Valkyries of Despair
How the Chads' hopes for a better future lead us to ruin
In the 2008 crisis, we socialized the losses of a credit system that had coupled bad underwriting with weird incentives. The bad underwriting was done by a bunch of jacked up sales Chads that didn’t give two shits about who they were selling mortgages off to, since they didn’t hold them for all that long. No, they were paid to originate them and boy did they deliver.
Then handed them to someone who pooled them until there were enough of them to tie a bow around and structure into your standard mincemeat yield product, and that person then handed them upstream again. A beautiful capital pipeline ‘de-risked,’ essentially, by the decision not to hold the instrument that long. Each step of the pipeline clipped a little bit of the yield, banked those gains, and handed it to the next off-taker, promising that there was increased safety in diversification.
But then it all blew up.
A giant yawning hole in the economy opened; the kind that has its own sort of gravity. We looked into the heart of that abyss and saw the portents of destruction — millions of homeless, a credit system in collapse, decades of investor revulsion… and in our horror, we pledged our own futures to fill that hole with money.
And those who could see this devil’s bargain felt betrayed.
Out of the ashes of this betrayal rose bitcoin: a sort of monetary phoenix that was going to solve all of this forever. Bitcoin, you see, couldn’t be manipulated like that: it was designed to fix the frailties of human nature, machined out of the ether by unassailable automata who could never be subject to human will. These algorithmic sentinels were to protect us from the weakness of our own nature — a trope so structurally akin to The Fall of Man that it was surely destined from day one to kindle warm feelings in the more religious amongst us (and it surely did.)
But the wild Chads still roamed amongst us. We all have our gifts, and theirs is the gift of doe-eyed predation; a sort of innocent devil-may-care attitude coupled with a brazen ignorance of history that lets them engage in ethically bankrupt behavior clad in the armor of ignorance (“Ok Boomer,” “books are lame,” etc.).
Before long the swarming Chads found their way past the sentinels — engaging in the forgotten alchemy of Wildcat Banking and doing an end around the would-be safeguards to issue their own notes that could be traded for this new, holy specie. With this influx of funny money injected directly into the crypto ecosystem, the price of crypto skyrocketed. And for a time, the Chads thrived.
They handed out money on the street, testified in front of congress, and got the most illustrious investors in the world to commit capital to their schemes, lauding them as a new, special form of genius. Price attracts money, and so long as there’s a net influx of gold, the alchemist can claim she has turned lead into gold by credibly offering to exchange the former for the latter on demand.
But this breaks down when the alchemist’s bluff is called in sufficient size, as happened with the Alameda CEO recently after she offered to buy all of FTT (a ‘token’ which is the functional equivalent of a wildcat banknote) for $22 and got called down by 1) another wildcat bank, and 2) the market at large who wanted the promise of the actual money represented by that wildcat token.
Within the span of a couple days, the empire collapsed.
This is a bank run, friends. Stablecoins are liabilities, and carry with them the presumption of redemption for hard currency which is almost certainly a false promise.
It’s why we don’t have wildcat banks anymore, and it’s why we regulate banks in a number of different ways — the banking system’s regulatory framework has evolved over centuries just like all ‘sociocultural primes’ (language, money, governance, etc.) These are the very fabric of society, woven deeply into our human systems and one another. We may only edit them slowly.
Attempts to design them out of whole cloth will fail, and the earnest, doe-eyed belief that it can be done is always the mark of that most accidental of intra-species predators: the feral Chad.