Stopping an Arquillian Battle Cruiser is Hard Work
So It Turns Out, #48
Hi,
So here are some things I’ve been thinking about this week.
Stopping an ArquilIian Battle Cruiser is Hard Work
As I’ve alluded to before, a big theme of this occasional newsletter is the intersections between tech, business, and politics. We’ve talked in the past here about how the past few years have led me to conclude that all-too-often, No One Is In Charge.
Today, I don’t want to talk about that. I want to talk about, instead, what happens when someone is definitively in charge, but you’re having trouble getting their attention. And if you don’t, then really bad things happen. What should do you do in the moment, and what should you do after the last-minute save to prepare for next time?
There's a common understanding of what it's like to live in DC that people get, I think, from The West Wing and similar media: that a very few number of people are the ones making everything happen in DC, usually with big speeches and late-night decisions.
Then as you spend more time here, you begin to be more focused on process and institutions to the exclusion of the individual heroics (after all, if heroics got it done, then something went wrong, and a polity responsible for some 330 million souls can’t rely on heroics). There even is a famous set of civil servants here in DC who say, “Process is my valentine.” Or as Charlie Stross put it:
“Bureaucracies excel at performing tasks that must be done consistently whether the people assigned to them are brilliant performers or bumbling fools. You can’t always count on having Albert Einstein in the patent office, so you design its procedures to work even if you hire Mr. Bean by mistake.”
But after you’ve spent even more time here, you begin to understand this: both are right. We need giant, leviathan bureaucracies and processes to keep your water clean, your airspace safe, your mortgage issued, and your dog spayed or neutered. But those processes only work because, once in a while, we know when to break the rules, throw an exception, and ignore the playbook — and empower small groups of stunningly competent and sleep-deprived people to solve problems. This usually works fairly well; their failures measured in body counts and investigated in Congressional hearings, their successes are rewarded with an attaboy email and maybe a brief mention later in some GAO report.
This is, for better or worse, how the world works. We need the mundane and the heroic to keep things going. If we had a better way of doing it, we might be a more modern civilization, but this is the best we can do, so far.
And, frankly, it all works fairly well. I’ve been, on rare occasion as a government contractor and consultant,1 on the edges of getting to watch the government go into Cancel-The-Apocalypse crisis response mode. There are just some people the US Government employs that, if we had to bid for their labor on the open market, we'd pay them stunning sums of money,2 but candidly they're junkies for mission and meaning, and we pay them primarily in the knowledge of the things they've done for their country and the world, and only secondarily in just barely enough cash to afford a two-bedroom in the DC exurbs.3
But there aren’t that many of those Big Damn Heroes. There just aren’t. (Heck, I’m someone the world considers to be fairly competent, and I know that I don’t have what many of those roles require.) And there’s always several crises that could take up their attention, and we have to choose where to point them, and pray we made that judgment correctly. Those crises may be a surprise to you because you haven’t had to care about them, but bad things are always happening, and things are being done to stop them, and your tax dollars help pay for it even while you are asleep.
Or, as Men in Black put it:
KAY: There's always an Arquillian Battle Cruiser, or a Corillian Death Ray, or an intergalactic plague that is about to wipe out all life on this miserable little planet, and the only way these people can get on with their happy lives is that they DO NOT KNOW ABOUT IT!
So, if you’re facing a real crisis, especially one that’s unexpected, you need to get the attention of the people who can do something about it.
But what happens if you’re starting to worry that you can’t? And what happens if failing to get help would mean truly disastrous consequences?
This past week, the tech industry came to the very edge of what they considered to be an apocalypse.
The details have been ably summarized by many others, especially Bloomberg’s Matt Levine and my friend Patrick “patio11” McKenzie.
As Matt Levine notes, a bank called Silicon Valley Bank (SVB) was, for very path-dependent reasons, effectively the Bank of Startups. Many startups had to bank there as a condition of receiving fundraising from VCs who, for a variety of reasons, saw SVB as particularly favorable to both them and the companies they funded. SVB, in turn, offered a variety of services to startups that were hard to otherwise get, like the ability to process payments through them at scale — very useful if you are, for example, a payroll management startup that is attempting to disrupt the legacy payroll processing industry. But, as Matt Levine describes, the downside of this was that their positioned enabled a very dangerous run on their bank:
[I]f you were the Bank of Startups, just like if you were the Bank of Crypto, it turned out that you had made a huge concentrated bet on interest rates. Your customers were flush with cash, so they gave you all that cash, but they didn’t need loans so you invested all that cash in longer-dated fixed-income securities, which lost value when rates went up. But also, when rates went up, your customers all got smoked, because it turned out that they were creatures of low interest rates, and in a higher-interest-rate environment they didn’t have money anymore. So they withdrew their deposits, so you had to sell those securities at a loss to pay them back. Now you have lost money and look financially shaky, so customers get spooked and withdraw more money, so you sell more securities, so you book more losses, oops oops oops.
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. What you want, as a bank, is a certain amount of diversity among your depositors. If some depositors get spooked and take their money out, and other depositors evaluate your balance sheet and decide things are fine and keep their money in, and lots more depositors keep their money in because they simply don’t pay attention to banking news, then you have a shot at muddling through your problems.
To be clear, the “blast radius” wasn’t just tech bro venture capitalists, or all venture capitalists, or tech industry employees. It reportedly included things like the aforementioned payment rails that enabled payroll by many random non-tech-related businesses, all payments to Etsy and a small share of Shopify storefronts used by random mon-and-pop small businesses, a huge chunk of all of American vineyards, and probably other things we haven’t heard about yet.
(Gee, are blue collar employees, small businesses and farmers a big deal in politics? I’m not sure.)
And that ignores the risk that if one regional bank failed, others might also start imploding, for no reason other than pattern-recognition-driven bank runs.
(Gosh, are local banks a big deal in politics? I’m not sure.)
I know a lot of people for whom the last several days were full of adrenaline, and bile, and stress, and sleepless nights, as they fought to help those people. And thankfully, the FDIC and Treasury did their thing, and backstopped those banks, and stopped the bank runs. (Whether this same issue recurs somewhere else is, unfortunately, is still TBD as of this writing.)
But I need you to understand: for most people, they didn’t even know that this crisis was happening until it was over. It was the Arquillian battle cruiser that they never heard about, and that was a good thing. If we all had to feel all the stress every day that any of us feel, none of us would ever be able to concentrate on our work, our family obligations, or get a good night’s sleep.
And even many of the people you might want to draw the attention of are, well, constantly managing other crises. Crises like trying to block North Korea from laundering money via cryptocurrency, or trying to block Russia’s access to global financial channels to buy raw materials for weapons to kill Ukrainian civilians, or just trying to figure out how to avoid inflation from throwing a bunch of people into poverty. Existing crises that are real, have real stakes, and, oh yeah, have been on the front pages of their newspapers and briefing books for quite some time already.
So, if you need help on a new and sudden problem between Thursday evening and when the banks open again on Monday morning, you might need friends and allies in Washington. Friends and allies that know the people, or ideally are the people, who can accept the scope of the problem, overcome their own surprise, and convene the emergency crisis response functions and begin executing under legal authorities whose sheer breadth and power rounds to, “By the time anyone knows what I’m doing, it’ll be too late to stop me.”
Did tech have those friends and allies?
Well, we know by their own public statements that they did not believe they had it. We know by their own public statements that they did believe that they were having trouble getting policymaker attention. For example:
And while I’m sympathetic to the notion that some rich people might have been strategically sounding more panicked to maximize the odds of government intervention to stem a wider bank run, and increase their odds of being made whole, I frankly just don’t think that’s sufficient to explain the degree of entirely real panic and anger here. Some people were pretty clearly staring at whiteboards where the math rounded to, “It’s game over and there’s nothing we can do'“; being human beings, they expressed their feelings, and I don’t blame them for it.4
So what is to be done?
Well, if I were a well-placed, well-resourced stakeholder in the tech community, I sure wouldn’t do what wasn’t working at the start of the crisis. Loud, shouty, self-congratulatory rich people posting on Twitter doesn’t work. I’d probably look at the resources that other, highly capable groups have, and try to mimic them.
Put another way: you know those boring incumbents in industries that you really want to disrupt, that are surprisingly difficult to fully disrupt because the government’s on their side? Maybe do what they do, even if you have to grit your teeth doing it.
Things like:
As everyone has already pointed out, maybe stop making the face of your “we need to bail out this bank to save jobs” effort a bunch of VCs who have openly cheered on firing people at tech companies.
At a minimum, maybe having a list of where all your companies’ employees are, and which local economies they contribute to, might just be a good thing to have. Yes, it will be out of date the second you finish pulling it together, but you clearly didn’t have even the 80% answer on this at the start of the crisis.
Once you have a list of where all those remote-first companies’ C-suite leaders are, and have them reach out to their local Congresspeople, with meetings in their district offices (Not their DC offices).
Put it another way: Parts of the F-35 are made in almost every state in America. You think that’s a coincidence?
Maybe invest some more in getting to know the policymakers that you rely on in extremis for heroics, not just the policymakers you face off against day to day. Apply the same logic to outsized returns that you apply to your investment portfolio — 99% of the time, being known to some random GS-14 in the FDIC is useless, 1% of the time, it saves the world.
Also recognize that you’ve done a shockingly poor job at educating politicians about what you do and how your industry works. Yes, they’re old, and yes, they “don’t get computers.” Well, very politely, I’m sorry, that’s not an excuse. These people routinely make multi-billion-dollar budget decisions about nuclear weapons, space telescopes, and hypervelocity missiles. If the defense industry can have nuanced conversations about those things, you can have those conversations, too. Get to know them, educate them, don’t be afraid of them. Yes, I know Congressional hearings suck.
And lastly, though I know you don’t want to hear this one: Stop pissing off regulators, specifically by investing in cryptocurrency. Just stop it. If you need the US Department of Treasury to save your ass once in a while, maybe stop trying to destroy the US Dollar and the associated AML/KYC infrastructure run by Treasury? The same experts who just bailed you out are the ones that, tomorrow, will be in meetings about crypto being used for money laundering. You may wish to consider the implications of that.
I want to be clear: unlike most people giving you advice right now, I honestly want you to succeed. I genuinely believe that Silicon Valley is (on net) force for good and fun and prosperity in our society. And on a personal note, I hold deep and positive sentiments for the tech industry lifers I worked with on the VaccinateCA COVID vaccination effort5 and believe unambiguously that we saved lives as a result.
But I understand, how after a crisis passes, it’s easy to fall back into old patterns and cynicism, and a belief that only you can do it, and not rely on others. I hope you don’t. I’m rooting for you.
(Okay, time for the palate cleanser animal post.)
May this otter bless your timeline
I’m looking for new opportunities; I’ve been especially successful in the past in corporate strategy and cybersecurity/data-protection risk-related roles where I work closely with, yes, technical, product and legal experts, and am looking for similar for my next role. I’m open to a range of different industries, but am especially interested in organizations where I can help keep people safe from bad guys, and/or help them get easier access to government services and benefits that they deserve. If you’re aware of an interesting opportunity, I’d love to chat with you and learn more.
Disclosures:
Views are my own and do not represent those of current or former clients, employers, or friends. And especially not lawyers.
I also own a very small, extremely non-material amount of exposure to the stock of First Republic Bank (a bank that has a different asset mix than but banks similar clients to SVB, and that people worried about the associated contagion risk to).
The differences between those two roles are not actually germane to this discussion, but relevant to flag for Inside-The-Beltway folks who might read this.
As Charlie Stross puts it in one of his occult bureaucracy novels, “This isn’t the private sector, alas, or you’d be down at Earl’s Court pricing up your next luxury yacht.”
There is a reason that certain very important government agencies, especially regulators, tend to attract those who are already independently wealthy, and contrary to popular belief, it mainly _isn’t_ institutional capture.
Though I might urge certain VCs to consider less use of ALL CAPS SHOUTING in their tweets.
By the way, “tech helped save your grandma’s life by helping her find a Safeway with vaccines on the shelf” is probably a pretty good story. Maybe make a quirky documentary about it?