A Tsunami of Regulation is Coming for Big Tech

“Fortune 500 companies spent $7.8 billion ($16 million each) preparing for the roll-out of GDPR and typically spend over $10 million per year (each) to stay in compliance. Meanwhile, small to medium businesses saw their average revenue drop by 2.2% and their profit drop by 8.1% after GDPR took effect. What’s coming to the U.S. will have an even bigger impact.”

The first Ford Model T car was manufactured in 1908. But the U.S. Department of Transportation and the Federal Motor Vehicle Safety Standards (FMVSS) weren’t created until 58 years later in 1966. Several consequences followed within the next few years:

Reduced competition. A number of foreign cars disappeared from the American market as soon as the new safety rules went into effect.
Permanently higher inflation. The inflation rate of new car prices (relative to overall inflation) shifted higher (permanently). That reflected higher compliance costs as well as reduced competition from foreign car companies and startups.
Happy insurance companies. Auto insurance companies benefited from reduced claims expenses on post-safety-regulation cars.
New startups. A number of startups were formed to help big auto companies comply with the new safety standards. For example, Humanoid Systems (which after a series of mergers and acquisitions is now part of Humanetics) was founded in 1973 and won large contracts with GM and Ford to sell crash test dummies for $20,000 each. That would be $137,000 in 2023 dollars.
Future-looking companies won big. Companies which were already producing auto safety equipment (such as Autoliv which had been pioneering seat belt technology since 1956) had their growth supercharged by the introduction of regulations that required auto makers to buy the type of products they were already selling.

In other words, automobile regulation took decades to come, but when it did, it destroyed some businesses and was a huge tailwind to profitability for others.

Now consider that Google is only 25 years old, Facebook is only 19 years old, TikTok is only 7 years old, and ChatGPT is less than 6 months old. Tech is still a baby industry in its wild west phase, but the keen observer will have noted a growing number of seemingly unrelated events which are all nevertheless pushing towards the same outcome: substantial legislative reform & new regulations for the U.S. tech industry. Those seemingly unrelated events are:

An FCC proposal to ban the resale of personal data with multiple third parties (Feb 2023).
Civil rights lobbying groups agreeing with the Republican version of the American Data Privacy and Protection Act proposed in 2022.
The DOJ’s antitrust lawsuit against Google for monopolizing digital advertising markets (Jan 2023).
The EU’s record-breaking data privacy violation fine of $1.3 billion against Meta (May 2023).
Elon Musk’s open letter to pause development of GPT-5 (Mar 2023).
A bipartisan group of 20 senators sponsoring the EARN IT Act bill which would make section 230 protection contingent on tech companies taking aggressive action to stop the spread of certain content harmful to children (Apr 2023).
The FTC’s attempt to block Microsoft’s acquisition of Activision as anticompetitive (Apr 2023).
The class action lawsuits against GitHub, StabilityAI, and Midjourney for intellectual property infringement (Nov 2022 & Jan 2023).
The U.S. attempt to ban TikTok for reasons of national security and child safety (ongoing).
The recent Senate hearing on AI regulation with Sam Altman (May 2023).

Those events reflect four core trends that are going to define how tech gets regulated starting (most likely) within the next 3 years:

Growing consensus and concern over the negative effects of social media on kids.
Deglobalization and the nationalization of tech supply chains & data that it leads to.
The rapidly growing risks of and legal disputes over AI.
An explosion of scams and spam.

In the rest of this article, I’m going to break down each of those trends and the types of new laws and regulations that each is likely to lead to in the U.S.

Trend 1: Growing consensus and concern over the negative effects of social media on kids

In 2011, a report by the American Academy of Pediatrics (AAP) described a phenomenon the authors termed “Facebook depression” which was correlated with preteens and teens spending large amounts of time on social media.

Over the next decade, thousands of scientific papers were published on the topic of social media’s effects on kids and young adults. The issues of highest concern included:

Social media addiction: A compulsion to use & think about social media so much that it interfered with school performance and the ability to form real world friendships.
Social comparison orientation (SCO): A tendency of individuals to engage more in social comparisons, which affect the way that those individuals make decisions in a way that reduces their enjoyment of life.
Depression. Rude comments, getting fewer likes on your posts than other people, and algorithmic feedback loops that emerge from engagement with negative content can all contribute to depression in both kids and adults. (NOTE: AI chatbot companies also have an incentive to engage people, and we have already seen this lead to depression and suicide.)
Cyberstalking (which is already criminalized under anti-stalking, slander, and harassment laws).
Cyber-bullying.
Digital sexual exploitation of kids by adults posing as kids or trustworthy figures online.

The federal government is very likely to pass legislation to address some or all of these issues in the near future. Some types of regulations that are already being discussed include:

Child data limits. Prohibitions or restrictions on the collection and/or monetization of data collected from child users of a tech platform.
Government ID-based or device-based age verification online (as opposed to the simple “click to verify that you are at least 13 years old” popups that some websites use today). If that seems outrageous to you, then just remember that drivers licenses seemed just as outrageous of an idea in 1900, 3 years before the first state implemented a license requirement.
Child recommendation rules. Prohibitions on which types of content can be algorithmically recommended to kids (there is precedent for this in how Congress and the FCC have limited the types of content which can be broadcast on local TV channels).
GDPR-like rights to opt out of data collection or to “be forgotten” by a tech company.
A private right of action (meaning citizens can sue tech companies directly for violating their privacy instead of waiting for the government to do so).
Elimination of section 230 protections in situations where data privacy rights have been violated.
A “duty of care”. Some senators want to create a legal “duty of care” that would make tech companies liable if they didn’t take “reasonable” precautions to protect user privacy. Analogy: Just as company executives have a fiduciary duty to their shareholders that goes beyond simply not committing fraud, a duty of care would create a duty of executives to their customers that goes beyond simply not collecting data they aren’t supposed to.

“We must finally hold social media companies accountable for experimenting [on our children] for profit. It’s time to pass bipartisan legislation to stop big tech from collecting personal data on our kids and teenagers online!”
President Biden’s State of the Union speech on Feb 7, 2023

For those remarks, Biden received a bipartisan standing ovation from Congress (shown below).

Trend 2: Deglobalization

Find the common thread among the following events (all of which happened within the last 18 months):

Russia’s invasion of Ukraine in 2022.
U.S. and European sanctions on Russia in response to its invasion.
China’s increasing frequency of military incursions into Taiwanese airspace.
The Biden administration’s bans on new telecom equipment from Huawei and 4 other Chinese companies, on the grounds of national security concerns.
The U.S. customs crackdown on the import of Chinese goods manufactured with forced labor.
China’s criminalization of certain business data gathering activities by foreign companies. And subsequently, China’s raids on foreign consulting firms.
The still implausible but increasingly serious discussions of a BRICS (Brazil Russia India China South Africa) common currency.
The precipitous drop off of foreign direct investments into China (which in the second half of 2022 hit an 18 year low).
The U.S.’s ongoing attempt to ban TikTok.
China’s ban of U.S. Micron computer chips from its infrastructure projects.
Florida’s ban (by Governor Ron DeSantis, a top contender for U.S. President in 2024) on Chinese nationals being able to purchase property in large swaths of the state.

If you said “rising geopolitical tensions”, you’d be correct! Countries are butting heads more frequently. That’s partly because authoritarian governments like those of China and Russia have grown more powerful over the last few decades and are now trying to expand their international control. It’s also partly because globalization over the past few decades has harmed the working class in places like the U.S. and U.K., and that has created populist nationalism movements.

As a result, international distrust is the highest it’s been in 30 years, and the effects on the tech industry are already happening, with more soon to come. Countries don’t want their supply chains, money, or data security to be reliant on other countries. That’s why the U.S. is trying to onshore its computer chip industry and ban TikTok. And distrust of America’s government surveillance programs is also why the EU just ordered Meta to stop transferring all data on EU citizens to the U.S. In fact, the prime cause of Meta’s current predicament was Ed Snowden’s disclosure of the fact that the U.S. government was, without proper cause, searching through the private data of European citizens.

The regulations being discussed in the U.S. to address these issues include:

Banning TikTok.
Creating a federal data privacy law that will ensure U.S. companies aren’t cut off from the data flows of allied countries such as those in the EU. In fact, Biden already issued an executive order last year directing Congress to do this, but they have yet to agree on how.

The second option would actually solve the TikTok concerns too, and would do so better than a TikTok ban. That’s because in the absence of U.S. data privacy rules that apply to ALL companies (not just Chinese ones), even if TikTok is banned, the Chinese government could just buy Americans’ location data from data brokers that in turn get data from American tech companies like Facebook and Google.

REMARK: For some reason, mainstream media companies often use the term “data broker”, but I have not once heard them mention the actual names of data brokerage companies. Some of the biggest data brokers are Acxiom, Epsilon Data Management, LexisNexis, Experian, CoreLogic, Equifax, and several Oracle subsidiaries.

Trend 3: The rapidly growing risks of AI

In the 6 months since ChatGPT was launched, we’ve seen multi-billion dollar businesses such as stackoverflow.com and Chegg.com take serious hits to their revenue. We’ve also seen examples of AI kidnapping scams, AI chatbots encouraging suicide, AI chatbots generating defamatory statements that affect people’s careers, AI’s being trained on copyrighted materials without permission, AI’s being trained on personal data, and AI’s giving inappropriate responses to kids. And of course we also have prominent Silicon Valley figures like Elon Musk and Sam Altman who are actively petitioning the federal government for AI regulation.

On the intellectual property side of things, this has already led to multiple class action lawsuits on behalf of copyright holders whose works were used to train AI systems without receiving any compensation. We also have senators from Tennessee and Minnesota who are advocating for copyright reform to solve this issue and a specific Senate hearing scheduled on this issue.

On the safety side of things, the EU has already begun drafting new AI legislation.

In the U.S., the proposed AI regulations that have the most momentum are:

“Nutrition Labels” for AI models. These would be required consumer disclosures about what data a model was trained on and how it scores on various bias benchmark tests.
FDA-like Clinical Trials. AI models would be subject to clinical trial-like testing before they could be put into production. Third-party scientists would participate in auditing the AI models to ensure safety standards were met.
A federal right-of-action. This would be a statute that goes beyond simply clarifying that section 230 doesn’t apply to generative AI companies. It would also preempt states and ensure that anyone who was harmed by a generative AI company could sue that company in a federal court.
Copyright Rules for AI. Copyrighted works could not be used to train generative AI models without the copyright holder’s permission. This could be achieved through an amendment to the Digital Millennium Copyright Act (DMCA) of 1998 which itself created this problem by allowing tech companies to copy copyrighted works for certain types of data processing.
A new AI regulatory agency. This agency would require licensure of any AI models above a certain scale of computational power, number of users, and/or abilities. During a recent hearing, multiple senators compared this to how nuclear reactors or pharmaceutical drugs require licensure.

Trend 4: An explosion of scams and spam

The graph below shows the number of FTC identity theft, fraud, and spam reports over the last two decades. The total number of reports grew from just 330,000 in 2001 to 5.74 million in 2021.

Email spam, text spam, social media comment and DM spam — they are all getting worse, not better.

Personally, I spend at least 10 minutes per day filtering & deleting unwanted emails. Multiplied by 365 days per year and 258 million adult Americans, that adds up to 15.7 billion man-hours of life wasted every year. For reference, it only took 22 million (with an M not a B) man-hours to construct the Burj Khalifa (the tallest building in the world). In other words, in the amount of time Americans spend dealing with spam emails, we could instead build 713 Burj Khalifa towers every year.

The primal cause of all this spam is the unregulated sale and resale of personal data collected by companies like Facebook, Google, and Verizon. You click “accept” on the terms of service of one website and eventually your data ends up in a dozen different databases used by thousands of different marketers.

There are several possible regulatory solutions to this that are being considered in the U.S.

Data sale restrictions. Earlier this year, the FCC proposed a rule to ban the sale of data collected from lead gen forms to multiple third parties.
A right to be forgotten. Congress is considering passing federal legislation that would provide Americans with a GDPR-like “right to be forgotten” by tech companies and data brokers.
More liability for tech companies. Some members of Congress have discussed removing Section 230 liability protections for tech companies that fail to adhere to industry best practices to enforce the existing CAN-SPAM law.

The intersection of social media, deglobalization, AI, and spam = data privacy. Federal U.S. data privacy regulations are both inevitable & imminent.

The intersection of the 4 trends we just discussed–social media harms, deglobalization, AI risks, and a proliferation of spam–is a lack of data privacy.

Data privacy refers to the right of individuals to control their personal information, including where their data may be stored as well as who can access it and for what purposes (apologies to my computer scientist readers who cringe at that definition). Data privacy matters because of what happens when you DON’T have it:

Bad incentives exist. Tech and telecom companies are incentivized to collect every piece of data they can about every consumer, and that puts consumers at higher risk of being scammed, defrauded, or victimized by identity theft.
Destruction of the fourth amendment. The fourth amendment to the U.S. Constitution guarantees that U.S. citizens will not be subject to searches without a warrant. However, many government agencies are already bypassing this by simply purchasing the personal data that they need from data brokers. This is legal and currently happening under existing U.S. law.
National security risk. China is just as capable of purchasing data from data brokers as is the U.S. government. That’s why a TikTok ban without an accompanying limitation on the resale of data from American companies would be ineffective.
Competition is reduced because a tech company doesn’t have to allow a user to export their data, which means that the cost of switching from one software to a competitor software can be quite high.

Currently, the U.S. has very weak data privacy laws.

“There is a fundamental conflict of law between the US government’s rules on access to data and European privacy rights, which policymakers are expected to resolve in the summer.”
Meta’s response to their record-breaking $1.3B data privacy violation fine

My Predictions

Within 3 years (and possibly as soon as this year), Congress will pass federal data privacy legislation. This legislation will:
- Give U.S. citizens the right to demand tech companies delete any data they have collected from them.
- Give parents the right to demand social media companies remove any sexually explicit materials of their kids which were posted on their platform.
- Give EU citizens legal recourse if their data is inappropriately given by a U.S. tech company to the U.S. government (Biden already issued an executive order requiring Congress to pass such a law, and Meta’s $1.3 billion privacy fine ruling is further incentive for the U.S. government to pass such a law).
- Eliminate section 230 liability protection for tech companies in situations where privacy laws are violated.
- Create a private right of action for U.S. citizens to sue tech companies if those companies violate their privacy rights provided by this new law.
- Require that social media companies offer parental controls that allow parents to set limits on how long their kids can use any particular social media app.
The Digital Millenium Copyright Act will be amended within 10 years to remove the allowance of tech companies to copy materials for processing if such processing is for the purpose of training a generative AI model whose output could reduce the market for the author’s original work.
Within 10 years, Congress will pass a federal law that requires some sort of disclosure about the training data and/or biases of recommendation algorithms and generative AI models for companies with more than a minimum number of U.S. users (probably 1-10 million).
Within 30 years, Congress will create a new federal agency to create and enforce safety standards for tech companies, including social media companies and AI companies, over a certain size.

P.S. (Completely unrelated): Nvidia’s stock reached a $1 trillion market cap yesterday. It’s a big enough bubble that I finally opened a bearish option position to monetize the bubble’s eventual pop. I’d be happy to bet an expensive dinner on RSP outperforming NVDA over the next 5 years if you think Nvidia’s valuation is justified.

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Appendix A: Timeline of Automotive Regulation

1908 – The first production Model T is built.
1910 – New York is the first state to outlaw drunk driving.
1920 – The first 4-way intersection, 3-color (red/yellow/green) traffic light is created and erected (by a Detroit police officer).
1956 – Ford begins offering seat belts as an optional safety feature that customers could upgrade to.
1958 – Congress passes the Automobile Information Disclosure Act which requires all new automobiles to carry a sticker on the window (Monroney label) containing important information about the vehicle including its MSRP, engine and transmission specs, standard equipment, and warranty details.
1959 – This is the first year when all states and D.C. have implemented laws requiring exam-based drivers’ licenses in order to operate an automobile.
1965 – Activist Ralph Nader publishes the book “Unsafe at Any Speed” which crystallizes what had been several years of gradually souring attitude of the public towards the increasing numbers of deaths and injuries from car accidents. The book sparks a national debate and motivates Congress to pass laws the next year in order to regulate the automobile industry.
1966 – Congress creates the U.S. Department of Transportation and passes the National Traffic and Motor Vehicle Safety Act which authorizes the creation of the Federal Motor Vehicle Safety Standards (FMVSS)
1967 – The first FMVSS goes into effect, requiring auto makers to include seat belts as standard equipment.
1968 – The other FMVSS become effective on January 1st. The new requirements include things like padded dashboards, labeled controls, twin-circuit brakes, two-speed wipers that covered a minimum percentage of windscreen area, a left-hand outside mirror, four-way hazard flasher lights, an energy-absorbing steering column, front and rear side marker lights or reflectors, windscreesn with thicker interlayer safety glass, and a requirement that all vehicles pass a 30 mph crash test into a concrete barrier while demonstrating survivability of standardized test dummies in the front seats.
1970 – Congress passes the Highway Safety Act of 1970 which establishes the National Highway Traffic Safety Administration (NHTSA) which is charged with creating and enforcing FMVSS.
1973 – The NHTSA requires new cars to pass side-impact safety tests.
1974 – Congress passes a law that established a national maximum speed limit of 55 miles per hour. States had to agree if they wanted federal funding for highway repair. This was partly motivated by safety concerns, but it was also motivated by a desire to reduce America’s fuel consumption in the face of the OAPEC oil embargo from October 1973 to March 1974, during which time the price of oil globally had roughly quadrupled.
1982 – A study found that 83% of drivers on New York interstate highways violated the speed limit, despite extreme penalties such a $100 fine (equivalent to $314 today) or 30 days in jail for a first offense.
1984 – New York state passes the first law requiring seat belt use in passenger cars.
1985 – 24 states (including NY and CA) have outlawed drunk driving, but 26 (including FL) have not.
1988 – A study found that 85% of drivers on Connecticut’s rural interstates violated the 55mph speed limit.
1991 – Congress passes the Intermodal Surface Transportation Efficiency Act (ISTEA) which mandates that passenger automobiles and light trucks must include airbags for the driver and front passenger starting in 1998.
1995 – 21 years after its creation, the national maximum speed limit law is repealed by Congress, and full speed limit-setting authority is returned to the individual states.

Appendix B: How Much Did GDPR Cost?

Forbes reported that Fortune 500 companies spent $7.8 billion preparing for the roll-out of GDP. However, that leaves out the majority of U.S. companies that were subject to GDPR.

Researchers at the Oxford Martin School estimated that GDPR cost affected businesses an 8.1% decline in profit and a 2.2% drop in sales, on average, with larger declines in smaller companies.

And in addition to those steep costs for compliance and lost sales, companies were still fined. In the 5 years since GDPR took effect in 2018, Meta alone has been fined more than $2 billion, Amazon has been fined close to $1 billion, and roughly 1,000 penalties have been issued against small to medium companies.

Appendix C: Schrems 2020 Court Case Explained

In 2020, the Court of Justice of the European Union (CJEU) ruled in the case “Data Protection Commission v. Facebook Ireland, Schrems” that the European Commission’s adequacy decision for the EU-U.S. Privacy Shield Framework, upon which more than 5000 U.S. companies rely to conduct trans-Atlantic trade in compliance with GDPR, was invalid. In particular, the CJEU ruled that the nature of U.S. government access to private sector data was not limited to what is strictly necessary and proportional as required by EU law and hence do not meet the requirements of Article 52 of the EU Charter on Fundamental Rights. Additionally, the CJEU determined that with regard to U.S. government surveillance, EU data subjects lack actionable judicial redress and therefore do not have a right to an effective remedy in the U.S., as required by Article 47 of the EU Charter.

Market Manipulation with Fake Newsception: AP 🤝 AI

Three years ago, I designed a trading algorithm that predicted market moves based on the propagation of information & sentiment from niche communities in Twitter and Reddit to niche media sites to mainstream media sites. It was relatively accurate. I pity anyone trying to trade on such data today when the truth-to-fiction ratio is at an all-time low.

At 10:11 AM Monday morning, a verified Twitter account named “BloombergFeed” posted an image of a smoke plume near the Pentagon along with a message saying that a nearby explosion had been reported. In reality, the account was unaffiliated with Bloomberg, the image was AI generated, and the headline about an explosion was 100% fake.

It took about 20 minutes for media & government sources to release statements debunking the story. Arlington Fire & EMS released a statement on Twitter at 10:27 AM.

Unfortunately, the stock market had already reacted to the fake news with the S&P 500 taking a dive. At least, that’s what every large media outlet posted articles claiming.

NY Times: “An A.I.-Generated Picture Stokes a Stock Market Plunge“
AP News: “FACT FOCUS: Fake image of Pentagon explosion briefly sends jitters through stock market”
Barron’s: “An AI-Generated Pentagon Image Caused a Brief Panic in the Stock Market”
Fox Business: “Image believed to be generated by AI showed fake explosion at Pentagon, sending stock market into brief nosedise“
Cointelegraph: “AI-generated image of Pentagon explosion causes stock market stutter“

Yesterday, I started researching the timeline of events, including the viral path of the fake image through social media, in order to write my own article on AI market manipulation. But instead, I discovered that all the mainstream media articles I just quoted were actually false. The AP’s “FACT FOCUS” article contained fake news–oh the irony.

The S&P 500 price chart below has 1-minute granularity. The first black dot shows exactly when BloombergFeed tweeted the fake image, and the second dot shows when Arlington Fire & EMS tweeted to debunk the fake image.

The S&P 500 declined from 9:42 AM to 10:10 AM, and then reversed within 1 minute of when BloombergFeed tweeted the fake image at 10:11 AM. Other “distributor” Twitter accounts such as @UKR_Report independently shared the fake image at almost the same moment. Yet immediately afterwards, the S&P 500 did not drop. It rose.

Social media data suggests 10:10-10:11 AM was the temporal epicenter of virality for the fake image, yet that is the same time when the stock market reversed its 28 minute decline into a roughly 20 minute recovery which only started to dip again AFTER the fake image had already been debunked.

That means there is no positive correlation between the viral spread of the fake image and any price decline in the S&P 500. Furthermore, even if the timing of the fake image virality and stock market drop DID line up, the correlation with price would be so insignificant as to be indistinguishable from noise! That’s because the largest intraday swing in the stock market on Monday was about 0.7%. For comparison, during the first 8 months of 2022, 87.3% of all trading days had intraday swings of at least 1%. In other words, the stock market drop being attributed to the fake image is indistinguishable from everyday random stock market fluctuations.

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Twitter Is 32% More Compliant With Government Censorship Demands Under Elon Musk

Elon Musk bought Twitter in order to save the world from the tyranny that would inevitably follow a loss of free speech on the internet. At least, that’s Elon’s narrative. But according to Twitter’s own self-reported data, Twitter fully complied with 83% of government requests and court orders since Elon took control of the company. In contrast, Twitter reported approximately 51% compliance in its last report before Elon’s acquisition. That means Elon’s Twitter is 32% more compliant with government information & censorship requests than pre-Elon Twitter.

And just last week, Twitter censored 409 tweets in Turkey ahead of the country’s presidential election. So is Elon’s free speech advocacy narrative a lie?

Not exactly. Elon has clearly stated from the beginning that his definition of free speech was speech which matches the law. In other words, he was advocating for social media to allow all legally allowable speech, but he wasn’t arguing that social media companies should go spurn the law.

That meant, for example, that Twitter shouldn’t unilaterally decide to ban a U.S. president, but should, for example, still respond to court orders to remove defamatory tweets.

If someone is a free speech absolutist, as Elon Musk has sometimes claimed to be, then it is fair to criticize him for not allowing ALL speech, regardless of whether or not it is legal. But such a criticism would be impractical because Twitter would soon be shut down in every country in the world for violating local laws. It’s also ironic that some of the same people now criticizing Elon for complying with government censorship requests have previously argued that “billionaires are not elected officials, so why should they be making decisions on how our society is run?”

Still, there is an unignorable moral dilemma that arises when deciding whether abiding by the laws of the land is a good policy for media companies operating in a country like Turkey which has been slipping into authoritarianism over the past several years under president Erdogan. Can you really claim to be a free speech absolutist if you help governments censor investigative journalists before an election?

Here is how Twitter’s global affairs department responded to criticism of Twitter’s actions to censor certain tweets and accounts in Turkey:

“We received what we believed to be a final threat to throttle the service–after several such warnings–and so in order to keep Twitter available over the election weekend, [we] took action on four accounts and 409 Tweets identified by court order.”

Three of the accounts referenced were:

The account of Muhammed Yakut, a Kurdish businessman who has criticized Turkish incumbent president Erdogan’s regime.
The account of Cevheri Guven, an investigative journalist.
An anonymous influencer account of a self-described activist and freedom fighter in Turkey.

The fourth is unknown.

Appendix: Elon’s Message to Advertisers After His Acquisition of Twitter

“The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner, without resorting to violence. There is currently great danger that social media will splinter into far right wing and far left wing echo chambers that generate more hate and divide our society… That is why I bought Twitter… I didn’t do it to make more money. I did it to try to help humanity, whom I love… That said, Twitter obviously cannot become a free-for-all hellscape, where anything can be said with no consequences! In addition to adhering to the laws of the land, our platform must be warm and welcoming to all, where you can choose your desired experience according to your preferences…”
Elon Musk’s message to advertisers

How did Harlan Crow Become a Billionaire?

Harlan Crow is a Dallas-based real estate developer who was thrust into the public spotlight after ProPublica uncovered 20 years of previously undisclosed gifts from Harlan to Supreme Court justice Clarence Thomas.

But this article isn’t about that — it’s about how Harlan Crow (and his family) became billionaires in the first place so that they could afford to take private jets to Indonesia and own a private superyacht like this:

The Michaela Rose superyacht which belongs to the Crow family

Poor Dad, Billionaire Dad

The story starts with Harlan Crow’s father, Fred Trammell Crow, who grew up so poor that he couldn’t go to college after graduating high school, jumped around between different odd jobs and careers until he was 33, and yet eventually controlled more real estate than any other person in America.

Fred Trammell Crow (father of Harlan Crow) sitting on a desk next to a miniature architectural model of a city — Fred Trammell Crow

Fred Trammell Crow (who just went by his middle name Trammell) graduated high school during the great depression and couldn’t afford to go to college. For years, he worked odd (unglamorous) jobs, from plucking chickens to cleaning bricks to unloading boxcars to delivering messages back and forth between divisions of a bank. Eventually, he saved up enough to attend night school for accounting and several years later, he became a CPA. A couple years after that, he joined the Navy as an auditor at the start of World War 2. Five years later, he left the Navy again struggled to find his footing in business. He worked for a moving company for a brief time and then as a wholesale grain merchant, working for his wife’s family’s business.

When one of the other tenant’s in the grain warehouse needed more space, Trammell was 33 years old and he decided to take a risk. He took out a personal loan to build a warehouse while only having a portion of the building pre-leased. He completed the warehouse in 1948, and successfully leased the remaining portion of it to other tenants. That was the start of his would-be billion dollar career in real estate development.

After that, he was prolific. He started finding and partnering with as many people as he could. By the mid 1950’s, Trammell was the largest warehouse developer in Dallas.

Trammell grew his business by seeking out partners who would provide the land or money that he needed to build. This allowed him to continuously scale his real estate empire without needing to pause to accumulate cash flow from one project to reinvest into the next.

“Genuine partnership is the ideal business form… Sharing the efforts and the fruits, the risks and rewards. When embraced with full and proper spirit, it works magic.”
Fred Trammell Crow

And Trammell embrace the partnering strategy HARD. By 1974, he was personally tied to a web of over 600 partnerships and corporations.

But real estate development has a reputation of being financially risky for a reason. Development is speculative. You guess that if you build something, tenants will come. Sometimes you’re right, sometimes you’re wrong, and sometimes you’re right but you don’t get as much rent as you thought you’d get or it takes longer to find those tenants than you anticipated.

By the end of 1974, Trammell’s real estate empire was cash flowing negative $25 million per year. The real estate market had slowed significantly, interest rates were high, and Trammell’s debt load was huge.

Trammell was forced to sell off some properties, but he continued to develop multiple new projects simultaneously to generate more cash.

In 1977, Trammell reorganized the company, diversified into investment banking and property management, and hired a CEO to replace himself. That helped the company survive and recover from the credit crunch of the mid 1970’s.

In 1984, the comapny completed Dallas’s first post-modern skyscraper: the 50-story Trammell Crow Center. The company had $13 billion of assets (and a lot of debt) and 5,000 employees.

But then another round of problems came as the Southwestern real estate market hit turbulence. Trammell lost many of his commercial real estate partners and the company’s shareholder equity fell from $1.7 billion in 1986 to $1.3 billion in 1988.

By 1991, many more company reorganizations, spin-offs, and mergers had occurred. By 1992, the main company controlled 6,500 properties worth $9 billion. The company was the largest real estate services firm and provided property management, facilities management, construction, development, asset management, brokerage, and leasing/marketing services.

In 1994, Harlan (the son of Trammell who we started this article talking about — the guy who was taking Supreme Court justice Clarence Thomas on luxury vacations) became the majority shareholder of the company.

In 1997, the Trammell Crow Company IPO’d, and its stock had the ticker symbol TCC.

In 2006, TCC was acquired by CBRE Group, a massive real estate and investment conglomerate that is ranked 122nd on the Fortune 500.

Oh, and parallel to all of this, Trammell also founded Wyndham Hotels in 1981, and that also generated a lot of wealth for the Crow family.

Crow Holdings

The Crow family money is now organized into a new structure: Crow Holdings. Harlan previously served as the CEO and now is just the chairman of the company.

The business has two main segments:

Real estate development (industrial & multifamily only)
Real estate investment fund management (with a focus on institutional investors)

The company’s real estate funds focus on industrial and multifamily investments. However, the company also pursues a strategy of niche portfolio aggregation. It will curate, buy, and aggregate small assets in a particular niche like convenience and gas stores or manufactured housing. Once it has accumulated a large enough portfolio in that niche, it will sell it to institutional investors.

Business Philosophy

“Mr. Crow changed the landscape of the way the real estate business is done. If you look at all of the people who grew from within his organization and all of the companies they went on to create… It’s a culture that you’ll probably never see again.”

One of the things which worked well for the Trammell Crow Company was its culture. Trammell focused on people. It had an internal university which it used to train its employees, and employees were encouraged to grow professionally and even leave the company if they wanted to. TCC partnered with many real estate companies founded by TCC alumni, and the prospect of participating in that loop was an effective way to attract ambitious talent.

“[I] reported directly to [Trammell Crow] in business for about a year fresh out of college. Accelerated Real Estate 101 on steroids like I never learned in college! … He was quick to make decisions involving dollar amounts above my comprehension at that time. He stressed the importance of always being a ‘man of your word’ and to do business on a handshake… He also made it a point to teach me as we went along. He would always make time for me on a personal level; something I did not abuse but was very appreciative of…[Trammell was] clearly an intense thinker. You could walk into a room and ask him a question and [after] standing there silently [in deep concentration] for about 30 seconds or more, he would look up and answer the question as if no time had passed.”

But Trammell went further. He was eccentric. He was almost hippy in some ways, yet staunchly conservative in his advocacy for taking personal responsibility for one’s life.

At one time, he gave a speech saying that his biggest secret to success was taking complete responsibility for everything in his life:

“Though there are myriads of things which have affected us and have been a part of the cause of our success, one thing stands out in my mind above all… I believe that few persons or companies experience success without knowing and living this matter. The matter is this: Everything that happens to me in my life is my own responsibility–solely and absolutely my own responsibility. I can claim or expect no help from anyone! It’s all up to me! … Now life doesn’t guarantee you everything, no matter how you try, but you’ll only get the best that life has for you when you understand and absolutely observe that it’s all up to you. Let me tell you a secret. Fate is kinder to those who so face life… And people support more those who take the complete responsibility for all and everything in their lives.”
Trammell Crow at the Trammell Crow Company Annual Meeting in 1994

At another time, Trammell gave a speech where he gave a different biggest secret to his success:

“You know what it is? It’s love! It’s the most powerful force in the world, and it will do more for us individually and as a company than anything else we can do.”

So it seems like Trammell really has 3 keys to success:

Partnership.
Love.
Taking complete responsibility for everything that happens to you.

References

[1] Crow Holdings – Detailed Video History of Trammell’s Career

[2] Superyacht Fan: The Michaela Rose

[3] FamilySearch: Fred Trammell Crow (1914-2009)

[4] Texas State Historical Association: Trammell Crow Company

27 Examples of High-Performing Business & Finance YouTube Video Hooks

A hook is the whatever you say or do in the first few seconds of a YouTube video in order to capture the attention and interest of the viewer and make them want to keep watching. In the table below, I list the hooks from 27 high-performing business and finance videos, along with a description of the “hook types” which are reasons why each hook works.

	Hook	Hook Types	Video Performance	Video Title	Channel
1	Economists just can’t seem to give a simple answer to the question: “Do we need to have more or less children?”	Curiosity trigger Familiar question Controversy	22k views after 2 hours	Do We Need More or Less Children? \| Economics Explained	Economics Explained
2	This is Iran. A country that could be one of the most prosperous and powerful economies in the world in less than a decade if it was given the chance.	Visual Controversy	334k views after 3 days	This Country’s Economy Could Be Huge, But They Don’t Care \| Economics Explained	Economics Explained
3	This is Lebanon. A small country on the Mediterranean coast home to 5.5 million people, according to best available data.	Visual Controversy	518k views after 10 days	This Country Lost 50% of Its Economy in 2 Years \| Economics Explained	Economics Explained
4	This is Israel. A small Middle Eastern country on the Mediterranean Sea that is home to 9.4 million people and a surprisingly robust economy.	Visual Controversy	412k views after 3 weeks	How To Get Rich When The World Is Against You \| Economics Explained	Economics Explained
5	Last month, Jerome Powell announced that the Federal Reserve Bank would be moving away from the term “transitory inflation”.	Flip-flopping Controversy Anger	977k views after 1 year	How is “Transitory” Inflation Going? \| Economics Explained	Economics Explained
6	Alright, it’s time to add another few countries to the list of where I am not welcome. This is the Line. A 170 kilometer long, 500 meter high city in the desert proposed by the Saudi Arabian government as part of their Neom project.	Visual Controversy	2.6 Million views after 7 months	Why The Gulf States Need To Keep Building Big Dumb Mega Projects \| Economics Explained	Economics Explained
7	At an event in Arizona a few months ago marking the opening of a new Taiwan semiconductor plant, Morris Chang the company’s founder stated that globalization is almost dead and free trade is almost dead, and they are unlikely to come back.	Controversy	242k views after 4 days	The Death of Globalization!	Patrick Boyle
8	Last month it was announced that China and Brazil had signed an agreement to trade on trade in mutual currencies, abandoning the use of the U.S. dollar as an intermediary.	Controversy	380k views after 2 weeks	Would a BRICS Common Currency Work?	Patrick Boyle
9	Carl Icahn has had a long career in markets, starting out as a stock broker in 1961, later becoming a risk arb and options trader. In the 70s and 80s, he was a notorious corporate raider. He was accused of being an asset stripper, the worst kind of stripper, in his dealings with TWA.	Business Celebrity Gossip Controversy	228k views after 11 days	Carl Icahn Comes Under Fire!	Patrick Boyle
10	Do you ever see those Forbes 30 under 30 lists, and they might make you feel a bit down, as there seems to be at least 30 people on the planet who are under the age of 30 and doing a bit better than you are?	Relatable question Articulation of viewer emotion	1 Million views after 1 month	Forbes Has a Fraud Problem	Patrick Boyle
11	The period between the end of the American Civil War and the turn of the century, so 1865 through to 1900 in the United States, was a time of rapid economic growth that became known as the Gilded Age.	Resentment Controversy	1.2 Million views after 6 months	How They Got Rich!	Patrick Boyle
12	1 Hyde Park is a luxury apartment building in Nightsbridge, London. It was developed by the Candy brothers, designed by Richard Rogers, and completed in 2009. The luxury apartments come with panic rooms, bulletproof glass, and boller-hatted security guards that were trained by the British special forces. One of the apartments in the building was recently listed for sale at $242 million.	Resentment Controversy	627k views after 6 months	The Dirty Money Capital of The World?	Patrick Boyle
13	Louis Vuitton, Christian Dior, Tiffany — Some of the most popular luxury brands in the world, all housed under one roof: Louis Vutton Moet Hennessy, or LVMH.	Relatable observation Mild surprise or controversy	245k views after 1 day	How LVMH Became A $500 Billion Luxury Powerhouse	CNBC
14	Every religion has its mysterious. One of the closest guarded secrets of the Church of Jesus Christ of Latter Day Saints has been its wealth. Tonight, you will hear, for the first time, about its remarkable size, from a former manager at the Church’s investment firm. David Nielson says that during his 9 years managing money at the church firm, the value of its investments ballooned past $100 billion.	Curiosity trigger Outrage Controversy	1.4 Million views after 2 days	Mormon whistleblower: Church’s investment firm masquerades as charity \| 60 Minutes	60 Minutes
15	When it comes to fast food, McDonalds is unrivaled in scale and success. McDonalds has held onto its crown for decades, selling more fries, burgers, nuggets, and apple pies every year than any other fast food chain by orders of magnitude.	Visual Relatable observation	78k views after 2 months	Burger Wars: How Wendy’s Toppled Burger King	Modern MBA
16	Starbucks has been a mainstay in business school literature and management training as a role model for innovation, branding, vertical integration, and corporate social responsibility.	Visual Controversy	83k views after 3 days	Why Starbucks Must Crush Unions to Survive	Modern MBA
17	There are few things that sell as well as security. In America, burglaries and home invasions are highly publicized crimes that surface regularly in fiction and media.	Visual Relatable observation	162k views after 3 weeks	The Shoddy Business of Home Security	Modern MBA
18	There are few companies that match the fame and notoriety of Uber. As a ride hailing service, Uber is divisive.	Familiarity	272k views after 3 months	Why Uber Fails to Disrupt Transportation	Modern MBA
19	<clip of a Masterworks ad>	Clipped third-party video	675k views after 3 months	The Problem With Masterworks	The Plain Bagel
20	Passive income: the whole grail of personal finance topics. The ability to earn money without doing anything. And it’s something you’ll see video after video and ad after ad talking about, pushing the idea that millionaires earn 7 different streams of income so, so should you. There’s just one problem: passive income doesn’t exist. Not really anyway.	Relatable observation Controversy	995k views after 6 months	The Passive Income Scam	The Plain Bagel
21	Ladies and gentleman, welcome to the Plain Bagel, I’m your host Richard Coffin. If you’ve been on finance youtube long enough, you’ve seen your fair share of burning dollar bills and thumbnails that highlight that this is the end. Well you might have noticed a bit more burning greenbacks than usual lately given recent headlines that spell trouble for the U.S. economy.	Relatable observation	272k views after 3 weeks	Let’s Talk De-Dollarization – Why the Dollar Isn’t Going Anywhere Anytime Soon	The Plain Bagel
22	<clip of Linda interviewing Elon Musk>	Clipped third-party video	46k views after 23 hours	Twitter’s New CEO: Why Elon Musk Chose NBCU’s Linda Yaccarino \| WSJ	Wall Street Journal
23	Sam: Alright so we have Austin here, Austin Rief, founder of Morning Brew. I know how big you guys are, I don’t know what the public numbers are so I’ll let you kinda say, how big is the company now? Austin: Yeah $70, $75 million of revenue this year, double digit profit margin, 250 people or so.	Familiarity Curiosity trigger Big money number	55k views after 4 months	How To Grow A $75M Newsletter Business \| Morning Brew Co-Founder	My First Million
24	Shaan: What are easy businesses that you’ve started.. like for me, Milk Road was a way easier business, than any business I had ever started. What’s been an easy business for you? Sam: And where does agencies rank on the easy to hard scale?	Strong financial curiosity trigger (I could use the answer to make money!)	107k views after 5 months	Ranking The Best And Worst Businesses To Start w/ Billionaire Investor Andrew Wilkinson	My First Million
25	Alright we have more changes unfolding in the U.S. economy, changes that now have triggered massive levels of anxiety in the bond market.	Fear Urgency	16k views after 20 hours	Bond Market Risk FLASHING RED as Manufacturing Sector CRASH Breaks Record	RJ Talks
26	Welcome back to another episode of the Modern Mastery Podcast where we help you optimize your human experience through wholistic personal development. Mind, body, spirit, with business as your vessel for freedom.	Familiar intro “Cult speak”	134k views after 1 year	Justin Welsh Shows You How To Start & Grow A One-Person Business	Dan Koe
27	In the last video, we went over what limits are and how to find them. So, in this video, we are going to go over a real life application of limits to find when your dad is coming home. Your dad went to the grocery store with $3 to buy some.. milk. It’s been 15 years and he hasn’t come back, so firstly, let’s set up a graph.	Humor (absurd, hilarious, deadpan)	10 Million views after 1 year	Using Math to Find When Your Dad is Coming Back with the Milk *This is an educational math video, not a business or finance video, but it is a content masterpiece.	Dapz

Senators Propose New AI Regulatory Agency

Sen. Lindsey Graham: “Do you agree, Mr. Altman, that these tools you’re creating should be licensed?”

Sam Altman (CEO of OpenAI): “Yes. We’ve been calling for this.”

Sen. Lindsey Graham: “And do you agree with me that the simplest way and the most effective way [to implement AI licensing requirements] is have an agency that is nimbler and smarter than Congress, which should be easy to create, overlooking what you do?”

Sam Altman: “Yes. We’d be enthusiastic about that.”

AI regulation is a matter of what and when, not if. That creates both risks and opportunities for founders of, executives at, and investors in AI companies. In this article, I summarize the key business-relevant developments from today’s three-hour Senate hearing on AI regulation.

The most repeated concerns from senators were:

Misinformation (especially related to elections and healthcare).
Intellectual property rights (especially related to the use of copyright-protected works that are used to train generative AI models).
Safety (a catch-all term that was used numerous times to refer to everything from child safety to non-proliferation of AI that could design novel biological agents to not encouraging self harm).

The (not-mutually-exclusive) list of possible solutions that had the most momentum in the committee consisted of:

“Nutrition Labels” for AI models. These would be required consumer disclosures about what data a model was trained on and how it scores on various bias benchmark tests.
FDA-like Clinical Trials. AI models would be subject to clinical trial-like testing before they could be put into production. Third-party scientists would participate in auditing the AI models to ensure safety standards were met.
A federal right-of-action. This would be a statute that goes beyond simply clarifying that section 230 doesn’t apply to generative AI companies. It would also preempt states and ensure that anyone who was harmed by a generative AI company could sue that company in a federal court.
Copyrights for AI. Copyrighted works could not be used to train generative AI models without the copyright holder’s permission.
A new AI regulatory agency. This agency would require licensure of any AI models above a certain scale of computational power, number of users, and/or abilities. Multiple senators compared this to how nuclear reactors or pharmaceutical drugs require licensure.

The AI regulatory agency was the most discussed solution and was supported by OpenAI CEO Sam Altman as well as a core bipartisan group of 5 senators:

Senator Michael Bennett (D-CO)
Senator Peter Welch (D-VT)
Senator Lindsey Graham (R-SC)
Senator Cory Booker (D-NJ)
Senator John Kennedy (R-LA)

Some other senators including Sen. Jon Ossoff (D-GA) seemed to be seriously and genuinely considering the agency solution.

However, it’s likely that if a new agency is created to regulate AI, the scope of the new agency wouldn’t actually be restricted to just AI. There are multiple groups of senators with their own pet bills that they have been trying to pass in recent years to regulate tech companies, and any new agency bill would probably incorporate at least some of those.

For example, last year Sen. Bennett and Sen. Welch introduced the Digital Platform Commission Act to try to create a new agency that would regulate tech companies. During today’s hearing, Sen. Welch said that they would be reintroducing the bill this year (with AI rebranding).

Similarly, Senators Klombuchar, Coons, and Cassidy have their own pet: the “Platform Accountability Transparency Act” which require that social media companies disclose their algorithms to certain researchers. Given that many of the senators and witnesses at today’s hearing advocated for various types of data or model transparency for AI, Sen. Klombuchar’s bill could easily be merged with Sen. Bennett’s bill to create a bill that has sweeping consequences for the entire tech industry from social media companies to AI companies.

“We cannot afford to be as late to responsibly regulate generative AI as we have been to social media, because the consequences, both positive and negative, will exceed those of social media by orders or magnitude.”
Senator Christopher Coons (D-CT), May 16, 2023 Senate Hearing on AI

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