Where Is Occupy Silicon Valley?

From the Brownstone Institute

Bank failures tend to come in waves, and we are experiencing at least a mini-wave now.

Banks fail for three basic reasons: 1. Credit transformation: deterioration in borrower creditworthiness, usually due to an adverse economic shock (e.g., a real estate bust). 2. Maturity transformation: borrowing short, lending long, and then getting hammered when interest rates rise. 3. Liquidity transformation combined with an exogenous liquidity shock, a la Diamond-Dybvig, where idiosyncratic depositor needs for cash lead to withdrawals that exceed liquid assets and therefore trigger fire sales of illiquid assets.

The two most notable failures of late–Silicon Valley Bank and Silvergate–are examples of 2 and 3 respectively.

In some respects, SVB is the most astounding. Not because a bank failed in the old-fashioned way, but because it was funded primarily by the deposits of supposed financial sophisticates–and because of the disgusting policy response of the Treasury and the Fed.

SVB took in oodles of cash, especially in the past couple of years. The cashcade was so immense that SVB could not find enough traditional banking business (loans) to soak it up, so they bought lots of Treasuries. And long duration Treasuries to boot.

And then Powell and the Fed applied the boot, jacking up rates. Bonds have cratered in the last year, and took SVB’s balance sheet with it.

Again, an old story. And hardly a harbinger of systemic risk–unless such reckless maturity mismatches are systemic.

SVB was the Banker to the Silicon Valley Stars, notably VCs and tech firms. These firms are the ones that deposited immense sums in exchange for a pittance of return. Case in point, Roku, put almost $500 million–yes, you read that right, 9 figures led with a 5–into SVB!!!

I mean: what the eff? Was the Treasurer a moron? For who other than a moron would hold that much in cash in a single institution? (Roku claims its devices “make your home a smarter.” Maybe they should have hired a smarter treasurer and CFO, or replaced them with one of its devices). Hell, why is a company holding that much in cash period?

A few of these alleged masters of the universe (like Palantir) saw the writing on the wall and yanked their deposits: deposits fell by a quarter on Friday alone, sealing the bank’s doom. Those who were slow to run howled to the high heavens over the weekend that if there was not a bailout there would be a holocaust in the tech sector.

Even though the systemic risk posed by SVB’s failure is nil (or if not, then every bank is systemically important), the Treasury Department and the Fed responded to these howls and guaranteed all the deposits–even though the FDIC’s formal deposit insurance limit is $250,000. You know, .05 percent of Roku’s deposit.

When evaluating this, one cannot ignore the reality that the Democratic Party is completely beholden to Silicon Valley. This is beyond scandalous.

Occupy Silicon Valley, anyone?

Treasury Secretary Janet Yellen insulted our intelligence by assuring us this is not a bailout. Well, it’s not a taxpayer bailout, strictly speaking, because the Treasury is not providing the backstop. Instead, it is being funded by a “special assessment” on solvent banks. Which are owned and funded by people who also pay taxes. And such an “assessment” is a tax in everything but name–because it is a contribution by private entities compelled by the government.

The policy implications of this are disastrous. The whole problem with such bailouts is moral hazard. What is to stop banks from engaging in such reckless behavior as SVB did if they can obtain seemingly unlimited funding from those who know that they will be bailed out if things go pear-shaped?

And the regulatory failure here demonstrates that bank regulation–despite the supposed “reforms” of Frankendodd–can’t even catch or constrain the oldest bet-the-bank strategy in the book. Free banking–no deposit insurance, no bailing out of depositors–couldn’t do worse, and would likely do better.

No, the failure of SVB is not the scandal here. The scandal is the political response to it. This reveals yet again how captured the government is. This time not by Wall Street, but by tech companies and oligarchs that are currently the primary source of Democratic political funding.

A couple of weeks ago the Silvergate story looked juicy, but SVB has put it in the shade. Silvergate also grew dramatically, but on the back of crypto rather than SV tech. It became the main banker for many crypto firms and entrepreneurs. The crypto meltdown did not affect Silvergate directly, but it did crush its depositors, the aforesaid crypto firms and entrepreneurs. They withdrew a lot of funding, and an old-fashioned liquidity mismatch did it in.

In traditional banks, deposit funding is “sticky.” Banks that rely on wholesale funding (“hot money”) are more vulnerable to runs. Silvergate’s funding was not traditional sticky deposit funding, nor was it hot money per se. It was money that was pretty cool as long as crypto was cool, and became hot once crypto melted down.

A run started, but the run was precipitated by a liquidity shock. Simple story, really.

Silvergate’s failure was not a scandal. SVB’s failure per se was not a scandal (except to the extent that our vaunted banking regulators failed to prevent the most prosaic type of failure).

Again–the scandal is the politically tainted response that will have baleful consequences in the future, as the response virtually guarantees that there will be more SVBs in the future.

Craig Pirrong

Dr Pirrong is Professor of Finance, and Energy Markets Director for the Global Energy Management Institute at the Bauer College of Business of the University of Houston. He was previously Watson Family Professor of Commodity and Financial Risk Management at Oklahoma State University, and a faculty member at the University of Michigan, the University of Chicago, and Washington University.

Duane Rolheiser

After 15 years as a TV reporter with Global and CBC and as news director of RDTV in Red Deer, Duane set out on his own 2008 as a visual storyteller. During this period, he became fascinated with a burgeoning online world and how it could better serve local communities. This fascination led to Todayville, launched in 2016.

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Brownstone Institute

If Trump Wins

Published on October 31, 2024

Todayville

From the Brownstone Institute

By Bret Swanson

How will he organize the “deportation” of illegal migrants? In the best case, it will be difficult. There will be scuffles and chases. Critics will charge the new Administration as cruel and worse. How much stomach will Republicans have for a messy process?

Trump enjoys the momentum. Four of the most recent major national polls show him up 2 to 3%, while Democratic-friendly outlets like the New York Times and CNN both show a TIE race in their final surveys. The 2016 and 2020 elections were razor close even though Clinton (5%) and Biden (8%) had solid polling leads at this point. We need to contemplate a Trump win not only in the electoral college but also in the popular vote.

Here are some thoughts:

JD Vance ascendant, obviously. Big implications for the Republican trajectory.
Will Trump replace Fed chairman Jay Powell? Or merely jawbone for a change in policy? In a new CNBC interview, former Fed governor Kevin Warsh argues that the Fed has juiced both the stock market and inflation. Would reducing inflation, which Trump has promised, automatically therefore lead to a stock market correction and economic slowdown? Not necessarily. If Trump unleashes productive economic activity and Congress ends the fiscal blowout, the Fed could normalize monetary policy without causing a major economic slump.
Will Trump impose the broad and deep tariffs he proposed? Or will he mostly threaten them as a bargaining tool with China? I’m betting on some of the former but more of the latter. We notice, however, Trump allies are floating a trial balloon to replace income taxes with tariffs. As impractical and improbable as that may be, we’re glad to see the mention of radical tax reform reemerge after too long an absence from the national discussion.
How will he organize the “deportation” of illegal migrants? In the best case, it will be difficult. There will be scuffles and chases. Critics will charge the new Administration as cruel and worse. How much stomach will Republicans have for a messy process? One idea would be to offer a “reverse amnesty” – if you leave peacefully and agree not to return illegally, we will forgive your previous illegal entry(s) and minor violations. This would incentivize self-identification and quiet departure. Plus it would help authorities track those leaving. Would migrant departures truly hit the economy, as critics charge? We doubt large effects. Substantial native populations are still underemployed or absent from the workforce.
We should expect a major retrenchment of regulatory intrusions across the economy – from energy to crypto. Combined with recent Supreme Court action, such as the Chevron reversal, and assisted by the Elon Musk’s substance and narrative, it could be a regulatory renaissance. Extension of the 2017 tax cuts also becomes far more likely.
Trump has never worried much about debt, deficits, or spending. But he’s tapped Elon Musk as government efficiency czar. It’s an orthogonal approach to spending reform instead of the traditional (and unsuccessful) Paul Ryan playbook. Can this good cop-bad cop duo at the very least return out-of-control outlays to a pre-Covid path? Can they at least cancel purely kleptocratic programs, such as the $370-billion Green Energy slush funds? Might they go even further – leveraging the unpopular spending explosion and resulting inflation to achieve more revolutionary effects on government spending and reach? Or will the powerful and perennial forces of government expansion win yet again, sustaining a one-way ratchet not even Elon can defeat?
What if the economy turns south? One catalyst might be the gigantic unrealized bond losses on bank balance sheets; another might be commercial real estate collapse. Although reported GDP growth has been okay, the inflation hangover is helping Trump win on the economy. But many believe the post-pandemic economic expansion is merely a sugar-high and has already lasted longer than expected. A downturn early in Trump’s term could complicate many of his plans.
How will NATO and its transatlantic network respond? Or more generally, what will the neocon and neoliberal hawks, concentrated in DC and the media, but little loved otherwise, do? Does this item from Anne Applebaum — arguing Trump resembles Hitler, Mussolini, and Stalin all rolled into one — portend continued all-out war on prudent foreign policy? Or will they adopt a more sophisticated approach? If the neocons move wholesale and formally (back) into the Democratic fold, how long will the coalition of wokes and militarists hold? On the economic front, Europe, already underperforming vis-a-vis the US, will fall even further behind without big changes. Reformers should gain at the expense of the transatlantic WEF-style bureaucrats.
Can Trump avoid another internal sabotage of his Administration? Before then, if the election results are tight, will the Democrats seek to complicate or even block his inauguration? Can he win approval for his appointees in the Senate? Can he clean house across the vast public agencies? How long will it take to recruit, train, and reinvigorate talented military leadership, which we chased away in recent years? And how will Trump counter – and avoid overreacting to – taunts, riots, unrest, and lawfare, designed to bolster the case he’s an authoritarian?
Will the Democrats reorient toward the center, a la Bill Clinton? Or will the blinding hatred of Trump fuel yet more radicalism? Orthodox political thinking suggests a moderation. Especially if Trump wins the popular vote, or comes close, pragmatic Democrats will counsel a reformation. James Carville, for example, already complains that his party careened recklessly away from male voters. And Trump’s apparent pickups among Black and Latino voters complicate the Democrats’ longstanding identity-focused strategy. Other incentives might push toward continued belligerence and extreme wokeness, however, and thus an intra-party war.
Will the half of the country which inexplicably retains any confidence in the legacy media at least begin rethinking its information diet and filters? Or has the infowarp inflicted permanent damage?
Will big business, which shifted hard toward Democrats over the last 15 years, recalibrate toward the GOP? Parts of Silicon Valley over the last year began a reorientation — e.g. Elon Musk, Marc Andreessen, David Sacks, and before them, Peter Thiel in 2016. But those are the entrepreneurs. In the receding past, businesses large and small generally lined up against government overreach. Then Big Business and Big Government merged. Now, a chief divide is between politically-enmeshed bureaucratic businesses and entrepreneurial ones. Does the GOP even want many of the big guys back? The GOP’s new alignment with “Little Tech” is an exciting development, especially after being shut out of Silicon Valley for the last two decades.
Industry winners: traditional energy, nuclear energy, Little Tech. Industry losers: Green Energy, Big Tech, Big Pharma, Big Food. Individual winners: X (nee Twitter), Elon Musk, RFK, Jr.
How will the Censorship Industrial Complex react? A Trump win will pose both a symbolic and operational blow to governmental, non-governmental, old media, and new media outlets determined to craft and control facts and narratives. It will complicate their mission, funding, and organizational web. Will they persist in their “mis/disinformation” framing and their badgering of old media and social media companies to moderate content aggressively? Or will they devise a new strategy? A.I. is pretty clearly the next frontier in the information wars. How will those who propagandize and rewire human minds attempt to program and prewire artificial ones?
How will Trump integrate RFK, Jr. and his movement? Will RFK, Jr. achieve real influence, especially on health issues? Big Pharma and Big Public Health will wage a holy war to block reforms in general and accountability for Covid mistakes in particular.
Trump has promised to end the war between Russia and Ukraine. On one hand, it should be easy. Despite what you hear from DC media and think tanks, Ukraine is losing badly. Hundreds of thousands are dead, and its military is depleted and faltering. Ukraine should want a deal quickly, before it loses yet more people and territory. Russia, meanwhile, always said it wants a deal, even before the war started, focusing on Ukrainian neutrality. Why Ukrainian neutrality should bother the US was always a mystery. And yet even critics of the West’s support for Ukraine, who want an agreement, think it will be difficult to achieve. The Western foreign policy establishment has invested too much credibility and emotion. It will charge “appeasement” and “betrayal” and make any deal difficult for Trump. Russia, meanwhile, has secured so much territory and now has Odessa and Kharkiv in its sights. Putin will not be eager to accept a deal he would have taken in 2021 or before. The far better path for all involved was a pre-war agreement, or the one negotiated but scuttled in April 2022.
What if A.I. launches a new productivity boom, enabled by an agenda of energy abundance, including a nuclear power revival? The economic tailwinds could remake politics even more than we currently see.
Can Trump, having run and won his last campaign, consolidate gains by reaching out and uniting the portions of the country willing to take an extended hand?

Republished from the author’s Substack

Author

Bret Swanson

Bret Swanson is president of the technology research firm Entropy Economics LLC, a nonresident senior fellow at the American Enterprise Institute, and writes the Infonomena Substack.

Brownstone Institute

They Are Scrubbing the Internet Right Now

Published on October 30, 2024

Todayville

From the Brownstone Institute

By Jeffrey A. Tucker, Debbie Lerman

For the first time in 30 years, we have gone a long swath of time – since October 8-10 – since this service has chronicled the life of the Internet in real time.

Instances of censorship are growing to the point of normalization. Despite ongoing litigation and more public attention, mainstream social media has been more ferocious in recent months than ever before. Podcasters know for sure what will be instantly deleted and debate among themselves over content in gray areas. Some like Brownstone have given up on YouTube in favor of Rumble, sacrificing vast audiences if only to see their content survive to see the light of day.

It’s not always about being censored or not. Today’s algorithms include a range of tools that affect searchability and findability. For example, the Joe Rogan interview with Donald Trump racked up an astonishing 34 million views before YouTube and Google tweaked their search engines to make it hard to discover, while even presiding over a technical malfunction that disabled viewing for many people. Faced with this, Rogan went to the platform X to post all three hours.

Navigating this thicket of censorship and quasi-censorship has become part of the business model of alternative media.

Those are just the headline cases. Beneath the headlines, there are technical events taking place that are fundamentally affecting the ability of any historian even to look back and tell what is happening. Incredibly, the service Archive.org which has been around since 1994 has stopped taking images of content on all platforms. For the first time in 30 years, we have gone a long swath of time – since October 8-10 – since this service has chronicled the life of the Internet in real time.

As of this writing, we have no way to verify content that has been posted for three weeks of October leading to the days of the most contentious and consequential election of our lifetimes. Crucially, this is not about partisanship or ideological discrimination. No websites on the Internet are being archived in ways that are available to users. In effect, the whole memory of our main information system is just a big black hole right now.

The trouble on Archive.org began on October 8, 2024, when the service was suddenly hit with a massive Denial of Service attack (DDOS) that not only took down the service but introduced a level of failure that nearly took it out completely. Working around the clock, Archive.org came back as a read-only service where it stands today. However, you can only read content that was posted before the attack. The service has yet to resume any public display of mirroring of any sites on the Internet.

In other words, the only source on the entire World Wide Web that mirrors content in real time has been disabled. For the first time since the invention of the web browser itself, researchers have been robbed of the ability to compare past with future content, an action that is a staple of researchers looking into government and corporate actions.

It was using this service, for example, that enabled Brownstone researchers to discover precisely what the CDC had said about Plexiglas, filtration systems, mail-in ballots, and rental moratoriums. That content was all later scrubbed off the live Internet, so accessing archive copies was the only way we could know and verify what was true. It was the same with the World Health Organization and its disparagement of natural immunity which was later changed. We were able to document the shifting definitions thanks only to this tool which is now disabled.

What this means is the following: Any website can post anything today and take it down tomorrow and leave no record of what they posted unless some user somewhere happened to take a screenshot. Even then there is no way to verify its authenticity. The standard approach to know who said what and when is now gone. That is to say that the whole Internet is already being censored in real time so that during these crucial weeks, when vast swaths of the public fully expect foul play, anyone in the information industry can get away with anything and not get caught.

We know what you are thinking. Surely this DDOS attack was not a coincidence. The time was just too perfect. And maybe that is right. We just do not know. Does Archive.org suspect something along those lines? Here is what they say:

Last week, along with a DDOS attack and exposure of patron email addresses and encrypted passwords, the Internet Archive’s website javascript was defaced, leading us to bring the site down to access and improve our security. The stored data of the Internet Archive is safe and we are working on resuming services safely. This new reality requires heightened attention to cyber security and we are responding. We apologize for the impact of these library services being unavailable.

Deep state? As with all these things, there is no way to know, but the effort to blast away the ability of the Internet to have a verified history fits neatly into the stakeholder model of information distribution that has clearly been prioritized on a global level. The Declaration of the Future of the Internet makes that very clear: the Internet should be “governed through the multi-stakeholder approach, whereby governments and relevant authorities partner with academics, civil society, the private sector, technical community and others.” All of these stakeholders benefit from the ability to act online without leaving a trace.

To be sure, a librarian at Archive.org has written that “While the Wayback Machine has been in read-only mode, web crawling and archiving have continued. Those materials will be available via the Wayback Machine as services are secured.”

When? We do not know. Before the election? In five years? There might be some technical reasons but it might seem that if web crawling is continuing behind the scenes, as the note suggests, that too could be available in read-only mode now. It is not.

Disturbingly, this erasure of Internet memory is happening in more than one place. For many years, Google offered a cached version of the link you were seeking just below the live version. They have plenty of server space to enable that now, but no: that service is now completely gone. In fact, the Google cache service officially ended just a week or two before the Archive.org crash, at the end of September 2024.

Thus the two available tools for searching cached pages on the Internet disappeared within weeks of each other and within weeks of the November 5th election.

Other disturbing trends are also turning Internet search results increasingly into AI-controlled lists of establishment-approved narratives. The web standard used to be for search result rankings to be governed by user behavior, links, citations, and so forth. These were more or less organic metrics, based on an aggregation of data indicating how useful a search result was to Internet users. Put very simply, the more people found a search result useful, the higher it would rank. Google now uses very different metrics to rank search results, including what it considers “trusted sources” and other opaque, subjective determinations.

Furthermore, the most widely used service that once ranked websites based on traffic is now gone. That service was called Alexa. The company that created it was independent. Then one day in 1999, it was bought by Amazon. That seemed encouraging because Amazon was well-heeled. The acquisition seemed to codify the tool that everyone was using as a kind of metric of status on the web. It was common back in the day to take note of an article somewhere on the web and then look it up on Alexa to see its reach. If it was important, one would take notice, but if it was not, no one particularly cared.

This is how an entire generation of web technicians functioned. The system worked as well as one could possibly expect.

Then, in 2014, years after acquiring the ranking service Alexa, Amazon did a strange thing. It released its home assistant (and surveillance device) with the same name. Suddenly, everyone had them in their homes and would find out anything by saying “Hey Alexa.” Something seemed strange about Amazon naming its new product after an unrelated business it had acquired years earlier. No doubt there was some confusion caused by the naming overlap.

Here’s what happened next. In 2022, Amazon actively took down the web ranking tool. It didn’t sell it. It didn’t raise the prices. It didn’t do anything with it. It suddenly made it go completely dark.

No one could figure out why. It was the industry standard, and suddenly it was gone. Not sold, just blasted away. No longer could anyone figure out the traffic-based website rankings of anything without paying very high prices for hard-to-use proprietary products.

All of these data points that might seem unrelated when considered individually, are actually part of a long trajectory that has shifted our information landscape into unrecognizable territory. The Covid events of 2020-2023, with massive global censorship and propaganda efforts, greatly accelerated these trends.

One wonders if anyone will remember what it was once like. The hacking and hobbling of Archive.org underscores the point: there will be no more memory.

As of this writing, fully three weeks of web content have not been archived. What we are missing and what has changed is anyone’s guess. And we have no idea when the service will come back. It is entirely possible that it will not come back, that the only real history to which we can take recourse will be pre-October 8, 2024, the date on which everything changed.

The Internet was founded to be free and democratic. It will require herculean efforts at this point to restore that vision, because something else is quickly replacing it.

Authors

Jeffrey A. Tucker

Jeffrey Tucker is Founder, Author, and President at Brownstone Institute. He is also Senior Economics Columnist for Epoch Times, author of 10 books, including Life After Lockdown, and many thousands of articles in the scholarly and popular press. He speaks widely on topics of economics, technology, social philosophy, and culture.