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So I have an ethics question. So it’s Thanksgiving, and I bring my Nintendo Switch, because my 10-year-old nephew also likes to play Nintendo Switch specifically. He likes to play Fortnite with me.
And my nephew is a very good Fortnite player, and I am a person who plays Fortnite two times a year, when I bring my Switch to hang out with my nephew. And so my nephew says to me, we’re going to make you enter the lobby first, because then, we’ll get matched up with worst players. If it was you, would you agree to these terms?
I think I would. I mean, I am frequently the worst, or close to the worst, player in a multiplayer video game. And I actually find it kind of fun to play with people who are way better than me. Did you do it?
We did it. I spent the next 15 minutes chasing my nephew around in a 50-versus-50 team contest. And at the end of 15 minutes, me and my nephew had won a victory royale.
No!
(LAUGHING) Yes.
You lasted 15 minutes?
We went all the way to the end.
Did you just hide?
Yeah. I hid. I ran. I cowered. I had to be revived. Anything you can imagine —
— an old, bad Fortnite player doing to win, we did. But at the end of the day, we were victorious. And that’s what Thanksgiving is all about.
[THEME MUSIC]
I’m Kevin Roose, tech columnist for “The New York Times.”
And I’m Casey Newton from Platformer. And on today’s show, Elon Musk goes to war with Apple, how Chinese citizens are beating AI sensors, and Sam Bankman-Fried speaks.
Casey, we have lots to talk about today. I want to start with the story that we seem to be going back to every single week on this podcast, which is Elon Musk and his ongoing Twitter ownership saga.
So when we last left off before Thanksgiving, Elon Musk had just given his employees at Twitter an ultimatum. They needed to choose whether they were, quote, “extremely hardcore or not.” If they were not up for that kind of job and assignment, they were going to be laid off from the company. So as briefly as you can summarize it, what has happened since then?
Oh, why? You got somewhere to be, Roose? Come on, this is a great story. Don’t put a time pressure on me. I’m going to put a clock on you to see how it feels.
Here’s what happened. So Musk takes full control, demands that workers become extremely hardcore, and most of them choose not to be extremely hardcore. Most of them say, you know what? If I can get three months’ pay now, that’s going to be way better than working for this guy and this company for some indeterminate period of time.
And so hundreds more employees, probably well over 1,000, wind up taking this deal. So Twitter becomes much smaller, and there’s this moment where we think, OK, maybe now, it’s just sort of time to get down to business and work.
But then, the emails keep coming, like every few days. And the emails say, there’s going to be a code review and you need to be prepared to show me what you’ve been working on this week, what you’ve been working on for the past six months. And just be prepared.
And so this happens. And some workers, after these code reviews, find that they have been terminated, and that what they thought was kind of the check-in on “how are you doing” turned into a kind of impromptu performance evaluation. And now, they’re out the door. So the sort of “where it all nets out” is way fewer people working at Twitter and —
Do we know how many? Like, do they — I think they had about 8,000 employees before all of this happened, when Elon took over. Do we know how many they have now?
I think the last that I saw, it was around 2,200. But I think there’s a chance that even fewer than 2,200 remain at this point.
So that’s, like, 3/4 of the staff that’s pretty much gone.
And you know, it’s funny, I was going back through some of my notes about the early days of the Musk takeover, and there’s this video that someone had sent me where, as Musk gets to Twitter headquarters for the first time, an employee says, hey, are you really going to cut 75 percent of us?
And Musk looks up at the ceiling, and he says, well, it’s interesting. I don’t really know where that figure came from, because I never said that. And everyone sort of breathes a sigh of relief. Well, fast-forward to a month later, and indeed, 75 percent of them are gone.
Yeah, I remember when that happened, there was this feeling, at least among people I follow on Twitter, that the site was not long for this world, that we were going to quickly see things degrade, and the site would go offline. And maybe as soon as Thanksgiving, like, there would be no more Twitter.
And the vibe was sort of like a funeral. And that hasn’t happened. The site is still online. I checked it just before we started recording. So if the site didn’t break, what else has been happening?
Well, I should say, some things kind of did break. You know, people will DM me every time they see something weird on Twitter now. Sometimes your notifications will just randomly show you your notifications from September. Sometimes tweets will jump around in the timeline.
So people are noticing bugs. But you’re right. The site has stood up for the last several weeks, and I think Elon has sort of made a few jokes about that on Twitter, kind of taking a victory lap for the fact that the service continues to operate.
But the truth is, he has much harder problems to worry about now, right? Keeping the site up is kind of bare-bones competence. The real game now is, can you make enough money on this thing for it to be a sustainable enterprise.
Right. And I saw that Elon tweeted that Apple, one of Twitter’s biggest advertisers, had mostly stopped advertising on Twitter. That doesn’t seem to be completely true, from what we know, but it does appear that Apple, whatever it’s doing, is quickly becoming Elon Musk’s next big target. So can you just describe what’s been happening?
Yeah. So this is a story that has several parts to it. The first part is about advertising. Apple is one of the biggest brand advertisers on Twitter, spent something like $48 million on ads in the first quarter of this year. They’ve now paused most of their campaigns.
And Elon tweets something to the effect of, oh, wow, does Apple hate free speech? And is that why they’re pulling their advertising?
Basically, trying to sort of bully them into resuming advertising and paying him for the privilege of advertising on Twitter.
Yeah. And I don’t know if you’ve ever had customers, but if your customers ever stopped spending with you, I haven’t found it effective to just be like, what kind of idiot would spend money with me?
When people cancel their platform or subscriptions, you don’t berate them in all caps?
No. And of course I feel it in my heart, but I keep it to myself. It just seems like it’s a better business play, right? Elon doesn’t take that approach.
So that’s thing one, right? And I actually think it’s the biggest issue here for him — is that he’s really mad about the advertising situation. Because of course, he’s hemorrhaging advertisers generally.
But he decides to up the ante. He initially said that Apple has threatened to withhold Twitter from the App Store, and then on Wednesday, tweeted that he had actually been to Apple’s campus. So he tweets this video of himself next to the shadow of a man who looks a lot like Tim Cook.
And then, Musk tweets that they had a good talk and resolved what Musk called a, quote, “misunderstanding” about Twitter potentially being removed from the App Store. He said that Apple had never truly considered doing this. So we’re not quite sure what happened there, but we do know that as part of these massive cuts, Twitter lost the vast majority of its content moderators.
So if there were really terrible things on Twitter, there are now far fewer people to go and find them. In fact, “Wired” reported this week that one of the teams responsible for child safety on Twitter, sort of removing child sexual abuse material, or CSAM — “Wired” reported this week that the team responsible for removing this child abuse material is now down to one person across Japan and the Asia-Pacific region, which is like half the world. And we don’t know exactly how many moderators are left for the US, but we know that a lot of them are no longer in those jobs.
So again, I don’t know that is what it is about. But if you are Apple and you are concerned about what’s on the App Store, and you’re looking at the dramatic decline in content moderation on Twitter, that might offer some grounds for concern.
Right. And there’s some precedent for that, too, right? Because didn’t Apple pull, I think it was Parler, from the App Store? Because they said, you have this social network, and our App Store guidelines require social networks to make some effort to moderate content and remove violent or offensive or hateful speech.
In order for them to be allowed to stay on the App Store, they changed some of their policies, and Apple let them back on. But that was a sort of tumultuous time for Parler, which is a much smaller app than Twitter. But that was sort of my first thought — was, oh, this is just a continuation of that.
Yeah. I mean, Apple has said, if you want a social networking app on the App Store, it can’t be a free-for-all. You have to have policies. You have to enforce them. You have to have content moderators, right?
I think it’s also probably worth noting another thing that happened this week, which is that Elon undertook a campaign, after polling his Twitter followers, to issue a general amnesty for accounts that had been previously suspended on Twitter. And my colleague, Zoe Schiffer, and I reported that this is going to turn out to be 62,000 accounts, that 75 or more of them have at least 1 million followers.
And these are all people who had been banned for breaking the Twitter rules. So at the same time that Elon is sort of undertaking this crusade, which he would call a free speech crusade, he’s also bringing back folks who I think a lot of people would agree are some of the worst people to ever tweet back onto the platform. So I think at the very least, we can agree that is a provocation to an App Store like Apple’s.
And we should say that almost every developer has some variation of this fight with Apple. We live in a world where there is a smartphone duopoly. There’s Android and iOS, and that is it.
And those companies have enormous power and leverage over these companies. Because if you can’t get on a smartphone, it’s really hard to build a tech business, particularly a social networking business, in 2022, right?
The difference is, when these conflicts happen, nobody wants to poke the bear. Nobody wants to give Apple extra ammunition to deplatform them. And so what makes this move from us really unusual is that instead of trying to de-escalate it, he has essentially said, let’s just blow the whole thing up.
So what has blowing the whole thing up looked like for him? What has he done toward Apple, or what has he tweeted about Apple since these initial sort of storm of angry tweets?
So the first thing he does is, say, essentially, do you know that Apple secretly takes a 30 percent cut of all revenue in the App Store, which I think made a lot of US tech reporters laugh. Because it really is not a secret at this point that Apple is raking it in on the App Store, right?
Right.
It’s also been a huge pain point for a lot of developers. There have been lawsuits around the world on this front. But Elon really starts to draw attention to what he perceives as the unfairness of the fact that Apple is collecting this 30 percent rake.
After that, he tweets a meme of a car swerving off a highway. I don’t know if you’ve seen this meme, but there’s, like, a highway road sign that is labeled “30 percent,” then there’s an exit sign that is labeled, “war.” And in the meme, the car is swerving away from the “30 percent” towards “war.”
Right. Essentially saying, like, we are not going to pay you the cut of in-app purchases that we would have to if we were in the App Store. We’re going to find some way around that. And more than that, we’re going to declare war on Apple, the entire company.
So Musk deleted that tweet where he said he was going to war against Apple, but I think the potential for conflict with Apple remains, right? Because at the end of the day, this company is still planning to charge 30 percent of revenue to Twitter as it tries to go forward and relaunch this Twitter Blue subscription plan.
So we reported this week that they had been planning to relaunch Twitter Blue, the sort of $8 verification badge program that we have talked about in previous episodes of the show. And it was originally going to have an in-app purchase, so that you could subscribe to Blue on iOS.
But that would have given 30 percent of revenue to Apple, and so they are now delaying the launch. And one of the reasons is they have to figure out a way to let you pay on Twitter’s website, instead of signing up on your iPhone.
And this is the same issue that we’ve talked about before on this podcast that other companies have gone to war with Apple about. I mean, Spotify had a very public campaign against Apple over exactly this issue. Epic, the maker of Fortnite and other games, actually sued Apple over its cut of in-app purchases.
That case is still up on appeal. And then, famously, as we’ve talked about, Meta and Facebook have been taking on Apple over this issue and the sort of gating of its App Store for years now. And they haven’t gotten anywhere with that campaign, really.
So I guess my question is like, if Spotify couldn’t topple the Apple App Store behemoth, if Epic and Fortnite couldn’t do it, and if Meta, with its billions and billions of users on Facebook and WhatsApp and Instagram couldn’t force Apple to back down off of its App Store policies, what do you think makes Elon Musk think that he can achieve a different result?
Well, I think one thing we’ve learned about Elon Musk is, he has a high amount of self-confidence. This is not someone suffering from imposter syndrome. This guy wakes up every day, and he thinks, I can do it, baby. Let’s see what we can get accomplished!
You know, and I should say, like, there are definitely aspects of this particular subject where I am sympathetic to Elon Musk. I think Apple collects a fee on things that it has no business taking, right? The company is not adding any value. It is just purely collecting the rent. And who loves a landlord, right?
But I want to share this thing that I find so depressing about all that — you may already know this. But as you mentioned, various countries, regulators, have been looking into this. And it looks like the developers win this case in the Netherlands.
Because what they really want to do is use this external purchasing system that will sort of lower their own fees and not have to pay Apple the 30 percent, right? And so Apple winds up saying, OK, we will abide by the judge’s decision, and we will let you use an external payment system. We’re just going to charge you a 27 percent commission for using an alternative payment system.
So it’s funny. And this is apparently still the state of affairs. So it’s like it’s a real “heads, you win, tails, you lose” situation. I hope that eventually, more kinds of developers don’t have to pay that much money to Apple, but Elon certainly has his work cut out for him.
Well, and I guess I’m struggling to see what his endgame is here. I mean, he may be trying to bait Apple into kicking Twitter off the App Store, which would then maybe inspire a backlash from, I don’t know, right-wing politicians or Twitter users. I can see there being legitimate bipartisan support for some kind of attempt to address Apple’s market concentration and dominance, especially with a Republican House in the US.
But I just — I don’t see it. So is Elon Musk — is he starting this fight because he actually thinks he can win it? Or is he starting it because — I don’t know — it’s going to set him up as sort of a champion of the people against the big bad Apple?
I think it’s true that he knows he has some powerful allies here. DeSantis and a bunch of other Republican politicians were tweeting about this, and they’ve sort of suggested that they would have Elon’s back. But I think in another very real sense, there’s not an end-game.
Like, Elon Musk is waking up every day, saying, what seems like the most interesting or entertaining thing to do right now? And then, he does that thing. Right? And that’s why if you look back over his stewardship of Twitter so far, there are so many curveballs and things that don’t make an immediate amount of sense, because they were essentially whims. Some of those got turned into products, and some of them disappeared. So this is the latest whim, and we’ll be very curious to see whether he continues to escalate this fight, or whether, like most developer fights against Apple, it just kind of gets taken care of behind the scenes.
It just seems like a lot of fights to fight simultaneously. Right? I mean, he’s got his fight with advertisers, including Apple but not limited to Apple. He’s got his fight with Twitter employees and the layoffs. He’s got his war with the mainstream media and his attempts to wrest back some control from them by taking away their blue checkmarks.
And now, he’s going to war with Apple, the most powerful tech platform in the world, in some sense, because it controls the iOS App Store, a behemoth that other tech giants have tried and failed to take on over this very issue. And it just feels like he’s not picking his battles at all. He’s just deciding to fight them all at once.
You know, the old expression, “if you find yourself in a hole, stop digging“?
(LAUGHING) I do.
Yeah. So Elon Musk has brought in one of the tunneling machines from The Boring Company into his hole, and he has said, take me to the center of the earth.
So we’ll see how that plays out.
When we come back, we’re going to talk to my colleague, Paul Mozur, from “The New York Times” about how Chinese protesters are facing off against the country’s AI-driven censorship system.
All right. Paul Mozur, welcome to “Hard Fork.”
Hi, Paul.
Thanks for having me.
So you’ve been covering tech across a lot of countries, including China, for many years now, right?
Yeah, that’s right. More than a decade looking at China specifically.
Can you just, like, zoom us out and remind us what these protests are about, when they started, and sort of, what clues you picked up on that this was going to be more than just your typical protest that gets squashed by the censorship regime?
Sure. China has dealt with COVID very differently from much of the rest of the world. When we say a lockdown in China, often we’re not talking about schools closing and you being told, be careful when you go into a restaurant.
We’re talking about entire neighborhoods being shut down to the point that one person from an apartment can leave maybe every three days their house to buy groceries. People’s doors are welded shut or locked shut. You know, and you have this enforced in very brutal ways sometimes.
Right, this is the COVID zero policy.
Right, exactly. This is COVID zero. And so over years, as we know, as you have more lockdowns and you have, sort of, constantly dealing with COVID, people get worn out. And that’s really come to a head in the past year.
So the spring sort of infections started to get out of control in Shanghai, and the government instituted a 60-day lockdown, but really, it’s more like 75 for a lot of people. Some people ran out of food again. People couldn’t get access to medical care.
So this is the kind of moment of real anger, where people start spreading memes about this and get upset. And so it’s almost felt like this year, everything has sort of been dry tinder, and all you need is the right spark to set things off. So you have a fire that happens out in Xinjiang, out in the West, that kills 10 people.
And people watching online — they just assume that basically, these people are dead because of these policies, and that leads to this new, even more ferocious outbreak. And that starts to sort of turn very quickly into mobilization and coordination. So within a day of this fire — fire’s, like, Thursday. You get a protest in Xinjiang on Friday.
And by Saturday, people in Shanghai are grouping together, and kids in universities around the country are grouping together, and people in other cities start coming together, too. And so all of a sudden, you see what is literally unprecedented, probably since Tiananmen Square, though it’s kind of weird to liken it to that, because it’s very different.
But you see a coordinated protest that’s overtly political at moments in nature, that is happening across Chinese cities, among the elite and among poorer people, and just kind of everywhere. So when you see that happening, as a China reporter, your alarm bells go off.
I’m wondering what you as a tech reporter start looking for when something like that happens. Like, what platforms are you looking at? What apps are you opening? Where are you focusing your attention?
You know, the landscape in China has evolved over the years. There’s a few different kind of key places you look to kind sort of take the temperature of things. One is Weibo, which is sort of Twitter, and then there’s Douyin, which is the equivalent of TikTok.
And then, you have WeChat, which is a messaging service, but also a social media service, so you get almost an Instagram aspect to it. But then, there’s a broader messaging component to it. So you kind of look through all of that and see what’s going on.
And usually, you have a scorched-earth censorship campaign that blocks out almost everything. And this time, for days now, we’ve just seen videos and memes and all kinds of stuff still kicking about various apps and within private messages. And so it’s really a remarkable moment. And honestly, I’ve covered this stuff for — since 2011, the censorship of China specifically, and there’s been no moment like this, that the system has been overwhelmed in this way.
So the things that are going viral online — the memes, the footage that is being targeted by the censors — is of these coordinated protests — is footage, is videos, is photos, is text posts about these protests that are happening in big cities all over China.
That’s right. And then, you also get the sort of add-on memes, right? So you start getting other things as well. So yeah, so you have a lot of videos of protests, and the protests are uniquely difficult to censor, because a lot of it has to do with blank sheets of paper. And people have been very clever about how to evade censorship in just sort of the memes they’ve made.
Yeah, let’s talk about that.
Explain the blank sheets of paper.
Yeah, so it’s really fascinating. Because there’s old Soviet jokes about this, where a guy stands in a square and holds up a blank piece of paper, and the police tries to arrest him, and the guy says, what are you arresting me for? And the police says, I know what you mean.
You know, and there’s another version where the guy says, you know what I mean. And then, more recently, in Hong Kong, it’s the same sort of thing, where after the National Security Law was imposed, people would just hold up blank pieces of paper, because they weren’t allowed to chant protest slogans anymore.
But basically, what it means is, I don’t have to say anything. In fact, I can’t say anything. But even by saying nothing, everybody knows what I mean anyway.
It’s also in part, because white is a funerary color in China, so there is also an aspect of more morning, and a lot of this started off mourning the people who died in the fire. So you have both things going on at once. It’s very, very difficult to censor that.
And so you see similar kinds of things happening more broadly online. So people just start repeating some of the most common characters in Chinese as a sort of another form of protest. So like the word for good, “hao”— like, people just start saying “hao,” “hao,” “hao,” which you would say in a conversation. Good, good, good, whatever, yeah, yeah, yeah.
And they just start posting that underneath clips of the government speaking. And then, you’ll have songs that start like “the Communist Party is good,” and so some guy will get on and very sarcastically and goofily sing, “the Communist Party is good, the Communist Party is good.”
And you see that go out, and if you watch it, you know 100 percent what he means. But for the automated — these poor algorithms that are trying to parse this stuff and flag it to the censors, it’s extremely difficult to kind of get that level of nuance into what you’re looking at.
And again, the Chinese are extremely good at doing this stuff, because they’ve been under a system that has been so over-the-top oppressive in what it censors for so long. I mean, Xi Jinping himself has thousands of blocked words associated with him that you can’t look for. So people are used to this, and they’ve adjusted. And so the cleverness that they bring to this as well is another aspect to it.
Yeah. So that might be a good moment to ask how censorship works in China generally, right? Like, how much is algorithmic versus manual? How many people are working on this? And who is doing the work?
Yeah, so for a long time, the kind of general cliche about this was, actually, the government didn’t know that much, and the government put all of the burden on the tech companies. So the tech companies would have to hire tens of thousands of censors, who would pore through posts each day. And basically, it was left up to the companies to decide what to do. And if something got out of hand, then the government could go back and say, well, this was out of hand, then they would slap the companies, and they would sort of get in trouble. So it was, the companies were incentivized to do a good job, but try to find a balance between user experience and censorship, right?
Now, under Xi Jinping, the past 10 years or eight years, that model has changed, because China’s basically created an entire censorship bureaucracy, which sits above the tech companies and is much more micromanaging about how well the tech companies do stuff. So now, you have this sort of aspect, where every single day, each tech company has bureaucrats who are talking to it, saying these are the talking points of the day, this is what needs to be emphasized, this is what needs to be cut.
Absolutely by no means show this video, that kind of thing. And so that’s kind of, I guess, the basic political structure. And so you’ve seen heavier and heavier censorship kind of happen under the rubric of the government just being much better at understanding what’s happening and what the tech companies can do.
Now, at the same time, the tech companies, because their companies are trying to cut costs, and so they have a whole sort of product manager group of people who are designing products for their censorship teams. And a lot of that involves various forms of automation — basically, AI-trained algorithms that are going through and looking for all kinds of viral stuff that could be a problem, and then flagging it to a human.
And one thing that I’ve heard from content moderation experts here in the US is that video is just much, much harder, because if you want to determine whether or not an image is a political protest or not, it’s pretty easy to do that at a glance. Maybe an AI can even do that.
A video — you know, someone’s got to sit there and watch it, or an AI has to analyze it frame by frame. And so this was cited to me as, like, a reason why moderation was harder on, say, YouTube, versus Twitter or Facebook, because more of the content is video, as opposed to text and images. So is that playing a role here in why the protesters seem to be having a moment where they have an edge — is because so much of the content is video, and it’s just harder to moderate video?
Yeah. You know, one of my sources who used to work in the sort of censorship apparatus at ByteDance, which does TikTok, and also does Douyin — he talks about how they used to run AI models for candles. So just loading thousands of candle videos in, because candles are constantly something that comes up for Tiananmen remembrance — you know, same thing with tanks.
So you get that for all kinds of things. But when you have hundreds and hundreds of different videos from different angles of protests, spreading it becomes very difficult, and that means every single time you have a video that gets raised by the algorithm, there’s a lot of false positives. And then, also, everything has to be raised to a human to check, and that has overwhelmed the system, a system that has done — you know, censored almost everything capably for the past decade, just by the sheer amount of stuff coming in — does not have the manpower to kind of oversee everything.
And I mean, again, this is what my censorship source sort of estimated — that he was like, to deal with this kind of flow of video, because of the human aspect you still have to use, you probably need 10 times as many sensors as you have at the moment. You know, and he said, the other option is train new algorithms for this very specific protest, but that’s going to take time, right?
You need to feed a ton of videos from various protests this time around to teach it how to do that. So you need to do that, and that’s also very expensive. And I think what’s interesting is, people talk about, oh, did the censorship system fail?
No, it didn’t fail. Like, if you go on Weibo, the Twitter equivalent, it’s very hard to find things. Lots of hashtags are censored. At times, on WeChat, you can’t click through to any video. All the videos have already been deleted.
Like, the system is functioning very well. It is deleting a ton of stuff. But we’ve kind of reached the logical limits of what it can do.
Paul, one thing I’m struggling with is like, if I’m just pretending that I am a Chinese government censor, and I want to censor footage — images of, let’s say, a protest in a major square in Beijing, my first instinct would be, I’m just going to geofence that square, and I’m going to block videos and photos from being uploaded from that area. It doesn’t seem like it would be intuitively that hard to do.
So I mean, it’s not just the government, right? It’s the tech companies. The telecoms are also separate companies, and coordinating with them can be difficult as well. So there’s a couple of different large bureaucracies that you would have to manage to do something like that.
I think the main reason it’s been difficult is because that would be just so crushing to the services, that the services don’t want to do that. So they’re trying to kind of keep the system they have, which is screen, but continue to allow people to post.
But there’s other things that have been happening that are interesting as well, but it’s another level. A lot of people are getting on VPNs, and VPNs are blocked in China. VPNs allow you to get around the censorship that disconnects the Chinese internet from, say, Twitter and Facebook and all these foreign platforms that people in China can’t get on.
But in this case, we see a lot more traffic on VPNs. And what’s happening is a lot of these videos or shared onto Twitter, and Twitter almost acts as a repository for these videos. So you put up your video, you share it on Twitter with a couple of accounts that have become huge, because they’re just sharing everything.
And then, if it gets deleted, you just go back to Twitter, download a couple of videos, take new shots of them, and then spread them again. And that wipes the metadata, and that makes it harder. There’s other really interesting tricks that people have learned over the years.
So you put a filter on something, so put a Happy New Year filter with some weird music over a protest, and all of a sudden, that will trip up the filters as well. We’ve seen people in bed videos. Like, so you have SpongeBob Squarepants, and then on the TV or computer, that SpongeBob is looking at you play the protest.
One thing we’re kind of looking for is the next-level escalation, where we see sort of internet shutdowns or more complete kind of geographical targeting. But we haven’t seen that yet.
I mean, isn’t the idea here, though, that they will probably just build the bigger walls? I feel like what I’ve heard you say is that, mm, the infrastructure here basically works. China was unprepared for the demand, and maybe there were some quirks of video, but like, give him six months, and all of this will sort of no longer become possible either. I mean, is that the future we’re looking at?
It’s one version of the future, and it’s the most likely future. But I think what’s interesting about an environment that’s as controlled as China’s is that when you get these outbursts, it’s kind of a different way to take a pulse of the place. And so yeah, it will all go away, and all this stuff will get scrubbed, and in a month, it’ll be almost like it didn’t happen, but everybody will remember.
And then, another fire or another thing happens, and it will set people off again. And again, they’ll come up with new ways, and they’ll push it again, and you’ll see another wave. And so yeah, it’s the reality of the place, and it’s not a super hopeful story, but it’s also one where we have to read the signs we have.
One guy I was talking to, who’s an expert in this, likened it to a dam. And he said, you know, you build a dam, and then the water level rises, so you build the dam higher. The water level rises again, and you build the dam higher.
Like, at some point, when there’s a break, it’s not just like, oh, there’s some water down the stream. This is a hole in a dam. Like, the pressure there is so high, and the explosiveness of the release of water is so extreme, that it’s really hard to handle.
And so when you see these leaks in these cracks, it’s a different kind of thing from a normal internet outburst. And that’s what we’re seeing here. And so that’s important also to remember, that you bottle this stuff up, and it explodes at some point.
And how long can you do that? Can you do that forever? Well, this is a — we’re starting to come towards an answer. And right now, what we’re seeing is when people are angry enough, no amount of internet control can stop this stuff.
Yeah, that seems right to me. Paul, thank you so much for coming on.
Thank you, Paul.
Yeah, thank you guys for having me.
So Casey, as you know, one of my unfulfilled goals for this podcast for the past couple of weeks has been trying to get Sam Bankman-Fried, the former billionaire and CEO of FTX, to come on the podcast and explain himself.
Yeah, and I noted this in your performance review, that you have not made that happen.
Well, I have tried. He did not respond. But he did respond to my colleague, Andrew Ross Sorkin, apparently, because he appeared virtually at the DealBook conference this week put on by “The New York Times,” and it was a wild interview. It was a wild ride. I don’t know — did you — did you watch the interview?
I watched it and was fairly riveted from start to finish, just sort of trying to analyze the body language and the facial expressions of a man trying to explain the unexplainable.
Yeah, the vibe was sort of like misbehaving child gets sent to principal’s office to explain himself. But the misbehaving child maybe misused billions of dollars of customer money, and is now the most hated man in the tech and financial worlds.
That seems fair to say.
So I wanted to just pull out a few fragments of it and talk about them with you, because I really think they help to answer some of the questions we’ve talked about on this show about what happened at FTX, and what’s next for Sam Bankman-Fried, and what the ramifications of the collapse of FTX are really going to be.
So the first clip I want to talk about came early in the interview. Andrew Ross Sorkin started, basically, by reading a letter from a customer of FTX, who claimed that he had lost $2 million, his entire life savings, when FTX collapsed, and that this customer wanted Andrew to, essentially, ask him, like, why did you steal my money? Why did you take my money that I had deposited on to FTX, and allow it to be used by Alameda Research, this hedge fund that you started, to make risky bets?
This thing that, in the financial world, is known as commingling of funds. Sam Bankman-Fried — he didn’t really answer the question in a straightforward way. He said, basically, I feel bad for all the customers. He said, I’m deeply sorry about what happened.
And then, he kind of launched into this evasive explanation of how he had misjudged how much leverage Alameda had, and the way that loans and margin positions are collateralized on crypto exchanges. And then, he calls it a massive failure of oversight and risk management, but he doesn’t really answer the question.
And Sorkin sort of pins him down again and says, but like, actually, answer the question. So let’s listen to that clip.
Let’s just make this very straight. Was there commingling of funds? That’s what it appears like. It appears like there’s a bit of a genuine commingling of the funds that are of FTX customers that were not supposed to be commingled with your separate firm.
I didn’t knowingly commingle funds. And again, one piece of this — you have the margin trading. You have customers borrowing from each other. Alameda is one of those.
I was frankly surprised by how big Almeida’s position was, which points to another failure of oversight on my part and failure to appoint someone to be chiefly in charge of that. But I wasn’t trying to commingle funds.
Of course, this is going to end up probably being one of the central questions in an eventual, I assume, flurry of lawsuits and investigations into FTX. FTX claimed repeatedly that they did not use customer deposits for their own investing purposes. It appears pretty clear by this point that that’s exactly what happened.
And here is SBF saying, I didn’t knowingly commingle funds. And that’s not exactly an answer, but it sounds like that’s going to be his defense.
Yeah. I mean, look. Watching this particular answer, I was frustrated at how often he came back to the same, albeit obvious, things that any person might say in this situation, which is, mistakes were made.
Hindsight is 20/20. I didn’t know. And I imagine that’s going to become a familiar refrain from SBF as he tells his story in and out of court over the next couple of decades.
Yeah. So speaking of court, the next clip I want to play comes a little later in the interview.
How concerned are you about criminal liability at this point?
So I don’t think that — I mean, obviously, I don’t personally think that I have.
But I think the real answer is, that’s not — it sounds weird to say, but I think the real answer is that’s not what I’m focusing on.
There’s going to be a time and a place for me to think about myself and my own future, but I don’t think this is it. Like, right now — I mean, look, I’ve had a bad month.
[AUDIENCE LAUGHTER]
This has not been any fun for me. But that’s not what matters here. Like, what matters here is the millions of customers. What matters here is all the stakeholders in FTX who got hurt, and trying to do everything I can to help them out.
And as long as that’s the case, like, I don’t think that — I don’t think that what happens with me is the important part of that. And I don’t think that’s what it makes sense for me to be focusing on.
Yeah, it doesn’t make sense for me to be focusing on whether I’m going to jail or not. That’s not — that’s not the real story here.
Yeah, I mean, I just can’t get over the phrase, “I’ve had a bad month.” Like, Sam Bankman-Fried describing the past month of his life as a bad month is a little like the guy who’s in charge of safety at the Chernobyl nuclear plant going home to his wife and saying, like, honey, I don’t really want to talk tonight. Kind of a rough day at the office.
It’s like, it’s not a bad month. Like, he was worth billions of dollars, and now, by his own admission, he is worth nothing. His company has collapsed. He’s under investigation from every regulatory agency under the sun. He is almost certainly going to be charged criminally.
But he’s keeping his chin up. And I think it’s a real story about the resilience of the human spirit in the face of unimaginable odds.
Yeah. It’s a real feel-good story. I mean, I think that my big takeaway from this interview is just that Sam Bankman-Fried is either delusional about just the amount of trouble that he’s in and how bad his legal situation is at the moment, or just that he has a story that he is sticking to really closely. What do you think?
Yeah. I mean, I think it’s sort — and again, it’s like I don’t know for certain anything that happened in this story. But certainly, it looks like there was some sort of criminal behavior. And to have commingled the funds, as we think that maybe he did between these two companies, and to have done such a terrible job at bookkeeping, I think, requires a significant degree of delusion, right? You get it over your head, but you just tell yourself, well, it’s going to be fine. It’s going to be fine. The market is going to keep going up forever, and then it all comes collapsing down.
So in a way, it shouldn’t surprise us that when we finally see him interviewed live about this situation, what we get from him is a lot of what feels like delusion, right? He doesn’t understand how anything that he did could have been criminal, because of course, he only ever had his customers’ best interests at heart. And oh, sure, there were a few mistakes made along the way, and a surprise here or there. Now, the thing I would say that cuts against that, though, is just how damned guilty he looked the whole time he was talking.
Right. Why isn’t Sam Bankman-Fried in jail yet, has been a consistent refrain from large parts of the internet for the last few weeks. And obviously, like, there are really good answers there. Like, we have a criminal justice system. We give due process to people before we accuse them or charge them with crimes.
White-collar investigations in particular can take a very long time. The reason that Bernie Madoff was arrested, basically, as soon as his fraud was exposed is because he confessed, right? He told his family, I did it. This was all a big Ponzi scheme. And so they turned him in, and he was arrested. In this —
I’ve always thought that was one of Madoff’s biggest mistakes, by the way.
(LAUGHING) He should have just tweeted through it.
Yeah.
Yeah. So in this case, like, we don’t have a confession. He’s denying that he did anything criminal here. But I will say, like, there are lots of prosecutors and regulators looking into this. They are going to gather mountains of evidence.
The bankruptcy judge is going to appoint an examiner, who is going to go through every document, every text message, every Slack message sent by anyone associated with this firm. And I think it’s very likely there will be criminal charges brought.
But this stuff takes a while. You can’t bring charges overnight. And so that’s the legal problem that Sam Bankman-Fried and FTX have, but there’s also just the immense reputational problem that he now has, which is that he has spent years touting himself and FTX as good guys, himself as an effective altruist who’s going to give away all his money to help the world.
And the fact that a lot of that activi — that a lot of that seems to have been a smokescreen for some real misbehavior and malfeasance that was going on at his companies — so the last clip I want to play for you is this clip where Sam Bankman-Fried is asked about this discrepancy between the public image that he cultivated and what appears to be the reality of what was going on at FTX and Alameda, and whether all this image creation and maintenance was all just kind of a PR ploy. Here’s what he said.
You know, I think what I’d say is, look, there are a lot of things that I think have really massive impact on the world. And ultimately, that’s what I care about the most. And I mean, I think, frankly, that the blockchain industry could have substantial positive impact.
But you know, I was thinking a lot about bednets and malaria, about saving people from diseases no one should die from, about animal welfare, about pandemic prevention, and what could be done on a large scale to help mitigate those. Those things, I think, matter, and they’re among the most important things to me.
Separately from that, there is a bunch of bullshit that regulated companies do to try and look good. And these are things that everyone who does them basically knows they’re kind of dumb, that these are not things that are making large impact on the world. These are not looking at saving thousands of lives.
These are the kind of, like — if, like, three different quarterbacks throw a touchdown in the same game for the same team, we’ll donate two used cars to charity-type campaigns, where — it’s not going to happen. It’s never happened.
There’s no expectation of a car getting donated. It’s just a PR campaign sort of masquerading as do-gooderism. And things like greenwashing are things which I think end up in a similar area.
Fair to say you participated in this?
Yeah, we all did. And FTX did as well. And there are things that I felt like we needed to do for the business. There are things that I felt like were crucial for us being able — I mean, I wish the world didn’t work this way.
I wish that these weren’t relevant to your ability to get regulated, to your ability to get bank accounts, but they were. And yeah, we had promotional campaigns. We had marketing slogans.
And we thought about what we could do to — and we thought of ourselves as legitimately trying to do good. But we also thought about what we could do to make sure that our image reflected that.
I mean, first of all, I think “Hard Fork” should donate a used car to charity by the end of the year, just to prove SBF wrong. Some of us do take our corporate responsibilities really seriously. But what a rich answer.
One of the things I — one of the, sort of, virtue-signaling moves that I think FTX could have done was to not commingle its customers’ funds.
Right.
That could have been a good one for them, just to see how that improved their PR.
Yeah. So that was the crazy SBF DealBook interview. But just to kind of tie this all together, I think we’re still in a position where there’s a lot that we don’t know about what happened at FTX, that will take months or years and lots of investigations and prosecutorial digging to uncover.
One of the big questions we still don’t really have a good answer to is when and why FTX started sending customer funds to Alameda, and what Alameda used that for, and why it was losing so much money. So I imagine that is where prosecutors and journalists and amateur crypto sleuths on Twitter will be spending a lot of their effort in the next few weeks and months.
And we should say, not just Alameda, but also Caroline Ellison, a former CEO of Alameda, right? And sort of what was her role in all of this, I think, is a big question mark that intersects with everything you just said.
Yeah.
So Kevin, let me ask you. We’ve talked a lot about SBF up to this point. But what I want to know is what you feel like you learned from the interview that we watched together. What really felt new in there? What struck you?
I mean, one thing is whoever Sam Bankman-Fried’s lawyers are, he is not listening to them. Because there is no way that any competent defense lawyer would allow you to go to a conference like that, subject yourself to an interview like that, and give those kinds of answers.
But more seriously, I think we now know what his defense is shaping up to be, right? He is not going to say, I did it, I’m guilty, this was all a big fraud from the beginning, lock me up. He’s going to say, this was an honest mistake.
It was an accounting mistake. Things got out of control. We didn’t have the proper risk management. I didn’t knowingly commingle customer funds, and essentially, I can’t be held responsible, because even though I was the CEO and I was, in some cases, responsible, some of this stuff was happening in ways that I didn’t know or fully appreciate at the time.
That makes sense to me. I think that I learned something, too, and it’s maybe a little bit less of a factual nature, and just kind of more of the sense that you can gain from someone when you look them in the eyes.
And just watching SBF’s legs bounce up and down for an hour, I feel like I learned so much about what was really going on. So I’m really glad that we got to watch that one.
Yeah, me, too.
We’ll be right back.
“Hard Fork” is produced by Davis Land.
We’re edited by Paula Szuchman.
This episode was factchecked by Caitlin Love. Today’s show was engineered by Sofia Lanman, original music by Rowan Niemisto, Dan Powell, Elisheba Ittoop, and Marion Lozano.
Special thanks to Hanna Ingber, Nell Gallogly, Kate LoPresti, Mahima Chablani, and Jeffrey Miranda. You can email us at [email protected]. That’s all for this week. We’ll see you down the dusty trail.
