Longreads + Open Thread
Risk, Reverse Engineering, Perspective, Software, Creators, Mortgages, Big Business
From Michael Fritzell of Asian Century Stocks comes a detailed review of a book profiling investors in Asia in the mid-90s, before the crisis. Some of them survived the crisis, some disappeared after, and all of them have interesting comments. Emerging markets often look cheap, and it's easy to forget a) how much earnings growth can depend on capital flows, and b) how hard it is to predict political risk. This applies in other places, too; the US actually looked a lot like an inflow-dependent emerging market in the run-up to the 2008 crash. But when the markets and economies are smaller, the magnitude of impact is bigger.
Forbes profiles Verdad, whose newsletter has been linked in The Diff many times. Verdad's main focus is on getting private equity-like returns with a better fee structure, and they do some very interesting work on using systematic strategies to replicate things that are usually a more discretionary process.
Tyler Cowen interviews Andrew Sullivan. The interesting thing about this interview is how Sullivan attributes so much of his perspective to who he's surrounded by and to his personal experiences. It's not uncommon for this to be an influence, of course, but the story is usually tidier. There's a temptation among public intellectuals to universalize their views (if nothing else, that gives them a bigger audience), but some viewpoints are the counterintuitive result of particular experiences.
Via Marginal Revolution, this piece from Austin Vernon is a great look at software as a management technology as well as a more literal technology. Software as a way of thinking has a longer deployment phase than software as a way to tell computers what to do. It's a bit like the decades-long rollout of factory electrification; even when electric power was a better deal than other power sources, the existing factories were all designed around the limitations of older technology.
Is the Creator Economy in crisis? This piece takes the view that online creators will face the same pressures as gig economy workers. But their situations don't cleanly map to one another. The point of the Uber/Lyft/Doordash/Instacart model is to make individual workers as interchangeable as possible, and to create a deep market for short-term work. But the point of the creator economy is almost exactly the opposite of that: a finance and technology newsletter doesn't compete with a podcast about sports or an indie comic book; there isn't a demand curve for "content" so much as a set of individual demand curves for individual creators' outputs. In the creator economy, the platforms face the same pressures that gig workers do in the gig economy—someone is more likely to follow a content creator to a new platform than to change their reading/viewing habits out of loyalty to a tech/ops back-end. Every career path has tradeoffs, and the newer ones have tradeoffs that are harder to manage. But the breadth of the Internet, and platforms' ability to show people exactly the content they're interested in, makes it a great time for independent writers.
The Dead Pledge: At one level, this is an excellent history of how the modern mortgage market was born, and the role bailouts played in making it happen and fixing early mistakes. But it's also a great history of how the entire concept of banking changed to accommodate the growth of mortgages: historically, bankers did not make long-term loans, and mortgage loans were either made by rich individuals or by life insurance companies and other entities with long-duration liabilities. Banks have lots of deposits, and it's tempting to direct those into loans for housing, but the maturity mismatch inherent in funding a 30-year loan with demand deposits is a hard problem to solve. It's not just a banking-level problem, but a reflection of a real resources challenge: you need housing your entire life and it takes many years of saving to afford one. The mismatch exists no matter what, and the policy question is who can most effectively manage its risks.
Big Business: Tyler Cowen bites many bullets in this book, arguing that big businesses are more efficient than small ones, that they're no less trustworthy than people (and—credit to Mitt Romney—they are made out of people). The book is a good intuition pump; it doesn't suggest that we should have policy preferences in favor of big companies, but does show that there are important tradeoffs in making the biggest companies smaller.
Drop in any links or books of interest to Diff readers.
There was a brief period in 2007 when Hyman Minsky went from being a fairly obscure thinker to being ubiquitous in financial commentary, and Minsky is indeed worth reading. Which odd forgotten thinker is due for a renaissance today?