The Bankman Fried's Trial by Media

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I've got sunshine on a cloudy day When it's cold outside, I've got the month of

Speaker

August, I've got sunshine on a cloudy day When it's cold outside, I've got the month of August, I've got sunshine on a cloudy day So a summary of all the tech news at the end of the week on a Friday or Saturday but Keith Teer and I are both going away this weekend so we decided to do it early before even Keith authors his newsletter so maybe this will contribute to what he puts in his newsletter. Keith as many of you know is based in Palo Alto, the heart of Silicon Valley and there's an astonishing piece in the New Yorker today on Sam Bankman Freed's family bubble for anyone who doesn't know Bankman Freed's both his parents are very distinguished professors of law at Stanford University. His mother astonishingly enough is a scholar of legal ethics and this piece really gets to the heart if there is a heart of the Bankman Freed tragedy absurdity surreal story and given that Keith's in Palo Alto I wondered Keith are all the mothers and fathers talking about the Bankman Freed's does this symbolize the moral decay of Palo Alto and big tech? Well it's going to be an interesting conversation because behind your question is a belief that your answer is yes. To be honest I have not had a single conversation about the Bankman Freed's and I do hang out with a lot of Stanford faculty who are friends of mine so it's a non-issue actually. I read the New Yorker piece this morning just because I wanted it to be fresh in my mind and I mean the most startling thing about it is they didn't really say anything I think that isn't already on public record. I mean maybe the fact that none of you multi-millionaires and billionaires are talking about this it seems to me to somehow capture what's happening. Here we have Bankman Freed and his radical altruism it turns out that he was just basically a common thief. His parents are supposed liberal donors effective altruism and yet he gave them a 10 million dollar gift. The father is a professor of tax law so he knows as well as anyone else you can't just give your parents gifts without declaring. Doesn't it speak in any way? Doesn't it resonate with you or is it just one rogue family? I think you've got to be fact-based about this. The gift was declared. I don't think they avoided any tax on it and it was a personal gift and at that time FTX was doing a billion dollars a year in revenue from trading fees. So Bankman Freed was on a two hundred thousand dollar a year salary which is less than I pay myself and you know I don't think there's any real evidence. I think what this is symptomatic of is the moment we're in historically when rumour takes the place of legal process in declaring people guilty and the New York Times piece doesn't do that. It's actually quite nuanced. It doesn't declare guilt. It even opens up the possibility of innocence although it thinks it's highly unlikely that that will be what happens. Who's innocent the parents or the boy? Both. Actually the New York Times piece suggests both could end up being true. Not the New York Times, the New Yorker piece. So I think that the idea that this person is guilty is the exact opposite of the reason we have habeas corpus and innocent before proven guilty and why we have a legal system as opposed to the mob deciding somebody's a bad guy and lynching them. You use the L word Keith. Isn't that a bit extreme? I mean what's her name?

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Freed is using the same language describing that she gave quotes to the New York Post and the Mercury, the Mercury News which is a big tech paper based in the South Bay. She talks about the prosecutors using McCarthyite tactics. You think that's true? Is this the new lynch mob? I don't believe that. Well I think the idea that she's expressing is what anyone would express if they're being tried in the media without having an actual day in court. It is not okay in a democracy for a person to be tried in the media. That is not okay. In fact it could influence the jury and create a mistrial. So I actually think she's got a point just on process, on democracy itself. Democracy is not, even Donald Trump, same thing right? Donald Trump, let's wait and see. Who knows if they can prove that he was directly responsible for things he's accused of. So I think it's an important tenet of everything since we got rid of feudalism and kings that a society gives people the right to prove their innocence. Yeah I think that goes without saying. I mean no one's suggesting that they should have show trials or that they should be torn to pieces by the mob but there nonetheless seems something so jarring about this. As you say the New Yorker piece is not particularly critical but there's one section which the writer asked Barbara Freed whether she'd ever compelled to ask her son if he'd done any of the things he'd been charged with and Freed said no she didn't need to ask. Her son was incapable of dishonesty or stealing she said. Sam will never speak an untruth it's just not in him. So let's unpack that. One of the nice things about that article is it kind of exposes the family background a little bit and the Bankman and Freed live in a Stanford University owned property. The way it works on Stanford is faculty can buy a home but they can only sell it to other faculty so it's not like a free ownership and theirs is a single-story cottage, very typical in Palo Alto, very modest. They're utilitarians and the core of their whole life has been about ethics and I don't think you can make that up. So why did they borrow 10 million dollars? They didn't borrow it, he gave it to them. I mean Andrew I bought my mum and my sister's house when I made money, it's normal. That's what you do with family. And what they do with the 10 mil? It's entirely up to them. But what did they do? And the father was traveling around the world spending tens, hundreds of thousands of dollars on hotels. They're not quite as utilitarian as you are. Well again, unpack it. The father was employed by the hedge fund for $200,000 a year and had a travel budget that was paid for by the hedge fund. He wasn't personally flashing money around and I can tell you when I was the CEO of Real Names, I stayed in New York hotels whilst doing an IPO that was not $1,200 a night but it wasn't far off. Successful businesses and FTX was a successful business, it was doing more than a billion dollars a year in actual revenue, funds its executives to perform their duties and at the highest level, they will stay in a $1,200 a night hotel room. There'll be very few CEOs in the world that haven't done that. So the rumor mill is basically bullying public opinion into believing there's some bad actors here. Now, I do think Bang Man Freed is a bad actor. I do. I mean, let's borrow the language from the mother. He's a liar. I mean, not only a bad actor, he's not telling the truth. I actually don't agree with that. I think he probably is telling the truth. When you listen to what he says, he more or less admits that he got in over his head and that when crypto crashed, the numbers didn't stack up and what he actually did, I think, is he crossed lines in order to save the business. His motivation wasn't personal aggrandizement, it was saving the business. But in trying to save the business, he crossed lines taking customer money that he wasn't allowed to take. Now, as a 30 year old, it's not that surprising that he did that. We're not talking about a few hundred dollars, we're talking about billions of dollars, Keith. You're suggesting that that's okay to save a business, taking other people's money and because it somehow... I'm not saying it's okay. I'm saying if you want to understand intent, and I think intent is important, his intent wasn't to line his own pockets. And what about the hysteria of the parents and the fact that the mother is giving interviews to the press and talking about McCarthyism and inviting New Yorker reporters into their home? Isn't there something off about that? I think you've got to ask yourself as a parent, what you would do for your child, even if they had done something wrong. What would you, especially if you believe that they didn't intentionally do it, what would you do to help them? Well, what I would certainly do, and it's obviously hard to put yourself in this position, what I would certainly do is never give any media interviews, especially in such a highly visible case, because it reflects badly on you and badly on your son. I think that probably is right, except for the fact that if they don't, the narrative in the media is going to be owned by their detractors. So silence equals submission. So it isn't that big a surprise that an intelligent woman, which clearly his mother is, who has an understanding of how media works, decides to become active. That to me isn't surprising. There are a couple of facts in the article that give you cause, where I'm interested in what happens in court. For example, I didn't know that the parents signed deeds on a $16 million house. Although the article does make clear that the beneficial owner of the house was not the parents, but was FTX, the company. And so it's property of FTX, not the parents, even though they signed the deal, the deeds. But the fact they even signed it is weird. And of course, there would be a huge tax hit if they actually own the property. So the fact they don't means it's a little bit strange why they signed the deeds in the first place. That's probably the one piece in the article I thought, hmm, that's kind of weird. But the whole narrative could have been invented by an anti-elitist populist. Professors at a law school focused on legal ethics, involved in this rather shady relationship, as even you acknowledge, with the son. He himself, whether or not he's a formal thief or a criminal, as you say, it's still for the courts to determine. It seems pretty clear that he was. It would be amazing if he escaped going to jail for many years. Doesn't this obsession with radical altruism, whatever that means, isn't there something a little off about this, Keith, or are you just saying you're blaming mainstream media, you're blaming everything except the problem? I'm not blaming mainstream media. I would expect it to do what it's doing. I'm just saying we shouldn't assume it's true. We should wait and see. I think Bankman Freed, like all of us, is a complex and nuanced person. He also expressed lots of non-altruistic beliefs on various occasions. Yet he clearly was raised by altruistic parents. By the way, he really did donate stuff to altruistic causes throughout his entire career, way before FTX. Clearly, that audit trail of behavior can't be made up after the fact, so it's real. Is it possible for someone to be altruistic at the core and self-interested at the same time? I think it is. I think that's probably what he is. He's a combination of both, which is fairly common of his generation, where our children are raised to care. I think, you know, most of what the young generation think about racism or sexism or transphobia comes out of that, but they're also taught to look after themselves, to think about number one, which is a heavily American influence. I think Bankman Freed is more complex than the cartoon character that's in the preps. Yeah, I have to admit that I am not convinced by the idea that Sam Bankman Freed is somehow a reflection of his own generation, that on the one hand, he's taught to be good, and on the other hand, he's taught to be self-interested. You may be right. It's a fascinating story. I think Michael Lewis is going to come out with a book. He's also been granted access to the family, so it'll be intriguing to know what Michael Lewis will make on this, one of America's leading writers, both on ethics and on business. It's a fascinating subject. Keith is very brave, I think, if not to defend them, certainly to question some of the witch hunt in the media. I'm going to take a short break now, and then we'll be back, and I want to talk about some other interesting, more concrete and provable technical news this week with Keith. So hold on a minute. We just want to remind everyone to read Liberties, a quarterly journal of culture and politics, one of the new brilliant publications coming out, a physical book, no internet about this at all.

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We talk about our age of transparency, but when it comes to important stuff, Keith, it doesn't seem as if we know any more than we used to. Well, yeah, I actually don't know why the case is secret. You probably do, Andrew, because you're close to the... Yeah, she doesn't tell me. If she did, she'd be killed. If I told you what she told me, I'd be killed too. But the implication of the case is that Google and Apple are in cahoots to help Google maintain ownership of the search market. And the evidence is that the iPhone defaults to Google search on the browser. And, you know, I have a lot of experience with both companies through the years. And there's one specific experience, I won't name names, but someone close to me who was very involved in the production of the iPhone at Apple left Apple. And Eric Schmidt reached out to me, wanting to talk to this friend of mine, and I introduced them. And this friend was offered a job by Google. And Steve Jobs lost his shit, as they say, and... Not for the first... Well, not for the first or the last time. And basically, Google ended up not hiring this person due to the fight. And at that point, Schmidt was on Apple's board and then left. So, you know, Google and Apple are not friends. They are competitors. And so Apple would never default to the Google search engine just out of friendship or some kind of conspiracy. It does it because it's the best search engine. And they did it because they paid them. Google paid Apple. Yeah, Google. Well, Google didn't really pay Apple. Google got paid by advertisers and gave Apple some of the money. Which is fair, right? They do the same with Mozilla, the browser Firefox has Google as the default search. And Firefox is largely funded by the ad revenue that comes from Google due to that embedding. So it's a business deal that makes sense for both sides. So the idea that some kind of deep conspiracy is, you know, just not credible to me. I can understand how external readers who are not familiar with the Valley or the companies at that level of intimacy might believe there's a conspiracy, but I don't buy it. No conspiracy of the Bankman Freed, no conspiracy of Google and Apple. What about the latest case this week? Amazon, your friend, Lena Khan, the graduate student, as you call her, has now taken on Jeff Bezos. And according to The New York Times, this is the big this is big tech's real cage now, not Zuckerberg and Musk, but Lena Khan against Bezos. Is this case against Amazon going to be any more effective or more visible, perhaps, than their case against Google? Well, I'd say two things. The first thing is Amazon is being accused of price fixing due to its dominance. And the evidence is that third party products are having to sell cheaper than they would otherwise due to Amazon's power. Now, if you go to Safeway or Trader Joe's or Walmart, you're going to see exactly the same thing. There's in-store brands competing with third party brands using exactly the same ingredients, selling cheaper than them. It's a known retail practice. It happens everywhere. And Amazon, you know, represents, I don't know, less than 10% of retail. So the idea that Amazon is a monopoly is ill founded. What percentage do they make of online retail as opposed to retail? Uh, I don't know the answer, but it's a small portion. Well, it's certainly more than 10%. No, no, I don't believe it is, actually. But let's find out. I can't do it now because we're talking, but it's not a big percent of online globally. In the US, it may be a bigger percent. So what is happening is Lena Khan just thrashing out. Well, that's the second point I was going to make. I think she's like a military strategist who's losing on the Russian front, so decides to open up a Western front and fight another war. And this is now her third front, and she's losing on every one. And opening up a new front isn't going to make her win. What's the first two? Well, she, Google is one. Right. We don't know if she's losing because- The other one is the one where she was told she can't pursue it. I've forgotten who it's against now. We talked about it on the show recently. It'll come back to you. No, it wasn't Microsoft. It's something else. I'll remember in a minute. Anyway, now why is she losing? It's because she's trying to extend antitrust law into areas it isn't written for. And the courts are saying, no, you can't do that. If you want a different antitrust law, go back to Congress and make one. And she basically thinks that her personal power and intellect can extend beyond the law, but it can't. You love her, don't you? I just think she's flawed. I don't dislike her. Is she more or less flawed than Sam Bankman Freed? She's a different kind of a flaw. A power-hungry bureaucrat is as bad as a power-hungry entrepreneur. So you're basically saying that Lena Kahn is as bad as- she's a power-hungry bureaucrat. Female, to make it even worse, is as bad as a private enterprise crook like Sam Bankman Freed. I'm not sure everyone would agree with that one. I'm not comparing them at all. But you're saying they're both power-hungry and they're both willing to bend the law or break the law for their own interests? I think they both suffered from the fact that when put in high authority, they're not able to deal with the power it gave them. One of the things on Kahn that I don't quite understand is that she- you joked or half-joked that she was a graduate student. But she made a name for herself as a graduate student because she wrote a paper about changing antitrust law. But as you say, she's working within the current antitrust law. So why doesn't she focus on changing the law itself? Because she'd lose. Because Congress doesn't want that change. I don't believe any side does. I in this context. What about on the right? On the right, there are a lot of anti-Big Tech people on the right who would like something to happen to Big Tech, but they wouldn't like antitrust law extended because that's government regulation. So she's in a no-win situation.