🍾 Bubbles: SVB, GPT4, books and links 🍾

Mar 18, 2023

I’ve been down with ’flu (or Covid?) for a few days, so this is just a few incompletely-baked ideas.

SVB and Credit Suisse

The story of Silicon Valley Bank’s failure has been told plenty, probably best by Matt Levine (here, here). One widely-quoted passage:

Also, I am sorry to be rude, but there is another reason that it is maybe not great to be the Bank of Startups, which is that nobody on Earth is more of a herd animal than Silicon Valley venture capitalists.

Likewise, an SVB executive said “It turned out that one of the biggest risks to our business model was catering to a very tightly knit group of investors who exhibit herd-like mentalities.”

Partly this is just the internet makes it easier to cooperate, right? Where “cooperate” includes “coordinate on a worse outcome, like a bank run”. But is it really worse for everyone? If you’re an SVB depositor, before this week your deposits were in a bank with some shaky asset/liability mismatches. Now they have been guaranteed. Bad for SVB stockholders (wiped out) and management (sacked); good for you.

And then we got the chairman of Saudi National Bank, Credit Suisse’s biggest shareholder, rejecting any cash injection: “absolutely not”. As Matt Levine pointed out, that’s very emphatic. He could have just mumbled some platitudes. Now it is hard to see why a large shareholder would benefit from causing a run on CSG. If you think the bank is basically sound, but the current strategy is no good, then it might be a way to get rid of a CEO you don’t like? Or maybe he just misspoke.

A clear and ruthless example of this approach was Binance’s public announcement that it would sell all of FTX’s crypto token FTT. Saying it before you do it is weird, because you’re gonna drop the price. But if you see a competitor is shaky and want to put it out of business, it may be worthwhile.

Of course, this is playing a dangerous game. If you publicly question your competitor’s solvency, people may draw inferences about a potential run, and flee from them to you. But they may also draw inferences about you. It is like rocking an overcrowded boat to make someone else fall in.

Another reason to rock an overcrowded boat is to get attention so you get rescued. This is sometimes known as “throwing a tantrum” — a Taper Tantrum, say. The Last Bear Standing looks at this from central banks’ point of view. Once again, they’ve tried to implement Quantitative Tightening and once again it has come unstuck. A key question: why risk your money in a bank when you could hold it directly at the Fed?

One last thought. Increased cooperation and increased centralization go hand in hand. It’s perfectly reasonable to want bank deposits to be as safe as fiat money. But if so, then naturally banks might start to look like mildly-decentralized Sovereign Wealth Funds.

GPT4

It’s out, and it scores in the top 10% of humans on a bar exam, the 99th percentile on the verbal GRE, and the 80th percentile on the quantitative GRE. The GRE is what potential PhD candidates take: this is very high level performance.

It doesn’t seem to do so well on more “arty” subjects! It only gets 2 out of 5 on English language or English literature in the AP exam (aimed at 18 year olds). This seems to chime with my experience that ChatGPT was good at the basics of writing poetry, like rhyme and rhythm, but feeble at the subtler skills needed to sound interesting. Maybe the coming of AI will make the world safe for humanities students.

Books

What I’ve been reading on my sickbed:

Through the Eye of a Needle: Wealth, the Fall of Rome, and the Making of Christianity in the West, 350-550 AD

This was recommended by Razib Khan, always a good sign. Plenty of academic books have a weighty, 80-page bibliography. Plenty of books are gripping to read. Not many are in the intersection of that Venn diagram, but this is. What amazed me was just how closely we can follow the arguments between different characters in his cast of Roman nobles and Christian saints. It felt as if I was in the Renaissance, not the 4th century. It’s a super narrative, but what’s the upshot? The ultimate thing to explain here is why we move from talking about senators and emperors to bishops and churches — the collapse of one power structure and its replacement by another. Sometimes I wish Brown would be more explicit about the stakes of the argument, but I think his story ultimately supports the view that Christianity did help to hollow out the late Empire from the inside, by shifting Roman charitable giving — which are not just marginal virtue-signalling, but central to the identity of the rich and indeed to the functioning of the economic system — from secular and civic targets to Christian ones. And since this was a high-stakes conflict, the arguments were as ferocious and sometimes dangerous as you would expect.

In short, this is a late-Roman example of a point often made by Jonah Goldberg: the continuing success of a civilization depends on the stories that it tells itself.

For Prosper, the history of the fifth century was not the history of barbarian invasions at the expense of the empire. His history was a Gesta Dei per ecclesiam — the history of the great acts of God that continued to happen through his church. These acts of God provided plenty of good news. Thus, the entry for 431 assured the reader that even the terrible Irish had come to believe in Christ. They had done so through bishops alone…. The Respublica had nothing to do with that triumph along the former frontiers of Rome. The message was clear. Even if the empire vanished, such events would continue to occur: “for the glory of the saints is this, that the whole world should come to be subjected to God and to His laws.”

The Ashenden short stories

Like Saint Augustine, Somerset Maugham stands at the end of one system of values and the beginning of another. He understands the superb, gleaming system of prestige and values behind late imperial Britain, but he prefers Art and Truth. Ashenden is a writer recruited as a spymaster in World War One. If you think John Le Carré is disillusioned about British espionage, he has nothing on Maugham. Bunglers who accidentally kill the wrong man; a husband treacherously befriended and sent to his death; a diplomat’s frozen tears, behind his perfect Edwardian mask.

Hazlitt’s essays

Sometimes as bitter and cynical as Thomas Bernhard. ‘On the Pleasure of Hating’ finishes like this:

Seeing all this as I do, and unravelling the web of human life into its various threads of meanness, spite, cowardice, want of feeling, and want of understanding, of indifference towards others, and ignorance of ourselves, — seeing custom prevail over all excellence, itself giving way to infamy — mistaken as I have been in my public and private hopes, calculating others from myself, and calculating wrong; always disappointed where I placed most reliance; the dupe of friendship, and the fool of love; — have I not reason to hate and to despise myself? Indeed I do; and chiefly for not having hated and despised the world enough.

But he is having too much fun to be really miserable. For him, all the characters of English literature are still alive, and he’s ready to start an argument with them round the dinner table. My experience so far, from dipping into these, is that the ones on specific topics are best and the big, abstract topics are dull. Here’s ‘Of Persons One Would Wish To Have Seen’ — a classic pub conversation topic, with Charles Lamb among others.

Captain Burney muttered something about Columbus, and Martin Burney hinted at the Wandering Jew; but the last was set aside as spurious, and the first made over to the New World.
“I should like,” said Mrs Reynolds, “to have seen Pope talk with Patty Blount; and I have seen Goldsmith.” Every one turned round to look at Mrs Reynolds, as if by so doing they could get a sight at Goldsmith….
There was but one statesman in the whole of English history that anyone expressed the least desire to see — Oliver Cromwell, with his fine, frank rough pimply face, and wily policy; and one enthusiast, John Bunyan, the immortal author of the Pilgrim’s Progress. It seemed that if he came into the room, dreams would follow him, and that each person would nod under his golden cloud, “nigh-sphered in heaven,” a canopy as strange and stately as any in Homer.

Both Cromwell and Bunyan would still have been controversial preferences in those days: Cromwell was thought of as a wicked tyrant, and Pilgrim’s Progress was lowbrow religious stuff.