Complex Systems with Patrick McKenzie (patio11)

• You can’t retract the facts

  In this episode, Patrick McKenzie (@patio11) responds to a recent request by a crypto unicorn founder / bank CEO to retract his essay Debanking (and debunking?). Come for the note about editorial standards and independence, stay for the diss track. –Full transcript available here: https://www.complexsystemspodcast.com/editorial-standards-and-independence/–Sponsors:  Safebase | CheckReady to save time and close deals faster? Inbound security reviews shouldn’t slow down your team or your sales cycle. Leading companies use SafeBase to eliminate up to 98% of inbound security questionnaires, automate workflows, and accelerate pipeline. Go to safebase.io/podcast Check is the leading payroll infrastructure provider and pioneer of embedded payroll. Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms. Head to checkhq.com/complex and tell them patio11 sent you.–Recommended in this episode:Debanking (and debunking?): https://www.bitsaboutmoney.com/archive/debanking-and-debunking/CEO: Retract your debanking article? Me: No. https://www.kalzumeus.com/2025/02/10/retraction-request-denied/Geekiest rap single in history https://suno.com/song/c5ac7441-4a0b-4e5e-9c85-480e3ba63fc1 –Twitter:@patio11–Timestamps:(00:00) Intro(03:04) Musical interlude(04:56) Return to commentary(06:35) You can’t please everyone(08:06) The bar for retraction is high(10:07) Our review of the retraction request(10:37) “A few areas were incorrect or misleading”(16:12) “Lots of omission of key facts”(18:57) “Missing the point about what we mean by debunking”(20:40) Sponsors: Safebase | Check(25:00) Our response to McCauley’s testimony(28:24) McCauley’s concluding remarks and our response(30:21) Bank CEOs do not often ask writers for retractions(34:20) Some context regarding custodial banks(40:50) Returning to our regularly scheduled programming

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  42:03
• Stablecoins and shenanigans, with Zeke Faux

  In this episode, Patrick McKenzie (@patio11) is joined by Zeke Faux, investigative reporter at Bloomberg and author of Number Go Up, to discuss stablecoins and crypto fraud. They dive into Tether's controversial history, the senate’s emerging GENIUS act, and how crypto enables various types of financial crime. The conversation explores how Tether went from a “quilted collection of red flags” to becoming crypto's dominant stablecoin, its noteworthy relationship with Sam Bankman-Fried's FTX, and its current political maneuvering. They also discuss the societal value of financial regulation versus laissez-faire approaches to consumer protection.–Full transcript available here: www.complexsystemspodcast.com/zeke-faux-stablecoins-tether/–Sponsors:  CheckCheck is the leading payroll infrastructure provider and pioneer of embedded payroll. Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms. Head to checkhq.com/complex and tell them patio11 sent you.–Recommended in this episode:Number Go Up: https://zekefaux.com/Anyone Seen Tether’s Billions? Zeke Faux, Bloomberg Businessweek: https://www.bloomberg.com/news/features/2021-10-07/crypto-mystery-where-s-the-69-billion-backing-the-stablecoin-tether Patrick’s review of Number Go Up: https://www.bitsaboutmoney.com/archive/a-review-of-number-go-up-on-crypto-shenanigans/ Doesn't Matter, That's Reg E: https://suno.com/song/173bbd67-92f7-4868-930f-efeca4b373c0–Twitter:@zekefaux@patio11–Timestamps:(00:00) Intro(00:45) The GENIUS act of 2025(02:28) Tether's audit controversy(05:49) The origins and impact of Tether(08:17) Investigative reporting and red flags(12:58) Tether's shady business practices(19:23) Tether meets SBF(21:40) Sponsor: Check(22:51) New anecdotes in the Number Go Up paperback(28:53) The role of stable coins in crime(38:20) The importance of AML and KYC rules(44:21) Financial privacy(45:18) Sam Bankman-Fried's conference in the Bahamas(47:14) Loot NFTs(49:34) Axie Infinity: a case study(52:30) Crypto's real-world consequences(58:15) Regulation and financial safety(01:05:40) Stablecoin bill and ownership limits(01:06:50) Political realignment and crypto(01:14:40) Citizen journalists and the crypto-skeptic community(01:20:36) The abilities and limitations of institutional journalists(01:26:00) Wrap

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  1:27:03
• Power plays: grid economics and engineering, with Travis Dauwalter

  Patrick McKenzie (@patio11) is joined by Travis Dauwalter, energy enthusiast (and PhD), to explain the systems we often take for granted behind the US electrical grid. The conversation covers how the grid maintains perfect supply-demand balance in real-time, the challenges of integrating renewable energy sources, and why America actually has three separate interconnected grids. Patrick and Travis weave through the economics of power generation, transmission line physics, and how data centers are reshaping energy markets. (Also, in a bit of a surprise, Patrick defends the honor of Bitcoin miners.)–Full transcript available here: complexsystemspodcast.com/electricity-grids-travis-dauwalter/–Sponsors:  CheckCheck is the leading payroll infrastructure provider and pioneer of embedded payroll. Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms. Head to checkhq.com/complex and tell them patio11 sent you.–Links:Utility Dive: https://www.utilitydive.com/ The Bitter Lesson by Rich Sutton: https://www.cs.utexas.edu/~eunsol/courses/data/bitter_lesson.pdf Austin Vernon on Fracking: https://open.spotify.com/episode/0YDV1XyjUCM2RtuTcBGYH9Casey Handmer on Solar Economics: https://open.spotify.com/episode/0GHegWgLSubYxvATmbWhQu –Twitter:@TravisDauwalter@patio11Travis’ LinkedIn: https://www.linkedin.com/in/travisdauwalter/ –Timestamps: (00:00) Intro(00:28) Understanding the energy grid(02:22) The complexity of supply and demand(05:43) Regional differences in energy grids(08:16) Seasonal and daily energy demand(11:22) Renewable energy and storage solutions(17:17) Sponsor: Check(18:29) Renewable energy and storage solutions (continued)(24:07) Demand response and time of use rates(34:08) Bitcoin mining and energy economics(39:29) Exploring behind the meter arrangements(40:44) Transmission line challenges and innovations(45:51) Dynamic line rating and grid efficiency(50:58) Data centers and energy demand(58:33) Interconnection queue and grid security(01:03:38) Understanding the US grid structure(01:09:46) Wrap

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  1:13:46
• The landmines buried in the fine print of Chicago’s new casino deal

  In today’s episode Patrick McKenzie (@patio11) examines a Chicago casino investment, first of its kind within the city limits. Patrick reads from his Bits About Money essay (published January 2025) with additional commentary based on recent developments. The discussion reveals how municipal politics, grievances about national and local economic history, and creative financing intersect for ‘a very Chicago gamble.’ –Full transcript available here: www.complexsystemspodcast.com/the-landmines-buried-in-the-fine-print-of-chicagos-new-casino-deal/–Sponsors:  Vanta | GiveWell | CheckVanta automates security compliance and builds trust, helping companies streamline ISO, SOC 2, and AI framework certifications. Learn more at https://vanta.com/complexSupport proven charities that deliver measurable results and learn how to maximize your charitable impact with GiveWell. Go to givewell.org (and type in "Complex Systems" at checkout).Check is the leading payroll infrastructure provider and pioneer of embedded payroll. Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms. Head to checkhq.com/complex and tell them patio11 sent you.–Links:Bits About Money: https://www.bitsaboutmoney.com/archive/chicago-casino-investment-offering/ The Story of Vaccinate CA: https://worksinprogress.co/issue/the-story-of-vaccinateca/ The Conservative Investor: https://www.patreon.com/theconservativeincomeinvestor Complex Systems interview with Jim McKenzie: https://open.spotify.com/episode/6ocJirzGTStuf0K9ITM21X?si=7HA0RhEOS8GFsA1MlY-EVw–Twitter:@patio11–Timestamps: (00:00) Intro(01:43) Chicago has wanted a casino for a long time(04:55) The stock offering(10:29) Chicago’s peculiar definition of minority(14:04) Sponsors: Vanta | Check(16:26) Reading a complex corporate structure(20:29) Is this valuation a gift to investors?(23:20) Capital stack arbitrage(30:04) The casino will not distribute profits, per se(32:45) Tax consequences of this offering(38:34) In conclusion

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  45:17
• The banking crisis, two years later

  Patrick McKenzie (@patio11) revisits his March 2023 essay that explained the dynamics of bank runs and system stress during the banking crisis one month prior. With data from a newly released Federal Reserve paper, he analyzes the true scope of the banking stress - including revelations that 22 banks experienced severe deposit outflows, far more than publicly known at the time. While officials blamed social media for bank runs, data shows institutional players, not retail depositors, drove the events. –Full transcript available here: www.complexsystemspodcast.com/banking-crisis-two-years-later/–Sponsors:  Vanta | GiveWell | CheckVanta automates security compliance and builds trust, helping companies streamline ISO, SOC 2, and AI framework certifications. Learn more at https://vanta.com/complexSupport proven charities that deliver measurable results and learn how to maximize your charitable impact with GiveWell. Go to givewell.org (and type in "Complex Systems" at checkout).Check is the leading payroll infrastructure provider and pioneer of embedded payroll. Check makes it easy for any SaaS platform to build a payroll business, and already powers 60+ popular platforms. Head to checkhq.com/complex and tell them patio11 sent you.–Links:Bits About Money: https://www.bitsaboutmoney.com/archive/banking-in-very-uncertain-times/Federal Reserve Report: Tracing Bank Runs in Real Time https://www.newyorkfed.org/research/staff_reports/sr1104.html Byrne Hobart’s blog The Diff: https://www.thediff.co/ Matt Levine’s blog Money Stuff: https://www.bloomberg.com/account/newsletters/money-stuff –Twitter:@patio11–Timestamps: (00:00) Revisiting the March 2023 essay(01:47) The Fed's study(11:21) Why are banks failing?(14:41) A useful heuristic from bond math(18:05) Sponsors: Vanta | Check(21:00) Maturity transformation(29:54) Sponsor: GiveWell(30:42) Liquidity problems are the proximate cause of bank failures(33:43) Trying to forestall a banking crisis(40:16) Deposit insurance expansion(47:12) Deposit insurance has some legacy issues(52:04) What would happen if my bank were to go into receivership this weekend?(59:46) What should users of the banking system do?(01:04:09) Parting thoughts(01:05:08) Footnote

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  1:11:42

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