Patrick McKenzie

Markets seem to be coming around to this point of view, unfortunately. https://t.co/qdr80zLN2Z

This is likely to be a bit of a bumpy week for the financial system, and if you need to, I would reserve some bandwidth for dealing with those developments as they come.

I work for the Internet and am an advisor to @stripe. These are my personal opinions unless otherwise noted.

Suppose I’ll make the disclaimer once to avoid having to do it a lot: owing largely to factors related to working in financial industry I have not been short any bank in many years, would not start now even if warranted, and my direct exposure to bank equity is homeopathic.

“Homeopathic?”

So I have long had a practice of buying a trivial amount of stock (typically a few hundred dollar’s worth) for any bank that my family or business depends on, for the explicit purpose of being able to call Investor Relations and identify myself as a shareholder.

That is anomalously useful if one runs into routine banking issues, and the general weirdness in my life plus a bit of quirkiness in decisions I make causes me to run into anomalously many routine issues with banks.

I seem to have a gift for understatement so to make this explicit: I'd put ~20% chance that we are in the beginning stages of a banking crisis. Banking crises are not the end of the world, but they are substantially worse than the failures of an individual bank.

I had this at 2% on Thursday, U.S. time, if that helps calibrate, and rounds-to-zero on Tuesday.

And so this is a week where a lot of the things that we ordinarily simply depend on working without coming to our conscious attention will definitely come to our conscious attention and may or may not have the typical level of uptime we expect from them.

It currently seems like at least some people professionally involved with all of this appreciate the degree of risk, which means that there is likely to be some strong medicine applied.

Strong medicine is unpleasant (it's not called "food"), even when better than alternative.

Joint statement by the Fed, Treasury, and FDIC:

https://t.co/plCN7MMALw

I think it’s fair to describe it as “taking decisive extraordinary action to forestall a wider banking crisis.”

I think this is a good example of the interconnectedness of financial infrastructure, and think one lesson we’ll learn this year is that it is beyond the capability of most people to pick what infrastructure they depend on. https://t.co/QC272kUZ4f

Read our statement here: https://t.co/0Bb9BNpzmX 5/5

We make it unbelievably easy to manage HR, IT, and Finance. 
For support, please DM us your email and company name.

Rippling

I have no particular interest in Rippling, other than broadly being in startups’ corner, but I have a strong ethic around payroll: it must be inviolate.

The language of deposit insurance is about depositors, etc etc, but that language predates the modern economy. “Why would a retail user care about a bank other than the one which holds their deposits? Let the financial industry worry about that.”

That world has changed.

Public service announcement, I suppose. https://t.co/lhSEc3cYgA

1/ Following the confirmation at the end of today that the wires initiated on Thursday to remove balances were not yet processed, $3.3 billion of the ~$40 billion of USDC reserves remain at SVB.

Circle helps businesses and developers harness the power of USDC for payments and commerce. NMLS ID# 1201441 https://t.co/qwq45Jueif

Circle

I think it is unlikely that USDC is the only piece of financial infrastructure which transitively depended on the SVB, and caution folks that may think one dodged this bullet to consider how if AWS goes down one is still impacted even if one doesn’t use AWS.

Note that I *specifically do not mean crypto infrastructure.*

Bits about Money isn’t strictly on a schedule but was planning one for today and will slip to early next week.

“Is it going to be on the banking news?”

Not entirely decided yet; covering news is something I intentionally try to avoid, partly to have time to digest and analyze, and partly because there are many other places one can get news.

One of my favorite little facts about the world of paperwork: Japan charges a tax on many forms of contract. The form of it has almost disappeared in English speaking world, but used to be called “stamp tax.” (One reason it disappeared: US hated British imposition of it.)

Anyhow, the tax is collected by selling you a stamp which you have to physically affix to the contract. You could think of it as pre-paying for the legal system causing the contract to be enforced by the state, but of course taxes are taxes and that isn’t maximally truthful.

And thus the thing I find wonderful: bank accounts are not contracts but the government, in its infinite wisdom, considers printed bank account books to be contacts. And so they cost 200 yen (about $1.50) per year.

This is customarily paid by the bank in bulk versus via stamps.

And banks hate this because a) customers will absolutely revolt if they charge them this $1.50 and b) banks perforce have very accurate records and millions of bank books in circulation and so the government is very good at collecting this bill.

And thus one of the great drivers for Japanese banks transitioning people to online accounts is that *accounts are not contracts.*

If there is no physical printed instantiation of the account, the government assesses no stamp tax.

“What?!?”

I promise, this is how it works.

And thus many banks are trying to aggressively move people to online accounts by e.g. *buying back their bank books.* The going offer is 1,000 yen. “Positive ROI in year six!”

I am reliably informed that it disappearing from the non-US Anglo sphere was mistaken claim. My bad!

Another incentive on offer is “Normally we only show you 6 months of transactions online but if you opt in to Digital Bank Book [or whatever they brand the offering as] and surrender that legacy paper artifact then we will let you see X years of transactions.”

The bank, of course, knows your transactions from 7 months ago. Back in the day, there were silly organizational and technical reasons to keep the syncing window between core systems and the (at the time) read only online system narrow.

Those have gone by wayside but it is…

… still intentionally small window—the bank ships a broken product on purpose—to protect the positioning of their advanced online account which you have to surrender your printed bank book to get.

“This sounds crazily irrational.”

Like many things in the world, every individual step of it is quite rational! Only the resulting state is crazy!

“Your online bank account is broken by a combination of tax policy and product choices made to minimize operational costs but good news the bank will partially unbreak it for you if you make a legal election which has positive tax consequences for them.”

Interestingly this is considered particularly galling by banks because market practice in Japan is far more tolerant of accounts with near zero balances and near zero associated revenue than in e.g. the U.S.

And if you as a bank attempt to defect from that market practice vis true retail customers, your customers will revolt *and* you will not endear yourself to some very serious people in Tokyo who consider access to the banking system to be just shy of an enforceable human right.

“What does an account in active use with near-zero balance look like?”

My daughter, age 8, has an account opened at a particular bank to deduct her school’s quarterly fee for meals, which is less than $100. They specify the bank because autodebits are a priced service in Japan.

And so the school doesn’t let you use an account at any bank for the autodebit. They want one in the name of your minor child from the same branch the school banks at.

And so this branch has thousands of accounts with < $100 in them for literal children. Most lose money.

(Autodebits from the same bank / same branch are priced much more favorably than interbank debits and sometimes more favorably than same bank / different branch.)

And another Fun Compliance Fact: Lillian is legally obligated to report the peak balance of that account to the Financial Crimes Enforcement Network every year, because the U.S. believes Americans with accounts abroad may be up to no good and therefore requires this by law.

(I push the buttons for her, for obvious reasons.)

*sigh* The danger on writing on developing news from an analysis perspective is that sometimes developments moot the value of your analysis if you don’t publish fast enough.

(Scratch most of one draft re: Silvergate, or at least move it from current events to history mode.)

“I’m confused.”

First National Bank of Crypto; as of today, announced it is winding down in orderly fashion to forestall the other kind.

https://t.co/Xg9ZTpAYR3

(Pedantically correcting myself: technically a state chartered bank.)

I don’t understand why every Factorio fan space isn’t wall-to-wall engineer recruitment ads or similar.

Like you could make that argument for a lot of geeky hobbies, just based on CPMs, but the hit rate for factory games specifically has to be off the charts.

“The ad wouldn’t feel authentic!”

I mean then someone in the chain needs to be better at their job, because all you’d need is your company name drawn in Factorio game assets and one sentence of copy.

“G O O G L E : Organized the world’s belts? Organize the world’s information. Enquire within: “

These sorts of opportunities are a good case for LLMs, incidentally, because maybe if one operates advertising poorly one wouldn’t have a process to pay a designer $50 for that creative, but an LLM can presumably get really close very quickly for almost nothing.

“Can you steelman not putting up that ad?”

I think at many companies if you proposed it the most clueful objection would be “I think that will exacerbate demographic skew in our engineering department”, though that objection will be made without any particular evidence.

The numbers are a bit numbing but important to understand just how large they are. https://t.co/MiZYCSf9Zq

FTX just updated its books. The company is missing:

$6.4 billion in cash and stablecoins

$1.58 billion worth of Bitcoin

$870 million worth of ETH

$109 million worth of SOL

….and $209 million "other" miscellaneous cryptos

Former $100MM+ Money Manager • Seen on Bloomberg, FOX & VICE • CEO @grit_capital • Write #1 Finance newsletter on Substack

Genevieve Roch-Decter, CFA

That’s like, hmm, percentage points of the total bailout required of the S&L crisis, where more than a thousand financial firms went under.

(Discount for inflation etc etc but one doesn’t see ten billion dollar conversions of depositors’ money that frequently is what I am saying.)

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