♪ emily: he's invested alongside bono, mentored mark zuckerberg and made an early investment in facebook. roger mcnamee made his name in the 1980's and 1990's, then cofounded the private equity firm silver lake and elevation partners. never one to shy away from voicing his opinion, mcnamee now has a new message for facebook. they're getting it all wrong, dividing countries and putting democracy in peril. joining me today on "bloomberg studio 1.0" is roger mcnamee. roger great to have you here. roger: emily, it's a great

honor to be on your show. emily: i've never had the opportunity to ask how did roger mcnamee become roger mcnamee? i'm glad we have a chance to do that here today. roger: i grew up in new york. i had a wonderful childhood. i had health problems as a kid. i developed a condition at age two. at 10, i had a traumatic injury that required life-saving surgery. it was one of those experiences that you come through and it forms your personality in an interesting way. emily: how did this impact you? roger: i became more introverted and essentially, i got used to having to go my own way because the digestive disorder i had meant i could not eat anything that had any grain in it. you grew up without birthday cakes and cookies and bread, and cereal.

those kinds of things. you have to develop tremendous self-control. you are going to become an investor. what are some traits that are really useful? emily: did you want to become an investor? roger: i knew nothing about it. when i look back, the experiences of zero to 10 had a great influence. it was that willingness to do it my own way. to be different from everybody else. because from 0-10, i was always different from all of my classmates. emily: you went to yale. then you dropped out. was i took a did one-year leave, but my father died. with him went the family finances, and so my mother was forced to sell the family house at a huge loss. there was no money to pay for college. i stayed out for 2.5 years. i got really lucky. i found a job where i was selling advertising space for little weekly newspapers. and i was both selling and collecting. which is really interesting because you have to learn how to analyze businesses to learn which one will pay you.

you don't want to sell it to somebody who isn't going to pay you so it has to really work. that's when i discovered investing. i bought 100 shares of an a little company called beech aircraft. they had a brand-new airplane called the king air, and the stock went up six dollars the first week i owned it. i thought i was the second coming. at that point i had the bug, but i did not know you could work there. i wasn't going to be a trader, i didn't know what the jobs were that they had. but i earned enough money and went back to college. people get paid to do research. but i managed to persuade goldman sachs to give me a job in the summer of 1981. and for those who have not studied history, 1981 was the year that interest rates peaked for all time, t-bills went to 21% or something. municipal bonds with a aaa rating were 15% or 16% yield.

so i go back to school and its 1981. we're in a bear market. i sent a resume to t. rowe price associates. a mutual fund company in baltimore. i go in for my closing interview at this today thing. i sit down next to the head guy and go, i love this place. i want to work here. but i know you are not going to hire me. i give them three reasons why they are not going to hire me. i watch his face and i realize -- it's like a cartoon -- his whole expression is shocked. there is this pause. he goes, this is amazing. i go, what do you mean? he goes, i wasn't going to hire you, and you got the three reasons in the correct order. he said we are in the business of hiring people who are good in -- good judges in people and in situations, who can anticipate what people are thinking and feeling.

i've never seen anybody try that tactic before. that was a great piece of analysis. would you like to come work for t. rowe price? and i said, you betcha. emily: you went on to run a technology fund. roger: i did. it was the first day of a bull market being assigned to cover technology meant the first rule of wall street is timing is everything. emily: so, were you smart or were you lucky? roger: i was totally lucky. you can explain my entire career on the basis of a great starting day and being assigned to the sector that was the basis of the economy for my entire career. emily: what timing. roger: pure dumb luck. i get there, things go up, things go down. they create this thing called the science and technology fun 19 days before the crash in 1987. the thing is down 37% in a month. they move the guys off and say, roger, why don't you take over? but i have to do it

my way. they said, this is what i love about t. rowe, they said, fine, do it your way. i spent 120 days year traveling. institutional investors and top analysts were doing 29 meetings a year. i was doing 400 face-to-face meetings with companies. nobody had done that before. in wall street. this is the late 1980's. and it worked so well in tech. emily: you went on to cofounded silver lake. roger: silver lake, we raise the money in 1999 and buy three stocks, seagate technology, a thing called day tech, which you would now know is ameritrade, but they also have this amazing technology platform that drives the nasdaq. so there were two pieces of that. and then gartner group, a consulting firm. so we did like six deals, but i did three of them and those were the three.

we did them right at the top of the market in the second quarter of 2000. you think nothing would work, but we got very lucky again and the strategy worked well. emily: as i understand, you got pushed out. roger: apple introduced a product called the ipod. initially it was just on macintosh. i called up steve jobs and said this is amazing. your company options are 40, the stock is at $12. your stocks traded for cash value. your options are 40, that is nuts. steve goes, i don't like to do it. but if you want to do it, you can buy 18% of the company, come on the board, and we will do this thing together. and i took that idea to silver lake and they said no. emily: steve wanted you to join the board of apple? and silver lake said no? roger: silver lake said no to the whole deal. and then bono calls up and says i want to buy universal music

group. they say, we love this idea, but we don't want you to do it. i went, what do you mean? he wants me to do it. why don't you want to do it? they said we think it is time for you to go. i went, really? after day tech, seagate, gartner, you want me to go? apple? they said, yeah. anyway, so, i went, ok. and i mean i was really crushed. , this thing started as my idea. it was hugely successful. and i had just been voted out. but i'm in new york. i call bono up to say i don't think the deal is happening because i'm leaving the firm. bono said, the heck with them. we'll start our own firm. the same day. it's like, oh, you want to do a firm? you want to be in the investment

business? he said no, i really do. i think i can help my work in africa are raising my profile among the people i raise money from bill gates, warren buffett, rupert murdoch. he loved raising money. he was incredible at it. every company we invested in wanted to be like bono, like u2. talk tould go in and the employees of palm or facebook or whatever. he was so motivated. it was just a game changing thing. we had one day a week of his time. and we were really open about this. but the thing is, one date with bono, i mean there was nothing , like him in that world. if you're trying to invest at the intersection of technology and media, the fact he was not a hood ornament, was intimately involved -- we have some strong personalities. and he was the one who always resolved the internal issues. it was just amazing. he's that rare celebrity who is

in real life all the good things that you see in their celebrity, and then a whole bunch more. ♪ emily: you think that facebook is in an existential crisis? roger: oh, i do. ♪

♪ emily: you met mark zuckerberg in 2006. roger: i get a phone call from chris kelly, who is the chief privacy officer, one of the senior executives. he goes, my boss has an existential crisis. i can't tell you what it is. i think you are the right guy to help them solve it. he comes in. 22 years old. it's like march of 2006. emily: two years after facebook was founded. roger: correct. and i think they had $9 million in revenue at that point. cumulative. i'm sitting here and i said, mark, we have never met each other. i need to tell you something before we start. i said if i don't tell you now,

you'll never believe me later. you will just assume i am trying to appeal to you. i think you have created the most important company since google, that within a few years you will be bigger than google is today. the secret is you solved the problem of identity and take privacy seriously. those two values are powerful. i said the problem is that if it has not happened already, either microsoft or yahoo! will offer $1 billion for your company. your parents, your board of directors, your employees will all tell you to take it. your lead venture investor will back your next company. you can be a philanthropist. you are only 22. i'm here to tell you that's nuts. no one has been able to replicate the great idea at the perfect time. you don't get a chance to do that a second time. you either miss on the timing or you miss on the idea. i said you will never get a

chance. if you believe in this idea, you have to remind everybody they got involved in this because of the mission you're on and they cannot force you off it. then ensued the longest, most painful silence of my entire career. and he's like a cartoon character. he goes like this, this, this, and it seemed like it went on for an hour. it probably only went on for four or five minutes, but i am dying. i said, what are you doing? i've never seen anybody do this before. then finally, a cloud bubble appears over his head and you could see his blood pressure comes down and he says, you will not believe this. i said, what? in my bag, i have a contract from one of those two companies and every single thing you said already happened in the last two days. i said well, do you want to sell the company? he said, no, i won't disappoint -- i don't want to disappoint these people. i said you will not be disappointing.

this is such a good idea, that they will be happy you turned them down. that began a time when i was one of his mentors. emily: why did he come to you? roger: the company did not have the right set of people. there was an issue with a senior executive. then there was the magazine article that created enormous issues for him. and so i helped him get through those sorts of things. and then the smartphone things started to happen. mobile became real. he didn't believe in mobile at the beginning. i had the ability to bring in great technologists to help them understand mobile. that wound up being an important thing i did. emily: and you also helped him meet sheryl sandberg. roger: when mark has this problem, it's time to monetize and he is having all these issues with senior executives, i said there is no comparable thing here. the closest thing is add words. it's sheryl sandberg, have you

met her? i said, i want to get her to come and talk to you about being your chief operating officer. and next thing you know she goes there as the chief operating officer. basically, they didn't need me anymore. she is way smarter than i am. one of the most capable people i have met. emily: how much facebook stock did you buy? roger: i didn't buy that much, but it turned into a lot of value. emily: how much did you make? roger: a lot. it was really important. facebook was weird. it was the gift that kept on giving. emily: you think facebook is in an existential crisis. roger: i do. emily: and you have not been shy about it. roger: no, in 2016, i noticed bad actors on the platform. i didn't know what i was saying. -- seeing. initially it was the democratic primary in 2016, then a firm

scraping facebook, people who were interested in black lives matter, then selling it to police departments in violation of the fourth amendment. then there was brexit, the leaf campaign has set your hair on fire, the immigrants are going to take away your jobs and culture strategy versus leave, which was saying stay the course. i realize holy moly, facebook is , biased in favor of anger, and fear, and therefore people who run campaigns based on fear have a huge cost advantage, and that's how brexit happen. and finally in october 2016, i am really concerned, and i read -- write an op-ed and i send it to mark and cheryl. they didn't take it seriously. they treated me graciously. but they responded instantly. they didn't think it was real. they said, we think these are isolated things. here is our senior guy, really smart, beautiful person, and dan

so patient with me. for 10 days in a row he let me , send him stuff and talk to him, and the election happen. and at that point it went crazy. ♪ emily: how big of a role do you think facebook played in the election of donald trump? ♪

♪ emily: how big a role do you think facebook played in the election of donald trump? roger: well, i think without facebook it is inconceivable he would've been nominated. emily: he would not have been nominated? roger: the impact on the nomination was greater than the general election. the reason is because the russians had been doing this campaign of essentially trying to divide the american people to polarize them, so they took these issues like guns, immigration, rights of women, black lives matter, and they would try to divide the country by seating both sides and causing arguments.

trump showed up and adopted the same themes they had been doing, and i assumed it was just the way he thought as opposed to it was coordinated. were all republicans running standard republican campaigns. it was effectively he had been campaigning three years before they started. that's how he got nominated. we can't fix 2016 and that is not my goal. my goal in this whole thing is, i believe the advertising business model creates the wrong incentives for facebook, and that essentially it forces them to use highly addictive technology and to basically push people to increasingly extreme positions, so polarization is good for their business. anger and fear are good for their business. emily: what do you believe we are at risk of now because of the way facebook is constructed?

roger: to be clear, it's not just facebook. all the social media platforms have it, but they are the most important, 2 billion active users, 1.3 billion completely addicted, using it every day. there are issues with google, youtube and search, snapchat, there are issues with twitter, but facebook is the most important. right now you have 40% of the country that thinks it is ok for a hostile power to interfere in our most basic civil liberty, voting. i mean they're totally excusing it. emily: some people have not taken this criticism well, the vice president said i have worked at facebook for 12 years and i have to ask, who the hell mcnamee?r and he goes on to accuse you of aggrandizing yourself. how do you respond to that? roger: i would ask, what are

your incentives? what possible gain do i have for what i'm doing? my primary net worth is in facebook stock. i'm trying to mentor at a distance. i spent four months trying to speak to them without talking to anybody else. i spent five months after that researching everything i could to understand it. what i would say to andrew is, i know that facebook did not intend to have these outcomes am -- these outcomes. but this is really simple, and all these bad outcomes are happening and their users are being harmed. that's their responsibility. all i am saying to facebook is, guys, you have won. you don't need to have this kind of business model. there's a way to have a business model that is better. i would like to spend $10 a month and control my newsfeed. i want to take the ads out and for it to be more viable. i want one version that is politics, family, sports, health and fitness, work related, right? and be able to toggle through them and really control things. i want them to be successful, and i think they can be. emily: they say they are hiring

10,000 more people to handle things like fake news. is that not enough? roger: not only not enough, it completely irrelevant. you can't fix this damage after the fact with people policing it. these things are embedded in the algorithms. the same thing that makes facebook the most compelling ad perfect makes it the platform for bad actors to have -- for bad actors to abuse it. you can only fix this problem by fixing the algorithm. emily: how so? roger: essentially, you have to change the business model. you have to make it so that anger and fear are not the predominant ways that people are motivated to act on facebook. again, without advertising, if you are not as dependent on advertising, you don't need people to be addicted. you don't need to make them angry, you don't need to make them fearful. emily: how do they make money?

roger: i want to pay them a subscription, $10 a month, twice more than they are making for me today. and i'm looking at this and saying, name the price. give me the option of having a different thing. i'm saying, what they're doing now is the lazy way. these people are smarter and better. emily: what about regulation? roger: i think regulation is important. the way to think about this is, the most important thing is for the employees of facebook to recognize things have come off the rails and they have the power to fix it. emily: have you heard from mark ? have you heard from sheryl? roger: no, i suspect their lawyers have told them not to. i would love to. the way you know people have a problem and are serious about fixing it, they reach out to their critics. to understand the issues. i'm sitting here and understand why people would be mad at me, i really do. but i would have everybody asked the question, what is in this for me? ok?

seriously. i don't need this. roger: if they don't do this, what do you think will happen? roger: our democracy is in peril right now and we don't have time to fix this. elections are coming up in november. we don't have a lot of time to safeguard it. the next time it's not just the , russians you have to worry about. anybody who is angry, it is terrible for our children. this whole addiction thing is being imposed on kids who are in no position to control their own lives. we're doing this in pursuit of profit. for what? emily: elevation does not exist anymore? roger: elevation is me. emily: what's your mission? roger: i've been doing this nonstop since october 2016. the same way mark outgrew me, this thing should outgrow me. i'm not the right person to do this, but there wasn't anybody else. this is a form of public

service. at least i hope it is. i hope people accept that. if they're worried, read what i have written. think about it. are you addicted? i am, hopelessly so. i can't but help check the thing. and i tell people, you know, turn off your notifications, right? and think about how you use these products. are they taking over your life? if you're on slack, do you want to allow them to browbeat you to having notifications interrupting everything you do? they control you. take your time back. take your self back. these people are billionaires. they don't need our sympathy. they don't need our help. well they do need our help, but , they don't need us rolling over for them. emily: roger mcnamee, long-time tech investor, great to have you. roger: thank you. ♪

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♪ nejra: the basel battle. bankers lobby lawmakers on basel iii. how successful will they be? a brexit warning. the house of lords warns against fragmentation of european regulation when it comes to the city. we'll discuss. and the crypto skeptic in chief. the new sec boss has elevated digital currencies to the top of his agenda. what regulatory action he could take? welcome to "bloomberg markets: rules & returns." i'm nejra cehic in london. "rules & returns" is the show where we delve into the regulatory challenges and opportunities for financial markets around the globe. but first,