Canary in the Coal Mine - Day

Wednesday, October 9, 2019


In other words, making difficult foreign policy decisions requires taking moral risks. But when your self-image is wobbly and your primary goal is to stay clean, such decisions are the last ones you want to take. For Germany’s brittle psyche, these kinds of compromises constitute a grave danger. They are not just reminders of historic failure, they also threaten to damage the carefully constructed and hard-won sense of post-war righteousness. They basically threaten to destroy what little confidence there is on hand. The kind of small and not-so-small moral compromises that keep a country handlungsfähig (capable of acting), especially in military affairs, need decision-makers and a wider public that has sufficient trust in its own good intentions. With that being absent, political paralysis follows.

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"The goal of Son, and increasingly most large financiers in private equity and venture capital, is to find big markets and then dump capital into one player in such a market who can underprice until he becomes the dominant remaining actor. In this manner, financiers can help kill all competition, with the idea of profiting later on via the surviving monopoly.

Engaging in such a strategy used to be illegal, and was known as predatory pricing. There are laws, like Robinson-Patman and the Clayton Act, which, if read properly and enforced, prohibit such conduct. The reason is very basic to capitalism. Capitalism works because companies that thrive take a bunch of inputs and create a product that is more valuable than the sum of its parts. That creates additional value, and in such a model companies have to compete by making better goods and services.

What predatory pricing does is to enable competition purely based on access to capital. Someone like Neumann, and Son’s entire model with his Vision Fund, is to take inputs, combine them into products worth less than their cost, and plug up the deficit through the capital markets in hopes of acquiring market power later or of just self-dealing so the losses are placed onto someone else. This model has spread. Bird, the scooter company, is not making money. Uber and Lyft are similarly and systemically unprofitable. This model is catastrophic not just for individual companies, but for their competitors who have to *make* money.

[..] Competitors have to copy their fraudulent competitors. It’s a variant of Gresham’s Law, which says that "bad money drives out good.” If you can counterfeit something for cheap, the counterfeit will eventually take over the entire market and drive out the real commodity. That is what is happening in our economy writ large, a kind of counterfeit capitalism as ‘leaders’ like Neumann are celebrated and actual leaders who can make things and manage are treated like dogshit.

[T]he private valuation games Softbank and WeWork were playing came into conflict with basic disclosure of investing information required by the Securities and Exchange Commission. In 1933, Ferdinand Pecora, backed by Franklin Delano Roosevelt, exposed a whole host of self-dealing and fraud among bankers and utility magnates, the tech titans of the time.

One of the results was the establishment of the Securities and Exchange Commission, which was designed to stop monopolization and fraud enabled by stock manipulation. As it turned out, it worked quite well. And as corrupt as the SEC has become, these principles even work now, in 2019, under the Donald Trump administration. Pure disclosure and public markets managed to stop Jamie Dimon, Masayoshi Son, and Adam Neumann.

It turns out good public policy can stop counterfeit capitalism."

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"The empowering of finance friendly giant contractors bent the bureaucracies towards only seeing global capital flows, not the flow of stuff or the ability to produce. This was already how most Clinton administration officials saw the world. They just assumed, wrongly, that stuff moves around the world without friction, and that American corporations operate in a magic fairy tale where practical problems are solved by finance and this thing called ‘the free market.’ In their Goldman, McKinsey and Boston Consulting Group-ified haze of elitist disdain for actually making and doing real things, they didn’t notice or care that the Chinese Communist Party was centralizing production in China. They just assumed that Chinese production was ‘the free market’ at work, instead of a carefully state-sponsored effort by Chinese bureaucrats to build strategic military and economic power. "

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"If Warren breaks up Boeing and erodes the corruption underpinning Boeing’s business model, who knows what would happen to investor holdings? Maybe one of the spinoffs of Boeing might go down, but other parts of the company could go up as value gets unlocked. It could be in aggregate a net increase in market value. If the aerospace industry gets healthier in terms of products, the resulting multiple spinoffs may become more profitable because there’s just more value to go around.

To take a better example, look at Facebook and Instagram, Amazon and AWS, or Google and YouTube. Scott Galloway notes that any of these, if spun off, would probably lead to net increases in overall market value. Amazon and AWS are probably worth more apart than together, same with Facebook and Instagram. This isn’t just true in technology; in 2015, Goldman Sachs said that JP Morgan should be broken up and that would *help* stockholders in the bank.

Historically, break-ups and producer-ist policies have actually not been bad for the stock market. There are examples, like Teddy Roosevelt filing an antitrust suit against Northern Securities, that caused market problems. But there are many examples of just the opposite. One of my first newsletter issues was about how Standard Oil’s break-up, the break-up of electric utilities, and the break-up of AT&T in 1982 all increased productivity, innovation and stock prices. The Standard Oil break-up helped lead to the gasoline industry, the AT&T break-up helped lead to the internet. In both cases, an incumbent was squatting on world-changing technologies."

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7:32PM - veri gut

"The thawing of the permafrost has a very good effect. The mammoth bone comes out and brings us money," said Yevgeny Konstantinov, a newspaper editor in the Arctic town of Saskylakh. "Everyone rides Jeeps now."

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