Longreads + Open Thread

Japan, Ukraine, Ponzi Schemes, Meeker, Crypto, Amex

Jan 29


  • Dina Gerdeman in Harvard Business School's Working Knowledge blog: Why are Japan's businesses so good at surviving crises? At some point, there's a tradeoff between stability and growth, and Japanese companies disproportionately accept stability in that trade. This actually gives them a sort of flexibility that US companies don't have; since Japanese businesses are over-capitalized, they can function as an economic shock absorber at times when a more leveraged company would be scrambling to preserve cash. The long-term cost of this long-termism, though, is that they're more resilient to disasters but less resilient to industry shifts. (Via Undervalued Japan.)

  • Adam Tooze has a great look at the economic background of the Russia/Ukraine conflict. Military conflict doesn't usually start for purely economic reasons, but materials and money set the limits that can end conflicts. One piece of evidence for this is the duration of US military interventions; a very rich country can be indifferent to the economic veto.

  • Kim Zetter of The Verge on the epic tale of cracking a hardware wallet with $2m worth of crypto. Crypto sometimes gets described as the world's biggest distributed bug bounty program, and it has transferred a lot of wealth from people who are not great at security to people who are very good at subverting security measures. In this case, it's fortunately a white-hat scenario, where the wallet owner forgot his PIN. Forgetful people turn out to be a subsidy for crypto security, while hacks remain a tax on not having enough of it.

  • Chris Pomorski of Bloomberg on a $400m ponzi scheme. In this case, the scheme revolved around financing deposits for liquor licenses, which is exactly the sort of niche lending opportunity that can, in fact, produce good-but-nonscalable returns. It's notable that many ponzi schemes get caught not because the actual nature of the scam is unraveled but because someone figures out that the market they target is too small to support the assets they claim to manage; this happened to the original Ponzi as well as Madoff.

  • Mary Meeker's 1999 self-evaluation. Especially interesting: her conviction that an Internet-first investment bank would be taking material share from the traditional underwriters within a year. The services she talked about—distributing research online, doing virtual roadshows, finishing deals faster—all came to pass. So at this point such a bank is kind of a pointless pitch, like saying you're going to start an investment bank that uses electricity. But it's fun to speculate on whether online video would have been adopted a lot faster had the dot-com bubble gone on just a bit longer and made it economical—and it's also a good look at how even top employees of incumbent companies can easily underestimate their ability to survive changes in their industry.

  • E.B. Solomont and Katherine Clarke of the WSJ on people rolling crypto profits into housing ($). One of forces dragging real estate performance up at times when other asset classes are more interesting is that it ends up being at least some of the portfolio of people who've made money in other domains. Real estate is one way to make potentially ephemeral wealth feel more comparable to other kinds; if you made your money in systematic trading, flipping dot-coms, buying privatized assets in post-Soviet economies, or whatever, buying neighbors is a decent way to signal that you're part of the establishment now. (Disclosure: I coincidentally cashed out some Bitcoin to put a down payment on a house this week. Definitely not in the $25m range.)


  • AMEX: A History of the American Stock Exchange: On the topic of struggling one's way up into the establishment, the American Stock Exchange is a very good story of an institution that was never as central as its name-brand competitors, but, perhaps as a consequence, attracted a more interesting cast of characters. When it was in operation, Amex was home to more bubbles, busts, and fraud-flavored companies than larger exchanges, but also a better spot for younger companies to raise money. This book covers the years through 1971, so it doesn't capture the exchange's relative decline in importance after that, but does show that it's possible for a secondary exchange to overcome some of its reputational problems and compete with larger ones.

Open Thread

  • Drop in any links or thoughts that might be of interest to Diff readers.

  • "Cargo cults" usually connote failure, but sometimes blind copying works just fine. What are some good examples of successful cargo-culting, where something gets copied for the wrong reason and then turns out to work well?

Leave a comment

I just published a post on how the Biden administration is prioritizing research and development, in case anyone is interested: https://kavoussi.substack.com/p/the-case-for-publicly-funded-research

17 hr agoLiked by Byrne Hobart

Alchemy is a solid cargo cult. You just want to get rich so people will sleep with you, but then you accidentally learn engineering and psychiatry in the process.

9 more comments…

Ready for more?

© 2022 Byrne Hobart. See privacy, terms and information collection notice
Publish on Substack
The Diff is on Substack – the place for independent writing