Patrick McKenzie Profile picture
Aug 7, 2019 5 tweets 1 min read Read on X
Had a really interesting conversation with @matt_levine about the intersection of technology and finance, coming to an Internets near you in the not too distant future.

I definitely learned something; hope everyone will enjoy it.
Specific interesting thing from about the first minute: I asked Matt what a convertible bond was for the audience and he gave the true technical answer (a bond which can be surrendered for stock at some agreed upon terms) and why it was interesting to companies.
That reason: you should only convert the bond above some share price, which effectively means you have a call option on buying the stock. Call options are more valuable if volatility is high. This is well understood.
Therefore, a borrower running a business with high variance (like a tech company with unproven model or a biotech firm) can get a loan which they’d probably not qualify for under traditional underwriting standards (“Where’s your cash flow?!”) by bundling implicit option premium.
That’s kind of beautiful: the very fact that your business is risky de-risks the offering enough such that you can access the money necessary to take your risky shot.

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More from @patio11

Apr 23
In today's very surprising example of things an LLM could be good at:

I had a print failure while running a resin print in the wee hours of the morning.

Debugging these is a bit maddening. They arise from a combination of software, math, chemistry, and unpredictable chaos.
They're also very underdocumented. (In what is surely a first in the history of manufacturing.)

The community is spread between various Facebook groups and Discords, and writes little down formally. Most recorded lore is in YouTube videos, and aimed at low-skill enthusiasts.
And when a print failure happens, all you have to go on is the symptom to figure out where to start investigating. You'll see e.g. a sheer within a print or a melted rump instead of a dragon or, as happened with me yesterday, a build plate wrenched to 30 degrees off level.
Read 10 tweets
Apr 12
This is 50% of my cycles this year compressed into a tweet.
There are Sorts within the Sort, all the way down.
(Incidentally, if you have an academically disinclined young family member who nonetheless is not a layabout, GC is potentially a good career for them.

Most people get into it after a stint in trades or real estate, but that isn’t strictly required.)
Read 6 tweets
Apr 3
I don’t have anything novel to contribute on the substance of but have to again comment, pace Situational Awareness that I think kicked this trend off, that single-essay microdomains with a bit of design, a bit of JS, and perhaps a downloadable PDF are…ai-2027.com
… a really interesting form factor for policy arguments (or other ideas) designed to spread.
Back in the day, “I paid $15 to FedEx to put this letter in your hands” was one powerful way to sort oneself above the noise at a decisionmaker’s physical inbox, and “I paid $8.95 for a domain name” has a similar function to elevate things which are morally similar to blog posts.
Read 5 tweets
Mar 27
This week on Complex Systems, a continued discussion of credit card rewards, interchange, and what I believe is a persistent misconception about how society should want justice done via payments systems.

It ends with the following, which the team took the liberty of putting into a short clip. (Sound on if you like hearing my voice, but video is subtitled.)
Last week the Atlantic published an opinion piece which argues that the poor are subsidizing the rich's receipt of credit card rewards. This view has wide currency among certain advocates and among opinion writers.

It is not true.
Credit card rewards are actually funded by interchange, a cost which is ultimately paid by card-accepting businesses for a combination of services they get from the payments industry.

Rewards have a few equilibria globally; the U.S. is in a high rewards, high interchange one.
Read 10 tweets
Mar 20
An argument I have had with some credit card enthusiasts for a very long time, paraphrased.

Enthusiasts: I’m robbing the bank blind!
Me: Doubtful? They are probably pretty happy to have a portfolio of you.
E: Oh by carefully layering promotions and making a spreadsheet and…
Me: So checking my understanding: you spend a lot of money on credit cards.
E: Yes, that’s the whole point.
Me: And in a nation which makes it illegal to underwrite using an IQ test, you have self-constructed an IQ test.
E: Yes and I pass it obviously.
Me: Right. Tracking.
Me: You sound like a very desirable bank customer.
E: Oh no I’m not! I take them so hard.
Me: Your income and net worth are likely to be quite higher in ten years right. You predict that too?
E: Oh yeah.
Me: Yeah you’re going to continue consuming lots of financial services.
Read 7 tweets
Mar 20
The Atlantic has an interesting piece on credit card processing. The thesis is that interchange fees redistribute money from poor to rich.

I do not subscribe to this thesis.

For a quick recap on how credit cards make money, see Bits about Money's issue on the topic.

bitsaboutmoney.com/archive/how-cr…
There is a general feeling in some quarters that the payments industry functions as a tax on everyone, and that the incidence of this tax must be highest on the poor, because they're least likely to have a rewards card.
Read 36 tweets

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