the soul talks. And, uh, you'll bring a future desk who probably written books has spent their life studying that. I do know the basic underpinning, the patriotism, as I learned it, that you love your country sometime when your country don't love you, or it may appear that way. And, uh, you know, we owe the Supreme court in the highest esteem, but I remember as a young boy when the Supreme court said separate but equal was okay. Yeah. So, but things have changed. And I think they've changed. Continue to change for the better, but we've got to understand it's not just the disruption that was going on between people and trust in our country, that this is being influenced by outside agitators. And I do believe that there is foreign intervention to see that a democracy like ours does not survive because there are strong people in power in other nations, influential countries around the world.

Russel Honoré: (15:29)
I mean, what China has put their president for life and the elections that happened in Russia or a perfunctory thing that just keep electing the same guy. And he puts his opposition people in jail. There's a big push, not to have a democracy like America being neat, the beacon for democracy around the world. And they're, they're Indian. They're influencing people in the hinterlands in America because they are coming in through the internet. They're coming in through social media. And you know, the thing that really scares me, they're reaching out youth, they're reaching young people. They're, they're young people. When I grew up, I was in the four H club and the future farmers of America.

Russel Honoré: (16:22)
That was it influenced by some great teachers and coaches that talked about leadership that talk about love of country. And when we stood there, pledge allegiance to the flag, there wasn't a pin dropped in the room. There was no sidebar conversation. Now, young people are being influenced by going on the internet. And somebody spewing, vitriol hate among people because of their diversity because of their religion. I wasn't exposed to that, but I know my children and grandchildren are, and I know many people across the country and that information operation is attacking our country 24 7, and it's not bad. They do it one time. They save it on YouTube and people can go back and watch it again. And that's why it's important to have programs like yours, that try to bring information to people that we have to be aware of this outside influence in our government and in our culture, it could change America.

Russel Honoré: (17:41)
And, but I do have a belief that every generation in America, as a war to fight the greatest generation, fought it in Omaha beach. This generation will be fought in information operations and then influencing from people from afar, because the greatest threat to a democracy from our, like ours is a threat from one end when people lose competence in the government. And we see that happening, that the people are questioning the veracity about elections questioning. Where did the virus come from? Questioning the significance of the vaccine? Everything is challenged because that steady stream of information from the outside has one thing in mind. And that is a disruption of the United States. As we know it,

Anthony Scaramucci: (18:39)
It's not just from the outside, sir. We have political leaders in our country that are fomenting, those lies. Uh, they could be fomenting, those lies related to the vaccine. They could be fermenting them related to the veracity of our electoral process and the legitimate, legitimate seas of our election. And so, um, you've called for, uh, some, some people to be put on no fly lists that are, uh, potential threats or potential dead mesic terrorists. And these could even be people that are former military people, as you just pointed out or people that are formerly with our police departments, uh, state and local police. Um, I, and I'm not asking you to wave a magic wand and none of us have it, but if you were the czar and you could lay down some of the tenants, the groundwork to reunify the country, uh, one of the great things about the army is that people are coming from all the 50 states.

Anthony Scaramucci: (19:37)
They unify and bond together in the army. You know, you mentioned the, uh, world war II, my uncle Anthony, who I'm named after he was on Omaha beach. He, he was, uh, he was a decorated veteran purple one, the purple heart in, in France, on behalf of the country, my uncle Salvador fought in the battle of the bulge. Um, and when they came home, they had friends from all over the country that were part of that effort with them. And they felt more close as a result of that today with less than 3% of the country tied to the military one and a half to 2% in the volunteer services. And then their family members, we don't have that connective tissue that we once had. And so my question, sir, is how do we get it back?

Russel Honoré: (20:25)
Yeah, that's another one of them, a 60 what's that show used to be the $64 million question. And I wish I was smart enough to hell about taking a shot at it. I think we need to almost try to spend an equal amount of time about what's going good in our country. Definitely. You know, there's, uh, there's old song that came out. Uh, is there any good news, a D you remember that it kind of a country reign to it? Uh, I think it's important to, for folks to know that, uh, with all our problems, there are a lot of beacons of light happening around the United States of America. I mean, we've given the world a solution to the virus, which is a shot, uh, that if people take it with all the facts we know, and I had in myself, I had my first shot on Christmas Eve and never doubted because I learned to trust the system.

Russel Honoré: (21:30)
We have to have a, a sufficient amount of trust in a democracy to make you work, that there are a lot of things that are going well, but it's not equally, uh, being distributed among the people where poor people working for minimum wage, uh, struggling Lang hell, uh, because we're still using last century opinion equity. When I talk to CEOs, uh, Anthony, about, uh, creating teams in the companies and you create teams by making sure everybody understand that everybody in the company is equally important. Whether it's the guy down in the computer room, that's watching the blades to make sure they run right, or the security guard at the front desk, or somebody in the suite speed. Everybody have to feel equally important in the company and respect. And everybody needs to tie into the mission and to accomplish that mission, we need everybody to do their best, but when the missions accomplish it much like general Washington and his troops who, uh, saved us from the British army.

Russel Honoré: (22:51)
Everybody, when we achieve success must benefit from the bowtie of success. It's not just a soon C-suite that get all the new range rovers or the company acquired new jet. That guy that secured the front door, that front and back office staff that make things happen. Everybody has to benefit from the bounty of success. And I was looking at one of our great companies, Amazon, what a miracle e-commerce. But again, they will look at themselves. If people don't benefit from the bounty of success, they do. I think they lose their connection to the mission. And when they lose the, to the mission, you start seeing the tires come off the truck and the paint start to peel. And I think industry, as well as government need to make sure that we are being inclusive of everybody in the country. Look what happened with the essential workers, how many people paid respect to somebody who check your groceries out at the store of Della pet, Debbie gap, or in the hospital.

Russel Honoré: (24:17)
The president maybe did not graduate from high school or got a GB that's coming in and cleaning up elderly and sick people, or the person that maybe did not make it through nursing school, but now wanted to help others from the heart and in an elderly home taking care of, of, uh, elderly patients with multiple, uh, health issues, dealing with the guy that cut the meat in the slaughter house and the truck driver. I think it gave the next generation in appreciation that, yeah, my dad's a truck driver, but without that, Trump, you don't get your high screen TV. You don't get that new of foreign car you bought, you don't get bread on the table. You don't go to the restaurant and get it. I think we have to capture that and ensure that we are bringing this forward as a lesson from operating in an economy under a pandemic for a year to being more inclusive of everybody being on the team.

Russel Honoré: (25:34)
And when the country succeed, when the company succeed, everybody needs to, uh, participate in about ease of success. And we got some work to do there, and that's hard to do the way we've constructed our economy and the way we've constructed, uh, uh, how we help people who need help. Like it would have been a no brainer 10 years ago to declare pre-K education as a national standard. What the hell, you know, five years ago, we should have been playing, uh, junior college and skills, a no brainer. You just go to school and we need to fix that. And we're going to continue to be the innovation leader in the world. That's the message I tell CEOs.

Anthony Scaramucci: (26:34)
It's a great, great message. I appreciate it, sir.

John Darcie: (26:38)
General honor. Right. Uh, Anthony gives me the privilege of asking some on these talks. So I'm going to jump in with a few follow-ups you talked about on January six, how the Capitol police, they both suffered from a lack of organization and preparedness, but also there was, you know, heroes on the front lines of that situation that prevented it potentially from becoming bloody, um, and, and people, more people losing their lives. As a result of that day. What specifically in your findings did you find today, you know, mishandled from a preparedness perspective, how can they improve on being more prepared for similar types of situations? One of your recommendations also was putting up a fence around the perimeter of the Capitol in the short term, to try to address all these sort of systemic, uh, vulnerabilities in the system. Is that going to be a permanent function of our society, whereby we're going to have to construct fences and put up barbed wire to prevent sort of domestic terrorists from, uh, you know, committing murder or, or other crimes, or are we going to be able to find a way to deescalate things at a more systemic level to prevent that

Russel Honoré: (27:44)
I've been around the world a few time, John, I'm glad you asked that question and there's no other national capital that you can just walk up to show your driver's license or your teacher sign you in and scroll around the Capitol. No other, have you, no one tell me where it is. We've preserved something through to 246 years of, uh, of our nation, that few other democracies or any other government would allow. And that is the right for citizens to come to the capital, because one of the cultural things that every member on both sides, the house and the Senate, which is odd to them to agree on what time of day it is. That's the lesson I learned that we ought to talk about a little bit sometimes and the two party system, and they all agree on. We want the Capitol open to the public at the same time general.

Russel Honoré: (28:53)
We don't want another ability for one six for Bob to rush to capital and disrupt our democracy and put people's lives at risk and people losing their lives. So that's the underpinning challenge. What we found was it, what happened before during the bed, uh, what happened before most of our operations start with, uh, prepared and then how do we prepare? What are the threats? And there was an assumption by the Capitol police board, that the crowd that was a symbol under a former president, Trump would not be violent. That assumption, uh, his words, I'm using their words that they use the testimony. I'm not making this up. No, was it our job to look at this, our job was to recommend what needed to be done to prevent this from happening again, intelligence. It was a failure in intelligence. And I think that failure is systemic because even yesterday, you saw, I saw a watch. The hearing with the FBI director said, well, it was just internet chatter, wake up, dude.

Russel Honoré: (30:16)
In the 21st century internet challenge, chatter is intelligence. We're still going back to that vision of intelligence of some world war two, where you got a guy straightened on the island, but he can listen in on the Japanese. So the German ready on that. And that's the kind of intelligence they're looking for. They say they come in at Dawn, right? There's at least six shifts. This is the direction they are moving in. That is America's vision of intelligence. Rido believe in when it's in plain sight, they didn't believe it an hour before the attack. When people said go to the Capitol, they still didn't believe it that'd be a BI in their transition or what they had. That was on Chad, the Capitol police major problem with handling intelligence. And we recommended that they include so many officers in intelligence that the rework, how they use intelligence and redefine what they think is intelligence, because they are looking for intelligence derived in a folder with secret marks on it, where the, where the, uh, uh, plastic step, when you got to open it, and you send everybody out the room and you look down and you look at the stores, that's not intelligence in the 21st century.

Russel Honoré: (32:01)
We have trouble dealing with people operating in plain sight because as American, we confuse television programs like the west wing with real life, we could fuse programs like in CIS that we know everything that's going on, but if it's happening in plain sight, it can't be that bad. And our big, our entire, uh, intelligence gathering system in America, uh, need to be refocused because doing it in plain sight, people coming on television say we got her to Capitol. They're sanding on it. And we discarded that. And we know what happened, John, as a result of that, uh, there was an intelligence failure. There was a failure on the part of the training of the officers in the capital. We recommended adding officers. The capital at the day of the attack was about 183 officers shot some of it from COVID. And some of it, they didn't have a class.

Russel Honoré: (33:08)
Last year, they were shot at the authorization. We recommended adding several hundred officers to the Capitol police force. Because last year they consume 700 at 20,000 hours over time. And you and Anthony nil looking at businesses, if you use it that much overtime, you probably need to hire some more people. If you use that much overtime, people are working six, seven days a week and that needed to be fixed. So they don't have time for training. We also recommended those fences. You talk about, but we're not talking about the green zone fences you saw around the Capitol. We're talking about re-engineering fences through with the core engineer is some of the land's best landscapers we got in the country and in the world to bed those fences in the ground. So if we saw something coming like happened on one six, that fencing could come up, give law enforcement time to respond, to get enough officers there. So people clearly know you violate this fence, you're going to be arrested, or you going to be shot.

Russel Honoré: (34:18)
That sign has to be on the fifth. You violate this line, you got to be arrested, or you will be shot. You can't violate the line. But as you saw, what we had was a equivalence of bicycle fences that we put up the control parades, and that was inadequate. It worked for 246 years. It didn't work that day. So we need to be more innovative. And the approach I gave to the core engineers is they think about the Disneyland. Look, you go to Disneyland is one place to come in, one place to go out. And you never realize how the abuse landscaping along with fencing to get you at the right place. And that's the appearance. Cause we don't want the capital to look like the green zone, but we can not allow one six to happen again.

John Darcie: (35:12)
Right. So you sort of became famous in the public consciousness for your response to hurricane Katrina. Um, you know, you came in the government sort of initially bungled elements of the response. There was anarchy in certain parts of new Orleans. There was a, a great podcast mini series that I've recently listened to from the Atlantic about the entire situation, but you came in and you took control of the situation. Uh, but what did you learn from that experience about human nature, about how people sort of naturally respond to adversity the way disinformation spreads, um, in a stressful environment and how to sort of remedy that environment that could apply to something like a capital insurrection. It could apply in business. It could apply, uh, in public policy, but what did you learn about human nature from that experience and how to take control of complex situations?

Russel Honoré: (36:05)
Yeah. Are they people from that experience and many others in military experienced 37 years? I think people are looking for somebody, Ooh, is a leader that is got to take responsibility for what they say. And I had the unique, uh, position, uh, not being an elected officer. No, I'll I'll, I wasn't elected by the people. And I was unencumbered by worried about if I was going to get elected again. And that's a hell of a burden. Our politicians carry. That's why I would never be a politician because they have to worry about how this is going to affect it. Then next, uh, election cycle. And because Omar Rabo a Tuesday evening or Wednesday morning in new Orleans, uh, I realized that the mayor knew all this. He's a senior elected official. That's what they teach us in the military and you help them do what they gonna do. And the senior person in Louisiana was the governor. There wasn't a president, they were in charge. And I think people were looking for by that time is, this is what we go to do. This is what we go to do it. Now, go make it happen.

Russel Honoré: (37:44)
Uh, because then when people are looking for a leadership is a execution. That leadership is not about getting people to do what they want to do. Leadership is about getting people do what they don't want to do. Hell you can get everybody to take off early on Friday or go to lunch together with you at the, at the lobster festival Thursday. But how do we lock down and said, Hey, we got a 36 hour close down here. And I know some of you were planning on going to the beach or spending time with your family. We've got to get this done. Leadership has got to get people to do what they don't want to do. And more of the, not politicians want to tell people what they want to hear now, what they want to do. And it's very ingrained in our politicians not to take responsibility.

Russel Honoré: (38:44)
Look, the hurricane broke the city. You don't have to defend that. The hurricane one, we lost go with that as opposed to saying, well, the state didn't give us what we needed. Are we still waiting on the federal government? Hey, look, the hurricane broke your city and put 17 foot of water in it, but it needed a thing. The president can do about that right now, other than to help you. But there's something we've taught in the political coast, Anthony, and maybe you can help fix that. That regardless of what the disaster, uh, blaming some branch of government at the time is happening is not the right answer. And too much of that was happening. And people didn't know who to listen to. We listened to the bearer or do we listen to the governor or do we listen to national media who flew in on the corporate jets, got in there and basically beat me there.

Russel Honoré: (39:52)
So that was some substantive problems. We gotta deal with it. We have dealt with, but I think people in a disaster, uh, looking for the voice in nine 11, there was a mayor of New York who said, you know, burn his candle out. But people were looking at him. People were looking at the, our president, president Bush, when he said this will not stand. And they will hear from the American, but people, he wasn't. And he laid the hammer down on those. You attacked our country. Are they, people are looking for those moments. And people are held in high esteem. When someone woke up and said, we've got to work on this together. And as opposed to, uh, different levels of government saying different things. And as we saw the days and weeks after Katrina, it became the blame game. And I wouldn't play in the blame game. We're here to save lives and take care of people.

John Darcie: (40:52)
Yeah. We, we built great institutions in this country that we think are resilient, but leadership matters. And, um, you know, I think, you know, we're experiencing that, but, uh, Lieutenant general, Russel Honore, it's such a pleasure to have you on salt talks. Uh, we could go on for hours with you, uh, extracting your wisdom, but, uh, we hope to see you on the media, still talking about the insurrection, talking about these issues that are facing the country. I think you have clear eyes about everything that's going on. So, so we need your leadership more than ever, but thank you so much for joining us

Anthony Scaramucci: (41:23)
General. You mentioned people's candles burning out your halogen lights. Sure. Sur is shining very brightly. Okay. We want to make sure we keep you in one of the main focuses of our country. You're a national treasure and it's a big honor for us to have you with us today. Thank

John Darcie: (41:44)
You be well, sir. Thank you everybody for tuning in to today's salt. Talk with Lieutenant general Russell on array. Just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website on demand@salt.org backslash talks or on our YouTube channel, which is called salt tube. Uh, we're also on social media. Twitter is where we're most active at salt conference. Hopefully not spreading any, uh, disinflation there. Uh, but we're also on LinkedIn, Instagram and Facebook. And please spread the word about these salt talks, these conversations in particular like the one we had, uh, with the general today, just understanding what it takes to combat some of the polarization and extremism rising in our society today, we think are, are very important. Uh, but on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Kenneth Juster: Indo-American Relations | SALT Talks #226

“India is increasingly an important strategic partner and we’ll focus more attention on the Indo-Pacific where the gravity of international affairs is moving. The US-India relationship is a major pillar of stability and prosperity in that region.”

As former US ambassador to India, Kenneth Juster offers his perspective on the US-India relationship and its importance related to a rising China. He evaluates geopolitical risks from some of the top US adversaries like China and Russia and describes how American diplomats can help navigate 21st century challenges ahead. Ambassador Juster discusses American polarization, rise in nationalism at home and abroad, COVID surges in India, and the long fraught history of the India-Pakistan border conflict.

In 2017, Juster served as the Deputy Assistant to the President for International Economic Affairs and Deputy Director of the National Economic Council. He was a senior member of both the National Security Council and the National Economic Council. In this role, Juster coordinated the Administration’s international economic policy and integrated it with national security and foreign policy. He also served as the lead U.S. negotiator in the run-up to the G7 Summit in Taormina, Italy.

LISTEN AND SUBSCRIBE

SPEAKER

Kenneth Juster.jpeg

Kenneth Juster

25th United States Ambassador to India

2017-2021

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro and background

5:54 - History of the US-India relationship

9:09 - US-India-China dynamic

13:50 - US geopolitical risks

16:20 - Role of diplomats in the 21st century

18:18 - Assessing the national debt

21:10 - State of Russia and geopolitics

23:40- Capitol attack and the state of American democracy

25:51 - Immigration from India

29:30 - Rise in nationalism

31:50 - Challenges modernizing India’s economy

34:40 - COVID-19 in India

37:55 - India-Pakistan conflict

TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which we're excited to resume here in September of 2021, registration just opened, uh, last Tuesday. So we're excited to resume those conferences, but our goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited that I'd welcome ambassador Kenneth Juster to salt talks. I ambassador just recently completed his service as the 25th us ambassador to the Republic of India.

John Darcie: (00:58)
He previously served in the U S government as deputy assistant to the president for international economic affairs on both the national security council and national economic council starting in 2017 under the secretary of commerce from 2001 to 2005, he was a counselor acting counsel of the state department from 1992 to 1993 and deputy and senior advisor to the deputy secretary of state Lawrence Eagleburger from 1989 to 1992 as under secretary of commerce. He co-founded the U S India high technology cooperation group. Uh, and he was a key architect of the next steps in strategic partnership initiative between the United States and India in the private sector. Uh, ambassador gesture has been a partner at the global investment from Warburg Pincus, uh, from 2010 to 2017, a senior executive@salesforce.com from 2005 to 2010 and a senior partner at the law firm, Arnold and Porter posting today's talk is Anthony Scaramucci. Who's the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. And with that, I'll turn it over to Anthony for the

Kenneth Juster: (02:06)
Interview. Uh, John, thank you ambassador. Before I get started, John and I look like we're in hostage videos and there you are with this beautiful background. And so tell us what that background represents. Where is that in India and what is that beautiful building behind you, sir? Well, actually it's just my backyard in New York. Now it's called the water palace, uh, John Mahal and China or India. It's one of the many beautiful places to visit if you come to India. Uh, and I thought it was a nice background given that I had served for about three years. He's Friedman says in Basadur to that great country. And it's one of the more beautiful countries in the world before I get into your ambassadorship. However, I want to talk a little bit about your background. Where, where did you grow up, sir? What led you into public service?

Kenneth Juster: (03:01)
What did your career look like before you became the U the ambassador to India? Well, first of all, by the way, let me tell you it's a real pleasure to be with you here today, Anthony. I thank you for that question. Uh, I was born in Manhattan, but grew up in Westchester in Scarsdale. New York, graduated from Scarsdale high school. Uh, always had an interest in government and international affairs. Uh, after college, I did a joint degree in both, uh, the Kennedy school of government, as well as the law school at Harvard. Uh, and first served in government, uh, with one of my professors, Sam Huntington at the national security council in the late seventies. Uh, and that got me even more excited in working in the, uh, government and in foreign policy, went down to Washington as a practicing lawyer after a clerkship for a year at one of the large international law firms.

Kenneth Juster: (03:51)
And then, uh, one of the clients I worked with Larry Eagleburger, he can a deputy secretary of state. I was a junior partner. He asked me to come in, uh, to the government to work with him. That was a credible period of time. In 1989, you had the tenement square, you have the collapse of the Berlin wall, the unification of Germany, Iraq's invasion of Kuwait to collapse the Soviet union. And I worked with a wonderful team of people, and it really sold me on the possibilities of having a career where as you can in our country move in and out of government. I got to serve again in 2001 to 2005 as an under secretary of commerce in charge of issues for business and national security intersected. Uh, and then in 2017, I had not been involved in the campaign for the presidency, but, uh, when the Trump administration won, they did not have a deep team at that point.

Kenneth Juster: (04:49)
And I was asked, uh, by, uh, Gary Cohen, who had been the number two person at Goldman Sachs to join him at the white house as the Pressman charge of international economic affairs of the national security council, national economic council. Uh, I did that and then shortly thereafter, the opportunity to, uh, potentially be ambassador to India, opened up, my name was, uh, raised and I was, uh, very fortunate to be nominated and confirmed for that position later in 2017. Yeah. Listen, it's a great life story. And obviously thank you for your service. I want to step back a second for some of the Americans that listened to us here on saltbox that may not know as much about India as you do. And I want you to tell us the story of India, where India fits into the whole economic system, the geopolitical system. Why should us citizens be concerned about our, our relationship with India?

Kenneth Juster: (05:53)
Well, India became independent and, uh, August of 47 at the time, it was the partition of India and Pakistan. And it was a leader of the leader. Really it's a non-aligned movement during the cold war, uh, despite being in a non-aligned position, uh, over time, it, uh, tilted somewhat toward the Soviet union and Trump's of supplying its weaponry and military equipment in part because the United States also tilted toward Pakistan. The U S was still involved with India often in a, uh, area of developmental assistance, cyber cultural assistance. I'm like, uh, but the relationship was not particularly close. Uh, uh, with the end of the cold war, obviously the Soviet union, uh, disbanded, uh, you were starting to see, uh, immigration, uh, from India to United States and the beginning of an Indian American population. I mean, it existed before then, but it really began to take off more India, then tested some nuclear weapons, uh, in 1998 and received, uh, from the United States and other countries as severe sanctions for doing so.

Kenneth Juster: (07:04)
But at the end of his, uh, president Clinton's term, we took a trip to India, really tried to, uh, warm up the relationship. There was still the nuclear issue that was of concern. And when president George W. Bush came into office in 2001, he and Indian prime minister Bosch pipe at that time really felt that the world's oldest democracy United States and the world's largest democracy, and they should have a better relationship, but you may also recall India, Indian companies and individuals have been involved in the Y2K fix. So Americans were increasingly exposed to India and that really began the transformation of the relationship. I was fortunate to be involved because one of the things that India was interested in was access to, uh, sensitive us technology to help its economic sector is says civilian space sector and civilian defense sector, or somebody in military or not. I shouldn't say so the military, but, uh, uh, military sector to a certain degree as well.

Kenneth Juster: (08:07)
And, uh, I was, uh, at the intersection of those issues. And so it became involved in this transformation of the, uh, relationship. India is not an ally of the United States. It's not an adversary, but it's an increasingly important strategic partner. And as we have now focused more attention on the region, that's known as the Indo-Pacific and we're really the center of gravity of international affairs is moving the U S India relationship is a major pillar of, uh, hopefully stability and prosperity, uh, in that region. So we've really had an increasingly close relationship over the last 20 years, and it's been bipartisan, uh, and it's, uh, had the supportive parties, uh, across the aisles in both countries. And, uh, each administration has built on the successes of the previous one. And of course we have our tension now with China and China and India obviously have their issues, explain that triangle to people that are perhaps not as familiar with it.

Kenneth Juster: (09:10)
Well, first of all, India is in a very different geographical and historical position than the United States. China is on its Northern border, and it stretches very far on a supported that still remains undefined, uh, and, uh, Indian China have a relationship that goes back thousands of years, but they did have a war in 1962, uh, relating to the border issues. And they've tried to manage the relationship since then. They've had a series of agreements and protocols as to how to, uh, deal with water matters. Uh, they've interacted increasingly economically, but in the last several years, the Chinese have continued to be, uh, sort of aggressive on the Northern border. Uh, in 19 2017, they occupied territory in what's called [inaudible], which is an area for India, China, and Butan meat. And then in 2020, they amassed 50,000 troops on the Northern border. And so that has really raised, uh, concerns in India.

Kenneth Juster: (10:12)
And I think shattered a certain degree of trust that the Indians had with the Chinese, certainly the border issue, which has been compartmentalized and kept separate from the rest relationship does now, uh, undercut the relationship India is trying to disentangle itself somewhat from the chief economic relationship with China, struggling in the area of technology. And so it's a, it's a very sensitive dynamic in that region. Then you really have China, India and Pakistan, three nuclear, uh, countries all next to each other and its severity a potentially dangerous area of the world, but also one that, uh, with the world's largest populations and large economies and a tremendous amount of international trade and very dynamic and critical region. So I want you to react to this ambassador, the, uh, and these are perceptions and perhaps some of these perceptions are not factual. So clear it up for me if, uh, their perceptions.

Kenneth Juster: (11:11)
Um, but I would, I would say in general, American business leaders, uh, we view our relationship with China as competitive somewhat adversarial. There are politicians that would take it a step further and say that those tensions are, uh, on the edge there, if not, um, the beginnings of a cold war. Um, and there's some Imperial fears related to China. However, there doesn't seem to be those fears related to India. Uh, I want you to react to that, that I get any of that, right. Or, uh, what is the reality on the ground? Well, the Chinese have a very different form of government and India is autocracy and Chinese behavior. Recent years has been increasingly expansionist in that reach in the south China sea directed toward countries in Southeast Asia, east China, sea against India on the India against Japan, I'm sorry, on the Northern border with India, uh, in Butan, they've been aggressive, uh, that has really infiltrated in many ways, countries of south Asia, they've obviously in their own, uh, area have been increasingly aggressive in Taiwan, Taiwan, Hong Kong.

Kenneth Juster: (12:24)
And so, uh, this has gotten the attention and concern of the country and the region. India is a democracy. It has not indicated or exhibited expansionist of behavior. It set fascinating country. That's incredibly diverse. It's really many countries rolled up into one, but it's a country that we share many values with. There is tremendous people to people relationship there, approximately formerly in Indian Americans in the United States, uh, there's constant travel back and forth between the two countries. We, uh, processed over 1 million visas a year, uh, from India over 200,000 Indian students go to United States to get educated. So it's a very different relationship and that's the country that we want to build a, uh, increasing, uh, uh, future with in terms of trying to have a stable Indo-Pacific and a more stable, uh, world water. And we see India as a key partner, uh, in that process, no one wants to have a conflict with China, but it's an increasingly, uh, competitive, uh, relationship.

Kenneth Juster: (13:30)
Uh, prior to your role as ambassador, you were at Warburg Pincus, I think for six or seven years, uh, one of your jobs there was to assess geopolitical risk. And so step back for our salt talk, viewers and listeners, and tell us where the geopolitical risks are to the United States and to our industries. Okay, well, this is really a time of great change in the international system. The tectonic plates are moving, uh, led primarily by the rise of China. Uh, I mean, there's always the question of when a new great power rises, can that be done peacefully when the existing international system, or will that create tensions and potentially even conflict, but the rise of China and, uh, uh, the potential, uh, concerns that, that, uh, uh, companies that is certainly one of the, uh, central geopolitical risks that people need to, uh, deal with and focus on Russia, uh, has been a revisionist country and is engaged in activity that is increasingly of concern to the United States, to countries in Europe and elsewhere.

Kenneth Juster: (14:38)
That's a major risk. I think even in the west, the rise of nationalism post COVID 19, a lot of countries are saying, how do we cut our dependencies and other countries? How do we bring back, uh, economic activity to our country? What that means for, uh, international trade and economic interaction is going to be a challenge and really defining the, the rules of the road for the world order going forward. Many people would say that the liberal system that developed after world war two is no longer really attuned to today's challenges. And so how do we develop a new system that enhances prosperity and security and hopefully avoid conflict as you have the uplift ration of weapons of mass destruction, and you have a bunch of other challenges in the global common, such as the pandemic we're dealing with right now, although on the flip side, however, there are massive, positive technological changes taking place.

Kenneth Juster: (15:40)
Uh, we're moving more at the renewables. We've got the introduction of 5g and all the massive technological information flow transformation that will take place as a result of that. And of course, in the bio technological world, we're doing things like M RNA. And so paint a picture for us of how our diplomats can help calm down the world, if you will relieve some of these tensions. So this great prosperity that's ahead for us technologically can, can happen in a peaceful way. And also obviously in a deep way, economically, where we can share it among the classes and societies. Well, as you say, technology is truly changing the world and as it penetrates every industry, it can have a very positive impact, but technology misuse can also have a negative impact. Our attorney governments can use technology to suppress their people. You can get track of people's privacy and invade that as well.

Kenneth Juster: (16:40)
And I think what diplomats can try to do, uh, working hand in hand with the business community is really developed the rules and standards for the uses of technology and, and, uh, future, uh, economic discussions we'll have to deal with the digital economy. What did we do in terms of a FinTech financial technology to ensure that they can have more transactions, but at the same time that these are secure and don't get infiltrated by people who want ransomware things of that nature. So technology is neutral. It can have a tremendously positive impact if it's properly administered and regulated, uh, and hopefully minimal regulation, but there are certainly important public policy issues of privacy and security, cyber security, uh, but it can be very damaging if because of, uh, increased technology, the country can go in and paralyze your infrastructure through a tax on that technology.

Kenneth Juster: (17:40)
I think it's well said, and DAS, I want to, I want to put your, uh, economist hat on for a sec and get your reaction to this. We were approximately 8 trillion of deficit spending from 1776 to 2008, from 2008 to 2021 and 13 years. We've added about $20 trillion of debt. So we're now clicking at a $28 trillion budget deficit for the United States. So, so we we've had modern monetary theorists on that are saying not, not to be worried about our $28 trillion deficit. Are you worried about it? Yeah, I'm worried about it for a few reasons. First of all, the U S economy is the most resilient economy in the world. Uh, we have a highly entrepreneurial, uh, population. We are able to raise capital and deploy it very quickly. People are high risk takers can get rewarded for that. And so I think the U S economy will do quite well.

Kenneth Juster: (18:45)
And, uh, even in this situation post COVID, I think people have been impressed at how quickly it is covering. So we need still targeted safety nets and potentially stimulus, but I worry that we've offered it. And as a consequence, uh, you have a lot of money in the financial system that can lead to inflation, which will not be beneficial for anybody, uh, that can also, uh, lead to higher taxation to support all of the spending, which will, I think, stifle economic growth. And finally, uh, all of this, uh, deficit spending will be, uh, a real burden on future generations where they're going to have to spend a lot of their budgets to repay, uh, the London. So I think as you say, we have, uh, seen a tremendous amount of new, uh, spending in the last several years and deficit spending and it is troubling, and I hope that it doesn't really become a drag on the economy, which otherwise I think would be very dynamic in this country.

Kenneth Juster: (19:52)
Yeah. Listen, I, I don't know. I got trained in economics 35 years ago. I'm worried that I'm being told not to be worried about it. I wanted to get your reaction to all of it. Yeah, no, I think intuitively you have to think about your own household. Would you be comfortable if you had that much that running your own expenses and a country is made up of a lot of households. And so I think it does raise serious concerns and we've really broken through barriers that years ago. We never anticipated, but even be reaching. And, and we've had, we, we had a long-term thinking back in the day and we had people that were, you know, I just read a Hitchcock's book on Dwight Eisenhower talking about how seriously he took that budget and how sharp he was with a pencil. It seems now that we're, we're, we're over promising and under delivering, at least in that category.

Kenneth Juster: (20:47)
I want, I wanna, I want to switch gears for a second and ask your opinion of Russia because of your experience in the diplomatic Corps, but also your experience as a world leader and, uh, uh, an investor, uh, give us your, uh, synopsis of where we are with Russia. And where do you see Russia in terms of its geopolitical footprint? Well, after the collapse of the Soviet union, there were great hopes that Russia could be integrated into, uh, the west. And, uh, that process unfortunately, uh, uh, has not worked, uh, successfully. And I think, uh, Putin, uh, represents, uh, in many respects, someone who bemoans the collapse of the empire that Russia had developed and through the Soviet union, and he has become over time and increasingly revisionist leader and Russia has, uh, engaged in whole range of behavior. That's increasingly troubling. And it almost seems as if their, a modus operandi is to Crow and do things that they feel are just under the threshold that we'll get a nature reaction from the United States and other countries yes, for imposed sanctions.

Kenneth Juster: (22:03)
But we don't really, uh, put a red line down and say, this is unacceptable, and we're going to reverse the behavior. And the challenge for the United States working with its European allies is not to want to, uh, create a conflict with Russia, but to make very clear that there's conduct, that's not acceptable. And that this process of, uh, probing and doing things that are increasingly, uh, uh, against the interests of the United States and Europe, including cyber attacks, including interfering with elections, including the activity, uh, in Ukraine and elsewhere, this has got to come to a stop. And that's really one of the major challenges, uh, for the Biden administration. One of the geopolitical challenges that you mentioned, because if this behavior is allowed to continue, it encourages other countries to engage in that sort of behavior as well. I, I appreciate it. Ambassador. I'm gonna, I'm gonna make sure that John gets some tough questions like about the Indian Pakistan border, you know, stuff like that.

Kenneth Juster: (23:07)
I, I want you to like me and hopefully John will say some prickly things and you'll be annoyed with him, but I have one, one last question for you. And that is about our, our democracy and the insurrection that took place on January 6th, which, uh, uh, four two was my birthday. I was watching celebrating my birthday and watching a insurrection at the nation's Capitol. And I feel that the democracy is under threat. And so not to superimpose my ideas on you. What do you feel about this situation? What are your thoughts there? How we can heal the country and possibly try to figure out ways to remit the country and unite the, I think there are several issues that you raised and I want to try to dis-aggregate them. I think at the broadest level, in terms of our democracy, I would say much like our economy.

Kenneth Juster: (23:56)
It's, it's very resilient. We have strong institutions I've seen around the world countries that don't have institutions that come anywhere close to what we have strong traditionary. And we have a strong, uh, media, uh, sector. We have strong civil society. So I don't think that democracy itself in the United States is under threat. But I do think is of concern is that it's increasingly polarized our political system and therefore dysfunctional. Now, maybe you could say that makes it under threat. I don't think the system is dying to collapse, but I don't think it's fricking nearly as effectively as it needs to, especially to address the complex challenge that we have. And unfortunately it sends a negative signal to other countries around the world that democracy is not a, an effectively functioning system. And it's utilized by countries such as China to say, we have a better alternative system, which is sort of state capitalism.

Kenneth Juster: (24:53)
So the challenge for us is how do we, uh, begin again to work, uh, as a whole, uh, with, uh, people from both sides of the aisle, trying to make compromises, to advance our interests collectively, and to stop enacting a legislation that is supported only by one side of the other, and then gets reversed a few years later when the other side, uh, is, uh, uh, controlling the Congress and executive branch. So the democracy and abroad way, I think is resilient. And still, we have stronger institutions than any country in the world, but I do think it's increasingly challenged by the political polarization that has made its implementation, uh, less functional than it should be. And well said, hopefully we can, you can get there. Um, uh, but, uh, John, let's go here. Okay. Ask the super tough questions. Okay. Because what happens to me ambassador is we leave these Saul talks. Everybody likes John, and they think I'm asking all the tough questions. So come on, John, dig in here, get some spikes and those questions,

John Darcie: (26:00)
All right, I'll start with immigration, uh, ambassador. So I believe there's something around 4 million Indian Americans in the United States. You know, many of them are the heads of our major hospital systems or tech companies. You have the heads of, of Google and Microsoft today, or Indian Americans. It's obviously been an exchange of people and ideas and commerce between the two nations that has been very fruitful for everyone involved. And I want to talk about the immigration issue a little bit. I think within the Trump administration, obviously they, they tightened up our immigration policies a little bit. Uh, you know, the Biden administration is still grappling with how to both encourage immigration, but also maintain some control and sovereignty over our borders, frankly. But what is the right immigration policy? Do we have the right policies to continue to attract the best talent from the tech world? If you were in charge, how would you adjust, uh, the current stuff?

Kenneth Juster: (26:51)
Well, first of all, I want to, uh, highlight what you said is that Indian Americans that have come to this country have made a great contribution across a whole range of sectors, whether it's been medical sector, legal sector, and certainly in the technology sector and it's, and it's really benefited those countries because it's been a two-by-two flow of, of, of ideas, uh, and, uh, people going back and forth. Uh, many of these, uh, Indian Americans have come to United States through what's called an H one B visa mature, uh, is a program that began in 1990 to really get a high quality people, to fill jobs in the technology sector that cannot otherwise be filled by Americans. There are 65,000 slots for H one BS and another 20,000 for people who have a master's degree. This is a global program. That's open to people from around the world, but the Indians have been able to garner on average about 75% of the spaces that has not changed over time.

Kenneth Juster: (27:56)
The H1B visa program is still in place. It's still 65,000 plus 20,000. It was suspended during the last half of 2020, because COVID had put so many people out of work, but there was a sense that we needed to give some priority to Americans, but the program is back in place. And while there have been certain tightening of the rules and regulations, so that it really getting high quality people, and they're not, there's not a gaming of the system is still means that about 70 to 75% of the visas go to Indian people. And many of those people then ultimately become a us citizen. So I think it's in terms of that policy, it's been a great success, uh, and, uh, I'm delighted that India sends its best people to our country to contribute to our economy. I think the challenge for India is to create conditions in its own countries, that some of these wonderful people want to stay there to develop their career and their entrepreneurship and their outpatient rather than contribute to our economy. But the immigration policy that has been relevant to Indian Americans, the H1B, I think, has been a very, a substantial success. Do

John Darcie: (29:10)
You read all about what Anthony mentioned earlier? This rise in nationalism and populism and some of the polarization that exists in the United States might turn people from somewhere like India off from coming to this country and setting up their business or coming to work in our, uh, economy. Uh, do you think that issue is,

Kenneth Juster: (29:30)
Yeah, look, I think that, as I mentioned earlier is a very important issue, especially coming out of COVID-19. The question is going to be what lessons countries learn from COVID-19 will it be one of the increased nationalism we need to close our borders. We need to try to develop everything internally. Will the pendulum swing from a very interdependent economic relationship that's existed throughout the world to one that tries to cut off, uh, dependencies. I think what you really need to do is develop dependencies, but trusted partners so that you no country can do things alone, but this sort of nationalism and we've seen in India, uh, what's called self-reliance and the Indians are quick to say that this does not mean it's going to limit their level of global interaction, but it is saying that we want to be increasingly self-reliant. We want to make sure that supply chains are not dependent on countries that have concern.

Kenneth Juster: (30:29)
And so have that will have an impact on India. How some of the concerns in the United States, uh, uh, about jobs and security will have an impact still remains to be seen. But the fact is economic interaction movement of people, flow of technology, uh, movement of currencies, and, uh, uh, capital markets is so integrated, uh, internationally that you're not going to be able to turn that back, which is even by the way, why, uh, the relationship with China is very different than what we saw during the cold war with the United States. So the Chinese economy is very much integrated with the rest of the roles. We're going to have to figure out how to manage issues that are of concern, rather than think that somehow we're going to be able to disentangle everything and separate, right? So,

John Darcie: (31:17)
Uh, several years ago, India is a very cash dominant economy. You probably know the statistics better than I do, but I know it's a very cash dominant society. The government went through an experiment several years ago, where they tried to basically repatriate a lot of the cash that was on the street and digitize a lot of the economy. How successful were they in that? What did we learn from that experiment? And what is the current state of the Indian economy in terms of modernizing and trying to root out what they perceive as I think non-payment of taxes and just an overall archaic infrastructure around their economy?

Kenneth Juster: (31:51)
Well, what you're referring to is something known as the monetization and which I'm very short notice, all sorts of forms of certain denominations of currency were outlawed. And in hindsight, it created a, uh, a real problem in India because suddenly a lot of people's law operated outside the normal economy, but that's how, uh, people who work in India often do operate on and at subsistence levels over suddenly put out of work and, uh, their businesses suffered. And so it had a substantial, uh, downsides, economically. It was meant to sort of root out corruption, uh, perhaps it had some positives in that respect, but, uh, clearly what we've seen is an increasing move, uh, to go to more of a economy. We using credit cards and other types of payment systems. And this is happening in India as well. Whole payments process industry is taking off.

Kenneth Juster: (32:49)
Obviously it's the degree, things are done that way. It does lessen the possibilities of corruption. And I think this is where the world is going. What it needs to happen now is folks who work in the regulatory area to better understand the ramifications of this, and to make sure that it can be done in a way that, uh, does not allow for laundering of money for illegal payments and for other types of issues. But Raul moving in terms of, uh, technology transforming the financial sector, I'm trying to do it in a way that will be more efficient for people and, and, uh, without fraud and corruption better enable, uh, prosperity along the way. So

John Darcie: (33:29)
I want to talk about COVID-19 for a second. We obviously over here in the United States saw a lot of horrific stories, the same noise we did inside of our own borders about things that were happening related to COVID-19 in India. They had a big wave of infections, sort of after things started to die down here in the United States are still working on increasing their vaccination rates, how dire, uh, was, and is the situation related to COVID-19 in India. And what do you think the country will have learned from, from that period about, uh, public health challenges and new healthcare models?

Kenneth Juster: (34:01)
Well, let me sort of, uh, review what have been two phases. I think of dealing with COVID-19 initially, uh, in March of last year, uh, the prime minister in post, a very severe lock than maybe the most severe of any major economy in the world, other than China, uh, for really it was six weeks and then it slowly started to be loosened up, but state of the lockdown or broadly stayed on for a few months and this sort of several purposes, the Indian health system itself is less well developed. There are less beds available per person and other medical supplies and optimally, it would be the case. And during this initial period enabled India to build up its supply of protective equipment of ventilators of hospital beds and availability. And so when people started to have COVID symptoms, the healthcare system was able to deal with it without being completely overrun.

Kenneth Juster: (34:58)
India did have, and given its population, it's a country, that's about a third, the size of the United States, the population density or within the population about four times our country. So you can imagine how dense it is. They did have a significant number of cases, but were able to manage it. And for whatever reason, there was a lower fatality rates. Some people think because India has perhaps a very young population, 65% of the people that are under the age of 35, maybe because people were exposed to SARS in 2003, and it built up immunities to this fires. And maybe because people had just been exposed to other illnesses and have immune systems for whatever reason, even with a substantial number of cases that were not as many fatalities. And by the time I left India in January of 2021 cases had really gone down and things looked like they were in good shape.

Kenneth Juster: (35:50)
Unfortunately, I think there was a overconfidence perhaps that, uh, the, the COVID problem and solved and people in the government let their guard down. There were political rallies when there were four major state elections and an election in union territory. So you had hundreds of rallies for people who are without mass and close quarters. You had a major religious, uh, pilgrimage festivity called the Q mail of it was moved up a year from 2022 to 2021 over a million people got together there. And so they suddenly had a spreading a big second way, and you still have to add new variants, uh, uh, one variant that seems to hit younger people and also spreading more rapidly and there's opposite concern. It could even come to our country. And so India has suffered greatly during the second way. It's the numbers. In fact, it may well be underreported.

Kenneth Juster: (36:42)
And while I think it's plateaued out in the major cities and it's getting better, the real concern now is that it's stretched the rural areas, where there really is a very, uh, poor health infrastructure. And that we could see, unfortunately, a more tragic deaths along the way India has, I think, learned a lot. Uh, it had initially been exporting vaccines. It's now trying to focus more on building up its own inventory and getting its own population facts. And I still think only about 3% of the population has received two vaccine shots. About 13% of the population has received one, but that's still a substantial way to go, uh, for the country. So this will continue to be a challenge.

John Darcie: (37:23)
Last question I want to ask, ask you it's about India, Pakistan. So when people go around

Kenneth Juster: (37:27)
The world and they try to identify the real hotspots where we could see the potential for armed conflict and potentially nuclear conflict, India, Pakistan seems to be one of the top ones on the list. So how concerned are you about relations between those two countries? Where do they stand today relative to sort of the historical ebbs and flows and tensions between those two countries? And again, how concerned are you about the bubbling up of tensions between India and Pakistan? Oh, the relationship between India and Pakistan has always been a difficult one beginning with partition in 1947, they've had four wars and 47 and 65 and 71, uh, and in 99. And, uh, there has been, uh, recent years increased cross border terrorism from Pakistan to India. And this is a area because you have two nuclear states that always, uh, presents, uh, risks more recently when India had a further focus on problems in the north with China, their nightmare scenario is that they have a two front conflict with China in the north and Pakistan in the west and the Indians and the Pakistan have been able to reach agreement in February of this year to honor all of the peace and sort of ceasefire arrangements on the line of control that separates the two countries, but they still need to try to work out a better modus operandi and to have economic development when prime minister Modi and become development in that region and prime minister Modi came into office.

Kenneth Juster: (39:04)
He didn't invite the Indian prime minister, the Pakistani prime minister to his inauguration. He later visit our prime minister on his birthday and they sought to try to move the relationship forward. But then there were some terrorists and Smiths and it's undercut that. And I really think they need to deal with solving the cross border terrorism issue to promote greater stability and economic opportunity in that region. But this continues to be a sort of an area of tension. They countries do have a dialogue and back channel operations to try to keep things under control, but again, something can flare up and, uh, lead to a problem. So I think the whole region, as I mentioned, all Europe, India, Pakistan, China is one that the world needs to keep a sharp eye on.

John Darcie: (39:56)
Well, ambassador Kenneth Juster. Thank you so much for

Kenneth Juster: (39:58)
Joining us here on salt socks. I think more than anyone right now, uh, in the American power structure, you've done so many things to contribute to this great partnership and friendship between the United States and India that I think will be increasingly important, uh, in the years to come. And we have you, uh, in part to thank for that, that partnership. So thank you so much for your service. Thanks for joining us on salt talks, Anthony ever final word for the ambassador before we let him go. One of our live events. So we've got our next one coming up in September DAS that are at the Javits center. So thank you very much, Anthony and Jocelyn, real pleasure speaking with you this morning. Thank you everyone for tuning into today's salt. Talk with ambassador, Ken adjuster, just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them all on demand on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt too. We're also on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks. If you find them interesting on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talk sport today. We hope to see you back here against them.

Zach Dexter: Trading Crypto | SALT Talks #225

“There’s no reason crypto has to be a partisan issue. The great irony is the more we disempower the crypto community, the more we empower the established banking incumbents who are extracting a huge deal of rent from everyday Americans.”

Zach Dexter explains LedgerX’s unique status as a digital currency futures and options exchange and clearinghouse approved by the CFTC. Dexter offers an overview of crypto’s regulatory landscape and explains why it’s incumbent upon crypto industry leaders to engage regulators in order to help shape smart and fair rules. Dexter sees crypto as crucial in upgrading traditional financial infrastructure, applying its technological rails. Dexter describes one of LedgerX’s top products, an overseas crypto perpetual swap, and offers his views around the recent Bitcoin deleveraging event, El Salvador and the future of decentralized finance (DeFi).

LISTEN AND SUBSCRIBE

SPEAKER

Zach Dexter.jpeg

Zach Dexter

Chief Executive Officer & Co-Founder

LedgerX

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro and background

5:21 - Bitcoin regulatory landscape

8:10 - The LedgerX product and crypto advocacy

14:53 - Facilitating fair regulations

16:46 - Perpetual swaps

20:44 - Bitcoin’s deleveraging event

23:11 - El Salvador and Bitcoin as digital gold

26:05 - Decentralized finance and collaborating with competing exchanges

30:42 - Effects of crypto crackdowns in China

32:46 - Bitcoin’s status among regulators

34:49 - Politicization of Bitcoin

TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership form and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which we're excited to resume in September of 2021. This past week, we opened registration for our salt New York event, which is taking place at the brand new Javits center expansion in New York in September. So we hope you can join us there, but our goal at those events and on these talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.

John Darcie: (00:54)
And if you're a regular here on salt talks, you know how keenly interested we are in the digital asset space. We're very excited to bring you the latest installment of our digital asset series with Zach Dexter. Uh, Zack is the CEO of ledger X, which is the first us regulated Bitcoin options platform. Uh, Zack developed and scaled the platform and custody system and led all technical systems, market surveillance and control aspects of the company's, uh, three-and-a-half year exchange and clearing house regulatory approval process. Uh, Zach is now leading the next phase, uh, of ledger X is expansion into perpetual products clearing for other exchanges and international services, uh, prior to returning to ledger X as CEO, uh, Zach led multiple engineering teams at mirror, which is a highly successful direct to consumer fitness brand. Uh, prior to mirror, Zach served as a CTO and co-founder at ledger X, uh, hosting today's talk is Anthony Scaramucci. Who's the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:00)
Well, you got a super impressive career Zack. And so I want you to start there, take us back. Uh, where did you go to high school or college? Why did you end up doing this for a living?

Zach Dexter: (02:12)
Well, I'm from Charlotte, North Carolina went to UNC chapel hill and was, uh, was doing some software consulting almost straight out of college start. I'm

Anthony Scaramucci: (02:20)
Calling, I'm calling time out right now. Now I know why John Darcie's been so excited about this song.

John Darcie: (02:27)
I'm going to come out and say, I didn't even know you were Tarheels

Speaker 4: (02:31)
Zack [inaudible].

Anthony Scaramucci: (02:35)
Excuse me. Excuse me. Do we have anybody from long island that we can bring on the salt dog that can you get Billy Joel call or something like that? Jesus,

John Darcie: (02:43)
Zach, for the record I grew up in chapel hill. I grew up in chapel hill. My brother lives in Charlotte. I'm in North Carolina right now, actually. So this is fantastic. I love you even more, but go ahead.

Zach Dexter: (02:54)
Yeah, it's a great place. Great place. So I went from there to New York, it was doing software consulting for various startups and wanted to join something absolutely crazy that had like no chance at all at succeeding. And I thought, all right. Yeah, good coins arrived. This exchange in 2013 is the thing. There's no way that this is going to get approved. Uh, you know, we're, we're all going to get a big trouble. I'm I'm not, you know, but let's go for it. So, uh, joint ledger X is a co-founder and built the platform. We actually succeeded in getting the CFTC to give us, uh, not only the exchange or approval, but the, the required clearing house approvals. So we could hold Bitcoin.

Anthony Scaramucci: (03:30)
So I want to stop you for a sec, not to interrupt, but I want you to explain to our viewers and listeners what ledger X is, and then take them through that process of getting the approvals.

Zach Dexter: (03:41)
Yeah. Yeah. So we're a Bitcoin options platform. You can, you can buy calls, sell calls, buy, put, sell, puts on physical Bitcoin. You can do some futures trading. We have a next day swap product. That's kind of like spot. So any kind of Bitcoin derivative, you can trade on ledger X. In fact, we're the only place today in the United States where retail investors can trade physically settled Bitcoin options. So if you have a bunch of Bitcoin and you want to generate deals, you can sell calls on led direction. Can't do that anywhere else as a us retail investor. So

Anthony Scaramucci: (04:13)
Jack, I have to ask this question, can you buy and sell Bitcoin on an exchange in the United States? Yes. And that's Coinbase, where else can you buy it?

Zach Dexter: (04:25)
Gemini crack and FTX. U S there are a ton of platforms for spot trading. That's open and available to us investors. No problem. Easy to do, but the derivative space is much more, uh, constricted. There are very few things you can do today in Bitcoin to read, but it's in the U S as a retail investor.

Anthony Scaramucci: (04:45)
So is it fair to say that you're the only one that can do this? Or do you have competitors?

Zach Dexter: (04:50)
We don't have anyone else doing physically settled Bitcoin options right now in the U S that's w w we're the only one, which is crazy because it's 20, 21 we've been around for a few years now. It's just so tough to get those licenses.

Anthony Scaramucci: (05:03)
And so I want you to then address in your words, the regulatory landscape for Bitcoin. And I had to put a flat jacket on this morning because of the comments that Senator Elizabeth Warren was making. I had a flat jacket on and a helmet like we were heading into a, some enemy fire.

Zach Dexter: (05:22)
Yeah. I, I think there's a lot of, a lot of misunderstanding on what the regulatory landscape is. It's actually not as bad as I think it's portrayed in the media. So you've got the sec and they're regulating security, tokens, and Bitcoin ETFs. You've got the CFTC commodity futures trading commission used to be an agricultural regulator. They've gotten into crypto asset regulation, any derivative on Bitcoin, if theory in any derivative on any crypto, like a future, an option swap that falls into the CFTC bailiwick. So you've got the two financial regulators. The IRS has been chiming in with, uh, how they're going to treat crypto from a tax perspective. And we're starting to see a lot more regulatory clarity from the sec from the IRS, from some of these other federal agencies. But the CFTC has been in this game for five plus years. Now they've had a super clear regime all along. So if you want to do derivatives, they're the place to go.

Anthony Scaramucci: (06:21)
And you also have something called a clearing house and you're working with the other exchanges. Tell us what the clearing house is. And tell us, tell us why it's important to your business.

Zach Dexter: (06:32)
It clearing is, uh, it's not really well understood subject because it's so, it's so new. Uh, after 2008, we had these, these long chains of swap obligations. Still, nobody knew who owned what to whom they were like 15, 20 hops long. It was impossible to track down. What's the total escalating risk of the financial system. So regulators in Congress got together and they said, all right, we're going to have a single entity control all that risk. So every buyer, a derivatives instrument is going to directly face a central counterparty. Every seller is going to directly face a central counterparty. And every time you do a trade, we're going to break that, trade it too. So there's no concept anymore of right. Let's, let's face our counterparty directly, uh, that, that results in a system where you really can't measure the total outstanding risk in the financial system. So a clearing house is a central counterparty for derivatives trades. You have to have a clearing house if you want to offer interesting retail derivatives products. So we had to register not only the exchange, which was tough. We had to register the clearing house, which was very tough. There are very few active clearing houses in the U S those, those, uh, the clearinghouse has managed customer funds. They manage all the risks. So the regulators really have to make sure that if you're operating a clearing house, you've got your risk modeling, uh, down pat.

Anthony Scaramucci: (07:47)
Okay. So it, it sounds like you've put all of the pieces together to build an amazing business. So tell us about the products that you're going to overlay on this business. Tell us about the future of ledger X. I think I need to also disclose that early on. I was a seed round investor in the company, and so I'm very proud. He said, you're doing a great job. We're where are we going?

Zach Dexter: (08:10)
Yeah, we were today. We've got the Bitcoin options. It's a, it's a fully collateralized product. It's a little bit tough to trade, uh, because there's no leverage. So what we want to do is take the most popular derivatives product from the overseas crypto world, which is the perpetual swap. It does most of the volumes, most of the revenue, but you have to have our licenses to offer it here in the U S so we want to take that copy pasted into the U S offered on ledger X initially on Bitcoin, Ethereum, but actually on a all commodities. It's a product that has some cases for some asset classes is superior to traditional futures because you don't have to roll from expiration to expiration. There's no structural volatility. Like we solved the oil price a few months ago, uh, concurrent with exploration. So, so this is the most popular traded instrument in crypto.

Zach Dexter: (08:55)
By far, it's probably the most successful products that come out of crypto. It's not crypto itself. It's actually this perpetual swap. So all this overseas trading that we're hearing about most of that volume is taking place in the perpetual. But again, because of Dodd-Frank, you've got to have our licensing stack to offer that here. So us investors can't trade the most pocketed product from crypto. We're going to fix that problem. Then we're going to take that to all asset classes and take a direct run at the Chicago mercantile exchange and your ex or not structurally capable of offering those products.

Anthony Scaramucci: (09:28)
So explain to our listeners that are Bitcoin skeptics, crypto skeptics, et cetera, why you are not one of those people.

Zach Dexter: (09:45)
I think at this point that there's, uh, it's a new asset class it's here. And if you're, if you're a skeptic, it doesn't matter. Uh, there are enough people who are not that the asset class is here to stay. So there's no point I think in having a personal view on, you know, whether Bitcoin is good or bad, the market has decided that it's an asset class and that's pretty much the long and short of the story, but there's also this aspect that, uh, crypto introduces fundamental improvements in the financial clubbing that would not be possible if we were to rely on centralized infrastructure. What does, whether it's Bitcoin, whether it's a theory or defy, uh, the paradigm shift that's going on right now is we're taking systems that are actually terrible when you build them in a centralized manner, ACH wire, this stuff is 40 years old.

Zach Dexter: (10:39)
It barely works. It's held together by a bunch of duct tape and we're replacing it with a modern alternative using blockchains. That's actually far better from a technological perspective than the centralized alternative, which is a bunch of different institutions trying to coordinate, you know, Hey, who has my fonts? Where's the transfer in progress. All that stuff is public on the blockchain. So it's, it's just a technological revolution. It's the new rails for the financial system it's coming? No, there's not going to be as much change as I think some people think we're not going to live in a dystopian society, uh, where people are out on the street, uh, you know, there's been a nuclear war and we're know, using the lightning network to Paige, other, and Bitcoin like that. That's not where we're heading, where we're heading is regulated institutions using crypto rails to move funds around, to do trading everything we do today, but using a better technology. That's the best way to think of crypto?

Anthony Scaramucci: (11:38)
Well, you're really talking about Zack is what people describe as de-centralized finance. And so it's a reduction of the middleman. It's likely a reduction of transaction costs. Um, there's an integrity to the system. And so there's some safety Insurity, and it's almost like a direct to consumer business if I'm not saying it correctly. And so what your exchange will be is for institutions and individuals to have investments in burying cryptocurrencies, Bitcoin, et cetera, but then also have options and derivatives like they do in the stock and bond market. And so, so why should we be super excited about ledger X?

Zach Dexter: (12:22)
Well, there's never been a, there's never been a regulated version of what's going on at the overseas, uh, crypto derivatives markets. And actually those markets in many cases are more liquid, more efficient, more fun to trade in. They're better for institutions, better for retail. Uh, they have, they have so much liquidity at, at 3:00 AM because they're open 24 7. The products are tradable 24, 7 what's going on overseas is you've got a totally unregulated, but in many cases, better version of the financial markets that we have here, what we're doing is putting our us regulatory wrapper on that same technology. So you're going to have the same kind of quality, uh, in terms of execution quality in terms of liquidity, in terms of asset class choice that you have overseas, but in the highly regulated jurisdictions, that's pretty much it.

Anthony Scaramucci: (13:12)
And when we talk about decentralized finance ledger, X itself is a centralization node. If you want to say centralization network. So explain to us how ledger X fits into that mosaic.

Zach Dexter: (13:27)
Yeah, we're, we're totally centralized today, right? So we're doing centralized to relatives. You know, you have to send us money as, as collateral, post that to the clearing house in order to sell a call or order to buy a put, you've got to post the premiums and a wire transfer to the clearing house, but long-term, I think what we're going to do it, and we've already started working on this is, is we're going to look to run our platform on defy rails. So we're going to take our regulatory wrapper, take our controls, the oversight, and we're going to use [inaudible] technology, uh, to run the exchange, to run the clearinghouse. And it's actually a more efficient way to do things. So it we'll be talking about crypto and whether it's good or bad are here to stay. I think the way to look at it is all of these centralized institutions today, whether it's, you know, banks, even central banks, in some cases, uh, exchanges, clearing houses, brokers, all of those entities are going to move towards a world where they're kind of nodes in this decentralized network. And we're going to be one of those scents. But today, you know, it's a totally centralized operation. We've got to ease into that, uh, that future vision.

Anthony Scaramucci: (14:34)
I, I have, uh, uh, a worry, it's a worry that I share with, uh, lots of people about the future of regulation here in the United States and around the world. And so tell me, uh, why I shouldn't be worried. Tell me what I should be worried about.

Zach Dexter: (14:54)
I think, um, I think a lot of the responsibility for, uh, making sure we get the right kind of regulation actually falls on the industry. And what I mean by that is it's incredible. You know, when I, when I go talk to our regulators, there's, there are very few people who are approaching us, federal regulators with good crypto ideas. Most people are trying to get around the regulatory regime entirely. Most people are trying to skirt the rules and that that's not the way you want to do things. If you want good crypto regulation, you've got to go to the regulators and say, look, here's a solid argument for why we should be allowed to use [inaudible] technology. And you know, we're going to have all these consumer protections. Uh, here is our disaster recovery plan or business continuity plan. You know, here's all the, all the paperwork you need to see. Here's what we're doing. Here's why it works. You know, please sign off on that or at least tell us where we can improve. You've got to engage. And I think that the biggest word for me, it's not that there's going to be excessive regulation. It's that the industry is going to continue to try to skirt all the, all the rules. And they're not going to be there to engage in a two-way dialogue with the regulators. That's the most dangerous thing that I think a crypto is facing right now.

Anthony Scaramucci: (16:04)
John Darcie, fellow tar heel. I know you went to Emory, but you see self as a Tario. I mean, who's kidding. Go, go ahead. Yeah. Um, and by the way, I'm talking over Darcie. I don't care, Zach, if he asks a really good question, don't say, oh, that's a really good question. Okay. Can you promise me that sec? I'm one of your investments. Okay. All right. Go ahead, doors.

John Darcie: (16:30)
As much as I want to just talk about Carolina basketball, I'm going to continue on the current topic, but, um, perpetual swaps. Could you talk a little bit more about, uh, why those exist overseas, why they're not as popular in the United States, how they work and just more of the mechanics around them?

Zach Dexter: (16:46)
Yeah. It's like a traditional future, but it's a lot more fun to trade. The reason is it's really simple, essentially. It's to leverage spot product. So everybody wants to trade crypto, right? And a lot of people want to trade it on leverage the easiest conception, the most simple conception of a leveraged crypto product is the perpetual swap. It's a future that doesn't have an expiration date. So there's no, you know, it's, Hey, it's March 28th. Futures are gonna roll off. You've got a leg into another future. And the following month, uh, you gotta have a trading team for that. It's a pain in the pipe. So essentially it's just a way to give leverage spot exposure. It's super simple. Uh, the other aspect of the perpetual future that I think is not as well understood by the public at this point is the, uh, the margin model behind it.

Zach Dexter: (17:32)
So it turns out that overseas, the way these things trade and the way their margin, you get liquidated super fast. If your position goes underwater here in the U S all of the margin lending at the brokers and the clearing house, most of it is recourse lending. So people can come at your, if you can't, you know, come through on your, on your margin obligations at your broker, with the clearing house oversees, uh, the, the way things work. If you go underwater, you get liquidated instantly. So it's actually a lower risk to, to trade and to clear than traditional futures, traditional options. So there, there's the kind of retail facing benefit, which is you don't have to roll from exploration to exploration. There's less structural volatility for that reason. So it's, it's good to trade, but actually on the back end from the technology side, the clearing side from the margin side for the regulated entities are unregulated entities managing this stuff. It's, it's less risky and you're, you're less likely to blow up, uh, the financial system or, you know, your, your account balance, uh, in some cases, or, you know, the exchange you're trading at, if all they're doing is non-recourse, uh, margin perpetuals, which is super un-intuitive. And you've got to dig into the March model, see why that's the case, but, but actually it's a better product for both the trading in the margin side.

John Darcie: (18:50)
What levels of leverage are available internationally? You hear a lot of stories about just crazy wild west types of leverage that are available in places like Asia. And how does that compare to leverage is available in crypto markets in the United

Zach Dexter: (19:03)
Way? Yeah, I mean, effectively, there's, there's really at scale. It can only do like three to five X even internationally. There, there is a hundred X leverage available, but it's for like a $400 position and, you know, a hundred X leverage. The second, the market moves, you get liquidated and, you know, you lose whatever, uh, $5 plus the liquidation fee, or maybe there's a violent move and you lose all of it, but you only risk 400 bucks. Right. So, so who cares? Right? So I think here typically the initial margin requirements on CME for trading are like, you know, 10 to 30% or some variation margin. Uh, you, you get a message and it's like, Hey, give me some more margin. You got set a wire transfer. It's just so inefficient overseas, you get liquidated fast and you gotta, you gotta post that variation margin with stable coins really, really fast. So it's a more efficient market, the safer market, the longer you have an underwater position, outstanding, like over here at CME, you can have an underwater position overnight, you know, it's not good. Um, the more risk there is for the system. So actually in terms of regulation, we should be looking at some of the improvements that the, uh, the overseas market has made in terms of the margining systems. Uh, and in terms of the liquidation systems that they're using, it's, it's an incredible stuff.

John Darcie: (20:15)
So obviously Bitcoin and several, several other cryptocurrencies just experienced real significant drawdowns in the last month, month and a half. A lot of talk has been about how much leverage is in the system and how much of that was an unwinding of leverage and liquidation of different positions that people took in your view and your study of crypto markets in a Bitcoin, how much of that was a de-leveraging event and where do you see Bitcoin now in terms of the health, uh, you know, in terms of how much leverage is in the system?

Zach Dexter: (20:45)
Yeah, there was a ton of leverage defy, a lot of people that wrapping their Bitcoins and deposits say they have a direct Bitcoin and putting them on Ave and then taking loans out against that and borrowing tether and pausing that and taking more loans out there, leveraging over and over again. But actually they basically think about that crash was that was a VAR shock, like a shock to the system that we haven't really experienced in traditional financial markets. I mean, has there been a case where, how many cases can you name where there's been like a 30 to 6% across the board draw down in commodities and the system survived, you know, like in 24 to 48 hours, that's, that's incredible. What actually happened is everybody got liquidated on defy, but the system survived. And many of these protocols, like I've a perpetual protocol. A lot of them didn't even dig into their default fund.

Zach Dexter: (21:31)
They didn't even have to go to their backstop. Everybody got liquidated and there was a buyer for all the liquidated positions in many cases, despite the size of the shock. So it was this really interesting dynamic where all the centralized exchanges like went down, you know, the price started tanking, uh, all the centralized exchanges except for, uh, directs of course, were down. Um, I think, you know, FTX might've been up, uh, as they usually are, but most of these guys never goes down. There you go. But, but most of these guys tanked right. And defy did not defy was online, which was extremely interesting. And not only were they online, cause it's decentralized, they didn't dig into their reserve fund. If you had that kind of shock in the traditional markets, you would have blown out the clearing house default fund, you would have mutualized the loss. So there's something to be, to be learned actually from, from the volatility. It's, it's not always a bad

John Darcie: (22:23)
Thing. Right. You know, it was a stress test that the defy, uh, space pass. And I, that's a great point that you make that it's very positive to see it survive that type of volatility and emerge, uh, still in a healthy state. So we were talking before we went live about El Salvador. So recently the president of El Salvador threw his weight behind Bitcoin. He introduced a bill into the legislature there in El Salvador, um, to make Bitcoin legal tender. It passed with a super majority. It looks like Bitcoin is going to be legal tender in El Salvador. What do you think that news does? Obviously, El Salvador is a small country. It has a, I think it's 103rd and global nominal GDP, but what do you think that move is going to have? Uh, what type of effect it's going to have maybe a domino effect around the world and what are the implications of that move in Europe?

Zach Dexter: (23:11)
Yeah, the question is, is it the micro set strategy by, you know, where there's like one buy and then there aren't a lot of other buys or is it the start to a cascading? You know, if by event for, for central banks and sovereign wealth funds, I have no idea, but I will say that there's a decent chance in my opinion, that this thing overtakes gold, because it is a better gold in many ways. And I think, I think it does go, you know, it does go to the gold market cap maybe beyond, uh, it's, it's, it's more fungible. It's easier to send, you can use it as collateral, like at ledger X, we're going to allow people to post Bitcoin as collateral for other types of derivatives transactions. You can't really ship us a gold bar. We're like, Hey, you know, Zach, let me ship you like 10 gold bars to like cover my oil trade.

Zach Dexter: (23:56)
Like, how are you going to do that? That's, that's actually a tough one of the problems with the gold. Um, you can send Bitcoin like this. So it's, it's a more useful gold. It's a better gold from that perspective, you should expect that, you know, to the extent that it continues to gain legitimacy everyday it's alive. It does that. Uh, there's a higher probability that central banks, sovereign wealth funds, you know, treasuries will, will start to adopt this as a reserve asset. So it, I actually think it's not the micro strategy by, I think it's, it's more of a, a star to a cascading event. It's going to be a trickle and then probably turn into a flood. And, you know, the thing we'll probably, we'll probably replace gold in the end. So simple as that.

Anthony Scaramucci: (24:35)
And I want to interrupt the volatility though. You're not worried about the volatility. Gold is not as volatile as Bitcoin.

Zach Dexter: (24:43)
I think it's just due to how young Bitcoin is. I mean, gold as a reserve asset has been around for thousands of years and Bitcoin, uh, you know, a dozen or so. So I think that that gets smoothed out. And the reason is, you know, I think most of volatility is going to shift to some of the, uh, some of the stuff further out on the risk curve, like, like defy, you know, it's going to show up in Solano, it's going to show up in a theory of, it's going to show up in the ERC 20 tokens that are doing a lot of the lending. Uh, that's where the volatility is going to shift because Bitcoin has, is, has started to say, all right, here's my purpose. I'm digital gold, right? If they're even starting to say, here's my purpose sign, the best smart contract platforms salon is saying, well, I'm a, I actually have a competing smart contract platform as XYZ advantages. So you're starting to see a divergence of crypto. And I think you're there. They're going to be less correlated over time and you'll see a lot of volatility and stuff out on the risk curve, but in Bitcoin, you know, it's probably going to probably going to decrease over time.

John Darcie: (25:42)
Do you think ledger X has a path to, and you've already gotten there with some of the licenses that you guys have, uh, in terms of the exchange that you operate, do you think you're sort of a happy medium between full on defy, where you have all these wrapped, uh, you know, cryptocurrencies wrap stocks, wrapped commodities, um, you know, are you guys sort of a bridge to a fully decentralized financial system in the United States? Or how do you view yourself, uh, relative to other pure [inaudible]?

Zach Dexter: (26:08)
Yeah, I don't think we're going to have a truly fully decentralized financial system. I think we're going to have a defy rails, but there's always gonna be a need for, you know, transferring your assets to your beneficiaries when you die. Right. There's always going to be a need for recovering your private keys. If something happens to you, or if you lose them or your house, you know, experience the house, fire, like basic stuff like this, it doesn't work right now and define that's a huge problem. So, you know, when people are thinking about whether the financial system is going to be decentralized, like step back a minute, we've been at this massive bull market for financial intermediaries, like whatever a hundred years. And they're not just going to go away overnight because they actually do serve a purpose in many cases. I mean, in a lot of, a lot of cases, they're just extracting rent.

Zach Dexter: (26:54)
Uh, but in other cases, they're helping consumers, you know, recover their assets. Um, and, and you don't want to turn the, the economy into like a bearer bond economy. And, you know, if your house gets burned down, if you die and it all disappeared. So you've got to have a way to inject these third-party services onto the defy rails. And those third-party services are going to be banks. They're going to be, you know, the backup key for your wallet. Uh, JP Morgan is probably going to come in there and help you transfer your, your assets, your beneficiaries, even if this stuff does take over. So I think the financial intermediary stick around, but they do different things and same with us. So we're going to be there as an exchange as a clearing house. I don't think those regulatory conceptions are going away, but actually from a tech, a technology perspective, those two things work better in defined. So the defined implementation of a bank implementation of a clearing house is better strictly better than the centralized implementation, but there's still that, you know, customer support aspect, right? So it's not going to be everybody for themselves. Pull out your ledger, nano and put all your wealth on there. I don't think that's where this

John Darcie: (28:00)
Right. Why have you guys made the strategic decision to let competing exchanges work with your platform as opposed to purely trying to pump the ledger X extreme?

Zach Dexter: (28:11)
Yeah, I mean, it's really simple for 30 years now, people have been trying to compete with the established exchanges in the U S and everybody fails. Everyone's like, Hey, I've got a do product. I've been enlisted. Uh, it's, it's some exotic product. Uh, and, and the traditional guys are not going to be able to adapt it. Of course they will. You know, they have a huge regulatory mode. They have a lot of market power. They're going to list anything you live. So you have to, you have to come at the competitive landscape in the U S and derivatives from the clearing angle. If you, if you go there with a new product, you try to list it on an exchange. You're going to get run over every time. So what are you got to do is what the big boys do. You got to build up a large network of exchanges that work with your clearinghouse and offset the collateral requirements for trading on any of those exchanges with positions on any of the other exchanges it's called cross-market basically they'd be used to trade any product, you know, instead of posting 20% initial margin, if you're on exchange ex and that exchange is clearing through ledger X, you can use your positions on exchange, Y which is also clearing through by directs and don't, you don't suppose that additional markets, so it's more capital efficient to trade.

Zach Dexter: (29:14)
No one has successfully set up that community of exchanges that are working together to give the traders a, the benefit of a lower initial margin requirements. So that's a, that's a technical thing it's in the weeds, but that's why no one has succeeded in competing with the big established players in the U S for such a long time. We're now clearing for four exchanges, which is crazy to me, you know, a year ago, we were clear for just our own exchange who since signed up three others. Um, it's, it's a big deal because no one has done that. Uh, really since the demutualization is of, of CBOs, as far as I can tell,

John Darcie: (29:49)
Right. And geographically, you know, there's a lot of concentration of, you know, Bitcoin and crypto trading in Asia, for example, definitely outside the United States. You have exchanges like FTX, like Binance, uh, plenty of other examples that are based in Asia, because they've been able to operate more freely. Um, but now you see China cracking down on Bitcoin, basically lifting all mining out of the country. In addition to banning the use of cryptocurrencies for exchange or investment in China, um, you have India that's mulling over how they're going to regulate Bitcoin, even though they've now said it's not going to be a full-on ban. Do you see the balance of power as it relates to crypto trading, crypto mining, moving westward, uh, to places like the United States, especially as the CFTC and sec, start to get more comfortable with certain elements of, you know, defy and crypto.

Zach Dexter: (30:42)
Yeah. I call it the regulatory flipping. I think it's ongoing right now. A lot of the exchanges that are, uh, that were operating out of jurisdictions in Asia, Asia are seeing those jurisdictions start to clamp down and they're saying, Hey, you know, where do I go? And my answer is you gotta register, like go to the regulator. You fill out the paperwork. It's actually not that bad. It just takes awhile for them to review your application and make sure you're doing all the right stuff, which you should probably be doing anyway. Um, and say, look, Hey, you know, can you please accelerate this? We're we're trying to get to market. It's not a bad process. That's my message to the industry of crypto wants to succeed. We have to work with the regulators, not work against them. You don't want to be antagonistic and say, Hey, can I have an exemption from all the laws that apply to everyone else?

Zach Dexter: (31:27)
They're not going to give that to you. So you've got to be proactive. And I think we see more and more of that, or more people registering, applying for licenses. You know, it's, it's a good thing in general because the more engagement there is, the, the more two-sided dialogue there is, the regulators could figure out, okay, this is what's safe. This is, what's not, here's, who's legit versus not. And things start to move faster and the whole thing becomes better lubricated. So I think you do see people moving into, uh, more respectful jurisdictions over time. It's as simple as that, I think that all plays out over the next 12 to 18 months.

John Darcie: (31:59)
So as Anthony mentioned, our sort of house view is that the biggest threat to Bitcoin and crypto is always going to be regulation. You know, you might not be able to completely stop Bitcoin. But if, if the United States, for example, decided to come down with heavy handed regulation, whether it be taxation or an outright ban or whatever, it may be, obviously it would, it would have a detrimental impact to the momentum that, that Bitcoin and other cryptocurrencies have. But do you think that that Bitcoin specifically and other cryptocurrencies to a certain extent have released, uh, have reached a point of regulatory capture in the United States, whereby you have pensions endowments, wealth management companies, uh, corporate balance own this asset to the point where they almost face no choice, but to regulate it in a constructive way?

Zach Dexter: (32:46)
No, I, I don't think it's regulatory capture. In fact, I can tell you, it's not because our regulators still give us to give us a, uh, an appropriately tough time, you know, whenever we want to do something new. So I think that's a good thing. It's healthy, but it's definitely not captured though. So my view is the biggest threat to Bitcoin is, is not regulation. It's Bitcoin itself. Like how do you construct the narrative? What good is this doing for the world? Why is it better than the fed system? You know, what are the guard rails that consumers actually need? Because consumers, you know, they do need guard rails. You don't want to be holding your private keys. You don't want to live in a world where everybody has no recourse, no one has any recourse that they lose their assets. Uh, and they've got their little hardware wallet.

Zach Dexter: (33:25)
They lose it, that's it. You know, now, now their life savings are gone. That's not a good thing. So there, there's a reasonable way to engage with regulators. It's important that people start doing that. And the U S people are trying to file for no action relief on, on every regulation in the book it's not productive. So my message to the industry would be get out there, start talking to the regulators and start applying for licenses. It's, it's a totally reasonable process, and it will become more reasonable. The more you do it. So Olympic point is the greatest threat to us. Yeah.

John Darcie: (33:55)
Elizabeth Warren, who's obviously been a tough cop when it comes to financial regulation has recently come out with the most aggressive words yet that she's had about cryptocurrencies basically stating her intent to root them out of the U S financial system. At the same time, she's a big critic of wall street and a big banks, which, uh, I would say a lot of Bitcoiners think that Bitcoin presents a compelling alternative to the traditional banking system. How do you also, she also hides

Anthony Scaramucci: (34:22)
Behind her staff when she departs or boards or the planes from a private plane, that's fine. Keep going, Joe.

John Darcie: (34:31)
Right. But how do you, uh, view, you know, sort of the political politicization of Bitcoin, are you worried at all about this becoming a, you know, perceived right versus left type of issue, or what message would you have for Elizabeth Warren if she was tuning into the salt talk, which I can guarantee you, she is not,

Zach Dexter: (34:49)
Well, I am definitely worried about it becoming a partisan issue. I think that would be a huge mess, and there's no reason to have to become a partisan issue because it's just a new technology. And this technology has as you know, properties that are arguably not as environmentally unfriendly as has been, has been portrayed. So I totally disagree on, on that part. You know, I think it's, it's not burning up the world's carbon resources in the way that, uh, people have detected. Um, and in addition, the great irony here is the more we disempower the crypto community, the more we empower the established banking incumbents, and those incumbents are extracting a huge deal of rent from everyday Americans through overdraft fees, through wire transfer fees, you know, ACH fees, fees for this fees for that. And you know, I'm going on Ave and I'm taking out a loan and tether or USB-C for, for whatever 3%.

Zach Dexter: (35:45)
And no one is, uh, banging down the door, no loan charts of banging down the door, trying to repossess my house. But if you did that in the traditional financial system, I guarantee you all you will be dealing with, uh, are, are regulated loan sharks. So you've gotta be really careful because you've got this new empowering technology. And to the extent that you try to overregulate that you're actually going to end up creating a huge moat for the established incumbents. And so I look at that criticism, you know, in some ways, and I'm, and I'm thinking, you know, there's only one way that you can get on board with, uh, with over-regulating crypto. And that's, if you're trying to preserve the, you know, monopoly oligopoly that these established incumbents have on financial services, that's not a good thing for the American people, right? So there's a happy medium here. Uh, the, the extremes are not going to give us the answer on either side are not going to give us any good answers here.

John Darcie: (36:41)
Right? Well, Zach, it's been a pleasure to have you on salt talks. Anthony have a final word for Zach before we let them go.

Anthony Scaramucci: (36:47)
No, we're super excited about your business. Zach wish you the best of luck. We'll see you at our conference in September, and I like your optimistic view of where things are going. We, we, we agree. All right. Thanks a lot guys.

John Darcie: (37:02)
And thank you everybody for tuning into today's salt. Talk with Zach Dexter of ledger X, who a very forward thinking in terms of, uh, crypto exchanges and, and the clearing process of, uh, of all kinds of different commodity assets in the United States. Uh, just reminder if you missed any part of this talk or any of our previous salt talks, you can access them on our website on demand@sault.org backslash talks or on our YouTube channel, which is called salt too. We're also on social media at salt conference is where we're most active, but we're also on LinkedIn, Instagram, and Facebook. And please spread the word about these salt talks. Uh, we love educating people about a variety of different topics here on, on salt talks. Uh, but particularly we think exciting things are happening in the digital asset space and love bringing new people into the fold of that asset class. But on behalf of Anthony and the entire salt team, this is John Darcey signing off from salt talks for today. We hope to see you back here again soon.

Bill Bratton: The Profession | SALT Talks #224

“Police are now being faulted for something basically our political leadership, Republicans and Democrats, have failed at for fifty years… Who’s going to have to deal with it in the meantime? Police.”

Raised in the Dorchester section of Boston, former NYPD Commissioner Bill Bratton recounts his love of his local police station from a young age, leading to lifelong career in the profession. He worries about some of the trends emerging that remind him of his early days in New York City where graffiti was ubiquitous. Bratton cites the influence of Sir Robert Peel, the father of modern policing, who established the London Metropolitan Police Force in 1829 and laid out 9 policing principles. Bratton shares his thoughts on issues surrounding George Floyd’s death, police violence and the defund the police movement. 

LISTEN AND SUBSCRIBE

SPEAKER

Bill Bratton.jpeg

Bill Bratton

38th & 42nd Police Commissioner of New York City

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

2:47 - Background

5:53 - Robert Peel and broken windows

8:55 - Community policing and recent crime waves

14:02 - Criminal justice reforms

16:53 - George Floyd and the defund the police movement

24:15 - Policing recommendations

27:49 - Bill de Blasio

34:37 - Concerns around modern police policies 

36:03 - Terrorism and 21st century threats

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these talks is the same as our goal at our salt conferences, which we're excited to resume in September of 2021 in New York city. Uh, but our goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And one of these important ideas, uh, and, and issues in our society today is effective policing. So we're very excited to welcome what I think is one of America's foremost experts on the topic onto the show and that's commissioner bill Bratton.

John Darcie: (01:00)
Uh, Mr. Bratton served as the chief of the Los Angeles police department, chief of the New York city transit police commissioner of the Boston police department and commissioner of the New York city police department in both 1994 and 2014. He's out with a great new book called the profession, a memoir of community race and the arc of policing in America, which again, we think tackle some of these really important topics that are going on in society today, obviously around everything that has happened with George Floyd last year, uh, and other incidences of, of, uh, police violence, but also recognizing the complexity around policing. I think it's something that, that, uh, Mr. Bratton does as well as anyone, uh, in the marketplace hosting. Today's talk is Anthony Scaramucci. Who's the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. Uh, he's a longtime friend of Mr. Bratton as well. So we're excited to welcome, uh, the commissioner onto salt talks here today. Anthony, go ahead and take it away. Thank you, John.

Anthony Scaramucci: (02:01)
And so, uh, commissioner, uh, it's great to see you. The book is fantastic. I like holding up the books of my friends. So we're going to put it up here, the profession, a memoir of community race and the arc of policing in America. And it's truly a phenomenal book. I, I, I was reading it last night. I've got some questions related to stuff in the book, but I also want to start with your background, sir, because I find it to be one of the more amazing quintessentially American stories about your life and how you developed your profession. So tell us a little bit about your background. We got a lot of young people, uh, that listened to us, uh, over 80,000 subscribers. Now tell us about your background, how you got your career started.

Bill Bratton: (02:48)
Well, I grew up, uh, in the Dorchester section of Boston born in 1947, raised in a cold water flat that's, triple Decker style housing in Boston. And, uh, uh, most of my younger life that, uh, I, uh, began to become fascinated with policing was police station down the street that was co-joined with a local library and spent a lot of time in the library. And a lot of time just watching those cops much in that building. But, uh, I didn't become a police officer till 1970. I was just, just back from Vietnam war it's your three years of the military police sent free doggy and luck and going on the Boston police was the fulfillment of a dream that, uh, the dream was to become a cop and in the 1970s, extraordinary turbulent times and Boston desegregation schools, turbulent times in our country, certainly sixties and seventies. So, uh, the book that, uh, you're referencing the profession, uh, is a memo memoir 50 years of policing since I joined it in 1970 and now 2021 in some respects, uh, it's reflective of a Yogi Berra is deja VU all over again, looking at the New York post headlines, the last couple of days about squeezy PEs in graffiti. A lot of people in New York were around back in the seventies, eighties, early nineties, but I was, and, uh, we're kind of back where we started after 50 years as it relates to those issues.

Anthony Scaramucci: (04:14)
Well, you know, I want to apply in 1989 and lived in the city. You had that intersection on 96th street leading up to, uh, the FDR drive. They always had three or four guys there, pan handling, uh, turned out there weren't that many of them. I remember that from your first book, uh, in terms of cleaning up that situation and making the quality of life in the city better. Um, you also had in your first book, uh, there was a pamphlet that used to show people about the early policing in Boston. I believe it was, if it wasn't Boston, it was something, but you had this pamphlet about how the police officers opera. Did you remember this pamphlet bill? I don't know if you remember it, but you I'll have to dig it up if you don't remember, but I was fascinated by that. I saw you give a speech related to it when you became the commissioner of the police in LA and the reason I'm bringing it up. It's okay. And you're

Bill Bratton: (05:04)
Talking about a survivor appeals philosophy. My philosophy is that actually, that's what I'm talking about. They carry it everywhere. Okay. Okay.

Anthony Scaramucci: (05:14)
You see that? Yeah. So I remember that vividly from a speech that you gave, uh, I was so impressed with it and, um, I'm glad you put that in there because that was going to be all right. Maybe I've met, maybe I misspoke, but there's a linkage to your philosophy related to police conduct that goes back hundreds of years. And I want you to talk a little bit about that and then we'll get into the book. But I think it's very important because I think we're, I think what we have found is that philosophy does work. People are safer, even the people in more violent communities, frankly, feel safer. Um, but could you go into that a little

Bill Bratton: (05:52)
Bit, if you don't, uh, I go into it extensively in the book because it's a central in the garment of the book, if you will. And what we're talking about, uh, actually two concepts that are linked. One is Serabit PLA 1829 creates the metropolitan police in London, really the first uniform police service in a, uh, a Western society. Uh, and he, uh, annunciates at that time nine principles of policing and they are, if you take the time to read them and they were in the book that, uh, they are even more probably today than 1829, the first of them is that the basic mission for which the police exists is to prevent crime and disorder five most important words in policing in Western civilization, the police exist to prevent crime, not just respond to it and disorder in seventies and eighties and America, we focused on responding to crime and pay no attention to disorder.

Bill Bratton: (06:48)
The linkage of this document is to another document I think you're referring to. And that's the article and Atlantic monthly, 1982 by George Kelling in Jim Wilson called broken windows in broken windows was based on the idea that if you do not take care of minor crime, that most people encountered every day, that destroyed neighborhoods and created fear similar to what New York is going through right now. And indeed many parts of the country. The idea of the prostitute, the idea of the homeless equals the Pega, the squeegee pesto now invading New York. Once again, the good feeling that that's what people saw every day, they might read about the murders, but most people were not going to be the victims of serious crime. So the linkage from the nine philosophies and the idea to control crime and disorder to broken windows, I am probably the most formidable, uh, uh, proponent of surviving appeal, but also a broken windows that you cannot have serious crime reduction without also focusing on serious audit control of fixing the broken windows. And so,

Speaker 4: (07:53)
And so what, what happened commissioner? Because we, we, it seemed like as an observer, my business has been in new, I'm a new Yorker, less my seven years in Boston, which you and I have discussed. I'm a new Yorker. Um, it seemed like we had things going well. Uh, you started a Renaissance in New York, uh, when you were the commissioner of the police, uh, it seemed like you took some of those practices. Now we can talk about stop and frisk as well. I, I know that that's a political lead charge issue and, and I, and I certainly don't want to, I, uh, I want to overly opine on that cause I don't understand it as well as you do. I'm sure you could, you could give your opinion of it. But, but my point is we seemed like we had the city in a safe position. It feels very unsafe today to people that just, you know, certain areas, pockets of it, crime, homeless tents, panhandlers, squeegee people. So why did it devolve to where it is today and did it, did it need to devolve to where it is today? Obviously? So why did it

Bill Bratton: (08:58)
Book speaks to that change that you're talking about beginning of 1990, after the failure of the seventies and eighties crime exploding disorder exploding, the arc was a basket case, uh, 2,245 murders, 5,000 shootings in the streets is of everywhere. Uh, we embraced in policing in government, a new concept called community policing and that philosophy of policing echoed, sir, Robert Peel's in that it was about partnership with the community identifying what were the problems they want the police to focus on, not just police deciding, but working in partnership collaborations with communities in individual communities, having different priorities. And lastly, focusing on dealing with these problems to the extent that we prevented them from coming back and starting, uh, uh, Dave Dinkins. Uh, if we bound Ray Kelly, 19 90, 91, they were able to hire 6,000 more cops and began a process where crime began to go down, but it was going down so slowly that people were not noticing because a lot of the focus was not on quality of life.

Bill Bratton: (10:02)
Crime, 1994, Giuliani is elected I'm appointed as police commissioner. We embraced totally the concept of focusing significantly on fixing broken windows quality of life at the same time, developing better, more scientific ability to deal with serious crime. The comstat system, which I Jack maple, John to many Lumina Maura, so known for the NYP D. And what was the result? Well, New York city for almost 30 straight is the country for almost 20. Some odd street is so a significant reductions in crime. By 2019, we, our city had an 80% reduction in overall crime since 1990 and 90% of reduction in homicides country overall had had a 40% reduction up until 1990 to 2019. I had predicted quite comfortably confidently that New York city would never experience a crime increase again, but boy was I wrong? I was unfortunately tragically won because New York and the country in the midst of another crime way, particularly murders and shootings, and particularly impacting on our minority communities.

Bill Bratton: (11:11)
And, uh, it, it went terribly wrong in 2018, 19, and certainly in 20 do due to what combination of things, one COVID Vivus, we still don't fully understand the impact of that. Uh, but that, that the catastrophe or that, uh, not only the 600,000 deaths, but the impact on people's lives, the stresses. So we feel that that certainly had an impact on some of the crime increases that some of the deaths, if you will, domestic violence, et cetera, but in the case of New York city, where in New York state that you and I are more intimate with, but echoed around the country, there was a criminal justice reform movement. Well-intended, I'm a reformer of, in me falling police agencies for 50 years in New Zealand, New York city was probably leading the way in 2018, 19. We had everything going in our favor, but in a legislative body in Albany, uh, decided that they wanted more significant criminal justice reform and put through a well-intended, but you'll conceive terribly constructed set of reforms, dealing with bail issues, as well as, uh, um, uh, police powers dealing with a particularly minor types of crimes.

Bill Bratton: (12:24)
The BOE act was incredibly flawed well-intended, but one of the things that did not allow judges in this state to do would say allowed to do in every other state is take into consideration. If they set bail, the likelihood that this person is going to be a danger to the public, if they are released, they're not allowed to do that here in, uh, New York state. So of all the phase that will be formed, that was probably the most significant, but additionally, uh, it is so difficult now to arrest somebody and keep them in jail. And so we're seeing in the papers every day, stories of somebody who's arrested put right back out again, vested put right back out again, commissioner Shay, the police commissioner is going out of his mind with it. And Albany is still talking about movie forms, more interest in the, if you will, the, uh, criminal than in the victim. And that's what upset the applecart year in New York city blame it on Albany and they're well-intended, but terribly, uh, uh, constructed and implemented criminal justice reform. Okay. So

Anthony Scaramucci: (13:27)
Let me play the, I'm going to put my hat on. Now. I'm going to play the radical left for a second. Okay. Which obviously I'm not, but I'm going to play it here and I want you to respond to them. So they, they feel rightly or wrongly that the, the society is to blame. Uh, and they feel that so, uh, the victim is the victim, but also the criminal is a victim of the society, institutional biases and perhaps institutional racism. And so a result of which we have to be lenient, um, in these cases and your response to that is what

Bill Bratton: (14:03)
They have a point to an extent, uh, our reformer. Uh, I understand that life is not fair for many people that, uh, in terms of economic deprivation, uh, mental issues not dealt with adequately, uh, uh, neighborhood environments that offer so many, uh, awful temptations, drugs, et cetera. Uh, I understand that as a police officer, I have to understand that at the same time, you kind of excuse away behavior and the police exists to control behavior under the law. Uh, the challenge for us is to do it compassionately consistently and constitutionally, according to the law and in terms of laws and too lenient, too strict, it's not on the police. That's on the politicians who create the laws at the moment. I think in an effort to address with the laws were too strict in the minds of many politicians. They are now trying to, uh, address, uh, readdress those issues.

Bill Bratton: (15:02)
But I think they have gone, the pendulum has gone much too far to the left. We are much too lenient on the repeat offender, even taking into account the awful circumstances that they might've grown up in. And so, uh, it was a great debate raging the criminal justice report and the way each to be debated, we need to find more common ground. And I speak to this in the book about the idea of the path, the way forward the irony was, uh, uh, Anthony, we were, we were there in 2018 and 19 that we formed crime down so dramatically in the city, racial issues diminishing use of force by police in New York city at the lowest point in the history of the city. So all the concerns about too much police use of force, et cetera, it was not happening to the degree to which the far left attempts to portray it. And in some respects, some of the media jumps to portray it. Now, uh, it, we had an Etch-a-Sketch moment, 2000, 1920 around a pandemic and around, uh, the criminal justice reform in this country in the Etch-a-Sketch moment, as we kind of erased all the reforms of the last 50 years, and then let's start over. We don't need to start over. One of the things were working

Anthony Scaramucci: (16:11)
Well, I want to ask one more question related to this. I'm going to ask you where we should go and what your recommendations are, what you do put in the book. Um, and I want to, I want to touch on the police force issue. And the media is demonstration of that, and obviously the tragic incident related to George Floyd and his death, uh, the defund, the police movement. Um, I want to get your reaction to all of those things. Please force tragic death of George Floyd, and some of these other incidents that we've seen now that are caught on tape related to the, uh, police action. Uh, and then obviously, uh, the defund, the police movement. What are your thoughts on those three

Bill Bratton: (16:53)
On the three, one of the frustrations, and one of the arguments I advanced in the book and forced, thankfully as being advanced by most people discussing this issue is we have very, uh, limited statistical information, uh, to work with that. Uh, there were no national, uh, uh, uh, statistics stuff in times to address many of these issues, but let's take, it's like the probably most accurate one ironically at the moment is the Washington post, uh, study of police shootings going back to 2015. And what that shows is between 2015 and 2020, there were an average of less than a thousand police involved shooting deaths in the United States, 990 to 241 of those about 25% of blacks, blacks constitute about 13% of our population and our, that number 22 involve blacks who were armed, uh, uh, at the time they were shot, uh, in terms of the, uh, incident Mr.

Bill Bratton: (17:58)
Yap was with this Floyd, uh, he is not in this category of shooting. Certainly he was not shot. He was basically, uh, killed in another way, but also, uh, that, uh, the idea that, uh, we need to take in a context that was numbers involving blacks that, uh, 48% of murder offenders, those who commit murders in this country, uh, black in an overall population, 13. So police encounters are oftentimes involving use of force or being, uh, having force used against them involve a higher proportion of blacks. So that might explain some of that disproportionality in those numbers. There's also the idea that, uh, police use of force has been going down dramatically over the years, that, uh, in city of New York, in the 1970s, there were over 900 shooting incidents involving new actually police officers. And on average, 50 people a year being shot to death last year with 35,000 police officers in New York city, there were 26 incidents involving people being shot by New York city police officers, the majority of them in response to being shot at.

Bill Bratton: (19:06)
So look at the decline in police shootings, just in New York city and around the country. Uh, the decline is also in a very, very significant, so relative to usual use of force, it has been going down as police are getting better trained and have been reforming on the George Floyd, uh, incident, uh, that was, uh, out murder. I talk about that in the book. I think we all agree and certain that's what he was convicted off. That one individual said policing back almost 50 years, the gains of those 50 years in the minds of particularly our black population, but the tens of millions who turned out to demonstrate with them and my, our white population, Latino population clearly believe that the police have been behaving inappropriately toward minorities. And unfortunately in some instances we have, but in the case of the Floyd incident for murder, uh, it is now, uh, basically, uh, blown up to apportion.

Bill Bratton: (20:01)
The police had been set back on their heels, and it's gonna take us quite a while to recover from that damage, even though the statistics work in our favor, in the sense of showing we're using less force, that the number of these incidents is relatively small in the overall scope of things. Uh, so the George Floyd incident on the negative side is that please back on the positive side, it is in fact, uh, basically in terms of, uh, uh, for blacks in particular, it is awakened America to the incredible frustration that community has felt. And understandably, when you look at the history of how they've been dealt with since the inception of this country, so, uh, out of the negative came a positive and as we go forward, the challenge is going to be, to try find common ground that we can effectively in the sense, uh, deal with police, that we get gain trust, again, deal with the black population.

Bill Bratton: (20:55)
They feel they are being respected and being responded to in terms of the, uh, the third issue that you raised, the idea of defund the police stupidest idea ever, uh, in the sense of an everybody from the president on down now is embracing the pushback against that idea that, uh, when you're having problems with something, you don't basically take resources away from it. And please need to be refunded, not defunded. We need so much more training, so much better qualified offices, and it's going to cost money. Uh, police are supportive of the, uh, defined movement in the sense that we don't want to deal with the metal wheel. You don't want to deal with the homeless. We don't want to deal with the narcotics offender. We don't have the training or the skills, the expertise with six months of training and a police academy to deal with that.

Bill Bratton: (21:43)
Let somebody else handle it, who has more skills, but is our government a society going to be willing to bear that expense? I'll be willing to bet. No. Cause for the last 50 years of my time in policing, they have dumped it on police. Why? Because they don't have the answers. They don't have the answers for mental illness. They don't have the answers for drug addiction. They don't have the answers for homelessness. So they talk a lot about it. It's all money around without understanding how to effectively use it and who ends up cleaning up the mess, the police. And so we're now being faulted for something basically that our political leadership, both Republicans and Democrats, it feel that for 50 years and my prediction at this point in time, this inflection point is they may fail again. Because even though we're talking about spending trillions of dollars on issues in this country, how much is going to be spent to hire thousands of social workers, thousands of mental health experts, reopen hospitals and institutions for the mentally ill have meaningful drug treatment for the narcotics addicted to find homes for the homeless. Uh, it's not going to happen overnight and who's going to have to deal with in the meantime, the police. So we need more funding less because we're going to be dealing with these problems for years to come. Awesome.

Speaker 4: (22:58)
Well, I love the way you speak about

Bill Bratton: (23:00)
That. Long-winded answer. No,

Speaker 4: (23:04)
Not at all. I wanted to let you keep going because I think it's so insightful. And I think that, uh, I love the way you speak about it, frankly, we need more voices of advocacy for this sort of common sense. I think

Bill Bratton: (23:16)
That'd be good. I advocate for the police. I don't have to offend them. Some things we do, uh, indefensible, but I don't believe we need to defend the profession. I think the profession, its activities, reducing crime disorder is less something that we is speaks for itself, but I advocate for what they need to do even better. And so this is a great time to be on a soap box advocating. So I appreciate the opportunity to be on this show with you to advocate on behalf of the police, we got to do more of it. And so, and the

Speaker 4: (23:44)
Book is well timed. We've got to get this book in the hands of many people, uh, commissioner, but I wanna, I want to switch gears for a second and talk about the future. So where are we in five years in some of these cities like New York, uh, what do we do? What's your recommendation if I, if you were installed right now as our domestic polices are for the United States, uh, obviously I'm New York centric, but I mean, talk about it more broadly. What would be some of the recommendations? I know you put some of them here in the book. I want, I want you to tell, tell people what you think

Bill Bratton: (24:16)
The, the irony is that, uh, over the last particularly 20 years, but over the arc of the 50 years, they wrote about in the book, we have been progressing. We've been getting better at this. Uh, you're not gonna solve the race problems in America without basically, uh, uh, engaging the police in it because the two are so intertwined that naturally talk about in the book. And so we need to find ways of getting police close to the community. And we were doing that until the last year or two. Unfortunately the, uh, seismic change in that last year or two has been so dramatic, so profound that it's not going to take a year or two to fix it. You done did all those 30 years of reform that I was very involved in a New York city, Los Angeles so much that was wiped away in the light of the loss of trust and the regeneration of a black anger at government and police in general going forward.

Bill Bratton: (25:10)
Uh, there was no quick fix that, uh, New York city debates are being held about the mayoral candidates. Uh, that next mayor is going to basically have a tough time and who it is because these issues are not easily resolvable, but they are going to require police involvement. We are the essential reality in government, in democracy to hold it all together. We are the glue that holds it all together. So rather than abolishing us, rather than the funding us, we're going to have to effectively strengthen us, but strengthen us based on where it experiences that John chimney, the late great John too many, my first deputy commissioner, uh, great, great cop, uh, died much too young. You only had an expression, uh, something that affected, uh, those who don't know history are doomed to repeat it. Those, you know, those who study cops know, we don't know why history and that's so true that we don't even learn from my own past.

Bill Bratton: (26:03)
And what I've tried to do in this book is educate not only the public in general, but my own peer group, about the history of police. When we got right where we got mom, we got so much right in the last 20, 30 years, but it's been undone to the great degree. I'm an optimist. I wouldn't come to the art to take over the subways in 1990 and work with Rudy Giuliani in 1984, go to Los Angeles, the most racially torn to basis city in this country in 2002, I was not an optimist. I'm an optimist about coming out of this prices, but that optimism is in a sense, uh, uh, framed by caution in that, uh, there's so going on in this country politically at the moment that, uh, those tensions are going to impact significantly on the tensions around recent police. So what's happening externally, the right, the left, uh, uh, the, uh, Republican democratic differences, uh, if they can't find common ground to talk, it's going to make it much more difficult for us to find common ground to talk. Well,

Anthony Scaramucci: (27:07)
I think it's very well said. I mean, I'm not, I'm not saying the Adams,

Speaker 4: (27:10)
Uh, the very famous, uh, New York post gossip columnist, I read the article that you were in this weekend, uh, where she was asking you about the different candidates. Um, but I do agree with you that whoever takes that spot is going to be in a tumultuous situation. Yeah. And, you know, I think, I think, you know, this, and I know this, that the engagement rules under mayor de Blasio have changed with police officers and the homeless. And obviously that's come coming from Albany as well, but it's been generated by the Blasio and the city council. Uh, it's going to take a lot of work to reverse a lot of that stuff. If

Bill Bratton: (27:49)
We want to do that, there's an irony there. I was obliged. He was first commissioner worked with them for three years, advised him in his run up to the, uh, mayor's race, uh, a great success with him. He was supportive of survivor appeal, crime and disorder, uh, funded me incredibly well, particularly after the murder that I talked about in the book of, uh, detectives Ramos, Lou, uh, in the midst of all of the racial prices

Speaker 4: (28:17)
That was in Brooklyn of the police officer was shot through the window. It's a very controversial thing that happened. They both died.

Bill Bratton: (28:25)
And, uh, at the, uh, funeral Nulogy for one of them, I talked about the importance of seeing each other, that not, you see somebody in a blue uniform or a black face, the idea to see each other. You know, I, I had very good luck with the Blasio. Those first three years, prime went down, the enforcement levels went down. Uh, so what happened the last four years that, uh, that the wheels came off? The vehicle that I was in those first two years, I know my successes, uh, having a very tough time dealing with city hall, the city all has embraced the evil fathers to the left, uh, uh, issues that Albany is embracing. I was encountering that, but not to the extent that my successes have been having to deal with it. And I think, uh, on much too far to left to me, the wheels came off the car. And so the car is just not moving forward at the pace it was years ago.

Speaker 4: (29:20)
Well, yeah. And you talk about it, you know, it's a, it's a pragmatism it's, non-ideological, the book is really about addressing things from a right or wrong perspective as opposed to left or right. You're also racially sensitive in the book, which I admire. Um, you're, you're speaking to a 21st century audience, uh, that we want to be sensitive to, but at the same time, uh, we can't allow reckless crime or petite crime because it destroys the quality of life of everybody. And it makes everybody frightened. I was outside the garden last night and you know, I've been to him.

Bill Bratton: (29:56)
It must have been there must have been kind of touchy after the loss.

Speaker 4: (30:00)
Yeah, well, I was, I w I, uh, I was outside the garden before the game and I was outside the garden after the game. It was, uh, it was a rock night obviously, but, uh, the garden did not feel the same to me. Didn't feel the same entering the garden, uh, homeless people, obviously people with mental illness in the area around Penn station, uh, quite reminiscent of the late eighties, uh, before you took over with, uh, mayor Giuliani. And, uh, it, it, it gives me great sadness commissioner because, uh, you don't want to even see the people like that. You know, we want to figure out a way as our society, you know, we're Richard up society, where we should figure out a way to help those people as well. I'm not exactly understanding the radical less position of leaving the people on the street. I, I guess they feel that they have a civil Liberty to do that. Uh, but it is infringing upon the rights of others. Uh, we have to figure it out.

Bill Bratton: (30:56)
I didn't take care of them either because they're not being dealt with correctly for their emotional issues or drug addition. Uh, there were two boards that were very influential for me that speak to what you're talking about. One was Fred Segal's book. The future once happened here talking about the Lindsay years. And in some respects, we're repeating the Lindsey is of the late sixties, early seventies in that the era of the early seventies. We're now starting to see that in a significant wage, 2021 here in New York and seagull. Uh, basically I read that book coming into New York when I was coming in as head of the subway police. And, uh, I, I took it to heart. The second book that influences me, it goes back to my hometown where you went to school, Boston in the seventies. Uh, I never thought as a young cop Sergeant superintendent, that department that Boston would ever straighten out from this racial turmoil was that bad in the seventies, but in his book, Anthony Lucas, common ground, you will wonderfully, I think you got a Pulitzer prize for it.

Speaker 4: (31:57)
He spoke at Tufts beautifully. My senior year [inaudible] was a Boston globe columnist. The book common ground was amazing story about re knitting the cultural ethos of Boston, black and white.

Bill Bratton: (32:13)
And look at Boston. Now in the sense of south Boston, it's not the south Boston and Charlestown of the seventies. Uh, it's now a yuppie bill. Uh, Boston has a black mayor, a black police commissioner. Uh, you can add a Carson beach that, uh, we're a black did not go for fear of losing their life. Uh, it's very mixed down through south Boston. So I look at Boston, I look at Los Angeles in many respects that the changes that occurred during my time. Yeah. So that's why I remain optimistic. But this time, despite, uh, if you will, new generations who were more sensitive to the issues of race and economic disparity, uh, it's going to be difficult, uh, because we are so polarized around the politics now, much more so than we were back in the sixties, seventies for that matter into the nineties, look at the crime bill.

Bill Bratton: (33:02)
Uh, I know a lot of people don't want to pay from the crime bill of 1994, but their crime bill had the assault weapons ban a hundred thousand more cops. It had criminal justice research, drug treatment. Uh, it basically helped turn around that crime problem for the next 20 years. And trying to find that type of consensus. Now, I can still remember being with Rudy Giuliani, lobbying new Kendrick speaker of the house to support president Clinton's crime. Bill said, Hey, every Republican mayor with his police commissioner lobbying, there'll be public and speaker of the house who was basically at war with the president, but they found common ground on this issue. I'd love to see that happen with the current Congress that I don't hold out much hope for it, but it's a hope Springs eternal. Yeah, no, listen to me.

Speaker 4: (33:46)
We're, we're, we're up against it now. Hopefully, uh, wisdom will prevail and there'll be less of an ideological struggle. I've got a few last questions for you commissioner, if you don't mind, uh, do you worry as a pragmatist and an intellectual and a historian that the pendulum could swing? I think that title

Bill Bratton: (34:06)
Intellectual that's the first time that's been applied to me.

Speaker 4: (34:11)
I'll keep that one. I think that intellectual ism with that, that townie accent of yours, I got it. Okay. I, I, I get it. You know, I grew up in a blue collar neighborhoods. I tried to do the same thing, but I notice I'm still wearing my blue color, so yeah. Yeah. And you, look, you look good in it too, so, okay. So, so, but do you go, does it go too far, meaning that, do we get past a tipping point where we can't pull it back?

Bill Bratton: (34:38)
Uh, that is the risk. And at the moment, the pendulum that I speak to in the book, the arc, if you will, the bending of the spring, uh, it's still going in that direction, but there's a couple of hiccups that are occurring, uh, that, um, uh, optimistic about. Uh, it's ironic that the tragedy of crime is going to be one of those major hiccups to stop that pendulum swing people are now coming out of the virus fear. And now basically seeing that there is another virus that's been growing in America, unchecked, continuing this summer to grow on check, that's going to scare the hell out of them. Won't take the lives that the virus took, but it can have tremendous economic and racial impact on the country. So I think the pendulum is going to still keep going to that left, but it's starting to stutter.

Speaker 4: (35:29)
So, so this is my last question are then we'll tie it up, but, uh, I have to get to it because you write about at the end of the book. Uh, and it's just interesting. We have these domestic situation going on right now. Uh, but you've been battling, uh, the police local state and local police have been battling and working with the FBI and the CIA on counter-terrorism. Um, and I want you to address that for us. Could you talk a little bit about the, uh, current terror threats in your opinion and, uh, where they lurk and what we need to be doing about that through analysis technology, et cetera,

Bill Bratton: (36:04)
That, uh, one of the things that changed from American policing on nine 11 was that prior to that time, we dealt with crime and disorder. That's what I dealt with in New York on the subway, in the streets in Boston, uh, my successor, Ray Kelly, the new mayor Bloomberg, they had to deal with terrorism, American policing for the first time had to deal with this broad-based terrorist threat that, uh, Al-Qaeda referenced, uh, are created. And then come on, comes ICS. When I came back in 2014, kudos to commissioner Kelly in terms of what he built for the city of New York and extraordinarily robust, probably the most robust in the country, if not the world that kept the city safe for many years, even while he was keeping crime going down, we have different management styles like critique him on a stock question first from the book.

Bill Bratton: (36:49)
But on this issue of terrorism, you cannot fault him in the sense that, uh, he and the mayor kept the city so safe, but that's the one of the new challenges for American policing. In addition to crime and disorder, we now have the new crimes of terrorism, the new crimes of cyber, the new crimes involving drones, the new crimes involving data theft, uh, the 21st century challenges, uh, a phenomenal compared to what I dealt with the first 30 years of my career, and to address them, we are going to need, we funded police better to train police with a lot more expertise and a lot more areas. That's why the foolishness of defund the police, uh, in the, uh, the, the heat of the moment, amount of race issues. We need to refocus reform the police, but we also need to reorganize them to be more robust, to deal with the 21st century challenges, which are still out there. We're seeing all these cyber attacks. Now, some of them coming out of Russia, but if you get the ICS of the world, uh, and the [inaudible] of the world that develop those capabilities, we're really in for it.

Speaker 4: (37:53)
Well, it's a phenomenal book. You write about all those and more of there's optimism in this book, which I love, and it takes a blue collar intellectual to recognize a blue collar intellectual

Bill Bratton: (38:06)
Bills. Okay. Very good there. Okay.

Speaker 4: (38:10)
But God bless you for writing it. I look forward to seeing you soon. We'd love to obviously get you at our live events and salt. Uh, and the book is the profession and memoir of community race and the arc of policing in America by bill Bratton, bill, thank you so much for joining us. Thank you so much. And a pleasure.

John Darcie: (38:28)
Thank you everybody for joining today's salt. Talk with commissioner, bill Bratton, talking about his new book, the profession and the arc of in America. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on our website, uh, on demand@salt.org backslash talks or on our YouTube channel, which is called salt tube. We're on social media. Twitter is where we're most active at salt conference. We're also on LinkedIn, Instagram, and Facebook. Uh, and please spread the word about these salt talks. We think this issue of policing and how we can reform, uh, what is a really complex topic, uh, is very important. And so please share this salt, talk with your friends, with your family. We think it's a very important topic, but on behalf of Anthony and the entire salt team, this is John Dorsey signing off from salt talks for today. We hope to see you back here against them.

Alex Rampell of a16z: The Future of FinTech | SALT Talks #223

“I think there are trillions of dollars in market cap for financial services, insurance and real estate. All of these industries will be upended by the Internet.”

Alex Rampell started his career as an entrepreneur and founder and explains how that helped him succeed in his transition into a VC investor. With expertise in FinTech, Rampell discusses the outdated models of financial services, making it ripe for disruption. Entrenched incumbents in the financial services space will ultimately need to innovate in order to fend off the wave of start-ups. Rampell also explains the huge opportunity for tech companies using a new money-making model called embedded finance. He talks about the inevitable digitization of wallets and an increasingly friction-less financial processes. Lowering regulations for start-ups to receive bank charters will be critical to increasing healthy competition.

LISTEN AND SUBSCRIBE

SPEAKER

Alex Rampell.jpeg

Alex Rampell

General Partner

Andreessen Horowitz

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

3:10 - Moving from entrepreneur to investor

9:18 - Evolution of FinTech and its disruption

20:57 - Ability for big banks to innovate

25:28 - Embedded finance

38:40 - Digital wallets

45:59 - FinTech regulation

John Darcie: (00:08)
Hello, and welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Saul talks are a digital interview series with leading investors, creators and thinkers, and our guests today actually fits sort of all three of those descriptions, but we'll get to that in a second. But our goal on these talks is the same as our goal at our conferences, the salt conference, which we're excited to resume in September of 2021 here in our home city of New York. But that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited that I'd welcome. Alex Ram Pell to salt talks. Alex is a general partner at Andreessen Horowitz, a leading venture capital firm, where he focuses on financial services.

John Darcie: (01:01)
He has a long history of both founding and investing in leading financial services companies, including currently serving on the board of branch bright side descript, divvy, Earnin FlyHomes loft, mercury pier street point propel central link, super evil mega Corp. My favorite, uh, TransferWise and very good security. Alex, additionally led the firm's investments into open door plaid Quantopian, which was later acquired by Robin hood and arrival, which was later acquired by it live nation prior to joining Andreessen Horowitz, Alex co-founded multiple companies including affirm, uh, which is a leader in the buy. Now pay later space, uh, that he co-founded with max Levchin a fraud eliminator, which was acquired by McAfee in 2006 point TrialPay, which was acquired by visa in 2015 TXM, which was acquired by Envestnet in 2019 and YAB, which was acquired by coupons.com in 2013. Uh, Alex holds a bachelor's degree in applied mathematics and computer science from Harvard university. And as I mentioned, I think he's one of the foremost experts in the best investors in the world into the financial services sector with a focus on FinTech hosting. Today's talk is Jason Zinn's, who is a partner at SkyBridge capital who leads a lot of our FinTech investments, uh, that we're engaged in at SkyBridge. Uh, and he's also a contributor here on salt talks, I think making his second or third appearance, but we're excited to have Jason joining us again here on salt talks. Jason, go ahead and take it away.

Jason Zins: (02:35)
Thanks, John. And thank you Alex, for, uh, for joining us today, excited to have a discussion around the future of FinTech. And before we dive into some of the relevant topics today, I want to start quickly with more of a personal question. You have extensive experience as both a founder and operator, as well as more recently at Andreessen with, um, with, with more of an investment role. Um, so touch on, if you can, some of the differences in skill sets required for those roles, as well as perhaps some of the similarities or the senators choose between

Alex Rampell: (03:08)
The two. Sure. I mean, and hopefully the synergies, uh, are pronounced, but there are some people who are great investors in terrible entrepreneurs and vice versa. Um, when our firms started a lot of the logic behind getting founders CEOs as the investors is because they're going to have the most empathy. Like if you, if you take somebody who's a spreadsheet wizard and they say, Hey, let's make C1 that sell higher. Um, what does that actually mean? Like at a company, how do you actually increase your gross margin by 5%? Or how do you launch a product if you're relying on a bank to okay. The entire approval process and you know, one of the nice things about being an entrepreneur is that having been in the trenches and like, okay, when crap happens and everybody quits one day, because they got higher offers for Facebook or, you know, all the kinds of things that are the ups and downs of being an entrepreneur.

Alex Rampell: (04:00)
It's nice when you have that experience. So again, you have empathy for the entrepreneur. So when you can help them through that situation, because really we are, we are trying to not just provide capital, but actually expertise know-how and advice to the entrepreneurs that we work with. And it's kind of hard to do that if you haven't done the thing that they're doing right now, but that haven't been said, um, like the most, the most important thing from an investment perspective, it's just like find the best investments, um, you know, find the best investments. And like the job of investing is the most venture capital is finding, picking, and winning. And it's obviously very different than public equities because of public equities. There's no winning. Like if you want to go invest in ticker symbol XYZ, you just go buy it. Whereas a lot of the best deals in venture capital tend to be a consensus, right?

Alex Rampell: (04:47)
So if you think about a two by two of right versus wrong consensus, non-consensus, you can't make money being wrong. You know, it doesn't matter if you're in public equities, private equities, if you're wrong, you're wrong and lose all your money. Um, in public equities, you obviously want to be right. But if your consensus, right, well that might already be priced in. You're not going to get a great return. So you want to be non-consensus right. Whereas a lot of the best deals in venture capital, they're almost known to be very, very interesting deals. Like, you know, Coinbase was known to be a very, very interesting deal. When we did the series B of that one, many, many years ago, we had a win that deal. So that was consensus. Everybody wanted to do it, we had to win it. And one of the ways that you win it is just from like, you know, you're, you're pitching yourself as the product.

Alex Rampell: (05:30)
And again, it's helpful if one of the areas of expertise that you have is that you've actually done this job, that this entrepreneur is working 20 hours a day doing. So, so I'd say like, they're, they're very different, but, um, there's definitely a lot of benefits in terms of just understanding the complexities, if you will, of, uh, what ended up going into the financial statements as the output, um, if you've actually worked on the inputs, then it's, it's a nice, uh, it, it gives you some of understanding of the struggle for one, but also it's like, wow, like maybe that isn't as easy as the guy is suggesting. It might be because I've done that before. And it's really complicated.

Jason Zins: (06:08)
So having some empathy with the founder across the table from you has been helpful in, in winning deals, which seems like it's an increasingly important part of venture investing today. I think one, one part I just want to highlight is it's not just identifying the next great investment. It's winning that investment and getting the company to actually agree to take your money. Is that something that has evolved and gotten more challenging or more apparent of late as more money has come into the space?

Alex Rampell: (06:36)
No, absolutely. I mean, once upon a time there were only, I don't know, three venture firms, right? I mean, if you go back far enough in time, there was probably zero venture firms, then one and two and three, but we're at a time right now where there's a lot more capital than there are great opportunities. I mean, just because think about today 2021, the five biggest companies on earth are tech companies. You rewind 15 years. It was financial services companies before that it was oil and gas companies. So like the, the big area of explosive growth is in technology. All of that's been the case since mankind first invented fire. I mean, technology has always moved us forward. There's always interested in technology. It just comes in many different forms and sizes. So now it really is a it's kind of a sellers market. I mean, the seller gained the seller of, of shares in companies, namely entrepreneurs.

Alex Rampell: (07:23)
So they have a lot of choices around who to work with. Um, at the same time, the, the outcomes have gotten much bigger, which is why, you know, what is called venture capital today is, is a bigger asset class in many respects than it was in the past. Because, you know, once upon a time, if you sold your company for $400 million or $500 million, that was a big exit. And in that era, you'd have funds that were relatively small. I mean, now you have companies that when they go public, they're worth tens of billions of dollars. And it's not just all, um, bananas like 1999. You know, some people say that because there are real people using the internet. I mean, 4 billion people have smartphones, um, apple, Google, like these are tech companies that print cash. They're not just attracting eyeballs and hoping to monetize them later. So that's, what's led, I mean, know, take 0% interest rates and everything else. Add that to the mix. You have a lot of interest that's going after the sector, which has made it more competitive, which is great for entrepreneurship. I mean, it, it, there's probably no better time on earth to be an entrepreneur.

Jason Zins: (08:26)
Well, we, we, uh, certainly have picked up on some of those dynamics in some cases, are, are I guess, guilty of, of coming into this space as new entrance. We've been a little more active in, in the private markets, um, specifically on the FinTech side and, and our view has been really post pandemic. Uh, that was really the catalyst that has now accelerated much of the disruption that we're seeing. And while there's been disruption going on for, for many, many years now, financial services, unlike other sectors is arguably been the most resistant to change. Um, you have an interesting, I, I assume an interesting perspective on this because you've been in the space, uh, for much, much longer. And so when you zoom out and you think of how FinTech has evolved over the years, but really more specifically pre and post pandemic, uh, what are your views on that?

Alex Rampell: (09:19)
Yeah, well, FinTech, it's funny. Um, I gave a presentation a few years ago and I said, you know, what is FinTech? And if you were to ask people 20 years ago, it would have been selling tech defense. And I highlighted this by showing a map of the world and I highlighted Finland, but it's not fins with two ends like Finland. I mean, it really was selling technology to financial services firms. So FIS Pfizer, TESIS like, these were a lot of the original financial services companies or fi FinTech companies, right? They were software companies selling software to banks. Um, so like, you know, somebody like TCIs, uh, that was part of, I believe Synovus was part of a bank. Banks said, Hey, we need software to go actually issue credit cards and deal with like how much balance and whether or not we approve this transaction on the fly.

Alex Rampell: (10:04)
They built that internally. And then they ended up spinning that out into a separate company called TCIs was worth tens of billions of dollars before it itself got acquired. And that was the original kind of gen one and FinTech. And now FinTech is not, it's kind of like what you've seen happen with software. Like 20 years ago, you could have had a Lyft or an Uber, but when the amount of capital available was low and risk-taking was not extreme. And I mean that in a, in a negative way towards Ben in a positive way towards now, what would Lyft or Uber have become? They would have been taxi dispatch services. It's like software, very high margin software. They just sell that software to taxi cab companies. But the whole experience would have been terrible. And of course, taxis are still terrible today, but Uber and Lyft have really changed that industry.

Alex Rampell: (10:51)
And if you think about where I'm going with this metaphor, it's all right. Uh, we're going to build a software company, a FinTech company that sells software to banks, but banks suck because if you want to go transfer money from, I don't know, dollars and send it to the UK, you have to go to the bank of America branch and wait in line for two hours and then fill out all these forms. And then they screw it up and they get like a decimal place wrong. Then you have to go back and do it again. I mean, like, this is the kind of stuff that you have to deal with with the bank and just having software wouldn't make the entire experience better. What you've got to do. If you really believe in the software that you're building is you vertically integrate. You say I'm going to be my own customer.

Alex Rampell: (11:29)
I'm not going to, I'm not going to wait five years to sell bank of America on something that they don't want. And they don't really care because they have this like nice little oligopoly going, like I'm going to crush bank of America. So, you know, somebody like chime today. I really admire, we're not an investor. So this is a genuine admiration. Somebody like chime, like they built a lot of software and you know, what would they have done 10 or 15 or 20 years ago in one point, oh, well, they probably would have sold that software to banks and said, Hey, kind of like what digital insight does or what Jack Henry does. Like, you know, make software that banks buy. But again, Jack Henry is a very valuable company, but if you want to make the experience much better and say, Hey, you can get paid two days early, um, or no overdraft fees, um, or really take, take advantage of the cost advantages of the internet, right?

Alex Rampell: (12:16)
I mean like, what is COVID done? It's like, why the hell would you go to a bank branch? It was kind of comical to me like when the government is just kind of like flippantly shutting down X versus Y. And it's like, who knows? Like why is the wine store open? But the gym that actually makes you healthy as close. It's like who the hell knows it doesn't make any sense. But the thing that is a absolutely necessary thing that has to be open all the time is a bank. Really? This is the 21st century. What do you do in a bank? Like, do you need to try on a mortgage? Like, it makes sense to buy clothes, maybe offline, but even ask moving online. So I just think the bank branch is an anachronism. All of these banks are really tied into this. Very, like I w I wouldn't even call it 20th century.

Alex Rampell: (12:53)
It's like 18th century notion of it's like physical presence is what gives you the right to go offer financial services to your local community. Like, yeah, that made sense in the 18 hundreds where you stored your gold in a safe, and then the bank guarded it with like guys with guns. That's not where the world is today. I mean, cash is going away. There's really no reason to go to a bank. Branch and banks are really clinging onto this old fashioned technology. And then there are other areas of financial services, like take insurance. Like, do you really want to get sold insurance by an agent who like, wants to talk to you on the phone if you're 30 years old? Like, no. Um, and this is one of the jokes that I make, which is if you're under 30, do you know what the least used app on your phone is?

Alex Rampell: (13:34)
What's called the phone app, right? It's like the one where you actually talk to people. So there really is a generational divide, which is one of the other reasons why you have this massive, uh, once in a generation opportunity, which is, you know, I would say if you're under the age of 30 or 40, people just want to buy things in a different way. They don't want to talk to a salesperson. They just want to point click purchase. And then on top of that, you have the geographical opportunity, which is, you know, take Nigeria 200 million plus people, almost all of them now have smartphones. Like a smartphone is 40 bucks, uh, that is now a bank. So a lot of people that were skipped over for getting offered financial services, whether it's investments or interest bearing accounts, or just digital money. So, you know, if you live in a country with a massively inflationary currency and you want to go swap it to dollars, wouldn't it be great.

Alex Rampell: (14:20)
If you could do that online, you don't have to go to a branch. You don't have to go like, wait in line. You don't have to get robbed while you do that. Like, these are all things that technology is moving forward. So, I mean, I think there are trillions of dollars of market cap in what I would actually more broadly define as a fire it's financial services, insurance and real estate. Like all of those different industries are going to be upended by the internet. They haven't been historically, but, uh, the, the, the Internet's coming for you would be my message for most, most, uh, bank and finance executives. W w

Jason Zins: (14:49)
W we certainly agree that, um, you know, you've, you've absolutely seen a post pandemic, uh, really a, a massive decline in people going into brick and mortar banks moving to manage their finances. Online. Chime is a great example. W w we happen to be an investor in chime. We're very excited to see where that company goes. It almost seems like chime. And the other big fintechs are finally starting to sort of bully some of the big banks and the incumbents into submission. I think just this week, a few of the, um, the bigger, uh, banks announced that there'll be stopping overdraft or account balance fees. So, um, perhaps you're starting to see that continue. Uh, and that's a concept I want to come back to in a moment, as far as how, uh, the banks are responding, but, um, to be blunt, do you, do you think FinTech is going to do to the big banks and financial services, what Amazon did to retail over the years?

Alex Rampell: (15:45)
Well, it's complicated. So, I mean, I, I don't want to write off the banks all together. And a lot of what they have going for them is, I mean, they have higher operating costs in terms of the bank branches. They have 5,000 people working in compliance when they could just write their own software, if they had competent software engineers, and then, you know, do it at a fraction of the cost. But what is, what does JP Morgan have as an example? Well, JP Morgan has over a trillion dollars of retail deposits and how can any FinTech company that is not a charter bank have a lower cost of capital than JP Morgan? Like they can't. So when you look at things like lending, it's like, okay, well, the cost of maybe originating alone or servicing a loan, all of these things will be cheaper for the financial services upstarts, the FinTech guys, but the cost of capital is just massively, massively lower for the entrenched incumbents.

Alex Rampell: (16:40)
Um, and part of that is just a regulatory thing, which is like, why not make it very, very easy for every one of these fintechs to become a bank? Um, because like you, you can't be an eBay for money, if you will. Uh, if you aren't actually able to take deposits and use those deposits to fund your loans, to do that, you have to be a bank. So that's the big advantage that the banks have, the big disadvantage that the banks have is that they've got bad technology. They have entrenched P and L lines. Like you mentioned the overdraft thing, like I think bank of America made over a billion dollars last year on overdraft fees. So they've got a guy or gal or somebody who's in charge of the P and L for overdraft. And it's like, right now, it's a P like, why do you want to turn that into an L?

Alex Rampell: (17:24)
Um, and you take, you take away enough of these things that are right now, very big profit centers. Like you've gotten a business and you have a cost structure. That's very bloated as well. So, I mean, if you're running bank of America or Citi or chase or any of these, you should probably figure out a way within two years to completely exit branches, go digital, only offer digital service. And if you can do that very, very quickly, and you're making most of your money on net margin, and then you as a bank, I mean, this is where Walmart beats Amazon, right? Because the challenge with Amazon versus Walmart is kind of two-fold one is that there's no way in hell Walmart's ever going to advance an Amazon web services. So like the optionality on product expansion for Walmart is basically nil. Um, and they have this physical footprint, but the physical footprint for Walmart I would argue is actually valuable.

Alex Rampell: (18:12)
Like they don't, they're not renting like class, a real estate at a hundred bucks, a square foot a year. Like they find these giant warehouses. They actually double as fulfillment centers. Like there's a lot of advantage there, but there's not like this. There's not an analog of this cost of capital piece. That is the key input to net interest margin, which is where banks make a disproportionate amount of their money. So I don't think it's as black or white as that, but in terms of where Americans might have their primary financial relationship, like where does the direct deposit of payroll go? There's a higher and higher chance that that's going to go to a FinTech player. And then there's also this chance that what you think of as a FinTech player is completely different. And what I mean by that is more in this kind of embedded finance sense.

Alex Rampell: (18:58)
So if I'm Lyft or Uber, you know what I should do to retain all of my drivers that currently have left me, and that's why it's hard to get a Lyft or an Uber right now, I should just give them free bank accounts. And that doesn't mean that I'm opening the bank of Uber or the bank of Lyft. I should find a way to white label and account, um, deposit money in there in real time, give them a card because that's one of the ways that I retain them as a user. I get a percentage of all of their staff. That's what interchanges, that's how chime makes all of their money. So you'll probably see more of these things, but then again, when it comes back to the most profitable Motherlode of, of, of banking of, you know, net interest margin, when, when times are good, um, it's, it's harder to see a clear path for how the fintechs really dominate that space without becoming a licensed banks.

Jason Zins: (19:44)
No, absolutely. So it'll be a little more nuanced and it'll be interesting to see which fintechs go, which route as far as you know, lending certainly is, is an interesting one where balance sheet is helpful. I think you also identified some of the clear issues with the bank business models, which I'm sure inside of these big banks they're well aware of as well, right? The cost structure that's eaten up by their real estate footprint, uh, the P and L it's driven by charging customers fees, which is a big reason why they're going to fintechs like chime. Um, do you think that there's enough Goodwill, uh, within, or, or willpower, I should say, within the banks to innovate and get past, uh, the inertia in their business structure, the bureaucracy and the politics that goes on inside these banks? Or is it just going to be a slow bleed and, and, you know, certainly some, some may innovate, right, like impossible to ever bet against Jamie diamond at JP Morgan, certainly visa, which, uh, which you've worked at is, um, has been innovating acquisitions and new products. Um, but broadly, do you think, do you think that the big banks, the incumbents are going to be able to innovate in the ways that they need to?

Alex Rampell: (20:58)
Yeah. I mean, there's a saying that I use a lot, um, which is the battle between every startup and incumbent is whether the startup gets distribution before the incumbent gets innovation. And I think it's part it's true for everything, but it's particularly true here because to go get access to millions and millions of, um, uh, customers like to get them to switch from a direct deposit at bank of America, to this unknown company called chime, that loses money, like, you know, w would my grandmother who, you know, throughout the great depression, which she put money at a bank, like, like chime or a non-bank light shine, like probably not. So to win people over takes time. Like, that's the thing that people kind of underestimate. I mean, like which, which I have a lot of exp, like you asked about the entrepreneur experience, it's like, wow, like it's really hard to acquire customers on the internet.

Alex Rampell: (21:47)
It's not hard to give away money on the internet to go get when over Casper is get them to deposit their life savings. But I feel like that kind of stuff is very, very hard. Um, so, and it's not like this, um, this, this is not like, you know, blockbuster, that's going to get run out of business by Netflix. It's like JPM has many business lines. One of which is retail. Like if, if retail suffers and loses 5% account volume, but really only like the tiny accounts that kind of complain about overdraft fees and everything else, it's like, it's kind of a non-issue for them. I mean, it's an issue, but it's not, it's not existential. Whereas when people start buying an Amazon, like that is an existential problem for circuit city or comp USA, or any one of the, you know, a hundred tombstones that now lie on the intranet graveyard or the kill by the intranet graveyard.

Alex Rampell: (22:34)
So I, I think it really, um, I think it's a little bit more nuanced than that. Um, and you know, the, the big is to their credit. They are moving more towards this, uh, digital first embrace. But I, I gave a talk at a big bank maybe three years ago, and I had this whole thing where it's like, I start off with this sat analogy, which is, you know, Walmart is to Amazon as, you know, XYZ bank that I was talking about is to what, and they're like, can you take that out? Because we have a question here, charge of expanding our branch network. And I was like, no, I'm not going to take it out because I don't think you should be expanding your branch network. It doesn't make any sense. And they're like, no, but like, we actually, we saw that in places where we have more branches, we get more accounts and it's like, you know, there there's this thing called correlation.

Alex Rampell: (23:17)
And there's this thing called causation. I would make sure there was a causal relationship between the two before you, uh, before you go all in on this like correlation thing. So I, I think they'll, they'll get with the program eventually. Again, it's not, it's not an existential threat, but I could see like this and actually like in, in their defense as well, like they have to serve not two masters, but kind of two different age groups, if you will, which is, there are people who are 75, who if they're like, Hey, if I have a problem with my bank account, I want to go into a branch and talk to a person. And they're like, Nope, Nope. You got to, Hey, by the way, who has all the money in America? It's not people that are 15, right? It's not people that are 20. So there is this generational thing where like an older bank actually has to serve two different demographic groups.

Alex Rampell: (24:00)
One of which is probably very, very comfortable going to bank branches. The other one is like, why the hell would I do that? So, and obviously if you're, if you're a new upstart, you're just like, you know, to hell with the people that are rich, that have, you know, millions of dollars in, or 75 and older, I'm just going to focus on people that I don't have to go build a physical presence for it. But you know, that, that had been said, I think they all have apps. That's kind of proof in and of itself. It's not like they haven't gotten with the program, but they haven't gone all in on that as a strategy. Whereas that is the all-in strategy for all the FinTech guys.

Jason Zins: (24:29)
And it seems like to, to pick up on a point you just mentioned, and in many, in many cases, the banks versus the fintechs are serving different demographics, different constituents. And it'll be interesting to see as, as that continues to play out and that expands, and then they really start to play on each other's turf. Um, how, uh, how, how, how they react, hopefully it's ultimately the consumer that, that will benefit from, from that competition. Um, I wanna shift gears a little bit and pick up on a concept that you mentioned in one of your comments a moment ago, this idea of embedded finance, um, which is an idea that you and your colleagues at Andreessen Horowitz has been talking about for, for a number of years, um, sort of this notion that, uh, all companies will be FinTech companies. Can you explain at a high level, uh, what, what that concept means? And, and you touched on an example already, but if you could sort of hammer that point home, because I do think it's a very important trend that we're seeing.

Alex Rampell: (25:29)
Sure. So I'll, I'll start with a little joke, which I like, which is, uh, there, there are two pigs in a barn and one of them says to the other one, like this place is great. Everything's free, the food's free, it's heated. And then the caption underneath the little cartoon says, if you're not the customer, you're the product being sold. We see that the pigs were about to become vacant. Um, and effectively, there are two ways of making money as a consumer company. You either sell a product or sell a transaction or sell a subscription to a consumer. So like Peloton, they're selling you a subscription. That's very, very clear, or you are selling the consumer to an advertiser. So Facebook they're, you're the product. Uh, and you are the customer of Facebook, but not really not financial, you're not paying anything you're being sold.

Alex Rampell: (26:12)
The impression that's being offered to you is being sold to an advertiser. And those are kind of like it's option a or option. Do you even ask people when they're pitching us? Like, how are you going to make money? Is it a transactional business model or an advertising business model? Well, now there's a third one, which is this embedded finance thing, which is like, if, if the, if you update that to pigs, a little cartoon, it'd be like, no, um, the, the barn is free. They just want us to use their co-branded credit card and deposit all of our payroll into their bank account. And, and, and so what's happening right now is that if you look at B2B as an example, like look at a company like mind, body, which basically does like, you know, CRM and booking services for spas and beauty salons and whatnot.

Alex Rampell: (26:53)
Um, they made money by selling software, but actually it's like, now they'll do credit card processing for you. Oh, wait, your spawn needs money in advance of getting paid by all of these consumers that have bookings next week. We'll give you a loan and that's embedded. And again, going back to the point that I made around, like this battle between, uh, distribute distribution versus innovation here, like the cool thing is if you build a software platform that already has all the distribution, so you're Uber, you already have all the drivers. Um, it's very easy for you. Now, there are tools like what AWS did for rolling out servers through tools like I'm on the board of a company called plaid. It makes it easy to read information from somebody's bank account, um, or there's a company called Marketa that allows anybody to issue a card.

Alex Rampell: (27:39)
So these are examples of embedded finance for any company can very, very easily offer financial services in a, in an integrated way, not lead generation, not saying, Hey, you want a loan click here. And it goes to some third-party website. It's like the loan is actually captive within the product. And you've seen the financial services companies do this first, like, you know, square has a very low margin credit card processing business. Um, but guess what? That gives them captive rights to that entire merchant base to do. What's called, um, you know, a merchant cash advance business and MCA business where they can say, okay, we have this thing called square capital. We're just going to take 5% off the top, not 2% or not 2.9%, but like it took, we're going to give you a loan right now. And then we're going to get the next week of credit card payments as they come in.

Alex Rampell: (28:27)
And that's how we're going to pay off the loan. We have better underwriting that way, but we're embedding this lending thing into our company, but that kind of makes sense for square. And we see kind of, I mean, square, it has got a banking charter there. They're getting an ILC, I should say. Um, but you know, what about companies like mind, body? Um, what about companies like toast, which is like square for restaurants or like there was a company that pitched us that does, um, it's like a operating system for body shops for your car. That's effectively going, how are they going to make money? They're going to make money, uh, via embedded finance, uh, where there's a big space in vertical software called dental practice management. You go to a dentist, they have a software product. It's not Excel. They store all the pictures of your teeth.

Alex Rampell: (29:08)
They they'd get reminded of like when to call you for an appointment. Again, they bill your insurance company, all of this as part of a, it's called a DPM dental practice management software products. Like it's kind of a small market, but actually it's not. Once you think about the embedded lending opportunities either to the patients or to the doctor, as you think about the VIG on credit card payments that you're going to get, like these are massive massive spaces. So the point is that almost every company, if they have a long lived relationship with a consumer or a business, has an ability to embed financial services monetization, um, in a way that they control. And that gets two opportunities. One is it's the infrastructure layer. Like that's why we bet on something like plaid or why, you know, Marketa might be interesting or a lot of these things that allow anybody to have this financial services line, um, or a line item to the revenue lineup. And then the other is kind of just changing the way you look at companies, which is like, oh, what is mind, body? That's a boring company. Why would whoever Vista, why would they buy that? Um, well it's because there's so many additional revenue opportunities. Once you, once you turbocharge them with financial services,

Jason Zins: (30:15)
Wouldn't have thought of, uh, such a big opportunity set in the dental space. But, uh, it reminds me that I do need to go to the dentist. So thank you. But the infrastructure companies that you mentioned like plaid and Marketa and square and Stripe are really the enablers of this embedded finance concept. Um, but ultimately it's up to the companies themselves to really implement that. And even to go so far as to base their business model around it. So w where are, where do you think we are in that evolution? Is this just a buzzword that's being talked about in VC circles or fintechs that are popping up around it? Where are we in, in, you know, corporate America, whether it's fortune 500, uh, to, to early stage startups?

Alex Rampell: (31:00)
Well, I think right now the charge is being led by companies that actually have a, well, number one, you have to have a close relationship with your client or customer. If it's something that you see once a year and you think, oh, that's going to be like, um, Zynga the game company, I'm going to get people to use my bank. It's like, that's, that's probably not the right relationship, but, you know, if, if you're a QuickBooks and you're like, wait a minute, like, why don't I just offer my own insurance? Like I already know, like how much money this small business makes. Like, how do I embed insurance in there? Like, that makes a ton of sense. Um, and this is a top priority for a lot of the companies that already have a financial relationship. They just never had the tools. It's like, okay, I know I want to launch a website, but there's no AWS, well, you know, I'm sure Intuit's had this idea for a long time, but now that the building blocks are available, they're able to actually do it.

Alex Rampell: (31:51)
So I would expect companies like them to do this much more quickly. I think for ones where it's like, you know, dental practice management, um, like there was a company called synchrony, uh, which is, it's one of the biggest players and the kind of installment payments place, a space. Um, and they have, they're one of the most profitable business lines is called care credit, where they do installment payments for elective medical procedures. Um, and dental would be considered one of those as well. So things that aren't covered by insurance. So, um, they have always been the, like, they, they they've relied on like just selling into doctor's offices for a very long time. And that's how they've gotten their distribution. But, you know, one of the dangerous to them as an example is that if you have the dental practice management software that says, Hey, wait a minute, we should do this.

Alex Rampell: (32:38)
Right. Um, they're not going to, they don't even have to do it themselves. They're not like, I don't think that, um, you know, Henry Schein, the dental supplies company and their software products is going to go figure out balance sheet lending, but they can take some, they can bid out that space, white label it, and then get a big chunk of the economics. I mean, it's kind of like what you've seen with Shopify as well. Like how does Shopify make money? Well, Shopify makes money by they've just got recurring. They, they have a recurring billing model for their hundreds of thousands of small merchants, but they also make money on payments that they offer. So I think kind of V1 is always going to be like, where there's a clear financial relationship V2 is where there's like almost a clear business relationship, like dental practice manager.

Alex Rampell: (33:18)
Like I help you run your business, mind, body, I help you run your business. Uh, service Titan is like an operating system for HVAC contractors. So like, it keeps track of your jobs where you're going next, but your billings are like all of this kind of stuff. You know, it's a multi-billion dollar company. It's still private. How can they make money? Well, they own this relationship. They run the HVAC contractors business. It's trivial for them to add lending and payments now that the tools are available. But the ones that are kind of further field is it's like, should apple offer a bank? Should Google offer a bank? It's like, ah, I don't know, like if I'm apple or Google and I'm printing, you know, tens of billions of dollars a year of net income, I'm not sure if I want to mess around with this like low margin thing called financial services, versus if I'm a SAS company with a couple hundred million dollars of ARR. Um, and it turns out that by getting two points of GM of my customer is GMV. I can double or triple that number. It's almost a no brainer.

Jason Zins: (34:14)
Big tech certainly seems to have enough of their own regulatory issues. I, I don't know that they want

Alex Rampell: (34:18)
To add on the only way that it could be worse. It's like, okay, I want to do my big tech thing and censor speech. And I want to be an oil company and I want to be a bank. That's the only way that you could potentially be run more of fell of government regulation. So I think that the big guys are going to tiptoe more slowly. They're going to be more of an enabler. So, you know, if you think about where the future goes in five or 10 years, will you still get solicitations to go sign up for a credit card in us postal mail? And I think absolutely not. Um, there's probably going to be an app store for financial products, and that's going to sit on your phone. So just like, there's the app store on my iPhone where I can go download whatever app I want.

Alex Rampell: (34:58)
Well, I have my apple wallet. Like that should be not just adding stuff to my apple wallet, but it's like, oh, I want to get a capital one card. I should be able to permission my contact information. Like, just like, you know, you go and install an app on your phone and it says, do we have access? Can we have access to your photos? Can we have access to your contacts? Your location is permission, right? And you as a consumer, get to choose the permissions that you give the app. And one set of data that you have is like your social, where you live your credit history, all of that, like, you know, my vision for the future is that, and this is where I think the big tech guys are gonna play a big, uh, disproportionate place, as opposed to like trying to own the account is you're going to go to the apple wallet or the Google wallet and say, I want to add a new card to my wallet.

Alex Rampell: (35:41)
And then it's going to say, do you, do you permission your social and everything else to capital one? And I'll say yes. And then, boom, uh, I'll get decisioned on the spot. I'll either get the capital one card or I won't, it gets provisioned to my wallet. There we go. And by the way, I can do the same thing with refinance. Um, you know, most of, uh, companies like lending club, what do they do? They just go refinance credit card debt. Why can't I just add an auto refinance partner in my apple wallet doesn't mean that apple is going to be in the refinance business. That's terrible idea. But what it does mean is that you're going to unbundle this idea of a product product is credit card, right? Pay for things from the rate that I'm paying on my revolving credit line, which is, you know, happens on the backend.

Alex Rampell: (36:23)
So, you know, capital one, can't stop me from paying off my entire 18% balance right away. Um, there are lots of people that are competing to get that business, and that will probably happen within these wallets as well. So I, I think that's probably the direction that big tech will go, which is they liked it. Like there's no better, there's no better, uh, area of the market to play in and being a platform. Um, and given that the way that you're going to pay for things, which is the ultimate daily active use product, it's, you know, it's a term that we often use a lot of venture capital. It's like, do you have a DAU product? And the only one that's really there in financial services is payments. I mean, maybe gawking at your stock market portfolio might be a daily active use product, but not really at the same level worldwide as paying for things.

Alex Rampell: (37:06)
Um, so, you know, controlling that payment instrument is going to be important. That's increasingly going to be the phone. COVID also accelerated that like acts like apple pay took off Google pay took off because, you know, places stopped accepting cash and people didn't want to pay with dirty credit cards anymore. So, boom, you've got that taking off and they are the ultimate platforms for a new generation of, of, um, of companies I think. And even for the incumbents, right? It's like, you know, how much money does capital one send, spend sending out postal mail to get people to go sign up? How much money did they spend on commercials from Samuel L. Jackson asking what's in your wallet? Like that's all going to get redirected, I think, to, to mobile and being top of wallet on the digital.

Jason Zins: (37:45)
So it, this is a good, a good shift into another topic. I want to touch on which, which you've started to discuss. Um, as far as the future of payments, digital wallets, I listened to a great podcast recently that you appeared on, uh, with Patrick O'Shaughnessy is the host of invest like the best, um, uh, a great FinTech, uh, and, and related podcasts. Um, perhaps just behind Saul talks, of course. Um, but you did a great breakdown on visa and the history of visa, which I found to be fascinating. Um, you started a company that was ultimately acquired by visa, and so you spent some time there. Um, so you certainly have some, some unique insight into the future of payments. And you started to allude, um, to where we're headed. How far away do you think we are too, to fully integrating payments and wallets onto our

Alex Rampell: (38:39)
IPhones? I think we're pretty close. Um, again, had it not been for COVID, um, we'd be doing this, not as a zoom, but probably in person and zoom kind of you'll still have in-person stuff, but zooms are taking over for a lot of otherwise, you know, far away meetings that would have to be done via planes and in-person. And I think the same thing can be said, as I mentioned for, uh, digital wallets where it's really accelerated adoption. Um, but there's still like go to a gas station. Most of them, you can't pay with apple pay. So there still is this, this lagging technology thing in the U S the irony is that the kind of more emerging the market, the more emerged it is in terms of this very, very topic, like, you know, China is an emerging market from a, nobody had credit cards there 30 years ago, perspective, like they've fully emerged. Like there's no such thing as cash anymore. It's like all of these QR code based payments. So I thought it was

Jason Zins: (39:39)
Bothered me, but by the way, we, we always seem to be behind Europe. You mentioned China. Why is it the us is always behind whether it's a QR code, even the credit card chip. Is it just like a C systems?

Alex Rampell: (39:52)
Well, I think it's like, if it ain't broke, don't fix it. So it's one of these things, like if you're running on cash and cash, cash, cash, cash cash, and like, nobody has cards, nobody has cards. And now it's like, everybody gets a smartphone, then it's like, oh, wow, like what's the best thing available. And we're competing with nothing. Like you go to the best available technology at the time. It's like, you know, there are no landlines in many countries because it's like, you know, many countries didn't have landlines for dozens, if not a hundred years. And then when this mobile technology kind of came available, then like everybody just got a smartphone or even before a smartphone, I just got a cell phone. So I think you have a little element of that here, which is a lot more people here have credit cards.

Alex Rampell: (40:34)
We're kind of over penetrated relative to, I don't know, like how many people in Nigeria have a credit card. Like almost nobody. How many people in Indonesia have a credit card? Almost nobody. Uh, it's very expensive to mail out plastic and to get merchants, to go buy these terminals and all these different things. Like, what's the cheapest way of getting this out there? Well, everybody has a phone let's just use QR. It's like your credits. Aren't fundamentally better. There's nothing better about them. If anything, they're a little bit slower. It's like I have to open up my phone and like, like the, the actual, like NFC chip is probably the fastest, like that's how apple pay works. Um, so I don't think we're necessarily behind. It's just like, we don't really have an incentive to like change because it's not that hard in this country.

Alex Rampell: (41:14)
I mean, even if you're at the lower end of the income bracket, like you can go into Walmart and buy a prepaid visa card. It's not that hard. So I think that's the main reason why, but, um, but kind of looking at to, to your question of like, where things go, like, I mean, I think it's inevitable. Like there are some questions that are, if questions, there's some questions that are questions, and this is just a, when one, like, you know, will people be carrying around a dead cow wallet, which is what I call my, my actual leather wallet that has like cash in it and credit cards and whatnot in 10 years, it's like, no, will that be eight years or five? Like, I don't know. I can't tell you exactly how many, but there's no question that all this stuff goes in your phone.

Alex Rampell: (41:51)
It just makes a lot more sense. Um, it's going to, actually, I was joking with a colleague of mine, like, you know, what happens to like stick ups in robberies? Like, you know, what, what do I steal from you if all you have is your phone, right? And the phone will only unlock with like your face or your fingerprint and you have no cash, like, like what's the point of robbing people anymore. Like maybe criminals, we will have to go to like, you know, night school and study computer science and figure out how to blackmail people that way, as opposed to like, you know, sticking them up with a gun in San Francisco. So

Jason Zins: (42:20)
That's an interesting concept. I hadn't, I hadn't thought of, of, you know, mobile banking, digital wallets as a potential, uh, uh, remedy for crime,

Alex Rampell: (42:30)
But that's Korean unemployment is the way that it's gonna, it's gonna unemploy all the Roberts that it's, it's really unfortunate. So, um, for, for them not for me. So I, you know, I, I, I feel very, very confident that it's going to happen and it's already on its way to happening. The question is really more interesting for me is like, what then changes in the world when you've built that, like, who gets disrupted. And that's why I mentioned things like net interest margin, where like, if you could, uh, if you could remove all friction, like a lot of banks just rely on friction. Like, why do I have an account with like crappy bank of America? Um, this is actually true for years. It's like, so I remember this, um, I wrote a check for somebody whose bar mitzvah. They hadn't deposited like three months later.

Alex Rampell: (43:08)
I wanted to close my bank of America account. I'm not going to do that in like, have my check bounce. Like what kind of, what kind of smoke would do that? So I leave this account over there and then I've got my direct deposit from my employer going in there. And then my gym membership is withdrawing from there. So it's like kind of, there's too much friction for me to switch. But think about what happened with cell phones, where I used to have sprint. And now I've had at and T now for 20 years, maybe not 20 years, but I don't know if you remember this, but the, uh, the U S government said there has to be number portability between the cell phone carriers. So if you want to switch from sprint to Verizon, uh, sprint has to let you do that. They can't just hold on to your number.

Alex Rampell: (43:46)
Whereas before I don't know what it was probably 2004, 2005, you couldn't do that. You were locked in with the carrier and it actually incented, uh, from the carriers perspective, uh, more, more R and D and more cap ex like Verizon, like had the best network and they weren't really being rewarded for it because like sprint sprint had the worst network and the sprint customers didn't want to leave because it's like, they'd have to lose their number. When that changed. You had a massive, massive migration. Like I was a sprint customer that got the hell out of sprint. Um, and this actually did happen, like sprint really suffered because they under invested for a long time, the ones that actually over-invested and had like competent infrastructure you're, you're called and you get dropped every 10 seconds. They got an influx of customers. Like you could argue the same thing will happen.

Alex Rampell: (44:31)
Banks enabled by the mobile wallet increasing, or rather decreasing the friction from moving from one count, from one account to another. Because if you were to ask people, it's like, Hey, why don't you go switch your bank account? Like, everybody's got their version of the apartments for check and the gym payment and the Netflix membership and the blah, blah, it's just like too complicated. Um, and if you could just like wave a wand and say, oh, well, my phone will keep track of all of that. And we'll just reroute it or like, oh, I'll keep my bank of America account open. And then if there's a debit there just push the $200 in there for the bar mitzvah gift, like great, like solves that problem removes friction. And whenever you remove friction, it makes the customer experience so much better. Like it actually increases competition. And by increasing competition, that's the way that customers actually pay less and get more. And

Jason Zins: (45:19)
It seems like some of these infrastructure fintechs like a plat, um, and others are, are removing frictions through things like a direct deposit switch plan recently rolled out in beta. Um, it sounds like that innovation and the benefits to consumers are coming from the fintechs and not from the regulatory side. Where do you think regulation play plays in here, or you mentioned, uh, as it relates to telecom, um, how much is regulation hindering this innovation and what can the, the, the regulators and, and, and government do better, um, to enhance the experience for consumers?

Alex Rampell: (46:00)
Well, I think this is a very easy one. I mean, um, I think almost all regulation gets it backwards, which is the only companies that can afford the 500 lawyers that can ensure compliance with regulatory X, Y, and Z, especially when Gramm leach, Bliley is 400 pages long. And Dodd-Frank is like, you can only afford that if you're rich and you're rich, if you're an incumbent. So these regulations always help the incumbents always. And what you should want, if you're a regulator is to say, okay, how am I going to screw those fat cats at JP Morgan and Citi and chase? Well, let me just get 10,000 companies out there that are competing with them now, how do I do that? We'll make it easier for them to get a bank charter or don't threaten them with jail time. If they break some law that was passed in 1820, like, you know, create a sandbox where it actually encourages, you know, I hate to use this term.

Alex Rampell: (46:50)
Innovation is what the hell does that mean? I'm in competition. It's like, we want a thousand companies out there that are like bank of America, but aren't charging overdraft fees. And if there are a thousand that are out there, they're like bank of America that can get launched in almost no capital, um, that are FTC insured and, you know, make sure that they don't blow people's money on like Lambos and whatnot. But like, that's the kind of regulation that's good. That kind of regulation that's bad is, you know, here are the 4,000 pages of documents that you have to fill out to become a bank and show your, you know, five-year projections and all this kind of stuff that just, you know, what you're doing is you're ensuring that no new banks will get created. And if you want the banks to be more, pro-consumer like, that's going to happen naturally with competition.

Alex Rampell: (47:35)
And that's what regulation should be focused on, but everything that's done, I mean, it drives me crazy because like, if you look at GDPR in Europe, it's the most idiotic thing ever. It's like, who can afford like, okay, we hate Facebook and we hate Google. I got it. Europeans make sense to me. But like what's, you're doing is you're ensuring that there will never be competition to them because of this whole, like, you know, Facebook can afford a thousand lawyers and like startup that can go compete with them. Now that they need 5,000 lawyers to compete as well. Like there will be no such startup, like I'm not going to invest in a company in a company if they show up with their business plan and it's okay. Our first plan is to build no product, but hire 500 attorneys. Like no, like nobody's going to do that.

Alex Rampell: (48:14)
That's insane. So I think the regulation here is just very, very clear, which is like, just eliminate it as much as possible for the upstarts. Um, that's unfair for the big banks and actually like that, that has largely happened with credit cards by accident. So there's part of Dodd-Frank called the Durbin amendment, which basically said, uh, interchange for debit cards at, uh, one rate. Like the federal reserve actually gets to set it if you're a big bank. So if you have over $10 billion of assets, it's five basis points plus like 21 or 22 cents. So that's very, very little like, you know, a hundred dollars transaction and whatever bank of America is making like 20, 20 something cents, right? Like it's very, very little money. Uh, if you're a startup and you're having your card issued from a bank, like sudden bank or Celtic bank that has under $10 billion of assets, but guess what?

Alex Rampell: (49:06)
You're exempt from that. And you're making maybe 1.6%. So like the reason why chime and others, like everybody that's in FinTech land, that's issued a card, a debit card to people that's making like hundreds of millions of dollars a year on this stuff. It's all because of this like random thing called the Durbin amendment in Dodd-Frank that was never intended for this. It was meant to like, you know, um, it was because the merchants hated paying these high credit card interchange fees. It didn't change credit card interchange fees. They only changed debit card interchange fees, but it ended up helping startups, like without the Durbin amendment, it's like this random stroke of luck that enabled all of these companies like chime to, to thrive, which is great. It's like, that's another example of like how regulation helps. Although if you look at that from the merchant perspective, merchants are like, what the hell? I don't want to pay 1.6% when money's just moving from this account to another account. So it's more complicated, but you know, regulation can have a benefit for the ecosystem. But I think by far the main form of regulation that that will help this ecosystem is getting rid of, is getting rid of as much of it as possible.

Jason Zins: (50:04)
I, uh, I, I certainly agree. I think it's an interesting example with the Durbin Durbin amendment and, and shine, um, sort of the unintended consequences of regulation, but in this case, uh, arguably, uh, a positive one at least for, uh, for consumers. So we've, uh, we've run out of time. Alex. I appreciate you spending some time with us today. It's been an interesting conversation. Hopefully you'll come back and that and see us again, whether it's via zoom or at our, our, uh, our salt conference, uh, in New York in September. Um, so with that, I'll turn it back over to John and thank you

John Darcie: (50:39)
Everybody for tuning into today's salt. Talk with Alex Ram, Pell of Andreessen Horowitz. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them all on demand on our website@sault.org backslash talks or on our YouTube channel, which we would love for you to subscribe to it's called salt tube. Uh, we're also on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks. We at SkyBridge are enthusiastic investors in the FinTech space and Alex, more than anyone is an expert on everything that's taking place, the massive growth that's taking place in the FinTech sector. So if he knows somebody that's interested in the space or wants to learn more about it, definitely share this talk from behalf of Jason, the entire salt team. This is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Marc Polymeropoulos: Clarity in Crisis: Leadership Lessons from the CIA | SALT Talks #222

“Adversity is the P.E.D. for success. You have to fail first before you succeed down the line.”

Marc Polymeropoulos talks through his background and what led him to the CIA where he worked around the world thwarting terror plots. Polymeropoulos details an attack he suffered from an apparent targeted microwave-emitting weapon that has left him and countless other US agents and diplomats with lasting health effects termed Havana Syndrome. He explains the high stakes of counter-terrorism and concerns around a complete withdrawal from Afghanistan. After an early retirement from the CIA due to the effects of his attack, Polyermeropoulos offers the principles and mindset needed to make effective decisions in moments of crisis, stress and ambiguity.

LISTEN AND SUBSCRIBE

SPEAKER

Marc Polymeropoulos.jpeg

Marc Polymeropoulos

Former Senior Intelligence Service Officer

CIA

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

3:10 - Background and path to CIA

6:08 - CIA training and accurate representations

9:15 - US-Afghan history

11:31 - Decision-making under pressure

14:50 - Suffering a Havana Syndrome attack

18:53 - Preventing terrorist attacks

23:13 - Concerns around an Afghanistan withdrawal

25:18 - Learning from failure

28:12 - Mindset during stressful situations

30:36 - Adapting to massive technological advancements

32:49 - Skills needed for the CIA

35:05 - Sacrifices made in the shadows

38:17 - Mental health post-CIA

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume here in September of 2021 in New York city. But that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome mark polymorph Nepalis to salt talks. Mark worked for 26 years at the CIA before retiring in July of 2019 at the senior intelligence service level. He was one of the CIA's most highly decorated operations officers who served in multiple field assignments for the U S government specializing in counter terrorism, the middle east and south Asia, including extensive time in Iraq and Afghanistan, uh, prior to his retirement mark service CIA headquarters, and was in charge of the CIA's clandestine operations in Europe and Eurasia.

John Darcie: (01:18)
He's re he's recently out with a new book, uh, which I highly recommend you go out and read, not just because of the great stories from his time in the CIA, but the leadership lessons you can draw from it. The book is called clarity in crisis leadership lessons from the CIA, and it comes out today when we're airing this episode, June 8th, Marcus hone has unique leadership style based on nine core principles each builds on the next and the design for real-world application, uh, where one often operates under time constraints and a lack of complete situational awareness. Uh, Martin describes how one must not fear, but instead wildly embrace this ambiguity. And also he teaches you about how to be resilient, which is I think something that we should touch on today, uh, hosting today's talk is Anthony Scaramucci, the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salts. Anthony has done a couple of us troops support missions to Afghanistan and Iraq, but obviously doesn't have the, uh, the experience there that mark does looking forward to a great conversation. Go ahead and take it away, Anthony.

Marc Polymeropoulos: (02:19)
Well, first of all, it'll hold up the book because I love promoting your book. Okay. Clarity and crisis leadership lessons, the CIA, you know, I, uh, a while back Morgan, that you remember Jose Rodriguez. And so a while back, we had him at the salt conference. He wrote a book I think called hard measures maybe almost 10 years ago now. And your book reminded me of Jose's book in some ways, but I thought you contextualized leadership differently. He was really talking more about nine 11 and the CIA's response to nine 11, I guess, where I want to start the interview, uh, is with your background. I want to go into your first, how you grew up, how you got raised, but then I want to talk about CIA and the CIA and leadership as a field officer, which I think was very fascinating in this book.

Marc Polymeropoulos: (03:11)
Sure. Well, first of all, thanks for having me. This is a, it's a, it's a great honor. And, uh, you know, it's, it's, it's, it's, you know, it was pretty interesting after my kind of 26 years living in the shadows that I'm out, talking in public on this, but it's what I've wanted to do because I think, you know, CIA is an indispensable institution and I want to talk to the American people about it and kind of teach people, you know, what I learned there. Tell us about your background though. You grew up where you're obviously you're a Greek American, I'm an Italian American. So, you know, you know, Darcie's not us, let's just put it that way and we'll leave it there. Okay. That's probably not politically correct in these times, but too bad. But go ahead. So I, I have a wild background.

Marc Polymeropoulos: (03:48)
So, you know, first and foremost, I, you know, I spent so much time in the middle east, but before that, you know, I was, uh, I was a middle-class kid from, from Highland park, New Jersey. And, and, you know, I think one of the reasons why I succeeded later on in life is because I had this really unique upbringing. So my mom was a Jewish girl from long island who goes off to Cornell. She meets my dad who on Fulbright from grace, he's as Greek as you can be. And he's at Cornell as well. And they fall in love and it's, it's, you know, it's a, it's, it's, it's kind of a pretty messy, messy situation because each side, I don't think we're too thrilled, uh, uh, with, uh, with kind of crossing over in terms of different kind of, you know, religious lines. But then, so I grew up with this with celebrating everything.

Marc Polymeropoulos: (04:26)
So we celebrated Greek, Easter, Easter, Hanukkah, Passover, you know, Christmas, you name it. Um, uh, and what, what really made that I think important for me is I had such a kind of open-minded open view, um, uh, of the world later on, I married a, uh, Lebanese Catholic. So, you know, it's unbelievable. It kind of, we just need some Buddhists in the family and then, you know, we'd be, we'd be complete. Um, but great upbringing, you know, I love, you know, the, the central Jersey area, you know, my dad still lives there. He was professor at Rutgers for 40 years. Um, and that, you know, while I, while I spent my life running around the world, that really still is, is the place where my kind of my heart. So you, you go, you go into the CIA. Why so growing up, it was interesting.

Marc Polymeropoulos: (05:08)
So my dad ended up doing a sabbatical as a, as a professor. He went to Algeria. So when I was 10 years old, my mom think about, think about it as a parent doing this. Now she put me on an airplane and I flew to meet him in Algeria and my dad and I for an entire month in an old beat up Volkswagen mini bus drove 2000 miles to the Sahara desert. So I thought I was Lawrence of Arabia. And this is what kind of got my itch for the middle east, um, along with, you know, each summer going back to Greece. So my, you know, my dad still had, uh, his family was still there and, you know, the, a house on the island called Mykonos, which is a beautiful place. And so every summer I'd go back to Mykonos. So I'm getting this kind of, you know, view of the world.

Marc Polymeropoulos: (05:45)
Uh, and then I probably watched, you know, a Tom Clancy film or two, and, and, and then off I go and, and, you know, I, when I was, uh, I went to Cornell for undergrad and grad school, but, you know, I, I applied to the CIA and that's the only job literally have ever had you, you, you, you mentioned in the book that you have a kitchen table, knowledge of Greek, that's exactly your words, right. Uh, what other languages do you speak? So I learned Arabic, uh, through the CIA, um, you know, they sent me to school for two years, um, in Spanish as well. Um, and then, you know, and of course now, as I'm, as I'm kind of getting older, I'm retired, it's all jumbled in my head. So I, you know, speak a little bit of everything, but, but on a serious note, what CIA really does well is teach our officers kind of the language skills that are required.

Marc Polymeropoulos: (06:28)
So, and, and the hard target language skills are things like Arabic and Farsi and Russian, uh, uh, and Chinese. And so, you know, I spent two solid years learning Arabic, which was, you know, that's a tough time. Cause you know, you go, then you do this after you're trained as a case officer, then they take you offline for two years. And so that's a lot of patients and a lot of kind of dedication to kind of get to the point. But if you want to go serve in the middle east and, and, and do the stuff that we all did, you got to speak the language. You're, I mean, you just have such an amazing story. You talk about your field operational experience, Doug, about the fact that you're not James Bond, it's a rough and tumble situation. What would you want the American people to take away from this book and your life experience about the CIS?

Marc Polymeropoulos: (07:14)
I think in terms of CIA as a whole look, these are, these are American Patriots. You know, we operate in the shadows. And so, you know, the successes are never talked about in the, and the failures are always kind of highlighted, um, you know, especially where it kept going. It gets caught up in politics, but, but you know, my, my brothers and sisters at CIA, you know, this is the, these are, you know, to me heroes, uh, of the United States cause they operate with so little, little fanfare. These are regular people, you know, it's not like the old, you know, uh, uh, the old days of, of kind of, you know, all kind of, you know, what they called it, you know, white male and Yale, that's, that's the old kind of stereotype of the agency. It's not at all like that. It's a place which is full of different ethnic groups, different kinds of, you know, uh, races, religions.

Marc Polymeropoulos: (07:53)
And so, um, it's, it's a reflection of America. Um, and then people who put their, you know, their, their life on the line and, and, you know, it was, it was a, I think it was an institution in which I, I want more people to kind of understand because there's so many misnomers about it, but it's a, it's a place I believe in, you know, really deeply because, you know, we're the, you know, my colleagues were the ones standing on the ramparts, you know, you know, protecting the United States and it's done with very little fanfare, but, but boy, you know, espionage is, is the, is the world's second oldest.

Marc Polymeropoulos: (08:24)
Yeah. We won't talk about the first soul because that'll also get me in trouble, but, but let's, let's talk about terrorism. Let's talk about our ambiguous relationships in the middle east. And so the CIA back in the, uh, during the, uh, the Russian invasion Afghanistan, we funded what we were calling the mojo mojo Dean, uh, which were holy warriors. Uh, we help them in their fight against the Russian empire, the Soviet, uh, they turned on us effectively, um, and became part of Al-Qaeda and then they, they, fomented a domestic terrorist attack on the United States. And so there's ambiguity there. And I was wondering if you could explain to people in your view what happened and the CIA's role in all of them. So, you know, boy, what a great word you used ambiguity because that, that kind of defines a lot of what I talk about in my book, but defines that's that's the intelligence business right there.

Marc Polymeropoulos: (09:25)
It's we, you know, we live in the world of gray. So look at, in order to push back against the Soviet union, we certainly armed, um, you know, the Afghan Mujahideen, but also groups of, of Africa Arabs. We call them the Afghan Arabs and they came from all over the Arab world, different estimates, some as many as 10,000, uh, who fought and ultimately, uh, you know, pushed the Soviet union out of Afghanistan. And one can make an argument that, that led, that helped, that helped lead to the collapse of the Soviet union. So a tremendous victory, but it came as a, at a cost because what Afghanistan turned into then was a failed state. And so, and, and, and, and that's kind of, you, you can talk about now our worries about our Afghan withdrawal, uh, as well because terrorist groups take advantage of those kinds of those, those empty spaces.

Marc Polymeropoulos: (10:06)
And so that's what happened. And so these Afghan Arabs were certainly trained, but they flopped even more so to Afghanistan when the Soviet union with withdrew, and this is in the nineties and the United States kind of lost interest in that part of the world. And Qaeda found themselves as part of, uh, as part of the base. It's not necessarily the case, you know, cause there was such a great lapse in time. So it's not really that Al-Qaeda that we faced, you know, after nine 11 or the same Afghan Arabs who, who fought the Soviets, um, you know, uh, you know, a decade plus before, but, but fundamentally, you know, I think they, they, you know, they had the same beliefs and they evolved from wanting to kick out the Soviet union to them being opposed to the United States. You know, I think it's, it's a, it's an interesting lesson that the us needs to learn as we, as we support in our covert actions, some indigenous groups who are perhaps doing something we want them to do, you do have to look at kind of the long-term effects and that's, that's fair to say.

Marc Polymeropoulos: (10:59)
And I think that the CIS has taken a hard look at that as well. I think it's a fascinating part of what you talk about in the book is you're dealing with ambiguity, you're dealing with high pressure situations. Uh, I love the title clarity in crisis. Um, you discuss high pressure situations and how you make decisions there. So offer our listeners and viewers a template for what they need to think about when they're forced into a high pressure situation and they've got to make some tough decisions. So, so ultimately, and we'll start with where you want to get to be. You want to get to that place where, where there's ambiguity, w you know, when, when there's, when you have a lack of situational awareness, that's actually your happy place. And that's really hard sometimes because that is, that's kind of counterintuitive. So my book talks about nine core principles that I kind of, that you build over time as you build teams as you lead.

Marc Polymeropoulos: (11:53)
So that inevitably when there is times, um, you know, when times are tough that, you know, you have no fear in this. I mean, that's, that's the whole point. And, and, you know, there's, there's a, uh, a friend of mine once said, as we're kind of going into one of these situations, um, and we're like, boy, know, this is, you know, we're in the gray now. And he actually said to me, he goes, this, this is my happy place. This is where I want to be. So what does this mean? Well, it's, it's building blocks. So, you know, one of the things I talk about, um, consistently in the book is as a principle, I call it adversity is that PD, that performance enhancing drug to success. So the point is you got to fail first before you're ever going to succeed down the line.

Marc Polymeropoulos: (12:28)
And you can think of things like Michael Jordan getting, getting cut from his high school basketball team. But, but in reality, it's that failure that getting kicked in the teeth is going to teach you. You got to learn from that. And the next time you face a similar situation, you know, you're, you're gonna, you're gonna succeed. I think one of the themes in my book is, is, uh, you know, that, that one of the principles I really spousal the time is humility. Um, you know, you can't, you know, I was at the tip of the sphere of the U S government, you know, but you can't believe your own hype. Um, and so you follow these principles, uh, you know, I'll talk about another one. It's, it's one of my favorites. I call it the glue guy or the glue gout. And that's finding the indispensable member of your team that perhaps is not the superstar.

Marc Polymeropoulos: (13:06)
Um, I, you know, I use, I used some great examples. One of them was what I called, um, the, uh, the, our, our, our doctors, our medical staff, you know, we call them doc in the war zones. So I'm a case officer. Maybe you have some of the door kickers, you know, we're trying to take down a high value target. There's the doc in the back. You know, now if that person has not taken care of us, it's not doing kind of the right things, that team is not going to perform up to its capabilities. And so you kind of think through these principles, um, and as you, as you build these teams to get to the point where you gotta make those tough decisions, you're really comfortable doing so, and you can learn this. And that's the thing I really try to put forward in the book.

Marc Polymeropoulos: (13:43)
Yeah. I, I heard John Darcie's feelings before we opened up the Saul talk by telling him he was not the glue guy at SkyBridge, but that was actually a backhanded compliment Darcie, because you like mark are at the tip of the spear. This is more about somebody that in the background, tying things together, I thought it was a fascinating discussion about selfless people. And again, John Darcie is a team player. I like teasing him on these salt talks, but he's exceptionally talented at what he does. Uh, that'll be all the compliments you give from me though to the remainder of the year. So we'll just leave it there. I want to go to something that you write about, uh, you're in a hotel room in Moscow, it's December of 2017, and you were debilitated with severe nausea ringing in your ears and what ultimately is known as Havana syndrome.

Marc Polymeropoulos: (14:38)
Uh, did that tell, tell us about that? Tell us what it is. Did, did they hit you inside the building, or they got to get you outside to create that kind of, uh, illness? What there, so that was a, you know, early December of 2017, I was on what we call, you know, uh, uh, you know, uh, a temporary duty assignment, a short trip to Moscow. I'm at a, a, you know, a five star hotel, just two blocks to the embassy. It's the middle of the night. And I was kind of awakened to it to a start. I had incredible vertigo. Um, tonight is ringing in my ears. I felt like I was going to be sick. I had a splitting headache, and I knew something really bad happened. So it was inside, uh, the hotel room, which is frankly, consistent to what you hear about some other victims of this.

Marc Polymeropoulos: (15:19)
No. So the, the people above you and below you also probably got it then, right. Because you hit it or they, they can isolate it. I think, you know, the, the kind of the running theory now is that it can be very, it can be really directed at you. Um, and so, so, but, you know, so I think it was directed right at me in the hotel room. The fact of the matter is when you go to a place like Moscow, you know, there was, there was no one to the left of me in the room and no one to the right. It was pretty clear. I was under heavy surveillance. I'd go down to the gym and I'd have some guy in a black leather jacket following me down there. So, you know, I think, you know, my theory is that certainly it was, it was set up for it kind of a directed, uh, attack at me.

Marc Polymeropoulos: (15:57)
And that's very consistent with other intelligence officers and diplomats who I've talked to subsequently who have been, uh, been, been hit by this. And it's, you know, it's a pretty insidious, you know, uh, uh, kind of event it's pretty insidious weapon. Cause it's, it's designed to impasse and capacitate not to kill. And it derailed my career. And I had to retire at 50, which was not a lot, a lot of gas left in the tank. Um, but, uh, but I had to retire, you know, in, uh, in July of 2019. So, but you, you, but you also, there, there are other members it's called the Havana syndrome because many of our diplomats and, uh, uh, governmental workers, et cetera, have been afflicted by this in a Vana. Uh, we think this is Russian inspire. Is that fair to say? I think that's, that's fair to say, you know, there is a microwave pulse, they hit your skull with.

Marc Polymeropoulos: (16:45)
So the theory is it's a directed energy weapon, which by the way, we know the Russians have had before. And, and frankly, this technology is something that the us government has as well. For example, there's companies that use directed energy weapons to knock drones out of the sky. And so, so this technology exists. It's just a matter of using it against another human being is, you know, there's a question on morality there, but, but yeah, there's, you know, it's a, it's a, uh, so far, so one of the things is I eventually got treatment at Walter Reed, national Intrepid center of excellence, which is the world's most renowned traumatic brain injury program. And they died at diagnose me with a TBI, with a traumatic brain injury based on an, you know, an, an exposure event. And the theory is, you know, whatever, this kind of energy was kind of got me in the back of my head. It's closer to its closest to the occipital nerve. And so, and it's, you're right. There's something that, that, you know, I can undergo treatment for meaning, you know, there are things I can do to make myself feel better. Uh, but ultimately it's, it's something that we haven't found yet that can in any way be curious.

Marc Polymeropoulos: (17:44)
Well, all right, well, we wish you great success with that and I'm sorry that you're going through that, but I appreciate and admire your courage and talking about it because by raising the awareness, hopefully it will reduce the number of our people that are exposed. Um, let me, let me switch gears. I'm going to turn it over to John Dorsey in a second because he always, what he does at this point, mark, is that he tries to out shine me by asking better questions than me, but then of course our, our guests say, oh John, that's a great question, which always horrifies me and upsets me, but that's fine. We'll get there in a second. I have two last questions. Okay. Um, uh, quiet question. Number one, which is important to me is terror plots. You and I both know the United States has to be Dessa go 100 for a hundred, a thousand for a thousand.

Marc Polymeropoulos: (18:36)
They only have to get it right once, uh, without giving up anything that's classified. Uh, have we disrupted a lot of terror plots in the United States since nine 11? And, uh, where do you think we are today in terms of our safety here in the country? So, uh, I will say that is a great question. There you go. I'll preempt the front, uh, saying that for John knows, there's no doubt that we have, we have, uh, prevented numerous terrorist plots is nine 11. That's what CIA did. I think if you see I personnel, you know, right after nine 11, we took this personally because you have to be, you have to be perfect. You have to, you know, you have to bat a thousand, you gotta be a soccer goalie and you can't let a single Golan. And we felt that we failed. And so the efforts we made post nine 11 were really extraordinary and not allowing for a future attack.

Marc Polymeropoulos: (19:23)
And there is, I do that as success. America was not hit again. And whether you look at, you know, core Al-Qaeda or Al-Qaeda in the peninsula, if you recall, and the 2000, what, uh, uh, you know, 12 to 2014 timeframe, there was all this threat streams became in public about threats against civilian, us airliners, um, serious stuff. And the CIA did incredible work to prevent Americans from dying. And, you know, that's what we do. And I'm, you know, I'm, I'm incredibly proud of it. The key counter-terrorism is you can't take your eye off the ball. And right now, if you take a look at our, you know, our national security posture, we have China as an existential threat. I think people agree on that. You have Russia as a country that wants to do us harm, and counter-terrorism has taken a bit of a backseat, but we've gotta be really careful on that because just like, you know, in the period before nine 11, um, you know, w you know, we w we, we have to kind of continue to put kind of, you know, money people, you know, resources, um, towards the, towards the CTF root cause.

Marc Polymeropoulos: (20:18)
Cause you know, you can't fail. I mean, it's, it's, it's, it's hard to say that that in any endeavor you need to have a zero fail mentality, but in counter terrorism, that's what you gotta have. And that's frankly, what the American people demand. Where are we today in terms of safety? I think we're far better off, I think core Al-Qaeda has been degraded, um, to a significant extent where, what worries me, of course, you know, you still have ISIS out there. Um, and then, and then the kind of the key part now I'm not as concerned about kind of a mass terrorist, like we saw, uh, you know, uh, nine 11, but it's more of kind of either homegrown, inspired, you know, individuals or, or, or kind of smaller, smaller units that carry out an attack. And I'll tell you one thing, you know, uh, you know, if one person does something, you know, in times square or the New York subway system, or the DC Metro, you know, not only think about the loss of life, even if it was small, it's tragic to think about the economic costs that it, that that would come at the United States.

Marc Polymeropoulos: (21:13)
Um, so I, you know, I think you can never take your ball eye off the ball of counter-terrorism. And I worry about the withdrawal from Afghanistan, frankly. Um, because I think that, you know, we're asking again, uh, you know, kind of giving terrorists an opportunity to look for those empty spaces, those ungoverned spaces to reconstitute. So there's a lot of work that the United States still has got to do on counter-terrorism. And, you know, even if we talk a lot about China and Russia, you know, that the CT fight, which was that, that was really was what I did most of my career. Um, and I'm really passionate about, I mean, that's got to continue and you never take your eye off the ball. All right, I'm going to turn it over to John Dorsey before I do that, I want to hold the book up again. It's a clarity and crisis. Market's a tremendous book. Uh, it's a, it's a brief, concise book, but it hits on a lot of different elements of what people need to think about when they're dealing with pressure situations, leadership, utility, glue, John Dorsey, glue, holding things together. Okay. With that, I'm gonna turn it over to John.

John Darcie: (22:13)
Thank you. You touched on Afghanistan, mark, and it's great to have you on the program. Um, but I think it's an interesting topic. You know, Anthony, as I mentioned, the opening has been on troop support missions where he, after the trip, got these really detailed briefings, uh, obviously no classified information, but detailed briefings from the generals on the ground about the situation Afghanistan, obviously we'd been there for almost 20 years. Um, you know, there's no real end in sight in terms of putting a neat bow on the entire situation. But at the same time, a withdrawal does create a vacuum whereby the Taliban probably regain some level of power and potentially create another Haven, uh, for terrorist plots. If you were talking to the American people and they're coming to you and saying, well, you know, we've been there for 20 years with nothing really to show for it. We continue to lose American lives and spend money, uh, with no end in sight. Why would we continue to pour money into that situation? I'm not saying that you necessarily disagree with them, but how would you explain to them the benefit of staying in Afghanistan, the benefit of not retrenching as a country, our borders.

Marc Polymeropoulos: (23:13)
So it would be kind of with a simple phrase that I like to say is defend forward. And so, you know, we can't sit back, you know, just because we're, you know, we're across the pond. When I say defend Ford is we have to have a forward presence. Does that mean a hundred thousand us troops? Of course not. But I think the, the, the issue of kind of troop levels in Afghanistan and Iraq has been taken over by politics because ultimately we're talking about leaving 2,500 to 5,000 troops on the ground. That's nothing, we've got 30,000 troops in Korea. We have, you know, similar numbers in, in Germany. And the idea of, of, you know, this need to go to zero, which is what they're talking about. That's where we're going to, to me, that that seemed to be, uh, you know, really misguided. And it's almost a political, uh, decision to do this.

Marc Polymeropoulos: (23:57)
Cause it sounds good rather than keeping us very small residual force where we then can have the, you know, the, the special operations and intelligence forces necessarily on the ground with 2,500 to 5,000 us troops that's enough, um, to kind of keep a lid on that on a counter-terrorism situation. And so I would, I would argue that the defend forward concept is not putting forward tens of thousands or a hundred thousand us troops believing small number of us forces. That's what we do all over the world. That's what we could have done in Afghanistan. Um, you know, I just, I don't agree with the decision to go down to zero. Um, I certainly would not advocate going up to 50,000, but I think a, you know, a small residual force where we can keep enough of a footprint to, to continue our counter-terrorism missions is absolutely essential.

John Darcie: (24:42)
You talked in your book and you alluded to this earlier about how adversity in your mind is a performance enhancing drug. And I think Anthony says something nice about me. So I'm going to say something nice about him. He, in the business world, he is a very resilient person in my mind. He's been through ups and downs, talks about it a lot in his books. Uh, you know, obviously the gravity of some of the ups and downs that he's experienced might not compare to the things that you've been through. Could you talk about specific examples of failures, you know, really deep grave failures, even that you've experienced that you talk about in the book that affected you and how you train yourself to be resilient and to become better as a result of those mistakes.

Marc Polymeropoulos: (25:18)
Sure. And so I think the story is, you know, the story goes from Iraq and then ends in Afghanistan. And it starts in Iraq when I was up on, you know, one of our teams that was living in the mountains of Kurdistan before the invasion of Iraq. And we had re you know, we were running and recruiting in a Rocky agent. I was handling him. So it was a penetration of Iraqi government and, and he had what we call, you know, very good, uh, order of battle information. So these are the, the, the disposition of Saddam Hussein's forces. And I pushed them. I was handling my, pushed him too hard. So he was crossing the border, crossing the, the, the, kind of the line between a Rocky Kurdistan and Rocky regime controlled rock, but we had him cross too much. And this is my fault.

Marc Polymeropoulos: (25:58)
This is, this is on me. And he ends up getting caught, um, and tortured and executed. And that really weighed on me heavily because it was my fault. Cause I pushed him too hard. You know, I was looking good back home in DC cause the Intel was flowing. Everyone was loving me and I did something. I made a mistake and I got someone, someone hurt, um, when it was, you know, likely not necessary. I fast forward that in part of my leadership principles, I fast forward to my time in Afghanistan and this was in 2011 and we were going after a high value target and an individual who had killed two CIA officers, but I was much more patient this time. And there was tremendous interest back home, but over time and, you know, and, and maybe some, a lot of false starts and, um, uh, uh, we just patiently built the picture where finally we could put this, this high-value target where we call on the X, um, where he met his demise, that doesn't happen, that's success.

Marc Polymeropoulos: (26:51)
And I'll say it was a success. Cause we, we killed a high value target who was responsible for the deaths of CIA officers. Um, that doesn't happen if I hadn't failed earlier. And failure for me earlier was pretty dramatic as you said, and that's not necessarily going to be, you know, happened in every instance, uh, in the business community or elsewhere. Um, but boy, I don't have that. We don't have that success later on if I didn't fail that first time. And I didn't really learn that that lesson went, that was ingrained in me. And the story ends, it's pretty remarkable where we, that night from a fire pit along the PAC Afghan border, um, we call the widow of one of our officers who was killed by this individual, this high-value target. And we, we told her that, you know, justice was served and then that we avenged her, her, you know, her, her husband's death. And you know, to me, that was really powerful moment as, as you know, we thought about what we had.

John Darcie: (27:39)
Yeah. I mean, P powerful is right. I'm sure you can't talk about a lot of things that you've done and seen, but just, uh, you know, the, the gravity of a lot of the stuff that you dealt with is just remarkable. But when you're in the heat of battle and you talk about this in the book and you're having to make decisions on the fly that are life or death decisions, what type of mindset, and you can apply some of this to business, which you write about in the book, what type of mindset or strategies or concrete steps do you recommend for people that are in the middle of a intense or a stressful situation to make sure they're thinking clearly and making sound decisions.

Marc Polymeropoulos: (28:12)
Sure. And so, so my principals kind of lead up to this cause if you've done several of the things that I talk about, that, that period of time where it seemed to be the most stress, actually, you, you find some calm. That's why I caught it. You find that you find that clarity. Um, and so, so ultimately, you know, most of the time in, in high stress situations, you're going to have a basis you're going to have kind of a core foundation of, of what you believe, uh, can be done. Now, for example, what I would do is as I build teams and so think about, you know, the end point, the high stress call you have to make, but I've built a team. I trust these other members of the team. They trust me, I've developed them, I've mentored them. You know, I've given them opportunities to lead, uh, you know, in other situations, um, there's processes, I've put in place.

Marc Polymeropoulos: (28:56)
One of the, one of the keys I talk about, I call it the process monkey, but there's core foundational processes in the intelligence business that we've done. Um, and so, so if you have, if you build that foundation, ultimately when it comes down to it, uh, the decision's not going to be difficult. I always talk about, you know, emergency rooms, such as scenarios, my stepbrother, um, his name is Matt Kaufman. He's a, he's a doctorate, Brooklyn. Um, he runs an ER there and, you know, and he's been on the frontline with COVID. And so, you know, when I, when I call and I ask him and I kind of explained to him the principles, the book, he said, this is exactly what we face all the time, but what have they done? You know, they have nurses, the glue guy, or the glue gal. They have processes, you have to do things to prepare someone before an operation, or if someone's coming in with a gunshot wound, you know, you're going to do a couple of things that are absolutely critical to ensure that person's survival. Um, and so, so you build those teams, you build those foundations then ultimately when there is time to make a tough call, it actually isn't that tough. Uh, and, and, you know, that's, that's what I, I now I learned this, I, I realized this at the end of my career after a lot of failing, but I think it's really important because it can apply to the business world, uh, you know, in, in really in tremendous fashion.

John Darcie: (30:01)
Right? How has technology, so you had a 26 year career and you got to the very senior levels of the CIA during that 26 year period of time, you lived through amazing technological innovation and change. How did your job change and how has the job of the CIA changed in general? Uh, as it relates to technology, has it made it harder, uh, to combat terrorism because the threats are getting, you know, greater, um, and there's more ways that people can hurt you using technology or as it become easier because you have the ability to track people using, you know, technology, or how has it affected the job. So

Marc Polymeropoulos: (30:37)
That's, you know, I think that you have to look at it from a couple of different ways. You look at it from technology on, you know, offensive standpoint, how do we use it more effectively? And then our defensive standpoint, because our adversaries can learn how to track us much more closely. Um, and so both are really important. And then you kind of, you kind of juxtapose that on top of the intelligence businesses about humans. And so the one thing that hasn't changed is the relationship that I have with a source. You know, it's an agent, someone, an agent is a forerunner we've recruited you spot, assess, develop, recruit, and handle someone. And that's a, that's a class on psychology, 5 0 1. So that never changes. You know, that's a deeply personal relationship. And I talk about it in the book because it's extraordinary. I had all the time, especially as a junior officer, I had other people's lives in my hands.

Marc Polymeropoulos: (31:20)
So that's going to remain the same, but how we innovate, um, you know, offensively and defensively is absolutely critical. And I think that's where, you know, especially when you see how our adversaries have the ability to track us, for example, I mean, look at biometrics, look at smart cities, smart cities sounds really good. Smart cities is the bane of the existence of intelligence officer. That means there's cameras everywhere. Well, I don't want, I don't want that. So if I'm going out in the street to try to meet someone, I have to defeat that camera system. What does that mean? I can't look like the way I'm looking. Like even my gate, even the way I walk has to be different. Obviously, physically I have to look different as well. I can't be carrying a cell phone. Um, whereas my cell phone during this time. So all these things to kind of think of so technology, we have to evolve with it, but don't forget.

Marc Polymeropoulos: (32:03)
It's, uh, it's, you know, the human intelligence profession is a, is a personal one. And that's what I really love, love the most. I mean, when you sit down with someone, you know, you're sitting across the, you know, maybe a hotel room, um, and this person says to you, you know, mark, your life is in my hands and if you mess up, I'm going to die. And that happened. I talk about it in the book, boy, that's a, that's a, that's a pretty weighty feeling on you. And it's, it's something that you actually then kind of that you learned that, that that's what drives you. Uh, you know, and so, so, um, yeah, it's a, it's a psychology 5 0 1 class. That's why I love talking

John Darcie: (32:33)
About it. Is that something that you feel like you were born with certain, a certain skill set or a certain disposition enabled you to be very effective in that job? Or does the CIA able to mold people and teach people the skills necessary to engage in that interpersonal aspect of being an officer?

Marc Polymeropoulos: (32:50)
So I think it's both, you know, you know, first look, you got to love people. So, you know, I joke like I'm a Greek American, I'm outgoing, you know, I'm, you know, I'm always, you know, in people's faces and loud and, and all of sudden you have, like, you can be an introvert, you got to love people. That's what you do. Um, now we are taught, you know, how to conduct Tradecraft. So we'll go to, you know, we go to our secret base somewhere and you'd go off for a year and you're taught how to run a surveillance detection route and how to, you know, put down a dead drop or make a mark a signal. Those are things that are taught. Um, but, but you know, the, I think the, the best CIA officers are those, um, who are kind of intellectually curious. Um, they certainly want to know about the world.

Marc Polymeropoulos: (33:27)
You know, my job was not to inter interact with Americans. It was interact with foreigners. Um, and, and, and just to kind of have that thirst for knowledge, and then kind of the last part. Um, obviously the people part is like, I never served, you know, in Paris or London, I was serving in, in, in the middle east. So, you know, you gotta be able to deal with some hardships and, you know, sometimes your family's coming with you too. So whether I have great stories, you know, we had no power or the water runs out, or, you know, the, the apartment in the middle Eastern city is infested with cockroaches. I mean, just crazy stuff that then you have this resilient family that kind of hangs on with you. But, um, uh, I think that the most successful CIA officers are just able to kind of roll with it. Uh, and, uh, and, and I I'll tell you one thing that, and maybe you, you both we'll, we'll relate this. I mean, growing up in, in, in central Jersey, it's, that was a great lesson and had a, had a joined the CIA because, uh, you know, my childhood was, uh, was a fun and exciting and loud, and, you know, that's what, that's what I kind of rolled into in my career.

John Darcie: (34:20)
Yeah. So you, you write for the Washington examiner, you write a frequent column, which I love reading, especially as we started preparing for this talk, I dug into a lot of your writing since you're a fantastic writer, but you talked about in one of the pieces in the last two weeks, I think it might've been last week, another four stars were added to the agency's famous Memorial wall for a total of 137. You talked about how you operate a lot in secrecy. Uh, you know, you had to call a widow to tell her about avenging her husband's death, but the world doesn't even know what he did and what you did, frankly, to thwart terrorism or other threats to the country. How hard is it to operate in that secret type of environment and make those types of sacrifices for the country? What type of comradery develops within individuals in, in something like the CIA?

Marc Polymeropoulos: (35:06)
So, you know, camaraderie is the, is the kind of the best term that, that, that you used. That was a really good question. Okay. I'll even admit to that. Go ahead, mark. I'm sorry. I had to just jump in there. Comradery is everything, you know, one of the principles I talk about in building these teams is, you know, it's family values and, and just that means, you know, having this love for one another and taking care of each other. And, and so, you know, comradery to me means, um, things like, you know, each year I still gather with the team that I was, that I led in Afghanistan, you know, at a little dive bar in Northern Virginia called the BNN. Um, camaraderie means when I came back from Iraq, the chief at the time, a guy by the name of Charlie Sydell, uh, uh, who, who has passed away, but he knew that a lot of us were suffering for some PTSD.

Marc Polymeropoulos: (35:53)
And so he, he hosted us at his, at his house on Cape Cod just to make sure we're all okay. I mean, it's a brotherhood and sisterhood. It, you know, it's not a nine to five job. And so, so th th th the aspect of, of this being, you know, not just a job, but it's, uh, it, you know, it's part of your identity. It's part of your way of life is really true. Um, you know, we are, you're a, doctrinated a little bit about that because, you know, or you're considered the tip of the spirits hard to get in, you know, it's hard. And then you have to kind of go through the selection to become an operations officer. Um, but it's a, it's a pretty small fraternity that clandestine service is actually quite small. Um, and so, you know, there, there is, there is a feeling that, that, you know, not necessarily that you're special, but you were part of something, uh, special.

Marc Polymeropoulos: (36:33)
And so, you know, when we, when, you know, we are, we are, uh, uh, you know, uh, teams of officers, individuals, but it's also teams of families. Um, I'll give you one story and I love telling these kinds of these stories, but, you know, I, I was, when I was in Afghanistan in 2012, my mom passed away in New Jersey suddenly, and I had to get home. And it was amazing. I was on the border. I was, I was 7,000 miles away and I had to take multiple helicopter flights and then a fixed wing to get home, to bury my mom. And I remember the flight out of my frontline base. It was, it was socked in with weather yet. Our helicopter pilots were like, we're getting out of here. And I remember, you know, we're hovering in a, in a mountain pass and I'm on, you know, where I'm in night vision, uh, goggles and, and, you know, on comms with them.

Marc Polymeropoulos: (37:13)
And I'm like, turn around, like this is too dangerous. And we didn't, and we eventually got to the next, the next space is to eventually get home. And I, and I, and these are, these are veterans that, you know, uh, uh, us military special operations, the best pilots in the world. And I went through them. I said, why don't you do this? Like, that was dangerous. And they said, chief, not. So they called me cause I was a base. She said, chief, you know, your mom died and we're getting you home, period, that's it. So how do you not have this affinity for your fellow men and women who you serve with when that's the kind of ethos that that has been developed? And, and that's what I talk about when I, when I talk about, you know, family values, you kind of build that love and camaraderie, um, and dedication to one another. And it's, uh, it's, it's pretty spectacular, but that's the part that, you know, people ask me, what do I miss in retirement? That certainly is, that is the part that I really missed even today.

John Darcie: (37:57)
Right. You know, from a mental health perspective, I think a lot of people that are in the military, they come out of service and they struggle to find that meaning, uh, that exists when you're in the throws of it, um, from a mental health perspective, is that a challenge for, for ex CIA that come out, uh, both finding that meaning and also coping with, you know, some of the obviously heavy things that you see. Gotcha.

Marc Polymeropoulos: (38:17)
So, you know, the answer is, is, is a hundred percent. Yes. And one of the things that I've seen happen, and I don't like it, and I've actually talked to, and I've written about this in my examiner column, but I've talked to, are the new CIO for CIA director, bill burns about it is, is why you so many kinds of formers end up, we would call them formers, are the people that retired, why are they leaving kind of bitter and disgruntled? Um, and that's, and so I think that, that, you know, that's not a good thing. And I think that a lot of it has to do with the transition to the outside world is so difficult. And so one of the things that, that I, you know, that I'm going to try to do is try to, you know, find ways to kind of keep the formers more engaged with the building, because all of a sudden you go from having, you know, the, the keys to the secrets of the planet to going out there and looking at the New York times in the morning and wondering, scratching your head, wondering if that's actually what is happened.

Marc Polymeropoulos: (39:05)
Cause you know, a lot of times it's not. And so that transition is, is certainly difficult. One of the things that I think has been helpful for me is I decided, and I, after, you know, some consultation with some, some other, you know, uh, former senior officials like, like Mike Morrell, uh, we talked, you know, we talked earlier about former acting director of the CIA, a good friend of mine. I said, I said, look, I think I want to talk and write about the agency. And it might be a little controversial, but this is an institution that the American people have to have to learn about for us to stay relevant and, and, and, uh, and to educate American people, but for me by doing so, I also still feel connected. So that's kind of how I have dealt with it as I wrote this book on leadership.

Marc Polymeropoulos: (39:42)
Um, and I liked talking to the American people about the CIA. And so that transition for me was not as difficult probably, but certainly for many others. Um, uh, it is. And, and it's, it's some of the, some of the, my kind of columns that are, that are coming in the future are going to talk about kind of the mental health challenges, um, that, uh, that many kinds of intelligence community and, and, and, you know, former military, um, face when they learn and when they leave service, because there's nothing like being on the tip of the spear, the us government, but then it's gone. And then, you know, and then it's time to kind of hang up your cleats and then you don't, you don't, you don't have that anymore. And that's for many, that's really tough.

John Darcie: (40:16)
Yeah. It's hard to go from being a tip of the sphere and thorning terrorist plots to being, and this is no offense to it consultants, but being an it consultant for some large corporation. And we work with a variety of organizations, um, uh, at the salt conference, frankly, that, that help both help veterans find meaning when they come home team Rubicon is one of them, Jake woods, uh, help veterans find meaning when they come home and also deploy this special skillset, uh, that CIA officers and special forces have when they come home to the maximum benefit of society. So I think what you're doing in terms of talking about these things openly, not in a way that reveals sources and methods and things like that, but talking about them, I think it's valuable, uh, for people that have served and also for our society to make sure that we're learning from people like you. So, uh, mark poly mirabilis, thank you so much for joining us here on salt talks. Again, the book is called clarity in crisis leadership lessons from the CIA Anthony, come in and hold that book up again. He's a better person.

Marc Polymeropoulos: (41:14)
The book, the book, the book is awesome. Mark. I really enjoyed reading it. It's a quick read, but it's got a lot of terrific content and we want to get the word out and, uh, we'll be, we'll be doing a lot of social media alongside of you to help promote the book. And so, so thank you. Thank you for your service to the, and we want you to get better with, uh, the Havana syndrome and, uh, you know, we, we're very grateful to you. Thank you, sir. Thank you very much. It's a great being here. Thank you.

John Darcie: (41:46)
And thank you everybody for tuning into today's salt. Talk with mark. Polymorph Nepalis talking about his new book, clarity and crisis. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on demand on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. Anthony mentioned social media. We're on Twitter at salt conferences where we're most active, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks. Again, this is a subject matter that we think is very important for people to learn more about, but on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Michael Greve: Forever Healthy | SALT Talks #221

“The rejuvenation biotech industry and shifting paradigm in medicine, keeping healthy people healthy, is going to be the biggest industry this planet has ever seen.”

As one of Germany’s most successful early Internet entrepreneurs, Michael Greve explains his pivot to investing in biotech and rejuvenation therapy start-ups. Greve notes that there are already significant advances in science and medicine, but a fragmented environment prevents efficient collaboration. For too long, Greve says anti-aging advancements have not delivered sufficient tangible results and he hopes to use his venture capital and network to help fulfill that potential. Greve ultimately believes the biotech industry, centered around keeping people healthier for longer, will be the biggest industry on the planet.

LISTEN AND SUBSCRIBE

SPEAKER

Michael Greve.jpeg

Michael Greve

Founder

Forever Healthy Foundation

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro and background

8:03 - Transition from entrepreneur to venture capitalist

10:23 - Greve’s personal health journey

14:50 - Forever Healthy’s mission around biotech, rejuvenation therapies and anti-aging

21:20 - Approach to aging and disease

32:02 - VC in biotech and market potential

36:00 - Biotech start-ups vs. traditional tech

40:30 - Latest $365 million biotech investment

43:53 - Management approach and attracting more investorsEPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Saul talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume in September of 2021 here in our home of New York city and our goal at those conferences and on these salt talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Michael brief to salt talks. Uh, Michael was one of the most successful founders of the German speaking internet industry together with his brother Mathias.

John Darcie: (00:57)
He created numerous ventures, including last minute dot D E a, which he turned into the largest last minute travel site in Germany. Most notably the brothers founded web dot D E and after a successful IPO, grew it into one of the country's most successful and largest internet portals and online media businesses. After the successful sale of his companies, Michael created the seed stage venture capital investment from Kazu, uh, that came to fund and mentor some of Germany's most promising tech startups, including babble Staffbase and Mamboo hosting taste talk is Dina Radenkovic. Who's a partner at the salt fund, which is an early stage venture fund and left investing in pro programmable biology, primarily life sciences, healthcare industry. Uh, now I'll turn it over to Dena for the interview.

Dina Radenkovic: (01:46)
Thank you, John. And thank you, Michael. I'm really delighted to share the stage with you today. Thank you for finding the time and calling us from and Germany. So perhaps we could start, obviously you have an incredibly interesting story and we'd like to find out more about it, but when John was selling your bio to kind of start with you are one of the most successful Durman tech entrepreneurs. Could you start by telling us a bit more about your early career? Like how did you become the most successful German tech entrepreneur, your brother Martinez? How did it become to develop last minute that the, that you sold last minute? And then, um, how did that evolve to create web D E

Michael Greve: (02:28)
Oh, yeah. That's a, um, uh, yeah, and interesting story there because, um, uh, actually I was my, my brother and I, we were always very, very interested in technology and, and I mean, we've lived through all the psych cycles of the tech world, basically owning one of the first apple, two computers in Germany, uh, teaching ourselves programming. Um, we both dropped out of university because we thought it's not that interesting to just learn stuff that numerous people already did before and started own software business and went to different stages. And, um, did software projects, uh, did software development for the Macintosh and, uh, and a lot of stuff. And then, um, at some point in time, this internet thing started and, um, and, uh, I was so excited about that. And, uh, that was really, really the super early days. So we had one internet happened, Germany that was in at the end, um, university of Tulsa, that was our hometown.

Michael Greve: (03:28)
And, um, I bought myself and, and, and a PC for, for, uh, uh, 86, uh, computer. And you had two very SCO Unix, or very, very complicated everything and your ISD and dial up networking. And, but I got ourselves an internet connection and the, one of the hops in Germany was university in Casa. So we made a deal with them that we could dive into the whole thing. And then we played a bit around with that. And then we saw the potential of the technology and we decided, okay, let's become an internet company. And we stopped all of our other business and said, okay, now we're going to be an internet company. And, uh, we were super excited about that thing. And, um, we went to, to seep it to the big computer fair by then. And we were on a small, um, uh, with a small booth there on the, on a shared booth with a big sign or company was called Synetic.

Michael Greve: (04:22)
And we said food service, internet, and, um, advertise that. And, uh, we went all over the show and talked to all the big companies and there were, sorry, everybody says, oh, internet, we don't need that thing. Or we have an it department, and yes, we have a server, uh, for, uh, Microsoft stuff, but we don't need this internet thing. So actually nobody wanted to have us. And, uh, the, the right next to us, there was not a small booth with the Greek guy and Manuel, and he wanted to sell, travel, uh, by using IST and to transfer the last minute bookings over IST and into PCs that were set up at, um, at the, uh, at, at the travel agent at travel agencies. And nobody wanted to have them either. So after the show, we said, Hey, we have to do something together. And then we said, you want to do this travel thing, but I stand is not the way to go.

Michael Greve: (05:14)
Let's do internet. And this is how we started last minute, Dottie. And, uh, basically as, as a, as a travel site and that by then people were still using modems to dial up to the internet. That was really, really early. And, um, we also started an agency business. We said, okay, we're going to develop a website and to all that stuff. And, um, and the question that always comes out, came up with the people I see, but yeah, this internet thing, but how would people find us? And we told everybody four months, yeah, there's this company, you know, Yahoo, they have this directory and somebody is going to do something similar in Germany. And, um, but actually nobody didn't. And then after a few months, like three, four months, I said, okay, we have to change that. And I wrote a little to put, to, to create a web directory. And then we just called in all our friends. And then, uh, over a weekend, we completely surfed the German internet. And by then there were 2000 websites in Germany and we put these 2000 websites in a directory and put that online under the name of web 30. And this is how it started from there. It just grew

Dina Radenkovic: (06:20)
Fascinating. Well, all the factors for successful second for nurse school, dropout learning, all being a bit discouraged by your idea initially, um, all the factors seem to be there. And, um, how was it working with your brother?

Michael Greve: (06:34)
Uh, well, actually we did, it was very good. So I mean, the, somebody I fully trust and we build, um, a web 30 to get the last minute to eat together. And, but when we sold last minute, but the, uh, somehow, or, um, entrepreneurial ways, part that he stayed a bit with the company when we sold it, uh, because we sold it to our biggest competitor and formed the largest internet business in Germany by doing so to compete better with Google and, and, uh, the American competition. And, um, so now I'm doing, we, we still have a shared office space and, but he's doing his things and I'm doing my thing.

Dina Radenkovic: (07:13)
Is there a lot of competition

Michael Greve: (07:15)
Between us? No, no, not at all. It's just the, uh, it's the, the, on the contrary we ate, well, we help each other a lot and we talk about our ideas and share. So, uh, I just had lunch with them, so it's really very, I'm really happy to have a very good connection to him.

Dina Radenkovic: (07:31)
Well, that's wonderful. I, it seems that you've had the great co-founder. And how has it, obviously, after, um, having and selling your company, so you went into venture capital and you had a very successful venture cap is a three-year as well by investing in some of the most promising Germany's tech startups, like Bob bell, fact-based bamboo many others with hizo technology. So how was it for you that journey from an entrepreneur to a venture capitalist and what are kind of the key take home messages that you would say to founder turns a VCs?

Michael Greve: (08:04)
It actually, it was just taking it to the next level and other time, because when we built web 30, I mean, we started out as a three, four people team. And in the end we have, uh, we had 700 employees and there was always a why we, we sold it because it was simply no fun anymore to run such a big company, because in the end, we really love to work with technology and drive things forward. And, uh, if you start growing your company and you're the, you're the CEO, I was the CTO. So you basically have your, all your product managers already that you're, and you have to coach them and make, make them successful. And, uh, once we sold web 30 is just taking it to another level because we, we don't see ourselves like just as financing people, but we really helped them to be successful.

Michael Greve: (08:50)
So this is our key, uh, approaches. We see ourselves as part of the founding team, we coach them, we mentor them. We really help them to build the equity story. And this is what I also, uh, enjoy most it's for me, it's not about, it was never about the money, but about the story that we could build, the success that we could create. And of course in the end, it really pays off. If you create something with a great story, that's very successful and with a lot of passion. So, and, uh, yeah, that's what we did. And then in venture capital, I mean, it's, it's a bit unusual in Germany in, in, in Silicon valley, it's the normal way to go. So once you're a super success, when you have all that experience, also all the growing pains, you know, if you grow from three to 700, um, there are a lot of, there's a lot of pain involved in doing that, and you have to learn a lot of things the hard way. And, um, and I had great, I had great coaches when doing that, um, that really helped us along. And we just wanted to pass that on. Uh, and, and to be helpful in that regards to our startups.

Dina Radenkovic: (09:55)
Well, it certainly turned out to be extremely fruitful. Um, and it's interesting to hear about your very hands-on approach, but investing, turning a bit more down the, the healthcare routes, you mentioned that you had the very unhealthy lifestyle of building your tech companies, as you can tell us a bit more about that. And do you really think that we need to have a compromise between healthy lifestyle while we're building and, and working hard? And w what's your view on that right now?

Michael Greve: (10:24)
Okay. So yeah, I had the super unhealthy lifestyle. It was like the epic tome of a hacker. You, you really could, if you would do this in a movie, you everybody would say, oh, really? Yeah. Uh, that can't be true, but it was true. So I was 20 kilograms, overweight, no sports. I was smoking three packs of cigarettes a day. I had two red bulls for breakfast. Uh, I had a bottle of red wine in the evening to calm down coffee all day. Uh, so smoking, smoking, smoke and meetings all day, and, uh, had a lot of fun working seven days a week, like 16 hours or so. And, uh, of course that was not super healthy. And at some point, uh, particularly after we sold web Dotty and bender the venture capital, I said, okay, this has to change. And, uh, and, uh, because I want to stay healthy.

Michael Greve: (11:11)
This is, uh, I say, okay, I can't go on like this. I didn't have haven't had any issues, but it became apparent that if I couldn't go on like this and to answer your second question, um, no, I don't think you have to compromise nowadays. I mean, 20 years ago that wasn't a wholly totally different story, um, to feed yourself, uh, to have a healthy diet or so that was something that was really uncommon by then. Um, nowadays, I mean, you have organic food everywhere. You can have paleo restaurants and you're in the cities. And, um, so it's, it's much easier from the environment to, to have a healthy lifestyle, but still it's a challenge because if you're really passionate and working on your thing, um, to find the time to exercise, to meditate, to sleep and to do all these things, it's challenged. Yeah.

Dina Radenkovic: (12:00)
Fascinating. No, I mean, for sure, and a lot of young people would say that they have to optimize for performance and that it's fairly easy to focus on health and lifestyle and wellness. Once people have a lot more time and resources on their hands, but obviously being a medical doctor by background, knowing that heart disease and atherosclerosis starts in adolescence, I'm very keen to kind of support this new wave of, uh, found well founded companies that have wellness, uh, at its core. And I think you, you totally explained it well that it's, we have no higher awareness. It's a bit more, it's a bit easier to do that. Right. So how has your lifestyle changed right now? You mentioned a bit of meditation. I don't know. You mentioned you had lunch. I didn't know if you had time restricted feeding. Was it later in the day, tell us a bit more about your longevity practices.

Michael Greve: (12:52)
Uh, generally I, I have a, uh, a very well organized schedule around that. So I, uh, I have my morning rituals. I, uh, I meditate, I do a yoga or Pilatus in the morning. Um, I do my stretching exercises. I do a gratitude journaling. I glued to affirmation. So all the psychology goes with that as well. Uh, I get my eight hours of sleep. I have a very good sleep hygiene and all these things. And then yes, I have a very clean diet, um, as well. So, uh, I, uh, look out for that, uh, as well. Yeah.

Dina Radenkovic: (13:31)
Okay. Well, you're definitely practicing what you preach and when you launch wherever healthy, I mean, forever healthy as an organization that does many things. So, um, it's a quite ambitious project. You will fund research at numerous incidents across the world. You do a lot of science education. So you run a conference and undoing aging that has now been moved for the spring of 2022. And you also, what I found really interesting is that you kind of grade this collections of medical knowledge basis and a research practical resources, depending for general public, to help them learn about longevity medicine. Um, and, um, obviously you also create companies in space. So which part of the forever healthy are you most passionate about and most involved on the day-to-day basis? Right.

Michael Greve: (14:20)
Actually, I have to say all, because right now, nowadays I don't do anything anymore that I'm not passionate about. That's the, uh, well, it was always that way, but it's clearly, it's clearly that, uh, that, that it's still that way. So I wouldn't do anything that, that, that I'm not really passionate about. Um, yeah, if I have a healthy, uh, is a mission-driven thing, um, we are completely private financed by myself. Uh, uh, I don't call it. It's a humanitarian effort, basically. It's about to enable people to extend the healthy lifespans. And, um, in order to understand what we're doing is if we have to understand what's going on in the world right now, especially in the world of, of, of, of science and medicine. So there are two really amazing facts. One is there is already a lot of medical knowledge that could be that if we would use it, uh, we could use to it to extend a healthy lifespans, but unfortunately that knowledge is buried in research, spread out over websites, special communities expert.

Michael Greve: (15:20)
So it's really, really hard to access even for medical doctors. So it's not really, really easy to access. That's one thing. And the other thing is that the world, as we know it, where we were completely helpless about our aging process and, uh, age-related diseases has started the transition to a world where we have aging under full medical control. And, um, H related, uh, diseases are a thing of the past. Of course we are not there yet. Yeah. But the theoretical groundwork has been done. Uh, so we know actually we know what we have to do in order to counter aging and through to, um, get rid of H related diseases, uh, on the theoretical basis. The basic research has started, uh, more than a decade ago. Uh, we have the first research results, um, uh, and even the first startups are there that take these, these initial results and try to turn them into therapies for human use.

Michael Greve: (16:18)
Of course we are not there yet. Uh, and we don't know all of them, this process will take it's it's, it's, it's a decade long thing. We don't know, maybe it's 20, 30, or 40 years. And, um, uh, but these two things together, the medical knowledge, that's not, that's, that's not used in this beautiful, uh, development of, uh, actually being able to reach of an eight people taking together that should enable us to extend a healthy lifespan quite dramatically if we use that in combination. So, and that is what we want to do. We want to accelerate that process. And so what we do is one-to-one, and we use, we want to use all the knowledge that's there today to bring ourselves to the future. And on the other hand, we want to accelerate the future. So the bring the future faster to us. And, um, this is also how forever healthiest structured.

Michael Greve: (17:05)
So one part of ever health is completely focused on what can I do today in order to extend my healthy lifespan, to a lower, the probability to have an age-related diseases and such. And on the other hand is what can we do to accelerate this future? And for accelerating the future, we are running the undoing aging countries, friends. We are, um, uh, we are funding research, uh, on, uh, the routine causes of aging and what we can do about them together with the [inaudible] foundation. And we also create startups in, in, in that area. Um, because I think this, uh, the, the, to really accelerate the rejuvenation, um, the availability of rejuvenation therapies, um, it's not enough to talk about this. I mean, if you talk to about, about to people about rejuvenation, it's totally sounds like science fiction, you know, and, and, uh, it's and you can talk as much as you want people to say, oh, okay.

Michael Greve: (18:02)
Interesting. But actually there's no emotional connection to that for foremost. So, um, right from the get-go my, my, my feeling was we have to deliver proof, and this is what we've set out with our venture capital company, because I've turned my venture capital company three years ago, completely on rejuvenation biotech. And actually we want to deliver proof and we want to prove that rejuvenation, um, is not, um, uh, science fiction anymore. And we also want to prove that, uh, Richard venation is not only for the Richards for everybody. Um, we want to prove that it's uncomplicated and we also want to prove that's the best business model ever. And when I talk about rejuvenation, we have to understand this. That's not going to be one pill or one shot that you get. And if you're 17, next morning, you wake up. You're 30. It's not working that way, but you have to understand aging. Aging is such a multifaceted process that you probably need like 50 or 60. Nobody knows how many different root causes and, and aspects we have to text. But what we can do is we can attack one after the other and, uh, reverse the damage that the body does to itself, just because it's an operation and, uh, reversed that step-by-step in order to extend a healthy lifespan. And this is exactly what we're doing with our startups.

Dina Radenkovic: (19:22)
Fascinating. So many things that will fall up, um, from what you've said. And I certainly believe that particularly in the, in the post pandemic environment and in the current climate, people are more interested, um, to firstly, more health aware and were instead invested in healthcare and in biological aging, and often kind of the barriers to entry into this field were from capital and talent perspective is exactly what you've said, lack of education. So I think what you're doing both with the academic conference, but also it kind of creating content for the general public and kind of democratizing access to this high end longevity medicine, which is just good preventative medicine, essentially. Um, it is really fascinating, and that is another reason why we got really interested in your work. And you mentioned obviously that there'll be multiple technologies, um, that are gonna focus on, on aging.

Dina Radenkovic: (20:16)
And you've invested in about a dozen off longevity companies and they each target when one's kind of looks at your portfolio, they each target a different pathway. Um, but often they have the aging as an indication, and sometimes it's another chronic disease or that is associated with aging or cancer. Which of these pathways would you, would you highlight from your current portfolio companies? And then secondly, do you think that we have a fundamental problem that aging is not classified as an and hence sometimes it's companies, even when they have good technology and good pathway to make sense? Um, they're, they're very plausible biologically, but they con go for aging as indication. So they almost need to find a plan B like another disease to go far. So they ended up spanning in clinical trials, even though the science is there, they're just not having managed to find the right fit. And how do you see that as a challenge in your current portfolio companies, but also in other companies in this field up for jubilation biotech as you called it? Okay.

Michael Greve: (21:21)
Yeah, that's a very good question. So, um, to answer your last question first, so, um, uh, aging as an indication, uh, is complicated. So because personally, I don't think that aging is a disease because, um, uh, you would, you wouldn't look at a house and say, this house has ages. The house has a disease. So aging is more a metaphysics. It's like the world, you know, uh, things age it's, things that just happen. So, uh, there's deterioration of something is an operation if your cost and operation, um, it ages, but it is, there's not a single process that you can say, this is aging. And, uh, uh, so, and also we have really, we have an issue to measure aging, so there's not a good way to measure aging and to quantify aging. So, um, so in that respect, what we're going for is individual root causes, and there are some root causes that are directly linked to diseases.

Michael Greve: (22:14)
For example, um, uh, let me give you an example, what, I mean, uh, one of our portfolio companies underdog, um, we are trying to get, uh, rid of heart attacks and strokes. So, um, uh, in order to, uh, understand what this has to do with rejuvenation is all the things that we see as age related diseases in, for example, heart attack, stroke, and even cancer are age related diseases because the prevalence goes up exponentially with age. So there's, there's, uh, uh, virtually no child, uh, at the age of 10 that has a heart attack, you know, but, uh, when you age, the, the, the, the probability of course goes up and in the end, we have to see, um, if we all would, uh, become old enough, we will have all, all each individual age related disease. It's just that one person dies of a heart attack sooner, and the other person dies of cancer, but in the end, we all have this deterioration that leads to all the age related diseases.

Michael Greve: (23:12)
So, um, uh, I think there's, yes, it would be nice if we have aging as an indication, but I think there's lots of things that we can do with the current regulatory environment. And underdog is a very good example. Um, uh, um, in order to understand what we are doing, there is an in how it relates to each of the nations, you have to understand how does a heart attack or stroke comes to pass. So in our bloodstream, we have cholesterol, uh, in particular LDL cholesterol, and that cholesterol enters the arterial wall. And in the, the cholesterol, the LDL is oxidized, and it's a recognized by the body as a foreign entity, then to get rid of it, the body causes the immune system to help. So the immune systems enter the arterial wall as well, and it sees the oxidized cholesterol and the immune system just, uh, gobbles that up the macrophages, the immune cells, and in the immune cells, you have a special, uh, waste processing plant called the lysosome.

Michael Greve: (24:12)
And so the cholesterol is pro uh, transferred to the lysosomes. And then the lysosomes, usually we have enzymes to break, uh, uh, things that we don't want down, and then they can be processed and released to the body or be disposed of, unfortunately, we don't have enzymes to break down, um, oxidized cholesterol, and that case it's seven Quito cholesterol. So then the body is really smart. Uh, the immune substance license has a plan B, so it says, okay, if I cannot get, if I cannot break it down and just keep it because it's harmful. So over time, uh, the macrophage and the license on when the macrophage, uh, gobbles up more and more of that, uh, oxidized cholesterol, and it grows, and then the license on growth and it, the, the, the macro fat grows, and it, it turns into a so-called foam cells. And these foam cells, they make up the plug in the arterial wall that grows first to the outside.

Michael Greve: (25:06)
Then it grows to the inside of the artery. And at some point the pressure is too high. And the arterial wall ruptures, the plaque goes into the artery and the body sees a, um, an injury. And then the platelets comes, you have to fix that injury by sticking together, and then you get a blood clot that blood clot closes up the artery, and then you have your heart attack. So, um, so what we have done now, we have developed a compound. It's, it's a funny thing. It's a, it's a sugar it's private, the most healthy sugar that you can think of. It's a cyclodextrin. And, um, that compound is able, you it's able to, through the bloodstream, enter their chair was entered the macrophages, enter the license zone, grab the C seven Quito cholesterol and transport it out of the whole thing and makes it disposable by the body.

Michael Greve: (25:56)
And by this re uh, turn the macrophages back into normal immune cells, deflate the plaque and no plaque, no heart disease. So basically what we do is reread juvenate the, the, the, the, the, the arteries by removing the, the plaque and restoring the youthful state. And it's a very good example of how rejuvenation works. Uh, um, we just remove stuff or we fix, uh, stuff that breaks and that the body cannot, uh, repair on its own. And by doing so, um, we, uh, no plaque, no heart attacks, let's say 80 to 90% of heart attacks are due to, um, uh, plaque summer, uh, through the chair cramping, but most of them are to no due to plaque. So, um, so this is how the technology works, and it's already pretty successful with so already demonstrated that we can grab the cholesterol, the seven keto cholesterol from foam cells and deflate them.

Michael Greve: (26:49)
So that's pretty cool. So now for accessibility, imagine you turn this into a, um, into a pill that, uh, and that is our vision appeal that in average cost $10 a month to swallow. So, and, uh, and this is also the, the, the big difference from the old type of doing medicine way by the paradigm was making sick people healthy. Again, I think we are at, at the, at the verge of a transition position and the new rejuvenation technology will allow us to do this transition to a completely new paradigm in medicine, which is keeping healthy people healthy instead of fixing things when things are broken. And so what I envisioned is a therapy that everybody over 35 can take that, but just prevent the buildup of plaque. Um, it's purely a smaller daily. And if, if you have that pill, no, uh, no heart attack, no stroke, beautiful thing.

Michael Greve: (27:44)
And, uh, our vision is that we can produce this pill for an average, let's say $10 a month, um, uh, maybe a bit more expensive in the Western world. And therefore in developing countries, let's say in India, maybe it's only $1 a month, but in the end, you have to see that we are talking about instead of a disease population. We're talking about everybody over 35 40, which is 4 billion people on the planet. And that also shows you that, um, it's going to be a super good business to keep healthy people healthy, um, because take 4 billion people that spend an average $10 a month. That's $40 billion per month, $480 billion a year. Um, let's say times 10 or 20 for a decent company evaluation. So we are talking about a market capitalization for the companies taking just this aspect of aging between five and $10 trillion. Just for that, I don't say this is going to be one company, but that's the potential of the market. And that's also something that we want to prove that this is a beautiful business model and a beautiful thing on your humanitarian, uh, side as well.

Dina Radenkovic: (28:55)
Fascinating. Well, I mean, Michael, you have quite a few interesting companies in your portfolio, and you obviously can to target most of the nine hallmarks of aging and a few additional things. You have a company like chondrial, hell, do you have a company? And it takes on a telomere raises. You have a company looking at cancer, you have a company with messenger and a technology, which is obviously an extremely interesting with the success of messenger RNA vaccines for SARS Coby, too. Um, but what I find fascinating is that the different approach that you're taking. So, um, just kind of to set a bit of a background is that for, for a big group of people in this, uh, aging research community, one of the necessary parts that needs to happen is the development of surrogate of aging. So they almost say like, if you, I mean, going with the old one, that if you can't measure it, you can't improve it.

Dina Radenkovic: (29:47)
They would say that it nothing really major can happen in rejuvenation biotech until we can quantify aging. And then we can slow in real time clinical trials that were conducted over five to 10 years, that the disease that aging is actually reversed. So, um, it's, it seems that you are saying that actually, we don't need to wait for the surrogate markers. We can start reversing this processes for chronic conditions associated with aging right now. Um, and when these come, they can kind of we'll incorporate in, but they're not necessary. Um, and, uh, the other thing is how do, what people often say is like, can we really fit this longevity companies into the standard venture capital model, right? Like, can they be as profitable as, I mean, you were in software and now you're turned into rejuvenation. So I've venture capitalists say like, yes, it sounds very interesting, but I can't, it's never going to be the same.

Dina Radenkovic: (30:43)
The, you know, it, within the timeframe solve the life of a VC fund, won't be profitable. It's more risky. Um, I mean, we focus very much on programmable biology, um, because we kind of use technology, um, and, and computational to solve problems in biology. So we believe that that the angle there is that it has a shorter translation time because this and this spectrum, whereas you have some really, really strong rejuvenation biotech company. So kind of going back from being a VC with softer companies, hands-on investment, how do you, how does that change when you, when you go to rejuvenation biotech, and you mentioned one aspect of making it profitable is essentially in trying to everyone, every adult should take it. Maybe we'll have it for, for every person, um, to kind of even stop, stop aging. But what are the other aspects that you think can be incorporated to make this more attractive for descender venture capital industry? Not just, yes, it's a good cause. And it's advancing the field that your reverts. So second one, okay. There is a bigger market because everybody ages at a certain pace. And is there anything else in addition, we can make aging research, particularly more biotech, play more fit for the VC model, or on the other hand, we need to change the financing model in order to advance this field.

Michael Greve: (32:02)
So, yes, uh, the nature. So, um, first of all, um, uh, I think one has to understand, and I strongly believe, um, the rejuvenation biotech industry and the shift, the shift in paradigm medicine, keeping healthy people healthy is going to be the biggest industry this planet has ever seen. So, um, it is, uh, I mean, if you look at, uh, uh, compare, uh, the, the value of having a nice mobile phone to, to what it's personally worth to you to know, I'm not going to age, I'm not going to have cancer. I'm not going to have a heart attack. I'm not going to have, so what is the difference, this and that. So what would you be willing to pay per year for having all this useful health for a long, long time? Whereas it's a new phone and now you see one company, uh, doing a phone has a market cap of $2 trillion.

Michael Greve: (32:53)
So that's one thing. And as you said, is, um, uh, in general for a VC or from an investment perspective, um, this is going to be the best business ever. I'm, I'm absolutely, uh, in, in for that, um, yes, financing might have to change. I think that, um, the, um, but, um, if you come from a D it is not the convention biotech play, I totally agree, but tech investors really get this, uh, approach that we are doing. So we're seeing a lot of interest from the crypto industry, from other tech investors. And also from my fund is, um, we are, we don't have partners, so we're just, uh, investing my own money and we're taking a very long-term view on the thing. So, um, we are thinking about 10, 15 years. Um, and, but there are people who can take that you, and especially in the tech world, there's a lot of money available and I think what it needs, and this is what we also try to do is by doing this companies and by showing what is possible to excite other peoples and in the end, it's just a matter of risk reward.

Michael Greve: (33:59)
Yes, it's super risky what we are doing, and it's especially risky, uh, what we're doing because we focus on category openers. So we invest in things that have not been done before, um, like a underdog or rebel, but we do it for example, uh, cross-link breaker decalcification. Nobody is doing this right now, but if we would succeed doing that, that's going to be a unique product, uh, with an enormous market potential and of course, high risk, but the reward is enormous. And of course, venture capital gets that. Um, so yes, you might have to restructure your fund. You might have to talk to your partners differently. Um, but there is a big, big upside, and we want to show this with our lighthouse investments that we do

Dina Radenkovic: (34:45)
Fascinating, but I, I'm a firm believer of that. And you've touched on two interesting things before I move on to the next section. And the first one is you go for new technologies and you make one bet per every technology and what it means technology. We often say in biology, we refer to a specific pathway. So often it's basically the first mover company that failed. Do you think that that can be, um, how often do you wait before you make a bet on a, on a certain field? So let's say in the field of San analytics or in the field of messenger and eight companies, or do you go with the first company that is driving the space and you think the first company has an unfair advantage that will start collect data as they go along and be the best. And then the second question that you touched upon there, you mentioned the link between cryptocurrencies and their interests. I mean, they're having a couple of Twitter threads, uh, quite recently about the link crypto and longevity, and that both that are kind of trying to, um, innovate in, in very kind of old, um, more, more central light industry, one kind of being financed, the other one being get traditional version of, of sick care medicine. Um, do you think there is an additional link, do you think we should get more people from cryptocurrencies interested in longevity or is that just naturally happened? Okay.

Michael Greve: (36:01)
So to answer your first question is, um, um, actually we don't invest in, if you take her, uh, if you really look at, we do not invest into, uh, companies per se, because it's not that the companies come along and then we invest them. We really helped to build, uh, especially our core startups, we help to build them. So it's usually in our experience, it was a two to three year process. We get in contact with the researchers, follow the research. In most cases, we even sponsored their research for two or three years, and then we help assemble a team. You need to see, oh, you need a good game plan. You need a development plan. Um, and it's not that easy. It's not like in, like in tech where you just have a few developers, they have a nice idea. You give them some money, everybody has a laptop, and then they do some programming and there you go.

Michael Greve: (36:49)
Um, it's completely different. So, uh, it is a two to three year process. So really we know the people for quite some time before we go. And there was the, uh, into the, uh, into company fund formation. It was the underdog with revel, with less strain and with Salvy, uh, all the same, we really went into the field and looking at the technology. And, um, and, uh, also this why we do this as Yardi is a lighthouse investments. And, uh, yes, I, I think that the first mover, it's not an unfair advantage is just a lot of hard work. I mean, uh, the, uh, if I look at rebel also, for example, when we tried to break cost links, um, they have been doing research for 10 years on that. So, and then, and then we respond to that research for, I think, three years, and now we're taking it to the company and still it is somehow at the research stage fund other three years. So it's a lot of hard work and nobody else is doing that work right now. So we're doing the work that nobody is doing. And, um, and, and, and, uh, yeah, we're doing this in, in a, in a company. Yeah.

Dina Radenkovic: (37:58)
And, uh, any notes on crypto on longevity?

Michael Greve: (38:01)
Oh, well, um, the things that we do or that sends to all the hallmarks of aging approach is this, um, basic old let's repair things that are broken. It's a very engineering approach. So it's, it's really like going to the root seeing what's going wrong, what's breaking down and then trying to fix that. And that also eliminates the need for complex markers. So if you see, if you have calcified tissue, you just decalcify it, and you can measure the decalcification. So there's no need for an epigenetic clock, for example, to do that. And, um, and, uh, it's obvious if something calcifies like your kidney and you can decalcified, it works better. So you get better rid of, uh, all the waste in your body. That's probably a very good thing. And, um, engineers get that the tech industry gets that the crypto community gets that.

Michael Greve: (38:50)
And I just expect that over time, more and more tech investors will move into the rejuvenation field, not so much the biotech investors. I think the funds are completely structured different. They have a different risk management, a different approach, um, uh, a different risk profile and, uh, take investors are used to making huge bets that prey pay off like a hundred times or a thousand times. You know, this is what people in tech look for. And also if you look at tech investing right now, um, the, the money that goes into tech, startups, dwarfs biotech investments in biotech, you're talking about all, we do an IPO at a hundred and 200 billion, a million that's already something. I mean, three of our startups already turned unicorns, hon, uh, before even going public. And, uh, we are in even pre IPO. We're talking about hundreds of millions flowing into our startups to gain market share. That's a totally different ball game. And I think we're going to see the same, same enrich of a nation biotech.

Dina Radenkovic: (39:56)
Yes. And I think that we're both on the, on the same journey, trying to bridge that gap between technology and biology and Michael, you recently made a incredibly impressive announcement offer to 360 million that you're going to devote to fund rejuvenation research. So, um, what do you plan to do with, with that, uh, money? Is it going to be through your funds? Is it going to be creating companies is going to be all of it? Can you give us a bit of, uh, an outline of your ambitious plan because you will have a decent budget to achieve quite a few things?

Michael Greve: (40:29)
Yes. So, um, that money, these 300 million euros or $360 million, uh, are in my venture capital company, keys zoo. And they are used to either form new startups, but category opening startups or support or key startups on the way to, uh, uh, to the clinic and to create product. And the, the idea is that we can track a stake. Uh, we can take a strong lead in our key investments, uh, which currently we have, uh, four of those and really support them all the way, um, uh, to, to the, to the end product. And by, um, taking a strong position, also encourage others to invest with us. So my, uh, I, I think that with, uh, taking the 300 million, um, we could, uh, enable and other three to four times, uh, the money in, in co-investments. Uh, so that's going to be a substantial amount of money that will really get our, um, uh, products, um, through the clinical phases, to the market, to price optimization, and to really get it to the masses at a very low price.

Michael Greve: (41:36)
So, because I think this is what is, what is needed most now in the market is success stories. I truly believe if we can show rejuvenation, for example, if we could show, I really hope for that. If we could show that we can remove plaque from the arteries in the end, by swallowing a pill every day, this is going to be really revolutionary. And then people will understand, oh, that is of a nation. It's not this machine where people are pushed in and then you push the 60 year old and then you get a 30 year old, but, oh, I just re we germinate. My Archer is, and I don't have a heart attack. Yeah. I get rid of DNA damage. Then I don't have cancer that is rejuvenation. And you do this in enough things. Then you, you, you, uh, keep a youthful body for quite some time. And, uh, once people would understand that the VC community will understand that will encourage other researchers to do this. So this is why I said, okay, we have to do this because we have been very fortunate with our internet investments. Um, as I said, we have three unicorns where we have been the founding investors and still on the substantial equity. And, uh, I just want to use these resources to really drive the, um, uh, uh, industry forward by creating successful companies

Dina Radenkovic: (42:53)
For sure. And I completely agree that we need a successful case study to really demonstrate the value and the purpose of this approach. And do you, have you carved out the percentage, what is for follow on rounds in your current companies? Because as you've explained, you have built your current company. So do you want to maintain the majority control over this? Company's hasn't moved fault, um, anything that you would have for creating new companies and what are your key partners on this journey? Often medical research happens in silos and aging kind of takes a step back to look at medicine instead of saying, oh, let's be hyper specialized led to say that many of these things that are likely to kill us just like here with aging. And there are similar disease processes related to nine hallmarks of aging and, and other things. So who are your key partners obviously sends Aubrey de gray and who is missing and w w what is missing in the ecosystem, um, that would enable you to do more.

Michael Greve: (43:53)
Okay. So, uh, to answer your first question, we're not going, um, uh, for controlling our startups. We don't want to have the majority. I personally, I'm a strong believer in strong founders. So we want to have the founders in control like that. That's not the case, usually in biotech because the founders are diluted to a negligible. And, but it's completely different in technology and technology. You need a strong founders and a few, we have to have the same here. Um, we just want to, uh, maintain a strong position to just help us guide our startups and be there for them. For example, it's very helpful if there's an investment round, you directly commit as an existing investor. Let's say I do 25, 30 or 40% of that round. So that, that, that helps the startup that gives the gifts, confidence also to other investors coming in, um, that also allows just non biotech investors to come in because the sell cake is always there. They're taking the lead, uh, which doesn't mean take the majority, but take the lead so I can just follow on. And this is already happening. Um, we have a lot of tech investors going along with us, they just say, okay, let him do the work. And we go along with it, but we also want to stimulate, um, uh, stimulate the whole thing. Yes.

Dina Radenkovic: (45:10)
Excellent. And anyone who are obviously sends, but any other key partners or

Michael Greve: (45:17)
Yes. So we are super open to networking. Um, we have one project running, uh, that's called the, the, um, rejuvenation network at QSU. We're building a network of a really loose network of venture capitalists, uh, universities, tech transfer offices, and really to create a community because, um, in, in biotech, especially with driven Asian biotech, um, the, the amounts of money that have to flow in the risk is very high and people like to, um, syndicate and to share the risks. So we are super open to that. We're really invite others to come in. Um, our main goal is to drive the industry forward to of course, to drive the, the, um, our startups in the, in this, uh, into, um, prove our key goals that it's working. It's inexpensive. It's for everybody. It's, it's uncomplicated and it's a good business. And, uh, but, uh, and this is also why we run the undoing agent conference.

Michael Greve: (46:12)
Our conference is a big networking event. Yes, it's about science, but hopefully next year, we're going to have the, the, the conference again. And the conference now has three tracks and one track is science. Second track is startups. And the third track is rejuvenation now. So what can I do now? And we're going to invite media as well. So we're going to have scientists, startups, investors, media, the blocker, but also the general media, uh, to prove that, Hey, there are things that you can do right now, the first analytics that can be applied today. And now it's not for the rich it's for everybody. I mean, you could take physically in as a supplement for us, might be a very good analytic, and that's just $30 a month. So that's not for the rich. Everybody could just buy that from Amazon, um, uh, to make that example. And so, yeah, I think networking and driving the whole thing forward is, is, is, is very important.

Dina Radenkovic: (47:08)
Thank you, Michael. And often we close it. What do you like to see play out in the next 20 years? But I think you've answered that in a sense that we're going to remove our cholesterol and one pill, and we're going to have one successful case study to kind of lead by example and in this field of longevity. Um, and, um, I guess what is the best way always you very active on forever healthy technologies is very transparent. You have a lot of information. Is there any other good way for people to keep up with, um, your, your team's work and your work online,

Michael Greve: (47:43)
Where you can, uh, go to our website, it's FIBA, uh, there shall be.org or.com. Um, you can subscribe to our newsletter. We have Facebook groups, we do regular online meet ups. You find that on our own page as well, where we talk about certain research that we do animal diseases that are a germination or maximizing health teams. We have scientists, uh, looking at, uh, all the latest research on certain topics and analyze that. So, yeah, we have to required a community around that, or you can visit the undoing aging conference. So we're very open if you want to collaborate as an investor, right. To ventures@qsu.com or find us on LinkedIn. Um, so we're really easy and we're very, very open, um, uh, to communicate

Dina Radenkovic: (48:29)
And share. Well, thank you, Michael. Thank you for finding the time and for sharing your impressive work. And we're very excited to have you in our network and John, over to you. Do you have any questions? Are you waiting for your cholesterol bill before you ask it? Yeah. You

John Darcie: (48:47)
Covered it pretty well. You know, I, I'm still a young guy, but, uh, you know, we could all use the cholesterol pill to help us out a little bit, especially in the pandemic. So, uh, we're, we're a few people have gained a, COVID-19 not just gotten COVID-19, but, uh, that's neither here nor there, but Michael, thank you so much for joining us on this week. Salt talk and thank you everybody for tuning into this week's salt talk. Uh, we love educating people on some of these massive breakthroughs that are taking place in the field of program biology and healthcare and life sciences, uh, that Michael has helped leading. And Dr. Dina has helped helping delete as well. Uh, just to remind you, if you missed any part of this salt talk or any of our previous episodes, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube.

John Darcie: (49:31)
Uh, we're also on social media. Uh, Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram, and Facebook. And again, please spread the word about these salt talks. We love educating people. These are all free open for everyone to access. So if you found this conversation interesting, please share it with your uncle, your aunt, your grandfather, your, your dad, your mom, uh, and, and educate them about things that are going on in this space. But on behalf of Dr. Dina and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Michael Greenwald: Dollar Hegemony | SALT Talks #220

“I don’t think digital currencies will be in competition. I think they’ll live alongside each other in a virtual wallet. I think each of these currencies- whether Bitcoin, Ethereum, digital yuan or digital dollar- they’ll all have different purposes.”

Michael Greenwald started his career investigating how financial institutions were used to facilitate the 9/11 terrorist attacks. Greenwald discusses the US Dollar as a key component in the United States national security efforts while preaching the importance of smart and targeted sanctions using the USD. China’s overtaking the USD as the global reserve currency has been incorrectly predicted for years- the biggest threat to USD’s primacy is complacency from US leaders, Greenwald warns. He sees the creation of a digital US Dollar as an important innovation in order to maintain the America’s leading role in the global financial order. Greenwald does not see the rise of digital currencies like Bitcoin and Ethereum as threats to fiat currency, rather he thinks they will all find their different purposes and will coexist alongside other currencies in a digital wallet.

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SPEAKER

Michael Greenwald.jpeg

Michael Greenwald

Director

Tiedemann Advisors

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

3:22 - Beginning career investigating 9/11 attacks

6:01 - Importance of the dollar as the global reserve currency

11:46 - Future of digital currencies

15:02 - China’s banning of Bitcoin

17:10 - Cryptocurrency’s use in illicit finance

20:11 - China’s digital yuan project and a potential digital dollar

25:21 - Intersection of the art market, digital currencies and NFTs

28:07 - Impact of digital central bank digital currencies

30:17 - Post-pandemic investigations and holding China accountable

32:08 - Pandemic’s long-term impact on global trade

34:34 - China, Taiwan and US policy

37:09 - Growing Middle East-China relationship

39:43 - Europe-China relationship

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. In our goal on these salt talks to the same as our goal at our salt conferences, which we're excited to resume here in September of 2021 in our home city of New York. But that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Michael Greenwald onto salt talks. Uh, if you've tuned into our salt Bitcoin review, we had him on a few weeks ago to look forward to going further into depth on different topics related to his expertise around geopolitics, the dollar, as well as things that are going on in the art market, uh, and just general global economics.

John Darcie: (01:04)
But, uh, Michael today is a director at Tiedemann advisors, which is a multifamily office with over 22 billion in assets, under management. And he's also the director for digital asset education at Tiedemann and digital assets have been, uh, uh, a continued focus for him as he's grown out his role at Tiedemann. Um, and in general, in the marketplace prior to joining Tetum and Michael serve in the U S treasury department in two presidential administrations and under three treasury secretaries most recently, uh, within treasury, he was the first us treasury ad Tasha to Qatar and Kuwait acting as the principal liaison to the banking sector in those countries, they previously held counter-terrorism and intelligence roles, uh, requiring travel to 20 different countries as part of his, uh, job there at treasury. Uh, he served on the U S treasury team that crafted sanctions against Russia, against ISIS, as well as against Al-Qaida at Tetum.

John Darcie: (01:58)
And he also leads their business development efforts in the middle east. So he's a very much an expert on everything in the Gulf, which we'll get to as well during this conversation. Michael, as I mentioned as an expert on the global economy on digital currencies and on the contemporary art market, which we'll also touch on later, and he's a deputy director at the trilateral commission and a fellow at the Atlantic council and Harvard Kennedy schools, bell Belfer center for science and international affairs, uh, where he published over has published over 50 articles already, which I would highly recommend you go over to the Belfer center website and read a lot of his writings there in 2020, he published a report in the Atlantic council called the future of the U S dollar weaponizing, the U S financial system he's been featured in Barron's the financial times and on CNBC and has lectured at Harvard Stanford and the council on foreign relations.

John Darcie: (02:48)
His philanthropic work has included serving as chair of the U S Holocaust Memorial museum and next generation board. And he holds a JD and a master's from Boston university and a bachelor's degree in history from George Washington university. Today. He lives in beautiful Palm beach, Florida, Michael, welcome to salt talks. We're looking forward to diving into it with you, but before we get into a lot of these topics that you have such deep expertise on, we'd love to hear in your words more about your experience there at treasury and just the arc of your educational career and professional career that led you to [inaudible]. Sure.

Michael Greenwald: (03:22)
Thank you, John. And thank you so much SALT Talks for having me. It's great to be here. Uh, I started my career really interested in following the money after nine 11, understanding, uh, how Al Qaeda, uh, his fundraising efforts were working post nine 11. John looking at the nine 11 commission report, looking at why $500,000 with being moved into the United States through us banks. What happened after nine 11? How our authorities got stronger, how we use the dollar, not just with terrorist groups like Al-Qaeda, but then to Iran, to Russia, and now, uh, towards China and now looking at where we are with digital currencies. So I had the awesome responsibility of working with an incredible team at treasury. Uh, it was truly a collaborative team effort, uh, across the community and treasury and, uh, and the intelligence community and the USG. Uh, and this was the bipartisan issue is following the money tracking terrorist financing.

Michael Greenwald: (04:29)
Uh, these were issues that we needed to tackle after nine 11. So I had the great pleasure of, uh, working against, uh, Al Qaeda and its affiliates in Africa, and really understanding how money John was being moved outside of formal banking channels. Um, I would call some of the illicit activity happening today, almost like digital hawala hawala is moving money out notes, uh, outside of formal banking channels. Uh, and then I had an opportunity to work, uh, with Europe and on their counter-terrorism efforts, whether it was wrong. And I think our, our sanctions against Russia war a watershed moment for me, and I think for the treasury, because we use the dollar, uh, in a, in a different scalpel, like way to use debt and equity restrictions. And then with ISIS, he went towards a different type of group where they were actually creating a state and using many different funding streams. So that's kind of where my perspective has come from, uh, where we are today.

John Darcie: (05:38)
So Michael, in those roles at treasury, you obviously witnessed firsthand the power of the dollars global reserve currency status. So before we get into some of these more in-depth topics for people that are less initiated on the value for the United States of having that status in terms of the dollar being the Globe's reserve currency, why is that so important? Powerful for us as a country?

Michael Greenwald: (06:02)
Well, the doll, or, you know, has many benefits. And I, you know, it provides the ability for the U S to support a global order, uh, you know, around free markets. Uh, democracy maintains influence really over the integrity of the global financial system, John and that's beneficial too. I would say, you know, all participant countries, um, it allows the United States to, uh, stabilize global economic shocks. Some would argue that the fed was the world's, uh, you know, central bank, uh, during COVID, uh, it provides the world with access to mature capital markets. Uh, one thing that China has not been able to develop yet in someone argue has a tough time doing, um, it continues to be the dollar, the world's, uh, primary unit of measure, um, means of exchange, uh, and store value. And the store of value is a very important point. It also affords John the world advantages in assessing a mature capital markets, um, offering low costs and stability. Uh, and then those markets, you know, chose the dollar. Uh, they chose the dollar, given that breadth and depth by the U S economy, uh, unparalleled liquidity, uh, and that's allowed for the dollar to play almost a 60% reserve role, uh, around the world right now for central banks.

John Darcie: (07:35)
And in terms of the implementation of sanctions, you know, why the fact that the dollar is so dominant around the world, how does that allow us to prosecute our agenda around the world as a country?

Michael Greenwald: (07:46)
Well, countries want to be able to bank and to operate within a us jurisdiction in New York. And so it's a privilege to be able to operate within the U S banking sector. And in order to meet that bar, um, you need to, uh, have integrity in what you're doing. Uh, so if you're an elicit actor and you are interacting with material support-wise, uh, with someone on a U S sanctions list, um, you cannot operate in the United States. You're if it touches the U S in any way, those assets will be frozen. Um, the best example is what led up to the Iran deal. Uh, if there were countries that were, uh, any way economically operating or interacting with Iran or their jurisdiction, um, they could not operate within the United States. And so there was a clear line in the sand, John of how the United States has weaponized the dollar it's been very effective. Uh, as you know, I argue that we have to be careful how much we weaponize it. We have to be careful how much we put that line in the stand, because as we are seeing with China and other adversaries, they're looking for ways to go around the dollar. So it's very powerful. We use it very wisely in our sanctions toolkit, but we can't overuse it.

John Darcie: (09:17)
So you talked about the idea that these countries, especially China and Russia, for example, looking for ways to circumvent the U S dollar denominated system. Uh, do you think that the dollar status as the dominant global reserve currency is under threat, and what will the implications of that be for national security for, for economic, uh, factors in the U S w what would that mean?

Michael Greenwald: (09:40)
Well, I don't think it's under threat per se. I mean, we're still 59% central bank reserves. There's been a lot of hyperbole about the dollar is going to be overtaken by the Chinese by 2020. And you've seen, uh, continents, uh, predict this incorrectly for years. So I think where the threat lies, John is the United States being complacent. And when you're the leader, uh, it's very easy to rest on your laurels. And we've got a lot of rate economic laurels, which are just laid out with the doll, the dollar, the rest on. So I think we need to continue to innovate. Uh, we need to watch what our adversaries are doing, but we have to be proactive. We can't just admire their rise. Um, so I think countries are actively looking for ways to work with other currencies and really follow a basket of currencies approach. But the real threat, in my opinion, is us not being able to innovate. And that's where it gets to, uh, the future of currency, digital dollar, uh, and alike,

John Darcie: (10:48)
Right? So let let's pivot there into digital currencies and we'll start with Bitcoin. So there's two different topics here. There's central bank digital currencies. The idea that, uh, if sovereign nations are going to digitize the dollar, the Yuan, uh, other global currencies and the impact that could have, uh, but there's also a Bitcoin, which is the dominant, fully decentralized digital currency. There was comments from Peter teal, the prominent, uh, venture capitalists, who recently said that he thinks that we have to consider the possibility that Bitcoin is a Chinese financial weapon. Maybe he was hyperbolized or there was some strategic reason for him to make those comments, but it's just an interesting thought that Bitcoin could have a role in helping to, uh, diminish the dollar status as the global reserve currency. What impact do you think the rise of digital currencies like Bitcoin will have on the dollar? And do you think the U S government is, is potentially going to regulate Bitcoin in a way that protects the dollar?

Michael Greenwald: (11:46)
Well, I think that Bitcoin is creating more choice in optionality, uh, for the consumer and for, for people. And so I think it's inevitable that, you know, Bitcoin and others are here to say, um, you know, some experts I speak with John, you know, liking the technology of Bitcoin right now to like Napster when the internet was starting and there will be other versions of it in a theory, him and others will build audit and each will be a useful tool, whether Ethereum is better for the art world or others, uh, we can get to, um, I would say that it's good to have optionality. It's good to have choice. Um, but I don't think Bitcoin is going to, um, hurt the dollar per se. I have a dollar is going to be strong in its own, right. Uh, Bitcoin will come under more. I would say regulatory guardrails by the U S government, uh, in the months and years to come.

Michael Greenwald: (12:52)
Uh, I think that central bankers are, are trying to get their, their minds are around what this means. Uh, uh, part of it, the market will dictate that on Peter Teal's comments. Uh, listen, China does not view Bitcoin as a legal tender. Um, they have taken some more hawkish actions in the last week. Uh, they're pushing their digital wan, that's their primary focus, but let's remember a large amount of, uh, Bitcoin is being mined in China right now. So, you know, there is, there is a narrative that's playing out there. Um, I wouldn't go as far as what Peter is saying, but what I would say is that it's creating optionality for people to operate outside of the United States dollar. And so that is one of China's goals. So in essence, Bitcoin is playing into China's long-term narrative and strategy, uh, for the us to not be as economic influential, uh, as they currently are right now, in one thing to note would be central bank reserves, right? So we're at 59% dollars central bank reserves right now, the lowest level in 25 years. Um, that's going to be a number to watch, uh, what would be the reaction, John, if we saw a headline tomorrow that said that dollar reserves drop below 50%, how would the United States react? So those are some of the things that I think are important guideposts to keep in mind.

John Darcie: (14:28)
Yeah, the, the Napster analogy is one I haven't heard, but one that's definitely interesting. And you referenced those moves that China recently made. They've banned Bitcoin and cryptocurrencies in various forms in 2013, in 2017, but that most recent crackdown, we actually wrote about it in our assault Bitcoin newsletter that we send out every Wednesday morning. So I steeped myself in that over the last week, and it definitely things to the next level in terms of how they're regulating cryptocurrencies out of their economy, including crackdowns on Bitcoin mining. So that asphalt aspect of it is also slowly going away. Okay.

Michael Greenwald: (15:02)
That was a great, that was a great writeup. And I would just argue some argue that that's because, uh, the Chinese currency and if digital one is not taking off as fast as they would, like, they're scaling up, mobility is not taking off. And so, uh, China's reaction, some would argue is insecurity and, uh, controlling that, you know, in the last couple years, because China under pressure, they've restricted gold from leaving China. And obviously it's a safe Haven asset. Everybody wants to, to, to point to gold. It's never a good sign in a country's economic narrative when you're restricting gold from leaving.

John Darcie: (15:46)
Yeah. Any country with capital controls in place would seem not to me to be a natural, uh, you know, sponsor of the rise of cryptocurrencies and Bitcoin, because it, it provides an avenue for people to skirt those capital controls. So that narrative around, uh, that TL basically put forward around China using Bitcoin as a, as a financial weapon, never really resonated completely with me. Uh, but it's just an interesting topic because of Bitcoin's role in, in potentially, uh, weakening the dollars global reserve currency status. But, you know, so we talked about this a month or so ago when we had you on the salt bit point of view, but I want to talk about it again for this audience, Michael Morel, uh, basically, uh, a group of people in the digital asset space got the former CIA director, Michael Morrell, uh, to author a report about illicit activities, uh, you know, related to cryptocurrencies, the colonial pipeline hack happened after that.

John Darcie: (16:36)
So we saw a use case example of an organization of hackers using digital currencies and Bitcoin in that case to collect ransoms after they hack the colonial pipeline, which obviously disrupted, uh, oil, uh, flow around the country and putting in the Southeast where my parents lived, they couldn't get gas for a few days. Um, but how much in your view is Bitcoin and other digital currencies or cryptocurrencies decentralized cryptocurrencies used in illicit finance? And how much should we be worried about that? Let's say you're a Bitcoin investor. How much should you be worried about a crack down on Bitcoin because of its role in illicit finance?

Michael Greenwald: (17:11)
Well, I, I think it's definitely an intelligence gap. Uh, as you know, Michael Morel points out. There's not enough data yet. I wish I wish the report had been done independently. Uh, I have a lot of respect for Michael Morel and he's a very wise and he's been through the trenches. Um, so it's important to note that's an important report. Um, but it's an intelligence gap. I think I used to deal with ransom payments when I was, you know, when we were countering Al-Qaeda in Africa, the groups there raised a lot of their money, John through ransom payments, and those were usually paid, um, in euros, right. Uh, or dollars. Um, now you're seeing a lot of these ransoms being paid, um, in, um, you know, digital currencies, Bitcoin and others. Um, the, the, the data that we have on this, I think it's still very low.

Michael Greenwald: (18:09)
And I think that the, the intelligence community, my sense, uh, is likely putting more resources to try to understand this data stream as a, as an investor. I think you criminals in terrorists are going to use every aspect of formal and elicit banking channels and non-banking channels to achieve their objective. So I think they have to expect that more of this will continue. And then more of this will operate, which is why I think it'd be wise for the fed and the government to have targeted regulation, not too much, not in an overhand approach, but at least some guard rails so that people can understand how to operate. Um, but, you know, listen, blockchain technology, uh, it can be a great tool for preventing criminals from actually using it. So I think there's both sides, but overall, not enough information, too many gaps, anyone that says all of this is Alyssa. All of us is not, there's not enough information yet to really make the determination.

John Darcie: (19:22)
Yeah. I mean, I think the, the first step is just digitizing more, more things, and we can pivot to talking about central bank, digital currencies, but obviously a us dollar paper has been used, uh, around the world, maybe for more illicit activity than any other currency in history. You talk about, you know, ranging from drug cartels to terrorist financing, you know, physical bills have certainly been used throughout history in that regard, but central bank, digital currencies. I know it's an area that you studied very closely. You wrote, I think what was one of the most thoughtful and Seminole papers on the digital one as part of the Belfer center research that you do. So talk to us about that digital won project. Why is China moving forward more aggressively than anyone else with that digital one project? Do you think it will be successful and how are they going about it?

Michael Greenwald: (20:12)
So China, you know, wants control at every level and that speaks to their longterm strategy. So the ability for China through its central bank to control the consumer, get streams of information about the consumer at every level, all payments that is, uh, you know, exactly what China, uh, lives and breathes, right? So I think ultimately they're looking to scale up and leading up to the Olympics and they've had lotteries, uh, over 50 million people have been using the digital one. Um, the big question is, is whether it can be used for joint trade and whether it actually gets operationalized John in the belt and road initiative, which has done a dollars right now, whether they're actually able to, um, have a deepen relationship with swift, how financial messages are being moved, um, and how it plays into OPEC. But what they're doing in China right now is that they are making this part of the culture part of the economic fabric.

Michael Greenwald: (21:22)
And so just like with Alipay pay and others, and everything will be done through digital one, and it will be in the interest of China and the consumer to be using it. They're looking to set a precedent for others. So Russia is creating its own China and Iran have an economic agreement in the last month raw and will likely try to follow some best practices of what's worked with China to operate outside of the U S dollar. So what I see here is a web of countries looking for control using their central banks, uh, to do that. Now what's dangerous is for that narrative to be played into what the United States may do. And the fed this summer is coming out with a paper on, uh, the possibility of a digital dollar, a central bank, digital currency, and the United States digital dollar will be the opposite of what China is looking to do.

Michael Greenwald: (22:28)
The United States is going to have to make sure that there's an act of Congress that still liberties are built in that there's oversight, uh, financial inclusion, all of these benefits, um, Lael, Brainard fed governor, extremely influential voice, uh, laid out yesterday, uh, really four key areas, uh, for, you know, digital, private money is what she called it. And, you know, she laid out, you know, migration to digital payments, uh, plans for the use of foreign central bank, digital currencies, and cross border payments. Uh, you know, there's a concern here in the United States, John, about financial inclusion. Those are the sharpen focuses of it. What I see, or I see a couple of main benefits, uh, for a digital dollar and not just the United States, uh, but really globally. So that would be, you know, providing the ability, uh, through its privacy regulatory capacity, uh, to really have a digital dollar platform.

Michael Greenwald: (23:30)
And that will allow the United States to reassert a Western standards, uh, values such as rule of law, reasonable privacy, complete opposite than China in Russia, in Iran, um, greater from faster transactions, reduced costs, uh, faster cross border transactions, which we saw, you know, in the COVID payments, uh, during, uh, the congressional acts, uh, checks will be mailed, uh, much quicker through digital dollar, um, greater transparency, accountability. And ultimately, I would say a narrative for the digital dollar to facilitate greater economic growth. And those would be a couple of the things that I think would be outlined in a narrative as central bank, digital currencies grow, um, and the Europeans and others grab onto it.

John Darcie: (24:24)
Well, it'll be fascinating to read that white paper when it comes out this summer, uh, because we've talked to various people on, on this salt talk series, including Marty Chavez, who was a senior executive at Goldman Sachs, focusing on technology and money in that intersection, uh, Goldman, he had some fascinating, real life use cases for a central bank digital currency. And it'll be very interesting to see whether, uh, the U S government starts to implement a strategy in that regard, but you are an expert on the art market as well. You've written a lot of very interesting papers. I think you're, you're a leading expert on this topic. You've talked about how the art market is helping to legitimize digital currencies, you know, moving it away from this stigma around illicit finance and, and the things that people might associate digital currencies with, uh, you know, who are less educated on them. Uh, and digital currencies are being used very heavily in the art market. You've also seen the, uh, explosion of the NFT market. Could you explain how you think the art market is legitimising digital currencies?

Michael Greenwald: (25:21)
Sure. So the art, market's sort of a fascinating case study as we're talking about all these topics. If you look at moments in time of the economy and where the art market has been, it's been a very important, uh, you know, comparison. So I view the, the, the big three, right? Christie's Sotheby's, and Phillip's the three major global auction houses. John, I view them like the central banks of the art world and what they are doing with minting their own tokens, uh, having sales in NFTs, allowing to accept, uh, different currencies, uh, favoring Ethereum, I would say in this regard, uh, and, and I would say gateways like a marker, um, or maker. Um, they are allowing the market to play out faster than our own federal reserve, our own banks, uh, here, uh, and elsewhere. So digital artists and NFT, this has been around since the fifties.

Michael Greenwald: (26:32)
The difference now is there is a market for it just like there was a market for the dollar. And I would say the reason why people have, I think gravitated towards Bitcoin and others is they were looking for optionality. They felt constrained by oversight. Artists feel the same way. They feel constrained by the canvas, John, and they want to operate outside of it. They want to have more rights, more independence. They don't want to have seven different, different intermediaries control, whether they're going to end up at art Basel or not, right. They want to have their own identity. So I think all of these themes, very interesting plane to the art market's growth as they do in the intersection of the future of money as well.

John Darcie: (27:26)
Yeah. And one of the great things about NFTs and tokens in the art world is that it gives that, uh, that artist control over any subsequent sales or at least they get proceeds from subsequent sales of their art, um, that allows them to share on the spoils, uh, that, that the speculation within art, uh, that, that comes along with that. So as it relates to Bitcoin, we've talked about central bank, digital currencies, we've talked about Bitcoin. Do you think that those are in competition with each other? You know, we have some people that come to us, uh, you know, we at SkyBridge are investors in Bitcoin who say, well, I'm just going to wait for the digital dollar to come. That's going to replace Bitcoin. Do you think those again are in competition with each other or what's the impact of central bank, digital currencies on Fiat currencies? Like the dollar?

Michael Greenwald: (28:08)
I don't think they're in competition. I think they will live alongside each other, John, uh, in a virtual future virtual wallet. And I think that each of these currencies, whether they're Bitcoin, Ethereum, uh, Coronado, digital dollar digital one, you know, digital yen, they will all have different purposes. And the, the future consumer, you know, our kids and our grandkids, they will have a virtual wallet and they will all live alongside each other. Uh, we'll be living in a basket of currencies, uh, mindset in a world where people want choices. So I, I think it's a false narrative to say that one's a threat to each other. The market will choose a which one is more favorable, depending on the purpose. I don't see Bitcoin, uh, really, uh, hurting the dollar too much or cutting it down. I think the market will choose a reasonable outcome as long as there is more guardrails, more regulatory guidance. Um, so that's kind of see how I see it playing out

John Darcie: (29:15)
Right or shift gears to a broader conversation around, uh, global economics and global geopolitics. So you also wrote an interesting piece. You've written a couple of pieces actually, uh, at, at the Belfer center around a vaccine diplomacy around public health sanctions. A lot has been made in the last couple of weeks about a new report in the wall street journal about the origins of COVID-19 the virus that it, that it emanated out of a lab in Wu Han, you know, how should the Chinese be held accountable if that's the case? And they withheld information early on in the pandemic that led obviously to economic and human tragedy, uh, around the world. Uh, do you think that the us should be actively trying to hold China accountable if they do find enough evidence to prove, um, that the virus emanated out of the lab, obviously the Biden administration has taken a more cautious approach. Some in the, in the former Trump administration have demanded a little bit more accountability, but how should we look at sort of managing public health outcomes, uh, using things like sanctions?

Michael Greenwald: (30:17)
Well, I, I think we would have to do it very carefully, very targeted, um, but accountability, especially, uh, post pandemic is critical to, to prevent future ones. So, uh, I, I think we need to understand the origins. We understand what went wrong, so that we can prevent it, just like how we can prevent another nine 11 to, uh, understand the origins and throughout, and from that from nine 11 came a series of actions and we use sanctions various strategically. Um, I think, uh, public health best practices, uh, is a form of our national security. Uh, and we have to treat public health, uh, more, I would say in that realm, but at the same time, there's, uh, a, I would say there's a human rights aspect to it. Uh, there are certain communities that don't have access John to the kind of care we have in the United States. So it's going to be a delicate balance if we were to apply those sanctions, uh, you know, how and where and what would be the impact. So we'd have to weigh the cost benefit, but I, I believe, uh, accountability through targeted sanctions, uh, is incredibly important because if we don't do that, uh, it will happen again. It will be repeatable, uh, and there needs to be consequences.

John Darcie: (31:44)
So the policy response to COVID-19, there was a lot of turning inward that happened in various countries and regions around the world for often, very practical reasons around, you know, containing the virus and sort of having determinism of your own outcome as it relates to COVID. Uh, but what impact long-term do you think the broader policy response to COVID-19 will have on global commerce global trade?

Michael Greenwald: (32:09)
Well, I think term it's, that's been one of the drivers, I think for digital currencies. I think digital currencies have thrived during this time. And so I think that's going to be looked at as a major watershed moment, uh, in the past year and a half, um, prior to COVID central banks played a huge role in the financial crisis. Um, and they played a very role here, but this allowed for there to be a turning of the tide. And I think that that's going to be one of the hallmarks of the future. Uh, in addition, I think supply chains, it was finally an event that put, um, a true awareness on what these major companies, uh, have to choose before them. Um, in addition, it's, it's, it's allowed countries like Australia and New Zealand to operate differently, uh, with China. Um, and so I think there is good. I would say the biggest takeaways I have going forward, uh, will be what it's done for the digital currency space, uh, and what it will do for the future of supply chains and the choice of costs, uh, companies will have to make.

John Darcie: (33:26)
So, um, John Siena was recently promoting a movie in China fast and furious nine. We're focusing on China for the last half of this conversation, but he basically slipped up and recognize Taiwan as a country and some of the promotion he was doing, he was forced I'm sure by the, uh, the movie heads, uh, to go out on Sinai, Weebo the social media app in China, and apologize for that mistake of calling Taiwan and country. I think you've seen China take, uh, a, an even more sort of pugnacious tone as it relates to Taiwan, maybe sensing, uh, an opening to do so with the, the, uh, onboarding of a new administration in the U S do you think that China will continue to take a strong posture as it relates to issues like Taiwan? Obviously you have a huge semiconductor market in Taiwan, and you talk about supply chains and, and for us national security reasons, the prioritization of building out our own microchip infrastructure here, but do you think China will continue to take sort of a standoffish approach with Hong Kong Taiwan and what's the U S policy response need to be to that?

Michael Greenwald: (34:35)
Yeah, that lies in a, in a policy of insecurity for China and, uh, their reaction, uh, where, uh, you know, someone would have to apologize. It's a kin to the thing, it's the SEF Rogan, North Korea movie, right. And the outcome after that. Uh, so that tells you, it tells you part of, China's really hand in this, that, uh, in the same thing happened with the NBA, uh, with China, uh, in the past year plus. So that shows you that they do holds, uh, quite a few economic, uh, supply chain cards right now. I would hope that we would move towards a better outcome where, um, we wouldn't have to apologize. Um, and we would be able to have more, um, I would say economic relevance, uh, an ability where we wouldn't have to do that, but Taiwan is a very sensitive topic for China. I think it's going to, it's going to be the major, uh, you know, tests and task, uh, for this administration, uh, going forward is, is how it dances around this issue, how it works with China on climate. Doesn't give away too many concessions, but at the same time, uh, moves the ball forward. Isn't just admiring the problem. I mean, administrations, Democrat, or Republican John, they've just been admiring, uh, uh, growing China for years, um, without much real movement. Uh, so, um, that will be a continued point of a growing insecurity for China,

John Darcie: (36:19)
Right. And one of your great areas of expertise is the golf, as we mentioned in the open, and you talked about at the beginning was that you are the attache, the commercial attache to Qatar and Kuwait. You're very steeped in the Gulf. Uh, you act as a business development lead at Tita men in the Gulf as well, uh, with China representing a much greater share of oil demand. Now that the us has greater energy independence. Obviously there's been closer ties that have been developed between Saudi Arabia, the UAE, uh, other countries in the Gulf and China, uh, and, and the Biden administration in general is taking a more cautious approach related to our alliances in the Gulf, do expect to see an eastward shift in, in geopolitical realignment, uh, between the Gulf and China, uh, in, in replacement of those strong ties that the Gulf has always had with the United States.

Michael Greenwald: (37:10)
I don't think doesn't mean you're a replacement, but I think that tide has already been turning. And China's been, I remember being mayor John in 2015 and 2017. And, uh, you know, I was watching closely, you know, China's movements in the Gulf and it's been in closing, uh, you know, increasingly close. Uh, I've seen, you know, most central bank governors in the region, all visit China, right? And you've seen delegations grow back and forth. Uh, so I think that will continue how the United States, uh, stays relevant, protects it, but the Gulf, the Gulf is the Gulf countries are intermediaries within intermediaries. They need many out, they need, uh, you know, many economic partners. So they're going to play the United States off China off each other. Constantly. The real thing to watch is Israel's relationship with China and how Israel uses their tech and their growing nature of their economy and what that looks like between the U S and China. Uh, that will be fascinating. I expect, um, greater Gulf. Um, I would say funding to go to China. And I think the type of deal that China did with a rod they're likely looking to, to do the same thing with certain Gulf countries, uh, to gain more influence. The big thing to watch is if there is a major thong between Saudi and Iran, where is China's role in that thought? And that will be a very interesting intersection to watch because China wants to be at that table.

John Darcie: (38:50)
So the last piece on China, that's, that's very recent in the last 48 hours or so the EU parliament basically froze any investment into China as part of a trade deal that was struck, uh, I believe last year, after about seven years in negotiations, it was a big deal when it happened. Um, and obviously Europe sort of stagnating and its growth has turned eastward as well. Uh, looking to stimulate growth through, through partnership with China, but also, uh, the Europeans have, have introduced sanctions on China for, uh, treatment of the weekers and that entire controversy. Uh, so what do you expect the relationship between Europe and China to be, do you think the Biden administration is going to work harder to create a unified front in terms of confronting China on human rights, human rights issues and intellectual property theft and the core issues that, that we're trying to work with China on, or what do you expect that relationship between Europe and China to look like over the coming years?

Michael Greenwald: (39:43)
So Yurman Shina, it's going to be a public frosty relationship privately China needs Europe in Europe needs China. So I think the, the public posture will be very different than what's happening. Uh, behind the scenes. I expect the Europeans defined workarounds, uh, to work with China. It is a good opening for the Biden administration. I was a bit, um, I would say disturbed, you know, prior to the administration coming in to office at China would have this deal with the EU. So I think this is a new opening, uh, you know, the president sending some of this top, uh, ambassadors, uh, to Europe shortly who are, have been closed aids to him. So I expect them to double down on that relationship and to really make it worth the EUS, uh, economic strategy to pivot more to the U S uh, than China. Um, but you know, I think what the EU has done to China, um, I, I'm happy to see that it's, it's long overdue, uh, but again, there's that public, uh, persona John and what they actually do behind the scenes.

John Darcie: (40:57)
Right. I, I think that was the biggest criticism of the Trump administration. Not that they, uh, you know, we're, we're taking pains to hold China accountable for a variety of different things, whether they didn't, uh, create that unified front in order to have more leverage, uh, in our various negotiations with China. So, uh,

Michael Greenwald: (41:15)
It lives in the middle is going to be incredibly important. And I think in order for this administration to really, uh, I would say achieve its its key objectives, uh, they're gonna need a work targeted with China and they're going to have to work much more multilateral with Europe and their allies. And, uh, you know, re-imagine what the G seven looks like. And I expect them to do that.

John Darcie: (41:38)
Well, Michael, it's been a pleasure to have you here on salt talks. Uh, thank you for joining us and also joining us a few weeks ago for that salt Bitcoin review. You're our go-to expert, uh, on any topic related to the dollar geopolitics and global economics and the art market as well. Uh, so I, I couldn't highly recommend enough that you go, if you're interested in what we talked about here today to the Belfer center website, uh, where Michael writes about a lot of these topics in even more depth, and I'm sure he'll be closely covering these central bank digital currency and digital dollar initiatives here in the U S especially as that white paper comes out this summer and we something, maybe we'll revisit another conversation with you, Michael, but thanks so much for joining us.

Michael Greenwald: (42:16)
Thank you so much for having me, John, great to be on salt talks again,

John Darcie: (42:19)
And thank you everybody for tuning in to today's episode of salt talks with Michael Greenwald of Tetum and advisors. Just a reminder, if you missed any part of this episode or any of our previous episodes, you can access them on demand on our website. It's salt.org backslash talks, and on our YouTube channel, which is called salt tube. We're also on Twitter is where we're most active on social media at salt conference, but we're also on LinkedIn, Instagram, and Facebook. And please spread the word about these salt talks. We've really enjoyed educating and even the larger group of people than we do at our conferences through our digital media initiatives, uh, during and after COVID. Uh, so, uh, so please, uh, spread the word about this conversation and other topics that we discuss here on salt talks from a half of the entire team behind the scenes here at salt talks, I'm John Darcie signing off, uh, from salt talks for today. We hope to see you back here again soon.

Land Economics & Taxation | SALT Talks #219

“It’s really dangerous in the long run for a society to have land and housing- essential stuff- traded as commodities… There’s a limit to how much private property and market fundamentals can be allowed to drive human evolution and evolution of the whole planet.”

Kathryn Lincoln’s grandfather John C. Lincoln, industrialist and philanthropist, founded the Lincoln Institute of Land Policy 75 years ago. The non-profit was created around the ideas of famous 19th/20th century political economist Henry George, author of the hugely popular book Progress and Poverty (1879). Dr. George “Mac” McCarthy explains the dangers of treating land and housing, essential things, as commodities. The free market around land use does not create responsible long-term incentives and has played a major role in creating the climate crisis we see today. Mac notes the Intergovernmental Panel on Climate Change (IPCC) estimates there will be 150 million climate refugees by the year 2050. A land tax is seen as the most effective solution to building equality across society while also addressing climate change.

The Lincoln Institute of Land Policy seeks to improve quality of life through the effective use, taxation, and stewardship of land. A nonprofit private operating foundation whose origins date to 1946, the Lincoln Institute researches and recommends creative approaches to land as a solution to economic, social, and environmental challenges. Through education, training, publications, and events, they integrate theory and practice to inform public policy decisions worldwide.

LISTEN AND SUBSCRIBE

SPEAKERS

Kathryn Lincoln.jpeg

Kathryn Lincoln

Board Chair & Chief Investment Officer

Lincoln Institute of Land Policy

George W. McCarthy.jpeg

George W. McCarthy

President & Chief Executive Officer

Lincoln Institute of Land Policy

TIMESTAMPS

0:00 - Intro

3:17 - History of Lincoln Institute of Land Policy

7:00 - Henry George’s findings around private property and poverty

11:30 - How John C. Lincoln would view current land policy

13:13 - Dangers of treating land and housing as a commodity

17:32 - Land policy changes and advocacy

20:20 - Climate change effects and potential solutions

28:55 - Addressing poverty and inequality through land policy

39:08 - The case for a land tax

43:23 - Relationship between land policy and water policy

49:37 - Lincoln Institute endowment asset allocation

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume here in September of 2021 in our home city of New York for the first time. But that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. We're very excited to bring you a conversation around land policy, but a lot more than that issues like climate change, water conservation, uh, with the heads of the Lincoln Institute for land policy, that's Catherine Jo Lincoln and Dr.

John Darcie: (00:57)
George McCarthy, uh, Katie Lincoln currently serves as the board chair and chief investment officer for the Lincoln Institute of land policy, which is an independent global foundation focused on addressing significant policy issues through innovative land use and taxation methods over the course of her 25 year tenure as the Institute's CIO, uh, Ms. Lincoln has led the endowment strategic asset allocation policy development, investment selection process, and draw policies. All of which have contributed meaningfully to achieving the current $700 million asset base. Uh, Ms. Lincoln also serves as a member of several other boards, including Lincoln electric holdings, a publicly traded company. Now she's also a member of the board of directors of the honor health network, uh, and Claremont Lincoln university, Dr. George McCarthy, AKA Mac as president and CEO of the Lincoln Institute of land policy based in Cambridge, Massachusetts, before joining the Lincoln Institute in 2014 Mac directed metropolitan opportunity at the Ford foundation, uh, Mac has also worked as a senior research associate at the center for urban and regional studies at the university of North Carolina, go heels, a professor of economics at Bard college resident scholar at the Jerome levy economics Institute, a visiting scholar and member of the high table at King's college of Cambridge university and visiting scholar at the university of Naples.

John Darcie: (02:23)
And finally research associate at the center for social research in St. Petersburg, Russia, obviously with his deep international experience, George is the perfect person or Mack has, I should say the perfect person to lead the Lincoln Institute for land policy and its global mission hosting. Today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:51)
Well, we're thrilled to have you both on John. Thank you. Uh, Katie and Mac, the Lincoln Institute of land policy its 75th anniversary this year. So let's, let's start with Katie. Uh, tell somebody that doesn't know what the Lincoln Institute of land policy is. What is it Katie, and why should we be super happy about its 75th year anniversary? Well,

Kathryn Lincoln: (03:18)
Let me give you a little bit of history, Anthony, cause I think that, um, some framing of it is, is interesting. So 75 years ago, my grandfather, John C Lincoln, decided that he wanted to have people understand a little bit more about land policies, specifically about tax policy and land tax policy and how that policy could really help underserved communities be better if you will. Right? So he wasn't in bedroom. He was a Renaissance person. As, as John said in my intro, I'm a member of the four, the Lincoln electric holdings company, the world's largest welding company. Um, he started that company in, um, 1895 with $200. So based home capital this year, we'll set, we'll probably have 3 billion close to $3 billion worth of sales. Um, so he had the chance to be an entrepreneur, a Renaissance person. And with some of that wealth, he started the Lincoln foundation, which really examined things around land policy and land taxation policy around the work of a gentleman named Henry George, which I'm sure Matt will talk about when you get to questions around tax policy later on in our conversation.

Kathryn Lincoln: (04:29)
But he, but my grandfather really wanted to think about those things. So he started the foundation and then my grandpa, my father took up those rings later on in 1974 and started the Lincoln Institute of land policy. He realized that there was really no place specifically in the seventies that was looking at land as a specific policy goal. And so he started the land pop, Billy get his to land policy because when you think about it, Anthony land is maybe no pun intended, but sort of at the bottom of everything. I mean, when you think about it, it's important and it really matters. I mean, my, my land policy matters to me a lot. Your land policy matters to you a lot. I, you might not care if someone's going to put a nuclear power plant next to my house, but I certainly care. Um, and you would care someone put a nuclear power plant next to you.

Kathryn Lincoln: (05:18)
The policymakers in your community really are the people who are making your life the way, the way it is. Right? And so not only getting student land policy works globally to think about how land policy can be part of a suite of solutions around global macro policy issues. We're going to talk about these today. I hope, you know, climate change, fiscal health, all those sorts of things, but it has its deep bruise and the visions of my grandfather who really wanted people to have better lives. Really, really he and my father there, their mantras, where the golden rule, you really wanted people to have better lives and better lives to thinking about how better.

Anthony Scaramucci: (06:02)
So professor, um, Mack, we're going to all your professor Mac for the sake of this. I feel like when I call you Mac after, uh, John Dorsey, read your bio, it doesn't do you justice. So you're going to want to go with professor Mack if you're okay with it. That's fine. A couple of couple of years ago, I read a book called the Nobelist triumph and it was called property and prosperity through the ages. And basically the, the author was making the case in the book that private property, uh, was the elixir for growth and the elixir for prosperity. Once people recognize that they could own a plot of land that they could call their own, they took care of it better. They built upon it. They, there was a blessing, uh, to property. What is your thought or reaction to that professor Mack?

George McCarthy: (06:56)
Well, certainly lots of volume Mac after this next question. Yeah. So the thing about, uh, property is that, um, there's, um, a lot of benefits that accrue to people for, um, owning and controlling a property. And, um, more often than not, those benefits are unearned and that's kind of the thesis of the work of Henry George that like Katie's grandfather decided it needed to be, uh, told more broadly now, uh, the fact that, uh, you know, people have been able to leverage, uh, ownership of property into other, uh, you know, economic growth, um, personal assets, um, you know, the transformation of places and countries and, and landscapes it's it's, it's undeniable, um, whether or not it could be done without, um, you know, the institution of private property and the private ownership of land is probably arguable. I mean, the, the greatest economic growth of the last 20 years has been in China where, uh, there's no private ownership of land.

George McCarthy: (07:59)
And, uh, you know, the back country has been able to actually surpass the United States and economic growth for the last 20 years, um, through a different kind of sets of policies and approaches to investment and, um, and you know, industrial and trade policy. So I don't know the, um, you know, just to go back to the, the issue of, of how land gets its value, because that's really kind of at the core of what the Lincoln Institute does. Um, Katie's grandfather was struck by the idea that, um, you know, Henry George said during the, uh, the industrial revolution, incredible amounts of wealth created through the, um, through invention, through investment, through hard work of lots and lots of people. Um, and, uh, he was kind of struck by the fact that in spite of the fact that economic growth was running a pace, uh, there was, uh, seem to be this distressing, um, endurance of poverty and in particular urban poverty that just didn't seem to go away.

George McCarthy: (09:00)
And he's trying to figure out why it was that poverty persisted in the face of all those opulence. And he concluded that the, um, uh, the benefits of economic growth are being distributed, um, in, uh, in a bad way. Um, and that distribution problem was that the people who are generating the wealth, um, capital and labor were getting taxed to fund the public sector. And meanwhile, uh, landowners were getting all the benefits of economic growth, uh, and doing nothing to earn them. And essentially what he argued was the value of land is almost always created by, um, actions that go beyond the actions of the landowner, whether it's public investment in infrastructure, whether it's the, uh, you know, the collision of people in cities that just raise the level of, uh, uh, value of land, having nothing to do with the people who are sitting on the land when they get there and having everything to do with all the public interest in owning land.

George McCarthy: (09:57)
Now that there's a glomeration of population. So what Henry George said was if we taxed away the under an increment of land value from landowners, we could actually eradicate poverty and fund the entire, uh, public sector. And, uh, that was the, the thesis of the book that he wrote called progress and poverty, which was, um, uh, at least in theory, or at least claimed to be the second, most popular book in the world. In the 19th century, after the Bible, it was translated to 30 or more languages and published all over the world. And, um, Henry George was, uh, was, you know, a barnstorming, uh, you know, political economists running around giving speeches. And he ended up in Cleveland one day and he met, uh, John C Lincoln, and the rest is history.

Anthony Scaramucci: (10:49)
So, so Katie, I mean, it's a brilliant exposition. Thank you, Mac, uh, Katie, if your grandfather was here today and he saw our society today, and he looked at land policy today, uh, what do you think he would say? And what would he, what would you think he would want changed?

Kathryn Lincoln: (11:11)
Wow, that's a good question. Anthony Johnson.

Anthony Scaramucci: (11:14)
I finally got a good question. You see that? Okay. You're not the only person that asks good questions.

John Darcie: (11:20)
I was hoping to save that one for myself. Let me, let me, let me repeat

Anthony Scaramucci: (11:23)
The question. Cause it was no, I'm kidding. Katie. Tell me, tell me what he would say.

Kathryn Lincoln: (11:30)
Um, I, I think that he would still think that there, there is, there's an equity there's unfairness in the way that people live and that way people are marginalized. Um, you know, there's, there's still, my partner is a real estate professional. And so he tells me that there's still in some places in this country, there are still laws that say, or, um, in NHL ways that say you can't sell to certain types of people. And, you know, you, you hear about neighborhoods that have been decimated because certain types of people can't live there. I think my grandfather would be appalled by that. I think that he would think that, that you should think should be open and that, and that everyone should have an equal opportunity to live someplace, to work someplace, to put an or in the water and pull equally with the person next to them, just, you know, whether they were whatever their skin tone, whatever their religious preference. Right. So I think you would be appalled at the way that we have segregated our society and marginalized, huge swaths of people. It not only in this country, but globally.

Speaker 5: (12:44)
So, so Mac,

Anthony Scaramucci: (12:45)
And I think that's brilliantly well stated, and it's an obvious problem. And I think we would probably all agree and correct me if I'm wrong, the problem is getting worse. It seems like there's been more separation and more disequilibrium in wealth. So, so Matt, what would you do? Let's say you were the grand czar and you could figure out a way to create better land resource allocation, uh, here in the United States and around the world. What would you do?

George McCarthy: (13:14)
Well, Anthony, I think the, one of the first things I would do is, um, recognize that, uh, it's really, um, it's really dangerous in the long run for a society to, to have, um, land and, uh, and, and the things on it, like housing, um, you know, essential stuff traded as commodities. And so, um, I would, one of the things I would do is I would preserve, um, a significant share of those resources, those assets for, um, for the, for, for the public, for the public use. Right. And so I would, um, I would pull a large share of our housing stock out of, um, the tradable market. And so that it couldn't so that, you know, um, the quiddity, that's piling up in any number of places around the world. Couldn't bid shelter away from low-income people because they see it as a good investment opportunity.

George McCarthy: (14:07)
Um, similarly land, uh, shouldn't be traded as freely. And, um, we would find ways to, um, uh, keep a certain share of the land available for, as the infrastructure for the society to, to run. Um, part of that, if you, um, if you then impose kind of more and fairer and better enforced kind of land policies, you could also make sure that the right things get built in the right places that the right, um, um, uh, you know, the right use of the police powers of planning are actually, uh, you know, designing places that actually worked for us better, uh, not just designed to kind of, uh, follow the, and let the market decide kind of what gets built, where and why. Right. Um, and I know that kind of runs counter to the idea of, um, of, uh, private property. But, um, I think that, you know, there's a, there's a limit to how much, uh, private property and, uh, kind of, um, market fundamentals, uh, can be, uh, can be allowed to kind of drive human evolution and not just human evolution, the evolution of the whole planet and, and, you know, in some ways, uh, an untrammeled, uh, you know, uh, freedom to kind of, uh, whatever trade and, and bargain in, uh, in nece necessities like land and housing and food, um, lead us into kind of a, a bad place.

George McCarthy: (15:39)
And that's one of the reasons why we have some of these really unassailable challenges, like a climate crisis to deal with, because we haven't been willing to kind of, you know, exercise restraint on ourselves and prevent ourselves from doing really, really damaging things in the longterm, in, uh, in exchange for short-term benefits and profits. Right. So I don't know, I, you know, there's a, I could probably write a thesis on it. So it's a, it's a pretty broad question, but I would say that if we just find ways to kind of, uh, impose a different sense of fairness into the way we make decisions about the use, uh, the taxation and the, um, and the, the transfer of land we could get, um, a lot further than we're able to get. If we just allow all those decisions to be made kind of in a, in isolated markets,

Anthony Scaramucci: (16:29)
You know, and again, this is just, I'm going to test this theory on you, Katie. You tell me if I'm right or wrong. Um, I find that, uh, and forgive me for saying this, we're going to leave John out of this. Okay. I find it's our generation, the baby boomer generation, that for whatever reason has been neglectful from a policy point of view, related to the climate, if I'm wrong about that, you guys correct me. Um, but I do feel like we're having a frat party with the environment. And then we want our kids and our grandkids to live in the frat house on Sunday morning with the bong water on the floor and the broken windows and so forth. And I'm wondering, is it possible to shake our generation, which let's face it is still more or less in power politically. And if not politically, also commercially around the world to shake our generation to do more Katy, am I wrong about that? And if I'm not, what can we do to shake these people to do more?

Kathryn Lincoln: (17:33)
Yeah, I think that you're, you are right. I think that we're slowly us old people are slowly seeing a light. I think it's, um, I think we're slowly seeing the light and I think it's people John's age. Thank you, John. And my children's age who are, you know, shake taking us by the collar and shaking us and saying, Hey, you know, this is why are you drinking out of a plastic bottle? Why aren't you using the recyclable one that I gave you for Christmas? I mean, just little things, right. Everything, every little step helps. So, um, but I think what it's gonna take, Anthony, I mean, I think it's going to take leadership from the top, right? I think that it's going to take, um, science doesn't lie. Right? And I think that people need to have to, there, there needs to be leadership to say science doesn't lie, and you have to beat our heads up with it, but science doesn't lie

Anthony Scaramucci: (18:31)
Not to interrupt, but we have a good 40% of the population that does no longer accept science. So we have two battles going on. Right. We have the science anti-science community now, uh, in addition to the climate change issue, right? I mean, I don't know. I mean, it's not just not just the client is with vaccinations or public health and safety.

Kathryn Lincoln: (18:56)
Right. But I think what we need is more leaders who are willing to stand up and say, science isn't lying and help people educate, you know, we need to, we need to continue to educate Lincoln Institute is, is by and large, well, uh, an educational organization, right? I mean, we really strive to provide good education around issues of land policy, right? I mean, around climate change around municipal fiscal health, around land policy taxation, but we really work at helping to educate policymakers so that they can make better policies. And then in that way, we are hopefully moving the needle on some of these issues that you referenced it.

Anthony Scaramucci: (19:39)
So I want to, I want to bend that needle. I don't just want to move it. I want to like totally bend it. You know, like, uh, like they did in those old silent movies, what do we do, Mac, how do we, how do we really force a major sea change? Because we know when we know even the climate deniers, I say to them, well, what about the AR you know, if you're in Beijing, New York and you've got small concentration, the asthma rates for these kids is going through the roof. So, I mean, maybe you don't believe that the climate is changing, but the pollution is affecting your shoulder. What do we do? Mac what's? Is there a bazooka that we get pull out a policy bazooka?

George McCarthy: (20:20)
Well, I think that the bazookas that are being pulled out are the, um, the climate bazookas that we've been experiencing, or just over the last few years. I mean, the, uh, you know, the, the, the shutdown of the entire power grid in Texas is just an example of, um, one of those events that happens it's supposed to happen every a hundred years or so. And it happened twice in the last 30, right. Um, the, uh, the flooding of, of, uh, of Houston, I don't know how many times of the last three or four years from these superintendents, tropical storms, wildfires, and all through California in the U S west wildfires in Australia that decimated that continent. I mean, the, um, we're seeing it over and over again. And, and, you know, there's, there's some things that you just can't deny like the, um, you know, uh, clear day flooding on the streets of Miami, because now sea level rise is actually starting to kind of show up because the, the, the water level is rising underneath the city.

George McCarthy: (21:21)
Right. And, and so, um, pretty soon you're just not gonna be able to deny it. And by then, um, luckily for us, the innovation that's been taking place, um, all around the globe in terms of finding new ways to substitute out kind of, you know, carbon intense, um, energy generation or carbon intense transportation, it's already there. I mean, we know what we need to do, and we know how to do it. It's just a matter of really committing the political will to do it. And I think that, um, more and more, you know, especially as people of our generation die off, the others are just committing themselves to really making, you know, the right kinds of things happen. So I'm actually pretty optimistic. I think that, um, carbon neutrality is something that people are actually talking about now. And we, weren't talking about carbon neutrality even five years ago, finding ways to make entire kind of corporations, carbon neutral, whole states are trying to commit the carbon neutrality countries, right.

George McCarthy: (22:19)
Um, and finding ways to really, really aggressively substitute out all sorts of, um, different, um, you know, carbon producing measures for carbon reducing measures, and now even finding new technologies to, to trap carbon in soil and in the, in the, in the ocean. And, and, uh, anyway, I think that, uh, that once we were actually on that path, and once we actually even create the market to kind of drive it where we're getting much more active carbon trading markets, other kinds of markets that are, that are, are just waiting to kind of get unleashed. I think that we're going to find that the incentives are going to align and things are going to happen really, really fast because the automobile has only been around for just over a hundred years. Right. They're really not commonly in use for about, you know, maybe 75 or 80 years. Um, so, you know, uh, things happen very quickly and, you know, we look at things in terms of quarters or years, or even lifetimes. Um, everything can change in a, in a matter of, you know, uh, one generation and it will be stunning and not probably won't be around to see it, but I think we're going to see an entirely different world, uh, in, in the next generation

John Darcie: (23:33)
Mack, I have a followup question about, about climate. So I know that the Institute focuses on six goals, and it's a global mandate that you guys have over there. And the first regarding climate related issues in what geographies that you guys work is this climate crisis most urgent, there's a place like Jakarta. That's close to being underwater. If we further sea level rise, they're engaged in a 30 plus billion dollar effort to move their capital to Borneo. Uh, there's other cities around the world that that potentially potentially are in the cross hairs. If we get greater warming and sea level rise, what areas do you guys work are most, uh, most in danger and what can be done in those areas to, to help them withstand the impacts of a warmer climate and is, is how much is climate migration part of that?

George McCarthy: (24:25)
Well, it's, there's a, about three or four questions. Let me see if I can kind of, I

John Darcie: (24:29)
Got to get my licks and while I can back. Yeah. So,

George McCarthy: (24:31)
Well, number one, I mean, the thing is that almost every geography we work in is affected by the climate crisis in one form or another. And that the problem is that it's not just one thing, it's everything it's, whether it's wildfires in Australia or California, or whether it's sea level rise in Bangladesh and Indonesia, or the entire Pacific rim, all the coastal cities are in trouble, right? The, um, uh, the entire Gulf coast, right. Is, is in trouble, uh, from sea level rise, Miami, I don't know how Miami survives this because there, there's no way that you can actually protect the city because the water comes in underneath. Right. So it's going to be really hard to kind of seal it off from a water that's going to be rising from below. Right. So, um, it just depends on what your, what you know of what you think is the real crisis.

George McCarthy: (25:19)
I mean, right now, in terms of climate migration, the, the, the, you know, the, what's it called the IFCC the, um, the intergovernmental panel on climate change that the, the IPC, um, they they've, they're estimating that we're going to have 150 million climate migrants, uh, by 2050, right. People who are going to have to move, uh, voluntarily or involuntarily as a result of climate change. And right now there's not that many of them, but right now it's really the disadvantaged folks that are going to be, or that are getting pushed out. And a lot of indigenous folks in the United States, in places, as far as long as Alaska, along the bearing, or the Chuck CISI or down in Louisiana, in the Gulf coast, they're already getting displaced by rising sea levels, and they don't have any place to go. And they're now testing all of our kind of jurisprudence and other kinds of, um, uh, uh, legal frameworks to figure out how we're going to adequately kind of accommodate them when they have to go someplace else.

George McCarthy: (26:23)
And, um, uh, and that's just going to be, that's a tip of the iceberg because we're going to see tens of millions of people having to move, um, from places, even look at the Southern end of, uh, of New York and what happened to Manhattan all the way up. I was in 42nd street, uh, with Superstorm Sandy, and we were displaced at the Ford foundation for a couple of weeks while they're actually just trying to restore power because of the flooding and the subways are out for weeks, right. Um, some of them, you know, indelibly harmed the office.

John Darcie: (26:55)
My office at the time was in lower Manhattan. And we, you know, it destroyed all the, uh, the technology infrastructure in the building and forced us out of the office for multiple months, also knew plenty of people whose houses were destroyed or severely damaged in that storm. So that was definitely a reminder that, you know, people forget a decade goes by, you know, from the most recent storm people forget, but it sort of, and this is not to pick on Miami, but I see this massive migration of, you know, people in the financial industry, people in technology industry, moving down to Miami, uh, knowing that, you know, the entirety of that city is only five feet above sea level right now facing the issues that you mentioned. So it'll be fascinating to see whether all those great tech minds can solve those issues.

Kathryn Lincoln: (27:36)
John, I think it's also important to note that it's not just sea level rise when you're talking about the 150 million migrants. It's when you think about, and we're already seeing this now, when climate change is the heat index. So they're making many of these lands on unmanageable. You can't farm on them anymore, right. Or the rain patterns are changing because of climate change. And so it's not just the sea level rise, that's impacting populations. And again, as max said, it's often the, the poor people or the underserved communities that are affected the most, and that is what that's going to be the global crisis. So

John Darcie: (28:13)
How do we solve those issues? And I'll turn it back over to Anthony after this question, but those issues related to poverty and spatial or geographic inequality, as you mentioned, you know, something like hurricane Katrina, there was a great Atlantic podcast series about the way that new Orleans permanently changed, uh, you know, following hurricane Katrina. Obviously we know that the devastation in terms of loss of human life and property that took place from that storm. Uh, but how do we fix this issue, you know, related to affordable housing related to poverty and just the growing inequality, uh, that's being exacerbated by climate related issues and even public policy issues around land ownership and, and the provision of housing.

George McCarthy: (28:55)
Well, um, just to start with, I mean, the only way that you actually kind of defend the interests of whatever we want to call the underserved, the, the lower income groups that, uh, those that have been experiencing racial discrimination for, for decades is through, um, really active public policy, because the only people out there that are going to be defending the interests or the poor, or the people with some other kind of power political power. And so we're just going to have to be willing to stand in the face of economic power, because the people who are able to are going to be, uh, you know, um, migrating to the high ground and they'd be able to afford to buy the high ground and buy it out from underneath the, um, folks that are living there now. And so, you know, I hate to keep using Miami as an example, but if you go to Overton in Miami, which was the historic, uh, African-American community, it's actually on high ground, right.

George McCarthy: (29:52)
And it was mostly ignored unless you wanted to build a super highway through it, right. Um, uh, for decades and, and kind of left alone. And all of a sudden they're facing all sorts of pressure from a higher income people who want to get away from, uh, the direct exposure to the coastline. Right. And that's going to be happening everywhere. And, and unless we get, um, a little bit kind of, uh, you know, creative and, um, and, um, you know, farsighted, we're going to have to, um, we've got to deal with it when it's really hard to deal with, as opposed to when it's easy to deal with. And so, like for, uh, for one of our, um, one of our projects we're working on is actually looking at where are the most vulnerable communities, uh, it, you know, two climate in the, in the U S and what are the options for them?

George McCarthy: (30:39)
And we're working with a group called the climate migration network, and we're working with, um, some, um, uh, uh, some folks down at Emory university, uh, and other scholars around North Carolina and figuring out, do we have public lands that we can reserve for communities that are going to have to be, um, moved? And how are we going to know, figure out how to transition them from where they are to where they can go. And one of the great things at least about the U S is that we've got a lot of publicly owned land in this country that could be developed for people to move to state trust, lands, uh, national, uh, trust BLM is the largest landowner in the world. And land, it owns, you know, uh, gigantic amounts of land across the west and, uh, and even some in the east, but the idea would be, um, finding a way to actually plan ahead, you know, proper, prior planning, prevents poor performance, right? If we, if we figure it out now and we do it before, we're all kind of running around and trying to figure out where we're going to, where we're going to land, we'll be able to do it kind of in an orderly fashion. But as soon as even you mentioned the words, managed retreat, politicians had the other way, because they think manage your sounds like you've given up. And you're, you're, you're, you're waving

John Darcie: (31:55)
The white flag. Yeah. But you don't want to be plugging holes in the boat. Uh, when the boat's sinking, you want to do it before, before you start taking on water. That's I guess that's an appropriate metaphor in this case. Anthony, go ahead. I

Anthony Scaramucci: (32:09)
Want, I want you to continue gentleman. I have, I have one last question before I let John, uh, read off some of the questions from our audience and stuff. What do you, what do you say to the full on capitalists in our society that, uh, you want to own their land. They want to have low property taxes on their land. They move to low tax states, uh, in order to do that, by the way, I'm a dyed in the wool, new Yorker, you spike Lee asked me, he's doing a documentary on nine 11. Am I going to be one of those rich hedge fund guys that moves down to Miami? I'm like, I'll be shutting the lights off in this great city with you, spike, meaning I'm here for the duration. Um, but what do you say to those people that don't understand what I think you guys are explaining, which I certainly don't want for myself. I don't want to live in a Bob wired, make match in, in a McMansion, in a Bob wire security compound gated community by my fellow neighbors are suffering. And yet we've got a very large group of people that think like that. I'm sorry to say it that way. And I hate to be cynical, but what do you say to those people? Do we need to move those people? Is that not necessary to move those people? What do you guys recommend that we do?

George McCarthy: (33:32)
I'll start with Katie. You can, you can jump in. So Anthony, that I think the, the, the, the, the sound, his argument, and there's, there's a growing body of research to support. This is that inequality actually creates its own deadweight loss of economic growth. No question

Anthony Scaramucci: (33:47)
About it. And lots of lack of diversity does the same thing that

George McCarthy: (33:53)
A diverse portfolio and how a diverse portfolio is, is, uh, you know, a much better kind of option in the long run. Right? Um, we'll also understand that, that, um, the, the countries in the world that have succeeded the most and had the most rapid economic growth are the ones with growing middle classes. They are growing middle class, uh, the, the, uh, whether it's an illusion or a promise of opportunity of, uh, of upward mobility, those are the things that actually draw from people that kind of the energy and the, the inventiveness and the, the hard work that actually builds economies. Right.

Anthony Scaramucci: (34:31)
I tend to argue, but I'm a direct beneficiary of that. You know, my dad was a middle-class worker, blue collar, laborer, non-college educated, uh, had a high wage. We went to a very good public school system. You know, I'm just going to emphasize this point. So I've made my money here in New York, and I'm a product of New York. I'm a product of its public school system. I'm a product of that middle-class ecosystem. And so now that I'm paying high taxes, because I'm doing reasonably well to pay back into the system, I'm totally fine with it. A lot of my buddies though, are not, they want to move to low tax places and, you know, they made their fortune here, but now they're going to take it elsewhere. I'm sorry to ventilate. You guys are cheaper than my therapist. And there's two of you. You see what I mean? I probably need a basketball team of therapists, but you guys are cheaper, but what do you say to those people? How do we ring their bell? I

Kathryn Lincoln: (35:26)
Think what other ways you ring their bell is to try. And, I mean, I get back to education and leadership, you know, I think role modeling is so important. I mean, I, I think try and model behavior, and I try to model language when my kids were little, you know, they're 29 and 26 now. So they're still kids. They'll always be kids. We know that, but there are no longer young, but young kids, you know, I, I always said to them, language is important and, and who, and who you, the things you say and who you are is important and who your friends are as important. And, and we're, and the kinds of things you like to do is important. And the things you say are important and diversity is important. And we always, I always made sure that they understood how, what a lucky life they had, but that we, I always made sure that they saw what a lucky life they had, that they, that they participated in, um, volunteering that we participated and not just gratuitously Anthony, it wasn't something that we did, you know, check the box once a year, we did this, right.

Kathryn Lincoln: (36:29)
It was something that we engaged in as a family, as part of our community. Right. I think it's, I think that you have to shake people and say, you have to give grace because that's important. I think that's important.

George McCarthy: (36:45)
Yeah. I don't, I don't know Anthony, what you, what you can say to folks who want to live on their own kind of island of, of luxury and kind of in their own kind of bubbles. I mean, maybe you can see that they can just do that. And, um, and then really just focus on kind of making sure that the, the, the rest of the world works for the rest of the people, because that's a pretty tiny share of the population that's running away and moving to gated communities and trying to sit on their wealth. And, and I do what I, I w w what is the, what, what is the benefit that comes to them of, of living a life in a bubble? I'm not quite sure. Right. And so the, you know, the pursuit of meaning ends up. I think being the thing that drives all of us in the end and understanding what, what brings meaning to life, I think is going to be, uh, the key. And I think that it's just incumbent on us and it's certainly in the way we do our own kind of promote are the right kinds of land policies that we want to make sure that, that things work for the vast majority of people. And if others decide they want to check out and take their chips and leave the table, I guess we've got to let them do it. I mean, you know, what's, what's really,

Anthony Scaramucci: (37:58)
I think it makes sense. You know, I, you know, what, what brings meaning to John Darcie's life Mack is that he asks better questions than me during these salt talks. I'm going to let John now a takeover, because I know he's got a flurry of questions and it would be important for him to outshine me. It gives him great. Meaning, go ahead, John.

John Darcie: (38:20)
He has a fair point, but, um, so, so to dig further into the tax policy question. So Anthony's referring to friends affairs, uh, that are moving to places like Florida and Texas, for example, being the biggest two examples of new Yorkers in the financial fleeing to lower tax jurisdictions. But that's only one element of taxes, income taxes, you know, there's no state income taxes in, in Texas or Florida. Uh, but there are in many cases, higher property taxes. So as you guys look at tax policies and public policies in general, how do you think about best practices as it relates to land use regulations, property tax frameworks, and land value return mechanisms, uh, that just create, you know, a better, better mechanisms for the supply of service land and just general land provision.

George McCarthy: (39:08)
So, you know, in terms of efficiency and, you know, economic fairness, um, and one of the reasons we exist and we still believe this is that the, um, the best tax is the land tax and it's the best tax for a number of reasons. But the, one of the main reasons is it's a, it's a tax you can't move away from, right. Because you can't pick up your land and take it to Florida. Right. Right.

John Darcie: (39:32)
And you can run your land through a shell company in the, in the Seychelles

George McCarthy: (39:36)
Or something. Right. And, and the, and the thing about land is that, um, the, or the land tax is that it doesn't actually distort, um, other kinds of economic markets and incentives as well, having a land tax. Right. And so, um, so we think the, the, the most preferable tax among all different suites of tax is the land tax. And it should be the basic tax to fund, especially local governments because, um, that is going to be, um, the source of, um, uh, value in the actions of the local government will have a direct bearing on the value of land, right? Because how you choose to invest in your own kind of, uh, jurisdiction will have a great bearing on what the, what the, the tax base is. Right. If you have, you build better sidewalks and you build better roads, and you have a better sewer systems, and you can pipe in good, clean, fresh water into the houses. Yeah. Your, your tax base goes up and there, your revenues will go up. It's one of those, you know, um, uh, whatever

John Darcie: (40:36)
Itself you create a line of incentives.

George McCarthy: (40:40)
So, um, yeah. And then, and then after that, then, you know, the property tax is, um, a good second best tax. Uh, the problem with the property tax is that, uh, if you tax equally, um, the land and the improvements you do send the wrong kind of signal in terms of making the right kinds of investments in the improvements on land, and you get, and so you, you might end up having people not using land to its highest and best use. Um, but, uh, the property tax is certainly better than, you know, a sales tax or an income tax it's a as a general revenue source, uh, because, um, it has it's, um, it has stability over time. And once again, the actions of the government and how it invests in how it builds its infrastructure, what it does will have a direct bearing on growing its own tax base, which is a good thing, right?

George McCarthy: (41:30)
So that's what we like, kind of, land-based, uh, we're really big fans of what we call the split rate tax, but you don't see it very often anymore where you actually tax the land at a higher rate than you tax improvements. Um, and that has the right kinds of, um, benefits because it incentivizes people to, um, make the right kind of improvements or maintain the quality of the improvements on land, um, and gets them to be more likely to bring land to its highest and best use. So, you know, um, we think that a diverse set of revenue sources is actually a good thing, but we think that we should rely mostly on the ones that distort the market, the least, and, you know, income tax, distorts, labor markets, um, uh, you know, sales tax, distorts, commodity markets at the store, it's all sorts of other kinds of markets, every other kinds of tax, you can measure the dead weight loss that happens as a result of the imposition of the taxes. But the reason that land has no kind of dead weight loss, because it's in fixed supply. So, um, the, um, uh, tax doesn't affect the supply of it. Right, right. And

John Darcie: (42:36)
You see a lot of the wealthiest people in the country and in the world, frankly go gates being one example of somebody who is hoarded, tremendous amounts of land because of that scarcity factor. Um, and the fact that it's not taxed owners in a way that maybe it should be, uh, but you talked a little bit about water. We've talked a lot about land, but water is a pressing issue, especially in certain parts of the world, in certain parts of the country. I think over the last decade, we've seen several instances of, of significant droughts in places like California, South Africa, facing a water crisis. How big of a crisis is general water shortage, and what can be done to solve those issues

George McCarthy: (43:15)
Is Katie, you should start in this way because this is near and dear to your heart in Phoenix, where water is something they think about

John Darcie: (43:21)
A lot, right. They use all the water on the golf course is there in Scottsdale.

Kathryn Lincoln: (43:25)
We use gray water. Thank you. We do think about that. You use gray water. Um, I don't know if any of the, um, any of YouTube on the, on the bottom of my screen, John or Anthony or golfers, but a lot of times,

John Darcie: (43:36)
Um, so I was saying that, uh, with a great deal of affection,

Kathryn Lincoln: (43:39)
Most of the water on golf courses here is gray water. So, um, but you know, we created the baddest center for on land and water policy about five years ago, to look at that nexus. I think it's important to remember that we learned Lincoln Institute of land policy, but we really wanted to look at that nexus between land policy and water policy, John cause to your point, water policy is really important, right? And it's something that, that a lot of people are looking at water policy. We're looking at Lam policy, but we really weren't looking at the connection between those two. And you think about how important water policy is to the use of land and how important land policy is to the use of water. And that's why we set up this on this center here in Phoenix, actually, where I'm sitting SPC. Um, and it's focusing on the Colorado watershed, Colorado river watershed, and about four days ago, actually something great happened again, first time it's happened again, about three years ago, water actually got to the sea of Cortez again through the Colorado river.

Kathryn Lincoln: (44:37)
Um, there's a nonprofit here who has been buying water and it's been actually able to get past Yuma again and yet through the two states and into the sea of Cortez, um, which is really quite a remarkable thing. When so many of those, um, farmlands down in Mexico have not seen water for decades because it's it stopped at the border. Um, water is an issue. And, um, it's a big issue in the west, especially in, well, where did huge drought, whether people think it's over last year, people that, oh, the drought's over. We had a good snow pack this year. I understand the Sierra Nevadas are at 5% of their normal. Snowpack 5% of their normal snowpack, which means that's a bad thing. Um, I was in Colorado every weekend. The Matt Rockies are still have a lot of snow and they had five inches of snow five days ago.

Kathryn Lincoln: (45:24)
So that's a good thing, but, um, water is a huge issue and, and it gets around, um, the use of it, whether, you know, 80% of the water that's used in our region is for agriculture. Um, and then when you think about it, agriculture is a really flexible use of water because you can let a land lie fallow, and then that water can be used for, um, commercial. Other commercial uses. If you start building houses, you can't really let those houses life out of those people need to, you know, bathe them, drain them and live. So there's always that stressful creativity, if you will, between the ag land use and the commercial and residential use the other issue, at least in Arizona and often in the west is that much of the water is owned by the native American communities. So the rights to that water, um, are often, um, structured so that native Americans own it. And then when then you have to figure out how to buy it, how to rent it, how to lease it. So it's water is a huge issue in the west, generally, not enough, except occasionally we have too much, you know, on the days that we have a monsoon, generally we don't have enough,

George McCarthy: (46:37)
But the bottom line on water is though that it's a market failure because we don't really have an active market for water and market water isn't priced directly. So without being priced correctly, it's not rationed. Right. Right. So, um, the way we have portioned water through these, uh, you know, really arcane water rights that have existed about as long as property rights and oddly enough, you can sever the water rights from land and sell it away. Right. Um, that is a, that's a, a going concern is so until we w we'll never have the right incentives until we actually get the prices, right. And we'll never get the prices right. Until we actually can freely trade water as opposed to control it. And these, uh, you know, Byzantine ways that we do with, um, uh, you know, with, with, uh, water rights, particularly in the west, the us west people, um, they whiskey's for drinking, water's for fighting over.

George McCarthy: (47:31)
Right. And, uh, and that's where they do. They'll, they'll, you know, there's been bloodshed over, uh, water rights, uh, across the west, but globally, this is a gigantic existential problem. And, and the real answer is, you know, is conservation and really making the right kinds of choices because, you know, water is a cycle. It goes, you know, it goes into the atmosphere, it comes down as rain or snow. It goes into the ground, we pump it out. And it it's the same amount of water on the planet that there was, you know, a hundred million years ago. And we just have to figure out how to kind of manage it better. And part of that is just really being able to think through things like, you know, um, you know, landscape choices or crop choices, or how we choose to irrigate what we choose to irrigator or what, where you choose to grow, where, and those things, we haven't really given it the right thought because the incentives have been wrong all along. Right. I hate to concede it. What are the things that you have to give to the Arizona's is they have made more advancements in water economy than any place in the United States. And they, they actually are one of the most efficient users of water, um, in the world. Right. So, um,

John Darcie: (48:44)
You find in places, I mean, we do some business in places like the middle east, uh, w when you have to be very cognizant of the way you ways in which you use water in the ways in which you farm, uh, it drives innovation in those places. I think Arizona is probably an example of that.

George McCarthy: (48:59)
And Israel boy, Israel is, is real, right? Yeah.

John Darcie: (49:03)
Absolutely. Last question I have for you, Katie is you, you manage the, a sizable endowment there at the Lincoln Institute that allows you guys to engage in all these terrific projects that are helping to protect the planet and help to drive great public policies, policy decisions, uh, around the world, in terms of how you guys manage your asset allocation as part of that endowment, how do you think about portfolio construction in a way that provides that, uh, growth and sustainable, uh, type of returns that you're looking for? So you can sustain the efforts of the Institute? Um,

Kathryn Lincoln: (49:38)
Well, we talked about Mac mentioned it a little earlier about diversity. Um, you know, we really have diversified portfolio, but I'm really, um, I'm a huge, um, equity girl. I just think that, that, you know, equities in a long haul are gonna serve us well, we've done, we've done reasonably well with our equity portfolio. Um, I'm also a huge fan of private equity. And because I think, you know, all companies started small and they all got big and long point or another. We, um, I, I really got us out of substantially out of the debt markets, you know, as much as we have really wonderful, um, debt managers, you know, getting me, you know, beating their benchmarks, they're doing 3%. Wasn't getting me to my eight and a half percent bogey. So we really all of that into, um, unconstrained credit. We really love this manager called SkyBridge. I'm a boomer or heard of them. They they've done really well for us over at, but we've been with them for

Anthony Scaramucci: (50:38)
Salt talk, turned into a marathon, just so everybody

Kathryn Lincoln: (50:43)
Like the old Jerry Lewis marathons for quite some time. And we're really pleased with the work that they do for us. But, um, all things aside, we have been really pleased with our hedge book and, and the work that SkyBridge has done for us. So, um, I have a tendency to, um, we look at our asset allocation, you know, every three to five years, John and we, we're not a tactical player. Um, I have my sort of my mins, my max, and I can lean one way or another, but we really look at managing to a strong financial return versus benchmarks. I will say that I do try and find mission-related investments where I can, I have a private equity manager who, um, creates mitigation banks, which is right up our alley in terms of working towards good land policy. They've done really well for us, but again, we, excuse me, we always look for a strong financial return first cause we all, we, we believe, excuse me, we believe that the mission is first and that's sort of max job, if you will. That it's really important to make sure that we have the funds to support the work and that. So to maximize the funding is what I that's my job.

John Darcie: (51:52)
Well, you guys are a mission-based organization. So the great work you do managing that portfolio gives Mac the, uh, the arrows. He needs to do his job. So, and we just want to, I know Anthony will, uh, reiterate this as well, but you guys are definitely take the right long-term patient approach, um, when it comes to investing, that allows you to achieve those targets. So we're very grateful for your support and, and a very admiration of your long-term thinking when it comes to portfolio management. But thank you guys so much for joining us. Thank you guys so much for joining us

Anthony Scaramucci: (52:25)
Stay much more than what John just said. So, but in all seriousness, uh, um, I want more and more people to know about the Lincoln Institute of land policy. And hopefully we can have you at our live event in New York, uh, which is coming up in September at the Javits center. And I just think it's important that we push these ideas because, you know, what's the end game. The end game is we want to better each other. Uh, and we know, uh, smart economists know it's not a zero sum game. We can improve each other through the process of helping each other. And you guys are doing an amazing job at that. So thank you. And congratulations on 75 years now, John and Darcie thinks I'm 80 years old, but that's a whole other topic. We won't be. Anthony remembers

John Darcie: (53:13)
When he was in high school, when you guys were founded. That was a great, great

Kathryn Lincoln: (53:16)
Moment. It's brutal, Katie. It's brutal over here.

Anthony Scaramucci: (53:19)
If you can help me out me at a year at some point.

Kathryn Lincoln: (53:23)
Thank you again. Thank you for inviting us. It's been a fun morning. We appreciate it.

John Darcie: (53:29)
Likewise, and we'll get on one of those golf courses, Katie, where they use that gray water to irrigate. I'd love to tee it up with you

Kathryn Lincoln: (53:37)
As a partner who will certainly love to host you. So let us know. There you go.

John Darcie: (53:42)
Sounds good. You guys take care guys. Have a great day and thank you everybody for tuning into today's salt. Talk with Katie Lincoln and Dr. George McCarthy of the Lincoln Institute of land policy. Just a reminder, if you missed any part of this episode or any of our previous episodes of salt talks, you can access them on our website@sault.org backslash talks or on our YouTube channel, which is called salt tube. We're also on social media. Twitter is where we're most active at salt conference is our handle, or also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks, especially when we're talking about what we think are really important issues around sustainability. Uh, we love educating people on these topics, so please spread the word, but on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Jon Najarian: Market Rebellion | SALT Talks #218

“Bitcoin is a governor or regulator on governmental spending. If spending goes too crazy, more money flows into Bitcoin because people are worried that the government is making their money worth less.”

Jon Najarian is the Co-Founder of Market Rebellion. Market Rebellion offers in-depth trader education, coaching and mentoring – from beginner to advanced – to help you build the knowledge base and practical skills required for market success. 

Jon tells crypto newcomers to focus first on simply buying the dips in price of Bitcoin. Najarian preaches the importance of having an emotional detachment to trading and sticking to sound fundamentals that mitigate risk. He sees Bitcoin’s value derived from its scarcity in a world of expanded money supply via government spending- Bitcoin acts a regulator against excessive spending and potential inflation. Najarian thinks Ethereum will continue growing into one of the most valuable crypto assets because of its use around smart contracts. 

LISTEN AND SUBSCRIBE

SPEAKER

Jon Najarian.jpeg

Jon Najarian

Co-Founder

Najarian Advisors

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

8:26 - Approach to investing and responding to adversity

13:47 - Value of Bitcoin

16:38 - Equity markets

21:22 - Evaluating Ethereum and other crypto altcoins

24:57 - Analyzing Elon Musk’s role in recent Bitcoin dips

33:00 - Emerging crypto trends

37:15 - Growing participation in markets and trading among newcomers

42:25 - Effects of crypto governmental regulations

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which our guest today has been to many salt conferences over the years. And we're excited to resume those conferences with his presence, God willing in September of 2021 here in New York city. But our goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited to talk about some of those big ideas with one of our great friends, Dr.

John Darcie: (00:52)
John Najarian, uh, John or Dr. Jay has he's affectionately known by many of his friends that was a linebacker for the Chicago bears before he turned to another kind of contact sport, maybe even higher contact, which was trading on the Chicago board of options exchange. I became a member of the CBO, E N Y S CME and CBOT and work as a floor trader for some 25 years. Uh, today John is a professional investor, money manager and media analyst. He has earned reputation in the industry as an options, trading expert and pioneer. Uh, he developed a patented trading application or many patented trading applications and algorithms, uh, used to identify unusual activity in stocks, options, and futures markets. Uh, John can be seen weekly on CNBC, which if you watch CNBC, I'm sure you've seen John's face plenty of times where he's a cast member of the halftime report and fast money programs.

John Darcie: (01:45)
Uh, John and his brother, Pete, invest in and work with startups via rebellion partners of venture consulting firm. They launched in 2015 and in 2016, John and Pete co-founded market rebellion, which is a company focused on educating the individual investor. Uh, joining today's show as moderator is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony, uh, many years ago was a CNBC contributor and recently rejoined the network as a contributor. So we're excited to see him back on the network there, hopefully alongside John here in the near future. Uh, but with that, I'll turn it over to Anthony for the

Anthony Scaramucci: (02:21)
John I'm the Michael Corleone of CNBC, right? They thought they were getting rid of me, but I pulled myself back in see that. So

Jon Najarian: (02:30)
They're smart to do that, Anthony, because you're one of the brightest and most active voices in finance. And I'm not just saying that, uh, uh, anybody who's attended salt knows that Anthony is a great moderator as well as a keynote speaker. And I'm thrilled to be here with you, Anthony. I can't wait

Anthony Scaramucci: (02:49)
Me. There'll be no questions for Mr. Jinja Darcie. There'll be no questions for Misena Jerry. And just, we're just going to let him continue. I know he has an ear in and my mom is talking to him. So thank you. Thank you for channeling all that into John. I want to go off the grid here a little bit if it's okay, because we had you on our Bitcoin review a few weeks ago, obviously spectacular. Uh, and we're thrilled to have you on salt, but John, there's a way of life that you and Peter, uh, you have a joy to Debree. You have a joy of life that, uh, I've experienced, uh, for a decade and a half. Uh, other people around you have a debt I've experienced that. There's an aura about you, of positivity. And, uh, I wanna, I want to go there. Where does this all come from? How do you generate it every day? Um, how do you deal with your worries and troubles? All human beings have those as well. Uh, give us a little bit of a sense for your personal philosophy, your personal background, your folks, you know, your mom and dad, et cetera. Then we'll, we'll get into investing in a second, but we have a lot of young people that listen to these things and I want them to get the ethos of John at Jerry.

Jon Najarian: (04:06)
Sure. Well, Anthony, thank you. I think any of us who have survived for years, uh, on the street as you and I have, um, although it seems to have taken more of a toll on me, Anthony. Um, I think you, you

Anthony Scaramucci: (04:20)
Don't have my dermatologist and the Gerian, but then again, I don't have your physique. Okay.

Jon Najarian: (04:25)
Uh, come on. Um, physique, that is part of it. Um, not how you look, but how you feel and you, and I know you gotta take care of yourself, um, wall street, uh, you know, when you're at Goldman Sachs or, uh, you know, Pete and I traded for the partners at Goldman for years when you're under pressure from things like that or any of the myriad of, uh, uh, great hedge fund managers, uh, it's not luck. Those guys are grinders. The men and women like Kathy woods, uh, obviously fantastic. Five-year run she's up 40% a year, uh, on average. And people want to say, she's a flash in the pan, Anthony, but we both know it's grinding and it also can grind you down because just like a football coach, Pete would say that, uh, you know, years ago, bud grant from the Vikings used to show up, uh, not too long ahead of training camp.

Jon Najarian: (05:27)
He didn't want a long training camp because he said, if you're not, if you don't show up ready to play, I don't want you. So he didn't figure that he had to get people into shape during training camp. But these days, Anthony it's flipped 180 degrees. Um, not that they don't arrive in shape, they do, but it's a 365 day grind to be a pro athlete to be a professional trader. Um, very similar in that regard. And you can spend all day watching film just like you and I could spend all day on spreadsheets, whether it's fundamental analysis, technical analysis, whatever else. And then you're going to have a horrible life. You might have some fantastic returns here and there, but your life overall is not going to be great. You've probably not going to be appreciated by your significant other or your children. Um, and so I think you and I have more or less made a decision that, okay, I'll grind hard and then I'm going to go home and I'm going to make sure I take care of my body.

Jon Najarian: (06:32)
I'm going to make sure I'm there for my kids. And by doing those things, uh, even for the young traders out there, yeah, you do need to grind, but you don't have to make this. The only reason that you're alive, uh, the other reasons are very important too. And so, yeah, I get up at five 30. I go out and I workout Anthony because I know it takes the stress off me. Um, I know I'm a better dad, a better husband by doing that and I feel better. So I I'm addicted to those endorphins. Uh, and I think all of us love the idea that we're just going to keep grinding, uh, as long as we can.

Anthony Scaramucci: (07:14)
So, and I totally agree with you. I try to hit the gym regularly. Um, although I'm a talions, so I ended up eating too much pasta. I'm going to punch Darcie in the mouth, you know, let me tell you something bad doors. He's right outside the door now, you know, when we were in full COVID. Okay. It wasn't this close. Okay. I just said, I like eating pasta and the expression on his face was you fat bastard. That's basically, this is a projection, John [inaudible] these young guys. Okay. We may do a zoom wrestle me and Darcie. Okay. And I got a lot of middle-age

Jon Najarian: (07:51)
Rage per view,

Anthony Scaramucci: (07:54)
So just be careful there. So, so, so John you've been wracked, I've been walloped a few times. I got wild at the white house. I took it down 24.7 months in March of 2020. I got kicked in the teeth in 2008. I thought we were going to lose our business. Um, tell us about one of those experiences for John and Jerry. And, and how did you pull yourself together and how did you rebuild from a down period? Um, give us your thoughts there.

Jon Najarian: (08:27)
Sure. Well, um, I try not to let it swing too wildly, Anthony, and I think, uh, you know, not to put myself on a pedestal with Leon Cooperman or Carl Icahn or some of the iconic figures in our industry, but I do like to celebrate, and I'll say, bang, you know, when I have a good trade or whatever it is, um, because that's kind of my signature thing now, but I get so crazy about it. Um, that, uh, it's swings all the way over the pendulum goes so far over that. As soon as you have anything that of that, you're going to be negative. You're going to feel all that negative energy. So when I've had big losses and I've had, um, you know, just like you have, uh, I've looked, uh, I mean, by the way, this past week, um, I have two wallets, if you will, Anthony, for my Bitcoin or my crypto trading, one is a stone that I've held since 2016 and 2017 without touching it.

Jon Najarian: (09:35)
Um, because I just want to put that away. Hopefully just give those coins to my daughters or charity or whatever. Um, but I just want to hold those. I'm a hold alert for that. But then I have a bunch of other coins that I'm trading now this past week. Um, well we saw the crypto universe trade from a 2 trillion market cap down to 1.2 trillion in a matter of days, a 38% drop. And that includes Bitcoin. So if you take Bitcoin out of there, it was more like 60%. I mean, the drop in market cap was so dramatic that, you know, I don't want to focus on that because that'll make me crazy. But I also, um, whenever and you and I, when we've discussed Bitcoin, I always tell news newbies to Bitcoin. You don't have to buy a bunch, just buy it on dips. Um, this was a very significant dip.

Jon Najarian: (10:33)
You got two shots in the last week to buy it right around between 32,000 and 30,000. If you took them, congratulations, that means you're paying attention. And very quickly you had a $10,000 per Bitcoin profit in those kinds of purchases. On the other hand, if you like yourself, get too focused on, oh my God, I'm just losing so much money. Number one, you're probably way too big in the position we Pete and I always called that Anthony, you know, getting the right blinders on like this. I can't see anything else. All I can see is this huge loss. So I'm missing all the stuff out here on the periphery. Um, you know, that means you're too big. Um, you need to cut back your size. Um, you know, uh, I apologize folks, but another sporting analogy, we shorten up our swing. Uh, if I'm not hitting the ball, right.

Jon Najarian: (11:27)
I don't like put my hand down at the number of the bat. I move it up because I just want to make contact. And that's what I did. So I'm not saying, oh, I doubled down down there at 30,000 or 32,000. I didn't, but I did add to positions down there and I traded out as it traded up to 38 and 39, um, more or less, I think that's the way you're supposed to do it. But again, if you get too focused on the loss, just as if you get too focused on, wow, I made all this money, I'm going to buy a Ferrari, I'm going to buy a jet or whatever it might be. I'm going to buy a new watch. Um, most of us in this business that are successful, you don't see Anthony, an awful lot of that kind of behavior. They just want to grind the out there, make the money and just say nine times out of 10, um, I'm gonna be in the right church.

Jon Najarian: (12:23)
I might be in the wrong pew, but I'm going to be in the right church, whether that's tech and growth or whether that's value. Um, and I might occasionally be in the wrong stocks in that right church. So that's the wrong pew. I need to switch quick quickly and get into the right pew. And that's what I try to do is just, don't let the losers, you know, mess with my head or I don't let the losers dominate the performance I've got in my account when I get to a certain level. Um, just like Michael B. Jordan. Um, I cut it without remorse. I like that new movie that he's starring in. And that's one of the things that I live by Anthony is I cut it without remorse just because it's not my kids. It's not my, my life. I just need to move on to the next trade if it's not working.

Anthony Scaramucci: (13:11)
Yeah. So you're basically what you're talking about is you're, you're trading with some level of emotional detachment, right? No remorse, no, uh, love for the coin or hate for the coin. Just, this is what I'm doing. It's right here inside of my field of vision. Um, what do you say to those, but you're also a fundamental issue or a fundamental investor. You, you look at things from font fundamental perspective. What do you say to those that say Bitcoin has absolutely no value? What would be your response to that?

Jon Najarian: (13:47)
Um, I think it's got tremendous value and the value is derived by its scarcity. Um, and again, this is something folks that Anthony knows far better than me, but when you're looking at assets, if I knew there were 50 Honus Wagner baseball cards instead of eight or seven, um, I'd put a whole different value on those cards, um, because they do gather their value by their scarcity Bitcoin. Right now there's 18.6 million of them out there, uh, in the wild, a bunch of them have been lost, um, because you know, some of them were used for nefarious purposes and people lost their wallets and other cases. Um, so not all 18.6 million Bitcoins are even in anything close to circulation, a bunch of Marine cold storage too. So again, uh, when people are looking around and looking for an asset that will appreciate, they tend to look for things, uh, that there aren't that many of now you've got something perhaps like, you know, some of the stocks in the market that have billions and billions of shares of stock, does that mean they can't go up in value?

Jon Najarian: (15:06)
Of course not, but that's a different animal we're talking about. Um, you know, like a trophy property, there's only a couple of them. Okay. So guess what they're worth right now? I mean, go down to Palm beach and tell me what those mansions on the ocean go for. Now, you'd be shocked folks. They're tearing down $30 million mansions and they're building $70 million mansions down there. Why? Because there's a limited amount of land and it's gathering its value by its scarcity. So, uh, when I hear people say Bitcoin's worthless, um, I'm not saying it's currency, I'm saying it's an asset. Um, and it's certainly, uh, in that defier decentralized finance space. I think it's very important because it's almost a governor or a regulator on governmental spending because if they go too crazy, more money flows into Bitcoin because people are worried that the government is making their money worth less. Again, as Warren buffet said, not worthless, but worth less because they're printing so much of it, even if they don't actually add it to paper. Let,

Anthony Scaramucci: (16:22)
Let let's switch topics for a second and talk about the equity markets, um, your technical and fundamental analysis of the equity markets. What sectors do you like John, uh, is the market overheated, do you think there's still value represented in the market today? Uh, what's your opinion there?

Jon Najarian: (16:39)
I do think there's there's value and I think Anthony an awful lot of the forward, um, you know, wall street tends to be a discounting mechanism. We're looking out so many months into the future, predicting what a company might earn, um, whether it's CarMax or whether it's apple. And, you know, since used cars are really a focus right now, CarMax probably a pretty good pick in that space. People just love apple products, they're ubiquitous, uh, and they make money on a reoccurring basis. It's not just, uh, you know, the Tim cook testifying about the app store and them getting a 30% take on something that they didn't make. Um, but, uh, apple will continue to thrive. And after this ruling comes out, even if they ended up paying a fine, I don't think the judge is going to take and throw out Apple's ability to regulate their app store and these in-app purchases and things like that, that Fortnite and all these folks would like to, um, say that apple doesn't deserve an extra little spiff for everything happens in my game or whatever an apple says fine.

Jon Najarian: (17:52)
Don't put it on my platform. Um, you know, there's no gun to your head. You don't have to be here, just go over to Google play. But then of course, uh, all the, all these, uh, I-phones beg to differ with exactly that. I mean, whenever they compare apple to Samsung Anthony, I just shake my head because I think, well, Samsung is great. The phones are great. Android operating system is great, but, uh, there are so many different levers that Tim cook can pull, uh, from the health to the app store, to the cloud. Um, all these different things that apple can do, uh, to make money from a product that they sell once. And they keep getting reoccurring revenue from Samsung, unfortunately for them and no other real manufacturer that you, or I know gets that. And so, uh, when I look at something like that, I say, uh, since you asked, okay, John, which sectors do you like?

Jon Najarian: (18:51)
I still like tech. I still like growth. Um, I think that a lot of the, uh, um, uh, things that are happening right now in the economy, I'm not blaming president by or Congress, but I'm saying if you're, you're assuming that people can't do math, if they sit around and say, why should I go back to McDonald's, uh, and work at a McDonald's and make 1150, or even $15 an hour, if I'm making 17 not working. Now, we both know that runs out in September and 21 states, maybe more have already ended their supplemental payments. Um, and the people that need it really did need it. I think a lot of people that didn't need it, Anthony also got it, but that's the nature of the beast. You know, when Anthony wants to give away his money through a charitable trust or anything else, it has a more direct impact than when the government, as you know, much better than me tries to give money away. So right now, Anthony, we've got people that are sitting at home because they can do math, uh, because they're not stupid and they'll probably stay there for the most part until close to September. When these extra payments run out, it'll be really hard to drag them back in and they'll probably start trickling back in, in August. But certainly not now, not in may. Why would you,

Anthony Scaramucci: (20:18)
Well, I mean, I've had a debate with a lot of people about this. I definitely think there's a segment of the population doing that. You know, I grew up in a blue collar neighborhood, so, and my cousins are doing anything from clamming auto parts, auto glass, pizzerias, and delis. And they're having a hard time finding help. But what they are telling me is people are taking black market jobs. They're, they're working, they're just not working in the economy. They're yeah, they're taking cash. And so we will say they're sitting at home, there's probably a small group of those people, but by and large people are out there hustling and they're like, well, I'm not going to take that full-time job until the big runs out on the government. So I do, I do see any issue, but trust me, those people are working. John they're hustling. A lot of them are hustling. So let's go back to, uh, excuse me, let's go back to Bitcoin for a sec. Um, will it, will it be the apex predator in the space three, five and 10 years from now? Or will something come into the digital asset curve that will overwhelm Bitcoin?

Jon Najarian: (21:22)
Um, I think a theory comes well on its way to overwhelming Bitcoins and Anthony. So

Anthony Scaramucci: (21:27)
You think, you think a theory and we'll flip Bitcoin?

Jon Najarian: (21:30)
Yep. Not in price. Um, but it's already, um, where Bitcoin was last November, as far as market cap, it got up to, I think, as high as 480 or 500.

Anthony Scaramucci: (21:44)
Yep. Almost a half a trillion dollars a market gap. Yep. Yep.

Jon Najarian: (21:47)
And, uh, so some people in the space called this a flippant thing, when it would flip in market cap value higher than Bitcoin, it's just got a lot more uses. Bitcoin is something that, like I say, I think you want to own it, hold it, put it away. Um, whether it's max Kizer or pump Liano or, you know, any of these folks tone, Veys Charlie Shrem, the Winklevoss twins, they'd all tell you just hold onto the Bitcoin. Um, and many of them, because not all of them are maximalists, meaning of course, that they just focus on Bitcoin. Um, some of them are willing to trade those alt coins. And Ethereum seems to me to be one of the best out there because so many of these smart contracts are part of that ERC 20, you know, the, the Ethereum makes all those smart contracts possible.

Jon Najarian: (22:42)
And you know, to me, Anthony smart contracts, uh, are just the future. I mean, literally imagine, uh, that there's a smart contract created by, oh, I don't know your favorite firm or one of your favorite firms, Morgan Stanley and Morgan Stanley coin. Let people say the smart contract could be written such that the, the owner of the coin gets to dictate at what point they want money pulled out of their account and put over into fixed income. Once I get up to X amount, do this automatically, all those kinds of things. Yeah. You could do it in other types of programming, but certainly with a smart contract, especially sports betting, online gaming and things like that. Every time I have over a thousand dollars, move it out off of my draft Kings account over here into this, would that contract, that smart contract be something people would like, heck yeah, because it would discipline them a little. You'd probably even get gambler's anonymous, uh, saying that would be a good thing, but there are just so many different areas that a theory touches indirectly because it is, you know, it is the works behind those smart contracts,

Anthony Scaramucci: (24:01)
So, okay. It's, it's, you know, it's great. I mean, we, we, uh, we'll be launching in a theory and funds soon. I, I love your opinion on it. We don't know the answer a hundred percent, but I do believe that a theory is going to be a prominent couldn't flip Bitcoin, you know, anything's possible, but I do think it's going to be a prominent, uh, application and store value and potential currency certainly is on these NFTs. Um, do you think Elan mosque pop the Bitcoin bull market? Do you think he was a part of it? Do you think there was other things going on maybe too much leverage in the system? Well, you know, if you were analyzing the collapse, the move from 64,000 to 30,000, I guess as we're speaking now, it's about 38,000. Uh, what do you think the factors were?

Jon Najarian: (24:57)
Yep. You're exactly right. I mean, Chinese government oversight, we had so much, you know, all the time. It seems that when you and I have shared time together on CNBC, Anthony, we talk about perfect storms, um, and a perfect storm. You know, just like the book implied was, you know, you get a low pressure system and then you get this, um, certain amount of, uh, uh, moisture coming up from the golfer coming up from the Caribbean that hits this cold weather, weather pattern, and just causes this perfect storm where, you know, it's just Katy bar, the door, uh, that happened in Bitcoin Musk was definitely part of it. China was part of it, um, that over leverage you talk about last week, Anthony, we were checking out some of these stats, 800,000 people were liquidated out of their Bitcoin holdings last week. Um, that's a big number.

Jon Najarian: (25:59)
Um, even if most of those accounts were 2000 to $20,000. Um, and most of that, well, all of that liquidation, unless the, except for the self liquidation, except, you know, if somebody had the discipline to say, boom, I'm cutting, I'm running, I'm getting out liquidations that we're talking about. Folks are ones that are done by derivatives done by Binance done by Coinbase done by anybody, um, who has their money at risk because they let the customer, um, get some leverage. And in the case of Darebin or Binance, or, um, some of these big FTX obey these off shore, Anthony, that you can really only access through a VPN, a virtual private network. You can get a hundred to one leverage. So instead of owning one Bitcoin at say 45,000, um, somebody that has 45,000 in their account might own 10 Bitcoins, 20 Bitcoins, 50 Bitcoins, uh, on the future side. And if that starts going against them, those liquidations happen at light speed. So what happened is we've been broke from 45 to 40. Everybody was stacked up with short puts at that 40 and 39,000 strike. And then as those tumbled, the waterfall of liquidations just drove it to 30 like that. It's why it went so fast. So

Anthony Scaramucci: (27:32)
It all makes sense. And I've seen this happen over the 33 years, I've been doing this. Where are we now? Is that leverage out of the system? Or you still think we're over levered in the, in the crypto space? I

Jon Najarian: (27:44)
Think we took most of that over leverage out of the system. Now, on the other hand, most of those people that, uh, were liquidated, it wasn't all of their money, probably. Um, the many of those exchanges, you know, just like I say, somebody put wires in 20,000 bucks or moves 20,000 in Bitcoin onto an offshore exchange. You're fair game. You're ready to trade. If once you lose that, you probably just reload and go back in with another 20,000 because you made so much money the last few times when you were able to catch the wave to the upside. Um, so do I think they took most of that bad leverage out of the system? I do. Um, I think comments like Elan's about green mining, um, a mutual friend of ours, Anthony, uh, Kevin O'Leary wants to start a green mining council. Um, and obviously that would feed right into what Elon Musk is focused on right now as well.

Jon Najarian: (28:47)
Do I think that there's a value to that? Yes. Um, I think that, you know, green miners, whether it's hydro solar wind, um, those would be the cleanest ways to mine, of course. And anybody that has access to those in, in large enough amounts could be a significant player. And a lot of people probably like Anthony's customers at SkyBridge. A lot of them will probably want if they're, uh, endowments and things like that. They'll probably want green coins, um, in their holdings. Um, so I think that's probably a good thing that Elon has focused in on, but I think he's also kind of playing around on the periphery of it, Anthony, with, um, he's trying to get doge started up, uh, doge of course was really just a couple IBM engineers that said, yeah, we create a coin and they did. Um, a lot of people can create coins.

Jon Najarian: (29:45)
Some six or 7,000 of them are out there in the wild. Um, and don't just the popular ones, uh, because of the Alon primarily. Um, but I love trading dojo. I've still got a bunch of donuts here. Um, I sold most of it before he went on Saturday night, live Anthony. And then, because I said, that's a classic by rumor sell news, you know, as they say, there's nothing new under the sun. So by rumor sell news still works. Um, no triple bottoms still works, um, breakouts to the upside or downside support and resistance charts. And what was support becomes resistance when you try to get back up through it and so forth, all that still works. So right now I'm focused on, um, if Elon can sort of stay a little quieter about crypto, um, if China's not constantly in Janet, Yellen's not pounding the table about whether or not they should do away with crypto or not let minors and hash power. If it moves from China, that's a good thing, by the way. I think Anthony, the more miners that move out of China, the better, um, and I'm sure they're looking for, you know, low cost of, uh, execution, meaning electricity to cool, those plants, those rigs, and so forth. I think a lot of that's good that's happening right now.

Anthony Scaramucci: (31:13)
So we, we, we agree, um, which, uh, sometimes the sparring isn't as much fun. That's why I have to turn my attention to John Darcie once in a while that Jerry, and because you and I agree on a lot of things, but I'm going to turn it over to John. Uh, he's always got, uh, clever questions from the audience and his own questions and, uh, very, very grateful to have you on. Cool. And Darcie, if you're nicer to me, I'll buy you one of them. Najarian Barets okay. You gotta be nicer to me on

Jon Najarian: (31:44)
The salts. All right. I got to send you some of these Anthony, the

Anthony Scaramucci: (31:47)
Rebellion hats. Yeah, there you go. You say we can get swag from the Najarian.

John Darcie: (31:51)
I don't think you are. I can pull off, uh, the bra as well as, as, than

Anthony Scaramucci: (31:55)
A Jerry. And that's true. I accept that.

John Darcie: (31:58)
But, um, I might try to get one of those hoodies from you, but, uh, yeah, John, it's a pleasure to have you on, and it followed you for many years in markets, and it's great that, you know, you were an early adopter in the crypto space and have helped us along our journey, frankly, in terms of adopting it. Uh, last year we made our first big investment into the space. You talked about a theorem and Bitcoin. I think it's a fascinating topic of conversation. You know, Bitcoin is obviously, as Anthony has said on CNBC before the apex predator and the space in terms of market cap in terms of the breadth of the network, but Ethereum is quickly catching up in terms of defy. You talked about doge coin there's there's defied tokens like Eunice swap or sushi swap there's other blockchains that aiming to compete with Ethereum, like Cardona or Solano. Uh, what aspects of the crypto market are you most excited about and using your skills in terms of analyzing order flow and technicals and as well as fundamental adoption, what aspects of that market are you most excited about right now?

Jon Najarian: (32:57)
Well, and thank you, John. Great question. Um, just like with auctions, John, I'm really focused on volume and volatility, those two primarily, but given, uh, the impact that influencers have, uh, it's doubtful that Elon Musk or anybody else could have as much impact on stocks as they have on crypto. Um, now granted, if Elan is on a show smoking a joint, um, that could hurt that stock his stock Tesla, and it did, uh, create a great buying opportunity down to 180 5. And that was before the five for one split. Um, but, um, I think for the most part, uh, we monitor a lot of Reddit and social media. So I would say in this order volume volatility and then social, and I'm counting both Reddit and Twitter, primarily as social. And that's what we're looking at. We've got algorithms that are sitting there, pulling from those, um, and basically putting them on a, uh, on a dial, something as easy as it's not red green.

Jon Najarian: (34:11)
It's not like that kind of stuff, folks, but it's literally like, okay, you know, we're right in the middle right now. Now we're really pushing into bullish territory. There's a lot of bullish commentary and it's matching up with volume and volatility. We're going to be long, whatever that is. Um, and the great thing about cryptos as well is they do trade 24 hours a day. So you can see that surgeon volume and almost all the time, except around those liquidations, John, that surgeon volume, um, is telling you that whales are somebody big, you know, in Bitcoin speak anybody that has a thousand Bitcoin or more, they call it a whale wallet. Um, and those people are probably active at that level when you're seeing volume pick up dramatically. In other words, if it goes from say $150 million worth of trading in a 24 hour period, which isn't a lot in crypto land to all the sudden 500 million or nearly a billion in a 24 hour period, that ramp usually is a great tell as far as where that coin is going.

Jon Najarian: (35:23)
So we're using that. And then we're monitoring those, uh, Reddit and, uh, tweets to see, and obviously what we use as far as it's not terribly complicated, John, but what we're doing is we're waiting the value of the people that are tweeting and out are posting on Reddit so that we don't give every post on Reddit or every, you know, bot on Twitter, the same credence, the same, uh, sway over our upside or downside bias. So when we're seeing a whole bunch of negative stuff or anything out of Ilan, yeah, he's going to swing that needle, but if it's not Ilan and it's just a bot with six followers on Twitter, or just one post, that's only posted eight times in the last a month on Reddit. Yeah. We're probably not as interested. Um, and the algorithm more or less throws those away and is looking for the ones that are really quote unquote influencing price,

John Darcie: (36:27)
Right. We saw a huge explosion retail trading during COVID. There are some theories that, you know, maybe people that were into sports betting when sports shut down, they moved into to online gaming. People at Barstool were, uh, potentially instrumental in that Dave Portnoy. Uh, but you saw this massive explosion, retail trading, somebody like Robin hood, uh, was a big part of that as well, in terms of the game of vacation they provided, uh, for young people to get, get into trading and investing. Do you think that was a positive thing, or are you concerned about some of the risk-taking that occurs now in markets? I know you guys at market rebellion and some of your previous endeavors have been very focused on risk management and education before you get people at diving head first, especially using leverage with things like options in markets, but what is your analysis of where we are right now in terms of market participation?

Jon Najarian: (37:16)
Well, um, and I know you're not dismissing those younger traders either John. So this is once upon a time

John Darcie: (37:24)
I was one of those bright-eyed younger traders until I got plenty of expensive educations and mark.

Jon Najarian: (37:30)
Well, I think it's great that we have so many of these, you know, uh, I forget how many, I think it was 12 million accounts were opened at Robin hood in the first quarter of 2020. I mean, just a crazy number of those are new accounts, funded accounts, crazy number. Nobody had ever seen that before. Not Schwab, not, uh, city, not, uh, uh, E-Trade you could put them all together. They never opened that many accounts in a quarter. Um, but, uh, that does come with some risk, but these folks, like you say, maybe they were hungry for a way to make some money. Um, maybe they were taking extraordinary risks that they really didn't understand. I mean, I'm looking at an article right now on CNBC talking about exactly what I just discussed with Anthony about Bitcoin traders using 101 leverage driving wild swings in cryptocurrencies.

Jon Najarian: (38:28)
Yeah. And they did the same thing in stocks last year, and they did the same thing this year in the likes of AMC or AMC ex or game stop, you know, the poster child for exactly what of an army of, uh, young traders could do. But there's an awful lot of really, uh, smart, thoughtful, um, even if they are trache taking on incredible risks, you know, they're basically saying go bigger, go home. Um, and if you and I didn't have what we already have, John, um, right now I am a singles and doubles hitter. That's what I go for because I don't need to swing for the fence. Um, I've, I've, you know, knock on wood had a degree of success in my career. So singles and doubles, I just would like to just keep building the stack if you will, um, rather than risking the whole stack.

Jon Najarian: (39:24)
But if you're somebody who's 22 years old to 30 years old and you've got, you know, just a little bit saved and all of a sudden the government starts giving you 600 extra bucks a week to stay home on top of the unemployment that you're getting to stay home. All of a sudden you're saying, well, you know, what, if I start using this and what if I pull another 500 out of my savings every month and throw that in here, I could actually swing and see how good I am at following the markets and things like that, that gamification that you mentioned is something that I think made, gave these traders, um, uh, a little of a leg up, instead of it being such a difficult thing to understand all of a sudden they said, well, all I really got to do is say, I think the stocks going up, I'm going to buy a cause.

Jon Najarian: (40:14)
Or I think the stock's going up, I'm going to sell these puts. And it works until they're over levered. And the market makes that move against them and they get liquidated. Hopefully they pull a lot of that money off the table. We know that the guy roaring kitty, um, or deep effing value, um, over in a game stop, we know that he, um, pulled an awful lot of that money off the table eventually. Um, you know, 50, $60 million when you dangle that kind of potential out there in front of a bunch of young traders. Um, they're going to get excited about it and it's been good for trading. It's been good for the New York stock exchange NASDAQ and, you know, obviously Coinbase and all the crypto exchanges and Voyager, a firm that we're involved with has just grown by leaps and bounds because of this interest in, you know, enhancing some of the returns you can get from investors. Right?

John Darcie: (41:13)
The last question I have for you, John is around regulation. So we were talking before we went live about sort of the, uh, the rollercoaster that's taken place in crypto markets over the last two weeks. Part of that was Elon Musk coming out and expressing concerns about the environmental impact of Bitcoin mining. Another piece of it was India potentially taking the next step towards banning and cryptocurrencies, and then China issuing its third crackdown on crypto and taking it even a step further than its prior ban in 2017, basically outlined outlawing Bitcoin mining, as well as basically trying to rid their entire financial system of any crypto asset transactions in the U S you've seen some news in the last few weeks about the Biden administration, maybe taking a more standoffish, uh, tone as it relates to crypto activity. Are you concerned at all about, uh, you know, any regulatory issues, whether it be with Bitcoin or you move down the spectrum to more of these altcoins or where you've seen a lot of, you know, really rampant speculation, uh, based, purely on, you know, social signals and things like that. Where do you see regulation shaking out as it relates to crypto and, and what impact you think it would have on Bitcoin, Ethereum and the rest of the market?

Jon Najarian: (42:24)
Um, uh, another great question. Uh, the real part of that question that I'd like to unpack first, John, is that right now the U S still remains a leader, um, in virtually every financial market. Now, what we wouldn't want to see is Bitcoin, um, get pushed to all off shore exchanges. Uh, so I would hate to see a regulation come down so hard on Bitcoin that people just migrated to these VPNs, again, virtual private networks and trade off shore. They will though, um, as long as the Internet's there, Bitcoin will exist. And most of these cryptocurrencies will trade. You know, you could put in some really draconian measures like death sentences and things like that. Um, not in the United States, of course, but, you know, in jurisdictions where that kind of Totara totalitarian regime could basically dictate if you do this, you could die those kinds of regulations.

Jon Najarian: (43:28)
Yeah. That's got teeth and people would really have to decide if they want to make that risk. But if you just moved Bitcoin and Ethereum and, uh, stellar and EOS and light coin off shore in the United States, like you have with XRP ripple, ripple, doesn't trade here in the United States. Um, it doesn't because they're negotiating some sort of settlement perhaps with the U S government, uh, or one of the regulators in the U S government, if you kick Crip, but a theory rather ripple still trades. And I guarantee you a lot of Americans own it and trade it, even though it doesn't trade here. So it's just one example of people will migrate, um, to where they can trade these assets. And when you look at something like a ripple that was 24 cents back in February and shot to nearly $2, um, and it's, that was one of the top coins in the world at one point, and came all the way back to there.

Jon Najarian: (44:30)
And now breaks back down below a buck again, um, you can't really stop it unless you stop access to the internet, you can't stop it. Could they put other draconian measures like, um, they've already said, you know, if you trade over $10,000 in Bitcoin, the IRS is looking for you. I think most of us realized that the IRS is always looking at what we do when I moved money from a bank account here in the U S to either offshore or onshore exchanges, they're going to follow it. Um, so I'm not trying to play games with the IRS because I get audited pretty regularly. Anyway, John, I don't need more attention. Um, by trying to skirt some sort of rule about holding those cryptocurrencies and so forth on the other hand, um, like I said, I would hate to see us lose our leadership role in the financial markets, by doing something draconian to the trading of Bitcoin, which I think instead should be like the next great asset class.

Jon Najarian: (45:35)
And then a lot of people could certainly use it to hedge, um, currency exposure. They, they could use it to hedge, uh, you know, some of the, uh, uh, risk assets that they'd like to hold on to, but they might like to hold onto them. I mean, as you know, you can already trade apple in cryptocurrency. You can trade a lot of big stocks. Tesla included in cryptocurrency, they're denominated in those currencies and traded it's the same apple that you trade on shore, but the more that you push this stuff off shore, instead of bringing it here, um, the more that we, uh, take down the U S is leadership. And so that's something that I worry about and hopefully that we don't

John Darcie: (46:24)
Well, we think with, uh, with Gary Gensler at the helmet, the STC being enlightened about the digital asset space, having taught a blockchain course at MIT, we think that whatever the outcome is, it's going to be sensible. So we're looking forward to having more regulatory clarity. I think that's the final hurdle for even greater institutional adoption than we've already seen. But, uh, Dr. J uh, Mr. John, and has been great to have you on Anthony have a final word for John before we let him go.

Anthony Scaramucci: (46:49)
Not really, actually I may have, it was very comprehensive, John, I'm a, I'm super grateful for having you on, and, you know, we've got to get you back to salt September 13th, to the 15th at the Javits center,

Jon Najarian: (47:01)
Javelin Senator 13th to 15th folks in person, instead of Vegas in New York, we had to bring

Anthony Scaramucci: (47:09)
Them this year for all those obvious reasons, John, but we'll, we'll be back in Vegas. We just needed to, uh, send a message to our great city.

Jon Najarian: (47:18)
I like that. And, uh, you're a great American for doing it, Anthony,

Anthony Scaramucci: (47:24)
And I'll, I'll see you I'll see you soon. Uh, and, uh, go ahead, Darcie, close it

John Darcie: (47:30)
Out. All right. Uh, thank you everybody also for tuning into today's salt. Talk to learn more about a subject that obviously we have tremendous interest in, which is the digital asset space, as well as learning from John about the way he analyzes markets. I think he's such a student of markets and so great about educating people around risk, um, that as we talked about this preponderance of, of trading and participation in financial markets is a great thing. As long as people get the proper education. So make sure to check out a market rebellion, uh, where John, his brother, Pete provide tremendous education around, uh, understanding markets from all times all types of different vantage points. But, uh, you can access this episode as well as all of our previous salt talks episodes on our website@salt.org backslash talks and on our YouTube channel, which is called salt tube.

John Darcie: (48:14)
We're also active on social media. Twitter is where we're most active at salt conferences are handled. We're also on LinkedIn, Instagram, and Facebook as well. And please spread the word about these salt talks. If you have still a skeptical uncle or, or grandmother or brother or sister, who's looking to learn more about crypto markets, uh, please pass along this conversation that we had with John Glenn, half of it on behalf of Anthony and the entire salt team. This is John Darcie signing off from today's salt talk. We hope to see you back here again soon. Thank you.

Edward-Isaac Dovere: Battle for the Soul | SALT Talks #217

“Voters make decisions based on how they feel in their gut. Biden speaks to people’s guts, always has.”

Edward-Isaac Dovere is the Lead Political Correspondent at The Atlantic. He has covered Democratic politics for 15 years, beginning in his native New York City and carrying him through the Obama White House and then across 29 states during the 2020 election cycle. His reporting has won the White House Correspondents Association’s Merriman Smith Award for Excellence and the Society of Professional Journalists’ Daniel Pearl Award for Investigative Reporting, among other awards.

Edward-Isaac Dovere’s Battle for the Soul is the searing, fly-on-the-wall account of the Democrats’ journey through recalibration and rebirth. Dovere traces this process from the early days in the wilderness of the post-Obama era, though the jockeying of potential candidates, to the backroom battles and exhausting campaigns, to the unlikely triumph of the man few expected to win, and through the inauguration and insurrection at the Capitol.

LISTEN AND SUBSCRIBE

SPEAKER

Edward-Isaac Dovere.jpeg

Edward-Isaac Dovere

Staff Writer & Lead Political Correspondent

The Atlantic

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

6:55 - Democratic presidential primary and Joe Biden’s bumpy road to victory

16:35 - The state of the Democratic and Republican parties ahead of 2022 and 2024

22:42 - Predicting whether Joe Biden and/or Donald Trump will run in 2024

25:20 - Biden’s appeal vs. the left wing of his party

29:40 - Shift among Hispanic voters

31:48 - Biden’s presidency so far and future Democratic party leaders

39:29 - Relationship dynamic between Biden and Obama

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Soul talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, uh, which we're excited to resume here in September of 2021. And that is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome another author to salt talks. And that is Edward Isaac Dover. Uh, Isaac is a staff writer for the Atlantic and its lead political correspondent. He's covered democratic politics for 15 years beginning in his native New York city and carrying him through the Obama white house.

John Darcie: (01:02)
And then across 29 states during the 2020 election cycle, his reporting has won the white house correspondent associations, Merriman Smith award for excellence and the society of professional journalists, Daniel Pearl award for investigative reporting among many other awards. He attended John Hopkins, Johns Hopkins university, and the university of Chicago. And he's out with a fantastic new book, which is what we're going to talk about today. It's called battle for the soul inside Democrats campaign to defeat Trump hosting. Today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. And since we're talking about politics, I always have to add in another piece of his bio, he had a cup of coffee as well, uh, for 11 days as Donald Trump's communications director. So looking forward to a fantastic conversation about the 2020 election, uh, between Anthony, he always

Anthony Scaramucci: (01:57)
Brings it up. He thinks it's like a shot in the shorts that I got fired by Trump. I mean the good news is over Darcie. It's over, okay. It's over

Edward-Isaac Dovere: (02:06)
Really a character in this book. So, so I don't even have to mention the part, the part where you were working for him.

Anthony Scaramucci: (02:12)
Let's see there, there, and go. So even better, even better yet all these other guys that come on, there's like five paragraphs of my ridiculousness in their books, which is totally fine. But Isaac, first of all, congratulations. And, uh, I want to, before we get into the book though, I think it's important for everybody to lay out your background, your life and career. Why did you get into political journalism? And then we'll, we'll dive into the book, but I want people to know who you are.

Edward-Isaac Dovere: (02:36)
Well, first of all, thanks for having me to do this. It's really great. And, uh, I would say right before we started that the salt audiences, uh, full of some of the best people, uh, that I'd want to have reading this book, uh, anyway, and, and that you had me on to talk about is really great. So I appreciate it. Um, as for me, I grew up in New York city in Manhattan, uh, and when off to college thinking, I'm kind of interested in politics and I'm kind of interested in writing. I didn't know what to do with any of that. Um, got involved with various things, uh, did a couple of internships in college, uh, at the hill newspaper, um, back when it came out once a week and that seemed like a big deal. Uh, and after I graduated college, I actually, I had the nerdiest form of peer pressure, which is that everybody that I knew was applying to PhD programs.

Edward-Isaac Dovere: (03:28)
And so I applied to PhD programs. I got into none of them, uh, but I did get into a program for a master's degree at the university of Chicago. And I decided that I would go do that and see if that would lead me into a PhD program. The year that I was there was oh, 2 0 3. So now you can figure out exactly how old I am. Um, and, uh, I think that basically what happened was I had not realized how much thing September 11th and the aftermath of it had really hit me and hit me as a new Yorker. I didn't know anyone personally who, uh, was killed, but I didn't know, uh, uh, the father of, one of my best friends, uh, was in one of the towers and escaped, um, and oh 2 0 3 that March to the Iraq war kind of shook me.

Edward-Isaac Dovere: (04:15)
And I thought I can't be in academia. I can't be, I got to get really into this. I moved back home to New York, uh, and started, uh, getting involved in community newspapers work my way up, uh, was the founding editor of a publication. That's now gone. It was called city hall. Uh, news did a lot of political, uh, New York city and New York state focused stuff. Uh, and did that until 2011, moved to Washington, uh, was recruited by Politico and moved to Washington and be at first and editor there. And then I was, uh, the lead white house correspondent for basically Obama's second term. Um, I, uh, after Trump won, not because of any political reasons, but because I felt like I wanted to actually get to an understanding of what was going on that produced Trump's win. Um, I came off white house coverage and was doing, um, political coverage of all sorts of things around the country at Politico.

Edward-Isaac Dovere: (05:12)
In 2018, I moved to the Atlantic, uh, ran in the fall of 2018, the first day that I was on staff at the Atlantic. I flew out to Iowa for the first candidate who went to Iowa officially. And that was Corey Booker. Um, obviously a, uh, never quite became more than that first trip to Iowa. Uh, and, uh, and then I was, as John was saying, it was in 29 states over the course of the campaign working, uh, covering the race day to day for the Atlantic. But in the summer of 2018 already, I, uh, signed a contract for this book because I had a sense that this was going to be a crazy election, that a lot was riding on. And that, um, in fact it was going to be an election that was going to be a lot about the democratic party, trying to sort out what the hell it was supposed to be and how it was going to survive. I, I, yeah. And, and so I was just going to say, I never anticipated obviously the pandemic and all the things that came out of, uh, 20, 20 itself. But, uh, uh, so the campaign, the campaign was crazy, but not, uh, much more crazy than I anticipated. It was going to be,

Anthony Scaramucci: (06:18)
I have a couple of questions. So, um, you writing about the democratic party and you're writing about the factionalism in that party and how they, they picked an elder statesmen effectively to try to do the best that he possibly could to unify that party. And the flip side is you have a very factionalized Republican party as well. It seems like both of these parties are no longer reaching what I would call the bell curve of a center of the country. It seems like most people are centrists and moderates, and you've got hard left people and hard, right? People, am I right about that? Am I missing that you traveled to 29 states? That's my observation.

Edward-Isaac Dovere: (06:54)
Tell me if I'm right or wrong. No, I think you are right. And the Electrum results kind of bear that out, right? Uh, by then, if this were, if the primary campaign were one based on who ran the best campaign by the campaign mechanics, Joe Biden wouldn't have won, probably Elizabeth Warren would've won. Uh, but that was not, that's not how campaigns end up going on on the presidential level. Uh, someone once said to me that when you run for city council or for mayor, or for governor Senate, whatever, any position other than president, it's like going in for a job interview, people look at your resume to, okay, what it's done. I think you'd be good, but the running for president voters make that decision based on how they feel in their guts and Biden speaks to people's guts. And he always has, um, it's, I think his real strength as a politician is that he has that emotional connection with people,

Anthony Scaramucci: (07:44)
But he, he didn't start off. Well, you know, he's behind the eight ball. You got hurt in Iowa. He got hurt in New Hampshire. Uh, tell us your on the ground field experience about what was going on and how he was able to pull it off. And I should also point out to you that we interviewed the two authors of lucky. They wrote their book lucky, because they said it was a close win for Joe Biden. People see the seven or $8 million in the pot say seven or 8 million votes in the popular vote. And they're like, oh, no problem. But he really only won the election by 43,000 votes in the swing states. So tell us, tell us what was going on and how he was able to recover.

Edward-Isaac Dovere: (08:26)
Yeah, the first time that I was in Iowa with Biden was at the beginning of June, 2019, and it was his second trip there. I had missed the first trip. Um, and the first event that I went to is in a town called a tumbler. Uh, and I went to small town, uh, run on some rough times and there's a theater there that they had said the event's going to be happy. So we'll go into the theater. And, uh, they have chairs set up in a hallway on the side of the theater, like outside. Um, and I thought, oh, this is where they're putting the reporters, uh, to wait until we go into the theater. And then they wouldn't let us sit in any of the seats because they said that's for the audience. And there were, uh, I can't remember the count was, I think it was about 80 seats, right?

Edward-Isaac Dovere: (09:13)
Uh, for the former vice president United States, uh, the man was leading the polls, um, and that really carried through most of this campaign, really all of the campaign through, uh, super Tuesday when he won the nomination. This was not a well put together campaign. This was a candidate who was often stumbling through speeches and trying to figure out what exactly he was saying and, uh, how he stood out in the field. It didn't feel comfortable attacking other Democrats. That was always a problem for him. So the debates were always bad. Uh, and, uh, and it was what happened as, uh, a lot of the rest of the field coalesced in the way that it did. And certain, some of the people dropped out, um, because they ran out of money or they ran out of support. Um, usually it's when you run out of money that you drop out of a presidential campaign, uh, and also, uh, like if he hadn't been at the end, the option other than Bernie Sanders, I'm not sure that his campaign would have taken off. And in that final stretch like it did. I don't think he was lucky though. I think that there were things that were going on and, and the book gets into, uh, some of the strategic decisions in addition to tracking what was going on in some of the other campaigns. But it was sort of, uh, I said to someone with Biden, if you look at the way that he won the presidency, it's almost as if it were written in the stars. And also the book tracks about 50 different ways where it almost came apart completely.

Anthony Scaramucci: (10:44)
You know, there's a former, a former president of the United States. You just do a lot of tweeting. He doesn't have a Twitter account anymore, but he tweeted on the day that, uh, Elizabeth Warren and, uh, mayor Pete Buddha, Jay came out of the race or there about that. They were giving the election to Joe Biden then. And do you think that that was actually the case? I was wondering, I looked at it and said, well, that's a reasonably astute political insight that the moderates don't want Bernie Sanders to run away with this. And so they're going to drop out. So that they're number two, who happened to be Joe Biden becomes their number one. What did, what did the former president miss? Well, like

Edward-Isaac Dovere: (11:30)
The former president is, uh, many things, uh, but he is a pretty good observer of like basic politics. Right. And, and I don't think that, so

Anthony Scaramucci: (11:38)
He had great, he had great political instincts politically in 2016. Fortunately, unfortunately what his instincts were. We opened up the onion. There was a lot of rotten folds inside the onion, which obviously we all were worried about

Edward-Isaac Dovere: (11:53)
That. He, uh, sometimes I assumed that there was machinations going on when there, when there weren't, it was not that, uh, Buddha judge dropped out just to, uh, screw Bernie Sanders. Um, although he knew that that would be part of what happened. He dropped out because he knew he was about to get embarrassed and, uh, and not win any votes. But it was, as I pointed out in the book, Udon judge endorsing Biden the night before super Tuesday is the first time in the history of presidential politics that somebody with more delegates, um, and a primary endorsed somebody with fewer delegates, um, and dropped out, uh, Sanders. What if one of the key moments for Sanders is in the debate in Las Vegas, in February, uh that's right before the Nevada primary or the Nevada caucuses, I'm sorry. Uh, all the candidates are asked whether they think a majority of delegates should, would be what was necessary to win the nomination at the convention.

Edward-Isaac Dovere: (12:51)
Uh, and it was a question that Chuck Todd put to them and all the candidates said, they thought the majority except for Sanders. And he said, he'd be fine with the plurality. And this lit up, uh, a backlash in the party against him that was sort of the, the gunpowder was already, um, in the barrel. Um, but that was the match. Uh, for a lot of people, I talked to a guy named Larry Cohen is one of, uh, Sanders, his closest friends and, uh, political advisor was not working on this campaign, but runs, uh, that our revolution group that has inspired by the standards folks. Uh, and he said to me, it's the, it was the stupidest thing Bernie Sanders ever said. Uh, and, and it goes from there to, you know, the, the, the basic discomfort that a lot of Democrats had with Sanders. Some of it was leftover from the Clinton, uh, showdown in 2016. And some of it was thinking, are we really going to put up a socialist, uh, Senator from Vermont against Donald Trump? Um, th th these factors all ended up working in Biden's favor.

Anthony Scaramucci: (13:53)
Anybody else on that field could have beaten Donald Trump?

Edward-Isaac Dovere: (13:58)
I mean, it's great. What if, right. Uh, and, uh, it's funny when the pandemic hit, uh, I started to get from a lot of the campaigns can remember this. The sequencing of the pandemic is the bind is basically wrapped up the nomination right before everything shuts down, uh, and a number of the candidates, uh, aids were pushing, oh, this actually would have been a good moment for Elizabeth Warren because she has a lot of plans. Um, it would have been a good moment for Mike Bloomberg cause people like management experience, it would have been a good moment for Bernie Sanders because everybody was thinking, should we have healthcare for everybody? It does not seem to me that there is a strong argument that one of the other candidates could have won. Um, and, uh, when you look at it, there there's some focus groups, uh, uh, that I quote at the end of the book that were done with the famed Obama, Trump voters, right.

Edward-Isaac Dovere: (14:50)
People who for Obama twice, and then for Trump in 2016. And, uh, they were deciding, but under Trump in 2020, and the read that they gave was on Trump, uh, basically I can't stand them, but he knows what to do with the economy. It's not really fair to him. What happened to the economy that, you know, it's like a meteorite hit here, uh, with the pandemic and probably when the pandemic Staten, the key would be better to get us out of it, but I don't think he can get us out of it. Uh, the read on Biden was, is a good man. I don't know that he knows what he's doing with the economy. I'm a little spoked with what's going on. Uh, and the, the defund, the police and all that, it seems very strange what's happening in the democratic party, but we need to get out of the pandemic. And I think he can get us through it. And that kind of, that, that comfort that people have with Biden, uh, and the, the, uh, comfort in his experience and his personality there, isn't another candidate who really had

Anthony Scaramucci: (15:48)
That. I want you to, I want you to be the objective consultant. I'm hiring you, Isaac. Okay. And you get a higher report. You have two jobs over, you're not a reporter in this gate, you're this objective, innocent well-researched Politico. And then you're coming in and I'm asking you to please evaluate for me the strengths and weaknesses of the democratic party going into 2022 and 2024. And if you were the party chair or you were the guru for the party, what would you recommend to them? And then subsequently, I'm going to ask you that same question related to the Democrats, the Democrats first, and then Republicans, whatever you want. You're the guru, you're the guru,

Edward-Isaac Dovere: (16:35)
It's about the Democrats. So I'll start with the Democrats. Um, uh, the, the Saturday before the election, I was in Miami, uh, Kamala Harris was doing a bunch of stops, uh, trying to, um, get Florida where they want it to be. And she kept on saying this line that was, uh, towards the beginning of her speech. So it was something like, and I just want you to know Joe Biden. And I are both proud Americans. And at one point after she'd said three or four events, someone who was working on the campaign said to me, did you notice that, that line? And I said, yeah. And the person said, that's pushing back on the socialist stuff that they're saying down here in Florida. Now, my response to that was that was a little too subtle for me to sit here. And I'm the reporter who was paid to be paying very close attention to this.

Edward-Isaac Dovere: (17:22)
And second of all, if that's all that they have as the pushback, uh, that really didn't seem like enough. They underestimated in Florida how powerful that argument would be, especially with, uh, people from, uh, central and Latin America who either came themselves or have relatives there, uh, and, uh, are very suspicious of anything that says socialism, right? Um, and that's maybe more powerful when there's a closer connection to a socialist country, but it is a real issue for voters all around the country to think that Democrats are turning towards socialism. And the truth is at this point, the, uh, most of the people who are the most prominent most often on TV characters in the democratic party are people who say that they tend toward socialism other than Joe Biden and Kamala Harris and the rest of the administration itself. But Bernie Sanders out Sandra causer Cortez, other activists I've these that makes a lot of people who are not socialists or socialists inclined themselves uncomfortable, whether or not that's fair. And that's something that the party really needs to deal with. But let me

Anthony Scaramucci: (18:34)
Interrupt for a second. Is that a mainstream thought socialism in America, is that a thought for 10, 20, 30% of the people and the mainstream with that thinking?

Edward-Isaac Dovere: (18:45)
I mean, look, elections are lost in one, uh, usually by, at most 20% in the middle of going back and forth, and there's probably less than that really it's, uh, you know, uh, 45% of people are one way are going to go with the Democrat, no matter what and 45 with the Republican, no matter what. Uh, and it's that 10% that you're trying to find now that 10% can also be, uh, accounted for by new voters turning out. And that's one of the arguments that's been going on in the democratic party. But, uh, one of the things that, uh, towards the end of the book that I get into is, um, there was a protest a couple of weeks after the election in favor of the green new deal that was held right outside of the DNC headquarters in Washington. And, uh, it was led by all the members of the squad and Ilhan Omar, the Congressman from Minnesota comes and she, uh, was, she was giving a speech that said, you know, I had the highest turnout in America in my district. Uh, and people say to me, Ilhan, how do you do it? Ilhan? What, and it's because I gave them something to believe in and she's standing there and she says, and you know, it's true. She did have the highest rent. That's a district by the way that George Floyd was killed in, um, it's a district in a swing state of Minnesota. Uh, it's a district that, um, uh, was represented by Keith Ellison, the attorney general now, before he was, uh, attorney general, there's a lot going on in that district. Um, sorry. Um, the, uh, he

Anthony Scaramucci: (20:11)
Sees that, so our YouTube bubble moment, right. There you go, stuff flying around. I usually get my young kids coming into karate, chopping me on live television. And that's fine. Um,

Edward-Isaac Dovere: (20:23)
The point that I was making is that she, uh, what, she, I'm not sure she realized, uh, it certainly, wasn't what she said that day is that her district was the biggest drop-off between, uh, the votes for president and, uh, and a house member in the entire country. So it's true that people turned out and they felt like they had something they believed in, they were turning out for Joe Biden. They were not turning out for her.

Anthony Scaramucci: (20:48)
So, and quickly because the book is about the Democrats, what would you say for the,

Edward-Isaac Dovere: (20:55)
I don't see how there is a winning strategy to lash yourself to not just somebody from the past as Donald Trump is at this point, but someone who has proven that he will never be satisfied, then no matter what, it's never enough. And, uh, he enjoys making people squirm. You can see that he's doing that with Kevin McCarthy, uh, and we'll,

Anthony Scaramucci: (21:23)
And when you're talking about a battle for the soul yet ASA, do these, any of these people have any souls I'm just to find Kevin. So I liked Kevin. I mean, I gave Kevin money. I was obviously a lifelong Republican, but I mean, these guys are, uh, they've decided that they're just going to completely distort the facts and guests like the country. So, I mean, we can go in that direction, but I don't think it's very healthy. Okay.

Edward-Isaac Dovere: (21:46)
And that's, that's its own question, right? Like, is it the good thing to do? Is it the politically smart thing to do is also, I think very much in the air. Um, obviously the, the reasons of where the trends are historically a midterm for the incumbent presidents, rarely good. Um, and there are a lot of, uh, factors about gerrymandering and certain states that are going to give Republicans a leg up going into next year in the house races. So the Republicans are going to win the house. I don't know that that's a done deal. It, it almost like it, it shouldn't be a question and I don't think it would be, if not for these bigger factors going on, right.

Anthony Scaramucci: (22:26)
Play the party, not in power wins the house, but in this case, because they're so screwed up, blow it. Yeah. It's

Edward-Isaac Dovere: (22:32)
Sort of like if the Republicans don't win the house, it's next year, it will, I think be more because they lose it, then that the Democrats

Anthony Scaramucci: (22:41)
Hold on to it and running for reelection.

Edward-Isaac Dovere: (22:44)
It's hard to tell. I mean, he is working really hard every day at that job. Um, and, uh, he'll be 82. There are, you know, actuary, IRL things that are there for him, but he really wanted to be president. And, you know, the book ends with an interview that I did with him, uh, at the beginning of February. And there's a level of confidence in him of like, yeah, I'm here, I'm finally in charge. I'm going to do it this way. That was striking to me. And I've talked with other people who've been around him since he's been sworn in. And they said the same thing. Uh, I don't know if that means that by the time that he gets to the end of the first term and probably won't be all the way at the end, he'd have to make a decision in another, let's say, 18 months, uh, to let the party prepare, but it's not going to be him. He may look at them and say like, I want to give it another shot. I may be the only one who can win. That's how that, yeah, I think he's

Anthony Scaramucci: (23:37)
Going to run again. It's very hard to run away from this sort of power, but I've got to turn it over to the Earth's wild blonde millennials, because the reason why you're going to be able to sell books is that all of his fan base tunes in to see him, you and I are just a side show of distraction. Uh, but I have one last question. Okay. Is Trump running

Edward-Isaac Dovere: (23:58)
Again? I don't think so. Okay. Yeah.

Anthony Scaramucci: (24:03)
Orange oranges is the new black, as you know, he may be in an orange jumpsuit before this is over off the seat. I mean that part, uh, I guess, let me tell you something that I, I don't think you bring a criminal case against the former president and his former organization or his current organization, unless you're pretty confident. I don't think you go, I don't think you take those steps, but we'll have to see, I got to turn it over to Darcie cause I really want you to sell books. Um, and, uh, it's the battle for the soul and the, uh, the underlying pretext is what happened inside the Democrats' campaign to defeat Trump. And I gotta tell you, uh, I'm so excited for you because I think you're right at the edge of where things are right now. And I want people to go out and buy your book, but I got to turn it over to John Dorsey, which will guarantee Isaac, that people buy.

Edward-Isaac Dovere: (24:52)
And do you need to stop talking then? So we get to that part.

Anthony Scaramucci: (24:56)
I got to put myself on mute for that to happen. My lips are going to be moving on. John's talking to you a whole lot of sex. Isaac.

John Darcie: (25:02)
I just want to clarify the point on Ilhan Omar. Cause I think it's a fascinating discussion points. So she talked about how she had high turnout. Uh, and you talked about the discrepancy between Joe Biden's, uh, share of the vote in her district and Hershey or the vote. Are you saying that it was the biggest drop-off between the presidential candidate and the, the house representatives?

Edward-Isaac Dovere: (25:20)
Yeah, the biggest it's. So, uh, I don't remember the percentages off hand, but, uh, the, the most Biden got whatever it was, let's say 85% in the district. This is roughly where it was high eighties. Uh, and she got something like 66% or 62%. And in most districts it closely matches, um, that the same number of people vote Democrat all the way down the line. That means that there are people who are, who went into vote for Joe Biden. A lot of them who voted for him. And by the time they got to her either didn't vote for her voted for someone else.

John Darcie: (25:57)
Right. And you think that's evidence that the more progressive and give you something to believe in notion within the democratic party is misplaced. So going back to the point about, you know, whether somebody like Bernie with a more energetic populous message you think would have lost and that's the wrong direction for the party.

Edward-Isaac Dovere: (26:13)
I mean, like, I'm not sure he would have lost. I think it would have been a much harder thing. Uh, and, uh, I think what that shows is that you see how one of the things, by the way that it shows us is Biden's own strong connection to black voters, especially older black voters that carried him through South Carolina and just, uh, floated him when everything else was going wrong for his campaign. But I think it, the democratic party right now is, uh, sort of at a crossroads, right. Of figuring out, do they see themselves as trying to be the party that, uh, folks like Ilhan Omar in Ocasio Cortez would like it to be and what Bernie Sanders would like it to be? Do they, for those folks, do they look at the Biden win and say, oh, you know, people just, they were so scared of Trump or they liked him, whatever it was a fluke essentially.

Edward-Isaac Dovere: (27:08)
Right. Do you look at the election results and say, you know what, like there was something to Biden that people connected with. And, uh, it may not quite make sense by the usual political science calculations, but you see, I mean, I track a lot of moments in this book of it is human connections that he was making with people and the way that people feel about him and the way that people feel about his, his approach to politics. I think there's a great example. If you look at what happened a couple of weeks ago, um, when the all-star game, the bay, the baseball all star game, uh, was deciding whether to move out of Atlanta when Georgia passes new voting clause and Biden was asked about it. And he said something like, you know, I think that's something that people should consider it, didn't say, okay, George W. Bush, Barack Obama, Donald Trump just go in recent history here had said anything like that.

Edward-Isaac Dovere: (27:59)
It would have exploded. And people would have gotten to their separate barricades. We have to have the game there. We can't have a game. Instead. What happened with when Biden said that is certainly there was a lot of pushback to moving the game. And there are a lot of people who said, actually I had to remove a certain layer of people that it was, huh, maybe we should consider it. And that's something that is a power that Biden alone has, I think because the connection people have to him and that's powering him through very well. Now, I don't think most people see him as like, uh, acting in this super partisan way. And if you look at the polls, they don't, but the American rescue plan passed with only democratic votes infrastructure plan passes. It'll probably pass with mostly democratic votes, uh, if not entirely. Right. And, and the same thing for any of the other things,

John Darcie: (28:49)
Right? You talked about how black voters essentially rescued Biden during the primary and basically rescued the country from Trump more or less in the general election, but the Hispanic vote was a fascinating phenomenon. So people just sort of took for granted or assumed that Biden in the democratic party had a stranglehold on Hispanic votes because of some of the rhetoric coming from Trump and his administration, their actions around immigration. But actually we saw a big move from, from the Hispanic demographic, towards Trump, especially in, in Miami Dade county, other counties in Florida, in El Paso, Texas, for example, do you think that's going to be part of a more longterm shift within both parties or you're going to see more Hispanic voters gravitate towards Republicans and, you know, using the, the messaging on socialism and, and the idea that, you know, maybe unfettered immigration isn't a positive thing, or do you think that was just a blip on the radar?

Edward-Isaac Dovere: (29:41)
I think the socialism, uh, argument that, uh, Republicans make against Democrats is very powerful with a lot of voters. And I think it, it, it seems to be particularly powerful with, uh, with people who, as I was saying earlier, have a connection, not just are Latino or Hispanic, uh, but if they, if they themselves, or they have parents or relatives who come from a country that has had bad experiences with socialism that resonates, and you saw that happen in Florida, um, it's really hard to argue that if the Democrats had been able to quash the socialism thing that they wouldn't have done better in Florida might be maybe even it. Um, Donald Trump is very smart. As I said about certain things in politics, he knows how to get to the basins sinks with people. There was a reason why they kept saying socialism and why he kept talking about socialism.

Edward-Isaac Dovere: (30:30)
It worked. Uh, and, uh, I, I do think that that long-term is a problem for Democrats. Uh, I'm not sure that you will see, uh, any clear movement of Hispanics overall, but that that's bad news for Democrats who assumed that more Hispanic, more Latino population, um, more voters who were Latino, uh, means more both for them. Uh, and particularly in a place like Texas, that Democrats have been thinking for, I don't know how many election cycles have we done? There's like, this is the one that text is going to be democratic. Well, like it's not, it's not happening. And now where's the interest in, in, uh, Texas for 2022, it's in, uh, Matthew McConaughey running. Right. I, we can check on. All right. All right. I don't think that there's any Latino blood in that magic economy. I believe his wife is Latina, but, uh, I'm not, I'm not, I'm asking. We've got an expert.

John Darcie: (31:28)
Yeah. Yeah. The, the, the celebrity thing they're trying to repurpose that, uh, that strategy, but in terms of how president Biden has governed, do you think that he's governed in the same vein that he campaigned and been a moderate and been restrained? Or do you think that he's moved to the left and what do you think the country's response to the way he's governed has been so

Edward-Isaac Dovere: (31:48)
Far? Uh, this is one of the things that I track in the book a lot. Um, I don't think the presidency that he is having, uh, is anywhere like the presidency or anything like the presidency that he thought he was going to have. And that is because of the pandemic and, uh, what was exposed by the pandemic and the opportunities that were created by the pandemic. Uh, he sees himself now in a special and perhaps unique moment in history, uh, to change the way that things go in this country. Uh, he has, when I was talking to him, he pointed out the Franklin Roosevelt portrait is hanging over the fireplace in the oval office. I can pretty much guarantee you that that would not have been, uh, the, the, uh, main portrait that he would have hung in the oval office, uh, before I don't know who it would have been, but, uh, seeing himself as this new Roosevelt is because of what happened here.

Edward-Isaac Dovere: (32:46)
Right. Um, and now I think that what he is doing is very reasonably making the assumption and the argument that there is a difference between the kind of pushback that he gets from Republicans in Congress versus Republicans out in the country. And you see that, that the American rescue plan had a much higher poll numbers than you would have guessed based on that. It didn't get a single Republican vote in the house or Senate, um, and among Republicans, right? Higher poll numbers, that's the pitch that he's making to the country. Um, and it seems to be working. People just look at him and, and seem to think like he can't be that far out there. Even though when you look at the substance of what he's talking about here, this is major legislation, major structural change to this country. And, uh, things that Progressive's a couple of years ago would never have thought could be possible. And definitely didn't think it would be possible in a Joe Biden prison.

John Darcie: (33:46)
Right. It seems like the punches that, uh, the Republicans are throwing at Biden right now, in terms of trying to criticize this administration are not landing. They're trying to liken this to Jimmy Carter, 2.0, where you have fuel prices went up. But that was because of just a black Swan event, the hack that happened on the pipeline, uh, they're talking about lumber prices and the inflation that's being caused by all this fiscal irresponsibility. But if you were the Democrats right now, and you're, you're sitting in their strategic seat, what candidate, uh, on the Republican side, would you be most worried about based on where your party is?

Edward-Isaac Dovere: (34:19)
So I'm not sure what the answer to that is. And again, um, I, I think that history will have a pretty clear judgment on, uh, Trump's presidency. Uh, but whatever you think of him, good or bad or whatever, um, especially for Democrats who found him at foreign, they sort of tend to overlook how skilled he was politically and how good he was a connecting with people. And I'm not sure that you see anyone of the prospective Republican candidates who has anywhere near that skillset. Um, whether it's Ted Cruz, Josh Hawley, Rhonda Santas, Nikki Haley, uh, the, the Mo the names that we've talked about so far, like it's not, they have other skills. They're just not as good at the political part of it. Uh, as, as Trump was, I think we all underestimated how good Trump would be at connecting with people. But that's, I think in retrospect, because we didn't appreciate how much he had sort of trained by all the ways that he was out there and all the ways that he had embedded himself into people's psyches.

Edward-Isaac Dovere: (35:23)
I mean, I've spent a lot of time in the pandemic, uh, cooking as we've many of us have, uh, and I've watched, uh, too many, uh, old sitcoms on like Amazon prime and Hulu and whatever else. And it is astounding to me how much Trump shows up as just throw away jokes. Um, I will tell you, I've found an episode of perfect strangers, which he used to watch when I was a kid and I was watching it on Hulu. And there's like, they think that they, when they won the lottery and a cousin Larry says, like, take that Donald Trump. That's crazy. There's no one else who has that kind of connection to us all. Culturally, the only other person I think does, uh, is Oprah Oprah's politics are not going to put her in a good place in a Republican primary. I don't think.

John Darcie: (36:08)
Yeah. I mean, he's a brilliant marketer. And as his business career shown that as a real estate developer, or as a governing politician, he doesn't necessarily Excel, but in terms of marketing the message and building his brand, he does a fantastic job on the democratic side. Let's say, Joe Biden serves one term. He decides not to run, or even if he does run in, in seven years from now, what does the bench look like in the democratic party? Who do you think are going to be ascendent stars, uh, that are going to take this, this Baton from Biden and lead the party forward?

Edward-Isaac Dovere: (36:40)
Although the most obvious one of course is Camila Harris, um, incoming vice president. It's always going to be where things are. Uh, Harris does seem to represent, uh, what the face of the party, uh, more, uh, ethnically racially diverse a woman, right? Like that's where the base of the party is going. Uh, and,

John Darcie: (37:01)
Uh, people within the party don't like her, you know, they, they think that she comes off as unlikable. She comes from California, that's, you know, experienced some issues. You see some, you know, we work in the financial industry, you see people from Silicon valley moving to places like Miami because of their dissatisfaction, with things that are going on in California. Is she likable? Is she the one? Just because by default, she's the incumbent

Edward-Isaac Dovere: (37:22)
And likable, then we learned that that's a word that, uh, when it was used about Hillary Clinton has a little bit to do with, uh, sexism misogyny, right. Um, I'll get some hate mail. I will quote, uh, something that Jennifer Palmieri, who was the communications director for Hillary Clinton has said. And it's that it's very hard for us to think of a woman in power and a woman being present because a woman has never been president. Um, so we don't have that frame of reference. Right. And I think that Harris is, uh, trying out how that looks for, uh, the right and getting people used to that. Uh, she's the one who's the most likely to, uh, be in that position because she's, vice-president, there are other ones out there too. Of course, a lot of, uh, attention has gone to people who to judge you, even though it's transportation secretary.

Edward-Isaac Dovere: (38:10)
Um, and, uh, and I think you'll see other senators and governors come up. One of the things that happened very much in the Obama years is that there was a just ravaging of the bench, uh, and not a lot of Democrats that are, uh, left, uh, in, uh, in the up-and-coming generation, uh, from, uh, the pre 2012, 2000 years. So you've just had, you know, five, six years of new people coming up. And of course, Harris is one of them and she she's the vice president now, but she was elected to the Senate for the first time in 2016 on the night that Trump won that's in the book to her credit, trying to figure out, uh, what it is to be elected to the Senate and being happy about it. But also like Trump wins. She's completely spooked by it. And there's a scene at the early, in the book of her coming to her party and wanting to like speak to all the people there and celebrate. And her staff is like, we gotta get you out of the building. You can't answer any

John Darcie: (39:07)
Questions. Did Obama want Biden to be president? We've covered this with a couple other authors that we've had on that, of that, of Chronicle, uh, the lead up to, and the 20, 20 election about some frostiness that might exist between the two of them, uh, based on the handling of 2016 and then 2020 that Obama wasn't buying to be president, or how do you think he's evaluating the party right now?

Edward-Isaac Dovere: (39:29)
So I want, is it a complicated question? Right? Um, I keep did not, he was not convinced that Biden could be president, um, there or could win the presidency, not going to be president. Um, there's a, a moment early in the book, uh, when he's flying back from a Christmas party at the end of 2017, uh, that was in Chicago for the Obama foundation, and they're talking on the plane and he says, okay, in your head and in your heart, who do you think in your head could win? Who do you think in your heart could win? And who, or who do you want in your head to run and in your heart to run, and who do you think could win? And he, uh, himself picks bill McRaven, the Navy seal commander for the bin lawn raid for his head,

John Darcie: (40:16)
Admiral McRaven. He spoke, spoken Salta in 20 minutes.

Edward-Isaac Dovere: (40:20)
Um, he and his heart says of course by it, and I love Biden he'll could win. I'm not sure. I don't know. He was talking a lot about how, uh, physically taxing the job of president is, uh, and that it's hard for older people when people would hear him say that and be like, okay, we get it. We know who you're talking about. Uh, uh, he would talk about, uh, that he didn't know if Biden would be able to connect with people. There is a moment from when Biden is still vice-president and he's flying in air force two. And he says to somebody, uh, he's talking about Obama. And he says, I've never seen somebody who's better at talking to 10,000 people into one, uh, right. That's what he says about Obama and Obama feeling about that. It was like the reverse of that, right.

Edward-Isaac Dovere: (41:05)
It was like, yeah, Bob is great, like Todd jumping around, but like, he can't like put lots of people in a rally and rev them up. Um, and you know, there are realistic factors of wood Biden's campaign have looked, uh, worse in contrast to Trump's if he had been spending all of last year doing rallies, instead of not because of the coronavirus. Uh, so your question was Obama by then to run. I think it comes down to skepticism. Uh, he loves him, but he, he's not convinced. Um, and you see that all the way through the end of the campaign, this feeling of like, okay, like, I guess this is working better and better work, but like,

John Darcie: (41:55)
Yeah, he certainly waited until sort of the last hour or two to make that formal endorsement, which Biden said that he asked Obama not to endorse him. And I think people definitely believe that version of events, wink, wink, um, but Edward, Isaac Dover, it's been fantastic to have you on salt talks. The book is called battle for the soul inside Democrats campaigns to defeat Trump. Maybe there'll be another one of those campaigns, uh, in four years you say no, but you, you never know.

Edward-Isaac Dovere: (42:24)
I'm not, I'm not convinced.

John Darcie: (42:27)
All right. Well, uh, I, I'm not going to comment on that, but, um, it'll be interesting if it does happen, but I think there's, there's at least one person on this, this, uh, salt talk that, that hopes it doesn't. But, um, and I'll leave people guessing about who that is, but thank you so much for joining Anthony have a final word before we let Isaac leave. First of

Anthony Scaramucci: (42:45)
All, how do you know that? I don't want that because you knew that would be a lot of fun for me. Okay. You know, Isaac,

Speaker 4: (42:51)
[inaudible]

Anthony Scaramucci: (42:53)
My wife, Isaac. My wife says to me, now that Trump's gone, who the hell are you going to fight with and make sure it's not me. Okay. So that's why I pick on Dorsey on every cycle. Exactly. Exactly. So how do you know that? I don't want Trump to run again. I mean, I'm just asking you, Isaac, God bless and congratulations on the book. And hopefully we can get, you know, uh, one of our live events, I'd love to go a little clears up a little bit rooting for you. We are too, and we're rooting for you. And, uh, I look forward to reading the book. I apologize that I didn't get it. I didn't get access to it before the talk, but I will definitely read it and I'll let you know what I think. Well, and I wish the best of luck with it.

Edward-Isaac Dovere: (43:38)
I appreciate that. I know you're usually

Anthony Scaramucci: (43:40)
Really, we also, I also want to apologize for the way we're dressed. Okay. Because even though we're in the office, for whatever reason, we weren't wearing the fancy pants, clothing,

Edward-Isaac Dovere: (43:52)
You know, the reverse for me. Cause I'm sitting in my home. Um, what time for you? I've had a tie on, I don't know, maybe six times since the pandemic hit, but for you, Anthony, I'm

Anthony Scaramucci: (44:02)
Good. Are you, are you, are you wearing champion shorts?

Edward-Isaac Dovere: (44:06)
I'll tell you. I'll admit I'm not wearing shoes, but I am wearing pants. Um, right.

Anthony Scaramucci: (44:10)
No, that, I mean, that's, that's, that's congruent to other COVID fashion. So God blessed, uh, congratulations on the book. We wish you well, we'll see you soon. Thanks.

John Darcie: (44:21)
And thank you everybody for tuning into today's salt. Talk with Edward Isaac. Dovera talking about his book battle for the soul. Just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. And we're continuing to build out our website. We have full transcripts available. There links to subscribe to our YouTube channel as well as some key quotes that we pull from every episode. So definitely a salt.org. And we also have salt in New York, our conference coming up in September registration for that will open in June. So we hope as many of you, uh, as, as, as possible and safe can join us there. Uh, but on behalf of the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here against them.

Valerie Mosley: Financial Wellness | SALT Talks #216

“I’m very interested in compounding compassion and compounding interest. If you widen your lens just a little, then you’ll learn things like the median cost for a payday loan, at a time when interest rates are zero, is 391%. That’s unconscionable.”

Valerie Mosley created Valmo Ventures to advise and invest in companies that add value to both investors and society. She recently founded BrightUp, a FinTech company focused on democratizing wealth building and wellbeing. Mosley sits on several boards including Eaton Vance’s family of mutual funds, DraftKings, Groupon and Envestnet. Previously, she was an SVP, partner, portfolio manager and investment strategist at Wellington Management Company, a $1 trillion money management firm. Mosley was named UK’s Powerlist International Person of the Year 2017, and one of the 50 Most Powerful Women in Business and one of the Top 75 African Americans on Wall Street by Black Enterprise Magazine.

Valerie Mosley has always sought to bring people together in order to share different perspectives and build understanding. As a freshman at Duke University in the 1970s, she put together talks on race relations after learning she was the first black person many of her white classmates had met. She left a successful career at Wellington Management Company to pursue a more impact-oriented career focused on wealth building and wellbeing. Mosley cites the stagnation of wages among the bottom 80% of earners and its negative effect in the face of rapidly rising costs in health care, housing and education. Teaching financial literacy to the underserved is designed to have a compounding effect on both wealth and quality of life.

LISTEN AND SUBSCRIBE

SPEAKER

Val Mosley.jpeg

Valerie Mosley

Founder & CEO

Valmo Ventures

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

TIMESTAMPS

0:00 - Intro

3:25 - Leading race relations groups as a college freshman

7:13 - Importance of financial education in bettering society

17:36 - Democratizing wealth and well-being amid growing inequality

24:45 - Wealth disparities between white and black families

31:40 - Policy lessons learned and shifting generational trends

43:05 - Investing trends around technology, crypto and ESG

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome a great investor who is investing in a lot of those big ideas that we love to focus on here at salt and that's Valerie Mosley. Uh, Val created Velma ventures to advise and invest in companies that add value, both to investors and to society.

John Darcie: (00:56)
She also recently founded bright up, which is a FinTech company focused on democratizing wealth building and wellbeing. She currently serves on several boards, including Eaton. Vance has family of mutual funds, DraftKings, Groupon, and invest net. Uh, previously she was a senior vice president partner portfolio manager and investment strategist at Wellington management company, which if you're not familiar and you're in the industry, there are about a $1 trillion global money management firm. Uh, Val is also on the board of new profit, which is a philanthropic, uh, venture capital firm. Valerie was named UK is powerless international person of the year in 2017 and also one of the 50 most powerful women in business. And one of the top 75 African Americans on wall street by black enterprise magazine hosting, today's talk is Anthony Scaramucci. He was the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (01:59)
Well, Valerie, it is great to have you on we very much so appreciated. And so what John didn't say is that we get ratings on smalltalk talk because of him. So that was, he was tried as it was, it was a subtle undercurrent of that's totally fine, but you are a contemporary of mine. I'm counting on you to have a two on one sort of combated relationship here during this salt talk. But before we get there, tell me something that we wouldn't know about Val Mosley. If we didn't, you know, let's say you've got everything you can think of on Google Wikipedia. What would we not know about Val Mosley? It's the old fashioned question away from social media now,

Valerie Mosley: (02:44)
Right? I'm a lover of life. I'm, I'm a grateful giver. I'm the youngest of four from Tuskegee, Alabama. I lived in Germany. I studied Kenya. I lived in a dung hut. I taught financial literacy and Roxbury and Dorchester. And, uh, I think those are some of the things and I love leading and giving. And so things that might not show up, I brought together when I was at duke university as a freshman conversations between white and black, because so many people told me I was the first black person that they had ever met. And so I decided to have this conversation, I put signs up everyone, race relations. And I did that when I was 18. That's not on the resume. I just like bringing people together to talk and have different views. What

Anthony Scaramucci: (03:51)
Did you learn from that? But you know, you know, so you're 18, you are working on race relations. And so what did you learn from that?

Valerie Mosley: (04:00)
I learned that everyone at the end of the day, once the same thing and they have different perspectives and the perspective is not necessarily fact, it's a narrative and it's important to make sure that we have conversations so that generalizations are taken away and people can connect with the person. So in the middle of this crazy talk, there was a gentleman who didn't really like the fact that I was having it. Do you know what he says? He happens to be, African-American happened to be from a rough part of town. This is a long time ago. He said something crazy. Like if I had a gun right now, I would shoot every white person in this large circle. I'm 18, I'm a freshmen. And I said, wow, you know what? It's probably, I'm glad you had the, you felt like you could share how you feel. It's good that you're able to share how you feel. It's also good that people know that not everyone that looks like him feels the same thing and vice versa. So it's like the markets, there's a bid in the ask and there are people it's like, the markets are politics, there are different views. And what we have to do is just keep our spirit and our ears open enough to be able to hear somebody's view and still be very centered in your own. And I was really surprised that we're still having these conversations today.

Anthony Scaramucci: (05:24)
You thought it was going to be better when you were a kid at 18. You're like, all right, there's some racial tension here, but you know, X number of years later, it's going to be a lot better. I didn't want to date. I didn't want to date you or I, because I'm lying to people about my age vows. I didn't want to date how far back that was. So, but

Valerie Mosley: (05:42)
It was a long time ago and you do look like a baby, but,

Anthony Scaramucci: (05:46)
Well, I mean, thanks. I want to just, firstly, thank my dermatologist and all the Botox injections that he's given me over the years. Yes, exactly. At

Valerie Mosley: (05:55)
That time, I didn't sense that there tension. It was just that somebody didn't know, they said that I was the only black person that they had met outside of their nanny. And I thought, wow, this is duke. This is a long time ago. This is 1970s, late seventies. Um, and I thought let's just get together and talk so we can get to know each other

Anthony Scaramucci: (06:15)
Worse today from those talks, race relations better or worse today.

Valerie Mosley: (06:21)
I think, I think better yet. Economically in some cases it's worse, but better. I would say better.

Anthony Scaramucci: (06:33)
Well, I mean, you know, we had Don lemon, he's a very good friend of mine on, uh, the CNN anchor. Uh, he feels it's better. Uh, and he wrote, he wrote a very fascinating best-selling book about it. Um, he said that in a weird way, Trump has exposed a lot of stuff that was going on and perhaps that could even make it better. Um, before I get into my other questions. So I want to go to Roxbury, Massachusetts, because that's the south side of Boston, primarily African American community. I went to Tufts, my roommate, Raul Silva, uh, was from Roxbury, Massachusetts. So I know a lot about Roxbury. How did you end up in Roxbury, Massachusetts?

Valerie Mosley: (07:14)
I believe that to whom much is given much is required. And I just feel like I've been so blessed in my life. And I realize that education is power. And you asked me earlier, what's different about me. What somebody would know is that the first part of my life, I grew up in inner city Philly until I was 12. And the second part, my father was in the service, uh, in the army. And when he came out of Vietnam and service as a major, he was given some stock options to become the head of security at the Franklin mint in Philadelphia. And those stock options went up in value and that gave him the opportunity to move his family of four with his wife to another area, which is still Philadelphia, but surrounded by grass instead of cement. And that exposure made all the difference in the world, um, to me, because it started planting seeds of what was possible.

Valerie Mosley: (08:09)
So I felt like I've been really blessed. I'm at Wellington, I'm a partner on Manny, but managing billions of dollars. Let me make sure that I share what I wish I had learned. And I met some teachers and they told me about their class. And so my son and I went over and just started teaching financial literacy. And we started showing, showing the power of compounding interest. How much could you make? Like literally somebody that's 16, you'll appreciate this. We're in Roxbury, we're in the class. I say, how much can you make during the summer? And I asked two different classes and they said, oh, we can. I said, and safe. They thought, um, $1,200 at the time. I said that a hundred dollars a month. Let's let's, let's, let's push this out a hundred dollars a month. Can you make $25 a week? You put that in the calculator at 16, a hundred dollars a month by the time.

Valerie Mosley: (08:59)
I mean, and by the time they would retire, I know it's a long time if they just did that. And they never changed that they would've saved roughly $80,000 and they would have made $725,000. And they're being able to see what was free. Money was really impactful. And suddenly they understood compounding. They understood convexity. They understood things that help them with their math. And so we, we worked with the federal reserve and started teaching the teachers how to teach the kids, the em, and money and the math behind the magic of growing money. And that's what brought me there. It was fun

Anthony Scaramucci: (09:38)
Since fat is fascinating. I always tell the kids about the magic penny. You know, remember that conversation. If I gave you a $10,000 a day for 30 days or a magic penny that doubles every day for 30 days, while you start out not doing so well. Well, you're you get $10.8 million at the end of the 30 days, if you have the penny, uh, which sort of reinforces it for kids. Yes. So let me go back to why leave Wellington, you have this fabulous career you're doing amazingly well there so wildly. Well, it didn't strike out on your own. That's a really,

Valerie Mosley: (10:12)
Really good question. I love Wellington. It's a phenomenal firm. It's has a it's it's a trillion dollar plus asset management firm. I still have a very good relationship there. I believe that to whom much is given, we talked about this before much is required. And, and, and I just felt like I loved what I was doing. I'm adding value to portfolios, but I, and for clients, but I felt like my wingspan was a little bigger and I wanted to add value to society and to life. And sometimes you, you can get put in a box in a farm. And I just, if you're an investor, you you're betting all day, you have a view and you take a bet and I just want it to bet on me. You live this life once. And there are other things that I felt like I can do, and I just wanted the time to do it and try it.

Valerie Mosley: (11:01)
And you know what happened? I had this conversation with my daughter and I said, you know what? I'm very spiritual. I said, my instincts have never led me wrong. And I said, in something tells me I'm supposed to leave. And I said, but I have three children. I'm a single mom. You guys are about to two were in college. You're about to go to college. And she says to me, in the morning, you trust your instincts either you trusted or you don't. And I just started laughing as I, she left to go onto to, uh, she was leaving to go to, to a high school. And I told her later that it's one thing. If you're walking across, I told her this too, if you're walking across, uh, uh, I said, let's say that we're at the, um, the grand canyon and you've got to walk across it on a rather narrow and you practice it all the time, but it's a narrow bore that you're walking past.

Valerie Mosley: (11:52)
And, and I said, and if you, if it's over the grand canyon, the risks are different. And so you have to have risk adjusted returns. And her Quip at the time was either you trust instincts. So you doubt mom. And I just felt like most people who are upset at the end of their life, there's a study that was done for people who are in their nineties and their eighties. What do they regret? They don't regret what they tried. They don't regret what they tried and failed. They regret what they never got to try. And I knew that there was some things inside of me that I just wanted to try, and I couldn't do it while I was at Wellington. And one of the things I wanted to do is to take my kids on this trip around the world at a time when they could at three and a half years apart. So the day after I left Wellington, Wellington, um, gifted part of it, I took them on this trip around the world because I want to, to expose them to things.

Anthony Scaramucci: (12:41)
What was the most fascinating place in the world that you traveled to with your kids? You get, you get high marks for Italy, by the way, I'm just going to point that out, but you don't necessarily say Italy, although you could name one of the grandkids, Anthony, you're just pointing that out as well. What, what was the, what was the best place?

Valerie Mosley: (13:04)
The middle east in general was just fascinating because we were in Jordan during Ramadan, we went to Israel. The tension in Israel was just incredible between the different groups and you can't read about it. We heard about Palestinian saying that they don't get water during the middle of the week, and we don't hear about that. And then we went to, um, uh, um, uh, a traditional, um, dinner on Friday and skipping the name. Um, we were in the, we went to a Hasidic Jews, families dinner, and the family members there didn't know what was happening either. So it was, for me, it was just fascinating to be in the small place like Israel, which was just beautiful, that those who were there felt very strongly about certain things, but they were unaware of what I was hearing from the workers who happened to be Palestinian around the rationing of the water.

Valerie Mosley: (14:05)
That was fascinating. Um, and Jordan, we went to the, uh, my friend was, uh, Stu Jones went to duke and he was the ambassador to Jordan. And we got to go to the refugee camps and see the technology where people were using the irises as a way of identifying who's who, so who should get funding or not. So the technology in the middle east, and we just loved, I just loved the pyramids. It's just a really fast, it's the only of their seven original wonders of the world that remain an order of magnitude. And so my kids in terms of structure, they enjoy that in terms of the people, um, they enjoyed, they, they enjoyed, I should ask them, they enjoy Trinidad and they enjoyed meeting people that knew each other from college at this dinner in Jordan. And that was sort of interesting to see how small the world can be. Um,

Anthony Scaramucci: (15:09)
Great it's great stuff. And the, you know, the Israelis, obviously a dispute that with the Palestinians, but the Palestinians, if you go into their territory, they have those big black water vessels on their rooftops to protect themselves because they are getting their municipal water from the, uh, the state of Israel. So I don't know, it's a hard, it's a hard issue. I'll tell you, I, you know, you would love to see these people get along because they're descendants of each other, you know, but it's the same thing with the, uh, blacks and whites. There's really only one human. There's really only one race. It's the human race. We, we have to try to figure out a way to do this. Yeah,

Valerie Mosley: (15:48)
It is. It is one race. And, and as someone, as you, as, as a, as an investor, right, there is a bid, there's an ask, there's a viewpoint that says, how do you value this? But everyone wants the same thing. So when we were driving around with this Christian, Palestinian, he was pointing out the green parts on the roof. And he says, this roof shows that that's suggests that they're getting water regularly. We don't get water regularly. And I said, that, can't be, I just thought that can't be. And then when we were in this very nice hotel, I decided to ask some of the workers and they said, yeah, it's true. And I was surprised by that. And then when I asked the people who were living in Israel, they didn't know. I found that just really fascinating. Um, it's a separate issue. It's complicated issue, it's a charged issue. Um, and I personally found that interesting, but my son studied in Spain and we got a chance to, and so instead of that goes to, and we got to meet with his mother and father and his family and some of the people he studied with. And that, that was a highlight as well.

Anthony Scaramucci: (16:53)
So you've got this social conscience, you've got this purpose in your life. You've obviously done amazingly well. And you're starting a company now called you've started it. Of course, you founded the company called bright up, which is aimed at democratizing wealth and building people's wellbeing. And you're also trying to bring financial wellness to underserved populations. So tell us about how it's going, tell us about your vision for this and how you're going to execute. Thank you very much.

Valerie Mosley: (17:27)
It's a B to B to C company again. Yes. Democratizing. Well, well building and wellbeing. What we know is that stress is the number one cause of the costs that companies have related outside of benefit costs. It's it's, it's it's stress-related and the number one source of stress is financially related. And one of the things that I did at Wellington is that I chaired the firms industry strategy group. And you can imagine that a long time ago, the high yield group was not talking to the small cap manager, even though there was a lot of information in the fixed income markets regarding credit default swaps, it wasn't altogether obvious or within the consideration of equity investors. And so post telecom debacle, when analysts were still saying by, at and T over sprint, the CEO and my boss said, you know what? I think we need an industry strategy group.

Valerie Mosley: (18:31)
And so we put this together and it was great where for the first time people who were investing in silos got together, and we decided to have a longer term view strategically thinking about what are headwinds that are facing some industries and tailwinds propelling others. So when I left, it did the same thing. And if you look at wealth, I think that there are a couple of challenges out there. We have, we have, uh, we have additional pandemics. Um, Anthony, I think it's, uh, low self-worth and low net worth. So I started peeling apart. What are some of the challenges around building the wealth? And it's pretty amazing that right now, 69% of all Americans struggle to make a thousand dollar unexpected expenditure, 69%. It's not a small issue. Then I started to look a little more closely, and I found out that if you look at the income growth, real wages over the long run, the top 20% of earners have had a healthy increase in income, the bottom 80%. So let's talk about what is underserved the bottom 80%, like both has been really quite marginal and

Anthony Scaramucci: (19:41)
I can think syrup, but why do you think that is though? Why is there an income differential and why, why have we seen one group growing and the other one stagnating,

Valerie Mosley: (19:53)
I think it has to do with information and access. And so I talked to you a little bit about my story and growing from, um, sort of a gang infested Philly to a space where you have more opportunity. There's more information, it's information, there's trust, there's education, there's the costs. And so let's, let's double click on that for a second. If the revenue is growing really rapidly for the top 20% of earners, and it's, um, I'll give you some numbers. The top 1% had a growth over the last 40 years of 345%. That's the top 0.1%. The top 1% real wage growth over the last 40 years has been 160%. The bottom 90% has grown 26% over the last 40% and real wages. Now that's using the regular CPI. If we look at the components of the CPI, the components of the CPI for, um, medical care is only 8.9%, but the medical care costs have grown over a hundred percent and since 2000.

Valerie Mosley: (21:01)
So if you were to take what people are experiencing, the medical costs, the housing costs and the educational costs, it's sword. So on a usage of justice basis, the earnings of the bottom 90% of Americans has actually been pretty mild at. And, and, and, and you asked me another question that something that you might not know, I'm the youngest of four. My brother was four years, excuse me, 10 years, my senior, Jamie Carlson Mosley called him Jamie. He loved me and I adored him. My sister is nine years. My senior, she went to Villanova while I'm at Wellington, doing quite well, just figuring out strategy stuff and investing in loving it. I learned that my brother is unbanked and I heard about the unbanked. He went to school and then he left for reasons unique to our family and, um, and his situation. And he struggled a bit financially and he's such a good person.

Valerie Mosley: (22:03)
So his current level of, well shouldn't define his worth or his worthiness to learn how to become more financially healthy. So I say, come on, Jamie, let's get banked. And he gets banked and he's so conscientious. He's so conscientious. And then he doesn't realize though that if his, if his income goes below a certain amount, they start charging fees. And so he had thought he had money in the bank, spent it not very much. I think it was $25. And he had an overdraw and that overdraw drawn fee was quite high. I think it was 30 or $35. He was devastated the whole weekend. He's like, ah, something's really wrong. I go downtown. And I find out that my children I'm at the bank, my three children are not nearly as conscientious. They're late teenagers. And their account was a tied to mine that they overdrew. And they were not nearly as conscientious. And I say, all my man, I've got to talk to my children. I'm telling my banker this. And she's like, no problem, click. And she erases it. And these fees, each one of them had some of them. And so the fees are approaching $200. She said, yes, female

Anthony Scaramucci: (23:08)
Adapt my children by the way, because I get hit with this, I would say twice a week. So when I drop them off, I'll drop off my adult children at your home later today, come on. Hopefully I'll have a wooden spoon in there somewhere where you're going to whack them. Exactly.

Valerie Mosley: (23:25)
I said, I'm going to talk to these kids. And she says, no problem. She wipes it out because I'm perceived as a profitable client. Right. And what happens is because the asset management, the wealth management industry, nothing's wrong with the wealth management industry, they get paid a percentage of the assets that they manage. So they focus on people who already have assets and the top 10% of asset owners, stocks, and bonds, um, own 84% of the, of those assets. And so naturally they're going to focus on those who have the assets. I get it

Anthony Scaramucci: (23:58)
Because I was saying this the other day, you know, I remember this when I was in school, I was at Harvard law school. I was like, you guys think you're that much smarter than the kids in my neighborhood. You're actually not. Okay. I've got buddies of mine putting in sheet rock and clamming out and oyster bay that are as smart as you. They just didn't have access to the same environment or through luck and trial and tribulation. They didn't end up like me dropping into that environment. Some of it was accidental. Some of it was providential, you know? So I, I agree with you widening the widening. The access is super important. Yeah.

Valerie Mosley: (24:33)
And access and information. And now technology is a game changer. So I'm on the board of Envestnet investments, a great firm. They, they, they fuel and support a third of the independent registered investment advisors. So the $4 trillion on the asset management platform. And I shared with the CEO, this, um, the color of wealth study by the Boston fed, what do you think the median wealth might be for white families in the Boston

Anthony Scaramucci: (25:04)
Net worth, but so, well, I would say 700,000 probably way off.

Valerie Mosley: (25:11)
Okay. But it's okay. It's a guess. Um, they over index and this is your, your, your response is common actually. Uh, because they over-index to national average. And when this report came out as 250,000. Okay. And that's higher than the national average, what do you, what do you think it might be? Is it, they did a study of, it's kind of rare. One, one in Boston, one in Los Angeles. What do you think the net worth would be for African-American families? Just to use it as an example?

Anthony Scaramucci: (25:44)
Well, you know, I'm going to say something and then it's probably going to reflect poorly on me for saying, but I think it's very low, probably 10,000 less. No.

Valerie Mosley: (25:51)
And actually you're in the right direction. So it doesn't reflect negatively on you. It's just an unfortunate fact. The answer was $8, $8. Okay. 250,000 to $8. And I didn't know that either. I said, you've got to be kidding me. Let me

Anthony Scaramucci: (26:06)
Just say something. It's very obvious to you and obvious to me. So that, that creates some anger. You know, I mean, we w I, you don't have to go to 16, 19 and go through the whole story of racial injustice in the United States for 400 years, you can just look at the current economic situation and look at the access and the information, and look at the, you know, the institutions that we've set up, that they benefit certain people that don't benefit other people. And that would create naturally some level of dissatisfaction. Is that fair to say

Valerie Mosley: (26:39)
A hundred percent. That's, it's fair to say. Um, and I think I'm pretty analytical. I like to think about, as you say, what causes these things, sometimes it's trust it's information, it's access to education. Um, and, but there's some things that are changing right now that leave me really optimistic. And again, everyone wants to be able to earn a livable wage and be able to take care of their families. And it's more challenging for some more than others. And one of the things that I'm really excited about, we talked about, um, right up, I believe that we can give more people access to wealth, building strategies, and so bright up as a platform that offers a suite of services and make it avail. And we make it available to communities and corporations. So B to B to C is, is, is, is, is, is really business to, to, to, to business corporations, but also organizations, because you want to trust people.

Valerie Mosley: (27:42)
And most people don't have access to investment advisors because of how the pricing structure works. And we think we can change that, bring in advisors, bring in fairly price capital, and bring in education and information. And so we're really excited about that. And you asked the question about the ROI, how does that benefit? The employer? One we think is going to help with turnover and that's lower turnover. There's the business round table where 183 companies said that they aren't going to operate just for the benefit of their shareholders. They care about stakeholders. And two of the five statements they're referenced their employees. If you care about your employees, all of your employees, why not bring them benefits that will help them on the financial side. They don't get a lot of support. You don't get, as you mentioned, you don't get financial literacy in school and you don't get financial support outside of school.

Valerie Mosley: (28:40)
For the most part, if you're in a certain wealth bracket, and I'm saying the bottom 80% of well, um, creators and earners, and, and one other thing I wanted to bring up to you, I don't know if you wanted to bring this up. I love studying the markets and where people and where you get the biggest returns is. If you can go do your app, your research, if you can go where others aren't. So Mike Milkin bless his soul was brilliant at the time. And I know some people have different views about Mike. I think he's a genius. In many ways, Mike Milken identified that there was an opportunity because banks wouldn't lend to companies that were re rated below triple B. So I did some research and discovered a $3 billion case study $3 billion in conjunction with a top five bank for lending, for credit.

Valerie Mosley: (29:38)
Um, for debt consolidation, corporations can reduce their debt, comfy countries reduce their costs of debt. Why can't individuals. We do so their cost of debt. And for many people, if they have any debt on their FICO scores, which is very unforgiving, you can't get access to fairly priced capital. So there's a company that put $3 billion to work in conjunction with a top five bank, $3 billion, 50% of those loans. The bank said no to 650 scores and below, no, we aren't going to lend to, but this, this, this algorithm, the analytics said that they could separate the willingness to pay from the ability to pay. And so that these guys were ranked crime, they went ahead and gave the loans. And the loan losses were less than 3%. That's exciting. This is for debt consolidation. So if you have somebody has 27% credit card debt, and you want to refinance it at 12%, you just free up a lot of capital. And the lenders, um, had less than 3% loss. So I think that that is a huge opportunity.

Anthony Scaramucci: (30:50)
All right. So you're going to disintermediate this space and you're going to help people that are under-banked or perhaps lopsided in the, in the credit card area. Um, I, uh, I have to turn it over to this erstwhile millennials shortly. So I want to ask you a boomer question if it's okay. Cause we're both baby boomers. Um, did we screw things up because you know, when you go back to what you said about yourself at 18, or when I was 18, I had this impression of us as a generation that we were going to make things better. When I look upon the society. Now, I think that the debt that we took on and the way the politicians over promise and overspent and the fracture that we have in our society, that we make things better as baby boomers, or we make things worse.

Valerie Mosley: (31:42)
That's an interesting question, Anthony. I think that we're imperfect beings. So there's some things we did well, and there's some things we didn't do so well, I look at John Dorsey

Anthony Scaramucci: (31:53)
When you're saying that, does he look imperfect to you look at John Dorsey with that shocking blonde hair and that big spot, does he look like perfect?

Valerie Mosley: (32:00)
He does not look perfect at all, but no, I think, I think that, um, we we've made some mistakes, but I don't think we mess it up. I don't think there's a lot that we get from blaming and instead the mirror image of a crisis as an opportunity. And so where we've missed up, we have the opportunity to learn. And, and, and that's what I'm excited about. I'm actually really optimistic. You mentioned, you mentioned Trump. One of my fellow partners said, you know what I think Trump is as, as is one of the best things that could have happened to this country.

Anthony Scaramucci: (32:36)
Well, Don and Don lemon believes that. Yeah. Tell us what

Valerie Mosley: (32:40)
Well, things that were hidden are now have now surfaced and, and in any process, it's, it starts with, let's just be honest with where we are.

Anthony Scaramucci: (32:55)
Yeah.

Valerie Mosley: (32:56)
We have insights on so many different levels about in the

Anthony Scaramucci: (32:59)
Past, you're given a pass to our generation. You're saying we're okay. We didn't, we didn't, you know, $27 trillion of debt, but it's no problem. And, you know, we have this wealth and income disparity in the country, which really started in the Reagan era and has been exacerbated over 40 years. Well, you're not, you're giving us a policy fast and you're giving us a

Valerie Mosley: (33:24)
No, I wouldn't say that. That's fair.

Anthony Scaramucci: (33:27)
All right. So tell me, tell me what is fair. I want to be fair. Okay.

Valerie Mosley: (33:34)
Um, I have a tendency and a bias to give people the benefit of the doubt in general. And so I think that people tend to react to their world. And if you were in your bubble, you are so unaware of what's happening elsewhere. And if you're unaware, you don't respond. So what I'm very interested in is compounding compassion and compounding interests and teaching other people to do that. But compound compassion, because if you widen your lens just a little bit, then you will see and learn that the median things like the median costs for a payday loan at a time when interest rates are zero is 391% that's unconscionable. And that's only if somebody pays it back in two weeks. And if they don't, it's 521%, that's the rate, the APR that people who need access to cash the most don't get it. And so if you widen the aperture and you see that, wow, 90% of Americans over the last 40 years, their wages that will wage both has only been 26%, but mine, because I'm in the top 1% has been a hundred.

Valerie Mosley: (34:44)
And you know, when you know that, then you're less likely to be judgmental and say, oh, they just didn't get it together. If you do the analytics and say, oh, but the cost of education is increasingly beyond their reach or the cost of healthcare and, and, and, and medical care costs is, is just exorbitant. There's a reason why this happened. So I think that we are often as strong as our weakest link. So it behooves all of us to pay attention to this broader challenge. Um, for sure. And so I believe that we can, and that my call out would be to anybody who has been successful and you've profited. Now we can go from profit to purpose. And what do you do to make a difference? And I don't think it's rocket science, we just need the minds and, and, and, and, and then, and, and the intelligence and, and will to make a difference for a broader swath of people. And by the way, the person, well, I have another view, but I'll stop there.

Anthony Scaramucci: (35:45)
No, listen, I think it's very, I think it's very well said, but you have another view, please share it. Um,

Valerie Mosley: (35:54)
The person who's struggling and the Appalachian mountains are struggling with some of the same thing as individuals that might be in inner city that are struggling at the end of the day, they need to have an income that's livable, and they want to provide for their families. Now there's some other things that are going on that might give people advantages, but I believe that your current level of wealth does not define and determine your worth or your worthiness to become more financially healthy. And I think that the capital markets can really offer, um, some results. For example, if we find some creative ways, I used to buy these structures where there's a first loss. So if there's catalytic capital and there's foundation dollars, just put up a first loss of 5% or 10% against fairly priced loans. So the capital markets can come in and offer attractive returns and an environment where yields are so low, globally in a space where ESG trends are increasing at a time where there aren't very many impactful, attractive returns being offered in the fixed income space. So I think we can create win-win win solutions using catalytic and competitive capital.

Anthony Scaramucci: (37:16)
All of a sudden, I, I, I, not only do I agree with you, the other thing that often offends me is when people tell me, well, the people that are looking for jobs cause they were getting welfare. And so therefore it's more cost-effective to stay at home. There might be a fraction of those people. I'm not suggesting otherwise we have millions of people in our society, but I grew up in a blue collar neighborhood. People, my neighbor wanted to work, they got the work. And so when I hear somebody giving me that nonsense spiel, that's usually someone that has a platinum spoon in their mouth that never had an hourly job or w or live with people that had hourly wages. So, uh, but I doing, and I, and I agree with you. I get to turn it over to John and let him, let him ask some questions. There is sitting there looking perfect, but they have, and everything you can see it says, Val called you perfect. You know, that's going to bother me after this salt dog is over. Okay. You know that, you know,

Valerie Mosley: (38:10)
Thank you, Anthony. And, and one other thing that we talked about, so you grew up in a blue collar collar area. My, my sister is a nurse. She went to Villanova. She goes to get a car and I say, oh, what's your interest rate? And he said, it's a three year used car, 13%, 13%. Are you kidding me at a time? I get on the phone. I say, triple C rated companies don't have returns. Aren't getting offers like this. Like the next day he comes back to her and says, oh, we'll do it at 9%. So we need more people that are advocating for hardworking Americans. I believe.

Anthony Scaramucci: (38:44)
Well, 9% is still high for that low.

Valerie Mosley: (38:47)
It's still high, especially

Anthony Scaramucci: (38:49)
When they've got the security of the car. And they've probably got a personal guarantee from your cyst. Who's got a, who's got a full-time job, but this is the reason why a lot of these neobanks are working. Why SkyBridge, frankly, as an investor and a lot of these banks, because they're going to, dis-intermediate all that nonsense. You're going to help them do it. But go ahead, Darcie. I know you're dying. Ask the questions here, go ahead. Look at those teeth coming. Now, go ahead. Doors, fire away.

John Darcie: (39:14)
We'll since you're so focused on the generational aspects, Anthony, I'll start there. You talked about your brother, the differences in terms of the way he views the financial system versus your kids. Potentially. What differences do you observe generationally and what trends are you seeing among younger people and the way they think about financial wellbeing, that might be different from an older generation.

Valerie Mosley: (39:36)
Wow. Oh, that's a really good question. And so many different ways. One, um, I love this younger generation. They still don't trust. They don't trust the larger, um, financial institutions. Uh, crypto is leveling playing fields. We haven't even talked about crypto, but I believe that the younger generation is willing to take more risks. And I love that. And I believe that there are calculated risk. I think that the younger generations, they care a lot about what matters and, and they're less likely to want to walk the straight line and say, I'm going to do what I was told to do. But they think outside of the line and they're independent thinkers and say, no, I don't want to do that. My daughter, my daughter wants said, mom, I don't, this guy said I work so that I can live. Who wants to do that? Why don't you live?

Valerie Mosley: (40:35)
So you can work at something you really love. So this notion that why don't you try to find something that you enjoy and how do you give back, comes up over and over and over again. And naturally you have, I mean, I, I came in the, but anyway, this younger generation, I find one, they, um, they're more open. They've seen more things. Think about the, you asked the question earlier, Anthony did that, did our generation get it completely wrong? We were just closed and very narrow, like the number of gay and lesbian acceptance conversations that happen with the millennials. Centene seems to be much greater than they happened during our day. The millennials are much more diverse and they're a much more accepting of interracial marriages. Thank God,

Anthony Scaramucci: (41:30)
Thank God for that.

Valerie Mosley: (41:31)
Exactly. Then we just, then we have they care and they want to buy from companies that are doing things that, um, the right way, they care about the environment. They're a force to be reckoned with even something like tattoos. I'm not a fan just to be clear of tattoos, but if you are going to work with the younger generation, you have to keep your mind open because the majority have, or will have something on their body. So

John Darcie: (42:05)
I'll try to return expectations. Val, I want to dig into that a little bit more. So there's, there's all kinds of memes that go around on social media about, you know, investment returns and millennials and gen Z. You know, there's these, these massive price appreciation events that are taking place within cryptocurrencies, within technology companies, FinTech companies, a lot of different sectors. And it's almost like this, this old way of investing, uh, and even index investing that was in Vogue, you know, for a lot of the two thousands, um, seems to be going out the window because people are chasing these massive returns, you know, because maybe largely an environment created by easy money, low interest rates. Do you think, you know, first of all, what do you think return expectations for investors should be going forward? And do you think this era of outsized returns among technology stocks among cryptocurrencies and other speculative assets, do you think that will continue for a longer period of time? Or do you think maybe that younger generation is in for a expensive education here at some point?

Valerie Mosley: (43:05)
That's a very good question for one. I think that, um, I think that the stock market is overvalued and we're going to see a major correction. So if millennials, can we

Anthony Scaramucci: (43:15)
Record this and every time I ask a question, can you say it's a very good question.

Valerie Mosley: (43:20)
Yes, we can do that. Yeah, absolutely. Keep

Anthony Scaramucci: (43:22)
Going. And that's okay. It's just part of the job, Darcie Anthony Scaramucci comedy act. Okay. Keep going. I'm sorry.

Valerie Mosley: (43:29)
Um, yes, equity. I think that equity valuations are extended. Let's think about the, the basic asset classes. Bonds have come down so low. It's not a great place to be. And going forward, the returns are likely to be negative. Stocks are overvalued. There's going to be a correction. I do believe that the economy is going to get a big boost. So there may be a near term rally, but we're going to have some changes in the tax. This is my philosophy. We're going to have changes in the tax law. That's going to weigh heavily on, excuse me, the earnings. And as earnings go, prices typically go. And so I think we're going to have a correction. The multiples are still quite high. Interest rates are going higher. So we're going to have a correction. Crypto markets is still quite nascent and corporations are starting to move into the crypto world.

Valerie Mosley: (44:30)
I think as assets go, that's going to be a really attractive one. I think real estate is going to continue to be attractive. One outside of the commercial because many companies are we thinking who's going to come back and do we really need this space? And so what I think is really interesting and I'm excited about than the younger generation is that they're curious, and they're getting involved with investments and in the crypto world, I E Ethereum and Bitcoin, it gives much more access to people who would not ordinarily have access to have some upside. And I happen to believe that it's not just an, um, a gamble. I think that there's going to, I think that both will have some legs. It's

John Darcie: (45:17)
Literally taking the crypto a little bit more. You think that there's, there's upside to be had in Bitcoin and Ethereum are the two sort of bellwether, uh, players. Now in the crypto world, you have a lot of speculative crypto assets that are also performing well, uh, at various times around them. Uh, but you think this is part of a larger movement. Why do you think this is part of a larger movement? And, and, you know, let's say five or 10 years down the road, do you think we're going to see a major disintermediation of the entire financial system and the traditional banking system? I don't think it will.

Valerie Mosley: (45:47)
I don't think it will be a major disintermediation. I think that, I think that it is a significant force that people are ignoring and not taking the time to learn. And yet millennials and more diverse communities are paying attention to it's, it's, it's sort of like a freedom project for some, um, again, because it's global because, uh, um, because it's easy to get access to, you don't have to have a certain income level to be able to invest and to get outsize returns. It's getting attention. I do think that there's going to be a correction there as well. It does every so often there's going to be a sell off and that sell off, I think is an opportunity to buy. I do believe that, um, Bitcoin has, um, legs and I think it's DRM and polka dot and other, uh, the other other platforms where you can build on some functionality has a place in our investment world and we'll have a place in, um, um, in practical use. It's actually pretty fascinating. Well,

John Darcie: (46:51)
You've obviously done your homework on the crypto space, uh, talking about a few of those protocols and projects, um, that we're very interested in this space, as well as you may know, of having invested a significant amount of amount of money in a Bitcoin, uh, w with potentially other projects in the pipeline that I can't talk in a more concrete way about, uh, I'll

Valerie Mosley: (47:09)
Name, a few that you should probably pay attention to rally, I think is really fascinating because of the way that it empowers the creators. I think Falcon X is really sweet because Falcon X is giving the institutional answer to Coinbase. And it's just a matter of time before more start to pay attention to it. Yep. I know of some, yeah, I, I do think that there is a world in crypto. And if you think about the fact that there's been so much money supply, sometimes I hear people talk about the money supply and the fact that we put a lot of money into the, into the economy. And therefore we're going to have inflation that didn't happen during the financial crisis. So money, uh, money coming into the system does not necessarily translate into inflation. You've got to have the demand, you've got people who want to spend, and I think that that's going to happen now. So when you think about inflation and you think about where the stock market is, and you think about where the bond market is right now, you aren't likely to get very attractive, real returns in stocks or bonds, but I do think you'll get it in this store of value of Bitcoin. And I do think that real estate residential real estate will continue to rally. So that's why I liked that as an asset class. And what I love about the younger generation is that they're open to learning about and, uh, supporting

John Darcie: (48:32)
All right value. You're an enlightened boomer that that's great to have, uh, you know, people like you on the show. Cause again, we're, we're very sort of bullish on the asset class. Uh, last question. It's, it's another question about macro investment trends. So you're a professional investor with one of the most famous and, and high-performing groups, Wellington on the planet. And so you've obviously in addition to all the, all the work you're doing, sort of on the impact side, you're, you're trained as an investor. What other macro investment trends you talked about, the fact that you think the stock market at large is somewhat overvalued, but are there any other investment trends outside of crypto that you're particularly bullish on? For example, you know, we also really liked the FinTech sector more generally outside of even crypto. We've invested in some Neo banking businesses, as Anthony mentioned, like a chime, um, that's, that's creating a better experience for, especially if people are on the, on the lower income threshold, uh, we've invested in Klarna, which is in the buy now pay later space, which is re-imagining credit in a way that's less destructive for the average consumer.

John Darcie: (49:35)
Uh, we've also, uh, very bullish on the life sciences sector and, uh, raising a fund to invest in early stage, uh, sort of pre programmable biology is the general theme. But what areas of the market from a macro perspective are you most bullish on,

Valerie Mosley: (49:48)
I love the FinTech space, which is why I'm going into it. You guys should invest in us after we go for our next round. We had a, um, yeah, we were oversubscribed, um, for our seed round. So we'll come back to you when we execute. Um, um, I think AI is going to be pretty interesting. Um, the, if you talk to technologists, uh, the CEOs of companies they've talked about it, but they haven't done anything. It's only about a third of companies that have talked about it, have actually put it into practice. And so I think being thoughtful about, um, how that AI is used from a customer engagement perspective is sort of interesting. Um, I think that, I think that you don't do a lot in the real estate space, but I do think that there's a lot of, I think there's a lot going to happen there and in the creative real estate.

Valerie Mosley: (50:45)
So this is a little early, but, um, I think that 3d printing is going to be a really fascinating area because some housing costs have gotten too crazy and there's some creative ways to create green structures that are also affordable. Um, other broader trends. I think that what's, what's, what's, what's driven the stock market recently is we're going to see a shift from tech to value within the space. Um, longer-term macro trends. I think you're in it. It's it's for me, it's FinTech, it's ESG. So he takes something like a Bombus people care about the fact that the socks that you buy a sock and it's going to go to a homeless, then it's going to be underwear and then it's going to be other. And so because women and millennials care about companies that are compassionate, they care about companies that are going to help the green space or help with social SDG and E S and G I think is going to be all the rage going forward in terms of broader trends.

Valerie Mosley: (52:08)
One of the things that we did at Wellington is identify the greening of America long before this happened. We called out the fact that the auto sector was likely to implode because the world was getting increasingly flat and no one was paying attention to the OPEB liabilities. I think that's a huge trend. I think that, um, this wealth inequality is going to show up in a lot of places, which is why the FinTech, these FinTech neobanks are, are thriving because millennials and others were thinking about, I don't want to do things the old way and I want to try to invest. So I love that space. Um, another really space that I'm really excited about is, is, uh, cyber cyber security from a macro space. There's a, there's a, there's a technology out there called quantum, um, physics where the keys on the end of the, um, lock on the end of the chains instead of being math based so that it can be tackled by quantum computing, that it can be protected using physics. And I find that really fascinating. So there's going to be a real need for the crypto space. So who's out there. Who's innovating, I think is, is, is important. Well,

John Darcie: (53:26)
Val, it's been an absolute pleasure to have you on salt talks. Anthony, I want to kick it to you. If you have a final word for, for Val before

Anthony Scaramucci: (53:32)
We let her go. I think it was, I think it was fabulous. It's uh, it's, uh, I hope we get you to our conference, Val, and I hope we can, uh, hang out together when the pandemic ends. I really enjoyed it and I wish you a great success in what you're working on. Hopefully John and I and the SkyBridge team and the Saul team will find ways to help.

Valerie Mosley: (53:51)
Yeah, that's great. I love what you're doing and you know, what else I like, I like that you admit your mistakes

Anthony Scaramucci: (53:58)
Well would be, you don't have enough time for my mistakes. Okay.

Valerie Mosley: (54:02)
Nope. I heard you on clubhouse. Oh, that's the other thing I would say another trend that I didn't mention is that the two really important trends is that create a platform where you allow creators to earn money. So what's great about clubhouse is that I heard you on clubhouse. You were great, actually, you were great. You know, what made you great is that you are authentic and you were being honest about your mistakes. Um, not only with Trump, but your mistakes in life and, and, and, and, and then with your, with your marriage and your relationships, and what really matters at the end of the day, individuals matter and how you behave matters and being self-aware and saying I'm wrong. Or I made a mistake, or I have the view, but just being authentically you is a beautiful thing. And so I'd love to go to the conference as well. And I just want to say, listen, I,

Anthony Scaramucci: (54:51)
I try to do that. And, you know, as John could tell you, I went through a very rough spot. Uh, but without that kind of level of knowledge and not authenticity, you're not getting through it. So that's, that's my message. As a younger people. Now I know, I know you're like that as well. I

Valerie Mosley: (55:07)
Am. And the other thing that I didn't say, one thing I love about the millennials, I think millennials are more willing to be just open. Like we were like close, we didn't acknowledge, oh, I've got an issue here. Mental health is a big issue. This is mental health month. That's a trend, that's a trend invest in companies that are going to help more people acknowledge that they struggled. And then, and how do they get to the other side? I like what we're doing. And we're trying to bring the financial planners together with the users like Uber, rising financial wellness. Um, I like that. And I think that's, excuse me.

Anthony Scaramucci: (55:41)
No, I think it's brilliant. I think it's brilliant.

Valerie Mosley: (55:45)
And, and just because, and that's the other thing, it just, because I, I just think that we have to move forward with this notion that just because people have a different view doesn't mean they aren't good people. They just have a different view and the more confident we are and who we are, we can say, I get it. You are whatever label you want to put on it. That's your view. It doesn't mean that you're a bad person. We just have to learn and be compassionate with yourself along the way.

Anthony Scaramucci: (56:10)
Totally. With you on that. All right. Well, we'll see you soon. Thank you again. And thank

John Darcie: (56:15)
You everybody for tuning in to today's salt. Talk with Valerie Mosley. Just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. We're also on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram, and Facebook as well. And please spread the word about these salt talks. We love, especially when we focus on these concepts around impact investing FinTech in ways that we can create greater equity in our society, uh, through technology and through, uh, deployment of capital. We love educating people on those subjects, uh, but on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here against them.

Ali Tamaseb: Super Founders | SALT Talks #215

“Second time founders are more likely than first time founders to start a billion-dollar companies… What I found among the successful founders was a never-ending itch for building, selling or creating something.”

Ali Tamaseb is a partner at Data Collective (DCVC), a VC firm in Silicon Valley with over $2B under management and investments in over ten separate billion-dollar startups. Tamaseb received a B.Eng. in Biomedical Engineering from Imperial College London and graduated from Stanford Graduate School of Business. He was an honoree of the British Alumni Award, and Imperial College President’s Medal for Outstanding Achievement. His recently published book is Super Founders: What Data Reveals About Billion-Dollar Startups.

There are many popular narratives about what makes a great entrepreneur that do not actually match most successful founders. Ali Tamaseb spent four years researching around 300 different billion-dollar companies started in the last 15 years. Tamaseb explains some of the key findings related to successful founders. For example, many were not experienced in the field in which they started their company. Tamaseb hopes his extensive data-driven research will help future investors and founders better understand what makes a successful startup.

LISTEN AND SUBSCRIBE

SPEAKER

Ali Tamase.jpeg

Ali Tamaseb

Partner

DCVC

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these salt talks the same as our bowl at our salt conferences, which we're excited to resume with salt New York in September of 2021. And our goal is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Ali Tomasa to salt talks. Ali is a partner at data collective, also known as DCVC, which is a highly reputable venture capital firm in Silicon valley with over $2 billion us in assets, under management, he holds several leadership and board positions at companies both globally and across the United States.

John Darcie: (01:09)
He holds a degree in biomedical engineering from Imperial college of London and studied general management at Stanford graduate school of business. Uh, Tomasa was an honoree of the British alumni award centenary enterprise award and the Imperial college metal for outstanding achievement. His work has been featured in BBC, the guardian Forbes, the Telegraph among many other news outlets. And he's given talks at major events and conferences. Hopefully salt is in his future as well. Uh, he lives today in San Francisco, California, despite being very much a citizen of the world. And I know DCVC, uh, does business around the world as well. And I don't want to get started without mentioning that he's also the author of a new book it's called super founders. What data reveals about billion dollar startups. I'm fascinated to learn more about what the data reveals so we can hopefully find that next unicorn hosting today's talk is Sarah Koons, who is the founder of Cleo capital and a frequent guest host here on salt talks. We've loved getting Sarah and her perspective involved in these conversations. And with that, I'll turn it over to Sarah for the interview.

Sarah Kunst: (02:14)
Hi, so excited to be here and so excited to hear about what makes a super founder a super founder. Um, so before we dive into that, Ali, thank you so much for joining us. And we'd love to just hear a little bit more about, you know, your story and, and your motivation to write this. Why are you giving, giving away the guide so that everybody else can find deals as good as you are?

Ali Tamaseb: (02:39)
Thank you, Sarah. I'm glad to be here with you and John. I think the motivation behind this book, it started four years ago and you know, there's a lot of popular narratives about what makes for great. And I think a bunch of that comes from media, the social network movie, or watch that we know about the stories of Steve jobs and Steve Wozniak, two co-founders, one technical, one business, visionary, you know, savvy. There's a lot of these famous stories. There's not actually a lot. There's a few of these famous stories that shaped our mindset about what the rest looks like. But today there's 300 something billion dollar companies that are started in the past 15 years. And they don't necessarily all look like the same or look like these couple pocket or narratives that we do. And it's my job as an investor to sort through thousands of companies every year to take it back one or two shots and sit on the, sit on a couple of boards and, you know, help these companies get to bidding dollar exits and, you know, nobody had done the work of going to the ground troops of seeing, was there something different about these companies that become billion dollar companies and outcomes or not?

Ali Tamaseb: (03:49)
So I decided to collect the data and, you know, it's, it's a very hard thing. It's, there is know some data about the financing history of startups out there on platforms like PitchBook and Crunchbase, but there's no data on the competitive landscape. And these companies started on the defensibility factors on the carrier path, on the founders, on the fundraising history, on the origin of the idea on the pivots. There's a lot of factors. So I sit on 65 different factors and I collected this on every unicorn that's been founded in the past 15 years, every industry tech, biotech, health, energy index, as well as a collected the same data on every non unicorn, every company that had raised a minimum of $3 million in venture capital, but did not become a successful outcome. So I had some stuff to compare between the two groups and those findings are shocking. I decided to write a book and I decided to interview a lot of these founders. I interviewed founder of zoom, Instacart, nest, and investors like Alfred Lin of Sequoia and Peter Hill.

Sarah Kunst: (04:53)
That's awesome. And what did you find? What, what brand of hoodie makes founders most likely to be successful?

Ali Tamaseb: (05:00)
Um, you know, the shocking thing was the data showed a lot of factors that normally we've thought to be correlated with success are not correlated with success. And that's sort of the shocking and counter-intuitive part is obviously the data showed. There's a bunch of things that do matter. So there's some truisms and there's a lot of stereotypes and we will talk about both of them in this session. Maybe let's start with some of these stereotypes. The one that I like is about, you know, successful founders need to have solved their own problem. They need to be, you know, their own customer. They need to have a personal mission or a personal problem. And I think you see that again, it's, it's, it's a little bit of that narrative bias. The bias comes from, you know, these stories make for a good story and they make themselves into media and you see and read articles about them.

Ali Tamaseb: (05:51)
But when you actually collect the data, you see that a lot of these, you know, very successful founders, very opportunity event, they found a good trend. They are excited about starting a company, the events we talked to different types of customers, they jumped from industry to industry until they found the right idea. And we often don't hear about that one or two years of a journey that these entrepreneurs went on to find the right idea. We only hear the last part and somehow connect that to, we know this founder had this problem when they were in and there were a child or something happened to them and try to connect the dots like that. But oftentimes that doesn't exist. A similar thing to that is about, uh, having domain expertise in the same industry. I think a lot of ways we assess company startup founders is, you know, are you, you're building an insurance company?

Ali Tamaseb: (06:40)
How much do you know about insurance? Or how many years have you worked in insurance? It turns out that doesn't matter. Only 30% of consumer tech founders of unicorns had to work in the same industry. Only 40% of enterprise SAS. You know, unicorns has worked in the same industry, the rest, they had this, a skill of learning more than anybody else about the specific problem. They had the resources and connections and the soft skills to go on and know about that specific venture into the market. More than anybody else, even if they were not from the same industry, there's a lot more there's there's there's about things about age. You know, there are people who were looking for the 19 year old, 20 year old college dropout to people who are looking forward to gray hair, you know, to treat decades of work experience. It seems like again, age was not correlated with success.

Ali Tamaseb: (07:30)
You can be 19 years old, you can be 68. I think that was the oldest that I had in my dataset to start a company. And when you even compared it to distributions and median age was 34 among tech unicorns, and 42 among healthcare and biotech, which seems a little bit older than you. When I survey people were asked them, what do you think the average founder of a billion dollar company when they started that company look like, you know, there, there was a ton, uh, we can go on about competition. For example, a lot of people try to say, we don't have competition. You're the only people, 85% of unicorns, hatch competition. When they started, they won in most of these cases, they were competing with big sleepy, incumbent giants. Uh, you know, they're competing with the Oracles and the visas and JP Morgan's of the world, you know, rather than other startups. So, you know, th there's a lot we can go on. If you have specific thoughts about any of these topics you wanted to ask, go on, or, you know, each of them are in the different chapters of the book. I go into details and provide examples of stories of the companies. Yeah,

Sarah Kunst: (08:36)
No, this, this is there's, there's so many, I have so many questions. Um, so, you know, one, one really, uh, one really interesting data point I thought, um, was, was the schools they attended. So, so dig into that a little bit more. I think there's this, this thought that, you know, it's kind of Stanford, Harvard or bust, um, and, and it feels like you found something pretty different.

Ali Tamaseb: (08:58)
Yeah. So the data showed that school does matter. So that's one of the factors that is correlated at success and, you know, the typical Stanford, Harvard, and MIT's, they do contribute a lot of, you know, founding founding CEOs of these billion dollar companies. However, then you look at the full distribution, you see that there were as many founders of unicorns that hadn't attended schools, not even in the top 100 as the same, the same number of them had attended to top 10 schools. So it looks like a bar book, 36%, top 10 university founders, 37%, you know, top, not even in the top 100 and the rest in the middle. So again, it is correlated, but there's a lot of hope there's, you know, 58% or 68% of founders of these billion-dollar companies did not go to a top 10 schools. Yeah.

Sarah Kunst: (09:53)
That's really interesting. So, you know, what, what, is there a Moneyball strategy here, right. Do, do, do people just pick up the book and then, you know, make a really crazy spreadsheet and say, you know, if you're a founder who's doing XYZ, you know, take our money because you're, you're statistically more likely to, to make me really rich. Um, how, how do you think about, I guess one that, that for the gamblers in the crowd and then to, you know, how do you think about that just impacting your own investing?

Ali Tamaseb: (10:20)
For sure. So I think it's the reverse. We can become better investors by putting away our preconceptions and misjudgments about a specific founder or a company it's amazing to go. Like there's a bunch of things that book showed. It matters, large industry. It does matter defensibility. It does matter. Previous work experience doesn't matter. Being a former entrepreneur, doesn't matter if you have previously sold the company for small amount, that does matter. There's a bunch of things that the book and the study found out to be, uh, contributors to success. And I will talk specifically about one of them, uh, which is the previous, you know, entrepreneurial, uh, things that you've done. But I think my goal with the book is to push the industry in your head, let give, give a notch to, you know, the other investors that, you know, if the put some or preconception notions about and where the ideas come from, chip on the shoulders, somebody solving their own personal problems. You know, what degree they have, we can become better investors by not saying no to the companies that go on and to company dollar companies it's as, as important to say yes to the companies that are successful, as not saying no to companies, you see, you have access to invest by rejects for the wrong reasons. And I talk about all these wrong reasons to reject the company for

Sarah Kunst: (11:41)
What are some of the wrong reasons to reject a company,

Ali Tamaseb: (11:46)
You know, family members, uh, starting as a company. I see a lot of investors reject founders based on that, you know, there's a of successful companies that two brothers, two brothers, modern Sohn, fiances, married couples that happens and they're successful. Um, you know, not investing in a company because they have competition because what if Google does, you know, MasterCard does this. And in a lot of these cases, these startups end up becoming successful, or, you know, not having domain expertise in a specific industry. Now, what do you know about this industry? There's a lot of these reasons which might be wrong. What is important is the character of that founder, you know, being able to sell the vision and attract super amazing people in the early days, one of the best examples of this Katrina lake of stitch fix, you know, first one year, she attracting amazing talent out of Netflix, out of Walmart to join her as in the executive team, these are some of the factors that are contributors to the success of these companies.

Sarah Kunst: (12:49)
Yeah. And, and, you know, talk a little bit more about, you know, you talk about how early value creation matters. And obviously it's a little bit more nuanced than, Hey, if you sold your first company for a billion, you'll probably sell your second for 2 billion. So, you know, what do you mean by that early value creation? Um, especially when it, it isn't, uh, you know, just you're already incredibly rich.

Ali Tamaseb: (13:10)
Exactly. So I think, you know, when then investors think about investing in serial entrepreneurs or serial successful entrepreneurs, it's exactly what you say. You know, you sold the company for $500 million. Your next one would be [inaudible], that's normally what comes to mind. What I found is, I mean, that's obviously true, but it expands the beyond that, uh, founders, founders, you know, second time founders are more likely than first time to start billion dollar companies. Second time founders whose previous company was a small success. Maybe it was an equal hire or maybe a technology acquisition. Dave are more likely to start a billion dollar company next, you know, even people who didn't start venture backed companies, you know, started a side hustle and made a million dollars. They started a project and, you know, somebody wanted to buy that for, you know, $500,000 or $2 million. They were more likely to start bidding dollar companies.

Ali Tamaseb: (14:07)
What I found among these, you know, successful calendars was a never ending H for building something, for selling something, for creating, you know, even, even not for money. Uh, I can give a lot of examples here that founder CloudFlare had started a non-profits, you know, STAM email collection tool before starting Kopser founder of call the, you know, $2 billion meditation app, which is, you know, very popular had started this vet page, the million dollar homepage, which was, you know, a million pixels who would sell each pixel for $1 know a lot of people paid attention to it. He made a million dollars. That was it. It wasn't a bench of venture backed, you know, success. It wasn't exit. We've made a million dollars founders of Stripe, you know, the $80 billion company they were in first time entrepreneurs, even though they became billionaires by the age of 20 something, before that, they had started a company, an auction management tool for eBay sellers called Octa Matic that was acquired for four and a half million dollars.

Ali Tamaseb: (15:06)
Before that founder of Spotify, he sold a company for, I think, $1 million before, out of Coinbase. He started, you know, comfortable university tutor, even the big, big, big people that we think are first time founders, bill gates, Microsoft wasn't the first company [inaudible] was the first company Zuckerberg. Facebook was the first company, but it wasn't his first project. He had started a bunch of projects in different apps before. One of them would add on the Angelo founder of Cora, which was a music player, a synopsis music player. So you see the never ending passion in H going out, creating, selling, and, you know, moving on to the next thing among these founders.

Sarah Kunst: (15:46)
Well, in middle school or in high school, I would get in trouble because I would knit during class and then I would sell them. And so I would knit during class so people could see it and then get excited and they would pay me more. So I guess that means I'll be a billionaire, I assume is what I'm hearing. Exactly. Exactly. Don't worry. I'll send you the docs after. Um, so I mean that, that these are, these are just such interesting insights. Um, what's, what's the thing out of all of this looks like the one data point that surprised you the most.

Speaker 4: (16:17)
Um, if I were to say, well, one,

Ali Tamaseb: (16:24)
I would say competition, um, 70% of these unicorns, we're not creating a new category and they were competing for share in an existing market, but better execution. I think a lot of us are thinking about new. You need to be creating a whole new category from zero. You need to be Coinbase, but turns out a lot of these billion dollar companies, the majority of these billion dollar companies are doing better execution in a massive market. They take market share and they become big. And actually on average, they had created larger companies than new category creation companies, which seems a little bit counter intuitive to me, but it's not same thing on being a first mover, only 30% or a first mover, 70% retinol. And they had, they were just recycling old ideas that became successful. It's at a different point. And when they became successful, it was because of an inflection point in terms of regulation or a new technology.

Sarah Kunst: (17:25)
No, that that's super interesting. Um, that there's yes, I I'm thinking through, you know,

John Darcie: (17:30)
And my followup question about competence. Well, what is it then, John, what's your follow-up for that? You know, the competition fees. Do you think competition makes people better? I think about Stripe as an example, and they're in sort of a commoditized space where you have add gin, you have PayPal, you have a square, you have authorized.net. There's all kinds of different ways that you can take payments, but Stripe has just continued to aggressively innovate around all the data and information that they gather, because they're the main point of sale. That's just one example. But do you think competition breeds, excellence type of situation? Or what do you think the drivers of success in a more competitive environment, as opposed to that moat concept that somebody like Warren buffet talks about when he invests?

Ali Tamaseb: (18:16)
For sure. I think competition from good big companies is a sign that that market is large and you want nothing better than a massive market that the customer is educated. Somebody has paid the price, educate the market to take the market time and risk. And at this point it's a massive market. Customer is educated and you can just go execute better and sell. And obviously, you know, it does drive innovation and, you know, a lot of excellent seeing the way these companies operate. But I think the biggest thing is it's a sign that the market exists and it's large.

John Darcie: (18:49)
They almost like if you start a company and there's nobody trying to do anything, resembling what you're doing, maybe you're solving for a problem that doesn't exist. Exactly. That's an interesting way to think about it.

Speaker 4: (19:02)
Yeah, yeah. That is, that

Sarah Kunst: (19:04)
Is a super interesting way to think about it. How, how much do you feel like, so I guess how long did collecting all this data and writing the book take you and, and you know, what changes have you seen in your own investing since sort of, you know, before you started doing this or before you kind of, you know, started digging in and then now after you see these findings,

Ali Tamaseb: (19:24)
Yeah. It's a little bit over four years. So the data collection piece took three, three and a half years. And the writing, the book piece took me one year and interviews and stuff. So, you know, the hardest part was data collection. It's 30,000 data points. You can outsource it, you can't automate it. It requires a lot of judgment meeting, cold emailing surveys, a lot of different things to collect this data. So that was the longest and hardest part. Um, and then the interviews were the most fun part because I got, you know, talked to all these amazing founders and investors. Um, and again, the little bit hard part at the end was editing and finishing and making it into a book the way this, this has changed my thinking, I think number one is to not let my judgments come into debate of backing a great entrepreneur.

Ali Tamaseb: (20:16)
You know, you don't need everything to check out for a company. You don't need everything to be good about a company. That's not a recipe for investing in the best company. You need to, one thing to be exceptionally good and that the other pieces may fall into pieces or the theater pieces will fall in and, you know, the company would work out. So that's one, the second is, you know, again, instead of looking for what company you worked at or what university you come from, these kinds of stuff, look for this characteristic it. And what have you sold before? What have you built before? What type of money did you make before coming and starting this company? And I think you can get a lot of information about the characteristics of these founders rather than proxy metrics like university or your work and these kind of stuff.

Sarah Kunst: (21:05)
I love that characteristics, not proxy metrics. I like it. Um, how, how do you think, you know, there, there's obviously in our industry, sometimes a lot of bias in terms of who gets funded and who doesn't, how does this data help sort of disrupt that because you know, that the pattern matching that everybody talks about in our industry, you know, I think your book is a great point that it's not the pattern matching it's bad. It's just that most people are probably matching, you know, the wrong patterns. And so how do you think this helps, you know, kind of expand the aperture? Does it help expand the aperture of who should be looking at getting funding?

Ali Tamaseb: (21:38)
For sure. Yeah. I guess the point is instead of letting 10 or five famous stories run that, you know, pattern matching, let's 200 companies run that pattern matching. So by showcasing, I think I have hundreds of stories from a hundred different companies in the book, you know, all different examples or different attributes. So I hope, you know, this helps show a lot more examples of some of these companies that went on and became successful. And sometimes against the odds, a lot of my interviews is, you know, companies that succeeded, even though they didn't agree with what the data was saying about them. So I wanted to give the full picture about, you know, there's patterns. There's, anti-pattern, there's a lot of different things that may work, uh, even at the, at the odds that data. Um, I think the main way it's in reduced bias is, you know, telling investors and entrepreneurs that a lot of things you may have cared about before you don't necessarily need to care about how many co-founders you have, what university you went to, you know, a lot of these things, or if your family members, or if you have competition with, you know, and it depends on what type of competition.

Ali Tamaseb: (22:43)
But if you go and look into a lot of these, you know, patterns and factors, you realize you can put aside some of your judgment or wrong bias against, and look for characteristics, look for a big market, look for, uh, you know, some sort of defensibility or accumulating advantages that would make this company a massive success.

John Darcie: (23:02)
I got a question, Ali it's about geographics. I want to dig more into that question. So if you're on Twitter, you have to see Keith Rabois every day and all of his minions pumping up Miami as the next big tech hubs, everybody's got to move to Miami. You know, obviously Silicon Valley's had a high concentration of startup founders of talent of VCs. Uh, but that's sort of decentralizing, COVID acting as an accelerant for that. As you looked at data around, you know, geographic location and what types of areas incubated the most successful startups, what did that data show, does it show that it's more decentralized than we think it is, or did it show that Silicon valley dominated and also as you look globally, is there any know explosion in entrepreneurship around the world? I think you and I both have spent some time in the middle east, uh, in the UAE in particular, uh, where there's, there's a pretty thriving, uh, startup ecosystem that's developing there, but what are your thoughts on the geographic piece?

Ali Tamaseb: (23:58)
Yeah. So when you look at the data and you have to pay attention, this is historic data. So I'm not sure given everything that happened, but COVID distributed work, remote work, everything was accelerated towards this. So I'm not sure how predictive that data would be, but I'll tell you the historical observation historically, or in the past 15 years, exactly. Half of billion dollar companies were created in Silicon valley. The other half were created in different tech hops, Southern California and New York, Boston, uh, and you know, a lot of different regions that you can think about in the book. I have a number of interesting interviews. One of them is Rachel calls and found rogue Guild education. What's very interesting about her story. And this is, you know, a multi-billion dollar company in the upskilling and attack the space that she was in Silicon valley. The company started here raised money here.

Ali Tamaseb: (24:48)
She was a Stanford MBA grad, and then intentionally moved the company to Denver, which is not a traditional tech hub and the company thrive there. And she's very happy with the decision, you know, looking back five years, six years after. So I think a lot of this move towards, you know, let's go out of Silicon valley, let's go where it makes sense for the company. I talk about root insurance, which is, um, you know, not in a Silicon valley tech hub, but it's there, there's a concentration of people from the insurance and InsureTech industry. Um, so I think you need to look for, what's better for your startups, but you know, when you look at the data, the companies in Silicon valley, they were more likely to succeed. So there seems to be some, something about concentration that helps or historically have helped. Now, maybe that thing can distribute to other tech hubs that get enough concentration of talents. It could be Miami, it could be Boston, it could be New York or anywhere else or even internationally, but it seems like at least historically there was something to that concentration of talent and capital, maybe in the future that, that doesn't remain. I don't know the answer to that

John Darcie: (25:52)
Question. I'll look forward to super founders to the CQL super founders where you study sort of the post COVID era, uh, Steve case, who's a friend of salts who's been on salt talks who has been at our conferences. Now he has a fund that's invest in the idea that at least in the United States, you're going to see a greater distribution of talent and startups in the rest of the country, outside of Silicon valley and also in New York or the places that he looks for for startups outside of those places. And you see companies like Palentier move to Denver, for example. Uh, so you are seeing, you know, uh, people relocate and look for higher quality of life with the ability, uh, and in the explosion of remote work. So again, looking forward to super founders, 2.0, get started four years in the making right. Only four

Ali Tamaseb: (26:37)
More years ago. Yeah. Hopefully I'll, I'll spend another four years and in 10 years,

John Darcie: (26:43)
The last four years I created, uh, for children. So, uh, I need to spend more time, you know, maybe working, um,

Sarah Kunst: (26:51)
Actually, yeah. Do you have any data about, about, uh, family? How, how many, how many founders are parents? Oh, I don't want to hear

John Darcie: (26:58)
It. You can to tell me that my career is done now because I got too many kids.

Ali Tamaseb: (27:02)
I don't know the answers to that. And probably not because, you know, when did median age is 34, you know, you can make some assumptions about the family situations of these founders.

Sarah Kunst: (27:13)
Yeah. That, that, that is very true. That is very true. Um, well, sorry, John, you're doomed. Uh, but you know, maybe one of your kids will have a great chance. Actually. That's another interesting question, you know, is, are there correlations like that? I know that, you know, it seems like a lot of times founders feel like, Hey, you know, I started my company because I saw, you know, I'm from an entrepreneurial family and it doesn't usually, it's not that they were tech startup family, but you know, maybe their, their parents owned a restaurant or something like that, you know, or you hear a lot about, you know, uh, the, the disproportionate number of immigrants who start companies, are those things that, that I think even founders believe about themselves, are those showing in the data or, or is it, is that less important or just not, not stuff that ended up in this dataset.

Ali Tamaseb: (28:01)
It did not, you know, the hard thing about doing a study like this is you need to pick metrics that you can collect that data on all these, you know, a couple of hundred companies and the non unicorns. And it's impossible to do things outside of, you know, traditional things like, you know, what you can get from LinkedIn and interviews and these kinds of stuff, uh, maybe you can get about 20 of them, but not all a hundred. So I didn't from the stories, I guess it, it does, you know, hearing a lot of these entrepreneurs seems like a lot of them come from families who were academics. You know, a lot of them had, you know, moms or dads who were professors or who were entrepreneurs who had started non-tech companies and they had seen that path. Um, but I guess what's more important than that is they themselves had a history of starting stuff and building companies and projects from, from a young gage and, you know, finding the, and eventually they got to starting that massive billion dollar outcome.

John Darcie: (28:57)
Yeah. So one of your key findings that you talked about Ali is the idea that, that most unicorn founders had no industry experience. So I work in the financial industry. Uh, SkyBridge is basically a hedge fund to fund to funds. We also, uh, do some direct investing as well. I guess you could consider us a legacy financial institution. We work with a lot of traditional banks, but you're seeing an explosion in FinTech, you know, that this was happening even before COVID COVID has been an accelerant for FinTech. So when companies are going into a new space, you think basically based on your data, that the idea that you're coming in with a fresh perspective, let's say the financial industry, as an example, most FinTech startups are created by people that didn't grow up as an investment banker at Goldman Sachs, a wealth manager at Morgan Stanley.

Ali Tamaseb: (29:44)
Yeah. And again, when you, when you look at the distribution, it doesn't say you are less or more likely if you don't like, it's not a good thing. If you don't have domain expertise, it's also not a good thing. If you don't have domain expertise, you know, 30% of consumer tech founders did have domain expertise and only 40% of SAS enterprise did have industry domain expertise, but it goes back to the characteristic thing. When you look at a lot of these founders, they had the resources, maybe they had some track record, maybe they had, you know, had this small exit before it built that reputation to go and network with people in this industry and go on a fast learning curve of, you know, in one or two years, learn more than anybody else about that specific part of this specific industry that they wanted to go into straw. They would know about that more than anybody else. There was no more people in that more than anybody else. And it's those kinds of soft skills about having the resources and the network and getting the talent and capital and selling division. That's more important than, you know, having 10 years of experience as a Bell's manager to be able to come in and build a Bell's management software company. For example,

Sarah Kunst: (30:50)
That's really interesting. I feel like what you're telling us is there's not just a cheat code where we can go identify a billionaire as soon to be billion dollar startups, but, you know, and it's so important. I think to, to question some of the things we take for granted, um, you know, what, what, how, how long back did this data go, meaning, you know, is this data a big reflection of like the last 10 years or the last 20 years and in how

Ali Tamaseb: (31:14)
Much? So 2005, yeah. 2005 to start was the start of this data set.

Sarah Kunst: (31:19)
Yeah. You know, how, how much do you think, what do you think would change? Obviously, the Internet's changed so dramatically since pre pre 2005, but you know, if you, do you think if you ran this again, 15 years from now, you would see a lot of similar data sets or are there, you know, massive in your mind fundamental kind of macro shifts that, that might, you know, show that that totally different profiles of

Speaker 4: (31:42)
Founders are successful?

Ali Tamaseb: (31:44)
I think some things will change. Certainly the names and numbers would change, you know, the companies. So for example, if you look at the early cohort of the 2005 to 2008, nine companies, those founders are more likely to have worked at Yahoo or at Oracle. When you look at the past five years, those founders more likely to have worked at square or Facebook or Stripe. Um, so that's the kind of, you know, a lot of these numbers change or, you know, what was a seed round back in 2005 is, you know, a pre pre seed round now, uh, in 2021. So a lot of these numbers change, but even when I look at different industries or geographies or different times, a lot of these trends and a lot of these characteristics all are still the same. You know, it's the same people who had a blog for building back in 2005 and the are the same people in 2020 that had a bunk foot building and have created stuff that ended up becoming billion dollar founders. Same thing about competition, same thing about a lot of different things. Obviously industries change, new categories emerge new macro shifts like geography and remote work can, you know, alter data. But I think generally a lot of these may hold. Okay. Yeah,

Sarah Kunst: (32:53)
Yeah, no, I, I, you know, instinctively, I kind of, I'm inclined to agree. Um, but, but we'll see, cause we have all the data now. Um, how do you hope people will use this book? I mean, should, should founders be reading this to try to reverse engineer success, should investors be reading it to do the same thing? You know, how, how this feels like it's going to become a must read in a, in a big teaching tool. So also of course tell us where, where we can find it and where we can buy it. But, you know, we'd love to just kind of know how you envision this being used out in the world.

Ali Tamaseb: (33:26)
Yeah. I hope, you know, founders, investors and people around the industry and lawyers, mentors, advisors, accelerators, incubators, investment bankers. I think that's, that's the audience for this book. And anybody, you know, honestly is interested in starting companies and entrepreneurship and the way I think, you know, there's a lot of practical advice for founders in the book based on the data that, you know, this is something doesn't, that doesn't matter, maybe, you know, number of co-founders doesn't matter. So if it means that you have four amazing people to start a company started doing stick to the narrative that you need to go founders. So a lot of these things I talk about in the book that know something doesn't matter, don't, don't sweat it. Um, and you know, same thing for investors, you know, reducing bias. And there's a lot of inspiration in these stories and interviews that, you know, I think as a founder, uh, it would be very interesting to read and understand the path that, you know, these couple of hundred other companies took and these founders took to become a massively successful founder.

Sarah Kunst: (34:27)
Awesome. Yeah. That's super helpful. John, do you have any last questions?

John Darcie: (34:30)
Well, my last question is when does the book come out working? We buy it, uh, tell us all that about super funds.

Ali Tamaseb: (34:38)
Yeah. So the books come out May 18th, uh, just at the shelves it's available on Amazon audible, Kindle, local bookstores. Um, you can read it in different versions and us and outside of us as well. A lot of different countries

John Darcie: (34:53)
Dictate the audible version. I

Ali Tamaseb: (34:55)
Did not know there is somebody much who has a much better voice and accent than we needed. That's doing the honors. All right. Well,

Sarah Kunst: (35:03)
You would have been great at it, but everybody needs to go get this book and, and you know, maybe, maybe we can get you a, to, to New York in September for the salt conference and everybody can, can hit you up for advice on how to, uh, to invest in the next unicorn IRL.

Ali Tamaseb: (35:20)
For sure. I'll be glad to.

John Darcie: (35:22)
Okay. All right. Again, the book is called super founders. What data reveals about billion dollar startups, really looking forward to reading it. Ali, thank you so much for joining us on the show and thank you everybody for tuning into today's salt. Talk with Ali Thomas hub of just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. Uh, just a reminder. We're also on social media. LinkedIn is where we're most active at salt conference, but we're also on Instagram, Twitter, and Facebook as well. One data point that Ali didn't point out is that people who watch salt talks are actually, uh, 74% more likely to become unicorns, uh, that is unaudited on verified, but, uh, it it's a snippet that that's in part of his book. I'm not going to tell you what page it's on, but, uh, thank you everybody for tuning in and please spread the word about these salt talks, but on behalf of Sarah and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Zach Karabell: Inside Money | SALT Talks #214

“What you want at the center of the financial world is a degree of awareness of the destructive capacity of money.”

Zach Karabell is an author, columnist and podcast host. Karabell is also founder of Possibility Project at New America and president at River Twice Research and River Twice Capital. His latest book is Inside Money: Brown Brothers Harriman and the American Way of Power.

In his book Inside Money, Karabell describes the early stages of American capitalism powered by WASP men and its evolution into modern times. The book looks at the history of the banking institution Brown Brothers Harriman and its influential role shaping the 19th and 20th century world order. Karabell is concerned with modern elites, particularly tech company founders, and their unwillingness to assume more responsibility that comes with their newfound power. He wants to see tech leaders take more active roles in the larger debate about the role their creations play and how they should be positioned appropriately.

LISTEN AND SUBSCRIBE

SPEAKER

Zach Karabell.jpeg

Zach Karabell

Author

Inside Money

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which we're excited to resume here in September of 2021. And that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome, uh, another great author to salt talks, Zach Caravel, who wrote a fantastic book. Uh, that's coming out here in a couple of days. Uh, Zach is an author and columnist and founder of the progress network at new America and president of river, twice research and river twice capital previously.

John Darcie: (01:05)
He was the head of global strategies at Envestnet, a pub publicly traded financial services firm. And prior to that, he was the president of Fred Alger and company. His next book, again, that's coming out here shortly is called inside money, brown brothers Harriman and the American way of power. And that's published by penguin press. Uh, here again in the next couple of days, uh, as a commentator, Zach is a contributing editor for wired and for Politico. And he's the host of the podcast. What could go right? Uh, previously he wrote the edgy optimist, a column for slate Reuters and the Atlantic hosting today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salt and I would also in some ways call Anthony and edgy optimist. So I think it'll be a good chemistry here today, uh, on, on this salt talk. But with that, I'll turn it over to Anthony for the interview. And

Anthony Scaramucci: (01:59)
Zach, I'm also a best-selling author. If you don't believe me, you can come into this basement right here. You can see every book that I had to buy in order for me to get that equitation. Okay. Well,

Zach Karabell: (02:08)
If you've got any room in the basement, by all means,

Anthony Scaramucci: (02:13)
The good news for you is you actually, you actually sell books because you are a brilliant writer. Uh, I want to go to a couple of things that I think people need to know about you because in a lot of ways you predict a future, you see things, uh, you wrote a book almost 23 years ago. Now what's college for it turns out that, uh, we're discovering the college may be for lots of things and may not be for certain people. Uh, more or less you wrote that in that book, 23 years ago, you wrote a book called superfusion how China and America became one economy and why the world's prosperity depends on it. That was about 10 or 11 years ago. Uh, but it correctly assessed what was going on in that bilateral relationship and why that bilateral relationship is arguably the most important bilateral relationship in the world.

Anthony Scaramucci: (03:02)
Uh, you wrote a book about leading indicators, uh, basically a short history of numbers and how we know the cliche lies. There are, there are lies, lies, and there are statistics. And you point out that sometimes we're made to believe certain things that may or may not be true. Um, one of your more fascinating books, which I read, and then I went on to read other books about this was the Harry Truman book. You remember the Harry Truman book, Zack, how he won that 1948 election and what was going on in the United States at that period of time, uh, which is interesting because you have a lot of Truman people in inside money, uh, that then ended up in the Truman administration. Um, and the reason I'm bringing all these different books up, all of which were best sellers, is that you have a pressure point instinct for what is going on. And so now let me push back after I just praised you. Why the hell are we writing about brown brothers Harriman? That seems like an old WAFs investment bank that doesn't have any relevance to today. Now, of course, Dorsey that's a setup because we know it does. Please continue Mr. Caravelle.

Zach Karabell: (04:14)
So it is a, it is a great question. And just for corrective, unfortunately, the books were not bestsellers except for in my mother's, you know, conception of my career

Anthony Scaramucci: (04:25)
This way. Maybe they weren't best sellers, but they were brilliant books. I got introduced to you by Gary convinced skating. And 2013 was Dez 13. I'm a reader. I went back and read your books. I read your column. I encourage everybody listening to this Saul talk cast to read your column a, because they're always loaded with insights and they're always loaded with non-conventional thinking, but I'm doing too much talking now. So I'm going

Zach Karabell: (04:49)
To show you, so the, so the reason the brand brothers book, um, first of all, it's just a good way to write the history of how money made America over a 200 year period, but separate from that in terms of its relevance to the moment. And you never know when a book is going to be published relative to them when you start writing it. So sometimes books land with a thud because I have no residents. And sometimes they, they unlock something in the moment. And I think the book is frankly, more relevant now than I thought it would be when I sat down to write it. And part of it is this idea of, you know, when I told people I was writing the book, a lot of the responses in the, in the financial world for people who actually knew the name of the firm was, huh, are they still around or kind of shaking their heads?

Zach Karabell: (05:35)
You know, what, what a great story, what a great firm that used to be. And it occurred to me that a firm that has 5,000 employees today, $2 billion in revenue, about $500 billion in profit, uh, that has lasted 200 years. When did that stop being a success story? Right? When, when did the aperture, particularly on wall street become much more lionize? The Goldman Sachs is the world. I know that's a sensitive topic, Anthony for you. Um, and I was saying that he's at a sensitive time, I'm teasing because I know your Goldman experience was a formative moment in the, in the arc of your career. That's all I was nodding. No,

Anthony Scaramucci: (06:19)
Listen, I, I, I like Goldman. I mean, I think, I think at the end of the day, I wasn't the right fit for Goldman. They, they correctly figured that out. So did I, but I do like, oh, well, go ahead. I'm sorry.

Zach Karabell: (06:30)
And so, but I just made that, that has become the model, right? Bigger, better, more. Um, whereas the words was a model and it was true more of that kind of self-effacing genteel wasp establishment of which brown brothers is totally exhibit a, um, where there was, uh, a greater sense of sometimes enough is enough. And I'm very clear in the book that I do not believe that all of wall street, all of finance should embrace that mantra. Right? Brown brothers Harriman would never have underwritten Elon Musk or many of the technology innovations that have great, you know, have unlocked great potential, but also have great risks. So you don't want a world composed only of brown brothers.

Anthony Scaramucci: (07:13)
Let me push back a little bit. This was a parochial white world, a white male world. It was a white wasp male world. Uh, when my Italian immigrant grandparents got here, there were signs in the windows that said, Nina, no Italians need apply that also for the Irish, no Irish need apply. And so is it a case where, and again, I'm speaking from the prism of a wool coach culture today, um, is it the case that these guys directly benefited from that and directly benefited from the lack of asset access and assets for that matter that people didn't have, and that allowed them to flourish the way they did

Zach Karabell: (07:54)
It is a great and important question. This is unequivocally a history of white men and what they did, and, you know, in a woke time that may not be the kind of history that a lot of people are, are willing to embrace. I suppose my general point about that is a lot of American history was made by white men for better and for worse and understanding who we are with a, maybe an, a Gimlet eye about all of the devices. And the virtues is kind of an essential aspect of understanding, literally who we are. So, you know, this is not a celebration or a condemnation. I don't, I don't believe the role of the historian overlay should be to sit in judgment. You know, there's whole there's whole passages and times in the book where the brown fortune was made initially on facilitating the cotton trade, they were the largest cotton broker.

Zach Karabell: (08:48)
They underwrote much of the import and export of cotton between New York, Baltimore liberal, uh, and you know, you cannot get rich from the cotton trade in the 19th century without being complicit in slavery, full stop. You know, there's no ands ifs or buts, but almost everybody was complicit in the slave system in the United States leading up to the civil war, William Lloyd Garrison. One of the great abolitionist did not absor wearing cotton, uh, even as he was fighting that system because you, it was almost impossible to opt out just like, it's almost impossible to opt out of the carbon economy today, even if you believe it's destroying the planet. So it is not saying, oh, we should, this was some golden age we should return to. Um, but I do think the past offers select lessons as applied to a different reality, right? I'm not saying, wouldn't it be great if there was a closed tight knit establishment that went to a few Ivy league schools and what it made it impossible for you or for me to participate in. And, uh, that's not, that's not the point.

Anthony Scaramucci: (09:54)
Was the world better back then? Zack, was it simple or was it easier?

Zach Karabell: (09:58)
I think the idea that there was a cohesive elite that believed they had a responsibility to address the commons, meaning that they believed that unless society overall thrived, that they individually would ultimately not thrive. That was an important ingredient. And maybe it begins a little bit with, with Andrew Carnegie and the gospel of wealth. You know, this idea that those with great means have a responsibility to give back. Um, but I do think that that as an ingredient in a constructive society is, is certainly absent amongst a lot of elites today. Not all, uh, certainly absent amongst a lot of tech elites today. You know, all you get now in tech land as a kind of crickets in the face of huge public pressure to be more responsible and more diligent about the effects of their business and their wealth on the overall society in a way that those financial elites at the, uh, during the cold war really did step up. You know, they really did function with an understanding of the commons.

Anthony Scaramucci: (11:01)
Let me ask you a different question and we come at it from a different angle. Um, you're suggesting that no police oblige this sort of notion that too much is given much as expected as a result of which there was a culture among those elites that they were going to do things for others. The current leads seem more selfish. Is that fair

Zach Karabell: (11:22)
To say? I think that's fair to say. Okay.

Anthony Scaramucci: (11:24)
And so then what could the kernel leads the lead learn from inside money?

Zach Karabell: (11:33)
Well, one the idea that the boundless pursuit of more is unbelievably potent, um, but carries with it the potential for unbelievable disruption, right? So one of the things that brown brothers that allows it to survive and thrive, and I also am very clear, living long is not in and of itself. A virtue living well is so the fact that a firm or any individual has a long life is not a reason to go, wow, that's, let's celebrate it. Um, but within their culture was an understanding that every thing you do that strives for more and more and more creates the possibility for more and more risks and more and more risks should be measured, measured doesn't mean it shouldn't be taken. It just means you should be aware of the fact. And I do think there's something that I, by no means the first person to say this, that there's something about publicly traded financial companies, shareholder, capital driven that removes some of that sensitivity to risk versus reward so that if you're not personally exposed to the risk, but you are absolutely personally exposed to the reward, it changes your incentive structure. I don't think it's fair. I mean, I don't think that that's healthy.

Anthony Scaramucci: (12:48)
I used to say that they'd say that, you know, we were long right after the garden hose in our garage. So they would, they were more cautious right. About the risks that they were taking. Um, I want to switch to something fun for a second Avril Harriman, who was the Seon of the Herrmann of brown brothers Harriman, the great railroad enterprise. And these were the merger of an investment bank and a railroad family, as you point out in the book, um, uh, he married, she's having an affair with, uh, Pamela Churchill, uh, who became Pamela Harris. Paramin was having an affair with her during the war. He reconnected with her 30 years, hence, and, uh, he was at a cocktail party in Georgetown, in DC. Somebody said to him, wow, your 85 year old, there's only you look great. Do you remember what he said?

Zach Karabell: (13:38)
I don't, but I, I mean, I know he said something pithy. I just don't remember.

Anthony Scaramucci: (13:41)
It was very pithy. He said, well, of course, I'd look great. I've spent my entire life playing polo and shagging young women effectively. That's what he said. And so I want you to react to that. Um, man of privilege, Getty went on to do great things. He's ambassador to Moscow, governor of New York. Uh, tell me a little bit about Admiral Howell. I mean, heroin's

Zach Karabell: (14:05)
A bit of a cipher, right? He has this glamorous external life. He's clearly totally to the Manor born. And this is a man who did not lose one wink of sleep to his inherited privilege and belief that, that, that placed him in a position. She's a member

Anthony Scaramucci: (14:23)
Of his country club. I just thought I would point that out while we're fair enough. Um, now he'll have a chance to react to it. He's not wrong.

Zach Karabell: (14:31)
I think he was immensely charming with women, but I also think not overly interesting. You know, maybe this was not a curious man. This was a man who believed that his position in society gave him privilege, but he also believed that, you know, he's taught this by his father over and over again, that, that those with more have a responsibility to, um, to serve society, which I don't think ever means that they're not also self-serving right. The two or the two are not, um, in inherent contradiction. Right. You

Anthony Scaramucci: (15:00)
Know, and, and by the way, I think you make the case in the book, this, this, uh, firm was very close to the U S government, both on domestic and foreign issues. Um, is that you think there are any companies today that are as close to the American government as brown brothers Harriman was back in the day? No,

Zach Karabell: (15:20)
I mean, you did have that period of Goldman from like early nineties with Robert Rubin and then Paulson and, and, you know, a whole series of others who really were central in government. So you had a kind of a, I don't know, 20 year Goldman period, that was pretty pronounced. Um, and I think in many ways, emulated that brown brothers model in the sense of, you know, we, we are, we are bound to take a role in shaping the commons, um, much more controversial. And I think in a way that many people are more ambivalent about, although frankly, they became deeply ambivalent about the role of the wasp elite in the sixties. You know, the world that we grew up in was a world that was reacting against that pretty dramatically.

Anthony Scaramucci: (16:04)
So if I had a book club of Elon Musk and Tim cook and Jeff Bezos, and you picked three or four other people that should be in that book club, and I said, I want you to read inside money, brown brothers Harriman and the American way of power. Uh, what's my pitch to them. Why should they read it? Well,

Zach Karabell: (16:26)
First it is, where are you right now? Right? Where are you

Anthony Scaramucci: (16:31)
Working on? My first sentence would be Zach Carol is an amazing writer. And so she's read it for that reason, but now you give the pitch, go ahead.

Zach Karabell: (16:39)
I would be, where are you? You know, what, what, where are you in the debate other than fighting a series of intense rear guard actions, hiring lobbyists to try to prevent regulation or shaping the regulation that's coming, where are you front and center in the what's the value of technology to society? What's the balance between privacy and all the things that the lack of privacy provide for all of us, you know, the ease of which our information is used also as the ease of which our lives become somewhat simpler and less friction full. But where are you in that public discussion? Partly governmental, partly, you know, using the convening power of these platforms. And in my view, they are absent. They're absent partly because they score in government and they're absent, partly because they don't, I think they're somewhat tone deaf to the, to the reality of you do something that has great consequence to the world around you, you benefit mightily from it.

Zach Karabell: (17:40)
Um, you had better be in the fray, in the mix of shaping what the rules are, what the framework is, right? So part of the point about brown is every single institution that exists globally today, the world trade organization, the United nations, all the, you know, the world health, every ancillary group, as well as the, the architecture of a lot of our government, the Pentagon, the CIA, the national security council, none of these things are without, you know, massive flaws, but, but they are the world. They are the architecture of the world we live in and they shaped it. You can say, look, we should reshape it. And that's totally fair. Where's tech land now in, in shaping that architecture around these new technologies about, you know, why are we using a hundred year old antitrust statute to even think about these symphonies and where are they in reframing these things? So I would say to them, read this book to understand the role of, you know, those with power and the comments, and there's a self-interest in it. You know, you've gotta be in the mix.

Anthony Scaramucci: (18:38)
I think that you are writing in the book that yes, some of it could have been too close for comfort in certain areas. We'll talk about that in a second. But in general, the nexus between a private enterprise company, Mike Brown brothers Harriman in the U S government was beneficial to both, but the government was able to get lots of insight and knowledge about the economy and capitalism and how to put the right policies in place to further that. And then secondarily, and I think this is important. I want you to address it. Uh, brown brothers and the people at brown brothers had a role in what I would call the post-World war II order. What was that role and how did it shape up?

Zach Karabell: (19:22)
So you mentioned Harriman before the other two major individuals was that a man named Robert Lovett who was intertwined with Harmon and the Browns, um, who becomes assistant secretary of war or world war II, and basically helps create the modern air force with John McCoy was, was, was twined with McCoy. They were known as the heavenly twins who supported Henry Stimson, who was then secretary of war, you know, creates the B 29 bomber funds. Boeing then becomes under secretary of state under George Marshall. And one of the main implementers of the Marshall plan Herrmann is even more central to that moves to Europe, becomes the aid administrator, and then love, it becomes secretary of defense, the renamed war department, uh, in 1950 when Marshall retires and he oversees the last years of the Korean war. And then you've mentioned Harman, and then there's Prescott Bush. So, you know, one of the many reasons why brown brothers has had a less than clear reputation is this whole notion of where did the Bush family fortune come from? Was there complicity with the rise of Germany in the thirties? So Prescott is a junior partner,

Anthony Scaramucci: (20:31)
Russia, the Russian revolution, and that the Russians got, uh,

Zach Karabell: (20:36)
And then Harmon [inaudible], that's also in the bulk. Okay. So these, you know, those individuals and actually Harmon's younger brother as well, role in Ted, some had some role were know part of what we call the establishment. Um, and, and for the coterie of what Walter Isaacson, once dubbed, uh, the wise men, I mean, they were called that in the sixties too. So again, they create this world that we're in now where we are living in that architecture. It much the way, you know, we're living in the constitutional architecture of the founding fathers saying that is not a validation or a, an encomium. It's just a recognition of, you want to understand the world we're in, you have to understand the framework that these individuals had. And a lot of that comes out of the world

Anthony Scaramucci: (21:21)
Of money. So tell us about the framework.

Zach Karabell: (21:24)
You know, they, they believed in the dollar, they believed that American capitalism was a unique formula that had made America rich and powerful, even with, with a massive hiccup and disruption of the great depression. They believed, therefore that the dollar was a, was a governing factor, right? And that the more the dollar govern the world and not the British pound, the better it would be for the United States and the better it would be for the world. And they believed in institutions and rules, and they believed that those with more power had a responsibility globally to keep the peace, right. And that's the whole point of the security council in the UN, but it's also the point of, of the world. What was then the general agreement on tariffs and trade, and they believed in trade. They believed that more commerce was better, partly because it was fight against communism. And partly because it would make everyone more affluent

Anthony Scaramucci: (22:15)
During, during the 2016 campaign, the former president who I obviously worked for not just for the short period of time in the white house, but during the campaign said to me, why the hell are we paying for the basis in South Korea? Why are they paying for the base? And I tried to take him through Robert Lovitz explanation of that, that this was in fact, an insurance policy. This was a global insurance policy. Moreover, Mr. Candidate, you want the Americans to pay for this stuff because the more we pay for it, if we can create a vibrant economy, we're going to push out all the other people that we don't want to militarize. Ultimately, those men and they were white men made a decision. And by the way, it was the right decision because we've had great prosperity despite proxy wars over the 80 or so years is American supremacy because of the benevolence of the American democracy would lead to more global peace and more prosperity. And so you don't necessarily need the NATO people that contributed to 2%, uh, because you want to maintain the supremacy of what the Americans AV on the ground around the world. What did I miss?

Zach Karabell: (23:27)
No. I mean, that is totally the argument for it. I mean, there's clearly an argument today of has it's useful on this ended, has the statute of limitations of those reasons, has it come to an end? Um, I would argue that it probably has in so far as, uh, you know, NATO in particular, you know, Putin is, is a threat because of his, the way in which he maintains power. Uh, it, it seems deeply unlikely that he's a threat at the level of invading Western Europe. If you really were going to maximize NATO, you would be protecting Eastern Ukraine, which seems to not be what NATO is geared to do right now. The Korean peninsula is probably, uh, a separate issue given the north Korean regime. The question more is, is it necessary for the world and is a good for the United States? Uh, and as an American, I'm frankly more focused on what's good for the United States.

Zach Karabell: (24:30)
And I don't think that being, this was always supposed to be transitory, right? It was always supposed to be, we will do this until the rest of the world can do it for itself. And I, and I do think the idea that we have a soul and unique capacity to maintain the peace and that the rest of the world is some sort of a narcotic jungle, which many have argued. Um, I think infantilizes 7.8 billion people at, at our own expense, uh, and that we would be better off saying, look, your region, your issues. We will support what we think we should support, but we're not the prima enterprise. We're, we're not the arbiter and we're not the access of global peace, highly debatable. You know, these are, these are legitimately hard. It's a, it's

Anthony Scaramucci: (25:15)
A grand debate currently. Uh, that's going to rage in Washington as to where we should be. Um, you know, but I'm also super worried about the bilateral relationship that we have with China. And while the Chinese have problems and human rights issues, we have our own racial tension here in the country. There's no system that's perfect. We can argue that our system is better than their system. Um, but I don't think that's going to make a lot of hay, uh, us arguing that I think we have to be practical about how we approach these things. I'm going to turn it over to John Dorsey, the Harriman golf club member at the sands point country club out here on long island, which

Zach Karabell: (25:56)
I write about the beginning of and the book, the origins of

Anthony Scaramucci: (26:00)
Yeah. See that,

John Darcie: (26:03)
Not lying well, Anthony, Greg actually grew up in port Washington, so he knows, you know, the full

Anthony Scaramucci: (26:07)
Landscape club Carabella. I just want to make sure you know, that, although I suspect that given Darcie's influence, I may, I may even have a shadow the membership there at this point.

John Darcie: (26:20)
Yeah. I mean the, the annual tournament that we have it at Sam's point, uh, is called the, the Herrmann bowl. Uh, the, the club is off of Herrmann drive. So he certainly has influence on the origins of that club, but I'm a native, uh, North Carolina, Anthony likes to categorize me in this, you know, uh, Mayflower wasp category. But really my family came over from Scotland in the 18 hundreds actually came into New York, but I grew up in North Carolina if people, a little personal history, if you're a avid viewer of salt talks. But anyways, um, you know, one of the fascinating things I found, uh, when going through the topics that you covered in your book was the fact that brown brothers Harriman, as we referred to a little bit earlier, acted almost as like a proxy, uh, you know, secretary of state or, or strategic puzzle piece that the U S government used abroad. You talk more for people that are less familiar with the role they played in places like Nicaragua in places like Russia to contain, you know, the rise of communism, you know, what role brown brothers Harriman played.

Zach Karabell: (27:19)
So there's a whole chapter of the book about what goes on in Nicaragua in 1912, where the us sends Marines that basically occupied the country, but they do it almost entirely, um, to preserve loans that brown brothers and JW Solomon had made to the Nicaraguan government. And, uh, the result of that is, is a decade plus of financial stewardship, which basically means brown brothers takes over the national bank of Nicaragua and owns the national railroad. And in fact, issue's a new paper currency in Nicaragua that is signed by James Brown, one of the brown brothers partners to the point where the nation, which was not then quite what the, the nation magazine is today, um, refers to Nicaragua was the Republic of brown brothers. But it was an example of what was then called dollar diplomacy, but it set a template for a lot of the as really, even till today, which is the way in which the United States extends its influence globally on the backs of the U S dollar.

Zach Karabell: (28:20)
And that sometimes that global influence is, is enforced and maintained by military presence. But it's often actually enforced and maintained by dollar supremacy. Um, lots of people recognize this, but you cannot overstate it enough that a lot of American power is a product of the dollar, which is then a manifestation of the strength of the American economy. And the military is, is an add on to that, but it's not the initial foundation and it, and, and that remains true today. And it's sort of this continual argument of, have we abused that power? Have we used it? You know, you take over a country because you want to get repaid on your loans. It'd be like Elliot management today, invading Argentina so that its bonds would be honored at par, which is essentially what happens in Nicaragua. You know, they buy the bonds from someone else at a discount. The government can't pay the troops, occupied the country and then brown brothers gets repaid.

John Darcie: (29:21)
Right. So I'm going to ask you a very medic question here. And

Zach Karabell: (29:26)
I was an academic for awhile and I just, you say the word Metta and my heart leaps.

John Darcie: (29:31)
Um, and, uh, you know, you, you've been, you're involved in the financial industry as well as being a great author and commentator. Um, so, you know, I'm sure you've been studying these things as well, but we're involved in the digital space. So at SkyBridge we have 600 plus million dollars invested into Bitcoin. We bought into that story, especially in 2020, as the world moves to more of a digital world. And also the U S government created 25% more dollars out of thin air to address the economic fallout from the pandemic. There's been a lot said about the role that cryptocurrencies and digital assets could play in the destruction of the U S dollars hegemony around the world. And whether China could potentially be playing a long game by helping the rise of something like Bitcoin and digital assets to chip away at the U S dollars dominance. Stan Druckenmiller was on CNBC this week, talking about how he believes in 15 years, the us dollar will no longer be the global reserve currency. And cryptocurrencies could be part of that story. Have you studied that space, especially in the context of what you've written about in your various books, including this book about the importance of the U S dollar, do you think that we're going to see a major shift in the U S dollars roll around the world over the next decade plus? And what impact will that have on the United States?

Zach Karabell: (30:43)
Look, I think assuming the eternal continuance of the dollar is a mistake, um, mostly because that creates complacency in American policy and laziness. Uh, so assuming anything is going to be true tomorrow because it was true today is a mistake. And frankly, you know, part of the brown brothers lesson is you better go to sleep every night prepared for something being totally different tomorrow. Um, and I don't know if the time is 15 years, I don't know at the time was 20. I don't know whether, you know, Bitcoin or Ethereum or any of the digital assets or, you know, Elon Musk favorite. Those coin will be the thing that is the hinge point, um, in a Franklin until there's an app that makes the utilization of digital currencies easier. Uh, it's, it's a bit theoretical right now, right? The transaction part is really complicated and you guys know this better than, than anyone I'm sure a lot of people listening know that quite well, but the idea that, you know, everyone's going to use the dollar, maybe they will just the way English remains the lingua franca and Indi yeah, 70 years after the British empire departs somebody because they have to have a common language and it, and using English is actually less Laden than using other things.

Zach Karabell: (31:58)
Um, although Hindi is quickly supplanting that as well. So I think that is what we should be thinking, which is we have this window, we don't know how long this window will be open. Uh, and we should use it well, which means we shouldn't be lazy. And we shouldn't assume. And I mean, I have a real issue with the way in which over the past 10 years plus, and this is not a Republican or democratic thing. It's the way the United States security establishment has used. The dollar has used swift has used our clearing in a far more coercive way than we, than we did before. Um, because we know that we can force other countries to basically tow our foreign policy line at the expense of we're going to cut you off from, from dollar assets and dollar currency. And that's where digital becomes incredibly attractive, right? Because it's a non-governmental currency in theory. And therefore I think the great, the greatest threat to it is governments,

John Darcie: (32:57)
Right? What are some examples, uh, of, you know, we, there's a man by the name of Michael Greenwald. He worked at us treasury, a friend of ours. He now works at a advisory firm called Cheatham and advisors, but he basically worked on us dollar diplomacy related issues, including the implementation of sanctions on countries like Iran and other places around the world. You know how just to crystallize it a little bit more in people's head, how do we use the dollar, um, building on what you were talking about before? What are some specific examples of times we've used it in recent history and throughout history to achieve our foreign policy goals?

Zach Karabell: (33:32)
So, you know, the way this worked in the coal board is a lot of countries actually did depend on USAID. So you could basically say, look, you either structure your government and create laws, create contract laws, give our com your, our company's privileged position in your economy, or we'll cut you off from aid and potentially cut you off from American companies. That was a powerful statement and the globalization of commerce and the multinational reality of companies. You can't do that as easily, but you can say even to your powerful and close allies like France or Italy, meaning those are powerful countries, relatively economically to lots of the rest of the world. Um, if you do business with a Chinese company, X, you know, Huawei or, or a Chinese bank, um, we will potentially prevent your government or your companies from using, uh, global clearing exchanges for dollars.

Zach Karabell: (34:28)
And if, if X percentage of your economy is tethered to dollars, that is an untenable risk. Now we don't always go so far. Um, but in, in many of our sanctions, we have insisted on allies who do not agree with sanctions, whether it's against Iran, whether it's against Chinese companies to follow our regime at the, at the, at the threat of, we will cut you off, uh, from being able to transact in dollars. And there's a whole, you know, as you know, there's a whole part of the treasury department called OFAC that really is able to use this. I'm not saying, you know, we do this quite clearly and quite intentionally, and it's often quite effective. I just think if you want to accelerate blowback against the dollar, the resentment, that that causes is not to be underestimated.

John Darcie: (35:15)
Right. And, and at that time, you know, we were almost the only game in town and we do a lot of business in places like the middle east in Europe. And increasingly you're seeing by their actions, you know, that they have an alternative. And in a lot of cases, especially given the U S is rise from an energy perspective. We now produce enough oil and gas to, to service ourselves. That's not to that. We don't import oil and gas. Um, but there's less dependence. We have less dependence on foreign oil and thus, you know, there, there's more natural partnerships that are being formed throughout sort of east Asia, um, through, through to the middle east, um, that are reshaping sort of the global world order. And then Europe, you know, is obviously stuck in a period of stagnation. And, um, they, they can't really afford to, to shut off the pipeline, so to speak the economic pipeline, uh, through to China.

John Darcie: (36:05)
So we're having a tough time sort of implementing our goals related to that geopolitical relationship. But I want to go back again to the overarching lesson of your book, which would support I took away was that, you know, slow and steady in a world where, you know, uh, obviously you have cryptocurrencies that are exploding and you have companies like Tesla and, and space X and Amazon that are growing at such rapid rates and investment returns are so high. Uh, you sometimes have to resist that temptation to, to jump onboard that train and take excess risk. Do you worry at all about the U S stock market, the economy and where we're headed? And we could potentially he'd lessons from brown brothers Harriman and, and, uh, you know, pull things back a little bit, so a more sustainable level. So

Zach Karabell: (36:49)
I think part of it is it's like a hub and spoke idea. So I do not think that a world composed only of a brown brothers sensibility would be an economic. It would be an economically vibrant or dynamic one nest at, or not vibrant or dynamic enough. Uh, but, but what you want at the center, particularly the financial world is a degree of awareness of the destructive capacity of money. You know, it is the power, the Quicksilver power in an atom, and you want to be mindful of its capacity to destroy, even as you are aware of its capacity to unlock immense wealth. So I think at the center, you want a degree of small state conservatism and on the periphery, you want a degree of risk-taking, right? Like go to town, buy doge coin, you know, do what do whatever you want. You just don't want that to inhabit the core, because if it's the core, it's not just boundaryless it's heedless. So I'm not suggesting that everything be,

John Darcie: (37:50)
Do think it's become the core traditional metrics of whether it's stock valuations or this, this rise of meme cryptocurrencies now are the market cap of those currencies is larger than every us bank,

Zach Karabell: (38:03)
Right? So I think, I think you have to distinguish between those things, right. There are bubbles in, there are bubbles. I don't happen to believe the stock market is anywhere near a bubble. And I don't think valuation is nearly as sanctified as as many on wall street. Believe it is, you know, valuation is just an average at which certain assets have traded over a hundred years. There's nothing, you know, the hand of God did not come down and said, that's all traded to 17 PE or fifth, whatever the number is, um, you know, non fungible tokens and millions of dollars being spent for those. And, uh, my friend, Gary Vaynerchuk, going to town. I mean, I have no idea whether that will retain value, but I have no idea why some modern art retains value. Uh, so there's certainly pockets of immense liquidity. I think it's more of a mentality and a culture, uh, and yes, wall street, you know, in terms of highly regulated banks is no longer what it was 20 years ago, because they are so intensely regulated in a way that creates huge inefficiencies, but it also tamps down untrammeled, greed, or tamps down on examined risk.

Zach Karabell: (39:07)
Although, as we know, from the, the blow up of, um, of, of, uh, flying's fund a few weeks ago, via credit Swiss and Deutsche bank, it does not prevent risks from being taken. I know that is not a coherently simple answer to your question. I don't, I don't think painting culture with too broad, a brush stroke. I I'm totally comfortable painting the tech world as being largely absent from its role in shaping the comments as it applies to privacy and money and commerce. Right? Most of us, I think it's hard to point to anyone who's actually deeply active in that,

John Darcie: (39:41)
Right? And it sort of reinforces our house. You have the importance of diversification, you know, you can't really afford not to have a foot in the future, uh, whether it be digital currencies or these companies that are really disrupting old models of banking or technology or automobiles or energy. Um, but you also don't necessarily want to go all in. Um, but Zach, it's been great to have you on salt talks. Again, the book is called inside money, brown brothers Harriman, and the American way of power, fantastic book it's out, uh, Tuesday. So go out and get the book. We couldn't recommend it highly enough. Anthony, you want to hold, hold it up. If you have it next to you,

Anthony Scaramucci: (40:18)
Because I don't have the book, I'm disappointed. I zag you hold the book up, but I as jog and tell you, I read these books before we get started. I will be reading this book next week when I get a copy of it from my bookseller, but I want to thank you for writing it. And I'm looking forward to reading it. And I think it's a cautionary tale as well. You know, where do you, where do you want to be today versus where we were in the past? What are we doing next act before I let you go

Zach Karabell: (40:47)
Next? As in like next book or next thing

Anthony Scaramucci: (40:50)
I know you got to know the book and your brain there. I do.

Zach Karabell: (40:52)
I'm going to, I'm going to write about how the world solve for the problem of scarcity, basically. Why did Malthus and the population bomb never happened, right? How do we, so I'm going to write about food and the, and the economy

Anthony Scaramucci: (41:07)
Essentially in a linear world. Okay. I like that. All right. So I'll look forward to reading that as well. I'd love to get you back on for that. We'll see you at our conference at the Javits center. Love it in September. And, uh, and John Dorsey, if, if, if we're nice to John's Zach, you and I may get invited to that country club. It is okay. That'd

Zach Karabell: (41:26)
Be good. And then Darcie could say to us, that is a truth universally acknowledged that a young man in possession of a large portion of it must be in search of a

Anthony Scaramucci: (41:32)
Wife. Well, he's already figured that out as well. All right, God bless be well, thank you, man.

John Darcie: (41:40)
Take care. And just, I must state for the record here on salt talks that the club that Anthony is referring to a very diverse in terms of the ethnicity of our members, uh, Jewish devalue, and lots of

Anthony Scaramucci: (41:53)
News here. Okay. There's no fake news, but the truth of the matter is that is true. I am a resident of the town and it is a diverse club and it is a great club by the way, Darcie and the food is great. And if Darcie ever is nice enough to invite you, you want to get the, uh, Buffalo, chicken wings, Zack spectacular at that club. Good

John Darcie: (42:15)
To know April Herrmann, I think love the Buffalo chicken wings as well, but, uh, thank you everybody for joining us here on today's salt. Talk with Zach Caravel, talking about his new book inside money about brown brothers Harriman. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on our website@salt.org backslash talks or on our YouTube channel, which is called salt tube. We're also on social media at salt conference, uh, is where we're most active on Twitter. And we're also on LinkedIn, Instagram and Facebook as well, where I'm half of Anthony and the entire salt team. This is John Dorsey signing off from salt talks for today. We hope to see you back here again soon.

Scott Sperling: Middle Market Growth | SALT Talks #213

“The need to increase productivity, allow employees to see their compensation levels rise and also to be able to produce products at prices that do not create significant inflation can only be solved with increasing automation.”

Scott M. Sperling is the co-CEO of Thomas H. Lee Partners, a private equity firm specializing in middle market growth companies. His current and past directorships include Thermo Fisher Scientific, Madison Square Garden Company, iHeartMedia, Wyndham Hotels and many others. Sperling is also chairman of Mass General Brigham, the Parent of the Harvard teaching hospitals, Massachusetts General Hospital and Brigham & Women’s Hospital.

Sperling discusses the shift away from investments in consumer retail and towards technology companies focused on automation. He explains how automation is necessary in driving efficiency and increasing workers’ wages while also keeping product prices low in the face of inflation concerns. Sperling discusses the major growth opportunities in healthcare, biotech and pharma. He explains the role scientific breakthroughs like genetic sequencing and mRNA technology will play in tackling some of the world’s most devastating diseases.

LISTEN AND SUBSCRIBE

SPEAKER

Scott M. Sperling.jpeg

Scott Sperling

Co-Chief Executive Officer

Thomas H. Lee Partners

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume here in September of 2021 in our home city of New York. Uh, but our goal at the conferences and on these talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Scott Sperling to salt talks. Uh, Scott is the co CEO of Thomas H. Lee partners and a member of the firm's management and investment committees.

John Darcie: (00:55)
Uh, Mr. Sperling's current and prior directorships include Thermo Fisher scientific Corp, uh, the Madison square garden company, Experian Warner music group huffed and Mifflin Univision communications, iHeart media, the learning company, Wyndham hotels, and many, many more private companies prior to joining Thomas H. Lee partners. Mr. Sperling was a managing partner and of the affiliate of Harvard management company that managed all alternative asset classes for Harvard university's endowment fund. Uh, he is the chairman of mass general Brigham the parent of the Harvard teaching hospitals, uh, Massachusetts general hospital and Brigham and women's hospital, as well as a number of leading specialty and community hospitals and physicians practice groups. Uh, he's a chairman emeritus of the city center for performing arts and Wang theater is also a member of each of Harvard business school, board of Dean's advisors. Um, uh, the Harvard university committee on university resources and the Harvard business school's rock center for entrepreneurship. He holds an MBA from Harvard business school and a bachelor's degree from Purdue university and hosting today's talk is Anthony Scaramucci. Who's the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:12)
Well, first of all, it's a, it's a great pleasure to have you on with us, Scott. I apologize for my attire. I feel like I don't have the standard uniform on, uh, maybe, maybe, uh, next time, although I probably can't fit into my suit anymore. I didn't get COVID 19 scat, but I got the 19 pounds. I got the, I got the 19 pounds associated with COVID-19. Um, so you had this amazing career, um, and for congratulations, but I want you, if you don't mind, we have a lot of young listeners and I want you to go back to the early days of what you were thinking about before your career started, and then how did it manifest itself pursuant to that arc of your plans and how did it deviate? Well, I would say

Scott Sperling: (02:57)
That, you know, one that I found to be a useful characteristic personally, and I know other people have a different view on this is I don't really plan ahead very much. And so it's hard to get disappointed. Uh, and I would have to say that, um, you know, I was very fortunate, uh, to, um, find some really interesting, interesting opportunities with, uh, great leaders, uh, early in my career. Uh, and that really helped guide me to where I am today. Um, I haven't worked for very many firms in my life, uh, so it's, I will acknowledge it to small sample set, but, um, uh, I started off coming out of business school BCG, which was a great experience in days when strategy consulting was still very young. This was 40 years ago. Uh, and then, uh, I was given the opportunity at a young age to, um, to start and then manage all of the alternative asset classes for the firm that manages Harvard's endowment fund and, uh, you know, being involved in venture capital and buyouts and, uh, real estate and commodities back in the mid, early eighties, all the way through the mid nineties was, uh, you know, uh, an opportunity to see a lot of really smart, uh, and energetic people do some amazing things in areas that had not yet been exploited.

Scott Sperling: (04:19)
And then for the last, uh, 26, 27 years, uh, to, uh, lead a organization like THL has been, uh, a real blessing. So it's been a very fortunate set of circumstances,

Anthony Scaramucci: (04:34)
Your portfolio, like everybody's got impacted by COVID-19. So tell us what happened, tell us what you guys did to adapt and pivot and tell us what your outlook is during this recovery. So

Scott Sperling: (04:49)
We we've been fortunate that our strategy involves identifying very specific sub sectors within three broad areas, financial services and FinTech, uh, uh, healthcare and what we call technology and business solutions that have a very strong secular growth drivers to them. And there are a lot of people out there doing similar sorts of things, of what, you know, maybe called thematic investing. We try to drill down and just become incredibly expert in a few handful of areas within those three broad sectors. And those areas again are typified by very strong, sustainable, secular growth, interesting, uh, return on invested capital characteristics and, uh, tend to be larger addressable markets. And the benefit of that during the downturn was that we didn't see as much negative impact as, um, you might see with a more broadly constructed portfolio. So we were fortunate in that regard and like many others, we have, um, significant operating capability, resonant our firm.

Scott Sperling: (05:58)
We have a team of operating experts that were able to go to the portfolio companies and help them manage through what could have been a difficult period. So, um, we were generally in a pretty good spot to start with, and as the world, um, got better pretty quickly, as we all know, uh, from a business perspective, even though it has been horrific in terms of the impact on, uh, lots and lots of, um, uh, of people, uh, both in this country and around the world from a business perspective, we saw a very significant growth return reasonably quickly, um, and are fortunate again, to be in areas, um, that are tending to be much stronger growers, uh, then, um, uh, the broad economy,

Anthony Scaramucci: (06:45)
Well, I want you to react to this. Would it be fair to say that private equity now and specifically to T H Lee is focusing more on growth areas and less sort of on what I would call unlocking synergies due to consolidation, or where do you see the vision for your firm and private equity in general, going forward from here?

Scott Sperling: (07:09)
There's definitely been a shift over the course of the last 20 years to growth the spaces. Now, our firm's heritage was always middle market growth. So it fits reasonably well with, with what we're doing, but where there is growth is different. So years ago, we were very big players in consumer and retail, and it was a great space for us. We don't find that same set of strong secular growth drivers in more traditional consumer and retail, uh, anymore. And so the shift has been to more technology-based companies that serve those markets. And I think there are a lot of firms, uh, in our industry that, that, um, have, uh, focused in on those kinds of areas. And we're always trying to look for spaces, um, where there's a dynamic of change that can lead to relatively explosive growth. Uh, so automation is a space that we've been a major player in, uh, for quite a while.

Scott Sperling: (08:06)
Um, you know, it is a space that, that plays to the, um, need of companies in the United States and around the globe to help support their, uh, existing employees take away the more mundane and labor intensive tasks that don't require high skillsets and allow their employees to focus on other areas while increasing productivity. And as we, uh, uh, are in a period where there are projected labor shortages and lots of different places, um, automation is gonna play a key role in bridging the gap between, uh, where we are today and where we might be in terms of the demand for labor that, that can't be met.

Anthony Scaramucci: (08:53)
So, you know, I'm, I'm of the theory that automation and technological innovation is always good long-term for the economy and also for the working class, because you just improve the quality of life and you scale up, it's the same reason why the horseless carriage replacing the people that had labor associated with horses, they seem to have also done better. Uh, am I right about that? Uh, should we be optimistic about the further and some automation or pessimistic?

Scott Sperling: (09:25)
I think you're exactly right about the impact of automation long-term and even in the intermediate term, because, uh, the need to increase productivity and allow employees to see their, um, compensation levels rise, and also be able to produce products or prices that do not create significant inflation can only be solved with increasing automation. And that automation, uh, takes place in lots of different spheres, certainly on the factory floor, in, uh, uh, distribution and warehouse centers. Uh, we've seen a significant bump in the amount of automation that is being utilized again, in most cases, it, it takes the place of that, uh, labor that can't be found in allows existing employees to both get higher hourly wages, as well as focus on higher value added tasks, all of which contribute to productivity, but we're also seeing automation in, uh, offices, uh, in healthcare that allow for much more productive output, uh, that again allows us to manage the cost of providing goods and services in ways, uh, that, uh, can in, uh, avoid inflationary prices as well as come up with many better solutions in areas where the automation actually provides functionality, uh, that doesn't exist or can't exist, um, uh, without it.

Scott Sperling: (10:56)
And so in healthcare, uh, automation, whether it's in, um, surgical robots or in, uh, pathology and radiology will have a significant impact on our ability to come up with better solutions for patients.

John Darcie: (11:14)
So, Scott, I want to follow up on the healthcare piece, cause that's something that we're keenly interested here at salts and at SkyBridge, we we've launched an early stage and not just biotechnology fund, but investing in earlier stages in private healthcare oriented companies. And I know it's something that you guys focus on a lot over there at THL that you mentioned a couple of examples of technology, but how has technology and private investment really accelerated a lot of these advances that we've seen in the healthcare sector coming out of the pandemic and even in the pandemic. And what part of those changes do you think are permanent, uh, that are going to come out of the pandemic? Long-term?

Scott Sperling: (11:50)
So, you know, one of the things that's really crucial, um, in healthcare, um, is, uh, the ability to reduce total medical expense, uh, of the cost of care provision while providing greater access to a patient for patients to advanced therapeutics, uh, to be able to more easily reach their, uh, primary care provider and certainly, um, high specialty care providers, um, things like tele-health the use of digital technologies is one of the obvious things that we've seen. Um, there was an explosion of growth, uh, in that during the pandemic by necessity. I think it's important, uh, that the government continues to support the utilization of those technologies, because it's the way that people want to receive, um, uh, uh, care in many circumstances. Uh, and when you look at the cost of, uh, care overall, it's really people who are, uh, uh, of tertiary or coronary acuity, the really sick patients that cost the system the most.

Scott Sperling: (13:01)
And if we get better compliance, because people can use digital and tele-health, uh, capabilities, uh, that would be a, uh, significant improvement and can hold down the overall cost of total net, uh, of the total medical expense. The other area that you're seeing a growth in science are the, uh, uh, capabilities that you see, whether it's a next generation, uh, sequencing, uh, technologies, lots of technologies that, uh, continue to be developed, uh, in ways that dramatically reduce the cost of drug development and the ability to, um, uh, again, provide therapeutics and diagnostics to patients, uh, at ever lower costs. And you're going to see opportunities, uh, in lots of different ways, um, in order to accomplish, uh, what I've just described, uh, back in the 1990s, um, we knew that science was growing. Um, we weren't sure at THL that we were that good at, at, uh, being able to predict which biotechnology company or which specific therapeutic a pharma, uh, was developing would be a winner, but we knew it was all growing.

Scott Sperling: (14:15)
And so, you know, we, we, um, decided to buy a company called Fisher scientific, which was the largest provider of stuff to the world of science, clinical research, industrial in the world. And we paid, I don't know about a billion and a half dollars for it in those days. And today Thermo Fisher, where I'm still on the board probably has a, uh, enterprise value in excess of $200 billion because it really grew. And it really grew because it brought together a set of technologies and capabilities that really met the needs of its customer base. Today, when you look at private, we're continuing to look for ways to support companies and buy companies that can help, uh, the pharma and biotech innovators do their job better and more effectively. So you've seen, uh, uh, CRS, the clinical, uh, research organizations that do a lot of the testing grow, uh, in terms of, um, revenues, profits, and, um, uh, market caps. Uh, you see a lot of other players who provide tools and capabilities, um, to both healthcare providers, but also to the developers of these, um, uh, therapeutics and diagnostics. And those are opportunities that, uh, you know, uh, really, um, have become very attractive to people in our industry. And that we've been a major player in.

John Darcie: (15:43)
Yeah, we, we had a Walter Isaacson recently on assault talk who wrote the book called the Codebreakers about Jennifer Doudna and her team that developed the CRISPR technology and continues to lead the genomics revolution. So from an investment perspective, and, and maybe it's, it's a comparable, but are you more excited about more of the, the tele-health preventative medicine type trends or more interested in some of those more moonshot oriented goals? And I know you guys are investing a lot in the infrastructure around companies that are supporting, uh, that genomics revolution, but what, what types of companies is it more the pharma biotech oriented companies that you guys get most excited about and in supporting the infrastructure around that? Or is it more of the tele-health and just the remaking of the, uh, you know, the healthcare system? I

Scott Sperling: (16:28)
Would say that we're, you know, we, when we identify these sub sectors within healthcare, um, again, our, uh, focuses on, um, things that can have that strong secular growth. And I'd say you, you've identified two areas that fall into, um, those sub sectors. And so, um, we're really, uh, uh, very active in both spaces. Um, and, you know, we're looking for ways that we can help, uh, providers of care, reduce total medical expense and reduce the cost to the entire system of providing high quality care from birth through, uh, end of life. And there are lots of different opportunities that the industry has, um, uh, been able to, uh, support, uh, in those spaces, uh, again, bringing down the cost of care while, uh, improving access for patients, um, or broadly to that care. Uh, but we're also very interested in, uh, supporting the growth of science broadly defined as it helps develop, uh, better, uh, therapeutics, better diagnostics, uh, better medical devices. And there are lots of different, uh, areas that flow into providing that in ways that allow, uh, the pharma companies and the biotech companies to focus on their most important value added, which is, um, the innovation itself, uh, of these phenomenal, um, uh, therapeutic and diagnostic, uh, drugs and, uh, capabilities.

Anthony Scaramucci: (18:12)
I want to step back, take you up to 30,000 feet for a second. And I want you to think about the next killer technology, the next killer drug. And so, you know, the invention of stat, the introduction of penicillin, the what is next on the horizon? Is it a immunotherapy that can be delivered? Is it a, is it a vaccine like the ones that Walter Isaacson was talking about? And Codebreakers what, in your mind, you sit at an interesting seat, cause you've got private companies, public companies, and you're sitting on the board of a hospital. What, what, what's the next killer app for medicine?

Scott Sperling: (18:53)
So one of the things, um, that, uh, has been great about chairing the board of the mass general bourbon, which is the largest research, uh, uh, system in the country, uh, largest recipient of NIH,

Anthony Scaramucci: (19:07)
John and I are coming to you when we get sick. There you go. I just want to make sure you know, that Scott, that's what we're, we're asking the question, we're digging it. And, and,

Scott Sperling: (19:16)
You know, also because we, you know, are, uh, so, uh, such a large provider of high-end clinical care, you can see not only the, the, the, the flow of basic science that develops in these areas, but I've just been amazed at the translation, you know, what they call the translational research. That's done taking it from those basic ideas to things that actually can work in patients, uh, and the nature of how the care has evolved. And, you know, you've, you've mentioned some key areas, um, cell and gene therapies of all sorts is going to be an enormous space. Um, the, uh, development of these vaccines, um, uh, particularly the MRN based ones, uh, that we've seen from Madonna and Pfizer. And there are a couple of other players out there working on that. Uh, you know, it's not only amazing that they were developed as quickly as they were, but perhaps even more, uh, uh, impressed.

Scott Sperling: (20:18)
I was gonna say more importantly, but I'm not sure you can say more importantly when it came to dealing with the COVID vaccines, but, you know, in terms of longer-term benefit, these are platforms that can be utilized to develop many other, uh, uh, effective vaccines and therapeutics remembering that the original target for most of the MRN, uh, pioneers was cancer. And so we're looking at ways, um, that we can utilize a range of different technologies to deal with some of the most devastating diseases that we have. And so, um, you know, there's the, uh, using the MRI and a platform to help the body, either through vaccine or effectively immunotherapies on things like cancer and a number of other, um, a number of other difficult, uh, uh, conditions. Um, then you have the ability to use other forms of immunotherapies, uh, that are continuing to evolve, uh, in ways that become more effective, uh, longer, um, by bringing cocktails of, uh, capability to bear again against cancers and potentially some other, um, uh, disease states.

Scott Sperling: (21:33)
Uh, and then you have, um, things like car T that again are breakthrough technologies, um, that are going to have a big impact on a number of the, of the most difficult, um, uh, cancers, uh, in terms of the nature of, um, of, uh, treatment, um, uh, out there. And so, you know, I'm very encouraged that the pace of innovation is going to continue to increase, and the nature of what we're innovating is going to continue to have ever greater impact on a number of, um, the most devastating, uh, uh, diseases. Now, um, one of the issues with all of this is that particularly early on the cost of these, uh, particularly therapeutics isn't incredibly high. And so, um, while I'm highly encouraged by the, um, the advent of, uh, and the accelerated, uh, introduction, uh, of, um, new therapeutics, um, you know, as a system, we also have to think about the long-term costs, not necessarily that sticker shock when somebody says, you know, that's a 250,000 or million dollar bill for that solving that particular, uh, uh, disease. Um, and, you know, we saw that with, um, with Hep-C, for example,

Anthony Scaramucci: (22:58)
No, it's fascinating. I want to, I want to shift gears for a second. What I love about th Lee and your work is you're keeping us healthy, and then you're also making us rich through financial services. And so I, now I want to, I want to, now I want to put that hat on for a second, and I want you to talk about the future of financial services. Uh, Jamie diamond recently says, he's worried about Neo banking. He's worried about the FinTech space, uh, you know, the costs associated with FinTech relative to the old school bricks and mortar. Uh, they sort of feel like they're getting assaulted the way book polishing did as an example or other, uh, industries, uh, where do you see financial services going? Where's the puck going? And where's th Lee going to be.

Scott Sperling: (23:44)
So, um, I bring into a couple of different areas. Um, the first is the, um, application of technology, um, uh, you know, the so-called FinTech, um, in many of the traditional banking, um, mortgage servicing mortgage origination spaces. And, you know, as you know, we've been involved, it's publicly known and a number of the leading companies in that space, whether it's FIS, fidelity, national information services, or, uh, black Knight financial and a number of others. Um, and, um, you know, these are companies that, uh, provide, um, uh, a set of services broadly to the industry, um, uh, through, uh, FinTech platforms, uh, that even people like Jamie use because they, um, uh, can do it, uh, uh, at a much lower cost, uh, with greater functionality. And, and you have a number of companies out there, uh, in the industry, you know, these are now large, publicly traded companies that, um, you know, continue to grow reasonably rapidly.

Scott Sperling: (24:54)
Um, you then have other spaces that, uh, have not had that form of technology brought to bear on the value chain as much. I think in insurance, there are lots of opportunities in the insurance industry when you look at that, uh, very in, uh, uh, uh, involved at any evolving, uh, value chain, uh, where you have underwriters and, uh, agents and lots of people in between where you can increase the efficiency and delivery of the service, uh, to both customers, uh, and to, uh, all of the players along that value chain. And so I think there's going to be a lot of opportunities there. You know, you were talking about wealth management, and obviously we've seen evolution, uh, in the wealth management space, somewhat due to regulatory changes, uh, somewhat due to the ability, again, to utilize technology in ways that remove administrative costs and burden from, uh, wealth advisors, uh, and allow them to focus again on the highest value added part of what they do.

Scott Sperling: (26:00)
So I think you're going to continue to see a lot of opportunity, um, in, uh, the financial services sector, uh, to apply technology, uh, all along the various value chains and in ways that, um, uh, you know, will improve, uh, the performance, uh, and delivery of services, uh, to customers and clients. Um, you know, at the same time, you have a lot of other things going on, uh, particularly in the, uh, digital currency world, um, that I'm not sure we've gotten our arms around. Uh, yet I note the commentary from, uh, uh, coming out of the Berkshire annual meeting, um, about, uh, Bitcoin being one of the worst things that ever happened. And, uh, lots of comments about

Anthony Scaramucci: (26:48)
Dosing. It seemed a little angry. I mean, I just, I mean, you know, I, I actually don't know enough just saying Scott. I mean, you know, you know, uh, Charlie Munger wrote a book, poor Charlie's Almanac. He thinks he's reincarnated from Ben Franklin. And in the book, he says, be dispassionate about your investing, but he seems upset about Bitcoin, you know, sort of, sort of, you know, I don't know, but we'll, we'll, we'll, we'll see who's right. There'll be a big tug of war. I'm going to turn it over to John Dorsey, U S questions from our audience, which he's collected. But I want to ask you this question, and I want you to put your evaluation hat on. Um, things seem pretty rich. I mean, now we both know that interest rates are the financial, they're the physical gravity of financial assets. So they're at zero they're propelling assets higher. Uh, but in your expertise, your decades of doing this, um, are they, are the valuations too high? Did they give you pause? Did they give you pause in financial services? I've been in financial services for 30 years, 33 to be exact, I've never seen valuations like this, so are we okay here? Or are you aware?

Scott Sperling: (27:58)
I, you know, I'm always worried, uh, and I've been worried, you know, for six years, I've thought were within a couple of years of

Anthony Scaramucci: (28:05)
A recession, I'm going to call you out on that. You don't really, you're not really that worried Sperling because you would have lost your hair a long time ago. Okay. You can tell that John and I are not that worried, but the truth is that valuations are, are, I mean, I don't know, they seem stratosphere.

Scott Sperling: (28:24)
Yeah. So, you know, we've seen continued increase in valuation now. Um, you know, I would say that in our view, in my view value, valuations need to be tethered on two things. One is what is a sustainable growth rate, and there are lots of businesses in the market has clearly shifted in terms of the, the, uh, proportion of market cap in companies that are growing reasonably fast versus, you know, the slower growing more industrial kind of companies that have had historically made up a larger percentage of the market cap. And so when you look overall, you know, if you can anchor, um, uh, uh, a multiple against first and foremost against sustainable growth rates, you know, that's probably analytically, what, what makes sense? Um, and, uh, it's certainly the case that, um, you know, we have lots of potential fast-growing opportunities in the stock market today.

Scott Sperling: (29:25)
Uh, but it's also true that there are lots of things that are getting valued, uh, well above what would be justified analytically by, uh, true sustainable growth rates. So you have to worry a bit about that. And the second is clearly interest rates because everything has to be tethered to some form of, uh, of, uh, dis uh, discount rate, uh, which, you know, we have been in low, longer than anybody had ever expected. Um, one of the potentially worrisome aspects about, um, the direction that our, um, fiscal policy is going, um, is that, um, you know, that might change, uh, the, uh, interest rate formulation in ways, um, that are, uh, somewhat unpredictable. Um, you know, we all like to believe we can manage the soft landings, uh, as they used to say, or we can manage to a two to two and a half percent inflation rate.

Scott Sperling: (30:22)
Uh, but it's not clear. I mean, I, I have the unfortunate history of, uh, having lived through, uh, in my business career, I think six recessions, and they're all always, you're, you're always taken by surprise, uh, by how bad they can be. Uh, and there is a point in the recession where you're always taken by surprise about how good it could be on, on the way out. We're, um, certainly in that point where, you know, we'd like to believe we can manage any negative that happens including potentially inflation and keep it under control. Um, and I hope that's the case, but, um, you know, one needs to be a little bit wary, I think given, uh, uh, we're in somewhat unprecedented territory here, uh, in terms of, um, fiscal, um, uh, stimulus, uh, um, all of this goes through, um, and, um, you know, we're, we're already seeing, uh, enormous inflation at the basic and intermediate goods level. Um, and, um, that eventually is going to get passed through to, um, uh, to consumers.

Anthony Scaramucci: (31:39)
I'm gonna turn it over to Darcie, but I promise you this, when you turn 97 Sperling, I'm going to be asking you the steri same question. I just want to see how emotional you're going to be when you're 97. And you're a great, great grandfather, man, if I can get to a right now, you use very dispassionate. I was impressed with your very dispassionate analysis, but go ahead, Mr. Dorsey, well,

John Darcie: (32:02)
Using all those advanced therapeutics that, uh, Scott is helping to unlock their, his investing. I think he has a good chance to live to 97 and beyond. And also it looks like he's in great shape. He's taken care of himself. Let's pray. I was born in October of

Scott Sperling: (32:18)
My entire career, the prayer,

John Darcie: (32:21)
Amen. Most important thing. I mean, I was born in October of 1987. So I like to think worrying about financial markets is somehow ingrained in my DNA, given the timing of my birth around that crash. But I want to go back to Bitcoin for a second because, you know, it's something that

Anthony Scaramucci: (32:35)
He just, he just attacked you and me, right? Because Scott know exactly where you were on the 87 crash as DUI. This guy was like in a neonatal facility that was literally a karate that was like he's in the center box on the zoom call. That was like taking a karate chop at both of us at the same time. Go ahead. Dorsey. So definitely so nicely. Come on. I'm on the ground bleeding. Okay. Scott's pamphlets setting. Now, go ahead, Doris.

John Darcie: (33:02)
So, so back in millennial mode, I want to ask you about Bitcoin Scott and you indicated that, that you don't necessarily have huge depth of knowledge in the area. And I think a lot of people have been on a crash course to learn more about it over the last year. And you've seen people like Jamie diamond that Anthony referenced earlier across David Solomon, you named every big bank. CEO has been forced to go from, you know, dismissing this technology to saying so many people are asking for it. We have to figure out what our approach is as a company to delivering these solutions to clients. You mentioned FIS as an investment of yours. They partnered recently with one of our, uh, close friends and partners, NY dig, uh, to basically they're, they're bringing the ability for traditional banks to offer a digital asset integration into their core, uh, custodial offering. So as a firm, what do you guys think about this massive rise that we've seen in Bitcoin most recently, Ethereum and smart contracts have been exploding, uh, at even a faster rate than Bitcoin. What do you guys make of, of the digital asset ecosystem as a firm? And do you think you'll ever make investments into that space or you'll focus more tangentially on firms like FIS that are powering the infrastructure in the same way that you're investing in infrastructure around the biotechnology and pharmaceutical boom.

Scott Sperling: (34:14)
I, I think, uh, the quick answer to your last question is we will focus on the infrastructure pieces. And again, you know, partly because I just don't think we're always smart enough to pick specific winners in some of these other kinds of areas, but, uh, you know, by serving everyone, you, you actually can participate in what is a strong area of dramatic growth. Um, you know, it, again, it, uh, blockchain technology is definitely an important technology and that has application that goes well beyond Bitcoin or any other digital currency. I, uh, you know, I think people wonder about digital currencies because we haven't seen anything like it in the sense that, you know, we're used to sovereigns having control of currency and sovereign does not have control. And, um, when it doesn't have control of, uh, of a currency, um, there are lots of potential, I guess I would call them unintended consequences that can occur.

Scott Sperling: (35:22)
Um, and, um, we've already seen a couple of countries, Turkey, India, for example, basically say, we're going to outlaw this because we can't have that. That is, uh, undercutting our ability to manage, uh, the monetary policy at the very least our economy and maybe, you know, um, beyond. Um, and so I, you know, I wonder at some point, will we have unlimited digital currencies that are posing as alternatives to our sovereign currency. Now that's particularly important for the United States because as you know, one of the reasons we're able to do what, what we can do in terms of borrowing is that we are, uh, the reserve currency of the world. Um, and that's a position that is already going to be under challenged by the Chinese. And I think the European union and they meet, and they, um, will use their own digital technologies, um, in ways that allow them to challenge the status of the United States as the only true reserve currency right now.

Scott Sperling: (36:26)
And so I think we have to watch that carefully, but, um, as Bitcoin becomes more important and, um, it is more important to control, um, the data flow of who owns it and how they're transacting. It may change the underlying value of that. Or perhaps, you know, there is a stroke of the pen risk that says it just has to go away. Certainly when you go to, you know, the, the ones that you know is, um, um, many people have commented on like doge coin, where there is, there is no limit on supply, it was done as a joke, you know, you just wonder, are we in tulip bulb territory with things like that? So, um, you know, again, I'm, I'm, I'm speaking, uh, but I don't know enough to be, uh, to be relied upon on any of those. I'm just raising some of the issues that would occur when you have this kind of situation. Uh, uh, generally, so maybe

John Darcie: (37:25)
That's what Charlie Munger should have said at the Berkshire Hathaway annual meeting, um, and had been a little bit more dispassionate about it, but it's a conversation for another day. So we've talked about some sectors that you're very enthusiastic about things in the healthcare space, certain areas of financial services, automation. Generally, there's been an explosion in, in tons of different asset classes, mostly focused on technology, frankly, but, uh, some that, you know, there's some suspicion from wary investors that, uh, the current rate of growth is not sustainable and that there there's pockets of the market. And we've already seen sort of steep pullbacks and even a lot of public companies that exploded, uh, during the pandemic. But are there any specific sectors or sub-sectors that you're most concerned about that, that as an investor you've come across deals and said, this makes absolutely no sense. And if I, if I could add a mechanism to do it, I would be short this sector. What areas are you most concerned about or skeptical

Scott Sperling: (38:16)
About, uh, you know, the pressure, uh, on, uh, the industrial sector given, again, the move in Rama to the pricing of raw materials and intermediate goods is something that, you know, I, I, I know it's becoming a popular play in the markets now, as we see a return to normalcy from the pandemic, because those areas were most adversely affected. Um, but I, I think it's, it's worth watching what happens to the cost structure and the ability to sustain, um, strong margin, uh, in those areas. Uh, the, uh, you know, again, I, I think, uh, looking at the impact, uh, on their margins because of the increasing, in fact, in many cases, dramatically increase cost of raw materials and intermediate goods, but, you know, offsetting that is the more rapid adoption of automation and software tools that actually reduce overall system, uh, cost in sometimes dramatic ways.

John Darcie: (39:23)
So the last question I have for you is I think people look at the returns for a middle market PE firm and say, man, that looks like fun to, to invest like that and achieve that level of returns, but there's so much operational expertise that goes into the execution of a lot of these business turnarounds and growth investments that you guys make. How important is that and what type of value do you guys offer as investors on an operating capacity to companies that you invest in?

Scott Sperling: (39:49)
So, you know, and we've talked a lot about this publicly over time. Uh, but, um, our strategy has been to be able to provide a significant level of operating expertise that's particularly valuable to middle market companies. And, um, you know, there are a number of, uh, of folks in private equity, um, who are oriented in the same way, um, of being able to provide operating experts onsite at companies in ways that, um, allow us to improve the key business processes of these companies. And we have found that, that, you know, particularly in the world of, of, um, of, uh, rising prices and multiples that that is a very important driver of value. Um, and I think for the industry, uh, the private equity industry, uh, it's an important value added that we bring to the economy. Now, there are some firms that will focus on, um, not growth companies, but areas where there are significant headwinds, uh, and in order to, um, uh, to help reposition companies, whether they're retailers, bricks, and mortar retailers, or other, um, uh, maybe older, uh, industrial type companies, you know, they'll bring their own expertise to bear in those areas.

Scott Sperling: (41:04)
Um, ours is in helping more, uh, rapidly growing companies really be able to, uh, sustain and in fact, increase their growth rates in ways that are sustainable over the longterm.

John Darcie: (41:17)
Right. And, uh, you know, I think a lot of people that aren't as familiar with the industry, they, they hear the word private equity, and they think of Gordon gecko, but you guys are truly, you know, helping to spur innovation and growth, uh, in a way that, that doesn't fit with necessarily some people's archetype of what a private, private equity looks like. So

Scott Sperling: (41:35)
We don't always get it right. Uh, and, um, you know, particularly as you're, uh, you may try to help transform an old economy company into a new one. You know, there been lots of challenges, um, but there's really nobody else stepping up to try to do those things. Um, so, um, you know, I think the industry overall, uh, you know, is, um, trying to, uh, provide value, uh, in ways that are not otherwise available to a broad set of companies that, um, in this very dynamic world are perhaps have been on the wrong side of technological change in innovation, uh, but still have, um, lots of employees and lots of reasons to, um, uh, try to survive. And, uh, and in fact thrive

John Darcie: (42:23)
Well, Scott, congratulations on all the work you guys are doing and all the success you've had. Thanks so much for joining us here on salt talks. Anthony, do you have any final word for Scott before we let him? No.

Anthony Scaramucci: (42:31)
Listen, it's a, it's a pleasure to hear you talk. I'm, uh, I'm coming to you when I get sick. I'm coming to you. What I need to read for a long time. Hopefully not for a lot of them. It comes to you when I re re need to reinvent my financial services business. Uh, you're sort of stuck with us now. Okay. It's too bad. All right. All right. Well, we appreciate it. It was good to have you on and duct. I found the conversation. Fascinating. Thank you again, Scott.

Scott Sperling: (42:58)
Thanks so much. Take care. Thank

John Darcie: (43:00)
You everybody for tuning into today's salt. Talk with Scott Sperling of Thomas H. Lee partners. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them all on our website@sault.org backslash talks or on our YouTube channel, which is called salt tube. We're on social media. Please follow us. If you're on the various channels, Twitter is where we're most active at salt conference is our handle. We're also on LinkedIn, Instagram, and Facebook. And please spread the word about these salt talks. We love educating a broader audience of people, as opposed to just being able to speak to 2000 plus people at our annual conferences that we do in the U S and abroad. Uh, we've really enjoyed this salt talk series. So please spread the word. And on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again. So.

Walter Isaacson: “The Code Breaker” | SALT Talks #212

"Jennifer Doudna invented, with her colleagues, a way to edit our genes. I think that’ll be the most useful but also most morally challenging technology of the 21st century."

Walter Isaacson is the Author of “The Code Breaker: Jennifer Doudna, Gene Editing, and the Future of the Human Race”. The novel provides a gripping account of how Nobel Prize winner Jennifer Doudna and her colleagues launched a revolution that will allow us to cure diseases, fend off viruses, and have healthier babies.

Isaacson is a Professor of History at Tulane and an advisory partner at Perella Weinberg, a financial services firm based in New York City. He is the past CEO of the Aspen Institute, where he is now a Distinguished Fellow, and has been the chairman of CNN and the editor of TIME magazine.

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Walter Isaacson

Professor of History

Tulane University

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

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Jim Mellon: Reimagining Aging | SALT Talks #211

“20 years ago, the human genome was unveiled as a map… scientists now know some of the key pathways that influence aging. We are not destined or pre-programmed to die at a specific age.”

Jim Mellon is a British entrepreneur, investor and author known for his ability to recognize emerging global trends. He’s most recently established himself as an expert in anti-aging and longevity research.

A constantly curious mind is necessary in identifying the next major global trends and investment opportunities. Anti-aging and longevity advancements will soon have massive impacts on life expectancy. The mapping of the human genome twenty years ago opened the door for scientists to begin understanding the different pathways that influence aging. Already drugs like metformin show promise in helping to extend life. “Within thirty years, the average lifespan at birth will be somewhere between 120-130 years. It is a fact, that with or without new technology, by 2100 there will be at least 100 million people 100+ years old”

AgTech represents another major industry primed to transform society. The adoption of alternative proteins will continue to grow rapidly as we look to address climate change while feeding a growing population.

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Jim Mellon

Chairman

Juvenescence

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Anthony Scaramucci

Founder & Managing Partner

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EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello. Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Saul talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which we're excited to resume in the post pandemic period. Uh, God willing September of 2021 in New York, uh, which we're very excited about anybody watching. We'd love to have you there, but our goal on these talks and at those conferences is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And there's no bigger idea we think, uh, shaping the future, then the idea of longevity and just the amazing advances that we've seen in life sciences over the last several years.

John Darcie: (01:00)
So we're excited, very excited to welcome Jim melon to salt talks. Uh, Jim is a British entrepreneur and investor with a wide range of interests. There is private investment company, burn Bray group. He has substantial real estate holdings in Germany and the isle of man as well as holdings in private and public companies. Jim's investment philosophy is underpinned by his ability to recognize emerging trends that give rise to new industries or major shifts in markets. This includes the global financial crisis in 2008 and 2009 as foreseen in his first book that he co-authored, it's called wake up and subsequently in the new science and technologies detailed in cracking the code. The great book by Walter Isaacson and fast forward. Uh, more recently, Jim has established himself as a leader in the nascent field of aging research and longevity. His groundwork into the field is summarized in the book juvenile essence, which he also co-authored.

John Darcie: (01:55)
Jim sits on the board of trustees of the buck Institute for research and aging and the American Federation for aging research. He's also a trustee of bio gerontology research foundation and the lifeboat foundation as an honorary fellow at Orielle college at the university of Oxford and sits on the advisory board of the Milken institutes center for the future of aging. We're great friends with the team over there at Milken, but I understand that the AGA spent some time at Cambridge. I know you're an Oxford guy. Jim don't want to create any early tension here in the salt talk. If you guys start butting heads, I'll jump in and be the peacemaker. But, uh, hosting, today's talk returning to salt talks as AIJ Scaramucci, who is the founder and managing director of the salt fund, which is an early stage venture fund that we launched building on the salt ecosystem and making investments primarily in the life sciences biotechnology area. AIG can talk a little bit more about that. Uh, but with, without any further ado, I'm going to turn it over to AIG for the interview. Jim,

AJ Scaramucci: (02:53)
Jim, welcome. So, so lovely to see you, you know, I'd love to start this interview way, turning back the way back to the Oxford days, actually, where you were studying politics, philosophy economics. Take me into the mind of, of Jim at that time. What were you thinking? What were your aspirations? How were you imagining your career unfolding? Let's start there.

Jim Mellon: (03:15)
Uh, well, thanks. AJ thanks, John. It's really great to be on this, uh, program. Um, honestly, um, probably like you, I went to university very young. I was 17 and I graduated when I was 20. Uh, and the only thought I have was passing the exams, which were more difficult than I expected and, um, also getting a job and I had a wonderful time at Oxford. I had close links with Oxford as I'm sure. And I know you have with Cambridge, I'm deeply grateful for all the connections and all the opportunities that it afforded me. Um, but the most important thing really was to get a job. And so at the end of my time at Oxford, they had something that I'm sure you have the same quarter milk round when the employers come around and they interview people. And it's the usual one of investment banks and, uh, odd array of companies.

Jim Mellon: (04:14)
Uh, and I was offered three or four jobs. Uh, one was with a company called Clark shoes. I think they even sell their shoes in the U S um, and, but they'd been through several bankruptcies. I'm very glad I didn't go to that. Another one was with a well known investment banking company, and I'm glad I didn't go there either. Um, and the last one was with, uh, well, the one that I was considering, uh, very seriously was with a company that offered me a job in Hong Kong and it was in fund management and I didn't know what financial it was. I didn't know what a bond was, even though I had studied economics and I didn't know what a stock really was. And so I took that job because it was in Hong Kong and I wanted to leave the country, which I think is a great thing for anyone.

Jim Mellon: (04:54)
I think if you're living in the U S or the UK or anywhere, if you can go and travel the world, what a great opportunity. So I went to Hong Kong. I was, this is a long, long time ago, way before your time. I was paid 5,000 pounds a year. And then, uh, uh, the company was really growing quickly. It was called GT management. It's not a known as LGT or Lichtenstein global trust, the very big, uh, financial company. And, uh, they sent me to San Francisco where they were opening an office. And so I was able to, um, to be at the beginning of the big tech boom in the mid 1980s in the United States. And I can tell you this now, but I think I'm the only person ever to sat in a commercial aircraft going from Palm Springs to San Francisco. And in front of me with Steve jobs and bill gates together, talking in a friendly fashion on the flight hallway. Uh, and you know, we all think of them as being rivals and, you know, never speaking to each other, but they were there, they were in front of me. And if I'd had, uh, the guts that I have now, I would have gone and talked to them and my life might have been completely different.

AJ Scaramucci: (06:08)
Wow. That's, that's an amazing story. So, and, and Jim, as you've, as you've kind of entered into your investment career and culture, your craft, we're curious to know how have you developed that investment philosophy? What are, what are some of the heuristics you use in making decisions? And then also, what are some times in your career where you've, uh, kind of been challenged or you've, you've seen, you know, there, there was, there was an up or down that you had to had to manage or deal with.

Jim Mellon: (06:40)
Yeah. I, I, you know, you're the first person ever that I've spoken to, who's used the word heuristics, which is exactly the right word. So my, uh, condensed the motto, uh, and will be the subject of my next book is curiosity, adaptability and application curiosity is where you need, um, he eristics, you know, people like us read a lot regard that as being the job that we have to try and pick up, uh, the little sense that we need to understand where the next opportunity, uh, is rather than, you know, invest in the status quo, employee heuristics, and, and those heuristics are honed and developed over time and experience. I don't think you're born with them. I think it's just a question of, uh, really working at it. Uh, and so most of my morning is taken up with, uh, reading and reading widely on, on any subject at all.

Jim Mellon: (07:40)
Um, and then, you know, adaptability is particularly important now where the world is changing so quickly in a technological sense, young people are going to have to do multiple careers. We all know that, uh, so they have to be adaptable, you know, in my time you probably went into a job and that was it. And, uh, I know lots of people who've done it of my generation. Who've, who've done that. And some successfully, um, some unhappily, um, and the last thing is application. And we all know that unless your, one of the two geniuses sitting in front of me on the Palm Springs flight, uh, or Zuckerberg, or one of these very, very few people, Jack Mar, uh, that you have to work hard at it. You know, you don't, success is something that doesn't fall in your lap. And so, uh, curiosity, adaptability application that had been my, uh, watch words all well read throughout, um, my career.

Jim Mellon: (08:37)
And, uh, and I've kind of navigated. And you asked me about, you know, difficult times, wow, there've been plenty of difficult times. I mean, I'll give you an example. We were in, in the, on assumption of curiosity, I was reading and then the internet wasn't around in 1994, I reading about Russia, privatizing its, um, industries and, uh, doing it by way of distribution of anxious to every adult in the, in the Federation. Uh, and those matches with a sale and foreigners could goodbye those ventures. And so myself and my colleague, Jane Sutcliffe got on a plane. It was a rather complicated, uh, way of getting there, but we eventually ended up in Moscow. We ended up with $2 million in cash, body guards, all that sort of stuff. And we bought a $2 million worth of ventures at the vegetable market in Moscow, uh, to convert into, uh, chairs, the auction that was taking place of every single business, ranging from a hairdresser to the oil and gas companies in Russia.

Jim Mellon: (09:39)
And, um, it was a very successful investment. And within a year or two, we had billions of dollars invested in the former Soviet union. Now that was great. And, uh, in 1987, we made a very large amount of money, but in 1998, uh, Russia defaulted on its debts. Its currency was heavily devalued. And I remember getting a call from a former colleague of mine at Oriel college, Oxford, who was then the treasurer of Morgan Stanley asking for a margin call of $40 million. Now $40 million in 1998 was a lot of money. It wasn't my personal much call. It was the company's margin. We only just scraped that we got the $40 million, but wow. You know, to me it represented almost a 1998, was it wasn't a lifetime, but it was a big chunk of work. And it was almost about to go down the two. So you have to be aware of what might blindside you in either direction. Uh, you know, when we all know that when you're riding high is the time when it's most likely you're going to have a fault. So I'm very cautious these days about everything that I do. Yeah. Fascinating.

AJ Scaramucci: (10:50)
You know, there's, uh, we, when we were doing some, some research on your investment history, there's such a broad range from real estate and, you know, oh, markets bodies uranium for a time. And we actually had to some, some questions from our community around uranium. Uh, there's, there's a sort of an interesting dynamics at play is an emerging by-product of, of COVID, uh, there's been sort of supply shocks, uh, and you know, a decade ago, uh, or more when you, when you were, you were involved, uh, there were some similar kind of, there's a similar environment. I'm curious, is this something you're, you're kind of keeping track on having an opinion on?

Jim Mellon: (11:36)
Yeah, that's a great question. And basically, uh, when I got involved in uranium, I, it was a serendipitous moment because I have a friend who's a business partner and he happened to have a potential uranium deposit in Namibia. We were in my pub in London, uh, where a lot of good ideas I happen. And, uh, and you're, you're both very welcomed to come into a pub with me in London if you want. And, um, we put in $50,000 into this prospect and within two years it was sold for two and a half billion dollars in cash. Uh, now that was because uranium obviously representing nuclear power was the interregnum between fossil fuels and renewable energy. And the reason that that mine has never gone into production is because the price of uranium, which had gone from $20 to $140, a pound collapsed post Fukushima. And, uh, the Germans also shut down their uranium.

Jim Mellon: (12:42)
But today, and it's interesting, you should mention that I don't have a uranium, uh, prospect, but I've invested in Chemico as an example. Um, because I do think that, uh, nuclear is going to have it stay again, that we just can't move straight from fossil fuels to renewables, uh, with certainty and without huge costs, without putting nuclear, which is a clean energy somewhere in between. And the Chinese are building lots of, uh, uh, nuclear power stations. I think that even in the UK, we're building two or three, I guess, in the U S you'll be building some as well. So it's a it's, I think it's a good one to invest in at the moment.

AJ Scaramucci: (13:23)
Yeah. And so Jimmy in parlaying a bit, I mean, you're, but what's so fascinating about you and your background is you, you really put your, put your money where your mouth is, and you have a really strong conviction in certain vectors, certain mega trends. And the two more recently is the one of, of aging as the fundamental indication, longevity, uh, dressing the nine hallmarks, et cetera, uh, switching the paradigm to preventative as opposed to reactive forms as medicine and therapeutics, and then on the food and ag front, right pivoting into a world where cellular agriculture, synthetic biology and fermentation are the status quo and traditional agriculture goes to the wayside. And I'd love to understand, you know, as you were developing that, that mental model, both in writing, and then also manifesting in a company today, do you have an essence in it? And, and, and another one in the food and ag space acronym. Nomix how did you walk us through that, that process as well as, uh, give us a sense for why, like, what, why, why were those, why are those two things as so compelling and interesting to you?

Jim Mellon: (14:35)
Okay, so I've got two wonderful biotech partners. We've created a number of biotech companies, and we've invested in biotech for the last 15 years. One is dat Dubin who was formerly the head of drug research at, um, Pfizer. And the other is Greg is a well-known funder of, uh, biotech companies. And, uh, Greg and I were talking, he more about the, you know, how to live longer with the technologies that were then available, which is basically exercise, you know, reducing harmful inputs into your body. Uh de-stressing et cetera. And me more along the lines that, well, the science behind aging is catching up with the aspiration of us all to live at least healthier and the, towards the end of our lives, um, if not longer. And so having created a number of biotech companies, a couple of which are listed in the United States, we decided to create juvenile essence.

Jim Mellon: (15:35)
And do you have an essence is an interesting company because we don't know exactly what's going to modify aging, but we know that something's going to modify aging. So we created the back 20 bats. If you want to put it that way across, uh, multiple projects, uh, to where we only need one or two to work. And the first goal is to compress the period of what's called morbidity at the end of life. So that's having a dread disease post the age of about 70, which almost everyone, thousands, you know, so that could be osteoarthritis, or it could be cancer or diabetes or whatever it is, and trying to reduce the impact of that, uh, given that people are living longer, even, you know, in the pandemic period, their life expectancy generally is going up around the world. Uh, and then ultimately trying to modify aging so we can slow or reverse it, or even, I mean, this is the goal of some people like Eric Burdon, for instance, or Aubrey degrade of halting it.

Jim Mellon: (16:40)
And, uh, so the way that I, I create these, uh, opportunities is to write a book. And I can tell you that if you write a book, you get access to people who otherwise wouldn't talk to you. So I drove around the U S three and a half years ago. And, um, uh, which is by the way, was a wonderful experience. I mean, it's just such an incredible country and, uh, interviewed all the key opinion leaders that I could find. And, um, uh, they speak to you because they've gotta be in a book and then juvenessence became the template for our, for our company, which does no raise the back $250 million of equity capital, and is, um, in the process will, will be public, uh, sometime this year. And, um, well we have some exciting stuff. We have a consumer facing division that now has a product on the market, which comes.

Jim Mellon: (17:33)
And I know you're very close to, uh, Dr. Eric Burdon. Um, it comes out of his lab and the buck Institute, uh, it's called metabolic switch. It's on sale in the United States. It's really a remarkable product. And then we have an organ regeneration program, our subsidiary called late Genesis, which is in phase two trials in sick patients to regrow livers in situ. Uh, so, you know, we're getting there, but we're feeding our way towards it. The longevity industry is at the dial-up phase of the internet equivalent. We're in the very early stage. And as far as agriculture is concerned, uh, the, I got really interested in cellular agriculture, uh, because that comes out of biotech processes, using bioreactors media growth factors, et cetera, to create replicas of meat and fish and, and materials. And so that's why we got involved in that. And now we're the biggest investors in the world in this area.

Jim Mellon: (18:35)
Now that sounds like a major boast, but I can tell you it's a bit like being an Admiral and the Swiss Navy, it's still a very small sector. So, uh, so AIJ, um, you know, I think the two are very linked. They're linked to sustainability, they're linked to the need to reduce, uh, emissions and the need to improve our human health and in so many ways and so long life. So at the end of maybe not the end of my career, but the tail end of a long career, I am making, I hope that impact is positive for everyone. Yeah.

AJ Scaramucci: (19:09)
Yeah. And, and three and a half years ago, when you came to the us in that exploratory mindset, speaking with people like Aubrey or Eric at, at, at the buck Institute of aging, what were some big standout takeaways for you when you, when you look back at that experience? What, what surprised you, uh, what, what was unknown to you? How did, how did, how did that experience refine your, your heuristic perhaps, and sort of manifest what became juvenile assets?

Jim Mellon: (19:41)
Yeah, so, uh, I think it was basically a confluence of, um, I mean, it was a happy coincidence that, you know, Aubrey nearby lies another great example, David Sinclair, uh, Eric, um, and we'll be working on this for literally decades. And, you know, because the Alexia review has been chased by mankind for millennia without success. In some ways it was always regarded as the realm of crackpots and, uh, you know, almost religious cult type people. And so, but 20 years ago, the human on the human genome was, uh, unveiled. It was unveiled as a map, which couldn't be well-read and as time has gone on, and computer power has got greater and there's been great scientific collaboration across the internet. The unveiling of that, uh, map has become a reading of that. And we now know, or at least the scientists know about the, some of the key pathways, at least that influence aging.

Jim Mellon: (20:54)
We also know that we are not destined or pre-programmed for data specific age, and they know that in at least a mammalian and, uh, species, that it is possible to manipulate key pathways to, uh, keep, uh, mammals and ourselves living longer. And what really struck me was the work that was done in some, you know, compounds that are widely available. Um, but for different purposes, like a very good example is Metformin, which I'm sure you're very familiar with, uh, which is effectively a wonder drug and which nearby has been trying to get, uh, funding for his trial for, for a long time. Uh, but you know, as far as I can see almost every single person in the longevity industry is taking Metformin on a daily basis, um, and near thinks that will add six to eight years, uh, to lifespan. And I think Nick is a wonderful, wonderful person.

Jim Mellon: (21:53)
So what really impressed me was that the first of all, the collaboration of people in the longevity industry, positive collaboration, which is so great, then, you know, there's not a competitive landscape, is if anything works in this field, then it's going to be the biggest industry on the planet. Because there isn't very, there aren't many people who don't want to live longer. Even my dad who's 92 will be signed up for all the, uh, all the drugs that they want. Uh, and, um, so that, that was one thing. The second was the, the fervor and the, the, the, the years and years and years of grinding work that people, Aubrey, Eric have been doing to advance the cause. And I just felt that, you know, it was an inclusive family and I wanted to be part of it. And I feel that I am now a part of it.

Jim Mellon: (22:40)
And I'm very, very grateful, uh, to, to have been included in that, even though I'm not a scientist, but I understand enough to know that we can and will make an impact. And I also make the assertion today, but within 30 years, average life span will be at birth will be somewhere between 120 and 130 years, I mean, absolutely possible. And it is a fact with all, with that new technology, with new technology, be an even bigger figure, but by 2,100, uh, there will be at least a hundred million people of a hundred years old plus on the planet. And that's up from half a million in 1990s. So, you know, the progress is incredible. Yeah.

AJ Scaramucci: (23:25)
And being on the front lines and making those bats that you made at at Juven essence, what do you, I know these things are malleable in the last second will change, et cetera, but which one of these is it, is it the nav boosting? Is it similar Lytics? Is it something in the computational drug discovery or wind pathway on the front lines today? If you, I know you've, you've created a portfolio approach, but when you're speaking with the research scientists, uh, downstream, what, what today feels like the most promising, uh, mechanism that can unlock, uh, the most net years of both health span and lifespan?

Jim Mellon: (24:04)
Yeah, I think it's, uh, there's no Polly farmer. I mean, it is a farmer approach. There's no single pill that we're gonna be able to take that will keep us alive for over 30 years, at least not now. Um, and, uh, what I'm very excited about is a regenerative medicine, uh, you know, effectively that the image of the class that you've seen this before, a kind of state car that's restored, uh, to, uh, as is the, as was state, uh, we are very keen on trying to find ways in which, uh, organs that are failing can be regenerated, uh, in vivo. And that's a major push for us. And I think that we were getting close to that actually working. And the fact that the FDA has allowed like Genesis to go into sick patients, uh, using, uh, lymphnodes as a topic bioreactors w seated with, um, uh, with hepatic cells to, uh, basically regrow liver tissue, uh, to take over the burden of a fading that, um, is, is a very big positive.

Jim Mellon: (25:09)
Um, but that platform can be used to regrow the famous where your T cells are produced, regrow the pancreas, uh, ultimately regrow the kidney or, uh, as well. And the big issue with, um, transplants is a first of all, there aren't enough, uh, organs out there to be transplanted, uh, particularly in livers. Secondly, it's a very expensive and very long, uh, operation in the U S to have a liver transplant is $800,000, and it's about a 15 hour operation. And the third is that you, uh, need immunosuppressants, uh, for the rest of your life. And just imagine that you'd had a transplant and you're on heavy immunosuppression and the COVID comes along. I mean, you're not even allowed to see anyone, uh, you know, the whole period of COVID because the slightest infection will take you away. So what we're trying to do is find a way of amalgamating science.

Jim Mellon: (26:05)
And so our company Ajax, um, has got a stem cell line called HLA G, which is a maternal stem stem cell line. That means that the mother doesn't reject the fetus. And we're trying to use that along with like Genesis technique, which is by the way only about $130,000 compared to the $800,000 for a transplant. Plus it's an inpatient, uh, sorry, that patient procedure, as opposed to an inpatient procedure and use that to avoid the need for immunosuppression. So the opportunity in regenerative medicine, I think is number one in my list of, of what we can do, um, in terms of, uh, you know, what drug C might want to take. I think that analogs or tweaks of Metformin or rapamycin will, are absolutely something that we're seriously interested in. Um, send analytics have so far been disappointing as you well know, and unity failed in its first trial. It's now engaged in a second phase three for age-related macular degeneration. I hope. And I pray that it works because on paper said, analytics should be working, but so far they're not, but as I said earlier, we don't know exactly what's going to work, but we know something's going to work. Definitely.

AJ Scaramucci: (27:19)
Yeah. That's super comprehensive. Yeah. I mean, I think there, there is something for sure in this regenerative medicine realm, the cellular therapeutics realm, and whether it's placental derived tissue, as an example, in the case of cellularity or trying to populate kidney or lung scaffolds with mesenchymal stem cells, you know, the work of Martine wrath, Blatt, et cetera, there's there, there is a lot of converging, um, areas that are really showing, showing early signs of promise. Uh, it's extremely exciting. So today, so today Jim, for yourself, cause people are going to want to know you're taking Metformin. Are you taking some kind of NAD booster or what, what is the constellation of things that you do for yourself, uh, has given you, you have become a champion of, of longevity research?

Jim Mellon: (28:09)
Well, they always say a J the best tailors, the ones that are less stressed, um, I'm, uh, taking, uh, I do I've, I've actually started on Metformin, uh, because at the urging of my colleagues, um, and I'm not taking NAD boosters, I am, uh, I'm now drinking the ketone Ester from juvenessence metabolic switch, which actually tastes absolutely horrible. But if you remember your mum giving you, um, you know, medicines and saying that if it tastes bad, it's good for you. It's the same, it's the same concept, I guess. Um, and I do feel better actually. I've been on it for about two weeks and I feel better for that. Um, and, uh, so, uh, I'm not doing a lot other than I look exercise. I think given that we are not at the point yet where the stuff is in wide dispersal, uh, I think exercise is the most important thing, and it can be anything even walking, but doing, you know, a lot of steps every day. So I do a minimum of 15,000 steps a day, but don't look at me. I think my colleague Greg, uh, takes it to extremes and I'm somewhere in the middle of the night. I'm probably the slouch. Um, you prefers to watch some Netflix and follow all the advice that I could

AJ Scaramucci: (29:26)
Fair enough. Fair enough. And yeah, the parlay there, I mean, there's, there's, you know, an enormous amount of capital, particularly in the age of COVID that has been coming down into pharma or MRN research or, or what have you. And, you know, longevity really does seem to be like this secret hiding in plain sight. Right. I mean, it, it really is. Uh, as you said, you know, it's kind of like the dial up days and perhaps we will look back a decade or two and, and look back maybe on even this conversation and say, wow, this, this truly was the beginning. The question I have is, is how do we get more investors interested in longevity, pension funds, sovereign wealth funds, institutions, what watershed moment do you feel needs to happen in order for that wave to really, really ignite from a capital perspective?

Jim Mellon: (30:20)
Yeah, that's a brilliant question. I mean, I think that, uh, the pandemic has done two things. One, it has shown up the need to build up the immuno resilience and the elderly cohort cohorts, because as in the United States, as in the UK as, and everywhere else, the average age of people dying of COVID is more or less at the average age of life expectancy. I mean, in the UK, it's actually one year ahead of average life expectancy. So older people who have reduced immune systems, uh, building up those immune systems, I think is going to be really important and any breakthrough there. And again, that's a major focus of, as a juvenile essence is going to show the capability of extending, um, life, uh, and, uh, also start garnering the money that is necessary to really propel this thing forward. I completely agree with you ha this is a monumental industry in the making, but as yet, because there isn't anything that it's, you know, you can put your hand on and say, this is really working.

Jim Mellon: (31:37)
Um, uh, it's not got the hype around, for instance, cannabis or cryptocurrencies running, even though it deserves to have a much, much bigger priority than those things. Um, but we're, we're not, not far off the point. Um, you know, there are, there are good companies in this field. Uh, some of which you're very familiar with, you know, Peter Diamandis, his companies as an example, um, the data Sinclair's life bio-sciences, uh, and one or two of us will have something in the next one or two years that will be mind shattering and will propel huge amounts, uh, into this field. We're not quite at the point, but on the other hand, but when not finding a great deal of resistance to people putting money into the concept. Um, and, uh, although my money raising is always difficult as, you know, we are, we're doing pretty well on that school. And, um, I'm, I'm, I'm confident we'll get enough money to, to progress our programs.

AJ Scaramucci: (32:39)
Yeah. Yeah. And do you feel that, uh, sort of recognizing aging as a disease or an indication, uh, is, is sort of a linchpin in this, or a lot of aging companies seem to be pursuing aging or, you know, one of the nine hallmarks as an example, but they have to masquerade as traditional pharmaceutical companies and pursuant of, you know, X, Y, and Z oncology indication. And you, do you, do you feel, I mean, that is in this iced a bit, do you feel like that is, that is of critical importance?

Jim Mellon: (33:11)
Yeah. My colleague, the chaperone Coff runs in silico medicine, which was our first investment in juvenessence, which is doing very well, um, is a big illness, you know, getting aging recognized, uh, by the who as a, a disease in itself. Uh, I think he's been making along with his, uh, partners in this, uh, in this mission, some success, and it is important because let's face it apart from viral diseases or bacterial infections or some rare childhood diseases. Uh, aging is the number one cause of disease. Uh, the proliferation of disease as you get older is quite incredible. And, um, so we need to look at aging as the fundamental cascade from which all the diseases of aging come. And I, I'm totally with you on, in that. I think that will be a big moment. Uh, and, uh, we're working on that with, uh, with, uh, partners in the other companies and other organizations, uh, in the aging space to try and make that happen.

Jim Mellon: (34:18)
But I have to take my hat off to Alex because I think he's the, he's the main driver of this, but it's a very, very good and well noted point that, you know, as soon as aging is recognized as a disease, and maybe we move forward. Now, I wouldn't say companies are necessarily imposters. What they are doing is they're navigating the FDA and the rules to find a commercial application because no company can hang around for 30 or 40 years. And seeing if, you know, Aja lives to 150 or a hundred, um, and well, it's a lot longer than 30 or 50 years. I know, but in my case, let's say, and, um, they, uh, so they need to find some way of getting a drug or a therapy that's commercialized. And then in the near future, we're no different to that. You know, we're looking for near term commercial opportunities, which then measured with biomarkers, and you talk about the whole monks of agent, but measured with accurate biomarkers are getting better and better, uh, allow scientists to see if there is actually an aging or anti-aging effect from the therapies that people are taking.

Jim Mellon: (35:21)
Um, but, uh, as you know, Metformin is a prescription drug in the United States, but it's not here in Spain and, uh, I can go buy it in the pharmacy. And so it makes it slightly different for you guys in the U S

AJ Scaramucci: (35:33)
Yeah. So Jim, uh, you know, I, it kind of pivoting into new book moose law, which came out last year. Uh, you know, you seems like a similar story. You interviewed an enormous number of experts in the space of cellular agriculture and food and ag tech more broadly. Uh, and similarly you're, you're making waves here, uh, as an investor and as an entrepreneur, love to learn you again on the front lines of this industry in particular, what are you seeing? What is, what is, what is promising, what is investible today that can see, uh, you know, some, some rate of return. I mean, we've seen impossible and beyond, and even just, and sort of the plant, uh, sort of protein alternatives start to really garner one market share, but to enterprise value cellular agriculture seems to be a bit more nascent, uh, things like fermentation and synthetic biology may be here even more ahead. I'm curious how, as you map that landscape, what seems that it is within our grasp in the next five to 10 years?

Jim Mellon: (36:40)
Yeah. Well, uh, you described it extremely well. I would say that, you know, rather like longevity has come into its own because of a single event, which was the unveiling of the human genome. The rise of alternative proteins has come into its own, uh, for three or four reasons. One is the desire to change the outcome and climate. It is a fact, and, you know, you can dispute the percentages, but about a fifth of noxious gases come from intensive farming, and it's more than any other form of human activity, including transport. So reducing intensive farming is a really good thing for the environment. Secondly, cutting down the rainforest, which everyone is justifiably upset about is being done to grow soy beans, which then get fed to animals, which are very inefficient, uh, converters of plant protein into meat. Uh, in the case of Kansas, about 25 to one in chickens, it's somewhere between six to nine to one, uh, that's highly wasteful.

Jim Mellon: (37:53)
And also it adds to further environmental damage. Thirdly, you've got the Indians and the Chinese demanding more and more animal protein, and quite rightly, why shouldn't they eat, uh, as they get rid of the same stuff as Americans or Europeans, uh, do, but in, so doing what's happening is that you're putting unbearable strains on our environmental system and on potential human health. So 80 that's eight, 0% of antibiotics go into intensively farmed animals. Now, what that does is to create antibiotic resistance in human beings, because we're, I don't because I don't eat meat, but people are eating these, uh, meats and they're becoming more and more antibiotic resistant. Um, one day, uh, it could be, it'd be, and I know bill gates has been banging on about this, but it could be that we just antibiotics and work anymore. And if we got a bacterial pandemic, rather than the viral pandemic we have now, where the whole world is being shot down, 3 million people have died a week.

Jim Mellon: (38:59)
It could be looking at a much, much worse situation. We could be looking at a blank deck and, you know, people's holder, that's all possible in the mobile world. The black death was in the middle ages. Well, how was our responsible for vaccinations? So this pandemic, it wasn't much better than it was in 1918 or 1920. So we need to reduce the consumption of antibiotics. And 80% of them go into intensively found animals. Now you've also got the overfishing of the seas I've done, if anybody, to watch cease bursty, but it's a harrowing tale. Um, uh, and, uh, you know, this is going to be a massive disruption and it's happening very quickly. You asked companies are investible. We think about 30 in the world of which we've invested in 14. Uh, and yeah, and none of those companies are public, but I would imagine that one or two of them will go public in the states.

Jim Mellon: (39:53)
You mentioned each just possibly a spec, uh, Memphis meets in the states blue, which is the leading, uh, fish sell a company will go public. And of course you rightly point out in plant based meats you've got beyond and probably impossible game public shortly live kindly go in public and openly Cletus company. Um, making oat milk will go public quite soon. 10 years ago, half a percent of the U S market was alternative loans today. It's not good between 20 and 25%. The two biggest us little producers of Bombas borderland Dean foods. That's before you put your taught rightly about precision fermentation before the precision fermentation companies come along like perfect day or legendary out of butter Lynn, and they produced absolute replicas of whey Kasey making up milk, cheese, yogurt, et cetera, without any dairy cows being involved. So I make these predictions, I'm sorry I'm buying on here, but I'm very passionate about it.

Jim Mellon: (40:59)
10 years time, the dairy industry, as it currently exists, where you think of cows and being Milt that others getting to stand it, that backs breaking off to two or three years. And whereas they would normally live 20 to 25 years. Miserable lives back industry is gone, gone almost all around the world and we'll be drinking the perfect days or the Oatley or whatever. In terms of meat, 50 send to the meat market will be either plant based and everyone knows the brands, meatless farms call and impossible, uh, and, uh, or cell ag. And the reason I fundamentally prefer sell ag is because there's IP around it, but it's a, it's a, it's a moat that creates in my opinion, more value. And so companies will be able to produce these foods in labs and basically on an industrial scale, as the price comes down, uh, will become more valuable than the plant based foods.

Jim Mellon: (42:02)
And they're probably better for human health, but we know contaminants, no bacteria. So the food, the shelf life will be longer. Um, in fish there'll be no mercury microplastics, which are a disaster for fish at the moment. Uh, no antibiotics, no hormones, um, et cetera. And the total addressable market for all these things for dairy for meat or fish is about $5 trillion, which is twice the size of the whole UK economy. And about a quarter of the U S economy. This is not a trivial market. You know, if Tesla is worth $800 billion on the back of electric vehicles, and these companies are worth peanuts by comparison, they are addressing a fundamentally bigger need. We don't all need to get into a car every day, but we all need to eat. So this is absolutely transformational. And, uh, this is a long side, uh, longevity in juvenile since my other main passion. And I, I don't need to do anything else in my life except focus on these two because you know, they're both transformational.

AJ Scaramucci: (43:12)
Wow. Yeah. I mean, we personally, we feel the exact same way. I mean, we have stood up a vehicle at salt specifically to invest in program biology at the intersection of longevity and food and ag. And we are investors in companies like Xi Rue, which has mentioned in your book. I went to school school with Ryan at perfect day. We've been friends with fantastic friends for the last eight years, been involved in that company since the beginning. Um, and you know, it, it really, it really is, uh, it is happening, right. I mean, I think the, the gaining, the gaining function in, in cellular ag really is the cost related to the recombinant proteins being fed during the culture expansion process. I'm curious if you've seen, have you seen, uh, again on the front lines, some novel approaches to this, so that'll really kind of move the needle. I mean, moose law, I think is a great, a great analog or our heuristic to think about this. Um, but do you feel it'll look, it'll sort of just just happen or w what, what fundamental, uh, breakthrough do you feel needs to happen to unlock this for, for humanity at large at scale?

Jim Mellon: (44:20)
Yeah. Um, so there are three, the reason I think that I call it griddle parity, but the cell ag products have the potential over time to be lower in price than conventionally fund meats in particular will fish is because the input ratios at scale hence moves law are lower. We think about too to one compared to, as I mentioned that 25 to one, four a cow. Um, but you're actually right. The growth factors have to come down in price. Now the proteins recombinant proteins are, are currently extremely expensive because they are derived from biotech processes, but we know that in biotech at scale. So for instance, insulin would be a good example. Uh, the price comes down dramatically and in the case of insulin, it's about $4 a gram. And, uh, we are pretty confident that those same transcriptions will happen in cell ag. Similarly, the bioreactors that are used at the moment are relatively these small and they need to be scaled up.

Jim Mellon: (45:32)
And so companies like Sartorius in Germany are working on scaling them up to enormous sizes that you can produce a hundred thousand people's protein from one single factory. Uh, and I believe that will happen in the next two or three years. Uh, and then, uh, lastly, you've got the media or the, um, nutrients, and we know that they're coming down in price quite dramatically as well. So we're to, it's an iterative process. I don't think there's gonna be one single massive breakthrough, but it's going to be actually, I don't know, but I don't think it's going to be totally transformative, but I, I can tell you that if you graph the price of the initial burger unveiled by my passed in 2013 in London, who's now the chief scientific officer of Mosa meat costs about 300 pounds as in U S dollars. And now it's down to about $10.

Jim Mellon: (46:28)
It's following the trajectory of Moore's law, Gordon Moore, his original law of these, of these semiconductors. So it's only a matter of years before you get down to Gribble parents, the, and below, I'm absolutely confident that we're going to get that. I think the bigger roadblock it's going to be number one, the agro Luddites, particularly in the United States to, um, uh, uh, you know, representing capital pharmas and all very empty this stuff. And I can understand why they are, but in a way they should be embracing it because they might actually make some money out of it. Uh, and number two, the regulatory process, um, uh, and then third is of course, consumer acceptance, will people accept eating food that's made in a, uh, industrial way. And I think that will happen. Um, and I, to give you an illustration of that, I was reading about Libby pasta and pasteurized milk, and it it's amazing, amazing to me that pasteurization was all around for a long time before it was used mandatorily in United States and people were dying because they were drinking unpasteurized milk, which caused huge amounts of, uh, uh, gastro problems, uh, in, in the U S uh, and, uh, only when the science was proven to the satisfaction of the regulators, was it made mandatory, but consumers embraced it straight away, even though it might heating up the milk to 130 degrees Celsius, and then couldn't get it straight away.

Jim Mellon: (47:55)
Um, so it was a novel foods are easily embraced that they represent convenience, taste, texture and price, and those are the four key factors that will drive this industry.

AJ Scaramucci: (48:07)
Sure, sure. I think that's a really interesting, uh, analog, and it leads me to my next question, which is the consequences of, of this stuff, both in longevity and in food and ag. I mean, do people really want to live forever if they had the option? Do you, uh, or in the food and ag ecosystem, will, will people, I mean, uh, my gut is yes, they will accept cellular ag as a mainstay, but there's definitely going to be friction there. I'd love, love to hear a little bit from you on, on the kind of downstream second, third order consequences of, of these technological inevitabilities if you,

Jim Mellon: (48:47)
Yeah. Well, I mean, the consequences of, uh, people living healthier for longer are, uh, you know, incredible, um, in some ways, you know, people do live routinely to a hundred, 110. Um, it's like adding another 12 hours to your day, instead of making out with 24 hours away, couple of 36 sites, what are you going to do with that time? And that will be a big question for a lot of people. Uh, it obviously upends all sorts of financial products, you know, pensions insurance, uh, government structures and all that sort of stuff. And there's not enough attention paid to that. So we do a longevity forum every year in London, uh, with my collaborators, including professor Andrew Scott, who wrote the a hundred year life to try and educate people about, you know, what are, what are the consequences of this? And by the way, it's an unstoppable trainers it's going to happen.

Jim Mellon: (49:40)
Um, and, um, the, uh, so, and in terms of agriculture, well, luckily, uh, there are two parts of agriculture. One is growing crops for human consumption, which is a very profitable business, generally speaking. Um, and, uh, then there's also growing crops to put in animals and grain the animals themselves, both of those, hopefully it will reduce an intensity. They have to reduce the intensity. Uh, but if farmers divert their attention to growing CrossFit humans, they can make much better margins than they currently do. And a lot of them are just living precariously, trying to grow animals and, and cross to put into animals. Uh, and, uh, there is opportunities for farmers to other stuff where they land, like for instance, building houses since only 1% of the workforce in developed countries works in agriculture. It's not going to be highly disruptive. There's not going to be like the horse and cart being displaced by the motorcar. This is a, it's going to be all the minds, being miners, all losing their jobs. This is a much lesser change. And the major part of agriculture is actually processing marketing, consumption, retaining a food that will stay the same.

AJ Scaramucci: (51:02)
Definitely. And Jim and Jim, you know, uh, where can, where can people find you interact with you? Are you active on, on, on social media? How do people keep up with, with your work? I know you're, you've got these recent books coming out, perhaps another one down, down the pike, but give us a sense there.

Jim Mellon: (51:23)
Um, I'm on LinkedIn and anyone can contact me on LinkedIn. I'm not on any of the other things, because I think LinkedIn is the only one that's polite and, you know, has a special purpose. Um, so I'm on that, a contact me on that, and I'd be very happy to connect anyone to my colleagues if they want to talk directly to any of them. Um, and, uh, as far as the books are concerned, the profits go to whatever. And the, and this case, the moose law, uh, all the profits go to the good food Institute, which is the leading advocacy group for trying to reduce intensive farming. I mean, my own motivation by the way, ha or intensive farming is not to make money, but to reduce animal cruelty. And, um, you know, as a, I can see John's wearing his dog, uh, don't think, and I'm sure you're a big animal lover as well.

Jim Mellon: (52:22)
H I'm sure you are. Uh, and, uh, we can't have any more of this. I mean, you know, chickens in 1950, where one third, the size of chickens today, the chickens today live an average of 23 days. Uh, the male checks are shoved into basically the butchered, uh, when they arrive in the world. Um, and cause, you know, live 28 months before they're slaughtered and most of them never see the daylight until the day they are slotted. Uh, we know about fish. I mean, th this is a, it's a cruel and horrible industry. And my motivation is to sorry, is to reduce this as much as possible,

AJ Scaramucci: (53:05)
Definitely with that geo, I mean, it has been such a pleasure to speak with you. We'd love to see you again on, on salt talks in the future. And one of our events, uh, in New York or Abu Dhabi, Singapore, is as the world opens up. Uh, but with that, I mean, John, uh, I mean,

John Darcie: (53:22)
I, I think Jim, we would obviously love to you in New York, in September, but a beef, a warrior station right now is definitely not a bad move. So I don't blame you if you decide to, just to kick your feet up on the beach and continue the great work you're doing, but we would love to see

Jim Mellon: (53:36)
You. I, I would love to come with we're longing to travel actually. And, uh, it would be super, uh, to be included in one of your events. I really appreciate it. And, uh, it's been an absolute pleasure, ha and John, thank you for having me

John Darcie: (53:51)
And thank you for joining us and thank you everybody for tuning into today's salt. Talk with Jim Mellon of Juven essence. Just a reminder, if you miss any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks and on our YouTube channel, which is called salt tube. Uh, we're, we're more active on social media than Jim we're on Twitter at salt conference. That's not to say we don't get some, some hate messages every once in a while. They'll probably be talking about how I'm, uh, you know, not dressed properly or, or wasted too much time in the introduction before we got to the good stuff with AIG and Jim get all kinds of, you know, hateful messages on social media, but we try to keep our self-esteem in order and block it out. Um, but uh, also spread the word about the assault talks. We think these issues related to longevity, as we talked about, you know, the animal cruelty issue is obviously very important and also just helping people live healthier, longer lives, we think is a very noble mission and a great cause. So on behalf of AIG and the entire salt team, this is John Darcey signing off from salt talks for today. We hope to see you back here again soon.

Gary Vaynerchuk: The Future of NFTs | SALT Talks #210

“Imagine if Nirvana came out today and said ‘for our earliest fans, we’re going to give away 20% of our royalties in perpetuity if you buy this token for $2K because we don’t want to sign with this label and give up all our rights’… you’re talking about a substantial shift in how economics play out.”

Gary Vaynerchuk is a serial entrepreneur, author, speaker and angel investor. He is the co-founder and CEO of VaynerMedia, a global creative and media agency.

Non-fungible tokens (NFT’s) are digital representations that take up a block of the blockchain that have an underlying smart contract. There will be massive growth in the creation of NFT’s as vehicles for social currency. For example, it could allow a music band to issue NFT tokens that pay royalties to those token-holders instead of signing with a record label. The inevitable flood of NFT’s, though, will force the issuer to foster a community that drives demand. “NFT’s only have so much demand against it, so people are going to be in for some rude awakenings… If you don’t want to take the bag up front from the big brand, you better build an actual community.”

This belief in the future of NFT’s has led to Gary Vee’s own NFT project. 10,225 VeeFriends tokens will be auctioned off and ownership of a token will act as a ticket to VeeCon, a yearly conference that will be hosted over three years.

LISTEN AND SUBSCRIBE

SPEAKER

Gary Vaynerchuk.jpeg

Gary Vaynerchuk

Chairman, CEO

VaynerX, VaynerMedia

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:08)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Salt talks are a digital interview series with leading investors, creators, and thinkers. And our goal on these salt talks is the same as our goal at our salt conferences, which our guests today, uh, data fantastic presentation at a few years ago. And we're excited to resume those conferences, uh, in September in New York this year for the first time. Uh, but, uh, our goal at those conferences and our goal on these salt talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome Gary Vaynerchuk to salt talks, Gary V uh, as he's known to many, uh, he is a man who needs no introduction, but I'll give an introduction.

John Darcie: (01:02)
Anyways. Uh, Gary is a serial entrepreneur and he serves as the chairman of Vayner X and the CEO of Vayner media. Uh, Gary is considered one of the leading global minds on what's next in culture relevance and the internet known to many, as I mentioned, as Gary V he's described as one of the most forward thinkers in business. He acutely recognizes trends and patterns early to help others understand how these shifts impact markets and consumer behavior, whether it's emerging artists, e-sports in Ft investing, which is what we're going to talk about here today, or digital communications. Gary understands how to bring brand relevance to the forefront. He's a prolific angel investor with early investments in companies, including Facebook, Twitter, tumbler, Venmo, Snapchat, and most recently Coinbase, uh, hosting today's talk is Anthony Scaramucci, who is the founder and managing partner of SkyBridge capital, which is a global alternative investment firm. Anthony is also the chairman of salts. And with that, I'll turn it over to Anthony for the interview

Anthony Scaramucci: (02:03)
And bestselling author and wine connoisseur wine genius. I might add fellow hunt and fish club owner.

John Darcie: (02:11)
You said bestselling author. I thought you were referring to yourself. And I was going to ask you for having bought so many books and put them in your base. I am

Anthony Scaramucci: (02:17)
A best-selling author. If you don't believe me coming to my base copies that I had to buy that's where Darcie was going. Okay. We're back in our offices. I shoved Darcie in the closet. That's why he has that low age geography going there. Okay. But you're still looking good Dorsey, but you're great at explaining things in a simple way. And I want to go right to this, cause this is big in your life right now, in your own words, what are NFTs?

Gary Vaynerchuk: (02:48)
And if these are non fungible tokens, that's what it stands for. They're digital representations that take up a block on the blockchain that references to it's a of data, but has an underlining smart contract underneath it that you can use for amazing creativity. So a couple of things, let me take a step back because that meant very little to everybody. Let me do it my way. And thank you for saying that does a blue check on Instagram and Twitter matter. Cause it's a digital thing, but does it matter? I believe it does. Um, does a fortnight skin matter or roadblocks or, or a game up or did a sheep matter to some of the people that are watching right now that played Farmville? Do digital assets mean something in a world where humans spend so much time in digital? And so what I think we're talking about actually, yeah, that he is social currency, no different than what car you drive, where you live, what clothes you wear.

Gary Vaynerchuk: (03:50)
Because I think what people are missing is one the right now all the hype is around the art and the collectibles. But that's very similar to what I saw with the internet in 95, when people were just focused on search engines and browsers, and it seemed to spot exactly the same path, which is why this web three O thing feels very real. To me, one, the macro about Ft is here to stay books. When, when salt sells tickets in three years, it will be in the form of an NFT, which will then be its ticket, but then becomes a digital asset for the future, which people may have in their public wallets in seven years. And I meet, you know, Darcie at a business meeting and instead of just Googling him or looking at his Instagram, I'm going to look at his public wallet and be like, oh, you've got to solve for seven years. We've got a connection. So I think that there's a very similar thing here brewing, but it is a digital asset. It is a digital asset that is non, that is authenticated on the blockchain, which creates an incredible Providence and, and uh, authenticity layer that is going to matter in our society.

Speaker 4: (05:01)
So I'm an old fogy.

Anthony Scaramucci: (05:04)
Let me see if I can characterize it. You say yes or no at the end of the day, it is an original. And so you have to think about it as a virtual original. So if I've got a piece of art, that's digitized, but I actually have the code that's assigned to it in an NFT. I own that original piece of art, but I owned it in the ether. Is that fair to say

Gary Vaynerchuk: (05:28)
Yes, but I think the thing that everyone, this is what happens when Banksy, you know, isn't that banks, same, same ship people sells. Yep. When, when Mike sells his part for 69 million and when NBA top shot does a good really in dollars, you know, out of nowhere, everyone is so rightfully so, so focused there. Yep. I think the thing for people to understand is why does this really matter? Because your apartment is going to be, this is a ledger. This is a ledger, no different than the, that the county has for your home. This is going to be the underlining infrastructure for contracts. People are going to get married on the blockchain. Their certificate will be an NFT. This is, this is how people are going to do leases, sell their homes and their all the intellectual property in the world is going to play in this ecosystem.

Gary Vaynerchuk: (06:17)
So if you're a music artist, you can, you can sell 20% of your IP upfront through a token, as a pre-sale mixed tape. So that early fan base can be a part of it. Cause it's all gonna be ledgered in perpetuity against every royalty. Imagine if Nirvana came out today and said, Hey, for our earliest fans, we're going to give away 20% of our royalties in perpetuity. If you buy this token for $2,000, because we don't want to sign with this label, right. And give up all our rights. All of a sudden, we've got a scenario where here I am today, every time teen Spirit's playing on Spotify, because I happened to be in the Pacific Northwest in 1989 and believed in that band, I'm retired. That's exactly. I mean, you're talking about a substantial shift in the way economics play out.

Anthony Scaramucci: (07:10)
I think, I think it's, I think it's a brilliant description. Uh, you're a great simplifier of complex things. What do NFTs mean for the culture? Is it good or bad for the culture? Good or bad for business? It's good innovation. So who is good about it? Of course,

Gary Vaynerchuk: (07:28)
There's, there's unlimited things that are potentially bad. It's the human race, you know, we're star wars out here, the dark side and the jetties are very close to each other, but the good always wins in the end. I mean,

Anthony Scaramucci: (07:38)
You and I are on a good side. Okay. And I do know that when my children say to me, okay, one of my kids calls me Darth Vader.

Gary Vaynerchuk: (07:47)
That's another podcast for another day.

Anthony Scaramucci: (07:49)
It terms of artists, athletes, intellectual property in general. Good. Right?

Gary Vaynerchuk: (07:54)
Good for the artist, bad for the people that used to sit in the middle and take huge economics for being in the middle.

Anthony Scaramucci: (08:00)
Right. So, but, but isn't that true about everything with de-centralize finance contracting is the blockchain and the internet and the

Gary Vaynerchuk: (08:12)
Role, this funny little man out internet, we were like, oh, the middleman, the internet was a preview. Blockchain is an extremity. Now the problem is all these artists athletes. They're like, oh, this is awesome. I'm not giving up any of my bag anymore. These people, they, they walked into a buzzsaw. There's another part of it. You have to create demand. It's all cool and awesome that you can keep all the economics, but if you're unable to generate demand, it doesn't matter if you can, a hundred percent of zero is zero.

Speaker 4: (08:44)
So be it consumer

Anthony Scaramucci: (08:46)
Brand guru that you are, how should consumer brands think about their NFT strategy? It depends.

Gary Vaynerchuk: (08:55)
You are. So let's use, let's use high fashion luxury. I think they, you know, they'll probably be the slowest to this space. Even though LVMH has been very aggressive and done a lot of creative stuff already in general, every single brand has the ability to turn these into tokens that forget about the representing the physical item, which I think will become norm. They're going to be able to create events, access every membership card that you've ever thought of is now going to play on this chain because unlike, uh, all the dynamics off chain, there's royalty components when people trade, you know, when you think about the trillions, think about this for a second. The trillions of dollars that are sold every year in collectability. Silliness is the word I'm using a key chain. Look, look at your backdrop, right? Like everything behind you right now after your original purchase.

Gary Vaynerchuk: (09:51)
When that, if you decided to sell that Superman sign that I saved and you sold it on eBay, DC is not making a royalty on that with the blockchain, they will, there is going to be no reason why anybody on earth is not going to make an NFT, either just stand alone or in compassing to the physical item. Because, because they're creating a tangible asset that they can have economics against as a brand, you need to use it as a token to do a field pass to a football game, right. To, to do a BIP. Didn't let's say Louis Vuitton put out 50 gold tokens lbs and sold them for a million dollars, a million. What they could back end into that. This is front row at every fashion show in the world. This is getting the product 50 new products a year, a month before everybody, they can start layering these dynamics, but then we'll get school is when you buy it. Now you're like, I don't, I'm I'm minimalism. Now I'm done with those kind of things. I'm going to sell it for 1.1 million because only 50 in the world, they're still getting, they're getting another derivative bite at the apple instead of issuing another one. And having somebody cancel, this is going to be a very big deal. That is just one tiny example of it. So

Anthony Scaramucci: (11:10)
May the fifth is of significance to you? Yes. 5, 5, 5, 5, 5

Gary Vaynerchuk: (11:14)
Is my favorite number. Yes. Tell me

Anthony Scaramucci: (11:16)
Why and tell me what you're doing on five, five. I'm launching. So the way it's also my wife's birthday, I just love it. And public service announcements, I've got her a great gift and an even better card, uh, partners, the cake, my assistant, who happens to be John Darcie's wife, perhaps she could have bought that card. I just want to make sure that everybody

Gary Vaynerchuk: (11:37)
Knows it's pairing see like the blockchain. Yes. I'm launching a, an NMT project. There's only been two times in my life that I felt those spidey senses that I felt in early January this year about the NMT thing, one in 95, when I saw the internet for the first time in my life. And instead of opening up 800 liquor and wine shops for my dad, like I was planning on doing, I decided I was going to launch wine library.com. I'd never owned a computer. I wasn't a techie kid, but I knew this thing was going to be how humans interacted. The second time was a combination of seeing Friendster my space. And then YouTube was the final piece. And immediately after I saw YouTube, I started a wine show on YouTube reviewing wine. And I had never thought about being a front facing personality. I was 30 years old running a e-commerce wine business.

Gary Vaynerchuk: (12:29)
I was a businessman. Uh, as soon as I saw the NMT thing, I went to work and I spent the last four months. So I'm putting this project together where I've literally doodled, cause I've been doodling my whole life quietly. Um, you know, and it created a bunch of characters and, uh, and I'm standing up my own intellectual property and created, uh, layers of access underneath. And, uh, I'm pretty excited about it mainly for this reason, mainly for the fact that, um, I am going to learn so much about this whole world, uh, through the execution for me, I knew myself. I use Gary V as an, almost like a investigative anthropologist test kitchen for Gary Vaynerchuk, the actual operator and entrepreneur. So for me, that's, what's the biggest thing, um, about this, this project for me is that by the end of this month, I will have a completely different extra layer of understanding when I'm having a conversation with somebody sitting on a billion dollar IP, or when I want to invest in a platform or, um, some other products.

Gary Vaynerchuk: (13:44)
So launching, you know, this thing called [inaudible] dot com, um, is, you know, culmination of my being 45 years old and affected by transformers and thunder cats and DC comics and wrestling like intellectual property has been an obsession. I, Anthony, I actually launched VaynerMedia 12 years ago with the main intent of building the best marketing arm in the world, and then buying the [inaudible] IP and refurbishing it through my contemporary marketing machine. So this is a little bit the reverse. I didn't see NFT coming 12 years ago. Um, I didn't realize that I was going to be able to create intellectual property. Um, what's unique about my, my project is that every single de-friend 10,255 tokens is actually a ticket to V con yearly conference that I'm going to be putting on over a three-year period. So they're getting a three-year ticket. That means they can come to the first year and then decide, you know, what this conference got so hot. Somebody just offered me $12,000 for the token. I'm going to sell it. They're going to make a profit. If I can create enough demand by on a great project. So building intellectual property, building my ambition for the best tech and business and kind of culture conference and, and really taking a swing at tasting new technology.

Anthony Scaramucci: (15:05)
Well, first of all, I wish you the greatest success and luck with all that. I think you're an amazing entrepreneur. I'm going to switch shift gears for a second and Darcie and I are going to be out there. We're going to be buying at least one or two tokens that are featured. So I want to, I want to be a V the friend,

John Darcie: (15:22)
Thank you. Been following all your doodles on, on Twitter. I wonder where that was headed. And now we

Speaker 4: (15:26)
Know you do, but, but, but

Anthony Scaramucci: (15:28)
Here's the thing I want you to talk to the generation that absolutely loves you. Okay. That is a younger generation that are my children. Uh, you know, Kevin O'Leary Mr. Wonderful. And you okay. Are the two people when people say to me, well, young kids, who do they listen to that are contemporaries of mine. It's you? And O'Leary okay. So one, why is that? Okay, what do they see in Gary V that draws them in and love spending time with you being with you, and then what is your messaging to them about entrepreneurship and how do you get them ignited with the fire and passion that you have gap

Gary Vaynerchuk: (16:11)
I'm obsessed with not talking down to anyone ever until I go into the ground. So I think in general, my intuition, I read a lot of direct messages is there's a level of, you know, I don't think they're entitled or lazy, or I think I know unlimited, entitled, and lazy baby boomers unlimited, entitled, and lazy gen X. And you know, like there's just unlimited. You know, I don't like to like paint those 15 to 30 year olds, the way that a lot of other people want to paint. I have compassion for their circumstances. They've lived literally in the global empire of society during its probably tipping point. Like of course they are taking things for granted that we've got an incredible internet based society where 13 year olds can literally make a hundred thousand dollars selling sports cards on eBay. Like they don't live in the same reality as we did.

Gary Vaynerchuk: (17:08)
So I think one, they appreciate that on the flip side, I hate when they're full of and they talk about like being sad when mommy and daddy are paying for their Uber and their Equinox and their rent and they're complaining. And, and so I, you know, honestly this is perfect. We're, you know, it's my mom's birthday on May 3rd. And I just think that me, the persona, especially that they are attracted to is really just my interpretation of how I was parented, which is incredible optimism. And self-esteem building with 100% accountability and no. And so like mom was able to walk that tight rope in a way that I rarely see, have not overcome, like making me feel like a trillion bucks and right. However, everything I did wrong, it was my fault. Like when my baseball team lost and I struck out in a big spot, countable self-esteem accountable, that's right.

Gary Vaynerchuk: (18:08)
Practice. What I call practical optimism, which is optimism, I think is imperative for success and all the cynics. And like, if you think it's over, it is over. Literally if you think you're and like the, like it's over on the flip side, I think unfortunately for a lot of these under thirties, they lived through the great era of parents creating eighth place trophies. And like they lost, we lost the balance of the conversation with them. Like that looked like this, no, you can't be like my, my little guys, like I'm going to be an NBA player. I'm like, brother, listen to me right now. Daddy you up. He did not give you the genetic prowess to have a prayer in this. You want to be an epic B3 point guard and maybe hit a shot and sneak into the NCAA tournament. And like, like maybe if you play every day and lose your mom, like, you know, I think the generation of parents got a little bit there.

Gary Vaynerchuk: (19:04)
And, and, and I think that I've, I've hit a chord with them on the balance of the two. And what I would say to them is when you act, when you fall in love with accountability and patience, all the anxiety that you're feeling right now changes dramatically. When you think it's your fault or what can I do about it? And you realize that you're 26 years old and you have 80 years to live and you don't. And all the rules of like having shipping it out was based on people dying at 40. You have plenty of time. I'm blown away by the lack of patience. And when you live for outside affirmation by putting entrepreneur on your Instagram, because you think that's cool, you're always gonna use when you're looking for cheering, because if you're looking for cheering and you become addicted to the cheering, and even when he gets success, I think what really works for me is I get a lot of cheering when you don't fall in love with it and you can't hear it, then you can deal with the booing because when you get there, you get booing too. And I think these kids are too susceptible to the booing because they're addicted with the cheering.

Anthony Scaramucci: (20:10)
And what about social media? Yeah, you're a Maverick on social media. You're brilliant at it. Um, I'm sure that you deal with your share of haters on social media. You know, every adolescent does. Uh, certainly my children unfortunately, uh, have to deal with it. Anybody that puts themselves out there and performance art as an example, or, you know, in our industry politics, anything, uh, what do you tell the kids there in terms of dealing with the negativity on social media? Um,

Gary Vaynerchuk: (20:41)
If you live your life based on a stranger's opinion of you, let's, let's really actually break this down. A stranger has decided that it was a good use of their time to go to your page, your world and try to tear you down. Really. I tell all my friends, five years old to 500 years old, the same thing, don't be sad for. You have compassion and empathy for them. Like the thought of me spending one minute on somebody else's life to tear them down. It's only a reflection of your own inner unhappiness. And so for me, I think empathy and accountability, you know, I get some stuff and I'm like, oh, okay, I see that adjectives not hitting. Let me take a step back and maybe change that context a little bit. So you can't be like delusional, right? And you can't be like it's, but, but if somebody is being really nasty and there's a lot of that, cause it's easy to be nasty when you can hide, um, they're in a bad spot, they're hurt that person's hurting and, and you should be grateful that you're not spending your time going on people's accounts and on them.

Gary Vaynerchuk: (21:50)
I'm literally grateful when I see, Hey, I'm grateful that I'm not in that place. That I'm grateful that my life doesn't consist of going to other people and trying to tear them down. I'm on the, I think

Anthony Scaramucci: (21:59)
It's well said, but it's, it's something that we have to help these kids with because, uh, you know, they get the food

Gary Vaynerchuk: (22:04)
The way to hit the way to help them. And this is where parents are losing is we have to build proper. Self-esteem not delusional just saying you're the best when the kid knows you're not only speeds up the problem. [inaudible]

Anthony Scaramucci: (22:18)
Realistic. Self-esteem but also resilient. You know, I tell my kids, if you're having a bad day, you think of me getting fired from the white house. Okay. That's a pretty good daycare. Okay. I mean, you know, at the end of the day, the issue

Gary Vaynerchuk: (22:30)
Is that I'll have this. I have this with my too, like when you're their dad, like I can impact everybody way more than I can impact my team. You know, look at me, look at me. That's my kids with me. Right. A hundred percent.

Anthony Scaramucci: (22:43)
They want to see you, Gary. I bring them to your office for the medication. You don't have any brother, let me turn it over to the great millennial, the new genius star at SkyBridge. Okay. My co-host John Dorsey. Do you have

John Darcie: (22:57)
Hope? I was talking about self-esteem you're actually saying nice things about me, Anthony. This is, this is a good change of pace saying nice

Anthony Scaramucci: (23:03)
Things about you is I got you stuffed in the SkyBridge closet. Now that we're back, this is true. Thankfully good about myself,

John Darcie: (23:09)
The hand trucks and the paper towels that I'm next to. Now that we're back in the office and Anthony has reclaimed his, his beautiful corner office there, but you know, uh, I'll uh, I grew up with a humble beginning. Saw I'll maintain my humility here, but I want to go back to NFTs for a second, Gary, and you, you, you have a complete, you know, business empire, including a sports agency. We were talking before we went live about an athlete that you guys were recording. Uh, your agency, you ultimately finished second in that courtship, but I'm curious about, you know, I think athletes are getting wise to what's going on in the NFT space. So when they think about endorsements, they're not just thinking about, okay, Gatorade's to pay me to endorse their drink or something of a traditional nature. He's also someone like Patrick, my homes sold millions of dollars worth of NFTs. And I think increasingly athletes are paying attention to that space as you're pitching an athlete, or it could be an entertainer and you're talking about NFT strategy. It almost seems like something that an athlete has to pay attention to. Now it has to have an NFT strategy.

Gary Vaynerchuk: (24:08)
The problem is my homes and Gronk hit it. Perfect. They hit that Mo that they hit, right. Look what Cuban sold his company for. And had he waited a year and a half, it would have been a totally different outcome. My homes and Gronk hit that fever pitch, you know, money grab luck of the moment and not luck. I hate to use that term. They strategically moved quickly executed, but you have, I mean, Dame Lillard is a much bigger name in culture than wronger than Gronk. But if you look at what's going on right now, athletes, there's an unlimited amount of athletes that have put out their stuff. I didn't see the Trevor Lawrence, you know, launch, but like the, the, the roses, you know, the blooms are off the roads, right? The roses is off the bloom, like it's over the supply and demand is over.

Gary Vaynerchuk: (24:56)
And so athletes have to look at it, but athletes have a substantial issue. And so to artists, for that matter, people get very confused. Like, yes, they should all have a strategy and they should all do it. Mazeltov. Now, go sell it. If you're, you know, if you're a, uh, very famous wide receiver in football, you're not even in the game of conversation. Have you been looked at athletes followings versus one tick talker that dances, they're just not as famous as they think they are the Lea contracts, the logos, they wear carry a lot of weight. So the answer is yes, they should definitely do that. But my, my big push to all of them is have you actually cared about your audience? Have you built a community or do you think just because I'm a corner back in the league by NFT should sell, because they're, let me give you.

Gary Vaynerchuk: (25:49)
And this is something that both of, you know, very well, it was a very simple game called supply and demand. The amount of supply of NFTs that are going to be in the world in 2022 is going to be unlimited every person, every intellectual property, every in hairy idea, everything. And that only has so much demand against it. And I think people are going to get into some rude awakenings of how much of an audience they actually have, which will then John create a whole new game, which is if you want to be a big boy or a big girl, and you want to not take the bag from the big brand, that's paying you upfront, you better build an actual community. Cause you're going to get humbled real quick. Right.

John Darcie: (26:31)
Do you think, you know, there's, there's froth in the NFT market today. You mentioned about the timing of the HMA Holmes and the bronc drops we're right around the time when things were just going crazy. I mean, NBA, top shots, you alluded to it. You know, those things just very ordinary highlights that were commons were going for significant amounts of money. That market has cooled off. I've been on NBA top shots. And the way I think about it now is just investing in things that you're truly passionate about. Do you think that, that there's going to be less of a shift, uh, or more of a shift away from speculation in the world of NFTs and more passion investing, passion buying, or how do you think that space is going to evolve?

Gary Vaynerchuk: (27:06)
Oh, I think 98% of the projects that come out in 2021 will not be good investments. Like, so I would consider that froth. I mean, I'm not a free guy, but you know, that sounds like crap. And by the way, that might be, I mean, yeah, I think, I think we're in for a rude awakening now. It feels John you're too young for this, but us, the old dogs like me MOOC. We know this when the internet bubble on the market collapsed, right collapsed in April, March, April, 2000, everybody came out and said, see internet fad, blah, blah, blah. And what was really happening was it was the most significant consumer trend of our time. It was just that people rush to making a quick bag. And that's what we're seeing in NFTs. You know? So 90% froth on the flip side, I'll give you one, I own 52 of them.

Gary Vaynerchuk: (27:57)
There's 10,000 of them. I think crypto punks is going to end up being one of the great investments of the alternative modern market. They were the first NMT project on the Ethereum chain, right? ERC 20 tokens that inspired the ERC 7 21 protocol. There's an O genus to them. They're already $65,000. Ethereum's current price as a floor price, right? So they're not inexpensive by any matter, but only 1% of the world, if that is really up to date to how big and how this is going to all play out, you can see how that's going to compound. So I think it's a really interesting time if we're talking MFT, investing in individual tokens from just a collectible standpoint, I think what we spent the majority of this upfront on, and definitely what my project's built on is the token can represent real life stuff in its contract.

Gary Vaynerchuk: (28:47)
And I think that is going to absolutely explode once people calibrate, oh, this isn't a famous person holding up a photo and selling off back an FTE. This is about real life tangible value. Oh, by the way, some of the most thoughtful things will like the next Pokemon will be created originally as an NFT. And then go on to be something very meaningful though. You know, the way every Pokemon was a card game, John and a video game, that's not how IP was built in 1957. It was built through cartoons. It was built through right toys. So like things, things, things evolve. And I think that's a little bit of a recap of where I see this space right now. Yep.

John Darcie: (29:28)
You, you alluded to cryptocurrencies a little bit. You talked about the Ethereum blockchain. Ethereum has been on fire in the light, even in the last couple of weeks, it's up over 50%. Bitcoin is obviously up several hundred percent over the last year or so. Um, and we're investors in Bitcoin through SkyBridge. And I know Anthony and I personally have some Bitcoin holdings. You've talked about how you're more enthusiastic about the NFT side of things. And you are necessarily about the cryptocurrency side of things. Where do you see the cryptocurrency world moving? And you've also touched on the environmental impact and concerns you have around that. So how do you look at cryptocurrencies, Bitcoin, Ethereum and others, as well as the environmental context of that?

Gary Vaynerchuk: (30:07)
My, my enthusiasm comes from my knowledge base. So I don't really have a strong point of view on a cryptocurrency being a better investment asset than an NFT. I understand MFT because of nostalgia, collectability so much more than trading just on currency. And I also know that the utility aspect of being able to use the, the currency in real world is going to be a huge factor. And or, and so I, I like to stay in my lane. So this is not, my statements have not been a, oh, I think NFTs will be a better investment. They may not be even close. I do. I do think NFTs as a whole is the whole thing. Whereas currencies are fragmented just like individual, uh, NFTs are fragmented. So I think as a whole, it's just going to be civilization, right? You're going to have currencies and you're going to have assets and that's how our world lives.

Gary Vaynerchuk: (31:02)
So I think they can play out evenly that way. So to me, the NFT statement is more about, oh, I really understand how people interact with, with, you know, social currency, like human psychology of why they need it, and definitely on the collectible and the rate of value, as far as the environmental, when you, you see a ready to advancements in four minutes in the scheme of things on L to, you know, technology and, and, and proof of stake, and like, it's unbelievable to me how quickly technology moves, right? As people rightfully start bringing up concerns around the environmental aspects at the rim itself is evolving to its entire, you know, adjustment to the need of that much energy. You have unlimited incredibly interesting chains popping up that are, you know, it built in a manner where they're dramatically more eco-friendly. And I actually think some of the biggest companies in the world are going to be affected by this because when the blockchain ecosystem kind of quote unquote cleans up its energy game, cause it is, cause it's getting pointed with that.

Gary Vaynerchuk: (32:12)
You know, Amazon services is an interesting impact, uh, Netflix, like, you know, I think it'll be interesting to see where this actually takes us to other places. It's really easy for a lot of people to say, oh, look at that thing over there. Cause then they're not playing in it. If we're going to, you know, all of a sudden that same person, when you tell them, you know, you're seven hours that you're watching Netflix, you know, a weekend is something to talk about. So it's going to be interesting to see how it plays out from what I can tell and is not my biggest depth of expertise. I've been very impressed with the speed of new chains popping up that are playing on that space. And then at the room itself, getting to L two level two kind of dynamics that are going to be addressing a plus it's core, oh, genus around proof of stake, proof of work, addressing those aspects,

John Darcie: (33:01)
Switch gears a little bit. And we try to ask this question to everybody we've had on, we started this salt talk series early in the pandemic when we realized we weren't going to be able to do our conferences, but we still wanted to have these fun conversations with creators investors, entrepreneurs about what you learned during the pandemic. You know, I think for a lot of people at crystallize in their mind, the move to the digital economy and the digital world that, that crystallize in their mind NFTs or, or work from home and all the implications that has on our society. Uh, what did you learn? What are some of your biggest takeaways, uh, about business, about life, uh, that you've gleaned from this time during the pandemic,

Gary Vaynerchuk: (33:40)
It was less about learning and more about affirming my greatest belief, which is that during times of adversity, people get exposed. And so, and not in a negative way, exposed in all different ways. I think that you saw the acceleration of everybody being their true self. So if you were negative and pessimistic, you know, you became more, um, if you were accountable and were ready, you know, some people saw this, you know, as, from a business standpoint, from a family standpoint, take away the incredible devastating aspects of the serendipity of who got sick and didn't die. Those, those are, that's not a whole different level. You know, that that's a variable that is, is devastating. And should we put in a category on itself, but in the day to day, what you saw was there are certain people that are wartime generals, and there's certain people that are peacetime generals, and I've always believed that.

Gary Vaynerchuk: (34:39)
And you know, I've already had two little moments in my career. Nine 11 was really difficult for me. You know, our business just started, our entire business was wall street in the scheme of things on the wine business front. And there was a lot going on there. And then obviously the 2008 recession, you know, adjust or just starting up VaynerMedia and the wine business. And it was a lot to go through. And this was the third chapter of like not fraught, the exciting, easy everybody's winning. See players look like superstars. And I think this one probably had the biggest toll because it was a mental game, right? People are encapsulated, there was no escapism for a lot of people outside of alcohol and drugs. You know, it was like really, you know, some of that kind of real stuff, John. So I think, you know, for me it was less about learning and it was probably the final nail in the coffin for something that I've always believed, which is things accelerate during times like this. And I watched from afar, forget about me. I observed so many during this time and it became very obvious me on that truth.

John Darcie: (35:39)
Do you think the world is going to go, go back to the way it was pre pandemic? You know, you talked about New York city. You're proud new Yorker

Speaker 4: (35:47)
In a sense. Yeah. It can't

Gary Vaynerchuk: (35:49)
Because it wouldn't be in the same place. If there was no pandemic two years later, that's just not how it works, but something of this size, oh, I think it's a major change. I think people are actually underestimating it. You know why people are very basic in the way they think about this. Is it going to go back? They're like, oh, are we going to travel? Are we going to go to the office? That's like nothing. That's like a tiny, tiny part of this. We have formed an enormous new consumer behaviors. I mean, doing a zoom or hangout, like this feels incredibly normal now for everybody, which means it will happen. Like every one of us is doing one less trip for one meeting and we're going to do it like this because we're going to every one of us has picked up on a new app, a new behavior, a new purchase, a new interest, a new relationship. I mean like, you know, everything, everything has changed because this is a major global event.

Anthony Scaramucci: (36:45)
Now look like will Smith though. Is that something I should be worried about?

Gary Vaynerchuk: (36:49)
You look great. Actually, I'm actually extremely jealous of how you look.

Anthony Scaramucci: (36:52)
No I'm saying that will will Smith and I both the caring that dad bought

Gary Vaynerchuk: (36:56)
Now, listen, I think, I think you look great. I think he looks great too. Um, I really practical.

John Darcie: (37:02)
Self-esteem Gary. Not, not false.

Anthony Scaramucci: (37:05)
You giving me false hope. Gavin. I love you.

Gary Vaynerchuk: (37:07)
Listen, I can't see the rest of your body here. I see the face and the hair. I mean. I wish I had that. That's an Italian chia pet. That hair has been your strength. I didn't, I didn't grow up in the Ukraine that Eastern European it's going to go away real fast. Anthony, come on. I think, uh, I think that, um, I think everything's changed. And what I mean by that is many things will go back, but John people will be doing things that they don't even realize that they've changed on because it's such a change to our behavior.

John Darcie: (37:41)
I want to finish with a final word on V friends. This episode, we're, we're taping it on May 3rd, full transparency. It's airing on May 5th as of 8:00 AM Eastern time this morning. If you're watching this episode V friends we'll be live, how do people engage with that project? How do they buy V friends? What are the mechanics act like? You're talking to a five-year-old or a 65 year old.

Anthony Scaramucci: (38:01)
What if the opening price for V Fran, you think of me friend coin.

Gary Vaynerchuk: (38:05)
So the lowest tier cause there's a lot of different tiers is a three Ethereum, which now is like 9,000 bucks, but is on a Dutch auction. Anthony, I was concerned that I had enough of a big base of people with wealth, that I was worried everyone was going to get shut out. So I went Dutch auction. I kept all the pricing and it actually descends as the time goes down. Um, so it goes from three to 0.5, Ethereum and it's descending curve. They go to be friends.com, John, they connect their wallet. So starting right away, I know 99% are like, what? So this is where you need a wallet, Mehta mask, uh, any wallet that's compatible with, with a wallet connect that this, you know, a lot of people have a Coinbase, but they don't, you know, but they don't have an active wallet to buy NFTs.

Gary Vaynerchuk: (38:54)
And so you'll need one of those. Um, and then once you connect it, you just literally do it just like a credit card. You click the button. Now what scares a lot of people is like, when you pay a little gas fee in and it takes a little bit, people are used to immediate now with credit cards and all that. So people buying their first set of tea are always a little scared. Cause like, did I just w you know, you see it all the time. Even like, technically sound people like, wait a minute. I don't see the money in my account, but I don't see the token. And so there's a little bit of that that goes on with it. But, but you know, what's fun for me is I launched wine library.com in 1995, excuse me, 1986, and actually launched the 97 and built a 96.

Gary Vaynerchuk: (39:29)
People were scared, crapless John, to put a credit card into the computer. They thought it would get stolen and used. And so we're living it all over again with these crypto wallets, non-custodial wallets, us being in control of all those dollars. There's all these new things like 12, 12 word phrases from meta mask. Obviously, top shop decided to go Fiat and build a layer there. And there's a lot of, you'll see a lot of projects that you'll be able to use a credit card. For me, it was important to be very crypto native to this project. I wanted to be an authentic Ethereum project, and I wanted to educate people how to really use ether for execution.

John Darcie: (40:07)
Gary Vaynerchuk is a pleasure to have you on salt talks. Anthony have a final word for dairy before we let him go.

Anthony Scaramucci: (40:12)
I'm one of his huge, his fans, okay? I'm not a millennial. I'm not a kid that just graduated from college, but I'm still a Gary V follower. And I am a huge fan. And I got to tell you, Gary, you're an inspiration of a lot of people. So keep doing what you're doing. And I will be a proud owner of a Gary V V friends. I can't wait to see what you get. Uh, Darcie's going to explain it to me cause he's more tech savvy.

John Darcie: (40:41)
We're going to go shopping on my

Anthony Scaramucci: (40:43)
Credit card numbers. I know that's going to be really bad for me, but the good news is he dresses like. So you can only spend so much just don't give it to your wife Darcie, and I'll be fine, but I will be owning a V card. Uh, today's broadcast May 5th. Before the end of the day, I will be owning a V frame V friend token. I can't wait. And I'll be a proud owner

Gary Vaynerchuk: (41:05)
Of that. Thank you brother. Thank you so much. And I'm going to work really what I did really smart, I think. And we'll see if history proves it out is I created all these off the chain dynamics to create the economy. When that first conference, you know, John, I have the advantage of seeing where these all lay out at knowing what people paid for it and then producing the event in reverse. Right? So I just have to understand what they went in for make sure that I crushed that first conference. And then that gives Anthony the ability after it happens. If he wants to make a little profit, he's been good at this throughout his career. He can transact. He's a trader by heart. So I got to put them in the right position so that I'm going to be a buy in. I'm going to be a hot Hoddle. I love it. All right, man. Thank you. I got to run

John Darcie: (41:51)
And thank you everybody for tuning into today's salt. Talk with the great Gary Vaynerchuk. Just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. A we're on social media. We're most active on Twitter at salt conference, but we're also on LinkedIn, Instagram and Facebook. And please spread the word about these salt talks. We always like to start every conversation with the primer so that anyone, no matter how far along they are on their crypto journey or their NFTE journey can learn a little bit about what NFTs are or whatever subject matter we're talking about. They can start from zero and we hopefully did that today. So please spread the word about these salt talks, including this talk with Gary. Uh, but on behalf of Anthony and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here again soon.

Warren Fisher: FinTech Investing | SALT Talks #209

“Most people think of FinTech as a revolution… I like to think of it more as an evolution. We still have mag strips on the back of our debit and credit cards and that was invented in 1966.”

Warren Fisher created Manole Capital which is focused on investments in the FinTech space.

The payment space is the quintessential FinTech business model. It represents one of the most dramatic shifts in consumer behavior as we see the use of cash steadily decline. The trend is driven by millennials and Gen Z who are more digitally native and continue to gravitate towards cashless transactions. “The expression is ‘cash is king,’ but we like to say ‘free cash flow is king.’”

The concept of buy now, pay later has grown rapidly, especially among younger generations. The space is dominated by three companies: Affirm, Afterpay and Klarna. These offer the buyer at the point of purchase equal installment loans, marking another shift in payment behavior. “Gen Z is in love with Buy Now, Pay Later. They don’t look at it as a $100 dollar transaction, but instead four $25 monthly payments.”

LISTEN AND SUBSCRIBE

SPEAKER

warren fisher.jpeg

Warren Fisher

Founder

Manole Capital

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello everyone. And welcome back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Saul talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these salt talks the same as our goal at our salt conferences, which were, uh, proud to say resume in September of 2021. And actually this morning, uh, mayor bill de Blasio just said that they're fully reopening New York city on July 1st. So we're full systems go for salt in New York in September, but our goal with those conferences and our goal here on these salt talks is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future.

John Darcie: (00:56)
And we're very excited today to welcome Warren Fisher to salt talks, where it started his career at Goldman Sachs asset management after graduate, uh, graduating with a bachelor of science degree in accounting from Lehigh university in Bethlehem, Pennsylvania, while on G Sam's growth equity team Warren was, was responsible for both the financial sector as well as service companies in the technology industry. Hence how he's found his way to the intersection of finance and technology today. Uh, in addition to his analyst duties, Warren was a portfolio manager on several of the portfolios over his 19 years at GE Sam Warren was a co-portfolio manager for the Goldman Sachs growth opportunities fund, which is a mid cap fund, the Goldman Sachs, uh, capital growth fund, which was a large cap fund, as well as the Goldman Sachs flexible cap growth, which obviously was an all cap portfolio.

John Darcie: (01:45)
He then joined fortress investments in 2013, affirm that we're very familiar with here at SkyBridge to help build Logan circle. Uh, first equity franchise, uh, Warren co managed three large cap growth portfolios as well as one mid cap portfolio. And in 2015, Warren created a Menaul tappable to exclusively focus on the FinTech industry, which is going to be the focus of our conversation here today. Hosting today's talk, making his debut here on salt talks is Jason Zen. Who's a partner at SkyBridge capital, which is a global alternative investment firm. And Jason also heads up our FinTech investing initiatives at SkyBridge. So looking forward to a fascinating conversations today between Warren and Jason regarding FinTech. And with that, I'll turn it over to Jason for the interview.

Jason Zins: (02:30)
Thanks, John. And, uh, thank you Warren for joining, uh, my first day back in the office, actually. So I'm not Anthony, uh, who usually hosts these talks, but I am in his office right now. Uh, and, and thanks Morgan for, uh, for joining us. So w why don't we dive in, um, I'll just start with a, a quick intro. Um, obviously it's SkyBridge, we're, we're very bullish on the FinTech space. We've been very active on the private side this year with names like chime and Klarna and others. Uh, and it's really based on a view that financial services has been ripe for disruption for some time now. And while innovation has been going on, uh, over the last number of years, it was really the pandemic in our view, that was a catalyst to accelerate. A lot of this disruption. Uh, UBS came out with a report recently, very bullish on FinTech, longterm, uh, looking at some of the secular growth drivers, uh, going forward over the next decade. You have none other than, than Jamie diamond at JP Morgan, uh, who in his shareholder letter, um, really endorsed or at least embraced FinTech, um, all recent developments, but Warren are our guests here today. You've obviously been a FinTech investor for quite a while now, uh, both on the public markets and private market side. So why don't we just start with your general view on FinTech, uh, and maybe touch on whether that has evolved pre and post pandemic?

Warren Fisher: (03:57)
Sure, thanks for having me today, looking forward to our discussion. Um, maybe the best place to start is, is how we define FinTech. And for us it's anything utilizing technology to improve, uh, an established process or procedure. And that could mean various things to various people. Um, obviously you guys, uh, have a background on the blockchain and the digital currency side. Um, you can have digital banks, alternative finance plays, uh, reg tech, InsureTech, um, robo advisors, financial advisors, the exchanges, um, but for us, the quintessential FinTech business is that the payment space. Um, we love the predictability, the sustainability, the recurring revenue, um, business models that these companies have. And, uh, you know, that for us is, is the quintessential FinTech business.

Jason Zins: (04:53)
Terrific. And before we dive into payments and some specific names in general, um, can you touch on a few of the other verticals just round out the FinTech ecosystem for us?

Warren Fisher: (05:05)
Yeah, so, uh, last week, or a couple of weeks ago, we had a big news and FinTech land with, um, the, with Coinbase going public. Um, certain people may not consider that to be FinTech. Uh, we have invested in the derivative exchange space for a number of years, and that covers the names like CME or ice, um, who owns the New York stock exchange. It could be NASDAQ or CVOE does options. Um, and for us, you know, a name like Coinbase is no different than a derivative exchange. They're the intersection, the marrying of buyers and sellers of assets and a Coinbase, um, which right now just does what four or five dozen different digital currencies. Um, but it also does storage and custodial work. Um, it's just a really interesting company. It's just fascinating for me to kind of see the market cap of it, have a name like Coinbase coming up, coming to the market, doing a direct listing, not an IPO and having a market cap in the 60 to $70 billion range to kind of put that into perspective.

Warren Fisher: (06:11)
That's bigger than CME. And I see him he's been around for over a hundred years and, uh, I certainly, while has a 20 year history, um, certainly can go back over 150 years with its ownership of the New York stock exchange. So a lot of change, a lot of, uh, new names coming into the space. Um, it just kind of reminds me that, you know, most people think of FinTech as being a revolution. Uh, you mentioned earlier, you know, Jamie diamond, uh, doing a shot across the bow to his own employees saying that we need to be aware of FinTech and technology and embrace that change and not look to do a kind of put our head in the sand. You know, I like to think of FinTech as much more of an evolution, not a revolution. You know, I've been covering the payment space for over 25 years and, you know, to me, it's fascinating to see it's not a speedboat, it's not terribly nimble.

Warren Fisher: (07:08)
It's more like an aircraft carrier. Um, you know, we still have max stripes on the back of our plastic credit and debit cards and, and they were invented in 1966. Um, the U S got, uh, EMV technology that chip in your debit and credit card in October of 2015, but that technology was in the mid nineties in Europe. So, you know, things happen in payment. And, um, I like to say slowly and steadily evolving. And, you know, for me, as, as we look at the space, the biggest market share donor is cash. And that might be a, uh, area that we talk about today. Just the steady market shared donor for all of these digital payments and FinTech names is the use of cash.

Jason Zins: (07:55)
Absolutely. The, the, the death of cash is as you call it, we will touch on in a, in a few moments, but I just want to pick up on, on one concept. Uh, you just, uh, you just described, which is really, um, the Coinbase versus the incumbents like CME and others, but you can apply that to really any FinTech vertical, depending on the day, PayPal might be bigger than bank of America square might be bigger than Goldman Sachs. So can you touch on a little bit, the next five or 10 years FinTech generally relative to the incumbents?

Warren Fisher: (08:29)
Sure. So I think the best place to start is maybe the financial sector. If you look at the S and P as a whole, uh, the financial sector is roughly the third largest segment in the market. If you look at the 11 GIC sectors, uh, the S and P and 80%, roughly 75 to 80% of the financial space is comprised of banks and insurance companies. And one of the areas that we do not invest in, we have no exposure to any banks or insurance companies is we're really just chickens where, um, we're, you know, w we stay away from banks and essentially digital banks, nouveau banks, alternative finance companies, because I don't want to take bounce sheet risk. I don't want to own a company that has opaque, uh, an opaque balance sheet. That's taking credit sensitive, um, interest rate sensitive that's, um, I like predictable, sustainable recurring gravity.

Warren Fisher: (09:29)
We like to make money per transaction in a way revenue per swipe. And it goes to, you know, we have certain characteristics that we look for in companies, whether it's market leadership, a durable, competitive advantage, what Warren buffet likes to call a moat around the franchise. Um, just those high barriers to entry, and when it comes to a bank, um, there really are no moats around that franchise. That commodity is the us dollar. They're borrowing it from, from their DDA accounts, their checking and savings accounts ended up renting it out. And that for us is not an ideal business. Um, we want to have companies that have, um, secular growth, not cyclical growth. And so we stay away from that alternative finance part of the, of the FinTech space. We just think that, um, banks are ripe for, um, for having their, their business really stolen over the next five to 10 to 15 years.

Jason Zins: (10:30)
Well, we, we certainly agree with you there. It'll be interesting to see, uh, which banks are able to innovate and navigate this. Certainly hard to bet against the Jamie diamond at JP Morgan.

Warren Fisher: (10:39)
Yeah. I mean, you look at JPM and they have a fortress balance sheet. Um, but our issue with it is, is that balance sheet transparent? Is it sustainable? Um, can you model in free cashflow? And when it comes to financials, we saw this with the, with the financial crisis. The most important thing is our mantra teams rationally allocating capital, and with financials, with banks, with insurance companies, unfortunately you don't find out who's swimming naked until the tide rolls out to use it another Warren buffet quote. Absolutely.

Jason Zins: (11:14)
So we'll touch on a few hot FinTech companies, uh, during the salt talk. And I want to start with plaid. Um, we're extremely bullish on the company. Really think it represents the FinTech ecosystem more broadly. They obviously just, uh, raised their series defunding, uh, led by altimeter and silver lake and ribbit capital. Um, so blue chip, uh, cap table, big jump in, in valuation, uh, companies currently valued at 13.4 billion. Um, give us a sense of your view on the company, how you got involved, uh, and, and what your view is on plat.

Warren Fisher: (11:52)
Sure. So, um, the Manoir FinTech fund is our hedge fund. And one of the nice things about our hedge fund is we can do both public and private. We married those two areas of FinTech and the vast majority of our positions are public. Um, and that gives us the ability to have a good amount of liquidity and transparency for our limited partners. But we can, like you said, own a handful of, uh, private FinTech companies. And we came across plaid back in 2018. Um, we made our investment, um, in December, 2018. And if you recall, the S and P in the fourth quarter of 2018 was down significantly. I want to say about 13, 14% in December of that year, the S and P was down over 9% and we made an investment in plaid and they had just done a series round valuing unit around a little bit, over $2 billion.

Warren Fisher: (12:53)
We actually got a discount to that. So we were pleased with that. And, uh, we owned it for, uh, 13 months. And then January of last year, we were reading our wall street journal like you, and, uh, opened up and saw that there was a transaction where visa was acquiring plaid for $5.3 billion. So obviously a positive for us. Um, we envisioned like most deals at that would be a, uh, six to nine month kind of closing and visa would be the new shareholder and owner of plan. We actually wrote a note on plaid before we purchased it, and I don't know how many people read it. It might've just been my mom and dad, where were the only two people that read it, but we called plaid the sets, the sexy plumber, and it's not a, a flashy business. It's not one that builds a, a great brand name like you have with visa and MasterCard debt, signified trust.

Warren Fisher: (13:50)
They were 200 countries around the world. Um, plaid is very much on the backend of a most transaction, similar to a lot of our payment processors who authorize clear and settle a transaction names like, like a global payments or first data or an FIS or five serve. Um, these are names that don't have great brand names, and we never really envisioned plaid having a, a great brand name. What they do is they're connecting, um, hundreds of financial apps, FinTech apps, um, to the funding source. So if you're opening up a Coinbase account, um, and you want to fund it, um, we just did this recently. We saw when we, when we connected our Coinbase account to our bank of America account, that transaction was done by plan. Um, if you opened up a Robinhood account and millions of gen Z and millennials opened up Robin hood accounts over the last 12 to 18 months, when you fund that brokerage account from your bank account, plaid is acting as a connection to that bank, that funding source that validation.

Warren Fisher: (15:03)
And, um, over the course of last year, um, initially the UK came out and, um, wanted to analyze Visa's acquisition of plaid. Um, they, at the end of the summer approved that transaction, but then in November of last year, the U S department of justice came out and said, you know, said time out, hold on. Let's, uh, let's take a look at, um, this DCIS acquisition of plaid. And they sued to block the transaction. Uh, initially visa came out and said, well, we've got a lot of high priced attorneys and lawyers on staff. We're going to go ahead and go to court. Um, and then in January of this year, they decided, you know what, let's just go ahead and terminate the acquisition of, uh, plaid. And, um, we'll use it well, we signed the long-term contract to use plaid services. And, you know, for us, we were kind of at a, at a pressure mark here.

Warren Fisher: (16:04)
We don't see a lot of deals get broken up. Uh, we actually own visa in, in our portfolios. So here we had one of our companies acquiring another one of our companies. And, um, it's interesting, the reason and the rationale that the DOJ gave for, for breaking up the visa transaction was visa has a huge market share in the debit space over over 70%. And one of the visa executives, you guys should Google it, or anyone watching should Google it. If you just do visa plaid, sketch iceberg sketch, you'll see that there was a, a doodle, a sketch, if you will, that a visa executive did. And the DOJ used that sketch as their ammunition for shooting down this transaction. And in an above the iceberg, you see bank connections and, uh, account validation. And then below the iceberg, you start seeing items like credit decisioning.

Warren Fisher: (17:04)
Um, you see, uh, marketing and advertising, you see financial management and identity matching and fraud detection. And that is really what the DOJ got worried about. That a visa owns plaid, and it also dominates debit that this could be a another monopoly. And so they, they kind of walked away. Visa walked away in January of this year. You talked about the valuation of it. Um, actually more than doubling, almost tripling from what visa was going to pay for it. I look at it and say, visa, put the good housekeeping seal of approval on plaid. It dominates this space of a bank connecting invalidation and the movement of funds. And, uh, you know, we still own it. We envision either a stack. It might be too big for us back, but we envision the company maybe having an IPO later on this year or internet year. And it being the latest tech company to kind of come to the markets.

Jason Zins: (18:07)
Great. So I want to, I want to zero in on the DOJ complaint, cause to your point, it, it is fascinating and the, the iceberg or the volcano picture is sort of becoming

Warren Fisher: (18:17)
The volcano, at least

Jason Zins: (18:19)
In, in nerdy FinTech circles. But the DOJ complaint, um, to us is almost an investment memo for plat, right? And, and one of the key quotes that I love from one of the visa executives is that they view plaid as an existential threat to their debit business, which as you mentioned, they, they more or less have a monopoly on with, with 70% market share. Um, and so now that the, uh, the visa deal and the acquisition is falling apart and plat is moving ahead on its own, uh, obviously a very different environment for plaid, right. That acquisition was pre COVID. We're now in a different world. Um, where do you see plaid, uh, going forward? And what do you think the potential is over the coming years?

Warren Fisher: (19:06)
Well, I think, um, if you look at the, kind of that sketch in the bow, uh, uh, waterline, uh, if you will, um, I think it has a lot to do with fraud detection, um, and identity, you know, confirming identities. Um, we're not really envisioning it going into the advertising and marketing space, but just the ability to move money from point a to point B. Um, we talk a lot about visa and their capabilities. You know, visa does 150 million transactions a day. It could do 1700 transactions a second, and, um, their capacity, their spare capacity is 40 S that they can do 65,000 transactions. A second, uh, PayPal during the holiday season did over a thousand transactions a second. And so it really is the, the, the middle of moving money from point a to point B from point B to point C. And, um, to me, it goes to our definition of FinTech is, is visa or PayPal because they moved money.

Warren Fisher: (20:14)
Is it a financial company? Um, is it a tech company because of the capacity that they have and the millions of transactions that they do a day? I don't really care. Um, for me, it's not a matter of, um, are they financials? Are they, tech companies is, is plaid a, uh, financial because all of their customers are banks and brokers. Once again, it doesn't matter to us what we're looking for. Those companies that can generate predictable, sustainable recurring revenue. And we think the future for plat is really bright. It's going to have, um, a business model. That's, transaction-based, that's very scalable. That's going to generate very high operating margins. Um, and it, it should generate, um, absolutely growth for the next three to five years and beyond.

Jason Zins: (21:04)
But we, we certainly agree. We think that the flip side to not having a sexy consumer facing business is obviously a much lower cost structure, much higher margins to your point cloud does have a recurring revenue model. Uh, and we think, again that the DOJ really laid out the potential on the disruptive nature of plaid. Really just to hammer home. The point visa is this $500 billion company doing $25 billion in annual revenue. Um, Plaid's ability to disrupt this monopoly on money movement in the United States, uh, we think is, is, is very exciting and, and has the potential to be, um, to be massive. So, um, let's, uh, let's transition into, um, a concept that you, you mentioned earlier, uh, and you have a presentation on this, the death of cash. Um, and I think you had some pretty interesting statistics, uh, really just about the rapid decline of cash in the last decade, certainly has accelerated as a result of the pandemic.

Jason Zins: (22:05)
A lot of it is generational or demographic with, with millennials and gen Z. Um, but I think you estimate that about 30%, only 30% of transactions in the U S today involve cash, uh, in Sweden, that number is 6% and they have a goal to be entirely cashless by 20, uh, 2023. And that sort of be consumer behavior, uh, has massive implications, um, for various verticals, certainly payments, uh, and others. Um, but I want to focus for a second on Sweden, um, and touch on another company, uh, Klarna, which is a Swedish company, uh, the global leader in the buy now pay later space, also raised money, uh, recently at a $31 billion valuation making it the largest European FinTech company, uh, on the private side. Um, so touch a little bit on, on this buy now pay later vertical, which is sort of inside of payments or an adjacent to it. Um, give us your view on the space and Klarna in particular.

Warren Fisher: (23:08)
Sure. Um, so a lot in there, on, on cash, maybe, um, we always like to say, you know, you know, the expression cash is king for us, it's free cash flow is king. Um, I joke around and saying the depth of cash, but cash is still 75 to 80% of global purchase transactions and, uh, countries that are very institutional and sophisticated like Germany and, and, uh, Japan, Japan is still at 82% cash based, um, in terms of purchases, uh, Germany's 84%. So on the flip side of those two countries is as you mentioned, which has that goal of, of going cashless, but, um, there is a slow and steady decline. We talked to a moment ago about that, um, decline of cash usage, but it's, it's going to take years. Cash will always be a part of the payment chain. If you look in the U S about a third of transactions are still done in cash, but if you look at the $10 transaction size and tend to add $10 and less, it's still 55% of those transactions are done in cash.

Warren Fisher: (24:15)
And so that will continue to move down. Um, whether it's the one New York program in the subway system, that's the MTA is coming out with to allow contact list and mobile based payments, the ability to use your phone at the turnstile to go into the subway, the train, or the bus, um, clipper, um, is in San Francisco for ferries and transit San Fran that just got announced last week of all things. Um, but here in Florida, where I am the highways, uh, no longer had people taking cash on the highway, it went, um, entire digital and automated, um, back in 2011. So the transportation space is really an interesting area for where we're seeing cash being removed from our society. But, um, on the flip side of that within payment land buy now pay later is really fascinating. It's taken us a while to get comfortable with it because in our mind, um, we tend to look at more digitally native products, whether it's, you know, the payment networks, visa, MasterCard, or PayPal, the payment gateway is like an Adyen or Stripe, um, a Braintree at a PayPal or the payment processors, or even the merchant acquirers.

Warren Fisher: (25:34)
Um, it's taken us a while to get comfortable with buy now pay later because it really is just an installment. If we go into a home Depot and buy a hundred dollars, our, uh, drill, um, the ability to make four twenty-five dollars payments over the next four weeks, um, that's an installment, but, uh, we'd come around to this concept. And there's three companies that really dominate the space maybe soon to be four. Um, you have a firm that went public in January, uh, did very well on its IPO. You have Afterpay out of Australia and you have, as you mentioned, the third, the largest of the three, um, being corner out of Sweden. And what they're doing is they're essentially offering, um, consumers GMCs and millennials, the ability to make transactions at the point of sale and do that equal for equal installment means. Um, and for that they're charging merchants upwards of five or six or even 7% to do that.

Warren Fisher: (26:40)
Now you have to compare that to a hundred dollar transaction in the U S a hundred dollars credit card transaction will generate about two to two or four, maybe on an online transaction two and a half percent in fees. So a hundred dollars transaction generates fees of $2 and 50 cents, um, in terms of a cost for the merchant in a buy now pay later environment that merchant on a a hundred dollar transaction might pay $5 or $6 to enable that gen Z, uh, consumer to transact that hundred dollars transaction at home Depot. So, um, there are significant costs when it comes to buy now pay later, but merchants are, uh, excited to offer it to their consumers. And it's just another way for consumers to transact. They can use cash, they can use their debit card, they can use a credit card, they can use buy now pay later. Um, and so we're really are seeing a transformation with online or at the physical point of sale for brick and mortar retailers. Um, how the consumer wants to transact and merchants want to enable their consumers to transact any way that they want.

Jason Zins: (27:52)
And, and to your point, it does seem that despite the higher cost, it's obviously growing rapidly with merchants, seeing the benefits of, uh, acquiring or attracting, um, these newer, younger shoppers, um, who really view buy now pay later. And the companies that you mentioned as really an alternative to traditional credit, um, and the credit cards, which as you know, younger generations are, are increasingly, uh, avoiding, uh, having, having credit cards in your wallet. Um, you, you mentioned or alluded to the, the differences in consumer behaviors across countries and regions. On the one hand, you've got a country like Japan. On the other hand, you have a country like Sweden. The us is probably somewhere in the middle, maybe closer to the Sweden side. Um, but buy now pay later in the U S is relatively new, I think, uh, penetration for buy. Now pay later as a percentage of total e-commerce is around 2% or a little bit less, but growing rapidly, um, to the tune of 200% or even 300% for a company like Klarna. Um, do you think this is a fad, or do you think this is part of a longer term, um, trend that will continue to develop, uh, as the younger generations continue to participate in the consumer economy?

Warren Fisher: (29:12)
Yeah. Going back to maybe what I said earlier for us, it's much more of an evolution than a revolution. Now, the, the growth rates that names like affirm and Afterpay and coroner are generating are eye-popping, but they are coming off a very small base. Um, we, we needed to embrace and understand millennials and gen Z and how they are transacting. We do a, um, a survey, uh, several hundred, um, gen Z, uh, consumers. And we, we ask questions on four key financial services areas. We do, um, digital currencies, Bitcoin. We do brokerage banking and, uh, we do payments. And one of the takeaways from our survey work is that gen Z is in love with buy. Now pay later, it comes a little bit down to almost the us mindset of they don't think of in that example, I used earlier that a hundred dollars drill at home Depot.

Warren Fisher: (30:13)
They're not thinking of it as a a hundred dollar transaction. They're viewing it as four equal $25 transactions over the next four weeks. And so, um, you know, some people buy a car or lease a car or, you know, acquire a car, and they're not looking at the cost of the vehicle. They're looking at what are my monthly costs. Um, some people buy a house and say with interest rates at this amount, um, what are my monthly costs going to be? And so I now pay later really is an environment where for us, we get worried that these companies are giving out credit, um, and not doing the analysis, their credit decisioning on those consumers well enough. And so that goes to the opaque balance sheet that some of them might have, but there definitely is a ton of growth there it's part of, you know, a lot of gen Z and millennials grew up seeing their parents deal with the financial crisis.

Warren Fisher: (31:12)
And a part of that problem was their parents may be getting in trouble with credit cards. Um, that's why we're seeing a resurgence on debit. Debit usage is a way to maintain and control your spending. Um, buy now pay later is, is essentially just, uh, an extension off of debit. And it's kind of weaving in it's maybe at middle ground, which we debit and credit. It's, it's really fascinating. We do think that there's going to be, um, multi-year growth, kind of, for all three companies, one name that's getting into this space as well as PayPal. Um, they certainly have the capability to do it. And so, um, you know, we're excited for that, that space. And once again, that's a private name in Florida that we can own inside of our hybrid hedge fund FinTech fund.

Jason Zins: (32:00)
Well, we, we certainly agree with the long lasting nature of, of the growth story here. Um, obviously, you know, really just getting started. And you mentioned clearness monster, I, excuse me, a firm's monster IPO in January clarinet with, uh, a big private funding round. I likely to be a public company in the near term. So we'll, we'll continue to, uh, to monitor that space, um, shift gears here in, in the minutes that we we've got left, um, into contact lists and mobile payments and digital wallets more broadly, which is, uh, I think a space that you focus on. Um, obviously some of the biggest fintechs out there, like a Stripe and PayPal Addie, and you mentioned, uh, really enabling this shift. Um, can you just talk a little bit broadly about the future of mobile payments and tie in digital wallets there? Of course.

Warren Fisher: (32:51)
Sure. So, um, I still have in my jeans on leather wallet and it's got, you know, a couple of different plastic debit cards. It's got, you know, visa and MasterCard credit cards from multiple, multiple banks, whether it's prepaid cards as well. And I have a couple of dollars in cash. Um, we envision over the next three to five to seven years, being able to replace that wallet in your pocket with this, your iPhone, your mobile based, uh, payment, it will be the way that you transact. So instead of going out with a wallet, uh, we had the visual going out to the store, going out to your local coffee shop, going to Starbucks or Panera or CVS or Walgreens, as you knew your shop and using your phone to transact. We're seeing that already with what I'm going to call that bridge, which is QR codes.

Warren Fisher: (33:40)
Um, they were not developed for payment. They were QR codes were developed for manufacturing and supply chain management, but the payment area has embraced QR codes. And you can turn your iPhone, your Google phone, your Samsung phone, whatever phone you have into a point of sale device where you can accept payments from someone else via your phone. We know the success of, of PayPal's Venmo in doing P2P transactions, simply moving money and texting money. Um, you know, for me to you, if I were to lose a golf bet or a split lunch with you, and that is taking off square and their cash app has as a great product as well. Um, and, and we really envision, you know, if you look at COVID last year, it was obviously awful. Um, global pandemics are never good, but if there was one benefit in, in a way it really benefited and acted as a tailwind for a lot of our payment companies, it forced the adoption of digital currencies and contactless payments and, um, you know, foreword by either a couple of years or maybe even a decade as, as some industry experts have articulated.

Warren Fisher: (34:56)
If you go back 10 years to 2010, and you looked at the us market in terms of retail sales, you're talking about a $6 trillion annual spend on the U S retail side. And 10 years ago, e-commerce was four and a half percent of that total spend. And then by 2015, it continued to go up steadily marching higher to, um, 7.3%. And last year it got into the double digits. So we had a kind of huge way of adoption of digital payments and e-commerce usage. Um, you know, people know that the flu can on paper currency for 17 days. Um, the CBC came out and said, last year, if you touch and handle paper currency, you should immediately wash your hands in the U S a dollar bill changes, uh, hands 55 times over the course of a year. And so there's a dirtiness, um, to paper currency.

Warren Fisher: (35:59)
And that just goes to what we talked about earlier that, that depth of cash. And so we really see kind of the biggest and easiest kind of donor being cash as a tailwind for the digital payment space. And then second, we see big growth in continued growth, um, away from physical brick and mortar locations, physical retailers towards e-commerce and retailers and merchants need to have a bio wine pay in store or an omni-channel kind of presence in order to survive. And that was one of our big takeaways from last year. And COVID-19 is companies need to be able to adapt. It's not just the banks and Jamie diamond who need to adapt and embrace technology. It's your everyday restaurant needs to be able to do takeout. Um, it's your stores that need to allow their consumers to shop online and maybe even pick it up in store or have it directly shipped to them.

Warren Fisher: (36:56)
I don't know about you guys, but I have, um, a box outside of my door or each and every day from Amazon prime. And, um, all those transactions have to be done via a digital payment. And it just so happens that the largest payment gateway for a company like Amazon is Stripe, which we own in our fund. So, you know, we, we like the, the marriage of public and private FinTech companies in our fund, and we're seeing great growth opportunities and enormous opportunities on the private side. But I would still argue that the names that many of us know the visas, the MasterCard, the PayPals, um, have wonderful growth opportunities that are having them as well. So

Jason Zins: (37:40)
We're gonna, we're going to bring in Bitcoin here for a moment. I'll be back on to those without it. Um, but specifically as it relates to payments, I think obviously Bitcoin, at least in our view, the discussion has been settled as far as the store of value. We, we certainly believe it's it's digital gold or gold to point out. Do you think Bitcoin or more broadly blockchain, um, has a space in, in, in payments, uh, five, 10 years from now?

Warren Fisher: (38:10)
So, so, um, you know, we like to say that any currency needs to hit on two different requirements and you mentioned it there's store of value, and we are slowly coming around to it. Anthony and Brett have, have done a good job of beating us over the head with this. Um, and it does have for certain institutional investors, um, a store of value, digital gold, um, I think it has a market cap, Bitcoin, at least of a trillion dollars, comparing that to, um, gold being, you know, 10 to $11 trillion. So there will be, um, a use for it as a store of value. It really needs to, our issue comes down to, it needs to maintain that value, not have a ton of volatility, and it can't really depreciate too quickly. And, you know, we can see Bitcoin and other digital currencies have, you know, 10 and 15% moves over the last weekend alone.

Warren Fisher: (39:08)
Um, you know, so the store value we're on board with that, but for us, the medium of a change part of your question, doesn't really suffice. Um, now names like square cash app, like, uh, PayPal are trying to enable their digital wallet holders, um, who had transacted in Bitcoin. If I bought 5,000 or a thousand dollars with a Bitcoin, and I want to use that to shop at CVS or Walgreens or Starbucks or whatever it might be. They're going to enable that consumer to transact. The problem with that is the IRS does not consider Bitcoin a currency. It considers it an asset. And because of that, you have capital gains taxes if you transact using Bitcoin. So if I walk into CVS or Walgreens and I spend $20 and I have in my digital wallet at PayPal and embedded paper gain in Bitcoin last year, it was up 300%.

Warren Fisher: (40:11)
It's more than doubled this year. So most people have a paper gain on their Bitcoin in their wallet. At the end of the year, I have to give PayPal a 10 99 a w nine. And so they're going to get, um, at the end of the year, an eyeopening tax hit for that transaction. And so, you know, also that's just on the tax form. Um, we see problems with the medium of a change. You also have to look at, um, the ability to return items. So Elon Musk, um, what makes some, some fanfare for a Tesla, um, a month ago when they bought $1.5 billion of Bitcoin, put it on their balance sheet and said, anyone who wants to buy a Tesla, um, can now do that with it. The problem is what happens if I return my Tesla, or if I buy a television at best buy, and they're allowing me to use Bitcoin, what happens when I return that item is the merchant acquirer and the merchant going to give return to me Bitcoin or dollars.

Warren Fisher: (41:17)
And what happens with the volatility of Bitcoin, if it has a five or 10 or 15% move either way from when I purchased it to when I return it. And so we see problems on the return side, and then frankly, just on speed. And we talked about the ability of visa to do 65,000 transactions a second. Um, if you look at Bitcoin and digital currencies and how many transactions they can do a second it's seven. And so they, they're not at a level of scale. Um, certainly that the payment processors currently allow me to transact. Um, and so we see some issues on the, the medium of a change. Um, you know, we're, we're there with you on the store of value. Um, the medium of exchange we're not there yet with. And, and we always go back to, you know, May 22nd. Um, the anniversary May 22nd, 2010.

Warren Fisher: (42:14)
Uh, there was an interesting guy who used the first ever a Bitcoin transaction, um, was what occurred when, when lastly went ahead and use 10,000 Bitcoins to buy two large Papa John's pizzas. Um, and in 2010 lasso thought he was getting a great deal. Um, you know, those 10,000 Bitcoins now have over $500 million worth of value. So I don't care how good those, those Papa John pizzas were. That was a bad decision to use Bitcoin to transact. So, um, you know, maybe, maybe that kind of hits on some of your medium of exchange, uh, on the Bitcoin and digital currency side,

Jason Zins: (42:54)
Hopefully Papa John is still sitting on that those 10,000 Bitcoins,

Warren Fisher: (42:59)
They probably are not,

Jason Zins: (43:01)
Would be worth, I don't know, hundreds and hundreds of millions of dollars today. So I'll end with a final question. We've discussed a couple of different payment or money networks today. Um, the big incumbent being visa, we talked about plaid, uh, and their emergence as a, as a real-time money movement network, which has discussed Bitcoin. Uh, I agree some of the, the immediate challenges for day to day transactions, although there does seem to be applications for large cross border instant transfers of money. Um, but a decade from now, what do you think money, networks and payments look like? Um, with, with some of the ones I just mentioned, visa, something like a plat and alternative network or a Bitcoin on a blockchain.

Warren Fisher: (43:48)
Yeah. I mean, um, the people have called for the death of cash for a number of years and in our lifetimes, cashflow will still be around, uh, people have called for the death of the, uh, remittance market. You know, the Western unions of the world, there are 170 years old. Um, and so I think, uh, maybe the calling for the death of a MoneyGram or Western union probably is premature to, there will always be a need for me, transacting with someone, whether it's cross border for a remittance of even a couple of hundred dollars that transactions still might happen in cash in a decade from now. But we really think, um, the big shift is going from your wallet to this, your iPhone, and being able to move money. Um, PayPal's Venmo really, uh, dominates the PDP space, but it shouldn't be the only one.

Warren Fisher: (44:43)
There should be apps, whether it's the cash app from, from, um, from square or Venmo's, uh, PayPal. But the ability for me to send money to you instantaneously through a text is to me where we're going, that's the revolution. It's going to take a little bit of time to get there. Um, that's kind of one. Um, and then to the other really big items we see, we talked about it earlier is, is e-commerce trends. I'm not going to be surprised if e-commerce goes from the mid teens to the high teens, low twenties percent of total, uh, us retail sales of that $6 trillion of spending. And the big three in that space are Adyen in, uh, Europe. Um, PayPal's Braintree and Stripe Stripe is, is our single largest holding. And we envisioned just years and years of continued growth on the e-commerce side. And, and frankly we're earning money on every one of those transactions multiple times, because I can use my visa or my MasterCard, um, account LinkedIn through Stripe. Um, so we can earn merchant acquiring fees, payment, processing fees, payment, gateway fees, um, network fees. And so we really view that as being a wonderful avenue of growth and where we're comfortable investing as opposed to the banking channel, which, which unfortunately still has. It's a cyclical model and it still has opaque balance sheets.

Jason Zins: (46:17)
Terrific. Well, we certainly touched on a number of different FinTech themes and exciting companies out there. Uh, of course we had SkyBridge are very bullish on the space going forward. Uh, but Warren, thank you for joining us and for giving us your thoughts, uh, on the, uh, the broader FinTech space. So with that Donald, turn it back over to

John Darcie: (46:37)
You. Yeah, Jason, that was a fantastic debut. I don't know if I'm going to get my job back in hosting. Some of these salt talks

Jason Zins: (46:45)
Twins right now, so

John Darcie: (46:47)
Hopefully nobody can tell the difference, but Warren, it's great to have you on, obviously we're very excited about the FinTech space and it's great to have an expert like you on here to break down everything we're seeing in the space. So thanks for joining us from beautiful Tampa, Florida, and, uh, and Jason, good to see you in the office. I'll see you on Monday. We're we're returning to office work on Monday, so excited about that. Very excited. Yup. Thanks Warren. And thanks Jason again. And thank you everybody for tuning into today's salt talk, uh, focused on FinTech with Warren Fisher of Minola capital. Just a reminder, if you missed any part of this talk or any of our previous salt talks, you can access them on our website@salt.org backslash talks or on our YouTube channel, which is called salt tube. Uh, on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these salt talks. We love educating people, especially during the pandemic, the ability to, to stream these salt talks and, and educational resources into people's homes, uh, you know, through digital recording. Hopefully we can see warrants sometime soon in New York, including our salt conference in September. But, uh, again, please spread the word about these salt talks. And this is John Darcie on behalf of the entire salt team and Jason here making his debut on salt talks signing off for today. We hope to see you back here again soon.

Willy Woo: The Bitcoin Forecast | SALT Talks #208

“Conservatively, I think Bitcoin will have $10-$50 trillion market cap in ten years.”

Willy Woo is a leading on-chain analyst, a new field that extracts market intelligence signals from Bitcoin’s blockchain. He writes the Bitcoin Forecast which is the most popular paid newsletter in the crypto industry.

Bitcoin exists on the public blockchain, so every transaction is visible and from that ledger an on-chain analyst can make informed predictions related to the cryptocurrency. Bitcoin’s volatility continues to decrease as more of the population is exposed to the asset and scale grows. There has been a movement towards long-term Bitcoin investing which has helped drive the asset’s bull market. “We’ve seen a net flow of coins away from participants who are traditionally just speculating or buying for the short-term and then selling. These new investors are coming in and locking up coins [long-term].”

There is a lot of leverage in the current Bitcoin cycle. If the price starts to teeter, then there could be a sell-off that leads to a bear market. Though, if institutional capital moves into Bitcoin at the end of the year, then the price will run up even higher.

LISTEN AND SUBSCRIBE

SPEAKER

Willy Woo.jpeg

Willy Woo

Author

The Bitcoin Forecast

MODERATOR

Anthony Scaramucci

Founder & Managing Partner

SkyBridge

EPISODE TRANSCRIPT

John Darcie: (00:07)
Hello, everyone. And welcome come back to salt talks. My name is John Darcie. I'm the managing director of salt, which is a global thought leadership forum and networking platform at the intersection of finance technology and public policy. Soul talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on the salt talks is same as our goal at our salt conference series a which we're resuming by the way in September of 2021 in New York, Willie, I don't know if you'll be able to make it, uh, flying in from Hong Kong, but we'd love to have you there. And that's to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're excited to bring you the latest in our series of salt talks on crypto digital assets and Bitcoin with the great Willie.

John Darcie: (00:54)
Woo. Uh, if you're in the crypto space at all, and you don't follow Willy, I don't know where that, what rock you're living under basically. And if you don't follow crypto and you're looking to learn more about it, there's no one better to follow both his writings and his Twitter feed and everything he puts out. Uh, then Willy will, uh, Willy as an on chain analyst, a new field that extracts market intelligence signals from Bitcoin's blockchain. He writes the Bitcoin forecast, which is the most popular paid newsletter in the crypto industry. Again, I couldn't recommend that newsletter highly enough. And I think Brett, our host today will echo that sentiment hosting today's talk is Brett messing. Who's the president and chief operating officer at SkyBridge capital, which is a global alternative investment firm. I would say, Brett is sort of our crypto enthusiast in chief.

John Darcie: (01:40)
And I would actually revise that to say our Bitcoin maximalist and chief he's very much a Bitcoin guy, although a fan of everything that's going on in the ecosystem. Uh, and with that, I'll turn it over to Brent for the interview. Thanks John. Willie, thanks for joining us. I think we're going to have some fun today. It'll be educational. I'm going to teach part of our discussion with your answer from Ryan will explain this or explain this later to our, uh, to our, our, our, uh, our fans here. Um, before we hop into the fun stuff, can you explain, and I am a subscriber and do echo John's, uh, suggestion that people should do. Likewise, can you explain what I'm chain analytics are? Because I think, again, for those of us that are traditional investors, these are just not tools that we had or are just, we're not sort of generally familiar with. So if you can just provide a quick one-on-one and then we'll jump into the fun stuff.

Willy Woo: (02:36)
Yeah, sure. Um, Bitcoin is quite unique, um, as in that it's got a public blockchain. So every transaction that we see is totally visible, um, on that ledger. So there's this whole process where we can pull that data and analyze it and essentially get, um, like demand and supply, um, from different investors coming in and out of Bitcoin. Um, you know, it turns out there's a lot of signal in there. You can make, um, forecasts and predictions. You can diagnose what's happening with the network at any time. Um, like recently we just had a massive drop in the hash rate when there was a big power outage in China affecting minors. So you could see, um, all sorts of, um, you know, things that happen, um, on the ledger. And, um, within the matrix of the network, you, you

John Darcie: (03:26)
Mentioned the, the, uh, what happened in China with the mining going offline. I think the thing that paid people paid more attention to was we had a bit of a, you know, a flash crash, if you will, this weekend, right where we had about a 15% decline in half an hour. And as we taped today on April 22nd, we're trading, you know, at 54,000 or so down from, you know, a high of 63,000. Um, can you talk about sort of that decline, what you think triggered it? Um, uh, yeah, I I'd be curious what your insights are. Sure.

Willy Woo: (04:04)
I'm like, yeah. Where we're trading in, um, sort of the high range of 60, 60 to 62,000, um, uh, like a few weeks ago. And, um, you know, it's, it was, it was trading in a near all time high and whenever we're at an all time high trades, like to go long because, you know, there's no resistance overhead and the whole market was very highly leveraged. Um, there was more, um, open interest contracts in the derivative markets than we've seen any time in this year. And so when, um, you're in a situation where, um, the market's highly levered, it's very emotional. And so what happened in China was, um, there was, um, a power sort of outage to China. Um, like China is, um, the Chinese power companies were, uh, undergoing our safety inspection. And so they look like, um, the, the miners in China, which some estimates of between 25 and 40% of the, um, mining power on the Bitcoin network is located in this particular area.

Willy Woo: (05:10)
Um, these, these miners went offline and that went on offline at a very critical point, um, because, uh, essentially the, the Bitcoin network and balances, you know, the, the amount of hash power, these miners throw at the network with the difficulty adjustment. Um, so this sort of keeps everything can check. So our block times keep being processed every 10 minutes. And so the difficulty just went up and within, um, like something like 12 hours of that difficulty adjustment, um, the miners, uh, went offline and let part of China. So we had a reduction of, um, compute power thrown on it, the network, um, just at a time when we needed it for this higher amount of compute that, um, is normally, um, thrown at it. So immediately the, um, the network started to slow down, um, the amount of the amount of mining, the compute, um, was not sufficient to balance off the difficulty.

Willy Woo: (06:15)
And so block time started to slope down and can imagine if, um, hash power starts to drop out of the network. Um, and there's a, there's always been this correlation between hash power and price. Um, you know, we're in this highly leveraged zone and, um, speak later sold off. And, um, and so, yeah, it was, it was a sell off that was quite, um, unprecedented for this year. And there, uh, nearly 5 billion, um, contracts got liquidated, um, a hundred lowers. Our million accounts were liquidated across, across the whole ecosystem. Um, if you were to include, um, the entire crypto asset space, it was nearly $10 billion of liquidation. So we had a big flash crash. So, I mean,

John Darcie: (07:07)
I can put that into layman's terms is what we really have is where we have people who were levered right. 20 to a hundred, a one, right. And that as the price starts falling, right, you have people that get sold out and that puts pressure on the market, which then sells out more people. Right. And then you get this sort of cascading effect. Is that, is that really the that's, that's the dynamic you're describing, right, exactly.

Willy Woo: (07:33)
It's a, we call it a long sweet squeeze, um, either, um, you know, if you're, if you're, um, if you were trading on leverage you're esentially, um, buying assets with money, you don't have. And so liquidation is essentially the bank foreclosing on you. Um, so, you know, when that happens, your entire positions get sold and that's dumped onto the market. And obviously that pushes the price down and then it sort of cascades to the people below you with, you know, with their risk limits, see a little bit below, and that just creates this chain reaction in the whole thing starts collapsing. And, um, until, until everyone's liquidated, um, and then the price bounces back up. So, I mean, so

John Darcie: (08:15)
We do a weekly Bitcoin show because there's just so much news in Bitcoin. One of the things we someone asked yesterday was, you know, how is the market different today than it was in 18? And the answer I gave, which would be curious to your reaction and tie it back to this is in 18, it seemed like everyone was speculating people, right? We're buying Bitcoin to sell it at another price to make money, to go buy stuff with, right. There's this sort of idea of hobbling or being like an investor, I think really hadn't taken hold. And I, and I'm not going to tell you as an institutional investor, we own, you know, $600 million or so of Bitcoin we're investors. Right. We, we haven't sold any Bitcoin. Right. You know, we deal with the ups and downs. Um, but it does seem that there's still, uh, and I don't know what percentage of the market right. Is composed of speculators. Right. And price action tends to be driven by the marginal buyer or seller, I guess. I just like your reaction to how the market composition today versus what it used to be. And, you know, again, is it speculators that are driving the market or is it this institutional adoption that we're seeing? Um,

Willy Woo: (09:30)
Yeah, the market's completely different from 2018. Um, maybe, well, 2018 was a bear market. Right. So then I'm sorry. So in 2017,

John Darcie: (09:40)
I mean, when I, when I say that

Willy Woo: (09:43)
[inaudible] was, um, you know, Bitcoin had a lot of, um, exchange activity, but very little of it was, um, leave it. Um, we didn't have well-developed, um, futures markets, uh, the leverage you could get was on margin, so borrowing rather than, um, derivatives. And so, um, the, the, the price was more or less, um, yeah, I would say it's less, less leave it. Um, but I'd say also right now, um, you know, we've got this very large dominant derivatives market. Um, like the I'm just looking here. Um, the normally derivative director's market is, was much, much higher than spots, sometimes five to 10 times higher. Um, we've just flushed out a lot of the duress of traders. So, uh, even now post that flush, um, the, to volume is 50% higher than what we're seeing on spot volume. Uh, I would say, you know, you'd say you might think that, um, the derivative market has a lot of price control over, um, Bitcoin, but actually that's not entirely true.

Willy Woo: (11:03)
It has a very, um, like short term dominance, you know, because like, if you're going to buy Bitcoin on margin or, um, it's, you're, you know, you're there, whatever you buy, you're going to have to sell out sooner or later because it sets a short term trade. And so ultimately what's really important. And, um, this, um, it is the long-term investors who are coming into buy and hold, whether they're coming into buy and accumulate or whether they're selling. Ultimately, when we're looking into the weeks and months ahead, that's going to determine the price of Bitcoin, essentially the demand and supply this, that, um, dominated by the long-term investors. And this is what we're looking at on chain. Um, we can actually see what's happening so much in terms of the trade positions on chain. We can't see any of that. You have to look at data coming off the exchanges, but, um, whatever happens in the short term, even if traders are shorting. Um, and when you see, uh, like long-term investors coming in to buy and accumulate, you know, that it's going to be the traders that are going to get ripped. Um, they cannot, um, continue to short and sell off into the demand that's coming from long-term investors. So

John Darcie: (12:28)
You, you raised an interesting point. Um, you know, there's a lot of discussion that the influx of institutional capital is going to reduce the volatility of Bitcoin. I actually don't happen to share that view, which seems to be consensus. And I hadn't really thought about what you just said, which is that we have much more leverage in the system today than we did in 17. So that makes me feel more strongly that, you know, we're a ways away before Bitcoin between us becomes a less volatile asset. We're w what's your view on that?

Willy Woo: (13:06)
Yeah. Um, I've run a projection on volatility. I've got the volatility of Bitcoin since the markets first opened in 2009. Um, and if you plot there on a log scale where, um, you know, originally the volatility was over a hundred percent over a 60 day period. Um, the, it is coming down, there's coming down, it's a decay, there's kind of like a half-life of decay and most people will not notice it, um, because they're only looking in the last few months with last year, but if you plot this over the long-term scale, we're looking, um, I carry number off hand. I think it's about an a decade give another dozen years. Um, that's actually on track to cross under the peak volatility of USD Euro, um, which is quite surprising. Um, but that's, that's what happens when you, you met this over the long term, um, this, this asset classes still very, very much in its infancy. Um, you know, like it's taken us 12 years to get to some, somewhere between two and two and a half percent of the world population having exposure to it. We've just broken $1 trillion of capitalization. Um, it seemed to get a lot bigger and as we get that kind of scale into the system and that kind of capital, it will reduce and volatility. And we have seen that for 12 years. Yeah.

John Darcie: (14:49)
I, I guess, I guess when I say the volatility not being reduced, I I'm speaking more in a noticeable way in the next one to three years. I definitely agree with you, you know, when, if you scope out the time to a decade, you know, I certainly agree. Um, well,

Willy Woo: (15:07)
I I'd say I've been seeing the volatility over the last say three years reduce as well. Now, the reason for there is there, I think I'm very, I think very strongly, like in 2018 we had very high volatility because, um, all of the leverage was essentially one exchange. It was unregulated called BitMEX and there was a lot of, um, kind of a few being trading that market. You could see a lot of, um, maybe call it trader games where, um, you know, the stock positions, you know, the defensive lines where people would exit the positions they were being hunted, um, through, uh, essentially, um, you can either call it manipulation or you could, you could call it game theory, like trading, where you're pushing the price in a particular direction to, to, um, take out traders. Um, that was very evident. Um, I used to say, um, the short-term price section of Bitcoin was essentially a random walk, um, to liquidate the most traders on BitMEX.

Willy Woo: (16:17)
And, um, obviously in their kind of here, you would see this ridiculous amount of volatility where you have these works of price going up, um, you know, whatever, it was hundreds of dollars in minutes. And then I would revert back down as traders were being liquidated and the price action was the, it's like a square wave, like these bats that would go up down and very choppy. And, um, now we're in the Sierra where, you know, you've got like 20 drift of exchanges and most of them are playing very nicely. Um, but Nick's, um, now a very much minority of it. You've got the CME, which is wholly unregulated. Um, so there's less volatility just in the sheer mechanics of, um, the, um, the industry, um, the infrastructure there for, for, um, for trading these derivatives. Um, and then when you add to that, um, this, this kind of 20, 21 year telling a 2020, where we've had very, very large spot demand coming in from institutions.

Willy Woo: (17:25)
Um, we're yeah, we're, it's, it's, it's limiting the downside, um, sell off from, um, what you'd normally expect, um, from derivatives. Um, so, you know, I, I keep in mind, you know, this kind of idea where you've got an organic price of a bit coin supported by a investors, and that can be modeled using on chain data, and you can model that quite closely. And then you can measure the actual price of the coin, which is really, um, the Terman and pat, um, by the speculators. And so you've got the speculative, um, premium that, that happens. And whenever the price gets close to that floor price at organic price, um, it's very difficult to squeeze the price below that valuation. The only time I've seen that happen was in, um, you know, the early part of last year when we hit the COVID of the event where all Mac had sold off. And it, it did momentary drop below that for a few weeks until all of a M deleveraging had completed. Um, so, um, yeah, I think, I think the volatility is dropping, um, and it's just from the sheer amount of demand coming in from, um, institutions currently. Yeah.

John Darcie: (18:50)
I think, you know, we have a, we have an ETF application before the sec, so I'm sort of conversing in some of the terms that are important to them. I think they would use a less polite word and say that the market was subject to manipulation years ago. And of course we're arguing that with the maturation of the market, um, that, you know, it's just not as susceptible to it as it was, you know, when it was cause I, I concurrent still, we're still in, you know, a very young asset class, but, you know, it's growing up a lot, you know, over the last four or five years. Um, can you speak to sort of the, just the state of the market today, and maybe you can tie in why I opened our session with a 1987 song by Rick Ashley, and maybe, uh, maybe tie that to, you know, what your forecast is, which I think, uh, I think our listeners would, would enjoy hearing.

Willy Woo: (19:49)
Yeah. It's, um, we're seeing currently and unprecedented supply shock. Um, so normally you see this kind of, um, this kind of depletion in inventory on spot exchanges is, um, essentially like the long-term buyers come in and accumulate and move those coins into a cold storage. Um, and this kind of buyer is kind of the smart money buyer that buys in early, um, before, you know, the price starts rocketing, you know, when you take a lot of the supply out of the market, it does rock it up. And that happened in 2017 and the sort of one to two and a half thousand dollar ban before we rocketed up to 20,000 and the, the following three quarters of 2017 and, you know, their depletion of the smart money coming in, um, that lasted no more than five months. And like this time we're at, what is it?

Willy Woo: (20:54)
I don't know, is it 13 months already? There's just so how much coins are being scooped off the exchanges and, um, you know, no who do a lot of the on chain metrics. And, and they've got a metric where we look at the, um, the wallets on the exchanges. I mean, not while it's on the network and we cluster them and we figure out, um, essentially who are the different participants and we look at them and we go, is this person a highly liquid person who seems to buy and sell, buy and sell. And then we have the, what I call the Rick Astley's of this world who buy their Bitcoins and we'll never let it down. You know, they just keep buying and buying with value, much history of selling and very similar to their supply shot. We're seeing of coins moving off the exchanges.

Willy Woo: (21:45)
We're seeing these Rick athlete, um, genre of, of, of accumulators, of, of investors that are buying and holding, um, coming in very strong. So we're seeing a net flow of coins from, um, participants that there have been traditionally more or less speculating or buying over the short term and in selling, um, maybe they are like traders that trade in and out of old coins. Uh, but essentially these new people, the Ric athletes are coming in and they're just buying a locking up the coins. Um, and so that's been a very big driver of this bull market that, um, there's been strong buying, um, and even like we can measure the size of the purchases and the movement of their capital. And, um, you know, a lot of the conversation has been about institutional investors. Um, that's true. Yeah. Also, um, I am thinking that there's a lot of high net worth investors coming in here coming to buy it.

Willy Woo: (22:49)
And, you know, slugs are $1 million at a time. Um, and we saw that, um, very stressful in the sort of first two months of 2021. Uh, so yeah, I think it's these guys institutions, the, um, high net worth guys that are coming in and scooping it up. They tend to store on, um, into Coldstone wallets, which I'm a very visible on chain. Um, whereas retail, um, which, um, you know, that just started to come in the last two to three weeks. Um, lot of retail numbers are going up, um, retail teams to store the coins on exchanges. Like the Coinbase is of this world. Uh, and that's less visible on the blockchain obviously because they don't take off the exchanges. Uh, but we are seeing, um, a lot of numbers claim lately with, um, more retail type. So

John Darcie: (23:46)
You, um, uh, recently raised your price target from two 50 to 300, um, I guess, can you put a timeframe on that? Can you talk about, you know, how you get to that, how you derive that and you know, what drives that?

Willy Woo: (24:03)
Yeah, it's a, it's a very, um, kind of dynamic, um, like model and there, um, it uses, you know, what we called mean reversion, essentially a moving average, and also I'm moving average of, uh, of the price of Bitcoin. And, um, if you do that every single top that, um, Bitcoin's experienced and it's 12 year history, um, it's, it follows a particular trajectory and, um, you know, to get a target, you kind of have to get an idea of where the top will be, um, when a real hit that, um, that they align essentially the all time moving average across a multiplier, their model, um, is looking like it is shooting for three to 400, even higher. Just really depends how the price section of the coin acts over the next, um, you know, half, half of the year. Um, but so perfectly we, in all past cycles, we've seen Bitcoin top out around the December, um, at least the fourth quarter of, of the year after the havening.

Willy Woo: (25:19)
Um, and you know, like Bitcoin is like this assay that's very, very much locked into an algorithm where every four years we have a happening, um, where the inflation rate of the canoe coins minted into the supply gets halved. And that creates this, um, like reduction in south pressure by one half and so seamlessly that gives us a little shove on the price. If you've got half of them out of S sell power from new coins being mined, um, you get a bullish in pulse and, um, in all the past cycles that it seems that that bullish and pulse manifests into this crazy Brenner. You know, the last one was, um, 29, 2017, took us from a thousand to $20,000, um, and tends to Peter out around the fourth quarter, around December. So ballpark in December, um, that top cap model of mine, um, it could be anywhere in the three to 400,000 range and might even go higher, but we need to see how it performs over the next six months.

John Darcie: (26:31)
Okay. I want to dive on into this ruling. So I'm going to challenge a little bit here. Um, so, and I'm wearing a Bitcoin hat, so, you know, just remember I'm super Polish as I challenged you, but it seems to me whenever I've seen a great trade, that's so obvious they eventually go away. So just as an example, last summer, we look very hard at the grayscale arbitrage, which was a fantastic trade and we passed on it, which was probably a little bit of luck, but it just seemed too obvious, felt like everyone was doing it. And whenever I've seen that, it just means that you're sort of late in the cycle for that, that sort of trade, the obvious trade in Bitcoin that everyone seems to have is, well, this cycle is going to be like a last, like, when are you going to sell, what is it going to be December?

John Darcie: (27:20)
Is it October? And my experience tells me that this cycle is going to be different one way or the other, like maybe we've taught maybe we'll top in July, or maybe we're going to just blow through December and just keep going higher and higher. And this cycle from a time and price standpoint, we'll look, I think that the cycle, if I were to put odds on it, the likelihood that this cycle looks like the past one, I would have very, very low. Um, and obviously I would skew to a longer a bull market with higher prices because I'm wearing a Bitcoin hat, but I actually would think a shorter bull market to me is more likely than just a repeat of history. I just would like your reaction to that because it's just, there's, there's so much discussion about, you know, where are we already, Paul talks about while we're in the fifth inning and he's basing it on prior history, and if everyone's got the same trade on it, it's going to be different than that.

Willy Woo: (28:21)
Uh, I kinda agree with you

Speaker 3: (28:24)
Actually. Um, you know, I, I, I've seen a lot of templating of the cycle past cycles. Um, I don't think anyone would have guessed that the cycle would be ripping up so quickly. So, so had, um, and I know a lot of the team traders have been like, this is overboard and it's just been on the red line consistently until the last, you know, I guess month and a half. Um, and

Willy Woo: (28:55)
My approach really is like,

Speaker 3: (28:58)
You know, we got all these models, um, the status of you trading a model, um, I ran the 2017. We hit like $10,000 and everyone said, this is tall. And I looked at the back trace and I look at the on chain analysis of it and it, it could have been a talk, it was touch and go. Um, and then it ripped and doubled, doubled to 20,000 in a matter of weeks. Um, and so everyone's got this plan, um, beautiful plan. And so thing happens and, you know, I get people asking me, can you let me know when we get with them 25% of the top? And I think back to 2017, I go, you know what, well, didn't, we just like, we, we, we doubled and I think just barely over two weeks in two weeks, we went from 10,000, but like, there was something like, we went from 10,000, 20,002 weeks.

Speaker 3: (30:08)
And, um, every day the prices running up thousands of dollars and you think, can I have a nice, um, wanting 25% of the way to the top? And the whole thing is Maine. Um, and so when you're in there, mania phase of the market, anything can happen. The fundamentals have gone out the window and it's just highly speculative. You'll see the price rise way about what on chain. Um, valuations will go. The, um, I mean, you just don't know, it's like you're playing chicken off a freight train, speak of FOMO. So, um, I think that's gonna come into it and we'll we're to maybe the models where maybe they die. Um, but everyone's going to be in complete disarray when, when, when we approached the top, that's, that's always happening at that point. Um,

Willy Woo: (31:03)
I don't know if we're going to top out early. Um, I think there's a fair chance. Um, there's a fair chance we might might just looking at some, some of the, the rates of climb. Um, you know, I look at, I look at the, the capital coming into the network and I look at these bounds, you can put on it based on the back trace. Um, it's like, while the price can go beyond this part or this, this price target, because, um, historically, you know, we haven't been able to break there with this amount of capital on the system, so there's, there are bounds. Um, and, uh, I, you know, you predict them for, it seems like, well, we're gonna close out this cycle earlier. Um, but having said that fundamentally, um, you know, looking at the institutions coming in, um, which maybe you have a better idea of, it looks like a lot of money's still coming in.

Willy Woo: (32:05)
Um, and, and it's kind of, yeah, I do get the sense that if their money is coming in and it's coming in near the later into this year, um, the, it could change a lot. And I, the, you know, the top, the top model I have, it's a moving target based on essentially the price section that's happening throughout the year. Um, so having said this, this target out there, and there's a very broad gin near target. It's very dependent on the time signature of there happening around December. Um, so I have, for anyone who's trading this and thinking of your hundred thousand, that's a hard and fast target. Um, it changes, you know, I see 300,000 year, January of this year, cause that was where, and there was conservative because it was based on past curbing of that model. Um, but I think it's very subject to, to, um, change. Um, it's certainly not like plan B's, um, stock to flow model where he's got a line on the same where this amount guests, the models, this price, this, this regulation. Um,

John Darcie: (33:23)
And by the way, I don't mean, you know, my approach to models is it's sort of like, it's like riding a horse, you know, you ride it till it bucks you, you know what I mean? So, you know, I, I'm just wondering if this is the year we break the book, the model, in fact, John and I spoke with someone who runs one of the larger institutional businesses in Bitcoin, and he believes that that will happen for the reason you just said. He just said that the, the, the March of institutional capital is so large and, uh, it takes these folks time. You know, it just takes them time and, you know, if they're going through their committees now and they're coming in in the fall, like they're, they're not worried about the cycle. Right. You know, and they're not going to be saying, well, it's late in the cycle. Let's not invest there. They're going to be buying. Um, and that's where you could get, you know, sort of a, um, a busted cycle. I'm not on board with Dan held Supercycle. I said, I do think we're going to have a, a bear market. I think that's just nature of, of everything I've ever traded. Um, but I just think it's going to be different this time, but who knows we'll find out. Um,

Willy Woo: (34:35)
Yeah, I agree. I thought, I think the whole thing's on a, um, you know, it's a, it's, I feel like it's like, uh, it could go either

Speaker 3: (34:44)
Way. Um, we could, like, if we get an influx of this very large capital from the very large institutions that could change, um, but then also there's so much leverage in the system on the cycle. And we haven't seen that in 2017, like just the amount of people I've heard that are like mortgaging their houses to buy more Bitcoin or

Willy Woo: (35:14)
Collateralizing their Bitcoin on a block fire line to get fear, to buy more Bitcoin, um, even funds are doing there. Um, so, you know, once the price starts to Teeter, I could see, um, a very large sell off in a large deleveraging event there that throws us into, uh, a BMI market. But if this capital comes in near the tail end of this year, that's going to stop that from happening and it'll just run up higher, um, cause then deleveraging might happen. Um, so,

John Darcie: (35:53)
So th th there's one factor that, that I don't hear people talking about, which I think about a lot, which is, as, as we know, there are 900 Bitcoin new Bitcoin mined every day, right? So in fall, let's say when the Bitcoin price was 15,000, that represented 13 and a half, a million dollars a day. And, you know, PayPal and square and grayscale were able to scoop up that much just based on their, their daily inflows and buying, you know, today we're up to 49 and a half million dollars. Right. And, you know, w w we have a fund we're buying Bitcoin every day. There are other people, right? So, you know, that that's an absorbable amount, but when you start get to bigger numbers, right. You know, it's 90 million at a hundred thousand. I mean, this is just basic math, but th you know, when you say the numbers are, you get to 250,000 Bitcoin, right.

John Darcie: (36:49)
That's 225 million supply. And, you know, I love Michael sailor's idea of Bitcoin miners holding the Bitcoin on balance sheet. But most of them, you know, don't have access to the capital markets yet we don't have, as a percentage of the miners, a very small amount of them, right. Are trading on public exchanges where they can raise debt and equity. So I think we have to assume that that's, that is supply, that, that will come onto the market. That's just a lot of incremental demand just to sustain the price, I guess. What are your thoughts on that and how does that affect your model? Right. Again, we get to two 50, right? That's $225 million, then that new flows have to come in just to keep the price add 250,000. Am I thinking about that wrong?

Willy Woo: (37:40)
Yeah. I, I really don't think the minor cell offers anything that significant. A lot of people look at the charts of, of minor, um, outflows into exchanges. Um, and I look at them every day. Um, you know, I've got it, the whole chart here every day, I'm looking at it and I don't even look at it because it's so minuscule against, um, genes, the buying power of, um, of, of a full-blown bull market. Like we're saying, um, currently at least on Shane it's 50,000 people are buying Bitcoin for the very first time. That means that, uh, by my estimates multiply by three, roughly, um, we're seeing 150, 50,000 people that are buying Bitcoin for the very first time, um, at the exchanges Naval, nevermind, just looking on chain. So, um, gosh, even excluding the institutions, just talking retail, um, that's like less than a 10th of a Bitcoin, um, per day, like, like for each one of those new participants, that's very minuscule.

Willy Woo: (38:58)
Um, uh, not, not very much talked about as, um, the actual real self power, um, in this cycle is really the, the, um, the fees that are generated on these derivative exchanges. Um, like I was talking to one of the very large OTC desks. Um, the head was giving me an estimate of the sell off by exchanges from, you can think of it as a tax on trading. And then that gets dumped into the market converted to fee, to pay salaries and, and, and whatnot. Um, he, he estimated, um, 1200 Bitcoins per day, um, in 2020, um, is being dumped onto the market. Um, so you can think of that as a sell pressure and other kind of minors. Um, so appreciate, it's like the exchange mining fees and dumping that on the market. Um, we've got a lot more bullish activity, a lot more trading volume, 2021. Um, that's the one to look at, um,

John Darcie: (40:07)
Just to be clear. So you talking about, like, for example, a Binance is making their money in Bitcoin and they need to pay employees. So they're selling some amount of the Bitcoin that their revenues come in to pay employees. Is that, is that what you're saying?

Willy Woo: (40:24)
There's an example. I, I posted this, um, last year CZ mentioned that they, um, pay the employees and being, and they don't sell off to cash match. Um, but, uh, we're talking a heck of a lot of volume, you know, um, we're talking, um, you know, easily quarter of a trillion dollars a day into volume, um, most days. Um, so, uh, you, you take a small fee of that. It's gonna, it's gonna pale, and it's gonna make the, make the miner's fee tiny, absolutely tiny compared to what these exchanges are doing. And a lot of it does depend on whether they are, um, stacking sets, essentially stacking those Bitcoins and holding it. And how are they paying their staff and Bitcoin, or are they selling to fear?

Speaker 4: (41:13)
Um,

Willy Woo: (41:15)
And so that that's, that's not analysis I've done that comes from OTC desk. Um, I think to get a really good handle on it, you'd need to know exactly what the behavior of these changes are, but coming from an OTC desk, um, I think they've got a pretty good handle on exactly what's coming out.

John Darcie: (41:35)
Um, that's interesting. I wasn't aware of that. Um, I guess, relatedly, so we've been in this sort of 50,000 channel now for two months or so give or take, and, you know, there's a lot of talk of the institutional buying, right. You know, there's been a lot of good news thrown at Bitcoin over the last two months. Right. We had Brevan Howard, a big hedge fund announced they bought Dan Loeb, Ray, Daleo just in the last week, right. Ben opened up, um, and we're at 54,000, which again, we're up 80, 90% for the year, but where's this outside of, you know, the miners, which are sending us in substantial. And, you know, let's say exchange fees to pay compensation, where is all the supply coming? Right. Cause there's, there's a lot of talk about all the influx of demand and, you know, and how we're holding this trillion dollar level right here at 52 50 3000.

John Darcie: (42:30)
But it I'm an equities guy traded equities for my most of my career. It feels heavy to me. You know, Bitcoin feels heavy to me, you know, inequities trading. They say when a stock gets lots of good news and it, and it stops going up on that good news, it's a good time to sell. And, um, again, I'm, ragingly bullish on Bitcoin, but you know, for the last couple of weeks, that's how it's been acting as like a stock that gets hit with a lot of good news, but can't seem to break out. Um, so just like your reaction to that in terms of who is selling based on your analysis, um,

Willy Woo: (43:08)
Let me just zoom in. I want to pull up a chat so I can get my bearings on the dates here. Um, so, you know, typically, and you see it on the blockchain, you see the age of coins that are moving, um, Asia coins that are moving out of wallets. Um, when you see coins moving out of wallets and moving to new participants, um, that's a sale. And so we measure the age of those coins and the size of those clean movements. Um, we we've seen since the entire history of Bitcoin, um, the OGs, the, the whales that bought from early days, 2012 and earlier when things were like under a hundred dollars, those guys are divesting and every single bull market rally, they divest a little divided dailies, but, um, and we saw that, um, interestingly,

John Darcie: (43:58)
Well, I talked to a lot of those guys and they all deny it. So I believe your data and they're probably lying to me, but none of them say they're selling,

Willy Woo: (44:07)
Maybe not recently. They certainly did. And, um, you know, they certainly did up to match and they stopped selling when Elon Musk started buying, which was very interesting. And then the sell is, um, since then, um, you know, they are away or sellers that have been selling, um, that have been selling, um, since, um, the OGE stopped selling. Um, the age of coins have been, um, much younger and, um, we saw a lot of that hitting into the tail end of match for the quarterly rebalance. So, um, my guess is really the, the hedge funds that bought in, um, in the 10,000 ban took a lot of profit. Um, I think Rafa was one of the funds that went on record. Um, so

John Darcie: (44:58)
Yes, we're seeing,

Willy Woo: (44:59)
I think a lot of these, um, trading funds that are buying in for, um, shorter term, um, live positions that, that, that taking the five to six X. Um, and, and that's, that's creating a bit of a cap and the same here. Um, so yeah, I, those are the sellers is what I'm seeing. Um, very clearly based on the date of the coins that are moving into the exchanges.

John Darcie: (45:27)
Got it. I guess that makes sense. Um, so something that's happened is that over the last six months, that has surprised me is, um, like the doge coin phenomenon, you know, I, I, it, the ICO craze and the all coin craze of 17, 16, 17 felt again like, you know, the sort of speculation you see early in a market. And we had Bitcoin back to approaching what eight 80% or so of the overall cryptocurrency market in the fall Bitcoins. Now down to 50% of the cryptocurrency market, right? Doge coin is 58 billion. And I'm only using that as a stand in, right. There are a lot of other, um, coins and defy tokens that, you know, are trading advantage. It really big numbers. I, I guess I'd like your thoughts on that in terms of the overall market and what does it mean for Bitcoin good, bad or indifferent?

Willy Woo: (46:32)
Well, you know, like, um, the altcoin market, there's many ways we can look at it. Like the, the, the, the, the age old way of looking at it is, look, these are, these are, um, alternative assets that you can trade in and out of, um, you do a back trace on them, and I bet traced what nearly 2,500 of them across all the history that there was. And, um, more or less these assets it's trimmed down over multiple cycles. But the interesting thing about these ACS is that they, um, they provide, uh, um, you know, I kind of beat her. Like, it, it, it, um, in a bull market, they can go a lot higher than, um, Bitcoin and outperform Bitcoin and, you know, be a market underperform and they go through oscillations. So, um, a lot of traders will, will, um, particularly the crypto native traders will trade in and of altcoins in different phases of the market, particularly when the Queensland or sideways band.

Willy Woo: (47:35)
So while you've got the sell off coming from, um, initially the whales from the OGs, and now the hedge fund selling off in the quarter, you're rebalancing, um, it's trapped Bitcoin in a sideways band. Um, and then, um, when you're in that zone and you also get these native traders that are like crypto native traders, they're like going, okay, this is my opportunity while Bitcoin's going sideways, I'm not going to get any gains on that. So I'm going to move capital out of Bitcoin and into these coin assets and that tiny little market caps. So they go weak all the way up, um, on very small amounts capital. Um, so yeah, you get that kind of a fit. Um, that's the traditional way of explaining it, that is definitely happening. Um, we're in a, kind of a 20, 21 phase of the market where there's a lot of experimentation happening on, um, defy.

Willy Woo: (48:30)
And so, um, you know, there's a lot of, some of the, you know, a lot of legitimate experimentation, um, a lot of, um, complete scams, um, uh, there's some very well engineered devices projects that are, um, well engineered in the economics to go upwards, um, striking a lot of capital. Um, and then you've got, um, a lot of interesting projects there. Um, actually we didn't have in 2017 then look like, um, you know, they can hold the future of defy. Like, um, you know, I, for example, FTX is a shining star or one of these derivative markets and, um, the, of being creating serum decks and that built their own salon owner. And, you know, we've, we've got exchanges there. We can trade on now where the transaction fees are sub sub one, penny, um, and all secured on a private key with no counterparty risk when less counterparty risk, maybe a little more, a little bit more risk on that technology stack, but, um, who doesn't want to trade, um, without counterparty risk, you know, these, these are very exciting projects.

Willy Woo: (49:44)
And if you were to think about how that looks like in the nutritional world, um, the amount of capital in these, these derivative markets is huge. So, um, these projects are really wanting to get a slice of, um, essentially the future finance, taking a lot of trade fire moving onto defy. It's a big, that's a big, um, there's a big market right then. So there's a lot of speakers, a lot of fervor, um, between even investors, as much as, um, traders that are like taking a ride on some of these, um, you know, more scalable next generation platforms. So I think that that's, it's a, it's a little bit more mature than the 20, when we had no technology, you could raise money on it on a white paper and a woman, a good story. Now we're seeing some interesting technologies that may be able to carry, um, some of the world's finance, maybe in four years, once it matures, once we get the bugs out of it. And, um, a lot of people want to get in on the ground floor of that stuff, you know?

John Darcie: (50:49)
Right, right. You know, it's been, it's, uh, it seems though very early in terms of the real use cases for these [inaudible] tokens, you know what I mean? Um, in terms of, you know, there being long-term sustainable business models, I haven't seen many that have them yet, or at least in operation. Um, but I do agree. I do agree. It's super exciting, John, since you're dressed like a Bitcoin, or do you want to bring us home? Absolutely. I have a few just big picture questions. I'd love to hear your answer to Willie. And one is the price of Bitcoin in 2030. What do you think it will be? And what will Bitcoin's role in the global financial system be? Is it going to become the default global store of value around which every other Fiat currency and digital currency and the global economy revolves around? Uh, what are your thoughts on those two questions?

Willy Woo: (51:43)
Yeah. I approached Bitcoin as a technologist, um, and I do track the growth rate. Um, I've been on record from the data. I'm seeing that in the next four to five years, 20, 25, we'll have 1 billion people with exposure to a digital asset being Bitcoin or any other one. Um, so what I'm saying is, um, essentially, um, software eating the world. Now it's, now that we'll figure out how to do scarcity on the internet, which we never be able to be able to do before. Um, software's eating the finance world. And so I can see 'em in 10 years, that's plenty time to take big chunks. Um, maybe even majority chunks out of traditional finance and putting that onto blockchains, um, Bitcoin being the leading store of value. Um, so, you know, um, we're like, yeah, w w we're in this, this kind of transition to a digital age? Um, I I'm seeing that like crypto assets is going to eat everything, um, eventually is there's teen years enough to do that and maybe, um, Bitcoin itself, uh, I think it's going to eat gold in that time. Um, I think it's going to eat some of the store of value and equities, which is like, what is it, a hundred trillion? Um, I think, I think that conservatively, we're going to be in the 10 to $50 trillion market cap and 10 years. Um, you know, so yeah, whatever that works out is,

Speaker 4: (53:32)
Um, right, so

John Darcie: (53:36)
10, 10 to 50 X from here. So we'll let our viewers do the math there, but, uh, not, not a terrible return. Um, do you think Bitcoin and cryptocurrency in general, you're talking about software eating the world. So I think I might know your answer to this question. Do you think it poses a legitimate threat to us, dollar hegemony? Uh, you know, the idea that the us dollar is going to maintain its role as, as the dominant asset through which the United States government can pull all kinds of different levers related to sanctions and its other geopolitical goals.

Speaker 3: (54:05)
Oh, that's a tough one. You're probably asking the wrong person. I don't actually think that Bitcoin's gonna be completely dominant. I think that the future is the basket. Um, I think the U S dollar is going to be, um, more or less digitized. Um, and you know, in terms of

Willy Woo: (54:24)
Like, you know, the U S is very, very much a large economy. I don't think that's going away. So there is such a thing as, you know, a nation state currency backed by a very large economy with a big, um, defense force. So I don't think that's going away, but I do think that, um, the future of, uh, like money, um, will be backed by a basket of assets. And I do think Bitcoin will be a major paddle there. And, um, and so I don't know if they asked us the question. I don't think we're, I'm not a Maximo. So I think that, um, Bitcoin's going to be the money for the future and the only money that's going to swell everything. I think it's going to be a lot more nuanced and more complex. Um, so yeah, you're,

John Darcie: (55:11)
You're sitting in Hong Kong right now. Uh, China's relationship with Bitcoin has been, uh, interesting and mixed over the years where you have a lot of global Bitcoin mining takes place in China, but four years ago they banned the transfer and issuance of cryptocurrency, but in the last a week or so, the deputy at the people's bank of China, the central bank of China came out and said, Bitcoin is not a cryptocurrency in his eyes. And obviously he speaks on behalf of the government. People don't speak out of turn in China, uh, but he thinks it could be an investment alternative. And that marks a significant shift in tone from the Chinese government. Obviously, if China were to open things up relating to Bitcoin, that opens up a massive market of buyers for Bitcoin and Metcalf's law and the derivative network impact to that. Do you think China is on its way to liberalizing the way it looks at Bitcoin?

Willy Woo: (56:04)
Oh, I don't know. I actually, there's one thing I do not know. Well, I do not know how to read China. Um, I don't know what the strategy is, um, whether or not they want the people to, to expose to this se it, um, it does make sense that they would, I think there was a paper put out by someone and w in, in Chinese, um, and inside China that hit hit Wade. I can't remember. It was many years ago. They did say it made sense for, um, the citizens to have exposure to this. If it got big. Um, it seems, it seems, it seems like a, um, a good move, but, uh, I'm not an expert of China inside China. So again, I don't, I don't think I have any, any kind of smart thing to say about, all right.

John Darcie: (56:52)
Well, we know Willie, he specializes in on chain analysis. Anything related to the data, uh, on the chain is where Willie, uh, you know, it really specializes. So look forward to continuing to reading your analysis on your newsletter. Please tell us again about your newsletter, where people can subscribe to it and find it.

Willy Woo: (57:10)
Yeah, the newsletter is my take a read of the blockchain. I look at demand supply, so essentially looking at what's happening and what it's projected to happen. Um, so you can make kind of forecast, so ma mid macro directionality. Um, and so if you, if you want to subscribe to that best way to look it up is to go to my Twitter profile. Uh, we NAMEC on Twitter and I, there's a link on my profile page to, to the newsletter. You can subscribe. Yeah.

John Darcie: (57:38)
All right. Woo NAMEC on Twitter. You can go find Willy woo. Uh, his sub stack newsletter, which is fantastic. Again, we'll share a link to it when we send a, this episode out to all of our, our community at salt. So, uh, thanks so much for joining us, Willie, uh, Brett, you have a final word for Willie before we let them go. No, just, just again, I'm a fan. This was really fun. Thanks for joining us for way. I really appreciate it. Okay.

Willy Woo: (58:01)
Thanks guys. Enjoyed it too. Okay. Well, thank

John Darcie: (58:04)
You everybody for tuning into today's salt. Talk with Willy. Woo. Just a reminder. If you missed any part of this talk or any of our previous salt talks, you can access them on our website. It's salt.org backslash talks or on our YouTube channel, which is called salt tube. We're also on social media. Twitter is where we're most active at salt conference, but we're also on LinkedIn, Instagram, and Facebook. And please, if you don't mind spread the word about these salt talks, particularly if you have a, an uncle who rails on the fact that the Bitcoin is some type of imaginary currency with no utility or value, send them to Willie Woo's newsletter his sub stack as well as have them watch this episode. And I think it'll go a long way towards helping to change their mind, but on behalf of Brett and the entire salt team, this is John Darcie signing off from salt talks for today. We hope to see you back here against them.