I think tools and simple math are generally pretty morally neutral, but am greatly in favor of teaching people about the predictable consequences of using tools under a variety of scenarios, and not treating simple math as the secret knowledge of a secular priesthood.
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Patrick McKenzie
@patio11
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Leverage is a useful tool. Debt makes the world go round, in a lot of ways.
Leverage also increases risk. This often means that leverage will be made out to be the bad guy in any of a variety of unfortunate scenarios for financial institutions.
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Finance has a reputation for making some concepts harder to understand than they should be, and sometimes that is intentional or semi-intentional.
One of them: leverage.
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As always, if you'd like to gets Bits about Money when it comes out, you can get it in your inbox by signing up at bam.kalzumeus.com . It's free.
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I made this thread into an essay, in case anyone needs to cite it.
kalzumeus.com/2022/11/11/tet
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As one example among many thing you can do if you understand leverage, you can understand statements like "Tether is 35:1 levered against its risky assets" and correctly make predictions about their solvency in a volatile environment.
kalzumeus.com/2022/11/11/tet
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Today's Bits about Money, available in a few minutes, will be about leverage.
It's always a useful concept to understand and... may prove to be quite topical in the current moment.
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I here assume arguendo that Tether is not lying about the existence and composition of the remaining 87% of the reserves. I do not think Bitfinex/Tether deserves any scintilla of the benefit of the doubt, but be that as it may, they're ~certainly insolvent at their own word.
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The 4th grade math in question, by the way, in Soulver because opening Excel feels like far too much Finance Is Happening Now to dignify Tether with:
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And, as highlighted by (somebody give him a Pulitzer after this is all over, please, I sincerely think he deserves it):
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*sigh* I might have to write about this in a more formal place so that various people can cite it, because some curious cultural norms of financial journalism and regulation require A Responsible Adult to do 4th grade math before others can take note of it.
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Tether lies about it in the present and will like about it in the future much as they have lied about it in the past.
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I wrote about this in the wake of the Luna collapse, and the mechanism is exactly the same, so just update the numbers and re-run the analysis.
It is not possible to run a book with 12% risk-on assets and 0.36% equity w/o taking impairments.
kalzumeus.com/2022/05/20/tet
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Tether looks to be something like 35:1 levered long on "other assets" and "secured loans", by the way, according to their transparency report dated Nov 10th. The snapshot was taken on September 31st, so they have *again* become undercollateralized.
assets.ctfassets.net/vyse88cgwfbl/1
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I am close to maximally crypto skeptical but I am rooting for the people attempting to minimize harm to humans during a financial crisis, and so am (sincerely) rooting for their success in making good decisions in tough circumstances.
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"Patrick you have too much joy in kicking crypto while it is down."
There exist some people who can make decisions within their power to minimize damage to people to whom they have a duty of care, and for whom crypto is not yet down per se.
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I think the situation is worse than the me that thinks "the situation is worse than most people in crypto think it is" thinks it is.
And so this is me telling you, Internet; may you hopefully weight this signal accordingly in your decisionmaking processes.
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"Do you have more you can share there?"
Sometimes the price of getting in a position to know things is being able to credibly keep commitments to people.
Regardless: you probably model me as thinking the situation is worse than most people in crypto think it is.
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I expect that as pretty de rigeur from e.g. Bitfinex/Tether. It has happened many times recently from better regarded firms.
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I'm getting a lot of salaryman practice recently in reading updates from crypto firms that say a very different thing than they will be read as saying, in a way which is extremely, extremely intentional.
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* Twelve hours ago.
(Screenshot this in case the normally append only Twitter blockchain is perhaps less append only, but currently it is the immediately preceding thread from them.)
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When systemically important financial institutions blow up, systemically important financial institutions blow up.
I (sincerely!) wish risk managers and clients the best of skill in limiting the contagion.
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Mentally: "I mean, I was capable of finding your email address to have an interesting conversation. But I can find a lot of email addresses that would lead to oh so many interesting conversations. Interesting conversations are much more common than the opportunity to hire me is."
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And so prior to talking to potential employers I recommend putting on some classic Beyonce and humming "I could get another one of you in a minute so don't you ever ever ever get to thinking you're indispensable."
Don't say that out loud, but exude it.
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You (yes, you!) have many options. You have an in-demand skill set. Sensible people with hiring authority who give this an ounce of thought should immediately do this math with respect to any candidate.
But that math is not necessarily done, and so presentation *matters.*
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Also, for somewhat unfortunate class-related reasons and neither fortunate nor unfortunate reasons about the psychology of humans, people tend to have a much better opinion of professionals who message "I will give you the opportunity to sell me on a job" versus "I want a job."
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... is far, far more effective than the world's most impressive PDF file forwarded to a team of sourcers who will spend ~60 seconds evaluating it.
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"But how do I know if this person has hiring authority?"
Sometimes either they'll explicitly say they do or the nature of their job makes it obvious, but regardless, having one human inside the building who enjoyed a conversation with you and will say that to anyone who asks...
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"Isn't that an imposition?"
No no no no no no no it is not! The reason the company paid for them to go to the conference in the first place, the reason their email is there, is to find plausible candidates to potentially hire! YOUR TIME IS VALUABLE AND THEY WANTED TO BUY IT.
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"... chat for 15-30 minutes about what you are doing recently at $COMPANY?"
You can be pretty explicit about it being a hiring oriented conversation if you want, but the person you are emailing is not stupid. That is why you are emailing them, after all.
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Plus either of these allows you to put a credible proof-of-human-work into the first paragraph of a cold email, at least until GPT advances a bit.
"I really enjoyed your talk on XYZ, particularly the point about ABC. I've written on that before here: $LINK.
Could we perhaps..."
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Pro-tip: also works for getting hired at many places.
And, as long as I'm here: many conference talks end up on Youtube. Conference talks are often by senior employees and almost always include their email address on an early or late slide.
Quote Tweet
Since I don't have access to Amazon's internal Phonetool directory, I find that GitHub is an incredibly useful way to find email addresses for Amazonians. Git commits have email addresses included... and I almost never need to track down anyone without public git commits.
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"That sounds like the sort of thing you will shortly say you grudgingly enjoyed."
I grudgingly sort of enjoyed it, second thoughts. I don't recommend it to anyone, obviously, but my friends who said "This will push your buttons" were not wrong with that prediction.
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"Did you enjoy this, your first intense DeFi experience which involved more than trivial amounts of brainsweat?"
Worse graphics than Dyson Sphere Project, worse moment-to-moment feel than poker, worse infrastructure than almost any financial system I've ever used.
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"So was the problem resolved?"
Well the protocol owes people at least $6 million which doesn't exist and the original whale's assets were entirely dissipated (and so they presumably will not come back to top up the account to be nice), so presumably there will be an announcement
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Anyhow, in return for capital risk (note that holding volatile assets in volatile times is not risk free) and stupidly misapplied professional labor I made something approaching a reasonable hourly rate starting with an iPhone of capital.
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In the case where the protocol does not, you now get a tokenized IOU. The Solend team had managed up the APR they were paying for SOL deposits into the 2,400-2,600% range, so as e.g. SOL came off staking with validators (early evening in Japan), X00k+ of them were attracted.
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In the case where the protocol actually has the SOL liquidity, great, you now get SOL. Sell (which for me could only be through distributed exchanges at a punishing fee and slippage.) Ideally, you now have more USDC than you started.
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Might make a BAM issue out of this experience, but the brief version is:
Start with USDC on Solana.
Use the liquidate UI to buy the whale's bad debt at a 5% discount; the protocol now owes you 103.5% SOL for your USDC at the oracle's current market price.
Hopefully it has it.
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