Auren Hoffman (00:00.078)

Okay, you ready? All right, here we go. Hello, fellow data nerds. My guest today is Andrew Ross Sorkin. Andrew is a financial columnist for the New York Times and the co-anchor of CNBC Squawk Box and the founder and editor of DealBook. He's also the co-creator of the hit show Billions and the author of the best-selling book, Too Big to Fail, which was on the 2008 financial crisis. And it's one of my favorite books. Andrew, welcome to World of Daz.

andrew sorkin (00:01.091)

I'm ready. Here we go.

andrew sorkin (00:25.723)

Thank you for having me. It's a privilege. Long time listener, first time caller.

Auren Hoffman (00:30.566)

Oh, amazing. And we've been friends for a long time, so I'm really excited to dive in. Now, 15 years later, how has our understanding of the 2008 crisis evolved?

andrew sorkin (00:40.819)

Oh goodness. You know, in many ways it probably hasn't though. I'll give you some, some good, I'll give you some good reasons that it has, and some, some new things that I think have changed things to some degree, you could argue that the financial crisis of 2008 was a crisis of confidence, like every crisis and you know, I think one of the great lessons of that period was actually that a crisis doesn't happen or develop over a year or a month, it actually, in a very unique way.

actually happens in minutes and seconds. And it all happens at one time in so far as somebody decides that somebody else is no longer good for the money, if you will. And then there's this, the derivative issue of who's good for the money and who's not. And the whole thing undoes itself in many ways. I think we're in a much better position than we were then. Having said that, I think there's actually a uniquely new element to the financial world today.

that was demonstrated with the failure actually of the Silicon Valley Bank. Because that was actually also a crisis of confidence. And it was a crisis of confidence that also happened not in months or weeks, but literally in minutes and seconds enabled by social media. And the idea that $40, $50 billion could go out the door of a bank in four hours is something that I don't think ever was conceived of.

back in 2008, it still took a couple of days for people to get their money out. And there was a worry that people were going to literally have to stand outside the banks and wait for the teller to give you the money. Today that's completely changed. And so to me, I don't know if there's a lesson here, but I think one of the problems with all financial crisis, all crises and all wars is when we do regulate them, we always figure out how to...

Auren Hoffman (02:09.535)

Yep.

andrew sorkin (02:32.559)

prevent the war that would just happen, not necessarily to figure out how we're going to win the war that's about to happen. And that's sort of where we are now.

Auren Hoffman (02:39.129)

What is the lesson that we over learned?

andrew sorkin (02:42.619)

Well, you could argue that we over-learned the idea that... Well, I would argue that in the aftermath of 2008, in the aftermath of the financial crisis, there was a huge...

andrew sorkin (03:02.779)

backlash against Wall Street. And one of the backlashes was it looked like we had given them all sorts of money, right? We had given them $800 billion, which by the way back then sounded like an incredible number. And everybody was very frustrated and angry and upset for lots of good reasons, but also because they looked at the banks in 2009, 10, and 11, and they said, you're not lending money out. Why aren't you lending money out?

Auren Hoffman (03:16.359)

How naive we were back then.

andrew sorkin (03:31.667)

taxpayers just gave you all this money. You're supposed to be helping people lend money out. And they didn't get that money. And the truth is that's because it's raining here in New York today, but a banker, and this is sort of a, it's a phrase on Wall Street, but a banker is only going to hand you an umbrella on a sunny day. And the truth is that the economy was still so shattered even in 2010, 11. I mean, that's when it started to actually get better. But there was a sense that

Auren Hoffman (03:49.935)

Hehehehe

andrew sorkin (04:01.303)

instantaneously, if you gave the banks money, it was going to show up in the economy. And it took a very, very long time to do that. Politically, that was a very unpalatable thing to do. We probably actually should have given the banks even more money if we wanted it to speed up. But nobody wants to do that. So in a crisis, everybody wants to punish the bankers and you probably should punish the bankers. And in a way, actually, in the SVB case, they were punished, right? All those

Auren Hoffman (04:27.307)

Yeah.

andrew sorkin (04:31.151)

The bad lesson is that we don't realize that in a way, and Tim Geithner once said this to me, the former treasurer secretary, he said, something on the, some of the effect of, you know, it always looks bad, but you basically have to help the people who screwed you. And it looks like you're in bed with the people who basically just, you know, are criminals effectively. And that's really the only way to solve the crisis. And that's a very unpalatable thing to say or do.

Auren Hoffman (04:59.482)

The SVB one did seem different in that exactly what you said. In 2008, a lot of the people got to keep their jobs. They got to stay there. The shareholders were often made whole. The companies didn't have to go bankrupt. In SVB, the shareholders all lost their value. The executives mostly got fired and the depositors were saved, which was kind of the main goal of the government.

So it does seem like there was some learning in those 15 years Earth.

andrew sorkin (05:33.343)

I think so. However, I think one distinction between 2008 and SVB that often gets lost, I think, in the conversation, which was that the United States government decided effectively, preemptively to try to save banks that in some ways didn't think they needed saving. Maybe they should have been saved. Maybe they were actually in worse shape than I think they knew, but all of it was done effectively on a quote unquote voluntary basis. So you had to get-

Jamie Dimon and Lloyd Blankfein and back then John Mack, who was running Morgan Stanley and all the different banks to effectively accept this money on a voluntary basis. The SVB case was literally the bank is going to go under and there were really no options on the table. So, and one of the reasons that the government didn't force the firings of the senior management at that point was because they were trying to effectively force them.

through persuasion more than through some legal world to take the money. Um, and of course, by the way, taking the money became its own Scarlet letter. And within a, you know, six months to a year, most of the banks were trying to pay it back as quickly as possible in part because they hated the PR that was associated with it, but they also, uh, wanted to be able to pay themselves big bonuses and things, and there were compensation, um, requirements and other things with that. Yeah.

Auren Hoffman (06:52.894)

Yep. At least they put those in. Yeah. Now your book, Too Big to Fail came out I think a year after the crisis. Okay. So literally a year later. Yeah. Which I love that book. It's definitely one of my favorite books out there just because of like the TikTok that went down, which I thought was like amazing. But if you had to rewrite it today, now with like hindsight, 14 years more hindsight, it

andrew sorkin (07:01.995)

It was the fall of 2009. It was a race to finish that book. It was, yeah, not a healthy, not a healthy way to write a book.

Auren Hoffman (07:21.738)

What would you change or how would you have done it differently?

andrew sorkin (07:25.063)

There's really only one thing I would do differently. And it's probably something that I imagine all the people in the room would have done differently, which is I think that I would have, really not in the context of the main passages of the book, which really were an effort to be in the room, fly on the wall, tell you exactly what happened so that you as the reader could decide. I think it's actually more in the epilogue or some of the analysis towards the end.

I don't think I appreciated, nor did they appreciate that the, I mean, there was backlash. I think we understood the political or we knew that there was political backlash. I don't think I necessarily fully appreciated the depths of the backlash and that the, the sustain, how sustainable that backlash would be. I think, you know, 2008 in some ways I think could directly tie even to the election of

andrew sorkin (08:22.907)

for elites, the questions about expertise in this country and sort of how the whole country even thinks. I mean, that's almost a second book. It's not that I would have done the book itself differently. It's almost that I wish I had seen that in advance and been able to sort of either incorporate that into this book or almost write. It's almost a separate book about sort of what that implication was. And I don't think that was readily, I hate to, I mean.

Maybe it was readily knowable, but it was something that I don't think I fully, I saw the backlash. I thought this was a backlash that would happen for a year or two or three. Um, I don't think I saw that it would last for 10 years and that it would then play in an elections a decade later.

Auren Hoffman (09:05.874)

And you had to come to these rapid succession. So probably by 2005, people had realized this like war in Iraq was maybe a bad decision and the elites had maybe made a bad decision there. And then you have the 2008 thing coming just like a few years after that, where also it seemed to be, if you look at it, it seemed that the elites had gotten some things extremely wrong. Um, and, and maybe that you think maybe those two things together had like created this mood shift on the public.

andrew sorkin (09:34.115)

I think the combination of that, I think is really the combination of sort of constant bailouts. I mean, right. You could connect Iraq, obviously, back to 9-11. I think just the constant misses of the elite class who were supposed to be the experts, who were supposed to have known better, and who were supposed to basically be alerting the public to these things. And in virtually every case, they didn't. And I think because of that...

There's a lot of people in this country who have a remarkable amount of distrust of the elites of that culture, of the expertise that they may or may not have. And what is that expertise worth? And I think that is what has led to even questions around information, misinformation. What's a fact? What's not a fact? I think it really has.

impacted and affected our entire culture in so many ways. And I think the financial crisis of 2008 was part of that.

Auren Hoffman (10:30.47)

And is there, and this kind of like distrust of institutions, obviously, trust in all, pretty much all institutions in, at least in America has gone down over the last 30 years. Do you think that just, do you think there's any way to build that trust back up or is it just like these, these experts and the elites have to do better?

andrew sorkin (10:51.991)

I think they probably just have to do better. I don't know what brings back that trust. I don't know what brings a country together. I actually would have told you, again, wrongly, so here I am, if I'm an expert at all, I would have told you wrongly during the pandemic, that the pandemic would have brought the country together. Right? Here's a crisis. And I would have imagined that the country would have bonded over this crisis. And in many ways, it's splintered even further.

over the crisis that is the pandemic, over masking, over vaccines, over all of these things.

Auren Hoffman (11:27.51)

Now we've had this kind of wild, you know, six months or so in the banking system. Where do you think we're, are we through it or where do you think we're headed from here?

andrew sorkin (11:38.523)

Well, so I do have some anxiety and remember I'm a journalist. So at some level you could argue I'm a professional skeptic. I have some anxiety about some of the regional banks, not today, but come 2024, or even into 25 and 26, depending on what happens with interest rates and depending on what happens with real estate, both commercial real estate, obviously in cities where people have not returned to the office and in multifamily.

properties that have been bought en masse both by individuals and companies that there could be problems in terms of some of those loans and What that means for the system? I just don't know You know, we've been able to handle these one-off bank failures We had SVB signature bank others, but we haven't had them en masse together and the government effectively has since said On an implied basis, but not an explicit basis that all your deposits are guaranteed

Well, they were guaranteed at a couple of small banks in America. If you had a couple of big banks have problems all at the same time, that would be a different story, I think. And we'd have to, we'd have to figure out what that looks like right now. That conversation was something that I think a lot of us talked about post, uh, SVB, but in the more recent months, it's sort of gone off the radar. And I don't know if that's because people are wearing blinders or because they think things are going to get a lot better or

One of the ways that problem gets solved is if you think that interest rates are not going to continue to go up, but if they were to go down, obviously the banks therefore become in a better position to handle these issues. And by the way, the consumer side has an easier time handling these things.

Auren Hoffman (13:17.726)

If these banks start to own a bunch of big office buildings and big apartment buildings and other types of even warehouses and stuff like that, how does that play out? Do these banks just have these monumental losses or is there a contagion?

andrew sorkin (13:34.415)

Well, that's exactly what happens. What will happen is that the, the owners of those properties are not going to be able to pay their, their mortgage, if you will, all of a sudden the banks are going to own these properties, but the properties themselves are going to be underwater, right? They're going to be worth less than whatever they were paid with, whatever, um, was paid for them. And therefore all of a sudden the banks are going to have to take these big losses and the question is, is there going to be enough capital in the system or people who want to dive in and give capital to those banks to keep them.

afloat? Does the government step in with an FDIC insurance program or something and take them over? Do they get merged with each other? I think there's a whole bunch of things like that could happen over the next couple of years. The hope is that to the extent that does happen, that it happens in a very orderly way that happens sort of slowly actually, so that you'd have a couple of them, you know, one or two happen at a time.

Auren Hoffman (14:21.418)

Yep. Like you see a regional bank in St. Louis and then a regional bank in Phoenix or you know, or something like that. Yep.

andrew sorkin (14:27.251)

Right. What you don't want is sort of a cattle clave of them all at one time, because then you're going to continue to have these other issues. The truth is, and this is probably the most, I don't know, unpatriotic thing you could say, and I'm sure folks in smaller regional communities would hate me saying this, our country runs their banking system unlike almost any other. We have a lot, a lot of banks in this country.

We care about community banks. We care about regional banks. There's a question whether we should do it this way. Right. You could look at Canada. They only have a handful of banks. Australia only a handful of banks. UK only a handful of banks. Now that is either a good plan or a terrible plan. By the way, if a couple of the big banks were to get in trouble, you know, what does that say? So hard to know.

Auren Hoffman (15:02.465)

Yep.

Auren Hoffman (15:21.014)

Now, is there any way that, are there ways that the PEP funds could benefit from an increased cost of capital? Well, it's been a long written about how it's bad for them, but how is it good for them?

andrew sorkin (15:34.467)

Well, the truth is that most of the traditional banks today don't really want to be in the lending business, not the classic lending business. Most of the big banks are hardly in the mortgage business at all. Most mortgages have to be done by these firms that basically specialize in mortgages. It's not a great business. And similarly, I think what you're already seeing is companies that need big loans are going to private equity firms like Apollo or Blackstone.

or other firms and are looking for credit that way. Now, historically, people didn't want to get a loan from Apollo or get a loan from Blackstone because the view was that if you got a loan from a bank and you couldn't pay the loan, the bank would give you time to try to figure out a way to make payments because the bank didn't want to own the asset. The bank didn't want to operate the asset. What would a bank do if it got the asset? It would take the asset and it would turn around and try to find a seller and they might even take a...

pretty big haircut on it. If Apollo or Blackstone, if you don't pay your bill to Apollo or Blackstone, they're very happy to own the asset. In fact, they'd like to own the asset. They're set up to do that. That's what the business is. And so it's sort of a different calculus in terms of who therefore the lender becomes and who's a friendly lender or not. Now I will just say Apollo would completely push back on what I just said and say that they have tried to become friendly lenders to folks and are not trying to foreclose on them and don't want to own the asset.

Auren Hoffman (16:39.914)

Yep.

andrew sorkin (17:01.275)

But I think some of those questions still persist among the lending, the corporate community that would take a loan from, from some of those types of firms.

Auren Hoffman (17:10.442)

What's your take on the venture capital foray into the media business? You've seen companies like BuzzFeed and Vice and Vox. Some of them, most of them haven't done that well. Like, how do you think about VC in the media world?

andrew sorkin (17:26.999)

You know, it's really the media business has been a business of timing. It's, it's sad to say, but you know, we all looked at Bloods Feed. Um, we looked at vice and so many of those businesses. And I, I say this as somebody who is a more traditional publisher than New York times, we all looked at those firms and, you know, people were saying five, six, seven years ago, this is the future, this is the future of media. And

I never really got it. I would be like, how is this the future of media? I don't understand where the money is coming from. And I never penciled out for me. Now there are firms that did very well and sold at the right time. You could look at Business Insider. The timing of that was brilliant in terms of the kind of multiple that people were willing to pay for it. Huffington Post was like that. Axios actually did a great job and I think actually has a nice business.

Auren Hoffman (18:12.182)

Yeah, Huffington Post.

Auren Hoffman (18:21.206)

or Politico before that. Yeah.

andrew sorkin (18:22.607)

Politico before that, you know, we could debate it. I think it's a great asset, but the athletic, which was sold to the New York Times, you know, was sold at a healthy premium, if you will. So I think there's a big question, Mark, as to how do you create real value in the media business? And is there some way, I mean, I think people thought that they were reinventing the media business. And I think the truth is none of these businesses have actually been reinvented. By the way,

This is a similar truth when it comes to the world of television and streaming. You know, everybody chased, you know, this is the Netflix effect for a long time. Everyone thought that the Netflix business model was somehow this magical business model. It's a good business model, but everybody who had a great business decided to chase what was a less great business. And by the way, then turned all of their businesses into less great businesses. I, and they did that because the market

was giving them a higher multi those types of less great businesses, a higher multiple in part because

Auren Hoffman (19:26.198)

We don't think they did it because they see where the world is going and they can't, you know, keep these carriage fees from cable going on forever.

andrew sorkin (19:34.803)

I'm not wholly convinced of that. I think that people saw the multiple on Netflix and thought, oh my goodness, and stopped investing in their principal product. All of these big media companies stopped investing in the principal product and started investing in the streaming business. Well, what would have happened if all their best shows, and this is a point that's not my own, I should say. I've heard, by the way, I talked to Barry Diller this morning. He made a similar point. What would have happened had they invested and put the best shows they had

on linear television, right? Or had gotten together and figured out new bundling packages and other things of that sort and figured out a way to make... I mean, I now use YouTube TV as my bundle. That's a great interface. But why didn't the networks either do that themselves or demonstrably partner with Google or YouTube?

Auren Hoffman (20:22.026)

Yeah, so do I. Great bundle.

andrew sorkin (20:32.039)

to create something like that and make it really work. That happened because Google was smart and decided they were gonna step into the fray. So there's lots of things like that where I'm not wholly convinced that just, yes, the world is going to move towards streaming as a transmission mechanism, but the actual sort of bundles and packages and how you actually get content, I think can come in a lot of different form factors.

Auren Hoffman (20:59.374)

You've been spending a lot of time on understanding AI, understanding unpacking AI, and there's a lot of issues in AI with copyright. Walk us through some of the things that you've been looking at.

andrew sorkin (21:08.56)

Yes.

andrew sorkin (21:13.199)

Well, you know, as a content creator myself, I'm often thinking, okay, are the content creators going to get somehow paid in a world of AI? And what's fair use, which is effectively a legal term for taking some part of something that actually is demonstrably, uh, has a copyright to it, but using a piece of it for free. And what is actually something that you'd have to pay for? And you know, I think to myself, if I was going to go write a book,

I might go read in the context of reporting for that book, I might obviously do interviews and things, but I might also read 40 to a hundred other books, which hopefully will be in the bibliography of the book. And I might footnote from those hundred books and maybe I will have paid for all 100 books or maybe I will have gone to the library. The library would have paid for the books, but they would have been paid for at least once. And then I would go off and write my book and I would not pay anymore.

to those authors than the hundred books that I read. Nobody ever thought though that there could be millions and millions of me just every day on ChatGPT. So ChatGPT hovers up those hundred books effectively even if they were to pay them once. They can then go make a bajillion more books. What should the compensation be? The other piece of this around fair use.

is how oftentimes, I don't know, you're a Twitter user, I think still, you know, oftentimes people will take the best quote from an article and they might link to the article, but they'll take the best quote and they'll put it in the Twitter feed. Well, that Twitter feed has been used to train AI. And I'm sure that Elon Musk will continue to try to do that with his new AI generative AI program. Well, all of that was fair use the first time, but

Auren Hoffman (22:46.646)

Definitely. I love it.

andrew sorkin (23:10.967)

It was a piece of copyrighted material inside another article. Now it's going to be effectively a derivative, a derivative taken. And so how should that work? Who should get compensated? Should they get compensated? I was mentioning to you before we started the broadcast that, you know, Mark Banihoff now owns Time Magazine. That's a remarkable archive. And if, if a large language model were to train on Time Magazine, not only would it get its own great writers and all the great information that Times put together, but Time.

was often summarizing news and picking out the best quotes and things and pieces of information, tidbits from other news publications for the last hundred years. So once a large language model were to ingest the Time Magazine archive, it would actually devalue all the other archives because would you need the archive of the other newspapers and magazines during that last hundred years if most of the best stuff was obtainable this other way? So I think it raises all sorts of interesting questions.

I mentioned Barry Diller earlier. Barry Diller runs Meredith Publishing, one of the largest publishing companies in the country. He's been talking quite openly now about putting together a lawsuit on behalf of the publishers against the big large language models. And in this sort of world of strange bedfellows and things, OpenAI run by Sam Altman. Sam Altman's a good friend of Barry Diller's. Sam Altman used to be on the board of Expedia as it happens, which was a...

Auren Hoffman (24:33.913)

haha

andrew sorkin (24:39.219)

one of Diller's companies. So it's just so interesting to see all the different sides of how this is all playing out. I'm by the way, still very bullish on AI. I've been playing with it all the time. I actually, by the way, think now that Claude, I don't know if you played with Claude yet, I think as a for writing right now, it's actually better than GPT-4.

Auren Hoffman (25:02.442)

How is this different from like Google's summarizing results up top? And obviously they're crawling everything and then you're asking you the question or you're in, and they've been doing, you know, obviously it's getting better with Bart, but they've been doing this for years of just like summarizing, putting the best stuff on top, trying to answer your question and trying to, if you ask a question about like something on your, um, like how do I fix this on my computer? You'll see the steps like in Google at the top and obviously it's cribbing all these articles.

and putting it right there, but you're not clicking over to the article. And then, you know, those articles are not making money from ads or whatever. When you click over. Yeah.

andrew sorkin (25:36.943)

Well, that's the big business model question. Is there going to be foot, you know, the internet and the way Google's worked is effectively one massive footnoting system. Right. And we were, we were all sort of willing to live with that model because we thought that there was a way to monetize that footnoted list, right? You'd go off and go, you'd go to the source and either the source at the, once you got hit the source, you'd either buy a subscription to the thing, or maybe there'd be advertising there or some other way to monetize it. If there is no footnote.

effectively, if there is no link back, how do you monetize it? And that I think from a business model perspective is a huge, huge question. But I also look at what Google's done. I've been playing with Bard. I'm very curious to see where Bard is a year or two from now, because they should be, I think, so much farther along in this.

Auren Hoffman (26:29.326)

Well, now they're going to use like g-mount also train the corpus and stuff like that. So you should start to see it accelerate pretty quickly, I imagine.

andrew sorkin (26:32.197)

Right.

andrew sorkin (26:35.439)

But I'm seeing, I mean, I had a friend over the other day and I have a big bookshelf and we were playing around with chat GPT-4 and he said, why don't we ask it, just pick out two books that are on the bookshelf, ask it to do an analysis of what is, what are the key points in the two books that are themed together and write an essay about it. And it was shocking. Like we picked two random books and it was pretty spectacular.

Auren Hoffman (26:57.518)

Okay.

andrew sorkin (27:04.355)

And I thought, wow. So, you know, I will not have a job soon. I am sure about that.

Auren Hoffman (27:04.686)

Amazing.

Auren Hoffman (27:09.07)

you think like, or how do you think humor is going to, because also humor is also cribbed from, you know, a lot of people make jokes and the humor is kind of cribbed from things. And one of the things that I do with these large language models when I'm writing something is I'll take what I wrote, which is usually fairly finished, and then I'll put it into the large language model and say, hey, make it funny. Because I'm not so funny. So I want it to like come out like a little bit funnier, a little bit more punchier. And it does a really good job. Oh, it does a great job. I mean, again, like.

andrew sorkin (27:34.88)

And is it working for you?

Auren Hoffman (27:38.578)

My, my, my level is really low, so it doesn't have to do that much better. Uh, but it does a great job and it's throwing in jokes and it can throw in the nerdiest jokes that can throw in. You can even tell the style of humor that you want it to do. Um, and it does a, it does a really good job, but there, there's, there's a lot of, there's a lot of dad jokes in there for sure. Yeah. And there's a lot of like jokes that, you know,

andrew sorkin (27:54.107)

But hold on, are they like dad jokes or are they like truly, is this like.

Auren Hoffman (28:03.306)

weird Al Jankovic type jokes. It can get pretty nerdy because that's probably what it's cribbing from on the internet.

andrew sorkin (28:09.435)

But if you said like, tell a joke like Dave Chappelle would tell a joke, or tell a joke like David Letterman would tell a joke, could it really?

Auren Hoffman (28:13.919)

Oh yeah, it could do that.

Auren Hoffman (28:18.366)

Yeah, if you told David Letterman, it would probably just start with the top 10 reasons of whatever. And, you know, the Dave Chappelle would probably give you a long rambling, like really great joke or something that might be a little off color. So yeah, it's incredible. So you can, you know, if you want something like a little bit more Seinfeldian, which is usually what I'm trying to go for, you can try to steer it in that area.

andrew sorkin (28:37.284)

Right.

Wow. Okay, well I have not experienced the comedy that is Chatjpt4, so have you now have you tried it with the others yet or?

Auren Hoffman (28:45.708)

Hehehehehehe

Auren Hoffman (28:50.494)

I have, yeah, I've used Claude. I've used, I've used Bard as well. So I've, and they're all, they're all, they all have their different strengths and you could see the, you could see them all in real time, all getting better. So, you know, you can see areas where like one was stronger than the other. And then just like two months later, like that has changed because they're all using each other's thing. I imagine every single day and trying to understand the differences.

andrew sorkin (29:13.619)

Right. Have you played, by the way, I've been starting to play with PI, which is the inflection. That's one of Reid Hoffman's, which is fun. I've actually found it to be fun. It's more of a conversational AI. I don't think it's necessarily ready for prime time in terms of writing long essays for you or things like that. But if you just want to have like an interesting conversation with an AI, it's pretty interesting.

Auren Hoffman (29:18.51)

Quora. Oh, okay.

Auren Hoffman (29:37.378)

And you just do it like, because it's mobile, right? So you just do it like, OK, I have a few minutes on the train type of thing.

andrew sorkin (29:40.719)

It's mobile, exactly.

andrew sorkin (29:45.339)

Yeah, just it feels a lot more like her. Remember the movie Her? Yeah, like you're talking to this thing in a little bit of a different way than some of the others.

Auren Hoffman (29:50.27)

Yeah, I love that movie. It's one of my favorite movies.

Auren Hoffman (29:57.742)

And do you ever have like a personal conversation with it or?

andrew sorkin (30:00.723)

I have yet to do that though. I think it's actually in particular, that's what they're hoping its strength is going to be. I mean, they, I think they've talked about it being something that, you know, almost be like a therapist for you. And supposed to, it's supposed to have more empathy than some of the other AIs. And I think there were some studies done that suggested even that some of these AIs supposedly have more empathy than humans, that people feel more comfortable telling the AI what's going on. Then you might tell a therapist if you're lying on a couch.

Auren Hoffman (30:12.193)

Yeah.

Auren Hoffman (30:29.814)

Well, therapists, you would feel that they might judge you for things or something like that. And then the AI, like a therapist, hopefully could like remember your state over time. So it could start to remember, oh, you have issues with this parent or you have this type of thing. And it hopefully could help guide you in a way that a therapist could, but maybe without the judging.

andrew sorkin (30:54.943)

It's remarkable. Having said that, how do you feel about the privacy piece of this? Because I know that I would feel... I think if I was actually to tell the kinds of things that you tell a therapist... I remember there was a period of time where people were doing therapy, obviously online, using Zoom during the pandemic and whatnot. And I thought to myself, well, what happens if someone's recording that on the other end? But this is obviously clearly recorded because the whole product is that.

Auren Hoffman (31:23.114)

Yep. Yeah, exactly. So, well, maybe they don't record the chats or something, or maybe there's a way of saying, you don't record this chat or that, but yeah, I think that is a problem in general. And we're going to start to see more of these lines blurred over time on the privacy side of things. Now, I'd love to get your, you know, what do you think, what are the underrated industries you think stand to see the most change from AI?

andrew sorkin (31:28.519)

All right.

andrew sorkin (31:52.347)

Well, so first of all, I'm not a believer. I just want to say this upfront that the AI models themselves are going to become the massive business. Meaning I think it's going to help frankly, you know, Microsoft hold or gain market share. It'll help, you know, the costs are so high and it's going to ultimately get built into everything. I, in a way I think it's going to become the actual product itself becomes commoditized

Auren Hoffman (32:08.738)

Just because the costs are so high?

andrew sorkin (32:18.823)

to some degree, and it's only going to be the folks who sort of take the large language model and do something else. Like they productize it on top of the model itself. That becomes really interesting. I almost think it's going to become table stakes. If you're AWS, which just made this big investment in anthropic to try to match in some ways, what Microsoft has done with open AI and we'll see Google have its own and you know, we'll see where Apple ultimately lands. I think it'd be very interesting to see, do they ultimately have to buy one of these large language models? Can they

build one from scratch themselves. What do they do? So I'm not convinced that it's like that the models themselves are going to have the huge value though. Obviously they're getting nice big valuations. I think it's sort of what it ultimately does to all sorts of other businesses and industries. So, you know, and call me a, uh, a Luddite or I don't know, or maybe a warrior. You know, my business clearly is one where you may be able to do with less people.

This should ostensibly make me meaningfully more productive. Well, if I'm more productive, do we need as many other people to be as productive? Or maybe you don't want me to do it, but you'll have the other people do it. In the context of, and this was just what the big fight was, I think in Hollywood over writers rooms and the like with the WGA, the idea that you might have a writers room with eight people in it. And do you really need eight people? Most of the time,

Auren Hoffman (33:29.599)

Yeah. Yep.

andrew sorkin (33:47.567)

people in the writers room are sitting around sort of mapping out a TV show and sort of walking through the different permutations and different scenes that could happen. And then ultimately, one person goes off and writes the script and then it gets brought back in the room and maybe the show runner then maybe rewrites the script or works on the script and the like. And maybe there's an assistant in the room as well. You might need a show runner, a head writer and an assistant and that's you might not need all the other people.

possible that maybe that you'll have the AI will write the first draft of things or that the writers room time, the amount of maybe you'd hire all these people to come up with lots of different ideas and then give it to the AI and they'll go do it. But they wouldn't be in the room for the same amount of times you'd be paying them, paying less. I think all of that's real. And that's just the tip of the iceberg in media land. I mean, I saw stuff recently on video that will blow your mind. I mean, these are little one and two minute videos, but

Auren Hoffman (34:46.862)

Oh yeah, they're incredible.

andrew sorkin (34:47.487)

to think about what that could be. So that's just like easy table stakes. Obviously the big industries that'll be upended, but maybe in great ways. I think obviously healthcare, pharmaceuticals, all of that should be, that to me is where for the win, should be healthcare, should be healthcare. Should be both in terms of drug discovery, but also if everybody could have their own psychologist, for example, that would be remarkable. Education, I've spent time with Sal Khan.

in the same way that if you could, if everyone, if everyone can have their own psychiatrist and their own tutor every single day, amazing, amazing. So that to me is, you know, even just, even just two small places, but I assume it'll hit every part of part of the business, obviously marketing would, is an easy one, anything that's, that's creative or maybe anything that's not even creative.

Auren Hoffman (35:21.55)

Personal tutor. Yeah, basic. Yeah.

Auren Hoffman (35:41.61)

Now AI also has the ability, there's a nefarious side of it where you could create fake images or deep fake and how do you see that the potential for AI to like move markets?

andrew sorkin (35:55.167)

Oh goodness. I think you're going to see it in all sorts of ways. I mean, you know, what was there, there was a, what was that fake report even a month or two ago that sent the markets reeling. There was a, I don't know if it was developed by AI per se, but there was a deep fake that was on the internet about something happening in the Pentagon. So I think you're going to start to see that kind of thing with more frequency. And then the question is how quickly does everybody else develop to try to figure out ways to figure out what's real and what's not.

And I think that's going to be the great challenge. And in some ways you're already hearing in the cyber security world, folks using AI to hack accounts. But on the same time, at the same end, you're going to write fishing like that. But on the other end too, by the way, actually I'll give you a great example. My, my wife sent me a text message two days ago. She, she actually sent me a voicemail that was sent to her from something that sounded like Amazon saying that we had a

Auren Hoffman (36:35.53)

or fishing and things like that, I imagine.

andrew sorkin (36:52.579)

approved, we had approved a purchase of a laptop. I thought maybe my son had done this or something. I didn't know. And you got to call this number to approve the purchase or something. She calls the number originally. It says, you know, we're from Amazon and then a real person comes on the phone and tries to take, I think it was, you know, her username. Then of course asked her the password. And then all of a sudden happily, my wife stopped and said, okay, there's something wrong here. You know, you guys prove,

Auren Hoffman (37:20.769)

Yeah.

andrew sorkin (37:22.315)

You guys proved to me what, what does this call really about first? And then they hung up on her. So that was, that was the giveaway. That was the giveaway. But I think that kind of thing is going to happen a lot. And I don't know how we're going to get around that. And, and does that mean that there's more insurance schemes that have to get created? I mean, financial insurance, it's going to impact credit. Talk about banks. It'll impact credit cards and banks. You're going to have more. You know, mispurchases right now, obviously, if somebody steals your credit card, the banks, it's a rounding error for the banks.

Auren Hoffman (37:28.62)

Yeah.

andrew sorkin (37:50.351)

Will it always be a rounding error for the banks when people steal credit cards or lose credit card numbers and things like that? That I think is a real question.

Auren Hoffman (37:58.634)

And how do you think the M&A market is now moving? We saw a few years where M&A, especially in tech, was basically at zero. How do you think M&A is going to start changing over time?

andrew sorkin (38:14.327)

Well, to me, there's two related answers. The first piece is, what does the regulatory landscape really look like? So I think in a world where Lina Khan is running the FTC, big headline grabbing mergers in the tech space are gonna be very, very limited and few and far between. She's clearly made it her mission and has been very outspoken about what she's intending to do. She's brought lawsuits, many of which she has lost.

Um, I do wonder whether some of those losses will embolden the companies to say, screw it. I'm going to try it. Let's see. I'll, I'll try to make a deal and maybe they'll take me to court and maybe I'll win. Um, but I think that's, I think the regulatory piece is a huge, huge component part of whether you can see a lot of the kinds of deals that some people think might need ultimately to get made, especially if AI is as successful and disruptive as I think a lot of people think it is.

The other question is what happens to venture slash really private equity in this world. Private equity historically didn't invest in tech. Private equity in the world of M&A, by the way, historically for the last 10 years, private equity represented about 40% of all the merger transaction that took place. But right now, and maybe this is indicative of how the private equity industry thinks the economy is headed, it's down to about 25% actually.

Auren Hoffman (39:33.29)

Sorry, I think you're tapped out here. We might need to edit this one piece. I lost you for a moment. I'll wait to see if you come back here.

andrew sorkin (39:41.795)

So a lot less private equity buyers in the marketplace right now.

I think as things, if things get worse, you will see them pile in. And the question is whether they actually finally pile into tech in a real way. They historically haven't because they felt that these were growth companies and they were much harder companies to sort of predict their future because they didn't have the sort of classic moats, uh, the way traditional businesses did. But I, you could see longer term that they're, that they may have to, and you see Blackstone and others, some of the big firms start to get into tech. So I imagine private equity.

Auren Hoffman (39:54.89)

Andrew, I don't know if you can hear me. I'm gonna put it in the chat here.

andrew sorkin (40:15.031)

is going to become an increasing, even the traditional private equity players will become an increasing player in all of this. Beyond that, I'd say one other thing, which is you're starting to see a number of the big sovereign wealth funds decide to be their own private equity player. And so did I lose you?

andrew sorkin (40:36.028)

Hello?

andrew sorkin (41:18.979)

You there? Did I lose you? Is that me? I'm sorry.

Auren Hoffman (41:21.688)

No, no worries. I'm not sure what happened, but we're back.

andrew sorkin (41:24.431)

I don't know, the internet just stopped. Was it okay before the internet?

Auren Hoffman (41:28.094)

It was OK. It was definitely like going. It was definitely going a little in and out, but we got it all. So no, we're back. Yeah, we're back. Yeah.

andrew sorkin (41:32.331)

Oh, I'm sorry. Okay, well, if there's a problem, tell me. So what we were talking about, private equity. All I guess I was saying, do you want to re-ask the question or what was the, where were we?

Auren Hoffman (41:40.954)

No, yeah, we were talking about M&A. And you were mentioning Lina Khan and M&A. Yeah.

andrew sorkin (41:44.71)

Right.

Okay. And then it stopped. Okay. So all I was saying was I'll start again. All I'll say is, you know, as long as Lena Conn is running the FTC, I think there's a big question as to what the regulatory environment really is for these big deals, the big headline grabbing deals, and especially around big tech, because clearly she's made it her business to try to either break them up or prevent them from happening. Now she's lost a number of these deals or lost a number of these cases. And the question is, is that emboldened some of these big companies to, to try to test her ability to block them?

So I think it's possible you see a number of transactions that, that happened like that, where, you know, they say, you know, we're just going to go to court and she's going to take us to court. We'll go to court and we'll see, we'll, you know, we'll see how it goes. I think there's others that are waiting this year in particular, see how the election plays out. I think that's a huge thing. I think there's a whole bunch of companies sort of waiting sort of on the tarmac. They wish they could take off and they're thinking, you know what, let's see what happens 2024. Maybe the world would be different. Maybe it won't. I don't think we know the answer. Of course. The other piece of this is.

Private equity, private equity over the last decade is represented about 40% of all mergers, all transactions that we've seen. It's actually come down more recently to about 25% in large part, I think, because private equity is more worried about the economy, at least the current economy, and so maybe they're waiting, but

Auren Hoffman (43:02.658)

Private equity doesn't have an FTC risk either, so they can acquire without really worrying about FTC.

andrew sorkin (43:08.995)

They shouldn't have that risk. But the other piece is private equity, for the most part, up until recently, with the exception of Vista and a couple of other, Thomas Bravo and people like that, haven't really played the tech game in a big, big way because they never thought that tech, especially consumer tech and things like that, had the sort of moat around it that Warren Buffett would like, sort of these classic businesses. You are, or you have seen some of these bigger firms start to step into the world of big tech or tech.

a little bit. So I could see private equity become a major player over time in tech. And I think that will be very interesting. By the way, though, it's possible that Alina con actually will look, even though right today you could look at it that way and say, oh, they're not really in that space or they might own a couple of disparate businesses. The question is whether the regulatory world looks at them and actually thinks, oh, they can start to combine these things in big ways. Very interestingly, there's a private equity firm called work capital, which owns

a number of, it's not technology at all, but a restaurant chain. So Arby's and, uh, all sorts of different companies. And now that they're being looked at, because in certain towns in America, even though the private equity firm is a private equity firm, they happen to own possibly two or three of the restaurants in any little town. Uh, and, and then therefore they have a labor thing. They have control of labor. So, you know, we're moving into a very interesting world right now. I don't know the answer.

Auren Hoffman (44:27.063)

So they have like a labor thing where they could they have other issues. Yeah.

Auren Hoffman (44:36.086)

Now we are taping this just like a week after Cisco announced their acquiring Splunk, which is, has to be one of the biggest M&A transactions in the tech world in an extremely long time. Do you think that's like heralding a new wave or how do you think that's going to, or is it just like a one-off thing?

andrew sorkin (44:53.247)

I look at that as sort of an idiosyncratic one-off insofar as I think it's less of a concern to regulators. I'm sure we'll look at it in a meaningful way, but I don't think I don't look at that and say, oh my goodness, this is, you know, these people are trying to dare Alina Khan into blocking them. It's not one of those deals. It was a space that Cisco has tried to be in, but probably hasn't been able to be as successful as it's wanted to be.

before. So this gives them leg up in that regard, but it's not going to fundamentally change the environment. And it's true that for Cisco, which of course, was one of these companies that 10 or 15 years ago, we looked at as something that, you know, owned an entire industry, it doesn't have the kind of market power that it used to.

Auren Hoffman (45:38.018)

What you've seen a lot of you've covered a lot of M&A transactions over the years. What's your sense of like when they go right and when they go wrong? Like, can you figure that out like right away? Like even on upon announcement, you have like the intent to do that now. Or is that just something like you just can't know until like many years later?

andrew sorkin (46:00.267)

I think I'm marginally better than I used to be, but still probably not great. And the truth is, as McKinsey likes to say, the consulting firm, not that it's a 50-50 jump ball, but it's pretty close. The best deals are the ones done. In truth, it's probably a timing issue. It's an economic, it's a timing within an economy sort of cycle issue, which is when everybody's freaking out, when nobody has confidence is when the best deals get made, at least for the buyer.

Always.

Auren Hoffman (46:29.454)

That's maybe on the PE side, but on the strategic side, you could see some, no, OK, yeah.

andrew sorkin (46:32.963)

I would even, yeah, I would go so far as to say that it's even on the, even when it comes to the Strategics, the best deals, it's partially a price game. It partially is a price story and it's sort of where in the cycle you're actually being able to buy the company, I think. Having said that, you know, Google bought YouTube back in, I don't know, what was that, 2000? I'll look it up.

And I totally, I thought, wow, this is like the most expensive thing they could possibly buy. How could this possibly be true here? Let me find it for you here. It was.

Auren Hoffman (47:14.198)

I would have said 08, but I don't really remember.

andrew sorkin (47:25.275)

Here, I'm wrong. Okay, so.

andrew sorkin (47:30.875)

It was 2006.

Auren Hoffman (47:32.77)

2006? Even earlier? Wow.

andrew sorkin (47:34.887)

The headline was dot com boom echoed in deal to buy YouTube. I wrote the story and the lead was a profitless website started by three 20 somethings after a late night dinner party sold for more than a billion dollars, instantly turning dozens of its employees into paper millionaires. It sounds like a tale from the late 1990s dot com bubble, but it happened, but it happened yesterday. So what did I know? And by the way, 2006 was probably actually

Auren Hoffman (47:56.926)

Hehehehehehe

andrew sorkin (48:05.641)

from an economic cycle perspective, closer to peak, got us closer to 2008.

Auren Hoffman (48:08.447)

Yeah.

What, you've been kind of an established media guy your whole career, what do you, what's your kind of lens on these, like the sub stacks or these new kind of independent media outlets?

andrew sorkin (48:22.679)

Oh, I'm a big fan of Substack and a big fan of, uh, folks who've gone off on their own and done it and created their own, you know, network and readership and community, I think it's remarkable. And I think you're going to see more and more and more of it. I personally have gravitated and really like working with, first of all, I started as a baby at the New York times I was 18 years old, so, um, it's, it's in many ways.

that started as my home and so I have a great loyalty towards it. And similarly, NBC Universal and CNBC are a big platform. I grew up watching CNBC and so I have this sort of, you know, special affinity for it. But obviously I see lots of people going off and doing their own thing. It's hard though. It's not clear to me that all of the folks who were on Substack a year or two ago that where it seemed like this, you know,

new utopia that that's going to be a successful model for everybody. I think the big stars, it's going to be a, uh, absolutely. But I think platform does matter. I think to say that everybody can just be an independent operator, I think is very hard. Joe Rogan in podcast world can be his own operator for sure. Um, but others it's, it's harder. So, and I think, by the way, you're seeing it, we're, we're doing a podcast right now, obviously, but the podcasting business, there w there was a period of time where everyone.

Auren Hoffman (49:35.841)

Yeah.

andrew sorkin (49:47.355)

wanted to have a podcast and thought you could make a bajillion dollars podcasting. It's not everybody's making a bajillion dollars podcasting, though. I, this podcast after, after this episode, I know it's going to be a winner for you.

Auren Hoffman (49:59.27)

It will be, but we don't have any ads, so we don't make anybody on it. All right, a couple of personal questions. What is a conspiracy theory that you believe in? I imagine you're someone who doesn't really believe in that many conspiracy theories, so what is one that you might believe in?

andrew sorkin (50:14.195)

Oh my goodness, this is like a good Peter Thiel kind of question that you'd ask at a job interview, right?

Auren Hoffman (50:18.852)

Hehehehehehe

andrew sorkin (50:24.327)

conspiracy theory that, you know, I have a pair of sneakers, I should tell you. I think they're made by a company called Oliver Campbell and on the side of them, they say, Epstein didn't kill himself. But on the sneakers in very black, in very tiny little letters, you have to look. I don't know if I totally believe that I kind of.

Auren Hoffman (50:43.339)

On the sneakers, okay.

Auren Hoffman (50:48.43)

Hehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehehe hehehe hehehe hehehe he he he he he he

andrew sorkin (50:51.931)

think I ultimately believe what everybody says or what the, you know, the officials have said about that. But I still find the whole, I think it's very weird. I do think the whole thing is weird. The whole thing is weird. I know that's what I'm saying. There's part of me that is like, this just doesn't make sense. It just doesn't make sense. And I can't get my head around the official explanation. That's why I own the sneakers. But there's also part of me that thinks is, you know,

Auren Hoffman (50:58.978)

So you don't find it weird that like, you know, it's very weird, like the guard was sleeping and that the cameras, the cameras didn't work or something. Like, yeah. Yeah.

Auren Hoffman (51:17.715)

Hehehehehehe

andrew sorkin (51:21.439)

is, sorry, I'll start again, because I got a FaceTime or whatever. But there's part of me that also thinks, is Bill Barr lying about all of this? I don't know.

Auren Hoffman (51:35.161)

All right, this has been amazing. Last question we ask all of our guests. What is a conventional wisdom or advice that you think is generally bad advice?

andrew sorkin (51:44.731)

You know.

Scott Galloway says something that I think is kind of spot on, but it pains me to say it and I don't know, which is he always says, you know, everyone says follow your passion, follow your dream. And by the way, I followed my passion and dream and it kind of worked out, but it didn't have to, it did not have to, it was not preordained at all. And a lot of things I'm so super lucky and I'm like aware of it.

Auren Hoffman (52:07.586)

Hehehe

andrew sorkin (52:17.255)

almost too much. So, and I think, so the advice of just, I've watched people simply follow their passions and it worked out magically. And I've seen a lot of people, I actually think the math is such that people follow their passions and it doesn't work out. And so I wonder whether it's actually trying to follow and do something that you think you can be really good at and really useful at. Now that might be your passion, but it might not be your passion.

But I think when people are useful, like demonstrably good at whatever it is, that being good at it in a weird way is almost more important. Now, if you were good at something you hated being good at, that might be a little bit more complicated. But I think people should sort of double down on things that they, where there's something that they are demonstrably good at, where there's sort of a merit in what they do and the way they do it, as opposed to chasing something

that is, you know, I don't want to say a stretch, but such a stretch that it's almost too hard.

Auren Hoffman (53:24.274)

What is it in some ways, like if your passion is something that like a billion other people are passionate about, then it's probably unlikely. Uh, but if your passion is something that like a thousand other people in the world are passionate about, then that might actually be a good place to go. Yeah. So it kind of depends on what your, your passion is. It's like my passion is to be, you know, a pop star or something like that. I actually got a call from a friend of mine who's like, he's like a hedge fund guy and he wants to quit and become a pop star.

I'm like, okay, that might be good, but I'm not sure that you're actually like working in your core skill set here. A lot of people want to be, but if he said he wanted to quit to become like, somebody who like is studying the language of dolphins or something like that. Be like, okay, well that's probably a better passion to go follow.

andrew sorkin (54:17.991)

Bingo.

Auren Hoffman (54:20.29)

All right. This has been great. Thank you, Andrew Sorkin for, for joining us. Roll the dice. I follow you at Andrew Sorkin on Twitter slash X. I definitely encourage our listeners to engage with you there as well.

andrew sorkin (54:21.895)

Thank you.

andrew sorkin (54:31.731)

Great, thank you. I think I'm, oh, I'm Andrew R. Sorkin for what it's worth. Yep, before, yep. Thanks, okay, thanks. Great, thank you again.

Auren Hoffman (54:34.754)

Sorry, Andrew R. Sorkin, you're right, Andrew R. Sorkin. You're definitely correct. I follow you there as well. It's been great.

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