Robinhood wrap up, Insiders vs. Outsiders, California's failing report card & how to fix it

The episode opens with the show's usual sound bites and a mock-grand introduction. The hosts present it as an emergency episode 20 and boast that the show is the number 11 podcast in the world and number 1 in tech, ahead of names like Joe Rogan and Rachel Maddow. The ranking is a joke in the hosts' own words, not a sourced figure. A host is teased for having just closed out episode 19 with a banger.

One host jokes that another has left his firm to pursue a dream of hosting a Fox News show, and the target of the joke replies that he has been invited on Bloomberg, on CNBC the next day, and possibly on Fox, maybe with Tucker. Another host quips that the besties are pariahs in their own industry who have now transcended tech and been invited on CNN, and they struggle to recall the show's name. These are jokes about the hosts' own media appearances.

A host says it is time to pick up where episode 19 left off, since many people wondered whether Chamath and the others are still friends. A host answers that they are, but says that after talking with Jason over the weekend he has been thinking about a remark: that when he gets that emotional, the point of what he is saying gets lost.

He apologizes if anything he said hurt a fellow host's feelings, calls him incredibly loyal as a friend and as an investor, and admits that some of his own comments on relistening seemed more emotional and extreme than they needed to be. He says he sometimes forgets where he is today and channels how he felt as a sixteen-year-old, and tells the other host he loves him. This is his own account of his reaction.

The other host returns the sentiment, saying it did get personal because everyone is passionate about their positions, and that it was difficult for him because he was trying to give Robinhood, which he calls his guys, the benefit of the doubt in a hard week.

A host recaps that on Sunday Vlad appeared on Clubhouse with Elon Musk, an event he says nearly blew up Clubhouse. In his telling the room was capped around 5,000 people, and many listened through a live YouTube syndication. He says Elon did a tremendous job interviewing Vlad, calls Elon the best interviewer in the business, and uses it as an example of subjects routing around the press and going direct. These are his characterizations.

The host then relays reports that the depository and clearing corporation, which he describes as Wall Street's main clearing house, demanded 3,000,000,000 dollars of additional collateral from Robinhood, an amount he says was an order of magnitude more than usually required. He adds that Robinhood raised 2,400,000,000 that week, on top of 1,000,000,000 on Wednesday and a 600,000,000 credit line, about 4,000,000,000 in cash, and that the requirement then fell from 3,000,000,000 to 700,000,000. These are his figures from reports and are not verified here.

He says GME short interest dropped by half by the day before, so the squeeze seems to have settled, and says something, garbled in the transcript, about Wall Street clearly coming out ahead. The next lines are fragmentary in the transcript.

A host asks whether Elon and Vlad got to the truth, and another suggests getting an independent party's view. In reply, the host says the interview was curious because it took Elon several tries to get Vlad to give what he calls the obvious answer: whether Robinhood was forced to restrict trading or chose to. In his telling, Vlad would not quite say they were forced, giving vague answers, until Elon asked whether he had a gun to his head.

He says he does not know whether this was miscommunication or whether the facts are not yet known, but he does not think the interview put everything to rest as it easily could have. He says he is pro-founder and gives Vlad and Robinhood the benefit of the doubt, believing they were probably compelled in some way. This is his interpretation of the exchange.

As a teaching moment, he says any founder forced to take an action that is anathema to their stated mission, which in Robinhood's case he describes as freedom to trade, should either post the government order that required it or post a well-reasoned blog explaining why. The word he reaches for, anathema, draws a short aside from others.

He adds that, in Robinhood's position, he would have demanded the instruction in writing in order to post it. In his view, the fact that Robinhood did neither, and that Vlad has had to go back three times to explain, created a world of problems for the company. This is his opinion about their communications.

Another host distinguishes a regulatory requirement from a commercial one. As he describes it, a regulator such as the SEC could have ordered the restriction, but here the clearing firms Robinhood partners with demanded more capital, and rather than post it or risk bankruptcy, Robinhood restricted trading to reduce its capital requirements. This is his reading of events and is not confirmed by the transcript.

He frames the decision as a choice between customers losing money and the company losing money, acknowledging it is not so black and white, and calls it a very tough call for any executive balancing shareholders and customers. He adds that the business model was predicated on a clearing set-up in which sudden risk on the book exceeded the capital to cover it, forcing limits on customers.

A host objects that if the choice is simply between the company losing money and its users losing money, it is an easy choice and the company eats it. He points to Airbnb during COVID, which, he says, absorbed deposits on cancellations. He thinks that if that was all there was to it, Robinhood should have eaten the loss. This is his opinion, and his description of Airbnb is not verified here.

Another host says the lesson is that there are many ways this financial infrastructure works that none of them really understand, and adds, as a jab, that this may have included the people running Robinhood.

A host says everyone now knows what payment for order flow is, that some companies have dropped it entirely, that Robinhood makes a lot from it, and that politicians such as Elizabeth Warren and AOC will now spend time on it. He argues the GameStop episode is more a symptom, and the real problems come earlier: certain organizations insisting on preferential access to data, and different rules for hedge funds than for banks, which lets them lever up enormously in an LTCM-type way. The leverage figures in the transcript are garbled.

He says the upstream systemic issues need addressing and that better downstream disclosure would let consumers choose. He adds that he has learned in recent days that payment for order flow can be not so bad, since it may guarantee better price execution in some cases, more so for stocks than options. This is his view as relayed on the show.